Tricky business of gold trading over the border

More than a century after American mining engineers first opened up North Korea's gold mines, a fortune in gold and other metals and minerals offers the prospect for North Korea to ease the pressures of financial sanctions. The question, however, is whether North Korea can navigate around a US Treasury order that forbids institutions doing business in the United States from dealing with Banco Delta Asia in Macao, the main avenue for North Korean fin-ancial dealings.

The ban, first promulgated in 2002, has effectively frozen Pyongyang's efforts to conduct international business. While it doesn't extend to gold, experts say that US officials have made it clear that banks should not buy North Korean gold.

"The US has been using sheer force to intimidate banks from dealing with North Korea," says Colin McAskill, chairman of Koryo Asia Ltd, which invests in North Korea through the Chosun Development & Investment Fund. "We want to get a breakthrough on the six-party talks by getting the sanctions eased or lifted entirely. We're at a very delicate stage." North Korea, says McAskill, "wants to move back into legitimate business."

Legal way out

Selling gold on the London market "is one way they can prove that," he adds. "They have a wealth of minerals - gold, silver, zinc, magnesite, copper, uranium, platinum - that needs investment to extract."

One indication of North Korea's need to sell gold was its decision to provide information needed by the London Bullion Market Association (LBMA) to list the North's central bank as a 'good deliverer' of gold and silver. Listing with the LBMA is essential for refiners who want to sell their products in London. The bank's listing was suspended two-and-a-half years ago when it failed to respond to LBMA requests for "proactive monitoring".

Despite the listing, experts say the big banks that are major buyers of gold - and form the LBMA's core membership - are not likely to flout the spirit of the US Treasury order against Banco Delta Asia.

The reluctance of buyers in London to deal in North Korean gold, widely seen as the likeliest legal way to mitigate the impact of the banking ban, adds urgency to another effort at six-party talks on North Korea's nuclear weapons.

North Korea has been renewing its drive to sell gold for the past year since submitting to the LBMA's monitoring requirements. At the same time, the North has sold relatively small amounts of gold in Thailand, with which it has developed a strong trading relationship in recent years. Last spring, North Korea exported 1.3 tonnes of gold to Thailand for nearly $30 million while also looking for markets elsewhere in the region.

"Why would you go to the trouble of going to London," asks Roger Barrett, whose firm, Korea Business Consultants in Beijing, is helping to develop gold mining in North Korea. "They are totally entitled to sell their gold."

Yet there have been no reports that North Korea has exported gold since testing long-range missiles in July. Since the North conducted an underground nuclear test in October, dealers have reportedly been even more reluctant to buy North Korean gold.

Estimates of North Korea's gold reserves range as high as 2,000 tonnes, but mining has been sporadic since British, American, and then Japanese interests mined for gold beginning in the 19th century.

With foreign expertise, North Korean mining may return to the period between 1983 to 1993, when its central bank sold an average of one tonne a month on the London market. "What we are doing is normal business," says Barrett in Beijing, explaining the efforts at reviving the mining industry. "We are creating jobs for people, in line with the UN basic charter, in line with economic growth."