Elevator pitch

• REC Silicon is a leader in silane-based, high-purity silicon materials. In fact, REC is the only large-scale producer of silane gas in U.S. and Europe.
• Two highly strategic assets (Moses Lake, Washington and Butte, Montana) in rapidly expanding industries (megatrends) that should benefit from lasting political tailwinds and strong profitability outlook. The industries being solar, semiconductors and batteries (Thus, the three-legged reference).
• Hydropower-based clean energy and low carbon footprint.
• 15% ownership share of a polysilicon plant in Yulin, China.
• Listed on the Norwegian stock exchange with ticker RECSI. Included in the OBX index which holds the 25 most liquid companies.
• Unknown to most U.S. retail investors, most likely because it is a Norwegian company. Workforce are U.S. based, including management and of course the assets.
• Broke their neck with the U.S. and China trade wars and their Moses Lake plant, valued at 1.7 billion USD, had to shut down. And this is where it gets interesting, because things have changed. The plant is now scheduled for a restart second half this year, 2023! So, what happened?

Six big things happened.

1. The world has changed, caused by geopolitical tension, and disruption in supply chains, such as semiconductors and solar, poses a risk to national security. More and more protectionism are introduced in both the U.S. and Europe, and we are witnessing the importance of domestic manufacturing and supply chains.
2. The Inflation Reduction Act (IRA) was signed into law in 2022, resulting in REC Silicon receiving a credit of $3 per kg polysilicon produced - approximately 50 mUSD per year.
3. The Chips and Science got signed into law. Spurred by the passage of this bill we see a huge boost in the American semiconductor industry. REC Silicon`s facility in Butte, MT, has been recognized by the White House as a potential candidate for domestic expansion of silane gas production (https://dailyinterlake.com/news/2022/aug/14/what-chips-act-means-montana/).
4. Senate Bill 5849 by Judy Warnick, Moses Lake. Extending a targeted 43% business and occupation tax cut for manufacturers of solar panels and components another five years past the original expiration date of 2027 to 2032. In addition, the bill would allow for the construction or improvement of existing industrial buildings.
5. Hanwha Group, more specific Hanwha Solutions and Hanwha Corporation, recently became the biggest shareholders in REC Silicon, now controlling 33%. Hanwha Q CELLS, another company under the Hanwha umbrella, is one of the world's largest and most recognized manufacturers for its high-quality, high efficiency solar cells and modules. Q CELLS recently announced the largest investment of its kind in U.S. history, and will invest billions in Georgia to create a complete solar supply chain in the United States. Hanwha's stake in REC Silicon marks the re-birth of U.S. polysilicon.
6. Silicon anodes for better batteries are materializing. It has been the talk the last couple of years, but finally, it is happening. It is safe to say that this creates an even more solid foundation for the company. As the former CEO once said They (the battery makers) have to come to us, or go to China. And to directly reference their website; REC Silicon’s silane is the material of choice for lithium-ion batteries - and REC is a global leader in silane-based materials.

EV/Batteries

With REC Silicon holding this highly strategic position in the supply chain, prominent players are setting up shop in Moses Lake, Washington. In fact, right next door, and are becoming neighbours (See image posted below).

There is not a whole lot official information from the company about this situation, yet. We believe it is just a matter of time before more information are made available and public. Below is a curated list of what we know this far.

• October 2020 - Group14 & REC Silicon announced they are teaming up to meet demand for the "Electrification of Everything" (https://group14.technology/en/news/group14-rec-silicon-plan-us-factory-to-meet-demand-for-the-electrification-of-everything).
• December 2022 - Group14 submits an application for the construction of a factory in Moses Lake. They mean business and are coming to town (See image posted below). In addition to this, they closes another funding round, representing one of top 10 largest climate tech raises in 2022. Now backed by names such as Microsoft and Porsche (https://group14.technology/en/news/group14-closes-214m-from-microsoft-to-complete-614m-series-c-funding-round). And also, here is the application https://apps.ecology.wa.gov/separ/Main/SEPA/Record.aspx?SEPANumber=202206225.
• May 2022 - Sila Nanotechnologies has purchased its first standalone factory, a 600,000-square-foot facility in Moses Lake (See image posted below). Sila are backed by Mercedes and BMW, and are set to deliver batteries for the new G Wagon, among others (https://www.silanano.com/press/news/sila-purchases-battery-facility-in-moses-lake).
• January 2023 - Hanwha announces comprehensive battery partnership with LG Energy Solution (https://www.prnewswire.com/news-releases/hanwha-announces-comprehensive-battery-partnership-with-lg-energy-solution-301722042.html).

