Archive for the ‘Gold’ Category

DPRK consolidates gold export revenues

Friday, December 27th, 2013

According to the Daily NK:

Approximately two months prior to the purge of Jang Sung Taek, the North Korean authorities halted exports of gold ore from the mines of Hwanghae Province in the southwest of the country, Daily NK has learned.

The step allegedly followed the discovery of improprieties in the operation of mining enterprises managed by persons linked with Jang, and formed part of measures designed to bring foreign currency-earning activities en masse under strict Central Party control.

“The order to halt exports was handed down in October, some months before the official news of the purge of Jang Sung Taek,” a source involved in the industry told Daily NK on the 27th. “It was even applied to foreign currency-earners affiliated with Central Party organs, as well as those from normal provincial-level agencies.”

“A directive ordering operations to cease from the second half of the year was issued to Holdong and Eunpa mines in Yeonsan County, North Hwanghae Province. These mines are shut now and their shafts are just filling up with water,” the source went on. “Mine officials have told me that this order came down stating that neither provincial nor Central Party managed-enterprises were allowed to mine for gold.”

“By doing this just a few months before the Jang Song Taek purge, the authorities moved to integrate foreign currency-earning activities and confiscate those enterprises and funds formerly managed by Jang prior to his purging,” he added. Explicating his view of the logic behind the step, he went on, “[The authorities] wish to greatly reinforce their control over these foreign-currency earning enterprises’ resources so as to bring together the management of Kim Jong Eun’s ruling funds.”

“I am told that they discovered that the enterprises Jang was managing had not been passing their profits to the state in the prescribed manner, so they halted the trade completely” the source alleged. “They controlled the mines, saying that the reason was because Jang was flogging off natural resources for a low price.”

“Previously, only ore with a purity of 20-30g of gold per ton could be exported, so any ore with a lower purity than this was not controlled. But now they are stopping all gold ore from exiting,” he went on to explain, adding that the ban is causing serious problems for the region’s miners, many of whom rely in large part on income from the mines for their survival.

“They used to share export licenses with other enterprises and export ore that way, too, but right now that is also totally prohibited,” he added.

Read the full story here:
Gold Mining Stopped to Unify Funds
Daily NK
Oh Se Hyeok
2013-12-27

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Jim Rogers goes long on DPRK coins

Friday, March 29th, 2013

The Wall Street Journal offers an interesting story on American investor Jim Rogers. Here is an excerpt from the article:

By Sunday, Pyongyang-based Korea Pugang Coins Corp. had sold its entire stock of coins, which included 20 one-ounce gold coins featuring mostly century-old generals as well as several hundred silver coins featuring North Korean sports achievements, cultural landmarks and national animals.

Most of the coins were purchased by Mr. Rogers, an American commodities investor now based in Singapore, said a Korea Pugang Coins representative, who didn’t give her name. The company knows Mr. Rogers from last year’s fair, when he bought the entire lot of North Korean coins offered.

Mr. Rogers, who started the Quantum Fund with George Soros in the 1970s, couldn’t be reached for comment, but had said in a previous interview: “Coins and stamps are the only way I can invest in North Korea.”

By invest in, Mr. Rogers means he wants to wager against the long-term prospects for the isolated, economically struggling country. He views his purchase as a bet on the collapse of North Korea.

“At some point down the line, North Korea will cease existing as a country. Then the value of the coins will go up,” Mr. Rogers said.

According to North Korea’s state-controlled news agency, a special series of gold coins were minted last year to commemorate Kim Jong Il, the country’s leader who died in late-2011. The inscription: “The Great Leader Comrade Kim Jong Il Will Always Be Alive.” However, none of those coins were put up for sale at the Singapore fair.

Mr. Kim was succeeded by his son, Kim Jong Eun.

Situated next to the American Numismatic Association, the North Korean stand drew immediate attention from many visitors, when the Singapore International Coin Fair opened its doors Friday morning. By lunchtime, the sales team, wearing Kim Jong Il pins on their jackets, hardly found time to finish their sandwiches and cans of Coca-Cola KO -0.59% .

Thirteen of the gold coins were purchased by an assistant of Mr. Rogers, said a representative of state-owned Korea Pugang Coins. “He wanted to buy more, but we only had 13 left,” she said. The company offered the gold coins for 2,500 Singapore dollars, or $2,014—well above Friday’s closing gold price of $1,598.25 an ounce.

Mr. Rogers is a fervent believer that the commodities bull-run will continue and that China and other Asian nations will set the global economic agenda for this century. He advocates investing in frontier markets such as Myanmar and Cambodia, and in 2007, sold his New York mansion and moved to Singapore, in part because he thinks it is crucial for his children to learn Mandarin.

Korea Pugang Coins has minted coins in Pyongyang since 1987, but the mintage is only around 2,000 each year, as North Korea’s own gold resources are limited.

The coins draw only a limited amount of buyers within North Korea and are mainly sold to international investors and collectors at fairs in Hong Kong, Beijing and Singapore, the company said.

Estonia-based Tavex Group, a company that specializes in gold and currencies, made a deal with Pyongyang in 2008 to sell North Korean gold coins.

But the North Koreans ended it after the first shipment of coins from a 2007 series featuring elephants, rhinos, owls, lions and buffalos.

“We sold them at a relatively high price to collectors, but demand was not big,” says Tomas Pavelson, who works in sales at Tavex Group.

“Actually, we still have one left.”

See some examples of DPRK coins here and here.

