REC secures $1 billion in contracts

Company CEO: 'It's all good'

SANDVIKA, Norway - The parent company behind a major Moses Lake expansion is shoring up finances with a series of new agreements with companies they're already doing business with.

To support increasing demand for silane gas from the electronic and solar industries, REC, parent of the REC Silicon Moses Lake plant, entered into a number of significant long-term agreements for the supply of monosilane gas to major gas distributors.

REC Silicon signed a number of new long-term agreements with existing customers who are major gas distributors for the supply of monosilane gas.

Under the agreements, REC will deliver gas worth close to $1 billion through 2014.

"We have traditionally sold silane gas as the 'byproduct' from our production, but that market is now growing, so it's now becoming more and more important for us," REC Executive Vice President and REC Silicon CEO Goran Bye said.

The company served the market from its plant in Butte, Mont., but from 2010, it will be selling larger volumes than the Butte plant can manage, Bye said, so the company will begin selling silane from the Moses Lake plant.

"We are building new capacity out there, and that new capacity will enable us to actually do this, so there will be no more expansions than we have already announced," he said. "Signing contracts like this with big, big gas companies which are very good customers of ours without taking more responsibility, more risk for the future, it's all good for us."

Such a move shores up REC's financial foundations, Bye explained.

"We are investing some $1.3 billion in Moses Lake and it's good to see we can actually find customers who are willing to shore that up for us," he said.

REC is aiming to start up with its expansion late in the final quarter of 2008.

"We're still aiming for that," Bye said. "It's hectic activity to make all the pieces, the systems and the subsystems come together, but we still have that late (fourth-quarter) timeline in mind."

There is a proposed date, Bye said, but he declined to name the date.

"If we overshoot it within a day, we have not succeeded," he explained. "You know how that is."

According to REC, the agreements are structured as take-or-pay contracts with pre-determined prices and volumes for the entire contract period.

Additional volumes are contemplated under the agreements and may be accessed by the customers within the contracts framework.

After these agreements are entered into, substantially all the silane capacity that REC intends to allocate to the merchant market is contracted through 2009. Additional volumes could be allocated from 2010 dependent upon the development of end-user markets.

For the period 2010 to 2014, these agreements constitute around 35 to 50 percent contract coverage compared to anticipated potential volume allocation. REC will seek to increase this percentage by further implementation of the long term take-or-pay contract strategy.

In addition to the silane contract coverage, more than 90 percent of REC's polysilicon revenues through 2013 are already under contract through REC's own value chain and with external customers.

"By contracting for these volumes, REC gains further visibility on future revenues and earnings and will continue to safely supply monosilane gas to the rapidly growing solar and semiconductor markets," stated Erik Thorsen, REC president and CEO.

Deliveries have already begun and the average sales price under the new contracts is around 15 percent higher than the current average monosilane gas sale price. The contracts further outline smaller annual price adjustments based on actual cost developments as well as include the security of bank guarantees covering a significant part of the contract volumes.