Korea Zinc Company, Ltd. (KRX:010130) reported ₩1,333.2bn of operating income for the first half of 2026. It earned ₩1,231.9bn across the entire twelve months of FY2025.
Revenue for the half was ₩12,444.6bn, up 62.5% on the prior year. The second quarter alone brought ₩6,372.6bn of revenue and ₩587.1bn of operating income, up 66.6% and 126.8% respectively. Both are records.
A smelter that grows revenue 62% in a year has not built new capacity. Something else is happening, and separating the parts matters more here than at almost any other kind of industrial company.
Korea Zinc does not own mines. It buys concentrate from miners around the world, refines it, and sells refined metal. The metal is booked as revenue at the price it fetches, and the concentrate is booked as cost at what it cost. So the revenue line is dominated by the market value of zinc, lead, silver and gold passing through the plant, and it moves with those prices whether or not the company processes a single extra tonne.
What Korea Zinc actually earns is the spread: the treatment and refining charge miners pay it to process their concentrate, plus the value of by-product metals it recovers and keeps, less energy and labour. That spread lives in gross profit, not in revenue.
This is why a 62.5% revenue increase should be read carefully and a gross margin increase should be read closely.
Gross margin was 9.5% in FY2024 — ₩1,140.8bn on ₩12,052.9bn. In FY2025 it was 10.9%. In the first half of 2026 it was about 14.2%, with the first quarter at 15.7% and the second at 12.7%.
Nearly five points of gross margin in eighteen months, on a revenue base that has itself risen sharply, is a much bigger deal than the headline growth. On first-half revenue, each point of gross margin is worth roughly ₩124bn.
Two things plausibly drive it, and the summary statements do not separate them. Treatment charges collapsed in 2024 when concentrate supply tightened and smelters had to compete for feed; they have since recovered as mine supply improved, and that recovery flows straight to Korea Zinc's margin. Separately, by-product credits — principally silver and gold, where Korea Zinc is among the world's largest producers — are worth more when precious metal prices rise, and the company keeps a defined share of them.
The first is cyclical and mean-reverting on a two-to-three-year horizon. The second is a price bet. Neither is capacity or cost improvement.
Overhead, for what it is worth, is negligible: selling and administrative expense ran ₩428.7bn across the half, about 3.4% of revenue. This is a business where essentially all of the operating result is set above the gross line.
Inventories were ₩3,780.4bn at the end of FY2024, ₩6,220.5bn at the end of FY2025 and ₩6,724.1bn at 30 June 2026. They have nearly doubled in eighteen months and now represent about a third of the balance sheet.
Some of that is volume and some is price. A smelter holds concentrate, work in process and refined metal continuously, so when metal prices rise, the same physical stock is worth more and the cost of goods sold reflects material bought earlier at lower prices. That produces a genuine inventory holding gain inside the gross margin — real money, but not a repeatable operating spread, and it reverses when prices fall.
I cannot size it from the outside. What I can say is that at ₩6.7tn of inventory against first-half cost of revenue of ₩10,682.7bn, Korea Zinc holds roughly four months of cost in stock, and a 10% move in metal prices moves the value of that position by ₩670bn — comparable to a half-year's operating profit.
Operating cash flow was positive ₩515.8bn in FY2024. It was negative ₩628.2bn in FY2025. Across the first half of 2026, on the cumulative basis Korean interim statements use, it was negative ₩107.3bn.
So the two best profit years in the company's history have produced no operating cash at all. The inventory build accounts for most of it — ₩2.9tn of additional stock since the end of FY2024 has to be funded, and it has been, through financing inflows of ₩3,674.7bn in FY2025 and ₩916.1bn in the first half of 2026.
A rising working capital position in a rising price environment is exactly what should happen, and it unwinds when prices stop rising. It is still the case that the reported profit is currently sitting in a warehouse rather than in the bank.
One technical warning while reading these accounts. The quarterly income tax line is unusable. Korea Zinc reported negative tax charges in each of the first three quarters of 2025 and then a derived fourth-quarter charge of ₩456.2bn against pretax income of ₩268.5bn. The full-year rate was a normal 25.1%. Use annual and half-year tax figures only.
The bull argument does not need the inventory gain. Smelting capacity outside China has been shrinking for a decade as European and American plants closed under energy costs and environmental rules, while demand for refined zinc, and much more so for the silver and specialty metals that come with it, has grown. A low-cost, very large, non-Chinese smelter is a scarcer asset in 2026 than it was in 2016.
Add the strategic overlay. Korea treats Korea Zinc as a critical minerals supplier, and the company has been pushing into nickel and battery materials where Western customers actively want non-Chinese sources. That is a structural position, not a price cycle, and it is the reason two sophisticated investors have spent two years fighting over the company.
Book value gives a floor of sorts: total equity was ₩11,593.9bn at 30 June, having grown from ₩7,405.6bn at the end of FY2024. Conventional earnings multiples are close to meaningless right now, because the share price carries a control-contest premium that has nothing to do with the smelting business. That will resolve, in one direction or the other, at the 9 September extraordinary meeting.
The third-quarter cash flow statement. If operating cash flow turns positive on the nine-month cumulative line while operating income holds above ₩500bn a quarter, then the margin expansion is real spread and the inventory build has stopped. If cash flow stays negative with inventories above ₩7tn, an increasing share of the reported profit is a mark on stock the company has not sold.
Second, gross margin in the third quarter against the first quarter's 15.7% and the second's 12.7%. The sequential decline already suggests the peak of the pass-through effect has passed. A third-quarter figure near 12% would be a healthy new base. Below 11% would say most of the improvement was the first quarter.
Third, any disclosure that separates treatment charge income from by-product credits. Korea Zinc does not routinely provide it. Until it does, nobody outside the company can tell which half of the margin story is cyclical and which is a bet on silver.
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