Cleanspark Executive explains AI pivot & Texas expansion

What's up, nerds?

We're good.

Awesome. I'm happy to really proud that our first AI HPC data center project's going to be in Sandersville. It's been a flagship mining location for us for close to 4 years. And so, I think that there's just a lot of poetic continuation for our business having that be the first one. Let's talk high-level about what the transaction specifics look like. It's 250-MW campus. We're going to be turning that into 175-MW of critical IT compute. The headline number on the deal is 6.6 billion. What's really important is that it's a true triple net transaction. So, there's a lot of complexity out there in the market. Like, what do you know, does triple net really mean triple net? Like, how do those margins and cash flows break down? This is true triple net, which means that we expect near 100% NOI margin on that 6.6 billion. It's a 20-year transaction. So, I think only one other one of those is in the market and I believe we're the only one to be interacting directly with a high investment grade counterparty as the other side of the tenant relationship. Let's rewind the clock. Talk back to middle of last year. You know, we're not the first Bitcoin mining company powered land acquirer to say, "Let's go build HPC data centers." our friends at a number of different shops made that transition sooner than we did. And that was deliberate because we wanted to look at two key indicators in the market to validate the thesis. The first was, is there going to be a durable demand profile for tokens that's going to grow over time? I think everybody knows the answer. The demand for AI tokens and intelligence tokens is ridiculous. And then the second is, are the hyperscalers and the largest counterparties going to be willing to do business with our sector? Part of that is an asset quality perspective. Like, we don't own acreage in Northern Virginia or in downtown Chicago or right in Central Dallas. Like, those are traditionally the hottest data center markets and so, are we going to see the largest technology companies take more of a geographically diverse demand viewpoint for their rack space? And both of those were proven true. We aggressively migrated the business to be ready for this capability and this type of transaction and the list of customers isn't that long and so we spent a ton of time engaging across all of them and ultimately landed at this transaction for Sandersville.

Look, I think it's from a shareholder in an open market perspective, like it's not good for the news day and everybody wants to know exactly who it is. But on the other hand, it's also just a huge positive because the close to the vest approach that these tenants are asking for is a signal of how aggressive demand really is. Even if you saw the progression with Cipher as an example, they came out with their 70 MW lease with they didn't even say which site it was at in the original announcement. And then ultimately through additional filings, especially around the financing, we got a lot more detail about that project. But I think that the viewpoint on the other side of the table more broadly, not just for our particular circumstance, but across the sector is that even 60 or 90 days of anonymity is hugely beneficial in the data center strategies that these companies are rolling out. And so if you're in a market where 60 or 90 days is high value, then it means that demand is extreme and supply is constrained and I think we've seen a very similar behavior in the market.

Yeah, I mean, I think look, the first thing to know is that the capital intensity for these projects is orders of magnitude more than a traditional Bitcoin mining build where you were looking at maybe up to half a million bucks a megawatt for infrastructure and then a couple million bucks for servers at the peaks. This is a totally different ballgame. It's 10 to 12 million dollars a megawatt for infrastructure alone and then when you layer the chips on that, the chips aren't part of our obligation for this project, but the value of those is going to be three plus X the infrastructure price tag. And so, you're looking at billions and billions of dollars of assets sitting on these data center campuses. So, the financing is interesting because while the capital intensity has gone up, the creditworthiness of the underwriting has also gotten a lot stronger. The way that these leases work, especially under a triple net structure, is that you're getting the best guarantee for cash flows of anybody in the market. The high investment grade counterparty that we're working with on this falls into a short list of folks who have the true best of the best kind of credit ratings that are out there. And so, it means that while traditionally I think Bitcoin mining companies used a lot of ATM products to finance growth, then there was a big wave of convertibles to finance depreciating assets basically. What we're seeing in the HPC data center landscape and it's going to be a playbook that we're going to look to mirror. These are comments that Gary made. Gary Vecchiarelli, our CFO and president, who talks about this more eloquently than I do. He loves it because it gives us the opportunity to use project level debt financing. Often times for our sector that's looked like the high yield market. But there are also examples of more investment grade kind of construction real estate credit products. But what's important is that these financing sit at the project level. They don't sit at the parent level and they're collateralized against the project, the power contract, the hard assets that sit there as well as the lease value and economics in the data center that the money ultimately gets used to fund. And so the collateral package is incredibly high quality. The counterparty who sits on the other side of the lease in our case is incredibly high quality. And that lets us unlock this lower cost of capital even in the event that we're going down this more capital intense road. It's very accretive to shareholders. It's protective of share count and dilution over time. It lets you scale the business without needing to scale the equity base.

And that's representative where the sector is, right? Like we have the benefit in our view of this second mover advantage. You called us late to the party, but we said fashionably late. And so ultimately other people have done an incredible job building their businesses down this road. And so, what we have the opportunity to do is we have this opportunity in the lease negotiation process to kind of pick off the menu of the things that we thought were the most attractive and accretive. And then we're going to have the same opportunity on the financing side to say, "Hey, there's 20 deals in the market. We loved these features. We didn't love those features. And we're going to be able to pick and choose a little bit to arrive at what ultimately we think is most accretive from our viewpoint."

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