Horsehead Holding's (ZINC) CEO James Hensler on Q1 2014 Results - Earnings Call Transcript

May.12.14 | About: Horsehead Holding (ZINCQ)

Horsehead Holding (ZINC) Q1 2014 Earnings Call May 12, 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

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

Daniel Moore - CJS Securities, Inc.

Kirk Ludtke - CRT Capital Group LLC, 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

Edward Okine - Basso Capital Management, L.P.

Operator

Welcome to the Horsehead Holding Corp. First Quarter 2014 Conference Call. My name is Janet, 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 Whitaker. Gary, you may begin.

Gary R. Whitaker

Good morning, everyone, and thank you for joining us on our first quarter 2014 earnings release conference call. My name is Gary Whitaker, and I am 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 13, 2014, and the quarterly report on Form 10-Q filed on May 12, 2014, for a more detailed description of the risk factors that may affect our results.

With that, I am 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 for the first quarter of 2014. I will review the performance of our operations and markets, while Bob Scherich, our CFO, will review the financial results.

Consolidated net income for the quarter was $700,000 or $0.01 per share. This compares to a consolidated net income of $2.8 million or $0.06 per share for the first quarter of 2013. The result for the quarter, adjusted to exclude favorable noncash adjustments associated with hedges, was a loss of $1.3 million or a $0.02 loss per share compared to consolidated net income on the same basis of $2.3 million for the first quarter of 2013 or $0.05 per share. The LME zinc price was approximately the same in the quarter -- in the current quarter versus the same quarter in 2013, while the nickel price was roughly 15% lower in the current quarter. Severe weather adversely affected the logistics of zinc product shipments and EAF dust deliveries, productivity at the Monaca smelter and energy costs at all of our facilities, which impacted our financial results during the quarter.

Transition activities continued during the first quarter, with several critical milestones having been achieved. We are very excited that zinc production at Mooresboro is imminent. We have completed all of the preproduction checks and operated nearly all of the key unit operations in an actual production mode, including waelz oxide unloading and washing, leaching, solvent extraction, effluent treatment and the melting and casting facilities. The cell house is fully commissioned and is awaiting the production of sufficient on-specification electrolyte to begin zinc production.

We permanently shut down the zinc operations at Monaca at the end of April 2014, reflecting our state of readiness in Mooresboro and that the continued sale of zinc calcine and waelz oxide from our recycling operations will generate higher margins than the continued operation of the Monaca smelter.

Zochem had a strong quarter, with shipments increasing 82% compared to the first quarter of 2013. This reflects the full integration of our zinc oxide business into a single location. The new seventh furnace was started by the end of the quarter, thereby allowing all zinc oxide production to be shifted to Brampton.

I would now like to discuss our operating results in more detail. Horsehead Corporation processed a little over 132,000 tons of EAF dust during the quarter. EAF dust receipts decreased about 11% to approximately 140,000 tons from the prior year's first quarter. Steel industry output remained steady entering the quarter, however, the movement and unloading of railcars and trucks was hampered by severe weather conditions, causing a backlog which reduced dust receipts. We kept one kiln idled at our Rockwood, Tennessee facility through the end of the first quarter of 2014 and now have idled both kilns. We expect to restart one of these kilns within a couple of weeks.

Zinc product shipments decreased 4,384 tons or 10% to 38,542 tons compared with the prior year's first quarter and were down 3.6% compared with the fourth quarter of 2013. This was indicative of shutting down the zinc oxide refinery at Monaca and declining smelter productivity. We also sold 5,791 tons of zinc contained in waelz oxide and zinc calcine during the current quarter, which are not included in the zinc product shipments noted earlier. As a result of declining production of the smelter, we increased the sale of waelz oxide and zinc calcine to third parties during the quarter. In total, 22% of the zinc units from our EAF dust recycling operations were sold to third parties.

In addition, we have entered into agreements to sell additional waelz oxide and zinc calcine as needed during the transition period, while Mooresboro is ramping up.

Total Zinc metal shipments increased by 8.5% when compared with the first quarter of 2013 and increased almost 1% compared with the fourth quarter of 2013, as we began to sell the PW metal inventory at the Monaca facility.

