Inco shelves some Sudbury plans to cut output

Following a summer decline in nickel prices, Inco (TSE) says it will cut back on production, reducing Canadian output for the balance of 1991 by about 10 million lb.

Inco, which produces its own nickel but also makes market purchases, shipped about 500 million pounds during 1990 at an average price of US$4.10 per lb.

At Inco’s Ontario division, production at the Creighton mine and at several small deposits adjacent to the Garson mine will be suspended. Mining at the Whistle open pit, currently being exploited by an outside contractor, will also cease.

In both the Manitoba and Ontario divisions, there will be no new hiring and overtime work will be restricted to emergencies. A total of 113 jobs, 79 at Creighton and 34 at Garson, will be eliminated through attrition. In the meantime, these employees will be transferred to some of Inco’s other operations, a spokesman for the company said.

The harsh measures drove the spot price of nickel up to US$3.64 at presstime, a gain of 12 cents over the week.

Although the resulting production shortfall, extrapolated to 30 million pounds on an annual basis, represents only about 2% of world consumption, nickel inventories are so low that Inco’s decision is bound to affect nickel prices, said Richardson Greenshields analyst Ray Goldie.

Goldie believes that, in addition to slashing its own costs, Inco’s motive for the cutbacks is to drive up the price of nickel on world markets. “At current prices, Inco is about breaking even,” he said.

At the end of the second quarter, Inco reported a profit of US$30.3 million (28 cents per share) compared with US$203.9 million (US$1.94 per share) for the same period last year.

Since then, nickel prices have dropped more than 30 cents to an average of about US$3.50.

The nickel producer said that plans are under way to “effect the necessary downward adjustment in employment levels” in response to the cutbacks and to improved productivity at modernized mills and smelters.

Inco also announced that development of the McCreedy East mine in Sudbury, which commenced in 1989, is being suspended in order to allow further engineering studies and production planning.

Ironically, the US$153-million development project was recently being hailed as a major source of low-cost, high-grade ore for Inco, which has lately been mining the lowest nickel grades in its history.

Expected to come on stream in 1993, McCreedy East hosts reserves of 25.5 million tons grading 1.74% nickel and 0.76% copper and is expected to have a peak annual nickel production of 42 million pounds over its 19-year life. By comparison, the I-D body in Manitoba, Inco’s other major source of future high grade, is expected to produce a maximum of 37 million pounds per year beginning next year.

Spending plans for the Manitoba division, where Inco has allocated $287 million to develop the I-D orebody and extend the Birchtree mine, may also be in jeopardy. Although Inco is still officially adhering to its total capital budget of US$450 million in 1991, a spokesman for the company said both Canadian divisions are “taking a long, hard look” at their spending plans. In the company’s 1990 annual report, chairman Donald Phillips wrote that the proposed expenditures represent “a prudent investment in Inco’s future for the benefit of shareholders, customers, employees and the communities where Inco has facilities.” He said cash flow from operations would be enough to finance the spending.

But if spending cuts are in the cards, Inco’s environmental programs, which are costing the company US$130 million in 1991 alone, are likely to escape the axe. Inco is under a government deadline to have its Sudbury operations cleaned up by 1994.