Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Horsehead Holding (NASDAQ:ZINC)

Q4 2013 Earnings Call

February 25, 2014 11:00 am ET

Executives

Gary R. Whitaker - Vice President, General Counsel and Secretary

James M. Hensler - Chairman, Chief Executive Officer and President

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

Analysts

Daniel Moore - CJS Securities, Inc.

Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division

Carter W. Driscoll - Ascendiant Capital Markets LLC, Research Division

Paul S. Forward - Stifel, Nicolaus & Company, Incorporated, Research Division

Mitesh Thakkar - FBR Capital Markets & Co., Research Division

Tom Van Buskirk - Sidoti & Company, LLC

Edward Okine - Basso Capital Management, L.P.

Operator

Welcome to the Horsehead Holding Corp. Fourth Quarter 2013 and Annual Earnings Release Conference Call. My name is Christine, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the call over to Mr. Gary Whittaker. You may begin.

Gary R. Whitaker

Good morning, everyone, and thank you for joining us on our Fourth Quarter 2013 Earnings Release Conference Call. My name is Gary Whittaker, and I'm Horsehead's Vice President, 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 markets 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 18, 2013, 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 M. Hensler

Thanks, Gary. I would like to welcome you to this conference call to discuss the results of the fourth quarter of 2013. I will review the performance of our operations and markets, while Bob Scherich, our CFO, will review the financial results.

The consolidated net loss for the quarter was $12.4 million or a $0.26 loss per share. This compares to a loss of $11.2 million or a $0.25 loss per share for the fourth quarter of 2012. The consolidated net loss for the fourth quarter of 2013 included charges associated with mark-to-market adjustments to hedges of $4.7 million and charges before taxes of $19.7 million related to impairment and severance costs associated with the planned shutdown of the Monaca, Pennsylvania facility. Consolidated net earnings, excluding these charges, were $3.8 million or $0.08 per share. This compares to adjusted consolidated net earnings of $900,000 or $0.02 per share for the fourth quarter of 2012. The LME zinc price was 2% lower in the current quarter versus the same quarter in 2012, while the nickel price was roughly 18% lower in the current quarter.

While we focused on managing transitional issues in the fourth quarter associated with shutting down zinc operations at Monaca and completing construction and continuing commissioning activities at Mooresboro and Zochem, we're pleased that earnings improved compared with the prior year's quarter after eliminating one-time shutdown charges and non-cash adjustments to hedge positions. Production increased at the Monaca smelter and we lowered unit operating costs compared with the third quarter of 2013. We permanently closed the Monaca zinc oxide refinery in late December and shifted all future sales and production of zinc oxide to Zochem. In addition, we announced the formation of ThirtyOx, a joint venture with Imperial Zinc Corp, intended to recover secondary zinc oxide to feed Mooresboro and secondary zinc metals to feed Imperial.

I'd now like to discuss our operating results in more detail. Horsehead Corporation processed approximately 155,000 tons of electric arc furnace dust during the quarter, a quantity which exceeded receipts by 7% as we reduced dust inventories. EAF dust receipts increased by about 1% to 144,000 tons from the prior year's fourth quarter. According to industry statistics, domestic steel industry capacity utilization averaged approximately 76% during the fourth quarter of 2013, which is higher than prior year's fourth quarter, but slightly lower than the third quarter of 2013.

In December, we idled 1 of our 9 Waelz kilns to balance capacity with supply. Steel industry output remained steady as we entered the first quarter of 2014. However, the movement and unloading of railcars was hampered by severe weather conditions, creating a backlog, which reduced dust receipts. We expect this backlog situation to resolve itself over the next few weeks. We also expect to keep 1 kiln idled at least through the end of the first quarter of 2014.

Zinc product shipments decreased by 14% to 39,994 tons, compared with the prior year's fourth quarter and were down 8.5%, compared with the third quarter of 2013. We also sold 3,341 tons of zinc contained in waelz oxide and calcine during the quarter, which are not included in this figure. Shipments were down compared to the prior-year quarter, primarily due to lower smelter production in the current quarter. Third quarter shipments were higher than shipments during the current quarter, primarily due to seasonal factors. Total zinc metal shipments decreased by 19.6% when compared with the fourth quarter of 2012 and decreased 12.7%, compared with the third quarter of 2013 for similar reasons. Demand in January among hot-dip galvanizes, which appeared to be adversely affected by weather, have started to recover.

