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Executives Tore Torvund – President and CEO James May – CFO Francine Sullivan – CLO Analysts Sondre Stormyr – Danske Markets Rec Silicon ASA ( OTCPK:RNWEF ) Q2 2015 Earnings Conference Call July 16, 2015 2:00 AM ET Tore Torvund Okay, then I think it’s about time. And again I would like to welcome you for quarterly presentation from Rec Silicon. So today I have also brought my CFO, James May and our Chief Legal Officer, Francine Sullivan to be together with me to present the Company, and the numbers we got in Q2. Basically the reason why Francine is here today is that we are definitely affected concerning the trade war between the U.S. and China it has now lasted for four years there is no resolution to it yet and the problem we got now is that for all practical purposes we are not able to get access to the Chinese market which basically represents 80% of the total market for our solar polysilicon. So Francine will give an update on where we are on that dispute because that’s very important to find a solution to this for Rec Silicon. When you look to the numbers here, definitely the revenue and the EBITDA for the quarter is not I’d say at the level we would like to see and again it is very much effected by the trade dispute and consequently the lack of access to the market and also consequently the low price we achieved at the market mainly outside China. I am ready to with the numbers we have on operations. Again we have a very strong number in terms of operations. But you see that basically we continue to build inventory in Q2 for polysilicon we grew the inventory about 1,200 metric ton. And that’s let’s say we couldn’t continue to do that. So we have yesterday in the Board meeting decided to shutdown half of our solar grade capacity out of Moses Lake. So that would be immediately done. And it will take away approximately 2,000 metric ton of polysilicon that we could use the rest of the year. On the gas side, we again have a very strong number in terms of volume and the price has come down somewhat and as explained the reason why we think that is a very temporary situation. Concerning the JV in China that is progressing according to schedule while we have also decided due to the need to preserve cash to hold the expansion which was planned for in Moses Lake, so it’s a very mixed picture as you see, very strong operations, difficult access to the market due to the political issues between China and the U.S. Last night we launched private placement for to increase let’s say our financial or to increase our financial flexibility. We were able to subscribe 10% of our shares the price was 1.65 and the placement was considerably oversubscribed so we are very pleased that our shareholders still do really believe that the company will have a very bright future. We’re also looking into the opportunity to sell some bond we have in treasury and we will use today to move that into market so we might even get a little bit more equity into the Company by the end of the day. Moving next to the numbers. As compared to guidance first of all as you know we don’t guide on the EBITDA but the margin was only 6% which is considerably down compared to previous quarters. As I said I am very pleased with the operations FBR again at a very low cost there is no doubt that our operations is on the world-class in terms of cost per kilo. We delivered $11 per kg this quarter. You will see that on the semiconductor side we are a little bit behind the reason why is basically that we have some orders which will be then basically did in Q3 so there is not any major change to the semiconductor market and as you know that is not affected by the trade dispute either. On the sales gas side we were considerably above the guidance in fact we moved to 190 metric ton more into the market and what we guided on in last quarter. As I said we are very pleased with our operations this is the fourth quarter we’ve a very let’s say consistent delivery from our FBR you see the cash flows has been $10.80, $10.70, $11 this quarter. So there is a good consistent high efficient production of polysilicon now on a consistent basis. The problem is the price out in the market and to give you a little bit flavor to what’s going on out in the market. If you look through first of all the dotted lines they are the indices the solid line is our FBR Prime ASP. And you’ll see that back in last quarter, no quarter a year ago we had an ASP about $20 a kg. At that time the common view was that we were heading towards a $25 scenario and as you see that both indices in particular obviously it has been a downward trend for the last four quarters. Really what happened was that when it was heading 20 and everybody believed this was going up to 25. All the ideal capacity was started up again that combined with a fact that China as everybody believe was going to install 14 gigawatt in 2014 in fact came in at 10.8 gigawatt. So in one way you had an increased supply at the same time the demand was heading downwards and it came much lower in 2014 than was anticipated even by the end of Q4. So there was a buildup of inventory through Q3 and Q4 in 2014. We all know that Q1 in ’15 or Q1 general is a very week quarters because we have the Chinese New Year that basically take out two to three weeks of operations in China. And this overhang basically has been continued into Q2. You’ll now see that in a general sense the market is improving you see some trends that the price is gradually increasing it again and there is a demand out there for more supply of polysilicon. Then we have the discount for REC and that is basically due to the trade dispute. You can see that more into this slide, this