Noranda Income Fund Unit T.NIF.UN

Another Zinc Plant Stock

[Bigbird999]

Those of you who are concerned about the supply of concentrate to NIF might want to have a look at Horsehead Holding Corp.  ZINC on the NASDAQ. 

They are commissioning North America's newest electrolytic zinc plant in North Carolina.  In essence, this plant has the opposite problem of NIF.  They do not have to buy feed material from zinc mines.  Instead, they treat zinc containing waste (Electric Arc Furnace dust) from the steel recyling industry.  Horsehead gets paid to take this material away and actually makes a profit collecting and transporting the dust to SC.  They have the NA supply of EAF dust locked up under long tem contracts with the steel industry.  The dust is processed in a leaching and solvent extraction process to produce electrolyte which is fed to a similar cell house as NIF to produce zinc metal. There is no sulphuric acid produced, rather it consumres a large quantity of acid. 

Thee process is more expensive, but the feed is free so they do not have to shell out the 50 cents per pound that NIF must pay for the zinc contained in feed.  This makes their operating cost very low and very profitable.  They are projecting EBITDA at >$90 million US when they approach design capacity. 

They have had many comissioning problems and issue monthly updates on the status of the ramp up program.  At this point they have not met the ambitious ramp up schedule that they promised.  As a result, they are being severely punished by the market. The stock has fallen from $20 to $8 as they have missed ramp up milestones.  The stock is heavily shorted as the sharks smell blood and the market reacts to the fears that the technical and equipment problems will not be solved and the plant will never get to the design capacity. 

In my opinion these fears are unfounded.  The plant is based on proven technology and is well on its way to solving the problems and get to design capacity over the next year or so.  Meanwile, they are operating at about 25% of capacity which is their cash breakeven point.  As they increase their production it will start to generate cash and approach their projected $90mm EBITDA.

I have been looking at this for a long time and finally bought yeaterday at $9.  3 out of 4 analystis have a $18 target on the SP.

Do your own DD but IMO it has a great upside

BB