Fat Pitch Posted July 8, 2015 Share Posted July 8, 2015 What's everyone's opinion that the delays at the new plant is the byproduct of a fatal design flaw in the facility itself? This is looking interesting, but I'm not seeing the major holders scooping up shares yet. Link to comment Share on other sites More sharing options...
fwallstreet Posted July 8, 2015 Share Posted July 8, 2015 http://www.horsehead.net/financial_news.php?showall=no&FinancialNews=current&ID=151 Looks like they are adding an additional $30m to revolver. These plant issues are obviously starting to stretch their cash position and borrowing capacity. Link to comment Share on other sites More sharing options...
yadayada Posted July 8, 2015 Share Posted July 8, 2015 Rain industries guys. Also commodity maker, but much cheaper, and actually a commodity that is less cyclical and will see a faster growth in demand. And incidently it is also a Pabrai pick! Link to comment Share on other sites More sharing options...
Sunrider Posted July 8, 2015 Share Posted July 8, 2015 Rain industries guys. Also commodity maker, but much cheaper, and actually a commodity that is less cyclical and will see a faster growth in demand. And incidently it is also a Pabrai pick! can you buy it on IB? Link to comment Share on other sites More sharing options...
jawn619 Posted July 8, 2015 Share Posted July 8, 2015 http://finance.yahoo.com/news/shareholder-alert-pomerantz-law-firm-132900778.html Link to comment Share on other sites More sharing options...
Homestead31 Posted July 9, 2015 Share Posted July 9, 2015 whether you should buy, hold or sell is an individual decision obviously, but i don't think that the fact that Pabrai isn't adding means that he has lost faith. we know from his past public statements that his last 10% of assets only gets invested if it is a 5-10 bagger, and we know from transcripts of his recent annual meeting that he is 90% invested, and that he thinks his portfolio is very cheap vs IV. We also know that he is a long term thinker who only buys when at a MINIMUM he thinks a stock can double. He last bought at $14 (pre dilution) so you know he thought at the time it was worth at least $28, and back into that value post dilution. it is possible that the estimate of IV has come down, but not for any fundamental reason. any decay in the IV would be tied to the risk of financing needs. that is a separate question. in sum, you have to do your own work unless you have a speed dial to Mohnish, and just because he isn't adding doesn't mean it isn't still very cheap - it just means that he has capital deployed in other situations that are also very cheap, and that this isn't a 5-10 bagger. in my view it could still easily be a 2-3 bagger however, but again, these are views that you need to develop on your own. i suggest reviewing chapter 15 of Dhando Investor and the Universal Steel case study, in which Pabrai stomached a 60+% loss before being vindicated by a business with competitive advantages. Link to comment Share on other sites More sharing options...
Happy Posted July 9, 2015 Share Posted July 9, 2015 Pabrai also said he doesn't invest more than 10% on a cost basis in any stock - with the reasoning that averaging down in one big mistake can't sink him that way. So his rules tell him not to add even if he wanted to. Link to comment Share on other sites More sharing options...
cmlber Posted July 9, 2015 Share Posted July 9, 2015 Can someone tell me if I'm crazy? If they demolished the Mooresboro plant, they'd be making $26m from calcine sales $8m from hauling EAF dust $18m from INMETCO $17m from Zochem $69m unlevered FCF on an $840m enterprise value..... 12x unlevered FCF..... Where is the downside at this price? :o Link to comment Share on other sites More sharing options...
BG2008 Posted July 9, 2015 Share Posted July 9, 2015 I think you and Alex forgot to add in SG&A expense and interest payment which probably total in the $50+mm range. Moorseboro needs to work in order for this thesis to work. They spent the money to build the plant and now it sits on the BS as debt. I'm confident that they can get the plant to work. Where we differ is that I believe there's more downside if they are going to demo the Moorseboro plant. BG2008 Can someone tell me if I'm crazy? If they demolished the Mooresboro plant, they'd be making $26m from calcine sales $8m from hauling EAF dust $18m from INMETCO $17m from Zochem $69m unlevered FCF on an $840m enterprise value..... 12x unlevered FCF..... Where is the downside at this price? :o Link to comment Share on other sites More sharing options...
