Is North Korean selling gold to China to avoid economic collapse?

via A new move in North Korean mining? – Australian Mining

Is the ‘Hermit Kingdom’ coming out of its shell?

North Korea is one of the last mysterious nations on earth, with its tightly shut borders disrupting the flow of information in and out, making it an enigma in the current era of information overload.

While its secrecy gives the impression of a country caught in a constant cycle of pushes towards militarisation or reconciliation with South Korea , behind the veil it appears the nation is somewhat changing its tack.

The last communist outpost is reportedly making moves towards trying to develop an effective economy, and mining will play a major role in this shift.

Historically the closed country has held outsiders at bay as it tried to develop its internal industry with some help from its neighbours and occasional allies Russia and China but new economic policies may help aid the nation.

So is this an about-face, or simply a focus on quick cash generation?

North Korea’s government has repeatedly stated its goal of creating ‘a strong a prosperous nation’.

Part of this is its adoption of new economic policies, and a shift away from the completely militarised focus to only a predominately militarised focus coupled with economic growth and resources development.

According to international relations magazine Griffith Asia Quarterly, “North Korea’s era of ‘muddling through’ appears to be over under the leadership of Kim Jong Un.”

“Rightly or wrongly,” Dr. Ben Habib, a professor of international relations at La Trobe University, explained in his paper in the Griffith Asia Quarterly, “his government has noticeably quickened the pace of decisive policy decision-making in pursuit of a simultaneous nuclear security and economic development program.”

Moving into mining

Mining presents a unique opportunity to stimulate North Korea’s economy.

Unlike many of the economic avenues the nation has travelled down – drugs, arms, statues, and outsourcing its own citizens as a cheap labour force – tourism and mining are legally providing a development path unaffected by the existing UN sanctions.

According to Pacific Century Rare Earth Minerals (PCRE), a joint venture between SRE Minerals and The DPRK’s Korea Natural Resources Trading Company, “It is a common misconception that mining in countries which are the subject of UN sanctions is prohibited, [however] nothing could be further from the truth; the UN sanctions with regards to the DPRK are targeted to prohibit the development of specific military technology and weapons.”

“There are currently 12 different countries, including DPRK, that are subject to UN Resolutions, all of which generate significant revenue from the extraction of minerals (i.e. DRC revenues from mining in 2012 were in excess of US$1.8 billion),” PCRE stated.

Habib outlined how these open channels, outside of UN sanctions, are providing a course for growth for North Korea.

“The resources sector has been the first legitimate sector of the economy to take off in the Songun (North Korea’s military first policy) era,” Habib said.

It has even been used as a setting for its film industry.

“North Korea is coming up, and since 2009 we’ve seen a spike in the country’s income from natural resources, according to data from the Bank of Korea,” Habib told Australian Mining.

According to figures from the Nautilus Institute, the combined value of these resources is in the trillions of dollars – US$6 trillion in rare earth minerals alone – and the nation is actively working to making mining feasible.

Strangely enough, the nation is even doing what Australia and even Russia can’t, increasing its coal sales to China, and was the only country to actually boost its shipment levels to the nation as it provides high quality anthracite coal.

“North Korea is the new No. 1 exporter of anthracite,” Georgi Slavov, head of basic materials research in London at Marex Spectron told Bloomberg earlier this year.

This is little surprise as North Korea has high levels of quality coal, as well as iron ore, and the second largest reserves of magnesite, which helped precipitate a growth in Chinese investment in the country’s mining sector.

“The timing of this acceleration coincides with a renewed focus from the North Korean government in developing the mining sector,” Habib said.

“According to Bank of Korea data, for 2011 the mining sector grew 0.9 per cent,” he added, a significant amount for the nation.

The fact that it sits with geographically right in the middle of around a third of the world’s current GDP (thanks to its close proximity to Russia, China, South Korea, and Japan) has created a strong potential growth environment, Dr. Louis Schurmann, director and principal economic geologist at Chamoni Geoconsultants and director of operations for Pacific Century and the geologist who proved up the resource, explained to Australian Mining.

However the country has also been hit by mining’s more recent decline.

“While increased rents from resource extraction are providing the North Korean government with a valuable foreign currency revenue stream, this export is itself exposed to fluctuations in international commodity prices and could even retard the revival of the country’s manufacturing sector through the resource curse,” the Griffith Asia Quarterly stated.