is official data for import into China of polysilicon remember that the consumption today is about 240,000 metric ton 80% of this consumption polysilicon is in China. China import about 50% of their own need for polysilicon. And gradually you’ll see that REC as a recap back in mid 2014 we traded on par. At that time it was communicated by MOFCOM which is the department of commerce in China that what we call the process in trade, process in trade means that you take polysilicon into China if that polysilicon is used for making tunnels which is then exported you don’t pay any duty. Last fall MOFCOM said that this process in trade is going to be shut down by September this year let’s say a month and a half from now. And since then gradually our customers has demanded more and more discount to take the risk of having to pay the duty or they didn’t have let’s say volume if they could import under this process in trade. And you’ll see in May we have basically May-June we have a tremendous discount just to get access and from today basically we do not have any customers who are willing take because everybody now believe that there is no way they can avoid the duty of 57% which is the duty on U.S-based polysilicon. The countries who have taken the advantage is Korea, Korea is now covering about 60% of the let’s say polysilicon imported to China Korea or the Company as the biggest company in Korea has only 2% duty compare to our 57% duty and it is Germany who is taking then the 30% of the market. Germany has no duty into China and U.S. is now only 10% and that’s mainly our share of that market so we are basically now out of the Chinese market. We are coming back to the polysilicon just to give you an update on the silicon gas inside. As I said we are still between 70% and 80% of the global market is then controlled by REC. We have very strong Q2 you will see that the price drop the 21%. The reason why is that we have had some problem which is different from the trade war we have let’s say what we call a West Coast port issue this basically it was a slowdown of the possibility to get let’s say both modules out of the U.S. and also get modules back to U.S. Our customers in Asia was a little bit worried that this was not going to be sold so they put temporary contracts to other to get supply of silicon gases. To be able to recover part of that market we lost during the port issue we have been really to discount some volume as to get the market share and that’s why you see a temporary reduction in the ASP for the silicon gas. We assume that the price will be back to what we call the normal level in Q3 and that means it’s equal to what we reported in Q1 so there is a temporary reduction in ASP during Q2 but we will come back to normal level in Q3. The volume will be guided later in my presentation. And I will ask Francine to give an update on where we are on this let’s say trade dispute which is a very let’s say important for REC Silicon but also let’s say it is a very high political issue in the U.S. and China. Francine Sullivan I am Francine Sullivan I am the Chief Legal Officer at REC Silicon. And just as Tore said and as you know, there is a trade war going on between China and the United States in relation to solar products. Just to give you the sort of snapshot of what this is now. It’s this SolarWorld One case, which is the case that started it all. This relates to the old Chinese panel, so Chinese panels containing Chinese cells. Now they face, the Chinese panel makers have currently faced with GDs going into United States of 31% for the majority of them, Yingli had 21% but everyone else has 31%. Then there is a second SolarWorld case. This relates to Chinese solar panels containing foreign solar cells. This was brought to the closed loophole that the Chinese had using foreign solar cells and panels to avoid these initial GDs and this case was operating 77% to 9% GDs. Okay this case doesn’t really operate in practice now because this isn’t a preferred product for Chinese because this was like an artificial product that they sell to make and also avoid SolarWorld One. Okay now in relation to polysilicon the response from Chine was despite silicon case against U.S. polysilicon makers that resulted in 57% GDs. So, it was war so this started it, this case against after the response okay and then there was a loophole in the U.S. so the SolarWorld Two case was brought to close the loophole. Then again it’s a war China responded by shutting down this process in trade Tore talked about that that without the loophole. We have a loophole this loophole got closed China responded close the loophole for U.S. polysilicon. So, this situation this is not just us REC Silicon its affect, Hemlock, Hemlock Semiconductor which is owned by Dow Corning and it potentially will effect Walker’s Tennessee production as well. So any U.S. based polysilicon production is affected by these tariffs. It doesn’t matter that Walkers wasn’t in process when the case was initially brought it’s any polysilicon there is opportunities to bring reviews in that kind of thing but that’s the way the Chinese world works. So we have a situation where we have 57% GD on polysilicon and effective I mean I’ve got 31% to 90% there but it is really 31% GD that the Chinese are faced into the U.S. because no one is going to pay 90% GD because that’s this artificial that relates to this artificial product. Next slide please, so what this war means for everyone just so we explain that that there is no one — none of the stakeholders in this war are benefiting from this war at the moment it’s only people were outside that are getting like an artificial benefit from the war. So the sales to Chinese panel makers they’ve faced