Iofina 080411

Iofina
Energy Research 11th April 2008
A Rare Necessity
Energy Analysts
Richard Savage
+44 (0) 20 7866 0098
richard.savage@mirabaud.co.uk
Tim Hurst-Brown
+44 (0) 20 7866 0092
tim.hurst.brown@mirabaud.co.uk
Energy Sales
Pav Sanghera
+44 (0) 20 7878 3380
pav.sanghera@mirabaud.co.uk
Harry Baker
+44 (0) 20 7878 3401
harry.baker@mirabaud.co.uk
Nick Orgill
+44 (0) 20 7878 4172
nick.orgill@mirabaud.co.uk
Resources Sales Trading
Lucas McHugh
+44 (0) 20 7866 0085
lucas.mchugh@mirabaud.co.uk
MIRABAUD Securities Limited 21, St James’s Square UK – London SW1Y 4JP T +44 (0)20 7321 2508 F +44 (0)20 7930 4066
www.mirabaudsecurities.co.uk
Contents
Executive Summary.................................................................... 3
Iodine: a rare necessity .............................................................. 5
The Atlantis Prospect: twin revenue streams ............................. 7
Gas and Iodine Production....................................................... 10
Valuation ................................................................................. 14
Risk Factors……………......................................................... 16
Financial Summary................................................................... 17
Appendix 1: Valuation Assumptions ........................................ 18
Appendix 2: Iodine – Global Production and Competition ....... 19
Appendix 3: Iodine – Global Consumption and Demand ......... 23
Appendix 4: Iodine – Extraction Technologies ......................... 25
Appendix 5: Management........................................................ 27
www.mirabaudsecurities.co.uk 2
Executive Summary
Iofina’s key asset is a c.40,000 acre land bank covering part of the Atlantis Prospect in
the plains of northern Montana. It is sandwiched between two major natural gas
accumulations: the Southeast Alberta Milk River gas pool to the north has produced
over 5 trillion cubic feet (tcf) of gas; Bear Paw Uplift to the south has produced more
than 1.5 tcf. However, while the area where Iofina is focused has provided just
enough encouragement to keep the industry interested, it has so far failed to deliver
any meaningful success. More than 200 wells have been drilled in the area and all
have found gas, but the gas has been associated with large volumes of water.
At the Atlantis Prospect gas is The gas in the Atlantis Prospect is held in solution by artesian pressure, not trapped in
trapped and dissolved in the a conventional way by a structural or stratigraphic closure. To get at the gas you have
unconventional reservoir by artesian to produce the water, and it is the cost of handling this water that has so far
pressure, but the the high water cut prevented the commercial development of the area. While other industry players have
has historically prevented hunted unsuccessfully for structural or stratigraphic closures which contain only gas,
commercial production. Iofina has taken a totally different approach. Through the application of its
proprietary Wellhead Extraction Technology™, the company has managed to turn the
waste water into a valuable revenue stream in its own right.
Figure 1: Atlantis Prospect Location Map
MEDICINE HAT
TIGER RIDGE
Source: Iofina.
Iofina has found the key – iodine – The key to this success lies in the specific chemistry of the formation water: it has a
to unlock a promising asset and high concentration of iodine but a low overall salinity. These unique properties enable
create a highly profitable business. the iodine to be extracted using a relatively cheap, electrolysis based process. The net
result is that Iofina is sitting on what is considered to be the largest single source of
iodine in the United States, and on our projections, could be producing around 4% of
current global supply within five years.
Iodine is experiencing growing The chemical element iodine, the rarest of the halogens, is essential to the health of
demand from a wide range of humans and many other life forms, and has a wide variety of commercial uses. These
commercial applications; global include X-ray contrast media, LCD screens, and the chemical, pharmaceutical and
production is dominated by a handful nutritional industries, and a potential major new application as an agricultural
of producers in two countries. fumigant. Demand for iodine is growing strongly at around 4% to 5% a year and this
trend is set to continue, driven by increased healthcare expenditure in countries such
as China and India, and explosive growth from LCD manufacturers. In most cases,
there is no viable substitute for iodine.
With only a few known locations worldwide where it can be economically produced,
iodine is a rare commodity. Global production is dominated by Chile and Japan which
together provide 90% of global supply, but even the modest amount of production
outside these countries tends to be controlled by Japanese or Chilean companies. In a
market which is effectively controlled by a cartel, Iofina is unlikely to remain
independent for long. The challenge for the company is to demonstrate the true scale
and potential value of the Atlantis opportunity before it loses its independence.
A conservative, independent To date four wells have been drilled by the company and test gas production has
assessment estimates recoverable been sold into the market via Iofina’s 100% owned, export pipeline. An extended
resources of 98 bcf of gas and field test of the iodine extraction technology has also been carried out, and the results
37,200 tonnes of iodine. incorporated into the development plan for the field. The field will be developed using
production clusters of between eight to ten wells, with each cluster supporting an
iodine extraction facility. The wells are shallow – between 1,000 ft and 1,500 ft deep
– and so will be quick and cheap to drill. MHA, the Denver based independent
reserves auditor and leading unconventional gas expert, estimates recoverable
resources of 98 billion cubic feet (bcf) of natural gas and 37,200 tonnes of iodine,
assuming a land bank of c.28,000 acres out of a potential 300,000 acres in the overall
Atlantis Prospect. In fact there is scope for Iofina to expand its acreage position at
relatively low cost, and the company continues to acquire additional acreage on a
daily basis – it currently stands at around c.40,000 acres.
Valuation – core value US$91 million
Our risked core valuation of We have calculated a core valuation for Iofina of US$91.1 million based on a
US$91 million is based on a long discounted cash flow analysis and a long run natural gas price of US$7/mcf (forward
run gas price of US$7/mcf and an strip to 2010), an iodine price of US$28/kg and a 10% discount rate. In reaching this
iodine price of US$28/kg. figure we have applied a 90% risk factor to allow for potential overruns in both
timing and cost. Our valuation is considerably lower than the US$171 million mid-
case NPV10 calculated by independent consultants MHA. The main reason is that our
model runs for only 20 years and does not capture the full benefit of the production
tail. It also uses flat, rather than inflation adjusted, cost and commodity price inputs.
Key operational risks
Scalability: Iofina has proven its iodine extraction technology works in the field,
but for commercial production the equipment requires a degree of scaling up.
Pace of roll-out: Our model assumes Iofina drills 900 wells in five years. Though
the wells can be drilled fast (under three days each) this is still a major logistical
task.
Water injection: Once the iodine has been extracted Iofina will need to dispose of
large volumes of water – on our numbers more than 0.5 million barrels per day by
2012. We have assumed that the waste water will be injected into deeper
reservoirs but this has yet to be field-tested. As an alternative, Iofina is looking at
ways to lower the salinity of the water to enable it to be used for agriculture.
Iodine: a rare necessity
Iodine is a rare and expensive Iodine, a bluish-black, non-metallic crystalline solid, is the rarest and most expensive
chemical, with a wide range of chemical of the halogen group, which includes fluorine, chlorine and bromine.
commercial uses. Essential to the health of humans and many other life forms, though only in small
quantities, it has a wide variety of commercial applications. With demand rising from
multiple applications, prices have risen significantly in recent years.
Global Production
Although iodine is produced in nine countries worldwide, the iodine market is
dominated by Chile and Japan which together control about nine-tenths of global
output. Production is restricted because while iodine is present in many forms, there
are few areas in the world where it can be found in high enough concentrations to be
economically extracted.
The world’s largest producers are found in Chile, where iodine is extracted from
unique caliche deposits, located just a few metres below the desert surface. In Japan,
iodine is produced from underground brines associated with natural gas, in a similar
setting to Iofina’s Atlantis Prospect in Montana. Production in the US is concentrated
in Oklahoma where three Japanese owned companies produce around 1,500
tonnes/year – less than 6% of global production. The potential for increasing capacity
in both Japan and the US is limited and production from these regions is in decline.
(Detailed information on the global production of iodine can be found in Appendix 2).
Manifold Uses
Iodine enjoys a wide variety of Iodine enjoys a wide variety of commercial uses and this breadth of utility gives it
commercial uses and this breadth of multiple sources of demand growth. One of the main uses is in contrast media for CT
utility gives it multiple sources of Scans, MRI and X-ray, which represents some 22% of global iodine consumption.
demand growth. Other important uses include LCD display screens and a host of different chemical,
pharmaceutical, biocide and animal nutrition (particularly in emerging markets)
applications. A potential major new use as an agricultural fumigant (methyl iodide)
has been approved for a one year trial period in the US.
Figure 2: Estimated Worldwide Commercial Uses, 2006
O thers X-ray Contrast

