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Executives

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

James Hensler - Chairman, Chief Executive Officer and President

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

Analysts

Mitesh Thakkar

Carter Driscoll - Capstone Investments

Eric Prouty - Canaccord Genuity

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

Robert Howard - Prospector Partners

Horsehead Holding (ZINC) Q4 2010 Earnings Call February 25, 2011 11:00 AM ET

Operator

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

Ali Alavi

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

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

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

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

James Hensler

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

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

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

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

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

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

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

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

We have been very pleased with the start-up of the second kiln at the Barnwell facility, which was placed in service in late September. As we've reported, we built the Barnwell plant primarily as a result of a long-term agreement we entered into with Nucor Steel to service three of their plants located in that region. When we built the plant, we added sufficient capacity to service other steel mills in that region as well. And I'm happy to report that we have secured contracts with two new mills in the Southeast region that we will begin servicing in the first quarter of 2011.

Zinc product shipments increased by 6% compared with the prior year's fourth quarter. On a sequential quarter basis, comparing the fourth quarter of 2010 to the third quarter, zinc product shipments decreased 8.7% to 31,700 tons. This decrease was primarily attributable to seasonally lower shipments, which typically occur in December and to the Monaca refinery outage. Zinc oxide shipments declined by 54% from the prior year's quarter and 16% from the third quarter of 2010.

During the third quarter, we had about three weeks of production from the refinery in July prior to the incident. The balance of our oxide shipments primarily came either from the inventory we had on hand or from oxide we purchased from third parties to help serve our customers. We restarted the Larvik furnaces by the end of the third quarter, which also contributed some shipments. Oxide production restarted in the refinery in early November and was fully restored by the end of the quarter.

We expect shipments of zinc oxide to increase significantly in 2011 versus 2010 as we have completely restored our production capabilities. Zinc oxide shipments are expected to ramp up during the first quarter of 2011 as we complete re-qualification testing with some customers and as other customers work down safety stocks from other suppliers.

We have lost some market share as a result of the refinery incident due to a few customers entering into supply agreements with other producers while we were out of the market. We believe these losses will be partially offset by what is expected to be a somewhat stronger demand for zinc oxide in 2011 and 2010.

We also expect to offset some losses of zinc oxide volume with additional metal shipments, albeit at slightly lower margins. We expect to operate our smelter at full capacity for the foreseeable future.

The zinc metal shipments increased 50% compared with the prior year's fourth quarter and decreased about 6% compared to the third quarter of this year. As noted previously, to partially offset the loss of revenue from zinc oxide and refined zinc metal or SSHG, we increased production of PW zinc metal. Our capacity to produce PW metal is limited by the casting capacity in our smelter. During the fourth quarter, we operated our smelter at the full capacity of our casting lines.

We've been able to sell the additional metal we have produced in markets outside our traditional general galvanizing market. Demand for PW zinc metal in our traditional domestic markets remain steady and continues at comparable shipment levels so far in the first quarter of this year.

We did experience the traditional fall-off in PW metal shipments in December. We've restored our capability to produce refined metal by the end of December and began to resume normal shipment levels of SSHG in January. We expect to start a second column to produce additional SSHG in mid-March.

Moving on to discuss the zinc pricing environment. The LME zinc price averaged $1.05 per pound during the fourth quarter, which was $0.05 higher than the prior year's quarter at a $1 per pound and $0.14 higher than the third quarter 2010 average of $0.91. Zinc prices have continued to strengthen in the current quarter and are currently trading at approximately $1.10 per pound.

During the fourth quarter, we've completed our program of purchasing put options for 2011 at a strike price of $0.65 per pound. The realized premiums on zinc metal averaged minus $0.03 during the quarter, which was down from a positive $0.03 in the third quarter. The decrease reflects primarily fixed price hedge settlements and a portion of metal, which was sold primarily to export markets at a discount to the LME zinc price. Transactional premiums in our domestic markets remain in the $0.03 to $0.04 range.

