ZINC - Horsehead Holding Corp

[hardincap]

I'm assuming Pabrai isn't just a passive shareholder here, and that he would strongly encourage management to sell Zochem and/or INMETCO over issuing equity at low single digit prices. If they raise $75m+ by selling Zochem and get utilization above 50% in Q1, that should be enough to make the stock pop significantly. Then they can issue equity at much better prices.

 

 

[abitofvalue]

The problem with selling Zochem is that if you do that and then your plant is working quick, you have basically wiped out most of your cash-flows. Zochem is what is keeping the lights on while they muddle through trying to get mooresboro up and running. If they sell it, that's it thats the last shot they get. Will like make debt holders nervous too.  I don't recall but can they even sell Zochem without using proceeds to repay some debt? Isn't the equity interest in Zochem pledged in the credit agreements?

[str8shot]

Even if they break even in 2017, they have to repay something like 350M$ july 2017. Who is going to lend them the money to repay those bondholders?

 

I say the value probably lies in the bond.

 

They spoke to this on the conference call and said that their lenders have indicated interest in extending the maturities and working with them as 2017 approaches. That is predicated on execution in 2016. Even if things went swimmingly from the outset in 2014 there was no way there were going to be able to pay off all of this debt by 2017 without extending much of it. The question is under what terms - which depends on their execution, zinc prices, and the business climate.

[Foubearss]

http://www.businesswire.com/news/home/20151111006444/en/Zochem-Global-Establishes-Distribution-Center-Rotterdam

 

This is a somewhat bizarre press release... Why would they issue a press release about setting up a random distribution center in the Netherlands and talking about the great opportunity Zochem has in this environment?  My guess is they are looking to sell it and trying to make it as attractive as possible for a buyer.

 

I thought this was strange as well. If they can get a reasonable price for it, it seems to be a no brainer to sell it at this point. $68m in liquidity currently vs $60m in capex needs alone for the next 12mo, which, given management's track record is an optimistic number.

 

Even an unreasonable price is a no brainer over issuing equity here.  They'll probably need to do both, but if they can raise $100m+ through a combination of selling Zochem and equity issuance there would be a lot more breathing room.

 

I'd rather have them do some sort of zinc/zinc oxide streaming agreement , receiving a lump sum in return for a stream of future zinc/zinc oxide deliveries. But most preferable, I'd like to see some progress on the legal front, I am not an engineer but if you need to redesign a plant (pilot plant) I'd say the original design was flawed. If they can get 20/30/... million in settlement, that will be some help.

 

M

[str8shot]

http://www.businesswire.com/news/home/20151111006444/en/Zochem-Global-Establishes-Distribution-Center-Rotterdam

 

This is a somewhat bizarre press release... Why would they issue a press release about setting up a random distribution center in the Netherlands and talking about the great opportunity Zochem has in this environment?  My guess is they are looking to sell it and trying to make it as attractive as possible for a buyer.

 

I thought this was strange as well. If they can get a reasonable price for it, it seems to be a no brainer to sell it at this point. $68m in liquidity currently vs $60m in capex needs alone for the next 12mo, which, given management's track record is an optimistic number.

 

Even an unreasonable price is a no brainer over issuing equity here.  They'll probably need to do both, but if they can raise $100m+ through a combination of selling Zochem and equity issuance there would be a lot more breathing room.

 

I'd rather have them do some sort of zinc/zinc oxide streaming agreement , receiving a lump sum in return for a stream of future zinc/zinc oxide deliveries. But most preferable, I'd like to see some progress on the legal front, I am not an engineer but if you need to redesign a plant (pilot plant) I'd say the original design was flawed. If they can get 20/30/... million in settlement, that will be some help.

