Orbite Announces First Quarter 2014 Results and Updates Construction of HPA Facility
May 13, 2014 (Source: Marketwired) — Orbite Aluminae Inc. (TSX:ORT)(OTCQX:EORBF) (“Orbite“, or the “Corporation“) announced today the filing of its first quarter financial results ended March 31, 2014 and provided an update on the construction of its HPA facility.
First Quarter Highlights
All dollar amounts are in Canadian dollars unless stated otherwise.
- Advanced its high purity alumina (“HPA”) project development with its partners for detailed engineering, project management, procurement, as well as ordered the calcination system for the production of HPA.
- Received a $3.8 million non-interest bearing repayable financial contribution from Canada Economic Development.
- Announced that the Government of Québec formally approved a $10 million equity investment in Orbite. The finalization of the equity investment by the Government of Québec continues to proceed as planned.
- Issued series X and Y subscription rights, requiring the institutional investor to purchase up to $40 million of the Corporation’s debentures. Orbite has chosen to defer the 10M$ investment under the series X subscription rights. Initially contemplated for May 15th, 2014, the Company anticipates to effect closing no later than mid-July 2014. Upon shareholder approval, the investor will be required to invest a further $30 million of debentures of the Corporation under the series Y subscription rights following completion of the series X investment.
- Continued to control its costs and operate within budget estimates.
- Cash and Short-Term Investments of $5.3 million as at March 31, 2014. Positive Working Capital of $5.3 million.
- Non-current Investment tax credits receivable of $27.3 million.
- Property, Plant and Equipment of $66.9 million.
- Quarterly Net loss and Comprehensive loss of $4.4 million or $0.02 per share, up by $3.9 million compared to Q1-2013, and down by $4.6 million, or 51%, compared to Q4-2013.
- Cash flows used in operating activities of $3.6 million.
- Cash flows from financing activities of $3.9 million.
- Cash flows used for investing activities of $5.3 million.
- Shareholders’ equity of $89.0 million, up 8.2% from December 31, 2013.
Events Subsequent to the Quarter
- Orbite announced the nomination of Mr. Claude Lamoureux as Chairman of the Board of Directors of the Corporation and the appointment of Mr. Glenn Kelly, the Corporation’s President and CEO, as a member of the Board.
- Orbite ended ongoing discussions and terminated its memorandum of understanding with Rusal UC pertaining to its Smelter Grade Alumina project.
“We continue to execute well against our twelve-month time line towards completion of our HPA production facility, and I am pleased with our progress, which provides increasing visibility on our commercialization,” stated Glenn Kelly, Orbite’s CEO. “In the past quarter, we accomplished a number of important milestones, such as the ordering of the calcinator from world leader Outotec. We concluded a limited production run, the results of which were positive and in line with our expectations based on work done at our state of the art Technology Development Centre. Other important deliverables, such as detailed engineering, project management, schedule finalization and preparing for equipment ordering and construction are all progressing as planned. Other highlights for the quarter include the $3.8 million non-interest bearing loan received from Canada Economic Development, and the announcement by Investissement Québec that they will be making a $10 million equity investment in the Corporation. Finalization of this funding is anticipated shortly.”
Mr. Kelly concluded, “With the funding from the Québec and Federal governments, the Series X subscription rights leading to the anticipated completion of the next $10 million tranche by mid-July, as well as the issuance of the Series Y subscription rights, we are sufficiently capitalized to see us through to commercialization. In the coming months, we will increase our commercial efforts to engage with prospective clients in their supplier qualification processes. I look forward to informing the market on our progress in the coming quarters.”
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Q1 Operating and Construction Update – HPA Plant
During the 1st quarter of 2014, Orbite advanced its HPA project development with its partners Seneca for detailed engineering, Groupe Alphard for project management and procurement, and with Outotec for the supply of its calcination system for the production of high purity alumina.
At its Technology Development Center (“TDC”) in Laval, Québec, the Corporation performed numerous pilot trials in order to define the ideal conditions for the HPA synthesis to optimize product quality, production yields as well as operating costs. It also defined operating parameters for different feedstocks. All these are incorporated in the design basis for the HPA project in Cap-Chat.
At the Cap-Chat HPA facility, the Corporation ran a series of successful trials with two commercial feedstocks for the production of aluminium hexahydrate crystals (precursor of the High Purity Alumina) in order to confirm the optimum design conditions at industrial scale as well as to produce high quality feed material for processing of customer samples for their qualification steps. During one of the production trials at the HPA Cap-Chat facility and as reported during our March 17th Conference Call, an incident occurred on a leaching reactor, which resulted in a water line breakage and an accidental release of a mixture of acid, water and solids. No one was hurt and there will be no material impact on either operations or finances. The release was fully contained within the process building and captured in the waste water containment. The cause of the incident has been ascertained and the damaged equipment is being repaired following thorough inspection. The engineering team is working closely with the insurance companies to minimize costs to the Corporation.
