Asia Pacific advances Thailand potash project

Asia Pacific Resources (APQ-T), which is in the midst of reviewing a bankable feasibility study of the Udon Thani potash project in Thailand, has made several recent developments at the project.

The Vancouver-based junior now holds an 88.9% interest in Asia Pacific Potash, the Thai company holding sole rights to explore, produce and market potash from the 1,730-sq.-km Udon Thani concession, situated in northeastern Thailand, some 500 km north of Bangkok.

The company boosted its interest from 62.5% by acquiring an 88.6% controlling interest in its chief Udon Thani partner, Metro Resources (MRL-V), which holds a 27.5% interest in the project (the Thai government holds 10%). In exchange, Metro gets $4.7 million in cash and a promissory note for $40.8 million that comes due August 14. The deal, which was conducted by way of a private agreement with three vendors, increases Asia Pacific’s ownership in Metro to 96% from 8.6%.

Asia Pacific has arranged a $48-million private placement to settle the promissory note. London-based David Williamson Associates and Scotia Capital Markets have agreed to participate in $19.2 million of the financing, with the balance taken down by the investment group Olympus Capital Holdings Asia.

The investment is a combination of US-dollar-denominated debentures, convertible into common stock of Asia Pacific at an exercise price of $4, and a private placement of up to 12 million common shares at $4 each. The debentures will have a 2-year maturity and a 10% interest rate, plus a premium in certain circumstances.

After one year from closing, Asia Pacific will have the right to require the debentures be converted into common shares or the conversion right will be extinguished. If the debentures are converted, no interest or premium will be paid. On the other hand, if the debentures are not converted, the company may repay the debenture, including interest, at any time until maturity.

The $19.2-million portion of the private placement arranged with David Williamson Associates and Scotia Capital includes $3-million worth of convertible debentures; the balance is in shares priced at $4 each. Asia Pacific currently has 48.4 million shares outstanding, or 53.1 million fully diluted, and approximately $7 million in its treasury.

Since June 1993, Asia Pacific has spent $17.2 million on exploration and development of the Udon Thani concession, outlining two large potash deposits known as the Somboon and Udon fields. The deposits have been delineated by some 500 km of two-dimensional seismic surveys and 160 diamond drill holes.

Most of the work has focused on the Somboon field, 15 km south of the city of Udon Thani. There, the company completed 60 widely spaced drill holes, of which 49 intersected potash (potassium chloride). Over 200 km of seismic surveys were also carried out.

The results enabled Asia Pacific to estimate a minable resource of 120 million tonnes averaging over 23% K2O (potassium oxide). The total geological resource is calculated at 297 million tonnes grading 20.7% K20, with a magnesium content averaging 0.13% and a total insoluble content of less than 1.5%.

Farther north, between the Somboon deposit and the city of Udon Thani, Asia Pacific has drilled 65 widely spaced holes at the Udon field. Of these, 38 intersected potash. Preliminary drilling indicates the sylvinite (a mixture of the minerals sylvite and halite) mineralization is thicker than at Somboon, and multiple horizons are present. Asia Pacific believes there may be in the order of 1 billion tonnes of potassium oxide hosted in the Udon field.

The Udon Thani concession takes in the western edge of the late Triassic to Cretaceous-aged Sakon Nakhon sedimentary sub-basin. The upper 400 metres of the basin consist of a series of three thick evaporite units known as the Maha Sarahkam Formation. The salt beds are up to 150 metres thick and separated by claystone aquitards.

The lowermost of these salt beds contains the potash mineralization in the form of sylvinite underlain by carnallite, at depths ranging from 250 to 350 metres below surface. The sylvinite zone in the Somboon deposit contains interstitial halite and varies in thickness up to 12 metres.

Testwork conducted by Lakefield Research has confirmed that the material is amenable to conventional flotation, with an expected overall recovery of 87%.

Hydrogeological studies also confirmed that, apart from material that is at or near surface, the formations overlying the potash are impervious aqualudes incapable of holding or transmitting groundwater, meaning surface water ingress would not hamper an underground mining operation.

The area has direct rail and road links to Bangkok and to the deep-sea port at Map Ta Phut.

A preliminary feasibility study, completed in 1996 by Golder Associates and H.A. Simons, suggests the Somboon deposit could support a

2-million-tonne-per-year underground potash mine for up to 25 years. It projected capital costs at US$395 million, with an operating cost of US$30 per tonne potassium chloride and a transportation cost of US$25 to US$30 per tonne.

In the second phase of that study, H.A. Simons proposes an underground mining plan that would include access to the deposit by two vertical shafts, a full-retreat mining system and paste backfilling of all salt tailings.

While the study pegs life-of-mine operating costs at US$45 per tonne, including transportation to a port on the Gulf of Thailand, Asia Pacific said the mining plan contributed to a significant increase in estimated capital costs and tailings disposal costs.

Kilborn Western was hired in the latter part of 1997 to further review the studies. The engineering consultants proposed mine access via twin decline tunnels to the centre of the deposit and a partial advance-retreat mining system. Surface disposal of tailings using a brine disposal well would be employed during years one to five, followed by underground tailings disposal.

The total capital costs for the project are estimated at US$550 million, including port facilities and mine-site loadout, plus US$80 million in working capital and interest during construction. The total operational and costs, including transportation to a port, are estimated at US$42.20 per tonne. The base-case financial model predicts an internal rate of return of 28%. Repayment of the debt financing is projected to occur within six years of mine commissioning.

As a prelude to detailed engineering, Asia Pacific completed a geotechnical drilling program along the proposed twin-decline access route. Two of the three holes were drilled into the deposit, encountering high-grade potash ranging between 8 and 10 metres in thickness. The depth and thickness of the zone at these locations is said to be consistent with previous drill holes in the vicinity.

Further permeability and rock-strength tests have confirmed that the strata overlying the deposit show very little permeability. An associated three-dimensional seismic program was carried out over a 2.5-sq.-km area incorporating the decline access.

A series of shallow geotechnical drill holes were also completed in the vicinity of the proposed tailings piles, brine ponds and mill buildings.

As part of Kilborn’s evaluation of the project, the engineering firm participated in the drilling of geotechnical holes, supervised core recovery and logging, physically sampled the core and returned the samples to Canadian laboratories for check assaying and process testing to further define the mill flow sheet.

Asia Pacific recently signed a memorandum of understanding with a wholly owned subsidiary of international conglomerate Norsk Hydro ASA for the purpose of financing and developing the Udon Thani project.

The parties have agreed to enter into an offtake and marketing agreement, with Norsk Hydro becoming an equity participant in Asia Pacific Potash, and to cooperate on all managerial and operational aspects of the project. The offtake and marketing agreement will extend for the life of the Somboon mine and will include all potash production from the mine. The arrangement
will be subject to the two parties reaching an agreement as to Norsk Hydro’s participation and investment in Asia Pacific Potash.