cmlber Posted July 9, 2015 Share Posted July 9, 2015 I think you and Alex forgot to add in SG&A expense and interest payment which probably total in the $50+mm range. Moorseboro needs to work in order for this thesis to work. They spent the money to build the plant and now it sits on the BS as debt. I'm confident that they can get the plant to work. Where we differ is that I believe there's more downside if they are going to demo the Moorseboro plant. BG2008 Can someone tell me if I'm crazy? If they demolished the Mooresboro plant, they'd be making $26m from calcine sales $8m from hauling EAF dust $18m from INMETCO $17m from Zochem $69m unlevered FCF on an $840m enterprise value..... 12x unlevered FCF..... Where is the downside at this price? :o I believe I'm including SG&A. My INMETCO # for example is based on INMETCO net sales minus INMETCO cost of sales on page 54 of the annual report. Notice that it shows cost of sales of $34.2m but then cost of sales of nickel-based materials is only $32.8m on the income statement. I'm assuming the page 54 number includes an allocation for G&A whereas the income statement number does not. I don't think there's much G&A associated with INMETCO/Zochem, they are fairly simple businesses to run, not many employees, standard process etc. How much overhead could you possibly need? A VP of Operations, an assistant or two, a phone line and a 500 sq ft office space in the middle of nowhere in Pennsylvania.... We're not talking about a lot of employees here, INMETCO has 100 employees, only 27 are salaried. Zochem has 45 employees. And I didn't forget interest, I did an unlevered FCF calculation and compared to enterprise value. Also I agree with you and think they will get to 100% capacity, I'm just illustrating the downside is very limited even under a worst case scenario. I think Alex's 50% utilization is the more likely bear case (which ends up in the same conclusion). They hit 50% in December, there's no way a year from now they won't be doing that consistently with 1.5yrs of learning and money/time spent fixing problems. Link to comment Share on other sites More sharing options...
flesh Posted July 9, 2015 Share Posted July 9, 2015 "They could sell INMETCO and pay off all the secured debt on the balance sheet if they had to." Wouldn't you have to apply 20x fcf of 20m to pay off the 415m debt? I can't see higher than 15x fcf on inmetco. They would likely have to sell Inmetco and Zochem to pay off debt. At 50% utilization at Mooresboro, You would be left with 51m in fcf wo zochem and inmetco, leaving it fairly valued at current prices of 16x fcf. Again, assuming 50% capacity at Mooresboro. Simply trying to understand this. It seems to me appreciation from here requires greater than 50% capacity at Mooresboro. I'm trying to understand why anyone here is using unlevered FCF to get to a fair value? Link to comment Share on other sites More sharing options...
Guest notorious546 Posted July 9, 2015 Share Posted July 9, 2015 After seeing some comments on the Skorpion mine thought it would be worthwhile to read over the annual report of Vedanta Resources plc. Below are some excerpts that could be of interest • “Zinc - The global demand for zinc increased by 4.3% in 2014 to 13,881kt. Refined zinc production growth declined from 3.9% to 3.3% in 2014, highlighting the widening gap between the global zinc demand and its supply. Combined with reductions in LME stocks, this resulted in moderate price rises during the year. Global zinc consumption is expected to grow steadily by around 4%–5% in the coming years and the closure of some large mines such as Century and Lisheen, will create further shortage in supply. New mines and upcoming projects such as Vedanta’s Gamsberg project will help offset the gap to an extent. The outlook for demand in India remains positive with CAGR of around 6%, driven by a strong galvanising sector which accounts for 75% of demand. With a 78% share of the Indian market and a high quality rating for its LME registered brands, HZL is well positioned to take advantage of these positive developments.” • "The Lisheen mine, which is near the end of its life, is expected to end production in mid-FY2016. At Skorpion, production was lower by 23,000 tonnes. This was primarily due to a fire incident in the cell house, resulting in the refinery shutting-down during January 2015 for 23 days, followed by a gradual ramp-up. The production loss was also due to a lower zinc feed grade." still digging for more on how they solved some of the problems ZINC is now facing. 22883_vedanta_ar2015_final.pdf Link to comment Share on other sites More sharing options...
