Iofina Share Discussion Threads

[bogg1e] 28/5/2015 19:59

crosseyed is right though. We all had the same figures to work with back in September for approximately working out how iofina would fare in 2014. Essentially most calculations wavered around the break even mark, with a million or so either side, so indeed where did the $4 mil go? Its not in capex as far as I can tell, but in costs.

[battery] 28/5/2015 19:34

Looks to me like Tom has introduced the accounting procedures in place in IC now into IOF overall.

[bocker01] 28/5/2015 19:34

Seems the 50 to 70 are very well paid Serratia! actually i do not find Lance's answer a convincing explanation. A bit off the cuff and inadequately thought out. It completely avoids why the costs went up overall, that's the point not where they were allocated. It also seems to me that iodine in inventory at 30 June 2014 must have been valued at cost, some bought in and a little made in house. I suspect it continued to be valued at cost until someone worked out costs were miles higher than net realisable value and the excess costs belonged in costs not inventory, I also suspect costs per kilo were pretty high eg 50 dollars a kilo or more at times due to the appallingly low production quantities to spread them over especially in the first half, what's more Lance moving personnel into cost of sales also allows their costs to be included in inventory rather than overheads, neat trick, so maybe the drop in inventory valuation year on year like for like was a damn sight bigger than shown. The positive is that production has and is increasing substantially so costs per kilo are falling rapidly. Plus optimisation expenditure which would largely go thru as costs not capital must have concluded.

[crosseyed] 28/5/2015 18:56

Bobsworth,

Thanks for your initiative in asking Lance.

However, I'm finding it hard to understand the reply. Yes, I understand that labour costs associated with production have been re-allocated into COS, but he also states confusingly that "Iofina Chemical has always done this".

My understanding would be that the labour costs were fully incorporated into COS in 2014 but they were not (fully) included in the 2013 accounts (which would explain the mathematical discrepancy pointed out in my earlier post, ie that the labour costs noted as being assigned to COS exceeded the Labour+Manuf O/H+Royalties amount in the breakdown of COS!). As "the bottom line" was not affected, presumably the difference was to be found under Administration Costs. Hmmm! Neatly reducing that category. I wonder why the 2013 figures were not re-stated in the comparative notes of the 2014 accounts, with an appropriate explanation note.

c

PS We are still no closer to understanding the overall explosion in costs leading to roughly $4 million of the $6 million loss.

[serratia] 28/5/2015 18:31

Strange that they didn't know what the staff were doing there's only 50 to 70 of them.

'' Once we had a track record of production and really understand what everyone is doing.''

If the labour costs were moved to COS where is the corresponding drop in the accounts ?

[hew] 28/5/2015 18:23

Crosseyed,

Re royalties, thank you, yes I recall mentions some time ago of numbers. And that they were based on some notional Iodine price, and would be fixed for some period. And indeed were not a major consideration.

As the years tick away (!), it's possible initial contracts have expired and I'm whether wondering the Oil Cos, seeing a nice little business "riding on their backs" at a time of a low oil price might have turned the screws somewhat. "You want special piping, pumps, commitment to supply rates - even a new contract? Ok, but these things cost!" On reflection, it seems strange/wrong that the COS was not broken down more explicitly in the Results and that royalties were not stated as such. My summary question is whether total royalty payment RATES have changed between 2013, 2014, 2015. It would not likely be major amount, but still a fact we should know IMO.

Serratia, Thanks, but those are not the royalties I meant. See above.

[crosseyed] 28/5/2015 17:48

serratia,

Since neither gas nor iodine is presently produced North Central Montana, presumably the royalties to which that clause refers are zero.

I have assumed that "royalties" as referenced in the COS item refer to revenue-sharing for iodine extraction from the Texas and Oklahoma plants.

c

[cyberbub] 28/5/2015 17:21

That seems like a very fair response from Lance about the increased costs? ie. it's just more accurate allocation.

[superg1] 28/5/2015 17:09

Roger

re

'I wonder if IO1 will be re-sited,'

I thought they had more or less said that in the news. I haven't had the time (or energy) to read the news in detail as yet. I thought they said something like many parts will be re-used, so that will be the main functioning parts of the plant, things like pumps may be replaced.

