Good morning, and welcome to the REC Silicon Second Quarter 2024 results presentation. My name is Kurt Levens, and I'm the CEO of REC Silicon. Chinese oversupply in Southeast Asia ingot and cell utilization due to trade actions affected silane volumes and shipments in the second quarter. Our higher EBITDA, EBITDA loss was due to increased startup costs at Moses Lake, particularly as we ready and commission Silane IV, and produce more product in the quarter, but lower value product. Progress is moving forward in terms of exiting our poly production at the Butte site, and we stopped production at the end of the quarter. Work is continuing in terms of advancing our mitigation efforts, and we'll talk more about that on a subsequent slide.
So I'm gonna spend some time here on the Moses Lake operating update, discussing where we're at, where the challenges are, and what our plan is. I would like to remind everybody that it's a continuous process, and all functional areas must perform in order to achieve the expected specification requirements. As we've disclosed before, we've had an impurity contribution in the product handling system. The purpose of this system is to further enhance product quality by reducing levels of impurities that result from the polysilicon growth process, such as hydrogen and fine powder. This is necessary to meet our specifications and the market requirements. The process that we go through is in fact working as intended to achieve reduction in the levels of these, these particular impurities when operated as intended.
However, in the journey through the system, the granular goes through a series of piping and vessels in order to accomplish this. In the process of going through these series of piping and vessels, the granular was picking up levels of a contaminant that was causing us to be out of specification for a singular impurity in the final product analysis. To be clear, we're not talking about gross levels of contamination. To give you some idea of what we're talking about, it's from an illustrative sense, it's the difference of having putting 10 drops of water in an Olympic-sized swimming pool versus putting, say, 15 drops. Those sort of magnitudes in terms of the impurity levels and where we're at.
In response to this, we formed a task force to work through our options and remediations with a focus on what would be the quickest path to resolution. This team consists of multiple disciplines, experienced individuals, who are very familiar with our process, and processes such as our process, in order to kind of hone in quickly on what would be the path forward. Through this process, we determined that, in fact, the granular in its journey through was somehow interacting with surfaces, in the process, that were adding this or contributing this, this contamination. At first, we attempted to resolve this, utilizing our typical cleanup process, using time, flows, temperature modifications, and while this improved matters, and we could see that things were getting better, it also became apparent that it would not improve fast enough for us.
So rather than using more time to go ahead and try to continue to drive the process, it made more sense to look at other options in order to get us quicker to our stated goal and requirement of making our first shipment. So what we've been currently working on is effectively creating barriers or physical barriers in this area, so that regardless of how that contribution happens, there is in fact a separation between the granular along its path and any potential contaminant source. We have a schedule and a timeline, and we are still on that timeline and schedule for making our first delivery as previously communicated, which is mid-September. I would also like to note that we've stated that all construction activities are going to be complete by the end of August, and in fact, we have already started demobilizing some contractors as well as some trades...
Silicon price, silicon gas price increase due to shipping higher volume product, higher value product, and not having a dilutive effect because of the PV sales, really, is evident when you look at the fact that our silicon gas sales price increased 16.5%. The Chinese cell plants are running at 40%-50% utilization, and between the AD/CVD concerns and their preferencing inside of China production, multiple Southeast Asia cell plants have stopped or are running at very low utilization, which affects demand for our product in that segment. Semi is still stabilized. However, we do see a pickup in our other silicon gases that are supplied to advanced production nodes. We've not yet seen significant volumes from all the new fab construction, as this is now appearing to be more of a 2025/2026 horizon.
Our Semi-polysilicon sales were affected by some movement of our FZ product into different reporting periods, thus creating less volume and a lower overall ASP due to the mix effect. Our exit plan proceeds as we have stated, and we expect continued weak demand for our CZ and PV poly offering that comes out of our FZ process. As noted before, price inside of China has dropped by 44% since the beginning of the year, driven by built-up Chinese capacity that is 2 times the global demand. At this time, we know that approximately 40% of capacity is currently shut down or in maintenance in China, polysilicon capacity. We expect this situation to persist for several quarters in terms of low utilization of wafer and cell, affecting pricing and demand for poly and silane in this particular segment.
I'd like to talk a little bit about our silicon anode presence and how we are gearing ourselves to address this market. It seems like lately I've seen a lot of communication around silane scarcity, particularly in North America, with all the activity regarding silicon anode supply. And what I wanna say is that from our perspective, we don't think that's gonna be the limiting factor. I think when you look at the amount of capacity that we have as a producer by the end of this year, and you look at what we have, as is, with minor, you know, minimal investment in terms of time for maybe some additional containers or additional throughput through our loading buildings, we can have, within 18 months, 8,000 metric tons, which is well above what we've seen in terms of forecasted volumes.
In addition to that, overall longer time period, we could debottleneck the capacity that we have, both in Moses Lake and in Butte. Very capital efficient, in some cases, just through optimization and, more efficient processes, we could get additional capacity out of our assets as, as they are. And then, if you go to the next kind of level, if there's a requirement for more silane plants, one, we have land, adequate land at our Moses Lake and our Butte facility for us to build more facilities, more silane production at our current operating facilities. In addition to that, we have a very, self-contained process that is closed loop. We can pick up and move wherever it needs to be. So if for some reason there is a need and it was commercially viable, we could go somewhere else to do this.
