Inco retrenches after fourth-quarter setback — Cost-cutting leads to closures in Sudbury

A fourth-quarter loss and greatly reduced profits have caused Inco (N-T) to step up the pace of its restructuring program.

The giant nickel miner reported a loss of US$4 million for the last three months of 1997, to finish the year with net earnings of US$75 million on revenue of US$2.4 billion. In 1996, the company earned US$179 million on revenue of US$2.46 billion. This year’s result translates into earnings of US25cents per share, against US$1.17 in 1996.

Inco’s chairman, Michael Sopko, ascribed the decline in earnings to falling metal prices. Inco’s average realized prices for nickel and copper fell to US$3.36 and US$1.07 per lb., respectively.

The lower copper price cost the Ontario and Manitoba divisions byproduct credits, though better productivity in Thompson, Man., decreased production costs about 4%. Lower production in Sudbury, Ont., the result of a 26-day strike, also translated directly into higher production costs. Across the whole company, a pound of nickel cost US$1.71 to produce.

Faced with lower revenue, a restructuring program Inco announced this fall is being accelerated. President Scott Hand singled out the Sudbury operations as the focus of cost-cutting activities.

The company announced it would be mothballing or phasing out its Levack, McCreedy West, Frood and Little Stobie operations in Sudbury, and would close its Shebandowan mine west of Thunder Bay.

In Sudbury, the company will concentrate on four low-cost mines: McCreedy East, Creighton, and Copper Cliff North and South. Inco expects the bulk of the workforce reductions will be covered by about 500 retirements among the hourly rated employees in the Sudbury operations. The company still expects some layoffs of salaried staff.

Shebandowan, which is being mined under contract by Dynatec, was already slated for closure in the second quarter of 1998. About 300 people are employed there, but Dynatec’s president, Robert Dengler, says he expects the company to replace the work before the end of 1998.

Production is being ramped up at Inco’s Indonesian division, where annual capacity is to increase to 150 million lbs. in 2000. Inco is also pushing development of the Goro deposit on New Caledonia.

At the Voisey’s Bay nickel project, delineation drilling has now established a resource of 116 million tonnes in the main Ovoid zone, but Inco had not attached a grade figure to that resource. The 32-million-tonne minable reserve in the Ovoid, grading 2.83% nickel, 1.68% copper and 0.12% cobalt, has not been updated. Further extensions to the Reid Brook zone, have also been discovered, and a number of other targets (including a “significant geophysical anomaly” 60 km north of the deposit) are slated for drilling this year.

Political and legal wrangling over the development of Voisey’s Bay continues, including negotiations between the national and provincial governments and aboriginal groups to which Inco is not a party. Sopko predicted the issues would be resolved by the end of 1998 for a start to construction after spring breakup in 1999.

The smelter and refinery proposed for Argentia, Nfld., remains Inco’s preferred option, but negotiations continue between the company and the provincial government on tax and electrical rates. Inco is taking the position that the economics of the smelter and refinery have changed since nickel prices have fallen, but Sopko and Hand declined to specify at what nickel price the smelter would be economic, saying only that there were several factors that would affect its feasibility.