Friday, November 30, 2007

An appetizer... LDK News.

LDK Provides Update on Progress of Polysilicon Plant Construction and Secures Additional Polysilicon for 2008


XINYU CITY, China and JIANGXI, China, Nov. 30 -- LDK Solar Co., Ltd. (NYSE: LDK), a leading manufacturer of multicrystalline solar wafers, today provided an update on the progress of its polysilicon plant construction and announced that it has secured an additional 312 metric tons in polysilicon supplies for 2008.

On November 26, 2007, LDK Solar held the first milestone ceremony to commemorate the completion of site preparations and the beginning of the construction phase of its polysilicon plant. Attendees at the ceremony included local government dignitaries, members of the construction teams and Fluor representatives. The 700x700 meter section of hilly terrain was leveled and prepared in just two months. With the completion of this first milestone, the LDK polysilicon plant construction is currently on schedule to reach LDK's capacity goal of up to 6,000 metric tons in the fourth quarter of 2008.

"Construction of our polysilicon plant remains on schedule and we believe that execution of our business plans is a key strength of LDK Solar," commented Mr. Nick Sarno, Senior Vice President of Manufacturing at LDK Solar.

LDK also secured a commitment for an additional 312 metric tons of polysilicon to be delivered in 2008. "We believe that this supply contract will help LDK achieve our wafer production and growth targets for 2008," added Mr. Sarno.



I like it!

It puts a few important items in focus:

1. Fluor is there, still planning to do work.

2. The Government is there. The Government is a very important ally.

3. Sarno of Italy is still there. The presense of Sarno demonstrates that this isn't some kind of Chinese conspiracy.

4. Additional Polysilicon is on the way to assure supply. Sounds like they won't be running out of feedstack soon.

5. They are ON SCHEDULE to be producing polysilicon by NEXT YEAR. This is of most critical importance, and confirmation of this counts for much.

This should create some demand tomorrow, and get things nice and warmed up for upcoming news.

Tuesday, November 27, 2007

LDK Investor Presentation:

Here's a presentation from September in PDF format, which provides some good info.

Monday, November 26, 2007

Bottom feeders and competing computers.

I'm not in meetings with Wallstreet investors, so the following is mostly speculation.

They've got computers programmed to trade for them.

So, let's say you want to accumulate stock in a company, and you want to do it cheap (of course!)*.

Well, the first thing you need is secrecy. If you let on that you are accumulating, then others will want to accumulate too, and so comes competition and a rising price.

Given that you are secretly accumulating shares, you'll need to make sure that your volume goes unnoticed. To do this you'll use a program, which splits up your order into many tiny orders, and distributes them throughout the day.

Next, you'll want to make sure that you are buying at the bid price where possible. You get this opportunity when people are selling shares and nobody is buying at the ask. These purchases will naturally drive the price down, and your program will constantly need to be adjusting to the changing price.

Of course, you're not the only program trader, there might be competing programs running elsewhere (as well as live individuals), and they'll be competing for bids. I'm not sure exactly how that would work out; how you would maximize accumulation in competition with others, while minimizing the upward pressure on the price. Game Theory, maybe?

Hmm... So, as it might relate to LDK:

Very often it has seemed that the following is observed in the daily price movements (today was different).

The price starts out high, sometimes gapping up. This might either reflect honest long optimism at the start of a new day, or it may be arranged by the Hedgies to generate initial optimism. If people are looking forward to a good day, and so buy, then they'll be easily spooked when things go south.

Next, shares get dumped on the market, dropping the price, and separating weak holders from their shares at low prices. Some of these holders had just bought shares in the day's initial state of optimism.

Once the optimism is disrupted, then accumulation can start. Periodically new batches of shares can be dumped on the market to further disrupt longs, and free up some new shares for accumulation.

One main requirement of this process would be that whoever dumped the initial shares would need to have some reason to believe that at the end of the day that dump would allow for an accumulation of a greater number of shares than the original dumped amount.

Well, I have to end it here... as an incomplete thought. It's ok. The Tao that is written is not the real Tao.

* In the absense of news, which could drive demand and competition for shares.

Friday, November 23, 2007

LDK drama in brief...

Somebody on an email group that I belong to asked for a stock pick, so I came up with a "brief" on LDK and passed it on. Feel free to let me know of any inaccuracies of omissions.

