No shortage of info this week. The game is to see if all the stories match!
Turmoil hammers Inco profit
Global upheaval also delays sale of alloys
unit, and price may drop, company says
Tuesday, October 27, 1998
ALLAN ROBINSON
Mining Reporter
Depressed nickel markets and the upheaval in capital markets have hammered Inco Ltd.'s
third-quarter results and jeopardized the $408-million (U.S.) sale of its alloys business.
Toronto-based Inco, the world's second-largest nickel producer, said yesterday that the credit
crunch and financial turmoil in the U.S. debt and equity markets have forced a delay in the sale of
the Inco Alloys division to Special Metals Corp. of New Hartford, N.Y., and could result in a
possible cut in the price.
"Maybe there's going to be a haircut," Inco president Scott Hand said about a possible reduction in
price. He hopes the deal, which was to have been completed in September, will be completed
within days.
As if those problems aren't enough, Toronto-based Inco said no talks have been held with the
province of Newfoundland and Labrador about the development of the Voisey's Bay nickel and
copper mine in Labrador. Although environmental hearings are continuing and a decision about
whether the project meets environmental requirements is expected in early 1999, Inco said no
commercial development can occur without a provincial mining lease.
The company is facing political pressure to construct not only a $350-million (Canadian) mine and
mill at Voisey's Bay, but also a $1-billion smelter and refinery complex at Argentia, about 130
kilometres from St. John's. The government remains adamant that the mine and mill will not go
ahead without the processing complex.
"Both [Inco and the province] would be amiss if they went ahead and developed the asset [Voisey's
Bay] at today's low metal prices," said Terence Ortslan, a mining analyst with TSO & Associates
of Montreal.
Yesterday, the shares of Inco fell 60 cents to $16.40 on the Toronto Stock Exchange, down from the
52-week high of $32.40 set on Oct. 23, 1997.
Inco's loss for the third quarter of 1998 was $24-million (U.S.) or 18 cents a share, compared with
a profit of $5-million or a loss of 2 cents a share after the payment of dividends on preferred
shares and a special class of Inco shares arising from the Voisey's Bay acquisition. Its sales fell to
$369-million from $567-million a year earlier.
The loss for the nine months ended Sept. 30 was $63-million or 50 cents a share, compared with a
profit of $79-million or 32 cents a year earlier. Revenue was $1.4-billion, down from $1.8-billion.
The results for the first nine months of 1998 include a $32-million charge arising from layoffs and
mine closings.
Inco is struggling to cut costs at its higher-cost operations in Sudbury, Ont. and Thompson, Man., in
response to the low nickel prices. It has made deep cuts at all levels of its management and work
force.
"They are doing the best they can with these metal prices," said John Lydall, a mining analyst with
First Marathon Securities Ltd.
"This is a different company than it used to be," he said of the emphasis on cutting costs. "But they
are facing a huge, huge problem. Every one pound of nickel in five being used in the Western world
comes from Russia."
Russia used to use much of that nickel domestically, but the collapse of that country's economy has
resulted in nickel available for export.
The price of nickel dropped to $1.77 a pound on the London Metal Exchange yesterday.
The $2.17 a pound that Inco received for the nickel it sold under contracts during the third quarter
is down 34 per cent from the same period a year ago, and is even down 14 per cent from the price
it received in the second quarter of 1998.
"Our cost cutting is in high gear," chairman Michael Sopko said. "And thank God we are selling
every pound of nickel we are making."
That is one of the few bright spots in the nickel mining industry. There are no signs that inventory
levels are on the rise.
Inco estimates that it is about halfway through its cost-saving efforts, which by 2000 will result in
savings totalling $215-million a year.
Mr. Hand said new projects under way at the Creighton mine in Sudbury, at Inco's Indonesian
subsidiary and at New Caledonia in the South Pacific (the Goro project) will help Inco reduce its
costs and meet its objective of becoming the lowest-cost nickel producer in the world.
"Voisey's Bay is the least advanced of the major projects, but one of the most lucrative of all the
projects," Mr. Ortslan said.
Inco says the expansion of PT International Nickel Indonesia will exceed the original estimated
cost of $580-million by about 10 per cent because of construction delays.
Inco said it has no plans to cut nickel production. During the first nine months of 1998, the company
generated cash of $111-million from its operations, compared with $121-million during the same
period a year earlier. |
