As the court's decision on an injunction to ban new share issuance, filed by Young Poong and MBK Partners (on behalf of Young Poong) against a third-party paid-in capital increase being pursued to fund Korea Zinc's investment in a smelter in Clarksville, Tenn., draws near, the clash between Young Poong and Korea Zinc is intensifying.
Young Poong issued an official statement on the 21st, arguing that "even if a final joint venture (JV) contract is not signed in connection with Korea Zinc's U.S. Smelter construction, the JV will retain 10% of Korea Zinc's equity as is—an abnormal structure."
Young Poong pointed out that the "Business Alliance Framework Agreement (BAFA)" signed by the JV investors contains no provisions on the effect of the new shares to be issued by Korea Zinc or on their clawback or extinguishment.
A Young Poong official said, "In a typical joint venture, new shares are issued only after rights and obligations are clearly finalized through a definitive agreement, but in this case, the new share issuance proceeds before the definitive contract is signed, allowing the JV to secure equity regardless of whether the contract is concluded," adding, "Even if the definitive agreement falls through, Korea Zinc would be left without legal means to claw back the equity, resulting in a structure that only dilutes shareholders' stakes."
Korea Zinc distributed two official statements that day to refute Young Poong's claims. Regarding Young Poong's assertion, it said the "agreement's premise of signing a definitive contract within two years means a 'declaration' to sign the definitive contract within that timeframe at the latest," adding that it "was made in consideration of the U.S. government's urgent need to build a core mineral supply chain."
It also said, "If the U.S. government, to urgently build a core mineral supply chain, has invested trillions of won in acquiring Korea Zinc's new shares, the claim by MBK and Young Poong that a definitive contract may not be signed for two years and that BAFA could be terminated as a result is irrational and unreasonable—and it is not true."
Korea Zinc emphasized that the U.S. side is responsible for 91% of the investment and support for the smelter's construction.
It said the U.S. government and a strategic investor (SI) will invest $1.85 billion in the JV, and the U.S. government and major U.S. financial institutions will provide a total of $4.91 billion in financing to CrucibleMetals, LLC, the operating company building Korea Zinc's U.S. Smelter.
In other words, the U.S. side's direct investment and financing totals $6.76 billion, which accounts for 91% of the $7.4 billion total to be spent on the smelter construction.
It also noted that, at the U.S. government level, various benefits are provided, including the Inflation Reduction Act (IRA) tax credit, bonus depreciation (OBBBA), low-interest policy financing, and strengthened partnerships with the U.S. government. Korea Zinc plans to produce a total of 13 products at the U.S. Smelter, including 11 core minerals designated by the U.S. government.
Korea Zinc called Young Poong's claims "clearly false." A Korea Zinc official said, "Young Poong, which calls itself 'Korea Zinc's largest shareholder,' is condemning Korea Zinc for deciding to hand over 10% of Korea Zinc's equity to the JV for no consideration, based on unrealistic and unreasonable assumptions that the U.S. Smelter construction will not proceed as planned," adding, "It is a malicious attempt, fixated solely on seizing control of Korea Zinc's board, that would cause us to lose the chance to secure a foothold in the United States, one of the world's largest core mineral markets."
Meanwhile, Korea Zinc announced on the 15th that it has established a joint venture (JV) called CrucibleMetals, LLC with the U.S. Department of Commerce, the Department of War (the former Department of Defense), and defense strategy companies, and will build a nonferrous metal smelter in Clarksville, Tenn. As one of the financing methods, Korea Zinc decided to conduct a third-party paid-in capital increase to allocate about 10.59% of Korea Zinc's equity to the JV, in which the U.S. Department of War is the largest shareholder (40.1%). In response, Young Poong, which is in a management control dispute with Korea Zinc, filed for an injunction to ban new share issuance with the court, and the result is expected as early as the 22nd.