with at least the 31% GD into the U.S. Now that’s not sufficient to block them out of the U.S. market because of their cost position they can still access the U.S. market but it’s a headwind it’s a problem and what it really does is create a competitive opportunity for these third country panel makers to ship more products into the U.S. So the U.S. market is growing as you know it’s going to be some of you may know it’s going to be the second or third most important market this year and definitely the second most important market globally next year with 10 gigawatts next year and the Chinese had this headwind so they can’t take their sort of their real position in the market because all these guys that are in Singapore, and Malaysia that have no tariffs they are shipping in because it’s a highest price market, it’s a great place to be in I can get better prices in the U.S. than anyone else. So the Chinese panel makers don’t like this of course which is sort of anticipating a really important market to them. It also creates a sort of resource strain on going price uncertainty problem for them just dealing with these three sets of tariff cases takes a lot of resources some of these Chinese guys have several lawyers that are full time just trying to deal with the maddening burden. In addition they have I mean the problem is these ongoing pricing uncertainty because the U.S. laws will provide for a year over year so the tariffs are basically revised every year that there is an every month look back. So the panels that are being shipped now the real tariff applicable to those tariffs won’t be known for 18 months. So they have got the problem when that is entering into every contract as for who bids and risks on the tariff. Okay so they have just their first review of the first set of SolarWorld duties and the secondary views of that is in progress now and there is room maybe those debt tariffs might go up when the second review results come out next year. So this is a real — this is a difficult issue for them this ongoing pricing uncertainty while these deals are in place. Then you have SolarWorld in both the cases in the first place they kind of started the whole thing now they’ve only got protection with the 31% GD but that’s not that much protection because we take positions that doesn’t allow them to kind of control the U.S. market because they haven’t raised their countries that can ship in they can now take them, gives them some limited protection but not very much. So they’re not getting much benefit there. They are also place with these off shoring strength, you have Chinese making announcements proceeding with investments outside of China in order to avoid this 31% and of course more this panel capacity coming on outside of China. So unless SolarWorld just want to bring trade case after trade case which of course takes the lot of money and a lot of time to bring tariffs into effect and they have a limited use anyway. They’re not really benefiting from the current situation, then the wider U.S. solar industry of course is faced with the highest being the highest price panel market in the world which is the problem for them. They buying the panels they’re paying more in the United States and in where else right now. And then of course on the Chinese polysilicon side, the stakeholders there have problems too. You have got the buyers of polysilicon at the moment it’s basically restricted access to different types of polysilicon they can’t get access to U.S. polysilicon. The side higher in China polysilicon prices than outside China that’s a problem to them of course the U.S. polysilicon makers it’s a problem for us because we’ve got a 57% of tariff and that is a real problem for us in the market price. So this — the world of stockholders here and none of it make sense the only benefit of going to the third countries that are just sort of an unofficial benefit out of it but all these stakeholders the one that has an opportunity to settle the case potentially you have some control over it, they’re not benefiting. But the guys outside who are benefiting they can’t really control the settlement they’re just righting the wave of the sort of arbitrage created by it all. Next slide please. So, I mean that would suggest that this doesn’t make sense and shouldn’t stay as it is and that a talk towards resolution would make sense to everyone. Now just to explain the current resolution dynamics there is quite a lot going on given the fact that none of this makes sense and a lot of people are being hurt by it. So we have the U.S. and the Chinese government that’s one sort of key part to our resolution. They’ve got a lot going on this year. They’ve got all these bilateral plan, summit plans. They’ve got tariffs coming up at the end of the year to climate change summit. A lot of these discussions that planning are focused on environmental corporation. So this issue of the solid trade problem is a relevant issue for those discussions. It was most recently discussed that these strategic economic dialog in Washington DC at the end of June between the Trade Ambassador in the U.S. and the Chinese Ministry, the head of MOFCOM and they’ll discuss the importance of a global resolution and when they are talking about a global resolution, the main resolution all the two panel cases in the polysilicon case. So basically to allow access of both of these products to one another’s markets again to reopen the market. The Chinese minister in fact said that he that now is the time for a deal this was very important to him and to the global resolution will improve the polysilicon case. So there is definite focus here. The next thing we have going on between China and the U.S. which is a very