Archive for the ‘Gold’ Category

Successes Made in Physical Prospecting

Tuesday, March 27th, 2007


The Central Physical Prospecting Group under the State Bureau of Natural Resources Development is successfully carrying on the survey of underground resources by advanced physical prospecting methods, thus greatly contributing to the economic progress of the country and the land construction. Recently, the prospecting group has introduced the advanced methods in the geological survey and developed modern facilities to explore a new phase for surveying the underground resources. 

The prospecting group, founded in January Juche 46 (1957), has already registered great achievements in the survey of underground resources and the land development. 

Over the last five decades, it has powerfully propelled the development of the national economy with its successful survey of valuable raw materials and fuel resources and greatly contributed to the geological development and the land development in the country with scientific geological survey and the confirmation of the geological foundation. 

It has found out many geological layers and systematized their formation periods and geological composition in a well-arranged way.

They, on the basis of their success, have discovered the law on the distribution of valuable minerals and surveyed and registered scores kinds of minerals, several hundreds of mineral deposits, thousands of mineral bodies and outcrops, and a thousand and several hundreds of heavy mineral streams and metal diffusion zones.

They have achieved many successes not only in the prospecting of abundant iron ore, coal resources and the new graphite deposits but also in the confirmation of the amounts for nonferrous metals, rare metallic mineral resources, nonmetallic mineral resources and magnesite mineral resources. 

The survey of groundwater, hot springs, subterranean heat and the foundations of many construction projects including the Kumsong dam and the Samsu Power Station dam are associated with the efforts of the Central Physical Prospecting Group.


Maebong Company-Ringleaders of Foreign Currency

Tuesday, March 20th, 2007

Daily NK
Han Young Jin

(UPDATE: On Oct. 23, [2008] the State Department blacklisted two North Korean companies, Korea Mining Development Corp. and Korea Taesong Trading Co., for violating U.S. bans on the sale of equipment used in building missiles or other weapons of mass destruction to Iran and Syria. Citation: “North Korean Plane Was Grounded at U.S. Request “, Wall Street Journal, Jay Solomon, 11/1/2008 )

Daesung Trading Company and Maebong Company, Two Pillars of North Korea’s foreign currency

In the 80~90’s, the aim of the People’s Army of North Korea was to make foreign currency and consequently, each division of the government began to operate trading companies. However, there were many kinds of trading companies.

The Maebong Company under the General Staff which was established in the 80’s, Birobong Trading Company, Yongsung Trading Company, Manpoong Trading Company and Danpoong Trading Company founded in the 90’s, all under the top 5 trading companies in North Korea. Of these, Maebong Company is the most well-known; once also known as Kwangmyung Trading Company until 2000.

Following “Military First Politics,” Maebong Company became one of North Korea’s active traders with Daesung Trading Company belonging to the Worker’s Party Division 39.

One of the reasons that the military became directly involved in foreign currency came from the fact that the nation was unable to acquire the necessary war supplies itself due to the economic crisis. Further, as the Soviet Union and the East European bloc collapsed, trade was changed from bartering goods to dollars and hence, North Korea was in a dire state of insufficient currency.

Presently, the Maebong Company’s main office is in Pyongyang with branches throughout the country such as the border districts of Shinuiju, Haesan and Hoiryeong.

In order to attract powerful Chinese traders, Maebong Company only appoints those who have experience with foreign money as regional directors such as North Korean citizens with relatives in China. After giving the title of regional director, a permit is given. Though the regional director is registered as a tradesman for the military, actually he/she is in fact not a soldier.

With a certificate which states their position of foreign tradesmen, regional directors have the privilege of freely entering and exiting China.

Trading branches in each city, trading with Japan in the opensea

Trading partners are mostly China and Japan. Traders from Maebong Company dealing with China exchange goods such as second hand cars, medicinal herbs, silk cocoons and seafood.

With copies of Kim Jong Il’s orders distributed by Maebong Company, trading partners are able to transport secured goods supplied by foreign currency directors as far as the border regions without much difficultly from security posts.

One defector from Shinuiju said “In 1995, hundreds of trading companies were established in Shinuiju… Maebong Company was one of these companies which served as a shabby storage factory stocking 10tons of flour and medicinal herbs in which people could exchange for aluminum. At that time, these people who were called foreign currency directors wore overcoats made of dogs fur and rode second hand bicycles made in Japan.”

At one point, Maebong Company illegally sold second hand cars along the border region and gained considerable income. Nowadays, medicinal herbs and minerals are more popular and whereas more of the traders from the West Coast export seafood such as shells and razor clams to China, expectedly, export seafood to Japan occurs mainly on the East Coast.

Conceal illegal foreign currency, smuggling of gold prohibited

In 1997, authorities conducted a thorough investigation against traders in order to straighten the chaotic mess created by border tradesmen. After the investigation, Kim Jong Il ordered every trading company to be merged under the control of each agency. As a result, trading companies which had once been organized by the military divisions were disintegrated and became incorporated as part of the Maebong Company, now an integrated trading group.

After becoming a director for Maebong Company in Hoiryeong, “Kim” who had once lived a tough life is now known to be one of the richest people living in the area, frequently traveling to China.

According to one defector who had worked under the Korea Service Bureau of Workers’ Party division 16, there were 6 employees at the Hoiryeong Maebong Company located in Manghyang, which planned to earn $100,000 annually. Also, additional funds are kept in celebration of national events such as Kim Il Sung and Kim Jong Il’s birthday.

There is a great number of Maebong Company employees who engage in corrupt activity and ultimately are defaced. There is a saying in North Korea, “earning foreign currency is educational punishment,” meaning that though earning foreign currency is an occupation preferred by the many, it does at the same time involve greatest risk. In 1997, an investigation was made targeting central authorities. Many of these directors in charge ended up receiving severe punishment.

