Iofina Share Discussion Threads

[captain_kurt] 24/5/2014 12:19

Worry not about quality beer in the area :@)

[bobsworth] 24/5/2014 12:17

Rugrat
Eye opening Research - Thankyou
SG
Thanks too for highlighting SQM's cost difficulties which look even more critical to me.

[dontshoutatonce] 24/5/2014 11:49

Great work Rugrat and it makes me want to go and visit, though the sites are a few miles from the nearest bar and I'm worried about the quality of beer they'd serve.

[1madmarky] 24/5/2014 11:41

Rug and SG, great posts to wake up to. Will go googling later

[che7win] 24/5/2014 11:07

Rugrat,
Your research is breathtaking!

Superg, interesting posts on SQM, they are in a difficult situation.

Cheers both of you.

[crosseyed] 24/5/2014 10:50

RUGRAT,
Wow! That's certainly some thoughtful research - and with indications of other possible sites already commenced.
c

[rugrat2] 24/5/2014 10:25

It's a wet Bank Holiday weekend in prospect, so why not sit down and spend some time looking down on Oklahoma on a crystal clear March day, just before mid-day?
Twelve days ago (post 20923)I commented on a new image on GoogleEarth covering the north of Alfalfa county. It dated from 1/12/2014 and covered IO#4 and IO#6.

Well we now have a wide ranging image dated 10/03/2014 covering all of our area of interest up to the Salt Fork river ( ie it does not include IO#4 which is north of the river). It makes very interesting viewing if you know what you are looking for. So if you have GoogleEarth, I have a list of long/lats to copy and paste into the Search box. If you haven't got GE then pull your finger out, and download it – it's free!

Starting with the CHK based plants:
IO#4 at 36.840227,-98.468908 Remember this is a December image.
IO#6 at 36.812300,-98.489626. The December image shows a grader levelling the site. The new one shows it probably half built? A Chesapeake rig is drilling about a third of a mile west.
IO#5 at 36.775025,-98.555324. The final regulatory inspection occurred four days after this image was taken. Somebody else thought that the 10/3/14 was a good day for a photo. The March photo of IO#5 on the IOF website was taken an hour or so before the satellite passed over, at 10.40 am (from the image's EXIF data)
IO#3 at 36.728821,-98.466026. The only CHK swd in the area with a frac water pond incorporated. Look about a mile to the NW and you can see the MidStates Murrow swd site, also with a frac pond, which serves an isolated string of seven wells, in the middle of CHK country. Two and a half miles SE of IO#3 there is a Chesapeake rig drilling, with another just over a mile SW of that.

Now to MidStates, and firstly IO#2 sited at 36.694880, -98.594110. Not as pretty as the newer plants, but the site has seen some changes. If you flick through the historical images you can see the original swd setup in April 2008, the new Arysta building and tank battery in April 2010, and in August 2012 the start of the alterations following acquisition by Iofina. Note the MidStates setup for receiving brine, on the northern half of the site, has changed substantially since 2012. The swd wellbore itself is in the small square, slightly skewed, fenced off area about 80 ft east of the Iofina plot with three or four curved pipes visible on the surface. The pad on the north side of the road is a Semgas compression plant – the gas line runs E-W to the Hopeton plant a few miles SW at 36.682668,-98.638542. You can see a number of these compressor plants at intervals along the E-W roads.

Take a moment to mark IO#2 and zoom back out to get about 24 miles visible E-W, with the Salt Plains lake just out of sight to the east. The MidStates wells are in an area around IO#2 stretching roughly 4.5 miles to the north, 5 miles south, 5.5 miles east and 4 miles west, with some up to a further 6 miles west. Chesapeake are operating mainly north and east of this area, with a pretty straight line boundary to the north, running E-W through Alva, but with leases interspersed with MidStates operated leases to the east and north-east. Get 12 miles or so east of IO#2 and 14 miles or so to the north and Sandridge start to mix it with Chesapeake. There are of course exceptions and Sandridge for example have a hotspot of wells just north of Alva.

