Hoku shuffles customers and polysilicon capacities

In a major effort to realign financial requirements for the construction and development of its first polysilicon plant, currently being built in Pocatello, Idaho, Hoku Materials, Inc., a wholly owned subsidiary of Hoku Scientific, Inc. has cancelled certain future supply contracts in favor of others that provide up-front multi-million dollar deposits, reducing the burden of raising further cash for the project.

Hoku Materials has cancelled polysilicon supply deals with Sanyo and Global Expertise Wafer Division, Ltd. (GEWD), a wholly owned subsidiary of Solar Fabrik AG, which were not conditional on significant cash deposits. The company said that each company had only made $2 million each in pre-payments with those amounts being returned to them.

Hoku also said that the expected capacity at its Pocatello, plant of 3,500MT had been oversubscribed, so the cancellation of earlier signed contracts would also free capacity for further deals based on deposits. The plant is estimated cost approximately $390 million.

"This realignment of production capacity is a positive development for Hoku," said Dustin Shindo, Chief Executive Officer of Hoku Scientific. "We resolved the issue of our plant being oversubscribed, and gained the flexibility to allocate that capacity to customers that are able to provide up-front capital for plant construction costs, which the Sanyo and GEWD contracts did not do. Owing to Hoku's demonstrated progress, we are now able to secure contracts with more favorable prepayment and pricing terms." 
Hoku now retains prepayment commitments totaling $270 million. With the signing of its three most recent contracts, with Kinko Energy, Tianwei New Energy, and Wealthy Rise International, Ltd (Solargiga), worth more than $1 billion in future revenues, Hoku now has $30 million more in committed prepayments than from the contracts signed in 2007.

"Based on our expected reactor productivity, plus the investment we have already made to upsize our vent gas recovery and TCS production equipment, we believe we can achieve a full production yield beyond the 3,500 metric ton mark, with little if any incremental capital costs," said Shindo. Last week, the company finalized and obtained the necessary air permits to operate its plant at 4,000 metric tons of capacity. Shindo continued, "We are currently evaluating opportunities to enter new long-term sales contracts that utilize this incremental capacity. To allow for a gradual ramp-up, these discussions conservatively assume incremental capacity would be available in 2010."

Hoku reiterated that it was on schedule for first commercial shipments to take place in the first half of 2009, with full plant capacity reached in the first half of 2010.