Once, “Park” a director of Shinuiju Maebong Company was convicted under the suspicion of depositing foreign currency into a Chinese bank and while undergoing the preliminary hearing was known to have attempted self-injury by swallowing a spoon. On another occasion, ‘Kim’ of Chongjin Maebong Company was known to have been executed for being involved in a case of smuggling gold.


Daedong fights U.S.-imposed sanctions on North Korea banks

Thursday, March 8th, 2007

International Herald Tribune
Donald Greenlees

Last August, Colin McAskill, a British businessman, agreed to buy a small bank in North Korea. On the face of it, Daedong Credit Bank was not a brilliant investment.

The agreement that McAskill signed with the management of Daedong Credit at a hotel in Seoul came as the bank was caught in the grip of financial sanctions that had virtually cut off North Korea from the global financial system.

Financial institutions around the world were shunning any links to North Korean banks, making it almost impossible to transact business.

Daedong Credit was using couriers to carry cash in and out of the country in amounts as high as $2.6 million because it could not make electronic transfers to other banks.

Since September 2005, Daedong Credit had also been fighting to recover $7 million that had been frozen in a Macao bank as part of efforts by the United States to put a financial squeeze on North Korea over alleged illicit financial transactions. This was a big sum for Daedong Credit. When McAskill had examined the bank’s books, its total assets were just $10 million.

None of this has deterred him. He said during an interview in Hong Kong that he planned to execute the sale agreement within the next two weeks and take full control of the only foreign-managed bank in North Korea. The Hong Kong- based Koryo Asia, chaired by McAskill, will take control of the banking license and a 70 percent stake owned by British investors through a Virgin Islands company. The remaining 30 percent is held by the state-owned Daesong Bank. “I think it’s a magnificent deal,” McAskill said, although he would not disclose the purchase price. “The bank has been running for 12 years. It is trusted and it has been profitable since day one.”

Despite McAskill’s optimism, the future of Daedong Credit has been under a cloud since the imposition of the U.S.- orchestrated banking embargo on North Korea 18 months ago and the viability of the business remains precarious.

Even amid signs of a thaw in relations between Pyongyang and Washington, the start of a bilateral dialogue that began in New York on Monday and an agreement in six-nation talks in Beijing on Feb. 13 to start to denuclearize the Korean Peninsula, analysts say banks in North Korea will struggle to restore contacts with the global financial system.

The trigger for the financial embargo of North Korea was a declaration by the U.S. Treasury Department under section 311 of the Patriot Act that the Banco Delta Asia, based in Macao, was a “primary money laundering concern” because of its links to a number of North Korean banks, individuals and companies alleged to have engaged in product and currency counterfeiting, drug trafficking and weapons proliferation.

The U.S. and Macanese authorities began separate investigations into Banco Delta Asia and the bank was placed under Macao government supervision.

Along with about 50 North Korean banks, trading companies and individuals, Daedong Credit had its account frozen. The total amount put into “suspense accounts,” according to Banco Delta Asia, was about $25 million, with Daedong Credit accounting for the largest share. Since then, almost all foreign banks that had correspondent relations with Daedong Credit have severed contact for fear of being excluded from the U.S. financial system.

Jack Pritchard, president of the Korea Economic Institute in Washington, said it was unlikely that the United States would send an explicit signal to the financial community to resume trading with North Korea, regardless of whether Pyongyang starts to address concerns about its foreign financial transactions.

He said that although a portion of the frozen money was likely to be released soon, there would not be a “100 percent reversal” of the American stance on financial transactions with North Korea.

Daedong Credit is likely to be one of the first North Korean account holders in Banco Delta Asia to get its money back from the Macao Monetary Authority where it has been earning no interest.

In recent months, McAskill has circled the globe from his home in London acting under a mandate from Daedong Credit to persuade officials in Washington and Macao to release the account. At 66, McAskill has spent 28 years doing business with North Korea, including as a consultant to North Korean banks on debt negotiations and helping to operate North Korean foreign gold sales. He said that at no stage in his meetings with officials from either the U.S. or Macao governments had he seen any specific reason for freezing the Daedong Credit money or been told of any specific allegation about its origins.

McAskill has produced what he calls a “dossier of proof” to establish the identity of all the customers whose money is frozen and the sources of the money. Since it was founded by the failed Hong Kong finance group Peregrine in 1995, Daedong Credit has filled a valuable niche serving the foreign community in Pyongyang. It has about 200 customers among foreign-invested joint ventures, foreign relief organizations and foreign individuals, according to McAskill. The biggest single amount frozen in Macao is $2.6 million belonging to British American Tobacco, which owns a cigarette plant in North Korea.

“We irrefutably established that the money was legal,” McAskill said. “The U.S. Treasury have been going around the world saying to banks ‘close this account, close that account’ but not offering any proof of wrongdoing.” He said his due diligence of Daedong Credit had convinced him that it was a “fully legal, legitimate operation” that did not manage state accounts or had ever been connected to illicit practices.

One of the Treasury’s main allegations against Banco Delta Asia is that it facilitated the spread of counterfeit $100 bills. But McAskill said Daedong Credit had put $49 million into Banco Delta Asia in 2005 and all that money had been forwarded to HSBC for verification.

Only three of the $100 notes belonging to Daedong Credit were confiscated because they were “suspect,” he said.

McAskill has charged the Treasury with harassment after two correspondent banks — one in Vietnam and the other in Mongolia — informed Daedong Credit late last year that they would immediately close accounts because of pressure from the United States.

But it is likely to prove difficult to persuade banks, nervous about the effect on Banco Delta Asia of the long- running Treasury investigation, to take the risk of dealing with a North Korean counterpart, regardless of the pedigree of its shareholders and board.

Last week, at a meeting in Macao, McAskill was finally told by the head of a government-appointed committee supervising Banco Delta Asia, Herculano de Sousa, that it was likely that the money in Daedong Credit would be returned by the end of March.

