Hi Glenn,

 

Thank you for your very relevant questions and comments.  Please see my comments directly into your text below (in bold blue).

 

I have included revised estimates with conservative HPA prices (more in line with Orbite White paper on HPA*) and using a more conservative production split (4N=60%, 5N=30%, 6N=10%), and I have used only 60% of the possible high-purity silica production.  The estimate is at the end of your text.

* See HPA price graph on page 8: http://www.orbitealuminae.com/media/upload/filings/HPA_VERSION_0.pdf

 

As for the high-purity silica prices, if you or other posters find other price per kg figures with reliable references, I will include them and revise.

 

Alumina1  (see comments further below)

 

Hi alumina1. Thanks again for putting the numbers together. I just went through your numbers, and I have a few questions (my apologies if they've been asked/answered earlier and I missed it!):

 

A - HPA pricing

Orbite is providing HPA pricing at a basked price > $50,000 per tonne in its corporate presentation. I assumed this was a combination of 4N pricing that probably will be < $50,000 per tonne, and an as yet unknown quantity of 5N/6N that will fetch a much higher price, which Orbite suggests may be as high as $250,000 per tonne.

 

I have seen 6N HPA price at $300,000 to $500,000 /ton FOB China, 5N HPA at $50,000-$100,00 /ton and 4N HPA at $15,000 to $50,000 /ton.

 

My thinking is that Orbite will aim for the higher range of each purity level (for example: 4N5, 5N5, 6N+), so price should be there. 

 

Also, these prices vary with a lot of parameters (not only purity level).  Can be higher.

 

My question for you are HPA revenue in 2013 is twofold:

(i) How confident are you, or what visibility do you have, that Orbite will be capable of producing 6N, and that there will be the demand to offtake 230 tonnes of 6N in 2013?

 

- Orbite clearly stated they will be production HPA at 4N to 6N purity levels in 2013. Repeated in latest press release:  "Initial Commercial production of 4N to 6N high purity alumina is expected to begin in Q1 2013"

 

- Company in China (right now HPA production is dominated by China and Japan) offering 1000 ton/year of that product, so I am expecting there is sufficient demand.

 

- Can Orbite produce 18% of their HPA production to 6N - I believe so - maybe more if they can sell more.  (I have used 10% of total HPA production for the revised estimate).

 

(ii) How confident are you that Orbite can sell 350 tonnes of 5N at $100,000 per tonne? I haven't seen Orbite provide any numbers/guidance for 5N, so it's a bit of a mystery to me.

 

- Similar to above, we see company in China with capacity of 50 ton/month.

 

- Can Orbite produce 30% of their HPA production to 5N level - I believe so - again, maybe more if they can sell more.

 

I guess when Orbite provides guidance that there HPA basket will be priced at > $50,000 per tonne, it sort of depends on how much greater the price will be (smile).

 

Of course, but I think Orbite have to be conservative in their guidance/estimates.  The prices I have used are realistics and I think can be reasonably expected. 

 

But as already mentioned, I have included a revised estimate with conservative HPA prices + more conservative production split & used only 60% of the possible high-purity silica production.  So we can expect it will be at least this, the rest will be gravy.

 

 

B - 2013 HPA production volumes

Just a quick comment - reaching 5 tpd production from the HPA facility by September would really be great. Do you feel this is a reasonable assumption given your discussion with Orbite?

- Sept. is very possible from the info I have, plus refer to Orbite latest press release:

As part of the HPA plant design, part of the equipment has already been provisioned to a capacity of 5 tonnes per day. Orbite anticipates the installation in H2 2013 of the additional equipment necessary to achieve production of 5 tonnes per day by the end of 2013.

 

 

C - HP-Silica

Orbite has been pretty quiet on its forecasts for HP-silica since it press-released the development of its HP-silica process. There's no mention of it, I don't believe, in their corporate presentation. In the press release, it announces that Orbite has achieved 3N silica, with a "conceptual basis" to achieve 5N to 7N.

 

I think we are really due for a White Paper from Orbite on High-Purity Silica...

 

Orbite initial Press Release about HP-silica (Sept. 19, 2012) was providing some very rough guidance on HP-silica prices (2009!! data 3N @ $ 3 /kg; 5N-7N range in the $ 35 /kg):

http://www.newswire.ca/en/story/1038291/orbite-announces-successful-development-of-high-purity-silica-process

It was then removed from their website and replaced by Sept. 21, 2012 Press Release, in which any price figure related to high-purity silica was removed and replaced by the following very conservative statement:

“This is an important breakthrough, particularly considering that silica will be a by-product of our SGA and HPA plants and could provide a higher commercial value than we had anticipated. Our PEA assumption was for low-grade silica sold at a $25 per tonne.”

 

In my opinion, this is a BOLD under-statement.  I think we can state without being wrong that the HP-silica will become a significant part of the revenue for both HPA and SGA Plants.

As an example, just for one SGA Plant, we have:

One SGA Plant = 1.2 million ton of silica = 1.2 billion kg of silica (per year)

Suppose 3N for all of the production, @ $3 /kg (most recent figures I have for 3N HP-silica is $5.35 /kg):

1.2 billion kg X $3 /kg = $ 3.6 B (per year)

 

Then, if there are more SGA Plants, Orbite will become also disruptive in that market.  So, divide the above number by 3;  still getting $ 1.2 B of additional revenue... per $GA Plant.