[serratia] 28/5/2015 17:02

Royalties from the admission document -

10. Material contracts
The following contracts (not being contracts entered into in the ordinary course of business) have been
entered into by members of the Group (i) within the period of two years immediately preceding the date of
this document and which are, or may be, material or (ii) which contain any provision under which any
member of the Group has an obligation or entitlement to the Group as at the date of this document:
(a) An Iodine Recovery Agreement dated 11 June 2007 between Iofina Chemical, Inc (“IC”) (1) and H&S
Chemical Co, Inc (“H&S̶1;) (2), pursuant to which H&S granted IC a worldwide, fully paid and
royalty free licence (the “Licence”;) to use certain wellhead extraction technology for separating
iodine from water produced by natural gas wells (the “Technology221;). H&S will also provide IC with
technical assistance in connection with the use of the Technology.
The agreement provides that IC will pay for a prototype wellhead separator, such payment not to
exceed US$100,000, and that it will accumulate mineral rights in North Central Montana and produce
enough water from the wells situated thereon that at least 50 tons of iodine can be produced for the
year starting 1 January 2008.
With effect from 1 January 2008, the first 250 tons of pure iodine produced by IC will be sold to H&S
(the “Required Iodine”) and IC shall make a further 250 tons of pure iodine available which H&S shall
have a first option to purchase (the “Option Iodine”). The price payable by H&S for the Required
Iodine will range between 75 per cent. to 90 per cent. of the market price (as defined in the
agreement).
H&S retains ownership of the Technology and the Licence shall be exclusive to IC unless IC either
discontinues the use of the technology for more than one year or fails to deliver to H&S certain
minimum amounts of pure iodine in each calendar year.
The term of the agreement is 10 years from 11 June 2007 unless it is terminated earlier by a party due
to the failure of the other party to comply with any material obligations as set out in the agreement
within 60 days of notice by the other party. In addition, H&S has the right to terminate the agreement
in certain circumstances as set out in the agreement, including the obligation to provide H&S with
certain minimum amounts of crude iodine in each calendar year.
(b) Pursuant to various oil and gas leases, Iofina Natural Gas, Inc. has acquired from various landowners
the right to explore, drill and produce oil and all gases, including iodine, and to build or use wells,
pipelines and other structures on the land.
In consideration of the lease of the land, Iofina Natural Gas, Inc agrees to pay to the relevant lessor a
royalty of 12.5 per cent. of the market price in respect of all gas produced on the premises and a
royalty of 3 per cent. of the gross amount received by the Group which derives from the production
of iodine on the premises. The term of each lease is five years or as long thereafter as oil or gas of
whatever nature is produced on the premises.

[rogerbridge] 28/5/2015 16:54

I wonder if IO1 will be re-sited, another IO2 built or mobiles used?
If we receive the JV funds, we should know pretty quickly.

Currently, we are actively acquiring mineral rights in three new areas. These areas show great potential even at today's current iodine prices. Having the capability to utilise the Group's fully designed mobile unit at certain sites will provide the Group greater flexibility.

[bobsworth] 28/5/2015 16:13

Email sent:

Dear Lance & George,

I note in the full year results that your labour, manufacturing overheads, raw materials went up from $2.3m to $10.9m. With staff costs only risen from $5.2m to $5.7m can you please explain where this cost increase has come from ?

Many Thanks

....................................................................................................

Reply from Lance:

Lance J Baller

2:10 PM (2 hours ago)

to Tom, me

It has to do with staff allocation being allocated into cost of goods sold (COGS). Once we had a track record of production and really understand what everyone is doing. Iofina Chemical has always done this and it was implemented by the previous FD when switching all accounting to Microsoft Dynamics. While this will effect your GM numbers it does not effect your bottom line. It is commonly used in manufacturing once you can fully understand your staff allocation and the services that staff provides. This will allow management to better manage costs.
Best

[superg1] 28/5/2015 15:31

rh

The last time Cosayach hit trouble the iodine price hit $100 per kg.

In reality the drop was 4000mt. It coincided with the Japanese earthquake.

Since that time Algorta were to head towards 4000mt (2011).

In H1 2013, their last public comment, they did about 1000mt and forecast 3000mt for the year. Then when the price dropped there were comments about a pull back. Their costs back then were $35 to $38 per kg.

Bullmine, little info re them, other than they were on about 600 to 1000mt, but also hit trouble as the price dropped.

Bullmine and Algorta use seawater (expensive).

Q1/Q2 2013 Cosayach had a cunning plan to drill 38 illegal wells. That's about the same number they had closed in 2011. They then went production mad it seems, making up false invoices to avoid $82 mill in tax.

SQM involved in the prosecution for theft of their water and the Chile environment agency charged them re damage to the national reserve (Aquifer depletion). They stole the water that SQM have rights too, BUT if taking that water caused the damage then how can SQM use it.???

Rest of the world negligible increases in production. The biggest addition by far outside Chile is IOF.

Taking the high iodine price period 2011 on.

SQM down about 1700mt of production.

Sirocco about 1500/supply gone now.

Cosayach down 6000 down to under 1800 but then up to unknown (4000 suggested) pre closure of the 38 wells, now they have seawater which will be far too expensive at these prices (ignoring fraud, theft, tax evasion and bribes).

ACF Minera have been maxed out for years on 2000mt.

Bullmine, a nutty family who were said to be on over $40 per kg costs (600-1000mt).

Demand increase 2012 through 2015 about 3000mt.