In the meeting, McAskill told de Sousa that once the funds were freed, Daedong Credit intended to leave the money in Banco Delta Asia and resume operating its old account.

But Banco Delta Asia has informed the U.S. Treasury that as part of its cleanup both the administrative committee and the shareholders were adamant that they no longer would do business with any North Korea entities. In doing so, the bank hopes to avoid the United States making good on a threat to ban Banco Delta Asia from having any correspondent relationships with U.S. banks.

Still, McAskill insisted that Daedong Credit has not broken any law in Macao or elsewhere and that there were no grounds for it to be forced to close its account.

“I am not going to take my money back and cut and run,” he said.


Chinese Merchants in North Korea – Cure or Poison to Kim Jong Il?

Wednesday, March 7th, 2007

Daily NK
Kim Min Se

90% daily goods made in China, 50% circulated by Chinese merchants

While some prospect that North Korea may be an affiliated market of China’s 4 provinces in the Northeast, the real focus is on the merchants who actually control North Korea’s markets. Recently, North Korean citizens have been asserting that markets would immobilize if Chinese merchants were to disappear.

Lately, Chinese merchants are nestling themselves with their newly found fortune in North Korea, undeniably to the envy of North Korean citizens.

In a recent telephone conversation with the DailyNK, Kim Chang Yeol (pseudonym) a resident of Shinuiju said “Most of the tiled houses in Shinuiju are owned by Chinese merchants in Shinuiju are upper class and the rich.” Unlike Pyongyang, tiled houses in Shinuiju are greater in value than apartments. In particular, the homes owned by Chinese merchants are luxurious and impressing.

Kim said “At the moment, 90% of daily goods that are traded at Shinuiju markets are made in China.” What Kim means by 90% of goods is basically everything excluding agricultural produce and medicinal herbs. Apparently, about half of the (90% of) supplies are circulated by Chinese merchants.

Kim affirmed that the market system could be shaken if supplies were not provided by the Chinese merchants. Hence, Chinese merchants have elevated themselves in North Korea’s integrated market system, to the extent that the market could break down without their existence.

In addition to this, Chinese merchants are playing a vital role in conveying information about the external world into North Korea. Even in 2004, it was Chinese merchants to first telephone China through mobile phones relaying the news about the Yongcheon explosion. As a result, rumors say that the movement of Chinese merchants can either be a “cure” to the economic crisis in which the North Korean government seems unable to fix, or “poison,” as more and more foreign information flows into the country.

How many Chinese merchants are there in North Korea?

A report by China’s Liaoning-Chosun Newspaper in 2001 sourcing data from North Korea, states that immediately after WWII, approximately 80,000 overseas Chinese were residing in the Korean Peninsula. Then following the Korean War and the formation of a Chinese government, the majority of people, approximately 60,000 Chinese, returned home. In 1958, statistics show that 3,778 families of overseas Chinese were living in North Korea, totalling 14,351 people.

These Chinese engaged in business related to farming, home made handicrafts and restaurant business, and in the late 50’s, lost all this due to the implementation of economic planning and dictatorial regime. Since then, the majority of merchants continued to return to China until the early 80’s.

In 2001, Liaoning-Chosun Newspaper confirmed that approximately 6,000 Chinese were living in North Korea. Of this figure, more than half were residing in Pyongyang, approx. 300 families living in North Pyongan and approx. 300 families residing throughout Jagang and northern districts of South Hamkyung.

At present, there are 4 middle and high schools for children (11~17 years) of Chinese merchants, located in Pyongyang, Chongjin, Shinuiju and Kanggae. In addition to these schools, there are a number of elementary schools (for children aged 7~11 years) located sporadically throughout each province.

Wang Ok Kyung (pseudonym) a resident of Shinuiju attended Chongjin Middle School for children of overseas Chinese in 1981~86. Wang said “At the time, there were about 40 students in each year. Now there is only about 5~6 students.” Nowadays, many Chinese children complete their elementary studies in North Korea, but the general trend is to send the children to China for middle school. She said “In order to enter a Chinese university, students must have completed their middle school studies in China and must be fluent in Chinese. He/she can also go to private institutes in China.”

Fortunes made through trade between North Korea-China during the food crisis

Even until the early 80’s there were no such thing as a wealthy North Korean-Chinese merchant. They were no different to North Korean citizens.

However, in the 80’s, many people began importing and selling goods such as socks, handkerchiefs, hand mirrors and cards from China, literally through their sacks. As the 90’s approached North Korean-Chinese merchants began to experience great wealth, the time where North Korea-China trade fundamentally kickstarted.

Today, Son Kwang Mi (pseudonym, 52) falls under the top 10 wealthiest Chinese merchants in Dandong, characterizing an unique rags to riches story. In the past, Sun lived in Chongjin and was one of the first figures to trade with China in the 80’s.

In the beginning, Son was so poor that she had to sell her watch received as a wedding gift in order to buy goods to sell.

Fortunately, Son found her money smuggling gold. In North Korea, gold is considered a public good or simply put Kim Jong Il’s personal inheritance, so private trade of gold is strictly regulated. Nonetheless, there are still some laborers who export gold secretly and a great number of people still collect gold through dubious ways. In particular, after the 80’s as North Korea began to experience economic decline, more and more people sold gold secretly.

Hence, a small number of Chinese merchants infiltrated the market of secretly trading gold with China. Chinese smugglers were able to take advantage of North Koreans by greatly raise their market margins, as the supply of gold and North Koreans wanting to sell their gold was high yet the demand in North Korea low.

Son said “Of the Chinese merchants in North Korea, 60% earned a great fortune at that time through illicit trade.”

She says that there were two opportunities for overseas Chinese to make a great fortune. The first was in 1985~89 through illicit trade of gold and the second, during North Korea’s mass food crisis in 1995~98.

“During the mass famine, everything in North Korea was in shortage and so Chinese merchants began to provide the daily necessities of life. At the time, if you brought large amounts of goods such as fabric and sugar, you could make a profit of 1 million Yuan (US$137,000),” she said.

