Tensions with Young Poong are intensifying over a nonferrous metal smelter that Korea Zinc is seeking to build in Tennessee. While Korea Zinc stresses synergies between its global and domestic businesses and investment in the United States, Young Poong and MBK Partners (on Young Poong's side) pointed to financial burdens and governance issues, calling it a "borrowing accompanied by a full debt guarantee."
On the 22nd, Korea Zinc said that if the U.S. Smelter is built, it could create synergies by upgrading the Onsan Smelter in Ulsan. Korea Zinc cited the case of the Sun Metals Corporation (SMC) smelter in Australia, which began operations in 2000.
Korea Zinc established the SMC entity in Australia in 1996 and built a smelter with annual production capacity of 190,000 tons (t) of zinc ingots and 325,000 t of sulfuric acid, which went into full operation in 2000. At that time, the main product capacities at the Onsan Smelter were 370,000 t of zinc, 190,000 t of lead, and 500 t of silver.
After SMC began operations, inventory could be managed more flexibly, and the Onsan Smelter was reportedly able to expand its copper plant in 2004. The TSL (Top Submerged Lance) plant in 2010, the zinc electrolysis plant in 2014, and the second nonferrous complex in 2015 were also completed. TSL refers to a process that recovers valuable metals using waste.
As a result, as of the end of last year, the Onsan Smelter's production capacity expanded to 640,000 t of zinc, 430,000 t of lead, and 2,500 t of silver. Process upgrades also diversified its production portfolio into semiconductor-grade sulfuric acid, eco-friendly copper, and strategic minerals.
A Korea Zinc official said, "We will make the U.S. Smelter the hub for capturing North American demand and opening new markets, and position the Onsan Smelter as a base that prioritizes supplying core materials for domestic semiconductors, secondary batteries, displays, steel, and defense." The official added, "Based on the experience gained from running SMC, we will optimize the latest technologies, processes, and operating systems developed and applied during the construction of the U.S. smelter and apply them to the Onsan Smelter."
By contrast, Young Poong criticized Korea Zinc that day, saying, "Packaging borrowing fund as investment is an attempt by Chairman Choi's side to avoid criticism that it is aimed at defending management control."
Korea Zinc said it would set up a joint venture for the construction of the U.S. smelter with the U.S. government and U.S. defense companies and other strategic investors (SI) participating. Korea Zinc plans to invest 132.3 billion won in the joint venture to acquire 9.99% equity, and the joint venture would participate in Korea Zinc's paid-in capital increase to take 10.6% equity.
The investment for building the U.S. smelter is 10.9 trillion won. Korea Zinc plans to provide about 3.71 trillion won, including funds secured through a paid-in capital increase. It will also establish a subsidiary for the establishment and operation of the U.S. smelter (Crucible Metals Holdings, LLC), and this company will set up and operate a grandchild company as the project entity in which it holds equity.
The project entity plans to raise the remaining approximately 7.19 trillion won of the total investment through borrowing and support. It will borrow 4.41 trillion won from the U.S. Department of War and 3.67 trillion won from JPMorgan and others, with Korea Zinc agreeing to provide payment guarantees.
Korea Zinc explains that the U.S. side will shoulder 91% of the aggregates for smelter construction through direct investment and financial support. It also emphasizes that the U.S. side will provide benefits such as tax credit under the Inflation Reduction Act (IRA), bonus depreciation, low-interest policy financing, and strengthened government partnerships.
Young Poong argues that the 7 trillion won borrowing accompanied by a debt guarantee carries essentially the same risk as a direct borrowing by the guaranteeing company. It also points out as a problem that if all local borrowing is executed, annual interest expense alone would reach 480 billion won.
A Young Poong and MBK official said, "The financial burden of building the U.S. smelter ultimately falls on Korea Zinc, but (Chairman Choi's side) is obscuring the company's financial reality to justify a paid-in capital increase aimed at defending management control."