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Welcome back to the Blockspace Podcast presented by CleanSpark. Last week, CleanSpark announced its first ever AI deal, a $6.6 billion, 20-year triple net lease with an undisclosed tenant.

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For today's bonus episode, we welcome Harry Sudock, the Chief Business Officer at CleanSpark, to unpack this deal at Sandersville, their former Bitcoin mine now turned AI data center.

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During the interview, we also touch on what CleanSpark needs to do to secure an LOI into the execution phase for 885 megawatts in Texas for the same tenant.

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Plus, what their plans are for further AI development, either across their existing portfolio or hunting new sites for greenfield development. Hope you all enjoy. Stage. Harry, welcome to the show, man.

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Thank you for joining. Sup, nerds? Hey. [laughs] Good to see you. [laughs] Good to see you guys. Well, Harry,

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prior life we might be grilling you on ASIC orders and maybe even ask you to weigh in on strategy, but CleanSpark came out with a banner AI deal earlier, um, and-- or a, a month or so ago. Few... Or, or sorry, last week.

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Last week. We're good. Last week. I lose track of the timeline, man. I mean, there's so much news flying around.

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Can you give us a brief breakdown of the Sandersville lease, and specifically, um, how y'all got to this point? Like when was the groundwork laid? 'Cause this seems...

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I mean, y'all announced your pivot later than some of the other Bitcoin miners, and this deal seemed to come out pretty quick considering the, um, the, the pivot timeline. So give us a little background on this. Awesome.

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I'm, I'm happy to. Um, really proud that our first AI and HPC data center project's gonna be in Sandersville. Um, it's been a flagship mining location for us for close to four years, and so I think that

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there's just a lotta, a lotta poetic continuation for our business having that be the first one. Um, you know, let's talk high level about what the, what the transaction specifics look like. It's a 250-megawatt campus.

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We're gonna be turning that into 175 megawatts of critical IT compute. The headline number on the deal is six point six billion. What's really important is that it's a true triple net transaction, so there's a lot of,

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you know, complexity out there in the market. Like what do y- you know, does triple net really mean triple net? Like how do those margins and cash flows break down?

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This is true triple net, which means that we expect, you know, near 100% NOI margin on that six point six billion to 20-year transaction.

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So I think only one other one of those is in the market, and I believe we're the only one to be interacting directly with a high investment grade counterparty as the other side of the tenant relationship.

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Let's rewind the clock, talk back to, um, middle of last year. You know, we were not the first Bitcoin mining company powered land acquirer to say, "Let's go build HPC data centers."

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Um, you know, our friends at, at a number of different shops made that transition sooner than we did, and that was deliberate because we wanted to look at two key indicators in the market to validate the thesis.

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The first was, is there gonna be a durable demand profile for tokens that's gonna grow over time? I think everybody knows the answer. [laughs] The demand for, for AI tokens and intelligence tokens is, is ridiculous.

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Um, and then the second is, are the hyperscalers and the largest counterparties gonna be willing to do business with our sector? Um, part of that is a, a asset quality perspective.

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Like we don't own acreage in northern Virginia or in, you know, downtown Chicago or, or, you know, right in central Dallas. Like those are traditionally the hottest data center markets.

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And so are we going to see the largest technology companies take more of a geographically diverse demand viewpoint for their rack space? And both of those were proven true.

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We aggressively migrated the business to be ready for this capability and this type of transaction, and the list of customers isn't that long, and so we spent a ton of time engaging across all of them and, and ultimately landed at this transaction for Sandersville.

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Uh, Harry, I'm curious, one point with regards to the announcement is that the tenant itself was not named. This is a trend that's becoming increasingly common with a lot of the Bitcoin miners in the cohort.

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Hut 8, for instance, has, has demurred from talking about its own tenant at Beacon Point. What's the rationale behind that specifically?

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You know, look, I think it's from a, from a shareholder and an open market perspective, like it's not good for the news day and everybody wants to know exactly who it is.

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Um, but on the other hand, it's also just a huge positive because the, the close to the vest approach that these tenants are asking for is a signal of how aggressive demand really is.

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Um, even if, you know, you saw the, the progression with Cipher as an example.

