Timminco Ltd. is looking to boost its capacity for producing silicon with a proposed new plant in Iceland, the Toronto-based specialty metals producer announced Tuesday.

Timminco's volatile shares gained 26 cents or more than 24 per cent to close at $1.33 on the TSX, but the stock remains well below a high of more than $30 reached in mid-2008 when the outlook for silicon appeared bright.

Since then, the Toronto-based company has struggled as a lack of financing and fewer government subsidies put pressure on demand for solar power and solar-grade silicon.

The new plant would have an annual production capacity of 50,000 tonnes of silicon metal, which would complement existing capacity at its plant in Becancour, Que., the company said. In October, Timminco said it would restart the third of three furnaces at Becancour, increasing its production capacity by about one-third. It halted production at the plant in May due to weak demand.

To run the new plant, the company has already struck a long-term power supply agreement with Icelandic company Reykjavik Energy.

Under the 20-year agreement, Reykjavik Energy would provide Timminco with 85 megawatts of electrical power from a proposed plant in Hverahlid, which would tap the volcanic island's geothermal energy and begin operating in 2013.

A definitive agreement is expected to be reached by April 15, Timminco said.

"The production of silicon metal for the chemical and aluminum industries is the core of Timminco's business," stated Heinz Schimmelbusch, chairman of Timminco's board and the company's chief executive.

"Our Becancour silicon metal facility is now operating at full capacity. As the markets for our silicon metal products continue to grow, we are developing opportunities to expand the capacity."

Timminco also said it has secured financing from private equity firm Stokkur Energy to help fund the project's initial expenses.

Over the last year and a half, the company was forced to cut production, spin off assets, delay expansion and temporarily cut jobs due to difficult market conditions and reduced demand.

Timminco shares have been extremely volatile in the past two years as debate raged about whether its proprietary process for producing high-purity silicon for solar cells is as good as the company claims. The one-time penny stock, when the company's main business was magnesium products, began a remarkable rise in early 2007, peaking in 2008 along with hopes for solar power, but then fell hard.

Two class action lawsuits were launched against the company in 2009, claiming it provided misleading information about the profit potential of its process to produce high-grade silicon for use in solar cells. One of those suits was stayed by court order in November.

In its most recent quarter, Timminco lost $18.5 million or 15 cents a share, compared with a loss of $13.7 million or 13 cents in the comparable 2008 quarter. Consolidated sales were $19.1 million, a whopping $50-million drop from sales of $69 million a year earlier.

The company purifies silicon for use in the aluminum industry and the chemical industry, which includes companies that manufacture solar panels and semiconductors. It also produces solar grade silicon for the solar photovoltaic energy industry.