MONTREAL, QUÉBEC--(Marketwired - Nov. 5, 2014) - Orbite Aluminae Inc. (TSX:ORT)(OTCQX:EORBF) ("Orbite" or the "Company") announced today the filing of its third quarter and nine months ended September 30, 2014 financial results.
Third Quarter Highlights
All dollar amounts are in Canadian dollars unless stated otherwise.
- Mechanical installation of the decomposer and calcinator has been completed per the Company's earlier communicated timeline.
- Extensive testing confirms consistency of front-end process performance and suitability of refractory materials to yield HPA meeting high-end market specifications.
- Company has decided to include additional de-risking step in refractory completion to pre-empt potential long-term mechanical stability issues with certain delivered refractory materials. Consequently, management anticipates commercial production for Q2 2015.
- Cash and Short-Term Investments of $11.6 million as at September 30, 2014. Positive Working Capital of $14.2 million.
- Continued financial discipline in cash flows used in operations decreasing by $250,000 to $1.9 million, as compared to the same period in the prior year.
- $6 million in Québec investment tax credits (ITCs) was received, related to investments made in 2012, pledged to secure the Company's $25 million 2012 debenture.
- $19.7 million in non-current Investment tax credits receivable pledged to secure the $25 million December 2012 debentures.
- Subsequent to the quarter, the second installment of $6.3 million related to the 2012 ITCs was received.
- Property, Plant and Equipment of $74.9 million.
- Quarterly Net loss and Comprehensive loss of $228,000 down by $1.8 million compared to Q3-2013, and down by $4.1 million compared to Q2-2014.
- Cash flows from financing activities of $9.8 million, as compared to cash flows from financing activities of $0.1 million in the same period last year.
- Cash flows used for investing activities of $5.5 million, as compared to $1.8 million for Q3 2013.
- Shareholders' equity of $103.0 million.
Management commentary
"We continue to progress towards commercial production," said Glenn Kelly, CEO of Orbite. "Even though we have decided to pre-emptively include an additional step to de-risk completion of the refractory unit, we expect this will have no material impact on our project budget, and anticipate commercial production to commence in the second quarter of 2015."
"We produced aluminum chloride hexahydrate, the precursor material for HPA, in two successful production runs during the quarter. These runs confirmed production consistency of the front-end of our HPA production process. Tests results showed that the material produced is of high purity, and we are confident that subsequent calcination, required to convert this material into HPA, will retain this level of purity.
"In order to convert the aluminum chloride hexahydrate from our production runs into HPA, we are making some modifications to our old calcination system. We have indications of interest from over 30 potential customers and will be sending out samples to these parties once these modifications are completed, which we expect to be in the fourth quarter, taking our commercial outreach to the next level."
Mr. Kelly concluded, "We are on the cusp of being commercial with a potentially groundbreaking new technology. We are excited about the results from our rigorous testing program on the process, and are confident our plant will produce to specification upon successful commissioning."
Summary of Financial Results
Comprehensive loss
Revenues
The Company is a development stage company and has no revenues.
Loss before net finance income (expense) and income and mining taxes for the third quarter 2014 increased by $167,734 to $2,344,591, compared to $2,176,857 during the same period in 2013. The increase is attributable mainly to an increase in HPA plant operations, partially offset by a reduction in general and administrative charges. Loss before net finance income (expense) and income and mining taxes for the nine months ended September 30, 2014 decreased by $657,733 to $9,327,496, compared to $9,985,229 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 months ended September 30, 2014 amounted to $228,308 ($0.00 per share) compared to $2,102,728 ($0.01 per share) during the same period in 2013. The decrease of $1,874,420 for the three-month period compared to the same period in the prior year is mainly due to the non-cash decrease in fair value of derivative instruments presented under net finance expense.
Net loss for the nine months ended September 30, 2014 amounted to $8,924,930 ($0.03 per share), compared to $6,006,985 ($0.03 per share) during the same period in 2013. The increase of $2,917,945 for the nine-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 $657,733 reduction in operating expenses.
Research and development charges
Research and development charges are generally comprised of personnel related expenses (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 $20,195 and $64,870 for the three and nine months ended September 30, 2014, and $22,167 and $65,263 for the same periods in 2013. Research and development charges increased by $86,060 in the quarter compared to the same quarter in 2013. Research and development charges increased by $117,081 during the first nine months. The increase during the third quarter and the nine months ended September 30, 2014 compared to the same periods in 2013 is due to an increase in salaries and lab consumables partially offset by a decrease in external lab analysis, consulting fees and share-based payment.