Total zinc oxide shipments decreased 20.8% compared with the first quarter of 2013, while Zochem shipments increased by 82% compared to the same period. We continue to expect to retain about 70,000 tons of zinc oxide business in 2014 now that we have consolidated all of the production of zinc oxide at Zochem and closed the Monaca refinery.

Our results, compared against the prior year's first quarter, reflect the unfavorable effect of a 10% reduction in zinc product shipments, a 28% reduction of smelter production and a $2.6 million or $0.03 per share increase in energy prices, which temporarily spiked due to the severe cold weather. These results were affected by the severe weather conditions and the wind-down of operations at Monaca, culminating in the permanent shutdown of the Monaca operations at the end of April. In total, including those terminated at the end of 2013, with the closure of the zinc oxide refinery, 510 salaried and hourly positions will have been eliminated in Monaca. Of this number, only about 40 positions remain on the site today to assist with pre-demolition closure of the facility and final product shipments.

Moving on to discuss the zinc pricing environment. The LME zinc price averaged $0.92 per pound during the first quarters of 2014 and 2013 and about $0.056 higher than the fourth quarter of 2013. We had hedging in place for the zinc prices with a fixed price of approximately $0.90 per pound through the first quarter of 2014, and we entered into fixed forward swaps at a price of about $0.94 for the second quarter of 2014 for most of our expected shipments.

The realized premiums on zinc metal averaged $0.062 during the first quarter, which was up $0.012 from the first quarter of last year, reflecting an increase in metal premiums. Realized premiums for zinc oxide in the quarter were $0.092 per pound, which is a decrease of $0.029 compared with the prior year's first quarter and a decrease of just under $0.01 compared to the fourth quarter of 2013. The decrease, compared with the prior periods, is primarily due to the lag effect in pricing of zinc oxide, reflecting the increase in LME zinc prices during the first quarter of 2014.

Zochem's earnings before taxes for the quarter were $3.5 million, which increased by 69% compared with the prior year's first quarter due primarily to higher product margins and increased volume. Shipments increased by 82% compared with the prior year's first quarter. We operated 6 of 7 muffle furnaces for most of the first quarter, with the new seventh furnace having started up at the end of March. Our zinc oxide business now is fully consolidated and operating out of Zochem in Brampton, Ontario. Construction activity related to the expansion project at Zochem is essentially complete, with only a few minor punch list items remaining. We expect to install additional baghouse capacity on some of the furnaces later this year to gain extra production capacity if market conditions warrant the investment.

INMETCO had a strong operating quarter, with tolling receipts 13% higher and remelt alloy production up 10% compared with the prior year's first quarter. Earnings before taxes were $1.7 million for the quarter, which is lower than the prior year's first quarter of $4.1 million. The prior year had a favorable onetime settlement on hedges of $0.8 million related to the MF Global claim and a favorable mark-to-market adjustment on hedges of $0.4 million, while the current quarter was adversely affected by 15% lower nickel price -- prices and an unfavorable mark-to-market adjustment on hedges of $0.8 million. We have been successful at INMETCO in increasing the production rate on our submerged arc furnace to keep pace with increasing tolling orders from customers. We are evaluating modest capital investments to get further increases in capacity later this year.

Lastly, Shell continues its activities associated with reviewing the Monaca site for its proposed petrochemical complex. Demolition work continued at the site in accordance with our agreement with Shell.

I will now turn it over to Bob Scherich to review the financial results. Bob?

Robert D. Scherich

Thanks, Jim. Detail of the quarter's performance versus the same quarter last year reflects a decrease in revenue of $10.2 million or 9% to $107 million when excluding $3.1 million related to noncash hedge benefits in the current quarter and $1 million of benefit in the prior year quarter. The decrease in revenue consisted of $9 million related to the combination of Horsehead and Zochem, as the effective reduced volume of shipments of zinc oxide and powders was partially offset by increased volumes of shipments of metal, calcine and waelz oxide. Higher prices were realized for metal and EAF dust services, while zinc oxide realized prices were slightly lower.

