Archive for the ‘Mining/Minerals’ Category

Hao Ze’s investment in the DPRK

Monday, November 18th, 2013

This article contains a wealth on information on Chinese investment and financial support of the DPRK.

According to the South China Morning Post:

On his ninth business trip to North Korea this year, Hao Ze has been meeting government officials to finalise his latest investment deal, providing equipment to mine rutile, an ingredient in paints, plastics and sunscreen.

The work at the mineral ore deposit will add to Hao’s growing business empire, which includes a plant manufacturing car parts, a restaurant and a spa – all investments in a country run by a reclusive dictatorship.

Hao is among a growing league of private Chinese investors lured by North Korea’s powerful business potential and undeterred by its unpredictable politics. The investments are fuelling growth in North Korea’s economy, as well as concerns among Western analysts that the boom could encourage more erratic behaviour by the hermit kingdom.

There, Chinese investors dominate certain business sectors – in particular, mining – and its one reason many analysts say that North Korea’s feeble economy appears to be improving.

Before 2011, North Korea had been running a deficit. Two prominent economists have estimated that the country enjoyed a small surplus over the last two years. Last year, the country’s gross domestic product grew by 1.3 per cent, according to Bank of South Korea. The bank did not provide any dollar figures.

Most of these business deals are private and sealed outside of the Chinese government’s control. The exact size of the investments could not be gleaned. But many of the arrangements are profitable and have inadvertently increased Pyongyang’s dependence on its closest ally, Beijing, even as China has shown apparent frustration with the nuclear ambitions of supreme leader Kim Jong-un.

The increase in North Korea’s wealth from the investments could also shift the country’s engagement, or lack of it, with the outside world. Some researchers fear that with more capital, North Korea’s nuclear ambitions might grow bolder. The country will also have less incentive to introduce economic changes. Other researchers express hope that foreign investment creates an opportunity for more fruitful engagement with the outside world and the international community.

Raised in the central province of Zhejiang , Hao’s interest in North Korea was piqued by his grandfather, who fought in the Korean war in the 1950s. The grandson started travelling to North Korea in 2004 with friends to distribute food and money. He cultivated contacts and resourceful middlemen, and relied on those people when, in 2010, he started to import North Korean ginseng and honey to China. His portfolio expanded steadily and now includes a variety of small businesses on the peninsula.

He and several Chinese partners have invested 10 million yuan (HK$12.6 million) in Pyongyang, where he employs about 150 local workers, built an 8,000-square-metre factory compound and runs a restaurant and spa.

“There certainly are risks,” Hao says. “But this place is just like China in the 1980s. It’s highly risky, but it’s also highly profitable if you seize the opportunity.”

The actual size of private Chinese investment in North Korea is hard to gauge. Chinese citizens had poured about US$6 billion into businesses in North Korea by 2011, according to Sheila Miyoshi Jager, an associate professor of East Asian studies at Oberlin College in the United States.

China’s non-financial foreign direct investment in North Korea had reached US$290 million by the end of 2010, according to China’s Ministry of Commerce, a figure included in a report last year by the newspaper Oriental Morning Post in Shanghai. Hao and other academics say the figure is growing as more Chinese investors with an appetite for risk venture into North Korea.

And risks there are. Last year, a rare open row between a Chinese company and the North Korean government drew international attention to Korea’s opaque rules and arbitrary decisions. Chinese fertiliser and mineral producer Xiyang Group said in an August 2012 blog post that, after it had spent four years and 240 million yuan on an iron ore enterprise, North Korean authorities suddenly cancelled the company’s contract last year. The company said it was cheated out of its mining assets after North Korean officials extorted more than US$800,000 from the Chinese firm.

Xiyang called its venture a “nightmare” and said estimates of their losses were US$55.3 million. North Korean state media denied the claims and said the company implemented just 50 per cent of its investment obligations. Beijing has stayed silent about the dispute.

The incident has not dampened the enthusiasm of Chinese investors. Hao says that private businessmen like him are lured by a large pool of cheap labour and lower operating costs. Despite an unstable electrical power supply, utility fees and taxes are much lower than in China.

Almost 90 per cent of the more than 300 Chinese investors surveyed in 2007 reported making a profit in North Korea despite problems such as asset theft and rampant corruption, according to a survey by Marcus Noland and Stephan Haggard, two economists at the Peterson Institute for International Economics in Washington.