Realized premiums for zinc oxide in the quarter were approximately minus $0.05, which is up from the third quarter average of minus $0.07. The fourth quarter realized premium was negative, primarily due to the lag effect in the contractual premiums with tire producers as a result of the lower LME prices at the end of the third quarter. We are pleased to have successfully renewed annual contracts with all of our major zinc oxide customers for 2011. I'm also happy to report that we should enjoy a slight increase in premiums over last year as well.

INMETCO continued to perform well during the fourth quarter and for the entire year. During its first full year with Horsehead, INMETCO added $14.4 million of earnings before taxes. During the fourth quarter, shipments of nickel-bearing remelt alloy increased 13% compared to the third quarter, which was the best production quarter of the year and reflected some of the operating improvements that have been implemented in INMETCO thus far. Total receipts for the fourth quarter declined about 2% from the third quarter, reflecting a slightly weaker output from stainless steel producers.

Nickel prices averaged $10.70 per pound during the fourth quarter, which was up about $1.09 from the third quarter of this year. Currently, nickel prices are trading at about $12.50 per pound. In addition, INMETCO has implemented price increases on some key contracts effective January 1, 2011.

Installation of a new bulk addition system was commissioned by the end of the fourth quarter, and installation of the oxy-fuel burner system will be completed by the end of the first quarter of 2011. We expect to begin realizing the benefits of these projects during the first half of 2011.

I'll now turn it over to Bob Sherich, Horsehead's CFO, to review the financial results

Robert Scherich

Thanks, Jim. Detail of the quarter's performance reflects an increase in revenue of $27.5 million or 40% compared with the prior year's quarter. Increase reflects $3.3 million effective hedges, an increase in price realization of $2.6 million, a $3 million effect of higher volume of shipments and $15.3 million added by INMETCO. The average sales price realization for zinc products on a zinc-contained basis was $1.06 per pound or $0.01 per pound above the average LME price for the quarter compared to $1.06 per pound or $0.06 above the average LME price for the prior year quarter, reflecting primarily the temporary shift in product mix from oxide to metal that Jim mentioned earlier.

Sales of zinc metal increased $17 million or 52% to $50.3 million for the quarter. This increase reflected a $16.4 million increase in sales volume and $0.9 million increase in price realization. Sales of zinc oxide decreased $13 million to $13.7 million for the quarter, reflecting a $1.3 million increase in price realization, offset by a $14.5 million decrease in sales volume.

Sales from EAF dust recycling increased $0.6 million to $9.4 million for the quarter, reflecting higher volume of receipts and flat price realizations. Cost of sales increased 36% or $22 million to $82.3 million for the quarter. This increase reflects the higher production and shipment volumes and $9.1 million of INMETCO cost, partially offset by lower raw material cost as a result of an increase in the percent of EAF-based fee to the smelter, which went from 67% in the prior year quarter to 81% for the current quarter. Purchase feed costs were flat with the prior year quarter at 53% for the LME on a zinc-contained basis.

Cost of sales also included start-up of the refinery during the quarter, a significant portion of which was part of our insurance claim. Expenses associated with the refinery rebuild and start-up, along with the start-up for the Larvik operation, added $7 million to cost of sales during the quarter. An additional $8.6 million of spending at the refinery was capitalized. Both of these amounts were part of our insurance claim.

As noted previously, the insurance claim had a noticeable net benefit on the quarter. As discussed on the last call, our expectation was that the insurance would make us whole for loss production, net of deductibles. Our preliminary claim for property damage, expenses and lost margin through December 31 was $32.7 million. As of our reporting cutoff date, our insurer had recognized $19.3 million of our claim as undisputed, allowing us to record income to that level.

Net of expenses mentioned previously and tax affected, this resulted in $7.7 million of net earnings or $0.18 per share. It's important to note that our insurer has not completed its review of our submitted claim, and the difference between our claim and the undisputed amount should not be viewed as being in dispute, rather the review work is simply not completed. Our insurer has been very responsive and supportive during the rebuild period, and we expect to work with them to settle the claim during 2011. We did not record any insurance income until this quarter.