spartansaver Posted July 9, 2015 Share Posted July 9, 2015 "They could sell INMETCO and pay off all the secured debt on the balance sheet if they had to." Wouldn't you have to apply 20x fcf of 20m to pay off the 415m debt? I can't see higher than 15x fcf on inmetco. They would likely have to sell Inmetco and Zochem to pay off debt. At 50% utilization at Mooresboro, You would be left with 51m in fcf wo zochem and inmetco, leaving it fairly valued at current prices of 16x fcf. Again, assuming 50% capacity at Mooresboro. Simply trying to understand this. It seems to me appreciation from here requires greater than 50% capacity at Mooresboro. I'm trying to understand why anyone here is using unlevered FCF to get to a fair value? They are using unlevered because they are adding the debt to the equity to find the enterprise value and thus interest should also be added back. Link to comment Share on other sites More sharing options...
Guest notorious546 Posted July 9, 2015 Share Posted July 9, 2015 "They could sell INMETCO and pay off all the secured debt on the balance sheet if they had to." Wouldn't you have to apply 20x fcf of 20m to pay off the 415m debt? I can't see higher than 15x fcf on inmetco. They would likely have to sell Inmetco and Zochem to pay off debt. At 50% utilization at Mooresboro, You would be left with 51m in fcf wo zochem and inmetco, leaving it fairly valued at current prices of 16x fcf. Again, assuming 50% capacity at Mooresboro. Simply trying to understand this. It seems to me appreciation from here requires greater than 50% capacity at Mooresboro. I'm trying to understand why anyone here is using unlevered FCF to get to a fair value? They are using unlevered because they are adding the debt to the equity to find the enterprise value and thus interest should also be added back. +1 Link to comment Share on other sites More sharing options...
spartansaver Posted July 9, 2015 Share Posted July 9, 2015 Also Flesh, I believe AlexB was only referring to the Secured debt on HH of 305M which is roughly equal to that 15x FCF that you were referring to. In ZINC's filings they state they only have 205M of secured and for some reason do not include the convertible, but I believe that should be included as it is also secured. Link to comment Share on other sites More sharing options...
cmlber Posted July 9, 2015 Share Posted July 9, 2015 "They could sell INMETCO and pay off all the secured debt on the balance sheet if they had to." Wouldn't you have to apply 20x fcf of 20m to pay off the 415m debt? I can't see higher than 15x fcf on inmetco. They would likely have to sell Inmetco and Zochem to pay off debt. At 50% utilization at Mooresboro, You would be left with 51m in fcf wo zochem and inmetco, leaving it fairly valued at current prices of 16x fcf. Again, assuming 50% capacity at Mooresboro. Simply trying to understand this. It seems to me appreciation from here requires greater than 50% capacity at Mooresboro. I'm trying to understand why anyone here is using unlevered FCF to get to a fair value? I agree that appreciation from here requires greater than 50% capacity at Mooresboro. The point I was trying to make is that the market is pricing this like there is a high likelihood of failure, and on top of that, there is a high likelihood that failure leads to a significantly lower stock price. But the reality is that a worst case scenario is very close to priced in here. So you have a scenario where on the downside maybe you lose a little bit, on the upside this could triple in a year or two if they're doing $100m in FCF and get a 15x FCF multiple. Link to comment Share on other sites More sharing options...
flesh Posted July 10, 2015 Share Posted July 10, 2015 http://www.gurufocus.com/news/344961/why-i-bought-more-of-horsehead-holding-after-the-15-drop Recent article over at guru focus, FCF at fully ramped Mooresboro seems a bit low in his valuation? Link to comment Share on other sites More sharing options...
fwallstreet Posted July 10, 2015 Share Posted July 10, 2015 For what its worth. What stood out to me was how bearish they were on commodities (their analysis makes sense to me though) with the exception of zinc - the only strong bull call. Also included commentary on other metals relevant to HorseheadGS_commodity_research_-_July_2015.pdf Link to comment Share on other sites More sharing options...
