ZINC - Horsehead Holding Corp

[moody202]

Is copper also a play based on slide#7?

 

Glencore:

 

The much anticipated tightening of zinc mine supply is starting to materialise

• Metal deficit in 2013 for the first time in five years
  
• Insufficient new mine supply to replace closures – following Brunswick / Perseverance in 2013, Lisheen now winding down and Century and Skorpion closing 2015/16
  
• Chinese mine supply will determine market fate – but inefficient, fragmented and suffering declining grades – upside supply surprises unlikely
  
• Market deficits growing rapidly post 2015
  
• Higher prices required to incentivise new mine supply
  

 

http://www.glencore.com/assets/Uploads/speeches_and_presentations/glencore/2014/20140513-Glencore-BAML-conference-Miami.pdf

 

My favorite graphic is on slide 7.

[karthikpm]

ZINC price action - is this related to spot Zinc prices? or just a big pullback in the small cap arena?

[merkhet]

Unclear, but it's probably both.

[Packer16]

The micro-cap funds/indexes have negative YTD returns in 2014.

 

Packer

[nikhil25]

Horsehead Update on Mooresboro, NC Facility

 

https://www.bamsec.com/filing/115752314003846?cik=1385544

 

PITTSBURGH--(BUSINESS WIRE)--October 1, 2014--Horsehead Holding Corp. (NASDAQ: ZINC) today issued an update on operations at its Mooresboro, North Carolina zinc production facility. The Company reported that the facility produced approximately 4,300 tons of zinc metal in the third quarter of 2014, compared to 3,400 tons in the second quarter, as the previously announced temporary outage at the beginning of the third quarter limited production during the first half of the quarter. While numerous improvements were made to several unit operations at the facility during the quarter which should help to accelerate the ramp-up rate going forward, production during the second half of the quarter was impeded mainly by operational issues associated with controlling the removal of solids in the clarifier unit downstream of the leaching process. These issues have been diagnosed and solutions are being implemented. We expect to increase the production rate in October and continue the ramp-up process. We continued to supplement zinc metal sales with the sale of zinc calcine to third parties. Commissioning of the co-product recovery circuit was completed during the quarter and we have started to introduce feed to the circuit. We also commissioned the casting line for SHG and CGG “jumbo” ingots. Financial performance for the third quarter is expected to be impacted by additional startup expenses associated with the outage and production cost per ton will be elevated due to the limited production.

 

Jim Hensler, the Company’s President and CEO, issued the following statement: “After an abbreviated start-up period in the second quarter followed by an extended outage at the start of the third quarter, we are pleased to have successfully restarted the facility. We are entering into the fourth quarter with the expectation that we have resolved several issues that will improve the level of operation going forward. We have been working through the normal types of issues that are to be expected in a large-scale start-up. Our operating and technical teams, supported by several technology suppliers, have been adept at diagnosing the numerous issues that reveal themselves during the ramp-up process and implementing corrective actions. None of the issues we have experienced thus far have called into question the viability of the processes being utilized or materially impair the benefits we expect to receive once the plant is fully operational.”

 

CONTACT:

Horsehead Holding Corp.

Ali Alavi, Vice President, 724-773-2212

 

Down over 10%

[NoCalledStrikes]

Note to self: Don't buy so early next time. Major facility start-ups always have issues.

[karthikpm]

Anyone adding now?

[yader]

I am, but what do I know, I bought at 19 and 17. :/

[Picasso]

That bullish Barron's article was the kiss of death for this stock. 

 

I was wondering why they were covering a $700 million market cap to begin with.

[Homestead31]

this seems like a tremendous buying opportunity to me.

 

A delay in the new plant reaching full capacity is clearly not reflective of normalized future earnings power.

 

Yes, there will be some costs associated, and yes realizing future earnings power will be delayed, but these are temporary issues.

 

The supply situation has not changed (ie it is still constrained).  The demand situation may have softened a bit in the near term (comments out of china/HK protests etc) but looking out a few years supply / demand seems quite favorable for ZINC.

 

I would not be surprised at all to see a 13F from Dalal in the coming days if these prices persist.