The effective tax rate was 37.4% for the quarter and 36.8% for the year. Cash provided by operating activities was $21.8 million for the quarter and $57.3 million for the year. Capital spending was $13.3 million for the quarter and $44.7 million for the year.

We ended the year with $136 million of cash, of which $26.4 million was restricted. Total debt was $0.3 million at the end of the year. EBITDA was $58 million for the year or 15% of sales. For 2011, we now look forward to continued strong commodity prices, utilization of our additional recycling capacity and operation of our smelting and refinery facilities at higher levels than for 2010. As Jim mentioned, we expect some transition time early in 2011 to return finished product mix to normal levels and expect to see our recycling capacity more fully utilized as steel production picks up.

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

James Hensler

Thanks, Bob. In summary, before we open the call for questions, I'd like to say that I'm very pleased with the performance of the business over the past six months during a very difficult chapter in the company's history. I want to acknowledge the outstanding effort of our entire workforce and their diligence and determination to recover from the July 22 refinery incident. It's only through their efforts that we were able to quickly design and rebuild upgraded production facilities or capabilities in our refinery, mitigate our lost revenue by developing new market outlets for our products and aggressively pursue our insurance claim. This incident curtailed over 40% of our business. It is a testament to their efforts that we have been able not only to fully recover our production capability but also to operate Horsehead Corp. profitably during this period. We're now looking forward, and we're optimistic about the outlook for 2011.

We're also very pleased with the performance of INMETCO during its first year of operation as a Horsehead company. We continue to pursue acquisitions that either enhance our current businesses or expand our portfolio with environmental service and metals recovery opportunities.

We are also very excited about our recent announcement that we have completed a preliminary feasibility study to construct a 150,000-ton-per-year zinc plant based on state-of-the-art green technology to replace the existing zinc smelter in Monaca. Initial work has commenced on basic design and engineering, and a site selection effort aimed at identifying a location for the plant is in progress.

The goal of this project is to produce zinc at much lower cost, to significantly reduce air emissions and to provide opportunities for the company not only to serve as traditional hot-dip galvanizing and zinc oxide markets but also to serve the broader market for special high-grade zinc and a continuous galvanizing market as well.

The proposed new facility would utilize a lower-cost and environmentally friendly solvent extraction and electrowinning technology to convert electric arc furnace-based feed and other recycled materials into special high-grade zinc, Prime Western zinc and another zinc products. This facility would position Horsehead among the world's low-cost zinc producers. The successful execution of this initiative would also continue our sustainable production of zinc from recycled sources. We anticipate that the site selection process will continue into the second quarter. If the project is approved by our Board of Directors later this year and financing is secured, construction could begin before the end of the year.

Thank you, and we would now like to open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Carter Driscoll from Capstone Investments.

Carter Driscoll - Capstone Investments

My first question, could we -- starts with the new plant that you're talking about, the feasibility study. Have you actually spent any funds yet with the early engineering costs? Have you incurred any expense to date?

James Hensler

We spent some money in 2010 on the feasibility study that I mentioned, and that amount was on the order of about $250,000. We have approved an expenditure of up to $5 million this year to conduct the site search and to begin the basic engineering. And so we're starting to spend that money, though we haven't -- we're just starting to spend that money at this point.

Carter Driscoll - Capstone Investments

The site search itself, I'm assuming it would be relatively close to the Monaca facility. Is that true or not? You did mention it might actually take place at the same site. How would that work if it were to replace the existing plant at the physical location it currently is at?

James Hensler

Well, the site search is fairly extensive. We looked at 155 different sites in about 15 states so far, and we now narrowed that down to a handful that we're really focusing on, one of which is the Monaca site. The Monaca site has sufficient property that we could construct this new facility alongside the existing facility. And so if Monaca is the site that ultimately gets selected, then there'd be no problem building that facility in parallel with running the current site.

Carter Driscoll - Capstone Investments

Do you have any estimation of or ballpark estimation of what the total expenditure might be?

