Franco-Nevada picks up 25% of Inco VBN

Somebody, at least, is prepared to invest in nickel mining in Labrador: Franco-Nevada Mining (FN-T) has purchased just over 25% of the VBN shares of nickel producer Inco (N-T).

The $50-million deal gives Franco-Nevada the equivalent of a 6.3% net profits interest in the Voisey’s Bay nickel project in Labrador, which has reserves of 32 million tonnes grading 2.83% nickel, 1.68% copper and 0.12% cobalt. The project, currently stalled by regulatory issues and facing threats of cancellation by the Newfoundland government, is now scheduled to come into production no earlier than 2001.

The deal also is a bail-out by promoter Robert Friedland, who received about 3.6 million VBN shares when he tendered his Diamond Fields Resources shares to an Inco takeover offer in April 1996. Friedland announced he had sold all his shares (which were held through a private company, Evershine) to Franco-Nevada.

The other seller was a fund manager, Robertson Stephens Investment Management, which had held 5.2 million shares through four separate funds. Two of those funds were identified as the other sellers in an Early Warning Report issued by Franco-Nevada in compliance with the Securities Act of Quebec. The same report disclosed the price of the transaction at $7.61 a share before commission.

Presuming Friedland did sell his entire VBN holding, the two funds must have sold a minimum of 3 million shares — about 58% of the 5.2-million-share holding managed by Robertson Stephens.

Inco VBN (Voisey’s Bay Nickel) shares (N.V-T) were created as deal candy in May 1996, when Inco took over Diamond Fields Resources. The shares were to receive 25% of unallocated cash flow from the project. They were distributed as part of the trade for Diamond Fields shares, to give Diamond Fields holders a preferential interest over Inco shareholders in Inco’s cash flow from Voisey.

Inco has about 26 million VBN shares outstanding, of which 3 million were held by Teck (TEK-T) and 2.8 million by Friedland’s Diamond Fields partner, Jean Boulle. Also, Boulle and Friedland each held more than a million Inco Series E preferred shares, which were convertible to common shares.

The VBN shares have, indeed, shared in the project’s ill fortune. From a high of $43.75 in 1996, VBN shares fell to a low of $5.70 in early October. They were trading at $8 at presstime. The theoretical paper loss to Friedland, based on the 1996 high, is $129 million.

Robertson Stephens has also ridden Indochina Goldfields (ING-T), another Friedland vehicle, downhill. The funds had as many as 10 million shares of Indochina in October 1997, with a market value of around $67 million, but share prices have declined to about 75 cents. The funds have not been listed as a major shareholder in First Dynasty Mines (FDM-T), also part of the Friedland stable, which has fallen to 30 cents at presstime from a high of $12.62 in 1996.

There had been speculation that the prospectors who discovered the deposit, Albert Chislett and Christopher Verbiski, might be listening to offers from potential buyers of their 3% net smelter return on the Voisey project, which they hold through their private company, Archean Resources. Instead, it appears Franco-Nevada found another door.