[Overseas Resource Fire Sale] Korea Backs Off as Mineral Prices Soar... Global Resource War 'Backtracking'

Post-COVID-19 Economic Recovery Expectations
Prices of Key 4th Industrial Revolution Resources Like Lithium and Nickel Rise Over 10% in a Month
Japan Triples Resource Exploration Budget in 4 Years... China Invests $10.7 Billion in M&A Last Year
Experts Point Out Government Policy Consistency: "View Macroscopically and Invest Steadily... Support Private Overseas Resource Development Too"

[Sejong=Asia Economy Reporters Haeyoung Kwon and Sangdon Joo] The government's decision to withdraw from Korea Resources Corporation's development project of the Santo Domingo copper mine in Chile is drawing attention as a signal for future overseas resource sales. In a situation where demand for materials and components is rapidly increasing due to the so-called 4th Industrial Revolution, resources are gradually becoming weaponized. However, there are criticisms that categorizing mines purchased overseas by the previous administration as 'deep-rooted evils' and canceling them does not benefit national interests. Experts advise that through 'sorting the wheat from the chaff,' valuable overseas assets should be maintained even if it requires additional tax investment, and future resource development policies should be centered on the private sector with the government providing policy and diplomatic support.

◆Raw material prices soaring... Government reduces overseas mines of Korea Resources Corporation=Prices of raw materials such as lithium, nickel, and cobalt, which are considered key resources for the growth engine of the 4th Industrial Revolution, as well as thermal coal and iron ore, have rapidly fallen after the COVID-19 outbreak but are recovering quickly. Lithium recently reached 84 yuan per kilogram, more than doubling compared to last year's average, and iron ore prices rose over 54% from $108.0 to $166.8 per ton. Nickel, a key mineral for electric vehicle batteries, was priced at $16,001 per ton as of the 1st of this month, up $2,212 (16.0%) from last year's average of $13,789. Cobalt prices also jumped 59.5% from last year's average of $31,419 to $50,105. The increase in demand for various ores, essential raw materials for industry, is largely due to expectations of economic recovery.

Despite rising mineral prices, Korea is withdrawing from overseas projects one after another. Korea Resources Corporation recently sold its 30% stake in the Chilean copper mine without recovering even half of its investment principal and is also pushing to sell its entire stake in the Wyoong thermal coal mine in Australia. The corporation holds an 82.25% stake in the Wyoong thermal coal mine through its Australian subsidiary. Additionally, stakes in the Ambatovy mine (33%) in Madagascar, where nickel is produced, and the Boleo copper mine (76.8%) in Mexico are also up for sale.

The government states that it can no longer bear the snowballing losses from Korea Resources Corporation's overseas resource projects and believes that selling now will reduce losses. The corporation plans to sell all resource development investment projects and reduce its debt from 6.9315 trillion won as of last year to 3.8311 trillion won by 2024.

◆China and Japan increasing resource development investments... "Need to sort valuable assets from the rest"=However, prioritizing the prevention of public enterprise insolvency in a situation where raw material prices are soaring is criticized as short-sighted.

Countries such as China and Japan are already focusing on securing key resources to the extent of a resource war. Japan increased its overseas resource exploration budget to $19.6 million last year, more than tripling from $6.5 million in 2016. Around 20 private companies, including Sumitomo and Mitsubishi, are accelerating overseas resource development projects. China invested $10.7 billion last year in mergers and acquisitions (M&A) or equity acquisitions of overseas resource development companies, with an overseas resource exploration budget in the $300 million range. The United States, from former President Donald Trump to President Joe Biden, has signed executive orders to secure rare earth elements, showing bipartisan efforts to secure key resources.

A government official explained, "Resource development requires various development know-how and advanced financial techniques, but domestic public enterprises lack expertise," adding, "Due to severe insolvency of resource public enterprises, it may be better to sell now when mineral values have risen due to raw material price increases."

Currently, the combined debt of Korea's three resource public enterprises?Korea National Oil Corporation, Korea Gas Corporation, and Korea Resources Corporation?reaches 56 trillion won. Both the Oil Corporation and Korea Resources Corporation are in capital erosion.

Experts advise that since Korea has paid a high tuition fee to gain resource development know-how, it is urgent to establish resource policies that are not swayed by administrations. The resource diplomacy driven by the Lee Myung-bak administration became a target of audits under the Park Geun-hye administration and is now being completely canceled under the current government. While the overheated resource diplomacy of the Lee Myung-bak administration was problematic, the current government's move to sell all overseas resources of Korea Resources Corporation under the pretext of normalizing insolvent public enterprises is also criticized. This rush to sell resources is interpreted as an attempt to erase the 'shadow' of the previous administration.

The first 'Basic Plan for Overseas Resource Development' was established under the Kim Dae-jung administration, and the investment in the Boleo copper mine in Mexico, which the current government is pushing to sell, was decided during the Roh Moo-hyun administration.

Professor Yanghoon Son of Incheon National University's Department of Economics said, "Korea is a highly industrialized country but lacks energy and resources, so it must develop resources overseas," advising, "In the long term of 20 to 30 years, resource development is one of the most profitable businesses, and since it acts as a hedge when prices rise in the future, it should be viewed macroscopically and invested in steadily." He added, "Since domestic large companies have considerable demand for overseas resource development, the government's role is to support private companies," emphasizing, "The government should continue overseas resource development policies through diplomatic support, deregulation, and financial assistance."