Iofina Share Discussion Threads

[crosseyed] 29/5/2014 20:17

sg1,

I couldn't agree more :}

But presumably you refer to inventory of raw iodine. As it was intimated that direct sales of raw iodine have commenced, and the IOsorb plants produced so little during Q1 (47mT and a further 21.8 mT in April), there will certainly be a drawdown of raw iodine.

One hopes that there is a similar demand, over and above the "delayed order" from 2013, for the high level of finished product inventory and the work-in-progress that would have moved into that category.

As I said, I firmly believe that Mr Baller will be restoring tight control.

c

[spike_1] 29/5/2014 20:11

Thanks sg, a lot of very interesting info' - interesting times!

Best wishes - Mike

[superg1] 29/5/2014 19:52

Cross

With the production level for Q1 I was very glad to know that IOF had a decent iodine inventory levels as H1 tends to be the busiest time for the chem div.

[crosseyed] 29/5/2014 19:45

naphar,

Yes, I was very well aware of the RNS re the reason given for the shortfall in revenues.

You raise a good point about the flow of sales into accounts receivable and therefore the revenues may not have moved into free cash by the end of March. I do take that into account in my model though with the assumption of a 2-month lag, ie somewhere between 30 and 60 days between invoiced delivery of goods and the payment for such. Given the low cash level at the end of March, that would suggest quite a long delay.

I still think that the inventory was far in excess of any explanation relating to a delayed order.

However, in the fullness of time, it is not too relevant:} But the shortfall in revenues due did have a rather negative effect on the share price

c

[swsmith20] 29/5/2014 19:30

sup.... thank you for your reply, really appreciated. :)

[superg1] 29/5/2014 19:18

SWsmith

Basically chile cover about 60% of world iodine production and thus Chile producers control the price.

Post Japan earthquake (Japan 20% of the supply) the iodine price took off from around $25 - $30 to $100 per kg. The earthquake coincided with Cosayach getting caught out. Cos lost 4000mt. Meanwhile Algorta was building up steam as a new entrant and claimed they would do 3000mt last year.

Meanwhile Cosayach got some water use back. In the last few weeks I have been asking around re who has been selling cheap iodine. Cosayach were suggested as the cheap iodine supplier desperate for cash with a guesstimate that they were up to 3,700mt.

In the price hike Chile smaller players hiked up output to cash in, but it ended up with an over-supply situation. In the 2/3 years Chile costs have soared and hence the large SQM started to pull back on production v a big claim they were going to expand.

Sirocco suspended their ALP too, taking their total form 1600mt to 1000mt, but they had a target for 2000 plus this year.

It looks like SQM have dropped 2500-3000 mt of production going on recent reports.

Ben Isaacson (scotia bank) an expert in the sector stated in the SQM conference call the other day that all but one Chile producer has pulled back.

All this happened very late in 2013 so it has yet to impact the market.

Doing the maths

SQM plus Sirocco means 3000 to 3500 gone from the market. 2013 demand 2% up (600mt) and 2014 predicted around 1000mt.

So by the end of this year a 5000mt gap should appear.

Cos and Algorta had been filling the gap but if Cos are on the rocks then suddenly the gap is left open with no one able to fill it. SQM have fired over 800 staff and closed mines, they are not financially viable. There is no quick fix supply method in the iodine industry.

Sirocco (RB energy) have 800mt sitting in their inventory, but that's only a few months worth of Cos production.

So it's a wait and see now to find out if Cosayach production has been hit hard. If it has the cheap iodine supplier disrupting the market just got the boot.

So a very interesting development which may impact the iodine market.

Nothing is certain yet but the initial read suggests Cosayach production may have just been hit very hard. Hopefully media reports over the coming days and weeks may support/quash the theory.

[che7win] 29/5/2014 19:01

Superg,
That is indeed good news, this along with the earthquake previously drove prices up.

[superg1] 29/5/2014 18:55

"The prosecution also ordered the closure of 38 wells affected and Negreiros Cala Cala."

Just spotted the closure of 38 wells AND "Negrieros cala cala"

From the USGS mineral year book 2012

Compañia de Salitre y Yodo (Cosayach) had a capacity
of 7,500 t/yr of iodine from its three Chilean operations-
Negreiros (40%), Soledad (40%), and Cala Cala (20%)

So if I am reading that right, 60% of their original operational capacity and 38 wells have just been ordered to close down.

[swsmith20] 29/5/2014 18:44

sup. ... please excuse my ignorance, this news you quote, this is good news for iofina

[superg1] 29/5/2014 18:42

Furthermore, defendants Francisco Javier Errazuriz, Waldo and Alejandro González Bravo Puelles accepted the conditional suspension of proceedings, in addition to the closure of the water wells, which will be supervised by the prosecution to corroborate compliance SOYIQUIQUE ..

