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Horsehead Holding Corp. Reports Fourth Quarter 2012 Results

02/22/2013 - Horsehead Holding Corp. said its results were impacted by lower zinc prices and asset write-off charges, but the underlying operating performance of its businesses continued to improve during the fourth quarter.

Horsehead Holding Corp. reported a consolidated net loss of US$11.2 million for the fourth quarter of 2012, compared to a consolidated net loss for the fourth quarter of 2011 of $12.7 million.
 “While our reported results continue to be impacted by lower zinc prices and asset write-off charges associated with the impending closure of the Monaca facility and the cost of hedge protection related to our new zinc plant project in North Carolina, the underlying operating performance of our businesses continued to improve in the fourth quarter of 2012. Earnings adjusted for non-cash charges increased $5.3 million, or $0.12 per share, compared with the prior year’s quarter. Compared with the same quarter last year, our EAF dust recycling facilities processed 23% more dust despite lower steel industry output. Smelter output was 5% higher than during the fourth quarter of 2011 and 11% higher than during the third quarter of 2012. Our shipments of zinc products were up 10% compared to the same quarter last year and 5% higher than the third quarter of 2012. On a full year basis, the Monaca smelter produced 146,000 tons of zinc, the highest level in our company’s history. Along with these improvements, we realized a lower conversion cost per pound of zinc at both our recycling plants and our smelter,” said Jim Hensler, president and chief executive officer. “We are also pleased with the smooth integration of Mitsui Zinc Powders, which we acquired during the quarter.”
“Construction of our new zinc plant project in Rutherford County, North Carolina continues to be on schedule for 'first zinc' production in the second half of this year. Our estimate of the total construction cost for the project continues to be approximately $415 million,” Hensler said. “We have also progressed with our expansion plans at Zochem.”
Fourth Quarter Highlights
Compared to the same quarter last year:
  • Zinc product shipments, which included a full quarter of Zochem, increased 4,115 tons, or 10%, to 46,312 tons for the quarter.
  • EAF dust receipts increased 12% and dust volume processed increased 23%, reflecting the new service contracts entered into over the past twelve months.
  • The LME zinc price averaged $0.88/lb for the fourth quarter of 2012, compared to $0.86/lb for the fourth quarter of 2011. The LME nickel price averaged $7.70/lb for the fourth quarter of 2012 compared to $8.30/lb for the fourth quarter of 2011.
  • Net sales, excluding $4.1 million related to non-cash hedge charges for the current quarter, were $110.6 million compared to $109.1 million for the fourth quarter of 2011, after adjusting for $8.8 million in non-cash hedge charges for the prior year quarter. Price realization for zinc products on a zinc-contained basis reflected a $0.15/lb premium to the average LME zinc price for the quarter compared to a $0.14/lb premium in the prior year quarter.
  • Cost of sales, excluding asset impairment charges, declined $8.2 million to $95.5 million, as the effect of higher shipment levels was more than offset by increased use of EAF dust-based feed and lower unit conversion costs. EAF dust-based feed made up 77.7% of the feed mix for the smelter during the most recent quarter compared to 76.9% for the same quarter last year.
  • An impairment charge of $16.0 million, before taxes, was taken related to the Monaca, PA facility to partially adjust the net book value of its assets for the potential closure of the facility in connection with the expected future start-up of the new zinc plant in North Carolina. This charge during the quarter resulted from management’s increased expectation that Shell exercises its purchase option and that the Monaca facility shuts down by the end of 2013. The Company also concluded that the power plant would no longer be under care and maintenance. The remaining net book value of the assets at the Monaca facility was approximately $24 million as of December 31, 2012.
  • A pre-tax bargain purchase gain, related to the acquisition of Mitsui Zinc Powders, of $1.8 million was recorded during the quarter. We had a bargain purchase gain of $4.9 million in the prior year’s fourth quarter associated with the acquisition of Zochem.
  • Adjusted EBITDA was $10.9 million for the quarter compared to $(0.3) million for the same quarter last year, reflecting primarily the effect of production and shipment volume improvements, cost improvements and higher realization of sales price premiums. Adjusted EBITDA was $40.7 million for the year ended December 31, 2012 compared to $63.3 million for 2011, reflecting primarily the effect of lower commodity prices.
  • Cash on hand at the end of the quarter was $244.1 million. Capital spending was $77.6 million for the quarter and $184.5 million for the year ended December 31, 2012. In addition, we had $51.3 million of unused availability under our revolving credit facilities at the end of the quarter. We finalized a new $21.2 million export credit financing arrangement during the quarter, with $9.8 million of borrowings and $11.4 million of unused capacity as of December 31, 2012. We also added a new $15 million credit facility at Zochem during the quarter to support our planned capacity expansion plans at that facility.
  • Zinc put options were acquired during the quarter to extend the volumes hedged at an $0.85/lb strike price through the end of 2013.

