Iofina Share Discussion Threads

[superg1] 17/1/2015 20:44

Chile water laws Help !!!!


In 2014 they set up a ministry for water so that Chile could implement the new laws and start to deal with a system that was unfair and depriving citizens of water. The drought has set it all in motion.

I don't quite know what this means and I'm going to have to read a bit to get to grips with it, it has been implemented by the new director general of water.



It lists various water rights including those held by SQM in the area of Pozo Almonte and the Tamarugal area. That's where SQM produce the majority of their iodine,

It looks like if folks don't take action they lose the rights, it seems they have to make payments.

The first page won't cut and paste to translate it but I'm sure some here know a way to do it.

[crosseyed] 17/1/2015 14:30

SuperG1,

Thanks again.
I have looked again with regard to the points you raised.

a) Q3 cash at $7.5M. That would reflect cash plus short-term investments. There is also a lot of net cash due from Trade Receivables less Payables - about $2M from the Interims at 30/6/2013. For now I shall stick to my cash flow model which suggests $6.8M in cash and investments at year-end though with anything up to $1.2M in net receivables that might augment the spot figure.

b) Re sales of raw iodine and non-iodine products, I have guessed at those figures (~$1.55M each). I don't really have any guidance on that other than that they probably occurred!

c) Your info suggesting that there is indeed a market for raw iodine that might be increasing is heartening. Even more so that Tom Becker favours increased supply to IOChem which very much aligns with what my model would indicate, ie the most profitable route.

d) Do you think that IOF actually bought any iodine on the market during 2013? I can see that some remnants of the inventory at the end of 2012 might have been bought-in. But given that inventory was really quite high (my estimate is 87.9mT which would have been increasingly augmented by home-produced iodine), I cannot see that further purchases would be necessary in 2013.

e) In my model, I cost inventory monthly by subtracting withdrawals at the last historical cost and supplementing that by additions at production cost (now almost exclusively from IO Resource plants costed monthly on assumed production volumes though I use an assumed cost for re-cycled iodine). Thus cheaper home-produced iodine is reflected in the blended cost of iodine used by IOChem for manufacture of derivatives.

f) H1 total Admin costs excluding amortisation and depreciation charges (which of course are accounting rather than cash charges) from the Interims were $3.725M ($0.621M/mth) of which $2.620M was for Payroll & Benefits. I have assumed $0.450M/mth for H2. Maybe that could be further reduced by $0.050M/mth adding 0.300M to year-end profit. That would still leave a loss of $0.7M for the year, and commensurately increase cash to $6.9M though not forgetting the increasing net Trade Receivables of ~$1.25M.

c

[superg1] 17/1/2015 12:11

I checked where the rumour came from and it's the insti presentations from the end of Sept, so rumours with good foundations.

Swiss Franc.

Complete carnage as it rather sums up the complacent section that say the AIM is too risky. Some will have taken massive hits of the Swiss franc.

It seems it was heavily shorted pre the news which hit the shorts badly.

EG. IG Index talk of a £30m loss as a direct result potentially due to clients not being able to cover their losses.

Typically those clients will have other short positions and longs that will be forced to close on other shares.

Over the next week the full impact should start to surface.

A 30% swing is a regular event on the AIM, but the difference is the size of the bets. With the Swiss Franc having that cap, it seems the bets would have been enormous. Good old hedge funds that hammer investors with shorts, will see huge losses.

NEW YORK/LONDON: Currency speculators and global macro hedge funds with large short positions in the Swiss franc are staring massive losses in the face after the Swiss National Bank shocked markets on Thursday by removing a three-year-old cap on the currency.

The move sent the safe-haven franc soaring against the euro and the US dollar at a time when more than $3.5 billion was betting on more franc weakness, the largest such position in more than a year and a half.

[crosseyed] 17/1/2015 11:50

superg1,

Thanks for your comments and additional info. I'll look further wrt my model.

c

[superg1] 17/1/2015 11:18

Cross

Some bits they may help with your number crunching.

It was said that when the new team developed they found a load of dead wood middle management had appeared, so it's that area that has seen much of the reduced cost as they slashed administrative staff numbers.

The quote in the interims

The Group successfully reduced its number of employees, lowered administrative salary expenses by over 40% and focussed on its core team of employees.

When George and Gary resigned plus reduced salaries, they quoted that move would save $650,000 per year.