Here is some additional information from the Choson Ilbo:

In March last year, American investor Jim Rogers went to an international coin fair in Singapore and snapped up 13 rare North Korean gold coins each valued at 2,500 Singaporean dollars, as well as hundreds of silver coins worth 70 Singaporean dollars each.

The commemorative coins were produced by Pyongyang-based Korea Pugang Coins Corp., a subsidiary of Pugang Trading Corp.

Pugang Trading operates under the “guidance” of the Workers Party’s Munitions Industry Department but is believed to be run by Chon Song-hun, the son of the former North Korean ambassador to China, Chon Myung-su. The younger Chon is a former professor at Kim Il-sung University.

The firm imports and manufactures motorcycles and owns six subsidiaries involved in metals, machinery, chemicals, electronics and pharmaceuticals production. It also owns a gold mine that supplied the commodity for the coins.

Pugang Pharmaceutical has even exported health products to South Korea and runs a mineral water business. The group’s annual transaction volume amounts to US$150 million with 15 overseas branch offices, including in Beijing and Moscow.

Now Pugang Trading is on the UN Security Council’s blacklist, but the company is still very active in the North.

“Pugang is the North Korean equivalent of South Korea’s Samsung Group,” said Cho Bong-hyun of the IBK Economic Research Institute. “It appears to have been thriving even after Kim Jong-un stepped into power.”

Chon’s brother Yong-hun, meanwhile, apparently controls the import of diesel fuel into North Korea as the head of a company affiliated with the party’s Finance and Accounting Department. “North Korean businesses usually split their profits 50:50 with the party,” said a government source here. “The Chon brothers are believed to be worth millions of dollars.”

Another tycoon is Cha Chol-ma, a former diplomat who amassed a fortune worth millions of dollars by taking charge of business projects the North engages in overseas to earn hard currency.

“As a market economy evolves in North Korea, we are seeing early signs of monopolization of wealth,” said a researcher at the Korea Institute for National Unification here. “Tycoons have grown wealthy through collusion with high-ranking party members.”

Experts say North Korean businessmen also act as proxy investors on behalf of high-ranking party members, who cannot get involved in business, and often share the profits.

Read the full story here:
Executing a North Korean Coin Flip
Wall Street Journal
Jacob Gronholt-Pedersen
2012-3-29

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Chinese company to invest in gold mine, luxury hotel in North Korea

Sunday, February 3rd, 2013

koryo-seven-star-under construction

Pictured Above: New hotel under construction. See more here. I am still not sure about the gold mine.

By Michael Rank

A Chinese company has announced plans to invest $20 million in a gold mine in North Korea as well as in the country’s first five-star hotel, a Chinese-language website reports.

The mine, with deposits of 50 tonnes of gold, is in Unsan county 운산군 in North Phyongan province 평안북도 in northwestern North Korea near the Chinese border.

The report said Weijin Investment Group is the first Chinese company from Hunan province to invest in North Korea.

It quoted Weijin chairman Xia Juhua as saying, “North Korea is backward in infrastructure construction, so we can fulfill the requirements of mineral resources exploitation by offering technology and management support to the country’s key projects like highways and hotels”.

He said Wejin plans to construct a 30-storey, five-star hotel to be completed this year but did not give a location. Xia also mentioned plans to invest in the rare earth sector in North Korea but gave no details.

The report said about 200 Chinese companies were investing in North Korea and that over 70% were focusing on the mining sector. But at least one of these ventures went spectacularly sour last year, when the Chinese partner launched an extraordinarily bitter attack on its North Korean counterpart, accusing the North Koreans of tearing up a multi-million-dollar deal, intimidating its staff, imposing outrageous extra charges and cutting off its power and water, as well as of corruption and demanding prostitutes whenever their North Korean colleagues visited China.

UPDATE (2013-3-13): NK News has published that the hotel will be named “Yonggwang Hotel (영광호텔)”…which is the name of the closest metro stop.

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DPRK mining investment woes (Xiyang – 西洋集團)

Friday, August 17th, 2012

Pictured above: the signing of the contract between Xiyang Group and Ri Seong-kyu (리성교). Image source here.

UPDATE 6 (2012-9-17): Andrei Lankov writes a good summary of events.

UPDATE 5 (2012-9-7): The Global Times (PR China) reports on the Xiyang affair:

Wu Xisheng, vice general manager of the Xiyang Group, told the Global Times Thursday that the company’s partner in North Korea was an enterprise affiliated with the Korean Workers’ Party, instead of what the country called a private entity.

Wu also said Xiyang is one of dozens of Chinese companies who have been cheated by North Korea.

Hu Chenpei, a diplomat with the business section of the Chinese embassy in Pyongyang, told the Global Times that it is “an isolated case of business disputes,” adding that both sides of the story are true.

“We have been in contact with related departments in North Korea, hoping the two sides could iron out their disputes through rational discussions,” said Hu.

However, Wu insisted that the North should repay their losses or the group will reveal further details about “how Pyongyang cheated it.”

When contacted by the Global Times, a diplomat with North Korea’s embassy in Beijing said he had never heard of the Xiyang Group and refused to comment.

The North Korean spokesperson also said his government will continue improving its investment environment to further draw international investment, and protect the legitimate rights and interests of international investors who follow the principles of mutual respect, equality and mutual benefit as well as observing laws.

Liu Ming, a researcher with the Shanghai Academy of Social Sciences, said the disputes have dealt a blow to Chinese enterprises’ confidence in North Korea.

UPDATE 4 (2012-9-5): In a Reuters article, Xiyang responds to the KCNA statement:

Xiyang told Reuters in an interview after the North’s statement that it had been “cheated” and it lambasted Beijing’s policy of propping up North Korea’s unreformed regime which it said that it was done for geo-political reasons.