14% M edia
22%
LCD Screens
8%
Pharmaceuti cals
12% Bi ocides &
Herbicides
18%
Catalysts
13% Human & Ani mal
Nutri ti on
13%
Source: Armour Associates; Atacama Minerals; Kanto Natural Gas; SQM; Mirabaud Securities.
Demand for iodine is growing strongly at around 4% to 5% a year and this trend is
set to continue, driven by increased healthcare expenditure in countries such as China
and India, and explosive growth from LCD manufactures. Major consumers, including
North America and Europe, are largely reliant on imports to meet demand, and in
most cases, there is no viable substitute. (More information on iodine consumption
can be found in Appendix 3).
Positive Price Outlook
Iodine prices have risen in recent Surging demand has driven the price of iodine to record levels. By the end of 2007,
years on the back of strong demand producers were reporting prices in the range of US$25-29/kg. However, the actual
growth. spot price is somewhat difficult to monitor as the majority of iodine production is sold
under long term contract.
Figure 3: Crude Iodine Prices
30
25
2007 estimates
20
15
10
5
US$/kg
0
1970 1975 1980 1985 1990 1995 2000 2005
Iodi ne import price (CIF) 10 year movi ng average
Source: US Geological Survey, 2008; Mirabaud Securities estimates.
While recent years have seen soaring demand and prices, the 1980s and 1990s did
see considerable price volatility. The global economic downturn in 1989-1992
contributed to softer prices, while oversupply (due to a sell-off in now depleted US
Government stockpiles) suppressed prices in 1998-2003. Although cyclical price shifts
remain possible in the future, we believe that several key factors serve to limit the
downside risk.
Firstly, the fact that iodine demand is evenly spread across a wide range of highly
differentiated sectors provides a degree of protection against downswings. Secondly,
because demand is so fragmented, this enhances the ability of the small number of
The structure of the iodine market large producers to control pricing, with iodine prices typically negotiated on a
should provide price support in the contractual basis adding to the inflexibility of the global market. Thirdly, with iodine
event of an economic slowdown. generally only used in tiny quantities, it typically represents just a small portion of the
total cost of applications, and therefore higher prices are unlikely to dampen demand
significantly. Finally, increasing demand from new sectors, in particular from LCD flat-
screen televisions and possibly methyl iodide usage, suggests a sharp fall in prices is
unlikely.
Producers express confidence that strong demand and high capacity utilisation will
maintain the upwards pricing trend towards and above US$30/kg in coming years.
Independent experts Armour Associates concur with this view, estimating prices at
US$29/kg in 2008 and US$30/kg in 2009, rising to US$33/kg in 2010. Furthermore,
none of these estimates reflect the potential impact of methyl iodide as a fumigant.
The Atlantis Prospect: twin revenue streams
Iofina intends to produce both Iofina plc (“Iofina”) is an exploration and production company focused on the
natural gas and iodine from the development of unconventional natural gas resources, and the parallel production of
unconventional Atlantis Prospect in iodine. To date, the company has leased c.40,000 acres of land in northern Montana,
northern Montana. just south of the Canadian border, which forms part of a “structure” which Iofina has
called the Atlantis Prospect.
Figure 4: Location of Atlantis Prospect
Source: Iofina.
The Atlantis Prospect lies between The Atlantis Prospect gas accumulation is controlled by artesian pressure rather than
the highly productive Milk River and any structural or stratigraphic closure. It lies between two large, conventional gas
Bear Paw gas fields, but due to the fields: Milk River 150 km to the north has already produced more than 5 tcf of gas;
high water cut, the Atlantis Prospect Bear Paw 35 km to the southeast has produced in excess of 1.5 tcf. Given the
has not been commercially proximity to existing gas fields and infrastructure, it is not surprising that the Atlantis
developed. area has been extensively explored, with over 200 wells drilled to date by a variety of
industry players. However, a commercial discovery has remained elusive. While all the
wells in the prospect area have produced gas, it has been associated with large
volumes of water, which is costly to handle, and has prevented the commercial
development of these resources.
Iofina proposes a solution to this problem which involves converting the cost of
handling the water into a revenue stream in its own right. The unique chemistry of
the formation water is the key to cracking this conundrum. The water contains a
relatively high concentration of iodine (around 50 to 60 parts per million – roughly
1,000 times the concentration found in seawater) and unusually low salinity (only one
sixth of that found in seawater), making it ideal for Iofina’s proprietary iodine
extraction technology. This is essentially a low tech, electrolysis based process which
offers significant cost savings over competing technologies. Although this dual
approach to natural gas and iodine extraction has been successfully employed in
Japan for more than 50 years, it has not been used directly in the US before.
Atlantis Prospect Reservoir Geology
The unconventional
shallow-lying Eagle
reservoir
and Virgelle
at the The primary reservoir targets of the Atlantis Prospect are the Cretaceous Eagle and
Atlantis Prospect
sandstones make contains
up the Atlantis
iodine- Virgelle sandstones. These sands are interbedded with layers of marine shale over a
Prospect.
rich water and both dissolved and gross interval of around 300 ft, lying at a depths of between 950 ft and 1,400 ft. The
adsorbed gas. reservoir section has variable porosity (up to 36%) and permeability (up to 4,000
milidarcies) and contains both dissolved and adsorbed natural gas.
In a conventional field the gas migrates up-dip and collects above the water in the
reservoir, but in the Atlantis Prospect the opposite is happening. The gas is held,
locked in place and prevented from migrating upward due to water pressure and
capillary resistance between the sand grains. This is demonstrated in the schematic
diagram below of the Milk River gas accumulation which has a similar trapping
mechanism. Here the gas reservoir is formed in fine-grained sediments where the
structure flattens out, creating capillary forces which exceed the buoyancy of the gas
(the red zone in the diagram below). The relatively poor reservoir quality means that
the water cut tends to be low – which is generally a good thing – but Iofina is
targeting the areas where the reservoir quality is better because it wants high water
flow rates in order to maximise the rate of iodine extraction. This would be
represented by the green zone on the schematic chart below.
Figure 5: Atlantis Prospect Regional Geology: Milk River Gas Pool
Source: Iofina.
Within this zone, the contrasting coarser and finer-grained rock types are inter-mixed
and the gas content is much lower; the capillary forces being not quite strong enough
to trap free gas. The result is a thick package of sands containing iodine-rich brine
with dissolved gas as well as low permeability shales and siltstones containing some
adsorbed gas. Through high volume water production, the reservoir pressure can be
lowered, releasing the adsorbed gas – a process described later in the note.
Analogies in Japan
The Atlantis Prospect shares many Although differences exist, the gas fields in Japan’s Chiba basin, such as the 13 tcf
features with the prolific Mobara Mobara field, offer the best analogies to Iofina’s Atlantis Prospect. Clastic sediments
gas and iodine field in Japan. and mudstones in the Chiba Basin east of Tokyo have produced significant quantities
of gas and iodine from shallow brine-filled sediments. Natural gas production curves
from these fields often demonstrate the same “negative decline” curve exhibited by
shale gas and coal bed methane reservoirs. In 1990, Japan’s production from such
unconventional reservoirs was 18.7 bcf per year – 28% of the total gas production in
Japan. Analysis by Ryder Scott in 2005 suggested similarities between the Eagle and
Virgelle formations and the Mobara field in Japan. Both fields are dipping monoclines
with varying degrees of dip, and the depth of the Atlantis Prospect is also
comparable.
Resource Estimates
Figure 6: Resource Estimates Estimates of total in-place resource size and potential cumulative production at the
Gas Iodine Atlantis Prospect have been calculated by independent auditor MHA Petroleum
In place 156 bcf 100,600 t Consultants. These figures are based on a land bank of only c.28,000 acres, compared
Rec. factor 37% 63% with Iofina’s current acreage position of c.40,000 acres and potential acreage in
Recoverable 98 bcf 37,200 t excess of 300,000 acres in the overall Atlantis Prospect.
Source: MHA; Armour Associates.
Iodine: Chemicals industry consultants Armour Associates estimate that the iodine
concentration of brine in the Eagle and Virgelle formations averages 47 ppm and
53 ppm respectively. These figures were used by MHA to calculate the iodine resource
potential of Iofina’s acreage. MHA assumed that the iodine-rich brine is present in the
higher-porosity sandstone layers and that these layers make up 50% of the gross
