[The Editors' Verdict] Resource Development: Public Enterprises as Pioneers

On the 6th, the US economic media CNBC cited a report from Bank of America (BOA) predicting that copper, known as the "barometer of industry," will rise to $20,000 per ton by 2025 due to inventory shortages. According to the major mineral trends regularly published by the Korea Resources Corporation (hereafter Kores), copper prices surpassed $10,000 per ton in the first week of May, trading at $10,085 per ton; thermal coal was at $92, and iron ore traded at $196.87 (China import price). Nickel continued to rise, reaching $17,099. However, Kores has halted new overseas resource development projects since 2014. Private companies have also withdrawn accordingly. The government's urgent measure was a special loan budget for overseas resource development projects. To encourage private companies' resource development, the government increased the special loan ratio from 30% to 50% starting in 2018. The government believes that raising the loan ratio to 50% will increase the number of companies participating in resource development. However, private companies are naturally reluctant to jump into resource development due to its high risks. Past cases show that resource development requires resource public enterprises to play a pioneering role for private companies to move. Currently, the government is preventing Kores from investing in overseas resource development.

A representative example of cooperation between public and private enterprises is POSCO's investment in the Roy Hill iron ore mine in Western Australia in 2010. POSCO entered independently with technical support from Kores. After entry, due to a drop in iron ore prices, POSCO recorded a net loss of 35 million Australian dollars in 2016 with an annual production of 7.7 million tons, but by 2018, it turned a net profit of 558 million Australian dollars and achieved an annual production of 50.3 million tons. Currently, with iron ore prices significantly higher, POSCO is seeing profits. Moreover, through the Roy Hill mine investment, POSCO has greatly benefited from securing a stable supply of iron ore, the main raw material for steel products.

There are several cases where public and private enterprises entered jointly. Samsung C&T, LG International, and POSCO, among others, collaborated with Kores between 2010 and 2012 to develop lithium, a key raw material for electric vehicle batteries. Samsung C&T secured a 10-30% stake in Chile together with Kores, LG International did the same in Argentina, and POSCO acquired lithium extraction technology from brine in Bolivia. POSCO now holds the world's leading lithium carbonate technology thanks to this. Recently, POSCO has entered lithium mines in Argentina and is achieving good results. Kores also entered the Cobre Panama copper project in 2009 at the request of LS Nikko Copper. Kores is currently selling its entire 10% stake in this project under government orders, even though it could expect good returns by now. LS Nikko Copper, which invested alongside Kores, sold its entire 10% stake in August 2018 for $635 million (710 billion KRW), earning roughly 150 billion KRW after excluding investment costs.

One reason the government has lowered overseas resource development in its policy priorities is the decline in mineral prices. However, the recent situation has changed. The economy, which had faltered due to the COVID-19 pandemic, is recovering. Prices of six strategic minerals that South Korea imports and uses over $100 million annually?thermal coal, uranium, iron ore, copper, zinc, nickel?as well as rare metals like lithium, cobalt, and molybdenum, have been continuously rising recently.

What the government is missing is that for resource security, resource development must be pursued steadily regardless of mineral price fluctuations to achieve results. When private companies do not step forward, public enterprises should be deployed as pioneers to work together. Resource policy requires government will and consistency to yield results.

Kang Cheon-gu, Invited Professor, Department of Energy Resources Engineering, Inha University

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