Hao, our guide to our first visit to China in 2004, put it to us this way while we ate Peking Duck in Beijing: If it has got four legs and is not a chair, if it has two wings and it flies but is not an aeroplane, and if it swims and is not a submarine, the Cantonese will eat it.

"China may be chasing Twiggy," reports Matthew Stevens in today's Australian. "There is talk in New York that the Rudd Government has approved an application from China's Baosteel to acquire 16 per cent of the iron ore maverick, Fortescue Metals Group (ASX: FMG). Fortescue says it does not know whether its biggest Chinese customer has even made an application to the Foreign Investment Review Board, let alone received a green light."

Fortescue is the low-hanging fruit in the Australian iron ore sector. It's easy pickings. It aims to be the third major iron ore producer in the Pilbara, behind BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO). It's not surprising that Baosteel-China's largest steel maker-would go over the biggest plum in the pie.

What IS surprising is just how far into the Australian iron ore sector Chinese companies are drilling for ownership of undefined resource bases that are years away from production. It speaks to the strength of demand for iron ore... and the itch in Chinese pockets to trade U.S. dollars for real assets before the dollar falls even more... or before the Chinese revalue their own currency.

First up on the menu yesterday was Aussie iron ore producer FerrAus (ASX: FRS), a member of the North West Iron ore Alliance we mentioned last Thursday. China's Shanghai-listed Western Mining Company announced its intention to take a 10% stake in FerrAus at $1.15 a share through a share placement arrangement. Regulators have to approve the deal.

Here's the interesting thing about this deal; Western Mining is a base metals miner. It doesn't even produce iron ore. It just likes the cut of FerrAus's jib. And for its part, Adelaide-based FerrAus hasn't even proven up its indicated resource of 43 million tonnes. But hey, when the market value of the assets is going up, these kinds of deals get done.

And there are more of them. Gindalbie Metals (ASX:GBG) shot down rumours that Angang and Iron and Steel was seeking to increase the 13% stake it already has in the mid-West iron ore junior (a member of the Geraldton Iron Ore Alliance). Investors may or may not have been convinced. But they seemed to like Gindablie's announcement that it would spend $10 million this year on 12 drilling targets that it hopes will yield 80-100 million tonnes of hematite ore in the Pilbara. The shares closed up 16%.

And the beat goes on. Prosperity Resources (ASX:PSP) announced that Shougang Holding Limited would buy up to 19.9% of the company through a share placement. To be honest, we had never even heard of Propserity Resources until this morning. Perhaps we are not digging and drilling thoroughly enough.

We do like at least one thing about the company, though-its ticker symbol. PSP is the acronym we've taken to using for a new research service we hope to launch soon, the Penny Stock Prospector.

We want to offer your our research into the junior mining and energy shares...and hopefully suss out the shares that are moving. It will be as close as you can get to pure speculation. But there's so much going on in the resource sector now that it's more than we can cover in Diggers and Drillers.

Low-hanging fruit is easy to pick. But there's plenty of fruit on the Australian iron ore tree if you're willing to shake the tree a little.

By the way, the Koreans are getting busy too. Posco, the world's fourth-largest steel maker, announced its intention to buy 19.9% of Sandfire Resources (ASX:SFR). The mineral grab goes on.

Dan Denning
The Daily Reckoning Australia

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• The Iron Ore Pricing War Between China & Australia
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• The Fourth Biggest Iron Player in Australia
• Posco’s Production Cuts May Be Bad for Australian Iron Ore