Orbite Announces Second Quarter and Six Month 2014 Results and Updates Construction of HPA Facility
July 30, 2014 (Source: Marketwired) — Orbite Aluminae Inc. (TSX:ORT) (OTCQX:EORBF) (“Orbite“, or the “Corporation“) announced today the filing of its second quarter and six months ended June 30, 2014 financial results.
Second Quarter Highlights
All dollar amounts are in Canadian dollars unless stated otherwise.
- Continued to advance its high purity alumina (“HPA”) project development in line with previously announced timelines, including detailed engineering, project management and procurement.
- Additional pilot trials were conducted at the Corporation`s Technology Development Center (“TDC”) in Laval, Québec, for the optimization of product quality, production yields and operating costs.
- A successful production campaign was completed at the Cap-Chat HPA facility, producing aluminum hexahydrate crystals (precursor of HPA) to confirm optimum design conditions at industrial scale.
- Made key technical and operational appointments with a Director of Engineering and a Plant Manager.
- Completed a $10 million equity investment from Ressources Québec (“RQ”), a subsidiary of Investissement Québec, through a private placement.
- Announced the nomination of Mr. Claude Lamoureux as Chairman of the Board of Directors and the appointment of Mr. Glenn Kelly, as President and CEO and as a member of the Board. The appointments were subsequently ratified at the Corporation’s June 19, 2014 General and Special Meeting of Shareholders.
- Terminated its memorandum of understanding with Rusal UC pertaining to its Smelter Grade Alumina initiative, and announced the intention to engage with other interested parties.
- Obtained approval at the June 19 AGM to change the Corporation’s name to “ORBITE TECHNOLOGIES INC. / TECHNOLOGIES ORBITE INC.” as Board and management consider this name to reflect better the Corporation’s comprehensive business initiatives beyond alumina. The new name is expected to become effective in mid-September.
- Maintained strict costs control and continued to operate within budget estimates.
- Cash and Short-Term Investments of $9.0 million as at June 30, 2014. Positive Working Capital of $11.2 million. Pro-forma the issuance of series X subsequent to the quarter, Cash and Short-Term Investments of $19.0 million as at June 30, 2014. Positive Working Capital of $21.2 million.
- Non-current Investment tax credits receivable pledged against the $25 million debentures of $25.7 million.
- Property, Plant and Equipment of $70.1 million.
- Quarterly Net loss and Comprehensive loss of $4.3 million or $0.02 per share, up by $0.9 million compared to Q2-2013, and down by $0.1 million compared to Q1-2014.
- Continued cost control resulted in cash flows used in operations decreasing by $0.9 million to $3.3 million, as compared to the same period in the prior year. Including non-cash working capital items, cash flows used in operating activities increased by $0.8 million to $5.6 million.
- Cash flows from financing activities of $10.6 million, as compared to cash flows used in financing activities of $0.02 million.
- Cash flows used for investing activities of $1.3 million, as compared to $6.7 million for Q2 2013.
- Shareholders’ equity of $97.0 million.
Events Subsequent to the Quarter
- Announced a $10 million debenture financing following the exercise of Series X Subscription Rights. Pro forma this investment, liquidity as at June 30 stood at $19.0 million, with positive working capital of $21.2 million.
- Announced that the calcinator equipment ordered from Outotec in Germany has arrived in Québec, as well as that vessel construction is progressing according to schedule and in line with specifications and quality requirements.
- The Corporation received an initial payment of $6 million from tax authorities in consideration of investment tax credits on the equipment purchased for manufacturing and processing in the Gaspé region. The payment relates to the 2012 financial year, and the Corporation expects subsequent payments to follow. The amount will be deposited in a segregated account and serve as security for the convertible debentures issued in December 2012.
“We are now over six months into the project to complete our HPA facility, and continue to execute well against our 12-month timeline and remain within budget,” stated Glenn Kelly, Orbite’s CEO. “With the arrival of the calcination equipment in Québec, we are now gearing up towards the construction phase of the project, with site preparation underway. Concurrently, we are conducting technical work at our TDC and in Cap-Chat to support the commissioning and start-up phase, and continue to be on target for commercial production in the first quarter of 2015.”
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He continued, “On a corporate level, we have significantly strengthened our financial position with funding from Ressources Québec, as well as the exercise of the Series X subscription rights. This has put us in a position of strength to not only continue our progress towards commercialization, but also to set in motion the early stages of our waste monetization initiative.”