interval. MHA also assumed that due to the presence of a very active regional aquifer,
four times the volume of water directly under the Iofina licence area can be
recovered, since extracted volumes will be continually replenished. Based on this
volumetric analysis, MHA estimates an indicative iodine-in-place figure of 100,600
tonnes. However, although this is described as an in-place number, this figure factors
in the 70% extraction rate assumed by both Iofina and Armour Associates.
To calculate a recoverable resource figure, MHA has used a production-based
approach rather than a volumetric approach. MHA has calculated the amount of
iodine that would be recovered from the 1,164-well drilling programme, assuming
each well produces at an initial rate of 600 barrels of water per day, and then
applying various decline rates. The mid-case assumes a decline rate of 2.3% per
annum after five years which suggest that a total of 37,200 tonnes of iodine will be
produced over the 40 years for which the model has been run. It should be stressed
that the field is still economic after this period and the cut-off is purely arbitrary. In
the US licences are held by production; as long as you are producing, you get to keep
the acreage.
Natural Gas: MHA has taken a different approach to calculating natural gas resource
figures. MHA determined that about 14% of the estimated in-place gas resource is
dissolved in the water, assuming a dissolved gas yield of 5 standard cubic feet per
barrel (scf/stb). This equates to an estimated 21.9 bcf of dissolved gas. The remaining
estimated total gas is adsorbed in less permeable siltstone layers. Using data from the
analogous Chiba basin fields in Japan, MHA has assumed that maximum gas
adsorption in the rock is 24 scf/tonne. This gives an estimate for the adsorbed gas-in-
place at 133.7 bcf.
Together, these volumetric estimates of dissolved and adsorbed gas-in-place amount
to a total in-place resource of 155.6 bcf, which MHA says represents a contingent
resource under SPE classifications. It should be noted that under the SPE classification
system, it is not possible to include gas or water volumes that are not located directly
under Iofina leases, even though it is possible that a greater volume will ultimately be
recoverable, due to reservoir recharge. We therefore believe that these gas resource
estimates can be seen as conservative.
MHA’s mid-case production forecast for natural gas indicates cumulative production
of 98.0 bcf, implying a recovery rate of 63%. (This production-based estimate is
calculated exactly as for iodine, but with an additional 4.5% per annum decline rate
for gas production applied after five years).
Gas and Iodine Production
Gas and iodine production from the With well drilling costs of around US$50,000, and quick drilling times of only three
Atlantis Prospect should be days per well, Iofina should have no difficulty in bringing production of gas and iodine
relatively inexpensive and from the Atlantis Prospect on-stream in 2008. If key challenges, such as water
technically undemanding. handling, are overcome, peak output of nearly 1,100 tonnes of iodine and over 13
million standard cubic feet per day (mmscf/d) of gas is expected in 2013 (based on
the current acreage alone) and is likely to be followed by relatively slow rates of
decline.
Production Mechanics
In line with test-well data and extensive technical analysis of comparable reservoirs,
we understand that production from the Atlantis Prospect occurs as a two-stage
process (illustrated in figure 7). In the first stage, large volumes of brine, containing
dissolved gas, are produced, principally from the more porous sandstone layers of the
reservoir. This causes a pressure decline in the reservoir, triggering the second stage
of production, when the majority of the gas resource, held through adsorption in the
less permeable siltstone layers, is released. This gas is believed to flow into the more
permeable sandstone layers, which act as conduits to the production wells, in a
process similar to that seen in methane-producing coal seams.
Figure 7: Diagram of Production Mechanism
1. Iodine-rich
brine with
dissolved gas
flows from
sandstone SILTSTONE
layers. SANDSTONE 2. As reservoir
pressure falls,
gas released
RESERVOIR from adsorption
INTERVAL in siltstone
layers flows into
adjacent
SANDSTONE
sandstones and
SILTSTONE then into the
wellbore.
WELLBORE
Source: MHA Petroleum; Mirabaud Securities.
Extraction Processes
As water is produced to the surface, At the surface, the extraction of the natural gas requires just a simple separator. As
the natural gas can be extracted the formation water reaches the surface, the drop in pressure allows the natural gas
with a simple separator. to escape – similar to the “fizz” when a carbonated drink is opened (see figure 8 on
the next page). All that needs to be done to collect the gas is to flow the water into a
separator where the released gas can be collected and transported to the export
pipeline.
The gas content of the water is relatively high – totalling around 25 standard cubic
feet (scf) per barrel – and it is actually possible to ignite the water and gas mixture as
it flows out of the well bore. (The photo in figure 8 fails to do the spectacle justice).
Figure 8: “Fizzy water” and “Burning water”, Atlantis Prospect, Northern Montana
Source: Mirabaud Securities.
Once the natural gas has been separated, the iodine-rich brine is then treated, before
the iodine is extracted, and the remaining water is injected into a deeper formation.
Figure 9: Gas and Iodine Extraction: Schematic Diagram
Brine
Lines
Gas to market via pipeline
Extracted
Separator Brine
Iodine
Brine Extraction
Injection
Facility
Well
Gas
Lift Adsorption column
Production wells
charge with Iodine
c. 10 per cluster,
depending on water
injection rate Natural Gas Stripping
Compressor Facility
Source: Iofina; Armour Associates; Mirabaud Securities.
Iofina’s proprietary iodine extraction Iodine extraction from the produced brine will be carried out in the field using Iofina’s
process offers clear benefits over proprietary Wellhead Extraction Technology™. This process is a modification of the
rival technologies. Ion-Exchange Resin method (see Appendix 4). The procedure, which is unique to
Iofina, brings several clear safety, environmental and cost-efficiency benefits over
existing extraction techniques, and has been proven in field trials in 2007.
Iofina plans to develop the field with clusters of production wells. Each cluster of
around eight to ten producers will include an in-field iodine extraction plant and
water injection well. The size of the clusters may vary, depending mainly on injection
well capacity. Due to their simple design and shallow depth, the wells will be quicker
(one every three days) and cheaper (only US$50,000 per well) than most traditional
oil and gas wells.
Iofina intends to inject waste water Iofina will need to dispose of the large volumes of processed water, without returning
into deeper formations. it into the producing Eagle and Virgelle formations, which might prevent the
necessary decline in reservoir pressure required to optimise gas production. The
company is planning instead to inject the brine into the deeper-lying Bow Island,
Sawtooth and Madison Formations. Although this approach has not yet been field
tested, water injection is standard practice throughout the oil and gas industry. Other
options are also under consideration, including purifying the water for agricultural
use, which could prove relatively cheap due to its low salinity and could introduce a
new revenue stream which would help offset any additional cost.
Figure 10: Atlantis Prospect, Production and Water Injection Formations
approx. depth
1,000 ft
Eagle Gas & Iodine
Virgelle Production
CRETACEOUS
2,000 ft
Bow Island
3,000 ft Water
Injection
JURASSIC
Sawtooth
Madison
MISSISSIPPIAN
4,000 ft
Source: Iofina; Strand Partners; Mirabaud Securities.
Production Estimates
The rate of decline in water The production rates of gas and iodine are linked to the volume of brine produced.
production is expected to be We have conservatively assumed that brine production will average 600 bpd (Iofina’s
between zero and 4.6% per year. Mendell Jorgenson #1 test-well achieved production of 1,000-2,000 bpd). Analysis
carried out by MHA suggests that brine production depends on the rate of reservoir
recharge from the regional aquifer and is likely to decline modestly at between zero
and 4.6% per year. It is likely that gas lift will be introduced in the latter years to
minimise further the decline rate.
Iofina has said it plans to drill a total of 1,164 production wells, but we have opted to
use a wider well spacing, although to be conservative, we have maintained the same
level of production per well. Based on the current land bank of around c.40,000 acres,
we have assumed that a total of 900 production wells will be drilled over the period,
at a spacing of 40 acres per well. We have also assumed that water production will
decline at 2.5% per year, while natural gas output will fall by an additional 4.5%
annually. This may prove conservative as the gas volumes could actually increase
through the life of the well as the formation pressure is progressively lowered. In our
base case, we see peak gas production of around 13 mmscf/d in 2013.
Figure 11: Gas Production Profile
14 70
12 60
10 50
million standard cubic feet per day
8 40
6 30
billion cubic feet