 

M

 

They may have legal recourse for design and equipment flaws from vendors, but that will likely take a very long time to resolve should they even pursue it, so I think the best assumption is that they get no compensation on that front. The sale of Zochem makes sense for 3 reasons: 1) it's not as core to their business as Inmetco and Horsehead (EAF dust recycling and Moorseboro) segments, 2) would provide a major liquidity/cash flow injection to help get them over the Mooresboro ramp-up hump and 3) help minimize equity dilution from use of ATM.  If nothing else they should see what the market is willing to pay for Zochem. And I recall from a previous posting that it was confirmed that Zochem is not associated with any of the 2017 debt covenants.

[SnarkyPuppy]

Has there been a discussion on downside protection here?  Obviously it's not pretty (esp. after dilution) but it's also not $0. 

 

Looking at tangible book value as a proxy.  Balances are reported as of Q315 B/S and percentages are my broadly assumed haircuts:

 

(in mm's)

Cash = 35

AR = 48 (64*25% haircut)

Inventory = 41 (54*25% haircut)

Prepaids = 11

PPE = 393 (785*60% haircut) obviously this is the biggest assumption**

Restricted Cash = 11

Other Assets = 24 (47*50% haircut)

Restricted Cash = 9

Total Liabilities = 544

 

**I concede that PPE is hard to value here. 

PPE 799mm at FY14

PPE 708mm at FY13

PPE 405mm at FY12

PPE 260mm at FY11

 

Therefore, I think it's safe to assume that about half of the PPE is related to recent capitalization and are likely not materially disconnected from book value.  The company would have to write off capitalized assets if disposed of (in the case of any of the Moorseboro fixes).

60% seems like a fair haircut given these facts.

 

Tangible BV based on above = $97mm

Market cap today = $136mm

[Foubearss]

http://www.businesswire.com/news/home/20151111006444/en/Zochem-Global-Establishes-Distribution-Center-Rotterdam

 

This is a somewhat bizarre press release... Why would they issue a press release about setting up a random distribution center in the Netherlands and talking about the great opportunity Zochem has in this environment?  My guess is they are looking to sell it and trying to make it as attractive as possible for a buyer.

 

I thought this was strange as well. If they can get a reasonable price for it, it seems to be a no brainer to sell it at this point. $68m in liquidity currently vs $60m in capex needs alone for the next 12mo, which, given management's track record is an optimistic number.

 

Even an unreasonable price is a no brainer over issuing equity here.  They'll probably need to do both, but if they can raise $100m+ through a combination of selling Zochem and equity issuance there would be a lot more breathing room.

 

I'd rather have them do some sort of zinc/zinc oxide streaming agreement , receiving a lump sum in return for a stream of future zinc/zinc oxide deliveries. But most preferable, I'd like to see some progress on the legal front, I am not an engineer but if you need to redesign a plant (pilot plant) I'd say the original design was flawed. If they can get 20/30/... million in settlement, that will be some help.

 

M

 

They may have legal recourse for design and equipment flaws from vendors, but that will likely take a very long time to resolve should they even pursue it, so I think the best assumption is that they get no compensation on that front. The sale of Zochem makes sense for 3 reasons: 1) it's not as core to their business as Inmetco and Horsehead (EAF dust recycling and Moorseboro) segments, 2) would provide a major liquidity/cash flow injection to help get them over the Mooresboro ramp-up hump and 3) help minimize equity dilution from use of ATM.  If nothing else they should see what the market is willing to pay for Zochem. And I recall from a previous posting that it was confirmed that Zochem is not associated with any of the 2017 debt covenants.

 

"resolve should they even pursue it" management has talked about this during, amongst other calls, the Q2 2015 call: "Process is going forward with one engineering company. It is kind of a in the litigation process and we are kind of in the discussions stages with another technologies buyer,  I really can't get into details of at this point." so there may be something there, call it a possible positive surprise.

 

I understand your three points and those are very valid, but I agree with abitofvalue that Zochem keeps the lights on (it is the least sensitive to LME zinc or nickel), I'd rather them give up 10 years of future zinc oxide streams than selling the whole company.

