BG2008 Posted May 1, 2015 Share Posted May 1, 2015 If you pay off the debt, then you don't have the $30mm of interest payment anymore. If you buy a building for $1mm. You would use the unlevered cashflow to calculate a cap rate. But as equity owner, you pay the interest expense and then you have cashflow left over. The value of the equity should be compared to the cashflow net of interest payment. FCF implies net of taxes, interest, and maint cap ex. In short FCF is what is left over for equity owner. jawn619, The EV includes the $300mm net debt. FCF should be measured against the market cap which is $840mm. If the company achieve the $180mm of EBITDA and the associated $120mm of FCF, then the implied cash yield is 14%. That is pretty high. Yes, yes, we're not at $180mm of EBITDA and $120mm of FCF. Again, I'll handicap the probability. Is a 14% FCF yield too high for a business like this? Given a choice to buy Apple or ZINC, I'll own ZINC at the same P/FCF multiple. 1) I don't know whether Apple can produce the next iPhone or whatever it maybe. This is simply incompetence on my part. 2) I don't know what zinc price will be in the future. But if zinc price stays constant, ZINC is basically a mine that doesn't get depleted. 3) The only time that a competitor will enter this business is when zinc price is extremely high. Under that scenario, ZINC is likely worth 2-4x as much as today's price. Why would you not include debt in the FCF yield calculations? As an owner of the company, any money used to pay down debt is money you as an owner are not going to see. And I would assume that Horsehead, like a Lannister, always pays it's debts. It would take 3 years to pay off the debt, leading to a yield that's closer to 10%(at the high end of things). You said you would handicap the probability so let's just make up some numbers and say it would yield 7-8% with all the uncertainties baked in. So at current prices, you have a maximum upside of 10%(a little more if zinc prices move up) with a likely chance of it yielding less if the plant runs into problems and a remote chance but real chance that you run into some real problems if the company not being able to service the debt. Link to comment Share on other sites More sharing options...
BG2008 Posted May 1, 2015 Share Posted May 1, 2015 Capital intensity is not the reason why no one will build these. It's the fact that there aren't enough supply of EAF dust out there for someone else to build a plant unless price of ZINC goes through the roof. The last time this happened, zinc was close to $2. Horsehead with its kilns can only supply 75% of the NC plant. Who in their right mind at today's zinc price will spend $500mm and not have enough supply to meet 20 or 25% of the plant capacity? This is a very rare dynamic enjoyed by Horsehead. Think about any other business, restaurants, cup cake shops, law firms, banking firms, etc. From the supply side, there is no barrier to entry. Steaks, lawyers, bankers, flour, butter, frosting, etc? There's readily available supply for those businesses. Want to build a 155,000 ton zinc extraction plant using EAF dust as raw feed? Good luck locking up 20-25% supply. jawn619, The EV includes the $300mm net debt. FCF should be measured against the market cap which is $840mm. If the company achieve the $180mm of EBITDA and the associated $120mm of FCF, then the implied cash yield is 14%. That is pretty high. Yes, yes, we're not at $180mm of EBITDA and $120mm of FCF. Again, I'll handicap the probability. Is a 14% FCF yield too high for a business like this? Given a choice to buy Apple or ZINC, I'll own ZINC at the same P/FCF multiple. 1) I don't know whether Apple can produce the next iPhone or whatever it maybe. This is simply incompetence on my part. 2) I don't know what zinc price will be in the future. But if zinc price stays constant, ZINC is basically a mine that doesn't get depleted. 3) The only time that a competitor will enter this business is when zinc price is extremely high. Under that scenario, ZINC is likely worth 2-4x as much as today's price. Why would you not include debt in the FCF yield calculations? As an owner of the company, any money used to pay down debt is money you as an owner are not going to see. And I would assume that Horsehead, like a Lannister, always pays it's debts. It would take 3 years to pay off the debt, leading to a yield that's closer to 10%(at the high end of things). You said you would handicap the probability so let's just make up some numbers and say it would yield 7-8% with all the uncertainties baked in. So at current prices, you have a maximum upside of 10%(a little more if zinc prices move up) with a likely chance of it yielding less if the plant runs into problems and a remote chance but real chance that you run into some real problems if the company not being able to service the debt. If you're going to assume total repayment of the debt, than you should be using unlevered FCF. Comparing FCF that is burdened by $30m in interest to EV is inconsistent... I'd agree with BG, I would pay a far higher multiple for Horsehead than I would for Apple. Apple has to constantly reinvent itself. Paying 10x FCF for Apple implies you are betting that at no time in at least the next decade will Apple lose its dominance of the smartphone market. Ten years is a long time in technology, anything can happen. While zinc prices will go up and down, they will always revert to an average over time and Horsehead will never have to reinvent itself. How do you know for certain Zinc will have a long last advantage? Are these Zinc plants really that capital intensive and how sticky are customer contracts for taking Zinc waste from a steel mill? Link to comment Share on other sites More sharing options...
