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March, 2008 W.J. Chung Korea Energy Economics Institute

North Korea’s Mineral Resources and Inter-Korean Cooperation. March, 2008 W.J. Chung Korea Energy Economics Institute. Contents. Mineral Industry in North Korea Inter-Korean Mineral Cooperation Summary. 1.Mineral Industry in North Korea. Reserve of Mineral Resources.

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March, 2008 W.J. Chung Korea Energy Economics Institute

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  1. North Korea’s Mineral Resources and Inter-Korean Cooperation March, 2008 W.J. Chung Korea Energy Economics Institute

  2. Contents Mineral Industry in North Korea Inter-Korean Mineral Cooperation Summary

  3. 1.Mineral Industry in North Korea

  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, Molybdenumand etc • * Magnesite is the first or second following Chinain the world Korea Energy Economics Institute 3

  5. Map of Mineral Reserves Major mineral reserves Korea Energy Economics Institute

  6. Mines and Iron Mill Musan iron mine Musan iron mine Kimcheksteel mill Suncheon cement factory Korea Energy Economics Institute 5

  7. 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 > Gold Graphite Copper Magnesite Zinc iron Korea Energy Economics Institute 6

  8. 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 < Export of minerals and related products in DPRK, million USD > Source : Korea Trade Agency Korea Energy Economics Institute 7

  9. Supply-Demand of Minerals in South Korea [단위 : Billion Won] * Coal is not included Korea Energy Economics Institute

  10. Mineral Imports in South Korea (as raw ore) [billion USD] Korea Energy Economics Institute

  11. Steel Making and Mineral Refining Facility • The North : rich mineral reserves, small refinery (small steel Industry) • The South : poor mineral reserves, large refinery ( big steel Industry) < Comparison of Iron-Making and Metallic- Refineries Between Two Koreas> Korea Energy Economics Institute 10

  12. 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 Korea Energy Economics Institute

  13. 2.Inter-Korea Mineral Resource Cooperation

  14. Mineral Trades • 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 Korea Energy Economics Institute 13

  15. 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 Korea Energy Economics Institute 14

  16. Graphite Project(2) Korea Energy Economics Institute 15

  17. Heochun Hydro#1 Deaheung Magnesite 무학광산 (마그네사이트) 성산광산(연,아연) Kumduck Zinc Heochun Hydro #2 Ryeungyang Magnesite) Heochung Hydro #3 Heochun Hydro #4 광천광산(중석,코발트,몰리브덴) South Railroad station 여해진 North Refinery 단천마그네공장 Railroad Coast line Mine Dancheon Port Hydro Power 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

  18. Danchon Project (history) • 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 - Korea Energy Economics Institute 17

  19. Danchon Project (mines and refinery) Komduck zinc mine Komduck zinc mine Ryongyang magnesite mine Dancheon magnesite refinery Korea Energy Economics Institute 18

  20. 250 10.0% -2.58% 4.37% 200 Production of zinc[10th. ton/Y] 250 150 73.1% 63.7% 45.1% 200 9.87% -3.14% 6.70% 100 150 -3.32% 6.64% 50.0% 76.8% 9.85% 68.0% 50 100 78.8% -3.23% 6.76% 9.94% 53.6% 70.6% 0 50 500 100 300 84.7% 68.7% 78.6% 0 500 100 300 Production of magnesite(10 th. ton) 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) < Trial IRR of Dancheon Project, KEEI> ( Without investment of infrastructure) ( With investment of infrastructure) Production of zinc[10th. ton/Y] Production of magnesite(10 th. ton) Korea Energy Economics Institute 19

  21. Summary • 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. Korea Energy Economics Institute 20

  22. Thank You for your attention ! Korea Energy Economics Institute 21

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