Cryptomining startup finds unlikely partner in Duluth manufacturer

The future of Ikonics and its 83 employees looks uncertain, as its new owners seek to sell the business.

Matt Gildner, a robot technician at Ikonics, masks a jet engine liner on Sept. 25, 2018. The perforated surface of the liner helps reduce aircraft noise. This is just one example of some of the unique niche markets Duluth-based Ikonics serves with its innovative products and technology.
Bob King / File / Duluth News Tribune
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DULUTH — So how did Ikonics — a modest-sized manufacturer of etching and imaging products in Duluth — become an acquisition target for an East Coast cryptocurrency mining startup?

Representatives of Ikonics’ paramour, TeraWulf Inc., declined to answer that question, posed by the News Tribune in recent weeks.

But the most likely answer seems to be that Ikonics was a relatively inexpensive, vulnerable and thinly traded company already listed on the Nasdaq Exchange.

TeraWulf, based in Easton, Maryland, has been on the hunt for capital to launch its Bitcoin-mining venture, which is dependent upon rapidly amassing a lot of computing power, as well as obtaining access to a steady supply of inexpensive electrical power.

TeraWulf also needs investors, but taking a company to market through an initial public offering is a time-consuming, expensive and complicated undertaking. The company saw a quicker route.


It bought out a business that already was publicly traded, and then took it in a new direction.

Spinoff plan

From the start, TeraWulf made it clear that it had no interest in building Ikonics’ legacy business. In fact, it announced its intention to sell those assets and operations, related to screen printing, etching and photochemistry applications.

Sue Boudrie, operations manager for Ikonics Advanced Material Solutions, looks through a perforated engine inlet liner on Sept. 25, 2018. Ikonics uses abrasives to create thousands of tiny holes in the material, which is used to deaden sound on an Airbus A-320. Ikonics, which is up for sale, employs 83 people company-wide, including 78 in Duluth, according to its website.
Bob King / File / Duluth News Tribune

Ikonics isn’t a huge manufacturer by any stretch. But its website says the company employs 83 people, with 78 of those positions in Duluth.

That’s a fair number of local jobs with solid pay.

It’s not clear what will become of them, though, as TeraWulf remains a motivated seller.

At the time of the “merger,” Ikonics investors were promised that for each share of the company they held they would receive:

  • $5 in cash
  • One share of TeraWulf
  • One contingent value right entitling them to collect a cut of the proceeds from any future sale of the legacy business completed within 18 months.

Ikonics began trading as WULF on Dec. 7, 2021. So, Ikonics investors stand to financially benefit from any sale that occurs before that window closes in June 2023.
Local Ikonics officials would not comment on the status of Ikonics' current operations or the prospects for a sale, redirecting those questions to TeraWulf. For its part, TeraWulf representatives declined to discuss the matter with the News Tribune.

But there have been recent signs of movement.


Pending property sale

The News Tribune has confirmed that a local nonprofit is performing due diligence in anticipation of closing on the purchase of Ikonics’ newest facility, located at 2302 Commonwealth Ave., inside an industrial park created on the site of the former Atlas Cement plant.

The deal has not yet been completed, but knowledgeable parties indicated it appears imminent, assuming no red flags arise in the interim.

The terms of the pending transaction have not been disclosed, but St. Louis County last estimated the market value of the property to be more than $4.5 million. Ikonics built the single-level facility in 2008 and later expanded it several years later to 35,480 square feet.

Guests and employees celebrate the expansion of Ikonics' Commonwealth Avenue facility with a ribbon cutting and a reception Sept. 22, 2016. Although the deal hasn't been completed yet, a sale of the property to a local nonprofit is expected close soon, barring any unforeseen complications.
Bob King / File / Duluth News Tribune

If the sale does go through, Ikonics still has another facility in Duluth. And Chris Fleege, director of Duluth’s planning and economic development division, said the city has been assured any sale should have little impact on production, as he was told the company’s Commonwealth Avenue location is mostly warehouse space.

Ikonics' other facility is an older four-story 48,160-square-foot manufacturing plant at 4832 Grand Ave., with an estimated market value of nearly $1.17 million.

Ikonics also has inquired about the possibility of temporarily leasing back space in its Commonwealth Avenue building while it figures out a longer-range solution, according to an officer of the nonprofit looking to buy the building.

So far, Fleege said city staff has not been asked for any assistance with orchestrating a change of ownership at Ikonics or lining up additional new space to accommodate its continued local operations.

While Duluth City Council President Arik Forsman acknowledged that he doesn't know what a sale of Ikonics' local operations may bring, he said: "It would be a shame to see those jobs and those facilities not continue to operate. So, I hope they find a buyer who is in the same state and sees them as a value-add, and they can continue doing what they're doing and maybe even expand."


