Investor Presentation August 2012

Transcription

1 HORSEHEAD HOLDING CORP. Investor Presentation August 2012 Cellhouse

2 Legal Disclaimers Informational Purposes Only This investor presentation is being furnished for informational purposes only, and does not and shall not constitute an offer to sell or a solicitation to buy any securities of the Company. Third Party Information This presentation has been prepared by the Company based on information we have or have obtained from sources we believe to be reliable. Summaries of the terms of certain documents may be contained in this presentation and may not be complete, and we refer you to such documents for a more complete understanding of what we discuss in this presentation. The information in this presentation is current only as of the date on the cover, and our business or financial condition and other information in this presentation may change after that date. Forward Looking Statements This presentation contains statements, estimates and projections with respect to the anticipated future performance of the Company that may be deemed to be forward looking statements. You should not place undue reliance upon these statements. These statements relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, liquidity, possible or future results of operations, developments and business strategies. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward looking statements are reasonable, we cannot assure you that we will achieve those plans, intentions or expectations. NonGAAP Financial Measures We have included certain financial measures in this presentation, including EBITDA and Adjusted EBITDA, which are nongaap financial measures as defined under the rules of the Securities and Exchange Commission. This presentation includes reconciliations of the nongaap financial measures found in this presentation to the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles in the United States. 2

3 Company Overview Horsehead Holding Corp. (NASDAQ:ZINC) is the parent company of: Horsehead Corporation: Producer of specialty zinc and zincbased products and a recycler of electric arc furnace ( EAF ) dust, a zinc containing EPAlisted hazardous waste generated by North American steel minimills INMETCO: Recycler of nickelbearing wastes and nickelcadmium ( NiCd ) batteries Zochem: Producer of zinc oxide located in Brampton, Ontario Leading market position in most markets served Largest zinc producer in U.S. Largest zinc oxide producer in North America Largest recycler of EAF dust in the world (providing lowcost feed) Leading environmental service provider to the U.S. Steel industry Stateoftheart environmentally friendly low operating cost zinc plant under construction Recently completed financing expected to provide remaining capital required Expansion of zinc oxide capacity underway at Zochem Revenue vs. LME Zinc Prices (Revenue, US in millions) Adjusted EBITDA ( millions) (1) (LME Zinc Prices) /30/ * /31/12 LTM * 2009 hedging value of 50.3 million was recognized in (1) Adjusted EBITDA is a supplemental measure that is not required by, or presented, in accordance with, GAAP. For a reconciliation of Adjusted EBITDA to net income, see Appendix A to this presentation. 3

4 Operations Footprint Horsehead has production and/or recycling operations at seven facilities in seven locations Existing Capacity EAF Recycling: 770,000 Tons Smelting: 140,000 Tons Brampton, ON, Canada Zochem Facility Finished Products: Zinc Oxide: 49,600 Tons Note: Excludes New North Carolina Plant. Calumet, IL Recycling Facility: EAFD: 169,000(1) Tons Ellwood City, PA INMETCO Recycling Facility: EAFD and other waste: 70,000 Tons Cadmium: 5,000 tons Pittsburgh, PA Monaca, PA Facility Finished Products: PW Metal: 88,000 Tons Zinc Oxide: 90,000 Tons SSGH Metal: 15,000 Tons Zinc Dust: 5,900 Tons Palmerton, PA Recycling Facility Calcine: 130,000(2) Tons EAFD: 273,000 Tons (1) Zinc Powder: 5,000 14,000(3) Tons Finished Products Zinc Copper Base: 3,000 Tons Rutherford Co., NC New Zinc Plant Under Construction Projected Operating Level: 155,000 Tons of SHG, CGG & PW metal Under construction Acquired in 2011 Built in 2010 Acquired in 2009 Other operating facilities Note: Number of tons denotes annual capacity. (1) (2) (3) Rockwood, TN Recycling Facility: EAFD: 148,000 Tons (1) Represents EAF dust and other metalbearing wastes recycling and processing capacity. Assumes that one of four kilns is operated to produce calcine and the other three kilns are operated to produce waelz oxide. Depending upon grade. Barnwell, SC Recycling Facility: EAFD: 180,000(1) Tons 4

