SEOUL - Two major Korea Zinc shareholders asked a court on Tuesday to block the company's plan to sell new shares - part of a scheme to help fund a $7.4-billion US smelter which would be built in partnership with the US government.

The filing for an injunction with the Seoul Central District Court threw doubt over the project and sent shares in the world's largest zinc smelting company plummeting 14%.

A day earlier, Korea Zinc unveiled a plan to build a US-based refinery for zinc and other critical minerals - an effort that would help the United States cut reliance on China for key materials used in manufacturing electronics and weapons.

The shareholders, Young Poong conglomerate and private equity firm MBK Partners, said on Tuesday they were not opposed to the construction of a US smelter per se.

But they object to the proposed issuance of new shares worth $1.9-billion to a joint venture backed by the US government and unnamed US-based strategic investors that would give the investors 10% of Korea Zinc. That, in turn, would dilute their holdings and help Korea Zinc's chairman cement control of the firm.

BIG STAKES, FEW BOARD MEMBERS

The legal action deepens a bitter feud between the founding families of Young Poong over control of Korea Zinc.

Young Poong owns roughly 37% of Korea Zinc and MBK has about 9%, while the company's Chairman Yun B. Choi and his backers have a smaller 32%. But the two allies only have 4 board members on the 15-member board between them compared to the 11 backing Choi.

Young Poong and MBK, which have been trying to wrest control of the company from current management, argue that the share issue plan severely infringes on shareholder rights and undermines governance standards.

The company did not provide sufficient time and information to its board members before a meeting on Monday that approved the plan, they added.

"Governance risks were always there and now the situation is worsening," said Kim Yong-jin, a management professor at Sogang University.

US PARTNERSHIP HELPS MANAGEMENT

Korea Zinc said in a statement that it gave board members sufficient time and documents to review the plan, and that the project was in accordance with laws and regulations.

The refinery is needed "to establish a critical minerals supply chain in line with US government policy and to strengthen global competitiveness," it said.

The partnership with the US government helps current management justify their case for maintaining control, as they can argue the plan supports the US-South Korea alliance and broader economic security, analysts at Seoul-based Shinhan Securities said in a client note on Tuesday.

US Commerce Secretary Howard Lutnick on Monday hailed Korea Zinc's plan as a "big win for America," saying the essential minerals will power key technologies such as defense systems, semiconductors, artificial intelligence and data centers.