Australian bitcoin company digitalBTC has dissolved a supply agreement with cloud mining service CloudHashing.

Under the agreement, which was finalised in March, CloudHashing was to run digitalBTC hardware in data centres in Iceland and Texas to mine bitcoins.

Today, however, digitalBTC announced that it was pulling out of the deal, filing an announcement with the Australian Securities Exchange (ASX) that stated the companies had agreed to dissolve the supply deal.

Under the settlement, CloudHashing’s shares in digitalBTC are to be cancelled.

The announcement states:

“The settlement agreement stipulates that 8,276,465 ordinary shares in the company (4.9% of the issued capital) are to be cancelled for nil consideration, delivering a net benefit to all remaining shareholders by reducing the total number of ordinary shares on issue. In addition, 3,742,520 Performance Rights issued to CloudHashing under the previous supply agreement are to be cancelled.”

DigitalBTC’s management board unanimously recommended that all shareholder vote in favour of the proposal, as it would deliver an increase in value per share for remaining shareholders.

The buyback will not require any payments on to CloudHashing. DigitalBTC also stressed that it had managed mining operations without any input from CloudHashing from mid-2014.

“Basically digitalBTC have not used CloudHashing for over six months, it’s just taken time to settle the agreement,” a person familiar with the matter told CoinDesk.

DigitalBTC said the arrangement was reached after “key outcomes from the strategic agreement in March 2014 did not eventuate”. The company also pointed out that planned launch of its Mintsy product is expected to enable it to “sell significant processing capacity.”

CoinDesk has reached out to both companies for comment.

CloudHashing buys back contracts

In other news, CloudHashing has started buying back cloud mining contracts, according to reports from customers.

CoinDesk has obtained one email from the company, while others were posted on discussion boards and Reddit by other users. In the offer, the company also announced an increase in the maintenance fee.

CloudHashing informed its customers about the buyback plan in an email sent on 29th January:

“We have some important information for you about your CloudHashing service. Please visit [our website] and login to view your account message. For a limited period only CloudHashing is offering to purchase your bitcoin mining contract. This offer expires in 10 days. Please log into your account to view this offer.”

Once contacted customers logged in, they were presented with a choice of keeping their contracts with an increased management fees, or selling them back to the company.

One example read:

“Due to the changed financial viability of our cloud mining service, we have decided to increase the management fees associated with the service to USD $0.15 (15 cents) per gigahash per month. This amount ($4.26 per month) will be deducted directly from your mining earnings. If your mining earnings are not sufficient to cover the management fees, you will be invoiced for the remainder amount.”

The $4.26 fee was for a standard $999 mining plan.

Limited compensation

The company went on to offer a chance of buying back contracts for a limited time, as the offer is set to expire on 8th February.

One Reddit user received the following offer for his $999 mining plan:

“In order to avoid management fees, CloudHashing customers may opt to sell their contracts back to Cloud Hashing. You currently have 28.37 Gh/s of CloudHashing contracts. CloudHashing offers to buy these contracts back today for a price of 0.00631990 bitcoins.”

We also obtained an email from one customer who accepted the offer:

“You have accepted the Cloudhashing.com buyout offer. 0.05052865 BTC has been applied to your account. Your existing contracts have been terminated as of 2015-01-30 00:00:00.509657+00:00.”

See digitalBTC’s ASX announcement below:

Cancelled contract image via Shutterstock