“That’s partly because this place is so isolated and so underdeveloped that if you can avoid major problems, there is money to be made,” Noland says.

Hao made big profits in the manufacturing and service industries. Now he’s setting his sights on North Korea’s mining sector, an increasingly important component of the country’s economy that has otherwise been severed from international trade.

That’s partly because of sanctions imposed by the United Nations and Western countries. Hao intends to invest 36 million yuan in his rutile venture, working with a company from Qinghai , which Hao declines to name as the deal is not finalised.

Chinese investors dominate North Korea’s mining industry. According to the US Korea Institute at John Hopkins University in the US, 41 per cent of the 138 Chinese companies registered as doing business in North Korea in 2010 were involved in the mining industry.

However, Zhang Huizhi from Jilin University’s North East Research Centre says that many private Chinese investors are working in North Korea without registering with Chinese authorities.

It’s believed that North Korea has around 200 different minerals and US$6 trillion worth of rare elements and mineral deposits including magnetite, zinc, copper and limestone, according to estimates by the South Korean state-owned mining company Korea Resources.

However, many international investors are turned off by North Korea’s cryptic business environment, unstable politics and faulty infrastructure, which have made operating mines and transporting minerals difficult. Chinese businessmen, though, plough ahead thanks to their proximity, access to savvy Chinese middlemen who speak Korean and connections on both sides of the border. “These are the resources not available for other investors,” says Scott Bruce, an associate with the East West Centre in the United States.

Coal mining is a popular choice for Chinese businesses. According to Bruce, many Chinese investors pay far less for North Korean coal than for what’s extracted from other countries. North Korea, however, pays a premium for Chinese coal imports.

“The Chinese investors have to deal with huge risks to get in and out of the country. They often have to build infrastructure to access the minerals, so they are looking for their costs to reflect those risks,” Bruce says.

Since he inherited power in 2011, supreme leader Kim has pledged to revive the country’s economy. In October, Pyongyang announced a plan to establish 14 special economic zones to attract more foreign investment. Last year, the government began allowing North Koreans to work in China. But experts wonder whether Kim is committed to opening economic borders or if he will roll back the few existing reforms, as his father did, for fear of losing authority.

Recent visitors to North Korea do not dispute that the country’s economy may be improving.

“There are a lot more taxis on the road. More people are using cell phones. And you would be surprised to see that the restaurants are actually packed,” says Wu Wenxing, a Chinese businessman who has visited the country five times since last year.

No hard figures are available to indicate the country’s economic performance. But according to ongoing research by Noland and Haggard, the country is likely to have run a surplus in the past two years largely because of growing trade with China.

While analysts are still trying to explain the sudden growth in wealth, many see China’s economic presence, especially in the mining industry, as a major contributing factor. Despite Beijing’s support for the latest round of United Nations sanctions against North Korea, bilateral trade between the two nations hit a record high in the first eight months of this year.

Noland said a wealthier North Korea could mean that the country would be less vulnerable to international pressure.

Remco Breuker from Leiden University in the Netherlands agrees. He says that the international community could be forced to readjust how it engages with North Korea. More international investments, he argues, could prod the country to become a better international neighbour.

“For years it has been the premise of US policy towards the North that if you exert enough pressure, the country will collapse. But it’s not happening, and in fact the country is in the black,” Breuker says. “We have to realise North Korea is here to stay.”

North Korea’s parallel development of nuclear weapons would hamper its economic development, Noland says. Most of the nuclear and missile tests would be followed by UN sanctions, a key detractor for international investors.

Expanding the country’s mineral extraction might have an economic downside. Bruce from the East West Centre says it may convince North Korea that it’s better to sell its resources for short-term cash while delaying productive economic changes that would promote long-term growth.

Sunny Lee, a fellow with the Shorenstein Asia-Pacific Research Centre at Stanford University, says that Beijing would not mind a wealthier North Korea as long as it maintains a good relationship with Beijing.

“Given the economic sanctions from the US and its allies, Pyongyang’s economic dependence on China is bound to deepen,” Lee says.

For businessmen like Hao, all is well as long as business is good. “We are expecting to recoup all our investment next year,” he says.

