DIAMOND Fields Resources has struck it rich, but not on diamonds.
The junior exploration company from Vancouver paid a couple of prospectors to go on a search at the other end of Canada, in the cold wastes of Labrador, where they found what could be the richest, lowest-cost nickel deposit in the world.
The Voisey Bay discovery has moved Diamond Fields Resources stock from $4 (Canadian; US $2.96) last November to C$57 this past week. The majority owner of the company, Robert Friedland, has made almost C$250 million from the find.
Mr. Friedland, who describes himself as a promoter, has been involved in other deals that have lost investors money. But with this project, huge mining companies are lining up to buy a piece of a company that is worth C$1.64 billion before it has put a shovel into the earth.
''The discovery of the Voisey Bay nickel-copper deposit has potentially left this company with one of the most exciting nickel discoveries since Sudbury,'' writes Stephen Bonnyman in a report this month from RBC Dominion Securities, Canada's largest brokerage firm.
Sudbury, in northern Ontario, is the home of the nickel deposit that built and sustains Inco (International Nickel), the world's largest nickel company.
This week, a new report on exploration of the ore body shows that the nickel discovery may be richer than earlier thought.
''The estimates range anywhere from 10 million to 100 million tons, though 40 million would be a good estimate,'' says Ray Goldie, mining analyst at Richardson Greenshields in Toronto.
''This discovery is becoming so potentially huge that some of the major mining companies such as Inco and RTZ Corporation [of London] will be almost forced to come in and take it over,'' Mr. Goldie says.
''Inco, like many other companies, is profoundly interested in Voisey Bay,'' said Inco spokesman Bob Purcell.
There is talk the mine could be open in 1998 or earlier. The deposit, while in a bleak, barren part of the world, is relatively close to the coast and the open ocean.
But Goldie says there are three big problems facing its development: ''Total lack of infrastructure; its virgin environmental territory; and two native groups have land claims there.''
Goldie says the environmental hurdles may be the toughest. ''Greenpeace knows and loves the coast of Labrador,'' he says.
Nevertheless, investor interest is high. Teck Corporation, a Vancouver-based mining company, paid C$108 million for a 10.4 percent stake in Diamond Fields earlier this year. That investment is now worth C$170 million.
The RBC Dominion Securities report identifies one reason for the excitement over what it calls ''a world-class nickel-copper-cobalt deposit.'' It says there is enough ore to ''ensure economic viability as a mining operation.'' The cobalt and copper make the discovery even more profitable.
Both nickel and cobalt are metals that depend on the business cycle. They are used in making stainless and other speciality steels. Analysts say the value of the Voisey Bay deposit will fluctuate with the demand for products using nickel, which, of course, influences nickel prices.
The report suggests that the deposit could supply 10 percent of world cobalt demand and 12 percent of nickel demand. The additional supply to world markets would probably lower prices for both cobalt and nickel, speculates Mr. Bonnyman.
''For Inco, Voisey Bay would provide the addition of low-cost reserves to supplement its already substantial operations in Canada, as well as lowering its cost of production,'' he writes.
But if a major producer such as Inco were to buy control of Diamond Fields Resources, would it want to develop the site right away and drive down prices?
Nickel prices are now around US$3.50 per pound. Bonnyman suggests that even a mine working at half production at Voisey Bay could drive nickel prices below US$3 per pound.
''Being one of the higher-cost nickel producers, Inco has the most to lose letting Voisey Bay go into production early, as its earnings are the most highly leveraged to the metal's price,'' the report says.
There are other possibilities. Friedland, with his 14.6 percent interest in the company, could use the money from Teck or perhaps add funds from another partner to develop the nickel deposit alone.
The problem for many investors is the stock price. At C$57 a share, one analyst said it is too rich even for Inco. Other mining analysts say Inco can't afford not to be involved.
And RBC Dominion Securities, the first major broker to do a detailed analysis of Diamond Fields and its Voisey Bay deposit, feels the stock is overvalued, given the information available.
''The stock is probably worth something more than C$30 a share while the opportunity for a takeout by a major mining company exists,'' the report concludes. Stock-market speculators have not made the same conclusion.