Young Poong said it "basically supports" Korea Zinc's project to build a smelter in Tennessee in the United States (U.S. Smelter project), but directors recommended by Young Poong and MBK Partners (the Young Poong side) are understood to have voted against all related agenda items at the earlier board meeting. It appears they first cast opposing votes because the investment structure includes elements that could disadvantage the Young Poong side in the management control dispute.
According to multiple outside directors of Korea Zinc on the 19th, MBK Vice Chairman Kim Gwang-il, Young Poong President Kang Seong-du, Young Poong Adviser Jang Hyeong-jin, who attended via video, and outside director Kwon Gwang-seok — directors recommended by Young Poong and MBK (the Young Poong side) who attended the board meeting on the 15th — all cast opposing votes on six agenda items related to Korea Zinc's U.S. Smelter project.
The six items were: ▲ approval of plans to attract investment from the U.S. government and others and to proceed with construction of the U.S. Smelter ▲ approval of acquiring equity in a foreign joint venture and signing an investment agreement ▲ approval of a third-party paid-in capital increase and signing a subscription agreement ▲ approval of a local subsidiary's equity contribution and acquisition of the U.S. Smelter ▲ approval of providing a guarantee to a local subsidiary ▲ settlement of account dividends (plan) and fixing the record date for dividends.
An outside director who requested anonymity said, "One of the Young Poong side outside directors said at the board, 'Permitting could be delayed, and there are raw material supply and sales issues. Even the change in the U.S. administration is all a risk,'" adding, "The Young Poong side outside directors voted against all related items."
Another outside director said, "A Young Poong side official said, 'Explain what risks the U.S. government is taking and how it is taking them regarding various dangers,'" asserting, "It appeared they opposed the U.S. Smelter project itself."
This response differs somewhat from Young Poong's position a day after the board, on the 16th, that it had "basic support for the U.S. Smelter." In a statement that day, Young Poong said, "Under the shared goal of stabilizing critical minerals and supply chains, Young Poong basically supports expanding the strategic partnership between Korea and the United States. We also do not deny that the technology and experience held by Korea Zinc can contribute to strengthening industrial competitiveness in the United States."
Earlier, Korea Zinc said on the 15th that it would establish a joint venture (JV) called CrucibleMetals, LLC with the U.S. Department of Commerce, the Department of War (formerly the Ministry of National Defense), and defense strategic companies, and build a nonferrous metal smelter in Clarksville, Tennessee.
As one of the financing methods, Korea Zinc decided to carry out a third-party paid-in capital increase to the JV, in which the U.S. Department of War is the largest shareholder (40.1%), by issuing about a 10.59% Korea Zinc equity stake. It was also reported that, in signing a loan agreement with the U.S. Department of War, the local smelter operating company granted the department the right to acquire a 34.5% stake in the smelter by issuing warrants.
In response, the Young Poong side, which is in a management control dispute with Korea Zinc, immediately objected, saying that with the shareholders meeting coming in March next year, the move was aimed at diluting the largest shareholder Young Poong side's equity ratio (44.25→about 40%) while securing friendly voting rights for the Chairman Choi side (about 32→39%).
The Young Poong side also filed for a preliminary injunction on the 16th with the Seoul Central District Court to prohibit the issuance of new shares regarding the paid-in capital increase resolved by the Korea Zinc board. The Young Poong side said, "In a management control dispute, a new share allocation designed to maintain Chairman Choi Yoon-beom's control is strictly prohibited by the Commercial Act and Supreme Court precedents."
It added, "The purpose of the injunction is by no means to block cooperation with the United States," saying, "Rather, it is the minimum legal action to secure procedural legitimacy and transparency in governance, intended to correct a situation in which the company's capital structure and shareholder value are damaged to defend a particular individual's management control."
At the board, one Young Poong side director was understood to have said that building a smelter in the United States is positive. Even so, the director opposed the agenda that discussed the construction plan itself. The director was confirmed to have explained, "Because the six items are essentially a single agenda, if we oppose the third-party paid-in capital increase, we have no choice but to oppose the other items as well."
In the United States, there are growing concerns about the negative impact this situation could have on the U.S. Smelter project. Reuters reported the previous day (local time), "As the Trump administration decided to build a zinc smelter in the United States, the project has ended up entangled in one of the most complicated acquisition and management control disputes in Korea."
Meanwhile, some outside directors are claiming that a Young Poong side director violated confidentiality provisions. They say one Young Poong side director took dozens of pages of board materials containing details of multilateral agreements, including with the U.S. government, out of the meeting room and is suspected of leaking them externally. The argument is that this could be deemed a violation of the "director's duty to maintain confidentiality" under the Commercial Act.
Article 382-4 of the Commercial Act states, "A director shall not divulge, during their term of office or after retirement, any trade secrets of the company acquired in the course of performing their duties." Legal circles view whether the contents of the materials were conveyed externally as the key issue, rather than the mere removal of board materials.
Through an official document the previous day, Korea Zinc said, "This project involves multiple counterparties, and it is being pursued taking into account participants' views and conditions as well as U.S. laws and government regulations," arguing, "MBK Partners and Young Poong are distorting this project as if Korea Zinc unilaterally decided and is leading it alone, and they continue to spread false and distorted information."
The two sides also differ on whether there was a prior briefing on the U.S. Smelter construction before this Korea Zinc board meeting. Korea Zinc said that, separate from the day of the board meeting, it held agenda briefings and Q&A sessions for more than four hours each over two days, and that during the seven-hour board meeting, all directors, including foreign directors, and a notary were present, an 80-page set of materials was presented, and there was Q&A.
By contrast, the Young Poong side said Korea Zinc set the board meeting for Monday the 15th at 7:30 a.m., notified the convocation after 5 p.m. on the preceding Friday the 12th, and did not provide key materials to board members in advance. It also said that, even though matters that significantly affect the company's governance structure, mid- to long-term financial structure, and investment plan — such as an overseas smelter investment, a joint venture equity contribution, and a third-party paid-in capital increase — were resolved at once, the board was not given sufficient time and information to conduct adequate review.
Meanwhile, the Seoul Central District Court's Civil Division 50 (Presiding Senior Judge Kim Sang-hoon) will hold a hearing on the injunction on the day. With the payment date for the paid-in capital increase set for the 26th, observers say the court quickly scheduled the hearing. The final decision on the injunction is also expected to come in line with this paid-in capital increase schedule. Korea Zinc is said to have appointed Kim & Chang as its counsel for the injunction, while the Young Poong side appointed lawyers from Sejong and Bae, Kim & Lee.