With rumours of a looming global recession, metal prices have been battered in the last 30 days. Although China has tightened credit to cool inflation, Chinese demand for steel remains robust and iron ore prices have had held firm over this period.
According to the World Steel Association, global steel production in August 2011 was up by 10% year over year to 125 million tonnes. China’s steel production has increased 13% from a year ago.
The urbanization of China is a demographic tsunami that washes over counter-currents like European sovereign debt and negative North American construction data.
By 2025 one billion people will live in China's cities. The Chinese urban population is expected to grow by 350 million. That’s like creating an entire new USA of city dwellers. China will have 221 cities with more than one million inhabitants. Currently Europe has only 25 cities with over one million people.
Getting ahead of a wave like this is how fortunes are made.
BHP Billiton (BHP-NYSE), Rio Tinto (RIO-NYSE) and Xstrata (XTA-L) produce most of the world’s iron ore.
With mining costs soaring in Australia, it’s no secret that the Chinese are looking to spend $25 billion elsewhere in the next five years.
A lot of this spending will be done in West Africa which has large scale high grade iron ore deposits, improving business climate, and competitive miners’ wages.
The biggest obstacle to most of West Africa’s iron ore plays is the cost of transportation. Fortesque Metals, for instance, 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 the Deep Sea Port of Benty that they could build a conveyor belt to deliver the iron ore directly to ocean freighters.
WAI holds two iron ore permits in Guinea, the Forécariah permit and the Kérouané permit.
The company's Forécariah iron ore mineral project is located approximately 90 km 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.
On August 14, 2011 WAI reported that it has intersected near surface and sub-surface, high- grade iron ore mineralization in its second set of three diamond drill holes from their phase one drilling program.
The SAM003 drill hole showed continuous high-grade mineralization from surface to a depth of 14.2 meters at an upwardly revised average grade of 70.53% Fe.
Diamond drill hole
SAM004 recorded three magnetite intersections with a combined length of 32.8 meters and average iron grade above 30% Fe.
Diamond drill hole SAM005 recorded two magnetite intersections with a combined length of 12 meters with average iron grade above 30% Fe. This hole was stopped at 63.8 meters due to their drilling contractor losing the diamond drill head at that depth.
Diamond drill hole SAM006 gave three magnetite intersections with a combined length of 44.8 meters and average iron grade above 29% Fe.
Mineralisation appears to be continuous along strike for 800m, but further drilling is required to confirm geological continuity.
Diamond drill holes KAL009, SAM011 and SAM012 will be completed later this month. Diamond core drilling will then be suspended until Q1 2012, as WAI executes an aggressive RC program along a 9,000 meter magnetite strike.
WAI’s objective is to achieve an initial NI 43-101 compliant resource report by the end of Q1 2012.
The Chinese spend $80 billion a year importing iron ore.
Guy Duport, the CEO of WAI speaks fluent Chinese and has a long history of deal making on that continent.
WAI is currently trading at .10, with a $17 million market cap.