REC Silicon ASA

Good morning. My name is Curt Levins and I'm the CEO of REC Silicon. I'd like to welcome you to the Q4 2022 quarterly results presentation. In the fourth quarter of Q, I mean, fourth quarter of 2022, our revenues were 31.6 million and our EBITDA was negative 23.6 million. This was primarily during this quarter, we have reduced sales volumes of both silane silicon gases as well as polysilicon for different reasons as I will cover in subsequent slides. However, the continued effects of our price increases were able to be positive relative to the previous quarters. Our restart activities continue in Moses Lake and our first production target of Q4 2023 remains unchanged. As we had announced earlier, our binding term sheet with Hamlaw Solutions for polysilicon was executed. And it's important to note that within the silicon gases market, there's continuing inventory drawdown and corrections. So that at some point, we see some stabilization, but all of our focus segments are affected at this time. As indicated before, we had a decrease in polysilicon sales volume. That decrease in polysilicon sales volume was driven by the fact that we produced less, not because demand was less. I think that the situation that started in Q3 with regards to the electricity spikes and unprecedented electricity increases and pressure unexpectedly continued. through varying periods within Q4. And as such, caught us by surprise in terms of what we were to do with regards to the production. So as a result of trying to manage the situation, we reduced production in order to manage any potential loss from it. Silicon gas, sales volume decrease, that function was relative to the market, the consuming market, and the overall economic weakness that currently exists in the semiconductor market, particularly the memory market, and that exists in the flat panel display market. Additionally, we did have some one-time expenses as we will continue to have one-offs through the remainder of the time period before we start up our plant in Moses Lake. Again, in semiconductor materials segment, our overall EBITDA was 6.5 million. This was a decrease off of Q3 2022. What I would like to note in here is that again, you can see that there's a large effect from the decrease in our actual production, which was not driven by lack of demand, rather driven by our desire to control costs given the unprecedented situation we are faced with power. Cash flows in the quarter, our cash balance was 105.3, which is a $26 million decrease in cash. Mainly that came from operating activities in our EBITDA performance, as well as activities from our continuing CapEx for the Moses Lake restart, and as well as some of our high value viewed activities. Nominal debt was 183.9 and nominal net debt was 78.6, which is a 39.8 increase. And that was primarily driven by the fact that we had a 41.5 DECREASE IN CASH. SO I HIT UPON THIS A LITTLE BIT IN THE BEGINNING. HOWEVER, IN SILICON GASES, YOU CAN SEE THAT FOR THE PAST TWO QUARTERS, WE'VE REACHED A RUN RATE WHICH IS IN FACT BELOW WHERE WE'VE BEEN PREVIOUSLY AVERAGING. AND THIS IS PRIMARILY AND TOTALLY DUE TO THE FACT THAT SEMICONDUCTOR MARKET AND FLAT PANEL DISPLAY MARKETS What started in Q3 with the system trying to draw down inventory has continued. We do see some signs that it can continue to stabilize in this regime. And then we should start to see some increases that begin happening that are going to be triggers of the fact that potentially utilization at our consuming sites is going to increase. Right now, our best estimate is that sometime by Q3 we should see this start to attenuate and there will then be potential for it to begin increasing. However, there's a lot of uncertainty right now based upon feedback we receive from end users and distribution partners. We have put in place price increases for 2023 for all of our silicon gases. But what I want to focus on here is the fact that this is a situation that is due to global economic forces. And what we're trying to do right now is really focus on the things that we can control and prepare for. Because the macro itself has not changed. The need for semiconductor devices is going to continue to grow. The reshoring efforts for advanced semiconductor production in the USA and other areas where we are the number one supplier is in motion. So what we are doing is making sure that we are, during this time period, continuing to invest in container loading and production capacity so that we can take advantage, full advantage of that growth when it returns to the trend line. If you recall from last year, the first half of the year and the previous year, We were constrained by our container capacity and, in some cases, our ability to load. So by removing those bottlenecks, when we do return to trendline, we're