The announcement – which comes hot on the heels of the denial of a permit for a planned Montana water project (13 Dec) – is at odds with the positive tone of our latest article on the company in October and our decision to make the company a Play of the Week in August.
Iofina's woes are a reminder of the growing pains youthful companies can experience. The group says revenues and earnings before interest, tax, depreciation and amortisation (EBITDA) in 2013 are likely to be comparable to 2012 levels. House broker Investec's most up-to-date forecast was for a year-on-year increase in revenues from $18.9 million to $30.9 million and build in EBITDA from $200,000 to $3.3 million.
The Iofina business model involves building partnerships with large US oil and gas companies. Under these agreements the company uses its patented IOsorb technology to extract iodine from the waste brine water produced at unconventional fields. Iofina pays 100% of the install costs, operates and retains 100% of the iodine output. In exchange, the third party operator receives 10-20% of the sale price of the iodine. The company sells a significant chunk of this iodine into its own specialty chemical iodine derivatives business in Kentucky (Iofina Chemical).
Today's warning is blamed on 2013 shipments at Iofina Chemical being delayed into 2014. In addition external iodine sales previously anticipated in 2013 are expected to commence in 2014, resulting in an inventory build-up.
Iofina has six IOsorb plants currently on stream or in construction – a further three full size plants are planned for 2014. This compares with earlier guidance from the company that six to eight plants would be brought on stream per year. It does flag a plan to use additional mobile plants with their design currently being finalised.
The iodine market is opaque but the slump in prices flagged by the company implies spot prices have fallen from around $50 a kilogramme to $40 a kilogramme. It is worth remembering here the firm's operating costs are around $10 to $20 per kilogramme.
The Iofina share price had already fallen last week as authorities blocked the development of its Atlantis prospect in northern Montana. Atlantis is estimated to contain 35 billion barrels of water which could be sold to producers in the Bakken shale formation. However the project was not factored in to analysts' models and did not look to be priced in by the market ahead of this announcement.