Inco’s break-even price hits US$3.30 per lb. nickel

By cutting costs and increasing productivity at its international operations, Inco (TSE) will attempt to remain a low-cost nickel producer, Chairman Donald Phillips told analysts in Toronto recently.

While Inco retains a 35% share of the world nickel market, the company’s unit costs have risen by 74% since 1987 due to a number of factors including labor costs, the Canadian exchange rate and depreciation and amortization. As a result, its break-even price of nickel has risen to US$3.30 per lb., from US$2.60 last year, at a time when increased supply from Russia has driven the price of nickel down to US$3.31, compared to an average of US$4.02 in 1990. The company needs nickel to trade at US$4 in order to maintain an acceptable level of profitability.

But rather than pray for a lower Canadian dollar, Phillips said Inco would look after those factors that are within Inco’s control. Manpower levels, for example, are scheduled to drop next year by 8.5%

And even though Inco is considering sinking an exploration shaft toward its new Victor discovery on the north rim of the Sudbury, Ont., basin, capital expenditures are expected to decline from $454 million to $350 million in 1992.

Estimated spending for 1992 also includes $42 million for the Ontario Division’s $520-million sulphur dioxide abatement project, now 85% complete. Inco is currently mining an average of 1.19% nickel and 1.04% copper, and due to the recent shutdown of low-grade mines it expects those grades to improve over the next three years.

Exports from the Soviet Union are disrupting world nickel markets and will remain a major question mark in the near future, said Inco’s Executive Vice-President Peter Salathiel.

He said nickel exports from former eastern bloc countries increased in 1991 to 245 million lb. from 175 million lb. the previous year, and Russian exports remain the biggest question mark in the nickel supply picture. While Inco is forecasting a slight increase in nickel demand from 1.52 to 1.53 billion lb., Salathiel expects supply to drop because of political instability in Russia, the war in Yugoslavia and labor unrest in Greece.