The Strategist

North Korea’s hidden treasure

06/23/2017 - 08:19

Few consider North Korea to be a prosperous state. But there is something the country is really rich in: mineral resources.

Joseph Ferris III
Joseph Ferris III
Now North Korea is scaring neighbors and the US with its frequent tests of missiles and attempts to use nuclear missiles capable of hitting sities of America. A sixth test can become inevitable. Attacking the US or its allies will be a suicide, so Pyongyang seeks to get "help" from the world's community for dismantling some of its weapons.

Yet, no matter how much North Korea gets from other countries, it will be nothing compared to the price of its nearly untouched underground resources.

The country contains huge reserves of minerals, such as iron, graphite, gold, molybdenum, zinc, copper, limestone and other minerals. There is also a large amount of rare earth metals used in the manufacture of smart phones and many other high-tech items.

Estimates of the local mineral resources' value have fluctuated significantly over the years and have been hampered by their classified nature and lack of access to them. According a mining company of South Korea, they cost more than $ 6 trillion. Yet another research institute from South Korea believes their value reaches $ 10 trillion.

North Korea has been paying great attention to development of the mining sectorstarting from 1970. But if production increased to about 1990 and reached its peak in 1985, then it began to decline. In 2012, the number of  the country's mines reached about 700. Many worked poorly or even were neglected at all. The country lacks the equipment, experience and even basic infrastructure to properly access the underground treasure.

This spring, Lloyd R. Vasey, senior adviser to the Center for Strategic and International Studies, said: "Mining in North Korea has declined significantly since the early nineties, and it may well be so that the average operating speed of existing mine sites is below 30% of capacity." Shortage of mining equipment adds more problems, and North Korea is unable to acquire new technology due to the difficult economic situation, energy shortages, age and the overall bad condition of the energy system."

Private extraction is not legal in communist North Korea, and so are private enterprises. Kim Jong-un's regime of the dictator in the third generation , as is known, drove foreign mining companies out from the country or suddenly changed terms of the agreements.

Still, the country is so gifted with its resources, that extraction makes about 14% of the economy.

China is the main consumer of this sector. Last September, the South Korean Korea Development Institute said that the trade in minerals between China and North Korea remains the main source of income for Pyongyang, despite the UN sanction, and that it made up 54% of North Korea's total trade with China in the first half of the last year. In 2015, China imported iron ore worth $ 73 million from North Korea and zinc for $ 680,000 in the first quarter of 2017.

North Korea has been noticeably active in the coal mining industry in recent years. China imported coal worth about $ 1 billion from North Korea two years ago. Coal remains particularly attractive, since the mining requires relatively simple equipment. Wide deposits of the mineral can  be found near large ports and on the border with China, which removes the problem of poor transport infrastructure in the country.

For many years, Chinese companies have purchased coal from its neighbor at a much lower market price. Last year, coal supplies to China made about 40 per cent of all North Korean exports. However, the global demand for coal is declining, as natural gas and renewable energy sources are gaining momentum. Already in 2017, Beijing began to restrict coal imports of its neighbor.

After North Korea carried its first nuclear test in 2006, the UN tightened sanctions against the country. Last year, attention was focused on the country's underground resources. IAt the end of 2016, the UN adopted a resolution on reducing North Korean coal exports and forbidding the supply of zink, nickel, copper and silver. This was followed by a decision in March 2016 to ban exports from vanadium, gold, titanium and rare earth metals.

Solutions targeting the extractive sector can damage Kim's regime. Shortly before they were adopted, the report on the mining industry of the country by the US Geological Survey for 2014 noted that "the mining industry in North Korea is not subject to international economic sanctions directly, and therefore is a legal source of investment trade available for countries". Well, this is not right anymore.

In 2017, a group of UN experts resolved that North Korea, despite sanctions, continues to export banned minerals. They found out that North Korea is using another mineral - gold - along with cash to "completely bypass the financial sector."

At the same time, in general, the volume of trade between China and North Korea actually grew by 37.4% in the first quarter yoy. Import of iron ore from North Korea soared by 270 per cent in January and February compared to a year earlier. Coal fell by 51.6%.

Neighbors of North Korea have long been after the country’s the gold mine. Fve years ago, China poured $ 10 billion in infrastructure projects on the border with North Korea, mostly to create easier access to mineral resources. Convenient North Korean huge iron ore deposits are located right on the border. A satellite images analysis published last October showed that production in this area is continuing.

China especially strives to gain access to rare earth minerals of North Korea. Pyongyang is aware of this, and even has already punished China in March, suspending the export of metals to China in response to trade restrictions on coal. Meanwhile, Russia, also on the border with North Korea, conceived plans for major repairs of the railways of North Korea in exchange for access to the local mineral resourcesin 2014. This particular plan has been suspended, but the general mood is still present.

But South Korea has other plans for the resources. It considers them a means to fund reunification (if it finally happens), which is expected to take decades and will cost generous amount of money. Repairing the decrepit infrastructure of North Korea, plus the aging railway line, will be part of huge spending.

In May, the Ministry of Land, Infrastructure and Transport of South Korea invitedbusiness to submit proposals on future infrastructure projects in North Korea, especially concerning the mining industry. It stated that paid access to land resources might "cover the cost of repairing bad infrastructure in North Korea." It was, of course, a bit premature. Now South Korea and the whole world are facing a bully in the mineral-rich North Korea.