ZINC - Horsehead Holding Corp

[phil_Buffett]

Don't know if you guys saw this article today:

 

China Turns Zinc Into Car Parts as Consumer Demand Surges

 

http://www.bloomberg.com/news/2014-04-21/china-turns-zinc-into-car-parts-as-consumer-demand-surges.html

 

thanks brker_guy for the link  :).

 

this is why i like the zinc Story very much. pabrai knows it. i used the last Price drop to buy more. in the Long term this is very nice Play, i think. the Situation for horsehead is great

[ni-co]

Don't know if you guys saw this article today:

 

China Turns Zinc Into Car Parts as Consumer Demand Surges

 

http://www.bloomberg.com/news/2014-04-21/china-turns-zinc-into-car-parts-as-consumer-demand-surges.html

 

Thanks, brker_guy! Yet, I keep wondering: When everybody knows about this zinc shortage why doesn't the zinc price move? Uncertainties about Chinese inventories seem to be one factor, maybe the Chinese economy is another. In the medium to longer term, zinc prices are supposed to rise substantially, though. ZINC is all about this optionality: ok-priced at current zinc price levels (with regard to the new plant), but with large potential upside.

[brker_guy]

phil_buffett, like you, I was busy buying when the shares temporarily dipped below $16 recently.  I didn't buy much bc I don't want to raise my cost basis that much.  I have to say; Charlie Munger was absolutely dead on when he gave Mohnish kudos at the DJCO annual meeting last year for being a subject matter expert on the metals market...

 

ni-co, this is a 64K question.  That's why we play the game.  ;) :D  We are buying for future growth and the mis-pricing by Mr. Market.

 

When everybody knows about this zinc shortage why doesn't the zinc price move?

[moody202]

Zinc prices over March - April. Good trend for the owners of ZINC!

 

http://www.metalprices.com/p/ZincFreeChart

 

[ni-co]

Teck is planning to re-open a zinc mine because of the favorable outlook:

 

We are planning to restart our Pend Oreille zinc mine in Washington State, which has been on current maintenance since early 2009. Over a three year period commencing last year, approximately 1.5 million tonnes of current zinc production will be closed due to mine depletion. Now this is a significant figure in a 13 million tonne market.

 

http://seekingalpha.com/article/2155373-teck-resources-ceo-discusses-q1-2014-results-earnings-call-transcript?part=single

 

There is also an article in the FT about the development:

http://www.ft.com/intl/cms/s/0/0fb04d92-cbcd-11e3-a934-00144feabdc0.html

[nikhil25]

Horsehead Corporation End Operations at Monaca, PA Facility

https://www.bamsec.com/filing/115752314001839?cik=1385544

[crastogi]

Horsehead Corporation End Operations at Monaca, PA Facility

https://www.bamsec.com/filing/115752314001839?cik=1385544

 

And what is the reason for the closure?

[racemize]

Horsehead Corporation End Operations at Monaca, PA Facility

https://www.bamsec.com/filing/115752314001839?cik=1385544

 

And what is the reason for the closure?

 

That's been the plan throughout the thread.  Their moving to a new facility that will dramatically improve cost structure.

[nikhil25]

Horsehead Holding Corp. Reports First Quarter 2014 Results

https://www.bamsec.com/filing/115752314002079?cik=1385544

 

PITTSBURGH--(BUSINESS WIRE)--May 12, 2014--Horsehead Holding Corp. (Nasdaq:ZINC) reported consolidated net income of $0.7 million, or $0.01 per diluted share, for the first quarter of 2014 compared to a consolidated net income of $2.8 million, or $0.06 per diluted share, for the first quarter of 2013. Results for the quarter, adjusted to exclude favorable non-cash adjustments associated with hedges, was a loss of $1.3 million, or $(0.02) per diluted share compared to consolidated net income on the same basis of $2.3 million for the first quarter of 2013, or $0.05 per diluted share. The LME zinc price was approximately the same for both quarters, although nickel prices were 15% lower in the current quarter.

