Iofina Share Discussion Threads

[sancler] 19/8/2014 20:23

Bogg1e, superg1

Thanks

So no "risks for nasty surprises" there then.

[serratia] 19/8/2014 20:18

Just playing with some figures, feel free to pull them apart.

If someone paid $100m for 800 tpa output at around todays Iodine price that's just under £75k / tpa. 1 tpa is around £24k/yr sales. They paid roughly 3* sales. Now you would expect to pay a multiple of cash generation rather than sales but on sales alone our present share price equates to an output of roughly 1000tpa. Now if our costs are say half the original sellers costs that would increase cash generation so maybe 500tpa is the balance for us at our present share price.
If all that makes sense that's around 12.5p/100tpa. Doesn't seem far away, feel free to correct any errors.

[superg1] 19/8/2014 19:27

Scancler

That is a slant on the original 'under the radar stance' as others could have gone for brine leases to block IOF.

But first you need to know, which brine has commercial iodine in it and IOF have 3000 plus samples. Then comes tracking down at least 55% of the leases owners for a particular SWD. Finding lease owners is not easy. Then you have to find a brine lease lawyer, which are more or less confined to Oklahoma. If someone like IOF tied up most of them (would they do such a thing) then those lawyers by conflict of interest can't help.

If I was IOF I'd have included a certain lawyer that did work for the existing producers that secured leases long back, so that he can no longer help. :-)

So on the point of paying off Oil and gas companies, what is twice as much, 3 times, or whatever it takes.

I'm sure io2 is a fantastic plant that on song will do over 300mt or more.

But consider 150 mt over say 20, 30 years that the brine will flow. With an average price over that period of $60 which in theory is very low considering those forward dates. 10 to 15% royalty in a total of 3000 to 4500mt.

Taking the mid range production 3,750 mt giving a royalty of $22.5 million

Now make that 10 plants at a total yearly rate of 1500mt, $225 million over 25 years.

Double it $450 mill, need I go on.

IOF say there is 19000mt of iodine going down wells each year in Oklahoma.

Then consider IOF are in with many Oil and gas companies, including, I believe, Chesapeake, Midstates, Sandridge, Devon and high something or other which amounts to millions of acres.

Don't forget 2 of Exxon, Conoco, and Chevron and most of the top ten. I believe that is in IOF news somewhere. Devon come in at number 10, the other ones we know of in OK don't appear in the top ten.

It is all far too complicated and costly. The point you raise is exactly why IOF have been gaining sites far in excess of what they need, to add protection and value, to defend against any cheap T/O. They were worried about SQM a year or two back and Toyota but they were not paying attention.

I bet they are now.

If io2 can do 250mt for the next 15 years at a $60 average it will have created $225 million of revenue from about a $3 mill outlay.

So rather than pay a huge amount to block them it's surely best to just buy them.

1500mt 20 years @ $60 = $1.8 billion in revenue.

Spend $30 mill for more plants/pods for another 1500mt and you get another $1.8 billion revenue over 20 years.

The wells others in the area have been working off, have been going for 25/35 years. Japan has been extracting from it's source for 50 years (now in decline.

IOF mentioned that they have over 100 potential sites, and that number will be growing.

100 sites x $3 mill average be it pods or plants = $300 mill, 125 mt per site 12,500mt

Toyota forked out over $100m in payments and funding for what looks like 800mt per year for them at opex costs near the current iodine price.

SQM current rate around 8500 to 9000 mt with seawater needed. They need to spend $635 mill for their move.

So it would seem on the maths O and G companies if they have a calculator, would laugh them off.

Not excluding the fact you would have the Japanese and Chileans trying to scupper a fellow US company, a company that may well by then, be supplying your Bakken frack water.

The 19000mt comment refers to OK only, you have Texas, California, Wyoming and Montana to add to the list.

[bogg1e] 19/8/2014 18:56

Sancler,

"Let's say I wanted to buy IOF on the cheap. I offer the O&G cos twice as much as they're getting from IOF for the brine in order to stop them supplying brine."