Re that balance.

George, Gary, Chris and Paul CG have gone.

Lance (£1 salary H2) in for Chris and Bill Bellamy appeared.

Gary's job covered by Mike an existing employee and George by Tom also an existing employee.

Jeff was on £1 too and has now gone so he didn't really exist for H2.

So in terms of salary cost there were 5 less salaries to pay for the BOD. 4 less for this H1 as Lance's salary is now back in play.

A number of managers and other staff were ousted as surplus to requirements. The talk overall was about 1.5 mill in savings, mainly due to those fixed costs. I believe that was for H2 rather than full year savings, but it is just a rumour. That said they have made the significant cost cuts clear.

[superg1] 17/1/2015 10:30

Cross

Thanks for your efforts, much appreciated.

For your info from the rumour mill. The figures being mentioned around that time was $7.5m in the bank with up to $9 mill depending on the timing of receivables. Then the $7.5 mill figure came out.

Obviously the supply contracts sitting in desks rumour was about as an IG client had sent in a question about that and it was covered in the interview

Such matters don't get posted as they are rumours with no clear reference to support them. Hence it's often posted that some folk are lying.

While they are happy to just make anything up to support a personal agenda, folks that believe much different are not prepared to speculate on this BB as we like to keep it as near to verifiable facts as possible.


We know revenues for last year would get a helping hand from the sale of Lampricide as IOF had mentioned an 18 month break in the gov contract which was due to kick back in late 2013.

On the case of increased revenue, it seems by being producers it has opened up sectors that would not otherwise be viable when they bought iodine.

It has always been said some Chile suppliers are unreliable and the US likes home grown.

Given all the circs of an inventory excess and competitive price-cutting, how can it be that IOF have buyer interest stacking up. All the logic around that was talked about some time back. While some of us would have us believe they wouldn't be able to sell extra production. The truth is in an over-supplied market they are knocking on IOF's door, not IOF trying to find sales.

When the iodine price eventually heads north again, chemical companies will have to up the price of their products, as they are not producers.

That's when IOF will start to see some serious interest, not just for current products but a demand for others.

Tom Becker made it clear that they want to push as much extra production they could through the chem div.

Also to note in H1 they were using some iodine they had purchased in Chile at prices a higher than they now produce it at.

In the case of iodine costs per KG. It's a variable not based on mt per month. EG 40mt one month is very unlikely to have the same costs as 40mt the next month. That's down to the metrics of which plants are contributing at the time, as each has a different opex.

[che7win] 16/1/2015 21:00

Crosseyed,
Thanks for sharing your model, that helps explain the working capital and sets the expectations.

[crosseyed] 16/1/2015 17:59

serratia,

Most interesting and, I think, supporting the de-gearing of iodine cost in the end-user price of iodine derivatives.

c

[crosseyed] 16/1/2015 17:57

Whilst there has been good news regarding revenues, increased by 35% over 2013, I remain rather more cautious about net profit and net cash at the end of 2014, although I do expect a year-on-year improvement in both of these metrics, for the following reasons:

a) The mid-year interims indicated revenues of $13.020M (millions of dollars) against costs of $8.946M, a cost:revenue ratio of 68.7%. That's an improvement from 83.6% in 2013. There has probably been some cost improvement in H2 so my model indicates total year costs of $17.370M on revenues of $25.557M (67.9%).
I think many would admit to disappointment with the IO Resource plant production over the year after a bad start. As a result, I do not believe that the unit production costs of prilled iodine come anywhere near those expected from optimum; my estimate is something close to $30/kg, only a few dollars below the market price. $20/kg is the sought-after and attainable target.

b) Much has been made of an expected big reduction in administration costs. In H1 interims, the charge was $4.618M. However, that includes amortisation and depreciation charges estimated at about $0.9M which cannot be reduced, leaving $3.725M due to costs such as salaries, expenses, fees, etc, ie about $0.621M/month. These costs are stated to have been trimmed, including sacrifice of salary by Lance Baller (and others?) plus well-publicised resignations. But by how much can they be reduced? 25%? More? I have assumed $450/month which implies about $8.104M for the full year including amortisation and depreciation ($6.425M without).

c) Finance charges will be higher for H2 given the new Panacea loan that commenced in April, an additional $0.150M amounting to $1.054M for the year.