kab60 Posted May 8, 2015 Share Posted May 8, 2015 Atleast the plant didn't blow up - Q1 results out: http://www.businesswire.com/news/home/20150508005323/en/Horsehead-Holding-Corp.-Reports-Quarter-2015-Results#.VUy5ivntlBc Link to comment Share on other sites More sharing options...
rsmehta Posted May 8, 2015 Share Posted May 8, 2015 "Production was lower than expected primarily due to an extended period of exceptionally heavy rains which filled our containments and holding ponds, requiring us to process the excess water in the plant rather than produce zinc." Heavy rains?? Link to comment Share on other sites More sharing options...
jamesmadison Posted May 8, 2015 Share Posted May 8, 2015 They better not invoke locusts next quarter! Link to comment Share on other sites More sharing options...
AzCactus Posted May 8, 2015 Share Posted May 8, 2015 Why is it starting to seem that the weather is being used as an excuse whenever a business has issues? This is plain ridiculous lol. Link to comment Share on other sites More sharing options...
kab60 Posted May 8, 2015 Share Posted May 8, 2015 Why is it starting to seem that the weather is being used as an excuse whenever a business has issues? This is plain ridiculous lol. I think it might be a reasonable explanation but it also shows how much needs to be tweaked and adjusted on a plant this size. Not sure what to make of the fact that they hired external help but I don't like it. It seems like the right think to do but the timing seems bad. You'd think they would have hired external help from the beginning unless something surprising came up (and surprises are inherently bad in this company). They should've known much earlier whether or not they had the needed capabilities I'd think but I can't say I'm an expert in ramping up hydrometallurgical plants. Hopefully that's not needed to invest in the company. :) From the earnings release: In addition, in April, we engaged a team of engineers with hydrometallurgical plant experience from Hatch Associates to supplement our operations and engineering team and support the on-going ramp-up. Link to comment Share on other sites More sharing options...
Txvestor Posted May 8, 2015 Share Posted May 8, 2015 Why is it starting to seem that the weather is being used as an excuse whenever a business has issues? This is plain ridiculous lol. I think it might be a reasonable explanation but it also shows how much needs to be tweaked and adjusted on a plant this size. Not sure what to make of the fact that they hired external help but I don't like it. It seems like the right think to do but the timing seems bad. You'd think they would have hired external help from the beginning unless something surprising came up (and surprises are inherently bad in this company). They should've known much earlier whether or not they had the needed capabilities I'd think but I can't say I'm an expert in ramping up hydrometallurgical plants. Hopefully that's not needed to invest in the company. :) From the earnings release: In addition, in April, we engaged a team of engineers with hydrometallurgical plant experience from Hatch Associates to supplement our operations and engineering team and support the on-going ramp-up. Sounded to me like they screwed up very badly on the design and construction of the facility. There was even some talk about litigation ongoing with the parties that designed and constructed the plant. One of the older analysts on the call, commented that based on his considerable experience in the area, Hatch associates was the best team to hire. My big concern is that the fixes they reccommend will cost a lot of $$$. That and the litigation would significantly impact the investment thesis. Link to comment Share on other sites More sharing options...
