Avoiding Common Stumbling Blocks 235Horsehead were trading for $ 4. Many intriguing valuation fi gures
jump out from the balance sheet alone: The cash balance of $ 123
million is almost equal to the entire market valuation of the com-
pany, $ 140 million. And since cash can be valued with complete
precision, anyone who invested in Horsehead in March was essen-
tially getting the operating business for free.
As with any other commodity company, the value of Horsehead
is based on two fundamental factors: the price of zinc and the com-
pany ’ s production level. In the second half of 2008, just about all
commodity prices went into a free fall, and zinc was no exception.
As a result, Horsehead ’ s profi ts began declining, but management
utilized put options to provide a fl oor price for the price of zinc,
which helped mitigate the declines. Indeed, in 2008, the company
still managed to earn $ 1.12 per share. Unless the price of zinc sud-
denly shifts upward in 2009, it ’ s likely that 2009 profi ts may come in
below the 2008 numbers.
But to a patient value - oriented investor, the balance sheet strength
suggests that Horsehead shares are very attractively priced. Aside from
the cash, Horsehead owns and operates six recycling facilities and a
110 - megawatt coal - fi red plant. In a normal market environment, the
value of these plants approximates $ 1 billion. And because HorseheadTable 11.3 Horsehead Holding Corp. Balance Sheet
(December 31, 2008)
Assets Liabilities
Cash: $123 million Current liabilities: $60 million
Other current assets: $99 million Other liabilities: $12 million
Property, plant, equipment: $136 million
Total assets: $358 million Total liabilities: $72 million
Shareholders’ equity: $286 million
Shares outstanding: 35.3 million
Book value per share: $8.10
Source: Company SEC filings.CH011.indd 235CH011.indd 235 9/2/09 11:51:53 AM9/2/09 11:51:53 AM