5 Business Segments Overview Zinc Nickel 2011 Revenue 451 Million Zinc 86% Operates four strategically located hazardous waste recycling facilities for recovery of zinc Operates largest zinc smelter in the U.S. in Monaca, PA to produce zinc metal and zinc oxide Acquired INMETCO on December 31, 2009 Operates high temperature metals recovery facility to recover primarily nickel, chromium and iron from a variety of metalbearing waste materials, generated by the specialty steel industry Main product is a nickelchromiumiron ("NiCrFe") remelt alloy ingot that is used as a feedstock to produce stainless and specialty steels Also recycles nickelcadmium batteries, producing a cadmium metal product that is reused in the production of nickelcadmium batteries Nickel 14% Lowcost feedstock from recycling facilities results in competitive advantage Acquired Zochem, a zinc oxide producer located in Brampton, Ontario, in November 2011 creating the largest zinc oxide producer in North America 2011 Gross Profit 74 Million Zinc 66% Nickel 34% 5

6 Products, Services and Customer Overview Horsehead's products are used in a wide variety of applications by diverse customers Products Zinc Metal Prime Western ( PW ) Zinc Metal Galvanized Steel/ Infrastructure Special Special High Grade ( SSHG ) Zinc Metal Alkaline Batteries 34.6% 5.7% Zinc and CopperBased Powders Zinc Oxide Rubber Powder Metal Pharma Chemicals Paints Brass 27.1% Environmental Services Minimills Asphalt Parts Cement Water Purification Scrap Alternative 3.8% 8.1% Toll Processing IronRich Material ( IRM ) ECOTITE EAF Dust Service Fees 0.2% Specialty Steel Waste Battery Recycling and Other Metal Bearing Waste Streams SS EAF and AOD dust, swarf, mill scale Nickel Alloy remelt to stainless producers Nickel Alloy remelt to stainless producers RBRC Nickel & Cadmium recovery 5.6% 8.2% Customers % of Rev.* Uses ValueAdded Zinc *Based on 2011, excluding hedge effects and other misc. sales representing 6.7% of sales. 6

7 New Zinc Plant Green Technology at a Substantially Lower Cost Current 80 year old zinc smelter utilizes a highcost electrothermic process which produces a limited product range and faces increasing environmental pressures New plant will utilize a stateoftheart, green technology based on solvent extraction and electrowinning technology Benefits: Lower energy usage, higher labor productivity and reduced maintenance costs Produces Special High Grade ( SHG ) and Continuous Galvanizing Grade ( CGG ) in addition to the Prime Western Grade produced by current smelter thus serving a much larger market with higher premiums Recovery of value from silver and lead in electric arc furnace ( EAF ) dust and higher premiums on SHG and CGG Positions the Company among the global low cost producers when combined with our EAFbased feed New facility is currently expected to expand EBITDA by approximately 90 to 110 million by 2014 Existing Smelter New Zinc Facility ~0.38/lb ~ /lb 0.41/lb Higher CoProduct Value Higher SHG/CGG Premium Manufacturing Conversion Cost Reduced Feed Cost(1) Volume Expansion and Other Incremental Annual Adj. EBITDA Contribution ( million) (2) 46 to /lb 16 to 20 N/A Increased Revenue: 15 to 25 million/year 15 to 25 N/A Increased Revenue: 8 to 10 million/year 8 to ,000 tpy contained zinc 155,000 tpy contained zinc 5 to 5 90 to 110 Total: (1) Due to cost reductions and higher zinc recoveries. (2) For a reconciliation of Adjusted EBITDA to net income, see Appendix A to this presentation. 7

8 Sustainable Business Model Horsehead's recycling technologies and production operations form a complete recycling loop from recycled zinc and nickel to finished products Utilizing byproducts and other materials produced by the steel industry and other secondary and related industries, Horsehead produces zinc, nickel and related raw materials, which feedback into those industries EAF Dust Steel Products Steel Industry Other Customers/ Secondaries Zinc/ Nickel End User Steel Scrap 8

9 Environmental Services Value Chain: Strengths Industrial Waste Collection, Handling and Management Broad hazardous waste management capabilities Metal Products for Sale to End Markets Metals Recovery Technology Over 30 years experience handling, transporting and processing EPAlisted hazardous waste Designated "Best Demonstrated Available Technology" Metals recovery processes Waelz kilns Flame reactor Electrothermic furnaces Rotary Hearth furnace Hydrometallurgical processing Chemical/Metallurgical expertise Broad metals processing experience Zinc metal Zinc oxide Zinc powders Nickel based alloys Cadmium metal Ironrich material (leadsilver concentrate expected in future) Horsehead plays an integral part in the environmental services value chain 9

