First Quarter 2013 Results Press release from Marketwire
Orbite Announces First Quarter 2013 Results and Agreement with Principal Supplier
Thursday, May 16, 2013
MONTREAL, QUEBEC--(Marketwired - May 16, 2013) - Orbite Aluminae Inc. (TSX:ORT)(OTCQX:EORBF) ("Orbite", or the "Corporation") today announces the filing of its unaudited financial and operating results for its first quarter ended March 31, 2013 and an agreement resolving the dispute with its principal supplier involved in the construction of its HPA plant in Cap-Chat, Quebec. All dollar amounts are in Canadian dollars unless stated otherwise.
First Quarter Highlights:
- Began non-commercial operation of the HPA plant resulting in shipments to prospective customers of the first HPA samples of 99.99% (4N) or greater purity
- Announced exclusive worldwide agreement with Veolia Environmental Services
- Announced patents were awarded in China and Russia
- Cash and Short-Term Investments of $20.2 million
- Other Current Assets of $4.7 million
- Non-current Investment tax credits receivable of $23.7 million
- Increase in Property, Plant and Equipment of $10.8 million net of a $3.8M increase in refundable investment tax credits
- Accounts Payable and Accrued Liabilities of $8.1 million
- Provision for Billing Dispute of $14.3 million
- Comprehensive loss of $0.5 million or $0.003 per share
- Cash flows from operating activities of $1.0 million
- Cash flows used for investing activities of $21.3 million
- Subsequent to quarter end, announced that:
- Mr. Glenn R. Kelly will join Orbite as its Executive Vice-President and Chief Operating Officer, effective May 21, 2013
- Trading of its Convertible Debentures as of May 13, 2013 on the TSX
- An agreement resolving the dispute with its principal supplier involved in the construction of its HPA plant
"We made important operational progress in the first quarter," said Richard Boudreault, President and Chief Executive Officer. "When Orbite began shipping customer samples of high-purity alumina during the reporting period, we achieved a major milestone that we have been working towards for several quarters. Looking ahead, we intend to build on our first quarter momentum by improving the purity and capacity of our high-purity alumina plant, and advancing our proposed red mud remediation and smelter-grade alumina projects."
HPA Operations and Outlook
The HPA plant operated intermittently during Q1 2013 as a result of commissioning and optimization related activities. Customer HPA samples of 99.99% (4N) or greater purity began shipping on March 28, 2013, to prospective customers, and such shipments will continue as material of the appropriate purity and characteristics is produced to satisfy each of the customer purchase orders. Customers are expected to test their respective HPA samples once received, which is a process that can take several months, prior to submitting purchase orders for commercial supply.
The commissioned segments of the HPA plant are currently operating intermittently at a Phase I production capacity averaging less than one tonne per day of HPA at a purity of 99.99% (4N) or better. Following the installation and commissioning of a new calcinator system in the second half of 2013, the HPA plant is anticipated to achieve the Phase II capacity averaging three tonnes per day in the fourth quarter of 2013, followed by a gradual increase to the full production capacity averaging five tonnes per day in early 2014. Apart from the existing calcinators, most of the equipment in the plant has already been provisioned to support an HPA production capacity of 5 tonnes per day.
The Corporation is currently focused on finalizing the commissioning and on process optimization at the HPA plant, which consists of determining the optimal process parameters while gradually increasing the production capacity, and preserving and increasing the purity of the final product. By definition, high-purity alumina will always contain other elements referred to as "impurities" which must be actively managed. For example, during the commissioning and normal operation of a high-purity plant, impurities that were not in the original feedstock can sometimes be introduced at different stages of the process due to friction, erosion, reaction or direct contact of the material with the equipment (the "contact impurities"). The quantity and composition of all impurities is measured at different stages in the process in order to identify the source of contact impurities. The remediation of such impurities can take the form of either modifying or changing the equipment causing the contact impurity, adapting the process parameters, or to efficiently remove these and other impurities at later stages in the process.
