CAPE TOWN // North Korea may be home to a world-class deposit of minerals, crucial to most modern technologies, which could change the country’s fortunes.

While the communist-inspired nation is usually in the news for tweaking the West’s nose, evinced by its claim of a recent test of a nuclear device, North Korea is also working on developing a mining project that could change its relationship with the rest of the world.

In 2013 North Korean officials said a continuous mineral deposit of about six billion tonnes had been found south of the capital Pyongyang. Much of the deposit consists of a class of 17 obscure elements collectively known as rare earths (RE).

If it turns out to be true, a resource of this size would be astounding and worth billions of dollars of income annually to the cash-starved country. According to the UN trade body Unctad, the international market for REs reached US$7 billion annually in 2010.

REs are not particularly rare, they are so named because they are usually found in small quantities scattered across the planet’s surface among other minerals, which makes them costly to extract and process. Virtually all the world’s supply is currently produced in a few districts in China.

While relatively unknown, they are vital to our world; REs are an irreplaceable element in smartphones, flat-screen TVs, computers and other everyday technology. They are also found in the magnets of wind turbines and electric car batteries.

Before the deposit can be brought to the surface though, it must be fully evaluated to determine how and where mining should be done, if at all. Louis Schürmann, a South Africa born geologist now living in Australia, was appointed by the North Koreans to carry out geological evaluation and he is now the lead scientist on the project.

“In 2011 I was asked to travel to North Korea, me being a Principal Metals Geologist in Australia at the time,” says Mr Schürmann. “The brief was to have a look at several mineral occurrences and provide them with general geological and due diligence reports.”

He has ever since been shipping mineral samples back to laboratories in Australia for evaluation. The laboratory phase is time consuming but eventually will reach the point where the results can be published, should the North Koreans decide to do so.

Given the fraught relations North Korea has with the world, especially its neighbour South Korea, with which it is still technically at war, Mr Schürmann’s work and involvement in the project has come in for some criticism. “The numbers are not backed up with any solid data; it is nothing but a list of what they have under the ground,” says Choi Kyung-soo, a senior researcher at the North Korea Resource Institute, according to NK News, a South Korean monitoring organisation.

South Korea, with its technology-weighted industry, is already one of the world’s largest importers of REs.

Mr Kyung-soo went on to deliver a personal attack on Mr Schürmann: “He has absolutely no credibility. Whatever he says, I take it as hoax.”

Mr Schürmann shrugs off this and other criticism as the inevitable fallout of the tense political relationship between the two countries. Mr Kyung-soo could not be reached for comment.

The work Mr Schürmann is doing now is not far removed from the kind of research he spent the past 25 years doing, mostly in Africa, he says, including a seven-year stint as lead metallurgist with the Canadian billionaire and mining entrepreneur Robert Friedland’s Ivanhoe Mines. His focus in North Korea, Mr Schürmann says, was on the geological evidence being produced.

“My work and my involvement in any part of the world are apolitical, he says. “I do not get involved in any politics and will not even have an opinion, although what we do does have a positive effect.”

He adds that for developing countries, resource extraction could be a benefit. “I have always seen mineral deposits as basic dynamos – especially in Africa and most recently in Asia – that could support development and growth. Development and growth in most ‘stressed’ nations and regions can be utilised as catalysts to induce change.”

To realise the value of the deposit, North Korea will probably have to invite foreign investment. Mining is a capital-intensive industry that requires specialist skills. Ore extraction is the easy part, but the milling, crushing, refining and separating it from other elements require complex plant and machinery. Luring outside capital into the “hermit kingdom” may be tricky.

“Many foreign mining companies have attempted to do business in North Korea over the years,” says Kevin Virgil, the chief executive of London’s Frontera Investment, an emerging market specialist. Mr Virgil has recently conducted a fact finding study into North Korea.

“To my knowledge, very few of those have been successful. Western sanctions and a pervading sense of suspicion on all sides have historically made it a very difficult place to do business.”

However, there are signs that things are changing, he says. “This is best evidenced by the recent government reshuffle that created the ministry of external economic relations, which has the mandate to attract foreign direct investment.”

Although a generally mineral-rich country, mining in North Korea has failed to reach its potential, as a lack of electricity – and equipment often dating back the 1960s – holds it back. The country is also under military sanctions and it is a moving target as to whether other punitive measures will be applied in response to antics such as the recent bomb test.

A final unknown is the legal system (although Mr Schürmann notes that all contracts are written in clear English and based on similar documents elsewhere).

For the brave, the risk could be rewarding, Mr Virgil says.

“Assuming that they can successfully navigate the legal obstacles, then any foreign company that seeks to do business in the [country] will most likely fare better than they would have at any time in recent memory.”

While sceptics abound, recent developments with nations such as Iran and Cuba show North Korea’s return to the fold is not beyond the realms of possibility.

business@thenational.ae

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