 

In addition, the company has the capacity to borrow $50MM of additional unsecured debt (per their Q2/Q3 earnings call) so that will help with liquidity. $68+$50(unsecured debt)+$50(equity)-$60(capex) = $108MM, which is above Horsehead's $80MM minimum threshold. Given that they are currently $68MM in liquidity and are below this threshold currently (not including ATM equity), I assume that the ATM only needs to be available, not used, to count towards their minimum threshold.

 

M

[Foubearss]

Has there been a discussion on downside protection here?  Obviously it's not pretty (esp. after dilution) but it's also not $0. 

 

Looking at tangible book value as a proxy.  Balances are reported as of Q315 B/S and percentages are my broadly assumed haircuts:

 

(in mm's)

Cash = 35

AR = 48 (64*25% haircut)

Inventory = 41 (54*25% haircut)

Prepaids = 11

PPE = 393 (785*60% haircut) obviously this is the biggest assumption**

Restricted Cash = 11

Other Assets = 24 (47*50% haircut)

Restricted Cash = 9

Total Liabilities = 544

 

**I concede that PPE is hard to value here. 

PPE 799mm at FY14

PPE 708mm at FY13

PPE 405mm at FY12

PPE 260mm at FY11

 

Therefore, I think it's safe to assume that about half of the PPE is related to recent capitalization and are likely not materially disconnected from book value.  The company would have to write off capitalized assets if disposed of (in the case of any of the Moorseboro fixes).

60% seems like a fair haircut given these facts.

 

Tangible BV based on above = $97mm

Market cap today = $136mm

 

There are some discussions on July 9th 2015 and on Sep 30th 2015, I would split up the PPE into the multiple businesses:

 

4 EAF recycling businesses (the last one they built was in 2009 and cost 65MM, even though the original estimate was 86MM, the were able to do it cheaper because of spreading it out more and the cheap recession labor). In recent calls, they estimate building a new one for 50-60MM.

Zochem: you can use an EBITDA/FCF multiple. This is a business that can be standalone so could be sold off if needed.

INMETCO: Same methodology as INMETCO

Mooresboro: +520MM built cost

 

I would pick a haircut different for each business unit, no need to punish INMETCO for the Mooresboro misdeeds ;)

 

M 

[SnarkyPuppy]

Has there been a discussion on downside protection here?  Obviously it's not pretty (esp. after dilution) but it's also not $0. 

 

Looking at tangible book value as a proxy.  Balances are reported as of Q315 B/S and percentages are my broadly assumed haircuts:

 

(in mm's)

Cash = 35

AR = 48 (64*25% haircut)

Inventory = 41 (54*25% haircut)

Prepaids = 11

PPE = 393 (785*60% haircut) obviously this is the biggest assumption**

Restricted Cash = 11

Other Assets = 24 (47*50% haircut)

Restricted Cash = 9

Total Liabilities = 544

 

**I concede that PPE is hard to value here. 

PPE 799mm at FY14

PPE 708mm at FY13

PPE 405mm at FY12

PPE 260mm at FY11

 

Therefore, I think it's safe to assume that about half of the PPE is related to recent capitalization and are likely not materially disconnected from book value.  The company would have to write off capitalized assets if disposed of (in the case of any of the Moorseboro fixes).

60% seems like a fair haircut given these facts.

 

Tangible BV based on above = $97mm

Market cap today = $136mm

 

There are some discussions on July 9th 2015 and on Sep 30th 2015, I would split up the PPE into the multiple businesses:

 

4 EAF recycling businesses (the last one they built was in 2009 and cost 65MM, even though the original estimate was 86MM, the were able to do it cheaper because of spreading it out more and the cheap recession labor). In recent calls, they estimate building a new one for 50-60MM.

Zochem: you can use an EBITDA/FCF multiple. This is a business that can be standalone so could be sold off if needed.

INMETCO: Same methodology as INMETCO

Mooresboro: +520MM built cost

 

I would pick a haircut different for each business unit, no need to punish INMETCO for the Mooresboro misdeeds ;)

 

M

 

Ok let's go down this route too using relatively conservative estimates.

