This summary highlights key information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information that may be important to you. You should carefully read this prospectus in its entirety, including the risks discussed in the “Risk Factors” section and the financial information contained herein, before making an investment decision. Unless otherwise indicated or required by the context, as used in this prospectus, the terms “Company,” “we,” “our” and “us” refer to Horsehead Holding Corp. and all of its subsidiaries. We cannot assure you that our historical financial performance as set out in this prospectus will be indicative of our future performance.

 

Our Business

 

We are a leading U.S. producer of specialty zinc and zinc-based products with production and/or recycling operations at six facilities in five states. Our products are used in a wide variety of applications, including in the galvanizing of fabricated steel products and as components in rubber tires, alkaline batteries, paint, chemicals and pharmaceuticals. We believe that we are the largest refiner of zinc oxide and Prime Western, or PW, zinc metal in North America. We believe we are also the largest North American recycler of electric arc furnace, or EAF, dust, a hazardous waste produced by the steel mini-mill manufacturing process. We, together with our predecessors, have been operating in the zinc industry for more than 150 years.

 

While we vary our raw material inputs, or feedstocks, based on cost and availability, we generally produce our zinc products using nearly 100% recycled zinc, including zinc recovered from our four EAF dust recycling operations located in four states. We believe that our ability to convert recycled zinc into finished products results in lower feed costs than for smelters that rely primarily on zinc concentrates. Our four EAF dust recycling facilities also generate service fee revenue from steel mini-mills by providing a convenient and safe means for recycling their EAF dust.

 

During 2006, we sold approximately 315.3 million pounds of zinc products, generally priced at amounts based on premiums to zinc prices on the London Metals Exchange, or LME. For the year ended December 31, 2006, we generated sales and net income of $482.9 million and $54.5 million, respectively.

 

Products and Services

 

Zinc Metal (49.4% of 2006 sales).  We manufacture a range of grades and sizes of zinc metal. Most of our zinc metal is produced as PW zinc and is used to coat or galvanize steel. Our PW zinc is produced primarily in ingot and slab form and we believe it offers superior coating properties to those of other forms of zinc metal used for galvanizing, including special high grade, or SHG, zinc made by our competitors. We believe that we are also the largest producer of PW zinc in North America.

 

Zinc Oxide (38.6% of 2006 sales).  We produce over 50 grades of zinc oxide with varying purities, particle sizes and customer-specific formulations, as well as an array of post-production treatments. Our customers use zinc oxide in a variety of applications, including as components of tires, paint and pharmaceuticals.

 

EAF Dust Recycling Services (8.9% of 2006 sales).  We receive and recycle EAF dust generated by steel mini-mill operators, for which we receive a service fee.

 

Other Products (3.1% of 2006 sales).  Our other products include zinc and copper-based powders, primarily used in general chemical and metallurgical applications, zinc dust, primarily used in corrosion-resistant coatings and other chemical applications, iron-rich material, a co-product of the EAF dust recycling process that is used primarily in construction materials and water treatment, and excess power generated by our power plant. Our zinc and copper powders tend to command higher margins than our other zinc products and we expect they will account for an increasing percentage of our sales in the near future. We reassumed control of operations and maintenance responsibilities at our power plant in September 2006, which we believe will result in increased sales of excess power.

 

Competitive Strengths

 

Leading Market Positions and Strategically Located Recycling Facilities

 

We believe that we are the largest refiner of zinc oxide and PW zinc metal in North America, based on volume, with estimated market shares of approximately 34% and 60%, respectively, in 2006. We also believe that we are the largest North American recycler of EAF dust, and that we currently recycle more than half of all EAF dust generated in the United States. Our four company-owned EAF dust recycling facilities are strategically located near major electric arc furnace operators, reducing transportation costs and enhancing our ability to compete effectively with other means of EAF dust disposal. We believe that the location of our facilities, together with our competitive cost position, extensive zinc distribution network and proprietary market knowledge, will enable us to maintain our leading market positions and continue to capture market share in zinc products and zinc recycling.

 

Strong Relationships with Diverse Customer Base

 

We believe that our superior product quality, reputation for on-time delivery and competitive pricing enable us to maintain strong relationships with a broad base of customers in each of our end markets. For example, we are the leading supplier of zinc metal to the after-fabrication hot-dip segment of the North American galvanizing industry. We also sell zinc oxide to over 200 producers of tire and rubber products, chemicals, paints, plastics and pharmaceuticals. We have supplied zinc oxide to eight of our current ten largest zinc oxide customers for over ten years, and we believe that we are the sole or primary supplier of zinc to most of our customers. In addition, since the U.S. Environmental Protection Agency, or EPA, has designated our recycling process as the “Best Demonstrated Available Technology” in the area of high-temperature metals recovery related to the processing of EAF dust and since we are the only recycler of EAF dust in the U.S., we now recycle EAF dust for seven of the world’s ten largest electric arc furnace operators based on 2006 production volume. We are working to expand our recycling capacity further in order to better service these and other customers.

