randallchsu Posted October 6, 2015 Share Posted October 6, 2015 Unless the convert holders elect to convert their Notes into shares (and at these prices, why would they?), Horsehead is on the hook for the entire principal amount of the Notes, payable in cash. yes this is correct Link to comment Share on other sites More sharing options...
500pages Posted October 6, 2015 Share Posted October 6, 2015 Unless the convert holders elect to convert their Notes into shares (and at these prices, why would they?), Horsehead is on the hook for the entire principal amount of the Notes, payable in cash. yes this is correct +1, you're right -- thanks! Link to comment Share on other sites More sharing options...
500pages Posted October 6, 2015 Share Posted October 6, 2015 ... So someone (the original holder?) thought they would rather collect $0.44 now than have unsecured claim to $1 (plus $0.076 in interest) in less than 2 years? Wow. Link to comment Share on other sites More sharing options...
peterareed Posted October 6, 2015 Share Posted October 6, 2015 If the Company were to file for bankruptcy, there is a good chance that the unsecured holders would need to put in incremental money to pay off the secured debt. In the absence of doing this, that unsecured claim may not be worth much. Link to comment Share on other sites More sharing options...
cmlber Posted October 6, 2015 Share Posted October 6, 2015 If the Company were to file for bankruptcy, there is a good chance that the unsecured holders would need to put in incremental money to pay off the secured debt. In the absence of doing this, that unsecured claim may not be worth much. No there isn't. A chance? Maybe (although very very slim). A good chance? Definitely not. The EAF dust recycling plants, inmetco, and zochem are probably worth $500 million. There is only $250 million in secured debt. Whoever sold that bond for 44 cents is an idiot. Link to comment Share on other sites More sharing options...
jamesmadison Posted October 6, 2015 Share Posted October 6, 2015 Anyone thinking the convertible is a good buy at that price and pulling the trigger? ::) They were trading at 66.75 less than a week ago. Link to comment Share on other sites More sharing options...
undervalued Posted October 6, 2015 Share Posted October 6, 2015 up 27%, short squeezes? Link to comment Share on other sites More sharing options...
peterareed Posted October 6, 2015 Share Posted October 6, 2015 Who are the logical buyers for the EAF dust plants, Inmetco, Zochem, etc at / near a $500 million valuation? And why wouldn't the buyer(s) just buy the converts in the market then? I'd love to make an easy 2.5x my money and to purchase those converts in that context... Link to comment Share on other sites More sharing options...
RadMan24 Posted October 6, 2015 Share Posted October 6, 2015 Who are the logical buyers for the EAF dust plants, Inmetco, Zochem, etc at / near a $500 million valuation? And why wouldn't the buyer(s) just buy the converts in the market then? I'd love to make an easy 2.5x my money and to purchase those converts in that context... PE? Link to comment Share on other sites More sharing options...
cmlber Posted October 6, 2015 Share Posted October 6, 2015 Who are the logical buyers for the EAF dust plants, Inmetco, Zochem, etc at / near a $500 million valuation? And why wouldn't the buyer(s) just buy the converts in the market then? I'd love to make an easy 2.5x my money and to purchase those converts in that context... PE? Well there is a natural buyer in Zinc Nacionale for the recycling plants and calcine kiln. They own SDR which is the only other competitor in the U.S., so Horsehead could sell 3 of 4 recycling plants + the calcine kiln to SDR without any anti-trust issues, since it would just be shifting market share so that the #1 and #2 swap places. That would probably pay off all the secured debt maybe with some cushion. Then the remaining recycling plant + inmetco + zochem there isn't a natural buyer, but someone would buy those assets. They are very good businesses. Inmetco is the Horsehead of stainless steel and is arguably a higher quality business since it is literally a natural monopoly, there is nobody else that recycles stainless steel and nobody else ever will. Link to comment Share on other sites More sharing options...
500pages Posted October 7, 2015 Share Posted October 7, 2015 If the Company were to file for bankruptcy, there is a good chance that the unsecured holders would need to put in incremental money to pay off the secured debt. In the absence of doing this, that unsecured claim may not be worth much. No there isn't. A chance? Maybe (although very very slim). A good chance? Definitely not. The EAF dust recycling plants, inmetco, and zochem are probably worth $500 million. There is only $250 million in secured debt. Whoever sold that bond for 44 cents is an idiot. maybe they found something else to buy for 43 cents? ;-) Link to comment Share on other sites More sharing options...
