Inco celebrates centenary in the black (April 22, 2002)

Despite lower nickel prices and declining sales, Inco (N-T), which celebrates its 100th birthday this month, posted a profit of US$11 million for the first quarter. The figure marks a distinct improvement over the US$5-million loss incurred in the fourth quarter of 2001.

Still, the earnings, which translate into US2 per diluted share, compare miserably with the US$85-million (US42-per-share) profit enjoyed in the first quarter of last year. Revenue between the two periods slipped to US$506 million from US$586 million.

Thanks to lower average realized prices for nickel, platinum group metals and copper, operating earnings were US$42 million in the first quarter, well off the US$145 million of the year-ago period.

Inco’s averaged realized price for nickel during January-to-March period was US$2.94 per lb. (US$6,482 per tonne), down from US$3.27 per lb. (US$7,217 per tonne) a year earlier. Realized copper prices dropped to US74 per lb. (US$1,639 per tonne) from US85 per lb. (US$1,867 per tonne).

By comparison, London Metal Exchange spot prices for nickel during the recent first quarter averaged US$6,207 per tonne, with copper averaging US$1,557 per tonne.

During the quarter, Inco delivered 53,189 tonnes of nickel in all forms (compared with 51,384 tonnes a year earlier), 32,021 tonnes copper (29,945 tonnes), 374 tonnes cobalt (434 tonnes), 90,000 oz. platinum group metals (93,000 oz.), 19,000 oz. gold (20,000 oz.) and 420,000 oz. silver (380,000 oz.).

In-house nickel production, quarter over quarter, climbed to 59,547 tonnes from 52,585 tonnes, while cash costs before byproduct credits fell US16 to US$1.45 per lb. nickel (US$3,197 per tonne).

First-quarter nickel production benefited from improved ore grades and recoveries, the processing of higher volumes of purchased intermediates, and an increase in the quantity of ore mined. The decrease in cash costs before byproduct credits is largely attributed to lower energy costs and a weaker Canadian dollar relative to the greenback.

On the Voisey’s Bay watch, talks between Inco and the government of Newfoundland and Labrador have started to bear fruit. Inco says it’s close to reaching a deal to develop the massive nickel project and has made headway in negotiations with the Labrador Inuit Association and Innu Nation on impact and benefits agreements.

“We’ve made significant progress in negotiations with the government of Newfoundland and Labrador,” said Chief Executive Officer Scott Hand at the annual meeting in Toronto. “There are only a few outstanding items to be resolved, and Premier Roger Grimes and I have agreed to sit down shortly to hammer out the details. I’d like to tell you it’s all a done deal, but stay tuned: we’re close.”

He said the company is also close to reaching an agreement with the federal government regarding research-and-development aid for the hydrometallurgical technology proposed for Voisey’s Bay.

If a deal is struck at Voisey’s Bay, a review might require a significant reduction in the carrying value of the project. Analysts Barry Allan and Oscar Cabrera of Research Capital suggest that at a discount rate of 10% and a long-term nickel price of US$3 per lb., Voisey’s Bay has a net present value of only US$598.8 million. They estimate that the project’s cumulative net cash flow, after capital and taxes, is US$2.5 billion, whereas in mid-2001, Inco was carrying the project on its balance sheet at US$5.6 billion.

Unnamed partner

Meanwhile, Inco intends to sign on a partner (as yet unnamed) at its 85%-owned, US$1.4-billion Goro project in New Caledonia. The French government holds the remaining stake in Goro, which is expected to start up in late 2004.

Hand said the deal being negotiated would see Inco’s stake drop to about 65-70%; the new partner would pick up 25%; and France would be left with 5%. He added that the prospective partner is, “a mining company and very likely a nickel company, and somebody with whom we can work on a long-term basis.”

Inco expects to produce 54,000 tonnes nickel, 32,000 tonnes copper and 105,000 oz. platinum group metals during the second quarter of 2002. For the full year, production is expected to reach 213,000 tonnes nickel, 125,000 tonnes copper and 405,000 oz. platinum group metals. Second-quarter and full-year nickel unit cash costs (net of byproduct credits) are projected at US$2,976-3,086 per tonne.

Resignation

In the boardroom, Michael Sopko has stepped down after nine years as chairman and CEO. He will remain as non-executive chairman.

At the end of March, the company had cash and marketable securities totalling US$242 million, down from US$306 million at the end of 2001. Total debt stood at US$803 million, and the issued and outstanding shares exceeded 182 million.

After hitting a 52-week high of $33.60 in early trading on the Toronto Stock Exchange at presstime, Inco’s shares settled to $33.46 later in the afternoon. The company’s share price has gained more than 23% since the beginning of January, outperforming the Toronto Stock Exchange’s metals and minerals index, which has gained about 15% on the year.