I'm just wondering what "conditional suspension of proceedings" means when it says "in addition to the closure of water wells".

Suspension of proceedings is a court term but I'm wondering if it means suspension of Cosayach operations.

It is a translation from Spanish to English so guesswork.

The last time they had that many wells closed they lost over 4000mt. That's more than they do now with more wells than before closed.

An interesting piece of news.

[monkeymagic3] 29/5/2014 18:37

Are you serious?

[cyberbub] 29/5/2014 18:36

Where is the AGM?

[naphar] 29/5/2014 18:27

Cross
if you remember, the profit warning announcement told us they would not meet 2013 revenue expectations because they had not been able to complete the order. To me that implies work in progress and finished goods, maybe even raw materials will have been in inventory at year end. The relevant rns quote is below.

We also do not know when it was sold, but it will have moved from inventory to accounts receivables before coming in as cash. I expect to see the flow to cash in the H1 figures but the best way to understand may be to ask at the AGM if you are going.


"This is due to expected 2013 shipments at Iofina Chemical now being delayed into 2014. External iodine sales which were previously expected in 2013 are now expected to commence in 2014, resulting in an inventory build-up."

[superg1] 29/5/2014 17:54

Still skimming through but it looks like potential significant news.

Back in 2011 20 illegal wells were found and 33 ordered to be closed down in 2012 as a follow on from all of that.

Cosayach crashed from over 6000mt to under 2000mt.

About a year ago they got some more rights, but I also heard recently they were back on illegal extraction.

The suspected amount they were doing recently is 3700mt plus.

Now it seems the authorities ordered by the judge yesterday are going to shut down 38 of their wells.

No need for the 150 rule it looks like Cosayach have just been stuffed.

I'm wondering of that may prove to be an eventual fatal blow for Cosayach. I note the claim is that the illegal extraction affected SQM's legal water rights.

[crosseyed] 29/5/2014 17:50

naphar/cyberbub, Thanks.

I certainly assumed that iodine was being bought in right up to the closing months of 2013 when it was stated that IOF had become self-sourcing. But also the levels of inventory reported in the annual reports, translated into volumes of equivalent original mT of iodine using my cost assumptions, provided guidance as to just how much might have been bought (2012:166mT, 2013:141 mT) to add to the stated IOsorb production (2012:10mT, 2013:171mT) plus 5mT/mth assumed from re-cycled liquids. That suggests eoy inventory of raw iodine of 2012:28mT and 2013:92mT. But those figures are very much dependent on my cost assumptions for IOsorb and IOChem processing and the monthly production schedule.

What is certain is that inventory is far too high and ties up maybe an extra $3 million in working capital. Even though "a large order" was in the pipeline (and an earlier poster wondered where was the evidence that it had actually been delivered - I note that free cash was stated to be $2.3 million at the end of March from $8.269 million including short-term investments at y/e 2013 though maybe some capital still remained invested at that time), I don't think that adequately explains why all three categories of inventory seem to be excessive.

However, I remain firmly invested and optimistic that Mr Baller will restore order.

c

[cyberbub] 29/5/2014 17:37

Biggish delayed trade gone through, 95K at 56p, almost certainly a buy as I dont think a sell that size would have got 56p?

[superg1] 29/5/2014 17:33

He he ! the daily trawl just got a hit.

Tarapacá: Convicted manager Cosayach robbery of waters in Pampa aquifers

Remember the main problem in Chile with low prices was Cosayach who were ramping up production, and under-cutting prices to get cash.

There was also a rumour that they were back on water extraction to levels beyond their allowance.

Well one of their managers has just be sentenced to 61 days in prison for historic stuff AND the judge has ordered the closure of 38 wells as of Yesterday.

The last Cosayach fall off a cliff was down to the authorities closing their wells, it coincided with the Japan earthquake.

THIS SEEMS TO BE CURRENT

"Next to him, the accused Francisco Javier Errazuriz Ovalle, Waldo and Alejandro González Bravo Puelles Ocaranza accepted the conditional suspension of proceedings, also setting as one of the conditions, closure and blinding of water wells, leaving the prosecutor in charge of supervising the compliance"

That may well be major news but needs a bit more work. For now it's seems as if Cosayach production has just been hit hard and may well affect the market.

[cyberbub] 29/5/2014 16:57

Yes I remember mentioning this at the last results.Having large stock has an upside and a downside. The downside is that it ties up working capital, and might indicate some issues with production processes or management. The upside is that assuming it does begin to shift, it will release a very welcome additional cashflow to help the company stay afloat.We will no doubt see soon, but I am confident that it will be towards the top of Lance's To Do List.