Read the full story here:
Chinese businessmen seek profitable opportunities in North Korea
or Mining North Korean opportunities
South China Morning Post
Kristine Kwok


Recent DPRK wage increases / economic management changes

Wednesday, November 6th, 2013

UPDATE 3 (2013-11-14): North Korea accelerating economic reforms? Wages and prices to be self-regulated (IFES):

North Korea appears to be pushing for internal economic improvement measures. Chosun Sinbo, the pro-North Korean newspaper in Japan, released an article on November 6 that discussed various performance-enhancing management and operational changes that took place at the Pyongyang Essential Foodstuff Factory this year.

Chosun Sinbo referred to Kim Jong Un’s speech made last March at the plenary meeting of the Central Committee of the Workers’ Party about improving economic management and named the recent changes at the food factory as a pilot project for this purpose. The news article added that “There are studies to bring fundamental changes in economic management and specific measures are being made to turn this into a reality.”

The main systemic changes made at the Pyongyang Essential Foodstuff Factory were the increase in autonomy of the company and the enforcement of wage differential based on performance. Based on the principle of cost compensation, prices of products produced with raw materials at the factory may be freely adjusted after consulting with the state.

The news article further explained that “The principle of socialist distribution is a simple system of distributing as much as you earn and the cost of living is determined by labor productivity.”  It also reported that some of the employees’ wages increased. Such news is likely intended to advertise to the outside world about North Korea’s changing domestic economic policies.

The North Korean economic journal Kyongje Yongu has also been increasingly reporting on the principle of distribution based on economic performance. In the recent issue published on October 30, 2013 (issue No. 4), an article titled “The Principle Problem of Properly Implementing the Socialist Labor Wage System” criticized the equalization of product distribution as it decreases the enthusiasm of workers toward production: “The strength and life used during the process of labor must be compensated through the principle of earning the amount of your labor.” The article stressed that wages must increase with production and rationalized the need for such wage increase.

Chosun Sinbo and Kyongje Yongu articles reveal the long-term efforts by the North Korean government in enhancing research about economic improvement measures and expanding projects in various factories, companies, and cooperative farms to implement these measures.

Recently, North Korea launched the State Economic Development Commission and organized a number of international forums on special economic zones.  These can be construed as possible signals toward economic reform, as North Korea continues to make various changes in its internal economic policies.

UPDATE 2 (2013-11-7): Another story of note in the Daily NK ties factory wage increases to the ability of enterprises to negotiate prices with the state:

Choson Sinbo, the regular publication of the pro-North Korea General Association of Korean Residents in Japan (Chongryon), has published news of a Pyongyang-based food factory being used as a testing ground for independent economic management. The enterprise fixes prices semi-independently in discussion with the state and pays increased wages, the piece, published yesterday, explained.

The publication conveyed, “Pyongyang Essential Foodstuff Factory became a test unit and conducted research in order to enact changes to overall economic management. They are currently implementing these.”

It continued, “Of particular note is the organization of production and economic management based on cost compensation principles and the socialist rules of division. Pyongyang Essential Foodstuff Factory has enacted the measures for themselves and prepared the collateral to allow for expansion and reproduction.”

“This factory has shed the state planning model and sources its own materials, and in discussion with the state it has been able to set its own prices as it sees fit. There is also a measure currently being adopted that provides monthly allowances in consideration of the labor of the employees,” it further emphasized.

However, a high-ranking defector was skeptical when asked about the piece, telling Daily NK, “These factories produce things like soybean paste, soy sauce, salt and side dishes. They have always played the role of distributor to the people, so there is no way that they would be able to just set prices how they wish on these products. It’s likely that the measures focus on work teams making apple and pear beverages, liquor and beer; things that do not relate to improving the lives of the people.”

UPDATE 1 (2013-11-7): The Daily NK follows up on the DPRK’s strategy to bring official wages in line with the price level:

North Korea’s decision to drastically increase the wages of workers in parts of the heavy industrial sector is designed to boost morale and improve productivity, the better to expand the country’s capacity to generate foreign currency income from investments in the exploitation of its mineral resources.

As exclusively reported yesterday by Daily NK, major industrial concerns in North Hamkyung Province such as Kim Chaek Iron and Steel Complex have raised wages by a factor of approximately one hundred, from a derisory 3,000 won per month, around half the market price of a kilo of rice, to 300,000 won. Thus far, 100,000 won of the total has been paid in cash and the remainder in kind in an attempt to head off the very real danger of dramatic price inflation that would result from 100% cash payments.

