Korea Zinc issues statement: "Yungfong and MBK must be held accountable for repeating their double standards and clarifying the circumstances and responsibilities regarding Yungfong's environmental pollution"

*This content was translated by AI.

On the 18th, Korea Zinc released a lengthy statement asserting that "Yungfong and MBK are repeating their double standards and must clarify the circumstances and responsibilities regarding Yungfong's legal obligation to remediate environmental pollution and the understatement of provisions amounting to hundreds of billions of won." The Korea Zinc side also emphasized that it will take strong legal action against Yungfong's series of moves aimed at lowering its corporate valuation.

The full text of the statement follows.

<'A mote in another's eye, a beam in one's own' (a tendency to easily criticize others while failing to notice one's own major problems)

As Yungfong and MBK Partners (MBK) continue their hostile M&A attempts, repeatedly making one-sided claims and distorting facts, the above proverb comes to mind when observing their shameless behavior.

First, the Financial Services Commission's Securities and Futures Committee (SFCC) has decided to impose sanctions on Yungfong, including fines, a three-year appointment of a special auditor, a recommendation to dismiss the former CEO, recommendations to dismiss or remove the person in charge and former person in charge, a six-month suspension of duties, and a corrective order, for understating soil remediation provisions for the area surrounding the Yungfong Seokpo Smelter, surrounding forests, and the area beneath the smelter, understating groundwater remediation provisions, and understating impairment losses on tangible assets of the smelter. The relevant accounting firm has also been included in the list of entities subject to measures.

According to the SFCC, the scale of Yungfong's understatement of provisions related to environmental remediation reached approximately 142.7 billion won in 2021, approximately 142.7 billion won in 2022, approximately 233.2 billion won in 2023, and approximately 233.1 billion won in 2024. Furthermore, in the process of assessing impairment losses related to the suspension of smelter operations from 2022 to 2024, Yungfong understated or overstated impairment losses. The scale was 34.7 billion won in 2022, 61.4 billion won in 2023, and minus 61.4 billion won in 2024.

In particular, according to media reports, the measure equivalent to recommending the dismissal of the former CEO is also evaluated as a measure related to the system of sanctions applied for intentional violations under relevant regulations. According to the standards for determining the severity of sanctions, the recommendation to dismiss (or remove) the CEO is listed as a measure applicable only to intentional violations at level 1 and level 2.

Specifically, according to the "Standards for Determining the Severity of Sanctions" based on the results of review and supervision determined in accordance with the "Implementation Rules for the External Audit and Accounting Regulations," which stipulates matters delegated by the "Regulations on External Audit and Accounting" for the purpose of measures under Article 29 of the Act on External Audit of Corporations, etc. (hereinafter referred to as the External Audit Act), the standard for measures against companies and employees stipulates that the recommendation to dismiss (or remove) the CEO is imposed only for intentional violations at level 1 and level 2. This fact can be objectively confirmed on the Financial Supervisory Service website, and 'intentional' corresponds to the highest level of sanctions among measures taken by financial authorities.

In particular, the issues pointed out by the financial authorities are closely linked to the social issue of environmental pollution controversies that have been continuously raised regarding the Yungfong Seokpo Smelter. According to the SFCC's press reference materials, it is stated that "Yungfong did not recognize provisions despite having a clear legal obligation to remediate, and calculated provisions using remediation methods not permitted by law, thereby understating provisions."

This is because, according to the local community, citizens, and environmental groups, the financial authorities have imposed severe sanctions on the Yungfong Seokpo Smelter for failing to properly reflect in its accounting the legal obligation to remediate environmental pollution regarding the surrounding area, surrounding forests, and the area beneath the smelter, and this matter has become a subject of social controversy and public interest as it pertains to the legal obligation to remediate, i.e., the obligation to remediate the environment of the Seokpo Smelter.

