INCO LIMITED MEETS ANNUAL COST REDUCTION TARGET OF $215 MILLION (U.S.) AHEAD
OF SCHEDULE
---------
$35 MILLION (U.S.) ADDITIONAL PERMANENT COST REDUCTIONS IDENTIFIED
---------
SECOND QUARTER LOSS OF $1 MILLION (U.S.)
---------
Toronto, July 26, 1999 --- Inco Limited reported a loss of $1 million, or
five cents a common share after preferred dividends, for the second quarter
of 1999, compared with net earnings of $2 million, or a loss, after
preferred dividends, of three cents a share for the second quarter of 1998.
Second quarter 1998 results included earnings from discontinued operations
of $8 million. For the first half of 1999, the Company incurred a loss of
$17 million, or 18 cents a share, compared with a loss of $39 million, or 32
cents a share, in the corresponding 1998 period. First half 1998 results
included an after-tax charge, recorded in the first quarter, of $32 million,
or 19 cents a share, associated with the Company's restructuring actions.
Second quarter 1999 results reflected the achievement of the
targetted permanent cost reductions of $215 million, on an annualized
pre-tax basis, associated with the Company's comprehensive restructuring
intended to maximize profitability and cash flows. These cost reductions had
initially been targetted to have been achieved in 1999 and beyond. As part
of the Company's ongoing commitment to lower costs, additional cost
reductions amounting to $35 million, on an annualized pre-tax basis, have
been identified, which are expected to be realized in the second half of
1999 and the year 2000, bringing the total to $250 million.
"Even though our results improved over the first quarter to
reach a break-even level, we plan to do better," said Chairman and Chief
Executive Officer Mike Sopko. "We are a year ahead of schedule in hitting
our cost reduction target of $215 million and have identified an additional
$35 million in savings. This $250 million total will be a permanent
reduction that will drive our nickel unit production costs even lower and
put us in a strong position to leverage our earnings and cash flow as nickel
and copper prices improve."
Realized nickel prices, the principal determinant of the Company's
profitability, for the Company's primary nickel products (including
intermediates), averaged $5,710 per tonne ($2.59 per pound) and $5,445 per
tonne ($2.47 per pound) in the second quarter and first half of 1999,
respectively, compared with $5,534 per tonne ($2.51 per pound) and $5,842
per tonne ($2.65 per pound), respectively, in the corresponding periods of
1998. The London Metal Exchange average cash nickel price for the second
quarter of 1999 of $5,236 per tonne ($2.37 per pound) increased 13 per cent,
compared with the first quarter of 1999, and increased five per cent
relative to the second quarter of 1998.
The Company's realized price for copper averaged $1,543 per tonne
($0.70 per pound) and $1,499 per tonne ($0.68 per pound), respectively, in
the second quarter and first half of 1999, compared with $1,874 per tonne
($0.85 per pound) and $1,940 per tonne ($0.88 per pound), respectively, in
the corresponding periods of 1998.
Net sales from continuing operations were $501 million and $939
million in the second quarter and first half of 1999, respectively, compared
with $494 million and $994 million, respectively, in the corresponding
periods of 1998.
The Company's deliveries of primary metals are shown below:
Second Quarter First Half
1999 1998 1999 1998
------------- ------------- ------------- -------------
Nickel in all forms (tonnes) 68,518 69,091 130,548 133,358
----------- ----------- ------------- -------------
Copper (tonnes) 31,143 36,714 65,829 73,966
----------- ----------- ------------- -------------
Cobalt (tonnes) 380 570 846 1,085
----------- ----------- ------------- -------------
(in thousands)
Platinum-group metals
(troy ounces) 80 83 185 145
---------- ---------- ---------- ----------
Gold (troy ounces) 16 11 30 26
---------- ---------- ---------- ----------
Silver (troy ounces) 525 335 920 745
---------- ---------- ---------- ----------
The Company's finished nickel inventories, which are expected to
decline during the third quarter as a result of vacation shutdowns at its
Ontario and Manitoba Divisions, were 37,327 tonnes at June 30, 1999,
compared with 32,080 tonnes at June 30, 1998. As previously announced, as
part of its planned reduction in 1999 production, the Company has extended
the annual vacation shutdowns of the operations at its Canadian divisions by
two weeks longer than the normal shutdown period.
