Seniority Moment
The Board of Audit and Inspection of Korea (BAI) recently announced that the Korea Resource Corporation (KORES) has gone at least 200 billion won into debt from a resource development project in Mexico by reporting an exaggerated price-earnings ratio (PER).
The board of directors of KORES approved an investment increase of US$250 million in 2012, overlooking the exaggerated PER.
When the company then faced private investor opposition to the increased investment amount, it submitted an arbitrary percentage of investment without negotiation to the board of directors and received approval.
But as the private investors invested only the promised amount in the contract, KORES ended up financing about 80 percent of the investment themselves, resulting in 230 billion won (US$226 million) of debt, BAI announced.
BAI Orders KORES to Reexamine Bolero Project
So BAI ordered Ko Jeong-sik, CEO of KORES, to overhaul the Bolero copper mine project and requested suspension of the four team leaders who were involved in manipulating the economic analysis.
This result was already easily foreseeable. Last October during a government office inspection, the inspector suggested that KORES stop investing in the project and write off the 782.9 billion won (US$770.7 million) already invested, because the project was considered to be insoluble.
Assemblyman Bu Jwa-hyeon criticized, “The Bolero copper mine project is the perfect example of showing how flawed global resource development projects can be – those projects planned back in the MB administration which only paid attention to performance.”
The Bolero project has suffered from a lack of careful examination from the beginning, as every aspect of the reserve evaluation submitted by Baja Mining of Canada, the original owner of the copper mine, was accepted at face value.
In 2008, Baja Mining relinquished its 70 share of the Bolero mine, and in October of the same year, KORES invested US$932 million to acquire that 70 percent share.
KORES is being criticized for being allowed to go overboard on the project via sloppy oversight because the former and current CEOs are senior officials from the Ministry of Trade, Industry and Energy (MOTIE).
Both the current KORES CEO Ko Jeong-sik and former CEO Kim Shin-jong are former high-level officials of the MOTIE, giving them both professional and social seniority, and therefore excessive influence, over the current head of the MOTIE, Yun Sang-jik, which is responsible for government oversight of KORES.