Vancouver firm banking on big-time Bitcoin bonanza

Hut 8 raises $38 million to launch cryptocurrency mining operations in Alberta

A journey through Drumheller, Alberta, a community known for its dinosaur museum, has the potential to unearth fossils from the Prairie province’s badlands.

But why stop at dinos if cheap land and electricity have the potential to unearth cryptocurrencies?

A Vancouver-based firm is raising substantial capital to turn the small town 90 minutes northeast of Calgary into one of North America’s largest cryptocurrency mining operations.

“Electricity is 90% of the cost to mine Bitcoin. Now when you can get cheap electricity you become more profitable,” said Sean Clark, co-founder and interim CEO of Hut 8 Mining Corp.

He said the price of electricity at the Alberta facility, which is tied to the price of natural gas, was too “compelling” to pass up.

Capital is pouring in for its cryptocurrency mining centre, which will be operated by Bitfury Holding BV, a Dutch company that dominates the manufacturing of specialized chips that “mine” for Bitcoin.

Mining in this sense refers to sophisticated computer programs and equipment that can unlock the limited supply of Bitcoin by solving complex problems, adding the cryptocurrency to the digital ledger known as blockchain.

Hut 8 announced in January it closed a $38 million private placement offering with plans for a second round of financing to raise $70 million.

The Bitcoin mining farm includes 57 mobile data centres, each about the size of a large cargo container, that would be set up on land leased in Drumheller.

Clark said Hut 8 has hired about 50 people to work at the site.

Meanwhile, the B.C. company is pursuing a reverse takeover of a capital pool company, Oriana Resources Corp., which is traded on a separate board of the TSX Venture Exchange reserved for companies that have fallen below the TSX Venture’s listing standards. The reverse takeover allows Hut 8 to go public.

A master services agreement with Bitfury means the Dutch company would maintain the Bitcoin mining operations in Drumheller.

“Hut 8 was formed in order to take Bitfury public. And Bitfury is a private company, $350 million in revenue. They’re going to jump to basically $1 billion in revenue this year,” Clark said. “Think of [Hut 8] as the capital market division of Bitfury.”

The deal with Hut 8 allows the European company to sidestep the regulatory hurdles involved with going public as well as concerns that filing a prospectus could reveal proprietary information it does not want made public.

And although he’s been named Hut 8’s interim CEO, Clark will not be running the company.

“I’m only here to set it up and put in an executive team,” he said.

Instead, Clark, who co-founded before it went bankrupt last year, said his top priorities will be two of his other ventures: First Block Capital and First Coin Capital.

Both companies specialize in cryptocurrencies.

Vancouver lawyer Christine Duhaime, founder of the Digital Finance Institute think tank, said she has not been following Hut 8’s plans, but she’s been urging retail investors to perform their due diligence for all investments in the wake of growing interest in cryptocurrencies.

“The public needs to be extra vigilant about blockchain companies coming out of nowhere, especially because there’s been so much hype,” she said.

“They need to be extra vigilant about who is behind those companies, their background, their expertise.”

Last year, 11 publicly traded companies incorporated in Vancouver – more than in any other city in Canada – either launched or changed their names to reflect blockchain-adjacent activities, according to documents filed on Sedar, the national securities database.

“I’m really afraid some of these end up being pump-and-dumps,” Duhaime said. “That’s the Vancouver special model.”

B.C. regulators declined to comment on the specific deal involving Hut 8.

In an emailed statement to Business in Vancouver, the BC Securities Commission (BCSC) said it recommends investors “do their due diligence before making a decision.”

“While it is difficult to generalize as to what is typical or otherwise unusual in strategies used by companies to access the public markets, we do recognize that reverse takeovers are part of the path to becoming listed in Canada,” the BCSC said.