Horsehead Holding's (ZINC) CEO James Hensler on Q2 2014 Results - Earnings Call Transcript

Aug. 06, 2014 2:10 PM ETHorsehead Holding Corp. (ZINCQ)
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Horsehead Holding (ZINC) Q2 2014 Earnings Call August 6, 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.

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

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

Albert Sebastian

Operator

Welcome to the Horsehead Holding Corp. Second Quarter 2014 Conference Call. My name is Vivian, and I'll 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. Mr. Whitaker, you may begin.

Gary R. Whitaker

Good morning, everyone, and thank you for joining us on our second quarter 2014 earnings release conference call. My name is Gary Whitaker, 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 13, 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'd like to welcome you to this conference call to discuss the results of the second quarter 2014. 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 $5.1 million or $0.10 per share. This compares to a consolidated net loss of $800,000 or $0.02 per share for the second quarter of 2013. The result for the quarter, excluding unfavorable noncash adjustments associated with hedges, was a loss of $3.2 million or $0.06 per share compared to a consolidated net loss on the same basis of $400,000 for the second quarter of 2013 or $0.01 per share.

We reached a significant milestone in the second quarter in the company's transition from the Monaca smelter to the new state-of-the-art zinc plant in Mooresboro, North Carolina. We permanently closed the Monaca smelter in April and started zinc production in Mooresboro in May, while simultaneously consolidating our zinc oxide business at Zochem and completing the ramp-up of the new seventh furnace.

Our financial results for the quarter reflect the unusual onetime costs associated with these significant transitional events. We are very excited that zinc production commenced in Mooresboro on May 21, 2014. Our first full month of production exceeded internal projections for the first month of the ramp-up period. We produced over 3,100 tons of metal during the quarter.

During initial weeks of operation, we validated that the process, as designed, is capable of producing special high-grade quality electrolyte from waelz oxide using a solvent extraction process. This was the fundamental technical basis of this investment. While we have experienced normal start-up issues, including some equipment malfunctions, such as the recent temporary outage announced in July to repair mixing equipment in the leeching and effluent treatment sections of the plant, we have not encountered or identified any insurmountable technical or operational obstacles that materially challenge the value proposition of this project.

Mooresboro has restarted and we are continuing the ramp-up process. We expect to continue ramping up zinc production to our full operating capacity of 155,000 tons per year through the remainder of this year. Construction of the coproduct recovery circuit, which is designed to recover lead and silver from our incoming raw material, has been completed. Commissioning commenced in July, and the expected ramp-up period for this circuit remains at roughly 1 year, which is consistent with our previous announcements. We expect first lead silver concentrate production in August of this year. Once we reach full operating capacity in both the zinc plant and the coproduct circuit, we continue to believe we will realize $90 million to $110 million of incremental EBITDA benefit.

We permanently shut down zinc production at Monaca at the end of April. The final month of operation experienced higher-than-normal unit operating costs as productivity was negatively impacted, while we endeavored to keep 4 of the 6 furnaces operating in the final weeks before the facility was permanently closed.

In addition, we incurred additional costs in Monaca after the shutdown as we retained a skeleton crew to ship finished products from inventory, ready buildings for demolition and relocate some assets and raw materials to our other facilities. While some of these costs were reimbursed by Shell Chemical, we estimate that operating inefficiencies and unreimbursed shutdown costs related to the Monaca facility contributed $1.9 million before taxes to operating losses in the quarter. Going forward, we expect the trailing cost impact of the Monaca facility to be substantially reduced.

I would now like to discuss our operating results in more detail. Horsehead Corporation processed a little over 145,000 tons of EAF dust during the quarter, which is almost 10% more than the first quarter of 2014. EAF dust receipts decreased by about 3% to approximately 150,000 tons from the prior year's second quarter, but increased 7.5% compared to the first quarter of 2014.

Steel industry output remains steady compared to the first quarter of 2014 at 76% of capacity utilization according to published statistics, but was down slightly from the prior year's second quarter. The increase in dust receipts compared with the first quarter was primarily due to the movement in unloading of rail cars and trucks being hampered by severe weather conditions this past winter, causing a backlog, which reduced dust receipts in the first quarter.

We briefly idled some kilns to balance capacity with supply but returned to full operation in May as dust receipt levels improved. We expect to operate all of our Waelz kilns through the third quarter of 2014 and believe we will be in a position to shut down our calcining process at the Palmerton plant by the end of the year, depending on the ramp-up at Mooresboro. This represents one of the cost reduction benefits of the Mooresboro project.

