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Iofina plans Oklahoma expansion as O&G production set to rise

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Iofina LON:IOF, is an AIM-listed, chemical company, headquartered in Colorado, with most of its operations in Oklahoma. What’s interesting about Iofina is that it has developed a proprietary process to make money out of what another corporation 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.

Some of us may be aware of iodine’s use in the medical field – it’s that gloopy brown liquid that surgeons swab your skin down with to sterilize it before getting the scalpel out – but its also an essential mineral for human health and helps to regulate the thyroid gland; hence the use of iodized table salt, to ensure that we are keeping up our intake. But iodine is also used in pharmaceuticals, printing inks and dyes, catalysts, animal feed supplements and photographic chemicals. Iodine is also used to make polarizing filters for LCD displays.

Tom Becker, chief executive of Iofina, told The Armchair Trader that 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 analyze damage or injury in these areas through biomedical imaging. This is leading to an increased global demand, especially as Asia upgrades its healthcare infrastructure. He also added that the tech industry is experimenting with iodine in the manufacture of batteries for renewable energy projects and electric vehicles.

Tight market

“The current iodine market is pretty tight with 60% of the world’s supply coming from Chile, about 30% from Japan and here in the US we have a global market share of about 6% – we’re one of three producers in the country,” he said.

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 36,000 tonnes (T) to 37,000T. Global demand for iodine is increasing, and there are significant barriers to entry for producers. In its last results (23rd September 2022) Iofina said that it had produced 234T of crystalline iodine on 1H22 – within its guidance of 225T to 240T and was on track to hit its production target for 2H22 of 255T to 275T.

Research &Development

Iofina was founded in 2005 and has two operations extraction and processing, and is operating in two locations – in Oklahoma, where it extracts iodide from brine salts, and Kentucky, the focus of its chemical operations where iodide is converted to iodine, and the research and development of new iodo-, chloro-, and fluoro-based specialty compounds is undertaken.

The company bought its sister company, Iofina Inc. with its subsidiary Iofina Natural Gas Inc. a O&G exploration company in 2006 and incorporated them under one umbrella to create a standalone entity that would explore for and produce iodine. The company was listed on AIM in May 2008. A year later the company acquired H&S Chemical, a small specialty chemical producer in Kentucky for around USD8.5m (GBP7.2m). The company now operates two brands, Iofina Resources and Iofina Chemicals and sells its iodine on global markets.

In its last results, Iofina reported EBITDA of USD3.7m up 6% y-o-y from USD3.5m in 1H21. Gross profit increased by 5% to USD5.7m, however revenue was down 4% to USD19.2m, as a result of a Covid-19 build-up of inventory, which was sold during the period. Operating profit was up 8% to USD2.8m and the company has USD4.7m of cash on balance, with net debt of USD2.8m, down from USD 7.2m in 1H21.

Iofina opened trading today at 20.9p and has offered a year-to-date return of 18.5%, a one-year return of 41.4% with the company’s shares ranging between 13.3p and 28.5p over a 52-week period. The company has a market capitalization of GBP39.8m

The company currently operates five iodide extraction plants in the oilfields of Oklahoma and recently announced the constriction of a sixth plant in Western Oklahoma, IO#9. In a statement, the company said: “To minimize supply chain impacts and expedite IO#9’s construction, the company pre-ordered major items and secured contractors in advance [and] will also relocate the equipment from IO#5 as part of its building plans. [Iofina] remains mindful of the impact of supply chain issues, but currently anticipates a construction time of six months, after which Iofina will be operating six iodine production plants in Oklahoma. Once in operation, IO#9 will immediately contribute to cash flow. Full payback of its costs expected in less than two years with production of crystalline iodine targeted between 100T to 150T per annum.  Additionally, as previously announced in July this year, Iofina obtained a term loan from its banking partner to support this project.”

A win-win solution

Becker said: “We’re in Oklahoma to use the byproducts of the oil & gas industry there – the O&G companies have to remove brines before they get to the oil and gas, which they then have to dispose of. Those [specific] brines are iodide-rich, and we pay a fee to the O&G companies for that brine. They get to dispose of a byproduct that they would usually have to pay to get rid of and with us they put a bit of money in their pockets; we get a source of low-cost iodine – so it’s a win-win situation for both parties.”

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.

But Becker said: “Not all brines are equal. We undertake a full geological survey of the sites, understanding the hydrogeology. Not all [O&G] brines have iodine in them, this only occurs in certain parts of the earth [crust].”

Sustainability

Iodine is a finite resource, but Becker is confident that the Oklahoma fields can sustainably support Iofina and other producers for some time, hence the decision to build another plant – in a new area of operations – which will produce 100T to 150T a year. “We could develop three or four more plants on this site in the next three-to-five years,” he said.

Nevertheless, the iodine market is still niche, and Iofina is small enough and nimble enough to hold onto its growth without upsetting the market. Although small, Iofina is no start-up. “We’ve been through our growing pains in 2008 and 2009 and now we have proven our technology and are in a sustained growth phase,” said Becker.

“Our improved balance sheet has given us enough headroom to execute our plans in a prudent manner. We’re not recession-proof, but iodine has significant medical applications, and people are going to need healthcare whether the markets go down or up,” explained the CEO.

Becker feels confident about Iofina and the global requirement for iodine in the coming years. Satisfied with the company’s production and secure in the supply of raw materials, the criticality of the company is its access to low-cost brine.

He concluded: “The global energy crisis will see increased production of oil and gas, at least in the medium-term until renewables can do the heavy lifting. That means in our area of operations the O&G companies are going to expand, which means that they will be producing more brine, which they need to get rid of. Our production costs are cheap. Yes, they could blast more in Chile – but it’s a hard-to-get-to resource, intensive and slow in production, and expensive to export. They could also produce more in Japan, but their production levels are already quite high. There’s also plenty of iodine in the sea – but you are going to have to pull up a lot of seaweed to make any impact on global supply.”

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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