Inco Limited reports third quarter loss of $24 million (U.S.) reflecting lower nickel
prices
TORONTO, Oct. 26 /CNW/ - Inco Limited reported a loss of $24 million, or
18 cents a common share, for the third quarter of 1998, compared with net
earnings of $5 million, or a loss, after preferred and Class VBN dividends, of
two cents a share, in the third quarter of 1997. For the first nine months of
1998, the Company incurred a loss of $63 million, or 50 cents a share,
compared with net earnings of $79 million, or 32 cents a share, in the
corresponding period of 1997.
Commenting on the third quarter results, Michael D. Sopko, Chairman and
Chief Executive Officer, said that: ''The continued deterioration of nickel
prices was the principal reason for the Company's third quarter loss. Inco's
average realized nickel price of $2.17 per pound in the third quarter of 1998
was the lowest since the second quarter of 1987. We are continuing to reduce
costs and expenses to restore our profitability in these difficult market
conditions.'' Nickel unit production costs decreased by approximately 12 per
cent in the third quarter of 1998, compared with the corresponding 1997
period, with all operations contributing to these lower costs. The Company's
results for the third quarter of 1998 were also adversely affected by the
impact of the scheduled and, in the case of Ontario mines, extended shutdowns
at its Canadian operations.
The decrease in nickel unit production costs in the third quarter and
first nine months of 1998, compared with the corresponding 1997 periods, was
primarily due to reduced employment and other costs, and improved ore grades
and recoveries. In addition, other expenses, consisting of selling, general
and administrative, research and development and exploration, decreased 23 per
cent and 20 per cent in the third quarter and first nine months of 1998,
respectively, compared with the corresponding 1997 periods.
Results for the first nine months of 1998 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. Results for the first nine months of
1997 included an after-tax gain, recorded in the first quarter, of $36
million, or 22 cents a share, resulting from the sale of the Company's 100 per
cent interest in Doncasters plc (''Doncasters'') and an after-tax expense,
recorded in the second quarter, of $20 million, or 12 cents a share,
associated with a 26-day strike by production and maintenance employees at the
Company's Ontario Division in June 1997.
Results for the third quarter and first nine months of 1998, compared
with the corresponding 1997 periods, reflected significantly lower realized
prices for nickel and copper, partially offset by reduced nickel unit
production costs and other expenses, and higher deliveries of Inco-source
nickel.
Continued deterioration in world nickel markets was the primary factor
which contributed to a decline in operating results for the third quarter and
first nine months of 1998. The London Metal Exchange average cash nickel price
for the third quarter and first nine months of 1998 decreased 38 per cent and
33 per cent, respectively, compared with the corresponding 1997 periods.
The Company's realized nickel price for primary nickel products
(including intermediates), the principal determinant of the Company's
profitability, averaged $4,784 per tonne ($2.17 per pound) and $5,512 per
tonne ($2.50 per pound) in the third quarter and first nine months of 1998,
respectively, compared with $7,253 per tonne ($3.29 per pound) and $7,606 per
tonne ($3.45 per pound), in the corresponding periods of 1997.
The Company's realized copper price, reflecting the favourable impact of
its copper hedging activities, averaged $1,896 per tonne ($0.86 per pound) and
$1,918 per tonne ($0.87 per pound) in the third quarter and first nine months
of 1998, respectively, compared with $2,315 per tonne ($1.05 per pound) and
$2,425 per tonne ($1.10 per pound), in the corresponding periods of 1997.
Net sales from continuing operations were $369 million and $1,363 million
in the third quarter and first nine months of 1998, respectively, compared
with $567 million and $1,826 million in the corresponding periods of 1997.
The Company's deliveries of primary metals are shown below:
<<
Third Quarter Nine Months
1998 1997 1998 1997
---------------------------------------
Nickel in all forms (tonnes) 60,260 68,297 193,618 201,775
------------------------------------------
Copper (tonnes) 22,981 24,185 96,947 101,207
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Cobalt (tonnes) 464 525 1,549 1,575
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(in thousands)
Platinum-group metals
(troy ounces) 81 60 226 189
------------------------------------------
Gold (troy ounces) 11 13 37 34
------------------------------------------
Silver (troy ounces) 220 240 965 865
------------------------------------------
>>
While total deliveries of nickel decreased in the third quarter and first
nine months of 1998 relative to the corresponding 1997 periods, principally
reflecting reduced stainless steel production in Japan, deliveries of
Inco-source nickel increased.