Mr. Kelly concluded, “As we draw nearer to commissioning of the plant, we also are setting in motion our commercial activities. The successful production run at Cap-Chat has provided us with sufficient precursor material to develop samples that prospective customers have requested to satisfy their supplier qualification process. We are excited about our progress and I look forward to updating the market regularly on our progress in the coming months.”
Q2 Operating and Construction Update – HPA Plant
During the 2nd quarter of 2014, Orbite continued the development of its HPA project with its engineering partners Seneca for detailed engineering, Groupe Alphard for project management and procurement, with Outotec for the supply of its calcination system, and with CMI for the supply of the acid recovery system for the production of high purity alumina.
At its Technology Development Center (“TDC”) in Laval, Québec, the Corporation performed additional pilot trials on HPA synthesis and purification steps to optimize product quality, production yields, as well as operating costs. Equipment testing was also pursued to define operating parameters to customize product for specific applications.
At the Cap-Chat HPA facility, the Corporation ran a production campaign of aluminum hexahydrate crystals (precursor of HPA) to confirm optimum design conditions at industrial scale as well as to produce high quality intermediate for processing into customer samples for their supplier qualification processes. All results were positive and in line with expectations based on work conducted at the TDC and engineering calculations.
The Corporation also performed additional calcination trials at Outotec’s pilot center in Germany to confirm benefits of process development carried out at its TDC and provide supplier data in order to develop advanced process control logic for the Cap-Chat calcination system.
Outotec’s manufacturing of the calcination system (decomposer, calciner and cooler) is progressing according to schedule. On July 14, 2014, Orbite announced that the calcinator equipment ordered from Outotec in Germany had arrived in Québec. The shipment, representing approximately 50% of the total investment in the calcination system, includes a combination of refractory and solids handling devices, as well as monitoring and control instrumentation. Also expected to arrive at the plant from Outotec’s facility in Burlington, Ontario, are pre-shaped refractory bricks. Progress on fabrication of the vessels for the calcination system at Outotec’s Burlington facility is also progressing according to schedule, with all progress and quality inspection reports being positive. The various components of the calcination system will be shipped to the Cap-Chat facility in accordance with the construction schedule.
On the engineering front, Seneca is finalizing the detailed engineering, integrating the findings of the HAZOP (hazard and operability review) as well as the latest information from the equipment suppliers.
The Corporation is advancing equipment procurement with different suppliers. It also initiated the tender process for the construction portion, refractory installation & curing, as well as for equipment fabrication. The contract for erecting the plant’s structural features was awarded, and Orbite expects to award other major construction and fabrication contracts shortly.
With input from its various partners, Orbite is optimizing the construction sequence and schedule for the project. The site is presently being prepared for the arrival of construction equipment and crews, and construction is anticipated to commence in August, following the Québec construction holiday (July 19th thru August 3rd).
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 second quarter 2014 decreased by $1,397,202 to $3,568,786, compared to $4,965,988 during the same period in 2013. The decrease is attributable mainly to a reduction in general and administrative charges. Loss before net finance income (expense) and income and mining taxes for the six months ended June 30, 2014 decreased by $825,467 to $6,982,905, compared to $7,808,372 during the same period in 2013. The decrease is due mainly to a reduction in general and administrative charges, which are partially offset by higher HPA plant operation expenses.
Net loss for the three and six months ended June 30, 2014 amounted to $4,285,455 ($0.02 per share) and 8,696,622 ($0.03 per share), compared to $3,393,289 ($0.02 per share) and 3,904,257 ($0.02 per share) during the same period in 2013. The increase of $4,792,365 for the six month period compared to the same period in the prior year is mainly due to the non-cash mark-to-market increase in fair value of the convertible debentures presented under net finance expense, which is partially offset by a $825,467 reduction in the operating expenses.
Research and development charges
Research and development charges consist of employee personnel related costs (salaries and social benefits), share-based payments, consultant expenses and material costs for Orbite’s Technology Development Center in Laval. These charges are presented net of government research and development investment tax credits, and other government assistance of $21,221 and $44,675 for the three and six months ended June 30, 2014, and $25,474 and $43,096 for the same periods in 2013. Research and development charges decreased by $66,631 in the quarter compared to same quarter in 2013 due to a decrease in salaries, external lab analysis, and consulting fees, partially offset by an increase in lab consumables. Research and development charges increased by $31,021 during the first six months.
