Applied Digital Shifts Gears launches fund to buy mining machines

Applied Digital has left the cryptocurrency mining business, but it hasn’t gone that far. The company, formerly known as Applied Blockchain, is partnering with New Delhi-based GMR to create a fund that will acquire distressed mining equipment and digital infrastructure assets.
The fund, managed by a newly formed entity jointly owned by Applied and GMR called Highland Digital, aims to raise $100 million in outside capital to acquire and run distressed crypto equipment.

Applied Digital CEO Wes Cummings said that despite the recent “expansion” of its business to include non-cryptocurrency assets, the data center builder and operator is still investing in bitcoin mining equipment. The new fund will buy the equipment and place it in its data centers, where Highland Digital will operate the equipment and either sell bitcoins or “flip” the machines, depending on market conditions, he adds.

“The reason we’re in a really good position to do that is because we have the infrastructure to accommodate it,” he says. The company’s facilities are built for low-cost, processor-intensive operations using inexpensive energy purchased from nearby wind farms to increase profitability. “There’s no point in buying them if you can’t plug them in,” Cummings says.
The equipment initiative was announced as conditions in the industry deteriorated. Miners were already under pressure from the cryptocurrency’s steep drop in value this year, and the FTX crash indirectly made matters worse by pushing bitcoin to less than $16,000 today from about $20,000 earlier this month. Low operating costs are critical to profitability.

GMR, a current client of Applied Digital, owns a number of infrastructure companies, including airports and highways. In August, the company announced a center of excellence to bring blockchain technology to airports.
Applied distanced itself from the crypto-mining industry after shutting down its own mining operations in March, and shareholders overwhelmingly approved the name change, effectively supporting a new focus on data center operations instead of mining.

According to the company’s filing with the SEC, more than 49 million shares voted for the new name, with only 14,000 opposed and 7,000 abstaining at the company’s Nov. 10 annual meeting. Nearly 12 million shares held in brokerage accounts did not vote. This is the second new name for the company, which was called Applied Science Products until June 2021.

The latest filing also showed that Rattlesnake Den, Applied’s Texas subsidiary, this month took out a $15 million loan to build its data center in Garden City, Texas. About $4.6 million has already been paid. Interest on the unpaid principal is 6.15% and the loan matures in April 2028, but the company can repay all or part of the obligation early without any fees.

The 200-megawatt Garden City facility next to the wind farm will be used by bitcoin miner Marathon Digital, which will get 90 megawatts of power there, as well as 110 million at the Applied facility in North Dakota. Applied Digital’s Jamestown and Ellendale, North Dakota, centers are powered in part by power generated by nearby wind farms.

In July, Applied also took out a $15 million loan from Starion Bank to finance its expansion in Ellendale. That loan has an interest rate of 6.50 percent and is due in July 2027.

These loans with “traditional” rates, Cummings said, are key to his crypto assets and bitcoin recovery fund. “It looks a lot more traditional for real estate than the typical bitcoin miner,” he adds.
Applied Digital reported $6.9 million in hosting revenue in its first fiscal quarter, which ended Aug. 31, resulting in a net loss of $4.5 million as the company switched from mining. In an earnings filing with the SEC, Applied said it was investigating adopting a real estate investment trust format that would require it to pay the bulk of its profits in dividends to shareholders.