HPA Plant Demonstrating The Orbite Process
January 22nd announcement was a major milestone because it is demonstrating the viability of the Orbite process that will also be used for the SGA Plant, but with multiplied lines to get much higher production capacity. The news release also points towards further reduction of operating costs with measured hydrochloric acid recovery rate of over 99.99%, instead of the anticipated 99.75%, reducing the need of adding new acid by a factor of 25. This is especially very significant for the SGA Plant.
I am not sure people realize how significant it is to have the technology with the lowest production costs in the industry, worldwide... and validated.
Smelter Grade Alumina Production Using Bayer Process (Current Technology)
Annual yearly smelter grade alumina production: 60 M ton + 20 M ton (China) = 80 M ton/year
Average industry costs per ton: $ 275 /ton
Total production costs: $ 22.0 B per year
These costs are most probably not including the costs of processing & stocking Red Mud, nor the liabilities that come with it, plus already occurred several environmental disasters and human life losses.
Lowest current producer: approx. 2 M ton (2.5% of World annual production) @ 190 $/ton
Smelter Grade Alumina Production Using Orbite Process / Licensing
Orbite production costs: $ 208 /ton (PEA), but with at least 20% opex reduction announced in Oct. 2, 2012 press release, these costs can be expected to go down to $167 /ton, or less.
This is 14% less than lowest cost producer, 65% less than average cost producers, and approx. 2.8x less than highest cost producers.
Total production costs, if annual World production would be produced using Orbite process: $ 13.4 B, savings = $ 8.6 B per year - quite a good incentive to use the Orbite process, plus, no more Red Mud generation.
Keep in mind that this cost of $167 per ton is for extraction alumina ONLY (not considering revenues generated from high-purity silica, hematite, REE/RM, Mg oxide, etc.) from aluminous clay at approx. 23% alumina content; expect Orbite production costs for process adapted to bauxite to be even lower since the alumina content is approximately twice (the Bayer process is extracting only approx. half of it and leaving the balance into the Red Mud, that can also be processed using the Orbite process).
Marc Johnson told in an interview in UK that in fact, when considering the revenues generated by the by-products, the production costs of alumina actually becomes negative. This is probably when including high-purity silica revenues. Not too many processes can achieve this...
On the medium term, we can expect that the future Alumina Plants that will be built to cope with demand growth will be using the Orbite process. Some of the highest cost alumina producers will either have to shut down their operation or adopt the Orbite process. The average cost producers will gradually become the highest cost producers and also have to move to the Orbite process.
So, because of these much lower costs, the Orbite process should be adopted by many producers over the next decade. The SGA Plant economics are great; Orbite should have many interested customers after their first few plants are successfully running. The first ones to step in will have a leading position over the others. Rusal & Nalco seem to have understood this already...
Now, let's suppose that over the next 20 years, the Orbite process captures 25% of the business of smelter grade alumina (should capture 80% of it). Let's use a very conservative 100 M ton of alumina per year (total worldwide - for that period - very conservative demand growth), using $325 per ton, we have $ 8.1 B per year @ 8% royalties = $ 0.65 B of revenues per year, excluding the upfront payments for building each Orbite technology turnkey SGA Plant, plus with special conditions/exclusions for REE/RM, HP-silica, HP-alumina, and other valuable products.
Red Mud / Licensing
3.0 B ton @ 20-25% alumina = 750 M ton of alumina
25 years = 30 M ton of alumina per year = approx. 30% of annual alumina production (assuming 100 M ton per year).
75 years = 10 M ton of alumina per year = approx.10% of annual alumina production.