Once you get up into the Sandridge leases 20 miles or so NE of IO#2 you can see very clearly that the density of well pads is stepped up compared with the areas covered by MidStates and CHK in IOF's area of operation. (The Sandridge wells have been on a single well per pad basis). You would be hard pressed to say that on the surface there is much difference in the rate of activity between MidStates leases and the CHK leases feeding IO#3-4-5-6. That belies the true situation. CHK well pads in this area are predominantly single well affairs, drilled with the intent of holding leases. They are coming out of that stage in development and they are starting to permit pairs of wells, or second wells on predrilled pads. There is just one exception in the whole 16 mile strip of CHK lease area running south from IO#4 and that is at 36.667394,-98.433871, where the image shows their rig and fracking crew on a five well pad.

In contrast MidStates have many pads which are multi-well, with 2,3,4 or 5 wells per pad on a 160 acre well spacing. That is four wells per sq mile section on 1320 ft spacing between laterals. In the section immediately east of the small town of Dacoma, SE of IO#2, they have an experiment with seven wells in the section, halving the lateral spacing to 660 ft. There was one existing well drilled from the NE corner, and the image shows two rigs at work as they drill three wells on each pad. One rig is at 36.652882,-98.544199, and the other is 2/3rd mile east. Two miles north of those rigs there is another drilling four wells on the Edwards pad, which already has a well on the north side of the tank battery. Elsewhere there are two more MidStates rigs at work, but I have yet to spot them – there's a lot to look at.

This area has seen a big increase in activity in the last nine (?) months or so, which at the time led me to believe that IO#6 would be placed at the Dacoma swd, 2/3rd of a mile west of the Edwards pad, at 36.682120,-98.559405. This could still be the site of one of the next plants to be built, assuming of course that the ppms are any good, as the volumes certainly will be. Quotes from MidStates Earnings Call transcripts in the last year have indicated a complex brine line network, and you can be sure that the Longhurst swd plant where IO#2 is located is looped in with the Dacoma swd, and probably the other two in the immediate area – more of them in a moment.

One thing to note on a large number of the MidStates well pads are the circular frac water tanks, about 140 ft diameter. I haven't worked out a guesstimate of their capacity, but suspect that their use might be helping to alleviate any brine supply problems during fraccing, which are causing so much angst with CHK.
I mentioned the other two swd wells. Recently a lot of the permitting activity has been directed south of IO#2, and that should feed the Zahorsky swd at 36.652997,-98.619021. It can been seen with a couple of brine tankers on site, but don't look there yet – the other swd is more interesting!

Until the activity hotted up around Dacoma, there had been a lot of work going on along the E-W roads 2, 3 and 4 miles north of IO#2. This was all 12-18 months ago, and was timed with the building of the Lohmann swd at 36.738616,-98.605167. At that time I was thinking that it was clear that IO#3 would be sited there, and I guess if the CHK contract hadn't happened when it did, then that would have been the case. Well, go and have a look at the site....



That pristine white pad next door to the swd, isn't for a well. Do you recognise the shapes on it? If not, then look back at IO#4. I don't know how long it's been there (I might be able to get an idea from library satellite images, but don't hold out much hope because of their quality and infrequent appearance), but that is/was an intended IOF plant site. The unfinished square with the indented SW corner is their normal tank battery shape, albeit slightly smaller. In the middle is I believe the pipe feed from the swd to the tanks. The two rectangular shapes to the south, are in the correct position, and are of the right size, for the foundations of the blow off tower steel framework and the building where the end product is produced. There is no sign of any plant/activity on site and my guess is that it whilst work had been halted at the date of the satellite image, the groundwork was relatively recent – the site is too clean and tidy – no weedgrowth...

By the way, you can go back to the Zahorsky coordinates now. Oh, and what's that next to it? The pad is smaller than IO#4-5-6, at 250 ft square rather than 300ft square, and it's only had a stone surface put on half the site, with no plant present. Another IOF planned site? I can tell you it's not for a well, because I've checked.

Good hunting, I'm off to walk the dog.