Zinc product shipments, which do not include zinc calcine or waelz oxide shipments, decreased 3,893 tons or 9.1% to 38,831 tons for the quarter compared to the second quarter of 2013. This decrease, which primarily reflects the closure of zinc oxide capacity in Monaca, offset partially by the expansions at Zochem, was more than offset by the sale of the zinc calcine and waelz oxide, which totaled 29,225 tons for the current quarter. We did not sell either of these products in the prior year's second quarter. We plan to continue to sell additional waelz oxide and zinc calcine as needed during the transition period, while Mooresboro is ramping up.

Total zinc metal shipments, inclusive of Mooresboro, increased by about 6% when compared with the second quarter of 2013, and was even with the first quarter of 2014. Most of these shipments were from inventory we had built up prior to our shutdown of Monaca.

Total zinc oxide shipments decreased 17% compared with the second quarter of 2013, while Zochem shipments increased by almost 77% compared with the same period.

Moving on to discuss the zinc pricing environment. The LME zinc price averaged $0.94 per pound during the second quarter of 2014 compared to $0.83 per pound for the second quarter of 2013 and $0.92 per pound in the first quarter of 2014. We had hedging in place for zinc prices having 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 $0.058 during the second quarter, which was up about a $0.005 from the second quarter of last year, reflecting in part the higher premiums on the limited quantity of zinc metal shipped from Mooresboro.

Realized premiums for zinc oxide in the quarter were $0.091 per pound, which is a decrease of $0.068 compared to the prior year's second quarter and roughly the same compared with the first quarter of 2014. The decrease compared to the prior year's second quarter is primarily due to the lag effect in pricing of zinc oxide reflecting a $0.09 drop in the LME zinc price during the second quarter of 2013 compared to the first quarter.

Transactional prices for zinc oxide increased slightly during the second quarter of 2014 versus the first quarter as spot pricing has improved.

Zochem had a strong quarter with earnings before taxes of $3.3 million, a 59% increase compared with the prior year's second quarter, due primarily to higher product margins and increased volume. As noted previously, shipments increased by 77% compared with the prior year's second quarter. This reflects the addition of a seventh furnace, along with all of the furnace capacity expansions implemented at Zochem over the past several months. The second quarter was the first time that the strategy initiated 2 years ago to consolidate all the zinc oxide production in Zochem and reduce the overhang of excess capacity in the market by shutting the oxide refinery in Monaca has started to come to fruition.

In July 2014, we took an 18-day planned outage on one of the muffle furnaces to replace worn refractories. We are also installing additional baghouse modules on several furnaces in August, which should provide additional production capacity going forward. Once these improvements are completed, we should expect to realize the full benefits of this strategy.

INMETCO also had a strong quarter with earnings before taxes, excluding mark-to-market adjustments on hedges, of $4.6 million for the quarter, which is an increase of 78% compared to the prior year's second quarter after excluding a favorable onetime insurance settlement.

Tolling receipts were almost 7% higher, total pig sales were up 5.6% and production was up 4% versus the prior year's second quarter. The nickel price was up 23.4% over the second quarter of 2013 and up 26% over the first quarter of 2014.

We took a 4-day outage in July in INMETCO to replace the tap changer on the submerged arc furnace. During this outage, an inspection of the general condition of the furnace indicated that it was in better condition than expected, such that we may be able to defer the annual outage originally planned for the fourth quarter this year to the first quarter of next year. We will continue to monitor the furnace condition and be prepared to take the outage this year as originally planned if necessary. We are planning to install modest upgrades to get further increases in capacity during this outage.

Lastly, Shell Chemical 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. At the current pace, we would expect to complete demolition of the entire facility in early 2015.

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 an increase in revenue of $17.5 million or 15.7% to $129 million when excluding $2.5 million related to noncash hedge charges in the current quarter and $0.8 million in the prior year's second quarter. The increase in revenue reflected the higher LME zinc price, and increased calcine and waelz oxide sales, which more than offset the reduction in shipments of zinc finished products, primarily zinc oxide and powders.

The average sales price realized for finished zinc products on a zinc-contained basis was $1.14 per pound or $0.20 per pound above the average LME price for the quarter compared to $1.08 per pound or $0.25 above the average LME price for the prior year quarter, reflecting the positive lag effect in the prior year quarter that Jim mentioned earlier.