 

Low-Cost Feedstock Sources

 

We believe that we are the only zinc producer in North America with the proven ability to refine zinc metal and zinc oxide using 100% recycled zinc feedstocks. Our use of large amounts of recycled feedstock reduces our exposure to increases in LME zinc prices and increases our operating margins during periods of high zinc prices on the LME. In addition, our EAF dust recycling operations provide us with a reliable, cost-effective source of recycled zinc without relying on third-party sellers. Based on average LME zinc prices for 2006, our cost to acquire zinc from EAF dust was approximately 87% less than the cost of an equivalent amount of zinc from zinc concentrate, which most zinc smelting operations use as the principal feedstock.

 

Proven, Proprietary Technology with Flexible Processes

 

The EPA has designated our EAF dust recycling process as a “Best Demonstrated Available Technology.” Since our recycling process converts EAF dust into saleable products, our customers generally face less exposure to environmental liabilities from EAF dust, which the EPA classifies as a listed hazardous waste, than if they disposed of their EAF dust in landfills. In addition, we believe our zinc smelter and refinery in Monaca, Pennsylvania is unique in its ability to refine zinc using almost any form of zinc-bearing feedstock. This flexibility allows us to modify our feedstock mix based on cost and availability, as well as use 100% recycled zinc feedstock, whether purchased from third parties at a significant discount to the LME zinc price or generated by our EAF dust recycling operations.

 

Favorable Market Trends

 

The LME price of zinc rose from $0.58 per pound on December 31, 2004 to $1.96 per pound at the end of fiscal 2006. The average LME spot price of zinc between January 1, 2007 and April 13, 2007 was $1.57 per pound. The rising prices have been due primarily to strong growth in demand, fueled by increased global steel

consumption, and declines in global production due to closed or permanently idled zinc mining and smelting capacity. The growth in global demand for zinc has also resulted in the continued depletion of LME zinc inventory levels, from a recent high of approximately 790,000 tonnes in April 2004 to approximately 88,000 tonnes in December 2006. Current industry analysts forecast that continued growth in global demand and historically low zinc stocks will cause these favorable zinc market conditions to continue through 2007. In addition, we believe that steel mini-mill production, the principal source of EAF dust used in our recycling operations, will continue to grow by approximately 2-3% per year through 2010, further increasing both the market for our EAF dust recycling operations and our potential access to low-cost zinc feedstock. For example, Nucor Corporation, Severcorr Corporation and Republic Engineered Products, Inc., three major steel mini-mill operators, recently announced expected future expansion in their EAF production capacity.

 

Strong, Experienced Management Team

 

Our six-member senior management team collectively has over 150 years of experience in zinc- and metal-related industries. James M. Hensler, our Chief Executive Officer, joined us in early 2004, and has since established a culture of continuous improvement, safety and operational excellence, which has led to significant cost reductions and productivity improvements.

 

Business Strategy

 

Continue to Focus on Production Efficiencies and Operating Cost Reductions

 

We have reduced our manufacturing costs by increasing our usage of low-cost feedstock, reducing our energy consumption, streamlining our organizational structure and implementing “Six Sigma”— based process improvement initiatives, and we intend to continue to focus on these and similar initiatives in the future. For example, we have expanded our EAF dust processing capacity by over 20% since the end of 2003 by improving plant efficiencies, principally by implementing oxygen-enrichment technology and increasing the flexibility of existing kilns in our Palmerton, Pennsylvania facility. As part of our “Six Sigma” initiatives, we made a series of operating improvements to our Calumet, Illinois plant that have allowed us to reduce the amount of non-zinc materials fed to our smelter, thereby reducing operating costs by approximately $1.4 million on an annual basis without significant capital expenditures. We have also implemented initiatives that we believe will result in approximately $1.5 million of annual energy cost savings, at current energy prices. In addition, in 2005, we converted our power plant to the burning of Powder River Basin, or PRB, coal, avoiding an increase in operating costs of approximately $10 million per year with a one-time investment of approximately $3.5 million.

