Timminco CEO touted as top performer by Financial Post
2008-11-11 12:16 ET - Street Wire
Also Street Wire (U-TIMNF) Timminco Ltd
by Lee M. Webb
Timminco Ltd.'s Heinz Schimmelbusch, the principal architect of the company's foray into producing upgraded metallurgical silicon for the solar industry, has been given the nod by the Financial Post as Canada's top-performing chief executive officer for 2008. The ranking is based on stock price performance over a three-year period ending June 30, 2008.
Timminco was trading at 70 cents per share in June of 2005 and was changing hands for $27.37 per share on the Financial Post's cutoff date of June 30 of this year, giving a three-year return of 3,810 per cent and vaulting Mr. Schimmelbusch into the top spot in the magazine's ranking of 200 chief executive officers.
If the 18-month period from January of 2007 through June of this year had been used as the yardstick, Timminco's stock performance would have been even more impressive. Timminco was changing hands for a mere 30 cents per share in January of last year and in June of this year it hit an all-time high of $35.69 per share, a staggering gain of almost 11,800 per cent, before ending the month at $27.37 per share for an 18-month return of approximately 9,000 per cent.
Timminco's share price has been in a tailspin over the past several months, shedding approximately $27 since notching its high of $35.69 in June. According to the Financial Post, "the fairy tale took a turn" after the June 30 cutoff date for its chief executive officer scorecard rankings.
"Within weeks, short sellers had Timminco shares in their sights, helping to drive them down 60 per cent over the summer, while market regulators were investigating questionable trades," reporter Peter Koven wrote in his Nov. 4 Financial Post story.
In fact, short sellers, who are popular scapegoats when the air starts to come out of overblown stock prices, had been aggressively placing their bets against Timminco for months and the Canadian short position peaked at more than 3.8 million shares in the middle of May, long before the Financial Post's June 30 cutoff date.
Indeed, as the short position increased, Timminco filed a $6-million libel suit against outspoken short seller Ravi Sood and his firm, Lawrence Asset Management Inc., on May 2.
Moreover, Mr. Schimmelbusch was railing against short sellers during Timminco's annual general meeting on May 29, warning them that it was dangerous to hold a short position "in a volatile stock which has a rising trend."
"And I really hope that they are still short," an agitated Mr. Schimmelbusch remarked on May 29.
Rene Boisvert, the head of Timminco's silicon operation in Becancour, Que., and co-inventor of the company's proprietary process to produce solar-grade silicon, had a warning for short sellers a month later.
"If they're still short come the end of this year, they'll live to regret it," Mr. Boisvert told Stockwatch on June 30.
It does not seem that short sellers were panicked by the warnings from Timminco executives. At the end of September, the reported Canadian short position still stood at approximately 3.3 million shares. Between Sept. 30 and Oct. 31, however, the Canadian short position was cut in half, falling to approximately 1.5 million shares as Timminco's stock price tumbled.
Somewhat ironically, the widely vilified short sellers may have cushioned Timminco's falling stock price as they bought shares to close out their positions.
In its 2008 CEO scorecard issue, the Financial Post understandably remarks on the recent market meltdown that has taken a bite out of the lofty returns that many of its top performers had chalked up at the end of June.
A look at the major stock indexes suggests that at least some of the recent weakness in Timminco's share price might be attributed to the general downturn as jittery investors pulled their money out of the market. The TSX Composite Index, which includes Timminco, has dropped more than 30 per cent since June. Over the same period, however, Timminco has shed approximately 70 per cent of its value, suggesting that factors other than the market malaise have also been affecting the solar player's share price.
Among other things, Timminco's production of solar-grade silicon has fallen short of expectations, analyst cheerleading about a solar silver lining amid the gloomy credit crisis has fallen flat and there is still some concern about how the company will pay for its planned Becancour expansion.
Falling short
"I sometimes think that if you are working on a breakthrough innovation, you should be a private company," a reportedly glum-sounding Mr. Schimmelbusch told the Financial Post for its Nov. 4 article about the top-ranked chief executive officer.
