Atlantis Resources: Pure Play Ocean Power

by Debra Fiakas CFA

Atlantis Resources Ltd.
(ARL
LN) is among the most recent additions to the Ocean Group in Crystal
Equity Research’s Earth, Wind and Fire Index of companies using the
dynamic forces of the planet to generate energy.  Atlantis is a
developer of tidal power generation technologies.  Atlantis has
been working diligently for over a decade to developer underwater
turbine technologies.  A project in San Remo, Australia using
the company’s Aquanator tidal current turbine was among the first in
the world to deliver ‘ocean’ power to an established electric power
grid.  The Aquanator has since been replaced by a larger
turbine.

Tidal and waver power is an attractive alternative to wind power
generation.  Water is over 800 times denser than wind. 
Consequently, underwater turbines can be substantially smaller than
wind turbines yet generate comparable or greater power.  The
moon cycle is also highly predictable, a characteristic that grid
operators appreciate from a power source.  Even with some
deviations due to weather conditions, consistent power generation
from waves and tides can be counted upon day-by-day and year round.

Atlantis is ready to move ahead with its tidal turbine product line.
The company is providing the tidal turbines for a demonstration
project near Daishan, Zhehiang, China.  Atlantis is also
involved in pilot projects in India and Canada.

MeyGen, the world’s largest tidal stream energy project has been
under development off the coast of Scotand.  It is a
distinctive location where tidal action reaches up to five meters
per second.  Atlantis is will supply the underwater turbines
for the 400-megawatt project, which has received regulatory
consent.  Total estimated project cost is near £51 million
(US$75 million).

The United Kingdom has been particularly supportive of tidal power
development because of the particularly dynamic ocean around the
island nation.  The UK
Department of Energy & Climate Change
calculated that wave
and tidal energy could supply as much as 20% of UK electricity needs
if efficient tidal turbines were in place.  The UK government
has provided £10 million (US$14.5 million) in the form of a grant to
support the MeyGen project.

In 2014, Atlantis completed an initial public offering of its common
stock and listed on the London Exchange.  Since then the group
has successfully raised project financing.  At the end of June
2015, Atlantis reported £85.1 million in equity (US$123.4 million)
and £35.2 million in long-term debt (US$50.7 million).

While Atlantis is still a developmental stage company in many
respects, it has picked up some revenue.  In the year 2014,
Atlantis reported £5.3 million in total sales (US$7.7
million).  Losses have been significant with a net loss of
£16.2 million (US$23.5 million).  Things have not changed much
in recent months.  In the first six months of 2015, Atlantis
recorded another £$951,000 in total sales (US$1.4 million).

Cash usage was significant and is increasing as the company moves
forward with the MeyGen project.  Atlantis burned up £4.3
million of its cash resources (US$6.2 million) in the year 2014 to
support operations and another £7.2 million in the first six months
of 2015 (US$10.4 million).  The group had £29.2 million in the
bank at the end of June 2015, providing support for operations for
about another year at Atlantis’ recent spending rate.

Atlantis shares trade on the London Exchange under the symbol ARL,
making them accessible to most investors.  The stock is
currently trading near its 52-week high even after the rout of U.S.
and European equity markets.  Investors keen on getting a stake
in tidal power, will need to sharpen their trading skills.  ARL
trades at low volumes near 6,700 share per day.

Neither the author of the Small Cap
Strategist
web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.

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EU Extends Punitive Tariffs To Transshipped Chinese Solar Panels

Doug Young

Bottom line: The EU’s extension of punitive
tariffs to China-made solar panels transshipped through shell
factories in Malaysia and Taiwan could kill a recent wave of
offshore factory construction by Chinese manufacturers.

A recent offshore movement by Chinese solar panel makers seeking
to avoid western anti-dumping tariffs could come to a sudden halt,
with word the European Union (EU) is extending its previously
announced punitive duties to Taiwan and Malaysia. The EU’s ruling
means it believes that many of the offshore solar panel plants
recently built by Chinese manufacturers are little more than
shells designed to hide the true origin of their products.

This story dates back 3 years, and began when the EU levied
anti-dumping tariffs on Chinese-made solar panels after
determining manufacturers were receiving unfair government support
via policies like cheap land, low-interest loans and export
rebates. Chinese manufacturers quickly agreed to raise their
prices to levels comparable to those of western rivals in a bid to
avoid the tariffs. But then they almost immediately began to
violate the spirit of that agreement by offering discounts to
buyers in other ways.

The EU is in the process of investigating claims of such
violations to that agreement, and this latest development
involving panels made in Malaysia and Taiwan shows the EU is also
attempting to stop another way the Chinese are avoiding the
tariffs. The latest reports say the EU has officially said that
all panels made in Malaysia and Taiwan will be subject to the same
punitive tariffs as panels made in China. (EU document; English article)

The document goes on to provide a long list of Malaysia- and
Taiwan-based companies that will be exempted from the extension of
anti-dumping tariffs originally set for China-made panels. But
that list includes only truly domestic panel makers in those
locations who have been in the business for a while, such as Motech
(Taipei: 6244) and E-Ton (Taipei: 3452) of
Taiwan and Flextronics (Nasdaq: FLEX) in
Malaysia.

Two leading Chinese panel makers that had previously announced
plans to manufacture in Malaysia at the height of the offshore
movement include ReneSola (NYSE: SOL)
and Jinko Solar (NYSE: JKS).
Trina Solar (NYSE: TSL)
also announced plans last year to develop 500 megawatts of solar
panel-making capacity with a local partner in Malaysia, though it
never named the partner. (company announcement)
In its announcement it said that the partnership would start
manufacturing in late 2015 or early 2016.

Shares Near Two-Year Lows

It’s not clear how many, if any, of the Chinese solar panel
makers I’ve mentioned will be directly affected by this ruling.
Shares of Trina actually rose 3.6 percent during the latest
session on Wall Street, though it’s worth noting they’re now
trading near 2-year lows. Shares of Jinko Solar and ReneSola
posted similar performances.

This latest wrinkle in the China solar exporting story shouldn’t
surprise anyone, and certainly doesn’t surprise me. Chinese
companies have already shown they are quite capable of using
backdoor tactics to avoid their earlier price-raising agreement
with the EU. When that backdoor appeared to be closing, they
simply tried another one by setting up these offshore shell
factories. Such factories simply receive their China-made
products, and then claim themselves as the country of origin
before re-exporting them to Europe to avoid the anti-dumping
tariffs.

The US has taken a similar approach to Europe, levying
anti-dumping tariffs against Chinese panels and now taking steps
to close loopholes like these shell factories in Malaysia and
Taiwan. There’s no indication that the anti-dumping duties will
disappear anytime soon, especially as weaker Chinese players like
YIngli (NYSE: YGE)
show increasing signs of getting more and not less government
support.

The bottom line is that the status quo is likely to continue for
at least the next few years, even as the US, EU and China start to
phase out many of their government incentives for building solar
power plants. That means many Chinese-made solar panels could
ultimately get squeezed out of the US and Europe as loopholes
close that were allowing a continued flow of such products even
after original punitive tariffs were levied.

Doug Young has lived and worked in China for 20 years, much of
that as a journalist, writing about publicly listed Chinese
companies. He currently lives in Shanghai where, in addition to
his role as editor of Young’s China Business Blog, he teaches
financial journalism at Fudan University, one of China’s top
journalism programs.. He writes daily on his blog,
Young´s
China Business Blog
, commenting on the latest
developments at Chinese companies listed in the US, China and Hong
Kong. He is also author of a new book about the media in China,
The
Party
Line: How The Media Dictates Public Opinion in Modern China
.

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