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They came out with their, um, with their 70-megawatt lease with-- They didn't, they didn't even say which site it was at in the original announcement, and then ultimately through additional filings, especially around the financing, we got a lot more detail about that project.

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Um, but I think that the viewpoint on the other side of the table more broadly, you know, not, not just for, for our particular circumstance, but across the sector, is that even 60 or 90 days of anonymity is hugely beneficial in the data center strategies that these companies are rolling out.

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And so if you're in a market where 60 or 90 days is, is high value, then it means that demand is extreme and supply is constrained and, and I think we've seen a very similar behavior in the market.

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Yeah, and that makes sense to me. We, we asked Ash Garganew the same question.

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We had him on recently, and he said more or less what you just laid out, that the tenants are asking for this partly because it chips away at a competitive edge they have when they're negotiating for other deals.

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So, um, makes total sense to me. I just...

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It's very notable compared to the early days of these AI pivots where a tenant was in, like, every release, and then now it's becoming much more commonplace that tenants aren't announced at all, so.

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Charlie, you look like you were about to jump in there.

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Yeah, well, you know, Harry, you mentioned financing, and, uh, this again, it seems to me that the-- that is kind of where the meta has shifted in that creative financing deals.

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Uh, can you speak to, like, the, the broader trends in financing these sites overall, and any insight you can give us on specifically the Sandersville build and how, uh, we could think about that from a financing standpoint?

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Yeah, I mean, I think, look, the, the, the first thing to know [clears throat] is that the capital intensity for these projects is, you know, orders of magnitude more than a traditional Bitcoin mining build where you, you know, you were looking at maybe up to a half a million bucks a megawatt for infrastructure and then a couple million bucks for servers at the peaks.

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Um, this is a totally different ballgame.

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It's ten to twelve million dollars a megawatt for infrastructure alone, and then when you layer the chips on that, you know, the chips aren't part of our obligation for this project, but the value of those is gonna be, you know, three plus X, the infrastructure price tag.

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And so you're looking at, you know, billions and billions of dollars of assets sitting on, on these data center campuses.

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So the financing is interesting because while the capital intensity has gone up, the creditworthiness of the underwriting has also gotten a lot stronger.

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The way that these leases work, especially under a triple net structure, is that you're getting the best guarantee for cash flows, um, of anybody in the market.

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You know, the, the high investment grade counterparty that we're working with on this, you know, they fall into a short list of folks who have the true best of the best kind of credit ratings that are out there.

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And so it means that while traditionally, I think Bitcoin mining companies used a lot of ATM products to finance growth, then there was a big wave of convertibles to finance, you know, depreciating assets, basically.

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What we're seeing in the HPC data center landscape, and it's going to be a playbook that we're going to look to mirror, these are comments that, um, that Gary made, Gary Vecchiarelli, our CFO and president, who talks about this more eloquently than I do.

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Um, he, you know, you know, he loves it because it gives us the opportunity to use project-level debt financing.

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Oftentimes for our sector, that's looked like the high-yield market, but there are also examples of, you know, more investment-grade kind of construction real estate credit product.

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But what's important is that these, these financings sit at the project level.

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They don't sit at the parent level, and they're collateralized against the project, the power contract, the hard assets that sit there, as well as the lease value and economics in the data center that the money ultimately gets used to fund.

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And so the collateral package is incredibly high quality.

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The counterparty who sits on the other side of the lease in our case is incredibly high quality, and that lets us unlock this lower cost of capital, even in the event that we're going down this more capital-intense road.

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It's very, very accretive to shareholders. It's protective of share count and dilution over time, and it lets you scale the business without needing to scale the equity base.

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So if I'm, I'm hearing that correctly, I'm not putting wo- not trying to put words in your mouth, but, uh, looking at potentially some project-level financing, something secured, uh, not putting the whole parent company at risk in something that is unsecured further up the stack.

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And that's representative of where the sector is, right? Like we, we have the benefit in, in our view of this second-mover advantage. You know, you called us late to the party, but we said fashionably late.

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Um, and so- [laughs]... ultimately, other people have done an incredible job building their businesses down this, this road.

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And so what we have the opportunity to do is, you know, we had this opportunity in the lease negotiation process, is to kind of pick off the menu of the things that we thought were the most attractive and accretive.