Sales of zinc metal increased $5.7 million or 16.7% to $39.9 million for the quarter, reflecting a $2.1 million increase in sales volume and a $3.6 million increase in price realization.

Sales of zinc oxide decreased $5.8 million to $37.1 million for the quarter, reflecting the shutdown of oxide production at Monaca, being substantially offset by increased sales from Zochem and an increase in price realization of $1.4 million.

Zochem sales increased 83% versus the prior year quarter, reflecting the consolidated and rationalization strategy that Jim mentioned. Sales of zinc and copper-based powders decreased $5.8 million, reflecting primarily the sale of our copper powders business late last year and the idling of production at Monaca.

EAF dust revenue for the quarter decreased $1.1 million or 9.9% to $10 million, with reduced volume of $0.4 million and reduced average price realization of $0.7 million.

INMETCO sales, excluding noncash hedge effects, increased $0.9 million or 6.5% for the quarter to $13.8 million compared to the prior year's quarter. The increase was primarily the result of the higher average LME nickel price and higher volume of shipments.

Consolidated cost of sales increased $16.1 million or 16.1% to $116 million from the prior year. This reflects a higher volume of total shipments, including waelz oxide and zinc calcine, increased metal cost at Zochem due to the higher LME zinc price, closure-related costs at Monaca and the start-up of Mooresboro during the quarter, along with the absence of a favorable insurance settlement in the prior year's quarter, partially offset by absence of the shipments of copper-based powders.

Consolidated depreciation increased $0.8 million or 11% to $8.1 million for the quarter, reflecting the reduced value of our Monaca facility, partially offsetting the effect of putting assets into service at Mooresboro. Depreciation for the Mooresboro plant and the Zochem expansion was not in place for the full quarter. Our estimation for the third quarter, with these assets in service for the full quarter, is depreciation of approximately $15 million. In the same regard, interest expense increased $2.6 million as a much lower portion was capitalized during the quarter. We estimate interest expense to be $9 million to $10 million per quarter going forward.

Adjusted EBITDA was $9.1 million for the quarter compared to $6.6 million for the same quarter last year, and noticeably better than the $2.3 million for the first quarter of 2014.

We had zinc hedges in place in the form of fixed price swaps for 8,000 metric tons per month at an average price of $0.902 per pound for the first quarter and $0.94 for the second quarter. We did not have any zinc hedges in place for July as the LME zinc price averaged $1.05, but recently hedged zinc for August and September at $1.07 per pound.

$19 million of cash was provided by operating activities during the quarter as a decrease in accounts receivable and inventory, primarily related to the shutdown of Monaca, was partially offset by a decrease in accounts payable and accrued expenses.

Capital spending was $35 million during the quarter. Cash on hand at the end of the quarter was $53.1 million and availability on our credit facilities was approximately $2.8 million.

Zochem and Horsehead Corporation revolvers were enhanced during the quarter, adding approximately $12 million of capacity. We added an additional $50 million of liquidity at the end of July through the issuance of additional senior secured notes and new unsecured notes. The notes issued have a June 2017 maturity and are callable in 2016 under the same terms as the existing senior secured notes. This additional financing more than offset the reduction in borrowings under our ABL facility as the borrowing base declined with liquidation of Monaca-related inventory and receivables. We believe that this additional liquidity, combined with our cash on hand and expected cash flow from our business, will provide adequate liquidity to support both general corporate purposes and potential business opportunities through the full ramp-up of the Mooresboro facility.

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're very excited about zinc production having started at Mooresboro. We continue to expect the ramp up to full production to be completed near the end of the year. We also expect that during the ramp-up of a large facility such as Mooresboro, we may experience start-up issues which require periodic and temporary outages similar to the one we took in July as we endeavor to continuously improve the process equipment and increase production output. Construction of the lead silver recovery circuit is complete and cold commissioning is underway. The ramp-up of the lead silver recovery circuit is expected to take 12 months. We believe the outlook for the zinc market remains strong, both in demand and price. The LME zinc price reached a 3-year high in July, which, if sustained, will result in higher earnings going forward. At full production, annualized EBITDA would be expected to increase by approximately $25 million to $30 million for each $0.10 increase in the price of zinc.

