NUUK – By a remote fjord where icebergs float in silence and hunters stalk reindeer, plans are being drawn up for a huge iron ore mine that would lift Greenland’s population by four percent at a stroke – by hiring Chinese workers.

The $2.3-billion project by the small, British company London Mining Plc would also bring diesel power plants, a road and a port near Greenland’s capital Nuuk. It would supply China with much needed iron for the steel its economy.

With global warming thawing its Arctic sea lanes, and global industry eyeing minerals under this barren island a quarter the size of the United States, the 57,000 Greenlanders are wrestling with opportunities that offer rich rewards but risk harming a pristine environment and a traditional society that is trying to make its own way in the world after centuries of European rule.

Great expectations could lead to greater disappointments, for locals and investors. Yet a scramble for Greenland already may be under way, in which some see China trying to exploit the icebound territory as a staging ground in a global battle for Arctic resources and strategic control of new shipping routes.

Whether in iron, zinc or rare earth minerals vital for 21st-century technology like smartphones, China, the emerging economic superpower is eyeing investments in the Danish-ruled country whose own, increasingly autonomous, national government is looking further afield for investors.

“This is not just a region of ice and polar bears,” Prime Minister Kuupik Kleist told Reuters in the capital Nuuk, formerly known by its Danish name Godthab. “Developing countries are interested in a more political role in opening up of the Arctic. Greenland could serve as a stepping stone.”

Talk in Europe or North America of a Chinese grand design to take over the Arctic is mocked as overblown by many in Greenland – an recent exhibition of cartoons recently in Nuuk featured one drawing of an iceberg, Greenland-shaped above the water line, and in the form of China below. Its caption: “Polar Paranoia”.

Compared to its investments in Africa or Latin America, Beijing has a light footprint in the Arctic. In Greenland, not one mining or oil project has yet got off the ground. Appetite for exploration is tempered by political polarisation, as Greenland’s leaders square off over how to regulate and tax new wealth under a self-government regime just three years old.

“There are great expectations in Greenland, but no results,” said Rasmus Ole Rasmussen, a senior researcher specialising in Arctic affairs at the Nordregio institute in Stockholm.

Nonetheless, transformation is approaching rapidly for a land still mostly inhabited by indigenous Inuits engaged in an economy dominated by fishing. And China may play a larger role in this than Europeans and North Americans find comfortable.

“It’s fair to say countries like China and South Korea are far more active than Americans and Europeans in showing their interest in investing,” said Kleist, who adds that the West, for which Greenland remains part of its Cold War-era NATO defence pact, can appear complacent, despite new geopolitical currents.

In Nuuk, home to 16,000 people on the southwestern coast, 1,000 sea miles north of Newfoundland, there are just two traffic lights. But new construction is everywhere: gleaming office buildings that house foreign companies and even a new mall where one can buy olives and French cheeses – for a price.

Greenland’s Bureau of Minerals and Petroleum (BMP) has now awarded overall some 150 licences for mineral exploration compared with only a handful in existence a decade ago, with around $100 million spent by companies last year alone. Oil companies have spent more than $1 billion in exploring offshore.

That includes exploration of rare earth minerals, used in products from wind turbines to hybrid-powered cars. China currently accounts for the vast majority of the world’s supply.

UNFROZEN NORTH

Greenland can look like ground zero for global warming. This summer many scientists were shocked as nearly all its massive ice sheet thawed. Hunters no longer prowl offshore ice that has grown too thin to support their dog sleds. A walrus was the talk of Nuuk this year, found drifting far south of its normal range.

But there also benefits from warmer weather – and it is not just dreams of growing strawberries and broccoli in the south.

With ice receding, some estimates suggest the polar ice cap may by 2040 be disappearing entirely during summer. Melting sea ice may open passages north of Canada and Russia and cut sailing distances by up to 40 percent between Shanghai and New York.

“Greenland used to be a big, white blob on the world map,” said Aleqa Hammond, an opposition leader and former foreign minister of Greenland. “Now we have a global role.”

But she criticised the government for keeping people in the dark about Chinese plans: “We see Chinese delegations everywhere and even the parliament does not know who they are,” she said. “We seen them in our hotels, in our fjords and on our streets.”

London Mining plans construction at the Isua iron ore deposit next year if Greenland gives the go-ahead. The project, which aims for finance from China, would ship some 15 million tonnes of iron ore annually from fjords near Nuuk to China.

CHINA’S GHOST

An icebreaker completed China’s first crossing of the Arctic Ocean this past summer, and diplomacy earlier in the year has also underlined China’s interests in the north Atlantic.

Premier Wen Jiabao began a tour of Europe in April with a visit to Iceland, population 320,000, where there has been much talk of a Chinese developer’s bid to lease a vast tract of land.

And it was little surprise when President Hu Jintao, leader of the world’s most populous nation, paid a three-day visit in June to Denmark, home to just six million people. Many assumed Greenland’s riches were on his mind, despite official denials.

Just days before, EU Industry Commissioner Antonio Tajani had flown to Nuuk to sign a letter of intent to cooperate with Greenland on its raw materials: “The letter of intent,” said one senior Greenland official, “Was a political message that we would not lock ourselves into to supplying China with minerals.”

In Greenland, Kleist spoke of European pressure, saying one EU politician had suggested he limit Chinese mining. The prime minister, whose nation is not part of Denmark’s membership of the European Union, refused, saying modern trading rules would not allow it: “Could the EU do that?” he asked. “Of course not.”

When U.S. Secretary of State Hillary Clinton visited last year, her bodyguards worried at the near absence of security measures in Greenland. But she had other things on her mind: “One of her first questions was, ‘What is happening about rare earths?’” said another Greenland government official.