No because the land leases obtained by Iofina also include ownership of the brine, in perpetuity, so the O&G cant sell it because its not theirs to sell. They own the oil and/or gas, but because the brine comes up with their oil and/or gas, Iofina pay them a fee for linking an iodine production plant into the pipeline which delivers the brine to the Salt Water Disposal (SWD) well.

[crosseyed] 19/8/2014 18:46

freshvoice,

An american billion is always 10^9, ie a thousand million.
In europe, it used to be 10^12, ie a million million, just as a trillion is 10^18, ie a million million million. In fact there is an english word for a thousand million, ie a milliard. Unfortunately, europeans have caved in to the american definition, largely because their $ economy reached their "billion" long befor any other.

SG's calculations use the american version.

c

[sancler] 19/8/2014 18:11

superg1 and 1MadMarky: thanks, but ...

Let's say I wanted to buy IOF on the cheap. I offer the O&G cos twice as much as they're getting from IOF for the brine in order to stop them supplying brine. I don't want the brine but I'm prepared to pay that much (or three time, or whatever it takes) just to drive the price of IOF down. And I tell the O&G cos that "normal service will be resumed" with perhaps a marginally better price than originally, once I get my hands on IOF. The balance of economic advantage for the O&G cos then shifts.

My guess is that sort of "blockade" would not take too long to have a major effect on IOF.

It's an extreme scenario, I know. And it's nasty. But not all plyers in the market are nice.

So my question remains. Is that scenario simply impossible for technical, or legal, or some other reason/s?

[freshvoice] 19/8/2014 18:06

Super
Re Helium
Is an American billion. A thousand million or a million million?

[1madmarky] 19/8/2014 17:20

Brine supply security is an issue, but the oil and gas companies are getting their water disposal costs paid for by iof so why would you risk losing money for nothing?

[superg1] 19/8/2014 17:14

Sancler

re

The O&G cos are in it for the money. On an immediate view, I understand that it is advantageous to supply brine to IOF because they get a rake off. But if, taking a longer term view, it was (or could be made to be) advantageous for them to strangle IOF, what legal safeguards are in place to stop that happening? Do the various leases, agreements, whatever preclude them just turning the brine off (so far as IOF is concerned) other than temporarily, for "good cause"?

IOF are simply putting plants where Oil and gas companies are already pumping brine down wells at a cost to them. The recent focus of oil companies is to drive down costs, so what better than someone reducing your water disposal costs.

The brine will be going down the well with or without IOF there, if they turn it off, they also lose their oil production. In OK the water cut can be up to 10 times the oil production.

So it's a choice of revenue or no revenue, as there is no one else to go with.

The frack boom is in play and has disrupted things, but it also adds large amounts of brine to that going down wells in OK and they will move onto areas away from plants.

Mr B will do, I have had comms with some in the business in recent times and it is a hot sector at the moment.

I understand many companies were at that recent Helium auction and got a nasty shock re the prices bid, having paid $85 to $95 last year and then to get hit with $130 to $180 per Mcf caught a few out. 10 plus companies missed out with 1 taking 10 of the 12 lots.

They have had it easy for years re the federal reserve as it was a bit of a closed shop, they'd wander along, get it cheap then sell it on for a big mark up.

Airgas raised their prices by 20% at the start of the year as the federal reserve said prices will be going up from the 85-95 range.

I'll sort a post on the topic, which should be big news in the coming years.

Weil suspect they have 2 billion cf on the land of Brainstorm (6,500 acres). In theory there is round 5-10 times that acreage that should be over the helium on the Sweetgrass arch, and most of it as far as I can see will be IOF leases.

2 billion cf = $310 mill on that mid price at the auction.

[mister big] 19/8/2014 16:47

Sg - I know this is being incredibly lazy but could you do a full post on helium and the prospects ( I went searching through usual sources and they say helium is red hot market at the moment ) .
Be interested in your views on what you know about IOF on helium.
Thanks Arron
It's interesting but I the diamond market where we have see. Big increases demand for buying land rises ex potentially . Dead properties in South Africa suddenly have value

[sancler] 19/8/2014 16:28

Brucie5: "what are the current risks for nasty surprises?"

