BUSINESS

BOOM TIME

Diamond Fields' metal discovery starts a mining rush in Labrador

BRENDA DALGLISH May 22 1995
BUSINESS

BOOM TIME

Diamond Fields' metal discovery starts a mining rush in Labrador

BRENDA DALGLISH May 22 1995

BOOM TIME

BUSINESS

Diamond Fields' metal discovery starts a mining rush in Labrador

BRENDA DALGLISH

The metal detector at the Goose Bay airport worked overtime last week as Robert Friedland, co-chairman of Diamond Fields Resources Inc. of Vancouver, passed through. Returning from a visit to one of the largest base metal discoveries in North America in 25 years, Friedland—along with a party of mining executives and geologists from other companies—carried small ore samples from Diamond Fields’ deposit at Voisey Bay, Labrador, 300 km northwest of Goose Bay. The rock samples in the group’s briefcases and backpacks were so loaded with nickel and copper that they set off the security alarms. But for Friedland, a controversial stock promoter from Vancouver whose reputation was badly tarnished by a failed gold mine project in Colorado a few years ago, the buzz of airport se-

curity equipment was musical: it was further demonstration that Diamond Fields has found an extremely high-grade ore body just below the surface, only a few kilometres from water and easy transportation to market. “It doesn’t get much better than this,” Friedland said, as he visited the remote snow-covered site for the first time last week. ‘You can just feel the excitement up here.”

Over the past two months that excitement has spread like a brushfire. In April, Diamond Fields announced that Teck Corp., also of Vancouver, had bought a 10-per-cent stake in the company. That deal, valued at more than $108 million, is the best evidence yet that the company may have struck the “elephant” deposit that federal Natural Resources Minister Anne McLellan described to an international trade conference in Florida in March. The Teck deal also put a preliminary estimate of the value of the deposit at more than $1 billion and sent the value of Diamond Fields’ shares soaring. The shares, which have traded for as little as $3.30 in the past year, were

bought by Teck at $36 a share on April 17 and are now trading at about $56 each.

As word of the base metal discovery spread, an explosive land-staking rush followed. Mining companies, prospectors and the general public descended on the Newfoundland mining records office in St. John’s, lining up for hours to register their claims. In the past six months, more than 110,000 claims have been staked for mineral rights, covering about 10 per cent of Labrador.

Across the continent, the Vancouver Stock Exchange quickly joined the nickel rush as more than 50 junior mining companies, armed with freshly staked claims in Labrador, began touting the possibility that they, too, would find a mine. But even though there is no shortage of speculators willing to place their bets, mining analyst John Ing, of Maison Placements Inc. in Toronto, says, “Vancouver promoters appear to be having their greatest success mining the pockets of the public.”

Friedland is certainly no stranger to the game of promoting high-risk mining ventures and their stocks (page 45). In 1986, a wholly owned subsidiary of Galactic Resources Inc. of Vancouver, of which Friedland

was then chairman, chief executive officer and president, opened Summitville gold mine in Colorado, which employed a so-called heap leaching technique that relied on cyanide baths to extract gold from the raw ore. Over the next six years, until the mine stopped operating in 1992, it caused extensive environmental damage to the nearby Alamosa River. The Environmental Protection Agency, which took over the site as the mining company went bankrupt, has estimated that it will spend $140 million cleaning it up. The EPA is conducting an ongoing investigation into Friedland and individuals from other engineering and mining companies associated with the mine in an attempt to recover its costs. Friedland, who resigned from all his posts at Galactic in 1990, emphatically denies responsibility for the damage, saying that key engineering and consulting companies who were hired to develop the mine are to blame instead.

That troubled past, however, now appears to be behind him. Friedland says that Diamond Fields has now moved into serious negotiations with several international mining companies, including Inco Ltd., Falconbridge Ltd., both of Toronto, and Teck, over which of

them will gain the right to develop and mine the deposit. Friedland is looking for an experienced partner because he says he has no interest and little expertise in mine development. “Right now, Diamond Fields is like a beautiful woman in a bar,” says Edward Mercaldo, the company’s executive vice-president and chief financial officer. “There are a lot of rough-and-ready characters coming over to flirt.” Or as Friedland, himself, described the negotiations: “It’s like playing poker with five aces in your hand.”

The history of the Voisey Bay discovery began more than four years ago when Friedland and Diamond Fields’ co-chairman, Jean-Raymond Boulle, a former manager with De Beers Consolidated Mines Ltd. in South Africa, decided to join the growing hunt for diamonds in Canada. Friedland says that Diamond Fields, which he formed in 1993, chose to focus its exploration program in Labrador, as well as Saskatchewan, partly because those areas had not been scoured by prospectors in the past. “If you want to find a really good mine,” explained Friedland, “you have to go where nobody else is looking.”

Diamond Fields hired two Newfoundland-based prospectors, AÍ Chislett and Chris Verbiski, to carry out the company’s exploration program in Labrador. Instead of diamonds, however, the prospectors came across the first sign of a mineral deposit in September, 1993, when they noticed a rusty-colored rock outcrop on a hillside. A few days after they spotted it from a helicopter, Chislett and Verbiski returned to the site to take rock samples. Although those samples showed a high-grade metal content, an extensive drilling program was required to determine whether the deposit was small and isolated, or part of an ore body large enough to justify the development of a full mine. In October, 1994, Diamond Fields drilled the first of four holes to explore the deposit. The results confirmed the presence of a deposit worth further exploration and the drilling continued. With the seventh drill hole, the company struck what geologists now believe is the heart of a high-grade ore deposit that contains rock with more than 3.5-per-cent nickel content and more than two-percent copper, as well as meaningful amounts of cobalt. Those nickel and copper grades are almost twice as high as those in many operating mines in the world now.

