At press time in late September, shares in fledgling lithium miner RB Energy (TSX: RBI; US-OTC: RBEIF) had fallen by half since it proposed a $78-million to $88-million financing in mid-September.
The company, which is ramping up its Quebec Lithium mine and processing plant, 60 km north of Val-d’Or, Que., has also announced it’s looking to sell all or part of its only other asset: the Aguas Blancas iodine mine in northern Chile.
But RB Energy president and CEO Rick Clark says the market seems to have misunderstood the company’s situation, in that it fully expects to achieve positive cash flow from Quebec Lithium by year-end.
“This financing has nothing to do with completing the project — the project is complete.” Clark said on the phone from New York, where he is in financing talks. “We are producing very, very high-quality lithium carbonate (Li2CO3), we’re selling it to our offtake partner in China, and our focus right now is on increasing volume, which is a normal commissioning process.”
Clark says the financing is all about improving the company’s balance sheet, which potential lenders have identified as a concern. The company has $72 million outstanding on a senior debt facility, $40 million of product-financed debt linked with Aguas Blancas and two convertible debentures that total $43 million.
The financing will also provide enough operating capital to get RB Energy to commercial production, and provide a cash buffer of $11 million left over at year-end.
The company is aiming to pare down the senior debt facility to $64 million by year-end.
The sale of Aguas Blancas will be further explored after the financing closes. The planned sale was announced beforehand to reassure potential lenders, Clark says.
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.
Clark, who was president and CEO of Sirocco, became the head of the combined company.
“When we got into the lithium deal, we always intended that our focus was going to be on lithium. Iodine’s a nice little business, but its upside potential is limited,” Clark says.
“Once we got to the point that we were as a board comfortable with how we’d been ramping up the lithium side and we were confident we were going to achieve our production objectives, we looked at it and said: ‘we’re getting absolutely no value for Chile,’ and one of the concerns about the company is the balance sheet and the amount of debt we have. So we made the decision to look for a buyer for Chile, primarily to deal with the debt issue.”
He expects the asset would bring in enough cash to cancel out $40 million of Aguas Blancas’ debt, and help pay down some of the debt on the Quebec Lithium assets.
RB Energy completed a $22-million equity financing in late May, which investors and analysts had hoped would take the company to commercial production.
Instead, the company has battled to remedy several technical problems at its processing plant, where spodumene concentrate is produced from mined ore, and upgraded to Li2CO3.
For example, in July, the company had problems with its kiln, which converts alpha spodumene to beta spodumene, which is the first step in converting spodumene concentrate to Li2CO3.
RB Energy has also struggled with purification issues and, as a result, settled for temporarily shipping technical-grade material (99% purity) in July instead of battery-grade (99.5% purity), for a 15% price difference.
In August the company reported progress with its first shipment of 62 tonnes of battery grade material to its offtake partner in China. It also achieved steady production of 40 to 50 tonnes per week of greater than 99.7% Li2CO3.
The plant has a nameplate capacity of 55 tonnes per day.
Clark says the highest grade the company has achieved is 99.98%.
A technical review of its process plant by SGS Canada in September found no fatal flaws in the process.
The audit, which was meant to confirm design parameters and optimize operational performance, identified a number of improvements that RB Energy was already working on, and a few more that the company is adopting. It also identified the potential to increase production by 10% over nameplate capacity of 20,000 tonnes Li2CO3 per year. The company expects to bring the plant up to nameplate production in the first quarter of 2015.
“It’s been a long haul, people have to understand this is the first time this type of plant has been built in North America for over 40 years, so even through the process technology is known and has been in operation before, there hasn’t been one of this size built in a long time. It’s taken us a long time to get it up and running — longer than we thought.
Debenture details
The financing of $78 million to $88 million in secured convertible debentures is expected to close by October.
The debentures will mature on Oct. 31, 2019, and pay a coupon of 9–11% per year, payable semi-annually, in June and December of each year. They are convertible at the option of the holder at a price of 50¢ per share (a ratio of 2,000 common shares per $1,000 of principal).
With 30 to 60 days’ notice, RB Energy is entitled to redeem up to 50% of the principal amount of the debentures, at par plus accrued and unpaid interest, as long as the stock’s average trading price is not below a certain threshold (140–170% of the conversion price).
The company says it is in discussions with a potential lead investor who would hold just over half of the principal amount of the debentures — between $39.1 million and $44.1 million.
Clark says the financing talks have been going well.
“The commodities market in general right now is a depressing place to be, so we felt that downdraft,” he says. “But the investors that we’re talking to are extremely bullish on lithium and on the potential for lithium, and they recognize that we’re emerging as the only significant lithium player in North America in terms of actually producing a product here.”
He adds that lithium prices are stable, unlike those for most other commodities.
To get the cash it needs quickly, and on the grounds of financial distress, RB Energy has applied for an exemption to seeking shareholder approval for the financing.
The company has already tapped Aguas Blancas for needed working capital, with forward sales of iodine. (It did not specify amounts or prices.)
RB Energy shares recently traded at 17¢ in a 52-week range of 15¢ to $1.48. The company has 263.3 million shares outstanding.
What a load if manure. One day they say a merger is needed with this supposedly much stronger partner in the iodine business and that it will improve the merged companies ability to raise funds with a cash flow generative iodine business and next we hear they want to sell the iodine business to pay down the debt from the iodine mine. Shareholders took a major haircut on the merger and now we get the mining shaft on refinancing and more management gobbledy gook trying to justify their incomptence!!! Hmmm a class action suit is needed and management in irons.
Nothing has changed in the canadian small cap mining industry in 80 years. It is still a smoke and mirrors game.
Send the executives to jail! It is about time Company executives pay for the false advertising that goes on. Enticing investors with BS claims of future profits. I have lost 60k on this P.O.S. stock. These guys are bandits. I am sure these pricks drop more than that in tips a year, but to me that is a lot of money. Enjoy your lives gentlemen, I will be the person you see working into my 80’s to keep a roof over my head. All the best…