October 15, 2010 / 6:59 PM / 9 years ago

DealTalk: 5N Plus on First Solar's radar as supply crunch looms

BANGALORE (Reuters) - Most of the world’s solar panels use polysilicon, but as the race heats up to find the most efficient and cheapest way to harness the sun’s energy, cadmium telluride (CdTe) and its biggest supplier, Canada’s 5N Plus Inc, are coming under the spotlight.

Given the emphasis on cheaper solar power, more companies plan to enter the thin-film market currently dominated by First Solar.

And, as the market for low-cost thin-film panels grows, industry experts say First Solar, the biggest producer of thin-film panels that use CdTe, will look to buy 5N Plus to secure its supply of the semiconductor material.

CdTe has a 10-15 percent cost advantage over the more widely used silicon, but tellurium, a tin-colored component of CdTe and a byproduct of the copper industry, is not widely available.

Apart from 5N Plus, the few other CdTe suppliers include China-based Apollo Solar and Vital Chemicals, PPM Materials based in Germany, Japan’s Nikko Metals, and Honeywell International’s Honeywell Electronic Materials.

Analysts say annual global demand for CdTe will reach about 260 metric tons by year-end, virtually all of which can be produced by 5N Plus. Demand could hit 800 metric tons by 2013.

“There’s a limited amount of tellurium in the world and First Solar needs a significant portion of it,” said National Bank Financial analyst Rupert Merer. “It would make sense for them to try to lock up supply and increase their security.”

“The numbers typically thrown around are roughly 400-500 metric tons of tellurium available every year, and First Solar will need well over half of that very soon,” Merer noted.


Favorable government regulations and the lower cost of CdTe panels have prompted firms such as GE Inc, Q-Cells and privately-held Abound Solar to get interested.

GE plans to build 30 megawatt (MW) in 2011, but will then likely look to expand its capacity. Abound Solar has secured a $400 million grant from the U.S. Department of Energy and plans to build over 840 MW by the end of 2013.

“These two are going to be big competitors to First Solar,” Stonecap Securities analyst Michael Goldberg said.

“This would definitely accelerate the process of First Solar buying 5N Plus to get access to that tellurium supply.”

For First Solar, buying 5N Plus would help keep costs in check and rivals at bay at a time of supply constraints and increasing demand for tellurium.

First Solar said on Thursday it was adding capacity to meet growing demand — opening two new plants which, with other expansions, will nearly double production capacity to above 2.7 gigawatt (GW) in 2012.

“Given First Solar’s historically conservative nature surrounding expansion, the decision to add this incremental capacity is indicative of strong customer demand,” said Oppenheimer analyst Gary Hsueh.

And experts say First Solar will continue to bank on 5N Plus for a bulk of its supplies.

“We expect 5N Plus to continue to provide an important percentage of First Solar’s requirements,” Clarus Securities’ analyst Carolina Vargas said, citing the company’s strong ties with tellurium suppliers.

News of First Solar’s capacity boost helped propel 5N Plus shares to 14-month highs.


Analysts say any offer from First Solar would need a premium of 30-60 percent to 5N Plus’ current value of a little above C$6, less than half its value just two years ago.

“I think a 30 percent premium is adequate for a company like 5N Plus,” said Merer at National Bank Financial.

Other analysts say a bid would have to be more generous.

“I don’t know if they will do it below C$10 (a share),” said Stonecap’s Goldberg. “CEO Jacques L’Ecuyer owns enough of the company to block a deal, and I don’t think he’d do a deal at near the current price. First Solar would need to offer a substantial premium.”

L’Ecuyer owns over a third of 5N Plus stock.

A 60 percent premium would indicate an offer at around C$10 a share, valuing 5N Plus — which has C$64 million in cash and around C$4 million in debt — at close to C$450 million.

First Solar, valued at $11.7 billion, boasts a strong balance sheet among solar firms, with $274 million of cash on its balance sheet and $114 million of debt.

The company’s last big buy was in 2009, when it offered to pay rival OptiSolar $400 million in stock for its pipeline of solar projects, a deal it said would hurt 2009 earnings but add to profits in 2010.

“First Solar has a very healthy balance sheet,” National Bank Financial’s Merer said. “They could probably make the acquisition with cash alone, but they could also issue stock, too.”

($1=1.004 Canadian Dollar)

Reporting by Adveith Nair & Aftab Ahmed in Bangalore, Editing by Ian Geoghegan

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