The Corporation also performed calcination trials at pilot centers operated by two suppliers which confirmed processing performance and product quality with both systems. Material produced was fully tested at the TDC. Following a thorough technical and commercial assessment of the two offers, the Corporation entered into a supply agreement with Outotec Oyj and Outotec Canada for the supply of the calcination system and auxiliary equipment. During the quarter, Orbite received a $3.8 million financial contribution from Canada Economic Development that was used to purchase the Outotec calcinator. The balance of $0.2 million remaining will be received in 2015. Process design and safety review have been completed and Outotec has begun production of the three main vessels in its fabrication shop in Burlington, Ontario. The Corporation is presently fine-tuning the process control strategy with Outotec’s German engineering team. The Corporation expects to be receiving the first shipment of material from Germany in June, including the refractory, auxiliary equipment and HCl scrubbing systems.
On the engineering front, Seneca is progressing as scheduled with the detailed engineering. The Corporation is planning to initiate procurement for the remainder of the equipment and instrumentation in May. The Corporation also expects to complete very shortly a hazard and operability review (“HAZOP”).
Together with its various partners, the Corporation is finalizing the detailed construction schedule and establishing the pre-fabrication and the onsite construction requirements. Preliminary discussions with construction companies will commence shortly, and the tender process will be held for contract awards in June with construction start planned for July.
On March 28, 2012, the Corporation announced the signing of a non-binding Memorandum of Understanding (“MOU”) with UC RUSAL, pursuant to which the parties intended to invest into a joint-venture for the construction and operation of an SGA plant. Despite extensive and lengthy negotiations, the parties were unable to agree on terms satisfactory to Orbite. As a consequence thereof, the Corporation announces it has terminated the MOU.
Although not a short term priority, the Corporation intends initiating discussions with other potential SGA partners, including Glencore with whom the Corporation executed a binding SGA offtake agreement, regarding a joint venture partnership of its contemplated SGA production facility.
Summary of Financial Results
The Corporation is a development stage company and has no revenues.
Loss before net finance income (expense) and income and mining taxes for the first quarter 2014 increased by $571,535 to $3,414,119, compared to $2,842,384 during the same period in 2013. The increase is attributable mainly to higher HPA plant operation expenses since HPA related costs for Q1 2013 were mostly capitalized and not expensed.
Net loss for the first quarter 2014 increased by $3,900,199 to $4,411,167 ($0.02 per share), compared to $510,968 during the same period in 2013. However, this increase is due mainly to a $3,342,900 non-cash mark-to-market increase in fair value of the convertible debentures presented under net finance expense.
Research and development charges
Research and development charges are generally comprised of employee benefit expenses (salaries and social benefits), share-based payments, consultant expenses and material costs for the Corporation’s Technology Development Center in Laval. These charges are presented net of government research and development investment tax credits, and other government assistance of $23,400 and $17,600 for the quarters ended March 31, 2014 and 2013, respectively. Research and development charges increased by $97,652 during the first quarter compared to the same period in 2013 as a result of an increase in salaries, consulting fees and share-based payments.
General and administrative charges
General and administration charges consist mostly of employee benefits (salaries and social benefits), share-based payment expenses, consulting, accounting, business development, legal, and investor relation costs relating to head office activities. General and administrative costs increased by $65,409 during the first quarter compared to the same period in 2013. The increase resulted principally from an increase in share-based payments ($213,386) as well as an accrued severance payment ($166,000), partially offset by decreases in professional fees and a general reduction in expenses resulting from our 2013 cost reduction program.
HPA plant operations
HPA plant operations include administration, care and maintenance costs for the HPA plant in Cap-Chat (Québec) since the pilot plant activities ceased at the end of the second quarter of 2012. Costs incurred at the HPA plant relating directly to the installation of equipment and commissioning of the plant which meet the IFRS criteria for capitalization, are capitalized in property plant and equipment. HPA plant operation expenses increased by $378,378 during the first quarter ended March 31, 2014 compared to the same period in 2013 due to additional personnel dedicated to operating activities, whereas HPA related costs were mostly capitalized during the first quarter of 2013.
Other financial gains (losses)
The Corporation recognized a loss of $986,187 during the first quarter compared to a gain of $2,353,769 in the same period of 2013. The loss during the first quarter is mainly due to the non-cash mark-to-market adjustment relating to the 2013 convertible debentures. The gain during the first quarter of 2013 is principally due to the decrease in fair value of the embedded derivative relating to the 2012 convertible debentures conversion option resulting from a decrease in the Corporation’s share price.
