North Korea holds gold mine of protection

SEOUL — North Korean leader Kim Jong-il is positioned to escape the effects of international sanctions imposed on his regime by legally mining and selling gold on world markets, said investors and others dealing with his government.

About 1.3 tons of gold bullion, valued at $28 million, were sold to Thai interests in two shipments delivered in April and May, Reuters news agency reported yesterday, quoting Thai customs officials.

The United Nations imposed sanctions in response to North Korea Oct. 9 nuclear test. Although the sales of gold bullion were concluded months earlier, they would not have been covered under the sanctions in any case, analysts said.

Macau-based Banco Delta Asia, or BDA, said this month that it had been selling North Korean gold for three years before the U.S. Treasury Department named the bank “a primary money laundering concern” in September 2005.

Gold exports from North Korea are nothing new: From 1983 to 1994, the communist nation exported a ton of gold a month via London markets.

Although production fell off in the 1990s, rich seams wait to be mined. King Kojong, Korea’s last independent king, sold concessions for gold mining at Unsan, in the nation’s far north, to U.S. interests in the late 1880s.

Japanese colonial businesses took over the mines in the 1930s. After the country’s division, the North Korean seams were operated with Russian and German technological assistance.

“It is widely known that they have very substantial reserves,” said Colin McAskill, a British national who was involved in North Korea’s bullion business in the 1980s and 1990s. “The problem is that most mines are inoperative due to lack of capital and flood damage in the early 1990s. They must be producing again, to a limited extent.”

Small-scale foreign investment has begun in North Korea’s gold mines.

“We helped facilitate the entry of a Singapore-led investor group into the country’s leading gold mining joint venture in 2002,” said Roger Barrett, another Briton who runs Beijing-based Korea Business Consultants, which assists foreign businesses in the North. “But what the country needs is investments in mining the mineral and metal resources, which it has in abundance.”

Larger investments could be forthcoming.

Mr. McAskill is the chairman of Koryo Asia Limited, the originator of and sole investment adviser to Chosun Development and Investment Fund, established last year to invest in North Korea.

“One of the priorities of the fund we are setting up is to redevelop the gold mining and other mineral industries, and bring the product back through London,” he said.

Mr. McAskill added that the nation’s central bank is moving to re-list itself as an active gold trader on the London bullion market. If North Korea successfully upgrades production at its gold mines, the regime would have a legitimate way to overcome the effects of international sanctions designed to cut off its access to foreign hard currency.

When six-party talks resumed in Beijing last week, Pyongyang refused to discuss its nuclear weapons programs until what it calls “financial sanctions” are lifted.

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