ZINC - Horsehead Holding Corp

[gurpaul88]

Up 9%ish today. Any news today? other than Mohnish adding 2,300 shares which seems pretty insignificant to the amount he holds. I wonder what would have happened if he added more  :o

[CorpRaider]

Looks like he added a big chunk of the announced offering, 325,000 at reported price of $12, must have been a private placement.  Wow he's really swinging hard at this pitch for someone who has never (?) gone solo on an idea…very interesting.

[nikhil25]

Third Quarter Results:

http://www.4-traders.com/HORSEHEAD-HOLDING-CORP-58472/news/HORSEHEAD-HOLDING-CORP--Reports-Third-Quarter-2013-Results-17430934/

 

 

[racemize]

nice quote regarding the incremental improvement:

 

Well, I mean, just to explain that $90 million to $110 million, I mean there are really 4 components, major components to it. One piece, which is the smallest piece, is the difference in premium we expect between selling special high grade and selling PW, which that spread really hasn't changed much over a couple of years, and it's been in the $0.04 or $0.05 range, and that's kind of where it is right now, and so it's really more a question of volume, and we still expect the 155,000 ton per year rate to be the output from the facility. So that piece doesn't really change much. The next piece is the lead-silver recovery piece and that 155,000 ton per year rate would feed -- feeding roughly 130,000 tons of zinc from our EAF dust, we estimate that there's a certain amount of lead and silver in that, and assuming silver and lead prices, we get to a range that's roughly 20% of that $90 million to $110 million range, that really hasn't changed either. Because it's really tied to the volume of commodity we expect to be able to extract from our feed materials, which hasn't changed. The other significant components around the cost side and a big component of that is the elimination of certain steps in our recycling process. We go through a two-step process today, waelzing followed by calcining, and that calcining step will be eliminated with this new facility, and we know what that costs, and that really hasn't changed. So there's a significant savings there. And then the other benefit is just lower conversion costs in the smelting process itself, and our estimate of manpower differences stayed about the same. We still think that Mooresboro facility will run with about 250 people. We also see it being much less energy-intensive, which is really driven by the technology itself. Today, we spend about $25 million a year on coke in the Monaca process that we won't need to spend with this new facility. So when we look at the underlying reasons why that $90 million to $110 million is there, they're still here today as they were 2 years ago, when we looked at the project.

[nikhil25]

Looks like he added a big chunk of the announced offering, 325,000 at reported price of $12, must have been a private placement.  Wow he's really swinging hard at this pitch for someone who has never (?) gone solo on an idea…very interesting.

 

He just added another 318,049 shares at an average price of $13.60 per share!

[plato1976]

making me wonder why this one is so special now...

is the risk/reward so attractive ?

any short term catalyst ?

 

Looks like he added a big chunk of the announced offering, 325,000 at reported price of $12, must have been a private placement.  Wow he's really swinging hard at this pitch for someone who has never (?) gone solo on an idea…very interesting.

 

He just added another 318,049 shares at an average price of $13.60 per share!

[phil_Buffett]

He added another 190,921 Shares at around 14,18$! he is buying a lot the last time

[phil_Buffett]

Mohnish bought another 248,575 Shares on 18.11.13

 

 

[Guest hellsten]

Mohnish bought another 248,575 Shares on 18.11.13

 

I sold my small tracking position a couple of weeks ago, because I don't understand why Mohnish has such a large position in ZINC. He must think it's going to be a minimum 2x in 2-3 years, but I don't understand how it will get there.

 

Management have said this about their business:

We believe that we are a unique business, having no direct competitor that recycles similar secondary materials into zinc products in North America.

 

Maybe the thesis is as simple as this:

The company is only months away from opening a new plant that will increase EBITDA by 300%, independent of the price of zinc.

At a conservative 6.0X 2015E EBITDA of $200mm,Horsehead should trade at ~$21.00 per share, representing ~72% upside from the current share price.

Source http://www.scribd.com/doc/165444433/Horsehead-Holding-Corp-Prescience-Final

 

"Months away", or maybe a year or two?

 

If you take 2010-2011 EBITDA times 3 you get ~200 million EBITDA. Market cap is ~$600 million.

 

Insiders don't seem to be buying?

 

Is Zinc a bubble?

 

http://www.wolframalpha.com/input/?i=zinc+price

[phil_Buffett]

Mohnish bought another 248,575 Shares on 18.11.13

 

I sold my small tracking position a couple of weeks ago, because I don't understand why Mohnish has such a large position in ZINC. He must think it's going to be a minimum 2x in 2-3 years, but I don't understand how it will get there.

 

Management have said this about their business:

We believe that we are a unique business, having no direct competitor that recycles similar secondary materials into zinc products in North America.