NoCalledStrikes Posted May 8, 2015 Share Posted May 8, 2015 I really hate to extrapolate too much from a single incident, but two years ago I met Hensler at a Pabrai meeting. He seemed like a nice guy as 98% of all CEOs do and I struck up a conversation. I mentioned that in my then current job as an IT architect, that projects never come in on time or budget, because no one ever likes to say no to their boss and the bosses never like to announce a delay until the last second, so our plans were always too optimistic where I was working t the time. I then asked about how his project (Moorseville) was coming along. He commented that Horsehead projects were different than my experience and that they using good planning techniques which let them catch problems early and that in so many words, bad planning was the root of most project failures and that's why he emphasized strong planning and thats why he felt very good about Moorseville coming in on time and on-project. Granted, I wasn't expecting him to tell me that his dates were wrong, but he sounded like my old bosses when he talked. His management speak didn't stop me from buying more Zinc as I felt the MOS was big enough, but a couple raises later I was out. (I should have sold after the Barrons article!) I do think they will eventually get the plant running optimally, but by then who know how many shareholders you will have to share the gains with. The moral for me is to always factor in delays and overspendswith big projects. They never come in early or under. Link to comment Share on other sites More sharing options...
gfp Posted May 12, 2015 Share Posted May 12, 2015 Small open market purchase by James Hensler (CEO) - http://www.sec.gov/Archives/edgar/data/1385544/000120919115041432/xslF345X03/doc4.xml Link to comment Share on other sites More sharing options...
Homestead31 Posted May 12, 2015 Share Posted May 12, 2015 http://www.ft.com/intl/cms/s/0/83a025a8-f492-11e4-9a58-00144feab7de.html?siteedition=intl#axzz3ZufEPcxU Link to comment Share on other sites More sharing options...
Guest notorious546 Posted June 1, 2015 Share Posted June 1, 2015 June 01, 2015 04:40 PM Eastern Daylight Time PITTSBURGH--(BUSINESS WIRE)--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 4,100 tons of zinc metal in May of 2015, compared to 2,600 tons and 2,800 tons in March and April of 2015, respectively. May’s production was the highest monthly production since January of this year. Although production improved, it continues to primarily be paced by the capacity of our process and stormwater treatment system and by intermittent equipment reliability issues. Jim Hensler, the Company’s President and CEO, issued the following statement: “As noted previously, with the technical assistance of Hatch Associates, we are identifying the causes of the problems that have adversely affected the ramp-up of production, and are confident that these issues can be addressed. We have seen improvement in several areas, which has resulted in an increase in production. In May, we engaged Veolia, a water treatment specialist, to install an interim facility to process stormwater on the site and the unit is now operational, mitigating substantially the risk of a plant shut down caused by significant rainfall. This is the first step in addressing the bottleneck caused by our treatment system. In June, we will be implementing additional process changes to further mitigate this issue. In July, we expect to complete several upgrades discussed during our last earnings call, including installing a bypass around the first solvent extraction unit to reduce the risk of solids accumulation in the settler, increasing cathode inventory to support the production ramp-up schedule and upgrading some key pumps that have had on-going reliability issues. We remain focused on ramping up to our interim goal of 75% of nameplate capacity, which we hope to achieve during the third quarter.” The Company further commented on hedging activities, reporting that it has locked in the forward zinc price on more than 50% of expected zinc shipments at $1.01/lb for June, 2015 and $1.07/lb for the last six months of 2015. wooo more delays and spending Link to comment Share on other sites More sharing options...
abitofvalue Posted June 2, 2015 Share Posted June 2, 2015 Surprised by the positive reaction to the news. Was hoping there would be some selling so I could pick-up a few more shares. Oh well.. I doubt they get to 75% in 3Q. Wouldn't be surprised to see that being interpreted as 75% sometime during 3Q like for one week in September before more issues are discovered. Link to comment Share on other sites More sharing options...
Guest notorious546 Posted June 15, 2015 Share Posted June 15, 2015 Horsehead Holding Corp. (NASDAQ: ZINC) today announced that its wholly-owned subsidiary, Horsehead Corporation, closed on the sale to Shell Chemical Appalachia LLC of the land in Monaca, PA on which was located Horsehead Corporation’s former zinc smelter facility . Terms of the transaction are confidential. In today's press release, they state that the terms are confidential. Won't we just be able to see net proceeds on the release of Q2 results? that would be pretty much the most important detail I imagine. Link to comment Share on other sites More sharing options...
