Goldbrook keeps 25% of Nunavik

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 Jien Canada Mining‘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 Jien 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 Supreme Court of British Columbia. But the decision is quite significant.

“This 25% issue was key to everything else,” Grant says. “If we had lost, we would still probably press forward with the other actions. But having won, it gives us a very solid base.”

The decision is just another chapter in what has been a series of stand-offs in recent years in northernmost Quebec’s Raglan area.

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 earning 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, which 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. After the market downturn, Canadian Royalties could not raise the needed funds.

“Goldbrook recognized a unique opportunity,” Grant says, “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%,” Grant says.

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 $1,000 owned. After two months, Jilin Jien bumped the offering price for Canadian Royalties from $149 million to $192 million and offered $800 for every $1,000 of debt. The company squeaked past the 67% voting threshold of shareholders, though debt holders held out for weeks past the extended deadline before the deal was complete.

With the property finally fully 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 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 Jilin Jien. Goldbrook’s stock price dropped from 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 duly climbed from 18¢ to 30¢ in the 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 process since last September, and so our relationship is a bit strained, I would readily admit,” Grant says. “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,” Grant continues, “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 is also making investments in other Canadian nickel projects, as it is 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,” Grant says. “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 $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,” Grant says, noting that the business relationship wasn’t always so frosty.

“The first years of the joint venture went exceptionally well,” Grant says. “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.”