The group stated that Inco “is counting on long-suffering VBN shareholders to tender their shares for a fraction of their potential value in anticipation of renewed negotiations to develop the massive Labrador project.”
Citing the need to eliminate a “conflict of interest” between its common shareholders and the holders of its VBN preferred shares, Inco offered to buy back the series for $7.50 plus 0.45 of a purchase warrant exercisable at $36, a significant premium over the $27.10 closing price of Inco common shares on Sept. 5, the day before the announcement.
Inco President Michael Sopko said the buy-back would allow the company to make choices between developing projects without creating a conflict of interest with VBN shareholders, who have a direct interest in seeing the Voisey’s Bay nickel deposits in Labrador go into production.
The VBN shares were created for Inco’s takeover of Diamond Fields Resources, the company that discovered the Voisey’s Bay nickel deposits. The shares were meant to provide a vehicle for Diamond Fields shareholders to retain a direct interest in the project. The shares are entitled to receive 25% of the unallocated cash flow from the operations of Voisey’s Bay Nickel.
The shares rose as high as $43.75 in 1996, but, over the past year, they have ranged from $6.15 to $14.50.
The New York group believes the shares should be valued at more than $50 each based on the company’s carrying value of the stalled Voisey’s Bay project. The group discounts Inco’s statements that the project might not proceed until 2005, citing rumours of recent informal talks between the company and the Newfoundland government, aimed at reviving the project. The group also points to strong nickel prices, which they believe render the project more attractive to Inco. The group says its evaluation of the company’s offer came from a former “well-known Wall Street mining and metals analyst who previously covered Inco.”
Inco has an agreement with
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