ZINC - Horsehead Holding Corp

[aws]

Unlimited June calls seem to be available again today.  The stock is trading at 69 cents but the June 50 cent calls are 20 cents.  No matter how you feel about the long-term prospects it seems like a no brainer to swap any stock position for options when you can preserve 50 cents of downsize protection for just a penny. 

[rich379]

What would happen to the call options if ZINC were to go into bankruptcy proceedings?

Would they likely loose their entire value vs. the stock which might ultimately retain some value in a restructuring?

 

Rich

[kranthi_vic]

http://www.businesswire.com/news/home/20150224005773/en/Horsehead-Holding-Corp.-Reports-Fourth-Quarter-2014#.VO3AC7PF-pE

 

 

Our primary focus during the quarter was the ramp-up of the Mooresboro facility. The facility produced approximately 12,000 tons of zinc metal during the quarter compared to 4,300 tons in the third quarter of 2014. Production for the month of December was approximately 5,400 tons as improvements with equipment reliability and process debottlenecking helped to increase the ramp up rate during the quarter. We made significant progress with the previously reported solids/liquid separation issue at the front end of the process, allowing the production rate to increase. We were particularly pleased that for extended periods in December, the facility operated near our estimated cash flow break-even level after cash interest expense of 230 tons per day. Zinc metal sales continued to be supplemented with the sale of approximately 23,500 tons of zinc calcine during the fourth quarter. As a result of strong zinc calcine sales, the total quantity of zinc contained in all product shipments during the quarter was 39,621 tons which was essentially equal to the prior year’s quarter despite the lower metal production during the ramp-up of Mooresboro.”

 

“Since the beginning of 2015, the daily average production rate continued to improve compared with the fourth quarter rate. During January 2015 we produced approximately 4,600 tons of zinc metal. We reduced the plating rate for several days in January to perform some needed maintenance in the cell house. We also experienced intermittent equipment reliability issues, particularly with some key pumps, which were further exacerbated by recent extreme cold weather conditions. On February 20, 2015 we began a planned seven day outage to address several of these issues. We expect to ramp up production following this outage. Our interim target is to demonstrate that no bottlenecks exist to operating the facility at 75% of nameplate capacity, or 330 tons per day, by the end of the first quarter of 2015. We believe that our ability to achieve this higher level of production will depend primarily on the absence of further unplanned equipment issues.

 

“We began introducing feed into the lead-silver recovery circuit during the fourth quarter and have started to produce lead-silver concentrate that we are currently analyzing to fine tune this circuit. We are also addressing some issues with pump selection identified during the initial operating period.”

 

“We are pleased with the progress being made and continue to believe that once we are operating at full capacity, we will realize $90 to $110 million of incremental EBITDA benefit as a result of the investment in this transformation. However, the timing for completion of the ramp up cannot be determined with certainty at this time,” added Hensler.

[SnarkyPuppy]

Hahaha ok

[undervalued]

why are you posting 2014 4th quarter result today? just wondering

[kranthi_vic]

Well, I came across this post from exactly 1 year back.  Its statements like this that made a lot of us put money in this company...1 year later we are at the opposite end of everything management promised. I`m not sure why Management should not get sued.

 

 

[AzCactus]

Another thing I find interesting is in Pabrai's speech at BC he says something to this extent:

 

If wealth is lost nothing is lost

If health is lost something is lost and

If character is lost everything is lost. 

 

Not trying to derail the thread but something tells me his LP's may not wholeheartedly agree with the above. 

[SnarkyPuppy]

"However, the timing for completion of the ramp up cannot be determined with certainty at this time,” added Hensler."

 

I'm sure they covered their asses legally. 

[kranthi_vic]

These jokers actually ramped down from dec 2014 onwards.

[hobbit]

i would be very surprised if pabrai and spier are not adding at these levels, I think this is a goos test to see how much conviction they still have

[SnarkyPuppy]

i would be very surprised if pabrai and spier are not adding at these levels, I think this is a goos test to see how much conviction they still have

 

I'd be incredibly surprised if they added right now. 