Son was fortunate enough not to miss these two opportunities which led her to great wealth and allowed her to possess a fortune of 50 million Yuan (US$6.31 million).

Chinese merchants can relatively enter and exit China freely. Also, with the ability to speak Chinese fluently and the possibility of staying in the homes of many relatives in China, the occupation possesses ideal conditions.


North Korea’s Gold Mines

Wednesday, February 21st, 2007

Oh My News
Robert Neff

(Check out the original post for photos)
Many people’s impression of North Korea is that of a poor country unable to feed its own people and desperate for cash. Other than selling weapons, printing counterfeit money, and engaging in the production of illegal drugs, it is thought that it has very little means of obtaining hard currency. Yet, recently, it has received a great deal of the media’s attention for its sale of gold to Thailand. Many people forget that North Korea has always had an abundance of mineral wealth — including gold.

Korea’s wealth had long been known not only in the Far East, but also in the Middle East. Ibn Khordadzbeh (844-848), an Arab, wrote that “there is a mountainous country named Silla and divided into numerous principalities. Gold abounds there.” Another Arab, Ibn Rosteh, repeated this claim in the 10th century when he pronounced Silla was very rich with gold. Arab merchants traveled from their own countries, along with the Chinese, and traded with Korean merchants along the Yesong River during the Koryo period. Most of Korea’s trade with these merchants was mainly gold and silver utensils, copper, ginseng, paper, fans and swords.

Eventually, as Korean foreign policy changed and it began to avoid most intercourse with foreign nations, this trade died, but the legends of Korea’s wealth didn’t. In 1867, Ernest Oppert, a Prussian trader from Shanghai, China, may have used Korea’s reputation for being abundant with gold, and the common belief amongst the Westerners that Korean kings were buried in coffins of solid gold, to hire a band of mercenaries to assist him in his infamous failed attempt to exhume the Korean regent’s father’s tomb and hold his remains as ransom.

Although gold is found throughout the Korean peninsula, it was, for the most, primarily mined and panned for in the mountainous regions of the northern provinces of Korea and along the eastern coast using primitive methods. This mining has gone on for literally centuries, but it wasn’t until the 1880s when several attempts, Korean and Western, were made to mine gold using “modern” methods. These efforts failed primarily because of the lack of finances, skilled labor, infrastructure and the resolve of the Korean government.

It wasn’t until 1896 when the first large mining concession was granted to a couple of American businessmen that “modern” gold mining in Korea began. This was the origin of the Oriental Consolidated Mining Company [OCMC], the first, longest running, and the richest of the Western mining concessions in Korea, and one of the richest in the world. It was soon followed by British, German, French, Italian, and of course, Japanese concessions, but none of them could compare to the wealth and size of the OCMC.

Although these mining concessions have been condemned by many modern Korean scholars as tools of exploitation by the Japanese and the West; it is also important to remember that they brought employment, education, and even higher living standards to thousands of Korean miners and their families.

The pictures accompanying this article are of the Seoul Mining Company located at Su’an (in present day North Korea) in 1915. The Seoul Mining Company was established in 1907 when two American businessmen, H. Collbran and H.R. Bostwick, leased Su’an mine from a British mining syndicate. The British had grown disenchanted with the mine and were convinced that it was not very profitable — they were wrong. Within the first six years of its operation it had produced nearly $3,000,000 worth of gold. Although the Seoul Mining Co., at first appeared to be one of, if not, the richest gold mining operations in Korea, by the early 1920s it was apparent that the gold was nearly depleted and in 1924 the mine was closed.

One of the chief problems for the early mining companies was transportation. Most of these gold mining sites had few, if any, crude roads or paths to them. It was often easier to transport supplies and equipment by flat-bottomed boats up the river to the landing nearest the mines. Then, depending on what was being transported, Korean ponies or bulls were used to manhandle the equipment and supplies to the mines.

The Korean bull was a slow moving powerful animal that was extremely docile and easily handled by its mapoo (handler), the ponies on the other hand were described as “swell-made spirited little beasts [but] generally vicious.” One early Westerner described his first encounter with his pony:

“As soon as the creature saw me approaching to mount, it reared and kicked furiously, and opened its mouth and flew at me like a tiger.”

So violent were these little ponies that a missionary remarked: “I love to see the pony shod, see him pinioned teeth and nail, in one hard knot, lying on his back under the spreading chestnut tree, with the village smithy putting tacks into him that brings tears to his eyes.”

In addition to transportation problems there was the lack of timber. Timber was essential to mining operations. In the beginning it was used as fuel to run the stamps (grinding equipment), to construct the buildings and to support the mine shafts, but timber was not always readily available in large quantities. Without timber the mines were doomed. By about 1910, most of the mines participated in reforestation programs, but for most of them they would not be around long enough to profit from these actions.

Most of the mines were in remote places, far from civilization. Obtaining enough miners to work the mines was usually not a problem, as they were generally paid better than the average Korean. However, these remote sites were home to large populations of big predatory animals — chiefly, tigers, leopards, and wolves.

Occasionally, tigers, especially ones that were too old to hunt the fleet-footed deer, would attack a lone Korean miner returning to his home at night. Often very little of the victim was found in the morning save a few pieces of ripped clothing and scuffle and blood marks on the ground. Surprisingly the animal that caused the most fatalities and was arguably the most feared was the wolf.

Sometimes wolves would creep into the small mining settlements at night and snatch children on their way to and from the outhouses. There are even accounts of wolves forcing their way into the flimsier hovels and dragging away children from the safety of their beds.

By 1939 all of the large Western gold mining concessions had been sold to the Japanese, and only a few very small mines were still operated and owned by Westerners, and even these were eventually taken over by the Japanese when Japan entered World War II. During World War II many of the mines fell into disrepair due to the negligence of their Japanese managers, and their failure to pay their Korean miners. During the Korean War, American soldiers reported that the OCMC mines were flooded and unworkable.