4 20
2 10
0 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Gas Production (mmscf/d) Cum. Gas Production (bcf)
Source: Mirabaud Securities estimates.
For gas transportation, Iofina currently owns a four mile pipeline that has existing
capacity of 3 mmscf/d without compression or line looping. The pipeline is already
connected to a major transportation line (the Trans-Canadian pipeline) offering Iofina
access to liquid markets, with gas sold into the Chicago market.
Figure 12: Iodine Production Profile
1,200 18,000
16,000
1,000
14,000
800 12,000
10,000
600
8,000
400 6,000
4,000
tonnes/year
200
2,000
tonnes
0 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Iodine Production (t/yr) Cum. Iodine Production (t)
We foresee iodine production rising to a peak of nearly 1,100 tonnes annually in

2013, based on the current land bank. The company has already negotiated a
contract to sell up to 250 tonnes of iodine a year with H&S Chemical. Looking ahead,
Iofina may also consider a move into the US$2.5-3.0bn iodine derivatives market,
where significantly enhanced margins are possible.
Valuation
Core Valuation: US$91 million (£46 million)
Our DCF valuation of Iofina’s gas We have modelled Iofina’s gas and iodine producing assets using a standard
and iodine output is US$91 milion. discounted cash flow methodology. Our US$98.8 million valuation of the Atlantis
Prospect is calculated using a 10% discount rate, a long-run natural gas price of
US$7/mcf (forward strip to 2010), and a flat Iodine price of US$28/kg. We have then
applied a 90% completion risk factor, and made a small adjustment for cash and
warrants to derive our final risked core valuation of US$91.1 million (£46.1 million).
Figure 13: Core NAV
10% discount rate Unrisked Risked
Asset Interest Bcf (1) Tonnes (2) US$m £m CoS(3) US$m £m
Atlantis prospect 100% 61 16,495 98.8 50.1 90% 88.9 45.0
Add: Net cash 2.0 1.0 2.0 1.0
Add: Warrants 0.1 0.1 0.1 0.1
Core value 101.0 51.1 91.1 46.1
Source: Mirabaud Securities estimates. (1) Bcf of gas, net to Iofina; (2) tonnes of iodine, net to Iofina; (3) chance of success.
Our valuation is considerably lower than MHA, which has calculated a mid-case
NPV10 of US$171 million. The main reason for the difference is that our model runs
for only 20 years and does not capture the full benefit of the production tail. This
effectively acts like a risking mechanism and reduces the cumulative recovered gas
and iodine to 61 bcf and 16,495 tonnes respectively (compared with MHA’s mid-case
assumptions of 98 bcf and 37,200 tonnes). The other key difference is the use of
inflation adjusted cost and commodity price inputs in MHA’s model. There are also
small differences in the pace of the roll-out, the number of wells and the overall
acreage exploited.
Sensitivity Analysis
The tables in figure 14 show the sensitivity of our valuation to fluctuations in the
price of US gas and iodine.
Figure 14: Gas and Iodine Sensitivity Analysis
Gas price
US$6.00/mcf US$6.50/mcf US$7.00/mcf US$7.50/mcf US$8.00/mcf US$8.50/mcf
8% 103 108 113 118 123 128
10% 83 87 91 95 100 104
12% 67 70 74 78 81 85
Iodine price
US$24/kg US$26/kg US$28/kg US$30/kg US$32/kg US$34/kg
8% 96 105 113 121 129 137
10% 77 84 91 98 105 112
12% 62 68 74 80 86 92
Source: Mirabaud Securities estimates. NB: values in US$m.
Atlantis Cash Generation

Due to the early stage of Iofina’s business, the company will be valued primarily on a
DCF calculation. However, the business becomes cash generative within 12 months
and future cash flows benefit from only a moderate decline in production once the
peak has been reached in 2013. Using our core valuation to derive an EV, we
estimate that the business is trading on the following cash flow multiples.
Figure 15: Cash Flow Multiples
2008 2009 2010 2011 2012
EV/CF from operations 147.0x 17.6x 7.0x 4.3x 3.2x
EV/FCF NA NA NA NA 5.4x
Strategic Value
As discussed earlier in the note, we believe that Iofina is unlikely to remain an
independent entity in the medium term as it emerges as a global iodine producer.
Based on the current acreage position, we estimate that Iofina could be producing
around 4% of current worldwide iodine output within the next five years. The
Japanese are perhaps the most likely buyers as they already produce iodine from
brines in Oklahoma and are suffering from declining domestic production. However, if
Iofina starts to threaten the pricing control of incumbent producers, a buyer could
come from any corner of the market.
We believe that Iofina’s business will attract a strategic premium over and above any
cash flow derived valuation of the Atlantis Prospect. The first thing to consider is the
company’s proprietary technology, which is lower cost than the Japanese method of
extraction, but similar in its approach. Although it is not patented and could be
copied, this would require in-depth knowledge of the extraction technique, which
remains a trade secret.
Secondly, Iofina is in the process of significantly expanding its land bank in the US
and therefore its long-term production potential.
Thirdly, Iofina has ambitions to expand into the highly profitable and much coveted
iodine derivatives market. The company’s CEO, David Schneider, was the founder and
former president of H&S Chemical, a manufacturer of speciality chemicals – including
iodine derivatives – which was acquired by Syrgis Companies in 2005. At present, this
US$2.5-3.0bn marketplace is controlled by the major vertically-integrated iodine
producers.
Figure 16: Iodine Transactions
Buyer Seller Year Transaction details US$m Capacity* Deposit
Kanto Natural Gas Toyota Tsusho 2007 Acquired 2% stake in Nihon Tennen Gas 1 24 t/yr Brine
SQM DSM Fine Chemicals 2006 Acquired iodine unit, DSM Minera 72 2200 t/yr Caliche
Atacama Minerals AFC Minera 2005 Acquired residual 50% interest in Atacama 16 360 t/yr Caliche
SQM PotashCorp 2003 Acquired iodine unit, PCS Yumbes 35 170 t/yr Caliche
SQM Cosayach 2001 Failed transaction to purchase Cosayach 140 2300 t/yr Caliche
Source: Armour Associates; Companies; Mirabaud Securities estimates. *Capacity acquired, not necessarily indicative of actual production levels.
There have been a number of M&A transactions in the iodine market over the past
decade. However, most of the deals involve related parties and cannot be relied on as
valuation markers. There is also the added complication surrounding different types of
iodine deposits, the value of any other commodities co-produced with the iodine, and
the method and cost of extraction. These aspects vary considerably from company to
company and it is therefore difficult to derive a read-through valuation for Iofina. For
what it is worth, the table above shows a summary of recent deals in the sector and
figure 21 in Appendix 2 shows the major producers and their market values. In both
tables, the production capacity numbers are not necessarily indicative of the actual
level of production, but we have included these in the absence of any reliable data on
reserves and production.
Risk Factors
Overall we regard Iofina’s business as relatively low-risk, having access to a
substantial resource base in a known geological setting with favourable fiscal terms.
We also remain comfortable with the extraction technique and believe it has been
effectively demonstrated to work in the field. Perhaps the biggest challenge facing
the company is ensuring the smooth logistical roll-out of the development plan.
Technical and Operational Risks
The unconventional nature of Iofina’s approach to gas and iodine extraction
inevitably involves some technical and operational risk, though we believe Iofina
should have the necessary expertise and resources to overcome these challenges.
Scalability: Iofina has proven that its iodine extraction technology works in the
field; however, for commercial production to be established the equipment does
require a further degree of scaling up.
Pace of roll-out: Our modelling assumes that Iofina will drill 900 wells in the next
five years. While the wells are quick to drill – typically taking less than three days
– this still represents a major logistical challenge.
Water injection: As part of the production process Iofina will need to dispose of
large volumes of water – on our numbers more than 0.5 million barrels per day by
2012. We have assumed that this will be injected into deeper reservoirs; this is yet
to be field-tested. As an alternative, Iofina is looking at ways to lower the salinity
of the water to a level that would enable it to be used for agriculture.
Money and Market Risks
Commodity Markets: Iofina could be affected by fluctuations in the price of

natural gas or iodine. However, several factors should mitigate these market risks:
firstly, the many varied uses of iodine should provide price support in the event of
an economic downturn; secondly, the dual revenue streams should provide a
cushion against an unexpected drop in the price of one of the commodities; and
thirdly, Iofina’s low production costs make it better positioned in a downturn.
Currency: Iofina plans to report its financial results in pounds sterling, while many
gas and iodine industry contracts are denominated in US dollars. Fluctuations in
exchange rates between these currencies may impact financial results and could
also have an adverse effect on income or asset values.
Fiscal and Regulatory Risks
Regulatory: While political and legal conditions in the US and Canada are clearly
stable and reliable, new, amended or reinterpreted legislation could adversely
impact Iofina’s operations and financial performance. The regulatory risks
associated with iodine itself are minimal and Iofina CEO David Schneider has
extensive experience in the manufacture of iodine derivatives involving the
handling of domestic and foreign iodine shipments. Regulatory change could
conceivably curtail the use of iodine in certain applications (though, equally, it
could create new uses for iodine, as has recently been the case with the approval
of methyl iodide for use as an agricultural fumigant).
Tax: There is currently no state levy on iodine revenues, besides corporation tax;
were this situation to change, it could reduce the overall profitability of the
project.
Financial Summary
Iofina’s financials are driven primarily by revenues and costs incurred from the
development of the Atlantis Prospect. Our P&L does not include any upside in relation
to further acreage acquisitions over and above the c.40,000 acres assumed in our
model.
We expect revenues and profits to peak in 2013. However, one of the unique
attributes of this project is the relatively modest production decline rate, which
significantly enhances the long term profitability of the business.
Figure 17: Profit & Loss Statement
FYE 31 Dec (IFRS)
st
2007A 2008E 2009E 2010E 2011E 2012E
Iodine production Tonnes NA 30.7 159.4 404.7 748.1 1,024.0
Wellhead price US$/kg NA 28.0 28.0 28.0 28.0 28.0
Gas production Bcf NA 0.1 0.7 1.8 3.3 4.6
Wellhead price US$/mcf NA 8.4 8.2 7.7 6.0 6.0
Total revenue US$m - 2.0 10.3 25.3 40.8 55.9

