Applied Digital has left the cryptocurrency mining business, but it has not moved all that far away. The company, formerly known as Applied Blockchain, is partnering with New Delhi-based GMR to create a fund that will purchase distressed mining hardware and digital infrastructure assets.
The fund, managed by a newly created entity co-owned by Applied and GMR and called Highland Digital, aims to raise $100 million of outside capital to acquire and run distressed crypto hardware.
Despite the recent “broadening” of its businesses to include non-crypto assets, says Applied Digital CEO Wes Cummings, the data-center builder and operator is still investing in bitcoin-mining hardware. The new fund will buy the equipment and host it in its data centers, where Highland Digital will operate the gear and either sell bitcoin or “flip” the machines, depending on market conditions, he adds.
“The reason we’re in a really good position for that is because we have the infrastructure to host, ” he says. The company’s facilities are built for low-cost, processor-intensive operations, using inexpensive power purchased from nearby wind farms to boost profitability. “There’s no purpose in buying these if you can’t plug them in,” says Cummings.
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The equipment initiative was announced as industry conditions took a turn for the worse. Miners were already under pressure from the sharp decline in cryptocurrency values this year, and the collapse of FTX indirectly exacerbated the situation by pushing bitcoin to less than $16,000 today from about $20,000 early this month. Low operating expenses are crucial for profitability.
GMR, a current customer of Applied Digital, holds a number of infrastructure companies, including airport and highway ventures. In August, the company announced the creation of a center of excellence for bringing blockchain technology into airports.
Applied distanced itself from the crypto mining industry after shutting its own mining operations in March, and shareholders overwhelmingly approved its name change, effectively endorsing the new focus on running data centers instead of mining.
More than 49 million shares were voted in favor of the new name, with only 14,000 against and 7,000 abstentions at the company’s annual meeting on November 10, according to a company filing with the SEC. Almost 12 million shares held in brokerage accounts were not voted.This is the second new identity for the company, which until June 2021 was called Applied Science Products.
The latest filing also showed that Applied’s Texas subsidiary, Rattlesnake Den, took out a $15 million loan this month for construction at its data center in Garden City, Texas. Around $4.6 million has already been advanced. Interest on the unpaid principal is 6.15% and the loan matures in April 2028, but the company can prepay all or part of the obligation without any fees.
The 200-megawatt Garden City facility, co-located with a windfarm, will be used by bitcoin miner Marathon Digital, which will receive 90 megawatts of capacity there as well as 110 million at an Applied facility in North Dakota. Applied Digital centers in Jamestown and Ellendale, North Dakota, are partially powered by energy generated at surrounding wind farms.
Applied also took out a $15 million loan in July from Starion Bank to finance an expansion of its operation in Ellendale. That loan has an interest rate of 6.50% and matures in July 2027.
These loans with “traditional” rates, Cummings says, are the key to his crypto asset and bitcoin recovery fund. “It looks much more traditional to real estate versus just a standard bitcoin miner,” he adds.
Applied Digital posted $6.9 million of hosting revenue in its fiscal Q1, which ended August 31, resulting in a net loss of $4.5 million as it switched gears away from mining. Applied said in its earnings filing with the SEC that it is investigating adopting a real estate investment trust format, which would require it to pay out the bulk of its profit as dividends to equity holders.