Iofina plc (IOF) Earnings Call Transcript

Good afternoon, and welcome to the Iofina plc investor presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. We do apologize for the slight delay in starting today. I'd now like to hand you over to Tom Becker, CEO. Good afternoon, sir.

Thank you very much. I hope everybody is doing well today. Happy to present an update on Iofina, especially focusing on the first half year results, which came out earlier this week and really an outlook for the future, which we're very excited about. Go through what we're going to be looking at from a presentation standpoint here as a general agenda. Just talk about the company in quick terms. I think most of the people that are listening to this call are familiar with Iofina, but there may be some that are not. So we'll give a quick overview of what Iofina is and what we do. And in the market that we're mainly in, and that is the iodine market. So we'll give a little bit of history of the supply and demand and pricing of iodine and also what kind of markets that iodine is going into and how those markets are growing. And then we'll get into what we kind of did in the first half of this year, both from a business standpoint and a financial standpoint. And then we'll get into what I think is -- and those first half of the year numbers, I think we're very excited about and proud of what we're able to accomplish in the first half of the year. And then we'll get into what I think is even the more exciting aspect of it, and that's our pathway to 2,000, our growth of our iodine production that we are planning to roll out and why as a successful iodine company with growing business, why the investment case for Iofina, in my opinion, has a real upside potential and where we think we're going to be moving here down the road. So to jump right in and talk about the company a little bit in itself and just talk about our operations. We are a specialty chemical company with an expertise in halogen-based chemistries, so iodo-, chloro-, fluoro-based chemistries with a real focus on iodine and iodine production. And to do this, we've developed technology over the course of the last 20 years in order to build the business that we have today. And all of our operations for Iofina are in the United States. So 2 divisions, Iofina Chemical and Iofina Resources. Iofina Resources is the arm of the business that has basically 2 goals, 2 functions. And one is to explore for and develop potential for where we can produce iodine from brine water, waste brine water in the United States. And once those opportunities are identified, the second portion is to build and produce iodine from these particular sites. So very focused operation. Where is the iodine, where can we economically produce iodine? How can we use a resource that's already being produced from oil and gas in order to extract a valuable resource from a waste stream and then how to -- and then build and operate these plants on a very low-cost basis. And all those kind of things are done in the core areas that are shown in the map here. So there's 2 core areas in the state of Oklahoma, one in the Northwest core area, which we have 5 plants in operation currently. One core area in the Central Oklahoma area where we have our latest 3 plants in operation. And we're very excited about the new third core area in the Permian Basin, which IO#12 is currently being built and should be up online here, pushing water through the plant in the next few weeks. To support the Iofina Resources division, we do have an office in Denver, Colorado to support those kind of activities. The Iofina Chemical side is also a very major portion -- functional unit of our organization. It's located in Covington, Kentucky, just outside of Cincinnati, Ohio. And what Iofina Chemical does is it takes all the iodine that Iofina Resources creates, either takes that iodine and creates value-added derivatives that go into various applications or is our total sales arm of the organization that sells that crystalline iodine that's produced at Iofina Resources throughout the world into various markets that need iodine. And to jump into those markets that need iodine, let's talk about the iodine market a little bit, how we view the iodine market, its current pricing and demand situation and where iodine goes. So a little bit of a history of where iodine comes from, who manufactures it. About 60% of the world's iodine, maybe a little bit more than that comes from Chile. They mine iodine from ores in the Atacama Desert, and this is a pretty labor and rock moving intensive process, energy-intensive process to extract it from iodates and then refine it in order to get iodine. There's 4 major manufacturers in Chile, SQM being the largest, which produces about a little over 1/3 of the world's iodine. The rest of the world's iodine comes from brines, but what makes Iofina unique from the rest of the world is we are the only one that's using oilfield produced brines from third parties. We go to where these brines are already coming up with oil and gas operations. So we are not drilling our own wells or our own disposal wells for this