Vancouver – A potentially lucrative partnership that turned sour and then to the courts is a step closer to resolution after an arbitration panel ruled that Goldbrook Ventures (GBK-V) has the right to a 25% stake in Jilin Canada’s Nunavik Nickel project.
The panel’s decision is the biggest step yet in resolving the feud between China-based Jilin Jien Nickel and Goldbrook that started last September after Jilin apparently voted itself 20% more of the voting shares in Jilin Canada, the joint venture company that controls the remote nickel project.
Brian Grant, president and COO of Goldbrook, noted in a phone interview that they still have to figure out how the ownership structure will be fixed, further arbitration is needed, and Goldbrook is pursuing oppression litigation in the British Columbia Supreme Court, but the decision is still quite significant.
“This 25% issue was key to everything else,” said Grant, “if we had lost we would still probably press forward with the other actions, but having won it gives us a very solid base to carry out the other actions.”
Indeed, the decision is just another chapter in what has been a series of stand-offs over the years in the nickel sector of Quebec’s far north.
Goldbrook and Jilin Jien first started working together in 2008 as joint venture partners on Goldbrook’s 3,600-sq.-km Raglan project in Northern Quebec, with Jien able to earn a 50%-stake in the project by spending $45 million over three years.
Earlier this year Jilin Jien launched legal action maintaining that it had earned its 50% interest and should now be operator of the project, but Goldbrook disputed how the company had accounted for Quebec’s generous rebate program that can amount to almost 40% of exploration spending. The arbitration panel in that case ruled that Jilin Jien was in the right and Goldbrook was ordered to immediately pay $937,000 to Jilin Jien for excess rebates paid into the project.
Grant said the dispute was minor and “just an honest difference of opinion,” with the much bigger issue having to do with ownership of the Nunavik Nickel project, adjacent to the Raglan properties. That story also started in 2008, when Canadian Royalties was working to build a mine but, thanks largely to the market downturn, was unable to raise the needed funds.
“Goldbrook recognized a unique opportunity,” said Grant, “so we brought that to Jilin Jien Nickel and proposed that we do a takeover, and we would provide the expertise…and JJ was responsible for fully funding the takeover and subsequent mine development costs.”
“After it was all said and done and accomplished, JJ would own 75% and we would own 25%,” said Grant.
The hostile takeover of Canadian Royalties ended up a bitter affair, with company CEO Glenn Mullan strongly opposing the deal. Holders of $137 million worth of Canadian Royalties debt were also opposed as they faced receiving $600 for each $1000 owned. After two months Jien bumped the offering price for Canadian Royalties from $149 million to $192 million and offered $800 for every $1000 of debt, and managed squeak past the 67% voting threshold of shareholders, though debt holders held out for weeks past the deadline before the deal was complete.
With the property finally secured in early 2010, Jien Canada started work on advancing Nunavik. In mid-2010 Jien approved a $122.4 million construction budget for the year as it embarked on feasibility studies and permitting, with a target of early 2012 to commission the 4,500-tonne-per-day mill. The property was secured, the money was there, and things were looking good for the venture.
Not long after, however, Jilin Jien Nickel apparently voted itself more voting shares of Jien Canada, leaving Goldbrook with a little over 4% of the company. In response, Goldbrook announced in late September that it was suing Jien Nickel. Goldbrook’s stock price dropped from around 40¢ to 20¢ on the news.
After months of arbitration and evidence submissions, the panel finally made a decision on July 20 that Goldbrook was indeed entitled to 25% of the project. The company’s stock has duly jumped from around 18¢ to 29¢ in recent days following the ruling.
Going forward, Grant is not sure what form their working relationship with Jilin Jien will take, if any.
“We’ve been in this arbitration for this process since last September and so our relationship is a bit strained, I would readily admit,” said Grant, “and certainly going forward it’s questionable as to whether we can put it back together and become good business partners. I suspect not.”
“But at the same time,” continued Grant, “they are the operator on Jien Canada and the mine construction is going forward and it has been all this time, regardless of our differences of opinion.”
Jilin Jien has also been busy making investments in other Canadian nickel projects, now a majority shareholder of Liberty Mines (LBE-T), with several nickel projects in the Timmins area, and a minority shareholder of Victory Nickel (NI-T), whose main project is the Minago nickel project in Manitoba. Jilin Jien, part of China’s Horoc Group, also has international interests in Australia-based Metallica Minerals (MLM-A) and the Ramu nickel mine in Papua New Guinea.
It is a far cry from 2008 when Jilin Jien was first branching out to North America.
“They had no significant or substantial projects that they were involved in North America at the time we got involved with them,” said Grant, “so we provided the financial expertise and the geological expertise that got them into the Raglan in the first place.”
For providing that expertise Goldbrook got its 25% stake in the project, while Jilin Jien put up the $192 million for Canadian Royalties and the roughly $575 million for the mine construction. Goldbrook will pay back its share once the project is cash-flow positive, but Grant thinks Jilin Jien changed its mind about the merits of the arrangement.
“They just decided that Goldbrook would be making too much money from this agreement when the mine was in production and the loans were paid back, and they just decided to get rid of us at no cost to themselves,” said Grant, noting that the business relationship actually started out quite well.
“The first years of the joint venture went exceptionally well,” said Grant, “we thought we had a great partner. It was only really after the takeover was affected and they got on the ground and realized the value of these assets that were involved, and from what I can see, they just got greedy.”
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