The North Korea Edge

North Korea's Rare Earths Could be Game Changer

A recent geological study indicates North Korea could hold some 216 million tons of rare earths, minerals used in electronics such as smartphones and high definition televisions.

If verified, the discovery would more than double global known sources and be six times the reserves in China, the market leader.

British Islands-based private equity firm SRE Minerals Limited announced the study results in December, along with a 25-year deal to develop the deposits in Jongju, northwest of the capital, Pyongyang.

The joint venture, called Pacific Century Rare Earth Mineral Limited, is with state-owned Korea Natural Resources Trading Corporation. The potential bonanza could offer the isolated and impoverished North a game-changing stake in the rare earths industry.

North Korean rare earths challenge China’s monopoly?

Scott Bruce, an associate of the East-West Center in Hawaii, said the deposits could not only shake China's hold on the market but also improve relations with Japan and South Korea, two of the biggest importers of the minerals.

China's near monopoly on rare earths, 90 percent of the world market, led prices to skyrocket when Tokyo accused Beijing of capping exports because of political tensions. Prices have since dropped to more sustainable levels, but Beijing's control of the market has spurred a search for other sources.

“If North Korea was able to launch this program and develop its own industry,” Bruce said, “it could potentially leverage them to integrate with its neighbors and no longer be the black hole in the center of northeast Asia.”

North Korea's mineral wealth has for years been estimated to be worth trillions of dollars. The Jongju venture could be the first to exploit its rare earths. However, enormous political hurdles stand in the way of the potential benefits.

Foreign firms face steep risks in North Korean ventures

Pyongyang has no formal relations with Tokyo and remains, technically, at war with Seoul. Both countries restrict trade and investment with North Korea because of its frequent provocations and pursuit of nuclear weapons.

North Korea's controlled economy, isolation, and sanctions have left its infrastructure in tatters with poor roads and unreliable energy supplies. Bruce said foreign mining companies would have to factor in those costs, along with the political risk.

“The last company that really went in big in the North was of course South Koreans during the Sunshine Policy,” he said. “And you had KORES, the Korean resource group, that invested heavily in a few joint mineral projects in the north. And, then, when the political relationship between North and South deteriorated,” he continued, “they lost any word of what was happening in those mines.”

As part of the joint venture, Pacific Century will build a rare earths processing plant in Jongju. North Korea's poor working conditions, including forced labor, could subject Pacific Century to rights abuse charges.

Pacific Century has said it is an ethical mining company with multiple procedural controls in place to ensure it adheres to international standards.

Pyongyang more interested in survival than development

Leonid Petrov, a Korean studies researcher at the Australian National Studies University's College of Asia and the Pacific, said Pyongyang has no interest in making the necessary reforms to sustain foreign investment in its economy.

“The two conditions of its survival, the constant crisis and the isolation which are needed for the maintenance of the regime, would be jeopardized,” he said. “Something like that already happened during the ten years of Sunshine Policy when South Korea-North Korea started trading, started cooperating. Some exchange was going on. But soon they realized for South Korea it was too expensive. For North Korea,” he said, “it was too dangerous.”

In an e-mail interview with VOA, Pacific Century's Director of Operations, Louis Schurmann, said the company plans for its North Korean venture to solve the rare earths market problems. However, Petrov argues that Pyongyang would not risk change by further opening its mining sector and would likely continue selling minerals to China to earn foreign currency for the elites.

“I believe that rare earth metals will remain in control by the Chinese government and the Chinese economic clout will continue protecting North Korea both militarily, logistically.” Also, Petrov said, “soft power from China is not going to betray the regime, which is used by China as a buffer state. So, this newly discovered mineral is going to buttress the regime.”

Rare earths seen as helping to bankroll a reunified Korea

The East-West Center’s Bruce said South Korea opposes mining the minerals because they could be a valuable resource to help bankroll a future re-unification of the Korean peninsula.

“The extent to which they're being packaged and sold off now is of great concern to the South,” Bruce said, “because it's effectively taking the economic benefit of re-absorbing the North, if they're able to do that at some point, and selling it off now.”

However, there are signs Pyongyang's policy on selling minerals on the cheap to China could change. Petrov said the December execution of Jang Song Thaek, Kim Jong Un's uncle and second in command, demonstrated disagreement within the leadership on concessions to foreign countries.

“If you look at the list of accusations and charges against Jang Song Thaek,” he said, “you will see that one point was actually addressing the issue of selling natural resources to a foreign country too cheaply.”

Size of rare earth discovery questioned

Other analysts question the estimated size of the deposit. Choi Kyung-soo, president of the North Korea Resource Institute in Seoul, is among the skeptics.

“If you look at what SRE Minerals announced, it seems like North Korea has the largest amount of rare earths in the world,” he said. “But I do not think the amount is that large.” The U.S. Geological Survey, which compiles data on sources of minerals, said there was insufficient information to comment on the significance of the announcement.

SRE acknowledges the rare earth estimates are conceptual and not yet proven. It plans, through its joint venture, to take further samples in April to better assess North Korea's rare earth potential.

By Danial Schearf

via VOA