Korea Zinc's $1.4B US Investment Plan Draws Fire as Defense Tactic

Korea Zinc (010130.KS) faces strong pushback from its rival shareholders Young Poong and MBK Partners over a plan to attract approximately 2 trillion won ($1.4 billion) in investment from US government agencies and corporations, with critics calling it a move to secure a "white knight" for management control defense.

According to investment banking sources on Wednesday, Korea Zinc's board was set to convene in the morning to approve the construction of a strategic minerals smelter in the southeastern United States worth approximately 10 trillion won.

The US smelter will be pursued through a joint venture between Korea Zinc and US partners. The facility is expected to serve as a local production and supply hub for strategic minerals that Korea Zinc currently produces domestically, including antimony and germanium.

Total investment is estimated at approximately 10 trillion won. The joint venture will borrow funds locally, while the US Department of Defense, Department of Commerce, and defense strategic companies will invest approximately 2 trillion won. The structure involves participation in Korea Zinc's third-party allotment capital increase rather than direct investment in the smelter. Market observers note that the US Department of Defense becoming a Korea Zinc shareholder could introduce a new variable in the ongoing battle for control of the company.

Young Poong and MBK Partners, which are in conflict with Korea Zinc Chairman Choi Yun-beom, immediately objected. They pointed out that Korea Zinc's choice of a third-party allotment capital increase suggests the primary purpose is not financing the smelter construction but securing a white knight to defend Chairman Choi's management control. Under a normal business structure, direct US investment in the smelter would better serve both US government interests and Korea Zinc shareholder interests, they argued.

"Korea Zinc is bearing the entire astronomical burden of 10 trillion won in funding and risk, yet handing over a prime 10% stake to US investors in a distorted structure," Young Poong said. "This can be seen as an abuse of the company's articles of incorporation that only permit third-party allotment capital increases to overseas joint ventures. There are concerns about breach of fiduciary duty by the board and potential violation of directors' duty of loyalty to all shareholders under the revised Commercial Act."

Young Poong and MBK Partners maintain that there is hardly any precedent for US government agencies choosing an indirect investment route through a joint venture with a foreign private company. They also expressed concern that building a "twin factory" of the Ulsan smelter in the United States could not only hollow out Korea's domestic smelting industry but also risk leaking core technologies.

"Rather than hastily pushing this through an extraordinary board meeting, they should take time to carefully and thoroughly review the business viability," a Young Poong official said. "They must immediately stop this act of betrayal that abandons Korea's 'zinc sovereignty' just to find a white knight."