General and administrative charges
General and administration charges consist mostly of personnel related costs (salaries and social benefits), share-based payment expenses, consulting, accounting, business development, legal, and investor relation costs relating to the head office activities. General and administrative costs decreased by $1,708,562 during the quarter compared to the same period in 2013. General and administrative costs decreased by $1,643,153 during the six months ended June 30, 2014, as compared to the same period in 2013. The decrease was attributable to a decrease in share-based payments, salaries, professional fees, as well as a general reduction in expenses resulting from the cost reduction program put in place in 2013.
HPA plant operations
HPA plant operations include administration, operating and maintenance costs for the HPA plant at Cap-Chat. Costs incurred at the HPA plant that relate directly to the installation of equipment and the commissioning of the plant, and that meet the IFRS criteria for capitalization, are capitalized under property plant and equipment. HPA plant operation expenses increased by $84,809 during the quarter ended June 30, 2014, and increased by $463,187 during the six months ended June 30, 2014, as compared to the same period in 2013, due to an increase in operating and maintenance activities, as HPA related costs in the first quarter of 2013 were mostly capitalized.
Other expense (income)
Other expense (income) increased by $293,182 and $323,478 during the quarter and the six months ended June 30, 2014, as compared to the same periods in 2013, due mainly to the payments to compensate purchasers of flow-through securities issued in December 2012 for adverse tax consequences incurred, as the Corporation did not meet the spending requirement related to qualifying Canadian mineral exploration expenses.
Cash and short-term investments
Cash and short-term investments decreased by $1,243,945 during the first six months 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, as well as the $10 million equity funding from Ressources Québec, a subsidiary of Investissement Québec.
Investment tax credits
Investment tax credits classified as current increased by $2,110,027 during the first six months of 2014 compared to December 31, 2013 as a result of the recognition of the 2014 accrued investment tax credits receivable on the equipment purchased for manufacturing and processing in the Gaspé region.
Investment tax credits classified as non-current relating to the 2012 and 2013 fiscal year, are pledged as security against the $25 million convertible debentures issued in December 2012. The funds the Corporation will receive upon reimbursement of the 2012 and 2013 investment tax credits will be deposited in a segregated account and serve as security for the convertible debenture. These funds will be released to the Corporation according to the terms of the trust indenture agreement.
Property, plant, and equipment
Property, plant, and equipment (“PP&E”) increased by $5,236,630 during the first six months of 2014 compared to December 31, 2013. The net increase resulted from an increase of $9,608,118, before investment tax credits, in the investment in PP&E, attributable mainly to the HPA plant. The investments were partially offset by $4,191,822 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 $1,840,007 and decreased by $10,543,043, respectively, during the first six months of 2014, as compared to December 31, 2013. The decrease in convertible debentures resulted mainly from the exercise of the debenture conversion option by some of the December 2013 debenture holders. The increase in long term-debt is principally due to the receipt of the $3.8 million financial contribution by Canada Economic Development, recorded at amortized cost.
Share capital and warrants
Share capital and warrants increased by $23,032,847 mainly due to the issuance of common shares as a result of the conversion option by some of the December 2013 debenture holders during the first quarter, as well as the $10 million equity funding from Ressources Québec.
Cash Flows from Operating Activities
Cash flows used in operating activities increased by $809,889 during the quarter ended June 30, 2014 compared to the same period in 2013. The cash flows used for operations decreased by $853,848 during the second quarter compared to the one in 2013 while the cash flows used for non-cash working capital items, mainly accounts payable, increased by $1,638,907 during the second quarter ended June 30, 2014 compared to 2013. Cash flows used in operating activities increased by $5,346,438 for the six months ended June 30, 2014 compared to the same period in 2013. The cash flows used for operations decreased by $475,648 during the six months ended June 30, 2014 compared to the same period in 2013. During the six month period ending June 30, 2014, the cash flows used for non-cash working capital items amounted to $2,241,256 mainly to cover the accounts payable whereas during the six months ended June 30, 2013, the Corporation received cash from non-cash working capital items for an amount of 3,521,650 of which $3,491,245 were sales taxes receivable.
Cash Flows from Financing Activities
Cash flows from financing activities increased by $10,592,355 during the quarter ended June 30, 2014 compared to the same period in 2013 and increased by $14,514,177 during the first six months compared to the same period in 2013. The increase is mainly due to the financial contribution received from Canada Economic Development during the first quarter and the equity funding by Ressources Quebec during the quarter ended June 30, 2014.
