Inco unveils development program for Creighton mine

Management of Inco (N-T) faced harsh criticism from union leaders representing its Canadian workers at the company’s first annual general meeting since the unveiling of restructuring plans that involve major layoffs at its Ontario and Manitoba divisions.

Determined to become the world’s most profitable and lowest-cost nickel producer, Inco announced, in November 1997 and February 1998, plans intended to produce pre-tax savings of US$165 million annually by 1999.

As part of its restructuring, Inco has reduced its workforce (both salaried and hourly) by roughly 1,700 and has indicated that more cuts will follow.

Of the positions already eliminated, some 1,000 are from the Ontario division (with at least 500 made possible through retirements), 175 are from the Manitoba division, and 100 are a result of the closing of Inco’s New York office. The company has also cut back its exploration staff, so as to concentrate on existing operations and development projects.

During the question period, union representatives from Inco’s Ontario and Manitoba divisions vented their anger and frustration at the layoffs, describing the company’s restructuring plans as “massive destruction,” in terms of their effect on Sudbury, and stating that the company had “turned back the clock on labor relations.” They added that worker morale, particularly in Sudbury, had sunk to an all-time low.

Sopko responded that “the world has changed, and the reality is that, at today’s metal prices, Sudbury is losing money.”

While it is closing its unprofitable mines in Subdury and Shebandowan, Inco is moving ahead plans for a 2-phase, US$125-million project to develop a deep, high-grade nickel-copper deposit at the Creighton mine near Sudbury.

For this deep deposit, proven reserves (between the 7400- and 7660-ft.

levels) stand at 2.8 million tonnes grading 3.45% nickel and 2.97% copper, with probable reserves (between the 7,660- and 8,180-ft. levels) estimated at 3.1 million tonnes of 3.62% nickel and 3.25% copper. These grades are higher than those of the Ovoid deposit at Voisey’s Bay.

The first phase of development, to begin immediately, will involve development between the 7,400- and 7,660-ft. levels over the years 1998 to 2013. The second phase will consist of development to the 8,180-ft. level from 2005 to 2019.

Initial ore production from the first phase is expected in 2001, with annual production projected to rise eventually to 10,900 tonnes nickel, 9,500 tonnes copper and 28,000 oz. platinum group metals (PGMs).

Regarding the Voisey’s Bay project, Inco had little new to report concerning its ongoing negotiations with aboriginal groups and the Newfoundland government, which is still insisting that a full nickel refinery and smelter be built in Argentia.

Noting that Inco has excess smelting and refining capacity at its Sudbury and Thompson operations and that the price of nickel is much lower today than when the company acquired the Voisey’s Bay deposit in 1996, Sopko told shareholders:

“What obviously makes sense is a solution that allows us to build processing facilities in Newfoundland and permits your company to receive an acceptable return. We wish to proceed with full development of Voisey’s Bay, but only if it makes economic sense. This commitment was always subject to the technical and economic realities of the project. It was never unconditional.” Inco still expects that the environmental review process for the mine-mill project will be completed during the fourth quarter of 1998 and that the necessary governmental approvals and permits will be obtained by the first quarter of 1999. And the company believes it is feasible to produce its first nickel concentrate from Voisey’s Bay in late 2000.

Sopko reiterated that, for now, no writedown is being contemplated for the project.

During the first quarter, Inco continued to negotiate impact and benefits agreements with the Labrador Inuit Association and with the Innu Nation. Yet to be resolved are the nature of the participation by the aboriginal groups in the financial returns from the deposit, as well as shipping routes and shipping schedules.

On the exploration front, work at Voisey’s Bay has been concentrated near the existing resources and reserves identified in the Ovoid, Southeast Extension and Eastern Deeps sections and in the Reid Brook zone. Drilling has also been carried out on stratigraphic targets in the Red Dog grid, about 3 km southwest of the Ovoid, and on the western continuation of the Reid Brook zone. A total of 13,356 metres of drilling was completed during the first quarter of 1998, and a 3,922-km, deep-penetrating airborne geophysical survey was conducted over 75% of the claim areas.

Inco also released its results for the first quarter, reporting a net loss of US$41 million (or US29cents per share) on sales of US$500 million, compared with earnings of US$58 million (US29cents per share) on sales of US$614 million for the corresponding period in 1997.

The company says the loss was primarily due to an after-tax charge of US$32 million (US19cents per share) associated with its restructuring program, which included a pre-tax charge of US$50 million for severance costs relating to employment reductions and a US$14-million writedown relating to assets that will be affected by the restructuring actions. Contributing to the loss were lower realized prices for nickel and copper.

On a brighter note, the cost of nickel production in the quarter dropped by 8%, compared with the year-ago period.

Inco’s realized nickel price for primary nickel products averaged US$6,173 per tonne (US$2.80 per lb.) in the recent quarter, down from US$6,724 (US$3.05 per lb.) in the fourth quarter of 1997 and US$7,716 (US$3.50 per lb.) in the first quarter of 1997.

Thanks to its hedging activities, the company’s realized copper price averaged US$2,006 per tonne (US$0.91 per lb.) in the recent first quarter, compared with US$2,205 (US$1 per lb.) in the fourth quarter of 1997 and US$2,469 ($1.12 per lb.) in the first quarter of 1997.

Inco’s deliveries of primary metals during the first quarter of 1998 consisted of: 64,267 tonnes nickel (in all forms), 37,252 tonnes copper, 515 tonnes cobalt, 62,000 oz. PGMs, 15,000 oz. gold and 410,000 oz. silver. This compares with 1997’s first-quarter deliveries of: 65,110 tonnes nickel, 42,230 tonnes copper, 508 tonnes cobalt, 39,000 oz. PGMs, 11,000 oz. gold and 370,000 oz. silver.

The company’s finished nickel inventories were 30,277 tonnes at March 31, 1998, compared with 24,578 tonnes at Dec. 31, 1997, and 30,621 tonnes at March 31, 1997. At March 31, 1998, the Inco’s total debt rose to US$1.7 billion from US$1.5 billion at Dec. 31, 1997, principally as a result of the financing of the expansion of P.T. International Nickel Indonesia and other expenditures.

Inco President Scott Hand said Inco is continuing discussions with buyers for its Inco Alloys International unit, and that Haynes Holdings is no longer involved in any negotiations.