March, 2008 W.J. Chung Korea Energy Economics Institute North Korea’s Mineral Resources and...

March, 2008

W.J. Chung

Korea Energy Economics Institute

North Korea’s Mineral Resources and Inter-Korean Cooperation

Contents

Mineral Industry in North Korea

Inter-Korean Mineral Cooperation

Summary

1.Mineral Industry in North Korea

Korea Energy Economics Institute 4

Reserve of Mineral Resources

The value of mineral resource in DPRK is 24 times than that of South Korea

- Reserved more than 360 kinds of minerals

Minerals within 10th in the world in terms of reserve in North Korea

- Magnesite, Tungsten, Graphite, Gold, Molybdenum and etc * Magnesite is the first or second following China in the world

Mineral Grade (%) unitReserve

Value (100million Won)

ROK DPRK ROK DPRK

Gold Au 100 kT 0.03 2 4,690 234,500

Silver Ag 100 kT 1.2 4 2,960 10,077

Copper Cu 100 kT 41 2,155 551 28,961

Lead Pb 100 kT 305 6,000 1,174 23,095

Zinc Zn 100 10MT 0.04 42 2,648 90,273

Iron Fe 50 102MT 0.2 30 4,849 738,426

Tungsten WO3 65 kT 100 200-300 869 2,173

Molybdenum

MoS2 90 kT 10 2 2,086 417

Manganese Mn 40 kT 123 100-300 208 65

Nickel Ni 3 kT - 15 - 36

Mineral Grade (%) UnitReserve

Value (100million Won)

ROK DPRK ROK DPRK

Graphite kT 1,837 6,000 11,834 38,652

Limestone 102MT 65.5 1,000 652,486 9,964,965

Kaolin kT 74,357 2,000 11,438 308

Talc kT 5,451 600 5,451 600

Asbestos kT 511 13 552 14

Flourite kT 345 500 530 768

Barite kT 712 2,100 755 2,227

Magnesite MgO 45 102MT - 35 - 1,260,000

Anthracite 102MT 3.4 117 247,216 8,626,386

BituminousCoal

102MT - 30 - 1,853,400


Map of Mineral Reserves

Major mineral reserves


Mines and Iron MillMusan iron mine Musan iron mine

Kimchek steel mill Suncheon cement factory


Zinc

Graphite

CopperMagnesite

iron

Gold

Mineral Productions

The productions of almost minerals have decreased since early the‘90

- Lack of electricity and fuels, materials, equipments for producing

- Heavy flood and droughts in the middle of the 90

The productions have slowly recovered since 2000, but still in difficuty

< Production of Mineral Resources, 1990=100 >


Mineral Exports

The minerals is the most important export commodity in North Korea - Accounting for 15~34% of total export (but, volume fluctuates greatly)

- Major trading countries : South Korea, China, Japan (Taiwan, Russia)

Export refinery mineral products than raw ores for more values

Total export Ore, Lime, Slack

Precious metal

Metal goods

2001 650 25.2(3.9%) 14.1(2.2%) 60.2(9.3%)

2002 735 30.5(4.2%) 14.5(2.0%) 58.3(7.9%)

2003 777 33.8(4.4%) 16.0(2.1%) 89.7(11.5%)

2004 1,020 67.3(6.6%) 5.7(0.6%) 164.3(16.1%)

2005 998 98.0(9.8%) 4.6(0.5%) 187.0(18.7%)

2006 947 119.6(12.6%) 40.0(4.2%) 136.6(14.4%)

< Export of minerals and related products in DPRK, million USD >

Source : Korea Trade Agency


Supply-Demand of Minerals in South Korea

Total Metallic Nonmetallic

Demand

Domestic(A) 11,542.5 10,026.9 1,515.6

Export 1,308.9 1,257.9 51.1

Inventory 451.7 398.2 53.4

Total Demand 13,303.1 11,683.0 1,620.1

Supply

Production

Domestic(B) 1,171.4 65.4 1,106.0

By-products 1,262.2 1,262.2 0

Sub-total 2,433.7 1,327.6 1,106.0

Import 10,070.3 9,611.5 458.8

Carry –over 799.1 743.8 55.3

Self-sufficient rate(B/A) 10.15% 0.65% 72.98%

[ 단위 : Billion Won]

* Coal is not included


Mineral Imports in South Korea (as raw ore)

10. 5

6. 937. 94

6. 1

4. 54. 65. 1

0

2

4

6

8

10

12

00 01 02 03 04 05 06

NonMetallic Metallic Import

[billion USD]


Steel Making and Mineral Refining Facility

Unit NorthNo. of

refinery SouthNo. of

refinery

Steel Million ton 5.4 6 48 34 Posco: 30 mill.

