Long suffering shareholders of Orbite Aluminae Inc. (TSX.ORT) have been roused from their collective misery recently by what appears to be a strong possibility that the company may get financing for construction of its plant from Glencore PLC (LON:GLEN). The company’s share price has been a sore point since touching a high of $3.69 a share back in September of 2012. In March of this year, the shares reached an all time low of $0.20, and many investors have thrown in the towel on the way down, absorbing as much as a 95 percent loss if they bought at the top.
But it would appear a reversal of fortune inherent in the company’s share price has begun, as the shares climbed through $0.65 and looked poised to head higher.
So what has changed to drive the stock northward? And what was it that drove the stock price so far down? More pointedly, has there been a fundamental improvement in the prospects of the company, or is it just that the sellers have all gone home, and new investors are starting to be attracted to a story which for them, is, well…new?
A Mountain of Woes
Orbite has been plagued by just about every possible kind of disaster short of criminal wrongdoing that could encumber a public company. It has suffered through the absolute worst possible manifestation of Murphy’s Law, for sure. The company was twice halted by two different Canadian regulatory bodies in Canada for issuing technical documents that contained deficiencies sufficient to trigger intense scrutiny. The company had to completely re-work its pre-feasibility study after presumptions made in the document were rejected by regulators as unsubstantial, which meant a total of 5 weeks of frozen trading in the company’s shares.
By the time the halt was removed from the stock, though, the damage had largely been done. The prices for various aluminum products had begun to slide during the period in which the company was halted, and so by the time it was trading again, the numbers and presumptions in the pre-feas were looking dubious. By the end of 2013, they were flat out wishful thinking.
Aluminum Prices Weak
Orbite Aluminae’s principle value proposition is a technology that can create high purity alumina from aluminal clays directly bypassing the more expensive and environmentally toxic Bayer process that concentrates alumina from bauxite ore. So it doesn’t take a genius to understand that Orbite’s fortunes are influenced somewhat by the worldwide price for aluminum, which has not exactly been cooperating lately.
Those weak prices contributed to sector-wide slump in metallic commodities which resulted in a general exodus from huge swaths of publicly traded companies in the space. The S&P TSX Venture Exchange shed over 60% of its value in the same time frame, so just a a rising tide lifts all boats, so does a falling one push them all downward.
Financing Missteps
Compounding Orbite’s misfortunes was the perception in 2012 and 2013 that the company was going to require a lot more capital to realize its business plan to profitability than was originally suggested by management, which engendered a crisis of confidence among shareholders, triggering the rout.
That catalyst was exacerbated intensely by the coincident collapse of a private placement that had until that point been considered a done deal, and the breath of life that would avert disaster. When that financing fell apart, it was just too much for even many of the stalwart believers, and they too started filing towards the exit. Orbite’s share price looked like it was headed into cardiac arrest, and existential questions became rumours, and thus a self-fulfilling prophecy started to make the rounds among institutional investors, many of whom decided enough was enough, and so they too joined the throng crowding into the lifeboats.
Rusal Deal Collapse
Finally, the company was forced to abandon the Memorandum of Understanding that had largely buoyed the share price’s original push over $3, which was the company’s developing plan to build a smelter in Québec with United Company Rusal GDR (EPA:RUSAL). Rusal, the world’s biggest aluminium producer, and Orbite were eyeing a joint venture to produce alumina from poor quality ore in which Rusal was to invest $25 million.
The company still has a Memorandum of Understanding in place with NALCO, however, the prospect for a definitive agreement appears tenuous at best. According to the company’s MD&A:
“On June 27, 2012, the Corporation announced the signing of a non-binding Memorandum of Understanding with
National Aluminum Corporation Limited (“Nalco”) Asia’s largest integrated aluminum complex, pursuant to which
Orbite’s technology will be evaluated on Nalco’s ores, namely Gibbsite, Boehmite and also on Nalco’s red mud
residue left after alumina has been extracted from bauxite using the Bayer process. These evaluations coupled
with exchange of technical information between the parties may conceivably pave the way to a potential
participation of Nalco in Orbite’s projected SGA plant in Québec and to a licensing opportunity of Orbite’s
technology to economically process NALCO’s aluminous ores and to remediate the red muds at its existing
operations. Discussions with NALCO to conclude a binding agreement were significantly delayed due to
difficulties in receiving the ore and red mud samples from India. The Corporation believes that a binding
agreement could still be concluded with NALCO but provides no estimate or timeline as to when such an
agreement could be finalized. The MOU and ongoing discussions with NALCO do not involve or have any impact
on the HPA plant.”
Light at the End of the Tunnel
Despite these massive headaches, Orbite has managed to incrementally move forward with its ambitions to create high purity alumina from cheaper feedstocks, including toxic byproducts such as fly ash from coal plants and ‘red mud’, the highly toxic yet Rare Earth-rich byproduct of smelting aluminum from Bauxite.
The company is working on a new feasibility study, that, while demonstrating higher costs, and poorer economics than its former PEA, nonetheless makes the companies ambitions appear viable.
Orbite Aluminae’s technology can extract High Purity Alumina from aluminal clays, as well as extract rare earths and other valuable minerals from ‘Red Mud’, the toxic byproduct of aluminum smelting by the traditional Bayer process.
Again, from the company’ s most recent MD&A:
Orbite estimates the costs related to the completion of the Feasibility Study at approximately $30 million of which
approximately $11.6 million has been incurred as of the date of this MD&A, and costs related to the completion of
the detailed engineering at approximately $43 million of which none has been incurred as of the date of this
MD&A.
The company’s greatest accomplishment to date, outside of its process engineering, would have to be a ten year binding off-take agreement with Glencore.
“On June 17, 2013, Orbite concluded a binding offtake agreement with Glencore International AG, a subsidiary of
Glencore Xstrata plc, for the purchase of 100% of the smelter-grade alumina from the Corporation’s proposed
SGA plant in Québec for an initial term of 10 years from the commencement of commercial production. The
Agreement also foresees that Orbite and Glencore will undertake negotiations relating to Glencore’s potential
financial participation in the ownership and operation of the Corporation’s proposed SGA plant in Québec. The
Parties have not set any timetable for the commencement or conclusion of these negotiations.)”
Despite the possibility of Glencore helping to finance the company’s new smelter, there still seems to be a long way to go for Orbite. With over 250 million shares outstanding, it will be a lot harder to attract shareholders seeking multi-bagger potential. But institutions could likely find the shares attractive in view of the offtake agreement in place with Glencore, which, if the HPA smelters get built, stand, at least, as industry validation of the company’s process technology.
