You can see why… it’s the fastest growing nation in the world. Its building rate is mind blowing. And it’s set to continue – at ALL costs.

Over the next few years it plans to build the equivalent of ten New York Cities!

And since the recent earthquake the Chinese government has promised to rebuild all the damaged cities in Sichuan and the surrounding areas. This will accelerate demand for these products even further.

But China has a problem… and it’s a big fat expensive one.

You see, to make steel you need iron – and China doesn’t have enough high-grade iron ore within its borders…

It means they are at the mercy of the world’s big exporters – BHP Billiton, Rio Tinto and Vale.

These miners charge what rates they like to ship the stuff over… and the cost is phenomenal. China has NO CHOICE but cough up.

But one firm newly placed just outside its borders could be about to save their bacon… and it kicks off as early as next month!

An iron ore miner with an edge over all its competitors – including the Big Boys!

At first glance there’s nothing unique about this company. It’s a miner… it gigs for iron ore… its reserves are sound.

But they have one thing that gives their business the edge over all their competitors: Its location.

Consider this… the current freight rate from Australia (BHP and Rio’s ore) to China is around $50 per tonne. Rates from Brazil (Vale’s ore) to China standing at around $100 per tonne.

This means transport costs to China are many times of the cost of mining the ore.

Wouldn’t it be better for Chinese steel mills if they could get their iron sourced more locally so transport costs were slashed?

Of course it would. If you could offer the mills iron ore or pig iron on these terms the Chinese would snap your hand off…

Well this company is scheduled to produce its first ore for sale THIS MONTH.

I will be recommending this company in the next issue of Smart Commodities UK, which drops on Saturday 22 June. To get all the exclusive details on this as soon as they’re published click here.

You have no obligation to continue subscribing. You have three whole months to see if it’s for you. And even if you decide it isn’t, everything you get is yours to keep no matter what.

Why one broker thinks these shares are 100% undervalued

By 2012, the company plans to produce up to 10.7m tonnes of iron ore concentrate. From that up to 5 million tonnes of pig iron will be produced.

It also recently announced the acquisition of two mining licenses that could DOUBLE the iron resources of the company.

Broker Cannacord Adams recently reviewed all of the company’s projects and came up with a net asset per share valuation that is double the current share price.

With the outlook for ore prices, I reckon this valuation looks pretty conservative, because iron ore prices remain on the up.

Iron ore prices will continue rise China’s voracious demand has caused iron prices to rise significantly. Recently, Rio Tinto managed to secure a hike of 95% for supplies of iron ore to a few small Chinese firms after intense negotiations.

Renaissance Capital estimated that there was a 30m-tonne gap in expected iron ore shipments and actual deliveries in 2007. There have been problems with weather as well, with many mines flooding in Northern Australia and in Vale’s operations Brazil.

Citigroup is also bullish on the iron ore price. In a note to clients last week, the broker said: “The iron ore market remains under-supplied and only a sharp deceleration in Chinese steel production will change this. We expect iron ore to rise by 30% in 2009… but this may be conservative.”

I am very excited about the prospect for this share. I like the location of its mines, the quality of its management and the pricing outlook for its main source of revenues.

The valuation is attractive and the fact production is set to start imminently should secure good news flow in the months to come – but you’ll have to wait a couple of weeks to find out exactly which company it is as I complete my research.

So sign up here to be sure you’re ready!

Regards,

Garry White
Editor
Smart Commodities UK

Please note: Forecasts are not a reliable indicator of future results.

Source: New Iron Ore Discovery to Save China’s Multibillion Pound Building Spree

When readers of my 12% Letter took their position in October 2006, Westshore sported an 11% dividend. Once the world caught on to the story, investors “chased the yield,” making Westshore behave like a growth stock. That pick returned 80% in the first 18 months.

Today I’m going to show you why Westshore was the perfect income play… and how you can spot the market’s best income investments. Let’s get started…

To qualify as a perfect income play, a company must 1) run a simple business, 2) be unable to expand its operation, 3) enjoy a huge “moat,” and 4) pay very little (if any) taxes. Here’s how Westshore measured up:

First, Westshore’s business couldn’t be simpler. The railroad brings the coal to Westshore’s Vancouver terminal. Westshore removes the coal from railroad hoppers, piles it up using a system of conveyor belts, and then reloads this coal onto ships. Westshore never owns the coal. It simply earns commissions from the coalmine it serves.

Simplicity is important because it’s easy to identify the risks in a simple business. All businesses carry risk, but if you can identify them, you can make a more accurate assessment of a company’s value.

Would you rather make a bid on a vast corporation with myriad operations and opaque accounting – say, Citigroup – or a coal terminal like Westshore? I always give more value to dividends from simple businesses than from complicated businesses.

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Second, Westshore has no way to expand its business. The terminal sits on the head of a spit in the waters south of Vancouver. The railroad tracks run around the perimeter of the spit. Westshore piles up the coal in the center of the spit. There are two docks, a pair of gantry cranes, a parking lot… and just enough room for a couple of prefabricated cabins where management runs the operation.

It may sound odd to say we’re looking for companies that can’t expand, since most investors are drawn to growth. But we’re not looking for growth. We’re looking for income. Expansion is a distraction… and often a big waste of money.

Businesses that can’t expand have the most focused management teams and pay the safest dividends. We want a company that pumps cash into its dividend, not its capital-expense budget.

Third, Westshore has a huge business moat, meaning there are significant barriers to competition. Westshore exports metallurgical coal. Forges use “met coal” to make steel. There is no substitute for Westshore’s coal. The world will always need steel… And the coalmine has enough coal to last for another century. A couple of other terminals export coal from western Canada. But they’re too small to make any dent in Westshore’s revenues.

We want a business that enjoys a wide moat. Moats protect castles from invaders. In business, moats protect dividends.

Finally, Westshore is an income trust. As long as these companies pay out all their earnings to shareholders, they don’t have to pay tax. Companies that don’t pay tax have more money to return to shareholders.

Of course, our Westshore position was a victim of its own success. The share price appreciated so much, its yield diminished and a modest price correction triggered our stop loss… As much as I love Westshore’s business, it’s still too expensive to leap back into today.

But you can find similar opportunities. Look for simple, straightforward businesses that pay few taxes, enjoy a healthy competitive advantage, and are unlikely to spend their money on anything but your dividends.

Good investing,

Tom

P.S. Westshore Terminals was my first pick in The 12% Letter, and it’s my best-performing so far.

Source: The Perfect Income Investment