 
 
Shipments and Production Data
Quarter ended 31 Dec
Twelve months ended 31 Dec
2012
 
2011
2012
 
2011
Zinc production - tons
44,819
40,326
174,417
141,656
Zinc product shipments - tons
46,312
42,198
189,044
151,997
Zinc contained - tons
42,110
38,402
170,123
139,515
Net sales realization
Zinc products - per lb
$0.94
$0.91
$0.94
$1.01
Zinc products -per lb zinc contained
$1.03
$1.00
$1.04
$1.10
EAF dust receipts - tons
143,491
128,405
624,441
534,241
Nickel remelt alloy shipments - tons
5,689
6,960
27,802
27,899
LME average zinc price - per lb
$0.88
$0.86
$0.88
$0.99
LME average nickel price - per lb
$7.70
$8.30
$7.95
$10.36
 

Business Outlook
Hensler added, “Steel industry capacity utilization was lower than in the fourth quarter of 2011. According to industry sources, steel industry capacity utilization averaged 71% during the quarter compared with 74.5% during the prior year’s fourth quarter. This was the lowest capacity utilization level for a quarter since 2010. Despite the lower steel production levels, EAF dust receipt levels increased 11.7% compared with the fourth quarter of the prior year as a result of new dust contracts entered into in 2012. Dust receipts declined by 6.4% compared with the third quarter of 2012. As a result of the lower dust receipt levels and improvements in kiln uptime realized in the fourth quarter, we idled one kiln in October and a second kiln intermittently since December. Dust receipt levels began to increase in January, requiring the restart of both kilns in early February to maintain customer service levels.
“We had another solid production quarter at the Monaca zinc smelter. We are very pleased with this recent performance and hope to continue at this pace, recognizing that the task may be more challenging given the potential increase in employee turnover as we approach the wind down of this facility toward the end of 2013.”
Shell Chemical LP and Horsehead agreed to an amendment to their option and purchase agreement that extends by six months, until 30 June 2013, the period of time during which Shell can perform its evaluation of the Monaca site. Shell continues to evaluate the property as the potential site of its new ethane cracking facility. If exercised, Horsehead would be required to vacate the site by no later than 30 April 2014.
“Zochem made another positive contribution to earnings during the quarter. Phase I of our plan to expand capacity at the Brampton, Ontario facility is on schedule to be completed by the end of the first quarter of 2013. Work has started on Phase II, which includes the addition of a seventh muffle furnace expected to be completed prior to the closure of the zinc oxide refinery in Monaca. We are also in the final stages of qualifying the Zochem location to supply zinc oxide to the customers currently supplied by the refinery. The price increase for zinc oxide that we announced in the third quarter of 2012 for contract customers was negotiated during the fourth quarter of 2012 and is expected generally to be realized on oxide sales in 2013.
“Demand for zinc products from our Monaca location remained steady during the quarter. Shipments increased by 5% compared with the third quarter of 2012, reflecting both solid demand in our end markets and the restart of our two SSHG zinc columns that were being rebuilt during the third quarter. We expect to continue to operate our full complement of six zinc smelting furnaces in the first quarter of 2013. It is anticipated that we will build some inventory of zinc products, particularly metal, during the first three quarters of 2013 to allow us to serve the market during the ramp up of the North Carolina facility during the fourth quarter. We expect to realize higher metal premiums this year.
“INMETCO’s results for the quarter, though positive, were impacted by their annual maintenance outage and by the fire which we reported on previously. The planned outage was only extended by one day beyond the original schedule as a result of the fire, but we were not able to operate at full capacity until mid-December because power was not fully restored to some ancillary operations. We expect all of the repairs to be completed by the end of the first quarter of 2013. We have implemented better controls for handling and storing lithium batteries in order to mitigate the risk of similar damage in the future. We reached an agreement with our insurance carriers for a partial settlement of $2 million less our deductible of $0.5 million, which we recorded in the fourth quarter of 2012. We are pleased to report that we entered into a tolling agreement with Outokumpu to begin processing EAF dust and other nickel-bearing waste from their new Calvert, AL stainless steel production operation that started-up during the fourth quarter of 2012. We also entered into a tolling agreement with North American Stainless that formalized and expanded our previous informal relationship with them. As a result of these new agreements and slightly stronger conditions at some stainless steel producers, we anticipate an increase in receipts of nickel-bearing waste materials in the first quarter of 2013.
“We are entering the final stages of construction on our new zinc plant project in Rutherford County, North Carolina. Recruiting of employees for the facility has begun. We have hired nearly all of the key management and technical positions for the site. We expect to begin hiring and training the first phase of supervisory and skilled positions before the end of the second quarter of 2013. This facility is expected to employ about 250 people.”
Horsehead Holding Corp. is the parent company of Horsehead Corporation, a leading U.S. producer of specialty zinc and zinc-based products and a leading recycler of electric arc furnace dust; The International Metals Reclamation Company (INMETCO), a leading recycler of metals-bearing wastes and a leading processor of nickel-cadmium (NiCd) batteries in North America; and Zochem Inc., a zinc oxide producer located in Brampton, Ontario. Horsehead, headquartered in Pittsburgh, Pa., employs approximately 1,100 people and currently has seven production and recycling facilities throughout the U.S. and Canada.