d) During H1 additional capital spending was $5.323M, mainly on IO#5-6, though further remedial spending was also indicated. Would there have been further such spending in H2, or even on new developments that we do not yet know about. I have assumed none but that is likely to be optimistic. Capital spending would not affect profit significantly during 2014 but it certainly affects cash flow.

e) Cash (plus Investments) at 30/6/2014 in the interims was $6.271M. In addition, Trade Receivables stood at $4.139M and Trade Payables were $2.085M. Thus, roughly, revenue receipts are about 2 months after sales, while expenses are paid about 1.4 months after production month. Using these metrics to estimate net monthly cash movements, my estimate is that net Cash (plus Investments) would be $6.6M at year-end 2014. It has been posted that cash was reported from an interview to be around $7.5M at the end of Q3. That is higher than my model's estimate of $6.8M, but not incompatible given that monthly sales are about $2M per month with cash received on average about 2 months later. That is all about timing. A timing discrepancy of $0.7M is well within possible bounds. Of course that would be resoved between Cash+Investments and Trade Receivables and Payables in the Annual Accounts.

f) Overall, my model indicates a Net Income loss of about $1M compared with a loss of $3.662M in 2013.

c

[serratia] 16/1/2015 17:35

A number of assumptions here - The largest tonnage of iodine chemicals looks to be potassium iodide. Wiki says 28000 tons were made in 1985. I'm not sure whether that's a pure crystal or contains KI solutions. If pure powder that would need around 20,000 tons of iodine.
Potassium iodide is straightforward to make. Iodine is reacted with potassium hydroxide to give KI with KIO3 as a by product. Separation is easy due to their different solubilities. To make a ton of KI they require 0.91 tons of iodine and 0.4 tons of KOH. KIO3 by product is 0.258 tons which is equivalent to 0.075 tons of iodine.
A quick look through bulk chemical supply list gives KOH at $1000/ton as pure solid. Potassium iodide (KI) is $50000/ton. Plugging these figures in with $30/kg iodine I calculate the following ton costs.$27,300 Iodine produces $50,000 KI add in the $400 for KOH - Raw materials total is $27,700/ ton KI. A gross profit of 45%. However if they can recycle the potassium iodate (KIO3) to iodine there's 75 kg iodine to come back.
If this is what they do then the use of iodine falls from 910 kg to 835 Kg or $25050 of iodine per ton KI. That pushes the gross margin to 49%.
There will be some losses along the way but I wouldn't expect them to be high.

IF they have 60 tons/yr of recycled iodine and it all comes from KI production that would imply they're producing 800 tpa of KI or 3% of the Wiki market.

Just playing with figures.

[bobsworth] 16/1/2015 14:47

Excellent post Crosseyed. Thanks

[woodpeckers] 16/1/2015 14:37

LOL, SG, cute kid!
I'm sure you've already seen it, but if not this is a very informative report on water demand from last Feb.

[superg1] 16/1/2015 14:35

Good post Cross.

The problem for end users who use iodine to produce chemicals is when the Iodine price goes up.

Last time the price hiked IOF had to buy it at that price. Next time they will be sitting pretty.

[spideyyy] 16/1/2015 14:35

Hi All
Do we know if the hearing is going ahead for the 19th or if objection withdrawn ? many thanks

[crosseyed] 16/1/2015 14:28

I wonder just how dependent Iofina's profitability is on the market price of Iodine. In the past year, I would suggest: not very. That is for a number of reasons:

a) Iofina's revenues are generated mainly from the manufacture of derivatives through IOChem. The RNS of 13/01/2014 indicated that revenues were up 35% on 2013 which was $18.931 million, thus $25.557 million in total for 2014.

b) The IoChem plant has, I understand, a single-shift capacity to process about 360 mT/yr of raw iodine though my calculations suggest the actual amount processed would be under-capacity at about 300 mT during 2014. It was clearly stated that IO Resource plants could fully supply IOChem. Hence, there would be no requirement to buy iodine on the open market. We are advised that total production from IO Resource plants during 2014 was 327.7mT. I'm not sure but it is possible that IOChem continues to re-cycle iodine; past estimates indicated about 60 mT/yr. I estimate from valuations at 31/12/2014 that there might have been 88 mT of iodine in inventory at that time. The point is that IOChem would have had no need to purchase any iodine during the year.

