Shares of Montreal specialty metals purifier 5N Plus Inc. hit an all-time low on Tuesday after one of its biggest customers announced it is laying off 2,000 employees and shutting a plant in Germany.
5N Plus stock closed at $2.99 – 1 cent below its December, 2007, initial public offering price and down 6.6 per cent on the day – after the news from U.S. solar-panel maker First Solar Inc.
First Solar isn't reducing its planned output – or its expected demand for purified cadmium telluride and other metals supplied by 5N Plus. Rather, the Arizona-based manufacturer is consolidating production in fewer facilities in the face of ongoing weak demand in Europe. In contrast to 5N Plus, First Solar stock closed up 10 per cent.
"Investors could be worried the impact this news would have on [volumes]we supply," to First Solar, said 5N Plus spokesman Marc Suys. "We're saying this is not a correct interpretation."
First Solar, one of the world's top solar panel suppliers, has seen its fortunes wane as government subsidies in Europe that fed the industry's growth have been cut while rivals from China have entered the market. That has led to an oversupply of production capacity and a drop in the price of solar panels. In order to survive, panel makers have had to find ways to lower their cost of production.
5N Plus recently signed a revised agreement with First Solar to supply more cadmium telluride than it had in the past, but at a lower price, after demand sagged for solar panels. 5N Plus does have a plant in Germany that ships most of its production to First Solar plants in Malaysia, which will stay open.
But Michael Goldberg, an analyst with Stonecap Securities, said 5N Plus's profitability will likely be hit, as its German facility "was specifically built to supply the First Solar German plant." With that destination shutting down later this year, 5N will face higher freight costs to ship all of its output to southeast Asia, Mr. Goldberg warned.
5N Plus specializes in purifying metals using a secret process – its name is derived from the 99.999 per cent (or five nines) purity of the metals it cleans and sells. Until last year it was focused almost exclusively on the solar business, and First Solar accounted for most of its business.
But last April, 5N Plus bought MCP Group SA of Belgium for $317-million, transforming the company overnight. It gained a 50-per-cent market share in the global business of supplying bismuth – a key ingredient in stomach remedies – and became a major supplier of specialty metals used for a range of applications including lead replacement in paint and cosmetics and electronic panel display fabrication. After the deal, solar represented just 15 per cent of 5N Plus's revenues.
Analysts have been bearish on 5N Plus since it reported its first quarterly loss last month and posted revenue well below analyst expectations, affected by weak demand in the solar business and from Europe for the MCP part of the business.
Market prices for 5N Plus's key specialty metals, including bismuth, tellurium, selenium and gallium, have continued to sag, which could further squeeze profit margins on metals in the company's inventories. "They can't pass through these costs to the customer," Mr. Goldberg said.
Versant Partners analyst Massimo Fiore said 5N Plus stock is now "priced right," given the risks facing the company, including an underwhelming backlog of business, weak metal prices and a relatively high net debt of $261-million.