brine. We partner with oil and gas companies, extract the iodine from them, give back the water and everybody benefits from the iodine that Iofina manufactures and without Iofina would never be realized. The market itself continues to grow. In 2026, we expect the iodine market to be at or around 40,000 metric tons of production on an annualized basis. And this chart also gives you an idea of how pricing has been. And pricing over the last 4 years has been fairly stable, generally over $70 a kilo on 100% basis of sale price of iodine. And we believe this firm pricing is a more normalized price that we're going to see here moving forward. I can never predict the future. But right now, for what we're seeing in the market from the demand from customers that we associate with the information that's in the market about supply, we do believe that the supply and demand for iodine is fairly well in equilibrium. But what this also means is that as you can see from the chart is that the iodine market continues to grow. We'll talk about the applications in particular, that are looking to grow. But if this iodine market, which has, on average, over the last number of years grows at about 3%, that means there's an additional 1,200 metric tons of capacity or thereabouts that needs to come into the market in order to meet demand. So Iofina's ambition to continue to accelerate our iodine production and just meet a fraction of that ongoing demand, we believe, is the right action in a growing market, which also wouldn't disrupt the supply and demand equilibrium. Just from a demand standpoint, demand in Asia is especially growing compared to the rest of the world. And in particular, some of these are the major applications that iodine goes into. The one I'll really focus on a little bit is X-ray contrast media, although you can see there's a number of different areas that iodine is used for around the world. X-ray contrast media, these are injectable drugs that go to help create more of an image in CT scans, especially it goes focus on soft materials in your body. So if in certain application, contrast media drugs are injected into the body, that way these images pop, and these X-rays and CT scans can be much more easily interpreted by the doctors and the technicians. And that's a very much growing application for a few different reasons. One is that the aging population around the world seeing more of these X-rays and CT scans. The other major aspect is that global populations are getting more access to what I'll call Western medicine or modern medicine techniques. So especially in Asia, where some of these medical techniques weren't available or haven't been available in the past are becoming more and more readily available to their populations. But X-ray contrast is only a portion of that. There's a number of other applications, which do have some human health tie-ins, including iodide compounds are used to manufacture certain pharmaceuticals. Everybody needs a little iodide in their diet in order to control thyroid function. But there's also some other industrial and other applications. Iofina Chemical produces a biocide that goes into paint and coatings to prevent mold and mildew in the can itself and on the wall. We manufacture things that can catalyze citric acid manufacturing, animal health additives to -- as a micronutrient in animal health applications to have cows and other farm animals grow bigger and better and provide more value to the farmer when sold. But there's other industrial applications as well, such as heat stabilizers and certain automotive applications. So I guess the message is Iofina is an iodine manufacturer with a focus on some iodine derivatives, and we believe we're in a nice growing market with expanding applications. And just to jump into the first half of 2026, which we're very proud of the results that came out earlier this week. You can see a number of bullet points here, especially at the top, which on the next slide are kind of reiterated, and I'll allow Malcolm to review some of those. But I just want to focus on the second half of our operations that we have done year-to-date in 2026. So in the first half of the year and then between the end of June and currently. So some big operational accomplishments that we've done is we announced in 2026 an agreement with a new brine supplier to add additional brine supply to our IO#11 facility, and we'll talk about that here a little bit of what that really means, which is likely to increase production at that particular plant by about 50%. We've been building IO#12 throughout the first half of this year and into the third quarter of this year as well and should be online here in the next few weeks. And earlier this week, we very excited to announce the next rollout of plant agreements for what we're going to be doing next after IO#12, and we'll talk about that here in a second. But right now, I think what I'll do is throw it to Malcolm and change to the next slide, and he can go through some of the key performance indicators that we had in the first half of 2026 and the, I think, pretty outstanding numbers that our business was able to achieve.

