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Industry giants in position to reap mining bonanza

Mutual funds place their bets on Inco, Falconbridge and Teck Cominco, KEITH DAMSELL writes


Multibillion-dollar mergers are breaking out across the mining sector and a few mutual funds are well-positioned to reap the gains.

Last week, Teck Cominco Ltd. launched a surprise $17.8-billion bid for Inco Ltd.

Inco Ltd., meanwhile, on Saturday raised its friendly bid for Falconbridge Ltd. to $19.6-billion and is struggling to get regulators to sign off on the deal. Mining multinationals are watching from the sidelines, including BHP Billiton, Rio Tinto PLC and Anglo American PLC. Analysts widely expect another player to enter the fray.

Fund managers are placing their bets.

Teck Cominco: Toronto-based CI Financial Inc. has been an opportunistic investor in the Vancouver base metals play.

In the first three months of the year, CI-managed funds sold off about 1.4 million class B shares as the stock climbed from a low of $61.97 to a March high of $77.07. As of April 1, 11 CI funds hold about 3.5 million shares worth about $250-million.

CI Canadian Investment Fund is the fund industry's single biggest investor in Teck Cominco, owning 2.2 million shares. It's worth noting that the fund is underweight in the mining sector, holding about 12 per cent in materials stocks compared to the sector's 17-per-cent weighting in the S&P/TSX composite index. The $5-billion fund has a modest three-star rating from, slightly besting the one, three, five and 10-year annual average returns of its Canadian equity fund rivals.

Inco: Fund giant Fidelity Investments of Boston is known for making big bets on stories it likes -- and it likes Inco.

The Boston-based firm has been building a position in the nickel company, snapping up about 3.7 million shares in the last few months of 2005. Sixteen Fidelity funds now control about 6.7 million shares, about 3.5 per cent of the Toronto nickel firm's equity.

Fidelity Canadian Asset Allocation Fund is the fund company's single biggest Inco investor, controlling two million shares. The tactical balanced fund is overseen by Alan Radlo, manager of a total of $9-billion for Fidelity. Inco is a rare mining stock he likes; the fund has a tiny 4.4-per-cent weighting in the materials sector.

Falconbridge: It's well known that Swiss based miner Xstrata PLC snapped up a 19.9-per-cent interest in the nickel firm last August and is signalling it wants the rest of the firm.

Bank of Nova Scotia may be a key beneficiary. Scotiabank has been taking profits, unloading 3.1 million shares in the last quarter of 2005. As of Dec. 31, the Toronto bank held 13.6 million shares worth about $187-million. Fidelity is close behind, buying Falconbridge stock through last year and, as of Dec. 31, holding close to 10 million shares across 19 funds. The biggest of the bunch is Canada's Fidelity True North Fund, holder of 2.3 million Falconbridge shares across 21 fund classes. The fund is overseen by research-driven Stephen Binder and is currently keeping pace with the S&P/TSX composite index and its rivals over one, three and five years.

Hamilton adviser sued

A $51-million class-action lawsuit has been filed against a Hamilton-based financial adviser.

Bob Adams, a planner who solicited clients in the Hamilton region in the early 1990s, is at the centre of the lawsuit.

According to court documents, more than 100 of Mr. Adams' clients invested money into limited partnerships called Standby Letters of Credit. The vehicle promised that for every $100,000 (U.S.), investors would receive annual returns of more than $12,000, the suit claims. The returns never materialized and millions of dollars remain unaccounted for, the suit alleges. Losses range from $25,000 to as much as $200,000 a person.

Investors are suing Mr. Adams and a handful of other defendants, including Select Financial Services Inc. of Cambridge, Ont. Mr. Adams declared personal bankruptcy in 2000 and continues to work as a financial adviser with Armstrong & Quaile Associates Inc., also of Cambridge.

Mr. Adams did not return telephone calls. Boyd Balogh, a Toronto lawyer representing Select Financial, declined to comment. A statement of defence has not been filed.

Norshield assets identified

There was some rare good news this month for investors in troubled hedge fund Norshield Financial Group.RSM Richter Inc., the receiver of the Montreal financial services firm, has identified a further $34-million in assets and is attempting to recover the funds. Richter declined to provide details but, when added to $36.1-million in errant Norshield funds the receiver is already chasing, the sum of potentially recoverable money totals $70.1-million. The bulk of money retrieved by Richter will be used to refund investor losses in the insolvent company.

Norshield, considered Canada's first hedge fund, filed for receivership in June last year amid investigations by securities regulators in Ontario and Quebec. About 1,900 retail investors sank $131.9-million into the company's funds while a group of institutional clients invested $210-million.

Richter is tracking the trail of dollars through Norshield's Byzantine structure and has interviewed senior management across the company, including founder John Xanthoudakis. All information is being shared with regulators and law enforcement officials.

© 2007 The Globe and Mail. All rights reserved.

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