Guest roark33 Posted October 23, 2015 Share Posted October 23, 2015 Read the 8-k. Plant has basically been non-operational most of Oct. They aren't going to be able to sell shares as the stock will probably be under 3 when it opens on Monday and never recover... Link to comment Share on other sites More sharing options...
Novak Posted October 23, 2015 Share Posted October 23, 2015 Read the 8-k. Plant has basically been non-operational most of Oct. They aren't going to be able to sell shares as the stock will probably be under 3 when it opens on Monday and never recover... That seems like a fairly aggressive interpretation to me. The plant was offline for 10 days before being brought back online two days ago, so it wasn't even non-operational a majority of the month to-date, much less the full month. I think investors have priced in weak production from the plant for the near-term, so I don't think this will be much of a shocker. If they need to raise capital, the open market sales are fine since they're scalable to need and cheaper than a placement. None of this is good news, but I consider it to be in-line with where expectations have been set. Link to comment Share on other sites More sharing options...
undervalued Posted October 23, 2015 Share Posted October 23, 2015 From 8k During the remaining portion of this year, we expect to make the following additional improvements: (1) replace instrumentation in the hydrochloric acid recovery circuit to improve corrosion resistance, (2) modify the existing WOX delivery system to the leaching process to minimize further plugging issues and improve process control of the circuit, (3) further upgrade the pH control system in bleed treatment, (4) upgrade pH control in the gypsum reactors, (5) further alleviate the bleed treatment bottleneck by improved storm water management, and (6) modify the existing acid distribution system to provide more reliable delivery to the leaching and electrowinning processes. We cannot guarantee that these improvements will be completed by the end of the year. Following these improvements, we expect to build the full-scale version of the modified bleed treatment system in 2016 and complete other repairs and upgrades we have identified. Beyond addressing the bleed treatment bottleneck and completing the other various repairs and upgrades, we are not aware of any other constraints to achieving full capacity production. However, other bottlenecks to full capacity production may be discovered once we increase production to higher levels. Is that a hint that this plant won't be hitting 50% capacity at anytime soon like within 6 or so months? Link to comment Share on other sites More sharing options...
cmlber Posted October 23, 2015 Share Posted October 23, 2015 From 8k During the remaining portion of this year, we expect to make the following additional improvements: (1) replace instrumentation in the hydrochloric acid recovery circuit to improve corrosion resistance, (2) modify the existing WOX delivery system to the leaching process to minimize further plugging issues and improve process control of the circuit, (3) further upgrade the pH control system in bleed treatment, (4) upgrade pH control in the gypsum reactors, (5) further alleviate the bleed treatment bottleneck by improved storm water management, and (6) modify the existing acid distribution system to provide more reliable delivery to the leaching and electrowinning processes. We cannot guarantee that these improvements will be completed by the end of the year. Following these improvements, we expect to build the full-scale version of the modified bleed treatment system in 2016 and complete other repairs and upgrades we have identified. Beyond addressing the bleed treatment bottleneck and completing the other various repairs and upgrades, we are not aware of any other constraints to achieving full capacity production. However, other bottlenecks to full capacity production may be discovered once we increase production to higher levels. Is that a hint that this plant won't be hitting 50% capacity at anytime soon like within 6 or so months? No. The pilot plant takes the bleed treatment bottleneck to the 75% utilization level. So why would they spend the cash on the full-scale version until the other issues are addressed that enable them to get above 75%? Makes more sense to get to 75%, and once there, spend the money on getting the bleed treatment bottleneck entirely eliminated. No point being able to process enough water to produce 155,000 tons if you can't yet produce anything close to that. Overall, I thought the release was fine, not good not bad. They fixed a lot of stuff and didn't mention any new issues that need fixing. October production is irrelevant, the fixes are all that matter. I was surprised by this statement though: "In addition, the Company may pursue other strategic alternatives, such as a merger, recapitalization, reorganization, going private transaction, divestiture or sale of all or substantially all of its assets." Has anyone ever seen them use that language before? Link to comment Share on other sites More sharing options...