INMETCO sales, excluding noncash and onetime hedge effects, decreased approximately $400,000 as lower nickel prices were substantially offset by higher volume. The average sales price realized for zinc products on a zinc-contained basis was $1.12 per pound or $0.20 per pound above the average LME price for the quarter compared to $1.16 per pound or $0.24 above the average LME price for the prior year's quarter, reflecting the higher proportion of metal shipments and the lag effect for oxide in realizing the change in LME price.

Sales of zinc metal increased $3.5 million or 9.9% to $38.9 million for the quarter, reflecting a $3.1 million increase in sales volume and a $0.4 million increase in price realization. Sales of zinc oxide decreased $10.7 million to $35.8 million for the quarter, reflecting the shutdown of oxide production at Monaca. Sales of zinc and copper-based powders decreased $6.3 million, reflecting primarily the sale of our copper powders business late last year and reduced production at Monaca.

EAF dust revenue for the quarter decreased $1 million or 9% to $9.9 million as reduced volume was partially offset by increased price realization.

INMETCO sales, excluding noncash hedge effects, decreased $1.2 million or 8.3% for the quarter to $13.2 million compared to the prior year's quarter that included a onetime hedge settlement of $0.8 million. The remaining reduction was primarily the result of the lower average LME nickel price, partially offset by higher volume of shipments.

Consolidated cost of sales of $100 million were unchanged from the prior year, as the effect of reduced shipments of zinc oxide and powders was offset by increased shipments of zinc metal, waelz oxide and zinc calcine, higher energy prices and higher conversion cost per ton, as fixed costs at Monaca and our EAF dust recycling facilities were absorbed by lower operating volumes during the quarter.

Consolidated depreciation decreased $2.2 million or 31% to $4.9 million for the quarter, reflecting the reduced value of our Monaca facility.

We had zinc hedges in place for the first quarter in the form of fixed-price swaps for 8,000 metric tons per month at an average price of $0.902 per pound, and we have 8,000 metric tons per month hedged during the second quarter of 2014 at $0.94.

$22 million of cash was used by operating activities during the quarter, reflecting an increase in accounts receivable of $9.8 million, a decrease in accounts payable and accrued expenses of $4 million and higher levels of capitalized interest.

Capital spending was $48 million during the quarter, as the new zinc plant cumulative capital spending for construction recorded through March 31 grew to $504 million. Our current estimate of the projected net cost of construction is $525 million compared to $490 million as last reported, reflecting the effect of the extended commissioning process, vendor performance and final scope changes.

Cash interest paid was $2.4 million, and capitalized interest was $7.9 million during the quarter. Cash on hand at the end of the quarter was $65.5 million, and availability on our credit facilities was approximately $8.6 million. We added an additional $6.5 million of liquidity at the end of April.

We believe we have sufficient liquidity to meet our capital and operating needs for the ramp-up of the Mooresboro facility.

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 are very excited about zinc production being just around the corner at Mooresboro. We have progressed through all of the required stages of commissioning, which enabled us to identify and correct equipment and installation issues. While this cost us some delay, we have reached the final stage of commissioning of the zinc plant and expect to start zinc production shortly. We have not adjusted our ramp-up estimate of 6 months from first zinc to full production, however, we believe that the additional time we have taken to correct issues identified during commissioning should provide for a smoother and faster ramp-up once the zinc production begins. We continue to believe the lead silver recovery circuit will be completed late in the second quarter of 2014 and that the new facility will deliver $90 million to $110 million of incremental annual adjusted EBITDA once fully operational, along with other potential benefits such as reduced cost of hedging, maintenance CapEx and cash taxes.

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

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Ian Zaffino of Oppenheimer.

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

I just wanted to drill down on some of your languages as far as the word imminent. What are we exactly -- I guess you mentioned the electrolytes. Where are they -- how long is it going to take? Is that sort of the final step that you need to start production? Just kind of give us a little bit more of a sense of what imminent means.

