Financial Post Article.
The Financial Post
Sat 02 May 1998
Weekly Edition
Section 1, News
Page 1
Alan Toulin, Ottawa Bureau Chief
INCO HIT BY SPATE OF BAD NEWS: Negatives pile up as ratings agency reassesses debt and environmental panel's request for more data may delay development of Voisey's Bay
A ratings agency and an environmental panel delivered two more blows Friday to Inco Ltd. and its billion-dollar plans for the Voisey's Bay nickel project.
Standard and Poor's revised its outlook for Inco to "negative" from "stable." At the same time, S&P affirmed the BBB-minus status of Inco's unsecured debt and corporate credit ratings.
The nickel-mining giant, already hit hard by falling world nickel prices and rising concerns about its financial plans, said a revised rating outlook by Standard and Poor's is "disappointing."
The developments raise the spectre of higher financing costs and a delay in the timetable for bringing Voisey's Bay on stream.
"The outlook revision reflects concern over the low nickel price ... and the delays and uncertainty in the development of the Voisey's Bay nickel-copper deposit in Labrador,'' said S&P, adding that further delays or an additional decline in nickel prices could lead to a ratings downgrade.
"We believe our strategy at this point is to continue to maximize profitability and cash flow in the current depressed nickel environment," said Inco spokesman Jerry Rogers.
The environmental assessment panel's ruling, which found Inco's environmental impact statement to be inadequate, should not alter the company's development timetable, Rogers said.
But mining industry analysts said the developments point to a growing list of negative factors piling up around Inco and Voisey's Bay.
Manford Mallory, mining analyst with Research Capital Corp. in Toronto, said the request for more environmental information may bog Inco down in a longer process than initially thought.
"It's going to be very difficult for them to keep to the timetable," he said. Initial production from Voisey's Bay is expected in 2000.
Mallory said Inco may be too optimistic about the difficulties it faces in developing the project. "It takes seven years or longer to develop a greenfield site now," he said.
Another analyst, who asked not to be identified, said the revised outlook is a negative factor for the company, which could result in higher borrowing costs.
Inco has substantial capital expenditure plans, including an estimated $1.4 billion to develop the mine, mill, smelter and refinery for Voisey's Bay, plus a $580-million expansion of an Indonesian project.
Some analysts have suggested Inco take a writedown of the $4.3 billion it paid for the Voisey's Bay deposit, a move the company has rejected.
In its ruling Friday, the environmental panel said the information supplied so far by the company is not sufficient for "meaningful discussion at public hearings."
The panel requested more information related to marine transportation, water and waste management, mercury contaminant potential, socio-economic effects, insurance and liability provisions, and monitoring and follow-up programs.
"We've got our full team ... studying that report," Rogers said. "We still feel we can satisfactorily answer those deficiencies and get the required information back to the panel in the next four to six weeks.
He said the environmental review process should be completed by late 1998 and all the environmental permits and approvals for the mine and mill operations should be obtained in the first quarter of 1999.
Despite Friday's developments, negotiators for the Newfoundland government said they are optimistic about closing a deal within eight to 10 weeks on a refinery and smelter to be built at Argentia.
Inco president Scott Hand has taken over the negotiations in this final stage, the government negotiators said.
"The talks have gone well and we're quite optimistic," said a Newfoundland spokesman.
The talks are focused on the scale of the refinery-smelter project. Initially, the capacity for processing ore from Voisey's Bay was thought to be 270 million pounds of nickel a year -- about 13% of global demand. The question is whether that much capacity is required, the Newfoundland spokesman said.
Inco shares (N/TSE) closed yesterday at $24.90, down 15 cents.
ILLUSTRATION: Photo: Peter Redman/FP/
INCO'S SCOTT HAND: Now involved in final stages of smelter negotiations.
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