Okay. Thanks, Tom. So working from the top, the most important driver for our business, surprisingly is iodine production and that increased by 29% '26 versus '25, and that 29% increase represented 88 metric tons additional in '26 compared to the first half of '25. And of that 88 additional metric tons, 50 metric tons came from plant IO#11, which only came online after HY '25 was finished before HY '26 started. So that was 50 out of that 88. And there was another specific plant that actually kind of surprised us by producing significantly more than we had anticipated due to the way that the oil and gas partner chose to bring on new wells and the results of some fresh drilling. And that gave us an extra 18 metric tons over and above what we thought. So those 2 things together add to about 68 out of the total 88. In addition, the first half -- our usual expectation is that the first half numbers production will not be as good as the second half because the first half includes the winter period, especially January and February, which in Oklahoma can be pretty cold and cause issues. And in fact, HY '25 did have that type of winter in Oklahoma, in fact, quite a severe version of it. And the consequence is that the cold means our chemical reactions don't work as well as they do when it's warmer. It also can mean that our oil and gas pumps down there. Wells, for example, start to ice up and they have to take some of our water supply offline while they repair and that type of thing. Whereas for HY '26, the weather was surprisingly clement. And to be frank, everything went very well. The amount of production from the legacy plants, never mind a couple I mentioned already was, by and large, better than we had expected. The pricing -- sorry, move down on revenue, we've got $31.3 million for '26 against $29.2 million for '25, 7% up. If you look down at the bottom line, you'll see that the average iodine price, frankly, barely moved. It shifted up just a little bit, '25, $74.27. '26, $74.69. So that revenue number to the extent it includes iodine sales, which is mainly what it does, is a reflection of additional volume rather than any pricing effects. The gross profit came in at $10.2 million against $6.3 million for '25. That's a big increase. And it's a reflection really of well, a couple of things. One, the amount of production, which was I could say perhaps about as high as it reasonably could have been and also the fact that our direct production costs were held pretty low and the numbers came in on budget, if not slightly better. And we were able to make some savings with the cost of chemicals through some new negotiations with suppliers. And the overall effect was that our total direct cost of iodine production went up by 10%, whereas the volume produced went up by 29%. And therefore, the average cost per kilo of our iodine fell by 15% and that generated a significantly lower cost of sales and that in turn resulted in a larger gross profit and down to a larger EBITDA number. So in fact, with EBITDA, we wind up with $6.6 million, which is double the '25 number of $3.3 million, and we're very pleased with that. Post-tax earnings that, but the $2.5 million for '25 is kind of flatter because it includes a government grant, not a trading item, but we'll come to that in a later slide. Net cash, we're also happy with in the sense that it's $7.2 million positive. Last year, it was $1.8 million negative, although I would mention that we still have $3.5 million or $4 million of CapEx costs still to feed through from the construction of the latest plant, IO#12. That money is getting spent or some of it is being spent by now. I think the rest of it will be out in the next month or two. Okay, Tom.

Okay. Great. Yes. And I'll just point one other thing before we get off this slide is that there's a reason why this chart is on this slide. We're very proud of the growth trend that we've had over the last 3 years. And it's mainly driven by the execution on the resource side by increasing the production year-over-year, building new plants with IO#12 coming online here in the next few weeks, that will be our fourth plant in 4 years, and we're really proud of the execution that our teams have done. Just to get into a little bit more detail about the first half of the year on either side of the business. A lot of this we've covered already. But it's not to mention our H1 2026 production even exceeded our revised upward target. So we had things really work our way in the first half of the year. Malcolm mentioned this in the last slide, but I think it's pretty important to point out the third bullet on this slide is that our average production cost of 15% lower. And some of it was luck from the weather, but really some of it was things that we've done to improve water volumes, work with our suppliers to try to increase the amount of water. But really, our sourcing department did a really great job in chemical sourcing. One of the things we did note in the result commentary that we just put out earlier this week is that while we saw improved chemical costs in the first half of the year, we have seen a little bit of creep of these chemical costs moving into the second half of the year, and that's mainly due to increased raw material costs mainly influenced by fuel cost increases and some other things that are manufactured in the Middle East. There's a little bit shortage of supply around the world. And of course, you would imagine that's going to creep chemical costs up. But we do a really good job to try to contract these major chemicals that we use, especially on the resource side to try to minimize any kind of cost changes that we see here in the future. We did spend $5.8 million in CapEx in the first half of the year. As Malcolm mentioned, it was -- we haven't fully paid for IO#12 or the IO#11 project that we started in 2026. So there's about half of the -- a little more than half of the IO#11 project was paid in this $5.8 million, and I think what around $4 million of IO#12 costs were spent in the first half of the year. As we've already mentioned, we're in the final stages of our new biggest plant to date in the Permian Basin. And it's up to the Iofina Resources business development team to have a pipeline of future plants after this in order to meet our pathway to 2,000 kind of goals. And very proud that we announced the next plant in our line of increases of our iodine production capacity here announced earlier this week for -- or last week for IO#13 and IO#14. And to summarize a little bit on the Iofina Chemical side as well. Again, all the iodine funnels through Iofina Chemical, and it's important and imperative as the Iofina Resources side grows that the sales team on the Iofina Chemical side continues to expand our customer base in order to ensure sales of our iodine-based products. And we have long-term customers, good customers that are looking to grow with Iofina's growth as well. So excited about the work our sales team has done. We have basically have sales in hand for all of the projected production of Iofina Resources crystalline iodine that we plan to sell into the open market throughout the rest of the year. So the demand for Iofina iodine is strong. Our customer base is solid, and we'll start selling our iodine or taking purchase orders for iodine into 2027 here shortly. Some other things about Iofina Chemical. Again, we make iodine and non-iodine derivatives besides selling the crystalline iodine itself. Last year, we announced that we are adding a new product to our line of iodine derivatives, and that is a feed additive, so micronutrient to help specifically cattle, but some other aspects as well. And it was our largest revenue derivative in the first half of 2026. We continue to have about 10% of our sales into non-iodine derivatives, and those are focused on some specialty gases and one other application that goes into the Great Lakes, which didn't have realized sales in the first half of the year, but we'll have realized sales in the second half of the year. And we continue to focus on research and development for new derivatives for Iofina Chemical, especially for those applications that may be growing in the future. If you remember back in our annual report, we mentioned some potential new applications for iodine in the solar cell industry and the refrigerant gas industry, and we're working hard at Iofina Chemical to be a player in those areas if those applications end up taking off. So we do have some summaries of the financial reviews. Malcolm covered a lot of this, but he's going to point out a few more things on the next few slides that we feel are important to mention.