There is no evidence of Mr. Schimmelbusch serving up such glum musings as Timminco completed two public offerings to raise approximately $73-million including overallotment options, topped up by a private placement of $43.6-million worth of shares last year.
Mr. Schimmelbusch did not seem troubled by the private/public divide when he took Timminco's parent, AMG Advanced Metallurgical Group N.V., public in Amsterdam last year, either. That crafty move paved the way for Mr. Schimmelbusch's private equity company Safeguard International Fund L.P., which had transferred its majority stake in Timminco to AMG earlier in the year, to take approximately $350-million off the table.
Timminco's chief executive officer did not sound glum during the company's first-quarter conference call in March or during the annual general meeting at the end of May when he cheerfully commented about the soaring stock price, which had just hit $30 per share.
When Timminco held its second-quarter conference call on Aug. 11, however, a more saturnine Mr. Schimmelbusch offered some wistful remarks about breakthrough innovations and private companies as he bemoaned the burden of quarterly reporting required of public companies.
As previously reported by Stockwatch, investors were disappointed with Timminco's second-quarter production of 221 metric tons of solar-grade silicon, which was disclosed when the company released its results on Aug. 11.
While Mr. Schimmelbusch suggested that the solar-grade silicon startup problems did not come as a surprise to him and said that management was happy with the second-quarter production, investors were far less sanguine about the results and hammered the share price.
During the Aug. 11 conference call, Mr. Schimmelbusch said that Timminco planned to double its production of solar-grade silicon in each of the remaining two quarters, but cautioned that quarter-over-quarter production increases would not follow a mathematical formula and the company would "overshoot and undershoot" its quarterly targets.
As it turned out, Timminco's solar-grade silicon production fell short of both the company's tentative third-quarter target and market expectations.
Timminco is scheduled to release its third-quarter results and hold a conference call on Nov. 11. In an unusual move, however, the company provided an early update on its third-quarter solar-grade silicon operation.
On Oct. 6, just six days after the end of the third quarter, Timminco disclosed that it had produced 342 metric tons of solar-grade silicon and shipped 300 metric tons of the material during the quarter. Once again, investors expressed their disappointment with the results by hammering the share price. Before the end of October, the once high-flying Timminco dipped to a new 52-week low of just $6.05 per share before recovering some ground.
Falling flat
In the Nov. 4 Financial Post article touting Mr. Schimmelbusch as the top-performing chief executive officer for 2008, Mr. Koven notes that "investors are divided over what to make of Timminco, and analyst price targets on its shares show a ridiculous spread ranging from $11.50 to $50."
Paradigm Capital Inc. analyst J. Marvin Wolff and Clarus Securities Inc. analyst Carolina Vargas hold down the top spots in that ridiculous range with targets of $45 per share and $50 per share, respectively.
On Oct. 6, the same day that Timminco served up the disappointing sneak preview of its third-quarter results, optimistic Mr. Wolff reportedly spotted a solar silver lining amid the gloomy credit crisis gripping the markets.
According to Mr. Wolff, legislation extending investment tax credits for the solar industry until 2013 that was attached to the $700-billion (U.S.) bailout package passed by the U.S. Congress could prove to be a boon for Timminco.
"In addition, as new polysilicon production build-outs experience delays and funding challenges in tight capital markets, the demand for Timminco's upgraded silicon should remain strong and the ability to attract new mandates should remain robust," the Paradigm analyst wrote, maintaining his buy recommendation and bullish 12-month price target of $45 on the stock.
Clarus analyst Ms. Vargas also sees sunny solar prospects emanating from south of the border.
As the U.S. electorate was heading to the polls to choose its next president, Clarus issued a seven-point note about Timminco, leading off with the observation that Barack Obama's campaign supported a shift toward renewable energy including a $150-billion (U.S.) investment plan over 10 years for clean alternative energy. According to the Clarus analysis, Democratic policy should favour Timminco's U.S.-based customers.
Clarus evidently thinks that U.S. short sellers might end up providing a boost to Timminco's share price, too.
"There still remains a large short position in the U.S. -- the election and favourable results will start to put a squeeze on the shorts," the recent Clarus analysis states.
