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Solar grade silicon manufacturer Timminco is making steady progress in its turnaround plan

Last updated: 05:32 18 Dec 2009 AEDT, First published: 06:32 18 Dec 2009 AEDT

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The world economy faces recessions from time to time but the most recent one has been particularly harsh. High profile bankruptcies, a painful credit crunch, falling asset prices and record foreclosures have left many investors and companies in despair.

In the face of adversary however, companies that embark upon turnaround plans indicate the resolve of the management and their commitment to add shareholder value. Against this backdrop, continued progress of the turnaround plan by Toronto listed Timminco Limited (TSX: TIM) becomes a matter of interest.

Timminco is engaged in the production of solar grade silicon for the solar photovoltaic energy industry. Using its proprietary, patent pending technology, Timminco purifies silicon metal into solar grade silicon (also known as upgraded metallurgical silicon) for use in the manufacture of solar cells. The company also produces silicon metal for use in a broad range of industrial applications serving the aluminum, chemical, pharmaceutical, electronics and automotive industries.

As the company’s end-user industries continued to falter in the face of challenging economic conditions it has been a gruelling few months for Timminco as well. Some challenges Timminco faced included the termination of supply agreements, class action law suits and a general decline in the business environment. A turnaround plan, is appears, is indeed a matter of priority for Timminco at this stage.

Operational challenges are nothing strange to companies such as Timminco, especially during a prolonged recession. What is important is a plan of actions that would steer the company into calmer waters. The company has already started the process and raised $10.6 million through a convertible debenture issue for its wholly-owned subsidiary, Bécancour Silicon Inc from AMG Advanced Metallurgical Group N.V. ("AMG"). In addition, AMG has agreed to purchase through a private placement approximately 3.8 million common shares of Timminco at a price of $1.38 per share, for proceeds of approximately C$5.3 million (US$5.0 million). This translates to approximately 2.6% of Timminco's outstanding share capital.

The proceeds from these financings will support the turnaround plan and will be paid to the Company's senior secured lender to reduce the outstanding balance, and thereby increase availability under the revolving credit facility. Such increased availability will be used for general corporate purposes, including additional working capital required to support full production of silicon metal and further development of the solar grade silicon product line.

The Company's turnaround plan is focused on generating positive cash flow through full production of silicon metal and repositioning its solar grade silicon activities in response to current market conditions. The turnaround plan also seeks to reduce operating costs through headcount reductions, raw material procurement programs and product mix decisions, to manage working capital requirements through reduction of inventory, and to conserve cash through limiting capital expenditures.

At least market conditions appear to be showing signs of improvement for Timminco. The company restarted the third of its three electric arc furnaces at its Becancour Silicon facilities in Quebec, thus returning to full production. The increase in production was in response to additional purchase commitments of silicon metal deliveries in 2009 and 2010 from traditional customers. The resumption will result in the recall of a portion of the unionized workforce which was temporarily laid off earlier in 2009.

If the company’s turnaround plan delivers its intended results, Timminco may well get back to its past glories. According to Dr. Heinz Schimmelbusch, Chairman of the Board and Chief Executive Officer of Timminco, the company is making progress in its efforts to meet the higher quality demanded by solar grade silicon customers in the current market environment where there appears to be a large supply of low-priced polysilicon. Ongoing refinements to its proprietary purification process and the development of ingoting techniques are advancing towards the goal of enabling customers to produce wafers and cells with characteristics that are indistinguishable from those of wafers and cells made from polysilicon.

We are planning to meet the management after the holidays for an up date and a more insightful story.

About Timminco

Timminco is engaged in the production of solar grade silicon for the solar photovoltaic energy industry. The company also produces silicon metal for use in a broad range of industrial applications serving the aluminum, chemical, pharmaceutical, electronics and automotive industries.

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