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HORSEHEAD HOLDING CORP. Reports Operating Results (10-Q)

November 09, 2009 | About:

HORSEHEAD HOLDING CORP. (ZINC) filed Quarterly Report for the period ended 2009-09-30.

Horsehead Holding Corp. is the parent company of Horsehead Corporation, a leading U.S. producer of specialty zinc and zinc-based products. Horsehead, headquartered in Monaca, Pa., employs over thousand people and has six operating locations throughout the U.S. Horsehead Holding Corp. has a market cap of $433.72 million; its shares were traded at around $10.26 with and P/S ratio of 0.97.

Highlight of Business Operations:

Market Price for Zinc. Since we generate the substantial majority of our net sales from the sale of zinc and zinc-based products, our operating results depend greatly on the prevailing market price for zinc. Our principal raw materials are zinc extracted from recycled EAF dust, for which we receive revenue from the steel mini-mill companies, and other zinc-bearing secondary materials (purchased feedstock or purchased feed) that we purchase from third parties. Costs to acquire and recycle EAF dust, which, during the first nine months of 2009, represented approximately 65% of our raw materials, are not directly impacted by fluctuations in the market price of zinc on the London Metal Exchange (LME). However, the cost for the remaining portion of our raw materials is directly impacted by changes in the market price of zinc. The price of our finished products is also impacted directly by changes in the market price of zinc, which can result in rapid and significant changes in our monthly revenues. Zinc prices experienced a period of general decline between 2000 and 2004, primarily due to increased exports from China and declines in global zinc consumption. During 2004, however, zinc prices began to recover, primarily due to increases in global zinc demand, including in China, and to declines in global production due to closed or permanently idled zinc mining and smelting capacity. Zinc prices rose throughout 2005 and 2006 to a historical high of $2.08 per pound on December 5, 2006 then began a steady decline to $0.47 per pound on December 17, 2008.

Zinc prices have strengthened in 2009, reflecting not only the announced mine closures and production cuts that began in the fourth quarter of fiscal 2008 and continue into 2009, but also increased investor activity in the zinc markets. The LME average zinc price was $0.53 per pound for the first quarter of 2009, $0.67 per pound for the second quarter of 2009 and $0.80 per pound for the third quarter of 2009 for a year to date average of $0.67 per pound.

We have experienced fluctuations in our sales and operating profits in recent years due to fluctuations in zinc prices. Historically, zinc prices have been extremely volatile, and we expect that volatility to continue. For example, the LME price of zinc rose from $0.58 per pound on December 31, 2004 to $2.08 per pound on December 5, 2006 and has since fallen to an average of $0.67 per pound for the first nine months of fiscal 2009. Changes in zinc pricing have impacted our sales revenue since the prices of the products we sell are based primarily on LME zinc prices, and they have impacted our costs of production, since the prices of some of our feedstocks are based on LME zinc prices. Therefore, since a large portion of our sales and a portion of our expenses are affected by the LME zinc price, we expect that changing zinc prices will continue to impact our operations and financial results in the future and any significant drop in zinc prices will negatively impact our results of operations. We employ various hedging instruments in order to attempt to reduce the impact of decreases in the selling prices of a portion of our expected production.

We review the carrying value of our intangible assets and our long-lived assets for impairment whenever events or circumstances indicate that the carrying amounts may not be recoverable. In September 2009, we wrote-down to net realizable value certain machinery and equipment and supplies inventories by $962. The write-down relates primarily to our Beaumont, Texas recycling facility. In the third quarter of 2009, we made a decision to proceed with the construction of our Barnwell, South Carolina kiln project and expect to start the first kiln early in the second quarter of 2010 and the second kiln early in the third quarter of 2010. The Waelz kiln process that will be used at the Barnwell facility is a lower cost process than the process that was used at the Beaumont facility, therefore, we do not intend to use the higher cost capacity at the Beaumont facility. At September 30, 2009, our market capitalization as indicated by the closing price of our common stock was $507.7 million. Our net book value was $344.7 million. We further examined our assets and found no events that would

Read the The complete ReportZINC is in the portfolios of Mohnish Pabrai of Pabrai Mohnish.

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