It has been more than 50 years since the Korean War has ended. During this time, North Korea has made great effort and progress in reopening some of these mines from the past and developing new ones. Today Western financing and expertise are still being used to aid the extraction of gold from the mountains of the north.


Brisk Geological Prospecting

Tuesday, February 6th, 2007


Great efforts are being directed to the geological prospecting in the Democratic People’s Republic of Korea. The State Bureau for Direction of Natural Resources Development has recently dispatched geological experts, IT technicians and prospectors to the areas of Komdok and Kapsan to find out more nonferrous metal ore resources. 

While concentrating forces on the survey of the foundations of major construction objects, the bureau is pushing ahead with the work of finding out more reserve coal and ore mines with abundant deposits and securing the sites for detailed prospecting.  

The South Hwanghae Provincial Geological Prospecting Administration Bureau has surveyed the ingredients of sand in western coast areas in detail and secured quality sand resources available for hundreds of years. 

The South Phyongan and North Hamgyong Provincial Geological Prospecting Administration Bureaus also found out more anthracite and bituminous coal fields in western and northern areas.

Geological corps under the North and South Hwanghae, Jagang and Kangwon Provincial Geological Prospecting Administration Bureaus have intensified geological prospecting work in their provinces, thus opening up a bright vista for excavating larger amount of non-ferrous metal ore.

The South Hamgyong Provincial Geological Prospecting Administration Bureau has completed in a short span of time the foundation survey and designing for major projects of national significance, and the Sumun and Paekam Geological Prospecting Corps under the Ryanggang Provincial Geological Prospecting Administration Bureau have also registered successes in the survey work for the construction of the Paektusan Songun Youth Power Station and other projects.


N. Korea urges implementation of inter-Korean economic accord

Thursday, January 25th, 2007


North Korea has called upon South Korea to implement an earlier agreement to help revive its light industry in return for tapping into the communist nation’s natural resources, a senior unification official said Thursday.

During Unification Minister Lee Jae-joung’s first visit to the Kaesong Industrial Complex since he took office in December, Ju Dong-chan, head of the North’s Kaesong development agency “asked the minister to honor the agreement, saying it is not an aid, but only swapping of natural resources and raw materials,” the official said anonymously.

In July 2005, South Korea agreed to provide the North with US$80 million worth of raw materials to help it produce clothing, footwear and soap starting in 2006. In return, the North was to provide the South with minerals such as zinc and magnesite, after the mines are developed with South Korean investments, guaranteed by the Pyongyang government.

But the agreement was never carried out as North Korea abruptly cancelled scheduled tests of two cross-border railways in May 2006. North Korea’s subsequent missile and nuclear weapons tests further clouded hopes to implement the accord.

“Lee agreed in principle to honor the accord, but he held the position it is more important to create a favorable environment for carrying out the agreement,” the official told reporters.

Asked about the North’s denial of reports that it scrapped plans to change its partner for tours of Kaesong, the official said it is purely a matter of business, which does not require the intervention of the government.

Just hours after Lee returned to Seoul from Kaesong, an unidentified spokesman for the Korean Asia-Pacific Peace Committee (KAPPC) said the North “has no formal agreement with the Hyundai side over the issue of tour of Kaesong.”

Despite its earlier contract with Hyundai Asan, North Korea requested a new deal with Lotte Tours Co. in 2005. However, the South Korean government said the change can happen only when Hyundai Asan voluntarily concedes or pulls out of the business.


North Korea bites a golden bullet

Wednesday, January 24th, 2007

Korea Times
Donald Kirk

Gold fever is rampaging through the ruling elite of North Korea in the quest for relief from seemingly incurable economic malaise exacerbated by more than a year as a total outcast from the international financial community.

Word from Pyongyang is that trading companies and even individuals are offering payments in gold for imports from across the border with China and also in barter deals for products imported from elsewhere. Gold also has become a form of currency in the internal reward system of payoffs and bribes manipulated by Dear Leader Kim Jong-il to guarantee the loyalty of high-ranking officials.

The rush to sell gold – and, to a lesser extent, silver – has sharply escalated in the 16 months since the US Treasury Department blacklisted Banco Delta Asia (BDA) in Macau, banning all firms doing business with US firms from dealings with that bank. The Treasury Department charged that the BDA had been the principal conduit through which North Korea was shipping counterfeit US$100 “supernotes” printed on a highly sophisticated Swiss-made press in Pyongyang.

It’s well known that the US ban forced the BDA to impose a freeze on North Korean accounts totaling $24 million, but less well known that the bank also stopped purchasing gold produced by North Korea’s historic gold mines, in operation, sporadically, since the late 19th century.

Output of the mines, in mountains about 160 kilometers north of Pyongyang, fell sharply in the late 1990s as a result of flood and famine but, with foreign expertise, has begun to pick up in the past few years.

The impact of the ban, moreover, goes far beyond a single bank in Macau. Although North Korea last spring sold $38 million in gold and silver in Thailand, Pyongyang has been frustrated in reviving its presence on the London bullion market, the world’s largest marketplace for precious metals, amid increased US pressure on the large international banks that are the major buyers of gold.

It was in the aftermath of the ban on the BDA that North Korea’s Chosun Central Bank coughed up the information required by the London Bullion Markets Association (LBMA) for listing as a “good deliverer” of gold. North Korea from 1983 to 1993 had been in the LBMA’s good graces, averaging a ton a month in sales to London buyers that included some of the world’s leading banks, but had slipped off the list after failing to keep up deliveries.

The fact that the Chosun Central Bank again is listed with the LBMA, however, is no guarantee North Korea will be able to sell its gold. The US Treasury ban on dealings with the BDA – as well as sanctions unanimously imposed by the United Nations Security Council after North Korea conducted an underground nuclear test in October – has spooked buyers in London.