The short position in the U.S. stood at approximately 5.6 million shares as of Oct. 15, down from more than 6.6 million shares at the end of August. To this point, there has been no indication of any squeeze on U.S. short sellers.
While Mr. Wolff and Ms. Vargas remain upbeat about Timminco, their recent cheerleading has fallen flat as the share price wallows near its 52-week low.
Expansion confusion
Timminco is still working out the bugs as it ramps up its 3,600-metric-ton solar silicon operation at Becancour, but is pressing ahead with a planned expansion to 14,400 metric tons. There has been some concern and confusion, as well as conflicting accounts, about how Timminco will pay for the expansion.
As previously reported by Stockwatch, in May of this year Timminco's parent, AMG, was telling investors that the planned $65-million Becancour expansion was "fully funded" by Timminco's 2007 financings. That claim is repeated in a footnote to a 25-page investor presentation released by AMG on Aug. 13.
According to Timminco's regulatory filings on May 13 and Aug. 12, however, the Becancour expansion is not "fully funded" at all.
"Funding of the project will be from cash on hand, customer deposits under long term supply agreements, future cash flows from operations and the company's existing credit facilities, and will be expended throughout 2008 and the first half of 2009," Timminco reported on Aug. 12.
Mr. Schimmelbusch, who heads both Timminco and AMG, did not respond to a Stockwatch query about the conflicting accounts. Timminco's chief financial officer Robert Dietrich similarly ignored Stockwatch's questions about how to reconcile the conflicting stories.
During Timminco's second-quarter conference call on Aug. 11, however, Mr. Schimmelbusch assured investors that he was confident about the company's liquidity status and ability to pay for the expansion.
On Oct. 21, however, Timminco announced that it had increased its revolving credit line with the Bank of America from $32.8-million (U.S.) to $50-million (U.S.).
"Timminco intends to use the increased credit line to finance potential increases in working capital in support of the ramp-up of its solar-grade silicon production, as the new production facility currently under construction is commissioned by mid-2009," Mr. Dietrich reported.
Perhaps during Tuesday's conference call Timminco will "add some colour," as analysts like to say, to the news about the increase in the credit facility and exactly how that will factor into paying for the company's planned expansion.
Market darling
According to the Nov. 4 Financial Post article about Timminco's leader, Mr. Schimmelbusch is confident that the company will become a market darling again.
"Things will normalize," Mr. Schimmelbusch reportedly told the Financial Post's Mr. Koven. "Then we'll look back and say, 'My God.'"
Investors who piled into the stock as it blasted through $35 per share earlier this year might be looking back now and saying just that.
With 630,500 shares changing hands, Timminco dropped 22 cents to close at $7.64 on Nov. 10.
Plus This
Losing hope on Timminco
Wednesday, November 12, 2008
With Timminco Ltd.'s share price down more than 80 per cent from its high earlier this year, investors can be forgiven for feeling that the specialty metals producer[amp]nbsp;just might be[amp]nbsp;a popped bubble.
Rupert Merer, an analyst at National Bank Financial, downgraded the stock to “sector perform” from “outperform” previously, and he chopped his target price to $12 from $20 – a 40 per cent haircut, though still well above the current price of the stock. The stock traded in Toronto on Wednesday afternoon at $6.53, down 14.1 per cent.
According to Mr. Merer, part of the problem with the company is that the cost of producing solar grade silicon barely budged, falling to $31 a kilogram in the third quarter from $32 in the second quarter. He said that guidance for production costs of just $10 to $15 a kilogram “appears to be obsolete” – potentially a big problem, given that production costs are essential to the business.
Meanwhile, pricing for the solar grade silicon fell in the quarter to $53 a kilogram from $65 in the previous quarter.
“A falling Canadian dollar will help a little, though we have shaved our outlook for 2009 prices to $48 from $50 /kg,” he said.
At the same time, inventory levels are up. “We have seen inventory double to $81 million from $40 million, and further increases could begin to affect Timminco's balance sheet strength,” Mr. Merer said. “Timminco believes it will be able to shave inventory levels in the coming quarters – we will be watching this closely in the fourth quarter.”[amp]nbsp;
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