Voisey Bay discovery looms larger by the minute; among biggest nickel, copper and cobalt finds - Voisey Bay, Montreal, Canada

MONTREAL - Either today or tomorrow new exploration details will be released on what may turn out to be one of the world's biggest nickel, copper and cobalt finds.

The discovery company said yesterday it plans to release more drilling results from the property immediately.

And almost like clockwork, other companies are lining up to stake claims at Voisey Bay, Labrador.

More than 20 major mining companies have expressed an interest in participating in Voisey Bay, according to Diamond Fields Resources Inc. of Vancouver, British Columbia, which discovered the mineral deposit in 1993. Yesterday Diamond Fields co-chairman Robert Friedland said, "We have every indication future drilling results will be extremely positive. We have no indication that we have found the best of it yet. In fact the odds are that we have not found the best of it yet."

Those that have already thrown in their prospecting hats include Celtic Minerals, Calgary, Alberta; Teck Corp., Vancouver; and Noranda Inc. of Toronto (AMM, April 19).

Teck recently paid Canadian $108 million ($79 million) for a 10.4-percent stake in Diamond Fields. Outside Canada, potential investors include RTZ Corp. Plc of Britain, Anglo American Corp. of South Africa and Australia's BHP Minerals. The latter has already teamed up with Diamond Fields to look for sea diamonds off the coast of Africa.

Diamond Fields last Thursday approved a proposal to increase the company's authorized capital to 500 million shares from a previous 50 million and to implement a shareholder rights plan, or so-called poison pill, making it more difficult for a takeover. The company currently has about 28.5 million shares outstanding on a fully diluted basis. In addition, Diamond Fields' stock has skyrocketed to around $47 at the end of April on the Toronto Stock Exchange from less than $5 last November.

All of this is based on estimates of high-grade ore reserves of about 25 million metric tons, with annual production of 100 million pounds of nickel and 60 million pounds of copper, according to John Hainey, an analyst with Sanwa McCarthy Securities Ltd., Toronto. He pegs mine development costs at C$500 million ($365 million).

Diamond Fields stumbled on this find almost by accident. In September 1993, two prospectors looking for diamonds in Labrador on behalf of the company had all but given up their three-month search. Heading home by helicopter after they had surveyed an area of 15,000 square miles, they spotted a gossan and took samples that were filled with copper sulfide.

The two prospectors are partners in exploration company Archean Resources Ltd., of St. John's, Newfoundland. They now manage Diamond Fields' Voisey Bay drilling program and hold a 3-percent net smelter royalty on any output from the mine. That's about the same percentage of nickel content in the ore body, said Hainey, who estimates Voisey Bay could contain 1.5 billion pounds of recoverable nickel, or 50 percent more than Falconbridge Ltd.'s 1 billion pounds of recoverable reserves.

"One of the biggest attractions of Voisey Bay is that the ore is right on the surface which means it can be mined relatively cheaply. And it's only about 10 miles from the sea. It has everything you need for a very rich discovery," Hainey paid.

Because of its proximity to the surface and its high grades, Hainey said production costs should be about half those of either Inco Ltd. or Falconbridge which are in the $2-a-pound range.

Based on recoverable reserves and current market prices, he said Voisey Bay could generate annual revenues of C$400 million ($288 million), net income of C$150 million ($108 million) and cash-flow of C$300 million ($216 million).

Hainey estimated a pay-back time of three years from the time production begins which would be late 1999 at the earliest. "The only limitations to Voisey Bay may be practical ones, since its potential annual output of 100 million pounds of nickel represents about 6 percent of world demand. You have to figure how to get it into the market (without depressing prices)," Hainey said.

It's still too early to speculate who might develop Voisey Bay, because there's still lots of exploration to do to determine the ultimate extent of the find. He said there's a fairly extensive drilling program in progress with close to 60 holes already drilled and about another 30 to come.

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