Most of us probably aren’t as familiar as we should be with the natural dark violet element Iodine.
Humans need the non-metallic mineral in trace amounts for proper development and growth.
Used by the thyroid gland, it regulates blood cell production and helps with nerve and muscle function.
Outside of the body Iodine compounds are used in CT scans and MRIs - most of us consume it as an additive in table salt.
Despite the mineral’s importance and wide ranging uses the world has only a handful of quoted iodine companies.
Chilean-focused chemical giant SQM - listed on the New York Stock Exchange - is the largest with a market cap of US$5.5bn.
Exposure via London comes solely in the form of AIM’s Iofina (LON:IOF); the market’s only pure-play Iodine producer.
Both have been hampered by an Iodine price that has effectively halved since 2011.
A spike to US$60/kg came four years ago after the Tohoku earthquake and tsunami in Japan- the country produces a fifth of the world’s iodine.
Prices are now in the doldrums and hover around the US$30/kg mark.
That’s a similar level to the cash cost of production of most major Chilean producers who continue to dominate global supply - they produced over half of the 32,600 tonnes of iodine extracted back in 2013.
Any commodity price slump forces the smaller, nimbler players to re-think and adapt quickly in order to survive.
For US-based Iofina, last year proved to be a period of transition.
The firm produces Iodine through a patented process known as Wellhead Extraction Technology®, or WET®.
It does this by retrieving underground brines (waters containing dissolved salts and ions) from natural gas and oil deposits across Texas and Oklahoma.
A second method, WET® IOsorb®, is used on larger volumes of higher temperature brines often containing oil and other contaminants.
Either way, once extracted, the Iodine is passed over to Iofina’s chemical business, which gets to work making various iodine derivatives before selling onto buyers.
It’s a vertical, low cost approach that guarantees a stable source of supply.
"Despite hitting record levels of 327 tonnes last year, decline of brine supply at its recently decommissioned IO1 ‘proof of concept’ plant and supplier use of produced brine for fracking at other sites contributed to lower than anticipated production.
"The net result (low prices and operational issues) has been missed production and financial targets, a substantial fall in the share price, key management changes and further fund raises,” says finnCap analyst Raymond Greaves.
In response, the firm put a halt to its expansion plans and initiated a review of operations, costs and cash flow.
Shortly afterwards Tom Becker, who previously led Iofina’s successful chemical unit and who has been at the company for over 11 years, was parachuted in to kick-start a revival.
“Our previous strategy of growth at any cost didn’t allow us to remain a low cost producer at all of our production sites,” says Becker, who took charge in September last year.
“Instead, we’ve focused on operational excellence and cost reduction.”
In simple terms, this has meant mechanical modifications, such as improved pumping capacity and design at its five plants.
There have also been process and procedural changes with better defined roles and responsibilities across the group.
“We’ve learned vital lessons,” explains Becker. “Now we’re committed to operating in the most efficient manner possible.”
Recent numbers suggest the changes are doing the trick.
Iodine production and related speciality chemical derivatives rose to a record 294 metric tonnes in the first half of 2015 – a rise of a 110% on the year earlier.
Second quarter output also hit a new high.
The revitalised performance means the group will be EBITDA (underlying earnings) positive in the first half and is on course to be second largest Iodine producer in USA in 2015.
“We believe Iofina could be at an inflexion point,” adds finnCap’s Greaves.
“First, the iodine price appears to have reached a trough and we see the price recovering to long-term trend levels of US$40/kg by the end of the decade.
“Second, Iofina appear to be getting to grips with the operation of their IOsorb plants. IO#2 and IO#3 were in operation for the whole of 2014 and we believe they delivered strong utilisation and extraction rates.
The recent announcement upgrading 2015 H1 iodine production to 280+ tonnes lends significant weight to this argument.
The broker reckons shares are worth 45p - double their current value - which would give the company a market cap of £60mln.
Iofina itself is less bullish on the Iodine price than finnCap.
Along with its most recent trading update, the firm said it expects prices to remain below historical trends throughout 2015.
Even so, Becker says the firm is now comfortable operating at current prices and will continue to move forward.
“We can’t influence the price, so we’ll keep working to continue the trend of record production and revenues, reducing production costs further, growing and, eventually, become the leading US iodine producer.”
In the long-run, Becker also has one eye on Montana and the company’s Atlantis project.
Iofina has acquired 30,000 acres in the north of the state, located between the Medicine Hat and Tiger Ridge biogenic gas fields.
Having acquired 34 wells and 34 miles of pipeline, Iofina plans to not only extract the iodine from brine, but to also produce the gas which it will then sell into the domestic market.
Recently the state denied a permit for the water depot project but Iofina has called for a review of the decision, which is expected to take six to nine months.
“That’s a non-core business which is being put on hold for now,” Becker explains.
“We continue to see the project as a unique opportunity, which could add significant value to the company over the long-term.”
“In any case, Iofina is well-positioned for the future – we remain a growth company with unique model for producing a resource with a limited source of supply.”