First Solar to Acquire 5N Plus to Access Tellurium?

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Includes: FPLSF, FSLR, GE
by: Greentech Media
By Eric Wesoff

First Solar (NASDAQ:FSLR) , the globe's leading producer of thin-film photovoltaic panels, will look to buy 5N Plus (OTC:FPLSF) to secure its supply of the element tellurium, according to "industry experts" quoted in Reuters this weekend. About 70 percent of 5N Plus' sales come from First Solar. 5N posted revenue of $18.8 million in its most recent quarter for its high-purity metals business.

5N Plus produces other high-purity metals such as cadmium, selenium, germanium, indium and antimony as well as II-VI semiconducting compounds such as cadmium telluride (CdTe), cadmium sulphide (CdS) and indium antimonide (InSb). The firm also expects to add photovoltaic panel recycling services to its business. CEO Jacques L'Ecuyer owns over a third of 5N Plus stock.

Buying 5N Plus would help First Solar contain tellurium material costs and thwart potential competitors at a time of tight supply and rising demand for the rare element. Abound Solar, a potential First Solar competitor, has a supply agreement with 5N Plus.

First Solar is by far the leading producer of cadmium telluride (CdTe) solar panels (and the leading producer of thin film solar panels for that matter). Michael Kanellos just reported on First Solar's planned expansion to 2.7 gigawatts by 2012. We've reported on First Solar's achievements here and potential technology disruptors here. First Solar, valued at $11.7 billion, boasts a strong balance sheet with $274 million in cash on and $114 million of debt.

Tellurium is a byproduct of copper mining and there is an ongoing debate on whether the global tellurium supply can support the growing needs of the solar industry. Tellurium is also used to improve machinability of steel and copper as well as in CD-RW disks and other semiconductor applications.

Although First Solar is the largest cadmium telluride user, there are a few startups looking to replicate its success. The leading aspirants in the CdTe materials system for photovoltaics are Abound Solar which recently received a $400 million loan guarantee, and PrimeStar Solar, now majority owned by GE. Other players include Calyxo/Q-Cells and Solexant.

Prices for tellurium surged from under $100 per kilogram in 2007 to over $200 per kilogram in 2008, according to Lita Shon-Roy, of market research firm Techcet Group. It is estimated that thirty percent of the global tellurium supply goes to First Solar and that fraction is increasing. Rising Tellurium prices might spur a more active exploration and mining operation, rather than depending on tellurium as byproduct.

First Solar has been looking for suppliers who would focus on mining tellurium. Capital Mining in Australia announced in May 2008 that First Solar was sending a geologist to check out a newly discovered tellurium deposit.

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

In addition to 5N Plus, other tellurium suppliers include China-based Apollo Solar Energy and Vital Chemicals.

Estimates vary but annual global tellurium production is about 160 tons to 260 tons with demand potentially reaching 800 tons by 2013. At 8 grams of tellurium per 2 foot by 4 foot panel, that's roughly 100 metric tons of tellurium for each gigawatt of PV production.

On Nov. 8, 2007, First Solar's CFO spoke at an investment conference and publicly commented that "We have identified "terawatt levels of tellurium availability". That's a lot more tellurium than currently identified -- perhaps First Solar has some undisclosed sources or processes.

In any case, silicon remains a much more earth-abundant element than tellurium although telllurium is in strong supply extra-terrestrailly and in undersea mountain ridges.

Damoder Reddy, the CEO of solar panel startup Solexant, had this to say, "It will have no impact at all on Solexant as we use Cadmium and Tellurium containing precursors and we make our own CdTe nanoparticles. Tellurium supply concerns are overblown. More than adequate amount of Tellurium is extracted to meet photovoltaic demand for several years to come. The amount of Tellurium used per watt decreases as CdTe module efficiency increases and CdTe layer thickness decreases."

This supply issue will continue to loom as First Solar grows and especially if Abound or Calyxo or another CdTe panel vendor makes it to high-volume production. Studies by NREL and others calculate the industry being able to absorb significant increases in the price of tellurium.