“It (Xiyang) has carried out only 50 percent of its investment obligations though almost four years have passed since the contract took effect,” KCNA quoted a spokesman for North Korea’s Commission for Joint Venture and Investment as saying.

Xiyang refused to curb its criticism of North Korea when it spoke to Reuters, suggesting that Beijing was doing little to help companies that ran afoul of what it viewed as arbitrary rulings by North Korean officials.

“This isn’t just about us – it is about all companies investing in North Korea,” Wu Xisheng, vice general manager of Xiyang told Reuters.

“They just don’t have the conditions for foreigners to invest. They say they welcome investment but they don’t have the legal or social foundations.”

UPDATE 3 (2012-9-5): KCNA has issued an official comment on the xian affair:

Media Should Maintain Impartiality in Report about DPRK

Pyongyang, September 5 (KCNA) — A spokesman for the DPRK Commission for Joint Venture and Investment on September 5 issued the following statement:

The Xiyang Group of the Haicheng City, Liaoning Province of China on August 2 posted on its Internet website an article criticizing the DPRK over the disputes that cropped up between the Group and the Korean Ryongbong Corporation in the course of implementing a joint venture contract for the development of magnetite concentrated ore.

After the article was published, some media echoed it before and after the report about the results of the third meeting of the DPRK-China Guidance Committee for developing two economic zones was made public.

They added their own analyses to the article posted by the Group. They even aired what the anti-DPRK hostile forces reported in the past to malignantly slander the inviolable social system and policy of the DPRK.

Generally, it is international usage and commercial ethics to settle disputes that occurred in the course of economic relations in line with the relevant arbitration item of the contract.

But the media have kicked off massive propaganda campaign, defying international usage and commercial order. This cannot be interpreted otherwise than an act of fanning up the dishonest forces in their moves to drive a wedge between the two countries in their economic cooperation and chill the atmosphere for investment.

As far as the procedures for the signing and implementation of the contract between the DPRK Ryongbong Corporation and the Steel Co. Ltd., of the Group and the bilateral disputes are concerned, the Group is also to blame for the abrogation of the contract. In the light of the process of implementing the obligations under the contract, the Group is chiefly to blame from the legal point of view.

It has carried out only 50 percent of its investment obligations though almost four years have past since the contract took effect.

So the two contracting parties again sat together only in vain over the timeline for the completion of the first-phase investment and commissioning.

As for 16 provisions which the Group set forth as the major issue of the disputes, it is the legal obligation of the Group related to the contract to implement them according to the mutual contract in which both sides agreed on the article that “two sides sign it on the basis of the DPRK Law on Joint Venture”.

As regards the dealing of sales price of trial products, the Group insisted on its self-opinionated proposal for settling its debts within the boundary of China, in disregard of the procedures in price dealing pursuant to the relevant financial management norms.

Media should comply with the standards for fairness and objectivity, create an atmosphere helpful to settling the disputes between the two contracting parties and refrain from an act that can be misused by the hostile forces for their vicious propaganda.

We will in the future, too, improve and round off the investment environment to further expand the international investment relations to meet the demand of the developing times and the lawful requirement of the international investment relations under the condition that the security of the country is guaranteed by dint of Songun. We will also ensure the legitimate rights and interests of all investors willing to develop international investment relations on the principles of mutual respects, equality, reciprocity and law-observance.

UPDATE 2 (2012-8-17): Michael Rank sent over the photos below which the Xiyang Group published (source here). I had a Korean friend (thx Angela) look over these and give me an idea of what they say:

This appears to be the DPRK business license or registration. It claims that the Korea Ryongbong Ryonhap Company (조선령봉련합회사) and the Chinese Soyang Jipdan Corporation (중국서양집단공사사) “merged” to form the Yangbong Hapyong Company (양봉합영회사). The new firm is made up of 1,000 local employees and two foreigners. The investment terms also appear to be denominated in Euros.

This image appears to be the cover sheet to the agreement between the two firms.  The cover sheet states that this agreement has been approved at the highest levels and that both firms agree to be bound by its terms.

UPDATE 1 (2012-8-15): Michael Rank has followed up on the Xiyang Group story in the Asia Times:

China likes to claim that its relations with North Korea are “as close and lips and teeth” but those teeth are infected with a poisonous abscess so far as one Chinese company is concerned.

In an extraordinary attack, a Chinese mining company has accused the North Koreans of tearing up a multi-million-dollar deal, intimidating its staff, imposing outrageous extra charges and cutting off its power and water, as well as of corruption and demanding prostitutes whenever their North Korean counterparts visited China.

“Xiyang Group’s investment in North Korea was a nightmare, and we were taking our lives in our hands when we entered the tiger’s lair,” the company says.

Xiyang Group, based in the northeastern province of Liaoning, says it was the biggest single Chinese investor in North Korea, having in 2011 signed a 240 million yuan (US$38 million) deal to form a joint venture iron mine that was to produce 500,000 tonnes of iron powder a year.

A few months after the contract was signed, the North Koreans made a series of extraordinary demands that led to the Chinese walking out in fury and to launching what must surely be the fiercest public attack they have ever made on their supposed close ally. [1]

The company aims much of its invective at a particular North Korean official, who, it says, is “the leader of the criminal gang who deceived Xiyang, this great plotter and fraudster …” The official, Ri Seong-kyu, was the North Korean side’s faren, or legal representative, in the deal and he is blamed for everything that went wrong.

