REC Silicon ASA

Good morning. My name is Kurt Lovins. I'm the CEO of REC Silicon. I'd like to welcome you to the third quarter 2023 results presentation. Highlights for the third quarter. I think first and foremost, I'd like to point out that we started up our Moses Lake plan as we had previously communicated. And currently, all is on schedule and budget. And we plan to have first silicon in November. Revenues were $34.8 million. Our EBITDA was negative $17.8 million. Market-wise, while solar PV was still strong in terms of installation, the supply of components into solar PV is undergoing a situation with a little too much inventory at this time. Semiconductor market is stable. Think off of the lows that we saw at the end of last year into the beginning of this year. And we see potential for a second half recovery in 2024. We were able to complete our high purity granular polysilicon offtake as announced previously with very high quality offtake counterparty, Hanwha Q cells. And we were able to get our final two term loans in place in the third quarter, which in fact represented a final tranche of the funding that we require for the restarts of the Moses Lake facility and the high value investments we're doing in Butte. So I'd like to talk first a little bit about to reorient who REC Silicon is. I think that when in reality, our assets give us a unique exposure to several of the megatrends that are currently in place. We have the largest silane gas capacity outside of China, and we're able to use this silane gas capacity to create value and move into applications such as digitalization, renewable energy, energy transition, and electrification, or in this case, specifically energy storage. We're characterized by the fact that again, as I mentioned earlier, we have the largest amount of silane in the world outside of China. This is in fact the most, amount of product that we make, and it's the way that we create value. We have very strong position, long-term relationships with our customers. We have lots of redundancy in terms of our capacity, high reliability, high quality. And with that goes the brand. that allows us to make sure that we remain with these high quality customers, particularly in these times when we're going to be expanding. We also have immediate capacity available, both in the high purity granular polysilicon that we're now in the process of bringing online, as well as our silane that can be supplied to silicon anodes. One of the things that's facing our industries right now, silane-based industries, is the fact that these markets and investments are shifting from overseas to more United States as well as in Europe due to reasons of supply chain sufficiency, geopolitical tensions, and concerns around ESG. This is also backed by a firm commitment from governments, particularly in the U.S., via legislation, the Chips and Science Act, Inflation Reduction Act, Uyghur Forced Labor Prevention Act, and the Infrastructure Act. What this means is that there's a tremendous amount of investment happening right now going into the United States, and we happen to have a very good position given our location and capacity and the nature of our assets. So then how do we get from where we were to where we're going to be once we're done ramping these assets? And that's the key part of this is that we're going to move from an exposure to more volatile markets and lower value commodity products. to changing the product mix to higher value products and a revenue profile that is more North American centric and outside of China centric. So the Moses Lake restart, as I noted, we started our restart, we started the plant and the activities prior to the date that we had announced before. Currently, our first silicon is planned this month, and we're still on track to have shipments out by Q1 of 2024. I want to state that this particular phase that we're entering into is going to be going on for the next year. We are evaluating ways that we could potentially accelerate it and As we go through that process, we will of course make note of it in any future discussions around this particular matter. But right now, everything is on budget and on schedule. We still plan to be at full capacity by Q4 of 2024. In our Butte operation, We expect to make our first shipments of our DCS product in Q1 of 2024, and they will be ongoing as we qualify the product there, and then as new capacity comes online to consume it, and we are able to increase our shipments. In addition to that, we should have all of our, the majority of our, I should say, of our containers in place by the middle of next year. These will allow us to take advantage of market for silicon gases around the time when we expect it to potentially recovery. From an electricity standpoint, we've stabilized that input and currently we'll have hedging in place for 60% of our demand through the middle of 2024. And we balanced our business case and plan around that in terms of pricing, product mix, and how much we're going to make. Financially, as stated before, our revenues were 34.8, and EBITDA was negative 17.8. However, I would like to point out that if you look at between Q3 of 23 that we are now reporting on, The semiconductor materials segment was 6.1 million versus Q3 of 22, where it was negative 5.3. Q3 of 22 was when we entered into the period of softness, as well as the period of electricity imbalances and commensurate price volatility. So we've done a lot of work on our underlying EBITDA TO MAKE SURE THAT WE HAVE SUFFICIENT LEVERAGE AS A VOLUMES RETURN AND DEMAND RETURNS TO IMPROVE OUR POSITION THERE. SO SPECIFIC AGAIN IN OUR SEMICONDUCTOR MATERIALS, YOU CAN SEE THAT IF WE GO BACK AGAIN AND LOOK AND SEE HOW THE THREE QUARTERS WENT WHEN WE ENTERED THE DOWNTURN UNTIL Q2 OF THIS YEAR, when we became positive again. Our expectation is now, as we look at how we're performing, that we should be somewhere in that current range going forward for the next few quarters, given our visibility on orders and inputs. Cash flows. I think the most important thing to note here, our cash balance was 121.7. And of course, greatly affected