James M. Hensler

Yes, I mean, the way this process moves forward is that we have to dump this, what's called, loaded electrolyte, so the zinc, very clean -- the zinc sulfate solution, into the cell house and then we turn the power on, play out the zinc and now we started zinc production. And we are at the stage right now of building enough volume of this electrolyte to do that. And absent any other unexpected issues that might come up, we could be in a position to produce enough electrolyte to fill the cell house sometime in the next 48 to 72 hours and start production this week. And that's our expectation at this point. But of course, if something comes up, it might delay that. But when we say imminent, we mean it's right around the corner here.

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

That's great news. And then once the production starts, are you going to run test batches to make sure that the [indiscernible] are correct? Or has that already been done throughout the commissioning?

James M. Hensler

Yes, well, we've been checking the electrolyte solution to make sure that it's within specification. And so our view is that as long as that is within certain tolerance, it will be good for producing zinc. And we do believe the initial metal that will get produced will probably not meet the special high-grade specification, which is sort of the typical case whenever you're starting up a cell house. There are some impurities you can pick up from the cell house itself, but we believe that it will meet high-grade specifications and certainly be a salable product. It will take a week or 2 of production to kind of get everything stabilized once we start up, but we would expect to be there fairly quickly.

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

And when you say high grade, that means Prime Western?

James M. Hensler

No, no. It's higher purity than Prime Western.

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

Okay. But not as good as SHG?

James M. Hensler

No. In terms of the commercial price of it, it's within $0.01 or $0.02 of what special high grade would sell for.

Operator

And our next question comes from Daniel Moore of CJS Securities.

Daniel Moore - CJS Securities, Inc.

I don't necessarily want to spend too much time with rearview mirror, but maybe help us with -- just the equipment installation issues, maybe bucket if possible some of the incremental expense versus your last estimate of cost. And then I have a quick follow-up.

James M. Hensler

Yes. First of all, I guess, in our last communication, we thought we would be up and running around the end of March. And we did experience some unexpected equipment issues when we started to move into operating and production mode. I think it's important, first of all, to keep in mind that this is a very large facility with hundreds of pieces of equipment, miles of piping and wiring, covering about 70 acres of property. So it's a fairly complex facility. But the main setback we -- we're faced with, is that leaks developed in 3 of the 5 large electrolyte storage tanks. We -- in one of these tanks had developed a very significant leak. So we were at the point in mid-April to begin to be where we are right now. A few days away from dumping electrolyte into the cell house and then this leak developed. And it set us back nearly 4 weeks because we had to drain and neutralize a large quantity of acidified solution. We had to go in and locate the source of the leak, make the repair and then start the electrolyte production all over again. So that set us back. We also experienced some malfunction in other areas as we started operating in production mode with equipment such as filter presses and clarifiers and with the steam condensate system. These repairs have been completed. And these issues, really, didn't surface until we started operating more or less in a production mode where we're dealing with high levels of solids handling and using real process solutions. So it's very common to experience these types of issues during start-up, but it's sort of impossible to predict what equipment issues will actually occur and how long it will take to resolve them. So I think those are hopefully behind us, and we identified the source of the leak in the tank. It turned out to be an error in the coating installation around a nozzle, which allowed acid to get through the coating and in contact with the carbon steel shell and eventually corroded all through the shell. And that happened despite the fact we had a third party come in and test the integrity of the coating before we filled it up. But with such a small area, they didn't -- just didn't catch it. And the problem was in the same location in all 3 tanks that developed a leak. So those things tend to happen. As I mentioned in my comments in the script, we haven't adjusted our ramp-up estimate of 6 months from first zinc to full production. But I believe, getting some of these issues behind us and doing some redesigns to address operating reliability should help us once we do get started. On your question on the cost increases, there are really 3 factors there. First, the last estimate we had was back in September of 2013, and at that time, we assumed we would be started up by the end of 2013. The longer commissioning process has required some contractors to be on-site for longer periods, and that caused some cost increase. Second is, some of the equipment installation issues I discussed added costs for redesign and repair. Some of that should be recoverable, but some of it, we're going to end up absorbing. And finally, we now have good visibility over the final scope of the project. There were some things missing in the September estimate such as additional spares that we bought now, that we've been operating the equipment and we see some areas we would like to have some spare equipment then. And we've also modified or tweaked the design of some circuits for better operability, which added some cost.

