REC Silicon: A Comeback Story

Disclaimer: This article is for informational purposes only and is not investment advice. Readers should conduct their own due diligence before making any investment decisions.

REC Silicon (OSE: RECSI), with its core operations and facilities strategically based in the United States, and all of a sudden a key player in U.S. value chains critical to national security, paradoxically finds itself listed on the Norwegian Stock Exchange. This geographical dichotomy may not fully reflect the company's current and future potential.

The last decade has been a turbulent journey for REC Silicon, primarily due to the U.S.-China trade war, which led to the closure of their multi-billion-dollar Moses Lake plant. However, its Butte facility (in Montana) stood resilient and continued operating, acting as a financial lifeline for the company. Now, with the global dynamics shifting, REC Silicon's prospects are looking brighter than ever.

Here are some key developments that have redefined REC Silicon's trajectory.

1. Recent Sales and Strategic Shifts: REC Silicon's strategic realignment included divesting its 15% stake in Yulin, a move that brought in USD 130 million. This sale signifies a refocusing of the company’s resources and direction.
2. Domestic Production Emphasis: The U.S. and other nations are now prioritizing domestic production in critical sectors. REC Silicon, aligning with this shift, has reignited operations at Moses Lake, reinforcing its dedication to U.S. market needs. The plant was successfully restarted November 2023, and during 2024 it will ramp up to 100%.
3. Hanwha's Strategic Investment: Hanwha's acquisition of a significant stake in REC Silicon and the 10-year polysilicon supply deal with Hanwha Qcells (estimated worth $3 billion) underline REC Silicon's indispensable role in the solar industry.
4. Boost from Inflation Reduction Act (IRA): The IRA's $3-per-kilogram incentive bolsters REC Silicon's financial outlook, with DOE support further amplifying its strategic significance. An early DOE candidate, REC Silicon eagerly anticipates the 2024 decision.
5. Chips and Science Act: This legislation boosts the U.S. semiconductor industry, with REC Silicon's Butte facility identified for potential expansion in silane gas production.
6. Support from Senate Bill 5849: Extending tax cuts for solar panel manufacturers and enabling infrastructure improvements aligns with REC Silicon's growth in solar technologies.
7. Silicon Anodes: The New Frontier: REC Silicon is pivotal in the silicon anode revolution, should be a key driver for investors keen on cutting-edge technology.

Adressing the What`s next from the cheat sheet above

1. Moses Lake Plant's Full Capacity by 2024: Management has repeatedly confirmed that the Moses Lake plant is on track to reach full operational capacity by 2024. This ramp-up is significant, as it's projected to generate an EBITDA of $200-400 million by 2025, focusing solely on the solar and semiconductor sectors. This figure doesn’t even include the potential uplift from battery deals and further expansions.

2. The recent acquisition of additional land adjacent to REC Silicon’s existing facilities points towards an evident expansion strategy. Given REC Silicon's strategic role in critical U.S. value chains, it's no surprise that they've been identified as a prime candidate for this support. The DOE's decision, expected by spring 2024, will likely be a significant catalyst for these expansion plans.

3. The Awaited Milestone: Anticipating Major Battery Deals. We believe that the long-awaited battery deals involving REC Silicon are currently under a 'gentleman's agreement', awaiting formal DOE support. It's highly unlikely that major industry players would commit so significantly without a well-structured value chain. Moreover, the DOE's substantial grants of $250 million to companies like Amprius, Sila, and Group14 hint at an underlying understanding of REC Silicon's role and future plans. The forthcoming DOE announcements, expected in spring 2024, will mark a significant turning point. And the deals will be game-changers for REC Silicon.

Final words: A Valuation Disconnect Amidst Strategic Positioning

REC Silicon's strategic assets place it at the nexus of three global megatrends, yet its market valuation, standing at roughly $503 million, starkly contrasts with its estimated $3 billion asset worth. This discrepancy highlights the company's underestimated position in vital industries. With an EBITDA projection of $200-400 million by 2025, solely from solar and semiconductors and excluding potential battery deals, REC Silicon emerges as a quintessential pick-and-shovel play in today's market landscape.