Inco’s productivity gains hurt by poor inckel price

Sometimes it seems that Inco Limited just can’t do anything right. After four years of brilliant technological innovation and painful cuts to its employee roster, the world’s largest nickel producer has been hit by a 20% drop in nickel prices so far in 1986.

The drop knocked the company’s profit for the first nine months of this year down to a measly $1.8 million, compared with $44.6 million last year. The 1985 profit had been Inco’s first since 1980. The cumulative loss in the years 1981-1984 was nearly $1 billion. For one prolonged period, the company was losing more than $1 million every day, weekends included.

Inco had a stranglehold on the world nickel market for so long that it had little reason to even consider the massive overhaul that has taken place in the 1980s. It wasn’t until reality hit in 1981 (the full impact of all the new laterite nickel producers combined with the world recession) that the company decided that it had to dosomething drastic just to stay in business. At Sudbury, its main nickel producing centre, that meant replacing most of the senior staff and rethinking the entire 10-mine, 50,000 ton per day operation.

The balance sheet does little justice to the accomplishments Inco has made at Sudbury and elsewhere. The company’s well- publicized production improvements, which are worth repeating, tell only part of the story. Inco has made vast improvements in its labor relations despite the massive layoffs of the past few years. Its new equipment manufacturing company, Continuous Mining Systems, is already profitable and could play a major role in the nickel producer’s future. And a company with a historically poor safety record now operates some of the safest underground mines in the world.

Probably the most telling statistic is the company’s productivity, which increased 87% between 1982 and 1985, and is slated for another 18% this year. Pounds of metal per manshift in the Ontario division has increased from 372 to 678 while grade has dropped slightly (grades are unpublished, but in Sudbury the ore contains about 1.5% each of nickel and copper). Cost in dollars of the day are down 28% over that period, and are now lower than they were in 1979. That has reduced cost per ton by $9.78 to about $24.

These improvements have been accomplished by improvements to every aspect of the mining operation from reserve calculation to metal refining. One of the big factors was the gradual switch to vertical retreat and other bulk mining methods, which now comprise 83% of the Sudbury production (up from 32% in 1982). The switch is part of a plan to concentrate mining activity in as few places as possible, and to shorten the development lead time to a minimum. One example of this succcess can be found at the Copper Cliff North Mine, where 2,000 tons per day are being produced from a single level. The goal now is to produce 3,000 tpd from a single level.

A number of other, smaller examples of productivity improvements were shown to a group of journalists touring the Sudbury operation, such as the introduction of storage silos between the milling and smelting stages meant that the three mills only have to operate five days per week instead of seven, reducing the mill staff by 43 people. The smelter has managed to keep up its capacity while reducing the number of operating furnaces from five to two. This was mainly accomplished by the introduction of oxygen to the reverbatory furnaces. It has also cut fuel costs to one-third of the 1980 costs.

These and the other cost-cutting moves at Sudbury have meant a drastic cut in employees, from nearly 13,400 in 1982 to the current 8,700. Yet, things are now calmer than ever in a region famous for its bitter management-labor disputes. Inco reports that annual grievances have been reduced from about 15,000 to under 1,500. The company signed its first contract without a labor interuption in 13 years in 1985.

One of the most pleasant statistics Inco is able to report is its recent safety record. Partly because of the new mining methods and partly because of an overall effort on the part of management and hourly workers, the accident rate has dropped from 15.4 per 100 workers annually, down to 4.7. The International Safety Rating Council out of Atlanta, Georgia, has given the Levack mine a five star rating, while four other Sudbury operations have a 4-star safety rating. No other mines in North America have a 5-star rating.

One encouraging sign is that Inco is not yet willing to rest on its laurels and hope for a higher nickel price to bail it out. It still has a number of major improvements in the works. One is the reopening of the Crean Mine, which was put on standby in 1978. The company plans to introduce the first all-electric mine, with the advantages being energy efficiency and no d iesel fumes. When the mine was shut down it had 400 workers, and it is expected to reopen with 125 workers and a similar output.

The two primary mills (Clarabelle, 32,000 tpd and Frood-Stobie, 18,000 tpd) are going to be consolidated into one mill sometime in the future. They now operate five days per week, and this will possibly be done by increasing the Clarabelle to seven days. At the Clarabelle the company is putting in larger flotation cells, reducing the number from the current 450 (100 cu ft each) to only 50 (1,350 cu ft each).

The company is spending $15 million to modernize the tankhouse in its copper refinery, which will mean a staff reduction of 90 and a saving of about $5 million per year. In all, Inco is spending $85 million this year to upgrade its facilities.

One thing that sets Inco apart from most Canadian mining companies is that it has developed on its own a lot of the major equipment it uses. The company has stated it hopes to get to the point within the next few years where it will not be purchasing any major equipment outside. It is now marketing some of the equipment through subsidiary Continuous Mining Systems, which says it has sold about $15 million worth so far, most of it in 1986.

As if the nickel price wasn’t bad enough, Inco also has to cope with an Ontario government dictum that says it has to reduce sulphur emissions to 265 kilotonnes per annum before 1994, compared with the current 685 kilotonnes. This is over and above the strides taken by the company since 1965 when 80% of the sulphur in the ore was emitted into the atmosphere. The current level represents about 30% of the sulphur in the ore.

While Inco at Sudbury is the largest source of sulphur dioxide emmissions in North America, it represents only 1.3% of the total emmissions. Utilities represent fully 43%.

The company doesn’t yet know how it is going to make the reduction. The two main thrusts will be to remove more of the pyrrhotite at the milling stage (which will also remove some of the nickel, lowering grades) and to somehow contain the sulphur being emitted from the nickel refinery. So far the company has invested $51.6 million on the problem, and expects to spend another $36 million by 1988, at which time it hopes to know the direction it will be going in.