Overseas Resource 'Blind Sale'... Government Loses Principal After 10 Years and Abandons Chile Mine

Korea Resources Corporation Sells 30% Stake in Chile Santo Domingo Copper Mine
"Need to Review Complete Sale of Overseas Assets... Must Secure Overseas Resources to Prepare for Global Resource War"

[Sejong=Asia Economy Reporter Kwon Haeyoung] Korea Resources Corporation sold its Chilean copper mine at a price below the original investment principal in accordance with the government's policy to divest overseas assets. This comes 10 years after acquiring the mine under the 'MB (former President Lee Myung-bak) Resource Diplomacy' policy. Amid soaring raw material prices, the government's hasty sale of the corporation's mine has drawn criticism from the resource industry not only for wasting taxpayers' money due to principal losses but also for abandoning copper mines, a core material for electric vehicle batteries, a next-generation high value-added industry, thus running counter to the global competition for securing resources.

According to the Ministry of Trade, Industry and Energy on the 30th, Korea Resources Corporation sold its entire 30% stake in the Santo Domingo copper mine in Chile to Canadian company Capstone Mining. The sale price was $150 million, which is about 60% of the corporation's total investment of $240 million over the past 10 years.

In 2011, Korea Resources Corporation established a joint venture with Canadian copper exploration company Capstone, participating in the mine development project with 30% and 70% equity stakes respectively. With this purchase of the remaining shares from Korea Resources Corporation, Capstone now holds 100% ownership of the Chilean Santo Domingo copper mine project.

An official from the Ministry of Trade, Industry and Energy explained, "Due to Korea Resources Corporation's very poor financial condition, the decision to sell assets was made despite not recovering the investment principal," adding, "Additional costs would be required to develop the Chilean copper mine, making it difficult to maintain the project any longer."

The resource industry is criticizing the government's rushed sale of Korea Resources Corporation's assets. This is because the market is anticipating entry into a 'commodity supercycle' with raw material prices rising over a long period. The international copper price was traded at $8,942.5 per ton on the London Metal Exchange (LME) on the 29th (local time), reaching the highest level in the past 10 years.

A government official said, "While overseas resource development is necessary, Korea Resources Corporation's insolvency is severe, and its overall capability to manage overseas resources is lacking," adding, "It is possible that the judgment was made that it would be beneficial to quickly sell and exit when the value of the mine increased due to rising raw material prices."

Considering Korea Resources Corporation's financial situation, which has deteriorated to the point where even 'rolling over interest' is impossible, the sale is seen as the best option. As of the first half of 2020, the corporation's debt stood at 6.65 trillion won, with capital erosion amounting to about 3.36 trillion won.

However, there is considerable concern about selling a mine containing copper, a key material for electric vehicle batteries. Copper, along with cobalt and nickel, is a core material used in secondary batteries. Large companies, including Samsung C&T, are also focusing on related businesses such as copper trading. In this context, the sale of overseas resources could become a medium- to long-term burden for Korean companies, which lack domestic resources.

Professor Kang Cheong-gu, visiting professor at Inha University, said, "To foster new industries such as electric vehicle batteries, the government needs to secure resources like copper stably and supply them to our companies," expressing concern that "competitor countries like China and Japan are proactively securing resources, while our government is selling off even the resources it holds."

The bigger problem is that the divestment of overseas assets is expected to continue one after another. The government plans to merge Korea Resources Corporation with the Korea Mine Reclamation Corporation in September to restructure it and reduce debt, establishing a principle to sell all assets related to overseas resource development in the process. This follows the recommendations of the Overseas Resource Development Innovation Task Force (TF) formed in 2017.

Since the administration is abolishing the 'MB Resource Diplomacy' policy at the regime level, it is difficult for the Ministry of Trade, Industry and Energy to take the lead in protecting overseas resources. In the same vein, the government and the National Assembly decided to increase Korea Resources Corporation's statutory capital from 2 trillion won to 3 trillion won and inject an additional 1 trillion won of taxpayers' money, but this is only a stopgap measure to improve the financial structure. It is insufficient to maintain the overseas resources already secured.

Professor Kang advised, "Selling the Chilean copper mine at a price below the investment principal is ultimately a loss of taxpayers' money," adding, "The government should take a long-term view and invest more tax money to protect overseas resources whose value will rise in the future, as this is the way to enhance national competitiveness."

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