Price slump makes North Korea step up mining output

The sharp fall in global commodity prices is starting to have an impact on North Korea, a state that relies heavily on exports of minerals to keep its economy afloat — and its gargantuan military funded. It’s becoming more and more difficult to earn foreign currency, as last year minerals trade decreased by about 10 per cent by volume and about 15 per cent by price.

Mining makes up roughly 14 percent of the North Korean economy, which, although in a parlous state and under heavy financial sanctions, appears to have been growing modestly in recent years, when China was booming and commodity prices were surging. The overwhelming majority of North Korea’s trade is with China, and more than 70 per cent of North Korea’s exports to China are mining products. The prices that North Korea can get from China for anthracite coal and iron ore, its main mineral exports, fell by 26 per cent and 35 percent, respectively, between their peak in 2011 and last year. Furthermore, North Korea’s coal reportedly does not meet the new sulfur standards introduced to try to tackle China’s air pollution problems.

All this is bad news for Kim, who has made industry a priority. In his new year’s address, he said that improvements in a range of sectors, including coal mining, were “opening up bright prospects for the building of an economic giant and improvement of the people’s living standards.”

Underlining the importance of mining in the North Korean economy, the Obama administration slapped restrictions this year on North Korean officials working at the Korea Mining Development Trading Corp., which Washington says is responsible for the country’s arms dealing and weapons export business. But North Korea’s mining sector itself is not under sanctions; its trade in natural resources is legal.
Selling mineral resources abroad doesn’t require any politically risky changes¬ to the North Korean system, says Leonid Petrov, a Russian expert on North Korea who has been closely monitoring its mining activity. “The North Koreans are following the Russian pattern of development,” he said. “They don’t want any structural or institutional reforms, so the export of natural resources¬ is perfect. They don’t need to make any major changes¬, and without changing anything they can exist for decades.”

China is nevertheless investing heavily in the North Korean industry. About 20 Chinese companies have invested in various North Korean mines, including a $500-million investment in the huge mining complex at Musan. North Korea needs the infrastructure, and China needs the minerals.

North Korea’s mining sector remains technologically backward. “The technology hasn’t changed since the 1960s,” said Cha Ji-song, who worked at a copper and zinc mine in in Hyesan on the Chinese border for 14 years, until he defected to South Korea three years ago. “Almost everything is still done by manual labour.”

Because of Chinese investment, copper production at the Hyesan mine, which fell to barely 700 pounds a year in the late 1990s, rose to 1,500 tons by the time Cha escaped from North Korea in 2012. And although prices are not as good as they once were, experts say that North Korea is still sitting on a gold mine. It has significant deposits of more than 200 different minerals, including the second-largest magnesite reserves¬ in the world, after China, and the sixth-largest tungsten deposits, according to the U.S. Geological Survey.
North Korea has dramatically stepped up its production of molybdenum, a rare mineral that can be used in high-tech industrial production, including as an alloying agent in steel and cast iron; for corrosion resistance; and for radiation shielding. It could also be used in North Korea’s nuclear and conventional weapons programmes.

North Korea, thought to have huge reserves of molybdenum amounting to about 54,000 metric tons, has opened a huge new plant near the Chinese border to process the mineral. Satellite pictures and photos from official North Korean news media show a huge open-pit mine surrounded by production facilities, including a covered conveyor belt and refurbished rock crusher.

North Korea also has huge stocks of rare-earth metals, minerals that are sometimes called “the vitamins of the high-tech industry” because they are needed to make semiconductors and smartphones, although they can also be used in building tanks and missiles. SRE Minerals, a mining company in a joint venture with a North Korean state business, said last year that it had discovered what is believed to be the largest deposit of rare-earth elements anywhere in the world.

All told, South Korea estimates the total value of the North’s mineral deposits at more than $6 trillion — more than enough, as one analyst puts it, to fund several more generations of leaders called Kim.