Ed,
Inco LTD.
Saturday, November 15, 1997
Weak nickel demand may
torpedo Voisey's Bay
timetable
By PAUL BAGNELL
Mining Reporter The Financial Post
Doubts are growing among analysts that Inco Ltd. can
bring its huge Voisey's Bay nickel project into full
production as an already sluggish nickel market faces the
startup of new mines.
Inco is meeting analysts on Tuesday in Toronto and
several say they want the company to clarify its plans.
The company's shares (N/TSE) have declined to their
lowest level in more than four years. They closed Friday at
$25.75, down 35›.
Inco won the massive nickel-copper-cobalt deposit in
April 1996, paying $4.3 billion.
Moving Voisey's Bay toward production, however, has
proved difficult. In September, the company said it had
given up plans to start production by late 1999. It blamed
slow progress in getting environmental approval and
negotiations with two native groups with historic claims to
the area of northern Labrador.
The mining giant said it would review aspects of the
project, now slated to begin in late 2000, and make its
decisions known later this year.
Many observers wonder if Inco will scale down its annual
production estimate of 270 million pounds of nickel - about
13% of current world demand. Some believe it can't put
that much nickel on the market without dousing the metal's
price.
"I just don't think that's do-able," said Manford Mallory of
Research Capital Corp. in Toronto. "Unless they want to
shut down Sudbury, they can't push that [volume of nickel]
at the market. They've got to address that issue."
"I think it makes more sense for Voisey's Bay to come on
line in two phases," said Vahid Fathi of ABN Amro
Chicago Corp. The delays have given Australian nickel
producers a chance to lock up customers for three new
mines there.
"A good question for management will be: What is Inco's
response to this window of opportunity that has been
created for other producers?"
But curtailing annual production will also reduce the
project's annual cash flows, eroding it's value, said Ray
Goldie of Deutsche Morgan Grenfell Inc. in Toronto.
Analysts are also keen to hear Inco's latest analysis of the
state of the world market. For most of 1997, slumping
prices have been blamed on a flood of cheap nickel from
Russia and a large volume of scrap stainless steel being
used by stainless steel makers instead of nickel.
Nickel closed Friday on the London Metal Exchange at
US$2.82 a pound, close to its 12-month low of US$2.74.
Inco, however, has insisted demand remains strong and
growing. However, some analysts say it may not be as
robust as Inco believes.
"Will they bite the bullet and say there really is a surplus
of nickel and not a deficit, as they've been saying all year?"
asked Goldie.
"At the end of the day, the key is demand," said Fathi. "If
demand doesn't shape up, there is definitely a cloud of
uncertainty on the horizon for nickel." A slowdown in the
U.S. economy, he said, could deal a serious blow to
demand.
GOLDIGER. |