Total zinc oxide shipments decreased 10.6%, compared with the fourth quarter of 2012, while Zochem's shipments increased by 26%, compared to the same period. Combined shipments of zinc oxide were just over 82,000 tons in 2013. We expect to retain about 70,000 tons of zinc oxide business in 2014 now that we have consolidated all of the production of the zinc oxide at Zochem and closed the Monaca refinery.

The Monaca facility returned to a 6-furnace operating level in October and remained at that level until December 23, at which time we permanently closed the zinc oxide refinery. We expect to operate the smelter at a 5-furnace level, producing Prime Western zinc metal until it is closed. At reduced operating level at the Monaca facility, we had the opportunity to generate incremental value from the sale of waelz oxide and zinc calcine to other zinc producers, given that we have insufficient capacity to consume all of these zinc units internally. We started to sell these products during the fourth quarter and expect to continue to do so until the Mooresboro facility is sufficiently ramped up to fully consume all the waelz oxide we produce.

Moving on to discuss the zinc pricing environment. The LME zinc price averaged slightly less than $0.87 per pound during the fourth quarter of 2013, which was about $0.02 lower than the fourth quarter of 2012 and about $0.02 higher than third quarter of 2013. We continue to have hedging in place for zinc prices with a fixed price of approximately $0.90 per pound through the first quarter of 2014. We also entered into fixed-forward swaps at a price of about $0.94 for the second quarter of 2014, for most of our expected shipments. We sold our remaining put option positions and realized a net cash benefit from converting to fixed price swaps.

The realized premiums on zinc metal averaged $0.079 during the fourth quarter, which was up $0.033 from the fourth quarter of last year, reflecting an increase in metal premiums. Realized premiums for zinc oxide in the quarter were approximately $0.10 per pound, which is an increase of $0.06, compared to the prior year's fourth quarter and a decrease of just under $0.03, compared with the third quarter of 2013. The increase compared with the prior year is primarily due to the price increase we implemented. The decrease compared to the third quarter of this year is primarily due to the lag effect in pricing of oxide, reflecting the increase in LME zinc price during the fourth quarter of 2013.

INMETCO turned in another solid quarter despite taking their annual outage in October. Tolling receipts increased 32% and shipments increased 21% compared with the prior year's fourth quarter, which was negatively affected by a fire at the facility. Pre-tax income between the 2 quarters was essentially the same after eliminating the favorable adjustment from insurance proceeds recorded during the fourth quarter of 2012, even though nickel prices were 18% lower in the current quarter. We anticipate stronger tolling receipts in 2014 as Outokumpu continues ramping up production at its Alabama facility and we have started to increase power to our submerged arc furnace to increase smelting output and keep pace with stronger tolling receipts.

Zochem's earnings improved compared with the prior year's fourth quarter, due primarily to higher product margins and increased volume. Shipments increased by 26% compared with the fourth quarter of 2012. We operated 5 of 7 muffle furnaces for most of the fourth quarter of 2013. We started the sixth furnace last week and we expect to start the seventh furnace before the end of the first quarter of 2014. With our previously announced price increase, oxide premiums are holding steady as we entered 2014 and volume has been stronger than expected.

We are near the point of mechanical completion required to begin zinc production at the Mooresboro facility, while the commissioning process also heads toward completion in all of the critical areas. We've experienced delays during the past several weeks and some damage to piping valves and fittings as a result of severe and prolonged cold weather conditions and due to minor equipment issues, such as locating and repairing sources of leaks in piping and flanges. On the critical path to startup is the commissioning activity in the cellhouse primarily related to automation of the cathode stripping equipment. The lead silver recovery circuit is still expected to start up late in the second quarter of 2014. We've hired and trained approximately 230 employees, all of whom are supporting both commissioning and startup activities.

Lastly, Shell continues its activities associated with reviewing the Monaca site for its proposed petrochemical complex. We entered into an Amended and Restated Option & Purchase Agreement with Shell that included an extension of the auction period and provided for demolition activities to commence at Shell's expense in areas unrelated to current smelter operations. That demolition work has already started and we expect it to continue throughout 2014.

I'll now turn it over to Bob Scherich, to review the financial results. Bob?

