Reuters reported that Horsehead Holding Corporation is trying to transfer hedging contracts with its clearing agent, a British branch of futures brokerage MF Global Holdings Limited which has filed for Chapter 11 bankruptcy protection.
Company shares fell 8% to USD 8.13 on the Nasdaq on Friday afternoon after the revelation in a press release announcing Horsehead's better than expected Q3 financial results.
Mr Robert Scherich CFO of Horsehead said that "We have no cash on account with MF Global. These are LME registered contracts. We are talking with numerous clearing members. We have no reason to believe it transfer won't happen and expect to complete it in a matter of weeks."
Mr Scherich said that the company started using hedging contracts including all put and call options for 2012 and 2013 to protect it from zinc price volatility during a period when it is investing heavily in a new smelter in North Carolina. During the Q3 the price of zinc fluctuated between a high of USD 1.15 per pound and a low of 84 cents.
The metal is currently selling for about 89 cents per pound way off its all time high in 2006 of just over USD 2. The hedges on 75% of expected zinc production in 2012 and 2013 had a floor of 85 cents per pound and a ceiling of USD 1.20.
Pittsburgh based Horsehead said that the clearing agent for the majority of its hedging contracts was MF Global UK Limited, a British affiliate of MF Global. It gave no details on the number of contracts. The company said that it thought it could transfer all of them to other members of the London Clearing House without incurring any loss.
Mr Scherich said that the mark to market of the hedges fluctuated day to day with the price of the metal. The collar was at zero when we introduced them and at the end of June we would have had a negative USD 15 million, because the zinc price was up at the end of June. But it went down at the end of September and the mark up would then be USD 24 million. That's the volatility of the zinc price and the purpose of the hedges.
He said that Horsehead expected to lay the foundations for a new smelter in North Carolina in the first quarter of next year. It will replace the 85 year old Monaca smelter near Pittsburgh. The hedges were put in place to give us a level of commodity price protection in an investment period. We didn't want the commodities to go down so much that it would disrupt this.
(Sourced from Reuters)