Cost of sales US$m - (0.2) (1.0) (2.6) (4.9) (6.8)
Royalty US$m - (0.2) (1.1) (2.9) (4.5) (6.6)
Administrative expenses US$m (0.8) (1.0) (1.0) (1.0) (1.0) (1.0)
DD&A US$m - (0.1) (0.5) (1.3) (2.3) (3.2)
Interest US$m 0.0 0.0 - - - 0.3
Profit/(loss) before tax US$m (0.8) 0.6 6.7 17.5 28.1 38.6
Tax US$m - (0.2) (2.7) (7.0) (11.2) (15.4)
Profit/(loss) for the period US$m (0.8) 0.4 4.0 10.5 16.9 23.1
Iofina raised US$2.7m after costs in November 2007. To take into account future
capital needs, we have designed our model to inject funding (see Funding
requirement in Figure 18) as and when required.
Figure 18: Cash Flow Statement
FYE 31 Dec (IFRS)
st
2007A 2008E 2009E 2010E 2011E 2012E
Profit/(loss) before tax US$m (0.8) 0.6 6.7 17.5 28.1 38.6
DD&A US$m - 0.1 0.5 1.3 2.3 3.2
Operating cash before WC US$m (0.8) 0.7 7.2 18.7 30.4 41.7
Changes in working capital US$m 0.5 - - - - -
Interest adjustment US$m (0.0) - - - - -
Tax paid US$m - (0.0) (2.1) (6.0) (9.6) (13.6)
Net cash flow from operations US$m (0.4) 0.7 5.1 12.7 20.8 28.1
Capex US$m (0.0) (6.8) (15.4) (22.6) (31.8) (11.7)
Cash (outflow) inflow after Iivestments US$m (0.4) (6.1) (10.3) (9.9) (11.0) 16.4
Funding requirement US$m 2.7 3.5 10.3 9.9 11.0 -
Cash (outflow) inflow after financing US$m 2.4 (2.6) - - - 16.4
Appendix 1: Valuation Assumptions
Roll-out: we are modelling a total land bank of 40,286 acres, of which 90% will be
drilled using a well spacing of 40 acres. We estimate that five clusters (50 wells) will
be drilled in 2008 with each rig taking around one month to drill a cluster. In 2008
one rig will be operational, in the second year two rigs, in the third three, with a final
rig added in year four. Peak drilling activity occurs in 2011 when we assume 32
clusters will be completed.
Gas and iodine yield: We assume that each cluster produces 6,000 bpd of water
which remains flat for the first five years, then declines at 2.5% per annum thereafter.
For the first five years the gas content of the water is assumed to be stable at 25
cubic feet per barrel, but thereafter it declines at 4.5% per annum. For iodine, we
assume a yield of 5.6 grams per barrel which is maintained at the same level for the
life of the well.
Operating costs: The principal operating costs relate to the cost of water injection and
replacement of the resin column. We assume that the cost of water handling is US$25
per 1,000 barrels which includes the cost of electricity plus the maintenance of the
pump. Meanwhile, we believe the cost of stripping the resin columns will be around
US$2 per kg of iodine produced. We have also included a work-over cost of
US$10,000 per well, assuming that each year 10% of the wells that have been
producing for more than three years will need to be worked over. In total this equates
to just over US$8,500 per well in 2012. Finally, we have assumed a G&A cost of US$1
million per annum.
Capex: We are assuming costs of US$50,000 to drill a production well and
US$150,000 to drill a larger-bore injection well, including the cost of an injection
pump. We are assuming that each cluster of ten production wells requires an iodine
plant at a cost of US$200,000 plus US$50,000 to connect the cluster to the pipeline.
We assume that four drilling rigs will be purchased in total, at a cost of US$1m per
rig. We are assuming that a single iodine stripping plant will need to be built at a cost
of US$250,000 and that a new export pipeline will need to be added in 2011 at a cost
of US$1m.
Pricing: For the natural gas, we are using the NYMEX strip out to 2010 and then
US$7/mcf flat nominal. We assume the realised price at the wellhead is 85% of the
NYMEX price. For iodine, we are assuming a flat nominal price of US$28/kg.
Royalty: We assume an industry standard 1/8 royalty on the natural gas revenues and
a 3% royalty on the iodine revenues.
Tax: We are assuming a state tax of 0.76% on gross natural gas sales in the first year
of production from any given well, increasing to 9.26% thereafter. We understand
that there is currently no state levy on iodine revenues.
We assume that all capital costs are depreciated on a straight line basis over 12 years
and that a corporate tax rate of 40% will be applied to the business.
Appendix 2: Iodine – Global Production and Competition
Global Production
Iodine producers have reported iodine demand is growing at around 4% to 5% per
year, and the consensus in the industry is that this rate of growth will be maintained
over the coming decade. In response to this worldwide demand growth, production
levels have risen significantly, doubling over the last 20 years, according to US
Geological Survey data. (The USGS is one of the few sources of global industry data).
Figure 19: Global Iodine Production
30
2006 & 2007 estimates
25
20
15
10
thousand tonnes
0
1970 1975 1980 1985 1990 1995 2000 2005
Source: US Geological Survey, 2008; Mirabaud Securities.
Iodine can only be economically Iodine is present in many forms worldwide, but because it is usually present in very
extracted in a few areas where it low concentrations, there are few areas in the world where iodine can be
occurs in high concentrations. economically extracted. For instance, large quantities of iodine are present in
seawater, but in concentrations of around 0.05 ppm which makes extraction
uneconomic.
Figure 20: Global Iodine Production (tonnes)
W or l d, 28,370
O thers, 1,500
US†, 1,570
Japan, 8,800
W or ld, 13,110
O thers, 1,290
US, 1,320
Japan, 5,500 Chile, 16,500
Chile, 5,000
1997 2007
Source: US Geological Survey, 2008; Mirabaud Securities. †2005 data.
World iodine production is heavily The two major sources of industrial-scale iodine production today are the unique
concentrated in Chile and Japan. nitrate deposits (caliche) in the Chilean desert and subsurface brines associated with
natural gas deposits, principally in Japan. Global output is dominated by these two
countries: in 2007 they constituted around 90% of worldwide production; some
sources put their market share even higher.
Following recent industry Powerfully positioned, vertically-integrated, producers dominate the world market.
consolidation, a small number of Chile’s Sociedad Química y Minera de Chile (SQM) has emerged as the largest single
producers dominate Chilean global player, holding 34% of the global market, according to its own November
production. 2007 figures. Along with a handful of rival Chilean and Japanese producers, NYSE-
listed SQM has a dominant position in the marketplace, giving it increasing control
over production levels and pricing, and recent takeover activity suggests the company
is keen to maintain this position. Figure 21 shows the largest global iodine producers.
Figure 21: Major Iodine Producers
Mkt Cap Capacity*
Name Listing US$m Tonne/Yr Iodine Assets / Region Deposit
SQM US/Chile 7,262 10,000 Tarapacá and Antofagasta, Chile Caliche
ISE Chemical Japan 155 3,600 Chiba, Japan & Oklahoma, US Brine
Cosayach Private, Chilean owned NA 3,000 Tarapacá and Antofagasta, Chile Caliche
Godo Shigen Sangyo Private, Japanese owned NA 2,400 Minami Kanto gas field, Chiba, Japan Brine
Iochem Private, Japanese owned NA 1,400 Oklahoma leases, US Brine
ACF Minera Private, Chilean owned NA 1,400 Tarapacá and Antofagasta, Chile Caliche
Kanto Natural Gas Japan 371 1,200 Mobara gas fields, Chiba, Japan Brine
Nihon Tennen Gas Private, Japanese owned NA 1,200 Mobara gas fields, Chiba, Japan Brine
Atacama Minerals Canada 84 1,000 Aguas Blancas mine, Chile Caliche
Source: Armour Associates; Companies; Mirabaud Securities estimates. *NB: capacity is not necessarily indicative of actual production levels.
Chile
Chile is the world’s largest iodine SQM and other Chilean producers, such as privately-owned Cosayach, have benefited
producer; the mineral is extracted from large, easily accessible reserves and relatively low production costs. In Chile,
from caliche ores. which produced around 16,500 tonnes in 2007, iodine is usually a co-product in a
process that extracts iodine, alongside sodium nitrate (used in fertilisers), from nitrate
ores in deposits located in the northern provinces of Tarapacá and Antofagasta. The
extensive iodine-bearing nitrate ores occur in a belt several hundred kilometres long
and tens of kilometres wide. Caliche ore layers are typically 1-3 metres thick, flat lying
or gently dipping, and near the land surface. SQM claims to have exploitation and
exploration rights over approximately three-quarters of all existing economically
viable deposits of caliche, while Atacama Minerals recently announced a big increase
in its ore reserves. The caliche contains iodine as calcium iodate in concentrations
averaging 300-600 ppm and crushed caliche is leached to produce an iodine-rich
solution. (More information on iodine extraction methods can be found in
Appendix 4).
Caliche deposits originate in the unique environment in which they were accumulated
and preserved. The conditions for their creation include an extremely arid climate,
slow accumulation of materials starting in late Tertiary (Miocene) through Quaternary
times, and a paucity of nitrate-utilising plants and soil micro-organisms. As a
consequence of the unique nature of these environmental conditions, the discovery of
similar deposits elsewhere in the world is considered unlikely.
Chilean producers have in the past enjoyed a cost advantage in iodine extraction,
owing to the high iodine grades of caliche ore and the efficiencies in surface mining
and heap leaching. However, in 2006-07 rising energy prices and the appreciation of
the Chilean peso against the dollar saw operating costs rise. For the first quarter of
2007, iodine production costs at Atacama Minerals averaged US$12.24/kg, according
to the company, which is investing in more efficient equipment in an attempt to
reduce its costs. However, Atacama’s costs are high by Chilean standards; currently
the Atacama region caliche ore remains the lowest cost production route in the world
although Iofina’s production costs look set to be even lower.
Japan
In Japan, iodine is produced from Japan is home to around 30% of global output, totalling around 8,800 tonnes in
brines associated with natural gas 2007, according to USGS data. Unlike in Chile, the iodine is not mined but instead is
deposits. found in natural brines where the concentration is typically 100-150 ppm – some
2,000-3,000 times greater than that found in seawater. The brines are recovered
alongside natural gas, with most of the production concentrated in the Chiba
prefecture, near Tokyo. Japanese producers have historically experienced higher
operating costs than in Chile, owing to their higher labour and energy costs. Most
Japanese production, by producers such as Ise Chemicals, Godo Shigen Sangyo and
Kanto Natural Gas, is exported to the United States and Western Europe. While most
large Japanese producers appear to be separate, they are in reality tied together by a
common and overlapping shareholder base, reinforcing their market position.
Unlike Chilean caliche deposits, Japanese iodine-bearing brines are not unique. In
addition to the iodine-rich brines which have been commercially exploited in the
United States, a number of other areas have been identified with similar geological
characteristics to the gas fields of Japan. These areas, such as the Cagayan Valley in
the Philippines, the Cholan Formation in Taiwan, and the southwestern part of New
Zealand’s North Island are, theoretically, potential sources for dissolved gas and
iodine. However, we are not aware of any attempts to develop iodine-rich brines
commercially at these locations in the short or even medium term.
United States
The US accounts for only around Iodine production in the United States currently accounts for less than 6% of global
one twentieth of world production. output. The USGS reported that US production of 1,570 tonnes in 2005 was slightly
exceeded in 2006; figures for 2007 are not available. Unlike in Japan, existing US
iodine extraction is not directly associated with natural gas production – the iodine-
rich brine is acquired from neighbouring gas producers. Three companies produce
iodine from iodine-rich natural brines in the deep subsurface of the Anadarko basin of
northwestern Oklahoma. These brines have an iodine content of around 300 ppm and
occur at depths between 2,000 and 3,000 metres.
Japanese companies have a long All three US producers were either established or acquired by Japanese firms.
history of involvement in US iodine Woodward Iodine Corporation was initially a joint-venture between two American
production. companies. It was bought in 1984 by Asahi Glass which sold it to Japanese iodine
producer Ise Chemicals in 1994. Another Oklahoma producer, Iochem, is part of the
Toyota Tsusho Corporation. The third US producer, North American Brine Resources
(NABR) was established as a joint-venture by Japanese Iodine producer Godo Shigen
Sangyo, Mitsui and Co., and a US firm. NABR, which produces only small quantities of
iodine from waste brine associated with oil, was acquired by Japanese private
investors in 2002. In addition, Oklahoma-based iodine derivatives producer,
Deepwater Chemicals, was bought by Japan’s Tomen Corporation in the 1990s, and is
now a subsidiary of the Toyota Tsusho Corporation.
Other Countries
Despite growing demand, China has no major domestic iodine production. The
mineral is still extracted from seaweed in small volumes by a large number of small-
scale producers, many based in Qingdao, which use highly labour-intensive processes
(including harvesting the seaweed by hand) to produce small quantities of iodine, as
a by-product of the production of food additive sodium alginate. According to USGS
data, China represents only 2% of global iodine production; no great increase in
production from this source is anticipated.
Iodine is currently produced in Turkmenistan from brine associated with oil and gas
fields. The government has announced ambitious plans to raise domestic iodine
production levels, currently around 270 tonnes/year, to 1,700 tonnes/year by 2010.
Appendix 3: Iodine – Global Consumption and Demand
The global iodine market has grown Iodine has a wide range of commercial uses, several of which have seen strong
rapidly in recent years, owing to growth in recent years. In many cases, no adequate substitutes for iodine exist; for
strong demand from such uses as X- example, other substances cannot replace its application in many pharmaceutical,
ray contrast media, water catalytic, photographic, and human and animal nutrition uses. Bromine and chlorine
purification and LCD manufacturing. could be substituted for most of the biocide uses of iodine, but they are usually
considered less environmentally friendly.
Figure 22: Estimated Worldwide Commercial Uses, 2006
Share of Consumption Approx. Consumption
Commercial Application % tonnes/year
Contrast Media (X-ray, CT Scan etc.) 22 6,275
Biocides and Herbicides 18 5,125
Human and Animal Nutrition 13 3,700
Industrial Catalysts 13 3,700
Pharmaceuticals 12 3,425
LCD Screens 8 2,275
Others 14 4,000
Source: Atacama Minerals; Kanto Natural Gas; SQM; Armour Associates; Mirabaud Securities.
Because iodine absorbs X-rays and is harmless in small quantities, it is used

