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City broker hikes forecasts for iodine producer Iofina after “strong” first half

The first-half update revealed a 10% jump in production at a time when iodine prices are on the rise, while the balance sheet has also been strengthened

iofina iodine plant
Iofina extracts iodine from the brine water produced by onshore oil wells

Production at Iofina PLC’s (LON:IOF) iodine plants in Oklahoma rose by 10% in the first half of the year.

In the six months ended 30 June, the AIM-listed company - which extracts iodine from brine produced by onshore oil wells - produced 286.7 metric tonnes (MT) of crystalline iodine from its four working plants, up 9.8% year-on-year (H1 18: 264.1 MT).

READ: Iofina to move into CBD production after Kentucky licence win

Iofina enjoyed a record first quarter, but output was “significantly higher” in the second quarter as the weather improved and issues at plant IO#6 were resolved.

Production should pick up again in the second half, with the company guiding for production of between 305-325 MT of crystalline iodine.

That would take the total for the year up to at least 592 MT and possibly as much as 612 MT. In 2018, Iofina produced 588.8 MT of iodine.

Iodine prices rise

As well as the production increase, the company is also benefitting from rising iodine prices, which are up by 20% in the past 12 months to over US$30/kg.

“The group had a strong start to the year, with many positive achievements including an almost 10% increase in iodine production year-on-year,” said chief executive Tom Becker.

“Whilst this was accomplished through four operating IOsorb plants, we continue to evaluate options for a fifth plant, IO#8, which would significantly increase production rates in 2020.”

Balance sheet strengthened

A near-US$9mln (£7mln) fundraise in May means Iofina now has the cash to construct the new plant and accelerate an upgrade programme at the existing plants.

While bosses were focused on securing the additional investment in the first six months, they also managed to pay down US$3.3mln which, together with a US$4.2mln debt-for-equity swap by Southern Rock Insurance, meant group debt was reduced by US$7.5mln in the period.

“The successful fundraise in Q2 has enabled us to pay down our loan facility and reduce debt further via a debt to equity exchange putting the company in a stronger position,” said CEO Becker.

CBD ambitions

In addition to its iodine plants, Iofina also has ambitions to start producing cannabidiol (CBD) oils and the state of Kentucky recently awarded it a licence to do just that.

“Iofina's newest subsidiary, IofinaEX, is now fully licensed to process hemp in the state of Kentucky and the Directors are committed to exploring the isolation of specialty chemical products from hemp, a rapidly expanding market,” said Becker.

Broker upgrades estimates

“Iofina’s H1 2019 update demonstrates the company is in good shape and has the wind in its sails from robust operational performance, a much improved balance sheet, tangible growth potential, rising iodine prices and a potential CBD kicker,” finnCap analyst Jonathan Wright said in a note to clients.

“Iofina is now firing on all cylinders and has been on a tear, up 55%, since its successful equity raise. A strong iodine market leads us to upgrade estimates materially and raise our price target by 30% to 35p.”

He added: “Still we assign no value to its CBD ambitions; while these are embryonic, CBD has the potential to become a material division if Iofina demonstrates the viability of industrial scale extraction.”

Quick facts: Iofina PLC

Price: 12.3 GBX

Market: LSE
Market Cap: £23.6 m

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Iofina is 'on track and well funded' after reducing debt and staying...

Iofina PLC's (LON:IOF) Tom Becker talks to Proactive London about their production projections which remain 'on track'. Becker explains that the debt refinanced last month 'significantly reduced', meaning they are now a 'bankable business'. He explains that Iodine prices are still...

on 23/10/20

3 min read