Shares in Core Scientific (NASDAQ:CORZ), a Bitcoin (BTC-USD) miner that is threatened with bankruptcy, jumped on the possibility of a lifeline. B. Riley Financial, which says it is owed $42 million, issued an open letter to shareholders saying bankruptcy is not the answer to Core’s problems. It suggests the company’s trajectory could be corrected by a change in strategy.
The letter sent Core stock up 70% on Dec. 14, and another 40% overnight. This still left Core with a market capitalization of less than $100 million. Shares were changing hands at 35 cents when the market opened today. In November of 2021, they were trading at $14.30.
My Lender Wrote Me a Letter
The B. Riley letter offered $72 million of “non-cash” financing, enough to keep Core running for two years.
Instead of selling its Bitcoin at a loss, the letter said, the miner should keep operating. B. Riley’s analyst thinks this could generate $140 million in EBITDA. Completing a planned mining facility in Denton, Texas would add another $25 million to that. The company’s main operation is in far western North Carolina.
But there’s a hitch. If the price of Bitcoin remains below $18,500, principal payments to equipment lenders would be suspended until it hits that figure. Bitcoin was trading Dec. 15 at about $17,500. While crypto journals highlighted the $72 million figure, only $40 million comes without contingencies.
Core ended October with just $32 million in cash and Bitcoin it valued at $975,000. It faces a lawsuit over failures to disclose disputes with clients.
Core claims to be the world’s largest publicly-traded miner by computing power. Rival Compute North filed for bankruptcy in September. Other miners have defaulted on loans or admitted to being strapped for cash.
What Happens Next for CORZ Stock
Investors may be throwing away good money after buying CORZ stock. The plans of B. Riley depend on a major recovery in Bitcoin’s price. This may be a false hope given the state of the industry.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
