Bitcoin Mining Deal Makers
Bitcoin Mining Deal Makers
[Inside a 120MW bitcoin mining deal in West Texas]
If you were able to attend the Miners Summit on June 15th-16th in College Station, TX you got a front seat to hear how large scale mining deals are put together in Texas. However, if you couldn’t attend, I’m going to break down one of the most impressive deals discussed at Miners Summit 2022 and layout a few lessons in deal making and strategic partnerships.
Deal Overview
Three companies partnered to develop a 120MW Bitcoin Mining operation in West Texas. This deal can be broken down into 4 main pillars: Land, Power, Infrastructure, and Capital.
Key Players Involved:
Land - Texas Pacific Land
Energy - Priority Power
Infrastructure - Mawson Infrastructure Group
Deal Maker - JAI Energy
Breakdown:
120 Mega Watts
4 separate sites within a 40-mile radius with 1 centralized operations center
4.0 Exahash of Bitcoin mining capacity
5 year lease with two options to extend to a total of 15 years
Projected completion date is the end of Q2 2022
Fully operational by Q4 2022
JAI Energy, Mawson, and TPL have a rev share agreement plus the opportunity to own equity in Luna Squares Texas [a subsidiary of Mawson]
Lesson 1: Strategic Partnerships in Land
Texas Pacific Land (TPL) was instrumental in this deal because of their land positions. TPL is the largest land owner in Texas with close to 900,000 acres of land.
Steal this Strategy: By partnering with TPL, JAI Energy was able to lock down the land and prevent anyone else from getting it. They then packaged up an attractive deal to make it a win-win-win for the land company, power provider, and the miner.
Something Smart to Consider: TPL allocating capital to a Bitcoin Mining operation sends a strong signal to Oil & Gas Companies. If a company like TPL can understand the economics of a good bitcoin development deal, O&G companies can too.
Bitcoin mining has been a difficult sell to O&G companies. Things are changing quickly so don’t overlook strategic partnerships with O&G companies on mining deals.
Personal Prediction: O&G companies may be the most well positioned companies right now to get into large scale mining. I predict a major industry shift over the next few years where energy companies dominate the Bitcoin Mining game.
Lesson 2: True Power Capacity
When searching for land to develop, one of the main things you are trying understand is - What is the true power capacity of that land?
To do this, you’ll need to work with a local power provider to figure out what the actual power capacity is at this location. [This is done before any land deal is made]
Something Smart to Consider: There are a lot of land promoters in Texas marketing land. Be very cautious of promoters saying they have access to large amounts of power capacity.
“Until you physically sign a Facilities Extension Agreement with the transmission provider and pay fees, only then have you locked down the true power capacity.” Ryan Nuckolls - Pumpjack Power
In order to put a land and power deal together for a large scale mining operation (5MW or more), you will also need a substantial amount of credit worthiness.
What is Credit Worthiness: As you pay your energy mining bill, you’re building credit worthiness through your power provider.
By the Numbers:
A 100MW site is about a 300 million dollar trade for the power provider. That’s a massive credit risk for the power provider if the people involved don’t have strong credit worthiness
For every 10MW’s you want to buy on the grid in Texas, you need to collateralize 1 million dollars
How do you collateralize? Get a line of credit, get a surety bond, or cash down
Remember This: Your Power Provider is basically a lender - they take the credit risk.
Lesson 3: Extreme Operational Efficiency
The barrier to entry into the large scale mining game is getting increasingly more difficult. However, If you have access to capital, this might be the opportunity of a lifetime over the next 6-12 months.
Because bear markets, like the one we’re in know, present once in a lifetime opportunities, ask yourself, “Can I operate extremely efficiently and position myself to weather this storm over the next 2 to 3 years?”
If so, work on building relationships and partnerships right now because you’ll need them to pull off a major development like this one in a bear market.
Something Smart to Consider: If you want to put together a deal like this, you have to do it in a way the mining partner can survive a downturn. Partner with someone who can help the miner make it through 4 cents a hash in the bad times not just 40 cents a hash in good times.
Behind the Scenes: JAI Energy Partners with Mawson Inc.
JAI Energy runs a 7MW site in Wyoming so they understand large scale mining development and operations. But, even with their experience they didn’t have the collateral needed for their substation contracts.
They targeted a public miner [Mawson], to help with credit and capital.
JAI felt confident in Mawson’s ability to run extremely efficient operations
Mawson had good relationships with transformer providers
Mawson had logistical issues and supply chain problems solved while others didn’t
[Key Takeaways]
Deal Makers:
- Figure out true power capacity before you make a land deal.
- Once power capacity is secured, go to land owner and negotiate terms and rates. A strategic partnership with a land owner could be advantageous here.
- Once land is locked, partner with an experienced infrastructure team
- What to look for in an infrastructure partner:
How much operational experience do they have?
Are they able to get operations up fast?
Can handle supply chain issues?
Do they have any strong relationships with other key parties in the industry? (like a transformer group)
Do they have experience scaling large operations?
Deal Breakers:
- Not having a true operational partnership. [Don’t get caught up in how much Bitcoin you can make. Partner with someone who is long term focused]
- Not understanding your under and over usage penalties from power providers. Usually you can go above or below 5-10% on your stipulated quantities.
- Not deploying your capital in an extremely strategic way. [Getting in at the top of the market and financing machines at high prices. You’re going to be in trouble when BTC decreases]
Conclusion:
Texas mining deals come down to strategic partners in land, power and infrastructure. Also, you need a substantial amount of credit worthiness, access to a lot of capital, you need to spend that money wisely, and run your mining operations as lean and mean as possible through each boom and bust cycle.
Ultimately, the amount of people who have put together deals over 5MW’s in the mining bitcoin mining industry is relatively small. So, hats off to Justin Ballard and JAI Energy, this was an impressive deal they put together and congratulations to all partners involved.
[Sources: Miners Summit Land & Energy Panel, Mawson, Simply WallSt]
Great post Steven! Thanks for the recap.