Solar Eclipse

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Debra Fiakas

The chip makers dominate discussion of the solar energy sector.  Nonetheless, a passing comment in a recent blog post introduced me to an interesting company that seems to have been over looked in the solar story  –  Apollo Solar Energy, Inc. (ASOE:  OTC/BB).

Apollo produces tellurium, a little known chemical element that looks deceptively like tin.  It is typically a by-product of copper and lead mining operations, but can be found hiding beside gold as well.  While these are very common metals, tellurium is quite rare on earth.  Outer space is another story.

Although the primary use of tellurium is in metallurgy applications, Tellurium is used in cadmium telluride solar panels.  Commercial-grade tellurium, which is not toxic, is usually marketed as minus 200-mesh powder but is also available as slabs, ingots, sticks, or lumps.  There have been concerns that current supply sources for tellurium could not keep up with demand from solar panels.  Estimates of world production are sketchy at best.  A mash-up of U.S. Geological Survey data suggests world production is in excess of 200,000 metric tons per year.

More than 90% of tellurium is produced from anode slimes collected from electrolytic copper refining.  The remainder is derived from skimmings at lead refineries and from flue dusts and gases generated during the smelting of copper and lead ores.  It is not surprising then that tellurium is produced mainly in China, the United States, Peru, Japan, and Canada  –  the main copper producing countries.  

Apollo in China calls itself a refiner of tellurium and high-purity tellurium-based metals for specific segments of the electronic materials market, i.e. solar panels.  Apollo is sourcing its tellurium from Dashuigou mine located in Sichuan Province, China and another mine in Shimian, Majiagou.  Apollo touts the Dashuigou and Majiagou mines as the only two known deposits in the world in which tellurium is the primary mineral.  

Apollo’s refining operations are Chengdu, Sichuan Province.  The company says this facility could ultimately have the capacity to produce more than 300 tons of high-purity photovoltaic cell materials and 42 other types of electronic materials.

Despite a number of potential competitors already supplying tellurium to the market , Apollo appears to have had no problem in finding customers.  Apollo negotiated a five year supply agreement with First Solar (FSLR:  Nasdaq) in November 2010.  First Solar is among the largest producers of solar cells and panels in the world.  

Apollo reported $9.6 million in total sales in 2010.  The gross margin of 15.6% was insufficient to support hefty general and administrative expenses near $7.0 million.  Consequently, Apollo reported a net loss of $5.8 million.  Cash usage by operations was $1.0 million in the year 2010, suggesting the income statement paints an unnecessarily negative picture.  Stock-based compensation, a non-cash operating expense, was $3.6 million in the year.

ASOE is trading near its 52-week low, largely due to rapidly eroding confidence in China-based companies that have executed reverse mergers into U.S. public companies.  Nonetheless, we are adding Apollo Solar Energy to the Solar Group in our Atomics Index.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.  

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  ASOE is included in Crystal Equity Research’s The Atomics Index in the Solar Group.


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