10M ton @ $ 325 per ton * 8% = $ 260 M per year, excluding the upfront payments for building each Orbite technology turnkey Red Mud Remediation Plant, plus with special conditions/exclusions for REE/RM, HP-silica, HP-alumina, and other valuable products
The above are long term rough figures for SGA and Red Mud (0.91 B per year) licensing ONLY, considering the smelter grade alumina revenues ONLY, using 8% royalties. It is merely showing the phenomenal growth that Orbite can be expected to have over the coming years. Licensing Business can be expected to gradually increase over the years. It could probably take 10-20 years to get 25% of that smelter grade business (25 M ton per year), and 10-15 years to ramp up the Red Mud Plants total production to 10 M ton per year.
Fly Ash is another huge business segment. I don’t know the market size well enough to put numbers on this yet.
At a first glance, the Orbite process seems to be a very good way to eliminate most air pollution while generating revenues with valuable products.
It could be a source of spherical high-purity silica.
This worth to be read: http://en.wikipedia.org/wiki/Fly_ash
Short Term / Immediate:
Orbite is planning to build multiple HPA Plants. Corporate presentation is showing other HPA Plants are already planned to be built, starting in 2014. That will bring Orbite HPA capacity to 3,500+ ton per year. The NPV estimate below is for one single HPA Plant.
RE: RE: HPA Plant Capex
Orbite is planning to build 10 SGA Plants in Quebec alone, to have a production capacity of 5.4 M ton per year of smelter grade alumina over the next decade or so. The NPV estimate below is for one single SGA Plant.
SGA1: NPV per share = $ 15+
Orbite mentioned they will be producing high-purity silica at both their HPA & SGA Plants. Aluminous clay is providing a source of homogeneous fine/ultrafine silica that should allow Orbite getting premium prices.
From conservative estimates, we can expect high-purity to match expected current revenues of HPA & SGA Plants. This is significant.
Clays are distinguished from other fine-grained soils by differences in size and mineralogy. Silts, which are fine-grained soils that do not include clay minerals, tend to have larger particle sizes than clays, but there is some overlap in both particle size and other physical properties, and there are many naturally occurring deposits which include silts and also clay. The distinction between silt and clay varies by discipline. Geologists and soil scientists usually consider the separation to occur at a particle size of 2 µm (clays being finer than silts), sedimentologists often use 4-5 μm, and colloid chemists use 1 μm. Geotechnical engineers distinguish between silts and clays based on the plasticity properties of the soil, as measured by the soils' Atterberg Limits. ISO 14688 grades clay particles as being smaller than 2 μm and silts larger.
Important paragraph in White Paper about Red Mud:
Orbite Aluminae, a leading provider of clean technology and developer of breakthrough alternative solutions for the alumina production industry, created a proprietary process to extract for the first time alumina from aluminous clay – as well as from bauxite – without generating red mud. Additionally, unlike the Bayer process, it can also treat bauxite containing high levels of silicon, as well as kaolin, nepheline, and fly ash. Just as importantly, Orbite’s technology has been proven to extract alumina from red mud residue, of which up to 20-25% is alumina. As part of this process, it also retrieves any valuable elements that remain in the toxic red mud – including a high concentration of rare earths and raremetal oxides – turning the typically costly process of storing it into a revenue generator.
Orbite’s proprietary process uses hydrochloric acid (HCl), and semi-continuous leaching to produce alumina (Al2O3) suitable for use in aluminum smelters from most aluminous materials, and at the same time, allows retrieval from the same material of numerous value-added by-products, such as hematite (ferric oxide), titanium dioxide (TiO2), rare earth elements (REE) and rare metals (RM). Orbite’s process has achieved high recovery rates for alumina, REEs and RMs including 93% of the Al2O3 from a claystone deposit and an average recovery rate of 90% for all other elements.2 The Orbite process is flexible and can be adapted to a range of business realities and opportunities. Although it was developed for use in a greenfield context, where the alumina may be extracted directly from the source material, the Orbite process is also suitable in a brownfield context, and can be used to treat accumulated stocks of red mud generated by production facilities currently using the Bayer or other similar processes.
Considering all this, SP could soar tomorrow, Wednesday, etc. but one thing is for sure, it is currently largely undervalued. This stock is ready to liftoff.