Geologists theorize that the deposit was created when the Earth’s tectonic plates separated and molten magma rose from the Earth’s core. They think that, because of the way the Voisey Bay deposit was formed, there are probably other deposits in the area. “It’s hard to believe,” says Friedland, “that we managed to hit the only ore in the area with our first drill holes.” But proving the presence of more deposits can only be done with extensive, closely spaced drill holes.

Teck chairman Norman Keevil, a geophysicist by training—who also visited the site for the first time with Friedland last week—says that the signs are very promising. “You could stop drilling now,” says Keevil, “and go into production and have a very good mine, an exceptional mine.” He adds that Teck would like to own a bigger interest in the mine, but that decision is up to Friedland.

Voisey Bay has generated much excitement in the mining community because it is the first really big discovery in Canada in more than a decade. Canadian mining companies have been moving more of their exploration offshore to countries like Chile and Peru recently, as those countries open their economies and appear less inclined to privatize foreign mining operations than they have been in the past. That,

combined with North America’s tougher new environmental laws, has encouraged Canadian mining companies to explore elsewhere.

But Voisey Bay’s rich nickel and copper deposit has changed that. Although nickel and copper do not have the investment glamor of gold, they are essential industrial metals that are increasingly in demand. Nickel, which is used to harden other metals, is a key component in stainless steel. It is used extensively in automobiles, other consumer goods and industrial products. Copper, which slumped in the 1980s as fibre-optic cables steadily replaced traditional copper wiring in the telecommunications sector, is currently booming again. One of its biggest growing uses is in the numerous small motors in automobiles that operate everything from windows to windshield wipers. And the price of both metals has been rising recently as the North American economy gathers steam.

But a mine at Voisey Bay is unlikely to go into production fast enough to benefit from the recent surge in world markets. Friedland says that it will be several years before the mine begins commercial production. The biggest reason for the delay is the ongoing land claims dispute over the territory, waged between the Innu and Inuit of the region. Both groups have laid claim to the land where they have fished and hunted caribou for generations. Government officials are now under growing pressure to settle the dispute so that the mine can proceed.

In Nain, a mostly Inuit community of 1,100 people 35 km northeast of Voisey Bay, enthusiasm over the economic benefits of the exploration and the possible mine development is tempered by concerns about a mine’s impact on the community’s traditional way of life. Tom Goodwin, who owns the town’s only hotel, the nine-room Atsanik Lodge, is already enjoying the business boom that has filled his hotel in the past year. When the Diamond Fields site development crews and the exploration crews from other companies flock to the area, the only accommodation to be found will be in rooms rented in the homes of local residents. Although 15 local residents now have jobs at the exploration site, Goodwin says that the promise of more employment is welcome in a community where more than 40 per cent of the population is under the age of 25 and the rate of unemployment is pushing 50 per cent. Mayor Richard Pamak says that Nain’s social problems

are similar to, but not as severe as those at Davis Inlet, the nearest community to the south, where the community suffers from alcoholism, drug abuse and teen suicides. “A mine would mean jobs and a better future for some of those kids,” he said.

Nain is a tiny community perched on the edge of a rugged fiord whose shoreline remains frozen until mid-June every year. Most residents still rely on the annual caribou hunt, and fishing for arctic char and salmon to supplement the unemployment insurance and social assistance income they receive from the government. But some Nain residents are growing concerned about the effect of a mine on their community. “It’s scary,” says local electrician Jim Webb. ‘This was just a sleepy little town. Now, things are being pushed so fast none of the local people can keep up with it.”

Webb and other residents of Nain have other, more concrete worries, as well. Referring to the Summitville gold mine in Colorado, Webb added: ‘We’re not totally against the mine. We just want to get all the safeguards in place. You wonder whether it could be another environmental disaster like the one in the States.” Diamond Fields’ 1994 annual report does not identify Friedland as co-chairman or make a single mention of his connection to the company—even though he now describes himself as its “cofounder.” But John Woods, of the Vancouver-based Stockwatch newsletter, a publication that scrutinizes stock promotion activity, says the Voisey Bay discovery has refurbished Friedland’s reputation. ‘There’s been a remarkable transformation of Robert Friedland,” said Woods. “He’s gone from being Toxic Bob of Summitville’ to g ‘Saint Robert of Labrador.’ ” And y Friedland is anxious to present that 5 fresh face to investors. “I have a very deep and real desire to see that this thing [Voisey Bay] really benefits everyone and is done right,” Friedland said last week. “The same mistakes won’t be made twice.”

For now, Friedland’s immediate task is to negotiate a deal with one or more major mining companies to develop the Voisey Bay deposit. He says that Diamond Fields has been approached by more than 20 international mining corporations. Inco has reportedly bid $70 a share for a stake in the company, but Inco executives, officially, will say only that they, like most major nickel producers, are “interested” in the find. Friedland and Boulle each own 3.7 million Diamond Fields shares, or about 13 per cent of the total each, making them the second-largest shareholders after the Robertson, Stephens & Co. mutual fund group of San Francisco, which owns four million shares. But Friedland notes that several factors—aside from price—will determine which suitor is selected as a development partner. “We have a point system,” says Friedland. According to him, Canadian companies with a record of “unquestionable environmental excellence” and extensive nickel marketing experience will be given first consideration.

For Friedland, whose skill as a stock promoter is his ability to sell nothing more than an idea, the chance to negotiate a deal to sell a proven asset presents a new and unusual challenge. Ing stead of persuading speculators to invest a little g of their money in his dream, Friedland’s task this I time will be to see how much money he can get S for a proven deposit. And for any professional § gambler, the chance to play a hand with five aces S is a once-in-a-lifetime opportunity. □