North Korea’s mining prospects

The mining industry is one of the most important components of North Korea's economy and minerals are its most important export commodity.

North Korea hosts sizeable deposits of more than 200 different minerals. Of those mineral resources identified, deposits of coal, iron ore, magnesite, gold ore, zinc ore, copper ore, limestone, molybdenite, and graphite are the largest and all have the potential for the development of large-scale mines. North Korea's magnesite reserves are the second largest in the world, after China, and its tungsten deposits are likely the sixth-largest in the world.

Yet North Korean mining production has decreased significantly since the early 1990s. It is likely that the average operation rate of existing mine facilities is below 30 per cent of capacity. North Korea has a shortage of mining equipment such as load haul dumps, jumbo drills, and conveyor systems. It is unable to purchase new equipment due to its dire economic situation. The energy shortage and the age and generally poor condition of the power grid are hampering North Korean mineral production. Almost all North Korean mines suffer from a lack of electric power. According to the South Korean Mine Survey team's data, it is assumed that North Korean mines have very weak electric power systems and low-quality electricity (voltage in North Korea is approximately 130–205V, normal voltage is 220V) and frequency variations are 39–54Hz (normal frequency is 60Hz). Under these circumstances, North Korean mines cannot operate the necessary mining equipment. Alternatives need to be sought in order to solve the electricity shortage. To improve mine productivity the construction of large-scale hydroelectric plants as well as the remodeling of the overall power system in cooperation with Russia and South Korea, would help address this problem.

North Korea is attempting to increase its mine production, explore new mineral resources, and modernise its mining technology.

The North Korea government has given special priority to the exploration and development of new mineral resources, especially ferrous and non-ferrous minerals. Recently, North Korea's mineral resources. North Korea desires international assistance through joint projects to explore its mineral resources, and mainly its rare metal and rare earth minerals.

North Korea has also expressed an interest in mining technology innovation, including the development of mineral processing technology for oxide minerals, purification technology for raw metals and separation and purification technology for rare metal minerals. North Korea is interested in joint projects with other countries to develop these mining technologies.

The track record for joint foreign projects, however, is poor. Foreign companies from China, Japan, the United States, and the United Kingdom (not including those from South Korea) have participated in about 25 mining projects in North Korea. Among these projects, about five were known to have been actualised, and in operation. Chinese companies have been participating in North Korean mine projects since 2003. China remains North Korea's leading investment partner in mining projects and, with the exception of Chinese companies, foreign companies have not succeeded in North Korea.

It is difficult for foreign investors to participate in the management of joint companies with North Korea. Foreign investors want to establish their own companies and operate the mines. The rights of investors to ownership, exports, and other key business arrangements related to the North Korea mining industry are unclear. North Korea is not forthcoming about its mining projects and will not provide information without prior investment agreements with foreign companies. Additionally, the antiquated infrastructure (including power, rail, and ports), and resulting low productivity, make mining operations difficult for foreign investors. Without favourable conditions for investors, foreign investment in mining will remain low.

For inter-Korean projects the track record is no better. The inter-Korean mining projects in North Korea have stopped production since 2008.

In North Korea, South Korean companies are considered neither a foreign company nor a domestic company. With no status, they cannot enter into and stay in North Korea without prior approval. North Korea's investment laws are abstract and vague, and generally do not allow South Korea access to North Korean mines. North Korea also does not provide mineral information without a prior investment agreement. It is very difficult to survey the mine sites, especially the power facilities.

Inter-Korean mining cooperation is, however, very important for both sides. North Korea can increase mine production and stimulate its economy while South Korea has the potential to secure nearby mineral commodities if this were to happen. South Korea depends on imports of mineral commodities due to its own poor supply of mineral resources. South Korea's import costs for mineral commodities have significantly increased as the mineral costs have risen. South Korean investments in mining are likely resume in the future because mineral development cooperation offers big mutual benefits to the two Koreas.

If political relations stabilise between the two Koreas in the near future, joint mining projects will be a high priority. South Korea is ready to resume mining negotiations when security preconditions have been met. The first mining project to resume between the Koreas is likely to be in the Dancheon district. In 2007, a joint mine survey was carried out by the two Koreas in this area. Mining cooperation could be easily resumed at the Daeheung magnesite mine and the Geomdeok zinc mine, both of which are viable projects. If North Korea addresses the investment risk and barriers to entry, South Korean companies would quickly consider investing in these mines.

South Korea has the capacity in future to provide mining facilities and technology, while North Korea can provide the mines and workers. To facilitate South Korean investment, North Korea is likely to suggest developing new mines, reopening non-operating mines and improving existing mines and metallurgy plants. For this to be realised, North Korea will need to create favourable conditions for foreign investment more generally and uphold its contracts with South Korean companies.

Choi Kyung-soo is President of thesources Institute in Seoul.