That such a substantial wage rise was only deemed feasible in enterprises with the potential to export primary or secondary resources for foreign exchange should not come as a surprise. Smaller domestic enterprises don’t have the liquid resources to take such a step. As with the Kaesong Industrial Complex, wages in cash and kind have always been more generous for workers in joint venture enterprises than elsewhere. The latest move reflects an extension of that reality.

At this early stage, experts believe that the measure is designed to create a business model for North Korea not unlike that on show at Kaesong, under which each province can improve its economic performance and attract greater quantities of foreign capital. By actively nurturing those rare businesses that are competitive in the regional environment, the country hopes to raise productivity overall.

A researcher with Industrial Bank of Korea, Cho Bong Hyun told Daily NK, “Raising salaries for enterprises in the minerals sector looks like an inevitable choice, since productivity couldn’t have been expected from light industrial enterprises when the operational level of most of those factories is so low.

Cho continued, “The Kim Jong Eun regime, which is currently concentrating on producing results in the economic sphere, made this decision based on the fact that for some time it has been earning foreign currency quite easily by exporting its mineral resources. They also hope that by raising salaries they can induce greater productive effort, since workers have not wanted to work properly since the public distribution system collapsed [in the 1990s].”

Yoon Deok Ryong, a senior research fellow with the Korea Institute for International Economic Policy added, “Kim Jong Eun has granted this autonomy to firms and raised wages in order to earn foreign currency and firm up his system. He wants to right the economy by discriminating in favor of businesses that are somewhat competitive.”

However, despite cautious enthusiasm for the latest step, the two experts cautioned that unless North Korea moves further in the direction of a market economic system, the measure might not prove effective.

Cho explained, “No matter how tightly the North Korean authorities seek to control economic activity, they will find it almost impossible to stop these wage rises inciting inflation and causing the value of the North Korean Won to nosedive even more. There is also the danger of conflict with between military and Party-Cabinet elements over the management of mineral resource enterprises that can be used to produce military goods.”

Yoon added that workers in enterprises excluded from the latest wage rises will not see the bigger economic picture, and will simply be aggrieved at there being no improvement in their own conditions. “Conflict is unavoidable,” he concluded.

ORIGINAL POST (2013-11-6): According to the Daily NK:

Wage levels for workers in some larger industrial enterprises have risen by a factor of approximately one hundred times, Daily NK has learned. The move, which was put forward as part of the “June 28th Policy” in mid-2012 and is designed to bring wages more into line with market price levels, appears designed to improve the productivity and competitiveness of major industrial concerns.

According to a source from North Hamkyung Province, the monthly wage of people working at Musan Iron Mine, Kim Chaek Iron and Steel Complex and Sungjin Steel Mill rose from an average of just 3000-4000 won up to 300,000 won in September and October. In an attempt to forestall the inflation that such a step would otherwise guarantee, 200,000 won of the payment is issued in goods, with just 100,000 won provided in cash.

The source explained to Daily NK on the 5th, “In September the order was handed down in the name of the State Economic Development Commission to Musan, Kim Chaek and Sungjin; it was about guaranteeing independence in terms of production and the authority to set salary levels. At the time most workers did not believe that they were going to be given a wage of 300,000 won, and are really surprised now that they are actually getting it.”

The source went on to assert that the same instructions have been handed down to all provinces, not only North Hamkyung. “Relatively more competitive” industrial enterprises in each province have been selected, he said, and are resetting wages at a higher level.

Explaining the system of payments in kind, the source said, “Because they are concerned about the danger of inflation being created by the wage rises, they give 200,000 won of it in rice, vegetables, side dishes, other necessities, and electronics. Only the remaining 100,000 won is given in cash.” Workers have been told “not to make purchases in public markets since the state is now providing for your daily needs,” although the instruction is not likely to be adhered to.

Predictably, the source revealed that the move has attracted attention from surrounding enterprises. “Workers who had been ‘off sick’ are coming back,” he said, “and workers from other enterprises have been descending on us after hearing that we are getting a lot of wages and other stuff.”

The move appears designed to increase the competitiveness of major industrial enterprises in North Korea, and to improve the attractiveness of joint ventures to companies in China.

At the time of writing, the dramatic wage increase has not generated rice price inflation in public markets in the North Hamkyung Province region. For example, the price of rice in Musan is currently stable at around 5,800 won/kg.

On this, the source concluded, “Because some of the wages have been given in kind, demand in markets will not rise for the time being.” However, he cautioned that later, when workers attempt to buy and sell the products they have received, instability and inflation could result.