While the LBMA disavows “political criteria” in deciding on eligibility for its “good delivery list”, an LBMA memorandum leaves no doubt how buyers are likely to respond to overtures from a country or company on an international blacklist. None of them, according to Stewart Murray, the LBMA’s chief executive, is willing to take delivery from a company or country that is subject to sanctions.

Or, as the LBMA memorandum puts it, “If, for instance, a bullion custodian considered that it was bound by national or international sanctions that were in force against a particular country, it would have to refuse to accept bars from a refiner in that country.”

The memorandum, moreover, does not mince words when it comes to stating the importance of a “good deliverer” rating. “Given the status of London as the world’s leading center for bullion trading,” it says, “the LBMA List has become the de facto world list of quality refiners and Good Delivery accreditation is a highly sought-after accolade.”

In recent years, “the List” – capitalized in the memo – “has grown primarily due to the listing of refiners in China and Russia” and now totals 77 refiners in 31 countries.

Investors see North Korea as competing on a world stage once sanctions are lifted. “What we’re doing is normal business,” said Roger Barrett, whose firm, Korea Business Consultants, operates in North Korea from headquarters in Beijing. By reviving old minesand developing new ones, he argued, “We’re creating jobs for people, in line with the UN basic charter, in line with economic growth.”

Barrett also believes North Korea may somehow get around the sanctions by finding new markets. “Why would you go to the trouble of going to London?” he asked. “They’re totally entitled to sell their gold.” The fact is, however, that London remains the place to sell gold in significant quantities on a regular basis.

Under the circumstances, Colin McAskill, chairman of Hong Kong’s Koryo Asia Ltd and the guiding light of the Chosun Development and Investment Fund, dedicated to investing in North Korea, accused top US Treasury officials of waging a campaign to make sure the ban on banks dealing with the BDA extends to gold and silver.

McAskill accused US officials, led by Treasury Secretary Henry Paulson and Stuart Levey, under secretary for terrorism and financial intelligence, of “using coercion, innuendo and sheer force to intimidate banks from dealing with North Korea”.

Among the victims of the US campaign is one of Koryo Asia’s projects, the Daedong Credit Bank, the only foreign bank based in North Korea, set up primarily to deal with accounts of foreign firms and embassies in Pyongyang. The freeze of North Korean accounts in the BDA, according to McAskill, includes about $7 million funds of Daedong Bank customers.

McAskill avidly supports North Korean demands for the US to lift the ban on the BDA – a move that would not only open up the frozen North Korean accounts but would provide the opening needed for Pyongyang to trade in a wide range of products around the world.

The financial issue is assumed to have ranked at the top of an agenda discussed in meetings in Berlin between the chief US envoy, Christopher Hill, and his North Korean counterpart, Kim Kye-gwan. Hill, reporting on the Berlin talks in stop-offs in Seoul, in Tokyo and Beijing, seemed hopeful about “progress” in the next round of six-party talks on North Korea’s nuclear weapons, expected to open in Beijing next month, after the failure of negotiators to get anywhere in the last round before Christmas.

South Korean media said North Korea had agreed to shut down its five-megawatt reactor at its nuclear complex Yongbyon in return for the US promise of massive aid, the crux of the 1994 Geneva Framework Agreement that blew up in 2002 amid US charges of a separate, secret North Korean program for developing warheads from enriched uranium.

There was no assurance, however, that the US is ready to relent on the BDA or that the UN Security Council will consider lifting its own sanction – enough to dissuade banks in London from buying North Korean gold regardless of the US ban on the BDA.

McAskill believes the rationale for the crackdown on the BDA is flawed. He questions the validity of the counterfeit charge and, in any case, says most of the frozen funds are not those of the North Korean government, even though they’re tired up in North Korean accounts. “We want to get a breakthrough on the six-party talks by getting the sanctions eased or lifted entirely,” he said. “We’re at a very delicate stage.”

Whatever happens, McAskill sees North Korea as ripe for investment, with precious metals high on the list of potential exports. “North Korea wants to move back into legitimate business,” he said. “They have a wealth of minerals – gold, silver, zinc, magnesite, copper, uranium, platinum – that needs investment to extract.”


Under bank sanctions, North Korea looks to gold exports

Monday, January 22nd, 2007

Christian Science monitor
Donald Kirk

More than a century after American mining engineers first opened up North Korea’s gold mines, a fortune in gold and other metals and minerals offers the prospect for North Korea to ease the pressures of financial sanctions.

The question, however, is whether North Korea can navigate around a US Treasury order that forbids institutions doing business in the United States from dealing with Banco Delta Asia in Macao, the main avenue for North Korean financial dealings.

The Treasury ban, first promulgated in 2002, has effectively frozen the North’s efforts to conduct international business. While it doesn’t extend to gold, market experts say that US officials have made it clear that banks should not buy North Korean gold.

“The US has been using coercion, innuendo, and sheer force to intimidate banks from dealing with North Korea,” says Colin McAskill, chairman of Koryo Asia Ltd., which invests in North Korea through the Chosun Development & Investment Fund. “We want to get a breakthrough on the six-party talks by getting the sanctions eased or lifted entirely. We’re at a very delicate stage.”

North Korea, says Mr. McAskill, “wants to move back into legitimate business.” Selling gold on the London market – the world’s largest – “is one way they can prove that,” he adds. “They have a wealth of minerals – gold, silver, zinc, magnesite, copper, uranium, platinum – that needs investment to extract.”

One indication of North Korea’s need to sell gold was its decision to provide information needed by the London Bullion Market Association (LBMA) to list the North’s central bank as a “good deliverer” of gold and silver. Listing with the LBMA is essential for refiners who want to sell their products in London. The bank’s listing was suspended 2-1/2 years ago when it failed to respond to LBMA requests for “proactive monitoring.”

The LBMA said it does not “take into account any political criteria,” and will keep the bank on its rolls for another three years without monitoring.