important thing is the Xi Jinping visit the President of China is planning a visit to the United States in September. So there is going to be a lot of point of focused on various issues between the countries and a lead up to that and those are the types of visits in which they announce the agreements in collaboration. So this potentially creates an opportunity given the kind of all the incentives and amongst the parties to result that. Also the U.S. Government has a lot of resources allocated to this right now. They’re very focused on the legal issues and how they would on the line to we have sense out. They’re doing proprietary work. We also have substantial U.S. congressional support for resolving this and that’s important. It doesn’t require an act of congress or anything to resolve this matter can simply be done by the administrations but we do have some very vocal supporters amongst congress to resolve all this. Now the threshold conditions to the two countries making an agreement to resolve it is that the panels make a deal amongst themselves and the reason that that is the threshold condition is because under the U.S. law SolarWorld controls the panel cases, so the U.S. government come in over the ahead of SolarWorld makes a deal with China, in relation to the panel cases SolarWorld remain to consent to the deals to withdraw the panel cases. So, that is an important threshold condition. But there is a lot going on in relation to that threshold condition right now as well. Those parties are talking and by the way I’m talking about SolarWorld and the Chinese panel makers they’ve been in the discussions those discussions are ramping up they are ongoing we understand they are ongoing this week. So, as I indicated in the previous slide there is a lot of incentive to both parties to do a deal, there is potentially additional external incentive for them to get a deal done. In previous trade cases the U.S. government has released what’s known as the cash deposits to the parties when they do a deal. The cash deposits are the prepaid towers, now that happened in a couple of other ongoing trade cases that took a while to settle in the past so the U.S. government have done that before so those cash deposits are potentially available to the parties which would create a significant financial incentive for both the Chinese and SolarWorld in addition to the commercial drivers to get a deal done. Okay this is the big focus right now which focus on these global resolution we also have as REC we have got the JV in China and then we’ve got at JV partner working for us in China while being MOFCOM trying to reopen the market for us. Now this is important to them because of course they are concerned with our ability and willingness to continue with the Yulin JV in the price of this of being walked out of the Chinese markets so they are working hard in relation to this. However well right now it’s typical to see these efforts getting attraction because all this is going in and China is very focused on China result the whole thing as I said the minister said now at the time of a deal now is the time for the global deal he wants it all done he wants all the cases resolved. So, if this opportunity fails because we can’t be sure it will succeed there is really good reason to succeed there is a of people working on it right now but it might get there if it doesn’t then we will probably we will focus more on this and this is likely to get some success hopefully. Tore Torvund Let me now give you a short update on the market in general let’s say it seems that again there is a consensus that the capacity to be installed in 2015 it’s about 55 gigawatts of solar panels. The biggest market today not only the biggest producer of whole panels but also the biggest markets for these panels is China. China is expected to be around 15 gigawatt that’s a little bit lower than what this official target which is 17.8 so we have in our mapping used 15 the second largest markets is Europe combined let’s say there is in this that you would find Germany, Bhutan, Czech Republic you will find France, UK but altogether 11 gigawatts to be installed in Europe in the same year and the third largest markets is then Japan I guess I was in Japan two weeks ago and definitely they confirmed that the market seems to be on-track for 9 gigawatt and then the U.S. markets is a very-very dynamic market of 8 gigawatt and the rest of the world is 13. If you look to this basically we believe that 26 gigawatts was installed in or in first half it is about 30 to be installed in the second half. Concerning the supply side we believe that will be a relative good balance between the demand for polysilicon and the production of polysilicon there will be an approximately 25,000 metric ton of added capacity coming on in the second half and most important will be Walker in Tennessee and we have the Sun Edison plant in Korea. We have two companies in China Taco and TBEA and we have done some companies smaller companies but altogether it will be these companies which will add capacity in the second half. When we look to the cash cost situation among the producers we have last year the stock price of polysilicon compared to all of you of what this the cash cost positions to each company working in this space. You will see that REC let’s say we have used $12.5 which is our average cost this year you will see that we are definitely among those two smaller active down here which has claimed they have lower cash costs but basically we still make some money if you go taxes to the market while there is a lot of capacity today which has a cash negative cash flow due to the low prices. What we have mapped over here is what the call captive marginal