March 21, 2008
Knobias Clip Report (03-20-2008)
By admin
Submitted By Knobias ClipReport
HOKU: Announces Expansion Plans with Polysilicon Reactor Contract
The day is finally here and if you’re a fan of sports, you may know what I’m talking about. The NCAA basketball tourney begins and with it brings million of hours and billions of dollars lost to unproductivity. The price may seem large but for those with an alma mater in the dance, it’s a small penance for the chance to become the Cinderella.
While many will be watching the games and discussing the outcomes, others will be watching the market and the news affecting it. Commodities continued their sell-off on the slowing of the dollar’s depreciation. With the dollar possibly finding a bottom, many invested in the multiple international funds will begin to shift their money out of foreign markets and back into the domestic funds which should cause a surge in the domestic markets.
With that in mind, investors would be wise to look for names domestically that offer the recession proof qualities such as diversification, high yields and consumer staples.
One name that did pop up on the radar but doesn’t possess the recession proof qualities was Hoku Scientific, Inc. (HOKU). After the bell on Wednesday, the Company announced that they signed a new polysilicon reactor supply contract with GEC Graeber Engineering Consultants GmbH to give Hoku Materials the option to purchase additional polysilicon reactors for the production of up to 8,000 metric tons of polysilicon per year. Hoku Materials and Graeber Engineering Consultants are parties to an existing supply contract whereby Hoku has ordered reactors to produce 2,000 metric tons of polysilicon per year, with an option to purchase reactors for an additional 500 metric tons of polysilicon per year. Under this new agreement, Hoku has an option, without obligation, to order reactors at any time over a twelve-month period at predetermined pricing and delivery terms.
The agreement locks in a price over the next twelve months to expand their production with additional reactor purchases. Locking-in reactor pricing and delivery terms is essential for planning the construction and procurement of a polysilicon plant because the reactors are among the longest lead-time items and are a significant percentage of overall plant equipment costs.
The only problem is that HOKU has yet to secure the full funding to purchase the original reactors, much less the additional ones this agreement allows. The Company recently entered a $25M equity financing agreement with certain institutional investors and a wholly owned subsidiary of Suntech Power Holdings Co., Ltd. (STP). Suntech’s subsidiary has agreed to contribute approximately $20 million of the financing. The Company also has a non biding funding agreement with Merrill Lynch which included stipulations of other additional financing from other sources.
In the announcement of the equity financing, CEO Dustin Shindo noted that they believed that the proceeds from the offering, plus their other cash commitments to the construction and procurement of the polysilicon plant, would satisfy the Merrill Lynch requirement that they contribute up to $35 million in equity towards the project prior to completing their debt financing.
In any event, shares of HOKU were one of the only solars that were green, trading at $7.19, up .56% on the day. Without the financing, the expansion plans are pointless and should be treated that way. Investors would be wise to watch.
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