going to be able to achieve sales that are going to be potentially greater than what we had before. In addition to that, we executed on two supply contracts of five-year duration which had contracted value of up to $180 million for our gas business. And finally, we are seeing that silicon inclusion in lithium batteries is advancing. Currently, we are tracking multiple companies that are projecting appreciable volumes to come online in 2024 that would require siloing. Semiconductor-grade polysilicon, As I had indicated earlier, market demand remains strong because of the nature of how these contracts are entered into. However, for us, there was a decline in sales because we made less product in Q3 to avoid power, followed on by the fact that we made less product in Q4, again, to avoid record high electricity. For this year, Our plan is to run at a reduced capacity and take advantage of the periods when power is going to be most affordable. However, we are working very steadily at doing something which is going to change the nature of how we engage in our electricity contracts. So there is potential that we're going to be able to run harder in our polysilicon production provided that we have the adequate electricity pricing points and that we have commensurate sales prices in the market that will cover any of our higher electricity prices. We have made very significant price increases in place for 2023. ON THE BASE VOLUMES THAT WE'VE ALREADY COMMITTED TO. SO I'VE TALKED A LITTLE BIT ABOUT ELECTRICITY, AND I'M GOING TO TALK ABOUT IT AGAIN BECAUSE FOR US, OBVIOUSLY IF YOU LOOK AT OUR RESULTS, YOU CAN SEE VERY STARKLY HOW THIS AFFECTS OUR OPERATING CONDITIONS AT BUTTE AND OUR OPERATING RESULTS. THIS SITUATION CAUGHT US By surprise, if you look back at the historical data, you can see that there's from time to time you get spikes of some nature. However, those are generally well within the operating parameters of engagements that you make. And by and large, it stays fairly steady within that window. In Q3 of 2022, towards the end, we ran into a situation where it spiked as we were coming out of our shutdown. which then caused us to defer production volumes, followed by a spike again that started in December and continued on through the beginning of January that was, again, unprecedented in the absolute quantum of that spike and the duration of that spike. So I'm not going to sit up here every quarter and talk about why results weren't as strong because of power. We are going to do something about this. We are, you know, obviously we're in a new reality and a new regime when it comes to that and how it affects our Butte operation. We are working with outside consultants to evaluate options in terms of our strategy around how we can improve costs and also achieve more stability in this key feed. So we will have more information and our target on that is by Q3 of 2023. I'd also like to point out that the DCS expansion that we had discussed earlier last year is well on track and we are now begin starting up here at the end of this quarter to the first part of Q2. We already have our first customers lined up for product qualifications, as well as clear visibility on when we expect to have our first sales. Additionally, we've anchored over 50% of this output of the anticipated capacity via contracts. This capacity will be three times our current capacity. It'll be improved in both quality and specification, and it'll be improved in terms of the process control, stability, and efficiency, all based upon how we have learned through our process as we've been operating our first phase production facility. This is going to result in cost efficiencies as well as product that is going to be very sufficient for today's needs and for future needs. Our ambition here is to return to a top two producer position, which is where we used to be prior to the time when we stopped investing. In the polysilicon market, this year we expect another strong year in terms of installations with nearly 300 gigawatts forecasted. Now, regarding polysilicon pricing, yes, there is currently expectation that there will be more polysilicon capacity released. And I would like to say that wafer capacity, however, is outpacing polysilicon capacity from what we see. Currently, the current pricing is in the mid-30s for monograde polysilicon. Prior to the Lunar New Year, price was depressed as buyers tried to find points where they could put pressure on suppliers and in the thoughts that maybe further capacity would create a situation that was going to be more favorable for them to buy into. However, since the Lunar New Year, that situation flipped around. Prices increased in upwards of 30% in some cases. So what the trend will be for the remaining part of the year, I don't know. but I can say