The Argo Blockchain share price doubled today! Why?

While the holidays may be a quiet time for many people, obviously some have been working hard. Managers at crypto miner Argo Blockchain (LSE: ARB) have apparently been finalising a big deal. An announcement to the stock market this morning led the Argo Blockchain share price to more than double in early trading.

However, that still leaves the shares down over 90% on a one-year timeframe. So what has caused the share price to surge – and does it affect what I will do with my own Argo shareholding?

Big financial news

The company announced it has struck a deal with Canadian firm Galaxy Digital Holdings. Under it, Argo’s flagship data centre in Texas will be sold for around £54m. The agreement will also involve an Argo subsidiary refinancing its asset-backed loans. The transactions are expected to close today.

Between the sale proceeds and loan, the move will allow Argo to pay down around £71m in debt and fees. Despite selling the facility, Argo will continue to operate its crypto mining machines there for the next couple of years, at least.

The company plans to refocus on the Canadian market with renewed vigour. It has two data centres there.

Short-term problem solved

In the short term, I see this as positive news for the investment case. I think it explains today’s surge today in the Argo Blockchain share price. It should reduce the company’s net debt by around £34m. However, it is not yet clear to me how indebted Argo will remain after the deal.

As investors may have rediscovered playing the Monopoly board game over the Christmas break, selling property can be a quick way to raise cash. But it can also make things financially tougher down the road.

While owning the Texas facility was not central to Argo’s business model, in my view, and renting it could work fine, the sale raises a few concerns for me as an investor.

First, the facility is relatively new and selling it seems like an about turn in strategy. This suggests management may be making business decisions in a tactical rather than strategic way.

Story continues

Second, flogging off a flagship asset is often a move used when a business is fighting for its survival. This is better than bankruptcy, which I have seen as a risk for Argo due to lower crypto prices. But the firm now seems like a business in survival mode. This is not the sort of situation in which I typically like to invest.

Surging share price

My shares remain far below the level at which I bought them. Indeed, as my holding is so small, I have not bothered selling them as the sale process would likely be swallowed up by dealing fees.

The latest price jump offers me a better selling price and I am considering doing that in coming days. While today’s announcement shows management is proactively addressing Argo’s challenges, it feels like a business on the ropes. So the risks are too high for my comfort level.

The post The Argo Blockchain share price doubled today! Why? appeared first on The Motley Fool UK.

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C Ruane has positions in Argo Blockchain Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2022