Iofina Share Discussion Threads

[arlington chetwynd talbot] 17/8/2014 13:44

'unlike the last lot who appeared to be blundering around in the dark'

Didn't hear those protests at the time... or did I?

[crosseyed] 17/8/2014 13:20

Count Chris,

My feeling too regards production. Apart from a surprise in May 2014 with 40.5 mT, probably the record to date, we saw a rather pathetic 24.5 mT in July 2014. I am aware of the reasons given, mainly lack of brine but also technical issues.

Back in April 2013, with just IO#1 and IO#2, we were informed by RNS that the production rate was 650 kg/day or roughly 20.7 mT for that month. That was mainly from IO#2 when the pipeline was installed capable of 30,000 bbl/day. I doubt that volume has ever been achieved.

With 6 plant now operational, surely we should be expecting at least 60 mT/mth, or an average of about 10-12 mT/mth per plant. Surely all but IO#1 are capable of that in a quiet month.

Forward projections at even those modest levels, with increasing capacity being brought on in the shape of IOSorb plant or Mini-units, preferably both, with increasing derivative plant production, make IOF a very attractive investment, IMO. It could do even better.

I'm not yet convinced that Mini-units are necessarily the way forward. There used to be mobile WET pods but they have now been abandoned. Perhaps the Mini-units will be technically superior, but they still remain a drawing board concept. Interesting times.

c

[bogg1e] 17/8/2014 11:28

I have a little niggle regarding the mini plants. They are automated and so theres no one there to observe whether there is more than 2% oil coming in with the brine. The only way to find out is to send investor relations an email, see if the auto process includes some kind of warning or shut off system.

[count chris] 17/8/2014 11:23

A Sunday morning catch up after a few days away. Very disappointing production for July. We need to see solid production this month and io5 & 6 pushing us to new highs in September and then some reasonable consistency if we are to hit the years targets. Pleased to see io5 & 6 online and other issues addressed. They are clearly achieving allot on the ground but we haven't seen the benefits yet. Hopefully that's all about to change.

Hopefully better planning and more, smaller, plants (mobiles) will smooth things out but I think we've seen enough now to know that the theoretical max production will never be hit let alone constantly hit largely due to the unpredictable supplies.

With everything planned now built I think the annual production total becomes the short term focus for the share price and the companies credibility. On paper it seems perfectly achievable but we keep being disappointed.

Crunch time I think - it stops being about the story and starts being about the figures!

[bobsworth] 17/8/2014 10:00

Good to see the share price finally ending the week on a recent high.
Makes a nice change following news!
Let's hope this rising trend now continues with 6 plants on increasing production.
The expected 40mt for this month shows a degree of confidence too, especially with IO#2 having been completely shut-in until the first week of August!
With IOF# 5&6 now in production + IO#3 on better run times & IO#4 on 30,000 bpd from mid month and 3 weeks of plant 2 on increased production they stand a very good chance of hitting a new monthly production record .
All we need now is for the O&G Operator to finally give Iofina a break from all these endless brine supply interruptions.
Then with increased brine supplies post fracking, they can finally show the market how productive these plants can be.

[cyberbub] 16/8/2014 17:36

In terms of an enterprise valuation, don't forget to value the actual IP for the IOSorb process! The patent must still have 20 years to run (plus extensions) and IMO if it is defensible it must have a valuation by itself well above the current market cap...NAI

[crosseyed] 16/8/2014 16:56

Bogg1e,

I agree entirely. I did say that I haven't included them as yet. In fact, the iodine model is till a work in progress. But if the valuation just for the iodine business supports investment, then the others simply add to IOF's attraction as an investment, albeit either or both of water and helium (and land properties) might well be substantial assets in their own right.

c

[bogg1e] 16/8/2014 16:36

Crosseyed, the oil, gas and helium are a bit of a fog. Im going through notes now regarding the subject and its quite confusing. Thanks to rug, sg etc we have an idea of some of the oil, gas and helium found nearby, but until we get some proper surveys done on their reserves its all guesswork. Nevertheless its important to try to obtain some grasp of the potential value in real terms should a bid come in for the company.

[crosseyed] 16/8/2014 15:56

naphar,

The link works fine this time :} An interesting read indeed.

The Gordan Growth model recommended in the article to calculate a termination value, predicated on an ongoing business into the future, gives a value somewhat higher than the PER multiple (15) applied to standard EV in the last year, though within the same ball-park, as does the simpler Exit Multiple model using a multiple (15) of free cash flow in the last year. Those are very rough tests and by no means conclusive! However, it does indicate (to me) that the EV approach might have some merit using an acceptable PER.

The difficult bit is making the growth assumptions.

In response to engelo's post, I have not considered either the water project or helium in my model as yet. However, a model based just on the iodine business (well, including the non-iodine products from IOC) at least proposes a minimum expected valuation. At the moment, my focus is on gauging whether or not IOF's core iodine business is viable and profitable. I think it might be :}

c

[woodpeckers] 16/8/2014 14:29

Thanks all of you for the very interesting dicussion re valuation.

engelo, re your question about the lampricide and "why do IOF Chem make it if no iodine involvement", IOF Chemical make products from other elements from brine streams as well as iodine.



"Our expertise lies in formulating and manufacturing fluorinated, chlorinated and iodinated compounds."

[naphar] 16/8/2014 13:45

Cross,
not sure about the idea of using EV as TV, I think it might make the values to high.
Long time since I studied this stuff though. The TV calc in the link is simple enough to use, and I think it's best to stick to clean, well known/accepted methodologies personally.
The TV can also depend on how far out you are forecasting fully. For my company, we were forecasting 10 years in relative detail, then another 10-15 with high level growth assumptions etc, then adding a TV on top of that. So the TV became a relativel low percentage of the total valuation.