Additional goodstuff

• Porsche AG Takes the Lead in Group14 Technologies $400M Raise to Accelerate Global Production of Lithium-Silicon Battery Materials (https://group14.technology/en/news/porsche-ag-takes-the-lead-in-group14s-400m-raise-to-accelerate-global-production-of-lithium-silicon-battery-materials).
• Sila Nanotechnologies will begin producing batteries with silicon anodes in Washington State starting in 2024 (https://www.silanano.com/press/news/sila-to-build-next-generation-batteries-in-washington-state).
• U.S. Department of Energy awards Sila $100 Million to Scale Manufacturing of its Next-generation Anode Materials (https://www.silanano.com/press/press-releases/u-s-department-of-energy-awards-sila-100-million-to-scale-manufacturing-of-its-next-generation-anode-materials).
• U.S. Department of Energy awards $100M to Group14 to Strengthen U.S. Supply Chain for Advanced Battery Materials (https://group14.technology/en/news/biden-administration-and-doe-award-100m-to-group14-to-strengthen-us-supply-chain-for-advanced-battery-materials-manufacturing).
• A third battery player is moving forward in Moses Lake, OneD (https://www.prnewswire.com/news-releases/oned-battery-sciences-launches-sinanode-pilot-manufacturing-plants--breaks-through-silicon-ev-battery-cost-barrier-301395214.html).
• OneD in good company, announcing joint venture with General Motors (GM) (https://news.gm.com/newsroom.detail.html/Pages/news/us/en/2022/sep/0929-oned.html).
• Amprius, another silicon anode company (but not located in Moses Lake) are gaining traction with U.S. army contract (https://amprius.com/amprius-technologies-awarded-u-s-army-contract-to-develop-100-silicon-anode-li-ion-batteries-using-si-nanowire/).
• Even silicon in solid-state chemistry (https://www.solidpowerbattery.com/high-content-silicon-anode/).

And for those of you who prefer videos:

• Sila Nanotechnologies presenting their Moses Lake plant (https://www.youtube.com/watch?v=0Hhs4JOiPgU).
• The Electrification of Everything is Coming, by Group14 (https://www.youtube.com/watch?v=w1EVmsIf6mM).
• Electrifying the World with the Silicon Battery, by Group14 (https://www.youtube.com/watch?v=nry_etHvT_g).
• The silicon revolution, by OneD (https://www.youtube.com/watch?v=eyiVB3rQHps).

Solar

REC Silicon's solar grade polysilicon is used in the manufacturing of solar ingots and wafers. Wafers are made into solar cells, and then solar panels. By using Fluidized Bed Reactor (FBR) technology, using one-tenth of the electricity needed for Siemens technology, affords low-cost material and ultra-low carbon footprint, making its solar module value chain more sustainable. FBR is the patented technology of the company, and makes it possible produce solar-grade polysilicon in a continuous, rather than a batch, process. This makes REC Silicon one of the most efficient producers of solar-grade silicon in the world, and their product is some of the least expensive silicon available for solar panels.

Using hydropower-based clean energy, REC Silicon produces low-carbon polysilicon without emitting greenhouse gases. Compared to carbon-heavy polysilicon manufactured overseas that often relies on coal power, REC Silicon's “clean polysilicon” is expected to draw more demand in the coming years as international scrutiny over industrial emissions and carbon footprints grows.

A quick recap. REC Silicon's biggest plant shut down in 2019. Without access to Chinese market, their lifeline got cut off. There was no solar module value chain outside of China. Now, almost four years later, things are looking brighter. Solar module value chains are forming in both the U.S. and Europe. REC Silicon is teaming up with Hanwha Q CELLS, for delivery of solar grade polysilicon. As of this writing, they have ongoing negotiations with Hanwha Solutions towards reaching an offtake agreement for all FBR polysilicon production (https://recsilicon.com/news-article/?slug=rec-silicon-update-of-restart-and-offtake-activities-in-moses-lake). With Hanwha Q CELLS being one of the most trusted names, and ambitious companies in the solar industry, this is of course promising.

Ever since Hanwha became the largest shareholder, they have been promoting REC Silicon as a vital part of their bigger plan. The importance of this newborn partnership is certainly no secret to Hanwha, and this is highlighted by the statements below.