James Hensler

Well, we do, but I don't want to get into putting numbers out there until we've done the basic engineering. Although suffice it to say, the estimates that came out of our preliminary engineering study were very attractive and attractive enough for us to want to move forward. But like most preliminary engineering studies, there's kind of a wide band around those kind of engineering estimates. Until we get a better number that we can feel we can hang our hat on, I don't want to put a number out there that might be too high or too low. But suffice it to say, we think it's a very attractive project.

Carter Driscoll - Capstone Investments

Is this process -- this new process, was it developed internally? Was it kind of an amalgamation of other kind of best practices out there today? Could you talk about how this came about?

James Hensler

Yes. The technology -- if you sort of break it down, there are really two aspects of the technology. The actual zinc-making part of it, the electrowinning part of it, is very conventional technology. 95% of the zinc or 90-plus percent of the zinc in the world is made by electrowinning technology. So that aspect of it is pretty standard. The thing that's somewhat unique about it is the solvent extraction aspect of the technology. And solvent extraction has been around for a while, several decades. It's used quite extensively in other metal production, particularly in the copper refining industry. It's been used in zinc to a more limited extent. It's well-suited to the kind of feed material that we have, zinc oxide type feed materials, that come out of the electric arc furnace dust. And so there are installations in the world that use this technology. It's been a proven technology, and we think that it's well-suited for our types of feed materials.

Carter Driscoll - Capstone Investments

Let's shift gears a little bit to kind of discuss the zinc oxide business. You mentioned that, obviously, a little bit of market share loss, because you didn't have the capabilities in the second half of last year. But then you mentioned that you were very pleased with the renewal of contracts, and assuming, with the customers that, obviously, you did not lose. Could you maybe talk percentage of total production last year of customers that you did loss or kind of maybe quantify the market share you think you lost?

James Hensler

I think in term s the market share, I think we only lost a couple of percentage points. I don't think it's significant. I mean, just to put zinc oxide into perspective, if you go back to 2009, we shipped about 53,000 tons of zinc oxide. Last year, we did a little less than 50,000 tons. And this year or in 2011, we would expect to do something in the 60,000- to 70,000-ton range. And so we think that even though we may have lost a little bit of market share, we think that the market size is bigger and that we're going to see some significant increase in the amount of zinc oxide we sell this year. But we may have lost a little bit of business for some customers, which ultimately I think we end up getting back. We are the low-cost producer in this market and to the extent that it's really more of a decision on our part of how aggressive we want to be on pricing. And so we look at it, really, in the context of zinc oxide versus zinc metal. Our objective is really to operate our smelter at full capacity, and so we believe we'll be able to do that.

Carter Driscoll - Capstone Investments

The percentage of EFA (sic) [EAF] dust contribution seemed, obviously, a bit abnormally high. I believe it's a record for you as a percent of feedstock. But can you talk about maybe steady-state knowledge you got for the second kiln up in Barnwell. I'm assuming it's pretty much close to its full capacity. And given your expectations for better demand on the oxide and steady demand on the metal side, do you think kind of 75% is the range that you might average for 2011? Would that be a fair percentage?

James Hensler

Well, the fourth quarter was unusual for a couple of reasons. One is we're running five furnaces, so our demand for zinc units was lower, because we weren't running at full capacity. And secondly, we started up Barnwell, and we had some backlog of dust in our system that we were able to process. So we think, probably, in the first quarter, we'll still have some backlog we're working through, but the answer to your question really depends upon what's the ultimate output from the steel industry in 2011. I think if output stays at about the current levels, we will receive something on the order of 550,000, 575,000 tons of EAF dust, and you can do the math. That's roughly 20% zinc, and we'll have that many zinc just coming into the smelter.

Robert Scherich

That'll probably put us in the low-70s, I would say.

James Hensler

Probably puts us at around 70% to 75%.

Carter Driscoll - Capstone Investments

Can you talk maybe about some of the -- you talked in the past some of the big mines coming off line, potentially leading to better equilibrium, probably later this year. Have you seen any change in the status of that equilibrium being pushed out or pulled in a little bit?