produces a lot of these are Chinese producers they started up last summer they are still in operations, they are now basically waiting for what will happen if the process in trade are close down. Because then definitely the price in China will go up and they might get some relief if it is not opened again we believe that some of this capacity will then go away. And then over here you have the marginal produces that outside basically in China but ass you see the results of several among those couldn’t continue to operate given the present market situation in the market. On the long-term things seems to be relatively healthy. As I said there will be 25,000 metric ton coming on in the second half in 2015 this will continue to ramp. So basically it is not new added as a glance it is just have to have ramp up and that’s the capacity coming on in 2016. In 2017 it is only the JV between Youser Group and REC which will come on and we have not indentified others coming on in this period of time. If the demand continue to raise the limitation for basically the growth of the solar will be access to polysilicon. And as you know it take more than three years for a decision and feel capacity comes on. There is someone who says that in 2020 the demand might be towards 120 gigawatts that will not happen because it will not be enough polysilicon available to support such a growth and polysilicon will be what is limiting the growth of the solar. Then James would you like to give us the numbers. James May Good morning I’ll be reviewing the company’s financial performance during the second quarter 2015. First of all as Tore indicated our revenues are at $93 million which represents an increase of about 24% compared to the prior period be summed up in terms of higher volume and lower prices largest contributor to the increased in revenues was polysilicon. Polysilicon volumes increased by 60% to some 3,817 metric tons from 2,390 in the first quarter. At the same time as Tore indicated because of the trade dispute in soft market conditions prices decreased by about 20%. In terms of silicon gas volumes we sold 989 metric tons represents about 34% increased compare to Q1 volumes that is 736 and about 41% increase over the guidance that was provided. At the same time we had two deals that were entered into, to encourage higher volumes and regain market share loss due to the West Coast port slowdown that forced prices down by about 21% and again we expect those prices to return to Q1 level during Q3. Even they came in $5.8 million dollars is about 77% decrease from Q1 2015 EBITDA or decrease in 25% to 6% EBITDA margin. Again the largest contributor here was the decrease in prices and about 20% overall. During the quarter cash decreased by about $3.8 million, the operating activities for the company return to $8.7 million positive the largest contributors to operating capital or operating cash flow was EBITDA of 5.8 and working capital decreases of $9.1 million offset by interest of $6 million. Inside of working capital largest contributor was decline in accounts receivable, excess collection oversells is about $18.5 which is offset by increases in inventory is about $11.3 million. Tore indicated earlier last night we’ve done an equity issue the will result in about NOK 350 million proceeds which is expected to come in near $43 million of cash contribution to the company which will put cash about $92 million if you consider that transaction. In terms of the company’s liquidity nominal net debt or excuse me nominal debt increased by $3 million the only change here is the strengthening of the NOK relative to the U.S. in moved it about $3 million higher. In terms of nominal net debt it increased by about $6 million is at 3.8 million of change in cash plus the $3 million due to the currency. Again with the equity transaction last night our nominal net debt would have been about $111 million which is 154 shown here last the 43 million expected proceeds. And with that I’ll turn it back over to Tore. Tore Torvund Okay. Thank you, James. Then a short update on the expansions we have in China as we remember 90,000 metric ton of FBR that we produce there. This is the pictures from the site this is a picture for fabrication on one of the reactors. Basically we are now issues more than 300 packages as I said about 85% of all the equipment will be made in China about 50 and also critical one from an IP perspective will be fabricated outside China. So we have issued now all the packages and we start to follow-up the fabrication. On the site we have started to all the civil work. There will be let’s say large activity during this summer relatively low activity in winter and then all the equipment and all the facilities will be built next summer. And basically we will be starting out in the beginning of ’17 and by mid ’17 we anticipate to be up and running at full capacity and that means about 7,000 to 8,000 metric ton will be added in ’17 and then 18,000 metric ton in 2018. We have a very close cooperation with our Chinese counterpart personally I follow up in China every six week through meetings and through visits to verified FBR doing this according to our standards. So in one way it is and as we’re talking about the expansion and at the same time we have decided to reduce the capacity on our facility in Moses Lake. And the reason why is evident let’s say no taxes to the market we have an inventory about 6,000 metric ton of gather that’s approximately four months of production and we couldn’t continue to just building inventory as long as we have not yet cut other solutions to the trade war and get access to the Chinese market. So basically we decided yesterday in the Board meeting that one of our