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In my previous article about Natcore (OTCQB:NTCXF), which you can read here, I explained why I thought this company could be a great long-term investment. Subsequent to that article, on December 6th, 2013 I had the privilege of interviewing Natcore's President and CEO, Chuck Provini (CP). Following are the contents of that interview.
CP: I'd like to give you some idea of how I got involved with the company.
I have a Wall Street background. I ran reasonably large brokerage firms for 25 to 30 years. Brien Lundin, who is the chairman of Natcore and a good friend for many years said, "Chuck, I've got this great technology company and I'm having a hard time negotiating the license agreement with Rice University; too many professors, too many egos, too many lawyers. So I need somebody who's got a decent resume that they'll respect, who cleans up pretty good and whose ego fits inside his body." I had two out of three.
My thought was to go to Rice, cut the deal, have someone take my place as President, sit on the board and go to board meetings in New Orleans, get some shares, and then go back to what I was doing and live happily ever. But before I attached my name to anything, I wanted to make sure that it was real and wasn't just a science project.
So I went to the investment bankers at my former company and said, "If I wanted to check out something called nanotechnology, whatever that is, where and how would I do it?" So the bankers at the time - it was Rodman & Renshaw (they were technology focused) -- said, "here are a couple of different labs," one of which was Battelle Labs in Ohio. I went to the scientists at Natcore and said, "Is this a good lab to test our technology?" and the answer was "absolutely." So we raised some money, went to Battelle and said, "I want you to show me that this technology is real, that it's not a science project, that it's commercial and something that we can actually make some money with."
At the time I was a consultant to the Moscow stock exchange. The biggest shareholder in the Moscow exchange was the president of a NYSE-listed technology company. I went to him and said, "You must have some kind of lab here in Russia that can do the same thing." He said, "Absolutely! In fact my CTO is at that lab and he makes US$60,000 a year." So I went to that lab, which is very well-known, and said, "I will give you US$120,000 if you can show me this technology does not work and I'll give you US$30,000 if you cannot." And then I went home.
And about six months later both Battelle and the Russian company came back and said, "we would like to be investors in this technology and this company." Then I said to myself "now you really have to find out what this is." I then spent the next two years going back to the investment bankers that worked for me and said, "I don't want to talk to more labs. I want to talk to the potential customers who might use this technology, for example, chip manufacturers, optics people and others. After that two-year period, I was convinced that this technology was going to make me money and, even more important, have a major impact on changing the world. So since then I have not been doing anything but running this company. I took my other businesses, my other career and walked away from them and I have been running this company exclusively since around 2004 or 2005.
Initially we weren't in the solar business. We saw that there were many opportunities in the optics business, in the semiconductor business, in the medical field, in science and research. But we made the decision - a very good decision, I continue to believe - to focus on the quickest way to commercialization, to find the easiest industry to access.
The chip manufacturing business is very competitive, a very mature industry. In the medical industry, you have to wait years and years for trials. But the solar industry, even though it's a relatively old industry, is very immature because of the subsidies that China's been giving it. The subsidies meant that there was little need for innovation. So the industry still uses old technology. Thus we felt that focusing on the solar industry was the best way of giving us revenue.
MA: In the latest progress update on your website you mentioned the application that is the closest to beginning the marketing phase with is the black silicon. Any idea, in terms of time frame, when that would be ready for marketing on a commercial basis, like six months or twelve months.
CP: We first got the exclusive license agreements from NREL (National Renewable Energy Laboratory). NREL was a leading force in black silicon research, and in fact they held the record for the most efficient black silicon cell for some time. However, their process used small 1 cm squares and several steps that were not manufacturable. We took that process and we now make standard-size solar cells. And we do it with steps that are similar or simpler than the ones currently found in manufacturing.
NREL's bottom-up cost model determined what the cost savings of black silicon might be. Right now by eliminating or combining two steps in the black silicon process, we feel we'll be able to cut the solar cell manufacturing cost by 23%. One step is the anti-reflective coating. The other is the removal of a coating that's on the solar cell as a result of the diffusion process. Originally we thought that the primary benefit of black silicon would be higher efficiency; now we think it may be lower cost.