10 Significant Growth of Recycling Capacity Horsehead has demonstrated growth in hazardous waste management and recycling capacity 47% increase in EAF dust recycling capacity achieved between 2006 and 2010 Completion of acquisitions and completion or investment in significant new growth projects Rockwood capacity expansion ( ) Acquisition of the customer contracts related to the EAF dust collection business of Envirosafe, a company that disposed of the EAF dust in landfills Barnwell facility construction ( ) completed on time and significantly under budget First kiln started in April 2010 and second kiln started in September 2010 New 10 yr Agreement with Nucor in 2011 expanded and extended existing relationship Grew EAF dust market share significantly from 2003 Acquisitions of INMETCO and Zochem CARBON STEEL EAF DUST RECYCLING CAPACITY GROWTH 2006 Present w Gro 47 % 800 th EAF Dust (tons in thousands) Capacity Rockwood Kiln Addition (2008) Barnwell Kilns Addition (2010) Current Capacity Expansion of INMETCO's processing capacity by 25% currently underway Note: 2006 capacity includes 25,000 tons from Beaumont facility which is currently idle. 10

11 Decision to Replace Monaca Smelter The Monaca facility produces Prime Western Zinc, Zinc Oxide and SpecialSpecial High Grade Zinc Commissioned in 1931, is the only electrothermic zinc refining facility in the Western Hemisphere Lowcost feed obtained from our EAF dust recycling business has been the primary source of competitive advantage for the zinc products business Unfavorable trends have made the electrothermic smelting technology less competitive in recent years: Higher labor and energy costs, particularly metallurgical coke and electric power Shrinking general galvanizing market as a result of greater imports of galvanized fabricated products and greater penetration of alternative coatings Shift in use away from PW zinc to avoid lead issues Tighter environmental regulations requiring significant capital investment to comply with new and more stringent air quality standards SMELTER OPERATING STATISTICS Products In 2008, Horsehead decided to replace the current smelting technology with a stateoftheart, environmentally friendly approach based on solventextraction and electrowinning technology In early 2011, Horsehead announced plans to build a new zinc plant based on solvent extraction (SX) and electrowinning (EW) technology In March 2012, Horsehead entered into an option agreement with Shell to sell the Monaca site. If exercised, Horsehead would be required to vacate the facility by April 2014 Annual Capacity (tons) 2012 Projected Utilization PW Metal 88,000 93% Zinc Oxide 90,000 66% SSHG Metal 15, % Number of Employees: 633 Key fixed assets 10 ft x 250 ft Sinter Machine 79 MW vertical reduction furnaces 10 distillation columns 15 product and environmental bag filters 6 acres of storage buildings 11

12 New Zinc Plant Overview

13 New Zinc Plant Overview New plant will replace existing high temperature smelting process located in Monaca, PA with stateoftheart, green, solvent extraction ( SX ) and electrowinning ( EW ) technology SX is the only proven technology which selectively extracts zinc from a leachate containing multiple contaminants typical of the Waelz Oxide produced from EAF dust EW is the most commonly used technology in the world for producing high purity zinc Nominal operating level of 155,000 tpy will replace existing 140,000 tpy smelter in Monaca New plant will produce SHG, CGG and PW metal Current smelter produces 140,000 tpy of zinc contained in PW metal, SSHG metal and zinc oxide Zinc Oxide business will be supplied by purchased SHG after the new zinc plant comes online Entered into engineering and technology licensing agreements with Tecnicas Reunidas ( TRSA ) for SX and Asturiana de Zinc ( AdZ ), a subsidiary of Xstrata, for EW in early 2011 Anticipated project capital cost of approximately 375 million is based on TRSA, Global Performance ( GP ) and Company estimates 13

14 New Zinc Plant Advantages New customers and markets opened through this technology Products SHG zinc metal with higher purity and premium Markets CGG market is 10x current market Allows for participation in the much larger steel continuous galvanizer segment including several of our EAFD recycling customers Expand access in the hot dip galvanizing segment to include all galvanizer needs, doubling our opportunities Exposure to the zinc die cast alloy producers. Currently, the Company has supplied some SSHG to them and purchased the residues they generate from their process SHG grade opens access to LME warehouses MARKET SEGMENTS Other 134,444 11% ZINC METAL TYPE Alloy 170,810 14% PW 150,965 12% 2011 US Consumption of Zinc (1,260,688 Tons) Brass and Bronze 182,932 14% Sheet and Strip Galvanizing 607,406 48% Source: Management estimates. Af ter Fab Galvanizing 163,096 13% SHG/CGG 1,109,723 88% 14

