Asia Pacific Resources Preseident talks about his firm's future
twst.com
TWST: Give us a background summary on the company, enough of a thumbnail historical sketch that will put us into context with what you see as your business and what you see as your company today.
Mr. Connochie: I can do that quite easily, and our discussion is particularly timely because we are at a critical and exciting point in our corporate development. Asia Pacific Resources is a Canadian company. We are traded on the Toronto Stock Exchange, NASDAQ, and in Europe, Frankfurt and Stuttgart. We are best described as a small to medium resource developer with vision. The reason I say this is that, unlike many of the junior natural resource companies, we have a basic philosophy of focusing only on unique strategic opportunities, which in the mining industry tend to require rather large capital investments and long-lead times for development and construction.
Our company, Asia Pacific Resources, has focused on a single asset which is a potash concession in Thailand in which we hold a 90% beneficial interest. Over the past five years we have spent in excess of US$50 million (and I might mention that when speaking of dollars, we always refer to United States dollars, and in speaking of tons of product or ore, we use metric tons). The $50 million has been spent on the acquisition of our interests in the concession, exploration, metallurgical testing, environmental assessments and feasibility studies. Based on the first of two potash resources identified within the concession area, a Somboon Project "bankable feasibility study" has been completed. This project has a planned capacity of two million product tons per year and will be in production for a minimum of 23 years. Throughout the world there are fewer than half a dozen production facilities having an annual capacity of two million tons, which is about 5% of current world potash production. There is a strong and growing demand for potash within the booming fertilizer markets of China and southeast Asia. The estimated capital costs for the Somboon Project, including working capital and interest during construction based on our proposed financing plan, is $650 million.
There are two reasons why we're so excited about this project. First, we expect that the Somboon facility will have very close to the lowest-cost of product delivered on-board a vessel ready for export to the world's markets of any major potash producer. Low costs are the key to achieving sustainable advantage and an ability to compete successfully. Second, there is a strong and growing demand for our product within all the fertilizer markets of China and southeast Asia. Based on our projected potash selling prices we are expecting an after tax rate of return on the project equity in the order of 30%. Using a 10% discount rate the forecast NPV is $475 million. The Somboon Project provides an opportunity for our shareholders to earn a very substantial profit and cash flow stream for a long period of time. Just by way of comparison I'll mention that our current capitalization on the market is approximately $120 million.
TWST: If you could, expand on the time line that we're talking about here. You mentioned the return on the investment. At what point, estimated, will that start? You mentioned a long life cycle for this project.
Mr. Connochie: Yes, a long lead-time is typical of this type of project. The rate of return is calculated from today's date, and it assumes that we can release the project for construction by mid-1999. We then require approximately three years to build the Somboon Project (mine, mill and port facilities) followed by a year to bring it up to its rated capacity of 2 million tons of product per year. Based on this schedule we expect to be at the full design production rate in the year 2003 and to maintain this level of production from Somboon for another 20 to 25 years. As the market demand for potash continues to increase we expect to begin production from the second resource on the concession, perhaps at a rate similar to Somboon.
TWST: Give us then a summary statement, an essential message for investors, both individual and institutional. As they look at your company over the next three to five years, what are the strengths and highlights that will continue to distinguish and recommend this company as an investment?
Mr. Connochie: There are four points to reemphasize. First is the outstanding nature of the resource with which we're working. Such ore bodies are very rare. Second is the fact that we have completed, using world class consultants, a comprehensive, bankable feasibility study encompassing all the technical, operating, environmental, marketing and financial aspects of the project. Final permitting, organizational structuring and financing negotiations are underway. Third, competitive analysis suggests that because of the favorable characteristics of the orebody and it's location close to growing markets, we will be able to gain and maintain a significant competitive advantage. Fourth, market forecasts confirm that there will be a strong and growing demand for our products. Therefore, we feel confident in predicting that the Somboon Project can be brought into production on a very economic and profitable basis. |