 

“During the first quarter we were faced with significant challenges, but accomplished several critical milestones in our transition plan:

 

We are very excited that zinc production at our new Mooresboro, North Carolina facility is imminent. Construction of the zinc production facility is essentially finished. We have completed all of the pre-production checks and operated nearly all of the key unit operations in an actual production mode including waelz oxide unloading and washing, leaching, solvent extraction, effluent treatment and the melting and casting facilities. The cellhouse is fully commissioned awaiting the production of sufficient on-specification electrolyte in order to fill the cells, turn on the power and begin zinc production. We expect first zinc production to begin shortly,

We permanently closed the zinc smelter in our Monaca, Pennsylvania facility at the end of April 2014 reflecting the start-up readiness of Mooresboro and the expectation that the continued sale of calcine and waelz oxide from our recycling operations will generate higher margins than the continued operation of the Monaca smelter,

Zochem had a strong quarter with shipments increasing 82% compared to the prior year’s first quarter reflecting the full integration of our zinc oxide business into a single location. We started the seventh furnace by the end of the quarter and shifted all zinc oxide production to the Brampton, Ontario facility,

INMETCO also had a strong quarter as a 10% increase in production helped to offset a 15% lower nickel price

Severe weather adversely affected the logistics of product shipments and EAF dust deliveries, productivity at our Monaca smelter and energy costs at all of our facilities, which impacted our financial results during the quarter,” said Jim Hensler, President and Chief Executive Officer.

First Quarter Highlights

 

Compared to the same quarter last year:

 

Zinc product shipments decreased 4,384 tons, or 10.2%, to 38,542 tons for the quarter, reflecting the shutdown of the refinery operation at the Monaca facility during the fourth quarter of 2013 and declining smelter productivity.

EAF dust receipts decreased 10.6% to 140,108 tons as deliveries were affected by weather conditions.

The LME zinc price averaged $0.92/lb for the first quarters of each of 2014 and 2013. The LME nickel price averaged $6.64/lb for the first quarter of 2014 compared to $7.85/lb for the first quarter of 2013. Zinc prices were hedged at $0.902/lb for the first quarter of 2014.

Net sales, excluding $3.1 million related to non-cash hedge benefits for the current quarter and $1.0 million for the first quarter of 2013, decreased $10.2 million, or 9%, to $107.0 million reflecting the effect of reduced shipment volumes and nickel prices. Price realization for zinc products on a zinc-contained basis reflected a $0.20/lb premium to the average LME zinc price for the quarter compared to a $0.24/lb premium in the prior year quarter with the difference primarily being due to a decrease in zinc oxide shipments as a portion of total shipments.

Cost of sales were $100.0 million, unchanged from the prior year quarter as the effect of lower shipments and reduced cost for purchased feed were slightly offset by higher energy costs and reduced absorption of fixed costs due to lower production levels.

Adjusted EBITDA(1) was $2.3 million for the quarter compared to $12.4 million for the same quarter last year, primarily the result of lower shipment levels and higher unit conversion costs. Adjusted EBITDA was $23.6 million and the LME zinc price was $0.87/lb for the twelve months ended March 31, 2014 compared to $41.9 million and a LME zinc price of $0.88/lb, respectively, for the twelve months ended March 31, 2013.

Cash used by operating activities was $22.0 million for the quarter ended March 31, 2014 as accounts payable decreased and accounts receivable increased during the quarter. Capital spending was $48.2 million for the quarter. Cash on hand was $65.5 million at the end of the quarter. In addition, we had $8.6 million of unused availability under our various credit facilities as of March 31, 2014. An additional $6.5 million of availability was added in April 2014. We continue to believe we have adequate liquidity to meet the capital needs of the business through the ramp-up of the Mooresboro facility.

 

[Mephistopheles]

Is anyone concerned about about foreign low-cost competition for the minimills? ZINC has some great low-cost advantages, but they are only valuable if their customer base has advantages as well. Nucor is clearly concerned about foreign steel competition, as stated in their 10-k:

 

"The steel industry has also historically been characterized by global overcapacity and intense competition for sales among producers. This aspect of the industry remains true today despite the bankruptcies of numerous domestic steel companies and ongoing global steel industry consolidation. The recent addition of new production capacity in the United States, as well as the very rapid and extraordinary increase in China’s total production of steel in the last decade, has exacerbated this overcapacity issue domestically as well as globally.

