Giustra shell graduate flops on assays

They say for every mine put into production, a thousand other geological prospects are tested and found lacking. Notwithstanding the small probability of achieving just one success over a life-long career in mining, a small group of promoters has managed to habitually beat the odds, creating value for shareholders and wealth for themselves time and time again – barring a few exceptions, of course. 

For Vancouver-based mining financier Frank Giustra, whose great successes in the natural resources sector include the likes of UrAsia Energy, Endeavour Financial and Wheaton River Minerals, West African Iron Ore (WAI-V)  seems to be one of those unfortunate exceptions so far.

Giustra and his team helped turn the fledgling company – formerly a shell named Westward Explorations – into a junior iron ore explorer in April 2011, through a deal to acquire the rights to the Forécariah iron ore project in Guinea.

The transaction had several telltale signs of a Giustra deal.

First, the entry into the iron ore space could then be seen as good market timing (as was Giustra’s 1996 exit from Yorkton Securities and the mining sector into film production, his reentry into gold in 2001 and his leap into uranium in 2007). According to Reuters, mining majors such as Rio Tinto (RIO-N, RIO-L), Vale (VALE-N), BHP Billiton (BHP-N, BLT-L, BHP-A) and ArcelorMittal (MT-N) plan to spend US$14 billion  developing iron ore projects in West Africa.

Second, the deal resulted in intense shareholder dilution. West African Iron Ore’s outstanding shares ballooned to 175 million after it acquired Sky Alliance Ressources Guinée (237 million shares if fully diluted), and would increase by up to 226 million more shares issued to the project’s former owner should exploration go well.

Although Giustra has no formal role with the company, he is its third-largest shareholder controlling 16.2 million shares through one of his charities, the Radcliffe Foundation. (He acquired 11.8 million of the shares at 10¢ each in 2010 by exercising warrants.) Giustra’s shell company also nominated three of West African’s directors: Paul Matysek, Harald Ludwig and Craig Angus.

Lastly, the new company launched at a hefty premium to its peers. In its first day of trading, West African Iron Ore’s shares reached a high of 64¢ – giving the company and its never-before-drilled Forécariah project a market value of over $100 million. (Insider trading reports show the promoter sold 2.3 million of his West African shares through Radcliffe on the stock’s first day of trading, at the very charitable price of 56¢ each.)

The company then quickly began what turned out to be an 8,500-metre drill program at Forécariah, testing the three largest magnetic anomalies from a helicopter-borne magnetic survey. Surface samples at the 1,468-sq.-km project yielded several promising showings, with assays up to 68% iron and an average of 36%. 

According to West African Iron Ore’s technical report, previous exploration at the project had only involved limited mapping, sampling and trenching but confirmed the presence of magnetite quartzite (metamorphosed banded iron formation) and magnetite schist in four separate areas. Thicknesses of the formations ranged from 30 metres to 400 metres, with strike lengths between 3 km and 11 km. 

Nevertheless, drilling at the three main magnetic anomalies – Kalyadi, Sitafaya and Sambalama, which form a semi-continuous zone of prospective iron mineralization with a strike length of about 16 km – has not yet yielded the kind of results shareholders hoped for. In iron ore exploration, rapidly proving up high grades and large tonnage is critical, and the first round of drilling by West African has not done so.

The best intersection from the first three holes at Sambalama returned 14.2 metres of 70.53% iron near surface, while the second set yielded a much lower 36% iron grade over 12.8 metres. As assays rolled in, the share price fell steadily, dipping to 6¢ in the last quarter of 2011 before recovering slightly to their present level around 11¢. 

The company plans to resume a 5,000-metre diamond drill program in February with a continued focus on Sambalama and Kalyadi. Should it go well, West African will then look to complete its first resource estimate by June.

Although West African Iron Ore’s story is far from over, shareholders looking to jump ship may find ample room in several other prospective Giustra vessels. Shell companies the promoter or his close associates currently hold a large interest in include Royce Resources (ROY-V), Cannon Point Resources (CNP-V), Pacific Topaz Resources (PPZ-V), Prescient Neuropharma (PNO-V), Tapango Resources (TPA-V), and Sky Ridge Resources (SYR-V), as first noted by Stockwatch‘s Blake Friesen.