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

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

3. 1.Mineral Industry in North Korea

4. Korea Energy Economics Institute 3 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 10 th 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 MineralGrade (%)unit Reserve Value (100million Won) ROKDPRKROKDPRK GoldAu 100kT0.0324,690234,500 SilverAg 100kT1.242,96010,077 CopperCu 100kT412,15555128,961 LeadPb 100kT3056,0001,17423,095 ZincZn 10010MT0.04422,64890,273 IronFe 5010 2 MT0.2304,849738,426 TungstenWO 3 65kT100200-3008692,173 Molybdenu m MoS 2 90kT1022,086417 ManganeseMn 40kT123100-30020865 NickelNi 3kT-15-36 MineralGrade (%)Unit Reserve Value (100million Won) ROKDPRKROKDPRK GraphitekT1,8376,00011,83438,652 Limestone10 2 MT65.51,000652,4869,964,965 KaolinkT74,3572,00011,438308 TalckT5,4516005,451600 AsbestoskT5111355214 FlouritekT345500530768 BaritekT7122,1007552,227 MagnesiteMgO 4510 2 MT-35-1,260,000 Anthracite10 2 MT3.4117247,2168,626,386 Bituminous Coal 10 2 MT-30-1,853,400

5. Korea Energy Economics Institute 4 Map of Mineral Reserves Major mineral reserves

6. Korea Energy Economics Institute 5 Mines and Iron Mill Musan iron mine Kimchek steel millSuncheon cement factory

7. Korea Energy Economics Institute 6 Zinc Graphite Copper Magnesite 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

8. Korea Energy Economics Institute 7 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 exportOre, Lime, Slack Precious metal Metal goods 200165025.2 (3.9%) 14.1 (2.2%) 60.2 (9.3%) 200273530.5 (4.2%) 14.5 (2.0%) 58.3 (7.9%) 200377733.8 (4.4%) 16.0 (2.1%) 89.7 (11. 5%) 20041,02067.3 (6.6%) 5.7 (0.6%) 164.3 (16.1%) 200599898.0 (9.8%) 4.6 (0.5%) 187.0 (18.7%) 2006947119.6 (12.6%) 40.0 (4.2%) 136.6 (14.4%) Source : Korea Trade Agency

9. Korea Energy Economics Institute 8 Supply-Demand of Minerals in South Korea TotalMetallicNonmetallic Demand Domestic(A)11,542.510,026.91,515.6 Export1,308.91,257.951.1 Inventory451.7398.253.4 Total Demand13,303.111,683.01,620.1 Supply Produ ction Domestic(B) 1,171.465.41,106.0 By-products 1,262.2 0 Sub-total 2,433.71,327.61,106.0 Import10,070.39,611.5458.8 Carry –over799.1743.855.3 Self-sufficient rate (B/A)10.15%0.65%72.98% [ 단위 : Billion Won] * Coal is not included

10. Korea Energy Economics Institute 9 Mineral Imports in South Korea (as raw ore) [billion USD]

11. Korea Energy Economics Institute 10 Steel Making and Mineral Refining Facility Unit North No. of refinery South No. of refinery Steel Million ton 5.464834 Posco: 30 mill. Ton Copper th.ton 9045101 2 nd In the world (LS Nikko) Lead th.ton 8742002 Zinc th.ton 240n.a4001  The North : rich mineral reserves, small refinery (small steel Industry)  The South : poor mineral reserves, large refinery ( big steel Industry)

12. Korea Energy Economics Institute 11 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

13. 2.Inter-Korea Mineral Resource Cooperation

14. Korea Energy Economics Institute 13 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

15. Korea Energy Economics Institute 14 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

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

17. 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. Korea Energy Economics Institute 17 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)

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

20. Korea Energy Economics Institute 19 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] 100300 0 50 100 150 200 250 Production of magnesite(10 th. ton) 500 78.6% 84.7% 45.1% 70.6% 68.0% 63.7% 78.8% 76.8% 73.1% 68.7% 53.6% 50.0% 100300 0 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] ( Without investment of infrastructure)( With investment of infrastructure)

21. Korea Energy Economics Institute 20 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

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