[Square] Now We Must Step Forward Again to Secure Resources

[Asia Economy Reporter Hwang Yoon-joo] The global mining market continues to be in a slump. Most underground resource prices are repeatedly declining. Thermal coal has plummeted by more than 50% compared to its peak in 2008, and prices of major industrial raw minerals such as copper and zinc are maintaining a downward stabilization trend due to weakened demand from China caused by the outbreak of COVID-19 and the global economic slowdown. Of course, gold continues a steep upward curve due to its preference as a tangible asset.

We have almost no underground resource deposits. Therefore, we have no choice but to import most minerals from abroad. Although there are some non-metallic minerals like limestone, their scale is modest. Hence, whenever there is an international resource shock, our industry has faced great difficulties securing raw materials.

Developing underground resources requires significant investment and the success rate is not very high. Since the 1990s, our government and companies have made considerable efforts to secure overseas resources. Public enterprises were expanded to compete with major overseas companies, and financial support and technical workforce training were promoted.

In the early 2000s, the global mineral market began to fluctuate greatly due to China’s resource sweeping policy, causing international mineral prices to rise sharply and our industry to face hardships. Our companies, which chose the easier method of securing underground resources through trade transactions rather than high-risk investments amid mineral price stability, had to pay the price.

Accordingly, our government actively pursued overseas direct investment to secure stable raw material supply lines. The overseas resource development projects under the MB administration are representative examples. Although the direction of the overseas resource acquisition policy at that time was reasonable, the implementation method was problematic, ultimately causing pain and disappointment not only to the implementing entities but also to the public. The government-led, hasty short-term performance-oriented investment policy forced public enterprises, which were barely at the crawling stage, to run. With little experience investing in large overseas mines and lacking properly trained technical personnel to evaluate and operate projects, the policy was pushed forward prematurely.

In the end, the MB administration’s overseas resource development policy delivered a disastrous result to the public in less than five years after project initiation. Major overseas resource projects, which involved trillions of won of taxpayers’ money, failed to recover the principal and incurred massive losses and debts. As a result, some public enterprises are facing capital erosion and the threat of consolidation. Nevertheless, neither the government nor public enterprise executives have offered detailed and sincere reflections to the public regarding the project failures, and responsibility is being deferred. Of course, not all overseas resource development projects are failures. Although only a few, there are investment cases that brought enormous profits to our companies. In South Korea, underground resource projects are in a predicament akin to a "gyerig" (chicken ribs) situation.

Although mineral prices are currently on a downward stabilization trend, underground resources are finite and highly unevenly distributed, so it is only a matter of time before resource shocks recur. Japan’s export restrictions are ultimately about industrial materials. If China imposes export restrictions on underground resources, our companies dependent on Chinese raw materials will be helplessly affected.

The current lull in the Chinese economy presents a rare opportunity for our companies. The decline in mineral prices is recreating a situation where good projects can be secured in the global resource market. Not only overseas but also North Korea has abundant major underground resources such as gold, rare earths, magnesite, and zinc. Although currently suspended, there have been investments in North Korea. Whether the target for resource acquisition is North Korea or overseas, I hope government policies will be pursued with a long-term perspective beyond political factions.

Also, the implementing entities should return to their original intentions and calmly start projects that fit our capacity without overreaching. Reflecting on the lesson of "excess is as bad as deficiency," I hope market participants renew their resolve and look forward to wise decisions by the next 21st National Assembly so as not to disappoint the public any further.

Choi Kyung-soo, Director of the North Korea Resource Research Institute

This content was produced with the assistance of AI translation services.