[superg1] 24/5/2014 09:53

To finish (for now) on the pending water laws. This is what SQM have included in their risks re water rights and changes in water laws

Changes in water rights laws could affect our operating costs
We hold water rights that are key to our operations. These rights were obtained from the Chilean Water Authority (Dirección General de Aguas) for supply of water from rivers and wells near our production facilities, which we believe are sufficient to meet current operating requirements. However, the Chilean
water rights code (Código de Aguas or the ―Water Code‖) is subject to changes, which could have a material adverse impact on our business, financial condition and results of operations. For example, an amendment published on June 16, 2005 modified the Water Code, allowing, under certain conditions, the granting of permanent water rights of up to two liters per second for each well built prior to June 30, 2004, in the locations where we conduct our mining operations, without considering the availability of water, or how the new rights may affect holders of existing rights. Therefore, the amount of water we can effectively extract based on our existing rights could be reduced if these additional rights are exercised. In addition, we must pay annual concession fees to maintain water rights we are not exercising. These and potential future changes to the Water Code could have a material adverse effect on our business, financial condition and results of operations.


As you can see those pending water laws, if passed (especially the 150 rule, are going to hurt SQM significantly.

[superg1] 24/5/2014 09:48

Ooooh

I've just spotted something in the SQM report and it's all starting to make sense now re closed mines and the iris plant closed.


For the first time that I have ever seen SQM have included cut-off grades in their full financial report.

2013 SQM iodine mine production figures.

Pedro de Valdivia 3.2k mt iodine ppm 445

Maria Elena 1.5k mt .......... 484

Neuve Victoria 6.1k mt .......... 462.

For some mines they show the cut-off grade for nitrates too, nitrates offset the cost of iodine production and vice-versa.

For Pampa Blanca which closed a few years back they show nitrates below the cut-off grade, so that may be the reason it closed.

But look what the situation is now.

Maria Elena The El Toco mine located there closed at the end of 2013.

So it's all down to the other 2.

SQM rely heavily on the Neuve Victoria mine for over 6000mt of their 8000 to 9000 suspected current rate. The recent results suggest nearer an 8000mt rate.

So Victoria accounts for the large part of their iodine production. I note the iris production plant recently closed in that area.

HERE IS THE KEY POINT.

The Victoria nitrate grade is below the cut-off grade. In fact SQM don't produce nitrates at Victoria, so all the opex cost is loaded against iodine production.

Iodine ppm 442 cut-off grade 300. That gives 68% costs in theory.

From other research I know they have water rights of 570 litres per second in the Victoria area. The new law being considered covers miners using over 150 litres per second.

So SQM's biggest iodine producing area by far (6000mt, 20% of world supply) that has no other revenues off-set against it, may be hit hard by new water laws. It potentially could end up as not being a commercial mine once operations include seawater.

As for where they could mine, it also says this in the document that there is no exploration being carried out this year.

[tim3416] 24/5/2014 09:13

The way things are going, Iofina are going to be a very attractive option to one of these big companies given the low cost technology they have access to. Looking forward to a good production update in a couple of weeks..

[superg1] 24/5/2014 08:58

Apologies for going on about the water laws but I'm just conveying the point that imo it's very significant for SQM and others.

Here is a report from 2011 that shows predicted costs back then. I believe SQM had costs of $250 for seawater pipelines.

This link shows the large capex $377m to $1.1 bill mentioned for one company.



That range covers raw seawater use to desalinated use. The 150 water law being proposed is to force the use of desalinated water which to some extent looks like the iodine producing end for SQM.

[superg1] 24/5/2014 08:21

What Coldelco said last year re the switch to seawater

The treated water will be transported to the mine's facilities, located 3,000 metres above sea level, through a pipeline stretching 160 kilometres. The operation will entail an expenditure of 2.6 dollars per cubic metre, according to CODELCO.

According to studies, the costs associated with a seawater supply system can represent around 20 to 30 percent of the total costs of a project located more than 150 kilometres from the coast and between 3,000 and 4,000 metres above sea level.

