Iofina Share Discussion Threads

[crosseyed] 27/4/2014 13:57

Here is another conundrum from the .

Note 5 Staff numbers and costs states...
Of the total staff costs above, $2,368,023 (2012: $635,429) is included within cost of sales

Note 4 Loss before Taxation / Cost of sales - analysis by nature states...
Labour, manufacturing overhead and royalties $2,322,380

This is the sole line item that cites people costs, yet though it also includes manufacturing overhead and royalties, the figure is less than indicated in Note 4 just for staffing costs.

Furthermore, presumably royalties are essentially revenue-sharing with operators and leasors. Assumed at 16% on the annual IOsorb production of 171 mT, my estimate is that they would amount to $1,347,000. There may also be further patent payments involved for derivative products. And then there are the manufacturing overheads.

Can anyone offer an explanation?

Thanks,
c

[bogg1e] 27/4/2014 13:47

crosseyed, i had a look at the site posted for one of IOFs customers, the chemicals reseller and they show the chemical makeup of the iodine derivatives made by Iofina, even a quick glance at the molecules shows that the iodine is clearly the major component in the molecule. Now i was always useless at chemistry and my brain collapsed when confronted with "moles" and how to calculate the weight of a molecule (im sure you all remember o/a level chem at school! eeek.) To say that 75% of inventory is iodine is at first glance probably very fair. Its just a pity we don't get a breakdown of each chemical they make, the percentage of iodine required per gram per chemical and most importantly the value/markup of said chemical.

[bogg1e] 27/4/2014 13:38

Thanks chaps. Much appreciate your feedback, i must admit im beginning to feel easier now. The last week has given us some nasty shocks, which im only just beginning to think i can stop worrying about!

[naphar] 27/4/2014 12:31

Mortie

I would go with what IAS2 states rather than believe the assertions of a poster on here. Except that iof must meet accounting standards and their account tell us how they value the inventory. They are NOT valuing it at sales value, but but cost value, unless realisable is for some reason below cost. That would probably only be the case if the raw iodine price fell somewhere below $30/kg.

[crosseyed] 27/4/2014 12:16

mortiel,

I go by what IOF state in their Annual Report under Notes Accounting Policies which both naphar and myself have posted above, but here it is again...

o) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost includes all expenses directly attributable to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity. Costs of ordinarily interchangeable items are assigned using the first in, first out cost formula. Net realisable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. When inventory is sold the cost is included in Cost of Sales on the Statement of Comprehensive Income.

That would imply that normally iodine produced in-house would be valued for inventory at the IOsorb opex, unless the market price happened to be lower. I don't think the latter was the case.

c

PS That raises an interesting point.
For IOsorb produced iodine, the production cost "based on normal operating capacity" seems to be about $28/kg, well below market price of ~$45/kg.

However, for bought-in iodine at market price, possibly 3 or more months earlier, its value by year-end will have fallen so it would be valued for Inventory:Raw Materials at that lower valuation.

[mortie1] 27/4/2014 12:02

Uuum, who to believe Masurenguy, or IAS2 where it states specifically that "producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products" may value such inventories at net realisable value.

[crosseyed] 27/4/2014 12:00

Masurenguy,

I think work in progress and finished products refers to stocks of derivative products, not the raw materials. Both bogg1e and I were concentrating on the raw materials in order to estimate stocks of raw iodine.

As has been pointed out, raw materials would include materials other than iodine. I made an arbitrary guess that 75% of the raw materials valuation (of $3,419,291) might be crystallised iodine. See post 20196.

c

[masurenguy] 27/4/2014 11:44

"Inventories are stated at the lower of cost and net realisable value."

That is standard accounting practice for any business and in the vast majority of cases that means inventory is valued at cost. Where net realisable value comes in is usually where a company has a
slow moving product which it decides to sell at a price below cost in order to liquidate it and turn it
into cash. This is normally agreed as a write-down with the auditors when year end inventory is determined. Inventory is never valued at any potential resale price above cost even if you have a contract in place to supply a customer at an agreed price. Such inventory is still valued at cost in the accounts until it has been shipped and invoiced and then it becomes a sale with a gross margin.

[naphar] 27/4/2014 11:35

Mortie you may be right in general but the accounts state for iof :-

Inventories are stated at the lower of cost and net realisable value. Cost includes all expenses directly attributable to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity. Costs of ordinarily interchangeable items are assigned using the first in, first out cost formula. Net realisable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. When inventory is sold the cost is included in Cost of Sales on the Statement of Comprehensive Income

[mortie1] 27/4/2014 11:14

Whether or not inventory of Iodine is valued at cost is not so cut and dried. IAS2 has the option (maybe an obligation)for mineral producers to value their inventory of mineral at net realisable value.

"Also, while the following are within the scope of the standard, IAS 2 does not apply to the measurement of inventories held by: [IAS 2.3]

producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products, to the extent that they are measured at net realisable value (above or below cost) in accordance with well-established practices in those industries. When such inventories are measured at net realisable value, changes in that value are recognised in profit or loss in the period of the change."

[cyberbub] 27/4/2014 10:14

PS assuming they don't sell them at a loss! :-)

[cyberbub] 27/4/2014 09:46

The figures they are quoting for 'inventory' clearly include both raw materials and finished iodine - it says so in the notes.However - quite clearly, on the assumption that raw materials are quoted at cost price (obviously), and finished iodine also at cost price (by convention - this is not definite), then ANY figure shown will represent a higher revenue figure when sold.