Daniel Moore - CJS Securities, Inc.

Very helpful. And then in terms of lead and silver reclamation, the window seems a lot shorter now, maybe 4 to 6 weeks, you're still comfortable with the end of Q2. Just help me understand how that's going to stay on timetable.

James M. Hensler

Yes, the construction in that section of the plant has been moving right along. Mechanically and electrically, it looks like it's on track. And so we believe that, that schedule still looks pretty good. And, of course, our primary focus right now is on the zinc part of the plant. And assuming we get started up on the zinc side and our resources can get focused on the ramp-up of the lead and silver circuit, we'd expect to start producing concentrate early third quarter.

Daniel Moore - CJS Securities, Inc.

Very good. And lastly, I know you don't like to give a lot of quarterly guidance, but maybe just help us think through -- Monaca is now shut down, but the ramp in North Carolina a little later. What does Q2 look like on an EBITDA perspective, from an EBITDA and cash flow from operations perspective relative to Q1?

Robert D. Scherich

I guess, Dan, one way to look at it is how it transitions from first quarter to second quarter in different parts of the business. With Monaca shut down, we are still going to be processing most likely higher levels of the EAF dust with the winter conditions behind us. And we believe we'll be pushing those zinc units out to market as calcine or waelz and until Mooresboro can fully consume them. So we have an inventory position that's on hand when we shut Monaca down at the end of April, so we probably won't see a dramatic change in the shipment level, for instance, of metal for the first couple of months of the quarter and then the third month is going to be dependent on the ramp-up of Mooresboro. So zinc prices are locked in at $0.94, so not a whole lot changes, I would say, unless we have some extra costs coming out of Mooresboro. But as we said, we had higher costs in the first quarter because of the winter conditions and energy costs. So on the Horsehead operating side, I'd say, probably not much change other than the opportunity to maybe get ramped up a little bit quicker. INMETCO, we expect them to operate steady. Their maintenance outage wouldn't be until probably fourth quarter at earliest. And actually, we expect Zochem to continue to improve performance. They were shipping at kind of at a full production or a full annualized rate in the first quarter, nearly, but now, they're going to be operating in the second quarter at full capacity with the seventh furnace in operation. So we expect their unit cost of production to go down and get better performance out of what was already good performance in the first quarter. So not a whole lot different, but I think most likely, we would expect it to be slightly better when you put it all together in the second quarter.

Operator

And our next question comes from Kirk Ludtke of CRT Capital Group.

Kirk Ludtke - CRT Capital Group LLC, Research Division

I just -- a couple of follow-ups on earlier questions. I think you touched on both of these, but with respect to timing, with Monaca down, how much time do you have to ramp Mooresboro up?

James M. Hensler

Well, because we have developed an outlet for calcine and waelz oxide, and because we can actually make more money by selling that than by running Monaca, we're not really under a timing crunch for the ramp-up of Mooresboro. We can generate adequate cash flow from operations from the sale of those products. And so we don't really feel at this point that there's timing pressure. Obviously, we want to get it up and running as quickly as possible for the obvious benefits that it will generate. But the shutdown timing of Monaca isn't really a factor at this point.

Kirk Ludtke - CRT Capital Group LLC, Research Division

Okay, that's helpful. And then with respect to the overrun, can you recover some of that money from any of your suppliers or the construction companies and...

James M. Hensler

Yes, I mean, we fully expect that we will, and we've already started on that process. In fact, we have filed a lawsuit, and we are contemplating some others. And I think in the overall scheme of things, the levels of deficiency are fairly small percentage of the total cost. But we feel we're entitled to some recovery in areas where there was some negligence or poor performance on the part of the vendor, and we're going to go after it.

Kirk Ludtke - CRT Capital Group LLC, Research Division

Okay. I appreciate that. And so $525 million is a gross number. It's not net of any recoveries?

Robert D. Scherich

I think I said that was an estimated net number. So we're looking at a little over $20 million more from what we've already recorded through 12/31, net of any estimated recoveries.

Kirk Ludtke - CRT Capital Group LLC, Research Division

I'm sorry. So the $525 million on a gross basis is $545 million?

