SMALL CAP IDEAS: Iodine maker Iofina pushes ahead with expansion plans

Tight economic times may put expansion on the back burner, but is on the AIM list Iofina is a small cap determined to push through.

Already the second largest producer of iodine in North America, Iofina recently announced a strategy to double production in the coming years.

Iodine is a rare element, but essential for humans, and its uses range from antiseptic and pharmaceutical agents to X-ray contrast agents and other industrial agents.

Iofina has developed a technology, IOsorb, that allows the chemical to be extracted from brine produced as a by-product at onshore oil wells.

Five plants are already in operation and groundbreaking is expected soon for the next IOsorb iodine plant in Oklahoma, named IO#9.

“What this will do for Iofina is it will enable us to execute on our growth strategy to locate new iodine plants in a new core area in Oklahoma and double our iodine production in the next three to five years,” said CEO. Tom Becker.

In fact, the plant must be able to pay for itself quickly.

‘We can source well where there are large quantities of brine water with good iodine concentrations,’ he added, and as a ‘low-cost producer’ the new plant should be profitable within two years of operation.

Construction time is approximately six months and production is expected to begin in the second quarter of 2023.

In terms of earnings, Iofina’s half-year results in September showed the progress it has made recently.

Underlying profit was a record for the company, underlining a 6 percent increase to $3.7 million.

Cash is now significantly stronger at $4.7 million at the half year, reducing net debt from $7.2 million to $2.8 million.

Raw iodine sales volumes were lower as pandemic-induced inventory build-up cleared itself, but rising demand and prices helped offset this.

Gross profit increased 5 percent to $5.7 million thanks to an 89 percent increase in price per kilogram of iodine and a 36 percent increase in sales of derivatives.

Looking ahead, Iofina is determined to keep building. Becker has the ambition to expand the company’s portfolio from five to seven factories over the next 12 to 18 months.

Analysts at brokerage finnCap have paid particular attention to Iofina’s construction pipeline.

“Iofina’s next phase of growth has been launched, with new brine supply agreements for the latest iodine plant expansion (IO#9), paving the way for construction to start,” said Jonathan Wright, director energy research at finnCap. .

‘This will be Iofina’s sixth working iodine plant; with an expected build time of just six months and an expected capacity of 100-150 metric tons (MT), it will rapidly and materially increase iodine production and provide a rapid return on investment,” he added.

finnCap noted that IO#9 will also further diversify its iodine production business, which in all fairness is already working well: the last production output of 143MT was in line with expectations, keeping the company on track for total production guidance in the second half from 2022 from 255-275MT.

The broker’s share price is 33 pence at a current market price of 21.3 pence.

Real exposure to spot prices for iodine, which have moved significantly higher due to increasingly tight supply and historically low global inventories, could make it something of a proxy.

And, up about 40 percent this year, spot prices for iodine have likely fallen, although Iofina expects them to remain stable through 2023.

But something that doesn’t stop is Iofina’s ambition and with a doubling of production output and an expansion of the range of specialty chemicals in its sights, it’s one to keep an eye on.