Korea Zinc keeps AA+ rating on stable business outlook

Korea Zinc Chair Choi Yun-beom speaks at a press conference in Seoul on Oct. 2, 2024. (Newsis)

Korea Investors Service, a major local credit rating agency owned by Moody’s, has affirmed its AA+ rating on Korea Zinc’s unsecured bonds, citing the company’s solid profitability, sound financial footing and diversified operations.

“Korea Zinc, which operates the world’s largest single-site zinc smelter, has secured a near-monopoly in the domestic market thanks to its strong production capabilities,” the agency said in a report released Monday. “Its stable business profile is supported by a diversified product portfolio — spanning base, precious and rare metals — helping buffer earnings volatility during economic cycles.”

The agency also noted that the world's largest zinc smelter has maintained strong profitability despite external headwinds such as fluctuations in global gold prices, foreign exchange rates and treatment charges.

“Korea Zinc continues to deliver robust earnings by maximizing the recovery of valuable metals, leveraging the high efficiency of its integrated zinc, lead and copper smelting process along with decades of accumulated technical expertise,” it added.

According to KIS, benchmark treatment charges for zinc have dropped sharply to around $80 per ton this year, down from $165 in 2023, amid a global concentrate shortage and ongoing smelting overcapacity.

Despite cost pressures, Korea Zinc posted solid first-quarter results, lifted by higher prices for precious and rare metals. Consolidated operating profit jumped 47 percent on-year to 271.1 billion won ($200 million).

KIS noted that Korea Zinc generates over 1 trillion won in annual core earnings, with operating cash flow remaining stable as input cost fluctuations are offset by changes in working capital.

The credit rater’s decision to maintain the high rating is notable, given the management turbulence Korea Zinc has faced since September, when MBK Partners — backed by top shareholder Young Poong — attempted a hostile takeover. In response to the management dispute, Korea Zinc repurchased approximately 9.85 percent of its outstanding shares, adding to its debt burden.

Nevertheless, KIS deemed the company financially sound, citing a consolidated debt ratio of 87.9 percent, a debt-to-capital ratio of 32.2 percent and adjusted net debt equal to twice its earnings before interest, taxes, depreciation and amortization as of end-March.

The agency also noted that the firm's inventory — mostly raw materials and metals — reflected a highly liquid book value of 4.03 trillion won.

“Given that a large share of the company’s borrowings stems from supplier financing arrangements for raw material purchases, which entail relatively low repayment pressure, Korea Zinc’s financial structure is stronger than its headline debt metrics may suggest,” the agency said.