Hoku shares skyrocket on Sanyo polysilicon supply deal

Shares of Hoku Scientific (NASDAQ: HOKU) are up 75% today on news that the company's newly-formed photovoltaic materials division has signed a seven-year contract with Sanyo.

Beginning in January 2009, Hoku is to supply polysilicon to Sanyo. Under the contract, up to approximately $370 million may be payable to Hoku during the seven-year period, subject to the achievement of milestones, the acceptance of product deliveries and other conditions.

The contract provides for the delivery of predetermined volumes of polysilicon each year at set prices from January 2009 through December 2015. The contract also provides for an initial direct deposit of $2 million to Hoku upon signing and requires that Sanyo place approximately 30% of the total purchase amount in an escrow account.

Under the agreement, the escrowed funds are to be released to Hoku in installments, subject to the company's achievement of certain polysilicon quality and production volume milestones and other conditions.

"This is a major step forward in our plan to launch Hoku Materials and execute our polysilicon business strategy," said Dustin Shindo, Chief Executive Officer of Hoku Scientific.

Hoku plans to build a plant in Iowa capable of producing 2,000 metric tons of polysilicon per year. Hoku estimates that the establishment of this larger facility may require total construction costs of approximately $260 million.

In connection with the financing of this construction, Hoku says it intends to seek debt capital of approximately $130 million.

Under the agreement, Hoku and Sanyo each have the right to terminate the agreement if Hoku is unsuccessful in raising the additional capital required to complete the polysilicon plant within the next six months. If the agreement is terminated early for this reason, if Hoku is ultimately not successful in building the polysilicon plant, or if Hoku does not meet certain quality and productivity milestones or timely deliver minimum quantities of polysilicon, the agreement provides that the initial direct deposit and the funds being held in escrow will be returned to Sanyo.

Until recently, Hawaii-based Hoku was known for developing and manufacturing membranes and electrode assemblies for fuel cells (see Hoku Scientific getting into silicon production.) Today's deal comes in addition to a previously announced major silicon supply agreement with Solar-Fabrik AG of Germany.

At press time this morning, Hoku was up $2.34 a share to $5.44, a gain of almost 76%.

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