The Company's finished nickel inventories were 26,426 tonnes at September
30, 1998, compared with 24,128 tonnes at September 30, 1997 and 24,579 tonnes
at December 31, 1997.
Operating results from continuing operations were a loss of $13 million
in the third quarter and a loss of $20 million in the first nine months of
1998, compared with earnings of $47 million and $185 million, respectively, in
the corresponding 1997 periods. First nine months of 1998 operating results
included a pre-tax charge of $64 million, recorded in the first quarter,
associated with the restructuring actions announced in February, comprising
$50 million for severance costs relating to employment reductions and a
write-down of $14 million relating to assets which will be affected by the
restructuring actions. First nine months of 1997 operating results included a
pre-tax expense of $35 million associated with the strike by production and
maintenance employees at the Ontario Division in June. 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.
Cash provided by the Company's operating activities during the first nine
months of 1998 was $111 million, compared with $122 million in the first nine
months of 1997.Capital expenditures were $307 million in the first nine months
of 1998, compared with $372 million in the corresponding 1997 period. At P.T.
International Nickel Indonesia (''P.T. Inco''), commissioning of a number of
P.T. Inco's expansion project facilities has commenced and the expanded
process plant is expected to be substantially complete by year-end. The
processing plant expansion is on time and on budget. The new hydroelectric
facilities, despite some construction delays, are scheduled for completion in
the second half of 1999. As a consequence of the construction delays, costs in
respect of the total expansion project are currently expected to increase by
approximately 10 per cent over the original estimate of $580 million. Cash
flow from discontinued operations of $108 million in the first nine months of
1997 included net proceeds of $111 million from the sale of Doncasters.
The Company's total debt was $1,760 million at September 30, 1998,
compared with $1,679 million at June 30, 1998 and $1,549 million at December
31, 1997. The increase of $211 million in the first nine months of 1998
principally reflected the financing of the P.T. Inco expansion project. The
Company's total debt:equity ratio was 29:71 at September 30, 1998, compared
with 28:72 at June 30, 1998 and 26:74 at December 31, 1997. At September 30,
1998, the Company had 166,059,082 Common Shares outstanding.
On July 9, 1998, the Company announced the execution of a definitive
agreement for the sale by the Company of 100 per cent of its Inco Alloys
International (''IAI'') business unit. While the closing of this sale had been
expected to take place in September 1998, certain closing conditions relating
to the financing of the purchase price by the purchaser, Special Metals
Corporation, could not be satisfied by that time. The recent turmoil in the
capital markets and its impact on financing sources for acquisition
transactions have affected the ability of Special Metals to complete the
financing it required for the full $408 million purchase price it had agreed
to in July 1998. Special Metals has continued to work with its financing
sources. The Company and Special Metals have discussed certain changes to the
terms of the acquisition, including a reduction in the purchase price to be
paid, that would enable both parties to complete the sale on a basis that
would still meet their respective objectives. The Company and Special Metals
are continuing to work together to meet all of the conditions to closing and
the closing of the sale is currently expected to occur by the end of October.
The operating and financial results of IAI have been presented as discontinued
operations.
The Board of Directors today declared a quarterly dividend of
two-and-a-half cents (U.S.) a common share, payable December 1 to shareholders
of record on November 6. The Board of Directors also declared a dividend in
respect of the Company's 5.5% Convertible Redeemable Preferred Shares Series
E,payable December 1, for the quarter ending November 30, 1998, to
shareholders of record on November 6. Consistent with the terms of the Class
VBN Shares, which entitle the holder to a minimum dividend equal to 80 per
cent of the regular cash per share common dividend, the Board of Directors
also declared a dividend of two cents (U.S.) per share in respect of the
Company's Class VBN Shares, payable December 1 to shareholders of record on
November 6.