Robert D. Scherich

Thanks, Jim. Details of the quarter's performance versus the same quarter last year reflect a decrease in revenue of $2.8 million or 2.6% to $103.6 million. The current quarter included $4.7 million of non-cash hedge charges and the fourth quarter of 2012 included $4.1 million of non- cash hedge charges. The decrease in revenue consisted of $3.7 million related to the zinc business segment as the effective reduced volume of shipments was partially offset by higher price realization. This was partially offset by an increase in revenue of $0.9 million for the nickel business segment. The average sales price realized for zinc products on a zinc-contained basis was $1.08 per pound or $0.21 per pound above the average LME price for the quarter compared to $1.03 per pound or $0.15 above the average LME price for the prior year's quarter. The realized premium to the LME was even with the third quarter of 2013.

Sales of zinc metal decreased $8.3 million or 18.3% to $37.1 million for the quarter, reflecting an $8.9 million decrease in sales volume, partially offset by a $0.6 million increase in price realization, as a 2% decrease in the LME zinc price was partially offset by a higher realized premium. Sales of zinc oxide decreased $2.5 million or 6.4% to $36.3 million for the quarter, reflecting a decrease in sales volume of $4.1 million, partially offset by a $1.6 million increase in price realization. This change was consistent with our strategy coming into the year as we plan for the eventual shutdown of oxide production at Monaca. Sales of zinc and copper-based powders increased $3.5 million to $7.8 million for the quarter, reflecting an increase in sales volume of $3.5 million, primarily reflecting the addition of HZP and an increase in volume of copper powders due to the sale of the remaining inventory to the purchaser.

EAF dust revenue for the quarter increased $0.5 million or 5.2%, to $10.2 million, as increased price realization contributed $0.5 million. Sales from nickel products and services increased $0.9 million or 7.8% for the quarter to $12.4 million, compared to the prior year's quarter as volume of shipments increased 20.6% and the average LME nickel price declined 18%.

Consolidated cost of sales decreased $0.6 million when compared to the prior year's fourth quarter or 0.5% to $112.1 million. The prior-year quarter included $16 million in impairment charges and a reduction in cost of sales of $1.5 million related to insurance recovery. The current quarter included $9.3 million of impairment charges and $10.4 million in severance and other charges associated with the plant shutdown in Monaca.

As Jim mentioned, we had zinc hedges in place for the first quarter of 2014 in the form of fixed-price swaps for 8,000 metric tons per month at an average price of $0.901 per pound and we have 5,000 metric tons per month hedged during the second quarter of 2014 at $0.938. We look to place the additional 3,000 metric tons per month before the end of the first quarter. During the fourth quarter of 2013, our fixed-price hedges resulted in cash settlement of $1.1 million. $18.5 million of cash was provided by operating activities during the quarter, as an increase in inventories of $9.6 million was more than offset by an increase in accounts payable and accrued expenses of $19 million and a decrease in accounts receivable of $8 million.

Capital spending was $78 million for the quarter and $312 million for the 12 months. Cash interest paid was $10.5 million and capitalized interest was $7.9 million during the quarter. Cash on hand at the end of the quarter was $136.3 million and availability on our credit facilities was approximately $8 million. We believe we have sufficient liquidity to meet our capital and operating needs for 2014. Adjusted EBITDA was $11.2 million for the quarter, compared to $10.9 million for the same quarter last year. On an LTM basis, adjusted EBITDA was $33.6 million.

At this time, I'd like to turn things back to Jim for some final comments. Jim?

James M. Hensler

Thanks, Bob. In summary, before we open the call for questions, I'd like to say that we grow more excited and confident by the day about the transition of our zinc metal business to the new Mooresboro facility and the consolidation of zinc oxide production at Zochem. We're also pleased with the more favorable outlook that seems to be developing with LME zinc and nickel prices.

Regarding Mooresboro, we hope to complete the critical path items in March, which could allow zinc production to begin before the end of the first quarter of 2014. We continue to believe that this investment will generate $90 million to $110 million of incremental EBITDA, plus additional cash benefits to reduce hedging costs, maintenance capital spending and cash taxes once fully operational. At Zochem, we expect to be winding down construction activity with the final punch list items expected to be completed before the end of the first quarter. Our primary focus at this stage is to manage the final construction commissioning and startup at Mooresboro and Zochem and the transition to the Monaca smelter shutdown.

Thank you, and we will now open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question is from Daniel Moore of CJS Securities.

Daniel Moore - CJS Securities, Inc.

