Disruptive blockchain technology and cryptocurrency have been one of the hottest sectors to date. It only makes sense for a company like Bullet Blockchain (OTCMKTS: BMIN) to forgo the privately held pathway full of obstacles and limited capital resources and enter the public domain where accelerated growth and financing options are more readily available. Bullet, based in the Republic of Ireland, announced on their website April 26, 2021, that for the past three months, management had been exploring opportunities to access the public markets through a possible merger with a U.S. based public company. Management also indicated that the company invested approximately $14.5M of the total Capex of $25M secured from its investors. Crypto companies have shown to be welcomed by the open-wallet investment community who are salivating for more options within this lucrative space. Then enters BMIN this past Thursday morning to the OTC, smiling and announcing the completion of their merger with Britannia Mining.
Breaking Down the MERGER
On Wednesday night, August 18, 2021, Britannia Mining filed an amended and restated plan of merger. According to the document, it states “WHEREAS. The Board of Directors of BMIN have determined that it is in the best interest of BMIN, to effect a one-for-ten (1-10) reverse split of the BMIN common stock so that it will have no more than 52,684,553 shares of common stock outstanding prior to the issuance of the Merger Consideration (as defined herein).“ This tells us that the OS (Outstanding Shares) now is about 526.84M before the split. Reverse splits are never seen as great by shareholders, but on occasion they can be essential to making a good deal get done.
Shareholders need to realize that Bullet Blockchain is that good deal as the announcement boasts Bullet has already demonstrated its ability to meet expectations-taking possession of 3,500 ASIC Miners to solidify its initial bitcoin mining operations-increasing its ‘year-one’ anticipated buildout capacity up to a 200 megawatt facility, for a hash rate capacity of 6,000 petahash. What does that exactly mean to possess 3,500 miners? We will compare and explain later in this article. So can we assume there will soon be 52.6M OS? The answer is NO, there is more in the merger agreement.
The agreement continues, “WHEREAS the respected Board of Directors of BMIN and Bullet have determined that it is advisable and in the best interests of each of such corporations that they merge pursuant to section 92A.205 of the Nevada General Corporation Law, under which BMIN would survive, and Bullet would become a wholly-owned subsidiary of BMIN with the holders of Bullet receiving 78,049 shares of Common Stock for each Ordinary Share of Bullet outstanding resulting in the issuance of an aggregate of 16,000,000 shares of BMIN Common Stock, including the issuance of an additional 204,000,000 shares of BMIN Common Stock to Bullet’s affiliates resulting in the issuance of an aggregate of 220,000,000 shares of BMIN Common Stock for the Merger.”
The affiliates at this time are UNKNOWN, but could be connected to the $25M of secured funding which allowed them to get the initial 3,500 ASIC mining rigs. If our calculations are correct, post-split BMIN should have an outstanding 272,684,553 shares — the 220,000,000 allotted for Bullet plus the 52,684,553 common shares for the old BMIN shareholders. With BMIN closing Friday at .017, post split of 10:1 would be $0.17/share and when multiplied by the new OS, we have an estimated market cap of $46.35 million. Shareholders wait for more announcements and timelines, especially in regards to when the split will go into effect. Now that we have been able to calculate a valuation, we will later compare Bullet to other public mining stocks to better gage whether they are undervalued, overvalued or the market has them already in line.
Why 10:1 Reverse? Did the DOGE Coin Phenomena Affect CEO’s Decision?
As mentioned in the merger agreement, the Company chose to only do a 10:1 reverse split versus a 200:1 and trade closer to the $4 mark, which many investors are aware is one of the commonly known qualifiers for uplisting to NASDAQ. This decision could mean a few possible scenarios.
First, maybe they wanted to keep the share price low to attract more retail investors who have the mindset of “I can get a boatload of shares for my money”. At Friday’s closing price of .017 and post split 0.17, an investor could essentially get 10,000 shares for $1700, while investing in a big board miner like RIOT or MARA, who trade at $34-35/share, so the same amount of money would only get about 20 shares.
DOGE coin and other MEME coin projects had created a trend, well known to cryptocurrency investors, where the rationale of buying lots of coins valued at pennies each versus fractional coins of well known bitcoin (nearly $50k/coin) or Ethereum ($3300/coin) has been trending. Much of this evolved when DOGE coins ran from sub-pennies to 0.74 on May 7th for 21,600% on the year. The dream of chasing these “unicorn-like” returns had investors buying cheap altcoins and the craze was born.
Next option, the company could be optimistically confident their share price will eventually reach dollars with only a 10-1 reverse, which would be very promising for shareholders. Companies of this size and potential in my opinion don’t go public on the OTC without a goal of using this trading market platform as a less expensive pathway to IPOing and ultimately reaching NASDAQ.
Last, the company just wanted to get US exposure to investment bankers and chose the easiest and fastest way to get trading. Share price was of no concern and the reverse was advised and accepted to simply get the merger deal done. Potentially let’s learn as we go and see what happens. Regardless, investors may be jumping in with hopes of larger returns due to a disparity in valuation compared to other publicly traded bitcoin mining companies.
UNDERVALUED in Comparison to its Crypto Mining Peers
As mentioned earlier, finding a valuation on the company was essential to be able to compare them to their industry peers so we can better assess whether or not BMIN is UNDERVALUED, Overvalued or the current price is about right. We decided to focus on the metric of market cap divided by the number of mining rigs. Our ultimate goal is to compare apples to apples but due to a limited number of OTC companies, we thought it would be interesting to size them up to their NASDAQ peers. Number of mining rigs was the most challenging metric to find, but thanks to google, press releases and company websites, we were able to find stats for our chart.