15 SXEW Proven Technology Solvent Extraction Technology has been Used Extensively for Last 30 Years in Facilities all over the World Technology implementation in facilities around the world Skorpion Zinc in Namibia SX has performed well Initial delays due to poor initial selection of solid/liquid separation equipment Considered to be one of the lowest cost zinc producers in the world ZINCEX process for treating Waelz Oxide ( WOX ) was commissioned in 2010 Validates applicability of SX technology for the Horsehead feed mix Consumption levels of acid and organic solvents consistent with Tecnicas Reunidas estimates No operational problems experienced Glencore Portovesme Plant in Italy 165,000 tpy plant commissioned in 2004 for processing complex zinc silicate/oxide ore Akita Zinc Plant in Japan First commercial application of ZINCEX process (a combination of the SX and EW technologies) Startup expected in Q1 13 Horsehead Lab Testing of Waelz Oxide Completed extensive testing of leach/neutralization and filtration processes to produce pregnant leach solution ( PLS ) Demonstrated that PLS falls within the range of other solutions successfully processed in SXEW process A.D. Zunkel Consultants Independently Affirmed the Feasibility of the ZINCEX Process for Horsehead 15

16 IndustryLeading Technology Providers Horsehead is Utilizing Two Experienced, World Class Technology Providers Leaching & Solvent Extraction Technology Tecnicas Reunidas (CATS:TRE; Market Cap: 2.1 bn) Electrowinning & Melting Casting Technology Asturiana de Zinc (2011 Revenue: 1.3 bn) Developer of the ZINCEX Process; has built multiple plants around the world Spanishbased zinc producer; a wholly owned subsidiary of Xstrata (LSE:XTA; Market Cap: 38.2 bn) Spanishbased engineering services and general contractor Engaged in the engineering, procurement & construction of a wide variety of industrial facilities for the oil & gas, power, infrastructure and metals industries Has built and currently operates international zinc plants including the world s largest zinc plant at 510,000 metric ton capacity Has provided the technology for multiple zinc plants worldwide and is a supplier of core specialty equipment specifically designed for zinc Electrowinning & melting/casting operations Regarded as the leader in zinc EW and melting/casting technology Provides a complete array of integrated services for turnkey projects worldwide Has designed and built over 1,000 industrial plants worldwide since 1959 TRSA Designed and Built the Skorpion and Akita Plants Horsehead s New Plant will Utilize the Same Technology as AdZ s Premier Zinc EW Facility 16

17 Plant Status and Project Timeline Current Status Potential Risks and Mitigants On schedule for completion in Q as originally planned Infrastructure, Electrowinning, Melting and Casting all ahead of schedule Leaching and Solvent Extraction completion is on schedule major construction activity already underway Basic engineering and FEED completed; detailed engineering ongoing NPDES permit received, other permits underway Hiring of facility management team is almost complete Foundation excavation work started in Q1 12; foundation installation began in Q2 12 Delivery delays in long lead items Construction activity delays All longer lead time equipment has been ordered and schedules established low probability of schedule issues Additional resources can be allocated to mitigate risk Company does not expect delays beyond 2 months, if any TRSA/AdZ have provided all equipment lists necessary for the construction of the facility and the engineering requirements TRSA/AdZ regularly review engineering packages put together by CSD and R.T. Patterson Startup and commissioning delays The Company has secured technical resources from TRSA/AdZ Historical Milestones 2009 Initiated discussions with Tecnicas Reunidas regarding SXEW Technology 2010 Launched feasibility studies on SXEW project Initiated site search Q Selected primary site location Q Completed basic engineering study Board approved proceeding with project Q Announced site location Ordered long lead time equipment Q Began plant Construction Q Finalized Detailed Engineering Major Milestones Approximately 70 million Spent on New Plant Through Q

