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New sanctions could cripple reclusive North Korea’s mining sector

27th May 2016

By: Ilan Solomons

Creamer Media Staff Writer

  

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JOHANNESBURG (miningweekly.com) – New sanctions on North Korea imposed by the United Nations (UN) and the US in March for allegedly undertaking nuclear and ballistic missile tests earlier this year will affect the country’s mineral resources sector.

North Korea – officially named the Democratic People’s Republic of Korea (DPRK) and referred to as such by the UN and particularly by State-run media outlets – denies this allegation, claiming instead that the tests were attempts to launch satellites for “peaceful purposes”.

The sanctions affect the mining sector significantly, as they have banned the sale or transfer of North Korean coal, iron and iron-ore “if profits are deemed to be spent on the country’s nuclear or missile programme”. However, minerals for sale, which are “exclusively for livelihood purposes”, are exempted.

Johns Hopkins School of Advanced International Studies US-Korea Institute researcher Curtis Melvin says the impact of these sanctions on the country’s mining industry remains to be seen.

“It is unclear how strongly China will enforce the new US and UN sanctions on the country. However, it is unlikely they will do anything that will jeopardise the stability of the North Korean regime,” he says.

Melvin explains that China is North Korea’s largest trading partner and the largest importer of its natural resources. He says, although 2015 trade data for North Korea has not yet been published, China–North Korea trade comprised $6.8-billion of North Korea’s $9.7-billion total trade revenue in 2014.

“Nearly 40% of China’s imports from North Korea, worth about $4-billion, was in anthracite. Trade between the two countries was down 12.5% in value terms in the first half of 2015, owing to the fall in commodity prices.

“However, this statistic can be a misleading indicator of China–North Korea trade . . . In recent years, the volume of mineral trade has been increasing, but the actual value has been decreasing because global commodity prices have been falling,”he explains.

According to the US Treasury Department Office of Foreign Assets Control (OFAC), North Korea generates a significant share of the money it uses to fuel its nuclear and ballistic missile programmes through mining natural resources – “often exploiting workers in slavelike conditions” – and selling these resources abroad. “In particular, coal generates over $1-billion a year in revenue for North Korea,” it states.

The OFAC has, therefore, placed several companies on a US trading blacklist for operating in the mining industry in the North Korean economy. These companies include a subordinate of the DPRK’s Ministry of People’s Armed Forces Singwang Economics & Trading General Corporation and the Korea Foreign Technical Trade Centre.

“The Korea Foreign Technical Trade Centre supports the Pongwha Research Centre – the North Korean special weapons research entity,” the department states.

INDUSTRY STATUS

Melvin tells Mining Weekly that the true status of mining in North Korea cannot be determined with any real precision, as the country does not publish this kind of economic data and has not published net material product tables gross domestic product (GDP) statistics since the 1960s.

“The [South Korean] Bank of Korea estimates mining to have contributed 13% of North Korean GDP in 2014, estimated at ₩4.4-billion, but this estimate is as much art as it is science,” he cautions.

Nonetheless, the North Korean State-run Korean Central News Agency (KCNA) announced in March that a 70-day campaign in the DPRK “inspired” all the employees of mines under the country’s Mining Ministry to boost “production rapidly”.

“The Changdo barite mine, in the Chaeryong-gang district, carried out its yearly plan [of increasing output by] 123%, while the Unhungpalwol iron-ore mine, in Unhung county, topped its [productivity levels] for the first quarter of the year. The alloying element and mining management bureaus have [also] carried out their assignments for the campaign [by increasing outputs by] 70% and 45% respectively.

“Such increased production is also reported from the Unpha coal mine, in North Hwanghae province, and the Riwon talc mine, in Hamgyongnam-do county . . .”, the KCNA reports.

Additionally, the news agency highlights that the central group for the survey of mineral resources under the Ministry of State Natural Resources Development in the DPRK recently produced a new digital chart on valuable minerals.

This chart, a reading program, helps to search and control the survey data on a nationwide scale and adopt prospecting strategy and tactics on a scientific basis by ensuring a thorough understanding of the country’s underground mineral resources.

Group chief engineer Kang Song Il comments that the program, developed in cooperation with the Global Environmental Information Institute under the State Academy of Sciences, allows for the “rapid scientific prognosis of valuable mineral deposits” throughout the country.

TAINTED GOLD

 

US government scientific agency, the United States Geological Survey (USGS) points out that North Korea’s central bank refines gold to provide currency for the country’s leadership.

However, the USGS notes that the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law in the US in 2010, requires US companies to investigate their supply chains and disclose whether gold, tantalum, tin or tungsten used in their products come from mines controlled by armed groups in the Democratic Republic of Congo.

 

In the process, however, dozens of companies disclosed that their suppliers used gold refined by North Korea’s central bank. US sanctions prohibit imported materials from North Korea, even if they come from deep within a supply chain and are in a completely different form by the time they reach the end-user.
The USGS highlights that, after an investigation into the reporting methods by which companies queried their suppliers, it was discovered that the reason for so many companies appearing to be sourcing gold from North Korea was that there was an error in a template that listed the central bank of the DPRK as being in the Republic of Korea, commonly known as South Korea.

“When suppliers entered a code for a Republic of Korea smelter, it was, therefore, inadvertently reported as having come from the DPRK. Most companies reportedly determined that gold from North Korea did not make it into their products; however, it was impossible to know if gold from North Korea could have been sourced through suppliers from China,” the USGS explains.

RARE-EATH ELEMENTS

Foreign private-equity firm SRE Minerals has a joint venture (JV) with State-owned Korea Natural Resources Trading Corporation of North Korea to explore the country’s Jongju rare-earth element (REE) deposit, located 150 km north-west of North Korea’s capital, Pyongyang.

The agreement reportedly grants the JV company, known as Pacific Century Rare Earth Minerals, the right to explore and mine the deposit and construct a processing plant at the site.

The USGS states that reports about the REE resources of and the pending exploratory work in North Korea have generated speculation about the potential effect of such a project in terms of China’s “near monopoly” on the global REE market and North Korea’s debilitated economy.

However, the USGS emphasises that no information has been produced to substantiate any claims regarding the magnitude of the resources or their potential development.

FUTURE PROSPECTS

The USGS says there is no expectation of significant development in North Korea’s minerals industry in the near to midterm, owing to international sanctions, political tension, lack of infrastructure and investment, and a high level of sovereign risk.

“Foreign investment in exploration or mining in North Korea is speculative and reports about interest in the country’s REE oxide resources are focused on deposits that are enriched in light REE oxides, rather than the more valuable heavy REE oxides that are in relatively limited supply, but in high demand.

“Exploration into North Korea’s carbonate-hosted REE-bearing minerals might reveal resources of heavy REEs. However, there is no indication that this exploration work has generated any industry-compliant resource estimates, and North Korea reportedly does not have the ability to conduct such exploration or quantify the resources,” the USGS states.

Edited by Creamer Media Reporter

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