Iofina LON:IOF the AIM-listed manufacturer of iodine from waste iodide brines from the upstream O&G sector, continued its robust growth in 2022 as iodine prices remained strong and the Colorado-based company opened new processing plants.
Tom Becker, chief executive of Iofina, told The Armchair Trader: “…the [latest] results have been great and the stock is moving in the right direction, we put in the hard work in the past, so that we have things in the right place when [iodine] prices are down – but prices have remained strong, all chemicals have gone up [in price].”
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Becker noted that Iofina’s costs over the last year had gone up, as the chemicals it uses for its processes had increased in price, but at a slower rate than the price of iodine.
Profit up, debt down
For the year to end-December 2022 the company increased revenue by 8% to USD42.2m, with gross profit increasing by 47% to USD15.8m. Earnings were up 65% to USD11.5m and profit before tax was up by 96% to USD10m. The only thing that went down was net debt, which fell from USD3m to US0.9m. Cash-on-hand was USD5.9m at the year-end.
Becker said: ““We have delivered another strong year across the business in terms of profitability and have invested in growth projects. Being a low-cost producer of iodine means we have continued to capitalise on sustained, higher iodine market prices. Demand for our products coming through Iofina Chemical remains robust and our improved cash position of USD5.9m has reduced net debt to below USD1m.”
As previously reported Iofina saw iodine production increase year-on-year and had started work on building its sixth iodide plant IO#9 in Oklahoma, where most of its operations were based. As reported, the company – established in 2005 – Iofina has developed a proprietary process to make money out of what another business is throwing away. In Iofina’s case the company extracts iodide – the salt formation of the element, iodine – from mineral brines which are a waste product of the oil and gas extraction industry.
The largest single use for iodine currently is in X-rays and medical imaging, where iodine targets soft tissue areas in the body, allowing medics to analyse damage or injury in these areas through biomedical imaging, said Becker. The chemical is also used in hospitals as a disinfectant; is a health supplement that helps to regulate the thyroid gland; is used in photography, inks and dyes; and some companies are experimenting with the chemical in electric vehicles, trying to develop a lithium-iodine battery.
Becker said: “We understand research on [lithium-iodine] batteries is ongoing, but there hasn’t been any breakthroughs yet.”
However, the application of iodine in X-rays is set to grow, said Becker, as Asia develops its healthcare system and the densely-populated nations of India and China bring their healthcare provisions up to the same standard as Europe and North America.
New facilities
The company has invested into the development of new plants over the last calendar year. As reported, Iofina secured debt financing in July 2022 to support the construction of the new extraction plant and the plant will come into immediate operation, contributing to revenues from the point of commissioning and would be in a position of full payback within two years. The company was targeting between 100 tonnes (T) and 150T of crystalline iodide production from the new site a year.
Work is progressing well on this plant, said Becker, and negotiations have already started on the development of IO#10 and IO#11 in the same Oklahoma fields. “As soon as IO#9 is online, we will start bringing IO#10 into being […] the brines need to be just right, having a good amount of iodine that we can recover – that’s why we’re in this part of Oklahoma.”
The CEO said that Iofina has good partnerships in the Oklahoma oilfields and had advanced discussions well with the potential counterparty for IO#10 and was in initial negotiations with a counterparty on IO#11.
Becker did concede that there was a finite number of fields that could be developed in the area, but the company was not near capacity. The amount of iodine in the brine ejected from the oilwell was critical – hence the company couldn’t pull up to any oilwell anywhere in the world and set up a iodide plant. However, there were companies developing solutions to clean up brines from oil and gas production. “That would be a good thing – as we will get cleaner, more concentrated brines,” and the use of third-party solutions to concentrate brines – and hence the amount of iodine that could be extracted from the contained iodide – could allow the company to expand its operations to other geological formations.
Iofina will continue to work closely with O&G producers in the Oklahoma fields, but “further down the line we could consider drilling some of our own wells,” said Becker.
Iodine pricing certainly has helped Iofina’a growth in the last calendar year, and Becker believes that this will continue in 2023, with “global demand, continuing to outstrip global supply.” Iofina’s own business in Oklahoma might receive a boon due the political going-ons in Chile – the world’s primary supplier of iodine and a major player in the global lithium market.
Chilean intervention
News that the government of Chile is considering nationalising lithium production, taking a greater ownership stake in lithium mining and extraction and taking greater royalties out of the sector, sent shares in Chilean lithium miners like CleanTech Lithium LON:CTL tumbling (although they are making a bit of a recovery now). The iodine miners in Chile have also been smothered by the same blanket, and questions are being raised as to the viability of Chile as an investment destination, playing into the hands of alternative producers, like Iofina.
“The [lithium mining] news from Chile creates a little more uncertainty in that part of the world,” which has created a greater interest in what Iofina is doing and where it is located.
Bolt-on acquistion
The company has shown strong organic growth in the last year, but in the future, said Becker, the company will be looking for supplemental companies that it could acquire to help it build-up its subsidiary businesses.
Iofina opened trading today (27th April) at 31.75p and has offered a year-to-date return of 54.8%, a one-year return of 54.8% with the company’s shares ranging between 18.5p and 33p over a 52-week period. The company has a market capitalization of GBP60.6m.
Canaccord Genuity rates Iofina as a ‘Buy’. Alex Brooks, an analyst for Canaccord said: “2022 saw a number of major milestones for Iofina: its highest revenue and EBITDA to date, the reduction in debt to its lowest level in more than 10 years, and continued capacity growth for iodine and additional iodine compound. […] Results […] show a somewhat higher EBITDA than we had forecast, reflecting continued good cost control, as well as the introduction of some deferred tax assets (as prospects for earnings have improved). The outlook for 2023E remains attractive, in our view, with pricing remaining close to USD70/kg, and progress on IO#9 continues to be good with the new unit expected to be operational before the end of 2Q 2023.”
Brooks noted that Iofina was making good progress on site negotiations for further plants and looking at other potential growth projects to help develop the company’s existing businesses. Canaccord expects the iodine producer to be in positive net cash position by the second half of the year and has set a target price of 40p.
