Knobias Clip Report (02-27-2008)
Submitted By Knobias ClipReport
ZINC: Expects to Report Growth in Zinc Production
Bernanke spoke on Capitol Hill on Wednesday leaving many to believe additional rate cuts were in the forecast as ‘growth risks continued to outweigh inflationary pressure.’ With additional rate hikes, many were anticipating additional commodity rallies. With commodity rallies, the usual suspects come to mind; Gold, Oil, Corn, Silver, and Wheat. All had seen increases over the past months and could see it continue with more rate cuts on the horizon.
On commodity that hadn’t quite seen the rally was zinc and the company to watch if that rally in zinc occurs would be Horsehead Holdings Inc. (ZINC).
The Company is the largest zinc producer in the United States and the leading manufacturer of value-added zinc products including zinc oxide and zinc powder. Leading the industry as an integrated producer as well as the world’s largest producer of zinc from recycled sources, Horsehead’s electrothermic smelting facility, the only one of its type in the Western Hemisphere, provides unique capabilities allowing it to utilize the most diverse range of zinc-bearing feed materials.
Over the past few weeks, the Company has seen a barrage of buying by so called ‘Smart Money’. Goldman Sachs reported a stake in September of 2007 but reported the stake decreasing in an amendment on February 12. On February 13th, GS Investment Strategies, LLC reported a 6.6% stake in the Company through a Schedule 13G. GS Investment Strategies appears to be an arm of Goldman Sachs, but that could not be confirmed. On February 14th, Passport Global Master Fund reported a 5.19% stake in a Schedule 13G. Also on February 14th, Third Point LLC announced its acquisition of a 6.8% stake in a Schedule 13G.
As many know, Loeb is the hedge fund manager of Third point and is well known in the financial world for his writing of public letters in which he expresses disapproval of performance by financial executives in companies of which he has a stake.
So what is this smart money chasing? Obviously profits. The Company recently entered into an agreement with Nucor Corporation which expanded its existing commercial relationship with Nucor by recycling Nucor’s EAF dust on a regional basis. The Company also started up a second Waelz kiln at its Rockwood, Tenn., location. The Waelz kiln utilizes Horsehead’s proprietary know-how for recycling EAF dust. Horsehead broke ground at the Rockwood facility in December 2006 with expectations to be operational by the end of 2007. The new kiln was expected to double the current EAF dust processing capacity at that location.
Their last earnings report displayed some strong growth that was flying under the radar of many traders. For the nine months ended September 30, 2007, net income was $73.4 million, or $2.40 per diluted share, on sales of $426.4 million. For the nine months ended September 30, 2006, net income was $38.3 million, or $1.42 per diluted share, on sales of $346.7 million. With debt at $200 thousand and cash of $77.4 million on the books, the name is well suited to withstand a recessionary phase in the economy even while it continues its expansion.
The Company’s fourth quarter earnings were expected to be reported after the bell and with that in mind. Earnings were expect to be 51c a share for the quarter. For the year, estimates called for $2.91 in earnings on $561.63M in revenue. With that in mind, investors would be wise to watch.
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