Bob, just a quick housekeeping. Did you say what cash flow from operations in Q4 was?

Robert D. Scherich

Yes, I did. Don't know the number off the top of my head. It was -- cash from operating activities was $18.5 million.

Daniel Moore - CJS Securities, Inc.

The latest price tag for the Mooresboro facility was in the $450 million range, given the minor final delays and some equipment damage. Do you have kind of an updated final estimate on all-in construction costs?

James M. Hensler

It's up a little bit, not significant, we think from a -- certainly from a liquidity standpoint, not an issue for us. Some of it is subject to what kind of recovery we can get from vendors in some cases there were equipment defects that -- and insulation areas that we expect to recover.

Daniel Moore - CJS Securities, Inc.

Okay. And then the JV with the Imperial, how much incremental zinc oxide do you expect that to generate as feedstock for Mooresboro?

James M. Hensler

Ultimately, the plant will be designed at a capacity of recovering about 25,000 zinc tons per year in oxide form that could be delivered to Mooresboro. Now we don't expect to get there initially, but over a couple year period of time, we expect to be able to deliver that kind of volume. In addition to that, we'll recover metals from those feeds and be able to recover the value from the secondary metallic market.

Daniel Moore - CJS Securities, Inc.

Perfect. One more and I'll jump back in queue. What was the book value of Monaca at 12/31? And do you expect further impairments in severance related charges as we look into Q1?

Robert D. Scherich

No, Dan, we don't expect further impairment. That number is relatively low. I forget the number offhand, but it's low-single digit, in the millions. We have some mobile equipment and assets that we will relocate to other operating facilities, but we don't expect further impairment charges.

Daniel Moore - CJS Securities, Inc.

For several -- or severance either, at this stage, significant at least?

Robert D. Scherich

Excuse me?

Daniel Moore - CJS Securities, Inc.

Or it's other severance related charges and updates, or most of those were in Q4?

Robert D. Scherich

No. We believe we fully accounted for severance and other type charges at this point.

Operator

Our next question is from Ian Zaffino of Oppenheimer.

Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division

I guess maybe we're putting the cart before the horse here, but if you assume you sort of get this March launch of the facility, the cash flow really starts to tumbling in to your coffers. How do you look at this as far as your intentions to delever? And once you've kind of reached your delevering, what's the opportunity to maybe refinance? And then do shareholders see a return on some of this cash flow or is that could be used for growth? Just walk us through that a little bit.

Robert D. Scherich

First on the cash flow side, Ian, I think, we – our look is that we will probably not generate positive cash flow or incremental balance of this year as we complete the project and pay down payables, we've got a couple discretionary CapEx projects underway. So it's really probably next year as we go into '15 that we are starting to accumulate more liquidity and we can look at refinancing at that point, but I don't think it's a 2014-type event. We'll continue to have the revolvers in place. I think we probably need to get out to '15 or '16 before we look at things first on the refinancing side.

Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division

Okay. And then as far as the ramp of the new facility, I know you talked about sort of the 60% to 70% of the $90 million to $110 million of incremental EBITDA, getting that initially. Is that something that you could probably achieve sort of in April? Or is there anything that needs to happen before that or is it sort of as you turn it on, you're saving on labor, you're saving on the raw materials, et cetera?

James M. Hensler

Well, first, if we can get initial production by the end of March, which we hope that's the case on paper, saying that, but that assumes that we don't uncover any other issues during commissioning, which at this point we don't expect, but you can never -- expect the unexpected. But we would end up -- we would still be operating Monaca for a short period of time after that. So we'll be overlapping these operations until we're sure that we've got ramp up underway at Mooresboro. We've said that we think it's about a 6-month ramp-up process on Mooresboro once we start, first thing. So the benefits that we will get will essentially be proportional to that ramp up. And initially, we would expect the costs at Mooresboro on a per-unit zinc basis to be higher because the volume will be lower. But as we ramp up, we should start to realize most of the benefits by the end of that 6-month period. And the lead-silver recovery circuit, we don't expect that to start up until the end of the second quarter and there'll be about a 12-month ramp-up for that. So we won't fully realize that piece until sometime in mid-2014.

Operator

Our next question is from Carter Driscoll of Ascendiant.