Despite the listing, market experts say the big banks that are major buyers of gold – and form the LBMA’s core membership – are not likely to flout the spirit of the US Treasury order against Banco Delta Asia, through which North Korea exported gold prior to the ban.

“The fact that they’re on the list does not mean they can deliver to the London market,” says Stewart Murray, the LBMA’s chief executive. “When we have sanctions, none of the facilities will accept delivery from a company or a country that is subject to these sanctions,”

Trying to build momentum for talks

The reluctance of buyers in London to deal in North Korean gold, widely seen as the likeliest legal way to mitigate the impact of the banking ban, adds urgency to another effort at six-party talks on North Korea’s nuclear weapons.

The chief US negotiator, Christopher Hill, has been traveling through northeast Asia, stopping off here, in Tokyo, and in Beijing after talks in Berlin last week with his North Korean counterpart, Kim Kye-Gwan. The Chinese are expected to set a date for renewing the talks, which broke off before Christmas amid North Korean demands for the US to lift the ban on Banco Delta Asia.

North Korea raised hopes for renewed six-party talks, saying “a certain agreement” was reached in Berlin last week. Neither Mr. Kim nor Mr. Hill have provided details, but analysts suspect that the two discussed the financial issue and its relationship to the ultimate purpose of six-party talks: getting North Korea to give up its nuclear weapons.

North Korea has been renewing its drive to sell gold for the past year since submitting to the LBMA’s monitoring requirements. At the same time, the North has sold relatively small amounts of gold in Thailand, with which it has developed a strong trading relationship in recent years. Last spring, North Korea exported 1.3 tons of gold to Thailand for nearly $30 million while also looking for markets elsewhere in the region.

“Why would you go to the trouble of going to London,” asks Roger Barrett, whose firm, Korea Business Consultants in Beijing, is helping to develop gold mining in North Korea. “They’re totally entitled to sell their gold.”

No reports of exports since July

Yet there have been no reports that North Korea has exported any gold since testing seven long-range missiles in July. Since the North conducted an underground nuclear test in October, which resulted in deeper sanctions from the UN Security Council, dealers have reportedly been even more reluctant to buy North Korean gold.

Estimates of North Korea’s gold reserves range as high as 2,000 tons, but mining has been sporadic since British, American, and then Japanese interests mined for gold beginning in the 19th century. With foreign expertise, North Korean mining may return to the period between 1983 to 1993, when its central bank sold an average of one ton a month on the London market.

“What we’re doing is normal business,” says Mr. Barrett in Beijing, explaining the efforts at reviving the mining industry. “We’re creating jobs for people, in line with the UN basic charter, in line with economic growth.”


North Korea’s golden path to security

Thursday, January 18th, 2007

Asia Times
Bertil Lintner

While the West and Japan have targeted North Korea’s overseas bank accounts to curtail its weapons program, Pyongyang has recently turned to more ingenious ways of maintaining its international businesses through substantial exports of gold, silver and other valuable metals.

Pyongyang has apparently found a willing conduit to global buyers through its many business connections in Thailand, which has recently emerged as the isolated state’s third-largest trading partner after China and South Korea. According to official Thai Customs Department statistics, North Korea shipped 500 kilograms of gold worth 398 million baht (US$11 million) to Thailand last April.

The following month, another 800kg of gold worth 635 million baht landed in Thailand courtesy of North Korea. Also, in June, 10 tons of silver worth 148 million baht was sent from North Korea to Thailand, followed by 12 tons worth 166 million baht last October.

In sum, North Korea exported 1.35 billion baht – or nearly $40 million – worth of precious metals to Thailand last year.

That is a substantial figure for North Korea, a country with an estimated gross domestic product of about $22 billion and whose total exports amounted to just over $1 billion, according to official statistics. Thailand is bound by the international sanctions imposed last October against North Korea by the United Nations in response to Pyongyang’s exploding an atomic bomb.

According to official Thai statistics, the gold and first consignment of silver were shipped to Thailand before the UN sanctions were imposed. But there is nothing illegal in North Korea exporting precious metals, unless, of course, the income from the sale can be tied directly to the country’s controversial weapons programs, which anyway would be extremely hard to prove.

Untapped riches
North Korea’s gold and silver mines remain largely untapped. According to Tse Pui-kwan, a Chinese-American chemist who joined the US Bureau of Mines in 1990, North Korea has significant deposits of copper, gold, graphite, iron, lead, magnesite, tungsten and zinc. When the Cold War ended and North Korea lost large amounts of foreign aid from both the Soviet Union and China, its mining industry fell into disrepair and extraction activities sharply declined.

But with new foreign cooperation, production has resumed, which the recent exports to Thailand clearly demonstrate. North Korea’s main gold mine is in Unsan county in North Pyongan province, about 150 kilometers north of Pyongyang. It was originally opened by a US firm in 1896, when Korea was still an independent and unified kingdom, and was later taken over by a Japanese company when the peninsula became a colony ruled by Tokyo in 1910.

Nearly a century later, consultants from Clough Engineering of Australia in 2001 inspected the same mine under the sponsorship of the United Nations Office for Project Services. They estimated that Unsan held 1,000 tons of gold reserves, which if true would make it one of the world’s major gold mines. Silver is also mined in the same area, while iron ore and magnesite are found in North and South Hamgyong provinces in the northeast.

North Korea’s extraction techniques are sometimes controversial. According to witnesses interviewed by the US Committee for Human Rights in North Korea for its 2003 report “The Hidden Gulag: Exposing North Korea’s Prison Camps”, there is a gold-mining labor camp near Danchun in South Hamgyong province, where thousands of prisoners are being held and forced to work under abysmal conditions.

In that same report, several witnesses claimed that “some of the mine shafts dated back to the early days of the Japanese occupation of Korea in the early 1900s. Accessing the veins of minable gold required descending and, later, ascending a wooden staircase 500 meters in length, using gas lanterns for light. Deaths from mining accidents were a daily occurrence, including multiple deaths from the partial collapse of mine shafts.”

