Despite precipitous declines in nickel and copper prices during the third quarter,
The earnings figure, which includes a US$28-million gain caused by a shrinking Canadian dollar, compares with earnings of US$62 million on revenue of US$642 million during the corresponding period last year. On a per-diluted-share basis, earnings fell to US14 from US29.
For the first nine months of 2001, Inco earned US$310 million (or US$1.55 per share) on sales of US$1.6 billion, down from the US$317 million (US$1.53 per share) earned on US$2.3 billion in the corresponding period of 2000.
“The downturn in business conditions for nickel and other base metals has significantly affected our revenues and earnings, and the near-term outlook remains weak,” says Scott Hand, Inco’s deputy chairman and chief executive officer. He adds that, for the full year, Inco still expects to meet or beat the goals it set in February for nickel and platinum group metal (PGM) production levels, unit cash costs and margins over London Metal Exchange (LME) cash prices.
“Delivering on the controllable parts of our business helps reduce the adverse, fundamental impact of weak metal prices,” says Hand, who emphasizes that the company has worked “long and hard” over the past three years to improve its debt-equity ratio, total debt and cash position.
Inco has cleaned up its balance sheet considerably during that time: cash and marketable securities now stand at US$263 million, while total debt registers at US$845 million.
During the third quarter, Inco delivered 51,667 tonnes of nickel in all forms (compared with 60,561 tonnes a year ago), 22,896 tonnes copper (24,536 tonnes), 296 tonnes cobalt (334 tonnes), 91,000 oz. PGMs (50,000 oz.), 17,000 oz. gold (11,000 oz.) and 270,000 oz. silver (310,000 oz.).
In-house nickel production during the quarter dropped to 40,835 tonnes from 45,416 tonnes a year earlier, but the company still managed to cut cash costs to US$1.52 from US$1.61 per lb. nickel (before byproduct credits).
The production shortfall was caused by unexpected disruptions at operations in Sudbury, Ont. and Clydach, Wales — problems that have since been resolved.
Inco’s averaged realized price for nickel between the two third quarters fell to US$2.80 from US$3.92 per lb., while realized copper prices dropped to US70 from US91 per lb. By comparison, spot prices for nickel and copper on the LME during the recent quarter were US$2.49 and US67 per lb., respectively.
Looking ahead, Inco estimates that production for all of 2001 will be in line with projections (except for lower copper output): 209,000 tonnes nickel, 122,000 tonnes copper and 416,000 oz. PGMs (mostly platinum and palladium on a 55:45 ratio).
As for net earnings in 2001, the company says it is comfortable with the current first-call estimate of US51 per diluted share, before unusual deferred tax benefits and currency adjustments.
At its US$1.4-billion Goro nickel-laterite project in New Caledonia, Inco has applied for an operating permit and expects to have an approval in hand early in the second quarter of 2002. Construction permits have already been submitted, which should allow preliminary work to begin.
“We have to look beyond the year 2002,” says Hand, referring to Goro’s potential. “It takes about three years to get these things going, and I’d be very surprised if we didn’t see a pretty good nickel market in 2003 and 2004.”
Plans call for Goro to produce 54,000 tonnes nickel (as a 78%-nickel ferro-alloy) and 5,400 tonnes cobalt (in cobalt carbonate) annually. Reserves stand at 47 million tonnes grading 1.59% nickel and 0.17% cobalt, and there is a further resource of 219 million tonnes grading 1.57% nickel and 0.18% cobalt.
The project will employ 800 people and is expected to put about US$100 million a year into the territory’s economy.
Goro should be in production in late 2004 and be running at full capacity by 2006.
Currently, Inco owns an 85% interest, with the remainder held by the Bureau de recherches gologiques et minires (BRGM), an agency of the French government. However, Inco hopes to sell a 15% stake in Goro to a third party who would likely also acquire BRGM’s interest.
If Inco does succeed in finding a new partner for Goro, it would be required to raise an additional US$600 million to fund its share of project costs. Already, the French government has contributed US$350 million and provided a 15-year tax holiday.
Overall, Inco’s capital expenditures in the third quarter were up slightly, to US$71 million, primarily because of increased spending at Goro.
There has been no substantive news on the Voisey’s Bay front. Earlier in October, Inco and the Newfoundland government said they were continuing discussions regarding commercial development of the deposit. Most of the major issues remain unresolved, including the government’s continuing insistence that ore be processed in the province.
Commenting on the broader nickel market, Peter Goudie, executive vice-president of marketing, says that since Sept. 11, there have been significant reductions in the forecasts for world industrial-production growth, both for the balance of 2001 and for at least the first half of 2002.
“This naturally has an impact on our outlook for nickel demand,” he says, noting that nickel demand in the Western World and China could fall by 2.4% in 2001, led by a 2.7% drop in stainless-steel production. Non-stainless-steel nickel demand will also be affected, declining an estimated 2.7%.
At the same time that demand drops, nickel production is projected to rise by 42,000 tonnes per year, though this figure may be reduced by more as-yet-unannounced production cuts.
“The economic outlook is extremely uncertain, and this is affecting decisions by our customers and by their customers,” says Goudie. “There is a general wait-and-see attitude, and consumers are certainly running hand-to-mouth on their inventory.”
Inco is forecasting further stainless-steel production cuts in Europe, the U.S. and Japan in response to continuing weak economic conditions and a desire to avoid an excessive inventory build-up.
“Over the longer term, we remain confident of the nickel market and confident that nickel demand will return to the long-term trend line of 4% growth,” says Goudie. “With the absence of major new projects, it is going to be a very good environment for us to bring Goro into production in 2004.”
Inco has also declared a dividend of US$0.6875 per share for the 5.5% convertible redeemable preferred shares (Series E), payable Dec. 3, for the quarter ending Nov. 30, 2001. The dividend applies to shareholders of record on Nov 5.
Be the first to comment on "Inco squeaks out third-quarter profit"