Orbite Technologies Inc.
TSX : ORT
OTCQX : EORBF

Orbite Technologies Inc.

March 31, 2017 21:49 ET

Orbite Announces HPA Update and Fourth Quarter 2016 Results

MONTREAL, QUEBEC--(Marketwired - March 31, 2017) - Orbite Technologies Inc. (TSX:ORT)(OTCQX:EORBF) ("Orbite", or the "Company") today provided an update on its activities at its high purity alumina ("HPA") plant, including announcing a suspension of its production operations, and will file, later today, its financial statements for the fourth quarter ended December 31, 2016.

FOURTH QUARTER AND SUBSEQUENT HIGHLIGHTS

  • Following the material completion of plant construction in Q3 and subsequent successful cold and hot commissioning of the individual equipment systems, hot start-up activities continued throughout the month of September and, on September 30, 2016, first production of Aluminum Chloride Hexahydrate (ACH) crystals, the precursor to HPA, commenced.

  • Production ramp up continued and, in October 2016, the Company produced 35 tonnes of ACH crystals (corresponding to close to 10 tonnes of HPA once calcined) with initial purity levels exceeding expectations and approaching the levels corresponding to 5N HPA. The Company also commenced decomposer and calciner heat up for the calcination of ACH crystals into HPA. Approximately 3 tonnes of amorphous HPA were produced with the Harper system to constitute the initial fluidized bed in the decomposer and calciner.

  • In early 2017, close to 2 tonnes of the first 4N5+ HPA were produced entirely from the HPA plant. The HPA produced was of similar purity to the feedstock material produced in the digestion and crystallization sections of the plant, indicating that next to no impurities were picked up in the calcination section of the plant. This was a significant and better than expected result as an increase of impurities was anticipated in the first few cycles. Based on these findings and on the Company's proven ability to produce 5N+ ACH crystals (HPA equivalent), the Company is confident of being able to produce HPA at 5N+ purity levels once the higher purity ACH batches are introduced into the calcination system.

  • In January 2017, some mechanical issues were noted with some heating elements of the calcination system and the Company decided to proceed with a system cooldown for inspection prior to ramp up to continuous operation. Repairs were made successfully and the calcination section was reheated and started for the production of HPA.

  • In February 2017, temperature ramp up of the calcination section was completed successfully. In the last weeks of February operations, the Cap-Chat HPA plant approached 1 tonne per day ("tpd") of continuous throughput and attained instantaneous feed rates into the decomposer of up to 1.4 tpd.

  • However, operations had difficulty in maintaining consistent and continuous ACH crystal feed rates at the 1 tpd level and again experienced issues with the electrical heating element system of the decomposer and calciner.

  • A new, more robust ACH feed system was designed, tested and installed, and the heating element system was repaired. The calcination system is back at operating temperatures and ready for renewed ACH crystal injections.

  • However, recent developments have led Orbite to conclude that the present decomposer and calciner electrical heating system, as designed and supplied by Outotec, is not robust enough to reliably achieve the 3 tpd design capacity of the calcination system, but is rather limited to approximately 1-1.2 tpd.

  • This is an equipment issue and not a process issue. It is the Outotec supplied calcination equipment that does not meet contract design and performance specifications and is deficient, not the Orbite process.

  • The Orbite process has been proven; 5N+ equivalent ACH crystals have been produced and 4N7 HPA has been produced using 4N7 equivalent purity crystals (ie: no impurities were picked up in the calcination section).

  • Preliminary scoping work previously undertaken by Orbite and its Technology Development Centre to increase plant capacity to 5 tpd has led to a straightforward solution that is believed could both resolve the issues encountered with the electrical heating element system and allow the capacity of the decomposer to be increased to 5 tpd (the calciner capacity is already 5 tpd). This solution is the installation of a predecomposer, operating at 300 - 400°C, that would remove a significant portion of the hydrochloric acid ("HCL") present in the ACH crystals prior to their injection into the decomposer, thereby significantly reducing thermal effects on the decomposer's electrical heating system.

  • Orbite estimates that approximately $8 million of external capital costs and 8 months are required to implement the solution for the reliable, consistent, and continuous production of 3 tpd of 5N+ HPA. Accordingly, operations will be suspended as the Company concentrates its human and financial capital on implementing this solution. Orbite's working capital is insufficient to cover the costs to implement the solution. The Company has no other committed sources of future financing currently available. Orbite is examining available options to raise funds and limit its cash outflows.

  • Orbite has incurred in excess of $30 million to purchase and install the calcination equipment, and the Company is examining all available legal remedies to recover a significant portion of these costs and associated damages to the Company.