extensively in applications requiring contrast media, such as X-rays and CT scans,
which are one of iodine’s major and growing uses. More medical tests on an aging
population will result in increased demand for iodine-containing X-ray contrast media,
which could see growth of 4-5% per year, according to the USGS. SQM reported that
the demand in this sector grew by 6% in 2006 and remained robust in 2007.
Iodine is used in biocides and disinfecting chemicals, notably in the water treatment
market. Expansion in this sector is expected, with further growth anticipated in Asia,
particularly in the treatment of municipal water supplies. For example, in China, the
introduction of child healthcare programs has seen the treatment of drinking water
with iodine to prevent disease becoming a national concern. Iodine-based biocides
are also used for their disinfectant properties in a variety of cleansing applications in
hospitals, dairies, laboratories and food-processing plants.
Demand for iodine has also increased in other more traditional applications. For
example, iodine is used as a catalyst in the chemicals industry, particularly in acetic
acid production. Acetic acid is used to make polyester for plastic bottles and in the
production of polyvinyl acetate. Annual growth in this market is approximately 3%.
LCD screens for computer monitors The rapidly expanding market for liquid crystal displays (LCDs), as a technology
and flat screen TVs have been a key preferable to plasma screens, has made electronics the fastest-growing sector for
driver of iodine demand growth in iodine consumption. Current LCD technology demands the incorporation of optical
recent years. polarised film into the display structure, and the production of this film requires
iodine. According to SQM, demand for iodine for the production of LCDs increased by
nearly 30% in 2007 as worldwide LCD-TV shipments rose to an estimated 62.5m units
(up 57% year on year).
Such dramatic growth rates are unlikely to be sustained, but the increasingly
competitive pricing of LCD products – especially larger flat-screen televisions – is
expected to keep sales growth in the LCD-TV sector in double-digits over the next five
years. In 2007, manufacturers of LCDs said that production was outstripping the
supply of key components including polarising films, which were now in high
demand. Overall, the outlook for iodine demand growth from this sector is expected
to remain very positive; possibly averaging 30% annually in the coming years.
Use of methyl iodide as an Recently, in October 2007, the US Environmental Protection Agency (EPA) approved
agricultural fumigant represents a the use of methyl iodide (iodomethane) as an agricultural fumigant, for a one-year
huge new potential growth area for trial. Methyl iodide can be injected into the soil to kill insects and weeds prior to
iodine. planting such crops as peppers, strawberries and tomatoes. The compound was
developed to replace methyl bromide, which is one of the world’s most heavily used
pesticides, but contributes to degradation of the ozone layer. The EPA concluded that,
within strict guidelines, methyl iodide is safe to use at 50-175 pounds of product per
acre. Usage at these rates in the replacement of methyl bromide would create
additional US demand for several thousand metric tonnes of iodine in the first year
alone. If final approval is granted, methyl iodide would represent a huge new growth
area for iodine use, in the US and worldwide.
Longer-term potential growth areas include the use of iodine in promising emerging
technologies such as conductive polymers and fuel cells – though these developments
remain speculative.
For some other uses of iodine, growth prospects are weaker. Photography, notably, is
one of the oldest uses of iodine, but the development of digital imaging technologies
has curtailed demand for wet-processing film in photography and video applications.
Regional Consumption Patterns
Because of the uneven distribution of iodine production around the world, a high
proportion of output is traded. The main trade flows are, unsurprisingly, from Chile
and Japan to Western Europe, North America and mainland Asia. Consumption levels
in the United States have long outstripped domestic production, and US iodine
imports are the largest of any country in the world. In the past two decades, imports
have increased from 3,200 tonnes in 1987 to over 6,500 tonnes of iodine in 2007 –
well over a fifth of total global output.
Figure 23: US Iodine Imports
3
thousand tonnes
0
1970 1975 1980 1985 1990 1995 2000 2005
Source: US Geological Survey, 2008.
Although starting from a small base, Chinese imports of iodine increased 200-fold in
the seven years from 1997 to 2004, and have continued growing into 2007 due to
LCD production demand and a switch of manufacturing products from the US and
Western Europe to China. Part of the increase in demand was due to the introduction
of a salt iodization program, aimed at eradicating iodine deficiency which can lead to
a variety of health problems. Imports into India tripled in the same period – a pattern
that looks set to be repeated in many other newly industrialised countries.
Appendix 4: Iodine – Extraction Technologies
Existing Extraction Processes
Commercial iodine extraction Iodine is found in nature as an inorganic salt, always in combination with other
techniques currently include inorganic salts. Commercial recovery processes use techniques that separate these
Blowing Out and the Ion-Exchange iodine inorganic salts from the non-iodine inorganic salts. The three processes
Resin method. currently used in industrial-scale production in Chile and Japan are the Blowing-Out
method, the Ion-Exchange Resin method and the Leached Ore method (which
incorporates the Blowing-Out method).
Blowing-Out Method: After removal of sand and other impurities by precipitation
and separation of the iodine using an oxidising agent, the brine is exposed to air.
This process takes advantage of the fact that elemental iodine has a high vapour
pressure and is thus relatively easy to vaporise. Heat and air flow separates the
iodine which is condensed and collected. This procedure requires relatively high
capex and opex costs, and is suitable only for larger installations.
Ion-Exchange Resin Method: This method takes advantage of the fact that the
more valuable ionic iodine can be selectively exchanged for other less expensive
ions contained on a preparative ion exchange resin contained in a column. Sand
and other impurities are removed by precipitation or filtration, before the iodine is
separated from the brine by means of an oxidising agent and collected by
adsorption on the ion-exchange resin. The iodine is separated from the resin by
elution, crystallised, and refined. The elution of the resin produces a concentrated
iodine solution. The advantages of this method include the relatively low cost of
the facilities and greater flexibility in terms of scale, making it suitable for both
large and small plants.
Iodine Recovered from Leached Nitrate Ores: In Chile, iodine is recovered from
ores that contain iodates after the ore is treated with water from the ocean, which
is pumped into large leach piles which contain nitrates and iodine in various
stages of oxidation. Following this pre-treatment, extraction is carried out using
the Blowing-Out method described above.
Iofina’s Wellhead Extraction Technology™
Iofina’s unique, low-cost, Iofina’s Wellhead Extraction Technology™ (WET™) is a modification of the Ion-
proprietary iodine extraction Exchange Resin method. In this process, iodine-containing brine is chemically
technology is a modification of the changed and made ready for the Ion-Exchange process by a chemical process that is
Ion-Exchange Resin method period managed with the application of electrical current. In this process the oxidation
chemicals required to prepare the brine for adsorption are continually generated from
the brine itself by the application of an electrical current.
This procedure is unique and brings many benefits. Typically, the Ion-Exchange
Method is practised at acidic pH values and requires the handling of corrosive
chlorine gas. The chlorine gas is used to oxidise iodine-containing brines to make the
brine ready for adsorption on the ion exchange column. By contrast, the Iofina WET™
method is practiced at a relatively mild pH level made possible by the on-site
generation of oxidant. This approach manufactures NaOCl from NaCl, which is
already present in the iodine-containing brine produced in the field. This eliminates all
the handling and site-safety complications of using chlorine gas, as well as alleviating
the need to purchase expensive chemical oxidant. Finally, because extraction is
carried out in the field, there are further savings in infrastructure costs.
A Proven Technology
Iofina’s iodine extraction technology The technology has been successfully tested in the field: a production unit using the
has been successfully field-tested. Iofina WET™ method has been assembled and operated in the Atlantis area. The
average yield of this production unit was higher than 70%; meaning that 70% of the
iodine in the brine that passed through the production unit was recovered as
elemental iodine.
Beginning in August 2007, field testing was carried out using a mobile iodine brine
recovery unit, near the Mendell-American No. 1 D. Jorgensen well – one of four pilot
wells already drilled by Iofina. Four eight-day cycles of iodine recovery were carried
out and the detachable columns filled were shipped to H&S Chemical – the iodine off
-taker – for evaluation and removal of the iodine contained in the recovery column.
(The columns can be reused repeatedly without depletion of efficiency).
The WET™ technology was successfully demonstrated in the field during the four
cycle run, and the iodine recovered was of good quality and has been used for
synthesis by H&S Chemical on several iodide derivatives with results as good as
standard retail iodine. Iofina believes that the ease of in-field operation confirmed the
design performance of the recovery equipment with current automation levels, while
the rapid training of the on-site non-technical personnel confirmed the validity of the
simplified operational design.
Iofina should also be able to use the WET™ method on other fields and properties
around the world. Independent experts Armour Associates have confirmed the
performance of the WET™ approach, which is the most environmentally friendly of all
known existing methods. Because of the multiple column design architecture, by
which columns can be added or subtracted without affecting recovery rates,
production can be efficiently scaled up or down in the field.
Appendix 5: Management
Dr David Schneider, Chief Executive Officer and President
Dr Schneider is a founder and former president of H&S Chemical, a manufacturer of
speciality chemicals, of which the majority of the issued share capital was sold to
Syrgis Companies in 2005. Dr Schneider has established extensive relationships with
iodine buyers and sellers over the previous 20 years while President at H&S Chemical