Operating results from continuing operations were earnings of $30
million in the second quarter and $32 million in the first half of 1999,
compared with earnings of $30 million in the second quarter and a loss of $7
million in the first half of 1998. Operating earnings for the second quarter
of 1999, compared with the corresponding 1998 period, reflected lower nickel
unit production costs and other expenses, offset by lower realized prices
for copper and cobalt. First half 1998 operating results included a pre-tax
charge of $64 million, recorded in the first quarter, associated with
restructuring actions. Operating earnings for the first half of 1999,
compared with the corresponding 1998 period, also reflected lower realized
prices for nickel, copper and cobalt, partially offset by lower nickel unit
production costs and other expenses, and higher deliveries of precious
metals. The decrease in nickel unit production costs in the second quarter
and first half of 1999, compared with the corresponding 1998 periods, was
primarily due to reduced employment and other costs, improved ore grades and
recoveries, and improved productivity. Operating results comprise earnings
or loss before income and mining taxes, interest expense, general corporate
income and expenses, and minority interest. Sales and cost of sales include
deliveries of purchased nickel.
The Company's cash cost of nickel production, net of by-product
credits, was $2,734 per tonne ($1.24 per pound) and $2,844 per tonne ($1.29
per pound), respectively, in the second quarter and first half of 1999,
compared with $3,086 per tonne ($1.40 per pound) and $3,329 per tonne ($1.51
per pound), respectively, in the corresponding periods of 1998. Commenting
on the net cash cost of $1.24 per pound, Peter C. Jones, Executive
Vice-President, Operations, said: "We are very encouraged by these results
and believe that they put Inco in the lowest cost quartile of nickel
producers. Looking ahead, we expect costs to continue to decline as the full
impact of our cost reduction program is realized."
Cash provided by the Company's operating activities in the first
half of 1999 was $17 million, including a shortfall of $2 million in the
second quarter, compared with $66 million and $100 million, respectively, in
the corresponding periods of 1998. The decrease in the second quarter and
first half of 1999, compared with the corresponding 1998 periods, was
primarily due to an increase in inventories. The increased inventories at
June 30, 1999 reflected higher levels of finished nickel held in
anticipation of the extended vacation shutdowns at the Ontario and Manitoba
Divisions. Capital expenditures were $149 million in the first half of 1999,
down from $194 million in the first half of 1998, principally reflecting
lower spending in Indonesia associated with the expansion project of PT
International Nickel Indonesia Tbk ("PT Inco"), the Company's 59 per
cent-owned subsidiary, as it nears completion. PT Inco currently expects to
complete its expansion project in the second half of 1999. The Company's
planned 1999 capital expenditures are currently estimated to be $267
million.
Upon completion of its expansion project, it is currently expected
that PT Inco's unit cash cost of production will be less than $2,000 per
tonne ($0.90 per pound). Construction of the pilot plant facility at the
Company's Goro nickel-cobalt project, in New Caledonia, is also nearing
completion with the scheduling of commissioning in the late summer-early
fall period.
In May 1999, the Company sold 15 million Common Shares
through an underwritten public offering on a "bought deal" basis principally
in Canada and the United States for net cash proceeds of $273 million. The
net proceeds were used to repay existing floating rate bank indebtedness
which had been incurred, in part, to finance certain capital expenditures
relating to the Company's Goro nickel-cobalt project, PT Inco's expansion
project and new mine development at its Ontario Division and to meet
anticipated ongoing expenditures for these development projects.
The Company's total debt decreased to $1,382 million at June 30,
1999 from $1,610 million at March 31, 1999 and $1,523 million at December
31, 1998, principally reflecting the application of the net proceeds from
the sale of its Common Shares. The Company's total debt:equity ratio
improved to 23:77 at June 30, 1999, compared with 26:74 at December 31,
1998, reflecting the reduction in total debt and an increase in
shareholders' equity resulting from the May 1999 sale of Common Shares. At
June 30, 1999, the number of the Company's Common Shares issued and
outstanding was 181,082,082.
In June 1999, the Company renewed its $815 million revolving bank
credit facilities.
The Board of Directors today declared a dividend of $0.6875 per
share in respect of the Company's 5.5% Convertible Redeemable Preferred
Shares Series E, payable September 1, for the quarter ending August 31,
1999, to shareholders of record on August 5.
Voisey's Bay Update
Status of Negotiations with Provincial Government
The Company and its wholly-owned subsidiary, Voisey's Bay
Nickel Company Limited ("VBNCL"), have continued their efforts to formulate
possible concepts for the development of the Voisey's Bay project, taking
into account sound economic considerations, that would appropriately address
the concerns of the Government and people of the Province of Newfoundland
and Labrador while at the same time realizing an appropriate rate of return
for the Company's shareholders.