Read the full story here:
Wages Rise 100x in Heavy Industry
Daily NK
Lee Sang Yong


Evaluation of Kim Jong Un’s first two years: The rise in construction of sports and entertainment facilities and exports to China

Wednesday, October 16th, 2013

Institute for Far Eastern Studies (IFES)

The first chairman of the National Defence Commission of North Korea, Kim Jong Un, took office two years ago. Since then, construction of sports and entertainment facilities are reported to have increased considerably. According to the South Korean Ministry of Unification, North Korea’s Pyongyang Folk Park (September 2012), Taesongsan General Hospital (March 2013), and Haedanghwa Service Complex (April 2013) were recently completed. Since the launch of the Kim Jong Un regime, the Masik Pass Ski Resort and other similar sports facilities have been undertaken and are nearing completion.

In addition, the People’s Theatre (April 2012), Rungna People’s Pleasure Ground (opened in July 2012), Sunrise Restaurant (September 2012), and Unification Street Center (September 2012) have been recently renovated. In addition, the Mirim Riding Club, Pyongyang Gymnasium, Munsu Wading Pool, Aprok (Yalu) River Amusement park, Karma Hotel, and New Day Hotel and other hotels around Pyongyang are currently under renovation and repair. Entertainment and sports facilities around other major cities are being constructed as well. Furthermore, after the successful launch of Kwangmyongsong 3-2 last December, North Korea has begun to construct major residential complexes for scientists, granting them preferential housing in Unha scientist residence, Kim Il Sung University educator residence, and Pyongsong residence. Other large-scale housing projects are also reported to be under development.

In the wake of major celebrations in North Korea — such as the 100th anniversary of the birth of Kim Il Sung and 60-year anniversary of the “Victory in the Fatherland Liberation War” — a large memorial was erected and existing facilities were repaired. Specifically, the Korean People’s Army Exhibition of Arms and Equipment, Kumsusan Memorial Palace, War Victory Monument, and the Cemetery of the Fallen Fighters of the KPA were refurbished.

Unlike the large-scale construction of sports and entertainment facilities, new constructions of harbors, roads, power plants and other social overhead capital (SOC) is reported to be in decline.

Last August, North Korea’s trade with China has shown an 8 percent increase in exports and 6 percent decrease in imports, following a similar trend from last year. According to the South Korean Ministry of Unification, North Korea’s current trade volume with China is reported to be 4 billion USD (1.89 billion USD in exports and 2.2 billion USD in imports).

North Korea’s most popular export items are mineral resources such anthracite, coal, and iron ore. In the case of clothing products — which are mostly consigned processing — there has been an increase of 42 percent (200 million USD) against the previous year. Major categories of imports from China are crude oil, food, and fertilizers. Compared to the previous year, food imports have declined 57 percent (17.4 million tons), and fertilizer and crude oil imports are also showing gradual reduction at 27 percent (18.3 million tons) and 6 percent (34.6 million tons), respectively.


Tanchon Port reconstruction completed

Thursday, April 25th, 2013


Pictured Above (2012-12-13): Tanchon Port

UPDATE 2 (2013-4-25): Yonhap reports on the DPRK’s plans for the Tanchon Port:

North Korea is scurrying to develop the resources-rich city of Tanchon on the east coast as part of the country’s efforts to make it a source of foreign currency income, recent news reports from the North showed.

Tanchon will become a key transit point in shipping goods to and from Russia’s Siberia, the northeastern part of China and Mongolia, said the Wednesday issue of the Choson Sinbo, a Korean language newspaper published by North Korean nationals in Japan.

The newspaper, a mouthpiece of North Korea, said the port city of Tanchon should become the source of finance for the country’s broader policy line of pursuing both economic development and nuclear capacities.
In a bid to boost exports, the country completed the construction of a port in May last year in the city with rich reserves of magnesite, zinc and other mineral resources, which sits about in the middle of the country’s east coast line. the Choson Sinbo said the city has about 5.4 billion tons of magnesite deposit, possibly the third biggest reserve in the world.

The news outlet also highlighted the country’s planned ways to increase earnings in the resources-rich city from which the country used to export mineral resources to China for meager profits.

“North Korea will move to manufacture processed magnesite goods in order to make high-value added goods,” the Choson Sinbo noted. “To that end, many plants will be built in the Tanchon region and the areas will become a new industrial zone.”