 

Expand EAF Dust Recycling Capacity

 

We believe that there are significant opportunities for us to recycle more EAF dust. We estimate that in 2006 approximately 347,000 tons of EAF dust were deposited in landfills in the United States, including by our existing customers. In addition, several new EAF steel plant projects are either under construction or were recently announced, further increasing EAF dust generation in the United States. Due to productivity, capital and operating cost efficiencies relative to integrated steel mills, the mini-mill share of the U.S. steel market has doubled in the last ten years and is expected to account for over 70% of U.S. steel produced by 2017, according to the Steel Manufacturers Association. We estimate that EAF dust generated by steel mini-mill producers will increase by approximately 2–3% annually through 2010, and we believe that steel mini-mill operators increasingly will rely on recyclers rather than landfills to manage this increased output. In order to meet this expected growth, we intend to build and place into production by the end of 2007 a new kiln with an annual EAF dust recycling capacity of 80,000 tons. We are also evaluating other capacity expansion projects involving dedicated EAF dust processing near one of our current customer’s facilities, a major U.S. steel mini-mill producer. In addition to generating additional service fees, we expect that this new kiln will provide us with additional low-cost recycled zinc that we can use in our own smelting process or that we can sell as feed to other zinc smelters.

 

Expand Production Capacity for Existing Zinc Products

 

We expect to increase our zinc smelter production output from approximately 140,000 tons to 168,000 tons by the end of 2009 through a series of operational enhancements that involve capital expenditures ranging from $4 million to $5 million in the aggregate. We also intend to expand our capacity to produce zinc oxide and have recently expanded our capacity to produce Special Special High Grade, or SSHG, zinc metal by converting existing refining capacity at our Monaca facility. Our additional production capacity will allow us to capitalize on the expansion we are anticipating in the zinc oxide market. The additional SSHG metal production capacity will allow us to increase significantly our production of zinc powder, a product which has historically generated higher margins than sales of the underlying metal, or increase our SSHG metal sales to other powder producers.

 

Continue to Reduce Exposure to Commodity Price Fluctuations

 

We sourced approximately 56% of our zinc feedstock in 2006, representing approximately 24% (9%, net of EAF dust service fees, which are reflected as sales on our statements of operations) of our 2006 operating costs, from our EAF dust recycling operations. Since the cost at which we acquire zinc from our recycling operations is not impacted by changes in LME prices, these operating costs are insulated against the effects of changes in LME prices. Therefore, to hedge the margin on sales derived from our recycled feedstocks against changes in the LME price, in 2005 and 2006 we purchased put options covering approximately two-thirds of our then anticipated 2006 and 2007 zinc sales, respectively, under which we were entitled to receive, on a monthly basis, at least $0.748 per pound of zinc product covered by the hedge. The 2006 put options expired with the LME zinc price exceeding the strike price each month. In December 2006, we sold the unexpired 2007 put options in order to realize an income tax benefit. We will continue to evaluate our zinc price hedging alternatives for 2008 and years thereafter, considering the costs and benefits in light of the commodity price environment, hedging transaction costs, and the extent to which we are able to increase the percentage of zinc we acquire from our recycling operations. The remainder of our zinc feedstock costs are derived primarily from zinc secondaries which use LME-based pricing, and therefore are naturally hedged against changes in the LME price. We have also entered into a forward contract for the purchase of coal for a fixed price through 2008. We believe that locking in a price for coal, which comprised approximately 29% of our energy costs in 2006, will stabilize our production costs and reduce the risk of coal supply interruptions.

 

Pursue New Markets and Applications

 

We intend to continue to leverage our technical expertise, culture of innovation and close customer relationships in order to identify and pursue new markets and applications for our products. For example, we are currently testing new, higher-margin applications for iron-rich material, a co-product of EAF dust recycling, such as use as a passive water-treatment medium at coal mining sites that have acidic mine drainage, and as a daily cover or base material for municipal landfills to reduce ground water contamination. We are evaluating new markets for our zinc powders, which we expect to more than double in volume from 2006 to 2007. In addition, the expansion of our EAF dust recycling capacity will allow us to increase production of our zinc smelter feedstocks, such as crude zinc oxide, or CZO, which can be sold to third party zinc smelters in the U.S. and internationally. We also intend to continue to identify and explore strategic acquisition opportunities.

