Iofina collapses to new low

There have been quite a few spectacular share price crashes in recent years. Miners and energy companies hog most of the top spots, but others like Iofina feature heavily, too. The firm strips the iodine out of the saltwater - a byproduct of oil and gas production – before the energy companies dispose of it. But the price of iodine – used in dyes for x-rays and CT scans, pharmaceuticals and LCD displays - has plunged in recent years. Now an earthquake in Oklahoma could spell trouble for the business.

An quake measuring 4.7 on the Richter scale hit northwest Oklahoma late last week. The epicentre was just five miles due south of one of iofina's plants. Because of the tremor – among a number to hit the region in recent months - the Oklahoma Corporation Commission (OCC) has issued an implementation plan to limit fracking nearby.

This likely means less brine for iodine extraction purposes. Although the actual impact is unclear, Iofina still anticipates hitting its second-half production target of 260-300 metric tonnes (MT). However, we spoke to chief executive and president Tom Becker who told us his "back of the envelope" estimate, made over the weekend, is that Iofina's current production rate of crystalline iodine could fall by 10-20% on an annual basis from its five operating plants.

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"We'll get a better view of the likely impact over the next few weeks to a month," Becker told Interactive Investor. "We hope to put out an update in a few weeks, even if it's just a wait and see."

This could not have come at a worse time for Iofina. Losses swelled last year from $3.7 million to $6.6 million, largely as a result of lower iodine prices.  Most of the world's iodine production takes place in Chile and Japan, so prices rocketed when the tsunami hit Japan in 2011. But they've dropped sharply since as supply comes back, and Becker predicts "steady to slightly downward pressure on iodine price near term".

Iofina floated in May 2008 after raising £15.1 million at 55p a share. That valued the business at £51.6 million. They peaked at around 250p in 2013 amid a production ramp-up and bid speculation. Millions of pounds have been raised, too.

Seven-and-a-half years later, the shares are worth just 15p and the company less than £20 million. They plunged by over 20% to 13p at one stage on this latest disappointment. At the end of June, the company had $4.8 million of cash and net debt of $14.4 million.

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As broker finnCap points out , the implications for Iofina’s iodine production are not clear just now, as fracking sites currently inject volumes well in excess of the capacity of Iofina’s plants, "thus Iofina’s output could be unaffected by even a material drop in fracking levels".

"Until we are clearer about the impact of the OCC implementation plan, we are leaving our forecasts unchanged, but recognise that the margin for error has probably been materially eroded."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.