Falling metal prices sink Inco’s earnings

With weak demand and prices for nickel and copper on the slide, Inco (N-T) put in a loss of US$5 million for the fourth quarter of 2001.

The loss, which includes a US$3-million gain thanks to a weaker Canadian dollar, tallies to US7 per fully diluted share, compared with a year-ago net profit of US$83 million (or US39 per share). Sagging metal prices continue to eat away at the nickel giant’s bottom line. Revenue during the latest quarter was US$463 million, off about 31% from the previous year.

For the year, Inco earned US$305 million (or US$1.49 per share) on sales of US$2.1 billion, down from the US$400 million (US$1.89 per share) earned on US$2.9 billion in 2000.

“The impact of the economic downturn on nickel demand and prices made last year a challenge,” said Scott Hand, Inco’s deputy chairman and chief executive officer. He adds “We are cautiously optimistic near-term since we expect a recovering nickel market in the second half of 2002 and are well positioned to benefit when the recovery occurs.”

At the end of 2001, the company’s cash and marketable securities were US$306 million, up from US$193 million at year-end 2000. Total debt rang in at US$840 million, US$190 million less than at the end of 2000.

During the fourth quarter, Inco delivered 62,464 tonnes of nickel in all forms (compared with 63,816 tonnes a year ago), 28,815 tonnes copper (30,726 tonnes), 359 tonnes cobalt (325 tonnes), 96,000 oz. PGMs (87,000 oz.), 19,000 oz. gold (19,000 oz.) and 410,000 oz. silver (290,000 oz.).

For all of 2001, deliveries amounted to 207,071 tonnes of nickel in all forms (compared with 199,097 tonnes a year ago), 116,751 tonnes copper (118,025 tonnes), 1,454 tonnes cobalt (1,422 tonnes), 405,000 oz. PGMs (342,000 oz.), 76,000 oz. gold (65,000 oz.) and 1.5 million oz. silver (1.4 million oz.).

In-house nickel production during the quarter climbed to 58,201 tonnes from 54,723 tonnes a year earlier. Cash costs increased US10 to US$1.60 per lb. nickel (before byproduct credits). For the year, Inco’s in-house nickel production amounted to 207,077 tonnes (202,806 tonnes) at a cash cost of US$1.56 per lb.(US$1.48 per lb.).

Fourth-quarter nickel production benefited from the processing of higher volumes of purchased intermediates. The increase in cash cost is owing to significantly lower contributions from by-product credits, a result of lower realized prices. Also adding to costs was accelerated stripping costs at PT Inco in Indonesia and start-up problems at the company’s Ontario processing facilities following the planned summer shutdown.

Inco’s averaged realized price for nickel during the latest fourth quarter fell to US$2.48 from US$3.60 per lb., while realized copper prices dropped to US68 from US88 per lb. from the year-earlier periods. By comparison, London Metal Exchange spot prices for nickel and copper averaged US$2.29 and US65 per lb., respectively. For all of 2001, Inco realized US$2.93 per lb. for its nickel and US76 per lb. for its copper, off 28% and 12.6%, respectively from a year-ago. LME spots averaged US$2.70 per lb. and 72 per lb., respectively for the year.

Looking ahead, Inco pegs first-quarter 2002 production at 54,000 tonnes of nickel, 32,000 tonnes of copper and 95,000 oz. of PGMs. For the full year, production is expected to reach 213,000 tonnes of nickel, 125,000 tonnes of copper and 405,000 oz. of PGMs. Nickel unit cash costs (net of by-product credits) for the first quarter and full year 2002 are projected at US$1.35 to $1.40 per lb. The increased projected production of nickel relative to 2001 is based on a full year of production from the due to operating the Ontario operations. Contributions from PT Inco will be lower as the furnace is shut down for a rebuild beginning in the fourth quarter of 2002 and running through to the third quarter of 2003.

The company figures 2002 net earnings should ring in around US48 per share, on a diluted basis.

Turning to the US$1.4-billion Goro nickel-laterite project in New Caledonia, Inco says it expects an operating permit to be approved by early in the second quarter of 2002. In addition, an application for permits for construction have been submitted during the fourth quarter and preliminary earthworks are expected to ramp up by the end of February.

Currently, Inco owns an 85% interest, with the remainder held by the Bureau de recherches gologiques et minires (BRGM), an agency of the French government. However, Inco hopes to sell a 15% stake in Goro to a third party who would likely also acquire BRGM’s interest.

On the Voisey’s Bay watch, confidential negotiations between the company and the Province of Newfoundland and Labrador have continued over commercial development of the deposit. Many of the major issues remain unresolved, including the government’s continuing insistence that ore be processed in the province.