With Seoul’s incoming government looking to thaw cross-border ties, it should capitalize on the North’s ample mineral reserves to help revive its crumpling economy and beef up energy supplies at home, said Choi Kyung-soo, president of the North Korea Resources Institute.

Despite daunting risks associated with political instability, he cast joint mining projects as a key tool to quell criticism over the South’s unilateral concessions to the wayward regime.

President-elect Park Geun-hye has also presented resources development as a way to boost inter-Korean economic exchanges. While desisting from unconditional handouts, she promised to build trust and expand industrial cooperation with the communist country.

“The onset of economic cooperation may be to peg aid, loan or infrastructure programs with something we can bring in from North Korea so they can’t get away with it,” Choi said in an interview with The Korea Herald.

“Now any inter-Korean project requires a public consensus, for which some degree of reciprocity is essential. In this case, the only answer is underground resources.”

Sitting on vast mountain chains dating back to the Archeozoic era, North Korea boasts a treasure trove of deposits of about 220 different minerals across the country,

Its magnesite and tungsten reserves are the world’s second-largest and six-largest, according to Choi and the U.S. Geological Survey. Other major resources include graphite, gold ore, molybdenum, coal, limestone, iron ore, copper ore and zinc ore.

Seoul is seeking investment in mines up north to pare its reliance on metal imports. A recent upsurge in global commodity prices, spurred by stiff competition among emerging markets, has taken its toll on Asia’s fourth-largest economy.

The NKRI, or NOKORI, estimated the potential value of the North’s underground resources at more than 11 quadrillion won ($1.04 billion) last year based on market prices of 18 key minerals.

Choi founded the first-of-its-kind think tank in 2010 after spending more than 20 years at Korea Resources Corp. until 2009. The Seoul-based institute publishes books and analyses, provides consulting and hosts forums on resources development in North Korea.

While at the state-run company, he made at least 30 trips to the North, exploring mines and advising and negotiating with his counterparts there.

“It’s well known that North Korea has good mines but it’s worthless unless you use them,” Choi said, recalling his 2002 tour to a mine. 

“When I arrived there, its manager bragged to me that he was repairing a 1973 truck made in some East European country. Machines and equipment are so outdated that they weren’t working properly. Electricity supply was awful.”

He still dismissed concerns about perhaps undue costs of infrastructure upgrade and other auxiliary facilities, citing Africa’s resources boom.

Unlike many mineral-rich African countries, North Korea has road and rail networks. Infrastructure spending can be offset by the formation of a cluster of nearby mines, he noted, which will further expedite future projects and create jobs in the region.

To propel change in Pyongyang’s mindset, Choi stressed the need to support the education of North Korean officials and businesspeople on market economy and industrial structures.

“You can scale it up to benefit from economies of scale. Why is China going for it otherwise? They are there because there’s money,” Choi said.

“What truly matters is the North’s top-down political will to improve the overall investment climate including legal and institutional frameworks so that businesses step in and invest.”

Choi voiced concerns about China’s accelerating push for mining rights in North Korea in return for food, fuel, infrastructure and hard currency.

Trade volume between the two allies hit a record $5.63 billion in 2011, up a whopping 62.4 percent from a year ago, according to the Korea Trade-Investment Promotion Agency.

Between 2002 and 2010, the cash-strapped country’s mineral exports to its top trade partner shot up more than 17-fold to $862.4 million, KOTRA data shows.

China’s investment focusing on resources and infrastructure in the North jumped more than 40-fold to $41 million in 2008, Samsung Economic Research Institute said. The latest data was not immediately available but experts forecast the figures have since sharply risen in light of the burgeoning Najin-Sonbong and Hwanggeumpyeong economic zones.

“Given that China began digging North Korean mines in the early 2000s, I don’t think they have taken away a substantial portion of output already. Resources development is more of their policy goal,” Choi said.

“What’s more troublesome is not China’s resources exploitation but its virtual control over the region through management or development permits.”

In 2003, Choi led a landmark agreement to develop a graphite mine in the western town of Jongchon as chief of the inter-Korean cooperation unit at KORES. The state-run miner injected 6.25 billion won to extract up to 3,000 tons of graphite a year and take half of the output for 20 years.

Seoul, however, virtually banned all economic exchanges with and humanitarian assistance to Pyongyang after its sinking of a warship and shelling on a South Korean border island in 2010.

The so-called May 24 sanctions also had an impact on the Jongchon program. The South has let in a mere 850 tons of graphite thus far.

The Gaesong Industrial Complex is the only intact cross-border industrial project despite little expansion ever since.

“The measures provided a good lesson for companies on political risks of doing business in North Korea, That’s why major corporations like Samsung and LG have never ventured there,” Choi said.

Choi called on the next administration to roll out a North Korea policy that focuses on economic collaboration and can endure diplomatic ups and downs.

While stressing stern action to the communist regime’s nuclear development, Park Geun-hye reaffirmed last week that she would “leave open the window of dialogue including for humanitarian aid.”

Swiss-educated North Korean leader Kim Jong-un, for his part, will also slowly open up his reclusive country to the world and embark on reform once his power base becomes solid enough, he forecast.

“The South Korean government should use carrots appropriately to improve the investment environment together with the North,” Choi said, adding that the Gaesong complex may be a viable model for future projects.

“Now that the president-elect has pledged to build trust with them, I hope the two Koreas will reckon each other as a partner and cultivate more productive cooperation.”

By Shin Hyon-hee (heeshin@heraldcorp.com)