Orbite Technologies Inc EORBF

Euro Pacific Canada comments on Orbite Aluminae Inc.

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According to Euro Pacific Canada:

https://personal.crocodoc.com/4AnkFnM

Orbite Aluminae Inc.

Under Review Rating

Under Review Target Price

Start of Commercial Production pushed to Q415

Event: Orbite Aluminae Inc. provided an update on financing and construction of its high purity alumina (HPA) plant in Cap-Chat, Québec. The key takeaway is that physical installation of the new refractory bricks and mortar in the calciner and decomposer is taking longer than expected, as is the curing of the new material. As such, Orbite now forecasts commercial production should start in Q415, compared with Q315, previously. The Company also notes that the project remains on budget and that Investissement Québec (IQ) has agreed to a $5M bridge loan collateralized against an expected $7.5M in 2015 investment tax credits from the Government of Québec.

- $5M Bridge Loan: Orbite notes that it expects to be eligible for up to $7.5M in 2015 investment tax credit refunds, and that IQ has agreed to provide a $5.0M bridge loan, collateralized against such credits. The loan is pending finalization of customary documentation. The Company also notes that it expects to receive a $3M refund associated with 2012/2013 investments by the end of June. The funds would be deposited in a segregated account, and will be used to redeem the 2012 convertible debentures and reduce interest payable by an estimated $2M /year. A remaining $0.7M (plus $0.2M in related interest) is expected to go toward financing the HPA plant. Talks aimed at qualifying another $1.8M in 2012/13 tax credits are ongoing. Prior to the expected $5M bridge loan, Orbite noted that it would require additional financing of ~$11M to complete the 3tpa HPA plant. The Company says the IQ bridge loan “puts us very close to completing our HPA2-related financing requirements.” (Orbite CEO Glenn Kelly - Marketwatch.com) The Company continues to review additional financing options, including its base shelf prospectus and asset backed debt.

- Potential Critical Component Delivery Delays: In addition to extended timelines for refractory installation, Orbite also says the delivery of certain critical components required for the timely completion of the high-temperature steam system for the calcinator and decomposer may not be met owing to a labour dispute (now resolved) at a supplier. As such, the Company now forecasts the start of commercial production in Q415, compared with Q315 previously.

- Construction Update: Refractory installation and internal prepping of the ovens began at the end of March, but Orbite notes that installation productivity by the contractors has not met budget owing to a steeper-than-anticipated learning curve, and longer-than-expected intermediate curing requirements for the new refractory material. As such, the Company now expects installation to wrap up in late July — 4-6 weeks longer than the originally planned 8-10 weeks. Thereafter, a four-week heating and curing process of the refractory material in both ovens is required. Meanwhile, prefabrication of specialty alloy piping (similar to that used in the nuclear industry) is slated to begin in mid-June, with onsite installation in August (~3 week process). Prefabrication of lined piping (acid duty) is expected to wrap up in early August. Electrical work, including installation of the main inlet transformer and the Outotec electrical supply system has begun. Foundation work has also begun with all exterior foundations (hydroxide silo, cooling tower, new building extensions, etc) well advanced with completion slated for June 15.