RB energy/Sirocco DEAD as of just a few weeks ago.

Cosayach fatally wounded but will go down pulling every last trick they can.

SQM battered and bruised with some potential kidney punches to come.

Algorta, Supreme court case pending re the site of their seawater pipeline. They could potentially lose that, which would mean zero production.

Just looking at RB, the SQM production drop, and demand increase that's 6000mt missing, that covers Algorta and whatever extra Cosayach did.

SQM tried to kill off Cosayach in 2001 but for some reason the case that nearly killed them has taken until 2015 to conclude.

$30 per kg is a false market, for SQM to kill off Cosayach. If they left the price higher it offers a lifeline of positive cash flow.

As a handy side effect it put Bullmine, Algorta, and RB energy in serious cash flow troubles.

[crosseyed] 28/5/2015 14:52

hew,

You won't find any specific mention of royalties (or revenue sharing) as applied to the extraction of iodine from brine, likely paid to the operator, landowner and/or lease-holder according to the individual contracts.

superg advised us on this some while ago, going back to the first IOsorb plants. Initial thoughts were about 10% of the export price, then around $28/kg but given the drop in market prices probably less now unless the royalty level has been renegotiated (a question for the AGM?).

In my model, I started with $2.80/kg in 2012 but reduced now to $2.25/kg. My estimated royalties were $401,000 in 2013 and $738,000 in 2014. These are relatively small amounts relative to the total Labour, Manufacturing O/H and Royalty (LMR) charge in the COS. The labour element of production in 2014 was $3,710,561 implying manufacturing o/h of $6,512,600. That does not seem right to me.

Applying the same logic to the 2013 figure, the LMR charge was then $2,322,380 whilst production labour was given as $2,368,000! A bit of a problem there.

Anyway, hopefully Bobsworth will come up with a response from Lance.

c

[rhwillcoll] 28/5/2015 14:44

Given that IOF's iodine production from its current plants has now been "sorted" - which took virtually all of 2014 - with decent and consistent production from the start of 2015 (ie average of 43 Mt per month for Q1 2015 which was a very good result), is it too simplistic to say that all we need to do now is to wait a little longer for the iodine price to recover, and for its "gearing effect" on our profits?

Is it not as simple as that, now that the production and consistency headaches have been sorted? Sure, we can then do further plant rollout, but the hard work and expense of 2014 has placed us in an excellent position for good profits without needing to do anything more?

[serratia] 28/5/2015 14:20

B,

Thanks.

[bogg1e] 28/5/2015 14:04

serraatia, they are referring to the shale/gas potential of their acreage, that is where any exploration would be. The io sites are not exploratory. They have already been explored and drilled by an oilie and the resultant brine goes to the Io plant. So im sure Iofina are only referring to exploratory drilling on their land assets which is the atlantis asset.

[hew] 28/5/2015 13:54

Thanks for responses re royalties. Searching that word and "royalty" brings up the single relevant line:

Labour, manufacturing overhead and royalties 10,961,181 2,322,380

So no clue there. Really must find time for proper read.

[serratia] 28/5/2015 13:29

Bogg1e,

My risk comment wasn't focused on Atlantis this was the comment from the results -

Principal risks and uncertainties

Iofina plc is subject to a number of risks and uncertainties, which could have a material effect on its business, operations or future performance, including but not limited to:

Exploration: Exploration for resources involves significant risk. There is no assurance that commercial quantities of resources can be recovered from the Group's current acreage or that resources will be discovered from the Group's future acreage.


I may be wrong as they don't go into further detail but I read it as all existing licences.

[woolybanana] 28/5/2015 13:25

Monty Panesar, many thanks for the information.
A supplementary question or two if I may, please chaps?

As I see it, a huge chunk of the profit has been eaten up with exceptional impairment charges, but the closing of Io1 actually took place in 2015, so why is it not scheduled to be carried as an impairment charge in that year? Is this just a means of getting all the cr*p out of the way, cleaning the sheet so to speak? Surely it might have been better to spread the writeoffs and increase the profit shown?

Much is made of the raw iodine market price, but surely Iof is not really so concerned as its major sources of income are on high value added iodine products or derivatives, which would dilute the raw material cost element substantially?

[bobsworth] 28/5/2015 13:22

Email sent:

Dear Lance & George,

I note in the full year results that your labour, manufacturing overheads, raw materials went up from $2.3m to $10.9m. With staff costs only risen from $5.2m to $5.7m can you please explain where this cost increase has come from ?

Many Thanks

[monkeymagic3] 28/5/2015 13:14

I don't know that at all roundup.

Che, that's just cuckoo. People just keep changing "whats important" based on whatever the last disappointment was that presented itself.

[roundup] 28/5/2015 13:11

Monkey. Talk of your glass half empty. You know we are 95% sure of a positive result--maybe more.