Okay. So here we are on the income statement. As Tom has just mentioned, the non-iodine figure on the second line of $2.9 million for '26 is kind of we would suggest understated because we were expecting to make a delivery to Great Lakes fisheries in particular product before 30 June, but they decided to delay it and it's gone into second half of the year. So that $2.9 million could well have been at least $3.5 million, probably more. We've talked about cost of sales and EBITDA and what led to the significant improvement there going down a bit. Yes, you can see Tom is highlighting it as government grant ERTC. ERTC stands for Employee Retention Tax Credits. This is a U.S. government COVID-era scheme for support and relief where people have kept, or I should say, did keep employees on even though their businesses were adversely affected by COVID and they had less coming in to finance their payroll. It's taken a heck of a long time to come through, but that's just the way this scheme has kind of played out because there were a great number of claims made under it and it took the U.S. government a while to kind of decide what approach it was taking to validate on. Apart from that, I think we could move on to the next slide. Okay, balance sheet. Property, plant and equipment, 41.7, it's up whatever it is, 6.2, and that's a reflection of the additional capital expenditure less depreciation at $5.8 million you just seen, I think. Working capital, $13 million net versus $13.8 million in HY '25. Not a lot of change there. We do get some fluctuations in the overall number depending, I think, above all on when particular sales are invoiced. We have -- can have and frequently do pretty large amounts on individual invoices, possibly as much as, let's say, $1.2 million for a full 18 metric ton container load of iodine. And if 2 or 3 of those invoices get slightly out of single into a different period, that can swing the movement in working capital. But this is a pretty consistent set of numbers, one period versus the other. Now we've got bank debt of $5.7 million. Of that, $4 million relates to a drawdown on a CapEx facility that we made last year to support the capital expenditure that we were laying out on IO#11 plant and the other $1.7 million making up $5.7 million is the remainder of a term loan of $10 million, I beg your pardon. That we took out in September 2020 when we did a pretty thorough refinancing with our bank. And that $1.7 million will be paid off by the middle to late next year. So net cash round up at $7.2 million versus a negative net debt position of $0.8 million previous year. Lease liabilities are up $0.7 million from $0.2 million. The reason for that is that the lease we had on the office in Denver, where our Iofina Resources, which runs the production, where they're headquartered the lease ran out and the way the lease is accounted for under IFRS, International Financial Reporting Standards #16 is that the total outlay on the lease over the whole period is capitalized and then it's depreciated. And last year, we were down to very little time remaining. We've now got a new lease and a bigger figure that will in turn get depreciated down over the next 2 or 3 years. Finally, on this slide, we've got deferred tax of $5 million. That reflects tax that we've, if you like, saved because we've been able to claim a lot of capital expenditure against what would otherwise be taxable profit. And that was considerably assisted by the arrival of the OBBBA Bill in the state under President Trump that was signed into law last July, and that has made it significantly more possible to effectively have a 100% write-off of capital expenditure subject to certain limits against tax. So that has helped, assisted our cash flow. Okay. Moving on, Tom. So here's the cash flow itself, kicks off with the EBITDA, working capital in our favor for this period as not particularly significant matter for reasons I've already mentioned. So we generated $7.8 million from operations. We spent $5.8 million on CapEx demonstrates that the capital expenditure that's in the books for the first half was entirely funded out of cash -- out of operating cash flow. That just with $2 million, then we have bank repayments. And we wind up with $12.9 million of cash as opposed to $6.4 million last year. And just as a little addendum, we are currently still at about $12 million cash level as of the last week or 2. We're pleased with that.