[Picasso]

i would be very surprised if pabrai and spier are not adding at these levels, I think this is a goos test to see how much conviction they still have

 

There is no freaking way those guys are adding. It's over for the stock.

[LC]

i would be very surprised if pabrai and spier are not adding at these levels, I think this is a goos test to see how much conviction they still have

I have to agree with others who responded to you.

 

Why would they add now, especially vs. a few weeks ago when the stock was also extremely cheap relative to their cost basis, without the news of defaulting on the coupon?

 

If you're Mohnish/Guy, and you're staring at huge losses, you must know this is on it's way to bankruptcy. So if you want to stay in this story, I think your best move is to position yourself for the fight in bankruptcy. In that care you'd be buying the debt, not the equity.

[enoch01]

i would be very surprised if pabrai and spier are not adding at these levels, I think this is a goos test to see how much conviction they still have

 

Do you work for the company?

[luck]

FWIW, Ali Alavi telling Pittsburgh Post Gazette that company planning to make debt payment by January 31st:

 

http://www.post-gazette.com/business/pittsburgh-company-news/2016/01/14/Horsehead-handling-questions-on-its-debt/stories/201601140060

 

 

[SnarkyPuppy]

FWIW, Ali Alavi telling Pittsburgh Post Gazette that company planning to pay debt by January 31st:

 

http://www.post-gazette.com/business/pittsburgh-company-news/2016/01/14/Horsehead-handling-questions-on-its-debt/stories/201601140060

 

Right - this is what my previous post was alluding to.  I sent a note to the journalist stating that it seemed like they were stretching the truth by quoting everything but the section of the article claiming they plan on paying. 

 

This was his response:

"Mr. Alavi told me in an email they plan to make a timely payment . We don't quote everything people tell us. We paraphrase much of it.

 

Hope this helps.

 

Len"

 

Different answer / same question from another paper:

"Thanks for your email.

 

I reached out to Horsehead this morning and asked them point-blank whether they planned to pay. And the Horsehead spokesman told me directly that yes, the plan is to make the payment within the grace period. I have a quote from him saying that.

 

And it’s a different thing than the company actually making the payment. That’s up to them."

 

 

Obviously any info - even directly from management - is totally useless at this point.  I'm just trying to have a little fun while staring at my losses.

 

 

[str8shot]

i would be very surprised if pabrai and spier are not adding at these levels, I think this is a goos test to see how much conviction they still have

I have to agree with others who responded to you.

 

Why would they add now, especially vs. a few weeks ago when the stock was also extremely cheap relative to their cost basis, without the news of defaulting on the coupon?

 

If you're Mohnish/Guy, and you're staring at huge losses, you must know this is on it's way to bankruptcy. So if you want to stay in this story, I think your best move is to position yourself for the fight in bankruptcy. In that care you'd be buying the debt, not the equity.

 

I had an email exchange with Guy on Dec 23, 2015 as follows (I had met him the previous Sep at his annual fund meeting in NYC):

 

I said:

During your presentation you outlined the case for holding Horsehead to potentially realize significant upside over the long haul - consistent with Buffett's mantra that most of the time the best thing to do is nothing. At that time (Sep 9) the stock was around $7.50, and it has since declined to $1.70.

 

While their business model seems promising and management seems to have taken positive steps in recent months to bolster their team and to resolve some of the Mooresboro ramp-up issues, there are still major challenges ahead. It's a race to see if they can ramp-up Mooresboro quickly enough to bridge a potential liquidity gap.

 

I have a significant long position, and noticed that both you and Pabrai made no change per your latest 13F filings.

Here's hoping patience will be well rewarded and 2016 will bring a different result than 2015.

 

And he replied:

 

Thanks for your comments which I agree with.

Moreover, the company has more options than the market gives it credit for.

Investing is one of the toughest games out there. From time to time,  it will take the very best of us and make us look like utter fools and idiots.

 

I replied to him inquiring as to whether he'd consider adding at the current stock price, but he did not reply. Interpret this exchange as you like. My take was that mgmt has options that would salvage the equity (otherwise he would have sold out), but that's obviously a biased interpretation on my part, and for all i know he has sold out at this point.