[naphar] 29/5/2014 16:50

cross, maybe it relates to that large end of year order.
they also purchased in a alrge amount of raw ioding at some stage, to cover in case of production issues. I don't know how much they ordered in, or if they used it all or kept it etc.
I think the half year numbers may give some indication as to what happened. I would certainly hope for some reductions.

[crosseyed] 29/5/2014 16:28

Something that has concerned me, and certainly commented on here by others, is the high levels of inventory reported at the end of 2013. I have made a stab at estimating how much the stock in each category represents in terms of months of sales, as shown in the following table:Months of InventoryAnnual/Year-end Values ($M)Value-based months of stockVolume-based mths of stock20112012201320112012201320122013Cost of Sales13,72015,14515,830Inventory3,1534,0566,902::Raw materials5381,6943,4190.471.342.591.413.50::Work-in-progress9261,3061,8760.811.041.421.111.75::Finished products1,6891,0551,6070.600.841.220.791.30Firstly, I have estimated months of stock on the basis of average monthly sales at cost, ie the total Cost of Sales in each of the past three years divided by 12. Thus, Raw Materials (which includes both Iodine and other materials used) increased from 0.47 months in 2011 to 2.59 months at y/e 2013. I am assuming that this is predominantly stock held by IOChem for production of derivatives, though it may also include chemicals held at the IOsorb plants. As far as we know, none of that was destined for direct sales of raw iodine since it was only at the end of 2013 that IOF became self-sourcing for iodine. That is a big ramp-up in stock.The most surprising increase was in stock tied up by work-in-progress. The implication is that the production cycle at the IOChem factory has increased from about 3 weeks to 6 weeks. Even 3 weeks is more than I would have guessed.Finally, stock of finished products awaiting sale has also doubled.I have also shown a second set of estimates based on volumes of stock at each stage. Those figures are derived from my own monthly model in which I define "volume" in terms of original metric Tonnes of raw iodine used in the production process whose unit value is increased through each stage of inventory. During the period, the unit cost of raw iodine has been gradually decreasing as the supply form IOsorb plants has increased, and incidentally the unit cost of bought-in iodine has also decreased. That means the volume of stock held in inventory per $ of value has increased.My model evaluates respective volumes and unit values through the production cycle, ie Raw Materials -> Work-in-Progress -> Finished Goods based on assumptions about IOChem production and final sales on a monthly basis, tuned to match the reported cost of sales and the various levels of inventory. Thus, I arrived at the production-volume-based estimates of months-in-stock shown in the second part of the table. As might be expected, they are somewhat higher than the sales value approach.The conclusion is that there does indeed seem to be far too much value held in inventories, perhaps about $3 million above what might prudently be required.c

[naphar] 29/5/2014 15:53

No dig,

Engelo is talking about what he thinks may be possible if brines are only interrupted for 90 days, based on his assumptions as to plant potential.
He is suggesting that they could produce 582mt + what was produced in Q1. Actual production, not run rate.

I agree with you though, until the company tell us otherwise, the target is 400mt. Looking for the proof we seem on tack for that next week.

[diggulden] 29/5/2014 15:49

Worth remembering, 400MT is the target production rate for this year, Engelo is talking about target run rate for the end of the year, two completely different things.

FWIW, I think 400MT for this year is achievable in terms of production, in terms of run rate, I have no idea, too many variables to consider to even put a guess on it.

[cyberbub] 29/5/2014 15:38

Doesn't seem unreasonable, 600MT certainly feasible if everything goes right... which it may or may not do, of course!I do get the feeling that Lance is prudently underpromising with his 400MT prediction...Meanwhile I can sell 50K shares in one go, above the bid price...GLA NAI

[engelo] 29/5/2014 15:25

Bobsworth: thanks for info re 90 days. Should have a good Q4 then with fracking barriers removed.

Fag packet calc of 2014 production rates I01+2 31 Mtpm; I03 say 5 Mt Q2, Q3, 20 Q4; I04 5 Mt Q2, Q3, 20 Q4; I05 5 Q3, 20 Q4; IO6 5 Q3, 20 Q4.

Gives (April 22 Mt), May 40, June 40, Q3 50 pm, Q4 110 pm

Adds to Q2 102 Mt, Q3 150, Q4 330

Total for 2014 582 Mt (plus whatever Q1 was).

Please correct any unreasonable assumptions, too high or too low, tia.

Let's hope iodine price firms by Q4 which would be perfect timing for us.

There's always the chance that the minis will come on stage, too. Hoping for a general update next week as well as May production figs :-)

[superg1] 29/5/2014 14:50

Little M

Mid May the register suggested there was so it was a wait and see to see if shares became tight confirming the thoughts.

Obviously the sentiment and chart is predicting progress.