 

Maybe the thesis is as simple as this:

The company is only months away from opening a new plant that will increase EBITDA by 300%, independent of the price of zinc.

At a conservative 6.0X 2015E EBITDA of $200mm,Horsehead should trade at ~$21.00 per share, representing ~72% upside from the current share price.

Source http://www.scribd.com/doc/165444433/Horsehead-Holding-Corp-Prescience-Final

 

"Months away", or maybe a year or two?

 

If you take 2010-2011 EBITDA times 3 you get ~200 million EBITDA. Market cap is ~$600 million.

 

Insiders don't seem to be buying?

 

Is Zinc a bubble?

 

http://www.wolframalpha.com/input/?i=zinc+price

 

i think hellsten it all has to do with the new factory. if the factory is on, i think it is perhaps a double.

 

mohnish has a very high conviction in it. He hold the stock very Long and already have a big gain in it ( i think around 3x)

and he is buying more.

[Guest hellsten]

i think hellsten it all has to do with the new factory. if the factory is on, i think it is perhaps a double.

 

mohnish has a very high conviction in it. He hold the stock very Long and already have a big gain in it ( i think around 3x)

and he is buying more.

 

Yes. He knows the company very well. I don't. He's held it for years. As with, for example, Terex he knows when it's cheap. I just see too many risks, such as

the price of Zinc and construction delays, to be interested in it at these prices.

[phil_Buffett]

i think hellsten it all has to do with the new factory. if the factory is on, i think it is perhaps a double.

 

mohnish has a very high conviction in it. He hold the stock very Long and already have a big gain in it ( i think around 3x)

and he is buying more.

 

Yes. He knows the company very well. I don't. He's held it for years. As with, for example, Terex he knows when it's cheap. I just see too many risks, such as

the price of Zinc and construction delays, to be interested in it at these prices.

 

i also see the construction as a Problem. i hope they finally get it and can hold their promises that the factory is soon build.

i was also disapointed after the recent dilution in stock outstanding

 

but Long term i think Mohnish will be right. Here iam a Little cloner of him :D

[mvalue]

I owned from fall of 08 to 09 when it was really cheap which was great but I never felt like the management was very shareholder oriented. No idea if the new project will pan out but it didn't surprise me as far as uses of capital...

[CorpRaider]

If they keep issuing share to Mohnish, however, they are eventually going to have someone sitting on the other side of the table who can fire them.

[nikhil25]

He just bought another 147,585 shares at an average cost of $13.99. I'm really starting to wonder if his bullishness stems from the potential cost efficiencies of the new plant or there might be other catalysts at play here.

[racemize]

Insiders have been buying as well.

 

Hi Alex, I agree with everything you said--however, I don't know if I've seen insiders buying.  Do you know who and how much?

 

Thanks!

[OracleofCarolina]

Some dude called Mohnish Pabrai has been buying..lol

[racemize]

Some dude called Mohnish Pabrai has been buying..lol

 

Yeah, he's got quite the position--I'd like for the CEx's to have been buying too though!

[nikhil25]

This is one of th few good ideas I can find today and its worth a least $20.

 

Thanks Alex. Appreciate your insights!

[skanjete]

I've owned Horshead since March of 2009 when I invested at $3. I believe the risk/ reward is as favorible today as it was then.

 

At a current price of $14 I believe they are worth in excess of $20 per share and potentially a lot more. They recycle a hazardous waste produced from steel mini mills called electric arc furnace dust. They are one of the lowest cost producers of zinc in the world and their cost advantage will be even more secure when their new low cost facility is operational next year. They will be the 2nd lowest cost producer in the world behind the Skorpian mine in Australia when the new facility is complete. I view that as a wide moat and strong competitive advantage. They have long term contracts with their feedstock providers and customers as well. The steel mini mill industry which provides the dust they recycle also has long term growth tailwinds. In the next few years EDITDA will grow to $150-$200 million resulting in a EV/EBITDA of 4. FCF will be in excess of $100 million at this point compared to the current market cap of $700 million resulting in a FCF yield of 14%. The replacement value of their facilities has been estimated at over $1 billion prior to the construction of their new $490 million facility.

 

The supply demand situation in zinc is also very interesting. In the next few years there are a few high cost mines closing and very little new capacity coming on board. Demand increases will be driven by continued growth in the housing and automobile market. Although I'm assuming the price of zinc will stay the same as it is today in my analysis, Horsehead has a $25-30 million delta to a $.10 change in zinc prices. In addition, only 70% of their feedstock comes from EAF dust today, if this rises to 100% this would increase operating income by at least $14 million. Again this is not accounted for in my price target but could be additional upside.