Carter W. Driscoll - Ascendiant Capital Markets LLC, Research Division

A question on the Shell option. Obviously, it's been amended several times. Just wanted to dig a little deeper, obviously, you just talked about continuing to operate Monaca as you ramp up Mooresboro. The amended agreement was demolition, I realize it was added, was that part of the termination fee or the fee they would pay you to exercise the option? Has that option price been adjusted? If I recall correctly, I think it was a low double-digit millions by the end of April. Has there been any change to that price point now that it looks more certain that they've begun demolition, that they might exercise that option?

Robert D. Scherich

Well, the exact terms of the agreement are confidential, but there really hasn't been any change, per se, in the economics of the purchase of the land that they ultimately end up exercising the option. The demolition is really more of a pass through. So whatever cost we incur would end up being paid by Shell.

Carter W. Driscoll - Ascendiant Capital Markets LLC, Research Division

All right. And then I know you had in your prepared remarks, you talked about some of the cold weather issues that you don't think will repeat once you begin the cellhouse portion of the commissioning. Can you talk about what you've learned so far and why you expect that not to be an issue as you begin to ramp, once we hit potential cold weather 12 months from now or 10 months from now?

James M. Hensler

Yes. Well, during this phase of commissioning, we are circulating water through pipes that are -- ultimately ended up having acidified solution going through them. And those solutions have a lower melting point and there'll be some residual heat in the system that will essentially prevent that freezing from occurring. Now, things like the potable water lines, which will still have water in them, we've learned that those areas where we need to make sure we've got proper insulation and heat tracing to prevent them from freezing. But the main process equipment and piping that we'll be using or processing in moving either acid or loaded electrolyte, will actually be operating at a temperature that's around 90 to 100 degrees Fahrenheit. So we wouldn't expect that to be susceptible to freezing.

Carter W. Driscoll - Ascendiant Capital Markets LLC, Research Division

Okay. And then switching gears a little bit. INMETCO looks like it's back on track after kind of a difficult 2013. First question is, can you talk about where you expect, as a percent of, let's say, x number of million they generate, what percentage of tolling receipts are going to be kind of on a steady run rate in 2014?

James M. Hensler

I think we're going to be about 60-40, 60% tolling, 40% sale of excess material.

Carter W. Driscoll - Ascendiant Capital Markets LLC, Research Division

Okay. And where do you stand on the increased power to the furnace, has that been completed? Is there a target date for that to occur?

James M. Hensler

We're ramping that up and we have capacity within our existing transformer and we've been taking it one step at a time because we want to evaluate what the impact of higher power input has on refractory life. So we've been taking it gradually. We've also been evaluating, at the same time, whether we want to purchase a larger transformer to allow us even further power input, which probably would also require making some modifications to the furnace, putting water pool panels in and that sort of thing. And we'll make that decision here as we get closer into the middle of the year. So far, we've been encouraged with what we're seeing. The increased power has actually delivered more output and we are continuing to make progress in that direction.

Carter W. Driscoll - Ascendiant Capital Markets LLC, Research Division

And then lastly, before I jump back in queue. On Zochem, obviously, it sounds like volume has been stronger than expected. But I might ask again what the price increase, I know one was instituted in early 2013. Was there a second price increase, just refresh my memory? And then maybe your thoughts on whether you feel the capacity of pulling out by not producing in Monaca and what you're doing at Zochem is sufficient or whether there would be expansion opportunities if you think the price increases could hold. Could there be an ability to go above what the delivered capacity is supposed to reach?

James M. Hensler

Yes. We did announce another price increase in July of last year. And so sort of combined effect of the first one and the second one that we're sort of realizing that here as we go into 2014. We've taken about 25,000 tons of capacity out of the market, net-net, when you look at the reduction that we took in Monaca and what we're adding back in, in Zochem, which in our opinion, when we look at what other producers are doing in the marketplace is put the market in balance. And there are some announced increases in tire production that are expected in the North American market, which could increase zinc oxide demand down the road. And depending upon whether those increases actually materialize, there may be an opportunity for further growth at Zochem and I think it also depends upon what happens with other competitors in the market.

Operator

Our next question is from Paul Forward of Stifel.

Paul S. Forward - Stifel, Nicolaus & Company, Incorporated, Research Division

I wanted to ask about the waelz oxide that's going to third parties. Can you give us a sense of like what percentage of the waelz oxide output maybe did in the fourth quarter and might for the next couple of quarters go to -- go over to third parties, rather than internally process?

