Nickel majors post hefty profits

Powered by sustained high prices for nickel and copper, Inco (N-T) and Falconbridge (FL-T) both recorded large profits during the third quarter.

Inco reported net earnings of US$79 million (US37 per fully diluted share) on net sales of US$642 million for the 3-month period, compared with a profit of US$7 million (US1) on sales of US$543 million a year ago.

For the first nine months of 2000, the company earned US$322 million (US$1.37 per share) on sales of US$2.3 billion, compared with a loss of US$10 million (a loss of US17 per share) on sales of US$1.5 billion in the year-ago period.

During the third quarter, Inco delivered: 60,561 tonnes nickel in all forms (65,545 tonnes a year ago); 24,536 tonnes copper (22,064 tonnes); 334 tonnes cobalt (349 tonnes); 50,000 oz. platinum group metals (80,000 oz.); 11,000 oz. gold (8,000 oz.); and 310,000 oz. silver (155,00 oz.).

Inco’s own nickel production during the third quarter was 45,416 tonnes compared with 35,513 tonnes a year ago. The rise is due to the fact that more ore was mined at all operations and higher grades at the Ontario Division. Cash costs of sales, after byproduct credits, rose US$154 to US$2,976 per tonne of nickel, reflecting higher prices for oil and natural gas.

Inco enjoyed average realized prices of US$8,649 per tonne nickel and US$2,006 per tonne copper during the recent quarter, compared with US$6,746 and US$1,786 per tonne, respectively, a year ago. However, nickel and copper prices have softened over the past month despite tight inventory levels.

Inco ended the third quarter with a total debt of US$1.04 billion, down US$61 million from three months earlier. As a result of the company’s stronger financial outlook, U.S. credit-rating agencies Standard & Poors and Moody’s Investor Services restored Inco’s debt rating to investment-grade, raising it to BBB- (stable outlook) from BB+ (negative) and Baa3 (stable) from Ba1 (stable), respectively.

Inco has extended to Oct. 27, 2000, its offer to buy all of its class VBN shares for $7.50 in cash (or the equivalent in U.S. dollars) and 0.45 of a warrant, with each whole warrant entitling the holder to buy one Inco common share for $36.00, or the equivalent in U.S. dollars, at any time before Aug. 22, 2006.

As of Oct. 16, some 76% of the shares had been offered, including Franco-Nevada Mining‘s (FN-T) 37% stake. Inco is extending the offer in an effort to satisfy a condition that at least 90% of the class VBN shares, on a fully diluted basis, be tendered.

If Inco does not attain the 90% mark, it can seek to retire the class by holding a special meeting at which shareholders would be asked to approve amendments to the redemption terms. Any amendments would require the approval of two-thirds of VBN shareholders.

Turning to Falconbridge, higher metal prices during third quarter helped the company counter the effects of an increasingly bitter strike, ongoing since Aug. 1, 2000, by 1,250 production and maintenance workers at the company’s Sudbury operations.

Falco posted third-quarter consolidated earnings of $92 million (or 50 per share) on consolidated revenues of $605 million. During the same period in 1999, the company earned $37 million (19) on revenues of $545 million.

For the first nine months of 2000, earnings were $327 million ($1.80 per share) on revenues of $2.02 billion, compared with earnings of $59 million (29) on revenues of $1.51 billion for the same period in 1999.

The company said that the after-tax, direct cost of the strike during the third quarter was $24 million and that, since September, management and other employees have operated the mines and mill in Sudbury at about 50% capacity.

Falco said that the strike’s negative effects have been mitigated by the performance of other operations and by improvements in copper prices. Also helping out in the third quarter was a tax benefit of $36.5 million relating to reduced future taxes in Ontario.

During the third quarter, Falco’s share of production was: 2,711 tonnes nickel and 2,338 tonnes copper from Sudbury, Ont. (7,532 tonnes and 9,255 tonnes, respectively, a year ago); 5,875 tonnes nickel and 1,679 tonnes copper from Raglan in Quebec (5,447 tonnes and 1,352 tonnes); 15,946 tonnes copper, 15,687 tonnes zinc and 590,000 oz. silver from Kidd in Timmins, Ont. (14,425 tonnes, 21,864 tonnes and 682,000 oz.); 6,025 tonnes ferronickel at Falcondo in the Dominican Republic (6,784 tonnes); and 47,349 tonnes copper from Collahuasi in Chile (45,062 tonnes).

During the recent nine months, cash balances increased by $172 million to $273 million, and the company made net debt repayments of $143 million, bringing the company’s debt load down to just under $1 billion.