Young Poong, which is in a management control dispute with Korea Zinc, argued that regarding Korea Zinc's U.S. Smelter construction, it is an "abnormal structure in which the joint venture (JV) retains 10% of Korea Zinc equity even if a final joint venture agreement is not concluded."
According to Young Poong on the 21st, the "Business Alliance Framework Agreement" signed by the JV investors does not specify the roles and responsibilities of the parties and instead leaves them to be set in the final agreement.
Young Poong said, "While the agreement stipulates that the agreement itself may be terminated if the final contract, which determines the success or failure of the joint venture, is not concluded within two years, it provides no provisions regarding the effectiveness, retrieval, or extinguishment of the new Korea Zinc shares already issued."
It added, "Even if the final contract falls through, the joint venture will continue to hold Korea Zinc equity, and Korea Zinc would be left without a legal means to reclaim the equity, resulting only in dilution of shareholders' equity."
Earlier, Korea Zinc said on the 15th that it would establish a JV with the U.S. Department of Commerce and Department of War (the former Ministry of National Defense) and a defense strategic enterprise to build a nonferrous metal smelter in Clarksville, Tennessee.
As one method of financing, Korea Zinc decided to conduct a third-party paid-in capital increase to allocate about 10.59% Korea Zinc equity to the JV, in which the U.S. Department of War is the largest shareholder (40.1%).
Young Poong stressed that this order of equity transfer is significantly different from normal joint venture procedures. In typical joint ventures, new shares are issued after rights and obligations are clearly confirmed through a final agreement. However, in this case, the new share issuance proceeds before the final agreement is executed, meaning the JV secures equity regardless of whether the contract is concluded.
Young Poong argued that this lays bare a structural defect of "issuing new shares without a contract," leading to a situation in which only Korea Zinc bears unilateral financial and governance risks when the substance of the project has not been secured.
Young Poong said, "It is difficult to justify Korea Zinc's preemptive allocation of 10% equity to the JV through a third-party paid-in capital increase," adding, "To exclude existing shareholders' preemptive rights and allocate equity to an outside entity, a clear managerial necessity and substantial consideration are required."
It also said, "This could result in the company transferring only equity to the other party without any substantial benefit, and could expand into an issue of accountability for management's judgment."
It pointed out that the agreement contains no specific provisions on what support U.S. investors must provide, when, or in what form. By contrast, Korea Zinc is stipulated to shoulder almost all project execution and related risks, clearly revealing a structural problem in which the substantive allocation of responsibility is one-sided.
Young Poong said, "In this situation, if the board approved the equity allocation and the joint venture push, concerns may be raised that the decision failed to sufficiently consider corporate governance and shareholder protection principles."
Meanwhile, the Young Poong side, which is in a management control dispute with Korea Zinc, filed for an injunction to prohibit new share issuance on the 16th, and the result is expected as early as the 22nd.