500pages Posted October 7, 2015 Share Posted October 7, 2015 Who are the logical buyers for the EAF dust plants, Inmetco, Zochem, etc at / near a $500 million valuation? And why wouldn't the buyer(s) just buy the converts in the market then? I'd love to make an easy 2.5x my money and to purchase those converts in that context... PE? Well there is a natural buyer in Zinc Nacionale for the recycling plants and calcine kiln. They own SDR which is the only other competitor in the U.S., so Horsehead could sell 3 of 4 recycling plants + the calcine kiln to SDR without any anti-trust issues, since it would just be shifting market share so that the #1 and #2 swap places. That would probably pay off all the secured debt maybe with some cushion. Then the remaining recycling plant + inmetco + zochem there isn't a natural buyer, but someone would buy those assets. They are very good businesses. Inmetco is the Horsehead of stainless steel and is arguably a higher quality business since it is literally a natural monopoly, there is nobody else that recycles stainless steel and nobody else ever will. yeah but a natural monopoly (yay) outputting a commodity (boo) - it's not a spread business like Zochem, right? And maybe selling off recyclers is a good gedankenexperiment, but Horsehead would be destroying the value sunk cost of Mooresboro -- so I imagine they issue all kinds of equity before they get to selling recyclers (and the business relationships) Link to comment Share on other sites More sharing options...
500pages Posted October 9, 2015 Share Posted October 9, 2015 Glencore just announced it's shutting a large portion of it's zinc production to boost prices Glencore sure has one hell of a playbook: 1. control the price of the commodity you trade 2. ? 3. profit Good to be the beneficiary of "glencore put", do you think they will keep doing this kind of stuff (in copper too) unilaterally as long as the trading arm makes up for it? Link to comment Share on other sites More sharing options...
Guest MarkS Posted October 9, 2015 Share Posted October 9, 2015 Here's a link to a Barron's blog post on the Glencoe zinc production cut. http://www.barrons.com/articles/BL-AFUNDSB-3986 Link to comment Share on other sites More sharing options...
peterareed Posted October 12, 2015 Share Posted October 12, 2015 Cmlber, Thanks for the thoughts. That is certainly very helpful for me. Why do you think that selling 3 of the 4 recycling plants plus the calcine kiln would pay off the secured debt? Does it matter which three recycling plants ZINC sells? Are you making a replacement cost argument? Is SDR short recycling capacity? If SDR is the only logical bidder, why would it pay anywhere near a value close to the amount of ZINC's secured debt? Link to comment Share on other sites More sharing options...
cmlber Posted October 12, 2015 Share Posted October 12, 2015 Cmlber, Thanks for the thoughts. That is certainly very helpful for me. Why do you think that selling 3 of the 4 recycling plants plus the calcine kiln would pay off the secured debt? Does it matter which three recycling plants ZINC sells? Are you making a replacement cost argument? Is SDR short recycling capacity? If SDR is the only logical bidder, why would it pay anywhere near a value close to the amount of ZINC's secured debt? I don't think SDR is the only logical bidder, it's just the only bidder that would probably be immediately interested after a 5 minute phone call. Anybody can buy the recycling facilities. Horsehead has 770k tons of recycling capacity. In 2010, they built 180,000 ton facility for $65m, so without any inflation, that would indicate it would cost ~$278m to replace the total capacity. It also has long term contracts to recycle dust, which have value. In 2009 Horsehead purchased EAF dust recycling contracts (roughly 100,000 tons per year) from ESOI, a large land filler, for $11.7 million. Using that comp, I would estimate Horseheads contracts are conservatively worth $75 million. And then idk what it would cost to replace the calcine kiln, but I would guess close to $50m as it can produce 130,000 tons of calcine. So those assets, which don't include Inmetco, Zochem, or Mooresboro would cost ~$400m to replace. Also, that business would produce ~$40-45m in EBITDA at $1/lb zinc, with very minimal capex. I don't think Horsehead will sell these; they feed Mooresboro so would essentially be selling their moat. I was just making the point that the secured debt is pretty darn secure and even the unsecured debt is highly likely to be fully repaid even if Mooresboro blows up. Link to comment Share on other sites More sharing options...
