The people of Pakistani Kashmir are sitting on a treasure chest: Millions of rubies, estimated to be worth up to half a billion dollars, are lying beneath them.

But archaic tools and a lack of investment in infrastructure and techniques are hampering efforts to transform the area into a significant player in the gem industry.

"We have rubies that are at least as good as the Burmese, but their mining techniques are more sophisticated", says Huma Rizvi, a dealer in precious stones.

Pakistani Kashmir has just one mine and one exploration site, where miners dig to assess the potential of the jewels below. But the region has proven reserves of more than 40 million grams of rubies, and inferred resources of nearly 50 million grams, according to geological surveys commissioned by the provincial executive.

Muhammad Azeem spends four months a year toiling in the Chitta Katha mine on the slopes of the Himalayas, which requires an eleven hour drive and then two hours walking to reach from Muzaffarabad, the capital of Pakistani Kashmir.

"I drill in the mine before the explosives are placed for blasting... It's a very hard job," the miner told AFP, using an old-fashioned perforator at the bottom of poorly ventilated tunnels.

It is back-breaking work with only occasional rewards -- last year workers discovered a ruby the size of an egg.

- Losing value -

Experts believe tapping into the gem reserve could transform the fortunes of a region home to four million people largely living off modest incomes. Yet precious stones currently account for less than one percent of Kashmir's tax revenues.

The federal authorities that administer this disputed territory do not have the funds to buy new machinery or to build more mines, explained Shahid Ayub, director general of the Azad Kashmir Mine and Industry Development Company (AKMIDC), a public company responsible for developing the local industry.

"Mining is done manually or by small blasts -- and we lose 40 to 50 percent of the value of the stones," he acknowledges. "Due to lack of investment, we are not making the most of our resources."

For Pakistani Kashmir's rubies and other mineral resources -- such as copper, gold and silver -- to contribute more to Pakistan's economy, there must be more investment in local expertise and development of a legal framework to support the mining sector, dealer Rizvi says.

But private firms are discouraged by the very rugged terrain and proximity to the Line of Control (LoC), the de facto border with India, where cross-border firings and scuffles are frequent.

Even the major international mining companies are reluctant to invest in Pakistan, which has been plagued by legal disputes over major copper and gold concessions in the southwest of the country.

Another issue is the lack of regulation, Rizvi explains.

"You are never sure you are paying the right person. Every area has different rules," she adds.

- 'It's your luck' -

The current approach is erratic and while the region's rubies are sought after due to their garnet colour, the stones extracted are of irregular quality.

"It's your luck," explains Mir Khalid, owner of one of the only gem stores in Kashmir. "Once you cut it, either you find a beautiful stone, or it is damaged and cracked."

Behind the wooden counter of his tiny stall, he keeps buried in the hollows of newspaper sheets and dusty plastic bags a handful of rough cut emeralds, a few pink rubies hardly polished, and tourmaline at various stages of finishing.

The jewellery industry in Pakistani Kashmir is still in its infancy, and limited by the fact that transportation of rough cut precious stones is prohibited in the region as a measure against smuggling.

Many gems are sold on informally and processed in Thailand or India, explains Imran Zafar, the director of a government centre set up to teach and train Muzaffarabad artisans.

Around him, a dozen craftsmen are busy around the saws and faceting machines attempting to shape the stones into desirable gems.

Under the skillful fingers of Abdur Rahmane, a small dull nugget turns into a bright pink gem.

"My favorite stones are ruby, sapphire and tourmaline," smiles the young graduate, who now earns his living by trimming jewels on demand.

He says: "With some practice, we'll shortly be able to compete on the international market."