RB Energy halts production

Instead of heading toward full production in early 2015 at its Quebec Lithium mine, 60 km north of Val-d’Or, Que., RB Energy (TSX: RBI; US-OTC: RBEIF) is headed for a restructuring.

The lithium junior filed for creditor protection in October, several days after announcing it couldn’t raise enough funds to operate Quebec Lithium.

The lack of funds forced RB to temporarily shutter its plant, which had been in the commissioning stage. The company had been aiming to achieve full production of 20,000 tonnes of lithium carbonate in the first quarter of 2015.

In September, RB Energy had announced it was pursuing a $78-million to $88-million convertible debenture financing. The financing — which was supposed to help the company clean up its balance sheet by paying down debt, provide operational funding and allow the company to complete commissioning and capital upgrades at Quebec Lithium — was expected to close on Sept. 30. But in early October, after that date had come and gone, the company warned that it hadn’t completed the financing “due to difficult market conditions,” and was considering its alternatives, including a temporary shutdown of Quebec Lithium.

So to curtail costs, RB has stopped operations and laid off all employees, except for a skeleton staff to keep the plant on care and maintenance.

David Talbot, a mining analyst with Dundee Securities, placed the company under review on the news. His previous rating was “neutral,” with a 70¢ target price.

“It’s no secret that [Quebec Lithium] hasn’t yet lived up to its billing, and despite management assurances that it is almost at turnkey status, the fact that the mine isn’t running makes the possibility of digging out of this financial burden without financial or strategic help impossible,” Talbot wrote in a note to clients. “That help just disappeared, and due to uncertainty, we must place RBI under review.”

Although it has shipped lithium carbonate to its offtake partner Tewoo since July — first technical-grade (99%), then battery-grade (99.5%) — it has taken the company longer than anticipated to ramp up production volume. RB hired SGS to complete a technical review of the plant in September. The audit found no fatal flaws, but made several recommendations for improvement, which the company had been adopting.

In late September, RB announced that it would consider selling its sole producing mine — the Aguas Blancas iodine mine in Chile — to reassure potential lenders about the company’s debt situation.

But Talbot is leaning towards a partial sale of Quebec Lithium.

“The iodine business might be up for grabs, but the preference is to sell part of Quebec Lithium, and only to the right player  that would give credibility to the plant,” he says.

“Management’s job now is to prove that the asset works by selling half to an industry player that understands the operation for above the [$20 million] the market is providing. Discussions are under way with banks, the government of Quebec and industry players. Management says they are getting a lot of attention, and interested parties are suggesting everything from equity to complete debt removal, with money to keep going.”

The company is also undergoing a listing review by the Toronto Stock Exchange, which Talbot points out is not likely to go in its favour, and in the worst-case scenario could mean a suspended listing.

At the same time it put Quebec Lithium on care and maintenance, RB Energy also announced the resignations of three directors without further comment: Ron Hochstein, Robert Chase and Pablo Mir.

That leaves Kerry Knoll, president and CEO Richard Clark, Simon Jackson, Peter Secker, Stephane Bertrand and Ian McDonald as directors.

RB Energy is the product of a January merger between Sirocco Mining, which owned the Aguas Blancas mine — and Canada Lithium — which advanced the Quebec Lithium project.

At press time RB shares were halted at 7.5¢ pending the delisting review by the TSX. The company’s stock has traded in a 52-week range of 4¢ to $1.48, and there are 263.3 million shares outstanding.