Part of me wants to end the article there.
It should be obvious that it’s premature. But I see ridiculous numbers back in the news cycle, like the $6 trillion in minerals North Korea could have.
I know people will be tempted to count their chickens before they hatch. It would be before the hen even lays the eggs, in this case.
But first, let me clarify that I’m not bashing Trump here when I call for caution. I understand that the document he signed with Kim is only an agreement to move towards denuclearization. I understand that it lacks specifics and that it could well be torn up tomorrow.
It’s still a historic first, no matter how you spin it.
And the mainstream media are spinning it with all their might. They constantly deny the existence of liberal media bias, but there simply is no other way to explain the gusher of negative headlines about the Trump-Kim summit. If Obama or Clinton had achieved the same results, the press would have been flooding the world with accolades and calls for a Nobel peace prize. Heck, Obama did get a peace prize—for merely intending to do something deemed good.
The mainstream spin machine is spun up so fast, it makes me nauseous just watching from the sidelines.
All of that said, this is North Korea we’re talking about, and a man known as a brutal and mendacious dictator. On this basis alone, it’s premature to speculate about a possible peace dividend. Even for contrarians, it’s a trend to watch—at least for contrarian speculators, not mere gamblers.
In the investment world, getting in too early is the same as being wrong.
There is Precedent
But there’s more to this story, including recent history. Remember the breathless reports back in 2014 about the trillions of dollars of minerals in Afghanistan now available for development? As I said then, it was foolish to the point of dishonesty to put a value on those minerals. They weren’t even identified, let alone defined to the point where valuation was possible.
But never mind that; it was bleepin’ Afghanistan!
There was no rule of law, no established system of mineral rights, no permitting process—and that’s not to mention the complete lack of physical security.
Can you imagine a bunch of North American geologists running around the Afghan countryside with their rock hammers, footloose and carefree? Fortunately, serious people in the industry saw this foolishness for what it was. Otherwise, it would have been a bloodbath.
Now, North Korea is not Afghanistan. And I’m not disputing that both undoubtedly have mineral resources. But North Korea has no rule of law. The iron fist of a dictator is not what’s meant by the term. Rule of law places the law above the rulers, which is the opposite of the situation in North Korea.
As for an established system of mineral rights and a workable permitting process, frankly I don’t know what the situation is. But I do know that whatever it is, it can’t be trusted until there is rule of law. Most likely, there’s nothing reliable in place, and it will take years of peacetime work to establish the necessary framework.
And regarding physical security, North Korea has a track record of arresting foreigners whenever it pleases. There aren’t enough famous basketball stars who also happen to be geologists to use that “get out of jail free” card.
Wild Gamble or Smart Contrarian Move?
One might counter my argument that diving into North Korea now is a wild gamble, not a calculated speculation, by pointing to famous contrarian speculators like Bill Browder. He went into former Soviet countries before anyone else would dare, and bought assets for pennies on the dollar. As a result, his Hermitage Fund was a spectacular 10-bagger.
But Browder went in after the collapse of the Soviet Union. North Korea’s dictatorship hasn’t fallen yet. Eastern European countries were already setting up their new frameworks, including rule of law and privatization of assets. North Korea hasn’t even begun this process yet.
Furthermore, Browder bought assets that had defined and measurable value. Possible mineral resources that haven’t even been discovered yet have zero measurable value.
Not only that, Browder had to fight against corruption to the point of risking assassination in order to succeed. There were, in fact, casualties, including Sergei Magnitsky.
I’m not criticizing, by the way. I think Browder is a hero who has done great good, both for his investors and for the people of the world. And I greatly admire his courage.
My point is that what Browder did in Russia is not the sort of business plan the average resource company—even the biggest and most experienced of them—can reliably replicate.
You may soon see companies touting their new missions to exploit the vast, undiscovered riches of North Korea.
Just remember Afghanistan.
There were outfits saying in 2014 that they would do the same in Afghanistan… And how’s that going for them?
When the time is right, I will move into such new markets. That’s not today, but I will let my readers know when the day comes.
For now, you’ve been warned.
Wednesday, June 13, 3:17pm, EDT, 2018