Experience and Goals of the ROK in Regional Mineral Sector Development Cooperation

1. Nautilus Institute – East Asia Science and Security Project Meeting Experience and Goals of the ROK in Regional Mineral Sector Development Cooperation September, 2010 Chung, Woo Jin Senior Research Fellow

2. Table of Contents I. Supply & Demand of Mineral Resources in ROK II.Overseas Activities and Policies for Mining Investments

3. I. Supply & Demand of Mineral Resources in ROK

4. 1. Reserves of Mineral Resources • ROK has very few mineral resources as it has few energy resources • Non-metallic resources, including limestone are more reserved than metallic resources <Reserves of Mineral Resources in Korea> Source : Korea Resource Cooperation(KORES), 2009.12

5. 2. Demand & Supply of Mineral Resources • ROK is dependent most mineral resources on overseas countries • The ratio of domestic supply for demand : Metallic 1.17%, Nonmetallic : 68.49 % <Balance of Mineral Resources in Korea, 2009> (Unit: billion won) Note : 1. The numbers are based on current prices., Excluding coal. 2. Gold and silver is also obtained from refinery processes of other minerals. 3. Self-sufficiency rate = (B/A) × 100 (%)

6. 3. Major mineral resources in demand and production • Metallic ores like iron, copper, gold and zinc are major consuming minerals inROK • On the other hand, major producing resources are nonmetallic ores • - Limestone is the most major mineral resource that ROK produces <Production Shares of Mineral by Type of Mineral ores> <Demand Shares of Mineral by Type of Mineral ores>

7. 4. Trend of Mineral Import • Import cost has highly increased as world mineral prices have risen since 2006 • Last year, due to the global economic recession, the import decreased but will rebound this year <ROK Self-Sufficiency by Type of Mineral Ore> <Imports of Mineral Ores by South Korea> Metallic Minerals Billion USD Iron 0.75% Copper 0.00% Zinc 0.27% Lead 0.25% Nickel 0.00% Tungsten 12.80% Molybdenum 2.83% Non Metallic Minerals Graphite 0.14% Magnesite 0.00% Limestone 98.93% Kaolin 93.49% Fluorite 0.00% Barite 0.00%

8. 5. Major minerals and countries for importing • Major importing ores : Iron, Copper, Gold, Zinc, Lead • Major exporting countries to ROK : Australia, Brazil, Indonesia, Chile, Peru <Importing ratios by Type of Mineral ores> <Import costs of Mineral ores by Countries> million USD

9. 6. Strong downstream Industry of Minerals Steel • World’s 6th steel producing country* POSCO : world’s 4th steel producer • Annual production capacity : 62 million tons • Exports (2009) : 39 million tons Zinc • World’s 4th smlted zinc producing country* Korea Zinc Co. : world’s 1th zinc refiner • Annual production capacity : 980 thousand tons • Exports (2009) : 409 thousand tons Copper • World’s 2nd smelted copper producing country * LS Nikko : world’s 2nd copper smelter • Annual production capacity : 58 thousand tons • Exports (2009) : 14 thousand tons

10. 7. Overview of the Mining Industry and Policies in ROK • Mining is very small industry in Korea : 0.15% of GDP(2009) • ※Total number of employee : about 3,200 (2009) • Due to the high labor costs and strict environmental regulations, many • mines have closed and the industry has contracted • ※Number of operating mines : 620(‘95) → 540(‘00) → 451(‘07) • Korea has pushed its policies for the overseas development of mineral • resources stronger than ever as the mineral prices have risen since 2006 • ※Korea started overseas development businesses in 1978

11. I. Overseas Activities and Policies for Mining Investments

12. Oceania(35 projects) Australia(31), Papua New Guinea(3) New Caledonia(1) Central Asia (12 projects) Africa(18 projects) Cameroon (6), Ghuna(3), Tanzania(3), Zimbabwe(1) South Africa(1), DR Congo(1), Chard(1), Madagascar(1) Kyrgyz(6), Kazakhstan(4), Uzbekistan(3) 1. Mining Development Projects by ROK’s Companies • As of Dec. 2009 N. America(14 project) Canada(11), USA(3) North East Asia (52 projects) Mongol(28), China(24), Russia(5) South East Asia (56 projects) Indonesia(26), Cambodia(10) Philippine(9), Laos(5), Malaysia(2), Sri-Lanka(2) Thailand(1), Myanmar(1) Central &South America (25 projects) Peru(13), Bolivia(4) Argentina(3), Mexico(2), Ecuador(1), Brazil(1), Venezuela(1),Costa-Rica(1) • Production (41) • Development (61) • Exploration & Survey (117) * Mining Development Projects in 39 countries ( ) : number of project

13. 2. Trends of Overseas Mining Investments • Since 2006, investment to overseas E&P(Exploration & Production) of the mineral resources • has sharply increased • Public mining company (KORES)has invested to E&P more than private companies since 2006 <Share of Public Company in Overseas Mining Investment> <Overseas Mining Investments> Million USD (Before 2006) (After 2006) * Public Mining Company in Korea : KORES

14. 3. Major minerals for overseas investment • ROK has mainly invested to the E&P businesses for six important minerals • - Six important minerals: Coal, Iron, Uranium, Copper, Zinc, Nickel • ROK recently increases the investment of rare metals as their supplies are expected to be tight • in the future <Ratio of Overseas Investment by Type of Minerals> <Ratio of Overseas Mineral production to Mineral Import by major minerals> (2009, Cumulative) (as of Dec. 2009)

15. 4. Major countries for Mineral Investment • Australia is the most invested country, Indonesia, Madagascar, Brazil are followed • ROK intends to increase the investment in Africa and Latin America more than other regions <Share of MiningInvestment by Regions> <Major Countries for MiningInvestments> (2009, Cumulative) (2009, Cumulative)

16. 4. Government Roles and Policies toward Securing Mineral Resources • Koreangovernment has changed its role in securing overseas mineral resources • from a financial supporter to an active participant as the high price, tight supply • threatened a resource security Increase Financial Incentives • Increase government budget and increasing tax benefit for E&P • Expand Ex-im bank loan program and loan guarantee program for the risky E&P projects Foster infrastructure for E&P • Provide government Fund to the universities which are specialized in the E&P departments • Increase R&D investment for E&P technologies and expanding information for E&P business Strengthen Public Company’s role in Overseas E&P business • Increase capitals of KORES for its leading role over investing large scale projects with private companies • Transfer the KORES’ s main role from supporting private mining companies to direct investment company Strengthen Cooperation with Resource Rich Countries • Establish resource cooperation committee with resource rich countries • Vitalize diplomacy through the meetings of high-level officials

17. 5. ROK’s Strategies for securing overseas resources Pursue M&A and joint development with foreign E&P companies • Korea can be a good partner as a buyer of large scale of mineral resources Build a human network with resource rich developing countries • Increase mutual understanding through implementing wide exchange programs • Share experience in development of resource sector Enhance partnership in downstream sector of energy and resources • Power plant, oil refinery, gas pipeline, steel mill , smelting facilities of metallic minerals