Sunday, Nov 15th
Voisey's Bay hustle set the stage for
Bre-X scandal: author
By MICHELLE MACAFEE
ST. JOHN'S, Nfld. (CP) - The Bre-X fiasco, which has left furious
shareholders seeking millions in lawsuits, likely would not have
happened if Diamond Fields Resources had not risen from
relative obscurity to control the massive nickel find at Voisey's
Bay, Nfld., suggests the author of a new book.
Inco's initial $500-million investment in Voisey's Bay in the spring
of 1995 left others kicking themselves for doubting the storybook
tale of down-and-out promoter Robert Friedland's discovery of
nickel while searching for diamonds in unexplored territory,
Jacquie McNish writes in The Big Score.
When Calgary-based Bre-X Minerals, a penny-stock company
founded in 1988, began trumpeting its Indonesian gold find in the
fall of 1995, investors abandoned all caution and sent share
prices skyrocketing.
The speculative boom that followed Diamond Fields ended by the
spring of 1997, when Bre-X collapsed amid declarations the
Busang find in Indonesia was a fraud.
"The Voisey's Bay story is an epic story of greed with more twists
and turns than the Labrador coast," said McNish, a
Toronto-based business feature writer at the Globe and Mail.
"The setting is the greatest speculative boom since the California
gold rush - an extraordinary time when billions of dollars (were)
backing the flimsiest of projects."
Friedland's success as head of Diamond Fields was so
implausible that it sent everyone, including the brightest analysts
on Bay Street, cheering on other potential rags-to-riches stories.
McNish's book traces the Voisey's Bay hustle from August 1985,
when a geologist for the Newfoundland government chipped off
some samples at the rich northern Labrador site, to April 3, 1996,
when Inco and Diamond Fields signed their $4.3-billion takeover
agreement.
The deal remains the largest single mining property acquisition in
history.
Inco chairman Michael Sopko knew at the time the real work had
yet to begin. But McNish said everything that could have gone
wrong has in the 2½ years since the takeover.
Nickel prices have plummeted to record lows, demand has
declined and Inco has found itself vulnerable to a hostile takeover.
In Newfoundland, the company has hit roadblocks with native
groups who lay claim to Voisey's Bay and its surrounding land.
Inco has also had problems with Premier Brian Tobin, who insists
that the company keep its promise, made in better times, to build
a smelter and refinery in the province.
Inco has said it will miss its original target of opening the mine by
the end of next year.
But the weight of the issues still to be resolved could keep the ore
underground for many more years, said McNish.
Rumours of a possible partnership with Falconbridge Ltd. may
serve both the shaky market and Inco's bottom line, said McNish.
But unlike Tobin, she expressed doubts about the need for Inco to
take an immediate writedown on the project, a move that would
increase its losses.
The company's payment to Diamond Fields in shares rather than
cash gave it more room to manoeuvre and saved it huge interest
payments on its debt, but at the same time "horribly diluted its
stock value," said McNish.
A writedown would also be a huge blow to Inco management and
force the company to speculate on the value of its investment
once nickel markets come back to life.
"The real test will be time," said McNish.
"I do believe this will prove to be a great acquisition. It may take
20 years to be able to say that, but it's a fantastic ore body."
---
The Big Score: Robert Friedland, Inco, and the Voisey's Bay
Hustle. Jacquie McNish. Doubleday. $35.95.
© The Canadian Press, 1998 |