Cash and short-term investments
Cash and short-term investments decreased by $4,972,031 during the first quarter of 2014 compared to December 31, 2013. The decrease was mainly due to the continued investment in the construction of the HPA plant, research and development, general administration and HPA plant operating expenses. The decrease was partially offset by the $3.8 million financial contribution received from Canada Economic Development.
Property, plant, and equipment
Property, plant, and equipment (“PP&E”) increased by $2,028,486 during the first quarter of 2014 compared to December 31, 2013. The net increase resulted from an increase of $5,813,816 before investment tax credits, in the investment in PP&E attributable mainly to the HPA plant, partially offset by $3,711,178 in government grants and refundable investment tax credits on equipment purchases for the HPA plant and the recording of depreciation during the period.
Long-term debt and convertible debentures
Long-term debt (including short-term portion) and convertible debentures increased by $1,752,058 and decreased by $9,514,405 respectively, during the first quarter of 2014, as compared to December 31, 2013. The decrease in convertible debentures results mainly from the exercise of the debenture conversion option by some 2013 debenture holders. The increase in long term-debt is principally due to the receipt of the $3.8 million financial contribution from Canada Economic Development recorded at amortized cost. The loan from Canada Economic Development is non-interest bearing.
Share capital and warrants
Share capital and warrants increased by $10,422,658 mainly due to the issuance of common shares as a result of the conversion of 2013 debentures during the first quarter.
Cash Flows from Operating Activities
Cash flows used in operating activities were $3,551,223 during the first quarter compared to cash inflows of $985,326 during the same period in 2013. Excluding the non-cash working capital items, and interest paid and received, the cash flows used in operations amounted to $2,646,867 in 2014 compared to $2,268,667 in 2013. The increase of $378,200 is mainly the result of the higher HPA plant administration, care and maintenance cost. The cash flows used in the non-cash working capital items during the first quarter amounted to $427,735 compared to inflows of $3,696,264 in 2013. The significant inflow in 2013 was due to significant sales tax reimbursements during the period.
Cash Flows from Financing Activities
Cash flows from financing activities increased by $3,921,822 during the quarter ended March 31, 2014 compared to the same period in 2013, mainly due to the financial contribution received from Canada Economic Development during the period ended March 31, 2014.
Cash Flows used in Investing Activities
Cash flows used in investing activities decreased by $15,946,227 during the quarter ended March 31, 2014 compared to the same period in 2013, mainly due to a reduction in investments in the HPA plant construction and exploration and evaluation assets.
Liquidity and Capital Resources
As at March 31, 2014, the Corporation had aggregate cash and short-term investments balance of $5,307,431 and positive working capital (current assets less current liabilities) of $5,273,709.
Repayable financial contribution from Canada Economic Development
On January 30, 2014, Orbite announced it was granted a $4 million non-interest bearing repayable financial contribution from Canada Economic Development (“CED”) for Québec regions to be used for the purchase and installation of the alumina calcinator, a key element in Orbite’s high purity alumina production facility. Based on the agreement, the Corporation received $3,800,000 in March 2014, with the remaining $200,000 to be received in 2015. The contribution is interest free, repayable in 10 consecutive equal semi-annual installments starting 24 months following completion of the HPA Facility. The Loan is secured by a first ranking movable hypothec against the Corporation’s movable assets located on the premises of the Corporation’s high purity alumina production facility in Cap-Chat, until such time as the calcination equipment is installed and functional, at which time the loan will be secured exclusively by such calcination equipment. In 2010 and 2011 the Corporation received unsecured loans totalling $800,000 from CED, whose maturity was deferred until April 1st, 2016. This loan is also being secured by a first ranking movable hypothec against the Corporation’s movable assets located on the premises of the Cap-Chat Facility, until such time as the calcination equipment is installed and functional, at which time the Loan will be secured exclusively by such calcination equipment.
The Corporation intends to complete the financing of the construction and commissioning of the HPA plant through the following sources of funds:
Equity investment from Investissement Québec
On March 3, 2014, the Corporation announced that the Government of Québec formally approved a $10 million equity investment in Orbite by Investissement Québec (“IQ”), a mandatory of the Québec Government. Terms and conditions of the investment, including timing and pricing, are expected to be settled shortly.
