Should You Buy The9 Limited?

 

The9 Limited (NASDAQ: NCTY) (The9) announced that it filed its annual report on Form 20-F for the fiscal year ended December 31, 2020 with the U.S. Security and Exchange Commission (?SEC?) on March 29, 2021. The annual report, which contains its audited financial statements, can be accessed on the SECs website.

 

 

Recent Development:

 

In January 2021, The9 entered into a share subscription and warrant purchase agreement with the holding entities of several investors including Mr. JianPing Kong in the cryptocurrency mining industry in anticipation of developing its cryptocurrency mining business with the assistance of those investors. Pursuant to the purchase agreement, The9 issued certain ordinary shares and warrants to the investors. The warrants are divided into four equal tranches, the exercisability of which are subject to the market capitalization of The9 ranging from US$100 million, US$300 million, US$500 million and US$1 billion within certain time period.

 

Since then, The9 has been actively developing its cryptocurrency mining business, which primarily include the following:

  

In February 2021, NBTC Limited, the wholly-owned subsidiary of The9, signed a strategic cooperation framework purchase agreement, with Shenzhen MicroBT Electronics Technology Co., Ltd., the manufacturer of WhatsMiner bitcoin mining machines. Pursuant to the agreement, NBTC Limited paid a deposit of US$1.4 million and obtained the right of first offer to purchase 5,000 WhatsMiner bitcoin mining machines from MicroBT within one year. As of today, The9 group had completed two batches of purchase and bought 922 WhatsMiner machines, with an approximate hash rate of 66PH/s. These WhatsMiner machines have already been deployed.

 

In March 2021, NBTC Limited signed a Bitcoin mining machine purchase agreement with Bitmain Technologies Limited. Pursuant to the purchase agreement, the Company will purchase 24,000 Antminer S19j Bitcoin mining machines, which are scheduled to deliver starting from November 2021, for a total consideration of US$82.8 million payable by installments according to the agreed time schedule. The first installment of US$16.6 million had been paid.

 

In February 2021, The9 entered into purchase agreements with five Bitcoin mining machine owners to purchase Bitcoin mining machines by issuance of its ordinary shares. Pursuant to the purchase agreements, the Company issued an aggregate of 26,838,360 Class A ordinary shares (equivalent to 894,612 ADSs) at US$0.37 per ordinary share (equivalent to US$11.18 per ADS) in exchange for 26,007 Bitcoin mining machines, with a total hash rate of approximately 549PH/S.

 

In February 2021, The9 signed six legally binding memoranda of understanding with six Bitcoin mining machine owners to purchase Bitcoin mining machines by issuance of ordinary shares. As of today, The9 has entered into definitive purchase agreements with five Bitcoin mining machine owners and The9 has issued an aggregate of 3,832,830 ordinary shares (equivalent to 127,761 ADSs) at US$0.78 per ordinary share (equivalent to US$23.35 per ADS) in exchange for 8,489 Bitcoin mining machines, with a total hash rate of approximately 156PH/S.

 

In March 2021, The9 signed three legally-binding memoranda of understanding with three Bitcoin mining machine owners to purchase Bitcoin mining machines by issuance of ordinary shares. According to the memoranda of understanding, The9 should issue approximately 5,883,750 ordinary shares (equivalent to 196,125 ADSs) to the sellers based on a per share price of approximately US$1.3 per Class A ordinary share (equivalent to US$38.51 per ADS) in exchange for 10,252 Bitcoin mining machines, with a total hash rate of approximately 192PH/S.

 

In February 2021, the Company signed a framework agreement with a Filecoin mining machine vendor to purchase Filecoin mining machines for US$10 million.

 

In February 2021, The9 entered into a standby equity distribution agreement with YA II PN, LTD., a Cayman Islands exempt limited partnership managed by Yorkville Advisor Global, LP pursuant to which The9 is able to sell up to US$100.0 million of ADSs solely at The9?s request at any time during the 36 months following the date of the agreement. As of today, The9 has not started to request funding from this equity line.

 

As of today, The9?s deployed Bitcoin mining machines are contributing a total hash rate of approximately 693PH/S. Under this current hash rate, The9 is rewarded 3 Bitcoins per day. As of today, The9 has been rewarded 126 Bitcoins.

 

Based on the Bitcoin mining machines currently owned by The9 and taking account to the mining machines purchase agreements The9 had signed, assuming The9 does not sign any new purchase agreement and assuming global hash rate does not increase, by October 2022 The9?s Bitcoin mining machines are expected to contribute a total hash rate of approximately 3,558PH/S. Under this hash rate, The9 is expected to be rewarded approximately 15 Bitcoins per day. The cumulative Bitcoins reward is expected to be approximately 5,200 Bitcoins.

 

 Other than Bitcoins, the Company is also actively engaged in the mining of Filecoins. As of today, the Company has executed US$1.1 million purchase of Filecoin mining machines under the framework agreement with a Filecoin mining machine vendor. The Company will continue to purchase Filecoin mining machines based on market situation. Currently The9 owns an independent node on Filecoin blockchain and 8 Pebibyte of effective storage mining power in the Filecoin network. Assuming global hash rate does not increase, by August 2022 this 8 Pebibyte of effective storage mining power is expected to generate approximately 200,000 Filecoins for The9. However since the hash rate of the whole Filecoin network is increasing continuously, the actual reward to The9 will be less than 200,000 Filecoin. The9 will continue to invest into Filecoin mining machines according to the growth of Filecoin?s market value.

 

Convenience Currency Translation

 

The translation of Renminbi (RMB) into US dollars (US$) in this press release is presented solely for the convenience of readers. The translation was made based on the noon buying rate for U.S. dollars in the City of New York for cable transfers in Renminbi as certified for customs purposes by the Federal Reserve Bank of New York, on December 31, 2020, which was RMB6.5250 to US$1.00. Such translations should not be construed as any representation that the related RMB amounts represent, have been or could be converted into U.S. dollars at that or any other exchange rate. The percentages stated in this press release are calculated based on the RMB amounts.

 


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