  • In addition and as part of its operating insurance plan, Orbite had subscribed to Boiler and Machinery and Business Interruption coverage. A claim has been filed under these policies to recover costs associated with repairing the heating element system and the fixed costs incurred during the downtime experienced. Further claims could be filed to cover fixed costs incurred during the repair period to come. The Business Interruption policy limit is $22 million, however Orbite has not yet received confirmation of coverage from its insurer, and there can be no assurance that coverage will be assumed.

  • As a result of the delays caused by the electrical heating element system issues and the additional stress imposed on the Company's financial resources resulting therefrom, the Company will not be able to meet certain covenants under its credit facilities, which will result in the right by the lender to request the immediate repayment of amounts borrowed under such facilities.

"The suspension of operations and consequent delay to revenue generation due to an externally caused equipment issue is extremely aggravating, both to our shareholders, who have continued to support the Company, and ourselves. Our technology remains strong, as our resilience to navigate through this difficult period. Orbite continues to evaluate, with its partners, all available legal recourses and financial alternatives and is committed to doing all that is necessary to resume production as soon as possible," stated Glenn Kelly, CEO of Orbite.

Financial Results

  • The Company reported a loss before net finance expense of $3.6 million for the quarter, a marginal decrease from a loss of $3.9 million for the comparable quarter in the prior year.

  • As at December 31, 2016, the Company had aggregate cash and short-term investments balance of $2.3 million, and negative working capital of $3.3 million ($7.4 million excluding restricted cash). Subsequent to the quarter, the Company completed a public offering for proceeds of $10.3 million, net of commission and fees.

All dollar amounts are in Canadian dollars unless stated otherwise.

Samples & commercial orders

  • As at the date of this release, Orbite has shipped a total of 32 samples to 19 prospective customers, including four commercial samples.

  • The Company has requests to ship an additional 24 samples to 21 prospective customers, of which 15 are new prospects.

  • To date, the Company has received two commercial orders.

SUMMARY OF Q4 2016 FINANCIAL RESULTS

Revenues and earnings

The Company is evolving from a development stage to an operating company and has not generated revenue or cash flows from its HPA plant.

Net loss for Q4 2016 decreased by $5.3 million to $1.5 million, as compared to the same period in the prior year, due principally to a $5.0 million decrease in net finance expense.

HPA plant operations

HPA plant operation expenses decreased by $0.2 million to $1.2 million during the quarter ended December 31, 2016 compared to the fourth quarter in 2015, mainly due to a decrease in salaries from the capitalization of the HPA plant employees' time dedicated to the commissioning of the Plant, and a general reduction in operating costs.

General and administrative charges

General and administrative charges decreased by $0.8 million during the quarter compared to the same period in 2015, due predominantly to a decrease in salaries, investor relations & communications, professional fees and travel.

Write-off of E&E assets

The increase in write-off of E&E assets during the quarter and the year ended December 31, 2016 compared to 2015 is due to management decision not to allocate any additional resources to certain properties and consequently, the assets have been written-off.

Other Income

The increase in Other Income during the year ended December 31, 2016 compared to 2015 is due to proceeds received from the insurance claim for the 2014 incident at the HPA plant.

Financial position

Cash and short-term investments and working capital

As at December 31, 2016, the Company had aggregate cash and short-term investments balance of $2.3 million, and negative working capital (current assets less current liabilities) of $3.3 million.

Subsequent to December 31, 2016, the Company completed a public offering on a bought deal basis for an aggregate amount of $11.5 million under the short form base shelf prospectus and prospectus supplement dated January 6, 2017 and January 27, 2017 respectively and received $10.3 million, net of commission and fees.

Financing activities

On October 31, 2016, the Company completed a public offering on a bought deal basis for an aggregate amount of $5.5 million, and received $4.6 million, net of commission fees and transaction costs. The Debentures will mature on October 31, 2021 and bear interest at a rate of 5% per annum payable semi-annually.

For further details about each financing, please refer to the various continuous disclosure documents available on the Company's website or at www.sedar.com.

Property, plant, and equipment

During the year ended December 31, 2016, the Company recorded a net increase in Property, plant, and equipment ("PP&E") of $24.8 million, mainly attributable to investments in the HPA plant.

Cash Flow Statement

Cash Flows from Operating Activities

Cash flows used in operating activities for the fourth quarter was $1.4 million compared to $5.4 million for the same quarter a year ago. The decrease is attributable mainly to non-cash working capital items namely an increase in accounts payable and accrued liabilities, a decrease in sales taxes and other receivables and a decrease in prepaid expenses.

Cash Flows from Financing Activities

Cash flows from financing activities in the fourth quarter increased by $13.3 million to $5.7 million, as compared to the same period in the prior year. This increase was due mainly to higher proceeds from the issuance of Convertible Debentures and a reduction in amounts used to redeem convertible debentures, offset partially by lower proceeds from the issuance of long term debt and an increase in the repayment of short term loans.

