Lumena expansion faces snag over land

PUBLISHED : Friday, 23 April, 2010, 12:00am
UPDATED : Friday, 23 April, 2010, 12:00am

Lumena Resources Corp, the world's second-largest producer of the industrial chemical thenardite, may have to cancel or delay a capacity expansion project equivalent to 62 per cent of its existing capacity because it does not have government approval for land requisition.

The project, due for completion in the third quarter and funded by the company's initial public offering in June last year, now faces uncertainty, chief executive Zhang Daming said.

He would not go into the details on the Sichuan firm's failure to obtain the approval, saying only: 'The government has its difficulty on land-use negotiations. It is not appropriate for us to comment.'

The expansion, costing 646.4 million yuan (HK$734.89 million), involves 1 million tonnes of annual capacity. The firm had 1.6 million tonnes of capacity at the end of last year.

Zhang would not discuss any potential alternative use for the funds intended for the project.

In October last year, Lumena issued a five-year US$250 million bond, carrying an interest rate of 12 per cent, to repay a loan and fund expansion.

Thenardite is used in producing powder detergents, dyeing textiles and making glass and laxative and anti-inflammatory drugs.

Lumena posted a 24 per cent rise in net profit to 533 million yuan for last year, in line with its forecast of not less than 500 million yuan.

Zhang expects the company's output to grow 21 per cent this year to 2 million tonnes, thanks to the start-up of a 200,000 tonnes a year medical-use thenardite production line in January, a 100,000 tonnes a year expansion of a speciality thenardite plant and a mid-year start-up of a 300,000 tonnes a year plant for thenardite used to make animal feed.

He said chairman Suolang Duoji intends to repay this year a personal loan supported by a 20.5 per cent Lumena stake as collateral. If he fails to repay, his stake may be sold and Lumena may be forced to buy back the bond at a premium, plus interest.

Thinking big

Lumena Resources Corp's expansion plan costs 646.4 million yuan and involves annual capacity of, in tonnes: 1m