 

Facilities

 

The chart below lists our production facilities:

 

 

 

 

Industry Overview

 

Zinc metal is the fourth most commonly used metal in the world, after iron, aluminum and copper. Most finished zinc metal is produced by refining mined zinc concentrates and combining it with secondary zinc feedstocks. Zinc producers tend to be less vertically integrated than other metal producers, with many focusing on either mining ore/producing zinc concentrate or smelting/refining. Demand for zinc tends to track general global industrial activity levels, with nearly half of the zinc consumed in the world being used to galvanize steel products, and the balance used in a wide range of other industrial applications.

 

Global demand for zinc is comprised of two primary types of products: zinc metal and value-added zinc products. Zinc metal is a commodity product, with well-established product grade specifications adhered to on a worldwide basis and deliverable on the LME commodity zinc market. Value-added zinc products, such as oxide, dust, powders and metal alloys, are engineered with a wide range of product grades and specifications for use in various applications including rubber tires, paints, oil additives, alkaline batteries and specialty coatings. Value-added zinc products are not traded on the LME or any other exchange, but they generally are sold at prices based on a premium to the LME price of SHG. All zinc producers depend, to varying degrees depending on the grades and the nature of the smelting process, on LME price-based raw materials as inputs in the production process. Demand for value-added zinc products, on the other hand, typically also depends in part on growth within individual applications. Competition with many of these markets is based on criteria other than price, such as adherence to customer specifications, quality of customer service and ability to establish long-term customer relationships.

 

The LME price of zinc is impacted by, among other things, expected production at zinc mines and smelters, macroeconomic conditions in regions that consume large quantities of zinc, worldwide zinc stocks and foreign currency exchange rates. Demand for all zinc and zinc-based products is impacted, to varying degrees, by the prevailing LME price for zinc, which depends also on the levels of LME zinc inventory. The growth in global demand for zinc has resulted in the continued depletion of LME zinc inventory levels, from a recent high of approximately 790,000 tonnes in April 2004 to approximately 88,000 tonnes in December 2006. Current industry analysts forecast that continued growth in global demand and further depletion of zinc stocks will cause these favorable zinc market conditions to continue through 2007. The following table details zinc consumption for the past five years and consensus forecasts as of February 2007, as compiled by CRU International, Inc.

 

Worldwide Zinc Supply and Demand

 

 

 

 

Recent Developments

 

On April 12, 2007, we completed the private placement of 13,973,862 shares of our common stock (including 1,822,678 shares pursuant to the exercise of an over-allotment option) at a price to investors of $13.50. Friedman, Billings, Ramsey & Co., Inc. served as the initial purchaser and placement agent and received a discount/commission of $0.95 per share. The aggregate net proceeds for the total offering, after deducting discounts and commissions of $13,205,300, were equal to $175,441,837. All proceeds of the offering, including discounts and commissions, were placed into escrow pending authorization by the U.S. Federal Energy Regulatory Commission (the “FERC”) of our proposed application of the net proceeds. If we receive authorization from the FERC on or prior to May 31, 2007 (subject to a 30-day extension by an affirmative vote of our board of directors), we will use the net proceeds held in escrow primarily to repurchase an aggregate of 6,213,076 shares of our common stock and to redeem outstanding warrants exercisable for 5,938,108 shares of our common stock, including warrants exercisable for fractional shares, in each case held by our pre-November 2006 stockholders, at a price equal to $12.55 per share. If we do not receive authorization from the FERC within such time frame, we will redeem all shares of common stock sold in the offering at 100% of the purchase price plus interest accrued on the escrow account. We refer to these transactions, collectively, as the “April Transactions.”

 

Corporate Information

 

Horsehead Holding Corp. is incorporated under the laws of the State of Delaware. Our principal executive offices are located at 300 Frankfort Road, Monaca, Pennsylvania 15061-2295, and our telephone number is (724) 774-1020. Our website is www.horsehead.net. The information on our website is not part of this prospectus.

The Offering

 

 

References in this prospectus to the number of shares offered and the number of shares to be outstanding after this offering do not include:

 

 

References in this prospectus to the number of shares to be outstanding after this offering include 6,213,076 shares that we intend to repurchase from existing stockholders upon receipt of FERC approval for the April Transactions. See “Summary — Recent Developments.”

Summary Historical Financial and Other Information

 

The summary historical financial information set forth below as of December 31, 2005 and 2006 and for the fiscal years ended December 31, 2004, 2005 and 2006 has been derived from, and should be read together with, our audited consolidated financial statements and accompanying notes included elsewhere in this prospectus, which statements have been audited by Grant Thornton LLP.

 

The following summary consolidated financial data should be read in conjunction with “Capitalization,” “Selected Historical Consolidated Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the accompanying notes thereto included elsewhere in this prospectus.