Cash Flows used in Investing Activities

Cash flows used in investing activities in the fourth quarter increased by $17.0 million to $5.0 million compared to the same period in the prior year. This increase was attributable to reduced investments in the HPA plant, construction of which was materially completed, and changes in investment tax credits receivables and changes in restricted cash.

Going Concern

The financial statements have been prepared on a going concern basis, meaning on the basis that the Company will be able to realize its assets and discharge its liabilities in the normal course of operations.

The application of the going concern concept is dependent upon the Company's ability to satisfy its liabilities as they become due and to obtain the necessary financing to implement the solution identified to remedy the electrical heating system issues, complete the construction and production ramp-up of its HPA plant, commence commercial production, the attainment of profitable operations or the receipt of proceeds from the disposition of its mineral property interests. The Company is evolving from a development stage to an operating company and has not generated revenue or cash flows from its HPA plant.

The recent developments announced above concerning the issues with the Company's supplied electrical heating system, including the additional external capital costs and time required to remedy the issues and the anticipated default under the Company's credit facilities, indicate the existence of material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern.

The financial statements do not reflect adjustments that would be necessary if the going concern assumption was not appropriate. If the going concern assumption was not appropriate for these financial statements, adjustments to the carrying value of assets and liabilities, reported expenses and statement of financial position classifications would be necessary. Such adjustments could be material.

Conference call

Orbite management will hold a conference call and provide a live audio webcast Monday, April 3, 2017 at 10:00 a.m. (ET) to discuss the Company's financials and provide an update on the Company's HPA plant operations.

The call will be held in English. The Q&A session will be in English and French.

CONFERENCE CALL DETAILS:

Date: April 3, 2017
Time: 10:00 a.m. (ET)
Dial in number: +1 888 231-8191
+1 647 427-7450
Webcast: http://bit.ly/2nNMb80
Taped replay: +1 855 859-2056
+1 514 807-9274
+1 416 849-0833
Encore password: 91407385
Available until: 12:00 midnight (ET), Monday, April 17, 2017

Notice to Reader

The information provided in this press release is entirely qualified by the disclosures in the Company's Consolidated Interim Financial Statements and Management Discussion & Analysis (MD&A) for the quarter ended December 31, 2016, which are available at www.orbitetech.com and under the Company's profile at www.sedar.com.

About Orbite

Orbite Technologies 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, fly ash as well as serpentine residues from chrysotile processing sites. 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 15 intellectual property families, including 50 patents and 52 pending patent applications in 11 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 include statements regarding projects, costs, objectives and future returns of the Company or hypotheses underlying these items. In particular, statements concerning (i) the solution identified and believed to remedy the electrical heating system issues and increase the capacity of the decomposer to 5 tpd, (ii) the estimated costs and time required to implement such solution, (iii) the examination and exercise of legal remedies to recover costs and damages relating to the electrical heating system issues, (iv) insurance coverage to recover costs associated with repairing the heating element system and the fixed costs incurred during the downtime experienced and (v) available options to raise funds and limit cash outflows are all forward-looking statements. In this document, words such as "may"," confident", "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. In particular, the solution identified to remedy the electrical heating system issues and increase the capacity of the decomposer to 5 tpd, and the costs and time required to implement such solution is based in particular on the Company's available data and experience to date and that the operation of the HPA plant will continue as experienced and anticipated, the costs of materials and labour remaining at current levels, and the ability to keep the operations relating to such equipment running in the normal course.
Factors that could impact the Company's expectations expressed in the forward looking statements include (i) with respect to costs and timing, an increase in the price of materials and/or labour costs, unavailability of qualified personnel, inability to operate in the normal course, breakdown or failure of equipment of processes, design errors, operator errors, non-performance by third party contractors and major incidents or catastrophic events such as fires and explosions; (ii) with respect to legal remedies, factors that may impact claims and legal proceedings, such as interpretation of factual matters, time and money involved in undertaking legal proceedings, uncertainty as to the final result and other risks; (iii) with respect to insurance, factors that may impact claims and coverage, including interpretation of factual matters, exclusions, and denial or limitation of coverage; and (iv) with respect to financing, the inability to find lenders willing to provide financing or at terms acceptable to the Company, a deterioration in market or economic conditions limiting the supply of funds by lenders or increasing the cost thereof, actions or demands for repayment by existing lenders and other factors impacting financing. Risks, uncertainties and other factors that could affect anticipated results and future events also 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 March 31, 2017 on SEDAR, including those under the headings "Going Concerns", Commercial Operation of HPA Plant", "We will need to raise capital to continue our growth" and "Development Goals and Time Frames".

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.

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