We think that black silicon can do even greater things, but we feel that taking our existing documentation to real manufacturers and showing them our cost savings numbers is the simplest way to get something to commercialization. To that end we are going to send forty wafers with a black silicon coating to a solar manufacturer in China. Those wafers are going back to that manufacturer with our black silicon on them. The Chinese manufacturer will then complete the solar cell process. What we're hoping is going to happen, and we're pretty sure it will, is that if they're now making a solar cell with 18% efficiency, our process will yield the same 18% efficiency, but it's going to cost them 23% less to make it. That step will probably be done by the end of January 2014. Then we will have shown that our black silicon process will keep the same efficiency but cut production costs by 23%. That is something we think we can go to market with.
Who will help take us to market? One of the members of our Science Advisory Board is Daniele Margadonna, who was the CTO of MX Solar in Italy. Daniele has built many turnkey photovoltaic plants, and has bought tens of millions of dollars of equipment from the three major solar equipment manufacturers in Germany. Because we don't want to be in the equipment manufacturing business, we plan to take our results to these equipment manufacturers and say, "here's what we have and here's a real company that produced these results. We would like you to make a piece of equipment using our technology that can be sold to solar cell manufacturers. And we're going to give one of you three exclusive rights to make that equipment. In exchange for that, we want an override on your selling price, and we'll give you an override on the chemicals we sell to your customers."
If we get the results that we're hoping for, we're planning to begin knocking on doors after the first of the year. When does that turn into revenue? I suspect that first source of revenue will be some sort of license agreement from either an equipment manufacturer or a solar cell manufacturer, and I'm hoping to have that within the first six months of 2014.
MA: What are the chances of Natcore being bought by another company in the solar industry?
CP: A big chunk of the shares are held by insiders. And we have a very strong shareholder rights plan. The bottom line is that, in order for someone to buy us out, at least from a hostile point of view, we think we can stop that from happening or at least exact a very high price. We were very concerned, at least when our stock was trading at 30 or 40 cents, that it would be easy for someone to come in and buy up all our technology for not a lot of money. But I think we feel that it's less of an issue now since stock is around $1.00, and if we're getting close to revenue we think that our stock price will be higher, sooner. So we're pretty comfortable with that, but it was a big concern of ours at one point.
MA: How easy and cost-effective would it be for a manufacturer to retrofit their manufacturing facilities with your equipment once you've got an equipment manufacturer?
CP: The process that we're doing is called a wet-bench process. And that process is actually in the manufacturing line already. Currently solar cells go through a texturing wet-bench process early in their fabrication. So all that would have to happen is we would take one of these machines out and stick another wet bench machine to do black silicon in its place. So they don't really have to retrofit anything. They just have to change one machine, and they also get to remove the expensive machine later in the process that applies the current antireflection layer.
MA: So it's relatively easy and there wouldn't be a lot of cost involved to do that.
MA: Potentially, I mean I'm sure you guys have talked about some sort of numbers here, do you actually, if things go as you've described, perhaps within the next six to seven months of the new year, potentially where do you think this could be, revenue-wise, for Natcore two to three years down the road?
CP: We think if we get a 25% market share, and that sounds like a lot for somebody that doesn't even have a machine yet, but 25% market share in the solar industry is really one or two large Chinese clients. We think that with a 25% market share we think we'll be making upwards of 400 million dollars a year from the black silicon process alone.
MA: That would be your gross turnover.
MA: Now, black silicon is the one you're really focused on near-term for commercialization and actually starting to bring some revenue in with, the other one that you mentioned in your update that you're also focusing on for commercialization is the selective emitter. How close is that to potentially becoming something that you can commercialize.
CP: About a year ago we brought all of our scientists from Italy, from here in the States, from China, brought them all to Rochester. I said to them, "the only purpose of this meeting is to focus on, of all the things we can do with our technology, what is the fastest to commercialization?" And the two things that came out, hands down, were black silicon and selective emitter.
Although the selective emitter itself is not a new concept, we have filed provisional patents covering two processes that should yield high performing selective emitters at low cost in a novel new way.
The first of these inventions relates to a method of using LPD as a diffusion barrier layer in a selective emitter process. The second covers methods for selectively patterning black silicon by pre-applying specific types of polymers, then dissolving them away.