in the iodine derivatives markets. Dr Schneider earned a BS in Physics and
Mathematics from Northern Kentucky University, an MS in Atomic and Molecular
Physics from the University of Connecticut and a PhD in Chemical Physics from the
University of Cincinnati. He has extensive experience in scale-up of chemical
processes from laboratory to pilot to full scale production, and is the inventor on
several chemical patents over the past ten years. Dr Schneider is responsible for
company direction, new projects, product development and EPA registrations.
Lance Baller, Finance Director
Mr Baller is the former managing partner of Shortline Equity Partners, Inc., a mid-
market merger and acquisitions consulting and investment company in the United
States. He has actively served on the investment committees, audit committees,
committees on corporate governance, compensation and benefits committees,
executive committees, finance committees, committees on public policy and social
responsibility, and on the board of directors of companies in Asia and United States.
Mr Baller is also the former vice president of mergers and acquisitions, financing and
corporate development at Integrated Biopharma, Inc and prior to this a vice president
of the investment banking firms UBS AG and Morgan Stanley. He is the former
chairman and current director of NetAds International, Inc. Mr Baller is on the board
of trustees of Giant 5 Mutual Funds and also serves as the chairman of the audit
committee and as the audit committee financial expert under the Sarbanes-Oxley Act
of the United States for Giant 5 Funds.
Jeffrey Ploen, Non-executive Chairman
Mr Ploen is currently a director of Momentum Biofuels Inc., a biodiesel producer in
Houston Texas. Mr Ploen is also a former director of Petro Uno, a Colombian oil and
gas exploration company. He was the director of finance at Navidec, Inc., now BPZ,
Inc (AMEX:BZP; market capitalisation of US$1.38 billion), having raised more than
US$150 million in debt for the IFC (World Bank) and US$140 million in equity from
institutional investors. Mr Ploen is the former CEO of Tamaron Corp., Paradigm
Holdings, Inc. and Tonga Capital Corp., all of which were sold to or merged with
substantially larger corporations.
Dr Christopher Fay CBE, Non-executive Deputy Chairman
PhD, BSc, C.Eng, FREng, FRSE, FICE, FEI
Dr Fay is currently the non-executive chairman of Expro International Group plc
(LSE:EXR, market capitalisation of £1.34 billion), non-executive of Stena International
Sarl, Conister Financial Group plc and of Anglo American plc (LSE:AAL, market
capitalisation of £44.7 billion). Dr Fay is chairman of the S&SD Committee and a
member of the remuneration and audit committees for Anglo American plc. From
1993-1998, Dr Fay was chairman and chief executive of Shell UK Limited, a leading
integrated oil, gas and chemical company in the UK with a typical net income of £500
million on turnover of £9 billion per annum, annual capex of £900 million and 7,000
direct staff. Dr Fay retired from the Shell Group in February 1999 after 30 years’
service. Dr Fay was non-executive director of The Weir Group plc 2001-03, senior non-
executive director of BAA plc 1998-2006, during which BAA was sold for £10.3 billion
to the Ferrovial Consortium, chairman of ACBE (Government Advisory Committee on
Business and the Environment) 1999-2003 where Dr Fay championed the launch of
the UK’s Emission Trading Scheme in 2002-03. Educated at Leeds University where
he received a BSc and a PhD in civil engineering, Dr Fay was awarded a CBE in 1999
for services to the gas and oil industry.
Paul Mendell, Geologist & Co-founder
Mr Mendell is a self-educated petroleum engineer and geologist. He has been
responsible for drilling and completing over 60 exploration and 50 development oil
and gas wells in Oklahoma, Colorado, Montana, North Dakota, Kansas and Arkansas,
and in Saskatchewan, Canada. Mr Mendell has formed and exited many businesses
including: Mendell-Denver which was acquired by Prima Energy (the net return on
capital was 6:1), Mendell Petroleum which was acquired by Gerrity (now Patina) (net
return of 40:1 on capital in less than one year); Maxedon, a shallow gas discovery,
which was acquired by Enron (net return of 16:1 in less than one year); and Cushing,
a gas discovery which was acquired by Great Northern Natural Gas (net return on
capital of 10:1 in less than one year).
RECOMMENDATIONS HISTORY
RATINGS, CERTIFICATION AND DISCLOSURE
RATINGS SYSTEM
BUY: The stock is expected to generate absolute positive price performance of over 20% during the next 12 months.
ACCUMULATE: The stock is expected to generate absolute positive price performance of 10-20% during the next 12 months
NEUTRAL: The stock is expected to generate absolute price performance of between 10% positive and 10% negative
during the next 12 months.
REDUCE: The stock is expected to generate absolute negative price performance of 10-20% during the next 12 months
SELL: The stock is expected to generate absolute negative price performance of over 20% during the next 12
months.
RISK Qualifier: Speculative
Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in the stock may
result in material loss.
INVESTMENT ANALYST CERTIFICATION
All research is issued under the regulatory oversight of Mirabaud Securities Limited
Each Investment Analyst of Mirabaud Securities Limited whose name appears as the Author of this Investment Research hereby
certifies that the recommendations and opinions expressed in the Investment Research accurately reflect the Investment Analyst's
personal, independent and objective views about any and all of the Designated Investments or Relevant Issuers discussed herein
that are within such Investment Analyst's coverage universe.
INVESTMENT RESEARCH DISCLOSURES
The following disclosures relate to this document: 3, 8
1. This is a commissioned or a non-independent research note/comment.
2. In the past 12 months Mirabaud Securities or its affiliates have had Corporate Finance mandates or managed or co-
managed a public offering of the relevant Issuer's securities or received compensation for Corporate Finance services
from the Relevant Issuer, excluding acting as a corporate broker, on a retained basis, for the Relevant Issuer.
3. Mirabaud Securities expect to receive or intend to seek compensation for Corporate Finance services from this company
in the next 6 months, excluding acting as a corporate broker, on a retained basis, for the Relevant Issuer.
4. The Investment Analyst or a member of the Investment Analyst's household has a long position in the shares or
derivatives of the Relevant Issuer.
5. The Investment Analyst or a member of the Investment Analyst's household has a short position in the shares or
derivatives of the Relevant Issuer.
6. As of the month end immediately preceding the date of publication of this report, or the prior month end if publication
is within 10 days following a month end, Mirabaud Securities and/or its affiliates beneficially owned 5% or more of any
class of common equity securities of the Relevant Issuer.
7. A senior executive or director of Mirabaud Securities, or a member of his / her household, is an officer, director, advisor,
or board member of the Relevant Issuer and/or one of its subsidiaries.
8. Mirabaud Securities acts as corporate broker, on a retained basis, for the Relevant Issuer.
The Investment Analysts who are responsible for the preparation of this Investment Research are employed by Mirabaud Securities
Limited a securities broker-dealer. The Investment Analysts who are responsible for the preparation of this Investment Research
have received (or will receive) compensation linked to the general profits of Mirabaud Securities Limited.
Copies of the Mirabaud Securities Policy on the Management of Material Interests and Conflicts of Interest in Investment Research
can be obtained from the Mirabaud Securities Compliance Department by emailing compliance@mirabaud.co.uk
DISCLAIMER
ISSUED BY MIRABAUD SECURITIES LIMITED, A COMPANY AUTHORISED AND REGULATED BY THE FINANCIAL
SERVICES AUTHORITY. A MEMBER OF THE LONDON STOCK EXCHANGE
© Mirabaud Securities Limited. All rights reserved. Any unauthorised use or distribution is strictly prohibited. This document has been
prepared and issued by Mirabaud Securities Limited or its associated companies and has been approved for publication in the United
Kingdom by Mirabaud Securities Limited, a private limited liability company authorised and regulated by the Financial Services Authority.
This document is distributed in Hong Kong by Mirabaud Securities (Asia) Limited, which is authorised as a licensed dealer in securities and
regulated by the Hong Kong Securities and Futures Commission. Neither the information nor the opinions expressed in this document
constitute or intend to be an offer, or a solicitation of an offer, to buy or sell relevant securities (i.e. securities mentioned herein and
options, warrants, or rights to or interests in any such securities). The information and opinions contained in this document have been
compiled from and based upon generally available information which Mirabaud Securities Limited believes to be reliable but the accuracy
or completeness of which cannot be guaranteed. All comments and estimates given are statements of Mirabaud Securities Limited’s or an
associated company’s opinion only and no express or implied representation or warranty is given or to be implied there from. All opinions
expressed herein are subject to change without notice. This document does not take into account the specific investment objectives,
financial status, attitude to risk or any other specific matters relevant to any person who receives this document and should therefore not
be used in substitution for the exercise of judgment by such person. Neither Mirabaud Securities Limited nor any associated company
accepts any liability whatsoever for any direct or consequential loss arising from the use of its advice or research publications save where
such loss arises as a direct result of Mirabaud Securities Limited’s or an associated company’s negligence. Research publications are issued
by Mirabaud Securities Limited or an associated company for private circulation to eligible counterparties, professional clients and
professional advisers (“its clients”), and specifically not to private or retail clients. They may not be reproduced, distributed or published
by you for any purpose except with Mirabaud Securities Limited’s express written permission. Mirabaud Securities Limited, an associated
company, or their employees and officers may have a holding (long or short) in an investment which it knows will be the subject of a
published research recommendation to clients. It may also have a consulting relationship with a company being reported on. Mirabaud
Securities Limited or an associated company may also act as agent of its clients and may have or have undertaken transactions in
investments covered by this document prior to your receipt of it. Additional information on the contents of this report is available on
request.