North Korean leader Kim Jong-un has also underlined the country’s plan to boost profits from the Tanchon development, saying in a national meeting of light industrial workers last month that profits from Tanchon development should be exclusively used to prop up the livelihood of North Korean people.

UPDATE 1 (2012-5-3): KCNA announces the completion of  the Tanchon Port:

A modern trading port made its appearance in the area of Tanchon in South Hamgyong Province on the occasion of the 100th anniversary of President Kim Il Sung’s birth.

The construction of the port with a cargo traffic capacity of millions of tons provides a guarantee for greatly contributing to developing the nation’s foreign trade and improving the people’s living standard.

A ceremony for the completion of the construction was held on the spot Thursday.

Present there were Choe Yong Rim, Kwak Pom Gi, Ro Tu Chol and other officials concerned, officials of the Ministry of Land and Marine Transport, builders and working people of industrial establishments in Tanchon City.

Read out there was a joint congratulatory message sent by the Central Committee of the Workers’ Party of Korea and the Cabinet of the DPRK to the officials and members of shock brigades who performed labor feats in the construction of the port.

The message highly praised them for successfully building another giant structure in the era of Songun greatly conducive to building an economic power true to the life-time desires and last instructions of President Kim Il Sung and leader Kim Jong Il.

It expressed belief that they would perform greater feats in the efforts for the country’s prosperity united close around the WPK Central Committee headed by the dear respected Kim Jong Un.

Minister of Land and Marine Transport Kang Jong Gwan, in his speech made for the occasion, said the construction of the port was a brilliant fruition of the wise leadership of Kim Jong Il who initiated the construction of the port and worked heart and soul to translate the desire of the President into a reality till the last moments of his revolutionary life and the clear-sighted guidance and meticulous care of Kim Jong Un.

Speakers at the ceremony pledged themselves to carry out their tasks including dredging in a short span of time in the same spirit as displayed in the construction of the port.

At the end of the ceremony the participants looked round different places of the port.

You can see video of the port inauguration here. (KCNA)

Just a few days ago, the Choson Sinbo reported the following (via Yonhap):

The North is estimated to have 15 billion tons of anthracite coal, a key mineral Pyongyang uses to produce steel, the Choson Sinbo newspaper said.

The North also has an estimated 5.4 billion tons of magnesite in Tanchon, a home to mines in South Hamgyong province, and other areas, according to the newspaper.

North Korea is set to open Tanchon as a modern trade port, the newspaper said, without giving any specific time frame for the opening.

ORIGINAL POST (2010-12-9): On December 2, KCNA announced that Kim Jong-il visited the port in Tanchon County, South Hamgyong County (40.412522°, 128.917731°) where he gave guidance on the port’s reconstruction.

Judging by the satellite imagery of the area on Google Earth, it appears that the project had already begun by May 13, 2009, where we can see concrete blocks ready to be used to extend the jettys (breakwaters).  I have outlined the proposed port project on Google Earth imagery below and provided a picture of the completed project from KCTV:

After the jettys are extended, the major construction work and dredging can begin.  Below are images of the port’s main construction site as it appears on Google Earth and a prediction of the project’s conclusion from KCNA:

It appears from the picture that the port will be connected to the railway system—likely via the nearby Tanchon Smeltery and Magnesia Plant (both recently renovated) whose products will probably be exported from the port.

Tanchon is also home to the DPRK’s Komdok and Taehung Youth Hero Mines (among others).  As is well known to readers, raw materials exports are the DPRK’s most significant (legal and transparent) source of hard currency.  According to Yonhap’s North Korea Handbook 2002:

Geomdeok [Komdok] Mine is a special company in Bonsan-dong, Dancheon, South Hamgyeon Province, and is very famous for about 300 million tons of deposited leads and zincs. This mine annually produces 52,000 tons of lead, 124,000 tons of zinc, both of which account for 47% of total production in North Korea, and more than twice as much as the production of Eunpa Mine, North Korea’s second largest mine, in Eunpa-gun North Hwanghae Province. Concentrates of lead and zinc produced from Geomdeok Mine are processed into electric zinc at Dancheon refinery. Opened in 1932, this mine produces 14,200 tons of raw ore annually with three ore dressing plants. Annual production capacity can reach up to 11 million tons. The first dressing plant was completed in July 1953, near the end of the Korean War. It now processes a million tons of ore a year. The second dressing plant was opened with a production capacity of 3,200 tons of ore. The third one constructed in September 1983 can process 10 million tons of ore.


