Iofina LON:IOF, the Colorado-headquartered AIM-listed chemical company, with most of its operations in Oklahoma published an update that outlines its production estimates and timeline on the construction of its new production facilities.
As previously reported, Iofina currently operates five iodide extraction plants in the oilfields of Oklahoma and announced in 4Q22 the construction of a sixth plant in Western Oklahoma, IO#9. The company said that it has assembled the necessary materials and staff and started construction on IO#9, which it hopes to complete in 2Q23.
Speedy payback
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.
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Tom Becker, Iofina’s chief executive had previously told The Armchair Trader: “We could develop three or four more plants on this site in the next three-to-five years,” he said.
New supply lines
Becker said in a statement to the market that the company was sourcing additional brine supplies from oil and gas operators in the region with a view to building another extraction plant, IO#10 later this year.
Becker said: “Negotiations continue to progress positively in line with Iofina’s commitment to achieve further expansion of iodine production capacity in the short term.”
As previously reported, Iofina was targeting 255T to 275T production for 2H22. The company exceeded this target by producing 282T of crystalline iodide in the period, with total production for 2022 being 516T.
Iofina has also been helped by an uptick in the global iodine prices increasing from USD50/Kg at the start of 2022 to USD70/Kg where it stabilised for most of the rest of the year. The company said that it expects prices to stay around the USD70/kg level for at least the first part of2023 as a result of tight global supply.
Becker said that the company is aiming to produce between 235T and 250T of iodide in the first half of 2023, but noted that historically 1H production has always been lower than 2H production due to low temperatures in the winter months.
Iofina opened trading today at 22.75p and has offered a year-to-date return of 12.2%, a one-year return of 15% with the company’s shares ranging between 13.53p and 28.5p over a 52-week period. The company has a market capitalization of GBP39.8m
Iofina is the second-largest iodine producer in the US. A large amount of the world’s iodine comes from Chile, where bedrock in the Atacama Desert is blasted, crushed and leached in evaporation ponds, which is quite an intrusive, destructive and polluting process. Iofina, on the other hand chemically-extracts iodide from the brines rejected by the O&G producers, and then reinjects the wastewater back into the earth into empty oil wells.
Increased global demand
The largest current 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. This is leading to an increased global demand, especially as Asia upgrades its healthcare infrastructure. It is also used as a disinfectant and as a health supplement. Becker said the tech industry is experimenting with iodine in the manufacture of batteries for renewable energy projects and electric vehicles.
Iodine is found in seawater and was traditionally extracted from seaweed, but it is also found in the remnants of prehistoric seas, as briny deposits sitting above layers of hydrocarbon-rich deposits, and in bedrock. Currently global production of iodine is 36,000T to 37,000T.
Broker Canaccord Genuity recently published a research note on Iofina. Alex Brooks from Canaccord said: “Demand for the group’s products remain strong and the benchmark iodine price closed the year still at USD70/kg […] we have made minor changes to our 2022E numbers reflecting the higher production levels and we continue to see our forecasts as conservative. In particular, we are assuming an average iodine price for 2022E of USD55/kg (against a spot of USD70/kg) and production volume up just 7%.”
Brooks continued: “[This] could be entirely delivered just by the additional contribution on IO#9. […] we believe the group’s successful transition to not only being free cash flow positive, but with an exceptionally robust balance sheet has been underrated by the market.”
Canaccord rate Iofina as a ‘Buy’ with a target price of 35p trading at a multiple of 13x to 15x and “increasing confidence for the outlook for the current year.”
Deshe rate Iofina as a ‘Buy’ stating: “Iofina plc released impressive 2Q22 results on 26th September 2022. Specifically, their growth, value, and income factors indicate a well-planned and balanced effort, which is generating exciting growth. These results lead us to believe that there should be significant upside potential for the stock. Therefore, they earned a total score of 85 out of 100 and a ‘Buy’ recommendation.”