 

I think the main reason why Orbite has removed all of the price figures of HP-silica in their Press Release of Sept. 21, 2012 is because the numbers involved are HUGE and have to be well verified and quantified before being released, and the effect of the additional high-purity silica volume brought into the market (from the SGA Plants) is not negligible and has to be quantified.

 

So again, we can state without being wrong that the HP-silica will become a very significant part of the revenue for both HPA abd SGA Plants. 

 

It will be further reducing alumina, REE/RM costs or overall costs - that's the beauty of recovering virtually all of the raw material and getting added-value (significant) for most of the individual crystal/ elements/compounds.

  

My question here is: How confident are you that Orbite will be producing 4N and 5N silica, and that the demand for the product is there for the prices you quote?

Prices I have are data from real current market (refer to my previous posts on that topic).  The production of one HPA Plant is not significant compared to market size.

 

Orbite press release mentions the HPA Plant in Cap-Chat is expected to produce high-purity silica at greater purity level than 3N. 

"Orbite’s high-purity alumina (HPA) plant, on track to be completed by the end of 2012, is expected to produce silica of greater than 99.9% purity." [=4N and up]

 

So, I think the HPA Plant will produce at least 4N and 5N HP-silica (very small and dedicated production).  Also, if they are able to achieve 4N to 6N with Al2O3, I don't see why they would not reach 4N, 5N and up with SiO2.  Orbite is aiming up tp 7N purity level for silica.

 

For the SGA Plants however, the volume of processed silica is much larger (1.2 million ton of silica for each SGA Plant) and I would expect most of the production would be topping to 4N.

 

 

D - In Summary

Thanks for the reply alumina1, and the numbers you provide for higher-purity levels of HPA and silica are very enticing. Because I haven't heard Orbite guide to revenues and purities at the upper of of what you suggest, I think it's safest to use more conservative numbers. However, if you've spoken with the company, and can confirm otherwise, I'd be extremely happy to update my expecations!

 

Best wishes,

glenn

 

 

HPA1 Plant - Cap Chat HPA Plant - De-risked using Full Scale Pilot Plant      
(Take 3:  with more accurate production projection; conservative HPA price; conservative production split; using only 60% of possible silica; 2013 & 2014)
               
High-purity alumina             
               
2013              
  ton $/ton Sales        
4N 765 40,000 $30,600,000   60%    
5N 385 100,000 $38,500,000   30%    
6N 130 250,000 $32,500,000   10%    
Total Production 1280   $101,600,000        
      $79,375 per ton      
               
2013              
  TPD days Production        
      (ton)        
Jan 1 31 31        
Feb 2 28 56        
Mar 3 31 93        
Apr 3 30 90        
May 3 31 93        
Jun 3 30 90        
Jul 3 31 93        
Aug 4 31 124        
Sept 5 30 150        
Oct 5 31 155        
Nov 5 30 150        
Dec 5 31 155        
      1280        
               
               
2014              
  TPD days Production        
      (ton)        
  5 360 1800        
               
2014              
  ton $/ton Sales        
4N 1085 40,000  $      43,400,000   60%    
5N 540 100,000  $      54,000,000   30%    
6N 175 250,000  $      43,750,000   10%    
Total Production 1800    $   141,150,000        
      $78,417 per ton      
               
               
               
High-purity silica (HP Silica)            
Year HPA HP-Silica SGA (ref.)        
  (TPY) (TPY)          
2013 1280 2844 540,000 ton of alumina      
2014 1800 4000 1,200,000 ton of silica      
               
               
2013   ton $/kg Sales      
4N 30% 853 16.42 $14,011,733      
5N 30% 853 100 $85,333,333      
        $99,345,067      
               
2014   ton $/kg Sales      
4N 30% 1200 16.42 $19,704,000      
5N 30% 1200 100 $120,000,000      
        $139,704,000      
               
               
        Opex      
        15% of total sales  
HPA + HP Silica     Sales EBITA EPS P/E Price/Share
  HPA HP Silica HPA + HP Silica        
2013 $101,600,000 $99,345,067 $200,945,067 $170,803,307 $0.85 12 $10.25
2014  $141,150,000 $139,704,000 $280,854,000 $238,725,900 $1.19 12 $14.32

 

 

Consider this is for HPA1 ONLY, and not considering HP-hematite, magnesium oxides, gallium & scandium, etc.

 

This is NOT considering:

  • SGA Plants (with several Billions NPV per Plant – that increased from PEA with 20% opex reduction; HP-silica additional revenues that could match estimated revenues in PEA, significant increase of REE/RM extraction rates from value used in PEA; complete or close to complete Engineering – ready for construction; multi-SGA Plant strategy = sustained growth).
  • SGA at lowest costs + strategically next to smelters.
  • Multi-HPA Plant strategy = sustained growth - will become the leader in high-purity alumina.
  • Huge resources + now potential addition of alumina-rich kaolin of Nova Scotia.
  • Leading REE/RM outside China – will be the first to produce Scandium and Gallium in 2013; CLEAN technology - at lowest costs.
  • Solution to Red Mud - 3B ton of residues worldwide that can now be seen as a resource; similar for Fly Ash.
  • And now, tax break for 10-years on 300M+ projects (SGA1 would qualify).

 

Again, wake up Mr Market, you’ve been put to sleep by Short Interests - HPA1 Plant about to rev.

Wake up analysts – you are in late from latest press releases...

 

 

Alumina1


See also:  RE: RE: toss up? - MoneyCristo