Inco sees 10% cost increase – Nickel grades declining

Nickel producer Inco (TSE) will likely face a 10% increase in production costs next year as grades at the company’s Canadian mines bottom out, Chairman Donald Phillips told a group of analysts at a recent meeting. In 1991, average nickel grades are expected to drop below 1.2% at Inco’s Ontario operations. This year, grades in Manitoba have touched a 5-year low, averaging about 2.2%.

Other costs, including increased depreciation and higher employment, energy and supply charges will also contribute to an increase in Inco’s pretax break-even nickel price: US$2.90 next year compared with US$2.70 in 1990.

But over the long term, costs should decrease as new high-grade ore sources, including the I-D body at Thompson, Man. (1992) and McCreedy East in Ontario (1993), reach commercial production, said Executive Vice-President Walter Curlook.

Curlook also hopes to boost productivity with a host of new mining equipment and updated technology, including a 1-man automated diamond drill, “mini-sized” equipment to reach smaller ore shoots, and remote-control robots.

The productivity improvements will require a capital investment of about US$320 million in 1991. Another US$130 million will be spent on environmental programs at the company’s operations in Sudbury, Ont. Total debt: equity ratio will remain essentially unchanged at 35-to-65.

In 1991, overall production is scheduled to increase only slightly to 410 million lb. compared with 400 million lb. in 1990.

And, if war does not break out in the Middle East and the world is able to avoid a major recession, Phillips believes Inco will continue to enjoy a healthy market for its nickel.

“We have to, at this time, ignore the Gulf crisis, but we can see no reason why nickel consumption should be any lower in 1991 than in 1990,” he said. He predicts nickel demand to reach a record 1,475 million lb. by the end of 1990, with similar demand in 1991.

“I think we will be buoyed by the growth in the Far East and particularly in West Germany,” he said.

As for the nickel price, Phillips hazarded a guess that it would remain in the US$4-per-lb. range in 1991.