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

Question-and-Answer Session

Operator

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

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

I wanted to focus on cash flow and balance sheet here and sort of use of cash flow. Because now that we have this plant up and running, I know there's a little bit more spend we have to make. But other than that, there's not a whole lot more on the horizon, which means that cash flow is going to start coming in. Can you help us understand what the priorities would be for the cash flow? I imagine you have some de-leveraging to do. But then after that, what should we expect here? And just help us out understanding that.

Robert D. Scherich

Yes, thanks, Ian. Near term, and that's really through this ramp-up period, we'll continue kind of paying down payables related to the project. So we don't see cash flow generation occurring until we hit kind of the end of the year as we've achieved the full ramp-up. So as we go into the new year, we anticipate, as you indicated, robust cash flow starting, and I think that will be our focus fairly quickly, looking at de-leveraging a little bit but, ultimately, looking to refinance the debt down the road to get a better cost of debt in place. And then, we've got lots of projects that we've kind of had on the back burner. We look to continue to grow the business and invest in growth. So we see once we've restored liquidity to start down that path. And that's kind of the expectation, to grow the business.

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

Okay. So the deleveraging would come more through EBITDA growth as opposed to actual principal reductions other than refinancings?

Robert D. Scherich

I think we'd pay down revolvers then we would refinance the longer-term debt for better rates. Carrying debt, I think, going forward, we certainly will be comfortable with a couple of times EBITDA as core debt. So we think it becomes a source of capital we can use for growth going forward.

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

Okay. And then, you mentioned additional projects or additional expansion. What type of returns or hurdle rates are you looking at? I'm just thinking because there's going to be a lot of cash coming off this company. I'm just wondering what you could redeploy that at.

James M. Hensler

Yes, I mean, if you look at our track record so far, the types of projects we've been involved with have had a fairly good EBITDA return. And our minimum hurdle rate would be in the 15% to 20% range, but we've -- some of the smaller opportunities we've been looking at, we think, are much more attractive than that. And along the lines of the areas we've talked about in the past, further diversification in the environmental service space and the metals recovery space, we see some attractive opportunity. If you start to look at larger opportunities, we think that the returns are probably in that range that I mentioned.

Operator

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

Daniel Moore - CJS Securities, Inc.

At the end of your prepared remarks, Jim, you mentioned we may experience start-up issues similar to July. I'm just wondering, is that kind of boilerplate risk disclosure? Are there any issues that you're seeing or experiencing as of today that could cause temporary shutdowns over the coming weeks?

James M. Hensler

Nothing that's identified at this point, but the issue we had in July was unusual. Did catch us a bit by surprise, and it's the kind of thing that happens at times in a start-up situation. So there may be other issues like that we're not aware of, but we don't anticipate them at this point in time.

Daniel Moore - CJS Securities, Inc.

Perfect. Sold quite a bit more in total zinc, partially out of inventory, than we had expected. Are the revenue levels we saw in Q2 sustainable into Q3 and the balance of the year? Or should we kind of expect revenue to fall back a bit as inventories are maybe a little bit more balanced now? Just help us think about that.

Robert D. Scherich

Well, I think there are several kind of positive factors moving from Q2 to Q3. First of all, Zochem and INMETCO, we think, will be very steady. With the LME price up, revenues will increase for Zochem. And for our shipments of zinc products, whether it's out of recycling or out of Mooresboro. So we expect calcine and waelz shipments to be fairly similar in Q3 to what they were in Q2. And actually, metal shipments should be fairly similar. We did ship some out of inventory, but we had a pretty weak Monaca last month of production. We were pleased with the first month of production at Mooresboro, but it was still relatively low. So we're expecting to perform a little better as the ramp-up continues here. So metal probably stays about even. The bigger factor being that the LME price is around $1.06 versus averaging $0.94 second quarter.

Daniel Moore - CJS Securities, Inc.

Taking it one step further, just as we look at Q3 with all the moving parts, any light you care to shed on EBITDA on a relative basis versus Q2? Expect some improvement there as well, given the price increase?

Robert D. Scherich

Yes, I think for the same factors, we'd expect it to improve a little bit. We think that the Monaca shutdown and closure costs continue a little bit, but to a lesser degree than what we've had; and the other factors I mentioned. I think from a recycling standpoint, we've been seeing receipts of EAF dust ticking up slightly, but we actually expect processing to be up this quarter, as Jim had mentioned or we said in the earnings call earlier, that we had idled a little bit of the capacity on recycling temporarily in April going into May, and we expect to run full on recycling. So EAF dust processing we expect to be at a higher level here during the third quarter. So we're expecting continued improvement in EBITDA quarter-over-quarter.