silent plants will be taken down. This plant was due for maintenance in March 2016 during this five months we will them due to maintenance so it will be as a not having average in 2016 it will be done in a very cost effective way mainly by using our own employees so we will keep our employees so we’ll be know layouts during this period. And as I said normally we use contractors this time we are going to use our own employees to make it as cost effective as possible and at the same time we’re ready to ramp-up when or if the trade dispute will be resolved. We also expect that from a cash point of view we will as we reduce the spending by some $10 million per quarter due to the fact that we are not going to then use raw material like MGS power and natural gas so that is a saving about $10 million. At the same time we have inventories so our revenue side will not be affected. We are going to deplete partly our inventory during this period of time. We have also decided not to pursue the investment on what we call the reactor 25, 26 that was an additional 3,000 metric ton of polysilicon to produce start up in the mid 2016 and this was also based upon the new design of our FBR reactors which was close to build or to produce semiconductor grade polysilicon. We have halted it also to pursue to serve cash for I’d say keeping the financial health of the company. So, on terms of guidance, what we have to give you here is what we call the distribution into the different markets if you start on top. Basically you will see the production volume for Q1-Q2 and the anticipated volume in Q3 and you see let’s say we are down from 5,000 towards 3,600 in Q3 due to that let’s say reduced production. We have about 6,000 metric ton of polysilicon in inventory. We believe that basically we will deplete about 1,500 metric ton during this quarter. If you look to where we are going to find customers as we have now assumed that China is not accessible to us anymore; first of all, the silicon gas and the Siemens electronic grid is not part of the trade dispute so that is unaffected by this. If you look through the pink one, we are working together with what we call ingots makers, ingot makers to transform polysilicon into ingots about 800 metric ton will be produced now as ingots under the brand of REC. We are also negotiating this with one company. We are also negotiating similar dues with another company. So that would gradually grow — there is still available trade fees in China some companies are operating in China that’s on the free trade some we do have as access to these customers and we will then as we move about 3700 metric ton outside China. The dynamics now in the market is as I said for example Koreans they are now taking 60% of the Chinese market. The China paid higher prices today than outside China that means the Koreans look forward to move their material to China that open up for example capacity or availability in Taiwan to us. Taiwan was under normal conditions supplied by Korea the Korean now go to China we can move to Taiwan but we will get lower prices in Taiwan and Korea will get in China. So that’s the dynamics going on in market for now. So basically we have then updated the guidance and as you’ll see the 2015 numbers has been then adjusted due to this I’d say this decided shift on, outside in three. So basically we will for the year be at 14,000 metric ton compared to 16. The cash cost will increase from 12.5 to 12.8, on the gas side we also have made adjustment of 400 metric ton namely due to what we loss during the port issue in the U.S. On the semiconductor side there is no change as we said we are behind in Q2 but we are fairly confident that we will catch in Q2 and Q4. And on the CapEx side we have reduced from $85 million down to $55 million that’s mainly goes within maintenance but also within the expansion activity since we are now holding 25, 26 expansion activity in Moses Lake. So that’s it for today. And if you have any questions I’d be happy to take and respond to those. Question-and-Answer Session Q – Unidentified Analyst [ Indiscernible] I was just wondering given the trade dispute would last through 2016, what’s your expectations on production volumes and cash cost? Tore Torvund We have not — as we move our planning horizon today is that it will be solved no later by the end of this year as Francine said basically. I would say there is a lot of momentum now there is a reason to believe that it will be solved. On the other hand I would say what we do now is probably also a good exercise we need to develop I would say customers outside China in 2017 we will have 19,000 metric ton available in China. But the we see the dynamics is even Chinese companies are start to move part with their production out of China for example Malaysia, Vietnam, China just announced that they take advance now in Vietnam so gradually I think there will be access to customers outside of China but we have as now we focus on 2015 and then we can come back to 2016 in the next quarter. Unidentified Analyst Next you had some estimates for 2015 global demand, Europe 11 gigawatts, I was just wondering if you could break that down or pinpoint where do you see the growth because I was bit surprised that number was a bit higher than recent? Tore Torvund Yes then we’re not specialist strong downturn we’re relying on let us say other analysts on that part of it, but basically what we have, we’ve in a very close cooperation with GNT [indiscernible] technology and other work. And basically there is lot of different countries if I remember well Germany is in there, France is in there, UK is in there, Turkey is part of Europe in this respect but I think Chris can give you the details. I think