Added to this is the belief by current North Korean leader Kim Jong-Un that its resources are being sold off too cheaply, predominately to China and Russia, as it pushes for higher prices, which may have a negative backlash in a market that is already oversupplied.

A mega-mine?

But it is not just coal and iron ore keeping the nation afloat.

Rare earths are also proving a valuable commodity for the nation, and with the reported discovery of what may be the largest single deposit in the world.

In late 2013 Pacific Century Rare Earth Minerals (PCRE) reportedly uncovered a rare earth deposit, dubbed the Jongju ‘Super Target’.

Initially uncovered by North Korean geologists, who carried out years of drilling on site, early reports stated it had the potential of containing six times the reserves of China (which currently controls more than 90 per cent of the world’s resources) and will re-transform the Global Rare Earth industry in the near future”.

PCRE went on to state that it could support a ‘super mine’ status for more than 100 years.

Early drilling on the deposit showed grades of 664.9 Mt at > 9.00% TREO, 634.0 Mt a > 5.70 ≤ 9.00% TREO, 2.077 Bt at > 3.97 ≤ 5.70% TREO, 340.4 Mt @ >1.35 ≤ 3.97% TREO, and 2.339 Bt at ≤ 1.35% TREO are present in the Jongju REE Target (a total of 216.2 Mt TREO).

This translates into a potential mineralisation of around six billion tonnes.

The deposit is within a complex setting of the North China Craton and its eastern extension working into the North Korean peninsula, early Proterozoic alkaline intrusions were responsible for the creation of the Sakju complexes and the Jongju complex.

The Jongju complex itself consists of six elongated multiple intrusions set within the country rock, and in close proximity to fenitised country rock.

According to PCRE these mineralised zones are characterised as multiple, strike orientated zones, continuous in depth and marked as finer-grained rocks with colour changing from dark green to brown.

The main constituents are recrystallised, equigranular feldspar, clinopyroxene, alkali-amphibole, mica, magnetite, zircon and ilmenite, but with a pervasive “overgrown” nature,” Schurmann explained.

This rare earth project would not be the first in the country, although it would be the largest by far.

According research from the Korea International Trade Association, North Korea last year exported 62,662 kilograms worth of rare earth elements, valued at US$1.8 million, to China.

Courting controversy

Schurmann told Australian Mining there has been more than 35,100 metres of trenching, several drilling campaigns, and a 57,00 tonne bulk sample study by geologists before he was brought on board to verify the sampling.

“SRE/PCRE has a duty of care to ensure that historical information and data is verified, and that additional and new data is generated, compiled and presented under strict JORC 2012 guidelines,” he explained.

Yet many have dismissed the potential deposit, from South Korean think-tanks through to potential investors looking to step into the project for cheap.

A group of think-tanks in South Korea have rejected the legitimacy of the deposit.

“The numbers are not backed up with any solid data, it is nothing but a list of what they have under the ground. [Schurmann] has absolutely no credibility. Whatever he says, I take it as hoax,” Choi Kyung-soo, a senior researcher at the North Korea Resource Institute has stated

“We do not have any data regarding this issue, and the article does not really give us the solid proof about amount of DPRK’s rare minerals nor how profitable it is,” a spokesperson from the Information Systems for Resource of North Korea added.

Choi went on to say the country is simply focused on attracting foreign investment with over-inflated resource estimates, a belief in part backed by the recent Social Change and Business Opportunities in North Korea conference, which stated that “the number of semi-private businesses in North Korea is growing and the regime has been calling for foreign investments”.

Schurmann has rejected these claims refuting the deposits validity wholesale, adding that potential foreign partners have worked to downplay much of the value of the deposit, and overemphasizing problems in both the figures and marketing in order to wrestle greater control of the deposit.

After viewing the numbers Schurmann had no doubt of the potential of the deposit.

“I studied the data,” he stated, “and with no claim or political role I called it what it is”.

“I’ve been on site, I’ve seen the drill cores with my own eyes, and I’ve done the work.”

Australia also played a part in proving up the validity of the resource, with Schurmann sending samples back to Australia for independent analysis.

“The information – after rock and concentrate samples were analysed in Australia – provided sufficient evidence to acknowledge the existence of such [a large] rare earths deposit.

Habib was less black and white on its existence.