"I'll throw one out there:

LDK. I gotta say, most would consider this a risky stock right now, but if you are willing to take the risk for potentially orbital rewards, this is the stock for you.

Background: LDK is a chinese solar company listed on the NYSE. They've been hit by scandal as a former Financial Controller claimed that they were not properly writing off inventory of silicon scrap that could not be used for production. The company claims that they would be able to use that material once they got the technology together to do so.

Ok, so Barron's and the WSJ came out with articles that were negative on the company and Goldman Sachs put a sell rating on the stock.

Well, the company has frustrated investors by saying less than investors would like, and in this uncertainty the stock price has been a short seller's dream. However, the company has done an internal audit of their inventory, they've had an external audit done by their main auditor (KPMG), and have announced that they will release the full results of the audits (including a second external audit by a "big 4" auditing company*) in "early December." They state that they will announce 3Q earnings soon thereafter. They've reiterated several times that they expect the audit results to be in line with prior financial statements.

Note: Soon after the bad news broke, they raised their guidance on 3rd quarter earnings, and announced over $1 Billion in new contracts with several Chinese solar Panel manufacturers.

Note: LDK manufactures solar wafers, which are basically the little squares of doped silicon that get put together down the line into solar panels. They are the largest equipment buyer from GT Solar, they have dealings with Sunways AG of Germany, MEMC of the US, Chuan-Yi of Taiwan, among others.

Note: LDK has contracted ($1 Billion) with Fluor (an American engineering firm) for construction of a polysilicon plant, which is in progress right now, and is planned to be producing 7000 tons of virgin Polysilicon by end of next year, and 18,000 tons by end of '09. Additional services have been contracted with Sunways AG for 2 Siemans Reactors and related support services for the manufacture of Polysilicon. These reactors are in process of delivery.

Note: LDK is in IPO lock-in until 11/29. There are 17 Million shares available to be traded, but the stock is on the Naked Short Threshold list, so this value is not accurate; there's no telling how many vaporware shares are in circulation. As of last posting, Shortsqeeze.com listed 7.4 Million shares short. What this points to in terms of a potential short sqeeze, I'm not certain, but we should find out in early December when audit results are released.

Note: Accounts suggest that LDK is recieving high levels of support from the Chinese Government as it is in a critical energy production niche. The Governemnt is footing the bill for infrastructure needs, as well as providing tax benefits.

Note: Here's an article from the WSJ about the CEO: Partial Eclipse: LDK Solar
Highlights China Stocks' Risk


It's been a hell of a drama to be involved in this stock. I had been waiting for a buying opportunity before the big fall, and I took this opportunity to buy in. My opinion is that the audit will be good (I have various reasons to believe this) and that the shorts are going to be forced to cover very soon (early December at the latest). Based on their being a leading player in the Solar industry, the sidelines waiting for audit confirmation are sure to be substantial. If you get in now, you take risk but have high potential rewards, but if you are risk averse, you should at least put this company on your watchlist, as it's Polysilicon production puts it in a very strong position as a Chinese Solar leader.

Why I believe the audit will come clean:

- The argument used by the former Financial Controller is illogical. According to a WSJ article describing a taped conference call that Situ (the controller) sent to the WSJ, Situ claimed that Silicon scraps that were over 180 days old needed to be written off. The company claims that this scrap retains value, as they will be able to make use of it when appropriate equipment is in production. The company has made recycling of scrap wafer a centerpiece of their business plan, which has so far allowed them to produce top margins in the industry.

- There are reasons to believe that the company's claims are valid, as Silicon recycling is known to be technically feasable, and there is some indication that specific equipment for this purpose is on order from a Japanese company (this particular item is hearsay from a trusted source quoting "Photon" newsletter, which is not available online).

- The company has announced that they've brought on Simpson Thacher & Bartlett LLP to serve as its independent counsel for the investigation. Simpson Thacher & Bartlett LLP from all appearances is a top-notch Wall Street law firm. Under their guidance, LDK has again reiterated that results will be in line with prior disclosures.

Anyway, so that's the basic scoop. Feel free to let me know if you have any questions or comments.

DP

* I believe this company will be found to be deloitte and touche from a mention in a recent article out of China."