When negotiations began in 2006 the plan was for the Chinese company to take a 75% stake in the venture, but it turned out that North Korean policy stipulated that a foreign firm could own no more than a 70% stake in a natural resources company such as a mine.

Xiyang says Ri, “violating the North Korean national investment law”, nevertheless signed a joint venture contract in which the Chinese side took a 75% stake, “forging an investment certification document in order to gain Xiyang’s confidence”.

He later told the Chinese company that the document was null and void because of the stipulation that the North Korean side must have at least a 30% stake, but Xiyang did not realise his deception until September 2011.

Xiyang says it first became interested in investing in North Korea in 2005 in response to the Chinese government’s call for Chinese companies to “venture out” and invest abroad, “but we had heard that North Koreans do not keep to their word, national laws are not strong and it is easy to be cheated, so we were extremely cautious in our investigations.”

It also notes the secrecy that pervades business dealings in North Korea, which prevented Xiyang from sending ore samples back to China for testing, but despite all this the company “took the great risk of investing”.

“North Korea’s system of doing business is [based on] government departments’ secrecy in relation to foreigners, and they do not allow foreigners to visit government departments to do business,” the online report complains.

It says there were “all kinds of unimaginable serious problems” in reaching an agreement, but after years of negotiations production finally began in April 2011. However, the North Koreans unilaterally annulled the agreement last February, when they “used violent methods” against Xiyang staff, cutting off their water, electricity and communications and smashing the windows of their living quarters.

At 2am on March 3, a group of 20 armed police and security officials led by a North Korean company official woke up the sleeping Chinese and told them the North Korean premier had annulled the deal and they were to leave the country immediately.

Ten senior Xiyang employees, who seem to have been the only ones remaining in North Korea out of over 100 originally sent, were “treated as enemies”, put on a bus and deported via the border city of Sinuiju.

The statement includes a highly personal attack on Ri, who, it says, has a huge paunch and is “North Korea’s number one fat man”, weighing 108 kilograms. “Everybody knows North Korea is suffering grain shortages and ordinary people do not have enough to eat, so North Koreans are quite thin but Ri Seong-kyu’s unusual fatness fully reveals what a luxurious life he leads … When people like Ri Seong-kyu go to China they let down their country and themselves and make all kinds of demands, for money, gifts, food, drink, girls …”

Xiyang said it had paid over US$800,000 in kickbacks to corrupt North Korean officials, including $80,0000 for a Hummer for Ri in 2008 and $100,000 in 2009 for a construction project in which he was involved in South Hwanghae province. In addition, Ri and his cronies would demand gifts of laptops, cellphones and vast amounts of booze, and to be provided with masseuses.

“Sometimes the Chinese would not provide any girls, so they would get them themselves and put it on their room bill,” expecting Xiyang to pay for all their personal expenses, bringing the bill to over 200,000 yuan per person.

This was not all – they would demand a receipt for their expenses that had been paid for by Xiyang, so they could claim the same costs when they returned to North Korea, according to the Xiyang statement.

Xiyang officials, on the other hand, had to pay all their own expenses in North Korea, were only allowed to eat in certain restaurants and were followed 24 hours a day by security officials. Even when Ri invited the president of Xiyang to his home, his host charged $2,000 for the privilege.

The report says the crunch came in September 2011 when the North Koreans made 16 demands that violated the terms of the contract, including a 4-10% sales levy, a one euro (US$0.17) per square metre per year rent charge, a hike in electricity prices and a charge of one euro per cubic metre of sea water consumed.

They also banned the company from releasing waste water, or even clean water, into the sea, which “amounted to the North Koreans forcibly halting production”.

The most serious act by the North Koreans was a ban on sales, the document states, which was clearly aimed at ensuring an end to the joint venture. “Ri Seong-kyu claimed all these [regulations] were included in North Korea’s national joint venture law, and we could not sell the 30,000 tonnes of iron powder that had been produced. In these circumstances, if Xiyang had carried on investing and manufacturing [in North Korea], we would have been the biggest fools in the world.”

Many of Xiyang’s complaints will sound all too familiar to anyone who has visited North Korea. The document tells how Xiyang staff were at first banned from buying food in so-called free markets. After much pleading the authorities finally agreed to this, but each person had to be accompanied by two minders and the route had to be approved by the security police.

Although the mine was only 500 meters from the sea, staff were banned from taking strolls along the shore.

Quite why the North Koreans acted with such prejudice against Xiyang isn’t clear, but part of the reason may lie in the location of the mine. It is in Ongjin county on the west coast, a highly sensitive area ever since this small peninsula ended up in North Korea after the Korean war even though it lies below the 38th Parallel. (It is also close to the port of Haeju, from where the iron was to have been exported).

The Chinese government may wish to dismiss this as a spat between a little known Chinese company and a single corrupt North Korean official, but it has brought into the open the deep suspicion that exists between the two countries.

The Chinese have long felt unable to trust the North Koreans with their xenophobic, quasi-Maoist personality cult, while the North Koreans are equally suspicious of the emerging superpower on their doorstep eagerly eyeing the smaller country’s natural resources.

Change may now be in the air, and the more open leadership style of North Korea’s young Kim Jong-eun has sparked speculation of economic reform and a fresh approach to foreign investment in his country, but horror stories such as this may indicate Kim’s style may be just that – all style and no substance.

ORIGINAL POST (2012-8-10): JVIC is the DPRK’s Joint Venture Investment Committee. You can read previous posts about the JVIC here.

According to Yonhap:

North Korea has recently signed a deal with China to jointly develop three mines in the North, a North Korean investment firm said Thursday, as the cash-strapped country steps up attempts to earn hard currency from overseas.