Great. Thanks for that review. And I'm going to switch gears here a little bit. We've talked about where we've kind of been and what our plans are. And now we're going to detail a little bit about how we're putting that into action. So give a little bit more detail on IO#12, which we've provided this information to the market, but maybe a little bit more detail here. Again, it's a bigger plant that we've ever built. Most of our plants in Oklahoma have the capacity to take in about 25,000 barrels of water per day. And this particular plant is being built in order to be able to take in about 50,000 barrels per day of water. It's in the Permian Basin, where it's the largest producing hydrocarbon basin in the world. There's -- it's hard for me to even imagine there's 20 million barrels of brine water produced in the Permian Basin every day. And our partner that we're partnering with here is handling over 2.5 million barrels of water per day. Now not all of that water, in our view, is economic -- has economic amounts of iodide in the water to be able to extract iodine economically. But our exploration team has done a really good job in identifying areas in the Permian Basin such where we're putting IO#12 and for future sites that we believe are going to be a real opportunity for expansion for the organization. Again, the timing of this, in the next few weeks, we expect IO#12 to be moving water through the facility and ramp up in production shortly thereafter. The plant capital costs when we first started this plan, we thought it would be between $8 million and $9 million, and it looks like it's going to come in right around $8.8 million. So within the budget of what we expected in this area. And again, we have a strong partner who is working with us to try to get this thing online as soon as possible. And we are very confident they're going to try to maximize this 50,000 barrels of water to our site as soon as possible. So excited about this plant, excited about possible expansion opportunities in this particular area as well, not only with our current partner, Western Midstream, but we're in a -- we have other people that handle large amounts of barrels of water that have good iodide concentrations discussing future sites with Iofina also. Additionally, the other exciting thing that has come recently announced, I believe it was last week, was the agreements that we put in place for IO#13 and IO#14 and also the iodine pipeline project that we completed in August 26. So let me go back to a project that we completed in 2026. If you all remember, IO#11 came online in 2025. It was about -- expected to be about 100-metric-ton kind of capacity plant in an area of Central Oklahoma. It's a plant that has lower brine volumes, but higher concentrations, a good plant by itself in all respects. What we were able to do is partner with another brine operator in the area. And working with our existing partner came to agreements to allow for an additional water supply coming into IO#11. So once we got those agreements arranged, our partner -- our new partner built a pipeline from their water source to our plant and back. We funded that project and what that's going to do is be able to get another about 50% capacity to the particular plant. So 100-metric-ton plant, now it's going to be somewhere between 145 and 160 metric tons of production at that site. So we're working hard to try to maximize the amount of water to every one of these sites. These kind of projects aren't easy to do. The more likely thing that we do to our existing plants is work with our existing operator to try to maximize the amount of water that they can provide to our individual plants without overpressurizing their system. And then I think the real important news that we announced is an agreement last week to build IO#13 and IO#14. And again, this will be in the Central Oklahoma area, an area that we're very familiar with, familiar with the water, familiar with contractors and builders to build these operations that we've done on IO#9, IO#10 and IO#11, signed a few weeks ago. We can provide more details a little bit later. But overall, the iodine plants in Oklahoma are somewhere between 100 and 150 metric ton kind of plants on average. We anticipate that the total volume from these 2 new plants are likely to be higher than the average amount of plants in Oklahoma. So on average, a bigger plant in Oklahoma. So looking forward to provide more details when those are available and final details are worked out with our partner to give a little bit more insight into the production and time line of this. But we're very ambitious that we believe we're going to get these plants online in the first half of next year, and we'll be updating the market on that progress. So what does this all mean? So Malcolm reviewed a lot of our financials in the first half of the year. If you look back at our financials from 2025, we're very proud of the continued growth that Iofina has done. In 2025's annual report, the management and the Board of Iofina laid out our route to 2,000, the pathway to 2,000. We went from 500 metric tons of production to once IO#12 is opened up, we'll be at about 1,000-metric-ton run rate of our iodine production. But we feel with the growing iodine market, our expertise in this area, the opportunities that we have in not only the Permian Basin, but as you can see with IO#13 and IO#14 in Oklahoma, that we have the right opportunities to continue to increase the capacity of our iodine production. We worked hard on our balance sheet. We net cash, as Malcolm pointed out, at $7.2 million in June 30. We worked hard and maybe Malcolm, can you mention the debt facilities that we have?

I'm sorry. I still haven't done that.

That we have in place in order to help fund these future sites as well?