James M. Hensler

Yes, just one point I'd add. I think from a production standpoint on metal, I think Bob's right. We'll probably exceed the production and shipments from production. I think total metal shipments will probably be less because we won't have the inventory sales.

Daniel Moore - CJS Securities, Inc.

Got it. And then, lastly, just a housekeeping. Bob, I think you said $15 million quarterly D&A? Is that right going forward?

Robert D. Scherich

Yes, yes, that's right. That's our estimate right now. We'll be refining life estimates and all that on different segments of the projects, so -- but that's what we're assuming right now.

Daniel Moore - CJS Securities, Inc.

And interest in the $9 million to $10 million range, how much of that is noncash?

Robert D. Scherich

I think the -- I forget that number offhand. It's -- I can get back to you on that, Dan. I know before resetting the debt, the cash interest was in the mid- to low-20s, and the cash -- and the book interest was going to be in $30 million to low $30 million. So that's probably still the same differential. We've added this additional debt and I don't have the differential in my head, but I can get back to you on it.

Operator

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

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

So the first question is on -- just the -- when you look at the current production rate, at what capacity is the plant running right now? And how should we think about volumes for the third and the fourth quarter? And any color you can provide on the Zochem and INMETCO with respect to that going run rate? And any growth plan for the back half of the year?

James M. Hensler

Yes, we're just getting restarted right now. So I mean, I think our -- I think we're feeding zinc units at a rate that's probably in the 40% of capacity type of run rate. But our hope would be that by the time we exit the third quarter, we'll be running in the 50% to 60% of capacity run rate. And that's our target for exiting the third quarter, so we'll continue to ramp up here over the next few weeks.

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

Okay. And Zochem and INMETCO, how should we think about the growth for the back half of the year?

James M. Hensler

Yes, I think in terms of INMETCO, as I mentioned, it looks now like we won't take our outage in the fourth quarter as we'd originally planned. So the fourth quarter, which would normally be a lower EBITDA quarter because of the outage, will probably look more similar to the third quarter. And Zochem, we think we're going to realize greater cost benefits in the second half because we will be running our production at full capacity in the third and fourth quarters. So we would expect to see about the same on the revenue side, but -- or maybe a little bit more on revenue but -- because of the higher zinc price, but lower unit conversion costs because we will bring in more volume through Zochem.

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

But isn't Zochem already on a tolling basis for more spots, so you will feel the pressure on the cost side too because of the zinc prices, right? Or am I missing something?

James M. Hensler

I think you're thinking about INMETCO, which operates on a tolling basis. Zochem basically -- they're selling zinc oxide at the market tied to LME prices.

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

Yes, but what is the feed in Zochem? Isn't it tied to the market?

James M. Hensler

Yes. Yes, we're buying metal at LME and we're selling zinc oxide at LME, so it's a spread. It's a spread, and so the spread should improve because we're bringing more volume through and the conversion costs will be maybe [indiscernible]...

Robert D. Scherich

Yes, on a per unit basis.

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

Yes. And just a follow-up on the CapEx side, how should we think about the back half?

Robert D. Scherich

I think relatively light in comparison. Our internal number is $10 million to $15 million, with some of that being discretionary. So as we continue to manage the ramp-up, we've got some maintenance CapEx, but relatively light.

Operator

And our next question comes from Paul Forward from Stifel.

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

Just, Bob, just a follow-up on that very last question. You mentioned $10 million to $15 million. Is that a full kind of half? Or is that a per quarter rate?

Robert D. Scherich

That's second half of the year.

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

Okay. Okay, that's good. The -- so it looks like -- it was great that you were unhedged in the period of rising zinc prices, but you decided to lock in some of those gains recently. Wondering if you could just have a little bit of comment on, is that a stance you're taking that maybe some of these recent price hikes is as good as we're going to get for a couple of months? Or is that just simply a decision to lock in some gains and -- during a period of the production ramp at Mooresboro and decision to not give those gains back if, in fact, there is a drop off here? But...