A Beijing unit of North Korea’s Committee of Investment and Joint Venture struck the joint development deal with a Chinese international trading company in Beijing on June 9, according to the unit’s Chinese-language Web site.

“The China firm’s president and his parties conducted field inspections into one (North Korean) gold mine and two iron ore mines and confirmed the investment and development scheme,” the Web site said. “Facility building is now well underway for the project,” it said.

Details on the terms of the deal were not provided.

Experts said the deal is the first foreign investment deal announced by the Beijing unit, which is run by the Committee of Investment and Joint Venture in charge of luring overseas capital and investment into the North.

The joint North-China mining venture also illustrates growing exports of underground resources from the North to China, its closest ally and a major source of foreign currency.

Exports of mineral resources to China reached 8,420,000 tons during the first nine months of 2011, growing sharply from the annual volume of 4,799,000 tons in 2010 and 2,480,000 tons for the whole of 2008.

Although Yonhap does not report the Chinese company’s identity, the IBTimes reports that it is named “Baoyuanhengchang”. According to the article:

Baoyuanhengchang confirmed the plans to develop the mines, as per its pronouncement, noting both parties had conducted field inspections.

“Facility building is already underway and everything is going as planned,” it said. No details of the terms, however, were provided.

The pronouncement has been considered a milestone as this was the first time that North Korea publicly announced its efforts in enlisting foreign investors to help develop its potentially vast mineral wealth, Arirang News reported.

I have yet to determine in which specific projects Baoyuanhengchang is investing.

The two most high-profile Chinese mining investments in the DPRK remain the Hyesan Youth Copper Mine (US$860 million, it now holds a 51% ownership) and the Musan Mine (50year lease). The original Musan deal may have fallen through, however, and could possibly be one of the deals included in the Baoyuanhengchang agreement.

However, a warning to the Chinese investors can be found below. According to the Donga Ilbo:

A Chinese conglomerate that tried to advance into the North Korean mining industry has been forced out of the Stalinist country due to contract cancellations.

Calling its past five-year investment in the North “a nightmare,” Xiyang Group has filed for arbitration with the Chinese government.

Based in Liaoning, China, the group said Wednesday that it had set up a joint venture with North Korea in March 2007 to build a plant there that extracts iron from ore. Of the paid-in capital of 47.52 million U.S. dollars, the company put up 75 percent of the amount in cash and North Korea 25 percent for land and mine exploration and also managerial rights for 30 years.

Xiyang company invested 37.14 million dollars, the biggest investment for a Chinese private company in North Korea. Pyongyang approved the incorporation in April 2007.

With a target of 500,000 tons of ore dressing per year, Xiyang sent about 100 workers to North Korea and produced 30,000 tons in April last year. In September last year, however, Pyongyang requested modification of 16 items on the contract including a demand of 4-10 percent of sales of products for using raw materials; 1.24 dollars for every square meter of land leased, and 17 cents per cubic meter of sea water for industrial use.

Xiyang said the demands were not included in the original contract, which was ratified by the North Korean parliament in October 2009.

The conglomerate refused modification of the contract, prompting Pyongyang to suspend the effectuation of the contract and cancel corporate establishment Feb. 7. North Korea also suspended power, water and communication supply at the plant.

Xiyang said that on March 3, North Korean police and 20 security guards went to where the Chinese workers were staying and forced them to ride a bus to deport them outside the Chinese border.

The group said the North requested modification of the contract to steal the ore dressing facility that the country lacked in capital and technology to introduce.

A Xiyang source said, “When our company was established in 2007, North Korea had a law restricting a foreign company`s stake in a joint venture to now more than 70 percent. But the North said the law will be revised soon and requested a 75-percent stake. Eventually, this was a drag.”

“Not only North Korean authorities but also the North Korean company we established ties with had a high-end attitude, including a request for money in U.S. dollars.”

Xiyang Group explained the violation of the contract and put it on the Internet to complain of the injustice. Its complaint is titled “Nightmare in North Korea Investment.”

So the North Koreans are violating a contract which was ratified by the Supreme Peoples’ Assembly? That does not inspire confidence.

Via Choson Exchange, here is a link to Xiyang’s official statement. You can read it in English via Google Translate here.  In case the web site is taken down, I have created a PDF of it which you can see here.

It is not really worth the time speculating on the politics behind the scenes. The Daily NK, however, points out that the KPA’s privileges with respect to mineral exports are being curtailed.

In 2007 Xiyang set up the Sohae Joint Venture Company to work the Ongjin Iron Mine (Google Earth coordinates:  37.960294°, 125.368651°)  and the Xiyang Paekgumsan Joint Venture (aka Soyang Paekgumsan Joint Venture Co.) to work in haevy industry and construction. Although the story does not mention it, I believe the problems are at the Ongjin Mine. I am unsure of the status of the Paekgumsan Joint Venture.

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DPRK issues Kim Jong-il commemorative coins

Saturday, December 31st, 2011

 

Pictured above (KCNA): Heads and tails images of the DPRK’s gold and silver commemorative coins.

According to KCNA (2011-12-31):

Pyongyang, December 31 (KCNA) — Commemorative coins will be issued in the DPRK on the occasion of the 20th anniversary of leader Kim Jong Il’s assumption of the supreme commandership of the Korean People’s Army.

A decree of the Presidium of the DPRK Supreme People’s Assembly was promulgated on Dec. 23 in this regard.

Gold and silver coins “20th anniversary of great Comrade Kim Jong Il’s assumption of supreme commandership of the Korean People’s Army” will be issued.