abitofvalue Posted October 23, 2015 Share Posted October 23, 2015 Dhandho holdings takeover / takeunder? Jk... Though Pabrai is probably below his original entry point at this stage... Can't say I get the logic of an ATM. It might be cheaper than an underwritten deal but certainly has nowhere near the certainty. Basically every time the stock price increases, stifel will issue shares creating an implicit cap on price till issued. If they don't how much it will cost do the entire 50M raise via a bought deal at 5-8% discount. The fact that they didn't suggests they weren't able to get a commitment. They can't be nickel and dimeing over the fees as the reason to do the ATM.. Need to go back and look at this but ZINC's quality of bankin relationships isn't too good; I mean Macquarie and stifel ain't exactly JPM and GS.. Makes a difference in terms of investors te firms can connect with and execution capability.. The release is really more of the same isn't it.. Fixed some shit, plant worked, took a planned outage, just came back online so don't know if fix was effective, have more issues to fix no gaurantees, Why oh why did they ever shut the old plant down.. Would have atleast provided some cash flow.. Link to comment Share on other sites More sharing options...
cmlber Posted October 23, 2015 Share Posted October 23, 2015 Dhandho holdings takeover / takeunder? Jk... Though Pabrai is probably below his original entry point at this stage... Can't say I get the logic of an ATM. It might be cheaper than an underwritten deal but certainly has nowhere near the certainty. Basically every time the stock price increases, stifel will issue shares creating an implicit cap on price till issued. Need to go back and look at this but ZINC's quality of bankin relationships isn't too good; I mean Macquarie and stifel ain't exactly JPM and GS.. Makes a difference in terms of investors te firms can connect with and execution capability.. The release is really more of the same isn't it.. Fixed some shit, plant worked, took a planned outage, just came back online so don't know if fix was effective, have more issues to fix no gaurantees, Why oh why did they ever shut the old plant down.. Would have atleast provided some cash flow.. ATM makes sense. They can sell into strength on good days and can sell as needed. If they were expecting news flow over time that would move the stock up, this would be preferable to an outright issuance of $50m right now. Also, with the way short sellers have been manipulating this stock, if they said there were going to issue equity, wouldn't the short sellers short the hell out of this knowing they can buy back in at a lower price in the equity issuance? This way they can't do that as they won't know when or even if equity will be issued. I think the last two releases have been different then the past. In the past it was "more stuff broke, we didn't fix any of the other broken stuff yet, but we are going to." The last two have been "we fixed some broken stuff and still need to fix some of the other broken stuff but nothing else broke". Link to comment Share on other sites More sharing options...
Guest roark33 Posted October 23, 2015 Share Posted October 23, 2015 The ATM will either not get done, or it will get done at a bad price, which will imply that ZINC really needs the cash. If I am short ZINC right now, no way I would cover. Stock is already down 10% after hours. This is a come to jesus moment for the longs.... Link to comment Share on other sites More sharing options...
abitofvalue Posted October 23, 2015 Share Posted October 23, 2015 Cmbler - Disagree. Roark is right If you are ZINC management you are running a business not a hedge fund. Get the capital you need and get to work. Via an ATM - what if you need capital when the stock is weak? Just wait around for strength? You can always file a shelf if you don't need capital now but may in the next few months. Trying to save on fees is the epitome of penny wise pound foolish. You don't announce you are goin to be issuing capital if price increases - which is what they did via an ATM - tell the shorts hey come short us if the stock rallies we will be increasing supply into strength. You do a bought deal. The fact that they didn't suggests they weren't able to Ge a commitment at any kind of reasonable price. Which is usually an indicator that large holders weren't willing to commit to additional capital even at 5-7% discount to market. Link to comment Share on other sites More sharing options...