 

Foreign imports of steel continued to significantly affect our domestic markets. Imported steel and steel products continue to present unique challenges for us because foreign producers often benefit from government subsidies, either directly through government-owned enterprises or indirectly through government-owned or controlled financial institutions. Foreign imports of finished and semi-finished steel accounted for approximately 30% of the U.S. steel market in 2013 despite significant unused domestic capacity. Rebar and hot-rolled bar were impacted especially hard by imports in 2013 as imports of these products increased by 23% and 15%, respectively, over 2012 levels. Increased imports of bar have translated into even lower domestic utilization rates for that product – utilization in the mid-60% range – and significant decreases in domestic bar pricing in 2013. Competition from China, the world’s largest producer and exporter of steel, which produces more than 45% of the steel produced globally, is a major challenge in particular. We believe that Chinese producers, many of which are government-owned in whole or in part, benefit from their government’s manipulation of foreign currency exchange rates and from the receipt of government subsidies, which allow them to sell steel into our markets at artificially low prices.

 

China is not only selling steel at artificially low prices into our domestic market but also across the globe. When they do so, steel products which would otherwise have been consumed by the local steel customers in other countries are displaced into global markets, which compounds the issue. In a more indirect manner, but still significant, is the import of fabricated steel products, such as oil country tubular goods, wind towers and other construction components that were produced in China.

 

Artificially cheap exports by some of our major foreign competitors to the United States and elsewhere reduce our net sales and adversely impact our financial results. Aggressive enforcement of trade rules by the World Trade Organization to limit unfairly traded imports remains uncertain, although it is critical to our ability to remain competitive. We have been encouraged by recent actions the United States International Trade Commission has taken on existing antidumping and countervailing duty orders on hot-rolled sheet steel as well as on imports of rebar that threaten domestic rebar producers. We continue to believe that assertive enforcement of world trade rules must be one of the highest priorities of the United States government."

 

http://www.sec.gov/Archives/edgar/data/73309/000119312514077349/d642821dex13.htm

[nikhil25]

Horsehead Starts Zinc Production at Mooresboro, NC Facility

http://www.marketwatch.com/story/horsehead-starts-zinc-production-at-mooresboro-nc-facility-2014-05-21?reflink=MW_news_stmp

 

PITTSBURGH, May 21, 2014 (BUSINESS WIRE) -- Horsehead Holding Corp. (Nasdaq: ZINC ) announced today that production of zinc metal has begun at its new zinc facility in Mooresboro, NC. The cell house has been loaded with electrolyte, the rectifiers have been switched on and plating of zinc metal is underway. We expect to harvest the initial cathode later this week and begin melting and casting final product for shipment shortly thereafter.

 

“We are excited to have reached this critical milestone. We look forward to beginning to support our customers’ needs from this new facility,” said Jim Hensler, Chairman, President & CEO.

 

The facility, which started construction in September 2011, is expected to have initial capacity to produce 155,000 tons of zinc per year. Ramp up to the initial capacity is expected to take up to six months. Construction of the co-product recovery circuit at the plant is expected to be completed mid-year and its ramp up is expected to occur over a twelve month period

[ni-co]

Is anyone concerned about about foreign low-cost competition for the minimills? ZINC has some great low-cost advantages, but they are only valuable if their customer base has advantages as well. Nucor is clearly concerned about foreign steel competition, as stated in their 10-k:

 

"The steel industry has also historically been characterized by global overcapacity and intense competition for sales among producers. This aspect of the industry remains true today despite the bankruptcies of numerous domestic steel companies and ongoing global steel industry consolidation. The recent addition of new production capacity in the United States, as well as the very rapid and extraordinary increase in China’s total production of steel in the last decade, has exacerbated this overcapacity issue domestically as well as globally.

 

Foreign imports of steel continued to significantly affect our domestic markets. Imported steel and steel products continue to present unique challenges for us because foreign producers often benefit from government subsidies, either directly through government-owned enterprises or indirectly through government-owned or controlled financial institutions. Foreign imports of finished and semi-finished steel accounted for approximately 30% of the U.S. steel market in 2013 despite significant unused domestic capacity. Rebar and hot-rolled bar were impacted especially hard by imports in 2013 as imports of these products increased by 23% and 15%, respectively, over 2012 levels. Increased imports of bar have translated into even lower domestic utilization rates for that product – utilization in the mid-60% range – and significant decreases in domestic bar pricing in 2013. Competition from China, the world’s largest producer and exporter of steel, which produces more than 45% of the steel produced globally, is a major challenge in particular. We believe that Chinese producers, many of which are government-owned in whole or in part, benefit from their government’s manipulation of foreign currency exchange rates and from the receipt of government subsidies, which allow them to sell steel into our markets at artificially low prices.