Engraved in the center of the front side of the gold and silver coins is the portrait of smiling Kim Jong Il in marshal’s uniform and seen in their upper parts are letters “The 20th anniversary of great Comrade Kim Jong Il’s assumption of the supreme commandership of the KPA” and in their lower parts figures “1991-2011″ and 20 five-pointed stars.

Engraved in bold relief in the center of their back sides is the star of marshal and seen in their upper parts are letters “DPRK Central Bank” and in their lower parts the degree of their purity and weight and the year of their issue.

The gold coin is 35 millimeters in diameter and 2 millimeters in thickness. It’s made of pure gold.

The silver coin is 40 millimeters in diameter and 3 millimeters in thickness. It’s made of pure silver.

Additional Information:
1. The last time the DPRK issued commemorative coins was to mark the 65th anniversary of the founding of the Worker’s Party. Read more about them here.

2. Marcus Noland also noted the minting of the coins.

3. Kim Jong-il’s death was officially reported in December 2011.

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DPRK mineral exports to China increase

Sunday, November 6th, 2011

UPDATE 1 (2014-1-21): See more recent data here and here.

ORIGINAL POST (2011-11-6): According to Yonhap:

North Korea’s mineral exports to China have tripled this year compared to a year ago, a study showed Sunday.

A joint study of Chinese data by Yonhap News Agency and Seoul-based IBK Economic Research Institute showed that China imported 8.42 million tons of minerals from North Korea from January to September this year, worth US$852 million.

Over the first nine months of last year, China brought in 3.04 million tons of minerals from the North for $245 million.

Most of the minerals were anthracite coals, the data showed. This year, of 8.42 million tons, 8.19 tons were anthracites.

China is the sole major ally and the biggest economic benefactor for North Korea, a reclusive regime under international economic sanctions following its nuclear and long-range missile tests.

Cho Bong-hyun, an analyst at the IBK institute, said North Korea may be trying to earn much-needed hard currency as it aims to become a powerful and prosperous country by 2012.

“Last year, North Korea ordered its institutions to meet their goals in foreign currency income by this year,” Cho said. “Since exporting minerals is a military business, we can see that the military is trying to meet its target. In addition, the steep mineral export growth was attributable to the lifting of the cap on the amount of mineral exports, as ordered by North Korean leader Kim Jong-il.”

China appears to be trying to stockpile mineral resources at affordable prices, Cho added. North Korean anthracites were traded at an average of $101 per ton, whereas the international standard for quality anthracites is $200 per ton.

“Given that North Korean coals are of very good quality, trade with China must have been made at a fairly low price,” Cho said.

Meanwhile, sources said North Korean authorities last month entirely halted its coal exports, as the impoverished country fears a shortage of energy resources during the upcoming winter.

From January to September this year, China exported 732,000 tons of minerals to North Korea, most of them crude oil.

Here is the IBK web page.  If anyone can find a copy of this report and send it to me to post, I would appreciate it.

Additional information:
1. The economics lessons: A. The more isolated the DPRK’s economy from the global trade and financial system, the greater monopsony power Chinese firms can exert on their North Korean trading partners. B. The rents earned in the current DPRK-China trade regime are visible and have organized constituencies.  Unfortunately the much greater gains that could be reaped if the North Korean economy was more open, integrated, and dynamic remain unseen and their potential beneficiaries remain unknown and unorganized.

2. The Nautilus Institute published a very interesting paper by Nathaniel Aden on China DPRK trade back in June. See it here.

3.  Here is the most recent US Geological Survey report on the DPRK’s mineral sector.

Read the Yonhap story here:
N. Korea’s mineral exports to China tripled from last year: study
Yonhap
2011-11-6

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DPRK in 2012 fundraising spree

Monday, October 31st, 2011

According to the Daily NK:

North Korea is pushing every angle to try and obtain more foreign currency to bolster its coughers and fund its 2012 festivities.

According to North Korean sources, apart from the standard blanket expropriation of a large proportion of the $200-1500 per month incomes of laborers based abroad, in recent times the authorities have also started to move in on the reserves of ordinary citizens inside North Korea’s borders.

Various enterprises and organizations are said to be in fierce competition to get hold of whatever foreign currency and gold is held by the people. Trade banks have also apparently responded to the situation by offering to exchange foreign currency at the black market rate of 2,800 won per U.S. dollar, instead of the laughable official exchange rate.

Elsewhere, mobile phone sales are helping the regime to dredge currency from the people. The North Korean Ministry of Communications is reportedly making impressive profits by monopolizing the importation of phones made by Chinese companies ZTE and Huawei, buying them for $80 per handset and reselling them for $300. Based on known prices, connection fees and a service take-up of 700,000 people so far, the authorities have presumably managed to earn $250m through this practice alone.

Overseas Koreans also say they are being pushed to add to the funding drive. Ethnic Koreans in the United States have claimed that North Korea has offered them the chance to reunite with long lost family members in the North for a cost of several thousand dollars per person, including brokerage and security fees, although this has been apparently going on for a number of years.

Over in Japan, meanwhile, it was also revealed by weekly publication AERA that North Korea has sent letters to elderly members of the Chongryon inviting them to return to North Korea with the promise of being able to live well on their pensions. It is suspected that the North hopes to be able to withhold news of their eventual passing so as to keep receiving the pensions in the medium term.

Finally, the workers and businesses at the Kaeseong Industrial Complex have also become a target of the fund raising drive. North Korean management in the Complex requested back in August that South Korean businesses stop offering ‘Choco-pies’ (a South Korean snack) to North Korean workers and give them cash instead.