 

Four EAF businesses = $50*4 = $200

Zochem normalized EBITDA 15mm *4X = $60mm

INMETCO normalized EBITDA 15mm *4X = $60mm

Mooresboro = $500mm

 

Total Liabilities = $544mm

 

Value after subtracting Liabilities = $276mm. 

 

Problem is can they actually realize $200, 60, 60, and 500 in a liquidation event?  Market cap is $136mm so if you 50% haircut each value above you're at current prices.

 

I see this as one of the more attractive investments I've come across in a while... why am I wrong?

 

 

 

[cmlber]

Has there been a discussion on downside protection here?  Obviously it's not pretty (esp. after dilution) but it's also not $0. 

 

Looking at tangible book value as a proxy.  Balances are reported as of Q315 B/S and percentages are my broadly assumed haircuts:

 

(in mm's)

Cash = 35

AR = 48 (64*25% haircut)

Inventory = 41 (54*25% haircut)

Prepaids = 11

PPE = 393 (785*60% haircut) obviously this is the biggest assumption**

Restricted Cash = 11

Other Assets = 24 (47*50% haircut)

Restricted Cash = 9

Total Liabilities = 544

 

**I concede that PPE is hard to value here. 

PPE 799mm at FY14

PPE 708mm at FY13

PPE 405mm at FY12

PPE 260mm at FY11

 

Therefore, I think it's safe to assume that about half of the PPE is related to recent capitalization and are likely not materially disconnected from book value.  The company would have to write off capitalized assets if disposed of (in the case of any of the Moorseboro fixes).

60% seems like a fair haircut given these facts.

 

Tangible BV based on above = $97mm

Market cap today = $136mm

 

There are some discussions on July 9th 2015 and on Sep 30th 2015, I would split up the PPE into the multiple businesses:

 

4 EAF recycling businesses (the last one they built was in 2009 and cost 65MM, even though the original estimate was 86MM, the were able to do it cheaper because of spreading it out more and the cheap recession labor). In recent calls, they estimate building a new one for 50-60MM.

Zochem: you can use an EBITDA/FCF multiple. This is a business that can be standalone so could be sold off if needed.

INMETCO: Same methodology as INMETCO

Mooresboro: +520MM built cost

 

I would pick a haircut different for each business unit, no need to punish INMETCO for the Mooresboro misdeeds ;)

 

M

 

Ok let's go down this route too using relatively conservative estimates.

 

Four EAF businesses = $50*4 = $200

Zochem normalized EBITDA 15mm *4X = $60mm

INMETCO normalized EBITDA 15mm *4X = $60mm

Mooresboro = $500mm

 

Total Liabilities = $544mm

 

Value after subtracting Liabilities = $276mm. 

 

Problem is can they actually realize $200, 60, 60, and 500 in a liquidation event?  Market cap is $136mm so if you 50% haircut each value above you're at current prices.

 

I see this as one of the more attractive investments I've come across in a while... why am I wrong?

 

Those are fire sale prices for Zochem/Inmetco.  There is minimal maintenance capex, so you're basically applying a 5x pre-tax cash flow multiple to high quality businesses.

 

 

[SnarkyPuppy]

Has there been a discussion on downside protection here?  Obviously it's not pretty (esp. after dilution) but it's also not $0. 

 

Looking at tangible book value as a proxy.  Balances are reported as of Q315 B/S and percentages are my broadly assumed haircuts:

 

(in mm's)

Cash = 35

AR = 48 (64*25% haircut)

Inventory = 41 (54*25% haircut)

Prepaids = 11

PPE = 393 (785*60% haircut) obviously this is the biggest assumption**

Restricted Cash = 11

Other Assets = 24 (47*50% haircut)

Restricted Cash = 9

Total Liabilities = 544

 

**I concede that PPE is hard to value here. 

PPE 799mm at FY14

PPE 708mm at FY13

PPE 405mm at FY12

PPE 260mm at FY11

 

Therefore, I think it's safe to assume that about half of the PPE is related to recent capitalization and are likely not materially disconnected from book value.  The company would have to write off capitalized assets if disposed of (in the case of any of the Moorseboro fixes).

