Mineral Resources Corp Supports Refinancing of Loans for Poor Investment in Mexico Boleo

Providing Joint Guarantee for Local Subsidiary Loans
Bearing Large Losses and Support Burdens Only

[Asia Economy Reporter Lim Jeong-su] A local development company of the Boleo mine in Mexico, a subsidiary of Korea Resources Corporation, refinanced its existing borrowings with a joint guarantee from the Resources Corporation. Despite investing more than 1 trillion won in the Boleo mine, it is a representative example of a failed investment that only incurred losses. The company continues to bear the burden of financial support, carrying large-scale losses without recovering the investment amount.

According to the investment banking (IB) industry on the 9th, 'Minera y Metal?rgica del Boleo (Boleo)', the developer of the Boleo mine, refinanced a one-year loan worth 55 billion won on the same day. The SPC issued asset-backed securities based on the loan principal and interest and lent the raised funds back to Boleo.

Korea Resources Corporation provided a joint guarantee to the SPC to secure repayment of the loan principal and interest. If Boleo fails to repay the loan principal and interest on time, the Resources Corporation will take responsibility for repayment. An IB industry official explained, "Domestic institutional investors invested in asset-backed securities guaranteed by the Resources Corporation, believing in the possibility of government support for the corporation."

Korea Resources Corporation is currently the major shareholder of Boleo. In 2008, the Resources Corporation formed a consortium with domestic companies to establish a joint venture with the Canadian mining development company 'Baja Mining' to develop mines locally in Mexico and purchased a 30% stake in Boleo. Later, as the Boleo project faced the risk of collapse due to Baja Mining's financial difficulties, the investment amount was increased, raising the stake to over 90%.

Korea Resources Corporation suffered significant losses from the Boleo investment. It recognized impairment losses totaling 1.5027 trillion won over two years in 2015 and 2016 alone. Despite external evaluations indicating no economic feasibility considering the residual value, the company decided on additional investments and continues operations instead of liquidation. This is interpreted as based on the corporation's judgment that the investment can be recovered through long-term operation.

Korea Resources Corporation is currently in a state of complete capital erosion due to multiple failed investments and operating losses, including Boleo and the Ambatovy nickel mine in Madagascar. As the scale of capital erosion expands annually, the debt to be repaid exceeds total assets by more than 2 trillion won.

In this situation, the government continues to delay capital increases for Korea Resources Corporation. Financial improvement measures such as asset sales are also sluggish. The planned merger with the Korea Mining Rehabilitation Corporation as part of financial improvement measures failed to pass related legislation in the National Assembly. It is also difficult to raise funds due to the bond issuance limit. The issuance of Australian Kangaroo bonds, which was planned earlier this year, has been indefinitely postponed.

As a result, dependence on indirect funding channels such as commercial paper (CP) and asset-backed securities is gradually increasing. Korea Resources Corporation currently holds CP balances worth 610 billion won. The CP balance, which was only 250 billion won until the first half of last year, increased to 610 billion won by the end of last year. In February, it raised 200 billion won by issuing asset-backed securities under the management of KB Securities and others.

An industry official predicted, "Unless financial improvement is achieved, the short-term liquidity burden will continue to increase."

This content was produced with the assistance of AI translation services.