James M. Hensler

Yes. I mean, we're generating about 15,000 to 17,000 tons -- let me just look at my numbers right here, hang on a second before I quote a wrong number. Yes, so in the fourth quarter, we sold about 10% of the zinc contained in waelz oxide we produce. So we expect that actually to increase a bit in the first quarter of 2014 because we're going to be operating 5 furnaces instead of 6 in Monaca. So that incremental zinc consumption we'll end up by actually selling as waelz oxide.

Paul S. Forward - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. And well, I guess, going back to the question on the ramp of zinc production at Mooresboro. You've talked about the 6-month ramp between first zinc production, which we hope is right at the end of March, which would imply end of the third quarter, when you're at the full kind of 155,000 ton per year rate. I just wanted to ask about the – kind of what's the slope of that curve? I think you've kind of said in the past that it should be a pretty quick ramp up and that maybe within 3 months of that, you'd be at 75% of capacity or so and then full capacity another 3 months later. Is that still the right way of looking at the ramp? Or are there a lot of kind of unforeseeable variables that might keep us from having that level of visibility?

James M. Hensler

Yes. I mean, to be honest, the answer is we really don't know. I mean, what we model is pretty much a straight line. But when we look at the experience that others have had, they've been able to get up to say, an 80% level fairly quickly within 2 to 3 months. So as long as our experience is similar to theirs, then that's what we would see. But it really depends upon the extent to which we experience the unexpected during that ramp-up period. That's in part why we're going through this commissioning process in a fairly deliberate way to try to avoid as many of those pitfalls that happen once we actually start to put power to the system and begin producing zinc. But we can't say with certainty what our ramp up is going to be.

Paul S. Forward - Stifel, Nicolaus & Company, Incorporated, Research Division

Sure. And well, just lastly, on the lead and silver recovery circuit, you've kind of reiterated that the time table for starting that at the end of the second quarter and then ramping that up over the next year. Can you remind us again, approximately how much lead and silver you'd expect to recover once you're at full mid-2015 production at that facility?

James M. Hensler

Yes. I think the numbers -- I don't have them in front of me, but I think the numbers are on the order of somewhere in the 10,000 to 15,000 tons of contained lead, somewhere in the midpoint of that range, and the silver content was on the order of 30 to 40 ounces per ton. And it goes…

Robert D. Scherich

Per ton of concentrate.

James M. Hensler

Per ton of concentrate. So I think in the concentrate, it's going to be about a 70% lead concentrate.

Robert D. Scherich

If you look back to the Analyst Day presentation in May, Paul, I think we had a slide in there that gave those quantities. Again, we don't have them in front of us with here today.

Operator

Our next question is from Mitesh Thakkar of FBR Capital Markets.

Mitesh Thakkar - FBR Capital Markets & Co., Research Division

Just kind of -- I know you answered a little bit of this question, bits and pieces prior to -- in your prepared remarks. Can you just summarize how much to go CapEx we have pending? And how should we think about cash flow in the first half, if there are any other items, which we need to take into account?

James M. Hensler

Well, most of our capital spending in the first half of the year is going to be directed at finishing the Mooresboro project. Overall, we've put a budget together for this year at close to $85 million. Now some of that is completion of Zochem expansion here during the current quarter, that might be $5 million to $6 million. The INMETCO increased production is more second half of the year spend. We've got that as high as $12 million. So there's some timing discretion around that. And the maintenance CapEx and ThirtyOx requirements, we think, were around $12 million this year. So the Mooresboro side, we think is about $55 million. A lot of that is related to the co-product recovery. It's really commissioning activities now, building out the co-product recovery. So that spend will continue all the way through second quarter and even wind down of accounts payable in third quarter. So as we model that out, we think we maintain adequate liquidity right through the quarters as we go. And we have some discretion on timing on some of the spend.

Mitesh Thakkar - FBR Capital Markets & Co., Research Division

Yes. And then just on the INMETCO side, so we won't see any benefit of the expansion from INMETCO this year. It is more of a 2015 kind of a story, right?

Robert D. Scherich

Yes. That's the case, more 2015. And also it depends upon the progress we can make with the existing equipment.