So I think that while there's a lot of discussion about potentially utilizing other silane designs or utilizing, you know, government help in order to ensure that there's not scarcity of silane in the U.S., from an REC Silicon standpoint, we are ready to supply as much silane as needed, as we've outlined there, and we can grow with the industry should they have that requirement. And when we talk about basically, you know, why us? Why REC Silicon? Well, to me, it comes down to risk. If I was somebody who was using, who had this silane as a key feedstock-...
I would want to make sure that my investment in my production facility was covered to the degree that I had a very reliable, safe, high purity, consistent supplier, who was a reliable trade partner in a reliable trade area, who had adequate backup and facilities to make sure that I didn't run out of my material. Otherwise, why would the... Let's just say, if you want to look at stacked risk, you have silicon anode, silicon inclusion in anodes, which is a developing market inside of new companies that are developing to develop this product inside of an EV industry that is still not on the maturity curve in terms of mature yet.
So do you really want to have to learn how to make silane when there's companies, in particular ourselves, who have the quality, the reliability, the assets in place now? Nobody's built more plants, nobody's made more bulk container shipments, nobody's supplied more sites to more places around the globe. We've already begun work on new generations of our next plant, should we have the ability to build those. We are hopeful that the silicon anode opportunity does come to fruition, and we are ready to supply it. Our EBITDA of -$38.2 million. Primary deviation from Q1 was a result of our restart costs, especially as I had stated, around volume of product and contractor work, you know, non-capital contractor work around the preparation of Silane Four and other production units on site.
EBITDA did increase over the prior quarter in our semiconductor materials segment, primarily driven by lower energy costs and increased gas ASP, due to the mix, mix effect. Additionally, as we look forward in Q3, we are already in the middle of a scheduled maintenance turnaround that's been ongoing for the past month and will last for a few more weeks. So that is something to consider. As we go forward, we don't expect it to... It was part of our plan, so we don't expect to have effects in terms of our revenue profile over the course of the year. Cash balance, again, is primarily affected by startup costs and CapEx costs, again, related to the finishing of our activities here at the Moses Lake facility. We continue to work on bridge financing alternatives in the case that we need them.
CapEx spending is going to be ramping down in the second half of 2024. Already, we have suspended any further CapEx in our Butte facility or frozen projects where applicable, as we focus in on finishing this project and conserving our cash. In terms of a governmental update, there has been some activity since the last time that we talked, primarily around trade action by U.S. against companies that are in four countries in Southeast Asia. From our perspective, the reason why we're supportive of this is because we want to have ingot and wafer capacity, as well as cell capacity here in the U.S. As long as ingot producers, wafer producers, feel as if their investments are at risk due to the ability to circumvent current AD/CVD actions that are in place, then the chances of them investing are much less.
So for us, we feel very strongly that we need to have the complete value chain here in the U.S.A. The U.S. government is putting a lot of money behind that. Private companies are putting a lot of money behind that, ourselves included. And the linchpin of the value chain, so to speak, ... is in fact the wafer part of it, because without demand or market signal or pull, you're not gonna have polysilicon production. And from a cell perspective, without being able to source those wafers locally, you're not gonna make that investment in cells from a longer term perspective.
So we will continue to monitor this, and of course, as we've stated, we're on record as being very supportive of it, because we believe it supports our business purposes in order to supply polysilicon and silane gas into the reshoring of capacity here in the United States. So in summary, we are continuing an all-hands-on-deck work towards our first shipment. We have a timeline towards a mid-September shipment and are still on that timeline. We still expect to have 100% of our equipment in place and capacity at by the end of this year. PV markets are going to remain challenged, at least for the next following quarters. However, semi is stable and growing in some areas. We stopped our polysilicon production in Butte, as we had communicated before, and will continue to wind down operations over the upcoming quarters.
We're involved in constructive dialogue with multiple silicon anode material producers. We are targeting resolutions of these discussions over the next five months. However, as I've stated before, it is a commercial arrangement. It takes two parties, and of course, their schedules and need dates also are inputs into this process. So thank you very much, and we'll take some questions.
Okay, so moving into the questions, assuming that you reach the first shipment target of mid-September, what kind of delivery ramp-up could be expected? Actually, you touched on there, but would you be willing to give some more figures as far as tons expected in Q3 and Q4?
No, we're not currently disclosing that, simply 'cause our focus is on the first shipment.
Are you willing to guide on projected cash cost for Moses Lake once at full production?
Not at this time. We've what we did do was guide upon an EBITDA range that we expected out of the Moses Lake facility.
Could you disclose on the long-term purity risk and expectations in the offtake agreement with Hanwha?
Yeah, sure. So I mean, in terms of the long-term purity expectations, our target is to produce granular polysilicon that is usable in N-type wafers and cell processes. So everything we're doing is targeted towards that. Our roadmap is such that we will work towards that quality.
