REC NO (+13%) - Looming supply disruptions in China? REC has now recharged and could it rerate in the medium term?



Now there are stories surfacing pertaining to alleged human rights abuse in the Xinjiang region of 1m Uighur Muslims which has been practically living in concentration camps. China is producing some 70% of world polysilicon supply and 50% of the Chinese supply is coming from this Xinjiang region. What could happen is that US custom officials could ban imports from the Xinjiang region if they see reasonable evidence of human rights violation.

The US is currently dependent on imports of polysilicon from China. Any supply disruptions from China would be a boost to REC. There is very limited competition for REC as Butte and Moses Lake are the two largest silicon gas plants outside of China.



https://www.eenews.net/stories/1063717011







Back of the envelope suggests a shareprice of 22 NOK in REC. 2x the current shareprice?



REC NO - Its been an eventful year for REC with being on the brink of Ch 11 to signing 2 monumental partnerships agreements securing offtake from its two plants. In addition to securing capital by raising 1bn NOK in equity.

-> Partnership with Group14 Technologies to develop a co-located production facility for production of silicon-carbon anode material to be used in future lithium-silicon batteries. The plant will break ground in 2021 with goal to produce 12 000 tons/year of battery material by 2023.

-> Partnership with Violet Power to create an integrated US based solar chain value chain through establishing an ingot and wafering solution for Violet Powers future cell and module factory next to REC's Moses Lake plant. Violet aims at reaching 0.5GW mid-2021, 1GW by 2022 and 5GW next five years.

Valuation:
The Butte (Montana) plant currently operating generates usd 30m per year. The Moses Lake (Washington) plant to be restarted following partnerships entered into, is set to generate usd >100m per year. (In addition the company has been incurring some usd 25m in annual non-segment-allocated costs). Adding up suggests ebitda of usd 105m. At 10x ebitda (i.e. roughly 9% Wacc) less net debt after the pp of usd 65m, and usd/nok of 9 suggests equity value of nok 9bn, or nok 23 per share (370m shares outstanding post pp shares).



PS: We don’t have any formal coverage of REC.