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


DPRK imports of Chinese silver surge

Thursday, March 28th, 2013

According to Yonhap:

North Korea imported an unusually massive amount of silver from China in January, possibly in relation to leader Kim Jong-un’s birthday that month, sources and China’s customs office said Thursday.

Data from China’s customs office showed that North Korea imported 661.71 kilograms of Chinese silver for US$653,128 in January.

The monthly import is unusually enormous given that the North took in only $77,593 worth of precious metal and other jewels for the whole of 2012. The corresponding amount for 2011 was $57,000.

Before January this year, the North had hardly spent more than $10,000 on monthly imports of such goods, according to the data.

Given the leader’s birthday on Jan. 8, North Korea watchers said the massive amount of imported silver may have been used to produce silverware souvenirs to celebrate the leader’s birthday.

“It’s difficult to assume the exact purpose of the silver imports,” a source said. Given that late leader Kim Jong-il used to bring in foreign brand luxury sedans and expensive watches to treat the country’s top echelon on major holidays, the bulk of silver imported in January may have been used for similar purposes, the source said.

Backing this assumption, the customs data also showed that the North imported an unusually large amount of costume jewelry worth $10,447 in the same month.

A reader points out this Daily NK story hypothesizing that the silver could have been used in batteries:

As such, there are suspicions that the recent North Korean decision to import more than 600kg of silver through China was done to facilitate the production of batteries for submersible production.

A North Korean military source told Daily NK on the 4th, “The [North Korean] Navy has been producing submersibles at every shipyard on their east and west coasts ever since the attack on the Cheonan in 2010.”

According to the inside source, prior to the Cheonan sinking such vessels were produced at one shipyard, the disguised ‘Bongdae Boiler Factory’ in Sinpo, South Hamkyung Province, at a rate of five per year. However, following the sinking of the Cheonan that rate went up four times to 16 per year, as the vessels started being produced across multiple shipyards including Yongampo, Chongjin and Rajin.

The source explained, “The reason why the North Korean authorities are increasing production of this kind of submersible that can fire torpedoes is to maximize their underwater attack capacity. The subs can take 12 to 15 soldiers yet still sink destroyers weighing thousands of tons with their twin torpedoes.”

“The engines noise on the submersibles is very quiet, making them able to approach their targets underwater in secret, while it is impossible to trace crimes such as the Cheonan incident,” the source went on, adding that during North Korean military training exercises they also emphasize the essential nature of the subs.

The rising production is pushing up demand for batteries, the source then went on to add, saying that this required the bulk production of both silver and zinc. “All the silver produced in North Korea is supplied to the shipyards,” he claimed.

The source admitted to being confused, therefore, at North Korea’s recent decision to import 660kg of silver from China, declaring, “There is lots of silver being produced in North Korea, so it’s hard to say why they are importing it from China…I suppose it may have been just that more batteries were being produced so they needed more silver.”

Read the full stories here:
N. Korea imports massive amount of Chinese silver in Jan.: data

NK Producing More Silvery Subs
Daily NK


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.


DPRK Law on Underground Resources

Thursday, January 31st, 2013

The DPRK’s Naenara web page posts PDF copies of the DPRK magazine, International Trade. No updates have been made for 2013, however, Choson Exchange points an interesting article from the Q4 2012 issue which contains interesting information on the DPRK mining sector.

Choson Exchange posted a high resolution .jpg from the most recent issue of International Trade and you can see it here.

The article, “Abundant Underground Resources and the Policy for Their Development,” provides information on the “DPRK Law on Underground Resources” which was allegedly adopted by Decree No. 14 at the fifth session of the ninth Supreme Peoples’ Assembly (1993-4-8: during the Arduous March).

The text of the law is not given, and most of the article is “fluff” language, but here are some interesting tidbits:

Institutions, enterprises and organizations can develop underground resources.  They are obliged not only to make mining equipment large, modern, and high-speed, and diversify transportation but to give priority to tunneling and introduce efficient mining methods to boost mineral output.

Development of underground resources is subject to the approval of the state organ of deliberation of underground resources development .

Institutions, enterprises and organizations engaged in underground resource development shall ensure high efficiency of investment pursuant to the design of underground resource development.

