CleanSpark, a prominent player in the Bitcoin mining industry, has secured a significant $1.15 billion in zero-coupon convertible bonds to bolster its operations and stay competitive in the increasingly challenging mining landscape. This strategic move is a testament to the company’s determination to thrive in a market where only the most efficient miners can survive.
The deal, set to mature in 2032, features an initial conversion price of approximately $19.16, representing a 27.5% premium to the share price at the time of the announcement. Notably, about $460 million will be allocated towards repurchasing CleanSpark shares from bond buyers, while the remaining amount will be utilized to expand the company’s power and real estate portfolio, develop data center infrastructure, including AI and high-performance computing capacity, and repay Bitcoin-backed credit lines.
Understanding the Zero-Coupon Convertible Bond
A zero-coupon convertible bond of this magnitude suggests that credit investors are more comfortable receiving payment in optional shares rather than cash interest. This implies a level of confidence in CleanSpark’s ability to remain solvent despite the numerous challenges and price cycles inherent in the Bitcoin mining industry. The structure of this bond offers a cost of capital advantage compared to smaller miners, which often rely on expensive equity dilution or high-interest debt with double-digit coupons.
However, this approach carries inherent risks, as it represents a leveraged bet on both the Bitcoin price and CleanSpark’s stock performance. If the company’s execution stalls or Bitcoin underperforms, conversions could become a delayed dilution bomb, potentially impacting existing shareholders. The share buyback further complicates the picture, as CleanSpark is using $460 million in borrowed money to repurchase its own shares from the same investors who bought the notes, signaling to management that the equity is undervalued.
Capital Expenditure and Scaling
New generation mining rigs and associated infrastructure typically come with a hefty price tag, ranging between $6 and $10 million per exahash per second of capacity. If CleanSpark were to invest the additional capital into mining, it could potentially fund 70 to 110 exahashes of additional capacity, solidifying its position as a top hashrate player. However, a significant portion of the funds will also be directed towards power plant sites and AI or HPC expansions, reflecting the company’s strategic shift towards a broader infrastructure play.
CleanSpark ended its fiscal second quarter with approximately 42.4 exahashes per second and had set a goal to exceed 50 exahashes by 2025, representing about 4.9% of the global hash rate at current levels. The increase enables the company to progress further, but it also highlights the “treadmill” problem, where the network hashrate continues to increase, the difficulty adjusts upwards, and each exahash generates fewer Bitcoins over time, necessitating constant reinvestment to maintain revenue per unit capacity.
Margin Stacking After Halving
CleanSpark’s second-quarter financial results showed a 62.5% year-over-year increase in revenue to $181.7 million, but a net loss of $138.8 million and negative adjusted EBITDA. The company’s mining costs were around $42,700 per Bitcoin, placing them at the efficient end of the curve. At a Bitcoin price of around $103,000, this translates to a gross mining margin of approximately 55% to 60% before selling, general, and administrative costs, interest, hosting, and other overhead costs.
Energy costs alone accounted for 46% of Bitcoin’s revenue in the second quarter, underscoring the post-halving reality where block subsidy has been halved, network hashrate is at all-time highs, and hash price is compressed to levels that squeeze all but the most efficient operators. Only miners with cheap, stable energy, sensible size, and access to low or zero coupon capital can achieve positive margins after fixed costs.
AI Side Quests: Diversification or Narrative Sugar?
CleanSpark’s use of proceeds explicitly includes “data center infrastructure” and AI or HPC capacity, reflecting a broader industry trend. The market has become skeptical of “AI pivot” slides without signed contracts and transparent unit economics. The framework for assessing whether this is true diversification depends on the sales structure, with contractual, dollar-denominated, multi-year contracts that reduce revenue risk being the ideal scenario.
AI and HPC hosting can generate stable, predictable revenue when appropriately commissioned. However, these dollars are in direct competition with the incremental Bitcoins mined per megawatt, as well as the optional value of holding self-mined Bitcoins in the treasury. Every dollar CleanSpark spends on building AI capabilities is a dollar not invested in hashpower, and the return profile is fundamentally different, with Bitcoin mining providing leverage on the rise in Bitcoin price and AI hosting offering user-like earnings with lower volatility but less upside potential.
Separating Narrative and Cash Flow
The pro forma capital stack now includes approximately $640 million in existing debt, plus $1.15 billion in new convertible notes against equity, and a Bitcoin treasury worth approximately $1.25 billion at $103,000 per Bitcoin. No short-term interest expense will help margins, but equity overhang looms if CleanSpark trades well above the conversion price of $19.16.
The return on invested capital takes place in two scenarios: the bull case relies on Bitcoin staying at or above $100,000, the hash price stabilizing, and the additional exahashes combined with cheap zero percent notes creating strong leverage on free cash flow. The bear case, however, means that Bitcoin will decline or the hash price will continue to decline as more hash rate comes online, new capacity generates less, and dilution risk arises with weaker equity.
For more information, visit https://cryptoslate.com/cleanspark-borrows-1-15b-at-0-to-survive-the-brutal-bitcoin-mining-shakeout/
