SOURCE: [Metal Investment News]
At $140 a tonne, iron ore is half the price of bulk potatoes by weight, 60 x cheaper than copper, 7,000 x cheaper than silver and 400,000 x cheaper than gold. Moving millions of tonnes of ore is expensive.
Not surprisingly, the economics of an iron ore project will often hinge on the cost of transportation.
Fortesque Metals spent $2.5 billion to construct a 280 kilometer rail line from its Cloud Break Mine to the nearest port. Rio Tinto (RIO-NYSE) is talking to Vale SA (VALE-NYSE) about sharing rail and port infrastructure for iron ore projects in Guinea. Expenditures are expected to exceed $1 billion.
A 30 page report issued by award winning Fundamental Research has revealed a West African Iron Ore company with a significant transportation advantage.
West African Iron Ore (WAI –TSX.V)’s lead asset is so close to a proposed deep sea port in Guinea, that they could potentially build a conveyor belt to deliver the iron ore directly to the ocean freighters.
WAI is sitting in a hot bed of iron ore activity in Guinea including:
- Rio Tinto's (38.5%), Chinalco's (26.85%) and the Government of Guinea's (35%) Simandou Project has a resource of approximately 8 billion tonnes grading 65 Fe%.
- Chinalco's shareholding was purchased for $1.35 billion. Project capital is expected to reach $19 billion.
- Vale's (33.5%), BSGR's (31.5%) and Government of Guinea's (35%) Simandou Project (Zogota Mine) Vale's shareholding was purchased for $2.5 billion.
- Bellzone's Kalia Project has a resource of 6.16 billion tonnes grading 21.8 Fe%. The Chinese Investment Fund owns 50% of the project and holds a 100% offtake agreement. CIF will fund up to $2.7 billion for infrastructure development.
- BHP Billiton's Nimba Project has a resource estimated to be greater than 1 billion tonnes grading 65 Fe%. Project capital is expected to exceed $2 billion.
Guinea is a former French colony, gaining independence in 1958. The country has been governed by a number of autocratic rulers until November 2010, when Alpha Condé was voted as the first democratically elected president. Guinea is a key player in the world bauxite industry and is the country’s largest export.
WAI INVESTMENT HIGHLIGHTS
- West African Iron Ore Corp. holds two iron ore permits in the Republic ofGuinea, West Africa: Forécariah and Kérouané.
- An exploration target was calculated for the Sambalama, and Kalyadi targets (both on Forécariah), of between 2.9, and 5.1 billion tones, with average grades of 25% - 35% Fe.
- Drilling commenced in April 2011, with aims to define an initial 43-101 resource estimate by the end of Q4 2012 on Forécariah.
- WAI recently discovered two highly prospective new targets in the northern area of the Forécariah permit.
- Rio Tinto (NYSE: RIO) and Bellzone (LSE: BZM) both have advanced stage iron ore projects in the country that include construction of the trans-Guinean railway and a deep sea port. WAI is strategically located to potentially take advantage of this infrastructure in the future.
- The company is actively seeking investors and strategic partners in China.
Fundamental Research states that “WAI represents an attractive takeover target” and “the success of drilling, resource expansion, and development are important long-term success factors for the company”.
West Africa is a hot bed of iron ore activity. There are several iron ore projects in Guinea that have the potential to greatly improve the mining infrastructure in the next few years, which will benefit the development of WAI’s Forécariah project.
In Guinea’s improving business environment exploration licenses are granted for an initial 3 year period, and can be renewed twice for 2 years each time. During exploration and the development phase of the mine, the license holders are exempt from most taxes, including income tax, VAT and the largest part of import duties.
Fundamental Research’s target of .46 constitutes a 300% increase on the current share price of .15. Their team of analysts and geologists has a good track record of finding undervalued resource companies. In 2010, their Top Picks earned them the #3 highest ranked analyst firm with a return of 20.75%, and #1 in the Basic Materials Sector with a return of 29.07%.
Fundamental Research identifies the following upside for WAI:
- Highly prospective property with potential to define a large iron ore resource.
- Some drill holes have encountered material that may be amenable to direct shipping ore (DSO), which may reduce capital costs.
- Low stripping ratio, reducing operating costs.
- Strategic location close to the capital city Conarky and the proposed deep water port.
- Planned infrastructure developments in the country may significantly reduce capital expenditures once a decision is made to develop the project.
- Guinea is well located to attract interest from China and India, both of which have high demand for iron ore.
- Potential buyers (e.g. Rio Tinto) already have a presence in the country.
“We believe that WAI is well positioned in Guinea,” states the report, “and is not subject to the same level of infrastructure risk as other mining projects in the country located distal from the coast”.