we gave you details once but you can get the report we have based this upon. Unidentified Analyst [Indiscernible] I was just wondering about the free trade zones, if you could elaborate somewhat I see there is been increasing sales to free trade zones what’s the sustainability of selling to these zones? Tore Torvund That’s again a political question we have two customers, who take volumes into the free trade zone how they manage to deal with this from this free trade zone compared to towards the Chinese MOFCOM we don’t have any details about that but basically as we have had contracts in Q2 we also see contracts now in Q3 and that is what it is included in this chart. But we don’t have all the details how they are able to work that out in MOFCOM. Unidentified Analyst [Indiscernible] You have fixed assets of $1 billion. Could you explain why you are not pricing down these assets this quarter? Why there are not impairment charges? Tore Torvund Basically when we took an impairment and [Multiple Speakers] we took an impairment at the end of 2011 I believe when we move back into the analysis this time we believed that the long ranged price is remains the same in terms of our demand expectation and the supply expectation the majority of the value comes from those out years. What’s occurring in that analysis is as long as you consider the trade war to be resolved at the beginning of 2016 you end up fairly close to where we were at before that’s one of the primary assumptions. Unidentified Analyst [Indiscernible] first question are you seeing any sort of curtailments along high cost producers I mean particularly tier 2 capacity in China maybe is that something that you are seeing given were the isn’t one thing so waiting the what’s happen to south ford PIT and it closes but I mean given the financial balance sheet step some of them must have are you seeing any in cases some curtailments? Tore Torvund We are seeing some smaller companies announcing that are doing does they what to be doing and extended outage in China the central government as I said that they want five large group polysilicon companies and they will incentivize consolidation, we are not seeing that happening yet but I think that will drive the case and then you will see also a curtailments of production visitation today is not sustainable and I see China get more and more behaving like a normal economy where basically if you don’t make money you couldn’t continue to operate forever. On the other hand let’s say in China as elsewhere employment is important some of these facilities are located in areas where the alternatives is not that many more people to find jobs so there is a let’s say that kind of dimension to it in China as it is also out of license. Japan with today’s prices that is the price stay about 16 to 17 this is not so same we will incur a lot of them, we can keep going but there is not too many others who can continue and operate under this conditions. Unidentified Analyst Just another question is with given or happen with domestic prices in China with this cost in trading expended and do you see sort of capacity for market for your polysilicon being moved outside China and then extent from this tariff and obviously you are not to some extent now or do you expect that to come or how long do you think that will take to see and avoidance of the silicon? Tore Torvund Again the dynamics here they may talking about trade between the U.S. and China there is no doubt in China let’s say our customers that needs panel makers they want to post as we’ve trade to be open because in that way they will get access to some not only low cost but high quality polysilicon the alternative for let’s say for these customers which is an definitely that part of the value chain is more important in China because they have a huge capacity that more than with the global capacity or the demand in downstream but they have only half of the global capacity on the upstream polysilicon. So, there is two counts in China let’s say our customers the panel makers they like it to be open definitely the polysilicon producers would like to close it because they are not competitive but they this is a strange situation but within polysilicon it is the Chinese who are the high cost producers and they have now these were successful so far to left out the U.S. but they U.S. is not a huge polysilicon producer it is obviously and we are intact now the biggest one and we have Dow Corning’s Hemlock that’s the only two companies. Mako will be there let us say with their 2.5 billion investment in the second half. The big one is Germany and Korea and when I was in China and Korea definitely in China the polysilicon producer the Chinese are now trying to get some kind of protection against the Korean and some kind of protection also of course towards the German industry. If there is a supply demand which is in balance Korean and German companies will try to get into China because there will be higher prices. That opened up market opportunities outside particularly in Korea, Taiwan, Singapore, Japan and Europe there is still a small capacity here and that’s what we accounting for but you have to discount the prices that is basically what will happen so that’s a dynamic suite. We also have to remember that REC we are a small company we are only 6% of the global capacity so it’s not the huge volume we are going to move. We have to talk about 5,000 metric ton for a quarter as we said that’s also capacity out in is 260,000, 270,000 metric ton. So we are only 6% it is not that we need to have a huge market to be able to climbed bias to our process. Sondre Stormyr Sondre Stormyr from Danske Markets my question has been partly answered but I’m just