The one thing that concerns me is the security of the brine supply. A lot of the recent disappointments was due to unexpected disruption of the brine. I don't doubt it was for perfectly legitimate reasons. Nor that, with better forward planning on IOF's part, the effect on production might have been less. But what long term guarantees are there that supplies will be maintained?

The O&G cos are in it for the money. On an immediate view, I understand that it is advantageous to supply brine to IOF because they get a rake off. But if, taking a longer term view, it was (or could be made to be) advantageous for them to strangle IOF, what legal safeguards are in place to stop that happening? Do the various leases, agreements, whatever preclude them just turning the brine off (so far as IOF is concerned) other than temporarily, for "good cause"?

Reassurance on that point would be welcome.

[bogg1e] 19/8/2014 15:13

When the chilean mining crisis kicks in the profitability per mini would go up quickly, as would the time taken to recoup captital outlay. On $50 per kilo, payback would take about 4 months and pay for another two to three. on $60 payback is about 2.5 months and could pay for an additional four. Given that when pods are expected to be put into operation will coincide with a supply squeeze due to chile, im expecting the iodine price to be much higher than the $42 per kilo IOF currently get for their iodine.

[brucie5] 19/8/2014 15:13

Yes, thanks all. Will continue to monitor and very possibly add in due course.

[bogg1e] 19/8/2014 15:08

Little mistake sorry. I mentioned above that a mini pod on 100 tpy could pay for itself in 6 weeks. Big mistake, thats a stat from my other key holding, quadrise, they have a 6 week time frame for 100% return on capital. With a pod that would be on current prices, about 5 months to pay back a pod and could pay therefore provide enough net revenue per year to buy an additional 1.5 pods. Still good growth potential though. Again, big apologies.

[cordone] 19/8/2014 14:51

SG1 and Bogg1e,Many thanks for all your excellent insights without which we'd all be significantly less well informed. Have you picked up on the regular trades of 227 nibbling away. Bot buying?

[superg1] 19/8/2014 14:41

Brucie

I'll put the positive side as it may negate negatives envisaged by many and will include negatives, which includes those of a few years back that have been wiped out.

The iodine market is solid and had seen growth of around 3.5% for over a decade.

Negative. A complete reversal of the frack boom , that is highly unlikely as the US relies on it for energy independence, a point they crave.

Even then there was already 1.2 billion barrels per year going down wells in OK well before any boom, it's just no one had allowable tech to exploit it (Arysta tried).

Much the same in Texas, where there is even more water well before any fracking.

On top of that there are iodine rich gas wells shut it, which can be acquired.


An old (just a few years ago) negative was cheap Chile production but that has been wiped out and evidence in detail.

Chile and Japan do 90% of the worlds iodine, Japan's resource is depleting. Iodine is scarce worldwide, more scarce than gold in commercial terms.

Negative

Someone else enter the market in the US. The IOF patent and contracts protect that, they have cornered most of the market and no one has viable tech or any obvious plans to enter the US etc.


Water

New technique for fracking in North Dakota and Montana. That was suggested by some 2/3 years back but the result is slickfracking which uses a lot more water has just taken off in the last few months and companies plan to use it as a preferred method.

So the basics of demand and costs are there.

They sit on approx. 300,000 acres of the 3 forks, which only in the last year was declared oil-charged, so that is potentially a very nice future surprise.

As Bogg1e points out, and as we experienced, the biggest risk short term is the quality of the team running the company. By the end of the year as things expand and embed themselves I don't see that as an issue.

Even a crashing market now won't do a lot in terms of iodine prices, as some major suppliers are already at break even or less.

It's so widely used in many applications there is no one avenue, that halts the charge, unlike many commodities that can collapse overnight. Even if new tech appears to replace it you get about 10 years warning.

So not a lot.

I see all the lithium interest around the world and all the chest thumping.

The fact is lithium is abundant so in a few years I expect some severe pain for any company with higher production costs, and imo that should coincide with when they actually get to commercial production rates.

We saw it with gold, lithium will be just the same.