 

This is one of th few good ideas I can find today and its worth a least $20. Insiders have been buying as well.

 

Alex

 

Hi Alex,

 

I recently did some work on Horsehead, but I seem to have some trouble to reproduce your figures.

 

The EBITDA for the past several years has averaged almost 40$m. They claim they can get an incremental 90-110$m with the South Carolina plant. So that would be a total EBITDA of say 150$m.

When the plant is up and running, I estimate a net debt of about 400$m, so a total E.V. of 1100$m. That would be an EV/EBITDA of 7,3.

 

Cash flow could indeed be about 100m$. However I would take the convertibles (at 15$) into account for the marketcap. That would give us about 66m shares for a marketcap of 900-1000$m.

 

But I'm not sure if this cash flow is really to be considered "free". This is a very capital intensive business. So the depreciation should be taken into account. In the years since 2004, they invested about 250$m in maintenance (and depreciated only about 125$m). However, the impact of these considerable investments is not really apparent from higher profits or higher cash flows. The impact has of course also been obscured by the commodity prices, but still.

 

I suppose I am to conservative, or maybe I make some reasoning mistakes. If so, can you help me clarify them please?

I wouldn't bet against mr. Pabrai, but I can't seem to find the value at these prices, unless you have strong views on the future of the zinc prices (I don't).

[skanjete]

It seems that Mohnisch Pabrai is not the only superinvestor in Horsehead.

Also Chuck Royce has a position in the company, albeit a relatively smaller one.

[PJM]

I've owned Horshead since March of 2009 when I invested at $3. I believe the risk/ reward is as favorible today as it was then.

 

At a current price of $14 I believe they are worth in excess of $20 per share and potentially a lot more. They recycle a hazardous waste produced from steel mini mills called electric arc furnace dust. They are one of the lowest cost producers of zinc in the world and their cost advantage will be even more secure when their new low cost facility is operational next year. They will be the 2nd lowest cost producer in the world behind the Skorpian mine in Australia when the new facility is complete. I view that as a wide moat and strong competitive advantage. They have long term contracts with their feedstock providers and customers as well. The steel mini mill industry which provides the dust they recycle also has long term growth tailwinds. In the next few years EDITDA will grow to $150-$200 million resulting in a EV/EBITDA of 4. FCF will be in excess of $100 million at this point compared to the current market cap of $700 million resulting in a FCF yield of 14%. The replacement value of their facilities has been estimated at over $1 billion prior to the construction of their new $490 million facility.

 

The supply demand situation in zinc is also very interesting. In the next few years there are a few high cost mines closing and very little new capacity coming on board. Demand increases will be driven by continued growth in the housing and automobile market. Although I'm assuming the price of zinc will stay the same as it is today in my analysis, Horsehead has a $25-30 million delta to a $.10 change in zinc prices. In addition, only 70% of their feedstock comes from EAF dust today, if this rises to 100% this would increase operating income by at least $14 million. Again this is not accounted for in my price target but could be additional upside.

 

This is one of th few good ideas I can find today and its worth a least $20. Insiders have been buying as well.

 

Alex

 

Hi Alex - Thanks for your insights. Can you please tell us how did you get the replacement value of 1b?

 

Thanks

PJM

[Guest 50centdollars]

http://www.bnamericas.com/news/metals/zinc-price-outlook-more-compelling-than-other-base-metals-trevali-ceo

 

Article by CEO of trevali mining, which is a company going into zinc production at year-end.

[phil_Buffett]

http://www.bnamericas.com/news/metals/zinc-price-outlook-more-compelling-than-other-base-metals-trevali-ceo

 

Article by CEO of trevali mining, which is a company going into zinc production at year-end.

 

thank you for the link.

 

rising zinc Prices, the new factory if it is ready in 2014, and then a lot more operating cash flow. thats the reason why mohnish is adding  :)

[Guest hellsten]

http://www.bnamericas.com/news/metals/zinc-price-outlook-more-compelling-than-other-base-metals-trevali-ceo

 

Article by CEO of trevali mining, which is a company going into zinc production at year-end.

 

thank you for the link.

 

rising zinc Prices, the new factory if it is ready in 2014, and then a lot more operating cash flow. thats the reason why mohnish is adding  :)

 

Maybe it's a bet on inflation and rising prices caused by all the money central banks are pumping into the system. It hasn't pushed up the price of natural gas, another commodity, so I wouldn't make a 20% bet which depends on the price of zinc. I would have to see something other than a company in a commodity business to invest; a wide moat would do. What kind of moat does ZINC have? How stupid are competitors, and other companies that might want to enter the same business? Is ZINC really an environmental company? Sorry, I was just thinking out loud...