BG2008 Posted June 15, 2015 Share Posted June 15, 2015 This isn't unusual. I've had conversations with companies about figuring out litigation proceeds and they told to just wait for the Qs. Horsehead Holding Corp. (NASDAQ: ZINC) today announced that its wholly-owned subsidiary, Horsehead Corporation, closed on the sale to Shell Chemical Appalachia LLC of the land in Monaca, PA on which was located Horsehead Corporation’s former zinc smelter facility . Terms of the transaction are confidential. In today's press release, they state that the terms are confidential. Won't we just be able to see net proceeds on the release of Q2 results? that would be pretty much the most important detail I imagine. Link to comment Share on other sites More sharing options...
Haasje Posted June 17, 2015 Share Posted June 17, 2015 Article says this: R.T. Walker, vice president at CBRE, a real estate firm. Mr. Walker questioned the $13.5 million price tag recorded in the deed for the Horsehead property, which he valued between $75 million and $100 million. Walkers estimate is closer to what has been paid for neighbouring lots. Link to comment Share on other sites More sharing options...
jimjam Posted July 2, 2015 Share Posted July 2, 2015 Hello, Horsehead has just issued a press release with an update on Moorseboro's June 2015 numbers: http://www.horsehead.net/pressreleases.php?showall=no&news=current&ID=151 A quick excerpt: ... The Company reported that the facility produced approximately 3,700 tons of zinc metal in June of 2015, compared to 4,100 tons and 2,800 tons in May and April of 2015, respectively. June's production was slowed initially while implementing certain improvements but accelerated through the latter half of the month with 2,600 of the 3,700 tons being produced since the 15th of June. Although production improved, it was primarily paced by the capacity of our process for removing impurities from the system, the so-called bleed treatment system, and by intermittent equipment reliability issues. ... It's still extremely unclear when they're going to get the plant to run smoothly... Jimjam Link to comment Share on other sites More sharing options...
karthikpm Posted July 3, 2015 Share Posted July 3, 2015 Hello, Horsehead has just issued a press release with an update on Moorseboro's June 2015 numbers: http://www.horsehead.net/pressreleases.php?showall=no&news=current&ID=151 A quick excerpt: ... The Company reported that the facility produced approximately 3,700 tons of zinc metal in June of 2015, compared to 4,100 tons and 2,800 tons in May and April of 2015, respectively. June's production was slowed initially while implementing certain improvements but accelerated through the latter half of the month with 2,600 of the 3,700 tons being produced since the 15th of June. Although production improved, it was primarily paced by the capacity of our process for removing impurities from the system, the so-called bleed treatment system, and by intermittent equipment reliability issues. ... It's still extremely unclear when they're going to get the plant to run smoothly... Jimjam It's going to be a while! Even simple constructions have several glitches, a big project like this would take a long time Link to comment Share on other sites More sharing options...
kab60 Posted July 5, 2015 Share Posted July 5, 2015 Anyone else surprised that they still seem to guide for ~75 percent utilization in Q3? That would be a huge increase but they said it twice recently. I'm inclined to think they believe it themselves cause otherwise their credibility would take a serious beating. Link to comment Share on other sites More sharing options...
kab60 Posted July 6, 2015 Share Posted July 6, 2015 Did the plant blow up? Stock down 22 percent. Update: Forgot there was no trading om the 3rd. Link to comment Share on other sites More sharing options...
rsmehta Posted July 6, 2015 Share Posted July 6, 2015 What the hell just happened here.... Link to comment Share on other sites More sharing options...
nikhil25 Posted July 6, 2015 Share Posted July 6, 2015 The only news I was able to find was the BB&T downgrade to Hold but that wouldn't cause such a massive drop... Link to comment Share on other sites More sharing options...
Guest roark33 Posted July 6, 2015 Share Posted July 6, 2015 They put out an 8k on Thursday saying the new mill is still not producing. More problems with ramp up. Becoming more clear that equity raise earlier this year was to maintain cash levels not for growth capital. Link to comment Share on other sites More sharing options...
tombgrt Posted July 6, 2015 Share Posted July 6, 2015 Another good reminder not to invest in commodities or other fickle sectors. Seriously, avoiding these pitfalls did a lot more for my portfolio than anything else. My 2 cents... Link to comment Share on other sites More sharing options...
mateo999 Posted July 6, 2015 Share Posted July 6, 2015 In the board's opinion, is this a situation that calls for someone to go 13D on the company? I don't know the story intimately well, but seems as though management team is a terrible operator-- they did a piss poor job of designing the plant. Why isn't someone calling for the replacement of these clowns? Link to comment Share on other sites More sharing options...
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