Orbite inks offtake deal with Glencore

Orbite Aluminae (ORT-T) has gained another vote of confidence from a major for its innovative technique to produce alumina from its aluminous clay deposit in Quebec, sending its shares soaring.

The latest approval came from a subsidiary of Glencore Xstrata  (GLEN-L) in the form of an off-take agreement, where the major will buy 100% of Orbite’s smelter-grade alumina (SGA) from its proposed SGA plant for at least 10 years.

Orbite announced the deal after markets closed on June 17, lifting its shares nearly 23% to 86¢ the following day, before cooling down to end the week at 75¢.

Glencore, a major aluminum player controlling 40% of the alumina market and over a fifth of the aluminum market, will buy all of the SGA Orbite produces from its first SGA plant. That plant would treat aluminous clay mined from Orbite’s Grande-Vallée deposit to produce SGA without generating toxic red-mud residue, a by-product of the traditional Bayer extraction process.

The deal’s pricing and renewal terms were kept confidential for “competitive reasons.”

Luisa Moreno, an analyst at Euro Pacific Canada, writes that “this agreement is a validation of Orbite’s technology potential . . . Glencore recognizes that Orbite could become a low-cost producer of alumina, disrupting the market by selling alumina at depressed prices to the world’s largest alumina-consuming region [i.e., Quebec].”

The junior is also in talks with Glencore regarding possible funding options for the SGA plant. While Orbite didn’t say when these discussions would wrap up, Moreno predicts it could take a long time. But the reward may be worth it.

“Through this off-take agreement, Orbite could gain a development and financing partner for the first SGA plant, and Glencore could gain better control of future alumina supply and price fluctuations,” Moreno says.

The company is also pursuing a joint-venture with Russia’s Rusal, a leading aluminum producer, which is 8.8% owned by Glencore. Orbite signed a non-binding development agreement with Rusal in 2012, noting the major could invest $25 million to build the SGA plant’s first phase.

A feasibility study on the plant is due in early 2014, dependent on Orbite securing a joint-venture partner and ample funding.

The feasibility will build on the findings of an updated 2012 preliminary economic assessment that envisioned the plant treating 2.5 million tonnes of aluminous clay per year to generate 540,000 annual tonnes of SGA, along with substantial hematite and silica, as well as rare earth metals and oxides. The cost to build the mine and plant is pegged at US$500 million, with expenses expected to rise in the feasibility.   

Orbite would erect the plant in three phases, with first-phase construction set for 2015.

This is what a washout looks like

Barrick Gold is the world’s leading gold company, and its Pascua-Lama gold-silver megaproject under construction on the Chilean-Argentine border is its leading development project. And so the gold industry watches in dismay as the major grapples with the project’s ballooning capital costs and construction delays, slumping gold prices, writedowns, job cuts and a pummelled share price.   

As we go to press, Barrick’s shares trade for only $15.29 — or US$14.69 — off 56% this year alone, and 74% since their peak in April 2011. Here again, Barrick is the leader of the gold sector that has seen overall share price declines around 50% this year. 

Barrick has also led in terms of corporate-suite excess, with the pink-slipped minions at head office bearing the brunt. Fired CEO Aaron Regent was paid US$12 million last year, mostly as severance, while the whole management team pulled in an astonishing US$57 million, up 148% year-over-year. In April, Barrick shareholders finally had enough, and there was heated opposition to the $17-million pay package offered to incoming co-chairman John Thornton, a former president of Goldman Sachs.

Barrick may yet prove to be a leader in accumulating unwieldy debt and tabling enormous writedowns as Pascua-Lama moves forward. At the end of the first quarter, Barrick had US$2.3 billion in cash and US$15 billion in debt. Deutsche Bank had already predicted that Barrick would need to raise US$10 billion in equity if it continued on the same corporate path in a gold price environment of US$1,300 per oz.

The price of gold has played a large part in Barrick’s woes, of course, with the yellow metal tumbling from a 52-week high of US$1,790 per oz. in September 2012 to US$1,200 in June (a figure last seen in August 2010), and US$1,253 per oz. at press time. 

The second quarter’s 23% decline in the gold price was the worst quarterly performance since modern gold trading was set-up in the mid-1970s.

What had been a wide complaint among gold investors since 2006 of miners’ share prices lagging the soaring spot price has morphed into this year’s nightmare scenario: a 25% decline in gold prices translating into a 50% decline in share prices. Gold is easily the worst performing sector in the global economy, at a time when investors in U.S. equities are basking in a broad stock rally, with the S&P 500 Index up 13.7% this year.

The junior gold sector is in critical condition, with literally hundreds of juniors driving on financial fumes with slim prospects for conventional financing to get them through the rest of the year intact.

Our stock tables this week are filled with 750 new 52-week lows among the 2,100 companies we have in our listings. Only a few years ago, new writers starting at the ’Miner were told that the term “penny stocks” was a throwback to a bygone era. Today, hundreds of mining juniors are trading below 10¢ — including many listed on the TSX.

We just saw another junior incinerated this week, with TSX-listed, Arctic-focused polymetallic explorer Starfield Resources declaring bankruptcy, and its directors fleeing the wreckage.

We’ve reached that period in the downturn when stock prices move sideways or even drop when companies report good news, as twitchy, long-suffering investors use the window of liquidity to unload shares.

If there’s any saving grace for the remaining die-hard gold investors out there, it’s that the next two months during Canada’s summer stock market doldrums will be a fantastic time to pick up shares on the cheap, and they’ll even have the luxury of waiting till news comes out before deciding to buy a stock.

• Diamond heists still have a bit of glamour to them, no matter how sordid the details. This week the Associated Press reported that a recently laid-off Tiffany & Co. vice-president of product development, 46-year-old Ingrid Lederhaas-Okun of Darien, Conn., had been charged with stealing US$1.3 million in diamond jewellery from her employer’s Manhattan headquarters prior to her dismissal. 

She is alleged to have surreptitiously signed out 164 individual items from Tiffany’s storage lockers and never returned them, instead selling them to an international dealer and leaving a trail of 75 cheques written by the dealer to her and her husband since January 2011.

The company had an internal policy of checking daily the status of items valued at more than US$25,000, but Lederhaas-Okun had allegedly been signing out items valued at under US$10,000 to avoid detection.