Cash Flows used in Investing Activities
Cash flows used in investing activities decreased by $5,410,192 during the quarter ended June 30, 2014 compared to the same period in 2013 and decreased by $21,356,419 during the first six months compared to the same period in 2013. The decrease is mainly due to a reduction in investments in the HPA plant construction and exploration and evaluation assets.
Liquidity and Capital Resources
As at June 30, 2014, the Corporation had aggregate cash and short-term investments balance of $9,035,517 and positive working capital (current assets less current liabilities) of $11,149,379. Following the exercise of series X on July 11, 2014, the Corporation had, on a pro-forma basis, cash and short-term investments of $19,035,517 and positive working capital (current assets less current liabilities) of $21,149,379.
Equity investment from Investissement Québec
On May 27, 2014, the Corporation completed a private placement with Ressources Quebec (RQ), a subsidiary of Investissement Quebec, which resulted in the issuance of 35,714,286 units at a price of $ 0.28 per unit. Each unit was comprised of one Class A share and one half (1/2) of one Class A share purchase warrant. Each full warrant entitles RQ to purchase one Class A share of the Corporation at a price of $ 0.33 for 36 months from the date of closing.
On July 11, 2014 Orbite announced that Crede Capital Group, LLC (“Crede”) had completed an investment of $10,000,000 in the form of convertible debentures and warrants pursuant to the exercise of the Series X Subscription Rights (the “Subscription Rights”), as issued on March 11, 2014.
Under the placement, Crede purchased units of the Corporation consisting of $10,000,000 principal amount of convertible unsecured debentures (the “Debentures”) and 13,000,000 warrants (the “Warrants”) of the Corporation. The Debentures will mature five years from issuance, namely July 11, 2019 and will bear interest at a rate of 7.5% per annum (the “Interest”). Each Debenture is convertible, at the option of the holder, at any time prior to the maturity date, into class A shares of the Corporation (“Shares”) at a conversion price of $0.50 per Share (the “Conversion Price”), representing the 5 day VWAP at time of the conditional exercise of the Series X subscription rights. Upon conversion, the holder shall also be entitled to Shares equal to the additional interest such holder would have received if it had held the Debenture until maturity, divided by the market price of the Shares prior to the date of conversion (the “Make-Whole Amount”), in addition to accrued and unpaid Interest, in cash or in Shares at the Corporation’s discretion. Each Warrant entitles the holder to purchase one Share for a period of three years from its issuance at a price of $0.60 per share (equivalent to the Conversion Price plus a 20% premium).
In connection with the placement, the regulatory authorities required certain changes to the initial terms of the Subscription Rights, namely that the maximum number of Shares issuable upon conversion of the Debentures on account of the principal amount and the Make-Whole Amount not exceed the principal amount of the Debentures converted, divided by the Conversion Price less 25%. The parties further agreed that the Make-Whole Amount would not be reduced by 1% for each 1% that the current market price of the Shares at the time of conversion exceeds the Conversion Price and that the number of Warrants would correspond to 65% of the number of Shares into which the principal amount of Debentures is convertible.
In connection with the placement, the Corporation paid a fee of 6% of the amount of the investment and issued a total of 1,200,000 finder warrants to Euro Pacific Canada Inc. and Roth Capital LLC. Each finder warrant entitles the holder to purchase one Share for a price of $0.60 per share for a period of two years and is nontransferable.
Following the exercise of the series X subscription rights, the series Y subscription rights issued on March 10, 2014 remain outstanding. Such series Y subscription rights provide for the future subscription of $30 million in additional units having identical terms to those of the Units issued in 2013 (see note 7 of the December 31, 2013 Annual Financial Statements), 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.
The obligations of the investor under the Series Y subscription rights are subject to several conditions, including obtaining certain regulatory approvals, including TSX approval, and approval of the Corporation’s shareholders.
Orbite management will hold a conference call and provide a live audio webcast today, Wednesday, July 30, 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:||July 30, 2014|
|Time:||10 a.m. (EDT)|
|Dial in number:||+1 (888) 231-8191 / +1 (647) 427-7450|
|Available until:||12.00 midnight (ET), Wednesday, August 13, 2014|
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 June 30, 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 by-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 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 16 intellectual property families, and the Corporationowns the intellectual property rights to 11 patents and 72 pending patent applications in 10 different countries. 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 Corporationor 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 Corporations 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 July 30, 2014 on SEDAR.
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.
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