One deposit alone, in southern Greenland, being explored by Australia’s Greenland Minerals and Energy, could contain more than 10 percent of the world’s deposits of rare earths.

Oil could have an even greater impact.

Energy consultancy Wood Mackenzie says Greenland may have reserves of 20 billion barrels of oil. The BMP says reserves may be equivalent to as much half of the entire North Sea.

Greenland has approved a sovereign wealth fund on oil-rich Norway’s model that would allow it to invest new earnings.

GREENLAND’S “HOLY GRAIL”

Yet a big question is whether such a tiny population can cope, and there are signs of local political unease that may hinder investment, whether Asian or Western.

Four hours north from Nuuk by ship, through melting icebergs and passing whales, lies Maniitsoq, a symbol both of the hope foreigners bring and a reality check for Greenland’s ambitions.

U.S. giant Alcoa Inc is considering building an aluminium smelter there, strategically sited between European and North American markets. It would entail the import of thousands of workers, possibly from China.

The smelter would be fed from mines as far apart as Brazil and Australia and shipped out as aluminium to the world market. Alcoa has not decided to go ahead. Among several pending issues, it wants to see whether cheaper foreign labour will be allowed.

After it won greater self-rule in 2009, an annual grant from Denmark which has covered more than half of Greenland’s public spending was effectively frozen at around 3.5 billion Danish crowns ($600 million) and will shrink in real value over time.

“There is a need to become independent economically,” said Naaja Nathanielsen, a Greenland lawmaker. “Most people see it not as opportunity, but as necessity.”

Villages like Maniitsoq are dotted along Greenland’s western coast, relying on state subsidies for heating and communications. Unemployment is high and alcoholism rife.

Much of the Maniitsoq fisheries industry has vanished. Locals say shrimp have moved north as southern waters warm. The town is huddled on an outcrop of windswept rocks with Soviet-style housing blocks, empty streets and a few downtrodden bars.

“We need a Big Bang here,” said Karl Lyberth, deputy major in Maniitsoq. “Alcoa is the only project that can help us.

The town’s population, now 2,715, has fallen by around 200 in a decade. Few will speak against Alcoa, though a local hotel owner made headlines that were uncomfortable for some by saying the town would need a brothel for workers building the smelter.

“It was only half a joke,” said Soren Lyberth of the Heilmann Lyberth Hotel. “But people don’t want to talk about it.”

He touched a sore point in Greenland – some fear that the country cannot absorb so many dollars and foreign workers, and that untrained and poorly educated Greenlanders will lose out.

“They think the holy grail is Alcoa, but it’s not true,” said Jens Moller, head of a community training project in Maniitsoq. “It could bring a lot of problems.”

ENVIRONMENTAL HESITATION

Locals also debate bringing in 2,000 Chinese workers to Nuuk for London Mining, and whether Greenland should let foreign employers undercut local wages. Such arguments stall projects.

To the dismay of investors, a consensus behind foreign companies has frayed. The opposition is calling for more taxes on miners. Environmentalists demand more consultations.

“We need more royalties,” said opposition leader Hammond. “The polluter should be paying.”

The leftist, pro-independence coalition led by Kleist has more technocratic ministers than a previous government criticised by opponents as nepotistic and inward-looking.

But Kleist, born to an Inuit mother and Danish father in a now abandoned mining village, is aware of communities’ problems and his coalition is split on whether to let in low-paid foreign labour. Several mining executives and Greenland officials expressed frustration at the slow pace of projects.

“Our dream is about to come true,” said one senior Greenland official, who spoke on condition of anonymity. “But people are getting nervous, asking whether they are ready for this.”

Take rare earths. Because they are massed with uranium, neither could be mined without ending Greenland’s prohibition on extracting radioactive materials – a policy inherited from Denmark. Greenland’s politicians are split on the issue.

“The policy of zero tolerance is the main issue for us,” said Ib Laursen, operations manager at Greenland Minerals and Energy. Only by ditching the ban could his project be feasible.

Today there is only one operational mine in Greenland, a gold deposit, which opened in 2004. Oil drilling in 2010 and 2011 has failed to yield any discoveries despite a $1.2 billion campaign led by Britain’s Cairn Energy [ID:nL5E8CN0BI].

While Greenlanders wait for any bonanza to start, the notion that it may bring Chinese dominion seems far-fetched to many in a country whose European links stretch back a thousand years to Viking colonists and whose ties to the Americas include the Cold War-era U.S. Thule Air Base, deep inside the Arctic Circle.

Some analysts say China’s role in Greenland is exaggerated – and that its ambitions are more economic than geopolitical:

“Many non-Arctic countries, like in Europe, are seeing ghosts and troubles ahead,” said Rasmussen at Nordregio, describing such fears as having “little to do with reality”.

Greenland’s prime minister also stresses the limits to his ambitions for the pace of development: “Our situation is uncertain,” said Kleist. “I would say five projects in 10 to 15 years are realistic in terms of the global economic situation and the capacity of Greenland society.”

Among capacity constraints are concerns over its ability to protect an ecosystem which, global warming aside, is largely unsoiled by human industry. Some big oil executives say it is simply not worth the risk of a spill to drill in a region where its effects could be devastating and clean-up facilities scarce.

For Mikkel Myrup, chairman of local environmental group AvataQ, the country is unready for industrial development: “Greenland simply does not have the regulatory capacity to take responsibility for monitoring the industry,” he said.

Standing on a cliff in Maniitsoq, hotelier Lyberth has put off building a new hotel with a view of snow capped mountains. Alcoa and its foreign executives, for the moment, seem far away.

“This is my dream,” he said, smiling as he pointed to a barren piece of flat rock where the hotel would be.

“But so far it’s only a dream.”