[superg1] 27/4/2014 09:38

The suggestion is io2 has more brine than it can handle and a clear reference to i02 having similar frack disruption (now finished) last year. So as we go forward the disruption cycle will end for each plant. For any future plants it would seem sensible to target suitable sites with frack disruption complete.

That's where mobile pods come into their own as they target brine before it enters the swd pipeline network.

[crosseyed] 27/4/2014 08:44

Bogg1e,

Did I not do exactly those calculations to estimate iodine inventory in post 20196 with the reasoning fully explained, including the point that Raw Materials valuation would include materials other than iodine?

As regards inventory valuation, the notes to the accounts state...

o) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost includes all expenses directly attributable to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity. Costs of ordinarily interchangeable items are assigned using the first in, first out cost formula. Net realisable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. When inventory is sold the cost is included in Cost of Sales on the Statement of Comprehensive Income.

c

[masurenguy] 27/4/2014 08:42

Bogg1e - good summary in post #20199 above. A couple of observations.

1. Receivables - since they are expanding production capacity it would be perfectly logical for them to factor their receivables at this stage of development. It is better to take a short term hit on the gross margin than to dilute existing equity further by more fundraising.

2.Inventory - this will always be valued at cost, not any possible future resale value. However your weight/valuation calculation is just based upon the raw material figure of $3.4m and does not take into account WIP or FG. The real figure is consequently $6.9m in stock although there is no indication what proportion of this may represent bought in product or other material.

Raw materials 3,419,291
Work in progress 1,875,705
Finished goods 1,607,231
------------
6,902,227

You have also highlighted a key factor at their current stage in terms of this years performance. "If collectively, IO plants can produce about 1 ton per day then we should be ok and not have to buy in iodine, but it all relies on optimum performance from Io1 and 2." Although there is further capacity in the pipeline going forward this constitutes a critical factor in the current fiscal year. Management need to start delivering not only to achieve performance targets but also to rebuild credibility!

[naphar] 27/4/2014 08:14

Bogg1e
in addition to my last post, I think that IO2 is with a different operator to IO3-6 . No idea if we could pipe that brine to one of the other plants. I would hope that brine ownership issues etc are not too hard to overcome. Let's face it, not all oilies use their own SWD Wells.

[naphar] 27/4/2014 08:04

Bogg1e
on the iodine inventory, your maths logic is good. But don't forget that the raw materials in inventory will include lots of other raw materials not just iodine. That said, the work in progress and the finished goods in inventory will also generate revenue in the following months.

In regards to water going down the IO2 SWD well, we don't really need to extract it. If we could just pipe the excess to another SWD where we have a plant that would be a better solution.

[bogg1e] 27/4/2014 01:15

Owenga cheers. Please feel free to correct me people, but if we have say $3.5mil valued on production costs, say $28,000 per ton, then $3.5 mil/$28,000 = 125 tonnes. I know im not using exact figures, im just demonstrating the point. If the value of the iodine was calculated at resale value, say $42,000 then $3.5 mil/$42,000 = 83 tonnes. Now 125 tonnes would provide IOC with enough iodine to last 4 months. That would be very reassuring.

In regards to IO2, processing 30k bpd, the other 20k bpd going down SWD. Is it not possible to extract this brine from the SWD for processing??

[owenga] 26/4/2014 23:41

BoggleNo idea how much iodine stocks we hold, but it is normal accounting practice to value stock (of iodine) at cost rather than sale value. Hope that helps in your calculations.

[bobsworth] 26/4/2014 23:00

Thanks RUGTAT2 for clarifying the situation.
Just shows George has not got a clue!
" IO#6 plant to a location adjacent to IO#2" = 8 miles!

[rugrat2] 26/4/2014 22:27

Bobsworth. Re your post this morning about the location of IO#6, look who signed off the RNS's and created the confusion. To put this subject to bed, the answer can be found in the GPS data of the website photos - Exif data. The four plants IO#3-6 are all with Chesapeake and fulfill the four plant contract mentioned in the last Half Year Report. They are in number order at the Mississippi, Euphrates, Campbell and Rio Grande swd wells. So IO#6 is in fact about 8 miles NE of IO#2. IO#4 is a further 2 miles away across the Salt Fork Arkansas river and is the farthest plant from IO#2.

[bogg1e] 26/4/2014 22:03

Thanks chaps.

[monty panesar] 26/4/2014 21:38

I imagine/hope they are. Just after the Q1 figures it would be good to know they are over 1t.

[superg1] 26/4/2014 21:19

Monty

Are you sure they aren't over 1mt per day already.

I think the forecast is to cover the fears some raise anyway.

As we said, simple changes are often the key to results.

[bobbyshilling] 26/4/2014 20:39

The water permit approval is now much more important than previously. Approval means serious cash flow relatively quickly this year, (compared to what we expected from iodine at this moment in time), and will go some way to offset the lower iodine production. It will also mean we can apply for a second water permit somewhere else with a larger degree of confidence and the improving cash flow will enable a relatively financial worry free deployment of mobile units. The water is pretty much a huge business in it's own right, especially if one considers the potential from the aquafier we are sitting on.

I noticed that che7 posted earlier that a delay seems to be the norm - let us hope so. I don't mind a fund raise if required, even if it means more shares in issue if they have to go down that route, to get the water business up and running as soon as we can, should we get the permit. Thereafter, any slight delays or surprises from the iodine side won't be so drastic in their affect on the company or the share price

The future revenue from water, and especially in the immediate future, is of great importance, and is classed as non-core by name only. In this connection, I feel we should have been given details as to WHY the application has failed so far, especially given the confidence expressed in previous rns's .