Rising metal prices at year-end combined with declining production costs made it possible for
For the year, the major earned US$17 million (a loss of US5 per share after preferred dividends) on sales of US$2.1 billion, compared with the previous year’s US$76-million loss (US63 per share) on sales of US$1.8 billion.
Fourth-quarter earnings totalled US$27 million (US12 per share) on sales of US$631 million, compared with a loss of US$13 million (US13 per share) on sales of US$403 million in the corresponding period of 1998.
The improvement is attributed to higher realized prices for nickel and platinum group metals, as well as reduced cash costs, which fell US17 to US$1.26 per lb. nickel (after byproduct credits), owing to greater productivity and higher ore grades.
Partially offsetting these gains were lower copper and cobalt prices, as well as lower deliveries of Inco-sourced nickel.
Nickel production fell to 177,253 tonnes in 1999 from 191,603 tonnes in 1998 as a result of shutdowns and a 3-month lock-out of unionized workers at the division in Thompson, Man. Although a new 3-year contract was finally signed in December 1999, the lock-out resulted in a US$12-million after-tax expense. Also, the company will soon be faced with a re-negotiation of the Ontario division’s collective labour agreement, which expires May 31.
After three years of postponement, Inco is proceeding with a US$48-million shaft deepening at its Birchtree mine in Thompson. The plan will extend the mine’s life by at least 15 years to 2016, while reducing operating costs by about 25%.
By 2004, daily production at Birchtree is expected to jump to 3,175 tonnes from the current 1,635 tonnes, as miners develop a proven reserve of 13.6 million tonnes grading 1.79% nickel.
Inco is also re-surveying the entire Thompson nickel belt and is considering deepening its Thompson 1-D orebody. In Manitoba, copper smelting will cease in the second quarter; thereafter, Inco will ship its copper concentrate to Sudbury.
Meanwhile, the major has signed a life-of-mine agreement to buy all of the concentrate from Australian-listed
Inco’s 59%-owned Indonesian subsidiary, PT Inco, earned US$21.3 million (or US9 per share) in 1999 on sales of US$209 million, compared with US$6.2 million (US2 per share) on sales of US$145.4 million in 1998. The subsidiary produced 45,400 tonnes of nickel-in-matte during the year, up from 35,300 tonnes in 1998. Still, operations were constrained by reduced availability of hydroelectric power, owing to below-average rainfall.
A recent expansion has boosted PT Inco’s annual production capacity by 50% to 68,000 tonnes of nickel-in-matte. Unit cash costs are expected to drop to US90 per lb.
PT Inco’s capital expenditures in 1999 were $129.8 million, down from $246.4 million in 1998, reflecting lower expenditures associated with the expansion project.
Inco expects annual nickel production at all its operations to rise by 34,000 tonnes to 211,000 tonnes in 2000. The Ontario division is targeted to produce 102,000 tonnes; Manitoba, 48,000 tonnes; and PT Inco, 61,000 tonnes. At year-end, the company’s finished nickel inventories stood at 24,333 tonnes.
As a producer of byproduct platinum group metals, Inco is benefitting from the recent spike in platinum, palladium and rhodium prices. The company expects to produce about 140,000 oz. platinum, 165,000 oz. palladium and 13,000 oz. rhodium in 2000, and could potentially tack on an additional US$70 million in revenues if current prices hold up through the year.
Capital expenditures decreased US$177 million to US$260 million in 1999, and are budgeted at US$245 million this year. Total debt was US$1.34 billion on Dec. 31, 1999, down US$179 million from a year earlier, thanks mainly to the sale of 15 million Inco shares in May 1999.
The proposed Voisey’s Bay mine and mill project in Labrador remains on ice (T.N.M., Jan. 17-23/00), though Inco has committed to spending US$7 million this year on surface exploration and will continue its research into a hydrometallurgical process applicable to Voisey’s Bay ore.
President Scott Hand says the potential of this process is “excellent” and that Inco would not have proposed such a major program if the company did not believe it would be a success.
After two difficult years for nickel prices, Inco is bullish on the metal’s prospects for 2000. The company is predicting that nickel demand will increase 6.5% this year, mainly on the back of a 7.5% increase in stainless steel production.
In the global nickel market, Inco foresees a cumulative deficit in 1999 and 2000 of 50,000 tonnes, owing to increased demand, production cutbacks and major operational problems encountered at the new nickel laterite mines in Western Australia. Inco believes these projects will continue to operate well below capacity.
“The nickel markets as a whole are currently characterized by rising demand, tight supply and low inventory levels,” says Peter Goudie, Inco’s executive vice-president of marketing. “This bodes well for pricing and provides a window of opportunity for existing producers such as Inco, whose cost-reduction efforts will be rewarded.”
Inco also expects Russian nickel production to remain stable this year, with exports of nickel and scrap potentially being reduced as a result of increased nickel demand in Russia. At Inco’s 85%-owned Goro nickel laterite project in New Caledonia, a pilot plant has been commissioned, and the company could make a production decision later this year on a US$1.3-billion plant that would produce 54,000 tonnes nickel and 5,400 tonnes cobalt annually as early as 2004.
The company is hoping to sell a portion of its interest in Goro and expects that its 15% partner, French state-owned Bureau de Recherches Geologiques et Minieres, will sell its interest. Inco President Scott Hand says his company would prefer that its new partner at Goro be a nickel consumer.
At Dec. 31, 1999, Inco had total nickel reserves of 458 million tonnes grading 1.68% nickel. Of this total, the Ontario division accounted for 228 million tonnes of 1.34% nickel; Thompson, 45 million tonnes of 2.28% nickel; Voisey’s Bay, 32 million tonnes of 2.83% nickel; PT Inco, 106 million tonnes of 1.81% nickel; and Goro, 47 million tonnes of 1.59% nickel.
Total resources stand at 737 million tonnes grading 1.55% nickel. More than 70% of these resources consist of nickel laterites in Indonesia and New Caledonia. The estimates are based on prices of US$3.20 and US$1 per lb. for nickel and copper, respectively.
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