Inco foresees dip, then rise, in output of valuable nickel

Addressing a meeting of brokerage house analysts in Toronto, Donald Phillips said exhaustion of the Thompson open pit in Manitoba early next year will result in a small drop in company production to about 420 million lb. Total estimated nickel production this year by Inco is 434 million lb.

By 1991-92, Phillips said annual production should reach 440-450 million lb following completion of the P.T. Inco expansion in Indonesia and development of the South pit at Thompson.

The Thompson open pit was originally expected to operate at about 35 million lb per year for 8-9 years, but Phillips said the operation turned out more than 230 million lb during the last three years in response to a strong nickel market.

Nickel prices on the London Metal Exchange (LME) neared $11(US) per lb in 1988, averaging $6.27 for that year. The higher prices were carried over to 1989, with the metal averaging $7.14 during the first half. Recently, the nickel price has fallen off, and was trading below $5.

Inco does not publicly forecast the market, Phillips said. Predictions by analysts have pegged an average price range of $3.75-4.50 for nickel in 1990.

Inco has been having no trouble selling the nickel it has been producing, as the company’s balance sheet attests. During the first nine months of 1989, Inco reported record revenues of $601.3 million, up from $516.4 million for the same period in 1988.

The stainless steel sector is the largest market for nickel, and Phillips said stainless steel manufacturers could again be in for a strong year in 1990. Total stainless steel production in 1989 will be an estimated 10.4 million tons, up from eight million tons in 1985 and 6.2 million tons in 1982.

World nickel demand, in balance this year with supply at 1,450 million lb, will possibly be similar or lower in 1990, Phillips said. Supply of the metal in 1990, he suggested, will probably be lower.

His general tone reflecting more optimism than pessimism, Phillips said, “1990 is uncertain but it could be another strong year unless there is a general downturn in the economy.”

Inco, whose share of the global nickel market stands at about 35%, compared with 25% in 1982, produces about 50% of its nickel from its Ontario operations. (The same division accounts for about 90% of the company’s other mineral production, including copper.)

Phillips revealed Inco will have purchased about 80 million lb nickel in total from the LME by the end of the year for delivery to clients, bringing Inco’s total 1989 sales of nickel to more than 500 million lb.

Capital expenditures by the nickel giant will reach an estimated $375 million this year and $500 million in 1990. Next year’s figure includes $155 million for smelter improvements.

Inco does not release information on production costs, but according to Phillips, the company’s costs this year are expected to be 22% higher compared with 1988. Among the reasons for the higher costs are a lower grade of ore being mined at Canadian operations.

In gold-related news, Inco’s wholly owned unit, Inco Gold, will produce about 42,000 oz gold this year from its share of three producing properties. In 1990, Inco Gold’s share is expected to rise to 114,000 oz.

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