Market buzz

The buzz around TeraWulf was intense, especially as the company touted its plans to operate using at least 90% carbon-neutral energy sources. The company brought its first facility online in March — the Lake Mariner Cryptomine, in upstate New York, drawing on hydropower. TeraWulf also is working to open a second nuclear-powered bitcoin-mining facility in Pennsylvania later this year.

One of the criticisms of the industry has been the amount of energy it consumes, as racks full of computers race to solve mathematical problems, adding to a blockchain database and being rewarded with cryptocurrency as they do. reports that it takes 2,170 kilowatt-hours of energy to produce a single bitcoin — as much as the average U.S. household would use in 74 days. On an annual basis, bitcoin-mining operations around the globe now are expected to consume roughly the same amount of energy as Thailand, with a population of nearly 70 million people.

Cryptomining can be such an energy hog that China has banned it completely.

Yet TeraWulf has promised it can mine and grow without harming the environment.

Gwyneth Paltrow -- 2022 Milken Institute Global Conference
Actor Gwyneth Paltrow, founder and CEO of Goop, speaks at the 2022 Milken Institute Global Conference in Beverly Hills, California, U.S., May 4, 2022. She was just one of the celebrities drawn to invest millions of dollars in TeraWulf as it went public.
Mike Blake / Reuters

That proposition was an attractive pitch, drawing in investors, including some A-list celebrities. Actress Gwyneth Paltrow was part of a group that provided $200 million in debt and equity financing as TeraWulf launched on the Nasdaq. Other big-name investors in the group included showbiz personalities Mindy Kaling and Lilly Singh, Beautycon Media CEO Moj Mahdara, TikTok head of global marketing Nick Tran and KITH CEO Ronnie Fieg.

Crest and crash

As TeraWulf’s Dec. 7 Nasdaq debut neared, excitement grew and so did the company’s stock price.

Gary Meader / Duluth News Tribune

Ikonics’ stock traded at $11.31 per share the day before the merger agreement was announced, but the price soared to $42.31 on Nov. 19, 2021 on news of its new ownership and speculation that cryptocurrency, and more specifically bitcoin, would continue to grow in value.

But the timing of WULF’s launch could hardly have been worse for its early investors. The stock’s value has fallen even more sharply than the troubled crypto market. In recent days, TeraWulf briefly traded below $3 per share — more than a 90% plunge from Ikonics’ high just before its ticker symbol officially changed to WULF.

To be fair, all cryptomining operations have taken a hit as the value of bitcoin, the largest share of the crypto market, has been cut by more than half since it peaked above $65,000 in November. And some analysts have suggested this actually is an opportune time for the intrepid to invest in a downtrodden market and young up-and-coming business such as TeraWulf.

Bitcoin for beginners

Bitcoin has bounced back from previous downturns, such as it experienced in 2017, noted Vivian Fang, an associate professor of accounting who teaches about cryptocurrencies at the Carlson School of Management. She said it's her opinion that cryptocurrency is more than a flash in the pan and will have staying power despite its ups and downs.

Fang explained that cyptocurrency is a digital currency built on decentralized systems that rely on cryptography for security. It's completely digital. There are no actual coins.

"These are basically encryption techniques that are used to ensure transactions are recorded on the blockchain and those records cannot be tampered with," she said.

Fang described what she considers the biggest innovations in cryptocurrencies: "They rely on this distributed ledger technology, which is often referred to as blockchain technology, to record transactions."

"These transactions are recorded because blockchain is just a network of computers. And that network allows multiple parties to share data," she said.

Fang said new data can be uploaded only if the participating computers on the chain agree to acknowledge a new transaction, allowing cryptocurrency to be traded and moved from one digital wallet to another.

"These updates or transactions are not determined by a human or a central authority but by a software-driven consensus," she said.

In the case of Bitcoin, the biggest cryptocurrency, it relies on "proof-of-work" consensus.

"Really it's just a bunch of computers racing with their computing power and trying to solve a mathematical problem. You can almost think of it as a complicated puzzle, where you're looking for one missing piece. And there's no algorithm you can use. All these computers are basically using brutal force. They try every single possible piece possible to see if it fits," she said.

"When they find a fit, they announce it to the network, and other computers would agree," Fang said.

The first party that gets it right receives a reward in the form of the currency that corresponds to the blockchain.

This story was updated at 10:16 a.m. May 31 to correct the name of the Carlson School of Management and TeraWulf's first cryptomining operation, Lake Mariner. It was originally posted at 3:12 p.m. May 28. The News Tribune regrets the errors.

Higher construction costs boosted the need for aid to keep the proposed development on track.

Peter Passi covers city government for the Duluth News Tribune. He joined the paper in April 2000, initially as a business reporter but has worked a number of beats through the years.
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