RE: Expert Analysis Matt Gowing, Mackie Research C MACKIE'S CONCLUSIONS: Very encouraging for longs, may be troubling for shorts. C'est la vie
ORT THESIS: AN EXCELLENT PLAY FOR AN IMPROVING ALUMINUM MARKET
A common convention holds for many equity investors in commodity dependent industries: “beta (or market performance) often is the most important driver of equity values and sentiment for those companies participating in that sector.” As Orbite remains a favourite in our coverage universe, we are becoming increasingly of the view that 2013 will be a break-out year for its share price, and also, that improving end-markets will provide a tailwind. As such, we review the key tenets of our investment thesis:
- A demonstrated concept: The company has demonstrated pilot plant production of both smelter grade alumina (SGA) and high purity alumina (HPA). A $40 million+ construction to refurbish the pilot plant to a commercial producer is essentially complete, and first HPArevenue is expected in Q2/13.
- A highly efficient, low cost HCl extraction technology: Orbite has demonstrated a viable
technology to alumina and other by-products from low grading aluminous ores such as
claystone and bauxite. Advantages of Orbite's hydro-chloric acid (HCl) process over others,such as the Bayer Process, include lower capital and operating costs.
- By-product recovery and a cleaner approach - other advantages: Another very important
advantage is the ability to produce high purity by-products through the implementation of
an acid-recovery system. Also, because Orbite's process is closed loop it eliminates harmful tailing products that the alumina industry is known to produce (ie. red mud). In fact, Orbite has idenfitied a business opportunity to remediate this red mud tailing product through deployment of its technology.
- A 43-101 compliant PEA has been completed that validates economics:
A PEA has been completed showing a 33% IRR over a 25 year duration for a 540,000 tonne per year SGA producing facility that that achieves a production cost of $209 per tonne. This operating cost places Orbite’s approach in the best quartile of SGA producing plants worldwide.
- 1 billion tonne alumina resource: This billion tonne resource is more than sufficient to allow Orbite to build several SGA and HPA production facilities, and fuel their operation for over 50 years. 400,000 hectares of similar land surround Grand Vallee resource.
- Non-disclosure agreements signed with over 10 potential strategic partners: Discussions are underway with potential partners such as RUSAL (world’s largest aluminum co.) andNALCO (India’s largest producer).