As a result, the Corporation expects to produce progressively purer HPA, from the current 99.99% (4N) purity or better, throughout Phase I towards purities of 99.995% (4N5) and 99.999% (5N).
Veolia Agreement
On February 4, 2013, Orbite announced it signed an exclusive worldwide collaborative agreement with Veolia Environmental Services ("Veolia") for the remediation of red mud using Orbite's proprietary processes. Veolia is the only global integrated operator of waste management services that is active across all segments (solid, liquid, non-hazardous and hazardous waste) and intends to build red mud remediation ("RMR") plants around the world. The agreement includes specific milestones that must be achieved by Veolia towards the construction of the first RMR plant.
The terms of the partnership include the preparation of a study confirming the viability of a red mud remediation plant at a location that will be selected for the first plant, as well as specific milestones for the selection of a plant site, capacity, structure of the ownership and financing, of such a plant, with the intent to initiate construction in 2014. Discussions in respect of site selection, management of a joint venture and financial terms associated with the first plant are ongoing
Financials
Revenues and operating costs, including commissioning costs, for the HPA plant will be capitalized for accounting purposes until the declaration of commercial production, which is expected at the beginning of Phase II in the fourth quarter of 2013.
Income Statement
Research and development charges decreased by $1,063,512 to $306,522 during the first quarter compared to the same period in 2012 as a result of a decrease in share-based payment and because the 2012 charges include the activities of the pilot plant operations.
General and administrative costs decreased by $69,006 to $2,566,158 during the first quarter compared to the same period in 2012.
The Corporation recognized a gain of $2,441,946 due to the change in fair value of the embedded derivative, the convertible debentures holders' conversion option, between March 31, 2013 and December 31, 2012. The gain reflects the lower value of the holders' conversion option mainly attributable to a decrease in the Corporation's share price. There will be no future cash payments or receipts associated with the derivative.
As a result, the Corporation recognized for the quarter ended March 31, 2013, a net loss of $0.5 million, or $0.003 per share. This compares to a net loss of $3.8 million, or $0.02 per share, for the quarter ended March 31, 2012.
Balance Sheet
Cash and short-term investments decreased by $20,303,581 to $20,247,385 during the first quarter of 2013 compared to December 31, 2012. The decrease was mainly due to the continued investment in the construction of the production-scale HPA plant and other expenses related to research and development, general administration as well as evaluation of the technical feasibility and commercial viability of the smelter-grade alumina project. The decrease was partially offset by the collection of sales taxes receivable. Cash and cash equivalents as of March 31, 2013 includes $3,618,000 of funds which are required to be spent on Canadian mineral exploration activities in 2013.
Sales taxes and other receivables decreased by $3,427,552 during the first quarter of 2013 compared to December 31, 2012. The decrease of sales taxes (GST, QST and HST) receivable from the Federal and Provincial governments is primarily due to the reimbursement of previously filed returns and the reduction in the amounts receivable at the end of March due to a lower volume of purchases compared to the fourth quarter of 2012.
Investment tax credits classified as non-current increased by $3,784,958 during the first quarter of 2013 compared to December 31, 2012 as a result of the recognition of investment tax credits receivable on the equipment purchased for manufacturing and processing in the Gaspé region. The Corporation has pledged all refundable investment tax credits from 2012 and 2013, totalling up to $25 million, related to its manufacturing and processing facility in the Gaspé region, as security for the $25 million convertible debentures issued in December 2012. The funds the Corporation will receive upon reimbursement of the 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 ("PP&E") increased by $10,837,971 during the first quarter of 2013 compared to December 31, 2012. The net increase results from an increase of $14,693,574 before investment tax credits, in the investment in PP&E mainly due to the conversion of the pilot plant into a production-scale HPA plant, which increase is partially offset by the recording of $3,784,958 in government grants and refundable investment tax credits on equipment purchases for the HPA plant.
