Resources development rush boosts revenue, fund investment

Korean firms’ aggressive drive to explore overseas resources is shoring up their revenue and helping them secure a stable supply while boosting public demand for commodity investment products.

Natural resources such as oil, gas and rare metals have been deemed a promising revenue source by companies including POSCO, STX and Hyundai Heavy Industries amid energy price surges.

The developers are setting up mining ventures, purchasing stakes in foreign energy firms and taking part in exploration projects in Africa, South America and other regions as part of their efforts to access untapped reserves there.

POSCO, the world’s No. 4 steel producer, is jointly developing an iron ore mine in Cameroon with local miners. In Zimbabwe, it plans to launch a mining venture with local firm Anchor Holdings this year to develop iron ore, coal, chrome, nickel and other raw materials.

The steelmaker has also agreed to jointly develop a coal mine in Tete province of Mozambique with Vale SA, the world’s second-largest miner based in Brazil.

POSCO has been striving to buy coal and iron ore mines in Australia, Canada, Brazil and other countries in a bid to ensure smooth supplies for its steel-making operation and to prop up its self-sufficiency rate in raw materials to 50 percent by 2014.

In August, POSCO acquired a controlling stake of Daewoo International Corp. for 3.37 trillion won ($3.11 billion), spurring its resources initiative as the Korean trading firm holds shares in six foreign mineral development projects and eight oil and gas projects.

It is pushing further to become an all-round materials leader by branching out into metals like magnesium and lithium, as they emerge as next-generation materials for automobiles, aircraft and electronics.

Early this month, the company reached an agreement with Peru-based Li3Energy for lithium mining in Chile. It has also been leading the Korean government’s project to develop magnesium alloys for transport.

“The company plans to increase annual sales of magnesium products to 3 trillion won once the project is complete in 2018,” a POSCO spokesman said.

STX Group, a Korean shipbuilding and trading conglomerate, unveiled its vision last month to cash in 30 trillion won on its energy and resources business by 2020, which makes up a quarter of total annual sales.

Sales of the segment reached 2 trillion won last year, accounting for about 7.5 percent of the total.

With its affiliate STX Energy at the forefront, the group is currently investing in coal, gas and nickel fields in eight countries including the U.S., China, Uzbekistan and Madagascar.

DSME Energy & Resources, a unit of Daewoo Shipbuilding & Marine Engineering, is establishing facilities for floating processing, storage and offloading liquefied natural gas in Papua New Guinea.

The offshore plant is estimated to produce up to 3 million metric tons of LNG a year, the shipbuilder said, equivalent to about 15 percent of the country’s annual gas needs.

When construction is completed in 2014, Daewoo will run the facilities together with Papua New Guinea’s state-run energy firm Petromin PNG Holdings and Norway’s Hoegh LNG.

DSME E&R is targeting sales of 4.2 trillion won by 2020, more than 22-fold 182 billion won last year, it said.

Hyundai Heavy Industries, the world’s top shipbuilder, also joined the race last month by setting up Hyundai Energy & Resources in a joint effort to propel its resource development drive with Hyundai Corp., Hyundai Mipo Dockyard and Hyundai Oilbank.

The new subsidiary will take over Hyundai Heavy and Hyundai Corp.’s 11 resource development projects in eight countries, Hyundai Heavy said, including a nickel-mining project in Madagascar and LNG project in Yemen.

The Ministry of Knowledge Economy said earlier that about 25 local firms were expected to more than triple their investment to $7 billion in developing overseas minerals this year, compared with about $2.2 billion in 2010.

Of the total, nearly 40 percent would be spent on coal, largely by POSCO and the state-run Korea Electric Power Corp.

Such initiatives would lift sales of the companies in line with prices of resources, officials said, and lure institutional and individual investors into the energy sector.

According to the ministry, the amount of fund investment in overseas resources has reached $380 million since October, and investment destinations have become diversified to include the U.S., Central Europe and Southeast Asia.

In particular, two new fund products launched last year that invest in public enterprises have drawn $130 million, the ministry said, as state-run companies such as Korea Resources, Korea National Oil Corp. and Korea Electric Power Corporation step up their overseas energy development.

“There is a resource development boom in all industries as prices of traditional natural resources such as oil and LNG are on the rise, and heads of large companies facing limits to growth found out breakthroughs in their energy-related businesses,” an official in the heavy industry said.

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