[bogg1e] 19/8/2014 14:14

The key aspects are covered; the technology is patented, the necessary leases to exploit the technology, which are with land owners and Oil and Gas suppliers, who divert the brine to Iofinas plants, the well tests which prove which wells are commercially viable and the necessary lawyers in place to guide them through the maze of laws and regulations iofina must adhere to. The competition are in decline while Iofina is sitting on the only resources to justify growth with lower costs than the competition. The only snag is down to last years abysmal results and the doubts as to whether the plants can actually produce to the expected level and consistently. That has left a lot of disappointment and doubts in its wake. Thats why the monthly production figures, are, for the next 6 months or so at least, vital if we are to see that potential production is being achieved. Once we have that the former optimism will return, but im not holding my breath. We have been set back at least a year and we cant just catch up overnight.

[sandbag] 19/8/2014 14:08

Brucie,

I believe the biggest danger is the health of the acting CEO. He's been such a driving force. However the more plants we get running, deals signed etc., the less the importance of one man. Of course I hope he lives to be a hundred.

[brucie5] 19/8/2014 14:04

Great to see the coverage between Superg and Boggle, which has got me involved here. In brief, aside from the blue sky stuff, what are the current risks for nasty surprises? 3 possibles would do.. Forgive this question from a rank amateur, but his came down in a hurry so a I imagine many investors have been scared off. What are we missing?

[superg1] 19/8/2014 13:53

Boggle

There is no threat to a cheap T/O. IOF won't allow that.

As pointed out re AIM rules and valuations of assets, those include, patents, contracts and those leases.

Look at the water if that comes about, the supply deal of 100k bpd in each state to Halliburton still exists, it's the permit side of things that needs to catch up. If all else fails the rights swap and discharge permit is there

However since that time there have been some big land holdings taken by some lead companies in the area who may show an interest.

Take the 30k bpd discharge permit as a stand alone, and 34 wells already there.
Over 30 years that around $250 mill worth of water at 75 cents pb.

The discharge amount can be raised it's the purity of the discharged water is all they wanted covered.

"The balance of the water that the Company produces may be offered to users downstream of the reservoir along the Missouri River."

As I say there is a lot of aspects some are either unaware of, or forget.

[naphar] 19/8/2014 13:00

Bogg1e

"Iofina is a baby in terms of iodine production, its a little 5 year old who is just off to primary school. Its taking its first tottering steps into a wider world"

That's the exact reason why, in many ways, I prefer the idea of a strategic being taken. there would probably be some kind of public offer, at price X, which people could choose to accept or not, or accept in part. Allowinig us to cash in some if we want to for a nice price, hopefully underpinning the price in future to some extent (subject to continued delivery), and allowing to also gain from future growth.

[bogg1e] 19/8/2014 12:52

naphar agreed, and apologies to sefton if i get narky over this issue, but it does bug me that there is a threat of a cheap sell out at this stage due to a frustrating year. Iofina is a baby in terms of iodine production, its a little 5 year old who is just off to primary school. Its taking its first tottering steps into a wider world. It took 3 years or so to get the technology and leases etc together to have a working model, IO1, which is little more than a tiddler whose purpose was to prove their concept worked. After 5 years of development including a couple of years of production we now have 6 plants, that is amazing when we can forget the disappointment due to previous over enthusiastic guidance. This optimism however must return at some stage and soonish because the return on capital employed is excellent; if a mini pod can produce 100 tonnes per year, even with deflated prices like now, its production will cover the capital costs in 6 weeks! Or to put it another way, one plant will pay for itself and for 7 more per year. The growth potential is staggering. Eye watering. We, as private investors, cannot allow this to be sold cheaply, but we do need consistency of production to reassure the doubters above all else at this stage.

[superg1] 19/8/2014 12:49

Not for us to worry about, but if you look at the way many in the sector work they take stakes in companies.

Vote required over 75%.

What stakes do the relevant potential interested parties take 25 %+ to 30%.

EG although private, Toyota Tsusho took a 25.5% stake in Algorta.

I wasn't even looking their way in recent times, there are bigger predators around, they just popped up rather weirdly on that linkedin page next to IOF employees.