Analysis

We’ve Only Just Begun: China’s Influence on African Mining Development

August 5, 2011 by · Leave a Comment 

ANALYSISProspectingJournal.com – Chinese firm Sichuan Hanlong recently made a big statement with its $1.5 billion takeover bid for Australia’s Sundance Resources [SDL – AX]. However, this statement wasn’t directed towards mining in Australia, as the target was Sundance’s Mbalam project located in the new iron ore frontier of West Africa.

With potential for $4.6 billion in iron ore at Mbalam, Hanlong’s move puts healthy pressure onto the residing governments of Congo and Cameroon to approve conventions through which the project’s future hinges. Given the economic benefit to the region, both governments are expected to approve the project, but the market is focused on the timing for that approval. In the meantime, Hanlong’s vote of confidence in the project boosted the market’s confidence as a whole, causing African Iron Ore prices to take a 7 percent leap.

Iron ore's steady climb - Credit: Agoracom.com

Foreign interest in West Africa is growing, from companies large and small including Brazil’s Vale, Australia’s BHP and Rio Tinto and UK-based Anglo American to juniors like Canadian-based Afferro Mining [AFF – TSX.V] and West African Iron Ore [WAI – TSX.V]. Each of these projects span over the entire African continent, with Ghana, Namibia, Guinea, Uganda, Mozambique, Gabon and Tanzania all in the hunt to lure investment dollars. With this rapid rate of development, each of these nations must grapple with the delicate balance of increasing their tax revenues while getting fair value for their resources.

But for investors on this side of the world, getting involved in an early stage African exploration company can reap significant rewards. Despite the headline grabbing actions of the mining industry’s biggest players and a sociopolitical behemoth in China, there are still entry-points for investors through the juniors like West African Iron Ore (WAI).

West African Iron Ore's subsidiary Sky Alliance Resources Guinée SA.

Through its fully-owned subsidiary Sky Alliance Resources Guinée SA (“SARG”), West African Iron Ore is poised to benefit from China’s interest. The Company has already engaged early stage discussions with the Guinean Government to source a Chinese partner for the pre-feasibility study, feasibility study and construction of a 135 MW hydro power plant within the Forécariah region. As well, the routing of the first 74km of the railway from the proposed port of Matakan to Moussaya has already been agreed in principle with the Government.

As a bonus to WAI, this first leg of the rail line just happens to run directly through the Company’s Forécariah license. This line should link the miners in the region to an important export point which can open their supplies up to the world. This need looks to have been answered by proposal by the Chinese International Fund, which selected the Matakang Deep Sea Port only 40km from WAI’s two main projects as its launch point for iron ore exports, and the full infrastructure picture is starting to fall into place.

While the infrastructure gets sorted, WAI continues to move on developing the properties it holds by recently applying for an extension on their licenses prior to renewal due in October 2011 and conducting a high-resolution aeromagnetic survey of Kérouané in July. A NI43-101 should be arriving on the property within the next 60 days, according to their latest press release. Early interpretation shows a cumulative strike of iron formations to be approximately 15km in length and ranging from 200m to 1km in width.

WAI's Forécariah Property Map.

Drilling on WAI’s Forécariah project continues, having completed 2200m of diamond and 1590m of reverse circulation drilling to date. Analyses and metallurgical testing is still ongoing, with the bulk of the results yet to return so far, but early indications confirm the Forécariah tenement magnetite iron mineralization can be turned into a high Fe concentrate of >63% Fe.

Through installing a new Country Manager in the form of Simon Riekert, who brings experience in early stage iron ore exploration projects in West Africa, the Company is showing how serious it is about developing these licenses. Riekert will be the eyes and ears on the ground, and will be based in Forécariah to oversee the management and operation of the Company’s exploration program.

At this stage, West African Iron Ore fits the bill as one of the junior mining entities that will benefit from the express development of African mining interests. With Chinese and other larger investment interests picking up the tab on the infrastructure development, there is ample room for junior interests to grow.

This current situation stands in contrast to Australia, which has a more established reputation for harvesting iron ore. While Africa is becoming a more welcome environment for junior miners, Australian seems to be chopping them off at the knees. Already criticized by former CEO and current chairman of Fortescue Metals, Andrew Forrest, the Australian government is pushing junior mining investment out with its new Mineral Resources Rent Tax.

With the threat of iron ore export infrastructure dollars moving out, and China injecting into African infrastructure, the West African region may not be far behind on its development arc. Healthy competition, high-grade resources and reasonable taxation will drive this region further, and along with it the companies who were wise enough to take the initial risk.

G Joel Chury
ProspectingJournal.com

Disclaimer: The author does not currently 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 one or more of the companies mentioned at the time of publication. 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. West African Iron Ore is a sponsor of ProspectingJournal.com.

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