Korean Proxy Fight Threatens to Derail Trump’s Big Zinc Bet

The Trump administration’s investment in a U.S. zinc development facility has thrust it into the middle of a proxy war in South Korea; This is an example of how the government’s crackdown on equity stakes in critical sectors is facing backlash in the free market.

Earlier this week, the administration announced a joint venture with Korea Zinc to support construction of a $7.4 billion smelter project in Tennessee that will support U.S. production of key critical minerals. But reaction was mixed, as shares fluctuated as Korea Zinc’s largest shareholders opposed the structure of the deal.

Activist investors – Young Poong Corp. and MBK Partners Ltd. — filed for an injunction in a South Korean court this week to halt a share issuance to fund the new smelter, arguing the move was aimed at avoiding a proxy war, according to an emailed statement.

The case has the potential to disrupt the administration’s efforts to encourage domestic production of critical minerals to wean the country off Chinese supplies, a key goal of President Donald Trump’s economic agenda. It also threatens to complicate ties between Seoul and Washington, which were already soured when the president raised tariffs earlier this year.

Critics say the administration’s methods, which include taking direct stakes in critical mineral producers and other firms in sensitive industries, put its goals at risk by involving the government in business deals beyond its control.

“This appears to be the first of these deals where there is a risk of not closing,” said Peter Harrell, a former Biden administration economic adviser who is now at the Carnegie Endowment for International Peace. “I hope they understand what they’re getting into and aren’t blindsided by it.”

The White House, Commerce Department and Pentagon did not immediately respond to requests for comment.

U.S. officials, speaking on condition of anonymity, expressed cautious optimism that the agreement would eventually go ahead and said it would revive domestic production of essential minerals used in defense, aerospace and other industries.

American officials were brought into the project earlier this year, according to a U.S. official and another person familiar with the matter. The smelter will be built next to an existing facility in Tennessee that will be used to train personnel and will be decommissioned once the new one is operational, U.S. officials said.

The project will more than double revenue from Korean Zinc, one of the largest sources of a mineral found ubiquitously in consumer products, officials said. According to officials, the United States will receive priority for a number of important metals.

Sen. Bill Hagerty, a Tennessee Republican, said at an event in Washington this week that he recently had a phone call with one of his Wall Street contacts who told him they were working on the deal structure with Deputy Defense Secretary Steve Feinberg at the Pentagon.

“We had a long discussion about it,” Hagerty said. “We are unlocking the talent of Wall Street.”

The Commerce and Defense departments, the Pentagon, provided debt financing and the government attracted capital investors from the U.S. defense industrial base, officials said. JPMorgan Chase & Co. is said to be among the investors. The U.S. government contributed just over $2 billion, officials said.

MBK said in a statement that its legal action did not mean that the activist investor alliance completely opposed the construction of the smelter.

U.S. officials said the Trump administration was aware of the proxy fight and potential lawsuits but did not plan to get involved. One official downplayed the dispute as a potential routine corporate dispute. Another added that the United States does not presuppose these justifications.

Others have raised questions about whether the U.S. is ignoring investor struggles in its efforts to move quickly.

“You win some, you lose some,” Harrell said of making the deal. “But the U.S. government generally doesn’t work that way. It’s very risk-averse and tries not to get itself into a complicated situation.”

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