5N Plus's stock fall gives investors queasy feeling

OTTAWA — The Globe and Mail

5N Plus is a major supplier of cadmium telluride, a key ingredient in the production of solar panels. (SHENG LI/SHENG LI/REUTERS)

Last year, Montreal specialty metals company 5N Plus Inc. transformed itself by buying the world’s leading producer of bismuth, an active ingredient in treatments for upset stomachs.

On Tuesday, some investors likely reached for the Pepto-Bismol as the company’s stock tanked by 20 per cent, closing at $4.03 on the heels of its first-ever quarterly loss.

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The company, which purifies and sells metals such as germanium and gallium derived as byproducts of industrial processes, said late Monday that it lost $37.2-million or 52 cents a share in its second quarter ended Dec. 31. It posted revenue of $149.4-million in the quarter, about $15-million below analysts’ estimates.

“It was a poor quarter with very unusual circumstances, but we have a much stronger outlook,” chief executive officer Jacques L’Écuyer said in an interview. “I’m pretty confident we’ll be able to reassure everyone … we have a very bright future.”

5N Plus – whose name is derived from the 99.999 per cent (or five nines) purity of the metals it cleans and sells – was focused almost exclusively on the solar business until last spring as a supplier of cadmium telluride, a key ingredient in the production of solar panels.

Then, last April, it paid $317-million for MCP Group SA, a Belgium-based company with a 50-per-cent market share in the global bismuth business and a major supplier of specialty metals used for a range of applications. The deal cut the solar business’s share of 5N Plus’s revenue to 15 per cent.

Both old and new businesses weighed on 5N Plus’s results in its second quarter. Declining demand for solar panels prompted it to write down the value of inventories and other assets by $45.6-million, and to idle a solar module recycling facility.

The company also entered into a revised supply agreement with industry heavyweight First Solar Inc. which will increase demand for its cadmium telluride, but at a lower price. “The growth picture is not quite as attractive as it used to be,” said National Bank Financial analyst Rupert Merer.

Meanwhile, weak demand from Europe affected revenue in the MCP side of the business, as prices for metals fell. “It’s definitely been a perfect storm ever since they bought MCP,” said Stonecap Securities analyst Michael Goldberg, who warned that 5N Plus could trip covenants on its $342-million debt if earnings deteriorate further. “The level of risk is certainly higher than it has been,” he said.

5N Plus, a former division of miner Noranda Inc., went public in December, 2007, at the height of the solar power craze, soaring 86 per cent above its $3-a-share offering price on its first day of trading. The stock briefly traded above $10 after 5N Plus announced the MCP deal one year ago.