Orbite also secured a binding commitment by a U.S. based institutional investor providing for the future subscription of $40 million in additional units by way of private placement (“the Subscription Commitment”) having identical terms to those of the Units issued in December 2013 (see note 7 of the Annual Financial Statements for the year ended December 31, 2013), with the exception that the conversion price shall be based on the 5 day volume weighted average price (“VWAP”) of the Corporation’s shares on the last trading day prior to the date on which the subscription rights in respect of which the units are issued first become exercisable, and the Warrants granted shall be equivalent to 45% of the number of Common Shares into which the Debentures are convertible, exercisable at a 20% premium over such conversion price.
As per the terms of the Subscription Commitment, the investor subscribed, on March 10, 2014, to the two (2) series of subscription rights (the “Series X Subscription Rights” and the “Series Y Subscription Rights” and collectively the “Subscription Rights”). The Subscription Rights will be exercisable by the investor and by the Corporation. Upon exercise, the Subscription Rights will require the investor to purchase Additional Units in the total subscription amount of up to $40 million, as follows:
- Series X Subscription Rights, requiring the investor upon exercise to purchase Additional Units in the amount of $10 million, failing which such Subscription Rights as well as the rights of Series Y will expire and
- Series Y Subscription Rights, requiring the investor upon exercise to purchase Additional Units in the amount of up to $30 million based on aggregate trading value benchmarks on the Common Shares. The Series Y Subscription Rights are over a 24 month period and are only exercisable if the Series X Subscription Rights are exercised otherwise they will immediately expire.
As per the Corporation’s press release dated March 14, the Series X Subscription Rights and Series Y Subscription Rights were issued upon the terms provided in the subscription agreement and summarized in the Corporation’s amended and restated prospectus dated December 6, 2013.
The obligations of the Investor under the Subscription Rights are subject to several conditions, including obtaining certain regulatory approvals, including TSX approval, and approval of the Corporation’s shareholders prior to the exercise of the Series Y Subscription Rights.
Orbite management will hold a conference call and provide a live audio webcast today, May 13, 2014 at 10 a.m. to discuss the Corporation’s financials and provide an update on the Corporation’s HPA project.
CONFERENCE CALL DETAILS:
|Date:||May 13, 2014|
|Time:||10 a.m. (EDT)|
|Dial in number:||+1 (888) 231-8191 / +1 (647) 427-7450|
|Taped replay:||+1 (855) 859-2056|
|+1 (514) 807-9274|
|+1 (416) 849-0833|
|Available until 12:00 midnight (EDT), Monday, May 27, 2014|
|Reference number: 44095234|
Notice to Reader
The information provided in this press release is entirely qualified by the disclosures in the Corporation’s Financial Statements and Management Discussion & Analysis (MD&A) for the quarter ended March 31, 2014, which are available at www.orbitealuminae.com and under the Corporation’s profile at www.sedar.com.
Orbite Aluminae Inc. is a Canadian cleantech company whose innovative and proprietary processes are expected to produce alumina and other high-value products, such as rare earth and rare metal oxides, at one of the lowest costs in the industry, and in a sustainable fashion, using feedstocks that include aluminous clay, kaolin, nepheline, bauxite, red mud and fly ash. Orbite is currently in the process of finalizing its first commercial high-purity alumina (HPA) production plant in Cap-Chat, Québec and has completed the basic engineering for a proposed smelter-grade alumina (SGA) production plant, which would use clay mined from its Grande-Vallée deposit. The Corporation’s intellectual property portfolio contains 15 intellectual property families, and the Corporation owns the intellectual property rights to 11 patents and 66 pending patent applications in 10 different countries and regions. The first intellectual property family is patented in Canada, USA, Australia, China, and Russia. The Corporation also operates a state of the art technology development center in Laval, Québec, where its technologies are developed and validated.
Certain information contained in this document may include “forward-looking information”. Without limiting the foregoing, the information and any forward-looking information may include statements regarding projects, costs, objectives and future returns of the Corporation or hypotheses underlying these items. In this document, words such as “may”, “would”, “could”, “will”, “likely”, “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate” and similar words and the negative form thereof are used to identify forward-looking statements. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether, or the times at or by which, such future performance will be achieved. Forward-looking statements and information are based on information available at the time and/or the Corporation management’s good-faith beliefs with respect to future events and are subject to known or unknown risks, uncertainties, assumptions and other unpredictable factors, many of which are beyond the Corporation’s control. These risks uncertainties and assumptions include, but are not limited to, those described in the section of the Management’s Discussion and Analysis (MD&A) entitled “Risk and Uncertainties” as filed on May 13, 2014.
The Corporation does not intend, nor does it undertake, any obligation to update or revise any forward-looking information or statements contained in this document to reflect subsequent information, events or circumstances or otherwise, except as required by applicable laws.
Raj Shah has professional experience working for over a half a dozen years at financial firms such as Merrill Lynch and First Allied Securities Inc., ... <Read more about Raj Shah>