 

China is not only selling steel at artificially low prices into our domestic market but also across the globe. When they do so, steel products which would otherwise have been consumed by the local steel customers in other countries are displaced into global markets, which compounds the issue. In a more indirect manner, but still significant, is the import of fabricated steel products, such as oil country tubular goods, wind towers and other construction components that were produced in China.

 

Artificially cheap exports by some of our major foreign competitors to the United States and elsewhere reduce our net sales and adversely impact our financial results. Aggressive enforcement of trade rules by the World Trade Organization to limit unfairly traded imports remains uncertain, although it is critical to our ability to remain competitive. We have been encouraged by recent actions the United States International Trade Commission has taken on existing antidumping and countervailing duty orders on hot-rolled sheet steel as well as on imports of rebar that threaten domestic rebar producers. We continue to believe that assertive enforcement of world trade rules must be one of the highest priorities of the United States government."

 

http://www.sec.gov/Archives/edgar/data/73309/000119312514077349/d642821dex13.htm

 

Thanks, Mephistopheles, for bringing that up. That's one aspect I didn't think about – supply side issues… Do you think this steel import boom is sustainable? Seems to be driven mainly by overcapacity in Asia. In the medium to long term, cheaper energy (shale gas) should improve the competitiveness of US steelmakers.

[Mephistopheles]

Thanks, Mephistopheles, for bringing that up. That's one aspect I didn't think about – supply side issues… Do you think this steel import boom is sustainable? Seems to be driven mainly by overcapacity in Asia. In the medium to long term, cheaper energy (shale gas) should improve the competitiveness of US steelmakers.

 

No problem. I don't know enough about the topic, but it seems like overcapacity is only one of the factors, and the only short-term one. The ones I'm concerned about long-term are China's cheap currency and its government subsidies (as pointed out by Nucor). I don't understand the cost structure for steel mini-mills that well, but although we have the cheap gas advantage, China has the cheap labor advantage. So how much does that factor in? If somebody is well versed with steel it would be great to hear your input.

[ni-co]

Horsehead: Attractive Based On EV/Mid-Cycle EBITDA, Especially Considering Its Wide Economic Moat

• Horsehead is in the process of shutting down an old plant and transitioning production to a state of the art facility.
  
• With its proprietary low cost sourcing and state of the art facility, the company will be very well positioned to fend off competition.
  
• On an EV/future EBITDA basis, the company is attractively priced at 7,2 to 8,8.
  
• CapEx is going to go down meaningfully, including maintenance CapEx.
  
• Shell has an option on the Monaca land that is potentially worth $1.6 or more per share.
  

…

 

http://seekingalpha.com/article/2245943-horsehead-attractive-based-on-ev-mid-cycle-ebitda-especially-considering-its-wide-economic-moat

[PhatKing]

Today's Barron's has a one page writeup " An unusual zinc play with 40 percent upside" on Horsehead Holdings. I have written (in this thread) about its competitive advantage, wherein the company is paid for the EAF dust (raw material) that it uses to extract the zinc. And the company had 10 year contracts for about 70 to 75 percent of all the EAF dust produced in the US. Plus zinc prices are rising, and expected to continue to rise over time. So big tailwinds exist for this small cap company. Mohnish (and me) holds a large position in this company. So fellow owners, enjoy the pop on Monday!

[ni-co]

Today's Barron's has a one page writeup " An unusual zinc play with 40 percent upside" on Horsehead Holdings. I have written (in this thread) about its competitive advantage, wherein the company is paid for the EAF dust (raw material) that it uses to extract the zinc. And the company had 10 year contracts for about 70 to 75 percent of all the EAF dust produced in the US. Plus zinc prices are rising, and expected to continue to rise over time. So big tailwinds exist for this small cap company. Mohnish (and me) holds a large position in this company. So fellow owners, enjoy the pop on Monday!

