"Five-Year Operating Deficit" Youngpoong's Performance Deteriorates Due to Environmental Risk at Seokpo Smelter...What's the direction of the shareholders' meeting?

*This content was translated by AI.

Youngpoong has reportedly recorded an operating deficit for five years. There is an analysis that the environmental pollution risk faced by the Seokpo Smelter, the main business of Youngpoong, and the structural limitations that have failed to diversify the business are working in combination. In addition, there is an evaluation that it is losing more justification in the hostile M&A structure against Korea Zinc, which has been continuing since 2024. In particular, attention is being paid to how this deterioration in performance will affect votes at the Korea Zinc shareholders' meeting, which will be held on the 24th.

According to the Financial Supervisory Service's Electronic Disclosure System (DART), Youngpoong sales on a separate basis in 2025 amounted to KRW 1.27 trillion, up slightly from last year (1.533 trillion won), but operating losses amounted to KRW 277.7 billion, worse than the previous year (88.4 billion won). As a result, Youngpoong is stigmatized as a company that has been in an operating deficit for five years on a separate basis. Youngpoong continues to suffer large deficits of -72.8 billion won in 2021, -107.8 billion won in 2022, -142.4 billion won in 2023, and -88.4 billion won in 2024.

The market cites environmental pollution issues surrounding the Seokpo Smelter in Bonghwa-gun, Gyeongsangbuk-do as the main reason for the poor performance of Youngpo. Critics point out that production disruptions have accumulated due to the suspension of operations, violation of conditions for integrated environmental permits, and failure to comply with soil purification orders. In fact, the Seokpo Smelter was suspended for 58 days from February 26 to April 24 last year for violating the Water Environment Conservation Act due to wastewater leakage and unauthorized pipe installation.

Analysts say such operational disruptions have triggered a drop in utilization rates. According to the disclosure, the average operation rate of the Yeongpung Seokpo Smelter was 40.66 percent from January to September 2025, down 12.88 percentage points from 53.54 percent a year earlier. Analysts say that due to the nature of the smelting industry, the change in operation rate will be highly related to deteriorating performance in that it affects the burden of fixed costs and profitability.

The limitations of the business portfolio are also pointed out as the background of poor performance of Youngpoong. As of the third quarter of 2025, out of the cumulative sales of 732.7 billion won in the smelting sector, sales of zinc lump products and products amounted to 593.9 billion won, accounting for 81%. In the market, opinions are raised that business structures with high dependence on single items are vulnerable to downward pressure on earnings in conditions where smelting fees (TCs) plunge and zinc prices continue to weaken.

In fact, Korea Zinc, which started its business with zinc smelting like Youngpoong, emphasizes that it achieved its highest performance last year by building a portfolio of precious metals such as gold, silver, and rare metals such as indium and antimony in addition to basic metals such as zinc, lead, and copper. Korea Zinc has recorded an operating surplus for 44 consecutive years until last year.

Recently, the environmental pollution problem at the Yeongpo Seokpo Smelter is known to spread to financial statements reliability issues. In January this year, the Seokpo Smelter's Residents' Countermeasures Committee filed a complaint with the prosecution against the corporation Youngpoong and Jang Hyung-jin, former CEO Park Young-min, former Seokpo Smelter Director Bae Sang-yoon, and President Kang Sung-doo. The main point of the countermeasure committee is that the amount of Yeongpung's restoration allowance is less than the actual expected cleanup cost.

The residents' response committee reported that the minimum cleanup cost for the Yeongpo Seokpo smelter reported to the National Assembly by the Ministry of Climate, Energy and Environment was 299.1 billion won, but the restoration provision announced by Youngpoong was 203.5 billion won, which was underestimated by about 100 billion won. The task force said that if the restoration costs mentioned by the government are reflected, Youngpoong's half-year net profit of 25.3 billion won in 2024 will be converted to a loss of more than 70 billion won.

Problems are being raised in this regard. The controversy was also addressed at a forum hosted by the ESG Economic Research Institute on the 11th. According to the ESG Research Institute, Gong Joon, president of Environmental Technology, said, "In the case of the Seokpo smelter, the minimum cleanup cost reported by the government to the National Assembly is estimated to be about 299.1 billion won, but the restoration provision reflected by the company in its financial statements is only about 203.5 billion won, and there is a gap of about 100 billion won even with simple calculations," adding, "Considering the actual purification range and cost, this gap is likely to widen."

"If environmental risks are accurately reflected in financial statements, it can have a significant impact on a company's financial position, and it is also important in terms of ESG investor protection that corporate value is evaluated without proper environmental debt reflection," he said.

Yoon Jong-yeon, former president of Main Street Investment, also said at the forum, "If environmental risks are properly reflected financially, it can have a significant impact on corporate value and investment judgment," adding, "The case of the Seokpo Smelter is a matter that needs to be reviewed again for its sustainability as a listed company from a financial point of view."

The deterioration of Youngpoong's performance is also expected to be a variable at the Korea Zinc shareholders' meeting to be held on the 24th. "When comparing the management performance of the company and Youngpoong over the past three years, the company has maintained sales growth and stable profitability, while Youngpoong continues to decline in sales and sluggish profitability," said Sustin Best, a domestic voting rights consultant, in an analysis report on the 17th. "Considering this, we believe that if Youngpoong-MBK secures management rights, it has not been sufficiently verified at this point whether continuity of management strategies and stability in implementing strategic projects can be sufficiently secured."

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*This content was translated by AI.