Major’s Interest Growing in West African Iron Ore

SOURCE: [Growth Stocks Investor] – WAI has received renewal for its Forecariah permits which triggers the CAD$30 million loan facility from strategic partner China International Fund Limited (“CIF”), as announced early Sept. Any debentures issued will be converted into common shares of WAI at the greater of the market price or $0.10 per share, with the caveat that CIF’s aggregate beneficial ownership in WAI may not exceed 19.9%. At this time 19.9% would represent a maximum allowable issue of 43,478,779 shares. So, assuming a full $30 million conversion, a 19.9% interest in WAI calculates to a $0.69/share conversion price average. This is an unlikely scenario. At present, CIF has advanced the Company CAD$2 million in accordance with the terms of the LOI, which represents a potential 20 million share stake in WAI, or just under the 10% insider reporting threshold. More likely CIF will advance sufficient funds near term to ensure they acquire the potential 43,478,779 shares, all at $0.10 as long as the market price stays below that share price. This means further funds representing $2,478,779 will be forthcoming ahead of any expected share price increase. After that, the advance would likely be a loan to be repaid out of future production.

Early production is targeted for H1 2015. The plan is to attract construction cost financing through an Off-Take Agreement for 50% of the production over 5 years at 95% of market price, already negotiated with China International Fund. Initial annual production of ~4mt could grow to ~10mt annually in H1 2015. CIF’s law firm has been working diligently to complete the Definitive Agreement that the Company and CIF hope to sign shortly.

West Africa has been emerging as a preferred region for iron ore producers, attracted by high margins based on lower operating costs. The region is “likely to become a meaningful source of supply over the next 10 years, with Guinea potentially the third-biggest provider of seaborne iron ore by 2016” according to a recent analyst report we discussed back in August.

The GSI Model Portfolio’s exposure to iron ore consists of 4 million shares of West African Iron Ore (WAI-TSXV) at an average cost of $0.1065/share, including 214,500 shares bought at $0.045 since our Aug 31st update. WAI’s debut occurred in April 2011 as a Frank Giustra shell, completing a $12.6-million funding at $0.28.

The share price is just starting lift off all-time lows at $0.04 (see weekly chart presented). A maiden NI43-101 resource report is anticipated to be completed by year’s end which should allow research coverage to become a factor and attract additional investor interest in this opportunity.

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Major’s Interest Growing in West African Iron Ore