Ton

Copper th.ton 90 4 510 1 2nd In the world(LS Nikko)

Lead th.ton 87 4 200 2

Zinc th.ton 240 n.a 400 1

< Comparison of Iron-Making and Metallic- Refineries Between Two Koreas>

The North : rich mineral reserves, small refinery (small steel Industry)

The South : poor mineral reserves, large refinery ( big steel Industry)


North Korea’s Mineral Industry

Production falling and low operations in most mines

- lack of electricity, materials and aged production equipments

Many mines but a few competitive mines

- Almost mines are small and their pits are getting deeper due to a long-time production

Uncertainty on the qualities of minerals produced in North Korea

Old and small steel-manufacturing and mineral refining facilities- North Korea’s technologies fitting to the minerals produced in its mines - Many facilities but small unit scales

High potential to increase the production of minerals when new equipments are employed and electricity is sufficiently supplied to the mines

2.Inter-Korea Mineral Resource Cooperation


Mineral Trades

0

20

40

60

80

100

1989 1991 1993 1995 1997 1999 2001 2003 2005

[million USD]

0

10

20

30

40

50

[%]

Amount(mi l l i on USD)Rati o(%)

The minerals are a leading commodity of the North’s exports to the South

-11.5% of the North Korea’s export to South Korea in 2006

Major export minerals : zinc, magnesite, gold (about 12 minerals)

The export amounts have been fluctuated as years


Graphite Project(1)

The first inter-Korean development in

the mineral resource

- ROK provided facilities and technologies,

costing $5.2 million

The facility was completed in April, 2006

- Mining operation was delayed due to a shortage of electricity

The South takes 50% of the mine’s annual graphite production


Graphite Project(2)

Heochun Hydro#1

성산광산 (연 ,아연 )

Heochun Hydro #2

Refinery

단천마그네공장

Dancheon Port

광천광산 (중석 ,코발트 ,몰리브덴 )

Ryeungyang Magnesite)

Kumduck Zinc

Deaheung Magnesite무학광산

(마그네사이트 )

Railroad station여해진 North

South

RailroadCoast lineMineHydro Power

Heochung Hydro #3

Heochun Hydro #4

Danchon Project Dancheon is most promising area of mineral resources in North Korea - Many mines with more than 20 mineral resources closely located within 100km - Well organized infrastructures (railroad, hydro power, port), but aged and worn-out - A lot of skilled workers and downstream facilities


Agreement Between Two Koreas (July, 2007)

- The South provides raw materials for light industry such as shoes and soap

- The North gives a mining right of development for reimbursement

The Implementation of Agreement

- Two Koreas have surveyed three existing mines in Dancheon for investment

• Ryoungyang magnesite mine (reserve : 770 million ton, world first)

• Daeheung magnesite mine (reserve : n.a, the first in the east Asia )

• Komduck zinc mine (270 million ton)

The South is examineting the data from the survey for investment

- Economic viability and other variables are reviewing for the investment -

Danchon Project (history)


Komduck zinc mine

Ryongyang magnesite mine Dancheon magnesite refinery

Komduck zinc mine

Danchon Project (mines and refinery)


Danchon Project (Obstacles for investment)

Institutional transparency - The south does not involved in both of foreign law or domestic law in the North - Economy cooperation law between the North and South : very loose to adapt

Economic viable on the infrastructure - Low rate of return with the investment of infrastructure (electricity, railroad and port)

Production of zinc[10th. ton/Y]

100 3000

50

100

150

200

250

Production of magnesite(10 th. ton)

50078.6% 84.7%

45.1%

70.6%

68.0%

63.7%

78.8%

76.8%

73.1%

68.7%

53.6%

50.0%

100 3000

50

100

150

200

250

500

-3.23% 6.76% 9.94%

-3.32%

-3.14%

-2.58%

6.64%

6.70%

4.37%

9.85%

9.87%

10.0%

Production of magnesite(10 th. ton)

Production of zinc[10th. ton/Y]

< Trial IRR of Dancheon Project, KEEI>

( Without investment of infrastructure) ( With investment of infrastructure)


Mineral resources would play a leading role for North Korea to escape its economic crisis when new equipment are employed and electricity is sufficiently supplied in the mines

- It is estimated that the value is $2 billion in current international prices if the minerals are produced with their full capacities in the North Korea ‘s major 7 mines

Mineral resource is a strategic investment field for mutual prosperities of two Koreas

- The South : Contributing to stable and lower cost supply of resources - The North : Contributing to economic development by itself (without supports and aids)

Unstable institutions and poor infrastructures are the biggest obstacles for the South to invest in the mines of North Korea

- It requires a political compromise between two Koreas and a large scale investment for economic scale on the rehabilitation of infrastructures.

Summary


Thank You for your attention !

March, 2008 W.J. Chung Korea Energy Economics Institute North Korea’s Mineral Resources and...

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