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And then we're going to have the same opportunity on the financing side to say, "Hey, there's 20 deals in the market. We loved these features.

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We didn't love those features, and we're going to be able to pick and choose a little bit to arrive at what ultimately we think is most accretive from our viewpoint."

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I'd like to ask you something, uh, for kind of a blunt take and a blunt question for the sector as a whole. Blunt person. Uh, [laughs]

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I'm curious if you think that the true thing separating the serious operators at this point from the Bitcoin miner pivots to AI is this financing piece where unless you can actually get investment-grade credit for a project,

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I, I struggle to see how you're going to be able to procure enough to actually pay for some of these builds.

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And I won't name names specifically, but there have been a few names in the usual cohort where they have pretty grand plans, and they do have tenants that they've signed up, but they're not approaching project-level financing, or they don't have investment-grade backing.

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And so we're seeing things like equity issuance. Uh, we're seeing things like converts.

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Um, the debt stack is not maturing to the extent that I think that you would hope to see seeing a Bitcoin miner going to an AI pivot.

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All of that's kind of a long-winded way of asking, uh, to-- in your mind, is the investment-grade credit piece kind of a make or break for whether or not these companies can really move into this industry at scale? Um,

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it's a hard question because I think, like, number one, equity financing and convertible financing, like, those aren't dirty words.

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Those are great tools that get used- Sometimes incredibly effectively, sometimes less effectively is what we've seen, you know, in our market, but, but even more broadly than that.

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So I think that the, the key is are you marrying the right source of capital to the right business activity? Um, in our view for the data center build piece of things, project-level financing, debt financing,

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it just, it just creates the best return profile, you know, for our business as we scale in this kind of way.

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Um, but I think that those other types of capital formation opportunities like have a time and a place depending on your business and, and depending on your growth story.

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'Cause at the end of the day, when you look at our, our portfolio and our asset mix, you know, we've got Sandersville now off the table and leased.

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We've got eighty-eight hundred and eighty-five megawatts of power in Texas that's under LOI with the same counterparty. We've got some other sites that have some AI applicability, but when you look at our...

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You know, if we've got a two point one gigawatt portfolio, and we've got one point one five gigawatts either leased or under LOI, and we've got a segment of those remaining megawatts that are still gonna be used for mining or maybe they're not big enough or in the right markets for an AI use case, we wanna be hunting land and power, and we spend a lot of time investing in our pipeline.

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And so when we think about site power and growth acquisition, we're not thinking about project-level debt to do that. We've got a balance sheet we're able to use to do that.

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We've got Bitcoin-backed collateralized, um, revolvers that we can use to do that, and we've got all the different types of market activities.

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So to, to parrot Gary again, you know, he would say op- we have optionality, um, which I totally agree with.

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And what's important, the way that we think about it, is that can we put incredibly high quality counterparts at our projects because that unlocks the debt component for us, and then can we continue to rinse and repeat the powered land acquisition thesis that has pow- that has gotten us to where we are today?

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And, and I think we've been, we've been tremendously successful, and I think we've added a gigawatt since the, you know, just this, this, um, most recent fiscal year.

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So we have a, we have a growth engine there, but, but really running a business that's as capital intensive as the HPC data center business is, it's about understanding all of your different funding levers and then all of your different business application layers and marrying the right sources to the right uses up and down the stack.

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So that's a long way of saying basically there's a time and a place for lots of different things.

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Internally, we've got a very clear-eyed view about the type of tenant quality that's important to us because of what it does for the financing and what it does from a, a confidence in the longevity of the cash flows.

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'Cause the other thing that I think is, is not talked about maybe enough is that it's not j- just about getting these projects financed.

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It's also about being able to have sufficient confidence that they are going to pay the, the lease bill every one of those years all the way out for two decades from now.

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And so when we went through our, I don't know, I wouldn't call it speed dating 'cause it's not quite that quick, but, but ultimately, you know, when we went through the exercise of, of match finding for our portfolio, having a viewpoint on the financing was, was top of mind, but just underneath that was making sure that the counterparty was one that's gonna thrive for decades into the brave new world and be able to fulfill the entire duration of the lease term.