Accounts payable and accrued liabilities decreased by $20,441,982 to $8,149,486 during the first quarter of 2013 compared to December 31, 2012 mainly as a result of the payments made during the first quarter but also due to a lower volume of purchases made during the period compared to the fourth quarter of 2012.
The Corporation has billing disputes with certain suppliers in respect to the amounts billed for services rendered and materials provided for the construction of the HPA plant. In this regard, an amount totalling $14,304,395 has been recorded as a provision in the short-term liabilities section of the balance sheet.
Cash Flows
Cash flows from operating activities increased by $3,608,196 to $985,326 during the quarter ended March 31, 2013 compared to the same period in 2012. The increase is due mainly to the important amount of sales taxes reimbursed during the period, which was partially offset by an increase in interest payments made principally due to the convertible debentures.
Cash flows from financing activities decreased by $83,054 to ($2,995) during the quarter ended March 31, 2013 compared to the same period in 2012 as there were no financing transactions concluded in the quarter.
Cash flows used in investing activities increased by $21,020,080 during the quarter ended March 31, 2013 compared to the same period in 2012 mainly due the increase level of investment in property plant and equipment at the HPA plant.
Provision Related to Billing Disputes and Agreement with Principal Supplier
As a result of its ongoing review of the HPA project costs, the Corporation identified subsequent to December 31, 2012 certain work that did not meet Orbite's requirements and invoices that appeared to be in excess of contracted terms and conditions. The Corporation initiated a billing review, including an independent audit, regarding certain of its suppliers. The review resulted in certain invoices intentionally remaining unpaid beyond their commercial terms. As a result of the non-payment and pending resolution of the disputed invoices, some suppliers elected to register legal hypothecs on the construction site. This does not prevent Orbite from operating the HPA plant or from completing further construction, commissioning or optimization related activities.
Pursuant to ongoing negotiations, the Corporation concluded an agreement on May 15, 2013 with its principal supplier, which once completed should result in the discharge of the related registered legal hypothecs. The agreement involves a provisional lump sum payment of $3.6 million to its principal supplier, whom in turn will settle outstanding claims from its sub-contractors, with the remainder of the provision related to the principal supplier being settled in either cash, common shares, or a combination thereof, at the Corporation's discretion, no later than July 30, 2013, subject to regulatory approvals and other contractual undertakings.
Liquidity and Capital Resources
The Corporation is a development stage company that has not generated any revenues or significant cash flows from its operations. The Corporation'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 Corporation has finite 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. The application of the going concern concept is therefore dependent upon the Corporation's ability to fund its overhead costs, satisfy its current liabilities as they become due, and obtain the necessary funding to advance its projects.
The table below presents the liquid working capital calculation as of March 31, 2013. Liquid working capital consists of current assets and liabilities, which will result in cash inflows and outflows. The calculation excludes the amount recorded as provisions as at March 31, 2013, which is subject to the agreement with its principal supplier concluded on May 15, 2013.
|
March 31, 2013 |
|
| Cash and cash equivalents |
$19,882,480 |
|
| Short-term investments |
$364,905 |
|
| Sales taxes and other receivables |
$557,877 |
|
| Current income and mining taxes recoverable |
$1,959,653 |
|
| Investment tax credits and other assistance receivable |
$1,522,201 |
|
| Accounts payable and accrued liabilities |
($8,149,486 |
) |
| Short-term portion of long-term debt |
($3,461 |
) |
| Liquid working capital excluding any settlement of the provisions |
$16,134,169 |
|
Although no timetable has been established, management is actively seeking to raise the necessary capital to meet its funding requirements through the issuance of debt and/or equity instruments, government assistance, joint-venture partnerships and to a lesser extent, through revenues generated at the HPA plant. There can be no assurance that management's plan will be successful. If the Corporation is unable to secure sufficient sources of funding, it could result in the delay, or indefinite postponement, of the one or more of the Corporation's projects.
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 March 31, 2013, which are available at www.orbitealuminae.com and under the Corporation's profile at www.sedar.com.