[valueinvesting101]

Here is a 13F

 

Greywolf Capital reports 5.2% passive stake in Horsehead Holding

 

http://www.theflyonthewall.com/permalinks/entry.php/ZINCid2077790/ZINC-Greywolf-Capital-reports--passive-stake-in-Horsehead-Holding-

[abitofvalue]

this seems like a tremendous buying opportunity to me.

 

A delay in the new plant reaching full capacity is clearly not reflective of normalized future earnings power.

 

Yes, there will be some costs associated, and yes realizing future earnings power will be delayed, but these are temporary issues.

 

The supply situation has not changed (ie it is still constrained).  The demand situation may have softened a bit in the near term (comments out of china/HK protests etc) but looking out a few years supply / demand seems quite favorable for ZINC.

 

 

Agree that this seems temporary.  Have been following the situation for over a year and I was quite surprised by the extent of the move down over the last couple of days.  I took the opportunity to finally get in the stock at the low $14's.  Very much a small position for me but if the stock falls further I will be considering adding more.  The demand situation does seem to have softened in the near-term but think the general thesis remains intact.

 

I would caution that having discussed the complexities of setting up a major new plant with a few engineers and management teams, we may well see more delays or problems. I am not confident that all those issues are behind them.  But to the extent there are additional problems,a change in this line would materially change the thesis here:

"None of the issues we have experienced thus far have called into question the viability of the processes being utilized or materially impair the benefits we expect to receive once the plant is fully operational"

 

 

 

 

[KCLarkin]

A delay in the new plant reaching full capacity is clearly not reflective of normalized future earnings power.

 

If you are a Phil Fisher fan, this was one of his favorite times to buy growth stocks.

[LC]

Has anyone thought of the risks associated with high union workforce? how sensitive is horsehead to potential union problems.

[MrB]

I grew up close to Skorpion, which partly explains why I thought I would take a look to see how it compares with ZINC. Pretty interesting comparison for various reasons e.g. size (150k tonnes), mining is small part of the costs, good info in terms of ramp up, yields etc of the technology ZINC is currently putting into production. Essentially not much difference between the Skorpion operation and Mooresboro e.g. the mine made up only 5% of the capital outlay.

 

Anyway, see for yourself

http://www.angloamerican.com/~/media/Files/A/Anglo-American-Plc/investors/presentations/2006pres/aa-base-anlys.pdf

 

Took them about two years to get it up and running and since it is open pit it is not the mining that held them back. So Mooresboro might take longer than people think.

 

Also if you then look at the Anglo annual reports (2005-2010 and search for Skorpion) you will find the revenue/production/EBITDA numbers etc. You also get a sense for the sensitivity to the Zn price. Basically you will do very well if Zn gets above 130cents/lb for a while. However, at and below 100cents you might find the current EV not so rewarding.

Interestingly Vendanta purchased Skorpion (a 150k capacity low 40cents cost mine) for $707m in 2010. However, then the operation had only 7 years left, because of the limited mine life. Last tidbit...in 2004 it cost Anglo $454m to set it up, they extracted $826m of earnings (63% due to the price spike of Zn in 06/07) and sold it for $707m in 2010.

[karthikpm]

http://www.bizjournals.com/pittsburgh/blog/morning-edition/2014/11/report-shell-to-buy-former-horsehead-plant-for.html

[BRK7]

http://www.bizjournals.com/pittsburgh/blog/morning-edition/2014/11/report-shell-to-buy-former-horsehead-plant-for.html

 

No mention of purchase price in Horsehead's press release, but I note that Horsehead has taken repeated impairment charges on this facility.

 

From the 10-Q filed in Aug 6. 2014 (dollars are in thousands):

 

"...the Company recorded an impairment charge of $9,349 during the fourth quarter of 2013 related to its Monaca facility. The Company recorded total impairment charges of $44,451 related to the Monaca facility. The net book value of the remaining assets of the Monaca, Pennsylvania facility was approximately $5,000 at December 31, 2013 and no additional impairment or depreciation will be recorded related to the Monaca facility."

 

So, we know the facility was being carried at book value of $5M.  Anyone have any insights on how/if the purchase price might differ from the carrying book value?