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Matchmaking for data centers, triple net is the new six-foot-five, six figures. Um, you, you mentioned- Who has finance. [laughs] Gary, y- you mentioned the, the eight hundred plus megawatts in Texas.

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That actually leads well into one of my final questions. We got a few more, and then we'll get you out of here. It's kind of a two-part here.

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KBW Steven Gladゴール argued that the Texas LOI exclusivity was more significant than the Sandersville site itself, and I think his reading on that is most people expected the Sandersville announcement. It's...

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It, it was... If you were reading through the tea leaves, you could see it coming.

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But the Texas expansion could, could be massive in, in the, in the sense that it's, you know, triple what the Sandersville lease would be on a gross megawatt basis. First question, do you agree with that?

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Second question, what specifically needs to be done and what milestones need to be met in order to get that LOI to be actually executed on?

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Um, I'll never say anything is bigger than the name at the bottom of the paper on a definitive lease agreement just because the amount of work that it takes our internal team to go through that exercise, the rigor, the technical expertise, all, all of that, the, the work product that they brought to bear to get that over the line is just unbelievable.

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Um, and so on, on behalf of their hard work, I'll never say anything's bigger than, than the definitive agreement. Um, I think from a scalability perspective of our portfolio, I agree.

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You know, I think that it, it was important to us, um, to demonstrate that this is... You know, CleanSpark is not a, a project-based company.

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It's a scalable platform that we're building on, and, and when we think about our core competency, it's about the ability to acquire and mature powered land assets into HPC-ready campuses, and then it's about the financial and technical acumen around that to convert those campuses into commercialized assets and then built assets and then cash flowing assets.

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Um, and so, you know, I think that when we went through the process, getting, you know, getting zero to one is the hardest part in anything, right? Any business, that first dollar of revenue is the hardest.

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That first megawatt of leasing is the hardest, you know, always.

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Um, and then as you get into a more repeatable cycle, you're able to refine your process and enhance You know, what you're able to achieve, whether that's value or speed or quality, you know, all the different metrics that, that we're gonna be assessing our portfolio on, on a regular basis.

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Um, and so getting into that repeatability position was critically important to us because we wanna move quickly and take full advantage of the second mover advantage that we think we have. Um,

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so I think that, you know... L- and, and listen, Steven is incredibly sharp, and I think from the market's viewpoint, um, I think that he's probably right.

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I think we came, came with a bigger, you know, a bigger push out of the gate than, than would've n- potentially been anticipated.

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But the other thing that's really important to us is that we wanna be able to give the market a tremendous amount of confidence that when we go out and we secure an additional powered land asset, we're gonna be moving through the commercialization process rapidly because speed is king in all things.

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Um, and so we want to move with discipline and deliberate approach, but also on a very, very aggressive and accelerated timeframe. Charlie, did you have something?

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'Cause I, I have a closer unless you've got something else. I got... Well, I got one more kind of cur- I got a curveball for him, and I'll let you close. Um, okay.

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So Harry, I don't know if you saw OpenAI announce that they're doing 3.2 gigawatts in Georgia. And CleanSpark has, I believe, over half a gigawatt in Georgia. It's kind of like a stronghold of your mining operations.

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And they're doing it off Georgia Power. And I'm a little bit curious, can you give me any insight to what's going on in, with Georgia Power? Do you think that utility can scale to service 3.2 gigawatts?

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And like what needs to happen for that, uh, for OpenAI to actually realize that scale of a site in Georgia? Um, look, I mean, I think that from a, from a utility system perspective,

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Georgia functions a little bit differently in that it doesn't necessarily run all of its own gen.

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While they do distribution, transmission and distribution, they can also use the open market to fill their wires on a more kind of liquid grid to grid basis.

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Um, and so the way the RFP process works and the bidding process works to secure long-term capacity doesn't necessarily mean they have to have that gen on their system.

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But it does mean that they need to have the import capabilities cross systems to be able to achieve that kind of scale. So I, I, look, I don't... I think it's possible. I think it's achievable.