Guest roark33 Posted October 23, 2015 Share Posted October 23, 2015 Yeah, where is Oprah? Or on a more serious note, why doesn't Pabrai backstop the deal. Link to comment Share on other sites More sharing options...
AzCactus Posted October 23, 2015 Share Posted October 23, 2015 Oprah knows that zinc is outside of her circle of competence. But yeah no idea why pabrai isn't backstopping makes me think he lacks either funds or confidence. Link to comment Share on other sites More sharing options...
cmlber Posted October 23, 2015 Share Posted October 23, 2015 The ATM will either not get done, or it will get done at a bad price, which will imply that ZINC really needs the cash. If I am short ZINC right now, no way I would cover. Stock is already down 10% after hours. This is a come to jesus moment for the longs.... Agree to disagree. They don't need $50m today. The amount of capital they need will depend on the speed of the ramp and zinc prices and will be needed over time. It's completely rational to sell stock on as needed basis instead of a lump. We'll hear more about it on the call in a couple weeks, but my guess is they'll say they did this just to provide another option, but are working on other liquidity options. Down 10% on $75,000 in volume... Link to comment Share on other sites More sharing options...
SnarkyPuppy Posted October 24, 2015 Share Posted October 24, 2015 Agree that this disclosure falls in the "neutral/slightly positive bucket" based on the following: a) They have not sold any equity yet - they've simply established a potential option to do so in the future should they need to. If I read the Q correctly, they still have ~$30mm of credit facility that they can draw from which I would assume they would use prior to selling shares. The stock is down 11% on only light volume, but I would expect the market to price in the potential dilution given how much attention the stock has been given by shorts and the overall lopsided pessimism associated with looking quickly at the company without digging further. b) The update on the ramp-up is, in my opinion, a positive indication of things to come. As others have pointed out, the update only speaks of improvements that have been made without any indication of new issues identified. What strikes me as interesting in the recent updates (today and October 1st) is the discussion of the pilot plant implementation which will add 100 tons of daily incremental capacity (for context, the company has stated 155,000 as the annual strategic full capacity figure. 155,000/365 = 424 tons per day). The disclosure today related to the pilot plant is optimistic: October 1st Update: "We believe this pilot plant will provide up to 100 tons per day of incremental zinc production capacity by easing the bottleneck in bleed treatment once fully commissioned. We are currently achieving flows comparable to two-thirds of the level required for that increase in production. We are very pleased that the initial results of the pilot plant indicate that we have the potential of simplifying the flow-sheet when we build the full-scale version" October 23 Disclosure "We have completed the construction, and started the operation, of a pilot plant to confirm the design parameters of a final solution, which is currently being engineered by a specialist hydrometallurgical engineering company. We have engaged a third party water management company to provide additional treatment capacity, which has also helped alleviate the bottleneck. We believe the pilot plant will provide up to 100 tons per day of incremental zinc production capacity by easing the bottleneck in bleed treatment once fully commissioned. The results of the pilot plant to date indicate that the flow-sheet of the full-scale version may be simplified, which increases the potential of building the full-scale version more quickly." I personally find the imbalanced risk/reward structure of this investment attractive, but I am also fully prepared to lose the majority of my investment (assuming the $700mm+ of PPE on the B/S is worthless...) Link to comment Share on other sites More sharing options...
Homestead31 Posted October 26, 2015 Share Posted October 26, 2015 2 thoughts in terms of an ATM offering vs traditional follow on offering. 1) any dilution is a bad thing, though in this case likely a necessary evil 2) a traditional offering guarantees a major discount to market price and maximum dilution. An ATM leaves the door open for the possibility that dilution will be better than worst case. key takeaway: an ATM in no way indicates they couldn't get a traditional deal done. Link to comment Share on other sites More sharing options...