[pantheman]

There's an article on SA that values the Monaca land around $100mil based on adjacent vacant property buys that Shell has recently made. Says there's years of tax abatement to consider as well. However, given the demolition work that Shell has done and any potential environmental impact costs I have to imagine the agreement calls for less. But no real clue either way and that article is the only place I've seen a dollar figure attached to the land.

[nikhil25]

Horsehead Holding Corp. Reports Third Quarter 2014 Results

http://www.heraldonline.com/2014/11/10/6511415/horsehead-holding-corp-reports.html?sp=/100/773/385/

 

PITTSBURGH — Horsehead Holding Corp. (Nasdaq:ZINC) reported a consolidated net loss of $7.0 million, or $(0.14) per diluted share, for the third quarter of 2014 compared to a consolidated net loss of $3.5 million, or $(0.08) per diluted share, for the third quarter of 2013. Results for the quarter, adjusted to exclude non-cash adjustments associated with hedges, was a loss of $7.5 million, or $(0.15) per diluted share, compared to a consolidated net loss on the same basis of $2.7 million for the third quarter of 2013, or $(0.06) per diluted share.

 

[merkhet]

I'll be curious to hear on the call whether they address the sale price of the facility and/or what they plan to do with the proceeds.

[kab60]

Did any of you guys listen to the Q3 conference call? I did and got the impression that the startup issues are if not minor then at least pretty easy to deal with (very basic technology fixes needed, it seems) and bought some more.

 

Obviously we can't know for sure, and it's probably overly optimistic to think that there won't arise new issues, when they've fully resolved the current, but I was left with a positive feeling - expescially because it seems like management have various projects on their mind that will improve profitability and increase revenues after the new facility is up and running. It's taken a decent hit friday and today, but I don't see any news for Horsehead (just all mineral producers being hit), so I'll be adding again tomorrow when there's some free cash. Just wondering if anyone else is buying at these levels.

[LC]

I bought at these levels a few months ago, debating whether to do so again. My thought is that any big capital investment doesn't go perfectly so I'm not expecting that, even if management does seem confident. Whether it takes one quarter or three to fix is the question in my mind.

[kab60]

I bought at these levels a few months ago, debating whether to do so again. My thought is that any big capital investment doesn't go perfectly so I'm not expecting that, even if management does seem confident. Whether it takes one quarter or three to fix is the question in my mind.

 

I guess there's no way to know for sure how well it's going at the moment - unless somebody goes to the facility and starts counting the shipments. I'm in Denmark, so somebody else will have to do it! :)

 

I don't know whether management have a history of being overly optimistic or conservative, but I liked this part: "During the first 24 days of October while we were in the process of implementing several process improvements, we averaged 87 tpd.  During the last week of October through the first week of November we began ramping up production to an average of 160 tpd with a further increase to 205 tpd from November 5th through the 8th.  To put these figures into perspective, we estimate that the production rate needed for expected revenues at current prices to cover the plant's operating cost and cash interest expense is approximately 230 tons shipped per day and the original design capacity, which we expect to achieve, is 427 tpd."

 

I think they said they expected to get to atleast cashflow breakeven in Q1 2015, but obviously there's a good chance there'll be more bumps ahead - or it might simply take off.

[LC]

Yes according to management things appear to be clearing up - but as you say, more hiccups could emerge (or not). I want to buy at a price which implies hiccups, thereby skewing the upside/downside in my favor. The question is what is that price, and how many hiccups does it imply?

[PhatKing]

LC, In my estimation, buying at below $13 will provide a margin of safety. While I had expected hiccups, it is somewhat more than even management had expected. I heard the conference call live, and thought that management sounded less energetic than in the past 3 conference calls that I have listened. In my case, I am in no hurry to buy back what I have sold after the conference call, because they have a large runway ahead of them if they resolve their latest issues. If they have to buy a new tank, it means more costs, and more delays. While I recognize that one pays a price for a cheery consensus, I hope to be in this company for the long haul, and so buying at 16/17 etc after they fix the problem will perhaps be rewarding as well. Just my 2 cents.