MBK is also surrounded by various social controversies and debates over responsibility, including the Homeplus incident. According to recent media reports, it is known that the valuation of Homeplus RCPS, in which the National Pension Service invested hundreds of billions of won, has been assessed at zero, and the possibility of treating it as a total loss is being reviewed. Furthermore, media reports also indicate that the burden of losses from policy financing has arisen.

This is not all. Homeplus employees are facing unpaid wages and the threat of mass layoffs. The social fallout is severe, affecting store tenants, partner companies, and even victims of flyer distribution. Criticism is being voiced from various quarters, including the political sphere, civil groups, and the labor movement, regarding how much social trouble the Homeplus corporate rehabilitation crisis, which has raised questions of responsibility surrounding the major shareholder MBK, is causing.

Criticism is also fierce regarding MBK's leveraged buyout method and the resulting debt burden, as well as the series of events leading to Homeplus's corporate rehabilitation crisis. Media criticism and questions regarding MBK's investment methods and the management performance of its portfolio companies continue to arise. MBK must

first examine whether proper valuation, acquisition, and management have been carried out for the companies it has acquired, according to our company's position.

Yungfong's one-sided claims regarding Korea Zinc are also seriously distorted.

In particular, the Yungfong and MBK side does not even seem to have properly grasped the facts regarding the claims and figures they are asserting. This matter is, according to our company's position, a judgment regarding the recognition and timing of impairment losses for Korea Zinc's subsidiary and its accounting treatment. The assessment of impairment losses falls within the realm of high-level estimation and judgment, and the current impact on Korea Zinc's financial statements is limited.

Furthermore, this is not a judgment on the appropriateness of specific investment decisions that Yungfong and MBK have repeatedly claimed one-sidedly, or on the appropriateness of the use of corporate funds. Moreover, the current corporate valuation of the subsidiary acquired by the company exceeds its book value. This is content that can be confirmed through the SFCC's official press reference materials and Korea Zinc's business reports and other public disclosure documents.

In the end, Yungfong and MBK Partners (MBK) once again demonstrate that they are solely obsessed with behavior aimed at succeeding in a hostile M&A of Korea Zinc through one-sided claims and distortion of facts. In particular, since they are damaging Korea Zinc's corporate valuation and including numerous contents that differ from the facts, our company plans to take strong legal action.

The acquisition of Ignio was a strategic investment to expand the global resource recycling market, secure a North American raw material network, and build a value chain for green production and battery materials. At the time of acquisition, the corporate valuation was reasonably calculated through negotiations with the seller based on corporate valuation reports from global mega-investment banks (IBs). Yungfong's senior advisor Jang Hyung-jin also approved the establishment of Pedal Point and the decision on rights offering (paid-in capital increase) for the acquisition of Ignio.

In particular, Ignio has already demonstrated the effects of the acquisition. Korea Zinc's U.S. resource recycling subsidiary, Pedal Point, achieved its first annual profit last year, and its performance improvement trend this year is robust. Considering the recent rise in prices of key minerals such as copper and the blockalization of global supply chains, Ignio's role, which possesses technology and networks to extract key minerals from electronic waste, is expected to become even more important from the perspective of supply chain stability and securing raw materials.

Considering these aspects, the one-sided claims by Yungfong and MBK are nothing more than self-contradictory. The market analyzes that Yungfong is suffering from severe undervaluation, recording a PBR of around 0.24 times, which is far lower than the value of its stake in Korea Zinc. In this situation, it finds itself in a position where it must worry about the possibility of deterioration in corporate valuation and shareholder value, leading to severe sanctions due to the understatement of provisions for environmental remediation. Therefore, it is imperative to first clearly clarify the circumstances and responsibility for the understatement of provisions related to the legal obligation to remediate.

The Yungfong and MBK side should once again reflect on the proverb 'A mote in another's eye, a beam in one's own' and consider how their behavior will be perceived by our society and the people. >

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*This content was translated by AI.