"I, D Pickard, am the author of this article, LDK drama in brief..., and I release its content under the terms of the GNU Free Documentation License, Version 1.2 and later."

Friday, November 2, 2007

In response elsewhere...

Alpha, in your research have you seen any kind of analysis from any of these mainstream sources that actually discuss the technical issues surrounding the recycling of silicon scraps? No? Are we expected to make investing decisions on a technology company without any discussion of the technical details of that company's process and business plans? Apparently.

We know that Situ claimed that scrap should be written off that was over 180 days old, but this is ludicrous on its face. Age of the material has nothing to do with whether LDK's stockpile has value. Several possibilities exist, one of which, obviously, is that LDK plans to recycle presently unusable material back into silicon suitable for use in solar panels (they've said as much). Here is a link which lists several companies involved in the recycling of silicon ( http://www.enf.cn/magazine/issue2/recycle.html ), and here's a link that describes the increasing value of silicon scrap material ( http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BB5AEFB63-A594-4301-8F2E-7E37AE768A3D%7D ). We know that recycling is technologically feasable, we just don't know the details and efficiencies as they pertain to LDK. We don't know this, and the mainstream media isn't asking the questions.

Example: If LDK buys scrap at, say, $150 / kg, they break even if they can recover material at around a 60% efficiency in a market where virgin material is now worth $250+ / kg. Of course, we're not just talking monetary value here. To a Solar Wafer Manufacturer, Silicon is everything, because they are busy adding value to it by converting it into wafers.

Now, we don't know the details, but it's certainly plausable that this stored material has a value to LDK greater than zero (as Situ would have it). It's already been mined for immediately useful Silicon, from which LDK is generating enormous profits, but it still contains high concentrations of Silicon. In fact, we know that LDK has been stocking this stuff up since the beginning, even when the price of scrap was much lower than it is today, and so any recycleable Silicon has actually increased in value since the original purchase.

One item of note is that though Mr. Peng, the CEO, may not be a Silicon expert, he has hired Nicola Sarno and Pietro Rossetto, two Italians with a combined experience of over 40 years at MEMC (Senior Vice President - Manufacturing and Plant Manager, and Chief Engineer respectively).

Another important note involves their planned polysilicon plant, for which the ground has been broken, and contracts have been signed with Fluor, Sunways, and GT Solar. All three of these companies are completely independent of LDK (two American, one German), and all three are highly respected. LDK is poised to be a leader not only in the efficient use of scrap silicon, but also in the production of virgin polysilicon, and it's not just that they are making claims, they have taken action toward this goal with credible partners.

As for Situ, you ask why would he incur the wrath and risk his entire career for "some personal problem"? Ok, fair enough; we don't know. I ask, however, why you don't believe every statement to the contrary from the company and even its customers (both LDK team and customers are international in scope). Situ is a single accountant who, when tasked with accounting properly for materials in a complex technological setting went to the CFO and told him that he had to write off their silicon because it was too old. Honestly, it sounds like Situ was incompetent. When Lai (the CFO) then told Situ to do "careful data analysis" Situ proceeded to leave town, get hidden, and start to send out private company data not only to authorities, regulators, and IPO insiders, but also to the financial press in what was certainly an attack on the company's stock price.

I don't think my comment is "less than center," so I'm going to take the following liberty.

In your comment you mention Enron. Well, I'd say that is less than center, so I'm going to indulge in a similar emotional reference.

John Galt.

"Who is John Galt" you ask?

Galt is an industrialist, of course.

The CEO of LDK appears to have the industrialist drive (see http://online.wsj.com/article/SB119283620278165492.html?mod=yahoo_hs&ru=yahoo ). Ok, so he doesn't have a PR department, but he's got 3000+ people working their butts off to build a business that not only makes money, but provides a rapidly growing amount of product that is critical to the world economy; energy. He doesn't have to have a vast staff of salespeople to sell his products to hesitant buyers; he's got customers that come to LDK because they need what LDK has got to sell, and the price is right.

We'll see what happens in the end, of course. We're all betting on our own expected outcomes, and we'll win or lose depending on whether we're right or wrong.

x-posted for future reference to http://seekingalpha.com/article/52591-why-is-ldk-solar-constantly-beaten-down?source=yahoo#comment-100797/