They shall ensure rational organization of mining to excavate ore bodies that conform to mining criterion and standard of calculating deposits of underground resources. But the practices of digging out only high-grade and thick ore bodies in good condition to excavate are prohibited.

Abandoning of ore and coal mines and their pits should be subject to the approval of the state organ of deliberation of underground resource development.

Institutions, enterprises, and organizations, concerned should actively tap the resources of geotherm, underground water and mineral water for the economic development and improvement of people’s [sic] life [sic].

The living environment of inhabitants and ecological environment of animals and plants, including land, resources and landscapes should not be damaged in the course of their development.

The DPRK policy of underground resources development makes a tangible contribution to protection and development of underground resources to fully meet the increasing demands of the national economy for raw materials and fuel, and thus gives the impetus to the building of a thriving socialist country.


Coal expensive this winter

Wednesday, December 5th, 2012

The Daily NK reports that coal prices in the DPRK have surged this winter (150,000w/ton in 2011 vs. 300,000w/ton in 2012) . They also report the price in hard currency:

At the time of writing, this coal can be bought at source for $150-$200 per ton. Wholesalers then sell it on in regional centers like Chongjin for up to $300. However, according to Daily NK’s source, “They even say that $300 leaves them with little profit, given the cost of transportation.”

This implies the exchange rate is approaching 10,000 w / 1US$. Exchange rate data shows this trend as well.

The Daily NK gives the following reasons for the price increase:

1. Inflation (2011-11 exchange rate with USD was between 2,9oow – 5,000w. 2012-11 exchange rate 4,000-8,000w)

2. Decreased supply from exhausted mines

3. Exports to China (According to statistics published by the Korean Trade Association in late 2011, coal exports from North Korea to China in the nine months to September that year were worth USD$830 million, double the 2010)

If we had the economic data it would be a fairly straightforward regression to determine the contributions of each of these variables on the price of coal. But we do not have the data.

Read the full article here:
Coal Prices Fuelling Chilly Times
Daily NK
Choi Song Min


Some food, inflation, and trade data

Tuesday, October 2nd, 2012

These are all interesting data points. Do you think they offer reasonable journalistic evidence that the DPRK is practicing inflationary public finance?

First, Yonhap reports on DPRK food imports from China (2012-9-29):

North Korea’s grain imports from China slipped 16.3 percent on year in the first eight months of this year, in an apparent sign that the North may diversify its supply channels of grain, a Seoul researcher said Saturday.

North Korea imported 181,264 tons of rice, flour, corn and other grains from China in the eight-month period, compared with 216,535 tons for the same period last year, said Kwon Tae-jin of the state-run Korea Rural Economic Institute.

The decline in grain imports from China may be attributed to a rise in food aid from China and purchases from non-China markets such as Europe and South America, Kwon said.

“Including imports from non-China markets, North Korea’s total grain imports appeared to rise this year,” Kwon said in a report posted on his Web site, adding Pyongyang may “diversify its import channels.”

At the same time the Daily NK reports that food prices continue to rise (2012-10-2):

Internal sources informed Daily NK over the holiday that on September 29th the price of rice was 6,700 won/kg in Pyongyang, 7,000 won/kg in Onsung, North Hamkyung Province and 6,500 won/kg further west in Hyesan, Yangkang Province.

Not only do these prices far exceed those of Chuseok 2011, they even far exceed those of earlier this year.

The Hyesan source explained that on the day before the Chuseok holiday (Saturday) the atmosphere in the market was thus rather uncomfortable. “It was very slack,” she said. “People couldn’t buy anything easily, so most just seemed to be looking.”

Secondly, Yonhap reports that despite situations like those experienced by Xiyang or in Musan, mineral exports to China are up (2012-10-2):

North Korea’s exports of mineral resources recorded a 33-fold jump over the past decade with China remaining the biggest importer of the North’s iron ore and coal, a report showed Tuesday.

North Korea’s mineral exports stood at a meager US$50 million in 2001, accounting for 7.8 percent of its total exports, according to the report by Seoul’s Korea Trade and Investment Promotion Agency.

The mineral exports soared to $243 million in 2005 and $1.65 billion in 2011, accounting for 59.4 percent of the North’s total exports last year, the report said.

South Korea has estimated the total values of mineral deposits in North Korea at some $6.3 trillion.

Last year, North Korea exported $1.17 billion worth of anthracite coal and $405 million worth of iron ore, with China importing almost 100 percent of anthracite coal and iron ore, it said.