"This means it will be necessary to find more efficient ways of supplying seawater to mining companies," said Cisternas.

The ideal approach, he said, "is to use untreated seawater, because desalination requires energy and causes harmful effects for the environment, but this cannot always be done."

[superg1] 24/5/2014 08:19

It's a shame to say the least re the iodine market and Chile that IOF didn't make the progress they wanted.

The forecasts we made here re Chile problems to come, when the market was buying Chile is now plain to see.

In that recent release (SQM)

"However, prices have been undermined by a jump in supplies, and with many foreign producers claiming lower costs than Chilean rivals, reducing the group's ability to make up for lower values through higher volumes."

SQM have been the lowest cost producer for years, but the power and water issues we kept banging on about are now having an impact.

'If Bachelet gets in she will hammer the miners' comments, are now current and as mentioned by Investec are going to bite.

Japan no doubt have lower costs but their production is in decline with any iodine they have already taken in long term supply agreements and customers.

Chile producers like Cosayach, Bullmine and Algorta caused the 'iodine glut'.

Ben Isaacson claims all but one has reduced production now.

It's hard to track as the gloating by many of them last year has now evaporated. The Algorta H1 2013 profit claims and boasts have seen no further public declarations at all re their operations.

Only Algorta have a seawater pipeline and from that gloat last year it seem their opex was $36 plus per kg. They will need another pipeline if they wish to expand further.

Imo when the 150 law comes in anyone over 2500mt or wanting to go that way will need a pipeline.

The extra cost involved and opex increases and notable as mentioned by other sectors already using seawater.

While it doesn't mean iodine price rises today or next week, such a law will create a future planning severe headache, and will discourage any iodine investment in Chile, especially if their are viable resources outside of Chile.

IOF hope to achieve 700-1000mt when they have the first 6 getting good brine and producing. What can they achieve through 2015 and 2016.

Even if they only got to 2000mt in that time, it would seem that would be about 25% IOF what SQM are doing currently.

[superg1] 24/5/2014 07:55

A link to show the general Chile circs when they talk of other companies. It's nice and short but covers the same old problems and adds in the new ones we have identified re the coming changes.

Antofagasta a big copper form covered by a company called Investec.



"Furthermore, the present government in Chile is less mining friendly than the previous one.

Lastly, companies in the sector face increasing challenges in the form of power and water constraints. These require investing in non-mining services so as to guarantee that operations can continue. "We view this as a hidden cost of operating in the country."

[orslega] 24/5/2014 07:33

yes re SQM, the "underperform" ratings are appearing, hardly surprising. And still with a P/E of 16.48. (Bodes well (valuation) for Iofina when production ramps up)

Yesterday:

"Shares of Sociedad Quimica y Minera de Chile (NYSE:SQM) opened at 29.54 on Friday. Sociedad Quimica y Minera de Chile has a one year low of $22.50 and a one year high of $48.09. The stock has a 50-day moving average of $30.65 and a 200-day moving average of $28.02. The company has a market cap of $7.775 billion and a P/E ratio of 16.48.

Several analysts have recently commented on the stock. Analysts at Credit Suisse downgraded shares of Sociedad Quimica y Minera de Chile from a "neutral" rating to an "underperform" rating in a research note on Wednesday, May 14th. They now have a $27.00 price target on the stock, down previously from $34.00. On the ratings front, analysts at Zacks downgraded shares of Sociedad Quimica y Minera de Chile from a "neutral" rating to an "underperform" rating in a research note on Tuesday, May 6th. They now have a $28.90 price target on the stock. Finally, analysts at HSBC downgraded shares of Sociedad Quimica y Minera de Chile from a "neutral" rating to an "underweight" rating in a research note on Monday, April 28th. Four analysts have rated the stock with a sell rating and seven have assigned a hold rating to the stock"

[orslega] 24/5/2014 07:27

Chesa brine supply issue. Now over one month addressing a solution. That will be a very long time in Lance Baller's book (given what he achieved within 2 weeks of getting his sleeves rolled up), so here's hoping those negotiations are going well.

