Chinese Drawn to New Iron Ore Frontier in West Africa

June 20, 2011 - PRLog -- ANALYSIS - http://www.ProspectingJournal.com - Last week, Andrew Forrest - the billionaire CEO of Fortescue Metals [FMG - ASX] threatened to sue the Australian Government after they slapped a 30% tax on the profits of local iron ore companies.

BHP Billiton [BHP - NYSE], Rio Tinto [RIO - NYSE] and Xstrata [XTA - L] also fought a proposed 40% tax on the mining profits of internationals operating in Australia.

And it's not just the federal government eyeballing the mining industry for revenue.

Last week Western Australian Premier Colin Barnett blindsided mining companies with an additional $2 billion in announced royalties.

The Chinese are watching this very closely.

China produces about half of the world's steel, but only 14% of the world's iron ore.

According to Zhu Jimin, the chairman of the China Iron and Steel Association, "Sixty percent of total Chinese domestic iron ore consumption is accounted for by imports." The bulk of these imports are coming from Australia.

In the first quarter of 2011, China spent $13.2 billion more on iron ore imports than it did during Q1 2010. The average price of $157.6/mt was up 55% on a year-on-year basis.

Australian taxation schemes are not the only thing worrying the Chinese.

The average wage of an Australian miner has skyrocketed in recent years to $109,000.

Not surprisingly, the Chinese are scouring the globe for high-grade iron ore projects with lower production costs.

Some analysts expect the Chinese to spend $25 billion in the next five years in this sector.

With increased Chinese investment in Africa, educated speculation suggests that a lot of this spending will be done in West Africa. The region fits many of China's needs, with large scale high grade iron ore deposits, an improving business climate and competitive miners' wages.

"China plans an aggressive expansion of its iron-ore holdings," confirms Luo Binsheng, Vice Chairman of the China Iron & Steel Association.

"Guinea, Sierra Leone, Liberia, Cameroon, Gabon, Ivory Coast, they all have potential," said John Jorgenson, iron ore specialist at the United States Geological Survey (USGS) recently in an interview with Reuters

"The reserves are a pretty good size, a quarter of a billion to half a billion tonnes, and some of the grade is 65 percent iron, which fits in the range of Australian and Brazilian deposits."

According to the Reuters article, the big players, such as BHP, Rio Tinto, Vale [VALE - NYSE] and Chinalco will spend around $10 billion in total on projects in West Africa.

The biggest obstacle to most of West Africa's iron ore plays is the cost of transportation. For instance, Fortesque Metals spent  $2.5 billion to construct a 280 kilometer rail line from its Cloud Break Mine to the nearest port.

West African Iron Ore [WAI - TSX.V] is an early stage iron ore project in Guinea that is likely to be on the Chinese radar.

WAI's lead asset is so close to the Deep Sea Port of Benty that they could build a conveyor belt to deliver their iron ore directly to the ocean freighters.

WAI holds two iron ore permits in  Guinea, the Forécariah permit and the Kerouane permit. Of note, their Forécariah iron ore mineral project is located approximately 90km from Conakry, the capital city of Guinea.

An exploration target size of between 2.9 and 5.1 billion tonnes has been estimated for the two largest targets, Kalyadi and Sambalama.

An average grade of 36% Iron (Fe) was calculated on 186 surface samples within mineralized units in the Forécariah Project, while an average grade of 39% Fe was obtained on 78 surface samples from the Kalyadi and Sambalama targets.

WAI has also been granted exploration rights for a three-year period over iron deposits in an area covering 500km² - in the prefecture of Kerouane.

WAI plans on spending approximately $3.4 million initiating a Phase I exploration program on the territory covered by the Forécariah permits.

Annually, the Chinese spend $80 billion importing iron ore.

Skyrocketing miners' wages and unfriendly tax codes are pushing them away from Australia in their search for new iron ore assets.

Guy Deport, the CEO of WAI speaks fluent Chinese and has a long history of deal making with the Asian market.

As investment money shifts out of Australia into West Africa, WAI is one of the companies likely to benefit.

WAI is currently trading at $.26 per share, with a $45 million market cap, thus making it worth adding to Canadian investors' research radar.



Story by Geoff Woade
Edited by G. Joel Chury
http://www.ProspectingJournal.com

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Disclaimer: The author does not hold any shares of any of the companies mentioned in the article. However, some members of Cordova Media Inc. which owns the ProspectingJournal.com may or may not have interests in Fortescue Metals, BHP Billiton, Rio Tinto, Xstrata or West African Iron Ore at the time of publication. However, any staff members from the Prospecting Journal reserve the right to acquire interests in any of the companies mentioned after 36 hours have elapsed upon initial publication of this article. A fee has been paid for the publication of the article, and should be looked upon as advertorial content.