Orbite Announces Third Quarter 2013 Results

MONTREAL, QUEBEC--(Marketwired - Nov. 14, 2013) -

Orbite Aluminae Inc. (TSX:ORT)(OTCQX:EORBF) ("Orbite", or the "Corporation") announced today the filing of its unaudited Condensed Consolidated Interim Financial Statements for the quarter and the nine month period ended September 30, 2013. The Corporation reported a loss of $2.1 million ($0.01 per share) for the third quarter of 2013, representing a decrease in loss of $1.9 million, or 47%, compared to the same quarter in 2012. All dollar amounts are in Canadian dollars unless stated otherwise.

Third and Post Quarter Highlights:

• Implemented cost reduction measures during the third quarter ended September 30, 2013, leading to a decrease in loss before net finance income and income and mining taxes of $2.8 million (56%) compared to the previous quarter in 2013.
• Increased the efficiency of its management team by abolishing three vice president positions. Mr. Denis Arguin was promoted to Vice President, Engineering and Operations and Mr. Yves Noel was named Vice President, Business Development.
• Provided updated construction timeline, development plan and budget for its High Purity Alumina (HPA) Plant.
• Announced filing of $10 to $16 million preliminary prospectus and binding commitment for up to $40 million in additional funding.
• Closed the settlement agreement resolving the billing dispute with two principal suppliers.
• Cash and Short-Term Investments of $4.4 million
• Positive Working Capital of $3.8 million
• Non-current Investment tax credits receivable of $25.0 million
• Property, Plant and Equipment of $62.6 million
• Net loss and Comprehensive loss of $2.1 million or $0.01 per share
• Cash flows used in operating activities of $2.6 million
• Cash flows used for investing activities of $1.8 million

"During the third quarter we continued to remain focussed on building a new and more efficient Orbite. Our cost reduction measures have led to a 56% decrease in our burn rate compared to the previous quarter," said Glenn Kelly, Orbite's Chief Operating Officer. "In addition, the restructuring and streamlining of our management team has led to an organization better suited to our business plan and delivering on our priorities. We also recently announced the filing of a $10 to $16 million preliminary prospectus and a binding commitment for an additional $40 million in funding, via private placement, with a US based institutional investor. Accordingly, upon completion of our contemplated financings, we will be well positioned to execute on our short and near term business priorities, which are the finalization of our HPA facility and the development of our Red Mud Remediation project with our partner Veolia."

Summary of Financial Results

Income Statement

The Corporation is a development stage company and has no revenues.

The net loss decreased by $1.9 million or 47% to $2.1 million ($0.01 per share) for the third quarter of 2013 compared to $4.0 million ($0.02 per share) for the third quarter of 2012. The decrease is mainly due to a general reduction in general expenses namely research and development charges, general and administration charges as well as the HPA plant operation expenses as a result of the cost reduction measures initiated during the quarter. The net loss decreased by $7.9 million or 57% to $6.0 million ($0.03 per share) for the nine months period ended September 30, 2013 compared to $13.9 million ($0.08 per share) for the same period in 2012. The decrease is due to an increase in net finance income and a reduction in research and development and general and administration charges which were offset by an increase in HPA Plant operation expenses. The net finance income increase of $3.6 million is mainly due to the change in fair value of the embedded derivative, the convertible debentures holders' conversion option, between December 31, 2012 and September 30, 2013 respectively. 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. The decrease in research and development charges is mainly due to charges in 2012 which included the activities of the pilot plant operations up and until the second quarter of 2012 and an impairment charge recorded on the pilot plant fixed assets.

Balance Sheet

Cash and short-term investments

Cash and short-term investments decreased by $36,145,442 during the first nine months of 2013 compared to December 31, 2012. The decrease was mainly due to the continued investment in the construction of the HPA plant and exploration and evaluation activities related to the smelter-grade alumina project, research and development, general administration and the HPA plant operations expenses. The decrease was partially offset by the collection of sales taxes receivable.

Sales taxes and other receivables

Sales taxes and other receivables decreased by $3,583,946 during the first nine months 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 September due to a lower volume of purchases compared to the fourth quarter of 2012.

Investment tax credits

Investment tax credits classified as non-current increased by $5,028,416 during the nine months of 2013 compared to December 31, 2012 as a result of the recognition of investment tax credits receivable on the equipment purchased for the HPA plant in the Gaspé region. The Corporation pledged all refundable investment tax credits from 2012 and 2013, totaling 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 debentures. These funds will be released to the Corporation according to the terms of the trust indenture agreement.