James M. Hensler

Yes, I'd say more of the latter than the former. I think you can argue a pretty good story for zinc and whether the current price is too high or not. I think, relative to where a lot of analysts are for next year, it's probably low. But we felt that during the ramp-up period, particularly getting above 60% capacity utilization, that we wanted to try to lock in the price at a relatively good number. Once we get above 50% to 60% capacity utilization, we should be cash flow positive out of Mooresboro, and so we wanted to lock in, at least the revenue side, and take that variable out of the equation.

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

Great. And I think you've mentioned that the ThirtyOx project will provide most of the additional zinc units needed to feed Mooresboro once you get up above 80%, 85% of capacity. I'm just wondering if you could talk a little bit about where your current thoughts are on the role for potentially importing raw material, including EAF dust for the -- for this. Or is really ThirtyOx is going to be the difference between getting you from 80% to 100%?

James M. Hensler

We think ThirtyOx is going to play most of that role. That doesn't mean we aren't going to be continuing to look for opportunities to bring more EAF dust into our recycling plants. And one of our potential capital investments next year would be adding some additional welding capacity if we see the EAF dust market continue to grow. We've actually seen some steady growth here lately out of the steel mills, and there may be an opportunity for us to actually bring more zinc units in from EAF dust next year. But our current plan is that we have about enough zinc units from EAF dust to supply 80% to 85% of our needs at Mooresboro at full capacity and ThirtyOx would supply the difference.

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

Okay. And you'd mentioned that the commissioning is happening at the lead and silver recovery circuit. Just wondering if you could give us some early reads on how that's -- how the process is going. And when -- assuming that you go through the ramp as designed, when would you anticipate that revenue generation from the byproducts would be material?

James M. Hensler

Yes, we're going to start, we believe, start to introduce the feed to the lead and silver recovery circuit this month. So we'd like to be able to start getting revenue here fairly shortly. We see that moving slowly. We've kind of set our targets fairly conservatively for this because it's a relatively new process, and we are certain that we'll get into some unusual things during start-up, and so we've sort of set our sights that it's going to take us 12 months. We could, in fact, ramp it up much quicker than that if we don't run into trouble. And the commissioning, so far, has gone relatively smoothly. We haven't uncovered any particular issues. But I think we're probably looking at first quarter of next year beginning to see some significant revenue from that operation.

Operator

[Operator Instructions] And we have a question from Daniel Moore from CJS Securities.

Daniel Moore - CJS Securities, Inc.

Maybe getting ahead of ourselves, but when might you consider expanding capacity beyond the initial 155,000 tons? You mentioned you've got several projects that you'd be interested in. Is that something in the -- next year or 2 or probably more of a longer-term opportunity?

James M. Hensler

Well, we really haven't thought much about expanding beyond the 155,000 at this stage because our focus is on getting there. As I think we've said in the past, we believe that the capacity is there to get to the 170,000, 175,000 range, and it's a matter of getting additional zinc units to feed it. And once we get to the rated capacity level of 155,000, we'll evaluate whether that, in fact, is the case or whether we need to put any further investment into Mooresboro to get it up to that level. But at this stage, that hasn't been on our radar screen.

Operator

And our next question comes from Albert Sebastian from Prospect Advisors.

Albert Sebastian

Just a couple of questions. What was the total spend on the Mooresboro plant? What's sort of the final tab?

Robert D. Scherich

Total construction cost is unchanged from what we disclosed I think last quarter at kind of a net number of like $525 million. Nothing's really changed on that view. We've kind of completed most of that. Or anything that's left, we have pretty good visibility on.

Albert Sebastian

Is there any potential to recover some of that from cost overruns from the contractors?

James M. Hensler

Yes, we're pursuing that. We've got a handful of vendors and contractors we use that we see the basis for some recovery, so we're right in the middle of that right now.

Albert Sebastian

And my final question is just on the lead-silver recovery unit. And you've probably indicated this in the past, but if you could just help me with it. Of the $90 million to $110 million in incremental EBITDA, how much of that is associated with the lead-silver recovery unit?

James M. Hensler

Yes, the number is -- we were benchmarked to a price of $1 a pound for lead, and I think we were at $30 a troy ounce for silver, which is a little higher than it is right now. That number was on the order of $20 million of the $100 million target, so about 20%.

Operator

And I'm not showing any questions at this time.

James M. Hensler

Okay. Well, that wraps up the call. Thank you very much, and we'll talk to you again next quarter.

Robert D. Scherich

Thank you.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.

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