c) Although there was an indication earlier in 2014 that some sales of raw iodine might be made, that is not likely to have been a lot. Certainly, the low volumes of processed iodine during the early months would have required withdrawals from inventory to meet IOChem requirements. However, better H2 production would have been in excess of IOChem needs, therefore available to re-build inventories...or to sell as raw product. Given that raw iodine market price during 2014 was in the range $30-40/kg, I would have thought such sales would occur only if IOF had made commitments. In my model, I have guessed at raw iodine sales of 45 mT over the year contributing $1.575 million to revenues.

d) It has also been mooted that IOChem would have had some sales of non-iodine products. Again, I have guessed a figure of $1.542 million in revenues, all in H1. I expect the actual figure will be disclosed in the Annual Report.

What is clear is that IOChem manufacture provides a big mark-up on the raw iodine value. That mark-up is very low-geared to the market price of iodine. One would expect products to be sensitive to iodine market price in proportion to the iodine content in the finished product (or the quantity required for the manufacturing process). I have no idea what that might be for the "average" product, but given value-added procesing costs, I cannot envisage it being more than 50% and possibly a lot less. Also there will always be a time lag before market prices are reflected in end-user pricing. I seem to recall a statement that IOChem revenues had increased whilst margins had reduced due to lower market prices. IOChem of course are using home-sourced iodine whose production cost to prilled iodine is somewhat less than market price.

The logical conclusion is that Iofina maximises revenues by diverting home-produced iodine to IOChem. If, as is expected, IO Resource plants continue to increase production, it would make sense to expand IOChem capacity, providing that there is a market for increased derivative products. That can be done in the short-term without significant capital expenditure simply by adding a further shift which should double capacity. (Are 3 shifts a practical possibility?) Iofina with that strategy would then be almost immune to the market price of idoine, though always with the option to sell any excess production of raw idoine should that be attractive.

IOF's current SP, though recovering a little, would seem to be overly influenced in market sentiment by the low iodine price. In fundamental terms, the market price is almost irrelevant whichever way it goes. Investor psychology is a different matter.

c

[superg1] 16/1/2015 14:11

Oh by the way ADVFN defeated the hTTp game to stop us creating direct links.

WELL DONE ADVFN.

However they somehow reinstated the original link meaning you don't need to change anything now.

Lmao.

[superg1] 16/1/2015 14:08

Yes Woody

Nothing to lose, nimby's last stand, no matter that he is hopelessly surrounded.

Humiliation awaits him.

As I said he has the biggest permit, the largest service area recorded for any permit, knocks figures down by over 50% in the objection compared to his application.

Previously awarded permits are good evidence and his applications supports IOF. lol

I'm sure it will be pointed out to him at an appropriate time. The old 'low baller'

Here he is as a kid

[woodpeckers] 16/1/2015 13:44

SG - "If IOF build a depot Carlisle goes bust" - in which case he is sadly highly unlikely to wave a white flag at this stage, not that it really matters.

[squire007] 16/1/2015 13:00

Superg I have to take my hat off to your in-depth knowledge.

Following your lead :-)

[che7win] 16/1/2015 11:31

I agree bocker,
I expect cash to grow from the $7.5m, it's a question of by how much.

If for instance, a substantial amount of those sales came through in November/December, we won't have cash received until this year.

So cash will be received in this years accounts - big increases in revenues short term consume cash; that's a good thing but working capital increases short term.

[bocker01] 16/1/2015 11:14

Sales were fairly substantial in Q3 Che, that's why I expect cash continued to grow in Q4, after Tom quoted 7.5m at the beginning of that Q, as more payments came in! Like you, I was very pleased to hear the 7.5m figure in Tom's interview back then.

[che7win] 16/1/2015 10:46

The cash costs difficulty I have (reading Bocker's post) is how much the plants consume in working capital.

5 and 6 online H2, so takes time for the iodine produced to work into end product, then 60 day credit cycle etc.

Hence, that figure rising since H1 really looked positive to me at Sept. time.

BWDIK.

[che7win] 16/1/2015 10:43

superg,
I expect costs will have reduced significantly H2, 2015 we will have some wage rise for the directors (deservedly).

I will be interested in operational cash flow as that will give some direction to this H1 '15. We can expect margin expansion in the plants with the average 40 MT production guidance this half - well up on H2 14.