Motech and AE Polysilicon ink Polycrystalline Silicon Feedstock Supply Agreement

Motech and AE Polysilicon Sign Strategic Supply Agreement

AE Polysilicon Corporation signs supply agreement to supply Motech Industries

A duet of press releases from Motech and AE Polysilicon appeared at the Motech Solar (中文, English translation) website on December 29, 2006.

Motech Industries Inc. (TPO:6244) announced a five year strategic supply agreement with AE Polysilicon Corporation for polysilicon delivery. As press releases go, there is interesting phraseology and new facts in both of them.

Under the Strategic Supply Agreement, polysilicon delivery from AE to Motech is expected to begin as early as 2008, and the annual delivery quantity will be up to 2,400 metric tons. Under the terms of the Strategic Supply Agreement, AE receives certain upfront prepayments and purchase commitments, and Motech is granted certain equity investment and conversion rights, and certain rights to purchase polysilicon at pre-negotiated, formula-based prices rather than market prices.

The Chinese version of the press release seems to indicate the latest PR is revealing the details of the original letter of intent and implies activities have been proceeding before the formal agreement was signed. But, it appears Motech is unsure AE Polysilicon can deliver or hedging their Taiwanese safe harbor statement bets:

Because AE is a development stage company implementing new technology, there can be no assurance that AE will be able to fulfill its polysilicon delivery commitments, and, as with any new technology, unforeseen issues may arise.

Per traditional Guanxi style Chinese business practices, besides Motech’s direct investments in AE Polysilicon, Motech has:

authorized certain officers and directors of Motech to make parallel direct investments in AE with personal funds. Motech also notes that the CEO of its solar division, Dr. Simon Tsuo, is the brother of the founder of AE, Dr. York Tsuo; and that Simon Tsuo also owns shares in AE. While Motech believes that such arrangements serve to strengthen the strategic ties between Motech and AE, and indeed have facilitated the recent negotiations between Motech and AE, Motech has also implemented certain procedures to avoid potential conflicts. Those procedures include approval of all Motech-AE transactions by an independent Board member of Motech, which was obtained in this case.

Instead of creating this conflict of interest dilemma, why didn’t Motech just take a larger stake in AE Polysilicon to the benefit of all Motech shareholders? I don’t think there will be a US stock market listing of Motech ADRs any time soon.

New facts about AE Polysilicon are disclosed. AE mentions their fluidized bed reactor process requires trichlorosilane and uses fluidized bed deposition reactor technology proprietary to AE and patented technologies licensed from a third party. AE claims to have closed a first round of venture funding from private and strategic investors.

AE has identified a “brown-field” site in the United States upon which to construct its first commercial production plant and has contracted engineering firms to commence design and engineering work. A package of economic incentives for the plant is currently awaiting regulatory approval.

The brown field site appears to be located in Clinton, New Jersey, from the Chinese press release. New Jersey is an inspired choice for a new silicon production facility; the Garden State has the dubious distinction of leading the nation with the most Superfund Sites. Also, New Jersey has been keen on attracting renewable energy companies, investments, and jobs in support of New Jersey’s progressive Clean Energy Program™ (NJCEP, http://www.njcep.com).

AE confirms plans for an initial Phase 1 capacity of 1,500 metric tons per year with operations beginning by the end of 2008. This seems to indicate Motech won’t be receiving any significant volumes of silicon feedstock in 2008. AE tips ambitious plans for global production capacity of 10,000 metric tons per year by 2012 year-end.

Hannon Armstrong Capital and Thelen Reid Brown Raysman & Steiner LLP have been retained by AE Polysilicon to raise capital and help negotiate the financial, regulatory, and legal issues they will face in building a chemical production facility in a Northeastern US blue state with a history of “Pay to Play” dirty politics.

I first saw this news reported at The DigiTimes.com Bits + chips column, Solar cell maker Motech and AE Polysilicon sign supply agreement. Also, please see my previous posts about AE Polysilicon at AE Polysilicon Update and Unknowns NA Polysilicon, AE Polysilicon, and MST joining PV silicon party.

Given all the recent silicon coverage, I am starting to think the tagline for this Blog should be “All Silicon, All the Time”.