Chinese giant LDK Solar's (NYSE: LDK) shares jumped 28.55 percent Monday after the company said it signed a 10-year deal to sell 6 gigawatts worth of silicon wafers to Germany solar-cell maker Q-Cells.
Although financial details were sparse, the contract calls for Q-Cells (Frankfurt Stock Exchange: QCEG.DE) to pay a fixed price for the wafers for the first two years. After that, pricing will be adjusted in relation to market conditions.
LDK will deliver 1,000 metric tons of silicon in 2009, rising to 5,000 tons per year as early as 2013.
LDK will then process the silicon -- expected to come from its new silicon plant under construction in Xinyu City, China -- into wafers for Q-Cells.
In November, LDK said it had begun construction on the plant, which is expected to reach up to 6,000 tons of production capacity by the end of 2008 (see LDK Shores Itself with New Silicon Supply).
To support LDK's expansion plans, Q-Cells will make a 10 percent pre-payment on the value of the silicon.
In exchange, Q-Cells also gets the option to buy 30 percent of LDK's additional silicon production, should LDK expand its production capacity.
Wall Street gave the deal a big thumbs-up, sending LDK's stock soaring $13.06 to close at $58.81 per share.
That's on top of a 68-percent increase, to $45.75 per share Friday from $27.23 per share Nov. 29, after the company on Nov. 30 announced it had begun construction of the new plant.
But Monday's closing price is still 23.4 percent off the stock's peak value of $76.75 per share in September.
LDK faces allegations of discrepancies in its silicon inventory from a former financial controller, along with an investigation of those allegations from the U.S. Securities and Exchange Commission (see LDK Says Inventory Discrepancy Allegations Have 'No Merit', New Details Surface as LDK's Stock Continues to Plunge and LDK Says SEC is Inquiring into Inventory Discrepancy Allegations).
One of the reasons Wall Street liked the deal is because it helped validate LDK's wafering capabilities, said Sanjay K. Shrestha, a senior analyst at Lazard Capital Markets, in a research note.
Shrestha also wrote the deal brings in some much-needed cash to help reduce "near-term" financial risk.
But the deal could not budge Shrestha from his "sell" rating. He wrote that the current share price is a sign that investors are overly optimistic about the company's ability to ramp up its capacity and keep its prices low.
Investors also are still waiting for LDK's third-quarter earnings and for the results of an independent audit of its silicon inventory, expected this month.