Inco’s earnings shrink

Higher production costs helped take a big bite out of Inco‘s (N-T, N-N) first-quarter earnings, despite higher nickel output.

In the first quarter, Inco earned US$202 million, or US$0.91 per diluted share, on sales revenue of US$1.2 billion. This compares with last year’s first quarter profit of US$317 million, or US$1.43 per diluted share, on revenues of US$1.1 billion.

The company blamed the profit drop on several factors: higher production and operating costs; an increase in interest expense, as no interest in respect of the Voisey’s Bay project has been capitalized since the mine, concentrator and related facilities started commercial production in late 2005; lower deliveries of copper and platinum group metals; and lower realized selling prices for nickel and cobalt.

Inco notes that these negatives were partially offset by higher average realized selling prices for copper and PGMs, as well as higher deliveries of Inco-source nickel.

Inco produced 135 million lbs. nickel in the first quarter, up 11% from last year. Nickel unit cash cost of sales after by-product credits for the quarter was $2.59 per ln., up US$0.05 from a year earlier.

Inco’s earnings disappointment evidently took the Street by surprise: in Toronto, shares tumbled $3.08, or 4.8%, to $61.14 while in the Big Apple, shares fell US$2.59, or 4.6%, to US$53.99.