 

http://online.barrons.com/news/articles/SB50001424053111904255004580029251440218026

 

or

 

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=newssearch&cd=1&ved=0CB4QqQIoADAA&url=http%3A%2F%2Fonline.barrons.com%2Fnews%2Farticles%2FSB50001424053111904255004580029251440218026&ei=MZfLU6m_GrDU4QS0iYCgDg&usg=AFQjCNGB24ab9EH8RwrsvTD2u9LOCc5ygw&bvm=bv.71198958,d.bGE

[topofeaturellc]

Wouldn't NUE et al re-jigger the contracts for the dust if it turns out that recycled furnace dust was at the low end of the zinc cost curve?  If these guys can greenfield a plant and make it work why couldn't someone like NUE?

[karthikpm]

Has anyone done more valuation work on ZINC recently? Barron's estimate is above what I had estimated for a Fair Value

 

 

[ni-co]

Has anyone done more valuation work on ZINC recently? Barron's estimate is above what I had estimated for a Fair Value

 

Have you considered a significantly increased (and probably increasing) zinc price level? While I'm not a friend of WACC analysis, here is a nice matrix where you can see the implications of different zinc price levels on the valuation of ZINC ("Sensitivity Analysis"):

 

http://seekingalpha.com/article/1672122-horsehead-holding-corp-transformative-change-with-60-percent-upside

[karthikpm]

Nico,

 

Thanks for the link. Obviously ZINC gets more attractive as spot prices increase. Re: WACC, I love Buffett's statement.  “Cost of capital is what could be produced by our 2nd best idea and our best idea has to beat it”.

 

I am just trying to figure out an exit point and not sell too early ( as I often end up doing)

 

[ni-co]

Glencore:

 

The much anticipated tightening of zinc mine supply is starting to materialise

• Metal deficit in 2013 for the first time in five years
  
• Insufficient new mine supply to replace closures – following Brunswick / Perseverance in 2013, Lisheen now winding down and Century and Skorpion closing 2015/16
  
• Chinese mine supply will determine market fate – but inefficient, fragmented and suffering declining grades – upside supply surprises unlikely
  
• Market deficits growing rapidly post 2015
  
• Higher prices required to incentivise new mine supply
  

 

http://www.glencore.com/assets/Uploads/speeches_and_presentations/glencore/2014/20140513-Glencore-BAML-conference-Miami.pdf

 

My favorite graphic is on slide 7.

[phil_Buffett]

Glencore:

 

The much anticipated tightening of zinc mine supply is starting to materialise

• Metal deficit in 2013 for the first time in five years
  
• Insufficient new mine supply to replace closures following Brunswick / Perseverance in 2013, Lisheen now winding down and Century and Skorpion closing 2015/16
  
• Chinese mine supply will determine market fate but inefficient, fragmented and suffering declining grades upside supply surprises unlikely
  
• Market deficits growing rapidly post 2015
  
• Higher prices required to incentivise new mine supply
  

 

http://www.glencore.com/assets/Uploads/speeches_and_presentations/glencore/2014/20140513-Glencore-BAML-conference-Miami.pdf

 

My favorite graphic is on slide 7.

 

great ni-co. thanks for the link :). 

 

 

[tylerdurden]

Nico,

 

Thanks for the link. Obviously ZINC gets more attractive as spot prices increase. Re: WACC, I love Buffett's statement.  Cost of capital is what could be produced by our 2nd best idea and our best idea has to beat it.

 

I am just trying to figure out an exit point and not sell too early ( as I often end up doing)

 

Hi,

You probably know this but Mohnish Pabrai bought a significant chunk of ZINC during last quarter of 2013 and his cost basis was around 14 bucks I believe. He is a guy who aims at least 1x return in 3 years so that could give you some indications about at least what could be the lower end of the valuation he has in mind.

[fareastwarriors]

Zinc Deficiency Gives Investors a Jolt

 

Prices for the Metal Have Soared to 3-Year Highs

 

 

 

http://online.wsj.com/articles/zinc-deficiency-gives-investors-a-jolt-1410222403#livefyre-comment

[phil_Buffett]

Zinc Deficiency Gives Investors a Jolt

 

Prices for the Metal Have Soared to 3-Year Highs

 

 

 

http://online.wsj.com/articles/zinc-deficiency-gives-investors-a-jolt-1410222403#livefyre-comment

 

thanks for the article fareast.  :)