Yamana and Metalico are Back (AUY, MEA)

You bet it is, the Market is unstable and out of control, do what we told you to do on Monday (9/16): Panic means Buy Gold, Oil, and Mining.  Those stocks are up big time, and one of our favorites, Yamana Gold (NYSE:AUY) is up 14% since yesterday and then there's Metalico, Inc. (AMEX:MEA).

Mr. T and Flav love the gold and its bouncing back. Thanks to the stock market falling apart, Gold started its rally yesterday and it continues today.

For more on that, check out Bloomberg's: Gold Extends Biggest Advance in 26 Years on Demand for Haven

But back to our Panic means Buy Gold, Oil, and Mining article, of all the stocks listed in that article, one metal stock that has taken a huge beating, and is a favorite of Hilary Kramer's (keep in mind she was scheduled to show up on Nightly Business Report Wednesday) would be Metalico, Inc. (AMEX:MEA).

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MEA is already up 13% today and just imagine if Hilary mentions this stock anytime soon on the Nightly Business Report (Hilary's comments on Aug 20th - click here), its off to the races.  This of course is speculation, but the fact of the matter is Metalico has taken a beating recently and at some point, they will bounce back.

Metalico 101

• This scrap iron play just hit a 52-week low on Monday of $4.90 a share
• Today its trading at $5.67
• 52-Week Range for MEA: $4.90 to $18.85
• Short Interest at 19%, thus the shorts could really get trapped here on a good rally, short squeeze anyone?
• Latest Analyst action calls for $11 target price, not bad considering its at $5 and change.

On Monday, 9/15 MEA issued the following statement because their stock has dropped like a rock and investors are scared stiff:

We have received multiple inquiries from shareholders concerned about the rapid decline in Metalico's stock price in the past two weeks and whether the Company is facing near-term profitability or liquidity problems. Given the volatile and uncertain conditions that exist today in the financial markets, the Company has decided to deviate from its established policy of not commenting on results before release of quarterly earnings to reassure our shareholders and the investing community at large about the Company and its prospects.

Balance Sheet

Metalico is in a liquid and strong working capital position with borrowing availability of approximately $60,000,000 and only a relatively small amount of debt outstanding under its revolving credit facility. The Company is conducting business as usual and is using conversion of inventories and collections of accounts receivable to reduce indebtedness by approximately $30,000,000 for the quarter and to further strengthen our financial position going forward. Inventories remain at historically acceptable levels.

Most of Metalico's debt was issued to institutional holders. The nearest maturity of any of the Company's long-term institutional debt is just under five years away. The notes issued by Metalico on May 1 of this year are convertible to common stock at $14 per share and do not contain any sort of reset provision allowing for a repricing of the stock conversion rate unless, under certain circumstances, the Company issues new securities at, or convertible to new shares at, a lower price. The Company currently has no plans or intention to issue any such securities. The earliest the Company could receive a mandatory put of the convertible notes is June 30, 2014.

Platinum Group Metals

As Metalico disclosed in an 8-K filed with the Securities and Exchange Commission September 8, the Company has observed rapid and significant reductions in commodity pricing for many metals during the third quarter, particularly Platinum Group Metals from catalytic converter recycling. This trend, coupled with anticipated exposure on unhedged metal, is resulting in a negative impact on the Company's revenues and margins in the quarter to date.

The Company believes losses from unhedged metals and the impact of lower commodity selling prices will likely reduce EBITDA by approximately $10,000,000 in the Third Quarter but nonetheless the Company should report a profit for the period. This negative impact resulted from aggressive (long lead-time) purchase commitments for unhedged Platinum Group Metals, a practice that has been discontinued.

Metalico has implemented procedures to correct the conditions that contributed to the loss and is now hedged on nearly 100% of its Platinum Group Metals exposure.

The Company has explained repeatedly in its quarterly results calls that it does not offer guidance or earning estimates because the scrap recycling industry is highly cyclical and commodity metal markets can be and often are volatile. Recent movements in the commodity metal markets have confirmed this position.

Carlos E. Agüero, Metalico's President and Chief Executive Officer, said, "During this period of lower commodity metal prices and uncertain financial markets, we intend to concentrate operationally on protecting margins, turning over inventories and using our positive cash flow to further strengthen our balance sheet. We remain optimistic about the Company's long-term prospects and our ability to create shareholder value in the future."

Metalico, Inc. is a rapidly growing holding company with operations in two principal business segments: ferrous and non-ferrous scrap metal recycling, and fabrication of lead-based products. The Company operates twenty recycling facilities in New York, Pennsylvania, Ohio, New Jersey, Texas, Mississippi, and West Virginia and five lead fabrication plants in Alabama, Illinois, Nevada, and California. Metalico's common stock is traded on the American Stock Exchange under the symbol MEA.

Best of luck trading today Masters, and keep Gold and Metal on your watch list.