However, the overall results are unlikely to be positive. The planned illusion of plenty may be briefly achieved next year, but the majority of experts agree that the North Korean regime is now distorting the economy more and more by focusing on events idolizing the Kim family at the expense of other issues that will inevitably come back to haunt the regime later.

Yonhap also reported on this story.

Read the full Daily NK piece here:
2012 Funding International Overdrive
Daily NK
2011-10-31

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DPRK looks to capitalize on high gold prices

Tuesday, September 27th, 2011

Back in 2002 the price of gold was approximately US$300/oz. Today it is closer to US$1,600/oz. Here is a chart:

The rapid increase in the price of gold is having a supply side effect of stimulating more gold mining across the planet, and North Korea is no exception.  Though the DPRK leadership has traditionally kept a watchful eye on the nation’s gold mines, reports began surfacing back in March that individual North Koreans were getting into the prospecting business:

Located at the base of Mt. Nokbong, near Hyesan in Yangkang Province, one particular village of 24 households saw its schools, public facilities and all other vestiges of welfare disappear following the construction of the Samsoo Power Station in 2004, which deprived the area of power.

And yet this village is now overflowing with people. They are here from all over the country, cramming homes and the nearby valley with one purpose in mind; searching for gold. Housewives, workers, university students, farmers, children, drifters, criminals, soldiers and bureaucrats; men and women alike from all different classes are living in this one place with the same aim.

The majority of people dig, without permission from the authorities and with only rudimentary tools. Their only wish is to avoid having to leave town and, hopefully, find some gold. The soldiers and bureaucrats, on the other hand, do not dig, instead using their authority to cream a share of others’ profits. (Daily NK)

It appears that the gold rush continues to this day, though it may be a bit more organized, at least officially.  A recent visitor to the DPRK took the following picture:

The caption of the photo reads:

“There are hundreds of people working certain rivers in North Korea in what can only be described as a gold rush. The government is buying gold from people who work the rivers. This has expanded considerably from past years when dozens were working the rivers. In one area I saw heavy equipment used to mine the river. The guides explained what was going on yet I cannot help but think this is a form of individual capitalism since it is individuals and families doing the mining.”

I would be interested to know more about what mechanisms the DPRK is employing to manage (control) “spontaneous” gold prospecting–an industry that would be hard for any central authority to police (particularly a poor country with high levels of corruption).  Given the limited amount of information, I can conceive of  two broad institutional arrangements:

Option number 1: Individual families and/or groups are simply registering their “mining companies” as branch enterprises or subsidiaries of existing state owned enterprises and mines.  In this way they take on the legal protection of the state in exchange for some defined percentage of their output.  This is the way many de-facto private North Korean businesses are run.   Under conditions of weak oversight (likely), this would imply that substantial profits from mining can be retained at the lower levels of production (with the firm “owner” or the miners themselves).  Pyongyang would have to be policing the rivers pretty hard and effectively auditing all the enterprises involved if expected to see a substantial increase in revenue from these “spontaneous” mining operations.

Option number 2: The North Korean government has essentially set up a “gold board” that sets a single legal domestic price for the purchase of gold from its people (just as many [exploitative] agriculture boards are set up in developing countries).  The DPRK government would earn revenue by keeping the difference between the amount paid to the domestic miners and the international price at which it sells the gold abroad. This option might make more fiscal sense in a weak institutional environment because the only thing the DPRK needs to police really well is the Chinese border. Under this system, the government does not need to worry about who mines the gold (or where or how) since the “gold board” would ultimately be selling it abroad and retaining the earnings.

I have not heard anything about such and institution existing, however, so until I am told differently I am more inclined to believe that option 1 is being utilized despite its fiscal shortcomings. This would imply that the increase in gold prices will translate to a real increase in wealth for a number of “ordinary” North Koreans. Though the work is not likely to be long lasting, it will provide some with savings or potential operating capital for the next business idea down the line.

Are you aware of other options or do you have some specific knowledge on how the DPRK is managing (controlling) freelance prospecting and mining? Please let me know.

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The secret world of North Korea’s new rich

Tuesday, August 9th, 2011

Andrei Lankov provides some anecdotal evidence and a taxonomy of the DPRK’s growing entrepreneurial class (perhaps one of the most interesting and least reported aspects of the DPRK).  He also gives us a glimpse of how the North Korean version of the “infant industry” mindset can impede economic reform.

Here is a great blurb from the article in the Asia Times:

Who are they – the North Korean new rich? The upper crust of this social group consists of high-level officials. Some of them have gained their wealth through illegal means, but many have seen their business activities permitted and even actively encouraged by the government. Most of the money is made in foreign trade, with China being by the far the most significant partner.

Many North Korean companies, despite being technically owned by the state, are effectively private and are run by top officials and their relatives.

That said, these people are not that frequently seen on the streets of Pyongyang. They live in their own enclosed world, of which not much is known.

But if we go one or two steps down, we will encounter a very different type of North Korean entrepreneur – somebody who has made his or her (yes, surprising many of them are women) money more or less independent of the state.

Complete independence is not possible because every North Korean businessman has to pay officials just to make sure that they will not ask too many questions and turn a blind eye to activities that are still technically illegal. In many cases, North Korean entrepreneurs prefer to disguise their private operations under the cover of some state agency.

Take for example Pak. In his early 40s, he runs a truck company together with a few friends. The company has seven trucks and largely specializes in moving salt from salt ponds on the seacoast to major wholesale markets. The company employs a couple of dozen people, but officially it does not exist. On paper, all trucks are owned by state agencies and Pak’s employees are also officially registered as workers of state enterprises.