Guest roark33 Posted October 26, 2015 Share Posted October 26, 2015 I really don't see how anyone can see this as a good thing. At this point you are debating if ATM offering is better than a straight bought offering. Ask yourself honestly, if 6 months ago after their first offering (when a lot of people thought it was for "growth") you knew that they would potentially need another offering, you would have stayed in the stock. I think a lot of people change their investment thesis mid-way. Whenever I have done that, I would have been better off just admitting I made a mistake and selling. Link to comment Share on other sites More sharing options...
AzCactus Posted October 26, 2015 Share Posted October 26, 2015 I really don't see how anyone can see this as a good thing. At this point you are debating if ATM offering is better than a straight bought offering. Ask yourself honestly, if 6 months ago after their first offering (when a lot of people thought it was for "growth") you knew that they would potentially need another offering, you would have stayed in the stock. I think a lot of people change their investment thesis mid-way. Whenever I have done that, I would have been better off just admitting I made a mistake and selling. +1 Link to comment Share on other sites More sharing options...
cmlber Posted October 26, 2015 Share Posted October 26, 2015 I really don't see how anyone can see this as a good thing. At this point you are debating if ATM offering is better than a straight bought offering. Ask yourself honestly, if 6 months ago after their first offering (when a lot of people thought it was for "growth") you knew that they would potentially need another offering, you would have stayed in the stock. I think a lot of people change their investment thesis mid-way. Whenever I have done that, I would have been better off just admitting I made a mistake and selling. Come on, seriously? They issued that equity at $12.75. Of course nobody on this board would have been in the stock at $12.75 if they knew they would need another offering and the ramp would be this slow and zinc prices would collapse. But that is a completely irrelevant question. The stock is $3.20 now. Thinking about what should have been done 10 months ago with 10 months of future information is irrelevant. Link to comment Share on other sites More sharing options...
Guest roark33 Posted October 26, 2015 Share Posted October 26, 2015 Don't agree. No one on this board was discussing continual dilution based on operational problems at plant 6 months ago. Now, you are rationalizing the delayed start-up with the potential for better returns based on today's low stock price. My point is 1 year ago, you should have said, operational start-up risks is my number 1 concern, and zinc prices is number 2. If either one of those doesn't go "ZINC's" way, I will sell. Now, that both have not gone their way, the investment thesis is changing--and that is a mistake in my opinion. A good example last year was Ocwen. Most were basing their investment on continued ability to buy MSRs and then when the govt effectively blocked that, people switched their investment thesis to "it's cheap based on book value." My general point is that you should have a defined "thesis" for selling. And don't change that thesis. Link to comment Share on other sites More sharing options...
NoCalledStrikes Posted October 26, 2015 Share Posted October 26, 2015 No one on this board was discussing continual dilution based on operational problems at plant 6 months ago. Does May 8th count ? "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. " :) Link to comment Share on other sites More sharing options...
cmlber Posted October 26, 2015 Share Posted October 26, 2015 Don't agree. No one on this board was discussing continual dilution based on operational problems at plant 6 months ago. Now, you are rationalizing the delayed start-up with the potential for better returns based on today's low stock price. My point is 1 year ago, you should have said, operational start-up risks is my number 1 concern, and zinc prices is number 2. If either one of those doesn't go "ZINC's" way, I will sell. Now, that both have not gone their way, the investment thesis is changing--and that is a mistake in my opinion. A good example last year was Ocwen. Most were basing their investment on continued ability to buy MSRs and then when the govt effectively blocked that, people switched their investment thesis to "it's cheap based on book value." My general point is that you should have a defined "thesis" for selling. And don't change that thesis. I get your point, but it wasn't an either or and still isn't. 1 year ago, you needed BOTH a slow ramp up and collapsing zinc prices to make liquidity a short term issue. By the time BOTH were obvious, the stock price had already collapsed. At the new price, dilution doesn't matter if the long term thesis that the plant will eventually work remains intact. Link to comment Share on other sites More sharing options...