6th May 2014 RNS

"The Board continues to have strong communications with the producer and is outlining solutions with respect to brine water volume restrictions at IO#3, IO#4, IO#5 and IO#6"

23rd April 2014 RNS

"The Company is also working on ways to re-route additional water from the Operator"

So some positive news soon on Chesa supply maybe. Not unexpected.

And less than 10 days then to get May figures which will hopefully be another record (based on strong performance noted at end of April - per production update RNS). And if that happens, note another record without/limited Chesa supply. Mr Market will take note.

Definitely less churn of shares in last couple of weeks so those exiting either finished selling or close to being out now. In which case shares will be more tightly held and supply drying up. And no short positions.

Water - maybe a hearing 3rd June (but more likely no news/outcome for a while - can take up to 6 months for decision apparently). Non core anyway, nothing priced in.

Hopefully then a nice platform for Lance Baller to return to at the AGM on 10th June.

ps haven't had a flaming June for a while, lol

[superg1] 23/5/2014 14:40

I forget who mentioned the rain event scheduled for this year in the Atacama.

Looks like they were right, some rain, high winds and cold weather. Good news for the driest place on earth don;t you think !!

The weather news report it as a Red alert, not such good news perhaps.

[superg1] 23/5/2014 07:33

Some interesting comments in the SQM conference call. On iodine they talk prices around this range or maybe slightly lower through the year.

Ben Isaacson is an expert in the minerals sector and he mentions some iodine producers have pulled back a little.

Ben I comment

'It seems like all Chilean producers, except for one, have cut back the production a little bit, including yourself'

I asked again re Cosayach to see if there are any rumours re them as they were previously restricted on their production. It sounds like Cosayach are up to their old tricks again of illegal water extraction so they can produce more etc.

As we know SQM closed higher costs mines and they quote having slightly better margins even with a production drop.

The analysts crew have spotted one or two things that could impact SQM.

The first point is Corfo who lease land to SQM, it gets a mention, I need to dig deeper there but on first viewing there are reports going back over the last 2 years and the fraud case gets a mention too (by corfo), so something to explore. SQM seem to dismiss it as not a problem.

They have also spotted potential changes with lithium rules and how that is dealt with by the state. RB energy (sirocco) gets a mention re the potential impact of lithium supply by them.

However no one seems to have spotted the pending water law changes next month, or at least they haven't mentioned it. SQM talk of the costs cutting and future efficiencies, but if the 150 litre water rule comes in (it seems almost certain to happen) then the cost implication is material on capex and opex for SQM.

[1madmarky] 23/5/2014 05:07

Engelo - like your take over protection thoughts. If they can sort their lives out wrt brine supply and extraction efficiency thus reduce their costs towards the $15 per kilogram region with the sale price rising. Then the share price will jump to reflect that the company is starting to deliver on its potential, until then it's just frustration. Anyway fingers crossed, GLA

[engelo] 23/5/2014 01:07

Bobsworth: well said. With a combination of their own ineptitude and the weakness of the iodine price IOF have manufactured their own poison pill against anyone thinking of a takeover at a critical time in their evolution.

Right now a takeover would seem of doubtful benefit but cheap.

If IOF can manage a decent H2 then the benefit won't be doubtful any more... and the price of a takeover won't be cheap any more :)

Notice we've both used the IF word :-) On delivery, SG used to say.

We're struggling so much with Q1/2 2014 that no-one dares think about prospects for 2015, which seem to me to be mouth watering almost whatever happens in the short term.

[bobsworth] 22/5/2014 15:46

Good to see our Competitors Opex costs continue to rise beyond their control as Iofina's lower Opex looks set to fall!
With Lance now back and rapidly cutting costs and mobiles on the way our Opex costs should fall even further in the coming months as the Chileans costs continue to rise!
This lowering Opex, together with an expected rise in the price of Iodine should, with proven technology, be the making of Iofina!
With that in mind, I just wonder now how long Iofina will be left alone in this essential market if it starts to significantly recover and demonstrating it's potential, while our competitors continue to struggle with rising costs beyond their control.