[SnarkyPuppy]

People can call it blindly coattailing or give it any other name - but I placed SOME (not substantial, but some) value in the fact that pabrai was adding late Q3 at $7 a share.  These guys have closer relationships to management than any of us do and likely have deeper insights to the actual situation (both in terms of liquidity options and the true likelihood of the ramp up occurring).

 

In hindsight, it looks like I was wrong.  And it's a tough lesson learned. 

 

Independent of pabrai being in the stock I always though this was a highly asymmetric +EV gamble.  I've said in my earlier posts this isn't something I'm putting rent on - and requires a serious evaluation of your financial position before taking a stab at this bet.

 

With that said, I also was assuming higher downside protection given the assets on the balance sheet in relation to the debt (even after taking very conservative haircuts and assuming most of the capitalized costs of the new plant are worthless). 

[LC]

Thx for adding, str8shot.

 

"the company has more options than the market gives it credit for"

 

Your guess is as good as mine about what that means, and I too share your bias about saving the equity. Perhaps they go to Mohnish/Guy for a loan with warrants as a kicker. An optimist can make up any number of scenarios.

[hobbit]

i would be very surprised if pabrai and spier are not adding at these levels, I think this is a goos test to see how much conviction they still have

 

There is no freaking way those guys are adding. It's over for the stock.

 

I do not think they can initiate a bankruptcy proceeding without filing a 8k.

 

 

[SnarkyPuppy]

i would be very surprised if pabrai and spier are not adding at these levels, I think this is a goos test to see how much conviction they still have

 

There is no freaking way those guys are adding. It's over for the stock.

 

I do not think they can initiate a bankruptcy proceeding without filing a 8k.

 

Hiring a bankruptcy consultant does not equal initiating a bankruptcy position...

[hobbit]

i would be very surprised if pabrai and spier are not adding at these levels, I think this is a goos test to see how much conviction they still have

 

There is no freaking way those guys are adding. It's over for the stock.

 

I do not think they can initiate a bankruptcy proceeding without filing a 8k.

 

Hiring a bankruptcy consultant does not equal initiating a bankruptcy position...

 

it can equal that if you miss an interest payment at the same time.

[SnarkyPuppy]

i would be very surprised if pabrai and spier are not adding at these levels, I think this is a goos test to see how much conviction they still have

 

There is no freaking way those guys are adding. It's over for the stock.

 

I do not think they can initiate a bankruptcy proceeding without filing a 8k.

 

Hiring a bankruptcy consultant does not equal initiating a bankruptcy position...

 

it can equal that if you miss an interest payment at the same time.

 

Are you just assuming things are do you know this in fact?

[tylerdurden]

I don't think management is credible anyways but it feels they have an hidden agenda by delaying this payment to convertible note holders. If we had known what that is that would be quite valuable.

[str8shot]

Thx for adding, str8shot.

 

"the company has more options than the market gives it credit for"

 

Your guess is as good as mine about what that means, and I too share your bias about saving the equity. Perhaps they go to Mohnish/Guy for a loan with warrants as a kicker. An optimist can make up any number of scenarios.

 

Another interesting comment Mohnish made during his Dec 3, 2015 talk with the MBA students:

He's invested in Wilbur Ross holdings. He described Wilbur as a well regarded value investor who specializes in distressed value. Wilbur is sitting on $500M cash in his holding company and looking for the right opportunities to invest in. Could he be a potential investor in Horsehead?

 

Anyone who would infuse cash at this stage would presumably have to become first in line ahead of all other debt holders in a BK scenario. If one believes in HH's business model and the team's ability to successfully ramp up Mooresboro (perhaps big IFs at this point), one could invest cash with relatively little risk (would recover through asset sales in the worst case), but with the option to favorably convert the debt to equity to participate in potentially significant equity upside over the long haul. I saw Liberty Media do this with Sirius and it worked out quite well for all parties. After the Liberty Media investment, I bought Sirius equity at $.44 and sold it for around $3 a year plus later.