60% seems like a fair haircut given these facts.

 

Tangible BV based on above = $97mm

Market cap today = $136mm

 

There are some discussions on July 9th 2015 and on Sep 30th 2015, I would split up the PPE into the multiple businesses:

 

4 EAF recycling businesses (the last one they built was in 2009 and cost 65MM, even though the original estimate was 86MM, the were able to do it cheaper because of spreading it out more and the cheap recession labor). In recent calls, they estimate building a new one for 50-60MM.

Zochem: you can use an EBITDA/FCF multiple. This is a business that can be standalone so could be sold off if needed.

INMETCO: Same methodology as INMETCO

Mooresboro: +520MM built cost

 

I would pick a haircut different for each business unit, no need to punish INMETCO for the Mooresboro misdeeds ;)

 

M

 

Ok let's go down this route too using relatively conservative estimates.

 

Four EAF businesses = $50*4 = $200

Zochem normalized EBITDA 15mm *4X = $60mm

INMETCO normalized EBITDA 15mm *4X = $60mm

Mooresboro = $500mm

 

Total Liabilities = $544mm

 

Value after subtracting Liabilities = $276mm. 

 

Problem is can they actually realize $200, 60, 60, and 500 in a liquidation event?  Market cap is $136mm so if you 50% haircut each value above you're at current prices.

 

I see this as one of the more attractive investments I've come across in a while... why am I wrong?

 

Those are fire sale prices for Zochem/Inmetco.  There is minimal maintenance capex, so you're basically applying a 5x pre-tax cash flow multiple to high quality businesses.

 

Agree.  But my exercise is more a "worst case scenario" approach as opposed to a BAU valuation

[hardincap]

Has there been a discussion on downside protection here?  Obviously it's not pretty (esp. after dilution) but it's also not $0. 

 

Looking at tangible book value as a proxy.  Balances are reported as of Q315 B/S and percentages are my broadly assumed haircuts:

 

(in mm's)

Cash = 35

AR = 48 (64*25% haircut)

Inventory = 41 (54*25% haircut)

Prepaids = 11

PPE = 393 (785*60% haircut) obviously this is the biggest assumption**

Restricted Cash = 11

Other Assets = 24 (47*50% haircut)

Restricted Cash = 9

Total Liabilities = 544

 

**I concede that PPE is hard to value here. 

PPE 799mm at FY14

PPE 708mm at FY13

PPE 405mm at FY12

PPE 260mm at FY11

 

Therefore, I think it's safe to assume that about half of the PPE is related to recent capitalization and are likely not materially disconnected from book value.  The company would have to write off capitalized assets if disposed of (in the case of any of the Moorseboro fixes).

60% seems like a fair haircut given these facts.

 

Tangible BV based on above = $97mm

Market cap today = $136mm

 

There are some discussions on July 9th 2015 and on Sep 30th 2015, I would split up the PPE into the multiple businesses:

 

4 EAF recycling businesses (the last one they built was in 2009 and cost 65MM, even though the original estimate was 86MM, the were able to do it cheaper because of spreading it out more and the cheap recession labor). In recent calls, they estimate building a new one for 50-60MM.

Zochem: you can use an EBITDA/FCF multiple. This is a business that can be standalone so could be sold off if needed.

INMETCO: Same methodology as INMETCO

Mooresboro: +520MM built cost

 

I would pick a haircut different for each business unit, no need to punish INMETCO for the Mooresboro misdeeds ;)

 

M

 

Ok let's go down this route too using relatively conservative estimates.

 

Four EAF businesses = $50*4 = $200

Zochem normalized EBITDA 15mm *4X = $60mm

INMETCO normalized EBITDA 15mm *4X = $60mm

Mooresboro = $500mm

 

Total Liabilities = $544mm

 

Value after subtracting Liabilities = $276mm. 

 

Problem is can they actually realize $200, 60, 60, and 500 in a liquidation event?  Market cap is $136mm so if you 50% haircut each value above you're at current prices.

