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

Straitened economic times can result in expansion being put on the back burner, but AIM-listed Iofina is one small-cap determined to push ahead with its plans.

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

Iodine is a rare element but essential for humans, with its uses varying from antiseptic and pharmaceuticals to x-ray contrast media and other industrial means.

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

Five plants are in operation already and ground is expected to be broken shortly on its next Oklahoma-based IOsorb iodine plant, dubbed IO#9.

‘What this will do for Iofina, is it will allow us to start executing our growth strategy to be able to put new iodine plants in a new core area in Oklahoma and in the next three to five years, double our iodine production,’ said chief executive Tom Becker.

Better still, the plant should be able to pay for itself quickly.

‘We do a good job of sourcing where large amounts of brine water with good iodine concentrations are,’ he added and as a ‘low-cost producer,’ the new plant should be generating a profit within two years of operation.

Build times are approximately six months and production is expected to commence in the second quarter of 2023.

On the earnings side, Iofina’s half-year results in September showed the progress it has made recently.

Underlying profits were a record for the company, underscoring a 6 per cent increase to $3.7million.

The cash position is now significantly stronger and at the half-year point was $4.7million, cutting its net debt position to $2.8million from $7.2million.

Raw iodine sales volumes were lower as the stock build-up caused by the pandemic ironed itself out but soaring demand and prices helped offset this.

Gross profit increased by 5 per cent to $5.7million due to an 89 per cent increase in price per kilo of iodine and a 36 per cent increase in sales of derivative products.

Looking ahead, Iofina is determined to keep building. Becker’s ambition is to increase the company’s portfolio from five to seven plants in the next 12 to 18 months.

Analysts at broker finnCap have been paying particular attention to Iofina’s construction pipeline.

‘The starting gun has been fired on Iofina’s next growth phase, with new brine supply agreements for its latest iodine plant expansion (IO#9) concluded, paving the way for construction to begin,’ said Jonathan Wright, director of energy research at finnCap.

‘This will be Iofina’s sixth operating iodine plant; with an anticipated construction time of just six months and an expected capacity of 100-150 metric tonnes (MT), it will rapidly and materially boost iodine production and deliver a fast payback on investment,’ he added.

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

The broker’s target share price is 33p against a current market price of 21.3p.

True exposure to iodine spot prices, which have moved significantly higher due to increasingly tight supply and historically low worldwide inventories, can make it something of a proxy.

And having shot up approximately 40 per cent this year, iodine spot prices have likely plateaued, though Iofina expects them to remain steady throughout 2023.

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