Voisey's Bay Update
-----------------------------------------------
Status of Exploration Program
During the third quarter of 1998, exploration work continued on plan. A
total of 9,523 metres of drilling was completed with three drills in operation
on the main claim block held by Voisey's Bay Nickel Company Limited
(''VBNCL''), a wholly-owned subsidiary of the Company, where the Voisey's Bay
deposit is located. Drilling, consistent with the exploration program
developed for 1998, has continued to focus on the two-fold objective of
extending identified resources and seeking new targets having the potential of
containing new resources.
Two new mineralized zones were discovered during the quarter. North of
the Eastern Deeps section of the Voisey's Bay deposit, a zone of disseminated
mineralization was drilled in the feeder dyke over an area of at least 400
metres by 250 metres and similar mineralization was discovered in the same
geological environment about 1,000 metres southeast of this new zone. These
discoveries reflect the high potential of the feeder sheet north of the
Eastern Deeps section to host additional disseminated mineralization. Drilling
continues in this area and new resource tonnage is currently expected to be
identified.
High grade mineralization was intersected in drilling a zone beneath the
Discovery Hill zone. The intercept comprised a 61.9 metre core length (35
metres in true width) grading 1.73% nickel, 0.70% copper and 0.12% cobalt at a
depth of 1,550 metres. Half of this zone consists of massive sulphides which
carry about 2.40% nickel. In addition, a separate 6.9 metre zone grading 2.63%
nickel, 0.79% copper and 0.18% cobalt has been identified about 160 metres
above the intersection mineralization.
Surface geophysical surveys and geological mapping over a large area
north of VBNCL's main claim block were completed in September 1998.
Compilation and interpretation of the final results of these surveys are
currently underway and expected to be completed by the end of 1998.
A regional exploration program over the large Kiglapait property, located
about 60 kilometres north of VBNCL's main claim block,was completed during the
quarter with a view to identifying future exploration targets. Further
exploration of this area will be undertaken in 1999.
Status of Environmental Permitting and Discussions with Aboriginal
Groups
Public hearings in several communities in the Province on the
Environmental Impact Statement (''EIS'') covering the mine, mill and related
facilities and infrastructure (''Mine/Mill Project''), and the key issues
addressed by the EIS, began in early September 1998. It is currently expected
that these public hearings will be completed in November 1998. After these
hearings have been completed, the five-person panel overseeing the
environmental review process is required to make their recommendations to
the provincial and Federal governments. Based upon this schedule, VBNCL
currently expects that the panel's recommendations for the Mine/Mill Project
should be made by early 1999. Once these recommendations are made, the Federal
and provincial governments would then determine their respective positions on
the environmental permits and approvals necessary for the commercial
development of the Mine/Mill Project to proceed.
A September 1997 action filed by a Newfoundland-based organization, whose
members include environmental and other groups, sought to require that the
environmental review and approval process for any proposed smelter and
refinery facilities be joined with the process governing the Mine/Mill
Project. While the court proceedings were completed in late March 1998, a
decision still has not been issued by a Canadian federal court.
Status of Negotiations with Provincial Government
Since the Province of Newfoundland and Labrador in late July 1998
indicated that it had suspended confidential discussions with the Company and
VBNCL regarding financial and other issues relating to the commercial
development of the Voisey's Bay deposit because the Company would not commit
to investing in smelting and refining facilities in the Province, there have
been no further meetings or discussions between the Company and VBNCL and
Provincial officials. In addition to receipt of the necessary environmental
approvals and permits, the Company will require the issuance by the Province
of mining leases under the provincial mining legislation in order for
commercial development to proceed.
The Company remains committed to the development of the Voisey's Bay
deposit as part of its strategy of pursuing new low- cost nickel production
capacity on a basis that will not only meet the Company's objectives but will
provide significant benefits to the Province and the rest of Canada. While the
Company's position on what project at Voisey's Bay is economically viable
has not changed, it remains open to innovative and constructive solutions to
advance the Voisey's Bay deposit and continues to evaluate, and remains
willing to explore, alternatives in seeking to develop an economically viable
project which will also meet the needs of the Province.
This news release contains forward-looking statements regarding the
Voisey's Bay project 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,
settlement of aboriginal land claims, engineering and construction
timetables, financing arrangements, supply and demand for metals to be
produced, production levels and metals prices.
Unaudited Condensed Consolidated Financial Statements Are Attached.
