Horsehead Holding Corp (OTCMKTS:ZINCQ) Still Has Hope

Usually we don't recommend investors takes positions in bankrupt companies that hit the OTC. Generally, when a company declares bankruptcy, shareholders panic and then there's a relief rally on the back of short covering. These are the types of trades we usually take. The case with Horsehead Holding Corp (OTCMKTS:ZINCQ) looks to be different. We believe there is hope for shareholders in this bankrupt zinc company.Horsehead is a company with over $1 billion of assets, recycling plants in six states and Canada and over 750 employees, the vast majority of which are hourly plant workers in the Southeast and Pennsylvania. The company has invested over $500 million in a new green zinc processing plant in Mooresboro, NC.In February, Horsehead Holding filed for Chapter 11 bankruptcy protection, a day before the expiration of a 30-day grace period for the $1.9M senior convertible note it failed to pay in January. The filing listed liabilities of $544.7M and total assets of $1B. The company was hit hard by the collapse in zinc prices, as well as continued problems with getting its state-of-the-art zinc production plant up and running in Mooresboro, NC.Last week, shareholders of Horsehead Holding won backing from a U.S. Judge for an official role in the company's Chapter 11 bankruptcy case. The stockholders had argued that they felt misled by Horsehead's sudden bankruptcy filing in February, which came after the company indicated it had sufficient funds for its operations. The Judge approved appointing an official equity committee, which generally represent unsecured creditors, such as bondholders and suppliers in bankruptcy cases. U.S. Bankruptcy Judge Christopher Sontchi in Wilmington, Delaware said "Something doesn't smell right to the court."This was a huge win for shareholders. The little guy benefited because the campaign for an official shareholder committee in the Horsehead case was led by investment fund manager Guy Spier and Phil Town, the author of a 2006 New York Times best-seller, "Rule #1." Guy Spier is a Zurich-based investor and author of a book on investing entitled The Education of a Value Investor. He is well known for bidding US$650,100 with Mohnish Pabrai for a charity lunch with Warren Buffett in June 2007. Spier manages the Aquamarine Fund, an investment partnership inspired by, and styled after Warren Buffett's 1950s investment partnerships.While shares popped originally on the news, they quickly sold off. We believe this is because nervous longs chose to sell into this rally when they shouldn't. The Judge ruled in favor of common shareholders and puts them at the negotiating table and allows for their representation to be paid for by ZINCQ. Usually common shareholders are wiped out and we don't believe this will happen now as a result. Helping support this thesis is an article on Seeking Alpha that said "Horsehead is an extremely valuable business worth at least $1bn and potentially $2bn in 18 months."Investors need to look at ZINCQ as a lotto ticket. Either you lose everything or wind up making several times your money. The good news is that ZINCQ has real assets and there looks to be a payoff down the road. After all, this is the same company that management surprised investors with a bankruptcy filing that no one thought was coming. Management did not indicate that the company was in distress and that fact resonated with the Judge. Considering the size and scope of ZINCQ's assets, even if shareholders got $58 million back that would be $1 per share. When ZINCQ is evaluated from this perspective, shares at $.17 are awfully cheap. We will be updating Insider Financial as soon as we know more. For continuing coverage on ZINCQ, sign up for our free newsletter today and get our next hot stock pick!Disclosure: We have no position in ZINCQ and have not been compensated for this article.