“From what I’ve heard, much of the deposit is just extrapolating data from work done on the Chinese side, but it is likely that the same rock formation exists across the border,” he told Australian Mining.

“They are working on assuring the deposits are as large as they say, but we’ll have to wait and see.”

Proving up the resource

So who is the geologist who proved up this enormous resource?

Louis Schurmann began his work on the site in 2011, after he was approached by SRE to examine several mineral occurrences and provide an outside brief.

He has more than 25 years of experience in South Africa, where, in his words he was “always searching for economic potential in places where others would not go or were ignoring”.

“The focus was also that of ‘new’ or ‘fashion to come’ commodities like rare earth elements and associated critical minerals and metals.”

From 1987 through to 1991 he worked on platinum group metals in South Africa, finishing his Masters on the upper critical zone of the Bushveld complex, in the Rustenberg area, completing a PhD on alkaline rocks and carbonatites in 1999.

Schurmann was also part of the early exploration work which led to the discovery of the Kamoa copper project in the Democratic Republic of the Congo (DRC) , which is the world’s largest, undeveloped high grade copper discovery, demonstrating his ability to uncover mega-deposits.

His work on the Jongju project is not the only work he has carried out in North Korea.

He worked for EHG Corporation – later Bunuru Corporation – carrying out field investigations of the Kumwha polymetallic deposits, and is also a non-executive director of the firm.

His is also a Fellow of the Australasian Institute of Mining and Metallurgy.

Getting off the ground

However, it is not always smooth sailing for foreign investors.

Despite rolling out 20 new economic development zones in 2013-14, bringing the total to 25, in a bid to woo foreign investors the economic initiative remains in its early stages.

According to the Nautilus Institute’s paper by the aforementioned Choi Kyung-Soo’on North Korea’s mining industry, “Foreign companies have participated in about 25 mining projects in North Korea. China, Japan, the United States, and the United Kingdom have participated in North Korean mining projects.”

“Chinese companies, in particular, have been aggressively participating in North Korean mineral development since 2003. At present, China has participated in about 20 of these mining projects [with two thirds of all of the 300+ foreign investments in the country coming from China].

“It is very difficult for foreign investors to participate in North Korean mineral development operations, as most foreign investors want to establish their own companies and operate the mines independently. Therefore, North Korea’s legal provisions, sovereign risk, and antiquated infrastructure are barriers to foreign investment,” he said.

“Firm political control remains the government’s overriding concern, which likely will inhibit changes to North Korea’s current economic system,” the CIA has stated in its research on the nation.

This was demonstrated in 2012, with the calamity that was China’s Xiyang Group’s foray into the North Korean resources space.

Its US$40 million investment into the region was reportedly a ‘nightmare’ event, according to the miner.

A collapsed joint venture between it and the North Korean government devolved into accusations of North Koreans smashing the windows of Chinese workers in the country, stealing millions of Chinese currency, and widespread corruption.

North Korea levelled its own accusations at the miner, stating that it failed to deliver around half the promised investment, and that laws were introduced to protect foreign workers.

However, the country has reportedly attempted to move on since this time.

“North Korea’s mining policies are attempting to increase mine production, explore new mineral resources, and modernize its mining technology,” Choi explained.

“However, it is difficult for the country to develop its mines due to the shortage of equipment.”

Schurmann gave his recent experience in North Korea, outlining a changing nation in terms of operating environment.

“PCRE has not had any problem,” he said.

“We have had access to mobile phones (local and international), courier services and the internet.”

He also dismissed some of the perceived hurdles in operating in the country.

“The legal environment (i.e. agreements) is to the point and in English; their mining laws and associated acts and regulations are basic but efficient and practical.

“The deals and agreements are fair with several points within supporting and promoting ‘good deals’ for all parties, there is also will at all levels to make these projects work to the benefit of everyone.

“On a daily basis [it’s] great; the project areas are pristine [although] bird life is limited, but wild animals roam the mountains and reports of snow tigers are general. The winter months are cold but we get around that. Logistics like food, water, accommodation and transport are good. Pretty much like “glamping”.

“My work and my involvement in any part of the world is apolitical…I do not get involved in any politics and will not even have an opinion, although what we do does have a positive effect.”

Schurmann added: “NK is not what the international news agencies tell the rest of the world. Obviously there are problems, but I see them fading away in time as NK is changing rapidly for the good of the region. “

And mining may play that role in facilitating positive change for the country, and the region.

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