Iofina 080411

Diunggah oleh

Informasi Dokumen

Judul Asli

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

Iofina 080411

Diunggah oleh

Hak Cipta:

Format Tersedia

Iofina

Energy Research 11th April 2008

Resources Sales Trading

Iodine: a rare necessity .............................................................. 5

The Atlantis Prospect: twin revenue streams ............................. 7

Gas and Iodine Production....................................................... 10

Appendix 1: Valuation Assumptions ........................................ 18

Appendix 2: Iodine – Global Production and Competition ....... 19

Appendix 3: Iodine – Global Consumption and Demand ......... 23

Appendix 4: Iodine – Extraction Technologies ......................... 25

Figure 2: Estimated Worldwide Commercial Uses, 2006

O thers X-ray Contrast

Source: US Geological Survey, 2008; Mirabaud Securities estimates.

Source: MHA Petroleum; Mirabaud Securities.

Source: Mirabaud Securities.

Figure 9: Gas and Iodine Extraction: Schematic Diagram

Source: Iofina; Armour Associates; Mirabaud Securities.

Source: Iofina; Strand Partners; Mirabaud Securities.

billion cubic feet

Gas Production (mmscf/d) Cum. Gas Production (bcf)

Source: Mirabaud Securities estimates.

Iodine Production (t/yr) Cum. Iodine Production (t)

Source: Mirabaud Securities estimates.

We foresee iodine production rising to a peak of nearly 1,100 tonnes annually in

Atlantis Cash Generation

 Commodity Markets: Iofina could be affected by fluctuations in the price of

Total revenue US$m - 2.0 10.3 25.3 40.8 55.9

Source: US Geological Survey, 2008; Mirabaud Securities.

Japan, 5,500 Chile, 16,500

Because iodine absorbs X-rays and is harmless in small quantities, it is used

Source: US Geological Survey, 2008.

RATINGS, CERTIFICATION AND DISCLOSURE

RISK Qualifier: Speculative

INVESTMENT ANALYST CERTIFICATION

Anda mungkin juga menyukai

Commodity Markets: Iofina could be affected by fluctuations in the price of