[naphar] 16/8/2014 13:40

cross
the link I tried to post must have been modified by ADV, or my phone adapted it somehow.
It explains the TV bit, not the NPV bit.
Google Investopedia Terminal Value. It should be the second entry with web address ending dcf4.asp

Try again:

[engelo] 16/8/2014 13:18

crosseyed: very useful posts thank you.

"How about the conventional EV (Enterprise Value), that being the notional worth of the company were it to be taken over?"

To me (have nothing to contribute here) the EV calculation and result would be very interesting to know. Presumably your thoughts are focused on the value of the iodine business.

The 'real' takeover value would have to take into account the potential of water (here's hoping) and the value of Atlantis/oil and gas acreage and I believe the value of existing contracts with the oilies.

[engelo] 16/8/2014 13:02

Gad: thanks for analysis of lampricide manufacture, much more thorough than mine. You may well be right, but two things puzzle me: why do IOF Chem make it if no iodine involvement (however I do have a vague recollection that they may have inherited it from a takeover in the early days)? And do they have their own method (or patent? to avoid the patent problems?

Boggle: not sure if any of this is helping but thanks for raising the question. Have looked around for the $4.5 m alleged from the AGM but can't find it. Guess it will be buried in the interim figs for IOF Chem when they come out.

[crosseyed] 16/8/2014 12:36

Bogg1e,

One further point that I omitted yesterday. It is not just the inventory of raw iodine that had built up by the end of 2013. There was also a total of $3.5 million in partly and finished derivative products, all available for almost immediate sale in addition to production during 2014. Of course, there will always be inventory but that level was clearly regarded as excessive in the accounts summary and subsequent RNS's. Perhaps at least $1.5 million of that might reasonably be reduced, ie added to sales for the year.

WIP inventory seems to have built up to imply an average production cycle of about 1.75 months, ie the time from starting production of a derivative to its completion when it is transferred into finished materials inventory. That seems rather a long time. My subjective feeling is that the production cycle could be reduced to, say, 1 month.

c

[bogg1e] 16/8/2014 12:10

I note that the current broker notes on IOF are Discount Cash Flow (DCF) models but to be honest it did my head in and i dont understand it. Interestingly they quote 156p and 160p for 2015. After making further adjustments based on your (naphar and crosseyed's) suggestions above, i came up with 149p for 2015, which isn't far off the broker targets but without the mind bending algorithms ;-)

[crosseyed] 16/8/2014 12:10

naphar,

Thanks but if that is simply explaining how to calculate the NPV (your link doesn't work) I am very familiar with the concept and its use having worked with financial forecasting models in a consultancy role (my background is operational research, not accounting).

What I was really querying is the idea of ending the evaluation period with a termination value on the basis of a conceptual sale of the company using the EV to assess what that sale value might be - it would be a cash payment to hand over the company. I haven't seen that done before but it seems like a reasonable approach.

c

[naphar] 16/8/2014 11:50

Cross, it would be an option. Without doing some comparisons I don't know if it would be reasonable or not. When I was doing such calcs for the company I work for, we used an equation to work it out. Unfortunately I no longer know what that equation is (it was quite complex IIRC.

There is an explanation here:-

4 . asp

It may even be the formula we used, in which case not so complicated.

[crosseyed] 16/8/2014 11:21

naphar,

Regarding NPV analysis, you mention the discounted cash flow with a final terminating value, also discounted back. That set me thinking as to how that terminating value might be determined. How about the conventional EV (Enterprise Value), that being the notional worth of the company were it to be taken over?

In that regard, EV would be based on the final year's earnings grossed up by a PER (Price to Earnings Ratio) value of say 15 plus Cash and less Debts, etc. Thus, even looking at a relatively short period into the future, that would provide a metric on the assumption of a take-over at the end of that period. Of course, if the company is assumed to be growing at that time, EV would represent a very modest valuation at that time but also provide room for profit for the acquirer. There is always too the option to project further into the future.

Any thoughts on that, please?

c

[gadolinium] 16/8/2014 09:29

Engelo,

It is not impossible, but I do doubt whether the synthesis of lampricide involves iodine. Despite your patent claim to a method of preparing phenols by displacement of halogen where the halogen 'can be fluorine, chlorine, bromine or iodine'. If you look at the eleven actual examples provided which illustrate the process of the patent you find the only halogen used in the displacement reaction is chlorine. I believe the coverage of the other halogens is just for generic protection of the invention.

Alternative patent processes such as Canadian patent CA-666608 use alternative non-iodine routes.

[bogg1e] 16/8/2014 08:41

Thanks chaps again. feedback much appreciated.

[crosseyed] 16/8/2014 08:40

naphar,

NPV is the ultimate purpose of my model though the other measures like EPS fall out in the process. As you say, though, it does involve more detail and hence complexity.

Lots of valuable contributions from this BB, thanks SG.

c

[naphar] 16/8/2014 07:57

Bogg1e
I don't personally think you should add the cash in this kind of case.
Its true that when looking to buy a business, you might look at earnings, use a multiple to value them, and add on something for the value of assets. But, then you need to consider the entire balance sheet.
Valuing a stock based on EPS x PE seems the most common basis to me, depending on business, stage of development etc.

I would ignore the cash, because actually some of it will have been used, $5m of it is actually owed to AB, another $15m is owed to Stena.

In terms of valuation methodologies, you could also look at NPV (much more difficult as you should forecast for 10-15 years plus a terminal value imo).

Or try enterprise value, not as complex as NPV and somewhat aligned to what you are trying to achieve by adding cash. Definition below.
"Definition of 'Enterprise Value - EV' A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is calculated as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents."

HTH