Inco reports quarterly loss despite improved metal prices

Nickel and copper prices have improved, but Inco (TSE) continues to spill red ink.

The company reported a second-quarter net loss of US$7.6 million, compared with a net loss of US$2.2 million for the same 3-month period of 1993. For the first half of 1994, the company incurred a net loss of US$67.6 million, compared with a net loss of US$24.8 million in the corresponding period of 1993.

Inco said second-quarter and first-half results were adversely affected by lower deliveries of company-produced nickel and platinum group metals (PGMs) which were constrained because of a production shutdown in the first quarter of 1994, together with a requirement to accumulate nickel inventory in advance of the Canadian divisions’ scheduled summer vacation shutdown (which commenced June 27). Consequently, deliveries of purchased nickel (on which the company says little or no profit is realized) represented a higher-than-normal percentage of total nickel deliveries.

The company’s realized nickel price averaged US$2.86 per lb. in the second quarter of 1994 and US$2.82 in the first half of 1994, compared with US$2.93 and US$2.94, respectively, realized in the corresponding periods of 1993. For the first quarter of 1994, the company’s realized nickel price averaged US$2.77.

Nickel demand continued to improve during the second quarter of 1994 and the cash nickel price on the London Metal Exchange averaged US$2.69 per lb., up from US$2.57 in the first quarter of 1994 and US$2.15 in the fourth quarter of 1993.

The company’s realized copper price averaged 98 cents per lb. in the second quarter of 1994 compared with 86 cents and 76 cents, respectively, in the first quarter of 1994 and the fourth quarter of 1993.

Inco says lower deliveries of company-produced nickel, PGMs and gold during the second quarter were partially offset by higher realized prices for copper and cobalt.

The decrease in operating results for the first half of 1994 is attributed primarily to production shutdown costs of US$77 million and a charge of US$27 million in respect of costs associated with employment reductions. (These were effected through voluntary retirement programs.) These charges were incurred in the first quarter of 1994.

The company’s finished nickel inventories, which are expected to decline during the third quarter as a result of planned vacation shutdowns at the Ontario and Manitoba divisions, were 75 million lb. at June 30, compared with 51 million lb. at March 31 and 72 million lb. at the end of 1993. As of June 30, the company’s total debt was US$992 million, down from US$1,059 million at the end of 1993, and its total debt-to-equity ratio was 36-to-64.

In early July, Inco received net proceeds of US$170 million from the sale of US$172.5 million 534% convertible debentures, due 2004, through an underwritten public offering in the U.S. These debentures are convertible into common shares at US$30 per share.