The selective emitter is a solar cell design in which regions under the front contacts are heavily doped to improve the electrical connection, while the remaining emitter surface is lightly doped to promote better efficiency. Our process is very conducive to that. The LPD diffusion barrier would provide manufacturers with an easy route to fabrication of these doping regions. And they could do so at a rate of 2000 wafers an hour, which is the throughput of a typical manufacturing line.
We're also looking at ways to reduce costs with lasers. I mentioned earlier that our black silicon process could enable us to reduce solar cell production costs by 23%. One of the reasons we're reducing the cost so much is because we're eliminating one of the two furnaces that are used in the production process. In the case of the black silicon we are eliminating a vacuum furnace that uses very toxic silane gas and heats the wafer to around 500 degrees Centigrade. Another furnace still in the process to do diffusion takes the wafer above 800 C. When you heat a silicon wafer to that degree you introduce defects that harm the performance of that solar cell. So by eliminating that furnace, you will now improve the efficiency with reduced energy used in manufacture. In the selective emitter process, as well as what we've done with lasers, we've already eliminated one of the furnaces with the black silicon and we're looking to eliminate the other and then have a totally low-temperature manufacturing process. That will truly change the industry.
MA: Right now, how many solar cell manufacturers are seriously interested in what you're doing?
CP: Of existing solar cell manufacturers, I routinely talk to about five. But let me tell you where a bigger opportunity is. We're finding countries that do not have solar facilities but want to get into the business.
We have had serious discussions with people in Australia, South Africa and Saudi Arabia. Saudi Arabia is an interesting case. They have a lot of oil. In order to provide energy for their own people, meaning the air conditioning, TV sets, etc., they have to sell the oil back to themselves at US$8 a barrel. So they now have a mandate saying "we have to figure out a way to come up with enough solar power plants to provide the electricity we need for our middle class without selling oil to ourselves for eight bucks that we can put on the market for $80."
We are now in conversations with three different countries. They're saying, "We want you to build a solar plant." Initially we said, "we don't know anything about a solar plant or building it." But now we have Daniele Margadonna and David Carlson on our Science Advisory Board. They know plenty about building solar plants. So we'll ask them to come up with some idea of the cost of a "best of breed" solar facility, meaning they would cherry-pick the best equipment from the German manufacturers of solar cell production equipment. And then, as our technologies allow, the new facilities that we build will have exclusive rights to our technologies for some period of time.
That is probably a more exciting prospect to me than going to an individual solar cell manufacturer. But these are not mutually exclusive; we'll do both.
We understand that these new installations would be totally government controlled. South Africa, Saudi Arabia and Australia have very strong mandates to build these facilities. We feel that a small company like Natcore would be in the hunt to get some kind of consulting agreement to do work and once we do it we've now made our own client for the rest of our technologies.
MA: Financially, with the money that you've got to fund your ongoing R&D and commercialization of black silicon, what's your financial situation in terms of how long will the money you presently have last before you have to go back to the market for more funds?
CP: We try not to raise any more money than we exactly need for a project. We've had no difficulty in raising money in the marketplace. Our burn rate is about US$220 thousand/month. We have enough right now with the current funding and burn rate to sustain us for probably a little over a year, with no revenue coming in. We're looking to come up with, in essence, a PIPE opportunity where we can fund ourselves two different ways.
A PIPE is a private investment in a public enterprise. Someone gives you a credit line, they say look you've got 20 million dollars but the way you access it is you give them some of your shares. They then sell the shares into the marketplace at a predetermined rate based on your average VWAP and all that, as far as the average daily selling, they can't do more than 20 or 30 percent of your average volume.
So what you do, in essence is to draw down on a credit line without selling to private placements. From the company's point of view we can, 1) access more capital and 2) we reduce dilution because we don't have to give warrant incentives and we don't have to pay for brokerage fees. So we're going to have that in our back pocket. That being said we've got a very loyal group of shareholders. This last $3.2 million financing took us literally about two days to do. Because we've got a list of shareholders that have done very well with us, and they say next time you do a private placement make sure you contact me first. They're loyal to us because we're loyal to them. So I'm quite sure that any future financing might be some combination of both.
MA: Thanks Chuck for taking the time for this interview.
CP: You're welcome and thank you and all of the readers on SA who are following our story.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am not a registered investment advisor. Please do your own due diligence and consult an investment professional or your stock broker before making any investment decisions.