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 head office activities. General and administrative costs decreased by $430,315 during the quarter compared to the same period in 2013. General and administrative costs decreased by $2,073,468 during the nine months ended September 30, 2014 compared to the same period in 2013. The decrease was attributable mainly to a decrease in salaries, professional fees, as well as a general reduction in expenses resulting from the cost reduction program in place since mid-2013.
HPA plant operations
HPA plant operations include administration, operating and maintenance costs for the HPA plant in Cap-Chat since the pilot plant activities ceased at the end of the third quarter of 2012. Costs incurred at the HPA plant that directly relate to the installation of the equipment and the commissioning of the plant, and meet the IFRS criteria for capitalization, are capitalized in property, plant and equipment (PP&E). HPA plant operation expenses increased by $424,150 during the quarter ended September 30, 2014, and increased by $887,337 during the nine months ended September 30, 2014, as compared to the same periods in 2013, due to an increase in operating and maintenance activities, as HPA related costs in the first quarter of 2013 were mostly capitalized.
Finance expense
Finance expense increased by $479,100 and $486,817 net of capitalized interest during the quarter and the nine months ended September 30, 2014 compared to the same periods in 2013. The increase is primarily due to the transaction costs pertaining to the issuance of the series X convertible debentures.
Other financial gains (losses)
The Company recognized a gain of $2,469,758 and $775,514 during the quarter and the nine months ended September 30, 2014, compared to a gain of $75,716 and $3,994,194 for the same periods of 2013. These gains are mainly due to the mark to market adjustment relating to the 2013 convertible debentures, and the changes in fair value of derivative financial instruments.
Financial position
Cash and short-term investments
Cash and short-term investments increased by $1,317,136 during the first nine months of 2014, compared to December 31, 2013. The increase was mainly due to the $10 million convertible debentures issued following exercise of the series X subscription rights, $3.8 million financial contribution received from Canada Economic Development and $10 million equity funding from Ressources Québec, a subsidiary of Investissement Québec. The increase was partially offset by the continued investment in the construction of the HPA plant, research and development, general administration and HPA plant operating expenses.
Restricted cash
Restricted cash increased by $6,011,743 during the first nine months of 2014, compared to December 31, 2013. These funds represent a portion of the refundable 2012 investment tax credits, deposited in a segregated account which serves as security for the 2012 convertible debentures. These funds will be released to the Company according to the terms of the trust indenture agreement.
Investment tax credits
Investment tax credits classified as current increased by $3,220,315 during the first nine 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 decreased by $5,999,919 during the first nine months of 2014, compared to December 31, 2013. The decrease is due mainly to an initial payment received from the tax authorities relating to the 2012 and 2013 fiscal year, which are pledged as security against the $25 million convertible debentures issued in December 2012. The funds the Company 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 2012 convertible debenture. These funds will be released to the Company according to the terms of the trust indenture agreement.
Property, plant, and equipment
Property, plant, and equipment ("PP&E") increased by $10,009,720 during the first nine months of 2014 compared to December 31, 2013. The net increase results from an increase of $15,556,443 before investment tax credits, in the investment in PP&E, attributable mainly to the HPA plant, partially offset by $5,281,915 in government grants and refundable investment tax credits on equipment purchases for the HPA plant.
Share capital and warrants
Share capital and warrants increased by $28,876,621, mainly due to the issuance of common shares as a result of the conversion of the 2013 and Series X debentures during the first nine months of 2014, the $10 million equity funding from Ressources Québec and the exercise of stock options and warrants.
Cash Flows
Cash Flows from Operating Activities
Cash flows used in operating activities decreased by $885,817 during the quarter ended September 30, 2014, compared to the same period in 2013. Cash flows used for operations decreased by $250,611 during the third quarter, compared to the same quarter in 2013, while cash flows from non-cash working capital items increased by $502,057 during the third quarter ended September 30, 2014, as compared to 2013. Cash flows used in operating activities increased by $4,460,621 for the nine months ended September 30, 2014, compared to the same period in 2013. Cash flows used for operations decreased by $726,259 during the nine months ended September 30, 2014, compared to the same period in 2013. During the nine month period ending September 30, 2014, cash flows used for non-cash working capital items amounted to $1,706,783 mainly to cover accounts payable, whereas during the nine months ended September 30, 2013, the Company received cash from non-cash working capital items amounting to $3,554,066 and $3,583,946 consisted of sales taxes receivable.