 

I see this as one of the more attractive investments I've come across in a while... why am I wrong?

 

Youve subtracted total liabilities but havent added back current & other lt assets. Doing that should get you to around $450 tangible book. This translates to roughly 7.75/sh, which is around where Pabrai last added

[RadMan24]

Downside is 0. Anyway, it may take a few years for this to play out. After all, you really expect them to be a 100 percent capacity next year? I expect progress. Progress doesn't equate bankruptcy. More or less, the investment risk is very low, despite crumbling fundamentals. Once they improve, (surely they will, otherwise it will languish)the payoff will be handsome. 

[SnarkyPuppy]

I see a lot of bears state that the downside is $0, but based on my recent posts on this and prior page I'm not sure I agree.  Can you please go into further detail as to why you feel like 100% loss of capital is the downside?

[hardincap]

I see a lot of bears state that the downside is $0, but based on my recent posts on this and prior page I'm not sure I agree.  Can you please go into further detail as to why you feel like 100% loss of capital is the downside?

 

Prolonged dismal performance at Horsehead will force the company into dilution. I think this is Mr. Market's biggest problem with this company. Management's track record is downright atrocious when it comes to the timing and issues of the ramp up. If you remember from Q1, management said the anodes/cathodes problem should be handled by July. They also said a permanent bleed treatment solution shouldnt be a significant investment. Way off on both counts: anodes/cathodes wont be resolved until early next year and the bleed treatment solution will cost $15m+

[finetrader]

From my point of view, it is the structure of the debt that scares me (june 2017).

 

If you compare with Fortress Paper, which has a much better debt structure. And the secure debt holders there have proven to be pretty flexible.

 

I say this because the stories are pretty similars for those two companies. I'm much more comfortable owning Fortress's debentures.

[arcube]

I see a lot of bears state that the downside is $0, but based on my recent posts on this and prior page I'm not sure I agree.  Can you please go into further detail as to why you feel like 100% loss of capital is the downside?

 

Prolonged dismal performance at Horsehead will force the company into dilution. I think this is Mr. Market's biggest problem with this company. Management's track record is downright atrocious when it comes to the timing and issues of the ramp up. If you remember from Q1, management said the anodes/cathodes problem should be handled by July. They also said a permanent bleed treatment solution shouldnt be a significant investment. Way off on both counts: anodes/cathodes wont be resolved until early next year and the bleed treatment solution will cost $15m+

 

Good points. Pabrai needs to go 'activist' here and clean the house before it is too late.

[SnarkyPuppy]

I see a lot of bears state that the downside is $0, but based on my recent posts on this and prior page I'm not sure I agree.  Can you please go into further detail as to why you feel like 100% loss of capital is the downside?

 

Prolonged dismal performance at Horsehead will force the company into dilution. I think this is Mr. Market's biggest problem with this company. Management's track record is downright atrocious when it comes to the timing and issues of the ramp up. If you remember from Q1, management said the anodes/cathodes problem should be handled by July. They also said a permanent bleed treatment solution shouldnt be a significant investment. Way off on both counts: anodes/cathodes wont be resolved until early next year and the bleed treatment solution will cost $15m+

 

Good points. Pabrai needs to go 'activist' here and clean the house before it is too late.

 

Still not sure I understand how the downside is $0 given a) fire-sale tangible book value minus all liabilities or b) given fire-sale sum-of-the-part business sales minus all liabilities.

 

I understand dilution complicates these matters, but does not outright eliminate their importance in evaluating the downside of this company.

 

I think the argument has always stood that there is substantial upside but the downside is $0.  I'm not entirely sure I fully understand/agree with the latter and haven't heard a compelling counter-argument.

[abitofvalue]

I see a lot of bears state that the downside is $0, but based on my recent posts on this and prior page I'm not sure I agree.  Can you please go into further detail as to why you feel like 100% loss of capital is the downside?