thinking little bit about if you look towards mid 70 you will have your Chinese JV up and running which should give you access to China in any case. And in the time between as you said you’ve seen increasing number of Chinese downstream players moving production outside the China and increasing the customer base out of China for you. And how do you see sort of worst case scenario between now and mid 2017 or sort of a return to normal and I guess your base case is again a resolution to forgiven. But would be assumed to worst case scenario you think now over the next few years? Tore Torvund As you understand we are preparing for the worst and we’re hoping for the best. So the worst will basically as you see we have a maturity coming up in May 2016. What we did last night should at least give us a financial situation to be able to deal with our issues even under worst scenario in 2016 then basically 2017. As we said we will have production out of China and you know that we are going to pay 15 plus 152 million U.S. dollars to keep our 49%. If things become the worst we have the opportunity to not pay and by that reduce our equity in the JV. And then we have the maturity going to rebound coming up in 2017. So we are preparing for a situation where we basically are not getting us access to China. On the other hand as we believe that the market will be relatively balance between demand and supplier in ’16 and that means that as prices also outside China will start to move back to a more normal situation. And with our cash cost we gave in the company as we shouldn’t have many as a $2 to $3 on top of what we see today generated lot of cash in the bottom-line in our company. So let’s say we have done our cash flow analysis and what we did last night today we should be up and answer situation where we can stay in the business even though in the worst scenarios that’s our basis. Sondre Stormyr And after 2012 when you moved lot of volumes from internal to external customers you have to offer discounts during those back. If China sort of returns are opens for you in 2016 do you expect to need to offer any sort of discount on your sales there when you return? Tore Torvund No on the marketplace we have been now operating in the stock market since 2010. In this business most of our competitors they entered into long-term contracts 2007, 2010 with the duration from seven to 10 years. And we also as you remember we had contract coverage with REC wafer in Norway when they went into bankruptcy. We had to go out in the spot market and at the time the stock market was very limited because most of our customers were tight towards long term contracts with our competitors. The spot market is now gradually being larger because more and more of these long-term contract is expire or those who hadn’t are moving into bankruptcy so we see that gradually first of all the spot and the long term contracts start to approach and we get access to more customers because they have volume available, they can buy on the spot market. So we don’t believe that it will be any reason to have a discount if the trade dispute disappear we’ll get access to high quality customers at the price which is in the spot market. James May We will now take some questions from the Web. Tore Torvund I thought it was summer [indiscernible] but that seems to be as something we read about in the newspapers. James May What has happened to key raw material costs like silicon metal during 2015 and what is your outlook for the rest of the year? Tore Torvund You can probably answer that question since you’re responsible for it. James May Silicon metal costs have remained constant during this year as we entered into annual contracts and our outlook to come for next year right now looks rather flat, so we don’t see any substantial movement from the raw material cost. Can we expect tolling to continue at at least 800 metric ton and how much can we expect it to grow in Q4 and forward? Tore Torvund Yes, we anticipate to continue to grow in the tolling side, we have 800 this on Q3 I expect that that will grow towards 1,000 to 1,200 metric ton in Q4. James May Do you expect to gain market share outside China in Q4 from Q3 high level of 3,700 metric ton? Tore Torvund I think James our sales we have approximately the same in Q4 compared to Q3 that means that we expect to further deplete the inventory by some 1,500 metric ton in Q4. James May Why are you closing down low cost FBR capacity instead of the high cost Siemens? Tore Torvund Because Siemens which is — Siemens is not in Moses Lake we have shutdown the Siemens in Moses Siemens is in good our Siemens is sold into the semiconductor markets which is a completely different market and also Siemens semiconductor is not targeted by the duty so we can move that as we went up moving much into China because there is not too much semiconductor customers in China it’s mainly in Japan Korea where we are moving out Siemens. But as I said is a higher ASP different market than the solar that’s why we have to take out solar because that’s where we do have dispute and lack of access to customers. James May How long will the investments in Moses Lake take to complete once they are restarted? Tore Torvund I’d say we wind down in a way that we can we start if we do have financial strengths to do so it was due to start up in Q3 2016 and that means that when we or if we decide to continue it will take another year until it is complete. James May That’s all the questions from the Web. Tore Torvund Okay, thank you so much for coming and have a good vacation after this. I am going to have vacation now. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. 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