Horsehead Holding Corp. (ZINC) is down 50% today after the company announced bankruptcy. This shouldn't come as a surprise to anyone as the stock is down 99% since last April. What might not be immediately obvious is why I attribute ZINC's downfall to a rise in Amira Nature Foods Ltd. (NYSE:ANFI) today, which is up about 7%.
Very simple. ANFI is one of Prescience Point's top short positions. You can see the research on it here. ZINC is one of Prescience Funds top long positions. You can see the research on it here. Both funds are operated by the same group.
As I speculated yesterday, I believe that Prescience Point's rant on Twitter against ANFI on Friday was a ploy to save its fund from further losses. Now that ZINC has announced bankruptcy, that adds an interesting dynamic to the situation as Prescience probably saw this announcement as being imminent and was desperately trying to gain back the confidence of its funds' investors by trying to take down ANFI. Now that it isn't working, the collapse of ZINC may be forcing the hands of Prescience and its associates as we speak. They have to unravel other positions to cover off ZINC losses and possible redemptions as investors have lost faith in a research fund that has had one of its few publicly stated long positions go bankrupt.
This begs another question. If Prescience is so good at identifying shorts (either through frauds or weak financials), why did it not see this massive red flag on ZINC's balance sheet that has led to today's announcement?
If Prescience is on the verge of collapse, or at least forced to close out positions from client redemptions thanks to ZINC going bankrupt, watch for a further squeeze on ANFI. There are 36 million shares outstanding but 75% of that is held by the Amira's CEO. That means there are only 9 million free floating shares and the latest data point has short interest on ANFI at over 3 million. This is ripe for a short squeeze.
Disclosure: I am/we are long ANFI.
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