Kumyang Faces Shareholder Backlash and Probe

Kumyang Co., a Korean secondary battery material company, is under scrutiny by the Korea Exchange after significantly lowering its production performance outlook for a lithium mine in Mongolia. Shareholders have voiced their discontent, accusing the company of overstating its future growth potential. The Korea Exchange is now launching an investigation into the matter.

According to the Financial Supervisory Service's electronic disclosure system on October 1, Kumyang revised its forecast for this year's Mongolian mine sales from KRW 402.4 billion to KRW 6.6 billion and its operating profit projection from KRW 161 billion to KRW 1.3 billion after the market closed on September 27. The annual forecast for this year was only adjusted downward at the end of September. Kumyang had previously announced its performance estimates when it unveiled its lithium mine development plan in May last year. On September 30, the first trading day after the disclosure, Kumyang's stock price closed at 52,300 won, down 7.5% from the previous day.

In a statement released on the same day, Kumyang attributed the delays to winter construction, equipment import delays from the manufacturer, and significant time required for technical improvements during the trial operation to connect existing and new equipment. Kumyang explained that after the facility installation was completed in the second quarter of this year, securing high-grade ore was delayed due to an increase in the amount of overburden (the amount of soil and rock removed for mining).

Kumyang also drastically reduced its production and sales forecasts for next year and the year after, citing incomplete lithium exploration and plans to re-disclose once the reserves are confirmed. As a result, sales forecasts for the three years from this year to 2026 were lowered by 94%, and operating profit forecasts by 97%. Kumyang has not yet received lithium development approval from the Mongolian authorities.

As shareholder complaints grew, the Korea Exchange launched an investigation. A Korea Exchange official stated, "We have requested an explanation from Kumyang because the correction amount reaches trillions of won without any significant external factors." Given the high level of investor interest in the matter, the exchange plans to receive an explanation from Kumyang within 2-3 days and, if deemed insufficient, initiate procedures to designate Kumyang as a non-compliant disclosure corporation.

Kumyang recorded an operating loss of KRW 18.1 billion in the first half of this year, continuing its deficit since last year. Current liabilities due within one year increased by KRW 381.9 billion in six months to KRW 792.4 billion.

On September 27, the company also disclosed a rights offering of KRW 450.2 billion to fund the completion of its secondary battery factory, 'Dream Factory 2,' and repay debt. The company allocated KRW 350.2 billion for factory completion and KRW 100 billion for debt repayment. Executives and employees of Kumyang plan to participate in the rights offering with KRW 160 billion. "We will prove the sincerity of the rights offering and the confidence in our corporate value," stated a company representative.

Kumyang's business model, which heavily relies on the success of its secondary battery factory and the Mongolian mining project, has faced significant challenges. The secondary battery industry is crucial for renewable energy and electric vehicles, making the completion of 'Dream Factory 2' vital for Kumyang's market position. The Mongolian mining sector, while full of opportunities, presents logistical, environmental, and regulatory challenges that have evidently impacted Kumyang's operations.

The company's recent disclosures highlight the complexities and risks associated with international projects, including cultural and operational challenges. These setbacks have not only affected Kumyang's financial performance but also shaken investor confidence, as reflected in the stock market's reaction.