IN 13/98
For further information:
Jerry Rogers (416) 361-7754
or: www.incoltd.com
<<
INCO LIMITED
----------------------
(U.S. dollars in millions)
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
---------------------------------------------
Third Quarter Nine Months
1998 1997 1998 1997
------------------------------------
Net sales $ 369 $ 567 $ 1,363 $ 1,826
--------- ------- ------- --------
Costs and expenses
Cost of sales and operating 356 492 1,329 1,561
Selling, general and administrative 23 28 70 83
Research and development 4 5 14 18
Exploration 9 14 23 32
Interest 22 20 66 62
--------- ------- ------- --------
Total costs and expenses 414 559 1,502 1,756
--------- ------- ------- --------
Earnings (loss) before taxes and
minority interest (45) 8 (139) 70
Income and mining taxes (20) 4 (65) 35
--------- ------- ------- --------
Earnings (loss) before minority
interest (25) 4 (74) 35
Minority interest 1 3 5 11
--------- ------- ------- --------
Earnings (loss) from continuing
operations (26) 1 (79) 24
Earnings from discontinued
operations 2 4 16 55
--------- ------- ------- --------
Net earnings (loss) (24) 5 (63) 79
Dividends on preferred shares (6) (6) (19) (19)
Dividends on class VBN shares (1) (2) (2) (6)
--------- ------- ------- --------
Net earnings (loss) applicable
to common shares $ (31)$ (3)$ (84) $ 54
--------- ------- ------- --------
--------- ------- ------- --------
Net earnings (loss) per common share
Basic and fully diluted
Continuing operations $ (0.19)$ (0.04)$ (0.60)$ (0.01)
Discontinued operations 0.01 0.02 0.10 0.33
----------- ------- ------- ------
$ (0.18)$ (0.02)$ (0.50)$ 0.32
----------- ------- ------- ------
----------- ------- ------- ------
Common shares outstanding
(weighted average,
in thousands) 166,059 167,018 166,052 166,914
--------- ------- ------- -------
--------- ------- ------- -------
INCO LIMITED
----------------------
(U.S. dollars in millions)
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
-------------------------------------
September 30, December 31,
1998 1997
------------- -------------
Assets
Cash and marketable securities $ 72 $ 56
Accounts receivable 295 391
Inventories 738 796
Prepaid expenses 27 21
Deferred taxes 32 32
----------- -----------
Total current assets 1,164 1,296
Capital assets 6,366 6,252
Other assets 256 224
----------- -----------
$7,786 $7,772
----------- -----------
----------- -----------
Liabilities and shareholders' equity
Notes payable $ 29 $ 9
Long-term debt due within one year 2 45
Accounts payable and accrued liabilities 487 524
Taxes payable 15 28
----------- -----------
Total current liabilities 533 606
Long-term debt 1,729 1,495
Deferred taxes 187 278
Post-retirement benefits 637 614
Future removal and site restoration costs 37 30
Minority interest 283 278
Shareholders' equity 4,380 4,471
----------- -----------
$7,786 $7,772
----------- -----------
----------- -----------
INCO LIMITED
----------------------
(U.S. dollars in millions)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
-----------------------------------------------
Nine Months
1998 1997
---------- --------
Operating activities
Earnings (loss) before minority interest $ (74) $ 35
Charges (credit) not affecting cash
Depreciation and depletion 181 171
Deferred income and mining taxes (90) 3
Other, net 14 2
Decrease (increase) in non-cash working
capital related to operations 89 (83)
Accruals less than
payments for post-retirement benefits (9) (6)
--------------------
111 122
--------------------
Investing activities
Capital expenditures (307) (372)
Other, net 12 9
--------------------
(295) (363)
--------------------
Financing activities
Net increase in borrowings 211 163
Common shares issued 1 16
Preferred, class VBN and common
dividends paid (33) (76)
Dividends paid to minority interest (1) (5)
--------------------
178 98
--------------------
Discontinued operations 22 108
--------------------
Increase(decrease) in cash and
marketable securities 16 (35)
Cash and marketable securities at
beginning of period 56 78
--------------------
Cash and marketable securities
at end of period $ 72 $ 43
--------------------
--------------------
>>
%SEDAR: 00001084E
-30-
For further information: Jerry Rogers, (416) 361-7754 or:
www.incoltd.com
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