Tumbling price of nickel splatters red ink on Inco

The sharp drop in nickel prices has splattered more than a few drops of red ink on the latest financials put out by Inco Ltd.

Though the nickel producer has managed to break even for the latest fiscal year ended Dec 31, it has done so by the skin of its teeth with net earnings of $200,000(US), before the allowance of preferred dividends.

After preferred dividends, Inco’s loss amounts to 16 cents per common share a marked difference with net earnings of 28 cents per share or $52.2 million for fiscal 1985.

Looking at the fourth quarter, the company’s net loss was $6.5 million or 10 cents per share compared with net earnings of $7.6 million or 3 cents per share in the fourth quarter of 1985.

These results reflect a decline in nickel price realizations of 16% for the year and 13% for the quarter as compared to corresponding periods in 1985.

The average realized price per pound of nickel excluding intermediates for 1986 was $2.02, down from the $2.39 realized in 1985. In the fourth quarter the average price realized was $1.86, quite a dip from the $2.16 realized in the fourth quarter of 1985.

The company’s nickel production in 1986 was 357 million lb, a slight increase from the 334 million lb in 1985. Finished nickel inventories totalled 70 million lb for both years.

The drop in nickel price was partially offset by reduced unit costs for primary metals and higher prices for platinum group metals and gold. However, the improved margins which had been experienced in the alloys and engineered productions business during the first three quarters of the year were not sustained in the fourth quarter mainly due to competitive pressure on prices. Charges for production shutdowns and severance costs totalled $28 million in 1986 an increase from $19 million in 1985. Currency translation adjustments, which provided a gain of $13 million in 1985, resulted in a $2 million loss in 1986.

The company generated an internal cash surplus of $21 million in 1986. Total debt was up by $66 million to $995 million due mainly to the expenditure of $102 million for the redemption of the remaining series A preferred shares.