Mining Company Canaan May Misleading Investors

A report by Marcus Aurelius Value, a research firm, claims that Canaan, a Chinese mining company, misrepresented its potential revenue for 2020. Aurelius Value also claims that the Canaan AvalonMiner series is uncompetitive in the ASIC miner market, noting that the manufacturer’s research and development budget is significantly inferior to competitors like Bitmain.

Canaan representatives commented on the study in response to a Cointelegraph request. Aurelius Value did not respond to requests regarding the assessment methodology, but Cointelegraph reporters say some of the analysts’ conclusions are not entirely correct.

The main argument against Canaan is related to the company’s initial public offering (IPO), which took place last November. A month before the IPO, a “strategic partnership” was concluded with the public Hong Kong company Grandshores, through which the company acquired equipment worth $150 million.

According to Aurelius Value, the amount of this transaction is equal to almost all Cannan revenue for the year ($177 million). In addition, analysts argue that Grandshores will not be able to fulfill the agreement, indicating the company’s market capitalization of $50 million and balances of $16 million.

Exchange filings list Yao Yongjie as its chairman, while Canaan’s Securities and Exchange Commission filings disclose that Yao Yongjie is a partner at a company that owns 9.7% of Canaan shares. A Reuters profile further mentions Yongjie as an angel investor in Canaan.

Cannan sales director Chen Feng held livestream shortly before the deal, saying that Canaan has letters of intent to buy more than 500,000 units and expects to receive more than $1 billion in revenue in 2020.

“We therefore wonder if the giant Grandshores letter of intent, which we view as largely bogus, was used by CAN as a device to hype its financial prospects to investors,” analysts concluded.

In a comment to the Cointelegraph, Canaan representatives said that Yao Yongjie does not own the company and that he owns less than 1% of Canaan. They also emphasized that the contract with Grandshores is not an official contract of sale, but is a framework agreement between the two parties. The informal nature of the contract was also mentioned as a reason for not including it in the prospectus for the SEC, so as to not mislead and protect IPO investors.

Aurelius Value also claims that Canaan miners are completely uncompetitive in the market, and the company’s business model is “upside-down”, as miners are operating at a loss.

However, Cointelegraph reporters draw attention to the fact that most of the miners work in specific regions where you can find cheap electricity, while analysts took into account the cost of mining according to asicminervalue.com.

In specific scenarios, miners can be profitable, although they are usually less effective. Poor performance can ultimately make them obsolete, but Canaan miners are often much cheaper than similar offers from Bitmain. For example, using electricity prices of $0.04 AvalonMiner 1066 (costing ~ $1500) from Canaan will bring about $1600 profit per year; Bitmain S17 + (worth $2850) will bring about $3000 profit. Thus, two miners will need approximately the same amount of time to pay off.

Author: Marko Vidrih

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