James Hensler

I haven't really seen any changes. I mean, it looks like from the latest industry statistics, 2010 continued to operate in kind of a surplus production of zinc globally, but also consumption increased significantly in 2010. I think that we're probably -- so we're sort of headed toward getting in balance, but we're not quite there yet.

Carter Driscoll - Capstone Investments

My last question before I pass along is you had mentioned continuing to pursue certain M&A activity in conjunction with finishing off the first phase of the expansion at INMETCO and I'm assuming moving over to the second phase assuming board approval. One of those opportunities you talked about was the technology sharing, potentially exploring that and macro technology abroad in the APAC region. Have you made any progress there? Or have you really been focused on getting back to full capacity? And when might we expect some type of progress?

James Hensler

We've sort of completed internal analysis on that. We spent the last six months kind of understanding, trying to understand that market a little bit better. And we're at a point right now where we've got our proposal that we think we now want to review with a couple of potential clients in that part of the world. And if we see that there's some interest in a project and depending on how that develops, we may have more to talk about there, but our feeling is we're not going to go alone over there. And so it's dependent upon having the right partner, and so that's kind of the next step, is to try to develop that right relationship in that part of the region, part of the world.

Operator

Your next question comes from the line of Eric Prouty. [Canaccord Genuity]

Eric Prouty - Canaccord Genuity

Maybe you could talk a little bit about what are demand trends you're seeing at the domestic galvanizers and then also what you're thoughts are with where their inventory levels of the zinc metal sits.

James Hensler

Yes, I think we're seeing things as being, I think, fairly steady with our domestic galvanizing customers. I think there's some expectation as we get out of the winter months that business will pick up a bit. I think in terms of their inventory levels, we don't see -- it seems like they're in pretty good balance at the moment.

Eric Prouty - Canaccord Genuity

Then maybe just a little bit more meat in the bones on the INMETCO expansion. Maybe talk about what that will do from a production standpoint, so what we can expect from a production standpoint and the timing of that.

James Hensler

Yes. We're hoping to pick up about 10% to 15% more throughput at INMETCO over the course of the year. We've approved the Phase I of this expansion, which would get us that 10% to 15% pick-up. There's another phase to consider, which we'll probably take that decision up some time mid-year and decide whether we move forward with it.

Eric Prouty - Canaccord Genuity

And then just finally, just some housekeeping, one on what your capacities are looking like. What the rebuild are -- you're still at about 150,000 tons in contained from a smelting standpoint? Or is there any change to that?

James Hensler

No. There's been no change there. We're going to run six furnaces. That's about what we consider our capacity to be.

Eric Prouty - Canaccord Genuity

And then on the dust side, with the two kiln set, where are we there?

James Hensler

With those kilns fully utilized and with Beaumont continuing to be idled, we're in the mid-700,000-ton-per-year range, probably in the low-700,000 on a practical basis. When you consider you take some outages here and there, it's probably 720,000, 730,000, but nameplate, probably more like 740,000, 750,000.

Eric Prouty - Canaccord Genuity

And then what are your thoughts now of where the industry would be for that capacity to be fully utilized?

James Hensler

Yes. I think when we designed this capacity, we were assuming a steel market that was operating in the high-80% capacity utilization levels. So we're at mid-70s right now, so we would need to get back up to those levels to fully utilize that capacity.

Eric Prouty - Canaccord Genuity

So high-80s to 90%, you would expect to be at 720,000, 730,000 tons?

James Hensler

In that range, yes.

Operator

Your next question comes from the line of Paul Forward. [Stifel, Nicolaus]

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

On the SX-EW process, I was just wondering, as you run through the engineering, is the new process going to allow for any volume expansion potentially beyond 150,000 tons capacity? Or are you looking at it as purely as a cost reduction and emissions performance reduction exercise?

James Hensler

It's mostly cost reductions. I mean, there will be -- when we lay out plants, we'll lay it out with the idea in mind that if we want to expand in the future, that that'll be a consideration. But to some extent, we're designing this plant to run on oxidic feeds coming mostly from EAF dust. And so we're trying to match it up with the number of zinc units we think we, ultimately, will be able to get out of our Well's kiln operations. And so that's kind of our thinking.