hardincap Posted October 26, 2015 Share Posted October 26, 2015 Cmlber, what's giving you the confidence that Mooresboro will ramp next year, or even the year after that? It's already been more than three times past their original timeframe to get to cashflow breakeven, and they're still not there. It makes you wonder, if management cant get to even a ballpark estimate, how can we? To quote Buffett, "You can have someone who's aggregate performance is terrific, but if you have a weakness, it's the weak link that snaps you." Link to comment Share on other sites More sharing options...
kirkomi Posted October 26, 2015 Share Posted October 26, 2015 After reading/watching a lot of Pabrai, I am of the opinion that his thesis is not the "new plant". He was buying around $10 and generally his ideas have the chance of at least tripling the money (if things go well). With the new plant I think the upside was around 68-70% range ... too low for Pabrai. This is in too hard pile for me but I think It would be interesting to figure out what his reasons are. Link to comment Share on other sites More sharing options...
cmlber Posted October 26, 2015 Share Posted October 26, 2015 Cmlber, what's giving you the confidence that Mooresboro will ramp next year, or even the year after that? It's already been more than three times past their original timeframe to get to cashflow breakeven, and they're still not there. It makes you wonder, if management cant get to even a ballpark estimate, how can we? To quote Buffett, "You can have someone who's aggregate performance is terrific, but if you have a weakness, it's the weak link that snaps you." I don't know for sure that it will work. But I know for sure that it's an asymmetric bet. Why do I have confidence that the plant will eventually work? 1) This technology isn't new, it has been done before. 2) This technology is currently working at Mooresboro, the problem is throughput. 3) I've discussed it with the former VP of Operations for Horsehead who ran all the recycling plants, inmetco, zochem, and the monaca plant, and his comment was something to the effect of "they will definitely be able to get to original capacity with enough equipment" The point being the technology is working, if they need a few more pieces of equipment here and there to add capacity where there are bottlenecks, they'll have to add those, but with time and money, it will work. (Example is the bleed treatment. It is working. It processes water the way it should. It just doesn't process water in the quantity that it needs to. The solution is easy, add more equipment to process more water.) He also said in his experience, projects tend to eventually exceed nameplate and continually improve, not the other way around. 4) I think it's highly unlikely that management demolished the old plant and bet the company on a plant that they themselves weren't highly confident would work. Of course you'll counter that this management team has lost most, if not all, credibility, but it hasn't had to bet the company on any of its ramp targets. If you asked management to bet the company that the ramp would be at 75% by year end earlier this year, I'm sure they would say no they wouldn't bet the company on it. Link to comment Share on other sites More sharing options...
Guest roark33 Posted October 26, 2015 Share Posted October 26, 2015 The problem with the idea that "this technology isn't new" is this: If this is so easy, why wasn't the bleed treatment in the original design? They obviously messed something up in their original design, so I am not that confident that they will be able to fix it. Link to comment Share on other sites More sharing options...
RadMan24 Posted October 27, 2015 Share Posted October 27, 2015 Disagree for various reasons. If everyone changes their mind, isn't it a safer investment? We'll see how it plays out, besides. Why sell at $3? If they raise capital at $3 and buy time and get the plant up and running in a few years, you would easily make your money back, rather than locking in loss...just a theory though. And if by December things improve and the stock prices rises, dilution won't be as bad if they need additional liquidity because of better outlook. Link to comment Share on other sites More sharing options...
Sebastien Posted October 27, 2015 Share Posted October 27, 2015 Risk is the thing that you don't know and have not anticiped... That's why you ask, for any investments, a good margin of safety Yes Horsehead was an ugly story for at least a few months... the ramp-up is slower than anticiped and mister market is very depressed Is it a bad company or a bad management? I dont think... it's just a bad situation / timing and the sellers are selling irrationnaly If you dont see any value at this price, ask yourself if you are a really value investor... Yes, there are some risks at this thesis but the margin of safety is there to compensate you 5 months ago the default was unthinkable... now it's almost sure for everyone... Disclose: I'm long Link to comment Share on other sites More sharing options...
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