While the Company had expected to begin negotiations of
these concepts with the Province once the federal and provincial governments
had indicated how they intend to deal with recommendations set forth in the
April 1, 1999 report of the panel created to oversee the environmental
assessment process for the mine, mill and related facilities and
infrastructure in the Voisey's Bay, Labrador area (the "Mine/Mill Project"),
the governments have not as yet announced their respective positions on
these recommendations. The Company has continued its discussions with both
governments on the panel's recommendations and currently expects to begin
formal discussions of its concepts for development of the Voisey's Bay
project in the near future as part of its confidential negotiations with the
Province.
Status of Exploration Program
Exploration and geophysical operations continued as planned
during the second quarter of 1999. With four diamond drill rigs continuing
in operation, drilling, both in the main block area held by VBNCL where the
Voisey's Bay deposit is located and in other regional areas in Labrador, has
focused on delineating extensions to known deposits as well as testing
certain potential geological and geophysical targets away from the main
block area. A total of 14,951 metres of drilling was completed during the
second quarter.
Based on exploration and related work completed through the
end of June 30, 1999, the total current estimated resource for all zones or
sections of the Voisey's Bay deposit has increased 10 per cent to 136.7
million tonnes from the previously announced estimate of 124.4 million
tonnes. The total resource, including proven and probable reserves of 32
million tonnes for the Ovoid section, of Voisey's Bay is still anticipated
to be at least 150 million tonnes.
A new zone containing narrow intersections of massive to
semi-massive sulphide was drilled approximately 700 metres south of previous
drilling at the Sarah prospect located six kilometres north of the Ovoid
section. Stratigraphic drilling in the Red Dog area, two kilometres south of
the Ovoid, intersected significant thicknesses of sulphide mineralized
variable troctolite, the rock type that contains all the known
mineralization at Voisey's Bay. Drilling is continuing in this area to test
borehole geophysical conductors.
Work was initiated on the Kiglapaits property, located 60 kilometres
north of the main claim area, during the second quarter. Geophysical surveys
were completed over two targets on this property and additional geological
mapping was started. Further drilling is planned to test narrow
intersections of nickel mineralization discovered in 1998. Geophysical
surveys in the area have confirmed an anomaly previously identified from an
airborne survey. The merits of drill testing this anomaly are currently
being considered.
A new exploration program was recently announced which will
begin in early September. The program will consist of approximately 10,000
metres of drilling focused on the delineation of the Eastern Deeps section,
as well as exploration drilling and geophysical work on certain high
priority targets, at a total cost of $3.6 million (Cdn.). This work will be
carried out in advance of expected underground exploration. This program
will follow the completion of the $80 million (Cdn.) exploration expenditure
commitment under the terms of the April 1996 agreement covering the
acquisition of Diamond Fields Resources Inc.
Status of Environmental Permitting and Discussions with Aboriginal Groups
As noted above, the Company is awaiting the respective
responses of the federal and provincial governments to the recommendations
made in the April 1, 1999 panel report covering the Mine/Mill Project. The
Company currently expects to receive these responses in the near future and
to have the Mine/Mill Project released from the environmental assessment
process. The Company continues to believe that the panel's recommendations
can be addressed so long as they do not create unrealistic economic and
financial burdens on the overall project.
The Company has previously stated that, in addition to
receipt of the necessary environmental clearances, in order for the overall
project to proceed the following areas had to be adequately addressed on a
timely basis: (1) the Company reaching mutually acceptable impact and
benefits agreements ("IBAs") with the Labrador Inuit Association ("LIA") and
Innu Nation; (2) the Company reaching agreement with the Province on key
issues relating to the project's scope; and (3) the Company being satisfied
that the project is appropriately dealt with under the arrangements reached
on land claims between the federal and provincial governments and the LIA
and Innu Nation. The Company continues to believe that, if the interested
parties work together, recognizing the economic, technical and other
realities that must be taken into account, then these key issues can be
addressed to meet the needs and objectives of the Company, the governments
and aboriginal groups.
This news release contains forward-looking statements regarding the
PT Inco expansion, Voisey's Bay and Goro projects and the Company's other
businesses and operations. Actual results may differ materially from those
contemplated by these statements depending on, among others, such key
factors as the timing of receipt of necessary federal and provincial
environmental and other approvals, appropriate resolution of aboriginal land
claims, exploration activities and results, engineering and construction
timetables, financing arrangements, supply and demand for metals produced,
production levels and costs, and metals prices.
* * * * *
Unaudited Condensed Consolidated Financial Statements Are Attached.
