Falling Metal Prices sour Inco’s fourth-quarter earnings

Sliding prices for nickel and copper pulled Inco (N-T) into the red for the fourth quarter of 2001.

The company reported a US$5-million loss (or US7 per fully diluted share), compared with a profit of US$83 million (US39 per share) in the fourth quarter of 2000.

Sagging metal prices continued to eat away at the nickel giant’s bottom line, causing revenue to sink 31% from the year-earlier period, to US$463 million.

For all of last year, Inco earned US$305 million (or US$1.49 per share) on sales of US$2.1 billion, down from US$400 million (US$1.89 per share) on US$2.9 billion in 2000.

“The impact of the economic downturn on nickel demand and prices made last year a challenge,” says Scott Hand, Inco’s chief executive officer. “We are cautiously optimistic [about the] near-term since we expect a recovering nickel market in the second half of 2002 and are well-positioned to benefit when the recovery occurs.”

At the end of 2001, the company’s cash and marketable securities were US$306 million, up from US$193 million at the end of 2000. Total debt rang in at US$840 million, US$190 million less than at the end of 2000.

During the fourth quarter, Inco delivered 62,464 tonnes of nickel in all forms (compared with 63,816 tonnes a year earlier), 28,815 tonnes copper (30,726 tonnes), 359 tonnes cobalt (325 tonnes), 96,000 oz. platinum group metals (87,000 oz.), 19,000 oz. gold (19,000 oz.) and 410,000 oz. silver (290,000 oz.).

For all of 2001, deliveries amounted to 207,071 tonnes of nickel in all forms (compared with 199,097 tonnes in 2000), 116,751 tonnes copper (118,025 tonnes), 1,454 tonnes cobalt (1,422 tonnes), 405,000 oz. PGMs (342,000 oz.), 76,000 oz. gold (65,000 oz.) and 1.5 million oz. silver (1.4 million oz.).

In-house nickel production between the two fourth quarters climbed to 58,201 tonnes from 54,723 tonnes, while cash costs before byproduct credits increased US10 to US$1.60 per lb. nickel (US$3,520 per tonne). Between the two 12-month periods, in-house nickel production increased to 207,077 tonnes at a cash cost of US$1.56 per lb. (US$3,440 per tonne) from 202,806 tonnes at US$1.48 per lb. ($3,260 per tonne).

Fourth-quarter nickel production benefited from the processing of higher volumes of purchased intermediates. The increase in cash cost reflects significantly lower contributions from byproduct credits, whose prices have fallen. Earnings were also affected by accelerated stripping costs at PT Inco in Indonesia and startup problems at the Ontario processing facilities following the planned summer shutdown.

Inco’s averaged realized price for nickel between the two fourth quarters fell to US$2.48 per lb. (US$5,470 per tonne) from US$3.60 per lb. (US$7,940 per tonne). Realized copper prices dropped to US68 per lb. (US$1,500 per tonne) from US88 per lb. (US$1,940 per tonne).

By comparison, London Metal Exchange spot prices for nickel in the fourth quarter averaged US$5,056 per tonne, with copper averaging US$1,425 per tonne.

For all of 2001, Inco realized US$6,460 per tonne for its nickel and US$1,680 per tonne for its copper, off 28% and 12.6% respectively from 2000. LME nickel spots over the year averaged US$5,945 per tonne and copper spots, US$1,578 per tonne.

For the first quarter of 2002, Inco expects to produce 54,000 tonnes nickel, 32,000 tonnes copper and 95,000 oz. platinum group metals. For the full year, production is expected to reach 213,000 tonnes nickel, 125,000 tonnes copper and 405,000 oz. PGMs. Nickel unit cash costs (net of byproduct credits) for the first quarter and the full year are projected at US$3,000-3,100 per tonne. The increased projected production of nickel relative to 2001 is based on a full year of production from the Ontario operations. Contributions from PT Inco will be lower, as the furnance is being shut down for modifications beginning in the fourth quarter of 2002. That interruption runs through to the third quarter of 2003.

Net earnings for 2002 are forecast at US48 per share, based on a fully diluted capitalization of 188.7 million shares.

An operating permit for the US$1.4-billion Goro nickel-laterite project in New Caledonia should be approved by early in the second quarter. Inco owns an 85% interest in the asset, with the remainder held by the French government.

On the Voisey’s Bay watch, confidential negotiations between the company and the province of Newfoundland have continued over commercial development of the deposit. Many of the major issues remain unresolved, including the government’s continuing insistence that mined material be processed in the province.