by the fact that we had $30 million advance payment for execution of our contract and $140 million term loans to finish out the final tranche of our financing. Nominal debt was 352.7. Nominal net debt was 231 million. Our silicon gases, as noted, was down slightly from where we were the previous quarter. And the thing is, is that we can expect to have a run rate somewhere around the average of what we had prior to entering into the period of downturn for the semiconductor industry. And the way we were able to do this is that we had been focusing on making up volumes through movement into other kind of non-core applications and geographies and opportunistically selling our products into those markets given the less barriers to entry. and our brand and strength within those areas when we choose to participate in them. So I think that if you look at kind of the average of where things were before we entered into this period, and that's kind of where we're going to be here for the next foreseeable future until we start seeing more about the potential recovery in the second half. Underlying everything, the fact is this. As I noted, the investments in semiconductor solar and battery materials are real. They have begun. Advanced processes in semiconductor and even in solar PV do result in an increase in silicon gases used per unit. Digitalization, data, electrification, energy transition, AI, All are still in place and all still need silicon gas to happen. So that hasn't changed. And in spite of the weakness that we're seeing now, we're still making sure that we're positioning ourselves so that when that weakness recovers, we'll be in a position to take those opportunities. In terms of silicon, we see that we had, it's a relatively flattish to compare to for our semiconductor grade polysilicon, which is really what we're focused on and not so much as much on the total. And I would say that we, you can expect that we will be seeing sort of a relatively flattish portfolio going forward, more consistent shipments, of lower volume, however, our focus is on higher value. And so, as noted with the hedging position we've taken and the way that we're gonna try to optimize that particular product line, it means that while we'll be making less product, our focus will be on higher value product. In this case, the Float Zone Polysilicon, which visibility still remains strong and consistent, and it is primarily driven, again, by the energy transition and electrification. PV polysilicon, as I noted before, while installation growth is still very positive, the fact is that there is tremendous oversupply in the value chain, and this includes from polysilicon in China, through all components in China. You have cell manufacturers running at lower utilizations, module manufacturers running at lower utilizations, even some of the wafer manufacturers running at lower utilizations. And there's a lot of inventory in the value chain, particularly forward in some geographies. However, having said that, demand for polysilicon outside of China is still strong. And I think that's also reflected when you look at what the price is relative to the price inside of China. You can see that overall, that monograde polysilicon prices have, I would say, stabilized in a band. They go up a little, they go down. But until I think there's some more rationalization or forced maintenance within China, it's probably going to be within that band for a little bit. So in summary, our Moses Lake restart has begun. We expect to make first deliveries in Q1 of 2024. Our offtake agreements in place to secure those products. Our butte operation, we've stabilized our polysilicon inputs and our product mix through mid-2024. We are starting to get some real signals about a market recovery possible in the second half in semiconductor, particularly some of the segments that use more of our materials. We secured our long-term financing for the Moses Lake Restart and Butte upgrades. We are still having ongoing discussions with silicon and no material producers and potential channel partners. And yes, this particular comment has not changed a lot. And that is simply because that process is more driven by where those producers are at in their evolution of new capacity and ability and potential. desire to conclude on some of the discussions that we've had. And the sales process for our interest in TR silicon is still ongoing. It's been progressing well. And at this point, we have passed every major hurdle. So I think we're getting very close to that particular process being completed. And again, in this particular case, We're dealing with the government through these phases, so they have a process, and we just need to make sure we continue to support what we can to move it along. So with that, thank you. We will be next reporting in February of 2024. We will have a specific date on that to follow later. Thank you.

Take some questions. So moving into the questions coming in on the Internet. There are multiple questions related to silicon anode partners and you touched on it in the summary, but again, multiple questions related to. Well, it's well known fact that there's two facilities being constructed near the Moses Lake plant, and if you're willing to elaborate further on any. Anything going on with those?

Yeah, there are. There are in fact. three facilities here at the Moses Lake plant, two that are, I would say, relatively larger than the third one, which is more of a small demonstration facility. So all of those are in progress of some sort. There's earth being moved, there's buildings being erected, but all are still a ways off in terms of when they think they're going to actually need siloing. So as such, we're not at the point where they're willing to engage in some sort of longer-term agreements. So all of those discussions are still going, and all of that is still out there, and it's a third party that we're dealing with here. So I think that's really more a matter of you have a willing party in our sense, and we'll continue to move along and expedite where we can. And the remainder of that is upon them when they're ready.