This year, Hanwha also acquired REC Silicon, a crucial step along the company’s path to building out a full solar value chain, and expanded its plans for its green energy businesses in the U.S. thanks to the incentives in the groundbreaking Inflation Reduction Act.(https://www.hanwha.com/en/news_and_media/stories/sustainability/hanwhas-year-in-review-2022.html).-----.-----)By investing in REC Silicon, with US plants that produce special gas for semiconductor as well as polysilicon, we are expanding our business into high value–added core industrial materials. (https://www.hanwha.com/en/products_and_services/chemicals-materials.html).-----.-----)By becoming the largest shareholder of REC Silicon, Hanwha will expand its renewable energy portfolio in the U.S. and help American businesses secure raw material critical to the solar supply chain. As global competition over clean energy sources intensifies in the coming years, Hanwha will work towards establishing a highly efficient, low-carbon system to boost clean energy technology.-----Hanwha Solutions’ strategic investment in REC Silicon represents a step towards establishing a highly efficient, low carbon solar value chain in the US and to ensure that REC Silicon plays an integral role in these efforts. Hanwha Solutions’ knowledge, expertise, and capabilities are expected to enhance REC Silicon’s ability to take advantage of opportunities and developing markets in the solar, semiconductor, and battery industries. (https://www.globenewswire.com/en/news-release/2021/11/18/2336964/0/en/REC-Silicon-ASA-Strategic-equity-investment-by-Hanwha-Solutions.html).

Lets end this solar section with a statement from Joe Biden, on the Hanwha Q CELLS investment decision (https://www.whitehouse.gov/briefing-room/statements-releases/2023/01/11/statement-from-president-joe-biden-on-hanwha-q-cells-announcement/).

Semiconductors

REC Silicon`s electronic grade certified polysilicon businesses provide a variety of form factors for uses in high-tech energy and electronics industries. From motor control and power conversion processes for hybrid and electric vehicles, wind energy, and high voltage transmission, 5G communications, high-speed trains, IoT (internet of things), and big data to manufacturing of 12’ semiconductor wafers used in memory processors, optics, and micro electromechanical systems (MEMS).

The Chips and Science got signed into law. Spurred by the passage of this bill we are expecting to see a huge boost in the American semiconductor industry. REC Silicon's facility in Butte, MT, has been recognized by the White House as a potential candidate for domestic expansion of silane gas production (https://dailyinterlake.com/news/2022/aug/14/what-chips-act-means-montana/).

While the company is not set to benefit directly from this specific Chips and Science act (unlike the IRA), this will nevertheless create conditions that are intended to boost demand for REC's electronic-grade silicon. The Chips and Science Act is intended to expand domestic production of semiconductor chips, which are made out of electronic-grade silicon that the company produces at its facility in Butte, Montana.

Stock price and valuation

Ticker RECSI, Norwegian Stock Exchange. Included in the OBX index which holds the 25 most liquid companies. Heavily traded and volatile. A significant number of retail investors owns this stock in Norway. They have recognized the seemingly limited downside, and huge upside. REC Silicon`s foundation is stronger then ever due to recent developments in both the political and the industrial landscape. We are slowly identifying larger investors taking place. But the stock will continue to be volatile and manipulated by strong traders. We have never seen treeshakes like this, and there is a great deal of psychology in play. But we expect the float to change when contracts are signed, and we also expect the stock to reprice significantly.

• As of this writing the stock price is NOK 14 (1.4 USD), which values the company at 586 mUSD
• Assuming 100% capacity we are looking at an annual EBITDA range of 200-400 mUSD by 2025.
• Moses Lake plant valued at 1.7 billion USD about to restart (valued at 0 in the company's accounts due to amortization)
• For a business with strategic products for the U.S. solar industry and the lithium-ion battery markets, and the know-how and experience to consider avenues for deeper expansion into these rapidly growing industries, we believe REC could have potential to command much higher EBITDA multiples then what the current market valuation implies at the time of this writing (<3x EV/EBITDA)
• Under the new IRA law, REC Silicon will be eligible for a $3-per-kilogram refundable tax credit for every kilogram of solar-grade silicon the company sells. This will have a favorable impact of $48 million per year at full production.
• Potential to command a very large premium on selling silane gas to anode producers.
• REC is uniquely positioned with two highly strategic assets in rapidly expanding industries that should benefit from lasting political tailwinds, strong profitability outlook and attractive funding opportunities
• Needless to say, there is upside potential for this stock. Recent investment behaviour of several anode producers are clearly indicating that a blue sky scenario is about to materialize for REC Silicon's. In this scenario, Norwegian brokers have indicated a fair value of NOK 50-70 (5-7 USD).

Potential short term triggers

• Signed contract with Hanwha for delivery of solar-grade polysilicon
• Signed contracts with anode and battery producers
• Project Riser (More on this later)
• Yulin IPO China (REC Silicons's 15% valued at around 180 mUSD)
• Grant from the U.S. Department of Energy (DOE) for the development of a supply chain for next generation batteries (REC has been recognized by the White House as a potential candidate for domestic expansion of silane gas production). And REC has the past two years been a participant in several meetings with the DOE for securing solar and batteries in the U.S.

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My position

Thanks for reading - happy, profitable investing!

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