 

Prolonged dismal performance at Horsehead will force the company into dilution. I think this is Mr. Market's biggest problem with this company. Management's track record is downright atrocious when it comes to the timing and issues of the ramp up. If you remember from Q1, management said the anodes/cathodes problem should be handled by July. They also said a permanent bleed treatment solution shouldnt be a significant investment. Way off on both counts: anodes/cathodes wont be resolved until early next year and the bleed treatment solution will cost $15m+

 

Good points. Pabrai needs to go 'activist' here and clean the house before it is too late.

 

Still not sure I understand how the downside is $0 given a) fire-sale tangible book value minus all liabilities or b) given fire-sale sum-of-the-part business sales minus all liabilities.

 

I understand dilution complicates these matters, but does not outright eliminate their importance in evaluating the downside of this company.

 

I think the argument has always stood that there is substantial upside but the downside is $0.  I'm not entirely sure I fully understand/agree with the latter and haven't heard a compelling counter-argument.

 

Mooresboro is likely the swing factor.  You are likely ascribing a value to it that others think is fantasy if they need to sell. I certainly don't think its worth BV in a firesale or in all possible scenarios. Just because ZINC spent money on the building the plant doesn't mean someone else is going to pay them what they spent.  I mean if the plant doesn't work who gives a shit how much you spent on constructing it. The plant is likely worth scrap or whatever you can sell some of the equipment for 

 

IIRC - you can capitalize all sorts of costs during construction into PPE so BV is likely overstating the value of the equipment in Mooresboro that can be realized in a sale. 

 

 

[RadMan24]

Creditors would lose lots of value undergoing a fire asset sale, almost guaranteeing such a scenario would only occur where operations at Morsehead have deteriorated greatly. Otherwise, there is no incentive to destroy the underlying value of the company if the eventual operation of the plant will be successful, from both a creditor and shareholder point of view. From that angle, I see no reason to focus on the underlying asset worth during such a sale, but rather how much value can it produce at bad, decent operations, good, great, weigh the probabilities and look at how much I'm paying for those odds. And it looks quite good in my point of view.

 

[kranthi_vic]

I guess everyone is waiting for the month end update about the latest high quality Zinc production.

Did Mngt say they will provide one at the end of the month or this a end of quarter wait for us?

[Max Alpha]

I see a lot of bears state that the downside is $0, but based on my recent posts on this and prior page I'm not sure I agree.  Can you please go into further detail as to why you feel like 100% loss of capital is the downside?

 

 

The problem with this approach is you are using a SoTP valuation rather than a liquidation valuation.

 

You can't use a built book value as a proxy for the plant value in a liquidation scenario because this scenario occurring is contingent upon the plant not being operable at anywhere near nameplate capacity.

 

Horsehead paid for a plant that can operate at nameplate capacity. This asset doesn't exist, the purchaser of the liquidated asset would be buying a plant with substantially lower capacity requiring assumption of risk and further capital investment.

 

You need to significantly discount the value of the plant based on what the acquirer would be receiving. Then you need to further discount that for a liquidation scenario for a forced-sale.

[abitofvalue]

Also even if the plant can eventually work and the creditors believe this - unless Zinc can come up with an alternative source of financing, the creditors can take over the plant.  The notion that creditors will be supportive is naive. Creditors will do what's best for them. If they think causing an EOD will lead to liquidity issues and a bankruptcy which results in creditors getting equity that is more valuable then the existing debt they will do that.. 

 

At this point ZINC is a lottery / option on the plant working and commodity prices recovering...  but the risk of total loss is very much real.

[RadMan24]

Also even if the plant can eventually work and the creditors believe this - unless Zinc can come up with an alternative source of financing, the creditors can take over the plant.  The notion that creditors will be supportive is naive. Creditors will do what's best for them. If they think causing an EOD will lead to liquidity issues and a bankruptcy which results in creditors getting equity that is more valuable then the existing debt they will do that.. 

 

At this point ZINC is a lottery / option on the plant working and commodity prices recovering...  but the risk of total loss is very much real.

 

That's naive, the notion that bankers want to run a zinc recycling plant...

[jawn619]

This is a Goose Egg