Robert D. Scherich

No. We didn't disclose what level we expect to recover. But the $525 million is a net number. That's our best estimate of the net cost of construction.

Kirk Ludtke - CRT Capital Group LLC, Research Division

Okay. And then with respect to liquidity, $65.5 million of cash at March 31, and I'm assuming that we can just add -- to come up with a pro forma liquidity number, I'm assuming we can just add up all 3 of the availability numbers you provide including Zochem?

Robert D. Scherich

Yes, that's right, which add up to, including what we added at the end of April, to about $80 million of combined cash and revolver availability. And as I've said earlier, we continue to have inventory to sell out of Monaca after the shutdown.

Kirk Ludtke - CRT Capital Group LLC, Research Division

Okay, great. And then lastly, how do you expect liquidity to progress here? Do you think second quarter is the trough liquidity-wise and then it starts to rebound or...

Robert D. Scherich

From a spend standpoint, I think that is probably the case, although the further we get up and moving up the ramp-up curve, we'll then start to need to build some working capital. So I think that probably carries into the beginning of third quarter also or could carry through the third quarter. So our focus is simply on managing working capital at all aspects of it here over the next couple of quarters.

Operator

And our next question comes from Carter Driscoll of Ascendiant Capital.

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

Question about -- just kind of maybe asking the transition question a little differently. So obviously, you've shuttered Monaca completely, and you have waelz and calcine. If you ran that right to the ground and make anything else as of, let's say, yesterday, how much time would you have before you have to produce at Mooresboro without a disruption? Is it 3 months, 5 months, 6 weeks?

Robert D. Scherich

I think if it's a disruption to supplying our customers, it probably goes late this quarter, the metal customers themselves. Doesn't affect our ability to continue to produce oxide at Zochem and service that market. So we've -- as I've indicated, we've built some inventory. That will be going to market here in May, and some of it could even carry into June. So that's a point in time we expect and, certainly, look for Zochem to tick -- not Zochem, but the Mooresboro facility to start to pick up supply. But I think we'd say, wouldn't we Jim, that we believe the market is pretty strong for the waelz oxide and calcine. We can continue to sell to that market if we needed to.

James M. Hensler

Yes, that's the case. We think there's an outlet for that material and so -- and we think that, that will generate positive cash flow from operations on a stand-alone basis independent of what happened to Mooresboro.

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

Right, right, understood. You talk about the demand from your customers to a higher grade, the metal. It sounds like they're pretty excited to have another source. Could you add some...

James M. Hensler

Yes. We get calls almost every day, and many of the customers are waiting for the ability to tap into a domestic source of SHG production and, certainly, we've got relationships with many steel mills that operate galvanizing lines that would like to be sourced from this facility. So they're all waiting. In some cases, they've reserved some of their purchase for the second half of the year, anticipating that we'll be available to supply them. And frankly, we also get lots of calls from trading companies that would be more than happy to take all of our zinc production and sell it for us. So moving it is not really going to be an issue. I think there's a lot of demand for the product.

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

Okay. And in terms of staffing, have you come up with a final number? Or are there still people left to hire at Mooresboro?

James M. Hensler

I think we've got the basic organization in place. We -- as we announced ThirtyOx, which is the joint venture with Imperial that will be processing secondary materials to recover oxide and metals, that will be staffed by Horsehead employees. And so the combined entity is going to be somewhere in the 250 range, which is the number we have been indicating as our target number of employees. And you get sort of natural attrition, and so we're always sort of filling 1 or 2 positions that are available. But we're probably going to be right around the 250 number.

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

Okay. A couple others, if I may. Obviously, weather is very disruptive in terms of logistics for EAF dust. Has that essentially been resolved and you're back on your normal trajectory?

James M. Hensler

Yes. I mean, there were some real issues, not only with rail movement, but also, particularly in our plants in the northern climates, just freezing up of facilities where we couldn't operate for several days, and so that caused a backlog. And by the end of the quarter, that has sort of worked its way through, and we're more or less kind of back to normal.