How much more debt is expected to be taken on by the company? Is it possible that an equity issue would be in the future?
We are monitoring the situation right now with regards to debt that we may need to take on, as I had stated, in terms of alternatives for bridge financing. And, we'll have more communication if we need to do that. Equity is not something that is being considered right now.
Can you expand on the problems being experienced in product handling? Why does product handling affect the purity?
Product handling is there to remove some of the... As I stated in that particular slide, product handling is there to remove some constituents that are a result of the FBR reaction process, where we grow the polysilicon beads.
Moses Lake restart has been postponed several times, and often the communication related to the delays has come quite close to the communicated date. Is this due to low visibility and high degree of uncertainty in the outcome?
Yes. What we do is we set a target, we have a timeline, we work towards that target. Until you're at the point where you need to make a decision, then the operating thesis is that you're progressing and you're gonna make it. So as you track these things, until you get to the point where you are not gonna be able to make that first shipment, you are on track to make that first shipment.
Can you elaborate on the revenue potential from the semiconductor market for REC Silicon's high-quality silicon gas?
Well, I'd just say that in terms of from a relative perspective, the ASPs that we achieve from our higher quality, products that go into the advanced nodes, as well as from silane that we sell into the semiconductor market, is on average, contributed at a much higher percentage than the overall baseline silane price.
Can the market expect REC Silicon to enter silicon gas contracts directly with customers in the semiconductor market, or is REC's strategy to serve these markets through agreements with distributors?
Okay, our strategy is to have a supply chain that makes the most sense for the ultimate end user customer. And if that is us supplying direct, and through that, the customer receives the most amount of value for what they're paying for, then that's the route we'll take. If it's us going direct, then that's the route we'll take. So there's no, we're not precluding anything.
So in 2020, REC Silicon entered into an MOU with Group14. Is this agreement still in effect, or has it been terminated?
That agreement has expired.
In previous presentations, you've mentioned ongoing discussions with seven silicon anode companies regarding silane gas supplies. Could you provide more details on the total amount of silane gas these discussions represent for 2025 and beyond?
I can just say that in total, if you were to look at them, that the amount of silane that I was showing on the previous slide, at least in the debottleneck scenario, and not brownfield plant scenario, could be consumed, if you believe some of the projections over time, over, say, 5, 6, 7 years out.
REC Silicon has been criticized for lack of openness and transparency in its communication. Can you elaborate on management policy for interaction with the capital markets going forward?
I think that we communicate as we're required to communicate. In addition to that, when we have something that is significant to say, we communicate that. And, as stated before, we, when we had opportunities, we participated in various, either, forums or conferences or communication events, and we'll continue to do that as it makes sense. As stated before, though, our primary focus right now is to have something to communicate about.
Can you expand on the revenues reported for the solar materials segment in the second quarter of $1.3 million? Who are the customers or customer, customers?
We're not, we're not going to disclose the customers, but those were for materials that were either moved to off-spec or for other qualification purposes.
REC has provided expected dates for the first shipment multiple times. How confident are you that this time you can meet the proposed date?
We have a timeline. We have a process. Right now, we are on that timeline, and there is nothing in the process to say that we will not meet that date.
If there's a Republican sweep scenario this coming election, any chance that the Trump administration could reverse the existing tax credits?
I'm probably not the best person to comment on that. However, I will say anything is possible, but in my experience, and this is just, again, because I'm not an expert, but in my experience, it is rare that wholesale changes such as that are made by an incoming administration, particularly when you have a political process such as we have here, and a lot of the beneficiaries of these investments, areas, states, regions, might be opposed to a wholesale thing. Now, that could affect pieces, it could affect whether it expands later, I don't know, but obviously, it is a possibility. Anything, I guess, is possible in that sense.
Okay, and there's a few questions related to the previous number of EBITDA guidance of $100 million-$300 million. So assuming that all markets that we are exposed to remain unchanged over the next years... Is the low end of $100 million still valid? Excuse me, still valid?
Yes.
Let me go through. I think a lot of these we've touched on already. Can you expand on how many silicon anode contracts are currently under final negotiations?
I will just say that we are in discussion with multiple silicon anode producers at this time. In addition to that, you know, we do supply some of them now, smaller volumes for their smaller production or, and/or pilot requirements.
Did the Yulin JV did they reach N-type purity in their operation?
We know that they do supply some material to N-type producers at this time. I can't speak to how much material at what blend. That I don't know.
You mentioned that there is space in both Moses Lake and Butte for expansion. How realistic is a brownfield expansion?
It's very realistic. I mean, up to certain sizes. But then again, you need to make sure that the counterparties and our interests are aligned, and that it's something that would make sense from a financial perspective.
So there's a couple more that have come in. What is a realistic silane gas sales volume out of Moses Lake in 2025 and 2026?
I believe we've shown up there on that slide, what we have available, and so it's gonna be dependent upon our ability to actualize on these contractual commitments.
There's quite a few questions that have come in, but many of them you have addressed, so... Yeah, most items that I'm seeing here, that you've addressed, so okay.
Okay. Well, thank you very much, and we will speak as soon as we have something to announce further or next quarter. Thank you.