Threat of layoffs looms over Inco’s workforce

Nickel giant Inco (TSE) is getting tough in global markets by launching a 2-pronged attack — cutting costs to US$2.25 per lb. and expanding operations to raise total output by 20% over the rest of the decade.

At its annual meeting in Toronto, the company said it is prepared to invest heavily in its 58%-owned Indonesian operation and its yet-to-be-developed Goro lateritic deposit in New Caledonia. On the cost-cutting side, Inco will reduce its workforce worldwide by 1,000 and is even prepared to lay off staff at its money-losing operations in Sudbury, Ont..

The Sudbury facilities are served by two unions of the United Steel Workers of America (USWA), local 6600 and local 6500.

Harold Love, president of local 6600, which represents 570 of Inco’s 1,700 office, technical and professional employees in Sudbury, told shareholders that about 100 jobs would be lost if just 30 employees accept Inco’s offer of early retirement.

That offer has been extended to May 9 and involves employees with either 30 years experience or who are 55 on March 31, 1995. So far, 506 union and non-union employees have accepted, but Inco is looking for 600. Layoffs are not a threat for USWA local 6500, where the average age and work experience of 4,800 hourly-rated members are much higher than at the smaller 6600 local. Indeed, Inco’s offer of early retirement was snapped up by 388 of these hourly workers. The last time members of local 6500 were layed off was in 1982, which is also the last time there was a strike at the Sudbury operations.

The president of local 6500, David Campbell, and a bargining unit of six are in the early stages of negotiations with Inco management on non-monetary and language issues. The goal is to hammer our a new 3-year contract before the current contract expires May 31. The main issues are job security and pensions.

The cards seem to be stacked against the steelworkers, however. As Chairman Michael Sopko told shareholders, Sudbury is no longer the Crown Jewel of the company. Over the years, the tables have turned and Sudbury is now “subsidized by the rest of the company.”

In the first quarter, Inco reported a $60-million loss on lower revenues of $524 million. That loss included the $77-million cost of shutting down the Sudbury operations for two months in January and February earlier this year. That move was a failed attempt to get other global nickel producers to cut production and therefore reduce worldwide inventories. The hoped-for effect would have been an increase in nickel prices. But nickel producers elsewhere decided not to follow Inco’s lead. Therefore Inco’s new hardened approach to global competition.

In 1993, nickel continued a 4-year slide. After hitting a high of US$2.88 per lb. in January, it slumped to a 6-year low of US$1.83 in September. Since then, it reached a high of US$2.56 in February, 1994.

The company has already planned a 5-week summer shutdown from June 27 to July 31. However, should the Sudbury workers decide to strike come June, the cost to Inco of closing the division earlier than scheduled would be somewhat less than the cost of the January-February closure. The reason is that no maintenance costs would be incurred during a strike. But there still is no question that a shutdown would be costly for the company.

Of concern to the union is the company’s production capacity elsewhere in the world and the amount of nickel in inventory which could be used to make up for the lost production that would result from a strike. Some have estimated that Western world inventories of nickel total 507 million lb., or slightly more than 18 weeks of demand. Inco’s annual worldwide production capacity, if all its operations are running 12 months of the year, is 440 million lb. The company produced 369 million lb. of nickel in 1993 and delivered 466 million lb., while worldwide demand totaled 1,450 million lb. Annual production capacity at P.T. Inco in Indonesia is 100 million lb., following the recent addition of a third furnace. A transformer failure in one furnace in 1993 hampered production to just 76 million lb. But if all three furnaces operate as planned for all of 1994, production could total 100 million lb.

In the first quarter, production at P.T. Inco totaled 25.4 million lb. This operation, which mines and processes lateritic ore and generates its own hydroelectricity, is already one of the lowest-cost producers in the world, netting US$8.7 million in the first quarter on sales of US$47.7 million. Proven and probable reserves at the end of 1993 were 86 million tons grading 1.86% nickel.

About half of Inco’s planned 20% increase in production over the next decade could come from P.T. Inco by adding yet another furnace, and from the 85%-held Goro property in New Caledonia. The latter contains 165 million tons grading 1.57% nickel and will be managed by Walter Curlook, retired vice-chairman of Inco.

The remaining increase in production could come from mine development projects in Canada. In Ontario, the major is spending $32 million to redevelop the high-grade Garson mine and $158 million on the first phase of development of the McCreedy East deposit. In Manitoba, it is spending $117 million to develop the Birchtree deposit and $181 million on the Thompson 1-D deposit.

In 1993, ore grades in the Manitoba division averaged 2.5% nickel, compared with 1.2% in the Ontario division.

— Patrick Whiteway is editor of “Canadian Mining Journal.”