that capacity does not come on as a block. And based upon what we're seeing now, we don't expect that there's going to be rapid shifts either way in terms of pricing spiking up or falling down. So that is our best estimate at this time. And we will continue to monitor to see what happens as this polysilicon capacity comes online. Just to touch again on what we had announced before, we have an offtake contract for 100% of the product from our Moses Lake High Purity Granular Polysilicon. It's a 10-year take or pay. We'll be able to track the market. We will have a minimum and maximum that allows us some flexibility and some guardrails, so to speak, in terms of pricing. There will be a significant prepayment to provide contract security. We are continuing to work on a final supply agreement, and we will have more to say about it when it is done. The Moses Lake restart, as stated earlier, project is currently on target to start up in Q4 of this year. We have completed some other items that are in support of this since the last time that we spoke. One is that we now have an MOU for silane offtake that's going to be used for silicon and note materials with Hamlock Corporation. We will continue to give more information as we have more concrete terms and contracts. Additionally, we've currently estimated that our EBITDA at full run rates for the newly started up plan will be somewhere in the range of $100 to $300 million. We have ordered all of our long lead time equipment and materials were well over 50 percent of commitments made. And we are moving into construction phase in every single one of our particular areas that we are focusing on. We have finalized that our estimated target capex number of 160 million dollars. This is an increase from pre-feed estimates. And we do note that this is because this is over a two-year period, because this project as we ramp it will happen over a two-year period. We do have some more information about our JV in Yulin, China. They report that in 2022, they were profitable. They had 16,000 metric tons of FBR granular production. as well as some bloated silane and some small amount of Siemens. But they have been working at steadily increasing their production as well as their sales. Along with that, they reported that their production costs are lower than they expected. And from what we have observed, they were lower than what we expected. Additionally, They announced an 80,000 metric ton expansion. There is no more information on it as of this time. And we are currently in discussions with them over a number of matters. And as we have more information on this potential 80,000 metric ton expansion, we will be back to talk about them. The keynote here on the governmental initiatives Not much has changed except when you get down to that second paragraph in the CHIPS Act. And that is that we now have information that sometime in the late spring, the Department of Commerce plans to release another announcement under the CHIPS Act that is more focused on material suppliers and equipment manufacturers, key enablers of the semiconductor reshoring here in the United States. This for us could potentially include some of the high value investments that we're currently engaged in or contemplating in the Butte facility. We will fully explore this opportunity. And if there are opportunities for us to utilize this, we will be back with more information about that. financing plan. As we stated before we have we had gone through the process of fully vetting value engineering trying to reduce costs tradeoffs of cost versus schedule so that we now have a good idea of what our requirements are for the restart of Moses Lake as well as what we want to do in the near term with the Butte operational improvements and high-value growth investments. Additionally, as is well known, we do have a bond repayment in mid-April timeframe of $110 million. Currently, where we're at is that we have financing solutions that are underway to address these requirements. We will provide additional information AS SOON AS WE FINALIZE ON THESE SOLUTIONS. SO WE ALSO HAVE AN EXPECTATION THAT OUR FINANCING WILL BE COMPLETED WELL BEFORE THE BOND MATURITY DATE. WITH THAT, THIS FINISHES OUR PRESENTATION, AND I'LL OPEN IT UP FOR QUESTIONS.

THANKS, GERT. FIRST QUESTION. ANALYSTS ARE REPORTING THAT THE GLOBAL SILICON SUPPLY WILL INCREASE THIS YEAR BY UP TO 50 PERCENT. IS THIS EXPECTED TO KEEP OR PUT PRESSURE ON SILICON PRICES AND WHERE DO YOU SEE SILICON PRICES GOING THIS YEAR.

OKAY. I BELIEVE I COMMENTED ON THAT SOMEWHAT. I WOULD SAY THAT AS OF RIGHT NOW WE DO NOT SEE PRESSURE ON SILICON PRICES. HOWEVER I WOULD THINK THAT IN GENERAL should there be large blocks of capacity come online and not commensurate demand, then we would see that there should be pressure on prices.