Tuesday January 26, 11:25 pm Eastern Time
Canadian royalty firm raises stake in Voisey's Bay
By Paul Simao
TORONTO, Jan 26 (Reuters) - Canadian royalty giant Franco-Nevada Mining Corp. (Toronto:FN.TO - news) raised its stake
in the stalled Voisey's Bay nickel project on Tuesday with a C$30-million investment in Voisey's Bay Nickel Co (Toronto:Nv.TO
- news), Inco Ltd's (Toronto:N.TO - news) Newfoundland-based subsidiary.
Toronto-based Franco-Nevada, the world's largest publicly traded precious metals royalty firm, said it purchased three million Class VBN Inco shares from
Canadian base metals producer Teck Corp. (Toronto:TEKb.TO - news) at a price of C$10 per share.
The deal gives Franco-Nevada a 37-percent stake in VBN Inco and a 25-percent share of all future net profits from the prized C$4.3-billion nickel project in
northern Labrador, Newfoundland.
Franco-Nevada entered the Voisey's Bay project last October when it paid C$50.4 million to acquire 6,576,173 VBN Inco shares.
Royalty firms, such as Franco-Nevada and its sister company Euro-Nevada Mining Corp. (Toronto:EN.TO - news), enjoy the lowest costs and highest profits in the
mining industry because they do not operate mines.
Instead, they usually pay a fee for a stake in a mine's output. As production increases, so do the royalty firm's profits.
''In management's opinion it is very appropriate for Franco to invest in it (Voisey's Bay) because it is long-life, it is low-cost and it is a world-class ore body with
what they deem to be pretty considerable upside,'' said Franco-Nevada spokeswoman Donna Yoshimatsu.
The Franco-Nevada purchase, however, arrives on the heels of growing doubts about the future of Voisey's Bay.
The project has been in limbo since last July when Newfoundland broke off negotiations with Inco, refusing to issue a mining permit for the development until the
Toronto-based nickel producer agreed to build a C$1-billion smelter and refinery at Argentia, Nfld.
Such a facility would create about 1,300 permanent jobs for unemployment-plagued Newfoundland, but Inco contends the proposal is not economically viable.
During the past week financially-troubled Inco has shot down market speculation that it was planning to ease its financial burdens by taking on a partner or pushing
through a writedown on its Voisey's Bay investment.
Inco had based its Voisey's Bay project on a long-term nickel price of $3.00 a pound, considerably lower than the $3.75 a pound that nickel fetched when the
company bought the deposit in 1996.
Nickel closed at $1.96 a pound on the London Metal Exchange on Tuesday.
Analysts said Franco-Nevada's share purchase was a long-term investment.
''They quite clearly are taking the really long view of it on the philosophy that long term something will happen,'' said Manford Mallory, analyst with Research Capital
Corp. in Toronto.
Franco-Nevada shares rose C$0.15 to close at C$29.60 a share on the TSE, while Inco saw its stock fall C$0.60 to C$16.65 a share on Canada's biggest stock
exchange.
VBN Inco shares closed C$0.25 higher at C$9.55 a share on the TSE.
($1=$1.52 Canadian)
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