MBK: "Koryo Ayeon, Treasury Stock Buyback Possible Scale Only 58.6 Billion KRW"

Excluding 'Discretionary Reserves' for Overseas Investment and Resource Projects from Dividend Limit...Early Year Shareholders' Meeting Resolution
When Excluding This Year's Interim Dividends and Retained Earnings from Next Year's Carried-Over Retained Earnings of 269.3 Billion KRW
Only 58.6 Billion KRW Remains, No Remaining Limit After Deducting Existing Treasury Stock Acquisition Trust Amount

An analysis has emerged that the limit on the amount for acquiring treasury shares by Korea Zinc is not the previously known KRW 5.8497 trillion, but in reality, only KRW 58.6 billion.

According to MBK Partners on the 2nd, Korea Zinc confirmed at the regular shareholders' meeting held earlier this year that it left only KRW 269.3 billion as funds for future interim dividends and restricted the use of the remaining funds by setting them aside as overseas investment reserves and resource business investment reserves. Among these, KRW 205.5 billion was already spent as an interim dividend in August this year, and based on financial statement analysis, the amount available for treasury stock purchases was calculated to be only KRW 58.6 billion.

Listed companies are generally allowed to acquire treasury shares within the scope of distributable profits, and roughly calculating Korea Zinc’s distributable profits under the Commercial Act and Capital Markets Act amounts to about KRW 5.8497 trillion. However, in Korea Zinc’s case, the approval authority for the financial statements is the shareholders' meeting, and the statement of retained earnings disposal forms part of the financial statements under the Commercial Act.

According to the resolution at the regular shareholders' meeting held in March, Korea Zinc set KRW 269.311371071 billion as retained earnings carried forward to the next period. When approving the statement of retained earnings disposal at the March regular shareholders' meeting, the distributable retained earnings before disposal (= retained earnings carried forward from the previous period - 2023 interim dividend + 2023 net income - actuarial loss on insurance) was KRW 625.948426071 billion, from which KRW 356.637055 billion for 'legal reserve + overseas investment reserve + resource business investment reserve + cash dividends' was disposed of, and the remaining KRW 269.311371071 billion was set as retained earnings carried forward to the next period. In other words, only the retained earnings carried forward of KRW 269.311371071 billion was set as the limit for amounts that can be disposed of through board resolutions without shareholders' meeting approval, such as for interim dividends.

Furthermore, Korea Zinc declared an interim dividend of KRW 205.53379 billion through a board resolution on August 4, and it is estimated that KRW 5.158898129 billion was reserved as retained earnings applying the 2.5% retained earnings reserve rate approved at the regular shareholders' meeting. Adding the interim dividend amount and the related retained earnings reserve results in KRW 210.692688129 billion, and the difference from the retained earnings carried forward approved at the regular shareholders' meeting is only KRW 58.618682942 billion.

Korea Zinc also completed the cancellation of treasury shares worth KRW 99.04638 billion under the second trust contract, the second such contract since 2012, on May 8, and subsequently entered into the third (May 8, 2024 ? November 8, 2024, trust amount KRW 150 billion) and fourth (August 7, 2024 ? May 7, 2025, trust amount KRW 500 billion) trust contracts, with the entire KRW 150 billion trust amount under the third trust already fully utilized.

Therefore, based on the scale of retained earnings carried forward according to Korea Zinc’s 2023 statement of retained earnings disposal, it is understood that Korea Zinc has no remaining limit to proceed with additional treasury stock acquisitions. Korea Zinc explicitly states in its articles of incorporation that, in addition to deductions when calculating distributable profits under the Commercial Act, discretionary reserves must be set aside when disposing of retained earnings. Based on this, Korea Zinc has customarily reserved part of its operating profit as overseas investment reserves and resource business investment reserves for decades, with the accumulated amounts reaching KRW 3.414 trillion (overseas investment reserves) and KRW 3.22 trillion (resource business investment reserves) as of June 30, 2024.

If Korea Zinc were to conduct a public tender offer for treasury shares, it would have to convert the purpose of these discretionary reserves, which have been set aside for specific purposes over decades, but such authority lies with the shareholders' meeting, not the board of directors. In other words, unless a shareholders' meeting resolution to convert the purpose of the discretionary reserves precedes, deciding on a public tender offer for treasury shares solely through a board resolution is not permitted. Pursuing a public tender offer for treasury shares through a board resolution itself could be seen as an illegal act exceeding the scope of authority. MBK commented, "Ultimately, to minimize dividends to shareholders such as Young Poong, Korea Zinc accumulated large discretionary reserves citing overseas investment and resource business investment purposes and even obtained shareholders' meeting approval, resulting in Chairman Choi Yoon-beom lacking the ammunition to defend his management rights, effectively tying his own hands."