Orbite Aluminae Inc. is a high flying Quebec-based junior miner hoping to strike it rich extracting alumina and rare earth elements from a vast deposit of mineral-rich clays in the Gaspé region.
If the technology works as hoped, Orbite could offer a low cost and environmentally superior alternative to bauxite, the current source of the world's supply of alumina, which is smelted into aluminum. The technology could also be adapted to produce extremely pure, high-grade alumina needed for such applications as LED lights and computer screens.
Excitement over Orbite's prospects has propelled the stock from as little as 14 cents a share in mid-2010 to around $3.10 now. The shares had a pop Tuesday, following the company's announcement that it has designed a breakthrough that would chop 30 per cent from fossil fuel needs in its extraction process.
The soaring share price gives the fledgling company a market capitalization of more than $500-million, even though as a development-stage enterprise it has yet to report a profit and has only run demonstration projects up to now. An initial commercial-scale extraction plant – for producing high purity alumina – is under construction and expected to be running next year.
Most analysts are bullish. There are five buy recommendations on the stock, with price targets ranging from $8 to $15. The lone and doubting bear, Jonathan Hykawy of Byron Capital Markets, thinks the stock is only worth 90 cents at best, and rates it a sell.
In recent reports to clients, Mr. Hykawy has indicated he's skeptical of claims Orbite has a breakthrough that is economically viable. In addition, it faces the daunting task of raising $500-million for the second major project it is proposing, a commercial-sized plant to produce smelter grade alumina for use at Quebec's aluminum plants.
"We're not sure in this environment that financing is going to be found easily, especially for the aluminum industry given that it's over saturated and prices are in the dumper," commented Mr. Hykawy, who tracks clean technology stocks at Byron.
After reviewing Orbite's plans, Mr. Hykawy also contends it may experience difficulties dealing with some of the processes involving acids at its smelter-grade alumina plant.
As the only analyst holding negative views on the stock, Mr. Hykawy is taking some lumps. Orbite CEO Richard Boudreault said in an interview that Mr. Hykawy "doesn't know anything," when asked for comment on his claims that the technology may not work as well as the company expects.
Orbite has some high profile shareholders who are betting on the company's breakthrough, including Sprott Asset Management and AGF Investments.
Orbite is hoping a deal with UC Rusal, the world's largest aluminum producer, will help boost its credibility on Bay Street. In March, the two companies announced a memorandum of agreement to study a joint venture to develop its alumina-bearing clay deposit, but haven't yet come to a binding deal.
"We're still talking with them and we should be arriving at some conclusion very soon," Mr. Boudreault says.
Earlier this year, Orbite announced the end of a 2009 cooperation agreement with Aluminerie Alouette, a consortium including Rio Tinto Alcan that owns a smelter in Sept Îles. Aluminerie converted a $1-million loan into Orbite stock.
Mr. Boudreault downplayed the end of the agreement, saying Aluminerie had undertaken its investment as part of a job-creation program required to reach employment targets needed to obtain cheap electricity rates in the province. Aluminerie didn't return requests for comment.
Mr. Boudreault says the company's process should be able to produce smelter grade alumina for about $170 a tonne, leaving a large profit margin given that world prices range between $315 and $325 a tonne.
Investors won't have too long to wait to see whether Orbite can start delivering. Its high purity alumina plant, the one that would meet demand from the LED industry, should be cranking out product next year.
Mr. Boudreault said the company doesn't have sales agreements for its output yet, but is negotiating with buyers he characterized as "household brands." Mr. Boudreault expects the new plant to generate sales of $50-million to $100-million. "It should be profitable," he said.