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

Okay. And then maybe just a couple of housekeeping items. Bob, obviously, you mentioned, potentially, more expansion of the EBITDA [ph] line for Zochem. I'm assuming that it's not dramatic, but maybe incrementally, you could pull a little bit more out. Is that fair to say that it's reasonably close to its normalized or peak margin?

Robert D. Scherich

Yes. I think once they've got the full production here and full efficiency from a conversion cost per pound basis, we're looking them to kind of be hitting the mark as we've expected. They seem to be on track for that through the second quarter here and -- through the second half of the year. So I think our expectation is still to see them, at least, if not better, than double last year's performance.

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

Okay. And then just specifically housekeeping, depreciation and amortization. Obviously, with Monaca being written off, you had a step function down, is there a trajectory you should be growing some of this base of around $5 million and then growth from what you start to, I'm assuming, begin to write off as the production begins. Is that a normalized run rate from here?

Robert D. Scherich

Yes. There's basically none left at Monaca at this point. We had most of that written off. The big event will be, once Mooresboro is officially put into production, we will start depreciating, and that's going to obviously be a big number on a $500 million facility. So our look at annualized post-startup of Mooresboro, annualized total company depreciation is still going to be in the mid to upper $40 million-per-year range. So it should be moving to the $10 million to $12 million-per-quarter-range once we officially get them into the production mode.

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

Okay. And then just lastly, on CapEx, maybe on maintenance versus what's left to spend and maybe trajectory quarter-by-quarter or maybe the next 2 quarters?

Robert D. Scherich

I don't think there is a whole lot expected. As I said, INMETCO isn't until the end of the year. Most likely, Zochem, really, doesn't have any to speak of. From our recycling facility standpoint, we're looking to optimize run-time here in the next couple of quarters. So we're not looking at very much at all, a few million dollars over the next couple of quarters.

Operator

And our next question comes from Paul Forward of Stifel.

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

I want to ask about INMETCO. We've seen nickel prices take a big move up pretty recently. I think you talked about customers looking for higher levels of tolling shipments. I was just wondering if you could talk a little bit through the kind of tolling versus remelt alloy sales and your ability to participate in the higher zinc -- or the higher nickel prices that we're seeing in the market today.

James M. Hensler

Yes. The -- we have seen a pickup in tolling receipts, and it was predicted based upon the continued ramp-up of Outokumpu's facility in Alabama. And so that's up about 10% year-over-year, and we expect to continue to see that move forward a bit. The ratio of tolling to excess right now is probably 2/3 tolling, 1/3 excess sales. So in terms of participating in the nickel price movement, it would only affect about 1/3 of the shipments from INMETCO. And to some extent, we've hedged nickel -- when nickel started to move up, we decided to take a hedge position to try to lock in some nickel price. So there's a little bit of upside with the higher nickel, but it's not on a fairly significant portion of our business.

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

Okay, great. And the -- I think you talked about some of the timing around -- well, that should be restarting a kiln at Rockwood. Can you talk a little -- I'm not sure if you touched on it earlier, but EAF dust receipts, we're in the end of the first quarter at 140,000 tons directionally with the kiln coming up at Rockwood. Is that typically -- seasonally, is that going to be up? Is that going to be at a low quarter of the year? Would you anticipate on those EAF dust shipment or the receipts or...

James M. Hensler

Yes, I think it will be a low quarter. I mean, it's always affected by weather. We're probably looking at second quarter in the 150,000 to 155,000 range and probably kind of run at that level here terminally.

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

And I know you talked about the kind of sale to third parties of some of the intermediate products. It was 22% of the zinc units in the first quarter. Can you think that, that would be higher over the next couple of quarters through the transition period at Mooresboro? Or can Mooresboro handle as you ramp Mooresboro production? Will we see that kind of sub-20% level of the zinc units being sold as of, let's say, the third quarter?

James M. Hensler

A lot of it depends upon what that ramp-up curve looks like. But we did have some fairly significant sales in April, and we expect significant sales in May of waelz and calcine. So I think in the second quarter, will be higher than the first quarter. Now by the third quarter, I think that should flip and most of those units will be hopefully consumed at Mooresboro.

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

And -- well, it was great to hear about the kind of 48- to 72-hour outlook for getting the electrolyte in place and starting...

