The world's largest bitcoin miner, Core Scientific (CORZ), warned that it may have to explore bankruptcy if it fails to improve its financial condition. The warning sent its shares down 77% to as low as 23 U.S. cents.
The miner said it anticipates existing cash resources will be depleted by the end of the year, possibly sooner.
"Substantial doubt exists about the company’s ability to continue as a going concern for a reasonable period of time," it said in a filing Thursday.
The miner is exploring a number of strategic alternatives for raising additional capital. It has hire engaged Weil, Gotshal & Manges LLP as legal advisers and PJT Partners LP as financial advisers.
Should the capital raise alternatives fail, the firm may have to file for bankruptcy protection, Core Scientific said.
The Austin, Texas-based company will not make payments due in late October and early November 2022 with respect to several of its equipment and other financings, it said in the filing. Creditors may decide to sue the company for non-payment or take action with respect to collateral, it said.
"With the substantial decline in mining rig prices in 2022, we believe there's a significant chance the creditors holding this debt decide to restructure instead of taking possession of the collateral," Compass Point said in a note. "Still, without knowing how discussions are going with CORZ's creditors, we think a scenario where CORZ has to file for Chapter 11 protection has to be taken seriously, especially if BTC prices decline further from current levels."
BTIG cut the stock to neutral from buy: "We expect this liquidity overhang to prevent CORZ from expanding its hash capacity and delay the company's ability to secure new hosting customers, which clouds the company's near-term growth prospects," the investment bank said.
Core Scientific's woes reflect the depressed state of the bitcoin mining industry, with firms squeezed between high electricity costs and a muted bitcoin price. One of Core Scientific's peers, Compute North, filed for bankruptcy in September owing as much as $500 million to at least 200 creditors.
Bitcoin touched an all-time high of almost $70,000 in November last year. Since then the world's largest cryptocurrency by market value has slumped, dropping to below $20,000 in June. Since then, it has stubbornly hung around the $20,000 level, meaning miners have struggled to break even.
UPDATE (Oct. 27, 14:15 UTC): Updates share price in first paragraph; add BTIG downgrade in eighth paragraph.
UPDATE (Oct. 27, 13:29 UTC): Updates analyst comment in seventh paragraph.
UPDATE (Oct. 27, 12:40 UTC): Updates headline and lead paragraph.
UPDATE (Oct. 27, 12:30 UTC): Updates headline, adds adviser and bankruptcy detail in third and fourth paragraph.
UPDATE (Oct. 27, 11:27 UTC): Adds further background; updates share price
UPDATE (Oct. 27, 10:53 UTC): Adds "going concern" quote, risk of lawsuits, share price.
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