Property, plant, and equipment

Property, plant, and equipment ("PP&E") increased by $14,530,725 during the first nine months of 2013 compared to December 31, 2012. The net increase results from an increase of $19,794,277 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 $5,028,415 in government grants and refundable investment tax credits on equipment purchases for the HPA plant and the recording of depreciation during the period.

Exploration and evaluation assets

Exploration and evaluation assets increased by $1,601,286 during the first nine months of 2013 compared to December 31, 2012. The increase is mainly due to evaluation work done on the Le Tac (Abitibi) and on the Chaswood (Nova Scotia) properties, the preparatory work for upcoming studies and exploration work on the Rimouski - Cap-Chat properties and the continuation of engineering studies relating to the SGA project.

Accounts payable and accrued liabilities

Accounts payable and accrued liabilities decreased by $24,061,765 during the first nine months of 2013 compared to December 31, 2012 mainly as a result of the settlement agreement with some suppliers and payments made, but also due to a lower volume of purchases made during the third quarter of 2013 compared to the fourth quarter of 2012.

Derivative financial instrument

The Corporation has a derivative financial instrument recognized on the statement of financial position representing the estimated fair value of the convertible debentures holders' conversion option (refer to note 7 of the annual consolidated financial statements for a description of the convertible debt, the embedded derivatives and their accounting treatment). The derivative which meets the definition of a financial liability for accounting purposes is recognized at its estimated fair value and the changes in fair value recognized in comprehensive loss in the period the change occurs. The derivative will expire upon the maturity of the convertible debentures or earlier if the conversion right is exercised by the holders. There is no future cash-payment associated with the recognized liability which is presented as a non-current liability. The fair value of the derivative may change significantly from period to period due to the underlying change in the share price. If the conversion option is not exercised prior to maturity, the derivative's fair value will be zero when it expires. During the first nine months of 2013, the derivative financial instrument liability decreased by $4,150,982 compared to December 31, 2012 mainly due to the decrease in the share price.

Share capital and warrants

Share capital and warrants increased by $13,895,518 mainly due to the issuance of 14,525,146 class A shares at a price of $0.945 per share, in settlement of liabilities with two suppliers.

Cash Flow Statement

Cash Flows from Operating Activities

Cash flows used in operating activities decreased by $375,048 during the quarter ended September 30, 2013 compared to the same quarter in 2012. The decrease is due primarily to the changes in non-cash working capital elements when comparing the 2013 quarter to the 2012 quarter; the variations in non-working capital elements in 2012 were generating cash outflows whereas in 2013 they are creating cash inflows. The decrease was partially offset by the increase in net interest payments during the quarter ended September 30, 2013 compared to the same quarter in 2012, as the Corporation pays interest on the convertible debt in the magnitude of $500,000 quarterly in 2013.

Cash Flows from Financing Activities

Cash flows from financing activities decreased by $248,491 during the quarter ended September 30, 2013 compared to the same quarter in 2012 since there were fewer exercises of warrants and options in 2013.

Cash Flows used in Investing Activities

Cash flows used in investing activities increased by $42,037,977 during the quarter ended September 30, 2013 compared to the same period in 2012 mainly due to a reduction in the inflows from short-term investments which was partially offset by a reduction in cash flows invested in the HPA plant construction and commissioning activities, and exploration and evaluation assets.

Liquidity and Capital Resources

Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they come due.

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 limited 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. As at September 30, 2013, the Corporation had an aggregate cash and short-term investments balance of $4,405,524 and positive working capital (current assets less current liabilities) of $3,826,213 which are insufficient to complete the construction and commissioning of the HPA plant. The Corporation has negative cash flows from operations of $6,401,801 for the nine months ended September 30, 2013 and $11,909,426 for the year ended December 31, 2012.

Management is actively seeking to raise the necessary capital to meet its funding requirements. As such the Corporation announced on November 8th, 2103 a "best efforts" public offering of up to $16 million in units comprised of Convertible Unsecured Debentures and Share Purchase Warrants of Orbite (the "Offering"). The Corporation expects to complete the above offering during the fourth quarter of 2013 subject to regulatory approval. The Corporation also announced it had secured a binding subscription commitment for $40 million in additional units, subject to certain conditions including regulatory approval, in additional funding from Crede Capital Group, a U.S. based institutional investor, to be completed subsequent to closing of the offering via private placement (see November 8th, 2013 Press Release).

Until such time that these financings close on acceptable terms, the Corporation has taken action to limit the ongoing exploration and development work and reduce its operating costs. There can be no assurance that management's plan will be successful. Accordingly, it could result in a material uncertainty that may cast significant doubt about the Corporation's ability to continue as a going concern.