18 Plant Status and Project Timeline (Cont.) Breakdown of Capital Costs Project Costs Validated by Independent EPCM Global Performance (independent EPCM), validated the original estimate for plant completion independent estimate of 382 mm (1) Report scope encompassed an indepth, itembyitem costout estimate of every aspect of the new plant construction build 220 mm (60%) of project has already been committed Remaining 155 mm (40%) includes a 10% cushion and is comprised of labor costs, small equipment and mechanical / electrical installation 15 mm of the remaining 155 mm will be paid after startup to cover licensing fees and performance based contingent payments Construction costs to date have been within 5% of original estimates the remaining costs will be competitively bid The more difficult costing exercise has been completed, future costs are more predictable and easier to manage limited risk on remaining costs Land and Infrastructure 60 million Engineering 60 million Installation 75 million Equipment 180 million Total: 375 million (70 mm Spent Through Q1 2012) Projected Schedule & Capital Costs Q Begin mixer settler concrete, utilities and cell house Building and facility construction Q Complete utilities Complete all cell house structural concrete Q Complete mixer settler concrete, utility corridor and installation of all tanks and bins Delivery of transformer rectifier Q2 2012: 35 mm Q3 2012: 54 mm Q4 2012: 72 mm Expected Q2Q Spend on New Plant: million (1) Within 2% of management estimates. Q Begin equipment installation Power on at facility 100 KV Q1 2013: 73 mm Q Start commissioning at new facility Q First zinc production at new facility Q2 2013: 54 mm Q3 2013: 15 mm Expected 2013 Spend on New Plant: million 18

19 Financial Overview

20 Historical Financial Performance Revenue vs. LME Zinc Prices Commentary Revenue and earnings have high sensitivity to the change in the LME zinc price ~25 million for 0.10/lb change Additional volatility to revenues from unrealized gains/losses associated with hedge accounting (20) /30/2012 LTM (Adj. EBITDA Margin) 40.0% (Adj. EBITDA, US in millions) Adjusted EBITDA and Margin (1) (Tons, thousands) Zinc Products Shipment Tons Increase in product shipment volume resulting from recent acquisition of Zochem (LME Zinc Prices) revenue and adjusted EBITDA included 50 million favorable effect from monetization of 2009 hedge positions (Revenue, US in millions) /30/2012 LTM (5.0) (10) * /30/2012 LTM *2009 hedging value of 50.3 million was recognized in (1) Adjusted EBITDA is a supplemental measure that is not required by, or presented in accordance with, GAAP. For a reconciliation of Adjusted EBITDA to net income for each of the periods presented, see Appendix A to this presentation. 20

21 Conservative Financial Policy Focus on liquidity for financing new zinc plant Target Capital Structure Currently negotiating expansion of existing 60 million revolving credit facility to million for working capital needs Downside protection has been maintained to protect the business Hedging Policy Cash flow materially hedged when entering heavy periods of investment Current have zinc put options with 0.85/lb strike price through June 2013 Acquisition Philosophy Disciplined acquisition strategy focused on opportunistic acquisitions that are earnings and cash flow accretive Will continue to evaluate opportunistic acquisitions that enhance Horsehead's environmental services offerings and metals recovery 21

22 Illustrative EBITDA Sensitivity Adj. EBITDA at Various Levels of LME Zinc Prices* With SXEW 52week High & Low Range of LME Zinc Prices Adj. EBITDA Status Quo LME Zinc Prices *The slide shows the illustrative effect of a change in the LME zinc price on Adj. EBITDA for zinc products from the current zinc production facility in Monaca, PA ( Status Quo ) versus the new zinc production facility in North Carolina ( SXEW ). The Status Quo scenario assumes 142,000 tons of zinc production versus 156,000 tons of zinc production in the SXEW scenario. The change in Adj. EBITDA does not include any price change for other metals (lead and silver) or contributions from INMETCO and Zochem. 22

23 Appendix A

24 Adjusted EBITDA Reconciliation LTM Jun12 Adjusted EBITDA Reconciliation 2011 Consolidated 2010 Consolidated 2009 Consolidated 2008 Consolidated 2007 Consolidated 2006 Consolidated (s in 000s) Net income (loss) Interest expense 1,150 21,454 4,878 3,324 Interest and other income (2,299) (1,948) Gain on Bargain Purchase (4,920) (4,920) Income tax provison (benefit) (1,653) 10,902 Noncash hedge adjustments 2,190 Noncash compensation expense 2,866 Exit of private equity sponsor Impairment of assets Acquisition related expenses Depreciation and amortization Adjusted EBITDA 24,770 1,226 (27,471) 2,340 (849) (883) 39,442 90,683 1,474 7,589 (1,871) (3,037) 54,457 9,555 (327) 14,409 (16,689) 22,647 51,147 32,717 3,686 11,997 (8,746) 5,153 13,155 2,984 1,860 2,153 1,739 1, ,001 13,071 9, , ,355 23,556 22,025 18,612 15,982 12,797 10,150 8,536 38,839 (271) 63,347 63,917 (10,063) 68, , ,516 24