BG2008 Posted July 11, 2015 Share Posted July 11, 2015 I'm surprised that no one has ever mentioned this other company, seems like all these Zinc Smelters/Extraction companies wind up with problems during the ramp up period. ZincOx is in the same line of business as Horsehead, but they use a different rotary hearth method to extract zinc and iron from EAF dust. No idea where ZincOx falls on the cost curve in terms of cost of production per pound of zinc. They are claiming that they can achieve 25% IRR on their projects on $115mm per 100,000 ton per year of EAF dust. Assuming 22% zinc content, this is similar to moorseboro plant that produces 22,000 tons per year of zinc. https://www.youtube.com/watch?v=hwt8FoLKzvE http://zincox.com/wp-content/uploads/2015/06/150629-Website-Presentation-FINAL-.pdf Link to comment Share on other sites More sharing options...
BG2008 Posted July 11, 2015 Share Posted July 11, 2015 ZincOX was able to ramp up their production after 1.5 years. However, they use a totally different extraction method. I'm surprised that no one has ever mentioned this other company, seems like all these Zinc Smelters/Extraction companies wind up with problems during the ramp up period. ZincOx is in the same line of business as Horsehead, but they use a different rotary hearth method to extract zinc and iron from EAF dust. No idea where ZincOx falls on the cost curve in terms of cost of production per pound of zinc. They are claiming that they can achieve 25% IRR on their projects on $115mm per 100,000 ton per year of EAF dust. Assuming 22% zinc content, this is similar to moorseboro plant that produces 22,000 tons per year of zinc. https://www.youtube.com/watch?v=hwt8FoLKzvE http://zincox.com/wp-content/uploads/2015/06/150629-Website-Presentation-FINAL-.pdf Link to comment Share on other sites More sharing options...
kab60 Posted July 11, 2015 Share Posted July 11, 2015 Thanks. Very interesting. To follow ZincOx' struggles there are some good articles here: http://www.proactiveinvestors.co.uk/companies/news/107833/zincox-resources-unveils-record-monthly-ebitda-for-krp-107833.html In May they had their first month of generating 1m ebitda with ~90 pct utilization. However it hasn't been pleasent for shareholders. Issued stock increased 65 pct since 2012, equity gone the other way. Trading at 0,7 PB for anyone considering a zinc basket. :) Link to comment Share on other sites More sharing options...
wknecht Posted July 11, 2015 Author Share Posted July 11, 2015 This is starting to look interesting to me. Alex, do you know if the $11-$12MM Capex run rate in your post below is still the expectation? And is that consolidated? I'm having trouble finding capex numbers in their conference calls etc. AccentricInv, Good question. Here is the exact statement I got when I asked management what maintenance capex will be once the new facility is complete in Q2 2014: "We believe it will be ~$11-12 million on an annual basis once Mooresboro is up and running and Monaca is shut down. That's down from approximately $18 million per year." Alex Link to comment Share on other sites More sharing options...
BG2008 Posted July 12, 2015 Share Posted July 12, 2015 Can someone on this board get access to a paper authored by Terry McNulty titled Managing Innovation in the Minerals Industry 1998? Its research paper on the ramp of metallurgical plants? Link to comment Share on other sites More sharing options...
cmakam Posted July 12, 2015 Share Posted July 12, 2015 Newbie trying to get his head around Horsehead: 1)Dont the calcine sales go away as capacity ramps up to name plate ? 2)Growth comes from increased capacity (upto 120 percent of name plate?) or increased Zn prices right ? Assuming you dont want to speculate on higher Zn prices (lets say 95-100 cents/lb),why should this business be worth more than 10X EBIT (EV not marketcap)? -CMK Link to comment Share on other sites More sharing options...
jimjam Posted July 14, 2015 Share Posted July 14, 2015 Just following up on some previous messages in this thread, here's a new video that came out today from ZincOx: https://www.youtube.com/watch?v=Q-hSdSaKPcU Very interesting. If I understand correctly, the CEO is confident they have figured out how to run their Korean recycling plant efficiently and is planning to: - tweak the plant to gain additional revenues - reuse the "know how" to build out similar plants in Vietnam and Thailand. They seem to be in a race to capture EAF dust contracts... At around 29:12 in the video, the CEO says: "There are probably about 8 more of these plants that could be run in the world ... and that's about it" Link to comment Share on other sites More sharing options...
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