Muskie Site Strategy and Capital-Light Models
Q: Mike Grondahl with Northland Securities asked if a capital-light, modular construction approach is a possibility for the Muskie site.
A: Chairman and CEO Paul Prager responded that while competitors' structures are interesting, TeraWulf's primary focus remains on being a strategic partner delivering full-stack turnkey solutions. CFO Patrick Fleury added that TeraWulf aims to earn a return on the full capital deployed to maximize equity value per megawatt.
Q: Mike Grondahl asked how TeraWulf decided to use the Google backstop instead of going direct with Anthropic.
A: CFO Patrick Fleury stated that investment-grade credit support is TeraWulf's number one focus to ensure efficient cost of capital and durable equity value, noting that Anthropic is not yet investment grade.
Hawesville Project Costs and Execution Confidence
Q: Stephen Glagola with KBW asked what gives management confidence in the $10 million to $12 million per megawatt CapEx estimate for Hawesville, how far along the design is, and who bears cost overruns.
A: CTO Nazar Khan explained that engineering is over 90 percent complete and long-lead equipment procurement is over 80 percent complete, with both expected to be fully locked down by year-end. He added that a guaranteed maximum price structure provides protection against overruns.
Lease Protections and Capital Structure
Q: Eric Luebchow with Wells Fargo asked about contract mechanisms to protect spreads if the cost of capital changes after signing a lease.
A: CFO Patrick Fleury explained that Google's credit support protects against default through mandatory lease assumption or debt-reducing termination payments, and the cost of credit support is recoverable from the tenant while preserving overall economics.
Q: Eric Luebchow asked about the attractiveness of direct investment-grade leases for Muskie compared to backstopped deals.
A: CFO Patrick Fleury reiterated that all leases will be backed by investment-grade tenants or primary lessees to ensure efficient project financing, supported by a healthy equity layer.
Regulatory Environment and Market Noise
Q: Jonathan Dorsheimer with William Blair asked how management views the governing functions around data centers amid market fear and rhetoric.
A: Chairman and CEO Paul Prager stated that sensible state regulations provide certainty and protect investments, highlighting constructive regulatory frameworks in New York and Kentucky that support collaborative data center development.
Q: Jonathan Dorsheimer asked whether a credit market clearing event is necessary to reset valuations.
A: CFO Patrick Fleury noted that current spread widening in credit markets is natural and reinforces the necessity of having an investment-grade tenant to preserve the spread between weighted average cost of capital and yield on cost.
Funding Options and Equity Dilution
Q: Stephen Byrd with Morgan Stanley asked about options available to fund overall capital needs to avoid equity overhang.
A: CFO Patrick Fleury outlined multiple tools including customer prepayments, equity purchases by customers at higher prices, system leverage, and selling equity in stabilized assets at the project level to infrastructure funds.
Muskie Power and Infrastructure Development
Q: Nick Giles with B. Riley Securities asked if upfront investment is required from TeraWulf to pull forward the second 500 megawatts at Muskie.
A: CTO Nazar Khan explained that a filing will be made with the Kentucky Public Service Commission for a 760-megawatt CCGT plant called Big Sandy, featuring a clear cost structure that includes an incremental $100 million residential credit and construction interest factored into rates.
Q: Nick Giles asked what to model for billing megawatts in the fourth quarter and exiting the first quarter.
A: CFO Patrick Fleury stated that exiting the fourth quarter will add 168 incremental megawatts from CB-4, and exiting the first quarter will add another 168 megawatts from CB-5.
Pricing Environment and Asset Recycling
Q: Michael Rollins with Citi asked about current pricing environment trends, yields, spreads, and pricing dynamics.
A: Chairman and CEO Paul Prager emphasized focusing on building shareholder value by protecting deal economics and utilizing guaranteed maximum price contracts and investment-grade debt support.
Q: Michael Funk with Bank of America asked whether TeraWulf would consider selling stabilized assets to recycle capital into new developments.
A: CFO Patrick Fleury responded that while the primary business model is to build and own long term, selling equity in operating businesses to infrastructure funds at significant multiples is a recognized possibility.
Q: Michael Funk asked who bears community contribution costs and how they affect development yields.
A: Chairman and CEO Paul Prager noted that socially conscious customers like Anthropic want to participate in and contribute to local communities, aligning with TeraWulf's history of supporting local education and first responders.
Industry Backstops and Pipeline Status
Q: Brett Knoblauch with Cantor Fitzgerald asked about hyperscalers' appetite for providing backstops and how TeraWulf views markets without investment-grade backstops.
A: CFO Patrick Fleury stated that hyperscalers are willing to put their balance sheets to work to help the ecosystem grow, and backstops can eventually fall away once smaller companies achieve strong investment-grade ratings.
Q: Darren Aftahi with Lucid Capital Markets asked for an update on Chesapeake and regulatory approvals.
A: Chairman and CEO Paul Prager stated that Chesapeake is under a purchase and sale agreement with most approvals in hand, but closing depends on the seller fulfilling important conditions precedent.
Q: Darren Aftahi asked for a view on the shape of lease rental rates over the next 12 to 24 months given political and asset availability changes.
A: Chairman and CEO Paul Prager highlighted strong demand for prompt power and noted that the phone has been ringing off the hook for Muskie, giving them a strong position in customer negotiations.