IN 11/99
July 26, 1999
For further information:
Investor Relations: Sandra Scott (416)
361-7758
Media Relations: Jerry Rogers
(416) 361-7754
or www.inco.com
INCO LIMITED
----------------------
(U.S. dollars in millions)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
----------------------------------------------------------------------------
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Second Quarter First Half
1999 1998 1999 1998
------------- ------------- ------------- -------------
Net sales $ 501 $ 494 $ 939 $ 994
------------- ------------- -------------
-------------
Costs and expenses
Cost of sales and operating 443 448 860 973
Selling, general and administrative 26 19 47 47
Research and development 6 5 9 10
Exploration 6 6 12 14
Interest 20 22 40 44
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-------------
Total costs and expenses 501 500 968 1,088
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-------------
Loss before taxes and
minority interest - (6) (29) (94)
Income and mining taxes - (3) (11) (45)
------------- ------------- -------------
-------------
Loss before minority interest - (3) (18) (49)
Minority interest 1 3 (1) 4
------------- ------------- -------------
-------------
Loss from continuing
operations (1) (6) (17) (53)
Earnings from discontinued
operations - 8 - 14
------------- ------------- -------------
-------------
Net earnings (loss) (1) 2 (17) (39)
Dividends on preferred shares (7) (7) (13) (13)
Dividends on class VBN shares - - - (1)
------------- ------------- -------------
-------------
Loss applicable
to common shares $ (8) $ (5) $ (30) $ (53)
============= ============= =============
=============
Net earnings (loss) per common share
Basic and fully diluted
Continuing operations $(0.05) $(0.09) $(0.18) $(0.41)
Discontinued operations - 0.06 - 0.09
------------- ------------- -------------
-------------
$(0.05) $(0.03) $(0.18) $(0.32)
============= ============= =============
=============
Common shares outstanding
(weighted average, in thousands) 173,173 166,059 169,616
166,048
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INCO LIMITED
----------------------
(U.S. dollars in millions)
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
------------------------------------------------------------------
June 30, December 31,
1999 1998
---------------- ---------------------
Assets
Cash and marketable securities $ 54 $ 82
Accounts receivable 248 256
Inventories 528 473
Other current assets 58 63
----------- -----------
Total current assets 888 874
Capital assets 6,257 6,241
Other assets 248 227
----------- -----------
$7,393 $7,342
=========== ===========
Liabilities and shareholders' equity
Long-term debt due within one year $ 126 $ 66
Accounts payable and accrued liabilities 432 471
Taxes payable 40 23
----------- -----------
Total current liabilities 598 560
Long-term debt 1,256 1,457
Deferred taxes 153 186
Post-retirement benefits 468 455
Future removal and site restoration costs 42 38
Minority interest 274 288
Shareholders' equity 4,602 4,358
----------- -----------
$7,393 $7,342
=========== ===========
INCO LIMITED
----------------------
(U.S. dollars in millions)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
----------------------------------------------------------------------------
--------
Second Quarter First Half
1999 1998 1999 1998
------------- ------------- ------------- -------------
Operating activities
Loss before minority interest $ - $ (3) $ (18) $ (49)
Charges (credits) not affecting cash
Depreciation and depletion 66 62 132 126
Deferred income and mining taxes (18) (2) (35)
(70)
Restructuring charges - - - 64
Other - - 2 (7)
Decrease (increase) in non-cash
working capital related to
operations (53) 45 (64) 7
Accruals in excess of (less than)
payments for post-retirement
benefits 3 (2) - (5)
------------- -------------
------------- -------------
(2) 100 17 66
------------- -------------
------------- -------------
Investing activities
Capital expenditures (75) (88) (149) (194)
Other (4) 13 (6) 10
------------- -------------
------------- -------------
(79) (75) (155) (184)
------------- -------------
------------- -------------
Financing activities
Net increase (decrease) in borrowings (228) (13) (141) 130
Common shares issued 274 - 274 1
Preferred, class VBN and common
dividends paid (7) (11) (13) (22)
Dividends paid to minority interest - - (10) (1)
------------- -------------
------------- -------------
39 (24) 110 108
------------- -------------
------------- -------------
Discontinued operations - 12 - 6
------------- -------------
------------- -------------
Increase (decrease) in cash and
marketable securities (42) 13 (28) (4)
Cash and marketable securities at
beginning of period 96 39 82 56
------------- -------------
------------- -------------
Cash and marketable securities at
end of period $ 54 $ 52 $ 54 $ 52
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