The first attempt to modernize North Korea’s gold-mining industry was made by an Italian financier and former Foreign Ministry official, Carlo Baeli, who traveled to the country in the early 1990s and claims to be the first Westerner to do business with Pyongyang since the Korean War. He later wrote a book called Kim Jong-il and the People’s Democratic Republic of Korea, which was published in Pyongyang in 1990, obviously with official permission as it was printed by the state-owned Foreign Languages Publishing House.

Apart from painting a flattering portrait of the North Korean leader, the book describes Baeli’s first trip to Pyongyang in 1990, of which he wrote, “We were interested in investing in the mining industry, mainly in the extraction of gold and granite.” Baeli later signed a contract for a loan of $118 million to purchase mining equipment, and the goal was to resurrect no fewer than six gold mines across North Korea. The money was to be provided by international banks such as Midland Bank and the Naples International Bank. He also arranged for the mining equipment to be shipped from Italy.

But heavy flooding in the mid-1990s damaged both the equipment and the mines and, according to a 2006 report in Forbes magazine, Baeli today works as an adviser to the Pyongyang government at a tire-recycling plant. The car and truck tires are imported from Japan, get ground into granulate in North Korea, and are sold to China for road resurfacing, car mats and shoe soles. A lucrative business, perhaps, but not quite the golden dream Baeli had when he first arrived in Pyongyang nearly 17 years ago.

Another unusual partner in North Korea’s gold trade may have been the late Philippine dictator Ferdinand Marcos. In August 2001, the right-wing South Korean newspaper Munhwa Ilbo published a story claiming that Marcos in September 1970 had deposited 940 tons of gold bars at a Swiss bank in the name of the late North Korean dictator, Kim Il-sung. The report came from a former Marcos aide, and Munhwa Ilbo carried a copy of the bank-account certificate on its front page. The alleged gold bars were part of what a Japanese army general had looted from Asia during World War II, Munhwa Ilbo claimed.

That report was never independently confirmed, but it nevertheless reflects the mystique and speculation that still surround North Korea’s gold industry – and how little the outside world actually knows about it.

Financial pressures
When the US took action against Banco Delta Asia in Macau in September 2005, labeling it a “primary money-laundering concern” for North Korean funds, very little evidence to substantiate the charges was ever produced. North Korea lost $24 million when the accounts it held with the bank in the name of a front company, Zokwang Trading, were frozen. Zokwang, which had been operating in Macau for decades, also closed its office and relocated to Zhuhai province across the border in China proper.

The action against Banco Delta Asia, a privately owned bank that the Macau government later had to prop up to prevent it from collapsing, was the second move against North Korea’s assets abroad. In a much less publicized action, North Korea’s only bank located in a foreign country – the Golden Star Bank in Vienna – was forced to suspend its operations in June 2004. The Golden Star was 100% owned by the Korea Daesong Bank, a state enterprise headquartered in Pyongyang, and was allowed to set up a branch in the Austrian capital in 1982.

For more than two decades, Austrian police kept a close eye on the bank, but there was no law that forbade the North Koreans from operating a bank in the country. Nevertheless, Austria’s police intelligence department stated in a 1997 report: “This bank [Golden Star] has been mentioned repeatedly in connection with everything from money-laundering and distribution of fake currency notes to involvement in the illegal trade in radioactive material.”

Eventually the international pressure to close the bank became too strong. Sources in Vienna believe the US played an important behind-the-scenes role in finally shuttering Golden Star’s modest office on 12 Kaiserstrasse in the Austrian capital. Until then, Vienna had been North Korea’s center for financial transactions in Europe and the Middle East. Visitors to North Korea have noted that euro coins in circulation in the country – the US dollar is not welcome in Pyongyang – invariably came from Austria. (Euro notes are the same in all European Union countries, but coins designate individual member countries.)

Last October, in response to Pyongyang’s nuclear tests, Japan froze a dollar-denominated account that North Korea’s Tanchon Commercial Bank held with an unnamed Japanese bank. The account had a balance of $1,000 and had not been active for nearly a decade, so the move was mainly symbolic: to demonstrate to North Korea that it cannot use banks in Japan for any deposits, big or small.

So it is hardly surprising that North Korea is looking for new ways to manage and maintain its international business interests and for new partners when it is increasingly locked out of most foreign countries. That is where Thailand apparently comes into the picture.

In 2004, trade between Thailand and North Korea for the first time overtook trade between Japan and North Korea. Previously, a string of North Korean-controlled front companies, managed by the Chosen Soren, or the Pyongyang General Association of Korean Residents in Japan, had supplied North Korea with computers, electronic goods and other vital items.

In 2003, North Korea’s total trade volume to Japan was just over $265 million and fell even lower in 2004. At the same time, trade between Thailand and North Korea rose to more than $331 million in 2004. Two-way trade between Thailand and North Korea totaled $328 million in 2005, with Thai exports to North Korea amounting to $207 million and North Korean imports to Thailand totaling $121 million.

During January-November 2006 – the latest statistics available from the Thai Customs Department – trade totaled about $345 million, with Thai exports accounting for $200 million and North Korean imports $145 million. Thai imports of gold and silver have pushed those trade figures higher.

North Korea’s trade with Thailand grew mainly under the previous government of Thaksin Shinawatra, who at one point proposed signing a free-trade agreement between the two countries. In August 2005, Thaksin was formally invited by Kim Jong-il to visit Pyongyang. The visit never materialized, and since Thaksin was ousted last year in a military coup, the future of Thai-North Korean relations is very much in doubt.

But gold and silver are highly fungible and North Korea apparently has lots of the commodities. It appears Kim Jong-il has for now found at least one golden path around the international sanctions imposed against his regime’s nuclear tests.