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

Is there any -- I mean, you have focused on the emissions side of things. Is there any change in the outlook for the coal plant as you go forward with this change? And the move to the SX-EW, is there still the same need for having a coal plant? Or is that part of the environmental calculation here that, that may not be needed as much as it was in the past?

James Hensler

Yes. Well, certainly, the electrowinning process used is a large user of electric power. So electric power and electric power costs are going to be a consideration and certainly, a significant consideration as we consider the site that we would be selecting for the facility. I think that the question about the coal-fired power plant in Monaca, I think there are a couple of aspects to that. One is are we better, long term, to be making our own power or buying power. And with current power rates in Pennsylvania, there are fairly attractive rates right now being bought. Longer term, you have to look at what is the effect of potential environmental regulations on coal-fired power plants and how might that affect your cost of operating that facility longer term. There are a lot of things that are sort of being discussed. There's not a lot that you would say is definitive about those kind of regulations that are coming down. And once those become more certain then we can make a decision about what ultimately would be the best course of action with the coal-fired power plant.

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

And you've got $110 million of cash today, probably with the zinc prices, some pretty strong free cash generation and in 2011. Well, I guess, first of all, what do you think as far as an overall CapEx number for the full year 2011?

James Hensler

Well, it's depending upon what we decide to do with this SX-EW project. We could begin spending some money on that project. But if we just sort of put that aside for right now and say we don't spend anything on that, we're probably looking at something on the order of about $25 million, $26 million of CapEx. Some of that is cost reduction and expansion related. And then this year, I think I mentioned in my comments that we have a number of outages planned in our recycling facilities. We have some extensive maintenance work we're planning on several of our kilns, which is kind of a catch-up. We really haven't done some of this work for many, many years, and so we intend to get some of that done here in 2011.

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

And with the -- I know you're still early in the SX-EW process considerations. Just wondering, with the focus on that project, would you see -- I mean, do you think that you've got better returns internally in projects like that than you could find in what's available in the acquisitions market right now?

James Hensler

Well, I think we got our eye on both right now. We see some acquisitions that are potentially attractive, and we've been studying a number of opportunities here for the last several months. And so we see some thing is attractive there that we think have good returns, and we also think this project has an excellent return. And in part, we'll finance that through the cash we've got and then we'll also be looking at other ways to finance some of those ideas.

Robert Scherich

Well, and if propose that x project, we're not going to see a return for a couple of years on that. So we're continuing to look at things that can bring return this year and next year at the same time.

Operator

Your next question comes from the line Mitesh Thakkar. [FBR Capital Markets]

Mitesh Thakkar

Just talking about acquisitions a little bit here, is there any change in kind of the metals or the end product which you are looking for from an acquisition standpoint? Or are you still looking at a host of metals, including like vanadium, molybdenum and stuff like that?

James Hensler

Yes. One of our objectives in acquisitions we're looking at is diversifying the mixture of metals that we have exposure to, and we would like to move in the direction of more higher value metals. So that's certainly one area of focus. We're also interested in investing in the metals that we are currently in, where we think we can get either extra capacity, more value or lower cost. And so we're really looking in both areas.

Mitesh Thakkar

And can you just talk a little bit about your hedging program in terms of for 2012? I know you're almost done for 2011. And with zinc price stuck in kind of $2,200 to $2,400 kind of frame over the last two, three months, do you become more aggressive hedging if that is at closer to $2,400? Or do you go beyond that? Are you rate for hedging 2012 yet?

Robert Scherich

We have not taken any positions on 2012 yet, but we constantly, with our board, on a quarterly basis, re-evaluate. And this is the first period we've had for the last couple of years of much stronger commodity prices, and now we're looking at some significant investment out there over the next couple of years potentially. So we will consider kind of a broad spectrum of things. Generally, as we continue what we've been doing, which is buying the downside protection, it's expensive to try to go operate more on that. The time value of that makes it expensive. So we really consider several alternatives but have not done anything yet.