James M. Hensler

Let me point out, Paul, we were 48 to 72 hours before start-up back in April, before I had those leaking tanks. Set me back 4 weeks. But assuming we don't have a replay of that type of situation, we're very close.

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

Well, as far as that goes then, assuming no more leaks along those same lines and no other major kind of unforeseen missteps, what's the timetable between beginning the processing and actually being able to kind of put the press release out or have the ribbon-cutting and say, we are now producing salable product? And what will be your strategy as far as letting the world know about your progress?

James M. Hensler

Yes. Well, I think once we've demonstrated we can produce zinc cathode in the cell house, which, hopefully, is a few days away, I think that would deserve an announcement because effectively, we've begun zinc production. There are other milestones along the way. The shipment of our zinc and those kinds of things and then hitting different production milestones. We really haven't thought about the incremental announcements we would make, but there are some milestones that still need to be reached after we produce zinc cathode. But I would say that we've been buying some cathode here and charging that and melting it and casting it in this lab. And so we see no risk in the transition from our own cathode to be able to start to make product we can ship to the marketplace. So if things were to happen within time frame we're talking about, we would start shipping zinc from Mooresboro this month.

Operator

And our next question comes from Mitesh Thakkar of FBR Capital Markets.

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

Most of my questions have been answered, but I would like a little bit of clarification on the CapEx side. You mentioned that you're looking at some expansions on the INMETCO and Zochem side. Do you have like a rough estimate on CapEx?

James M. Hensler

Yes. What we're looking at right now is less than about $1 million in each case. So it's relatively small.

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

Okay, great. And you mentioned about working capital potentially increasing in the third quarter. How much are we expecting?

Robert D. Scherich

Well, it really depends on what that ramp-up schedule looks like because if we have a slow ramp-up, we'll be working down our inventory and receivables during the second quarter and then having to rebuild them more. If you have a fairly quick and successful ramp-up, then it probably doesn't have very much impact. Our credit facility is designed to handle that ramp-up, so I think we've got capacity and a borrowing base to recognize that. So I don't think it will be a liquidity issue on a buildup.

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

Okay. And at this point, you feel comfortable with your liquidity? No need to add a little -- more of a debt or revolver piece? Is it sufficient?

Robert D. Scherich

Well, we expanded the couple of revolvers in a small way, March and April. I think we're pretty comfortable as we go through this ramp-up that we've got the liquidity in place. And all of that's still contingent on getting zinc production and zinc shipments started here eminently. So there's -- it's always subject to change depending on conditions.

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

And just a housekeeping question. What was the percentage of feedstock coming from EAF this quarter?

Robert D. Scherich

It was close to 100% because we were operating Monaca at a low level. I think it was 96.8%. We had a small amount contractually that was coming into Monaca.

Operator

And our next question comes from Edward Okine of Basso Capital.

Edward Okine - Basso Capital Management, L.P.

Actually, my questions have been answered.

Operator

Our next question comes from Daniel Moore of CJS Securities.

Daniel Moore - CJS Securities, Inc.

Just a clarification I missed, when did you expect to hope to bring the Rockwood facility back up?

James M. Hensler

It'll be before the end of this month.

Daniel Moore - CJS Securities, Inc.

And based on sort of current steel production levels, if you flash forward 6 months and we're up and running and close to that initial full capacity in Mooresboro, are we generating -- is the industry generating enough steel and EAF dust to sort of run at full operations? Or would you need to potentially look for other sources outside of the JV? Just trying to get a sense of the supply/demand balance there.

James M. Hensler

Yes. Well, I mean, our plan was always to -- the needed zinc units from the JV. I think our view at this point is the combination of the zinc units from our EAF dust recycling, and the JV will be sufficient to get to the initial threshold of 155,000 tons. But we will be looking for other zinc units because our ultimate goal is to get closer to the 170,000, 175,000 level. And so we're going to keep moving forward in that direction.

Operator

And we have no further questions at this time.

James M. Hensler

Okay. Well, thank you. Appreciate the interest, and we'll talk again next quarter. Bye.

Operator

Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect. Speakers, please stand by.

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