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SunSi Energies, An Untouched Green Spec

|Includes: Sunsi Energies Inc (SSIE)

I have recently begun looking towards the OTC markets for making speculative plays. In my instablog post I give my rationale and basic methodology for finding such stocks. One stock I found was SunSi Energies (OTC:SSIE). It is currently trading at $2.31 on OTCQB. Low volume, green tech play. Seems good.

SunSi is incorporated in Nevada and headquartered in Brooklyn, NY. From their webpage:

U.S.-based SunSi is positioned to leverage one of the fastest growing trends and markets in the world today - the widespread deployment of clean, renewable, solar energy. As part of our plan to obtain market share leadership in this segment, SunSi Energies' objective is to acquire, develop and operate a portfolio of high quality Trichlorosilane (NYSE:TCS) production facilities and distribution rights. Key determining characteristics of the prospective entities in this portfolio include strategic location, scalability, and production expansion potential.

Relatively unknown outside of the renewable energy space, TCS is essential to the solar industry. In fact, TCS is the main feedstock of the solar industry, used in the production of polysilicon, which in turn is used in the production of solar photovoltaic (PV) energy producing panels.

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"Relatively unknown," but still followed by Golman Sachs and Zacks and the Green Baron.

They make a chemical essential to manufacturing solar cells.

If we look at the latest 10Q and 10K (1Q financial summary here), we see that SunSi was doing decent business, but that sales have fallen off a cliff. This is because there was an inventory spike in TCS, but according to analysts the Chinese will be ramping up solar production again in 2012 and the inventory glut should disappear. Fortunately, the Chinese are interested in a 5x increase in solar cell production according to CEO David Natan.

But that's not the end of the story. SunSi is acquiring a 51% stake in TransPacific Energy, Inc. Currently, 45% has been acquired. Goldman Sachs estimates this could contribute $5 million in revenue for 2012 and provide .$40-.$50 upside on the share price, indicating a $2.20-$2.25 price target. Unfortunately, this has already been priced in. However, there is a lot of growth in TPE's market, which is estimated at $100 bln. TPE has recently been selected by the Moroccan government to work on an energy project.

So what does TPE do? They capture waste heat and convert it into energy. The technology is similar to a steam-powered electric turbine (Rankine Cycle), but uses a mixture of refrigerants instead (Organic Rankine Cycle). The refrigerant vaporizes at a much lower temperature than water. This allows electricity to be produced in a much wider temperature regime than for steam. Compared to other traditional refrigerants, TPE's mixture maintains efficiency at even lower temperatures.

SunSi is listed on the NASDAQ OTC BB and is seeking a listing on NASDAQ Capital Markets, which will increase visibility and allow more institutions to invest in SunSi. In March, CEO David Natan commented on the progress of the application and was optimistic on getting approval. So even as several analysts already cover the stock, it is not readily available to many investors but could be soon. A Nasdaq listing could be a very bullish factor for SunSi. Natan was also bullish on the business prospects, competitive moat of the company, and attractiveness of the company as an acquisition target.

Some risks include continued weakness in the solar cell and waste heat markets, US tariffs, and general economic. Additionally, there is no guarantee of a Nasdaq listing. Also, the company controls 15-20% of the TCS market in China and is subject to competition from the remaining 80-85% of the market.

In summary, SunSi is well-positioned in the TCS and waste heat retrieval markets. The potential for a Nasdaq listing could provide a strong catalyst as larger institutional investors are able to pile in.

Disclosure: I am long OTC:SSIE.