"Iofina, specialists in the exploration and production of iodine, and iodine and other halogen based specialty chemical derivatives, is pleased to announce positive Interim Results for the six months ended 30 June 2017 (the "Period"). During this Period the Group achieved a number of significant financial and operational milestones and accordingly looks forward to the rest of the year with increased optimism.
In particular, during the period the Group significantly improved EBITDA performance, focused resources on the planning of the new IO#7 plant which is now under construction, and exceeded the revised production targets announced following the closure of IO#3 plant.
The Group's IOsorb® plants produced 235.5 metric tonnes ("MT") in H1 2017 which exceeded our expectations of 215-230 MT of production following the closure of IO#3. The Board expects the Group to produce between 225-240 MT of crystalline iodine in H2 2017 from its four IOsorb® plants in operation.
Alongside improving operational performance, the outlook for the Group is increasingly positive in terms of both revenue and profitability, given that spot iodine prices have already risen by approximately 25% to $24/kg since the start of the year. Moving forward the Group will be significantly increasing iodine production whilst also reducing the unit cost of production. Having controlled costs and managed the business efficiently during a period of low iodine prices the Group is confident it stands well placed to take advantage of an improving underlying marketplace....."
I have to commend the board on the clearest most transparent set of results they've ever produced. Nothing is hidden afaict. They've finally put the water rights behind them (it was originally worth pursuing, but they dragged it on and spent lots of money way after it was obviously not going to happen). They're still putting money into mineral rights ($370k) which I can't see any positives for, but I'll give them the benefit of the doubt. The restructuring terms and liabilities are clear.
They're no longer claiming any real visibility on Iodine price, none of the old "it's stabilising". The outlook is explained with complete clarity, still on the downward trend, no likelihood of any immediate improvement; long term forecast of above $30 which if you look at the trend over 30 years is completely reasonable, especially with demand continuing to increase. Historically low inventories suggest that the market agrees that the downtrend is still in place (if the market thought the price had bottomed they'd be buying at the current price to build inventories before the price goes up; instead while they think the price is continuing to drop they continue to use existing stock because they'll get it cheaper later). And continuing oversupply.
The financial position is clear. They can't make enough to pay off the debts, even if they cut costs further - in fact it doesn't seem like they can cut costs any further. If you dig in to the figures, without the loan interest they'd be roughly cashflow neutral (there's a roughly equivalent inflow from stock decrease and outflow from the mineral rights); the loan interest is the net reason the for cash decrease. The new loans let them rollup the interest if they want, and together with the $10m loan facility that means they don't have cashflow problems. But of course just having the amount you owe go up each year without making any more cash is not going to benefit the shareholders.
So the strategy they're going to follow is double or nothing. They're going to compete headfirst in the global oversupply by adding yet more supply. New plants will be commissioned and using their existing expertise they'll aim for a cost of production which matches the current low price levels. Basically, they're saying to the other producers "we're going to produce ever more until 2019, and if any of you swerve, we reckon our creditors will roll over and let us continue even after that". Yes, it's a global game of Iodine production chicken. It's not a bet that's worth taking if you don't already hold shares. It's also their only realistic option, other than just doing nothing and hoping the Iodine price will go up - and "hope" is not really a viable strategic alternative.
The shame is that if they had been this sensible all along, this would now be profit making, with no loans and growing fast. Lots of ill-advised detours, but I guess thats all in the past now. Good luck to you shareholders.
This is a win-win-win deal. From the company's point of view, it's a stay of execution on the loans, potentially a 1 for 2 rights issue which is good value for the current price, and the new loan facility is invaluable here and now. For shareholders this places a likely bottom on the price for now (it could go down from here but not by much, and it could certainly go up). For the lenders it's a great deal: a good interest rate in the current environment if the price doesn't rise, a good conversion price if it does, and in the worst case scenario of management failing or Iodine prices staying low, they get the entire company as senior debtors in 2019 - instead of a company in chapter 11 next year and haggling to get assets.
Well done IOF. Now you need luck, the price of Iodine needs to start an uptrend, even if it's a really slow uptrend.
Iofina has announced a comprehensive restructuring of its Convertible Notes, which shows clear support from note holders Stena and Panacea. The elimination of short/medium-term liquidity risk increases... Refinancing becoming of critical concern. A concern for the market has been the looming 2017 maturity of $20m of convertible debt. scraped this from Research Tree
I was in and sold on the pullback.
Made a small bit of my loss back
Recovery of iodine prices is critical as still making loss but I think they undercut chile so chile may lose in the long run.
People lend to make money if they are paying ok then probably get rolled over
If price doesn't increase it will slowly die issuing shares to keep going seen it a few times.
Perhaps chile ought to buy it while it's cheap
Slightly worse than my forecast, but not really significant - they say the higher negative cashflow than my forecast was due to building inventory for new markets they've already identified, so effectively they hit my forecast. Which means that nothing has really changed, the debt due in almost exactly 1 year from now is critical.
Which means currently this is purely a couple of bets, analysis can't help determine how those will go. Bet 1 is that they can negotiate loans. They claim confidence here, but normally that would mean they would have released news alongside the final results stating new terms have been agreed. Just to be clear this is a real risk of losing your entire shareholding - see the "Liquidity risk" paragraph in section 14. Failing them adequately being able to restructure the loans, they will either hand over the business to the loan holders (shareholders will get nothing) or declare chapter 11 (more likely, again shareholders will get nothing). Given no announcement I'd have to say this is a 50/50 bet.
