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01 Dec 2011It is reported that iron ore prices have surged 24% in November 2011 to USD 147.40 per tonne. Despite fears of a hard landing in China, Morgan Stanley estimates Chinese infrastructure spending for 2012 to be around USD 1 trillion. By 2017, it will be USD 1.8 trillion, an 80% increase.

China's domestic iron ore deposits are famously low grade. It is no secret that the Chinese are scouring the world for high grade low cost assets. Some analysts predict the Chinese will invest USD 25 billion in the next 5 years and most of that in Africa.

BHP Billiton, Rio Tinto and Xstrata produce most of the world's iron ore and all have active projects in West Africa. But the Chinese are likely to want a bigger stake in something they can develop.

Transportation costs are deal killers for iron ore projects. Fortescue Metals is spending USD 2.5 billion to construct a 280 kilometer rail line from its Cloud Break Mine to the nearest port. So the list of likely Chinese targets can be filtered by looking at assets close to a deep sea port.

One company that is drilling aggressively, hitting high grade holes, and is only 40 kilometers from a deep sea port is West African Iron Ore Corporation. WAI has a world class iron ore asset in Guinea, West Africa with substantial growth potential. The resource target for the Forecariah permit estimated by SRK Consulting is between 2.9 to 5.1 billion tonnes at an average of 36% Fe.