Boosting production at the lowest possible cost must be the mantra for any manufacturing company, so news that iodine firm Iofina plc (LON:IOF) is constructing a new plant to do just that was taken positively by its shareholders this week.
Shares in the AIM-listed group soared 20% higher on Tuesday after it said the new IO#7 plant will be based around its existing IO#3 operations in Oklahoma - hitherto Iofina’s highest cost per kilo plant.
The firm said, however, the new plant will have similar production capabilities and cost structure to Iofina’s lowest per kilo production cost plant.
Iofina projects that, once fully operational – with construction expected to take four to five months – IO#7 is expected to contribute more than a 40% increase in annual iodine production, along with a significant reduction in overall per kilo cost of production.
Back in July, Iofina revealed that had production exceeded its expectations for the first half to end June, despite the IO#3 plants being shut-in.
The group said then output was 235.5 metric tonnes (MT) of crystalline iodine from its four operational Oklahoma-based plants in the six month perriod - bettering expectations for between 215 and 230 metric tonnes.
Iofina's chief executive and president, Dr Tom Becker said: "Despite having to adjust our output forecast following the IO#3 shut-in, the board is pleased that we were able to exceed our production targets in H1, which is testament to the improved processes and efficiencies."
For the second half, the group said it expected to produce between 225 and 240 MT of iodine from the currently operating plants.
In terms of prices, Iofina said in July that it reckoned iodine - which is still below historic levels - may well increase in the near and long term.
The iodine price, which obviously has a huge impact on Iofina’s financial performance, has been on the wane for the past five years and fell another 20% in 2016.
‘House’ broker finnCap noted then that "operationally, the company had performed well, with strong demand for Iodine and its derivatives and iodine prices remaining stable".
In May, Iofina had also managed to report an increase in revenues and said that it remained profitable last year, despite a difficult period for the industry as a whole.
For the 12 months to 31 December 2016, the group generated revenues of US$22.5mln, a year-on-year rise of 11% (2015: US$20.3mln) as it sold a record 474.2mln tonnes of iodine.
Gross profits dipped to US$2.7mln (2015: US$4.3mln), but remaining in the black was no mean feat given that iodine prices fell 20% or so in 2016.
The company’s proprietary IOsorb processing plants take waste water and brine, a largely unwanted by-product of most onshore oil fields, as a feed stock and from them makes iodine - a commodity used in animal feeds, chemical manufacturing, chemistry and in medicine.
Iofina’s five plants in Oklahoma take waste water from just one quarter of the producing oil fields that are still in operation, hence why the well doesn’t run dry very often and, when it does, it doesn’t last for too long.
Back in December, Iofina said that suppliers had been diverting water from the company to their own fracking operations which contributed to an easing off in the production of crystalline iodine in the final weeks of the year.
But by the middle of January the company had returned to “more normalised levels” although plant IO#3 was shut-in in the period due to a lack of brine supply and the firm said then that it was continuing its efforts to move the facility to a better location, which culminated in this week’s announcement.
Debt facility to be used
Iofina said it is likely to draw on its Term Loan Facility to fund the IO#7 construction project, with the group having announced in summer 2016 Iofina a new debt restructuring deal which also saw it secure an additional US$10mln of funding.
The maturity date for the US$20mln convertible debts the group owed to Stena Investment (US$15mln) and Panacea Limited (US$5mln) was pushed back until June 2019, while interest rates were lowered to 5% from 6% as well. That allowed the firm to reduce its immediate cash payments.
On top of that, Stena greed to extend a further US$10mln line of credit which is designed to give Iofina flexibility for its operations and expansion plans.
finnCap this week reiterated its 20p price target on Iofina shares, which are currently changing hands at 11p each, easing back having hit a year high at 12p on Tuesday, with the stock still up around 8% in the year to date.