Mitesh Thakkar - FBR Capital Markets & Co., Research Division

Okay. And you mentioned that -- switching back to zinc, you mentioned that the waelz oxide and calcine was 10% in the fourth quarter, but you expect it to be higher in the first quarter here. Is that a function of overall volumes coming down as you wind down Monaca or is that just a function of higher availability of waelz oxide and maybe the volume just remains flat?

James M. Hensler

Well, the waelz oxide production is going to be roughly the same. It's really a matter of that when we switch from running 6 furnaces in Monaca to 5 furnaces, we just won't consume as much and we'll have more excess available to sell.

James M. Hensler

And we basically don't have purchase feeds operating at that level. Overall, output levels will be down on the Monaca side without purchase feed.

Robert D. Scherich

Yes. Nearly 100% of our feed now to Monaca is either waelz oxide or calcine generated by our facilities.

James M. Hensler

Now in the meantime, we expect them, Zochem, to be operating at -- and really shipping close to the full capacity of 70,000 tons per annum rate. But theirs is based on purchasing metal as their feedstock.

Mitesh Thakkar - FBR Capital Markets & Co., Research Division

And the 70,000 rate of Zochem starts in second quarter, or we are already ramping up to it?

James M. Hensler

From a shipment standpoint, they started out that way at the beginning of the year.

Robert D. Scherich

We're bleeding down inventory we have from Monaca, but from a production standpoint, probably starting in April.

James M. Hensler

Yes. So they'll get some benefit with the incremental, lower incremental cost, the unit cost, as they increase production.

Operator

Our next question is from Thomas Van Buskirk of Sidoti & Company.

Tom Van Buskirk - Sidoti & Company, LLC

Couple of things. Just to follow up on the CapEx question. It sounds like you're implying that a maintenance kind of CapEx number going forward would be like $10 million, $12 million, if you take out everything else and I guess ThirtyOx would be done by, say, 2015. So something shy of the $12 million that you talked about for this year?

Robert D. Scherich

Yes. I think we've got a couple million included for ThirtyOx. So it's about $10 million this year is our plan on maintenance CapEx.

Tom Van Buskirk - Sidoti & Company, LLC

Okay. And then the other question is I see that you put some hedges on for the first half of this year. And I guess the supply/demand outlook for zinc and hopefully the pricing outlook is starting to improve a little bit. How are you thinking and how should we think about hedging plans going forward? What do you think? Is this something we're likely to see in future quarters?

Robert D. Scherich

Well, our feeling is, at least while we're still in this construction phase at Mooresboro, we wanted to have some protection, downside protection. And rather than spend money on put options, we thought we would lock in the forward again in the second quarter. We don't really think that's our long-term strategy. We think that once we get past this construction period, we may invest in out-of-the-money puts to provide kind of real downside protection. But we really expect to scale back hedging to a great extent once Mooresboro is up and running. We do think that from an outlook standpoint, things are looking better for zinc. We've seen that -- analysts talking about this for several years, but now we're actually beginning to see some tangible effects of mine closures and the switch from being a surplus market into a deficit market and that does seem to be having some effect on pricing. And looking at the reports that came out of the International Zinc Association meeting a week ago, most of the analysts are on the same page in terms of the near-term outlook and medium-term outlook for the zinc looking better. And by the way, we see the same thing on nickel, too. And what's happening in Indonesia, I think, there's a growing belief that nickel prices are going to increase as well.

Tom Van Buskirk - Sidoti & Company, LLC

Okay. Yes. And then just one other quick thing. In Mooresboro, as that facility ramps up, is there any kind of -- as part of the cost there, is there any kind of technology royalty or anything like that, that we need to think of as part of the overhead for that facility?

James M. Hensler

There's a licensing fee and that licensing fee will kick in, in 2015. We've paid some of it upfront, but there'll be licensing fee that we have the option to pay as a lump sum. But the way it's currently structured, it would be paid out over a multi-year period of time. And it's probably on the order of $1 million, $1.5 million a year for 7 or 8 years.

Operator

Our next question is from Daniel Moore of CJS Securities.

Daniel Moore - CJS Securities, Inc.

My follow-ups have been covered.

Operator

Okay. And the next question is from Edward Okine of Basso Capital.

Edward Okine - Basso Capital Management, L.P.

Actually, my questions have been answered also.

Operator

[Operator Instructions] And we have no further questions at this time.

James M. Hensler

Okay. Thanks, everybody, and we'll talk to you again at the end of the next quarter. Take care.

Operator

Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Horsehead Holding Management Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts