Iofina Share Discussion Threads

[senden11] 16/8/2014 07:14

Bogg1e, Crosseyed et al, thanks for sharing all of that with us - an interesting read to start the weekend and an eye-opener in respect of the variety of accounting methods! From a completely non-technical point of view
fwiw, I expect an share price of 75p in September (if 40mt achieved), 100p by Christmas if 50mt monthly consistency reached and back to 200p if water rights granted. Ever the optimist, I know! Good weekend all!

[engelo] 16/8/2014 00:20

Zendo: getting too late at night but I think we agree ;-)

[engelo] 16/8/2014 00:09

Boggle: your efforts are much appreciated by me and probably a few others as it spells out how to make this calculation and how difficult it is: even the accountants don't find it easy :-)

Cash

If you work out the share price as you are doing then say you get a value of 100p per share.

Then from the cash figure calculate cash per share, say you get a value of 5p.

Then the value of each share is (theoretically) 105p.

Lampricide

I think it's ca 100% probable that iodine is used in the manufacture of lampricide. Most likely one of the intermediates (containing iodine) is made by IOF Chem and reacted with another which is commercially available.

The synthesis of 3-trifluoromethyl-4-nitrophenol seems to be patent protected. (For anyone who can be bothered to go there I did find 1 ref which is almost unreadable but implies that halogens (F, Cl, Br or I) are used:

Patent US4225731 - Process for the preparation of ... - Google
www.google.com/patents/US4225731
R1, R2 and R3 denote hydrogen, trifluoromethyl or a substituent which .... Halogens (X) can be fluorine, chlorine, bromine or iodine, preferably fluorine or chlorine. .... (VII) which may be mentioned are: 2-chloro-4-trifluoromethyl-6-nitro-phenol,)

Getting back to the point, although the finished lampricide product doesn't contain iodine it still imo uses iodine in the manufacture so doesn't need to be treated as a special case.

(It could be that the iodine used can be recovered, but getting too complicated to go down that path imo)

Agree 100% with naphar's points (23757) and it would cheer us all up to calculate 2015 share price also :-)

[zendo102] 15/8/2014 23:50

Bogg1e,

There are different ways of accounting for cash. The simplest way is to ignore it. What you mustn't do under any circumstance is multiply it by any notional p/e number.

If you want to account for cash, you could multiply the estimated earnings by the p/e and then add the cash onto that result to give you an estimate of fair value for the market cap of the company (value of business plus cash in hand). Divide this figure by the number of shares in issue to give an estimate of share price.

[bogg1e] 15/8/2014 23:33

Naphar, if cash is not included in the eps calculation, which is fair enough as its not part of the years earnings, then how is it incorporated into evaluating the share price pls? Tia.

[bogg1e] 15/8/2014 19:16

Thanks chaps. Much appreciated.

[crosseyed] 15/8/2014 18:53

bogg1e,

I did a lot of work on my model in bringing inventories into the picture with the actual y/e valuation figures as guidance. I do this using assumptions about the stages in usage of inventory, ie raw idodine/WIP/finished products (before sale), calculating volumes in terms of original iodine and applying unit valuations assuming FIFO progressing. So whilst there are a lot of assumptions, I think the methodolgy gets closer to approximating what is reported, and thereby making adjustments in retrospect. That's where my figure of 92.3 mT at an averaged unit cost of $33.4 giving raw iodine inventory of $3.084 million at y/e 2013. I have also estimated $0.371 million for other raw materials (2 months supply proportional to iodine requirements at $5/kg), making up the reported $3,419.3 million for total raw materials.

Obviously, and prudently, IOF would keep sufficient inventory to meet manufacturing and sales need - say sufficient for a month? - but that might suggest perhaps 40-50mT of reduction.

c

[naphar] 15/8/2014 18:52

Bogg1e
only on iPhone and only skim read the posts
I think having the Admin cost in makes sense, well done.
I think cross makes some good thought provoking points.
I don't understand why you are including cash to reach EPS. EPS is exactly that, earnings divided by shares in issue. It should ignore cash. You seem to be mixing valuation methods (earnings vs asset valuation). It makes a big difference to your valuation.
That said, as someone mentioned (Che maybe), the market should be forward looking. It may be better to take your estimate out to 2015, and calculate an EPS for next year (or a range). Your 80p for 2014 will be lower when you strip out the cash position but the higher earnings expected in 2015 should more than make up for it, and give a share price range based on your chosen PE ratio.

As some of us said before, it's really tricky doing this as so many unknowns, I have not bothered lately. But I commend your efforts.

[superg1] 15/8/2014 18:15

serratia

IOF do a few niche products it seems and have some that may be unique judging by rns news where they have talked about new products. Etchant gases are some, and I think there are only 2 suppliers to the US fisheries for lampricide.

I did ask about the new products a while back, they don't list them, so I don't know what those are.

[bogg1e] 15/8/2014 18:09

Serratia cheers. Im happy to use 35% gross margin for the lampricide.

Crosseyed, regarding the $4-5 million for lampricide i think i got that from woody. So i take it you assume there was about 100 tonnes of unsold iodine derivative in the inventory at the start of 2013? I dont mind adding a value for inventory even if it is a vague figure.

[serratia] 15/8/2014 17:45

Re Lampricide - When I ran a chemical company our gross profits were between 30 and 50%. Labour costs were 15%. As it's been mentioned that they have no competition (?) I would expect to see figures at the higher end. After that it's how much sales/admin etc they want to apply to the product but they just reduce costs on other products.
I'd be looking for 50% GP and 35% GM. Just my musings.

[crosseyed] 15/8/2014 17:45

Bogg1e,
The 2013 average for forex from month-end closing values was about 1.6 $/£.
I think perhaps it will be about 1.65 or so for 2014.

Re Lampricide, did you have a source for the $4-5 million revenues or was that a guess on you part?

I agree about the opacity of costings at IOC and how re-cycled iodine affects production capacity. IOF accounts have given separate revenues breakdown between iodine-base and non-iodine products, but not with costs. I try to make adjustments in my model, but there's a lot of guesswork involved :o}
It now becomes even more complicated since costs in the accounts are aggregated for IO plants and IOC.

c

[cyberbub] 15/8/2014 17:40

$22 opex is clearly too low for the current full year, but Mr Market looks forward, and if we are achieving low $20s opex going forward then it will be valued accordingly!

[crosseyed] 15/8/2014 17:20

Bogg1e,

First of all, may I add my thanks for sharing your evaluation on the thread. I have a model that I still regard very much as a "work-in-progress" so it is useful to me to compare notes.

I have a few comments about which I would appreciate your views.

1. I can see that you are using the 400 mT in-house production target to estimate sales from derivatives and as raw idoine sales.
However, there are two other sources of iodine to IOF:
a) re-cycled iodine indicated by other posters to be 5 mT/month though that source is likely to decline or disappear (too expensive relative to in-house production ?);
b) the big build-up in inventories, estimated (by me) to be about 92 mT at the end of 2013, plus a lot more in WIP and finished goods at that time, with RNSs indicating that these inventories will be substantially reduced - some for derivatives but also with direct sales firmly stated (unfortunately, not actual quantities).
I therefore have raw sales at 168 mT and derivatives based on 390 mT of raw iodine, though I am assuming IO production to be a little higher at 427.5 mT.

2. Given that production volumes were very poor in the first quarter and still well below capacity subsequently whilst many of the operating costs of IO plants are relatively fixed, I doubt that average opex over the year would be as low as $22/kg. My model suggests the average might be closer to $26/kg, though falling to around $21-22/kg by year-end.

3. I'm interested to know how you arrived at the IOC net margin of $25/kg (of original iodine). I have used a 20% mark-up on the market price of iodine ($42/kg for most of the year) to estimate revenues. However, I determine IOC opex costs using a rather more elaborate model taking in the rolling costs of production and inventories. That works out at a net margin of about $10/kg. That is about the same as the figure calculated from the 2013 accounts though using my imputed production total of source iodine at 308.2 mT for 2013. Thus (18,931,000-15,830,000)/308,200=$10.06/kg. (Oddly, I have only just derived that figure!)

4. My figure for interest comes to $1,054,000, based on the Stena loan ($244k in first quarter reduced to $220k/qtr thereafter) and the Panacea loan at $75k/month.

5. On Lampricide, you indicate $4-5 million for 2014. I guessed at $3 million, assumed to be gross revenues, with a margin of 25% (a complete guess).

6. Do you think forex will remain at 1.7 $/£? It is currently sub-1.67. As Mr Carney has quite firmly indicated that interest rates will not rise any time soon, it might fall back further.

I look forward to your comments.

Regards,
c

PS I have estimated total Admin Charges to be $5,515,000.

[bogg1e] 15/8/2014 17:15

OK, including admin costs:

2014 Revenue Estimate and Value Per Share

Iodine Production = 400 tonnes (50 tonnes sold as pure iodine and 350 tonnes sold as derivatives)
Raw Iodine Wholesale price = $42 per kg/$42,000 per ton
Operating Costs (Opex) [including land & brine royalty payments] = $22 per kg/$22,000 per ton
Additional (administration ) costs = $5,000,000
Net Margin per Kilo = $20 per kg/$20,000 per ton
IOC Added Net Value = $25 per kilo/$25,000 per ton
Interest on debts = $1,275,000
Tax = 35% ($19,330,715 can be offset against it)
Cash Position: $7.3 million


50 (tonnes) x $20,000 (wholesale price) = $1,000,000

Then we add the net value from IOC to the remaining tonnage:

350 (tonnes) x $45,000 ($20,000 + $25,000) = $15,750,000

Then the two are added together to derive the combined Earnings Before Interest and Tax (EBIT)

$1,000,000 + $15,750,000 = $16,750,000

The next cost to be subtracted is administration costs:

$16,750,000 - $5,000,000 = $11,750,000

Then we deduct interest on loans and taxation:

$11,750,000 - $1,275,000 (interest on debts) - $0 (tax) = $10,475,000 net revenue

Now we can calculate a share price:

$7,300,000 (cash) + $10,475,000 (net revenue) = $17,775,000 / 127,314,398 (shares in issue) = $0.139 (Earnings Per Share) x 10 (conservative p/e) = $1.39 per share / 1.7 (US/GBP exchange rate) = 82p per share.

Note: Administrational costs for 2013 were $6,155,531. Since Lance has implemented strict cost and budgeting controls I have reduced the expected admin costs for 2014 to $5 million.

Note: The Lampricide contract for the government is worth $4-5 million (probably gross revenue) but do not know costs/margin.

[bogg1e] 15/8/2014 17:00

naph, cheers, ive had another look thru the accounts and you are right, i think i overestimated the additional admin costs involved. i was hoping a low p/e would mitigate it but im not sure now.

Administrative expenses for year end 2013 was $6,155,531.

Admin costs though are likely to be less due to Lances cost cutting and budgeting controls, say $5 million for 2014?

I don't think there's anything else to take into account. any thoughts?

Cheers

[gadolinium] 15/8/2014 16:55

Neddo:

'what is going to happen to all the salt they pump up in the sea water, no bigger pollutant than that?'


Halite (rock salt) is major component of Caliche anyway so a bit more added from the seawater probably won't matter. I do not know what they do with the final briny effluent after they have extracted the iodine, nitrates potash etc I imagine they just pump it into a lagoon to evaporate and dump the solid in the desert somewhere, it being Chile.

Super:

'My query is whether salt water will frustrate or improve the situation for iodine leaching.'


The iodine salts (iodate form) are very water soluble, as also are nitrates, so it probably does not make much difference for the extraction of these two ions. See the study below:

--------------------------------------------------------------



ABSTRACT Caliche is a mineral that contains a high fraction of soluble minerals and that is exploited in Northern Chile through vat or heap leaching for the production of iodine and nitrate. In this zone, the water availability is scarce, being a critical issue for the mining industries and whereby the use of other leaching agents as seawater may be a viable alternative. For this reason in the present study, column-leaching experiments using seawater were performed, including different irrigation rates and column heights. It is found that the highly soluble minerals such as nitrate and iodate are rapidly leached, while for other minerals like sulphate and chloride, the outlet concentration increased once that part of the sodium has been removed. Crystals of sodium sulphate were found at the column bottom, when this was dismantled. An existing phenomenological model (Gálvez et al., 2012) was used to analyse the changes of concentration of nitrate and iodine (as iodate) with a good agreement between the experiments and the simulations. On the other hand, for sulphate and chloride a new model was developed, which takes into account the dissolution and precipitation phenomena of these ions. The model was able to capture the trends observed in the experiments for the outlet concentrations of the modelled ions.
[less]

Edited to remove Excess text

[naphar] 15/8/2014 16:40

jamonit
we believe the hearing was on July 15th, and we have to be given a decision within 90 dys of the hearing.

[mister big] 15/8/2014 15:57

These seem optimistic numbers on profits to me bit the thrust is in the right direction!
I think the company will beat the 400mt level with all six plants in operation , I think they will concentrate on plant efficiency and sorting out operational issues and next year , the growth will come from mobile plants on a smaller scale .

[bogg1e] 15/8/2014 15:34

naphar, re lampricide thanks. What would be a fair deduction for opex on it? I have no idea, and i dont know how anyone could actuall;y work it out, but would 30% seem fair?

[bogg1e] 15/8/2014 15:33

naph, cheers, i just need something to attach the $7.3 million to, i chose april bveing the end of the tax year, but essentially when Lance baller took over there was $2.3 mil left + $5 mil from Arron.

[naphar] 15/8/2014 15:11

hi Bogg

Lampricide value will be revenue, it's not normal to quote contract values in terms of profit.

Where does the net cash position come from? IOF year end is December, so not sure about the April, I recall there was more like $2m in an RNS at some stage post year end, are you simply adding the $5m from Mr Big? Why are you talking about tax years?

I would still prefer someting to be added in for admin costs (but it's your analysis not mine). A good satrting point might be the 2012 admin cost figure, seeing as it rose in 2013 and Lance is trying to reduce as much as possible. Just a thought.