SOUTHEAST ASIA SPECIAL — Asia Pacific Resources develops Thai potash project

Potash may not be as sexy as gold, but Asia Pacific Resources (TSE) has nevertheless seen its issue jump from a trading level of $3 per share at this time last year to a recent high of $11.

The company’s market capitalization is roughly $540 million, based on 49.5 million fully diluted outstanding shares.

The rise in the company’s fortunes is related to the expanding size of the potash resource at its 62.5%-owned Udon Thani project, 500 km north of Bangkok, Thailand. Thai Central Chemical holds the rights to a 27.5% interest in the property, while the Thai government retains the balance.

Asia Pacific is conducting a prefeasibility study for a

2-million-tonne-per-year underground mine there.

Most of the exploration work at Udon Thani has concentrated on the Somboon area, where 55 drill holes have outlined a resource of 325 million tonnes grading 25% potassium oxide.

The drilling is widely spaced at 500-metre intervals, but the company is confident the deposit is continuous between holes.

The flat-lying deposit averages 4 metres in thickness, covers a lateral extent of 40-50 sq. km and lies about 300 metres below surface. Additional drilling to the southeast of Somboon intersected sylvinite mineralization, and the company expects the resource to expand.

In addition, the company has drilled 40 holes on the Udon field, north of Somboon, and has outlined three sylvinite zones there. Each zone is smaller in area than Somboon, but is three times as thick, with measurements of 12-13 metres.

Although estimates are still preliminary, the company sees the potential for a global potash resource in the order of 1 billion tonnes, at a grade similar to that of Somboon, within the Udon field.

Asia Pacific also conducted reconnaissance drilling over an area covering 400 sq. km in the region north of the two known deposits. The drilling returned mixed results from a geologically complex environment, and the area is believed to have limited potential.

Preliminary metallurgical work on samples from the Somboon and Udon fields returned positive results for both flotation and electrostatic separation.

Bulk samples from both fields are being collected for further process testing in Saskatchewan.

In addition to the positive metallurgical results, hydrogeological tests indicate that water ingress would not hamper a mining operation.

The concession surrounds Udon Thani, a city of 1 million, while the two deposit areas are a few kilometres to the southeast. Asia Pacific reports that water and power supplies can sustain a future mining operation.

In addition, the Thai government is improving the existing narrow-gage rail line that connects the property to the port of Map Ta Phut.

The company is conducting further studies of transportation options for the project, including cost and appraisal of the ultimate capacity of the rail link to the port.

A preliminary marketing study to assess potash pricing, supply and demand, as well as to identify key markets and review principal suppliers, is also under way.

Potash is used to describe the group of potassium salts and commercial products made from them.

Potassium, an essential plant nutrient, is produced from several potash ores, particularly from sylvinite, the ore type at Udon Thani. Sylvinite is a mixture of common salt and potassium chloride and, like other potash ores, is formed from the remnants of ancient marine environments in large evaporite basins.

Potash ores and minerals are measured by their equivalent weight of potassium oxide. Pure potassium chloride (or potash) is equivalent to 63% potassium oxide. Potash grades around the world range up to 20% potassium oxide, though the potash mines in Saskatchewan grade in the range of 22-24% potassium oxide.

The cost of transportation is a significant factor in the mining and marketing of any bulk commodity. Asia Pacific believes the location of its Udon Thani project gives it a significant advantage because of its proximity to China and India, where 40% of the world’s population resides.

Canada is the largest supplier of potash to Southeast Asia, and transportation costs from Saskatchewan to Shanghai exceed US$50 per tonne of potash. In comparison, Asia Pacific estimates the cost of transporting its product to the port of Map Ta Phut, 600 km south of Udon Thani, at no more than US$15 per tonne. Transport costs to Shanghai are estimated at US$30 per tonne.

The current price of potash is roughly US$140 per tonne.

Udon Thani’s size, grade and favorable location have prompted several mining analysts, including Sam Kanes of Scotia Capital Markets, to rate the issue a buy.

Kanes’ preliminary estimates put the capital cost of a

2-million-tonne-per-year mine at US$400 million, and the cash production cost, before transportation expenditures, at US$35 per tonne.

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