BG2008 Posted October 12, 2015 Share Posted October 12, 2015 Jim Chanos all but said outright that he's been short Glencore on Bloomberg TV. In a Murphy's law scenario, there could be a situation where Glencore gets shorted into bankruptcy because of Chanos' comments because they can no longer use equity offering as a way to deleverage their balance. In a bankruptcy filing, the assets are likely liquidated and picked up by a strategic. This "could" potentially cause the shuttered zinc mine to come online as the purchaser may have a much lower cost basis where it makes economic sense to mine the zinc reserves. Clearly, the probability is hard to calibrate correctly. But investing is partially about being creative about downside scenarios and anything negative with Glencore is likely bad for Zinc. http://www.bloomberg.com/news/articles/2015-10-12/jim-chanos-hints-at-glencore-short-questions-company-s-strategy Link to comment Share on other sites More sharing options...
RadMan24 Posted October 13, 2015 Share Posted October 13, 2015 Another day, another crazy scenario. Link to comment Share on other sites More sharing options...
Homestead31 Posted October 13, 2015 Share Posted October 13, 2015 Jim Chanos all but said outright that he's been short Glencore on Bloomberg TV. In a Murphy's law scenario, there could be a situation where Glencore gets shorted into bankruptcy because of Chanos' comments because they can no longer use equity offering as a way to deleverage their balance. In a bankruptcy filing, the assets are likely liquidated and picked up by a strategic. This "could" potentially cause the shuttered zinc mine to come online as the purchaser may have a much lower cost basis where it makes economic sense to mine the zinc reserves. Clearly, the probability is hard to calibrate correctly. But investing is partially about being creative about downside scenarios and anything negative with Glencore is likely bad for Zinc. http://www.bloomberg.com/news/articles/2015-10-12/jim-chanos-hints-at-glencore-short-questions-company-s-strategy Chanos is not the swing factor - he has been vocally short anything and everything connected to commodities and china for several years. when thinking about chanos, it is important to understand that he plays by different rules than other shorts. chanos' fund gets paid by institutional investors based on negative alpha, not absolute performance. in other words, if he is short XYZ, and XYZ goes up 10% (meaning Chanos loses 10%) but the market goes up 12%, Chanos' gets paid on his 2% "out performance." that is obviously very different than the hedge funds of the world that get paid on absolute performance only, with the net effect being that Chanos has a MUCH lower hurdle to put short positions on. that being said, i don' think anyone has needed chanos to guide them toward glencore in recent months for a short idea. also worth noting that cost basis for an asset does not effect profitability of an asset with the exception of leverage. in other words, it doesn't matter if you pay $1 for a mine or $1,000,000,000 for a mine... it doesn't make sense to dig for ore if you are losing money on every ounce. in a BK breakup a new owner of the zinc hole in the ground could have a better (cheaper) leverage structure, but it is unlikely to be a real swing factor. Link to comment Share on other sites More sharing options...
mateo999 Posted October 15, 2015 Share Posted October 15, 2015 FYI, Aquamarine didn't change his Zinc position during the quarter. Not sure what his cash levels looked like. Link to comment Share on other sites More sharing options...
mateo999 Posted October 15, 2015 Share Posted October 15, 2015 all known stuff, but probably one of the reasons ZINC's down sharply today: http://www.whitediamondresearch.com/research_more.php?id=26 Link to comment Share on other sites More sharing options...
racemize Posted October 15, 2015 Share Posted October 15, 2015 all known stuff, but probably one of the reasons ZINC's down sharply today: http://www.whitediamondresearch.com/research_more.php?id=26 It says this: "The company estimates it will take about $50 million more to solve its current Mooresboro problems." I don't recall seeing that anywhere? Link to comment Share on other sites More sharing options...
RadMan24 Posted October 17, 2015 Share Posted October 17, 2015 Shouldn't be surprised to see short reports showing up, after all, it has been quite profitable selling short . Link to comment Share on other sites More sharing options...
Guest roark33 Posted October 23, 2015 Share Posted October 23, 2015 http://www.sec.gov/Archives/edgar/data/1385544/000119312515352033/d92188d424b5.htm More dilution coming...... Link to comment Share on other sites More sharing options...
Homestead31 Posted October 23, 2015 Share Posted October 23, 2015 This actually makes a ton of sense. 1) the fees on ATM offerings are lower than on fully marketed deals 2) this maximizes flexibility - if they need $10M, they sell $10M worth. If they need $40M, they sell $40M worth. If the stars align and they need $0, the sell $0. While some dilution is likely, doing it in this way allows them to make sure that dilution is as minimal as possible. Link to comment Share on other sites More sharing options...
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