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I think the, the tougher part is gonna be around the actual delivery of, of the power into the data center over what kind of timescale. Um, but this is... You know, we saw this in,

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in Bitcoin mining, um, many years ago, which is that when you bring a demand profile that the market has never seen before to an existing behavior, but the economies of scale get unlocked for the first time, the levels of innovation that are able to be achieved on a rapid basis are incredible.

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You know, I, I think about...

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I'm, listen, I'm a, I'm a left curve guy, so when we look at like the PSUs, the power supply units that, [clears throat] that the ASICs ran against, if you go to the airport and you know all the outlets that sit on the, the, you know, terminal seating areas.

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The PSU that runs those outlets is basically the same size and, and wattage, et cetera, that a Bitcoin miner is running against.

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If you buy them in the airport, they're like $600 when you're building the airport 'cause there's all this red tape and you gotta do it and bid it out and competitive and there's state involvement and whatever. Um,

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those don't cost $600 when you put them on a Bitcoin mining rig anymore. They cost, you know, $170, maybe $70, and just keep scaling down.

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But that's just because if you're gonna build a whole airport, maybe you're gonna buy 1,000 of them. If you're gonna build a Bitcoin mine, you might be buying 100,000 of them.

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And so the supply chain got brought, um, into focus with a wave of demand that was for a component that already existed, but it had never existed at that type of concentrated scale.

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And so I think we're seeing a similar behavior with the way that AI and HPC data centers are working is that data centers are, have been in demand for 30 years.

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But they've never been in demand at a gigawatt or 3.2 gigawatts at a single location and able to realize full economic value in that way. And so what about the supply chain? What about the construction process?

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Can we reimagine because we've got an order for a million units, not 1,000 units? Um, those types of dynamics I think haven't been broadly understood or digested yet. Um, but I think it's where we're headed.

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I think that, you know, the, the growth and proliferation of this industry is gonna, is gonna be relentless. Uh, last question, Harry.

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In terms of charting expansion, sorry, not gonna give y'all a chance to rest on your laurels, as I know y'all wouldn't anyway. So Texas obviously on the docket if that LOI gets executed.

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Where else is CleanSpark looking at expansion? Would you look in Mississippi or, or Georgia or Tennessee for your current sites? I know some of those are smaller.

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I believe all of them are smaller than the Sandersville site. I'm wondering if there are opportunities there or if you'll look to Greenfield similarly to what y'all are doing in Texas going forward. Yes and.

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[laughs] Love it. We're looking, we're looking at, we're looking at the existing portfolio. We've got a, you know, double-digit gigawatt evaluation and growth portfolio that we look at.

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Um, from a pipeline perspective, we're pretty conservative about what we put in our this is ours and we are going to point your focus to it. We think it's an incredible asset, and we have certainty.

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Once we sign a c- a power contract with certainty of, of delivery, that's when we talk about it as part of that expanding 2.1 gigawatts of contracted power.

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But there's a huge piece of pipeline that sits out beyond that, that frankly we don't talk about often because we wanna give the market sure things. And

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it means that we're saying no to more than we say yes to by a wide margin because not every project is mature enough or living on the timeline it needs to or in the right jurisdiction where we're gonna have the type of community tailwinds that we've enjoyed in Sandersville.

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So we're looking all over the US. We've seen some interesting stuff outside of the US, but we're focused here to begin with because we think there's just so much fertile, you know, room to grow. Um,

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but I think that it's, you know, it's a lot of the same kind of story around here. There's va- you know, there's valuable growth in Georgia still. There's valuable growth in MISO.

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There's growth, you know, to be had in ERCOT once some of their permit, you know, their approval process shakes loose a little bit later this summer. Um, there's behind-the-meter opportunity.

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There i- you know, all this, this wide range of electrons moving into their highest value form. That story is in the early innings, uh, right now.

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And so we're just, we're excited to look at new projects and, and kind of put them through our internal process and add to that 2.1 as quickly as possible. Well, Harry, thank you so much for joining, man.

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We'll have to get you all back on later in the year once that LOI is signed. Not using if, using when. I know you can't. [laughs] But I'm gonna put- I would ne- I would never dream of coming out there-...

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put positivity out there that you- But I look, I look forward to coming back. [laughs] Harry, thank you so much, man. Have a great week. Awesome. Thanks, gentlemen.

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