Horsehead Holding (ZINC)

Q4 2010 Earnings Call

February 25, 2011 11:00 am ET

Executives

Ali Alavi - Vice President of Corporate Administration, Secretary and General Counsel

James Hensler - Chairman, Chief Executive Officer and President

Robert Scherich - Chief Financial Officer, Principal Accounting Officer and Vice President

Analysts

Mitesh Thakkar

Carter Driscoll - Capstone Investments

Eric Prouty - Canaccord Genuity

Paul Forward - Stifel, Nicolaus & Co., Inc.

Robert Howard - Prospector Partners

Presentation

Operator

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Ladies and gentlemen, thank you for standing by. Welcome to the Horsehead Holding Corp. 2010 Fourth Quarter and Annual Earnings Conference Call [Operator Instructions] I would now like to turn the conference over to your host, Ali Alavi. Please go ahead.

Ali Alavi

Good morning, everyone, and thank you for joining us on our fourth quarter 2010 earnings release conference call. My name is Ali Alavi, and I'm Horsehead’s Vice President of Corporate Administration, General Counsel and Secretary.

Before I turn the call over to Jim Hensler, I would like to quickly remind everyone that this communication may include forward-looking statements about our company, our market and our prospects that are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.

These risks and uncertainties include a variety of factors, some of which are beyond our control. These forward-looking statements speak as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after this communication. You should refer to our filings with the U.S. Securities and Exchange Commission, including our most recent annual report on Form 10-K filed on March 16, 2010, for a more detailed description of the risk factors that may affect our results.

With that, I'm pleased to introduce Jim Hensler, our President and CEO. Jim?

James Hensler

Thanks, Ali. I'd like to welcome you to this conference call to discuss the fourth quarter 2010 results. I will review the performance of our operations and markets during the quarter. Bob Sherich, our CFO, will review the financial results.

The fourth quarter was marked by the restart of production of zinc oxide and refined zinc metal in our refinery and the return of our smelting operation to full capacity late in the quarter. Zinc oxide shipments lagged the restart of production capability as we rebuilt inventories and resumed commercial relationships with our customers. Shipments of zinc metal were bolstered by our efforts to expand shipments beyond our traditional markets in order to partially offset the loss of zinc oxide sales while we rebuilt the Monaca refinery.

The consolidated net earnings for the quarter were $14.6 million or $0.33 per share. This figure includes a $7.7 million benefit after taxes or $0.18 per share from insurance recovery related to the Monaca refinery incident, which occurred in July 2010. In comparison, we broke even during the fourth quarter of 2009.

We were pleased that we were able to resolve and therefore, record a significant portion of the insurance claim related to the Monaca refinery incident. We submitted a preliminary claim to our insurer for the period from the date of the incident until December 31, 2010, in the amount of $32.7 million covering the physical damage, loss profit and other extra expenses incurred. We reached an agreement with our insurer on the undisputed portion of this claim amounting to $19.3 million, which has been booked as income and which partially offsets some of our expenses associated with the rebuilt. We are continuing to pursue the $13.4 million portion of this claim, which is still under review.

In addition, we expect to file an additional claim for any loss of zinc oxide business we might incur during the first half of 2011 as a result of this incident. While the final settlement will not be known for some time, a significant portion of the expected loss has been recovered, and further recovery is anticipated. Bob Sherich will provide a more detailed analysis of the quarter and the accounting procedures related to the insurance claim.

The smelting facility at Monaca operated at a reduced rate during most of the quarter as we continue to operate the five of the six furnaces due to the refinery shutdown, because we did not have sufficient downstream capacity in the refinery throughout the quarter to process the additional metal. We restarted the sixth furnace in late December and are continuing to operate at full smelter output. By the end of December, we had restored our capability to produce zinc oxide sufficiently to meet market demand, and we were operating one of our columns for refined metal. We ran the Larvik furnaces for the entire quarter and took the decision to idle them once again in January.

EAF dust receipts increased 10% compared to the prior year quarter to 128,000 tons. Receipts were 5% lower than the third quarter of 2010 as output from the steel industry softened slightly. According to industry statistics, domestic steel production averaged 69% of capacity utilization during the fourth quarter, which was down slightly from the 71% during the third quarter. Although electric arc furnace dust receipts were down slightly, we processed a record 148,000 tons of dust during the fourth quarter as the full capacity at the new Barnwell plant was available for the entire quarter.

Currently, industry statistics indicate that steel capacity utilization has increased steadily since the end of 2010 and has been operating in the mid-70% range for the past few weeks. Dust receipts have increased as a result of the increased steel production. We expect to operate our recycling facilities at near full capacity during most of the first quarter. We may take intermittent outages on some kilns based on inventory levels. We're also planning to take more extensive maintenance outages on some of the kilns later in the year.

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