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Iofina share price: is there still room for growth after 48% rise?


Iofina [LON:IOF] the AIM-listed manufacturer of iodine from waste iodide brines from the upstream O&G sector, published its interim results (11th September) to the end of June.

As previously reported, the Colorado-headquartered chemical company finished 2022 strongly and continued its momentum into 2023, with the proposed construction of its sixth and seventh iodine plants in the Oklahoma oil fields slated for the first part of the year.

The company reported an increase in 1H earnings of 60%, up from USD3.7m in 1H22 to USD5.9m in 1H23, with a resultant 27% rise in revenue period-to-period to USD24.3m.

However, as many firms are finding, things have got a lot more expensive and Iofina saw a 19% increase in cost of sales period-to-period to USD16m. However, the story has a happy ending as Iofina reported a 46% in gross profit (presumably as the chemicals company could charge more for its iodine) to USD8.3m which translated into a 77% increase in operating profit to USD8.3m

Tom Becker, chief executive of Iofina, said: “The group delivered its best commercial performance for a first half period, supported by the ongoing robust iodine prices and meeting our production targets. In the process we have further improved our cash position even as we constructed a new iodine plant, which provides us with additional capability to fund growth projects.”

Iofina sees shares up 47.6% in 2023

Iofina opened trading this week (11th September) at 31p and has offered a year-to-date return of 47.6%, a one-year return of 33.3% with the company’s shares ranging between 19p and 38p over a 52-week period. The company has a market capitalization of GBP57.6m.

The company has managed to reverse its position from being USD2.8m in debt at the end of 1H22 to being positive net cash by USD0.2m by June this year. This figure excludes lease liabilities and USD3.7m capex on its IO#9 iodine plant, its sixth operating plant, which came online in mid-June.

Plant to quickly payback construction cost

IO#9 is a venture with a new oil and gas production partner and the company expects the plant to quickly payback construction cost, and start to contribute between 100 tonnes and 150 tonnes of crystalline iodine annually. The company produced 241.5 tonnes of iodine in the first half from its five existing plants and is targeting between 235 tonnes and 250 tonnes for the full year, up 7.5 tonnes from the five plants when compared to the first six months of 2022.

In total, with IO#9 online Iofina estimates total production of 325 tonnes to 350 tonnes, a significant upgrade on the 285 tonnes it produced in 2022. Pricing has been steady throughout the year at around USD70/kg iodine, and management expects this price level to be stable for the rest of the year. Although IO#9 is the biggest and best plant, its configuration, and the additional equipment Iofina had to deploy, increased expenditure by USD5.5m. However, IO#9 was paid for out of Iofina’s existing cash.

Iofina negotiates debt consolidation

The company has retained a bit of wiggle room. It had two separate facilities agreed of USD2.7m and USD1.66m, which in 2022/3 it did not have recourse to drawdown. The company negotiated a consolidation, agreed a USD4m loan to the beginning of July 2024 at lower interest rates than the separate facilities, which it can draw-down to finance the construction of its seventh plant IO#10 and other capital expenses. The loan has a seven-year term and the interest rate was reduced from 2.4% over the one-month Secured Overnight Financing Rate (SOFR) to 2.11% +SOFR. The company also has a USD6m revolver, which was extended by a year to September 2025. The revolver also has not been drawn-down.

Becker said: “Our discussions with prospective partners for IO#10 continue to move forward and we will provide a detailed update once an agreement has been reached. H1 has progressed well [and we are] looking forward to the second half of 2023.”

As previously reported, the company – established in 2005 – 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.

Application of iodine in X-rays set to grow

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.

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.

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 an 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,” Becker said, 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.

The chemicals company 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.

Iofina has over the past year proved it is productive and efficient and can quickly scale up at little cost. Having headroom to expand given the cash its operations throw off and the ability to draw-down debt at a renegotiated lower price gives the company room to grow, despite there being a finite level of that expansion in the Sooner State, and remains ‘one to watch’ for the rest of the year.

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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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