Assuming they can change the loans into some ongoing debt facility or long term debt, then there is the second bet - that iodine price will recover. To be clear, the company has no real prospect of turning cashflow positive without that. The worrying point here is that they acknowledge that "Globally, the largest iodine producer has indicated that they intend to not lose market share". That's what Saudi Arabia said about the oil market and caused the oil price to drop drop drop until the current situation, so you have to worry that even if the Iodine price has stabilised (which they say they see, but they said that almost every report all the way down from $70/kg), that doesn't help much, it needs to grow, not stabilise. So again that's pretty much another 50/50 bet.
If both bets went the way of the company, we'd be talking about a company worth somewhere between 50p-100p based on forecast profits (if both bets come good). On that basis the risk adjusted valuation for the company is 75p (average of that range) x 0.5 (bet1) x 0.5 (bet2) = 19p. So that makes it fair value at current price, but very high risk.
Good to see the phoenix rising from the ashes. Up from 5p and still rising! After a period of over expansion which nearly did for the company, Iofina has been cut to the bare bones i.e. it is primed to make good profits on iodine if the price of this commodity starts rising. The recent RNS was encouraging and the Questor tip has put fuel into the share price. Fingers crossed.
Good to see intrinsic value returning here...................but..............it has been a helluva wait. Iodine is required globally, barriers to entry are high, demand remains strong, commodities generally are on their chins straps, survival of the fittest - and Iofina seem to be making a decent fist of coming through the commodity recession in good shape. A tick up for the management.
I understand that the debt is unsecured too, biofarmer, so Stena haven't got much choice really. This is now a play on a coming supply squeeze in Chile imo, with a number of the iodine producers there in trouble, and it could well mutibag from its lows if that plays out in a cessation of production. And of course there's the prospect of them winning their appeal on the water license.
"LSE:IOF:Iofina has had its problems. The company strips the iodine out of brine - a byproduct of oil and gas production - before energy companies get rid of it, but iodine prices have been on the slide, and an earthquake in Oklahoma last year, ..."
Not sure where you get to 20p in a day its taking a breather now.
"I am pleased by our response to the challenges faced in 2016. Iofina produced more iodine from its Oklahoma operations at a significantly lower cost than the same period in 2015 and is on target to reach H1 production goals.
I think result are out soon, it was EBITA positve on last set so hopefully the significant reduction has had an impact despite the lower iodine price. I see Isorb 1 might be used somewhere else and they see significant opportunities at current prices.
If it's making a profit it should be adding to cash if there is no expenditure.
Views welcome, made a small amount so far thinking I will hold for results.
Perhaps it was the Brine supply worries that drove it down now that seems to have disappeared with this RNS is probably the reason.
Any views welcome, they were profitable on last result so assume that includes debt interest, sounds like they might be making a bit more now, pity no numbers to crunch, sounds like they are thinking of expanding so that is very positive.
"IOFINA PLCÂ (LSE:IOF) mentioned on the front page of Interactive, deserves a glance as the share price stinks. What really bothers us is, we'd warned previously of an 'ultimate bottom' against this at 40p and the share spent 2014 poncing ..."
"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 LSE:IOF:Iofina feature heavily, too. The firm strips the iodine out of the saltwater - a byproduct ..."
The loans aren't facilities, they're convertible bonds, well underwater so won't be converted. The bondholders could agree to refinance - it's up to them, but that's still a refinance. I suspect they have asset backed bonds, so it might be in their interest to not refinance - and get the company assets instead, it all depends on how string the company's position is in. So if you are running IOF, you need alternate refinancing options, once you have that, you can negotiate.
BUT! They're implying that the $3.1m increase in inventory will produce $2.2m or more cash profits (ie after costs) when they sell it (the industry needs chunkloads delivered, hence their insistence that they need to build inventory so that they can sell decent sized chunks).
On that basis, the fy cashflow would imply
+$8m operating profit
-$5.2m admin costs
-$1.5m interest costs
which is nearly break-even on a fy cashflow basis.
I don't believe they'll keep capex below $2m, and I doubt they'll get the full implied $4.4m from inventory this year, but even so I'm thinking now that fy cash drop will be under $1m, ie they could reasonably end the year on $6m cash, with a good prospect that next year (2016) they'll actually be cashflow break-even or even cashflow positive.
If there was no debt, this would now be undervalued. With the debt, they have to refinance (there's no way they can pay $20m in 2017 on current figures). But with $6m in the bank and cashflow positive (just) that implies they're highly likely to be able to do an equity placement (worst case) - and even raising new loans would actually be possible now rather than unlikely which was my last opinion.
So the big problem is, with no refinancing news less than 1.5 years from the debt due date (the report is dated end sep and there were no post 30 June balance sheet events), and share price at 18.5p as I write, I'd have to assume a heavily diluting rights issue (they need something like a 1 for 2 now but it will get worse as the sp drops), which is going to depress the share price even more than now.
So, I'd say wait for the dilution, then buy. That would imply a sell now, but if you're heavily into a loss on your holding you might want to hold rather than miss out in case they get it right and manage to just refinance the loans long term with no dilution.
At least it no longer looks like it'll end up getting taken over with nothing coming to the shareholders.
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