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Monday, 07/18/2016 9:12:21 AM

Monday, July 18, 2016 9:12:21 AM

Post# of 177043
Horsehead Holdings: Something Doesn't Smell Right






$ZINCQ








Summary

The Equity Committee's May 27th Objection to the Disclosure Statements and recent letter to Judge Sontchi include several important findings.

Horsehead received offers for a portion of their assets for “far in excess” of the value ascribed in the Disclosure Statement to all of their assets.

The Company’s statements regarding the Mooresboro plant have changed drastically in a few months and are distorting the significant value of the plant.

Zinc prices have recovered nearly 50% since the filing to nearly $0.95 and Wood Mackenzie predicts that they will reach $1.875 by 2018.

These three factors support a valuation of Horsehead in excess of $1 billion and discredit the Disclosure Statement valuation.

Overview

To put it bluntly, something doesn't smell right to the court. I don't know what happened. I don't know if there was inappropriate behavior." - Judge Sontchi at the Equity Committee hearing on May 2nd.

On May 2nd, the Court appointed an Equity Committee for the Horsehead (OTCPK:ZINCQ) bankruptcy case, which gives shareholders (via the Equity Committee) access to certain Company documents and details leading up to the filing. On May 27th, the Equity Committee filed an Objection to the Disclosure Statements of the Company's Joint Plan of Reorganization and followed it up with a letter to Judge Sontchi.

The Objection details seven material issues with the Disclosure Statements and I encourage readers to review the entire Objection. The most notable finding in the Objection was that Horsehead received offers for a portion of their assets (excluding the $550 million Mooresboro facility) for substantially more than the value ascribed in the Disclosure Statement to all of their assets ("Disclosure Statement Valuation"). In my view, (1) pre-petition offers for the Company excluding Mooresboro, (2) a conservative valuation of Mooresboro based on Management's pre-petition statements, and (3) rising zinc prices support a valuation of Horsehead in excess of $1 billion and discredit the Disclosure Statement Valuation ($255 million - $305 million). In this article, I will review these three valuation considerations discussed in the Objection, which I have supplemented with my own research. I have also included my thoughts on the Company's recently filed financial audit and a recap of the events to date to shed light on Judge Sontchi's suspicion that "Something doesn't smell right" with the Company's story.

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