Pak bought used trucks in China, paying the Chinese owners with cash. He then took them to North Korea where he had the vehicles registered with various government agencies (army units are the best choice since military number plates give important advantages). Pak paid officials for their agreement to “adopt” the trucks. This is so common in the North that there is even an established rate of how much fake registration of a particular type of vehicle costs at which government agency.

Kim was a private owner of a gold mine. The gold mine was officially registered as a state enterprise. Technically, it was owned by a foreign trade company that in turn was managed by the financial department of the Party Central Committee. However, this was a legal fiction, pure and simple: Kim, once a mid-level police official, made some initial capital through bribes and smuggling, while his brother had made a minor fortune through selling counterfeit Western tobacco.

Then they used their money to grease the palms of bureaucrats, and they took over an old gold mine that had ceased operation in the 1980s. They restarted the small mine and hired workers, bought equipment and restarted operations. The gold dust was sold independently (and, strictly speaking, illegally) to Chinese traders.

The brothers agreed with the bureaucrats from the foreign trade company on how much money they should pay them roughly between 30-40% and the rest was used to run the business and enjoy life.

One step below we can see even humbler people like Ms Young, once an engineer at a state factory. In the mid-1990s, she began trading in second-hand Chinese dresses. By 2005 she was running a number of workshops that employed a few dozen women.

They made copies of Chinese garments using Chinese cloth, zippers and buttons. Some of the materials was smuggled across the border, while another part was purchased legally, mostly from a large market in the city of Raseon (a special economic zone which can be visited by Chinese merchants almost freely).

Interestingly, Ms Young technically remained an employee of a non-functioning state factory from which she was absent for months on end. She had to pay for the privilege of missing work and indoctrination sessions, deducting some $40 as her monthly “donation”. This is an impressive sum if compared with her official salary of merely US$2.

The North Korean new rich might occasionally feel insecure. They might be afraid of the state, because pretty much everything they do is in breach of some article of the North Korean criminal code. A serious breach indeed – technically any of the above described persons could be sent to face an execution squad at the moment the authorities change their mind.

And before we all get our hopes up that this emergent entrepreneurial class will eventually push the leadership to adopt economic reforms, Lankov reminds us how they could just as well serve to prolong the regime’s life:

Paradoxically, the long-term interests of the emerging North Korean business class might coincide with that of the Kim regime. Unlike normal people in the North, both groups – officials and entrepreneurs – have an interest in maintaining a separate North Korean state. Unification with the South is bound to spell disaster for both groups.

A person who is now running a couple of small shops might eventually, if North Korean capitalism continues uninterrupted growth, become an owner of a supermarket chain. If unification comes, he or she would be lucky to survive the competition with the South Korean retail giants and keep the few corner shops they had.

The full story is well worth reading here:
The secret world of North Korea’s new rich
Asia Times
Andrei Lankov
2011-8-10

 

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The mining industry of the DPRK

Sunday, August 7th, 2011

Last week the Nautilus Institute posted a paper on the DPRK mining industry written by Choi Kyung-soo.  You can see the full report here.  A couple of the mine locations were incorrectly reported, so I thought I would correct the record (as I understand it), as well as offer coordinates and satellite imagery of all the facilities mentioned in the paper:

Sangnong Mine (상농광산)
40°36’0.38″N, 128°43’35.40″E
Sangnong Worker’s District, Hochon County, South Hamgyong Province. According to the paper, the mine is located in the “Dancheon district of Hamgyeongnam-do”.

Holdong Mine (홀동광산)
38°52’18.15″N, 126°26’21.98″E
Holdong Worker’s District, Yonsan County, North Hwanghae

Hyesan Youth Mine (해산청년광산)
41°21’52.36″N, 128° 9’28.35″E
Hyesan City, Ryanggang Province

Komdok (Geumdeok) Mine (검덕광산)
40°55’9.41″N, 128°49’13.76″E
Kumgol-dong, Tanchon, South Hamgyong Province

Taehung (Daeheung) Mine (대흥청년영웅광산)
41° 4’24.63″N, 128°51’4.68″E
Taehung-dong, Tancheon City, South Hamgyong

Musan Mine Complex (무산광산련합기업소)
42°14’16.22″N, 129°15’59.70″E
Musan, North Hamgyong

Oryong Mine (어룡광산?)
42°18’13.59″N, 129°22’51.70″E (estimated)
According to the paper, the Oryong Mine is near Ryungchon-ri (42°20’18.19″N, 129°24’39.48″E) in Hoeryong and opened in 2007. The satellite imagery of the area is from 2006 and shows an area under construction near the village. Another source claims this mine is located in Obong-dong, closer to the city of Hoeryong and is a uranium mine.

Jongchon Graphite Mine (정촌광산)
37°55’7.23″N, 126° 6’49.34″E
Jongchon-ri, Yonan County, South Hwanghae.  The paper claims the mine is located in “Jeongchon-gun”, which does not exist.

2.8 Jiktong Youth Coal Mine (2.8직동 청년 탄광)
39°29’42.68″N, 126° 2’3.50″E
Jiktong, Sunchon, South Pyongan

Kogonwon (Gogeonwon) Mine (고건원탄광)
42°40’25.03″N, 130°12’47.28″E
Kogonwon Worker’s District, Saepyol County, North Hamgyong Province

Apdong Mine (압동광산)
38°25’6.96″N, 127°21’8.17″E
Apdong-ri, Phyonggang County, Kangwon Province

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