Hoku Materials, Inc., a wholly-owned subsidiary of Hoku Scientific, Inc. (HOKU), a diversified alternative energy technology company in China, announced this afternoon the signing of a $284 million polysilicon supply agreement with a subsidiary of Tianwei New Energy Holdings Co., Ltd. that manufactures photovoltaic cells and silicon wafers. The contract calls for delivery of polysilicon to Tianwei over a ten-year period to commence in early 2010. The deal with Tianwei comes quick on the heels of a similar contract announced last week between Hoku and Kinko Energy valued at $298 million over ten years. Tianwei will make an initial $15 million deposit to Hoku in August 2008, and additional prepayments of $15 million by November 15, 2008, and $10 million by January 15, 2009. Tianwei will pay Hoku an additional $5 million upon arrival of the first shipment of polysilicon.
“We are pleased to enter into this long-term supply agreement with Tianwei,” said Dustin Shindo, chief executive officer of Hoku Scientific. “Tianwei Group is an established leader in the power transmission equipment market in China, with plans to invest heavily in the growth of their PV business. Their diversified business and strong PV expansion plans make them an excellent strategic partner for Hoku.”
The cash advances provided by this deal with Tianwei, combined with Kinko’s prepayments and available cash on hand, provide Hoku with $380 million of the estimated $390 million needed to finance construction of its planned Pocatello, Idaho polysilicon production facility. Before these two latest deals were struck, Hoku was faced with a $110 million financing shortfall. Investors have been cautious on the stock, fearful that the remaining $110 million would be raised through the issuance of new debt or equity that would be dilutive to common shareholders.
The Idaho facility’s expected annual polysilicon production of 3,500 metric tons is now oversubscribed. In addition to deals with Tianwei and Kinko, Hoku has inked supply agreements with Solarfun (SOLF), Suntech (STP), Sanyo, and Global Expertise Wafer Division. Commenting on production volume allocation, Dustin Shindo said, “Over the next several weeks, we intend to realign our customer allocations within our available capacity as part of our on-going contract amendment discussions with Sanyo and Global Expertise Wafer Division.”
Shares of HOKU closed at $5.90 today and have traded in a 52-week range of $4.02 – $14.88. Prior silicon supply contract announcements have generally been met with significant gains on heavy volume. Shares traded approximately 10% higher after hours on thin volume following this afternoon’s press release.
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