Mitesh Thakkar

And just going back on the question regarding cash on the balance sheet, what do you think is the ideal level for cash on the balance sheet? I know you have a decent amount of cash on that, and I understand the logic in terms of keeping the gunpowder for making acquisitions, pursuing all these projects, but at the same time, you are also looking at financing some of these projects. So how should we think about an ideal cash level on the balance sheet?

Robert Scherich

If we don't have a revolver in place then we would say just for operating the business, we need to keep $20 million to $40 million of kind of availability, and that would be through cash today. But we actually believe that there'll be a right time to add a revolving credit facility back in place as we have the opportunity to put this cash to use in strategic investments. We expect, over time, to kind of move the cash availability to a revolver availability.

James Hensler

Our view on cash requirements changes as we implement this SX-EW project. One of the reasons why we do maintain a more conservative approach is that given the cyclicality of zinc, we don't want to take on a lot of debt in the concern of what might happen when zinc prices go too low. But as you move to becoming the low-cost zinc producer or one of low-cost zinc producers, your tolerance for debt can go up, and your need for having significant cash can go down. And so it's one of the advantages we see of moving into this new technology.

Mitesh Thakkar

And I know you talked about -- just a little bit in your prepared remarks, you've talked about the next couple of milestones with respect to site selection and construction beginning by the end of 2010, assuming everything goes all right. And can you give us kind of just of the next and if you have, at this point, any time line related to this project? How much time do you think construction will take and stuff like that?

James Hensler

Well, I mean, if everything went as you just described, we started construction this year, we're probably looking at something, which is late 2013 event in terms of commissioning a facility, second half of 2013. And so I think that's probably realistic, but we haven't really done the engineering. We don't have a time line laid out, but it wouldn't be a 2012 event. It would probably be at 2013.

Mitesh Thakkar

And do you anticipate any issues on the permitting side and those kinds of things? Do you have any color on that?

James Hensler

Well, this plant is going to be very clean from an air emission standpoint, and it really will be a minor source of air emissions. So air permitting, we do not see that as being an issue. There will be a water discharge, a brine discharge from the facility. And again, we don't think there will be a difficulty of getting permitted. But that will be one of the key criteria in terms of the site we select is to beyond a site, where having a brine discharge will not be a problem.

Mitesh Thakkar

I mean, typically, it should not be like there are a lot of copper SX-EW plants around. But do you have like -- when do you apply for the permit and stuff like that? Any time line related to that?

James Hensler

Well, we need to get a little more engineering done so that we have a good characterization of what the effluent and air emissions will be before we could actually write up a permit application. We will probably file permit applications for multiple locations as we're working through the final stages of negotiations on site selection to kind of keep our options open. So it will be a few more weeks before we're in a position to begin doing that, but we would like to begin that process as soon as we could.

Operator

Your next question comes from the line of Robert Howard. [Prospector Partners]

Robert Howard - Prospector Partners

I was wondering after the new facility is built, what happens to the old Monaca facility. Is that just going to be retired? Or is there a possibility of maybe it can be tweaked for other uses?

James Hensler

Well, we have an extensive zinc oxide production capability at the Monaca operation, and our current plan would be to continue to produce zinc oxide there. There may be alternate uses for the other facilities. We haven't explored that at this time.

Robert Howard - Prospector Partners

And then I know you guys talked about that the standards for the coal plant, the environmental standards were different. And I noticed that yesterday, the EPA had put some standards out for boilers and incinerators. I didn't know. Was that what your power plant falls under at all? Or is that any impact on you?

James Hensler

I really don't have any comment on what -- came out yesterday. I haven't seen that.

Operator

[Operator Instructions] And at this time, there are no further questions.

James Hensler

Okay. Well, that ends the call then. And we thank everybody for participating, and we'll talk to you again at the end of this quarter. Thank you.

Operator

Ladies and gentlemen this conference will be available for replay after 1:00 Eastern Time today through March 4. You may access the AT&T TeleConference replay system at any time by dialing 1 (800) 475-6701 and entering the access code 190744, international participants dial (320) 365-3844. That does conclude your conference for today. Thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect.

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