Out of 8 crypto mining companies charted, Hut 8 Mining (NASDAQ: HUT) had the closest market cap/rig ratio with $48.9K average compared to Bullet Blockchain’s $13.2K average. Even though HUT8 was the closest, who also hold 4,123+ Bitcoins, there is still a disparity of almost 370%.
Investview (OTCMKTS: INVU), although a fintech company, has a division led by SAFETek that mines crypto was next with a $53.8K per rig average. The company mentioned they plan on adding an additional 1200 miners which will grow their total to 10,000 soon. Another OTC company Integrated Ventures (OTCMKTS: INTV) was next with a valuation of $63.3k per rig, which according to their 10Q for the period ending March 31, 2021, the company had 761 mining rigs. INTV in our opinion was best to compare with BMIN, and with that said, Bullet has 3500 miner vs their 761 with a similar market cap, justifying a potential 500% share price increase to be valued properly with its industry equivalent.
Bitfarms (NASDAQ: BITF), Marathon and Riot, all billion dollar plus companies, are valued much higher as they should due to secured financing, bitcoin assets, and mining rig orders already in place. One other OTC company we charted, Xtra Bitcoin (OTCMKTS: CBTC) may only have 37 mining rigs and trade with an eye opening $11.16M market cap. This results in a brow-raising $301.6K per mining rig which is 22.77 times that of Bullet’s. At those rates and BMIN’s closing share price of 0.017, it equals over 0.38/share. Now, I don’t think BMIN should trade at those levels, but the above chart makes a strong argument for them to be properly valued and trading at the .063 (370% higher) to .085 (500% higher) pre-split pps range and be properly valued with their peers. The company does have 60,000 rig scalability and at this point will have to be reassessed versus its peers.
Bitcoin MINING Making Headlines
Bitcoin and crypto are becoming more and more “mainstream” everyday and the timing couldn’t be better for Bullet Blockchain to enter the public market.
Earlier this month, Fortune magazine’s Shawn wrote a piece on how “Bitcoin mining is suddenly one of the most profitable businesses on the planet”. The article mentions this summer’s sweeping clampdown in China that greatly swelled profits for miners outside of the world’s second-largest economy. Virtually overnight, the Chinese government authorities banished half the world’s competitors. The miners who never stopped producing in Quebec, Texas, Kazakhstan, and Malaysia were now harvesting a giant windfall due to less competition.
Mining rigs are just like money machines. Its owners buy the equipment, set it up, join a mining pool, plug it in and the machine runs 24/7 earning pool split profits for assisting with jobs. There are many rig variations due to the equipment used, but if an average mining rig could bring in $30 worth of crypto, whether it was ETH (ethereum) or BTC (bitcoin) and others… and the power consumption of the rig was $5/day then the machine profited $25/day. It’s not much, but when you scale out the amount of rigs or multiply that dollar amount by a week, a month or a year, it adds up. If one has 4 rigs earning $25/day, that’s equivalent to $100/day, $700/week, $3,000/month or $36,000/year. The argument is difficult to say its difficult when all one has to do is monitor that the machines continually run. These numbers are good as long as the price is stable, but what if the price goes up– then so doesn’t one’s profitability.
Even Twitter founder Jack Dorsey is “Trying Bitcoin Mining”. Dorsey said that he’s using a company named Compass Mining, who provide a service that not only hosts and operates but also supplies cryptocurrency mining machines for individual customers who prefer not to go through the trouble of building and maintaining their own mining computers themselves.
Last, just today, a mandatory SEC filing dated June 30, 2021 showed that Blackrock, the world’s largest asset manager with $9 trillion in assets, has taken significant stakes in two bitcoin miners, 6.71% in Marathon Digital Holdings (NASDAQ: MARA) and 6.61% in Riot Blockchain (NASDAQ: RIOT). The total capital commitment amounts to $382,962,003.08 million invested between both miners. The disclosure comes after Fidelity Group recently revealed that it had taken similarly large stakes in the bitcoin miners. Vanguard Group is currently the largest shareholder in Marathon Digital and Riot Blockchain with BlackRock leading behind after the disclosure of the recent filing.
With BMIN looking to aggressively expand its nearly 3,500 rigs to 60,000 within a year, the ability to find quality capital to finance new equipment should not be a challenge especially if Bitcoin continues in a near term bull market as signs of the coin breaking $50k again is imminent. This is significant due to the fact bitcoin was trading at $29k just a month ago.
Old school investors no longer can ignore what was once deemed a fad to the now reality of crypto becoming the successor to the world’s current fiat system. As bitcoin is gaining acceptance, no more than 1 in every 10 adults within the U.S. actually owns crypto. This has many cryptocurrency experts believing we are only in the 1st or 2nd inning of a 9 inning ballgame. As our news headlines revealed, bitcoin mining is a great sector to be in. Bullet Blockchain aka Britannia Mining is grossly undervalued versus their peers after breaking down the merger agreement and figuring out what the new post split share structure will look like. The company’s 3500 rigs is very respectable and launches them closer to an inevitable landing in the future trading on the NASDAQ based on their 60,000 rig scalability which they hope to reach within 12 months. If the industry decides to consolidate, BMIN will definitely be seen as a takeover target by the bigger fish RIOT, MARA or BITF especially if they seek an international presence due to their being internationally located in Ireland. We are very bullish on BMIN and see a conservative 500% gain potential short term as the investment community values them more evenly with their peers. For some, the STOP SIGN on OTCMarkets creates a hesitation with deadlines looming, but filings have already dropped and a current status shall not be far away. Lots of catalysts ahead, as we await current status, name change, ticker change, split and additional news in regards to company growth.
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Disclosure: Insider Financial and its owners do not have a position in the stocks posted and have posted this article for free without editorial input. This article was written by a guest contributor and solely reflects his opinions.