Korea Zinc's US smelter project faces possible delay amid antitrust hurdles

Korea Zinc headquarters in central Seoul, Tuesday / Yonhap

Korea Zinc’s attempt to establish a joint venture with U.S. partners and proceed with a third-party share offering to fund its Tennessee smelter project may face delays due to U.S. antitrust regulations, according to officials in legal and investment banking circles Thursday.

This raised the likelihood that the capital increase, originally slated for completion this month, could be postponed. Any delay may also undermine Korea Zinc Chairman Choi Yun-beom’s plan to allocate about a 10 percent stake to the joint venture ahead of the Dec. 30 shareholder record date and counter the Young Poong-MBK Partners alliance at next year’s shareholders’ meeting.

The alliance is the largest shareholder of the world’s biggest zinc smelter and has challenged Choi’s leadership since launching a tender offer on Sept. 13, 2024, arguing that his mismanagement has weakened the company’s financial health.

Korea Zinc said Monday it plans to establish a joint venture with the U.S. government and corporations to build a large-scale smelter in Tennessee. The project entails an investment of about 10 trillion won ($6.8 billion), rising to some 11 trillion won when operating and financing costs are included, with the U.S. Department of Defense and other entities expected to contribute between 2 trillion won and 3 trillion won. Once completed in 2029, the facility will produce zinc, lead and copper, as well as strategic minerals such as antimony and germanium.

According to legal and investment banking sources, the U.S. Hart-Scott-Rodino (HSR) Act exempts merger filings only when an acquirer takes 10 percent or less of a target company’s shares solely for passive investment purposes.

However, Korea Zinc’s planned U.S. joint venture is expected to acquire more than 10 percent of the company’s shares, triggering a mandatory premerger notification and antitrust review.

The scale of the planned investment and Korea Zinc’s U.S. asset base also far exceed HSR thresholds.

The joint venture intends to commit more than 2.85 trillion won to purchase newly issued Korea Zinc shares, while the company’s U.S. assets total about 1.12 trillion won. These figures exceed the HSR filing thresholds of $126.4 million for transaction size and $129 million for assets by about 15 times and six times, respectively.

HSR rules also impose a mandatory 30-day waiting period after filing, during which no closing-related actions, including joint venture formation, share acquisition or payment, may take place until approval is granted.

By contrast, Korea Zinc’s board approved the joint venture investment Dec. 15 and expects to complete the cash payment on Monday. The company also plans to carry out a capital increase on Dec. 26 by issuing new shares equivalent to a 10 percent stake to the joint venture.

The accelerated schedule has prompted concerns that the company may be pushing ahead with the share issuance before securing U.S. antitrust clearance.

In the United States, establishing a joint venture or acquiring ownership stakes to build influence before antitrust approval is granted constitutes a so-called “gun-jumping” violation, which carries severe penalties.

Korea Zinc's Onsan Refinery in Ulsan / Courtesy of Korea Zinc

These constraints have fueled expectations that Korea Zinc’s planned capital increase could be delayed, with investment banking officials saying it would be “virtually impossible” to acquire shares without antitrust clearance.

Another concern tied to the hasty timeline is dividend leakage. Despite the U.S. smelter being a long-term project, Korea Zinc set the payment date before year-end, creating a structure that would require paying about 44.2 billion won in dividends to the joint venture due to a gap of just three business days.

“There is no justification for fixing the payment date on Dec. 26 if the capital increase is genuinely intended for business purposes,” one source said. “Simply postponing the payment to Jan. 2, the first trading day of the new year, would have avoided concerns over dividend leakage. Even the choice of the payment timing alone raises questions about the underlying intent of this capital increase."

The Young Poong-MBK alliance has claimed that Korea Zinc’s move to establish the joint venture and allocate an approximately 10 percent stake is aimed at diluting its shareholding and preserving Choi’s control amid the ongoing management dispute.

The alliance stressed that it is not opposed to strategic industrial cooperation with the United States, including the Tennessee smelter project, but argued that the project should be pursued through more transparent methods, such as a rights offering to existing shareholders or direct investment by U.S. partners into the project entity, rather than through a third-party allotment.

It filed an injunction with the Seoul Central District Court on Tuesday to block the issuance of new shares through a third-party allotment.