Asia Pacific irons out Udon North wrinkles (December 13, 2004)

The Thai government has assured Asia Pacific Resources (APQ-T) of priority over most of the land held under its special prospecting licences for the Udon North potash deposit.

Late last year, the Thai Department of Primary Industry and Mines (DPM) questioned Asia Pacific’s right to extend or renew the licences. Asia Pac says the government has since advised it that it is now in compliance with the terms of its concession agreement, and has accepted the company’s application for a mining lease.

The Udon North project is home to an indicated resource totalling 175 million tonnes grading 19% K2O, with an average thickness of 12 metres. An additional 490 million tonnes of 16.5% K2O are classified as inferred resources, and also average 12 metres.

The project still requires an approved environmental impact assessment (EIA) and other government approvals.

Meanwhile, at Udon South, Asia Pac says processing of its mining lease application is taking longer than expected. The company says the delay reflects the fact that the application is the first for an underground mine in Thailand, and the first application since the country revamped its mining laws earlier this year.

Asia Pac applied for the lease in May 2003 and hopes to receive it early next year. Those hopes were bolstered by the creation of a senior-level potash industry committee that reports directly to the country’s prime minister.

In May, the company updated Udon South’s economics to reflect rapidly rising potash prices in South China, its target market. Based on an estimated price of US$163 per tonne, Asia Pac figured the project’s then net present value had jumped to US$291 million and the internal rate of return, to 27.8%. Delivery costs to South China were pegged at US$86 per tonne.

Resources at Udon South stand at 302 million tonnes of sylvite ore grading 23.5% K2O, with a 30-million tonne core area running 26.8% classified as measured and indicated. Plans call for initial production of 1 million tonnes of potash annually, with a doubling of capacity planned as the company’s market share grows.

Capital costs for the initial stage are estimated at US$308 million, with another US$221 million (from cash flow) required for expansion. Udon South already has an approved environmental impact assessment, and the company has completed all technical studies.

Udon South is held under a joint venture with Chinese state-owned Enterprise Investment; Asia Pacific has a 90% interest in the project and is working to arrange long-term offtake commitments and US$300 million worth of financing to cover the initial capital costs. Production is expected by 2008.