Cash Flows from Financing Activities
Cash flows from financing activities increased by $9,774,222 during the quarter ended September 30, 2014, compared to the same period in 2013, and increased by $24,288,399 during the first nine months, compared to the same period in 2013. This increase is mainly due to the financial contribution received from Canada Economic Development during the first quarter, the equity funding by Ressources Québec during the second quarter, as well as from the issuance of the series X convertible debentures issued during the quarter ended September 30, 2014.
Cash Flows used in Investing Activities
Cash flows used in investing activities increased by $3,721,644 during the quarter ended September 30, 2014, compared to the same period in 2013, and decreased by $17,634,775 during the first nine months compared to the same period in 2013. These changes are mainly due to investments in the HPA plant construction, restricted cash, non-current investment tax credits receivable and in exploration and evaluation assets.
Liquidity and Capital Resources
The Company is a development stage company that has not generated any revenues or significant cash flows from its operations. The Company's source of funding has primarily been from the sale of equity and debt securities, and to a lesser extent, earning interest income, which is highly dependent on the cash balances and prevailing interest rates. The Company has limited financial resources, has no recurring revenues and continues to rely on the issuance of shares, debt or other sources of financing to fund its overhead, HPA plant construction, commissioning and ongoing operations and to advance its development-stage projects. As at September 30, 2014, the Company had aggregate cash and short-term investments balance of $11,596,598 and positive working capital (current assets less current liabilities) of $14,219,523.
Repayable financial contribution from Canada Economic Development ("CED")
On January 30, 2014, Orbite announced it was granted a $4 million non-interest bearing repayable financial contribution from Canada Economic Development 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. In March 2014, the Company received $3,800,000 and the remaining $200,000 will be received during 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 was discounted at a rate of 14.5% and was initially recorded at $1,811,070, reflecting its fair value given its non-interest bearing nature. The difference between the proceeds received and the carrying amount of $1,988,930 is considered a grant and credited to property, plant and equipment. The loan will be accreted from its initial carrying amount to $3,800,000 over its life. In 2010 and 2011, the Company received unsecured loans totalling $800,000 from CED, whose maturity has been deferred to April 1st, 2016. The loan is secured by a first ranking movable hypothec against the Company's movable assets located on the premises of the Company's high purity alumina production facility in Cap-Chat, Québec, until such time as the calcination equipment is installed and functional, at which time such loan will be secured exclusively by such calcination equipment.
Equity investment from Investissement Québec
On May 27, 2014, the Company completed a private placement with Ressources Québec (RQ), a subsidiary of Investissement Québec, 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 Company at a price of $ 0.33 for 36 months from the date of closing.
Convertible debentures
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 Company consisting of $10,000,000 principal amount of convertible unsecured debentures (the "Debentures") and 13,000,000 warrants (the "Warrants") of the Company. 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 Company ("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 Company'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 Company paid a fee of 6% of the amount of the investment and issued 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 three 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 Company'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 Company's shareholders.
Orbite management will hold a conference call and provide a live audio webcast today, Wednesday, November 5, 2014 at 10 a.m. to discuss the Company's financials and provide an update on the Company's HPA project.
CONFERENCE CALL DETAILS:
Date: | November 5, 2014 |
Time: | 10:00 a.m. (ET) |
Dial in number: | +1 888 231-8191 |
+1 647 427-7450 | |
Webcast: | http://bit.ly/1zfhyeA |
Taped replay: | +1 855 859-2056 |
+1 514 807-9274 | |
+1 416 849-0833 | |
Encore password: | 27951551 |
Available until: | 12:00 midnight (ET), Wednesday, November 19, 2014 |
Notice to Reader
The information provided in this press release is entirely qualified by the disclosures in the Company's Financial Statements and Management Discussion & Analysis (MD&A) for the quarter ended September 30, 2014, which are available at www.orbitealuminae.com and under the Company's profile at www.sedar.com.
About Orbite
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 Company's portfolio contains 16 intellectual property families, including 12 patents and 96 pending patent applications in 10 different countries and regions. The first intellectual property family is patented in Canada, USA, Australia, China, Japan and Russia. The Company also operates a state of the art technology development center in Laval, Québec, where its technologies are developed and validated.
Forward-looking statements
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 Company 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 Company 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 Company'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 November 5, 2014 on SEDAR.
The Company 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.
Contact Information:
Mark Lakmaaker, External Investor Relations Consultant
1-800-385-5451 ext. 248
mlakmaaker@tmxequicom.com
For Media Inquiries:
TMX EQUICOM
Scott Anderson, External Media Relations Consultant
1-800-385-5451, ext. 252
sanderson@tmxequicom.com