RNS Number:6886U
Inco Ld
17 April 2002
INCO LIMITED REPORTS FIRST QUARTER 2002 NORMALIZED EARNINGS(1)
OF U.S.$25 MILLION, REFLECTING LOWER REALIZED NICKEL PRICES
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(All dollar amounts are expressed in United States currency)
Toronto, April 16, 2002 --- Inco Limited reported normalized net earnings of $25
million, or 10 cents per common share (10 cents per share on a diluted basis),
for the first quarter of 2002, compared with normalized net earnings of $51
million, or 25 cents per share (25 cents per share on a diluted basis), for the
first quarter of 2001. The normalized net earnings for the first quarter of 2002
exclude unfavourable non-cash currency translation adjustments of $1 million, or
one cent per share, and a non-cash after-tax asset impairment charge of $13
million, or seven cents per share, related to certain receivables and other
assets arising from commercial relationships dating back to 1998 with one of the
Company's significant customers. First quarter 2001 normalized net earnings
excluded the benefit of favourable currency translation adjustments of $34
million, or 18 cents per share. Net earnings, calculated in accordance with
Canadian generally accepted accounting principles ("Canadian GAAP"), were $11
million, or two cents per share (two cents per share on a diluted basis), for
the first quarter of 2002, compared with $85 million, or 43 cents per share (42
cents per share on a diluted basis), in the corresponding 2001 period.
"We were able to return to profitability this quarter as we emerge from the
recent economic downturn, and we see signs of recovery
in our business," said Scott Hand, Inco's Deputy Chairman and Chief Executive
Officer. "We continue to be in the lowest cost quartile of our industry and we
remain focused on further cost reductions and margin enhancement as we move
forward with our growth plans," he added.
The following table summarizes the Company's results for the periods indicated:
Results Summary First First
Quarter Quarter
2002 2001
(in millions except
per share amounts)
Net sales $ 506 $ 586
Operating earnings 42 145
Net earnings 11 85
Net earnings
per common share
- basic 0.02 0.43
- diluted 0.02 0.42
Cash provided by (used for)
operating activities 45 (8)
Operating earnings for the first quarter of 2002, compared with the
corresponding 2001 period, reflected lower average realized prices for nickel,
platinum-group metals and copper, partially offset by lower nickel unit cash
cost of sales before by-product credits and increased deliveries of Inco-source
nickel.
During the first quarter of 2002, the Company increased its accounting
reserve for losses associated with certain receivables and other assets arising
from commercial relationships dating back to late 1998 with one of its principal
customers, Special Metals Corporation, which filed for reorganization under
Chapter 11 of the U.S. bankruptcy laws in late March 2002.
Prices and Deliveries
The following tables show the Company's average realized prices for nickel
and copper and the London Metal Exchange ("LME") average cash prices for nickel
and copper for the periods indicated:
First First
Quarter Quarter
Inco Average Realized Prices 2002 2001
------------------------------- ----------- ------------
Nickel (1) - per tonne $ 6,482 $ 7,217
- per pound 2.94 3.27
Copper - per tonne 1,639 1,867
- per pound 0.74 0.85
(1) Including intermediates
First First
Quarter Quarter
LME Average Cash Prices 2002 2001
------------------------------ ------------ ------------
Nickel - per tonne $ 6,207 $ 6,555
- per pound 2.82 2.97
Copper - per tonne 1,557 1,764
- per pound 0.71 0.80
The Company's deliveries of primary metals for the periods indicated are shown
below:
First First
Quarter Quarter
Deliveries 2002 2001
------------------ ------------ ------------
Nickel in all forms (tonnes)
- Inco-source 53,189 51,384
- Purchased 5,489 7,393
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58,678 58,777
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Copper (tonnes) 32,021 29,945
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Cobalt (tonnes) 374 434
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(in thousands)
Platinum-group metals
(troy ounces) 90 93
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Gold (troy ounces) 19 20
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Silver (troy ounces) 420 380
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Production Data and Operating Expenses
The following table sets forth production data for nickel, nickel unit cash cost
of sales both before and after by-product credits for the periods indicated, and
finished nickel inventories as of the end of the periods indicated:
First First
Quarter Quarter
Production Data 2002 2001
---------------------- ------------- -------------
Nickel in all forms (tonnes) 59,547 52,585
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Nickel unit cash cost of
sales before by-product
credits
- per tonne $ 3,197 $ 3,549
- per pound 1.45 1.61
Nickel unit cash cost of
sales after by-product
credits
- per tonne $ 3,042 $ 2,822
- per pound 1.38 1.28
Finished nickel inventories
at end of period (tonnes) 31,024 26,200
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Nickel production increased 13 per cent in the first quarter of 2002, compared
with the corresponding 2001 period, reflecting improved ore grades and
recoveries, the processing of higher volumes of purchased intermediates and an
increase in the quantity of ore mined. The Company uses purchased intermediates
to increase processing capacity utilization at its Canadian operations. While
the costs of purchased intermediates is higher, the price realizations are also
higher resulting in margins on these purchases remaining unchanged.
The decrease in nickel unit cash cost of sales before by-product credits in the
first quarter of 2002, compared with the corresponding quarter of 2001, was
principally due to lower energy costs and the favourable effect of a weakening
in the Canadian dollar relative to the U.S. dollar. The increase in nickel unit
cash cost of sales after by-product credits in the first quarter of 2002,
compared with the first quarter of 2001, was primarily due to lower
contributions from by-products, principally resulting from lower realized prices
for copper, platinum-group metals and cobalt, partially offset by lower energy
costs and the effect of the lower Canadian dollar.
Operating Earnings
Operating earnings (loss) for the Company's principal operations were as follows
for the periods indicated:
First First
Quarter Quarter
2002 2001
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(in millions)
Ontario operations $ 47 $ 81
Manitoba operations 17 28
PT International Nickel Indonesia Tbk 5 21
Corporate and other (27) 15
$ 42 $ 145
Operating results comprise earnings or loss before income and mining taxes,
interest expense, other expenses or income, and minority interest.
Cash Flows
Cash flow generated from the Company's operating activities before changes
in working capital was $94 million in the first quarter of 2002, compared with
$130 million in the corresponding 2001 period. This decrease was primarily due
to lower operating earnings. Cash provided by operating activities (after
changes in working capital) in the first quarter of 2002 was $45 million,
compared with cash used for operating activities of $8 million in the
corresponding quarter of 2001. The higher cash flows in the first quarter of
2002 reflected lower tax payments in the first quarter of 2002, partially offset
by lower operating earnings.
Capital expenditures were $72 million in the first quarter of 2002, compared
with $44 million in the first quarter of 2001. This increase was primarily due
to higher spending on the Goro project.
Financial Condition
At March 31, 2002, the Company's cash and marketable securities were $242
million, compared with $306 million at December 31, 2001. The Company's total
debt was $803 million at March 31, 2002, down from $840 million at December 31,
2001. The Company's net debt as a percentage of net debt plus shareholders'
equity was 10 per cent at March 31, 2002, compared with 9 per cent at December
31, 2001. Under Canadian GAAP, the LYON Notes issued by the Company in the
first quarter of 2001 are classified as equity and not debt.
At March 31, 2002, the number of the Company's common shares issued and
outstanding was 182,401,307.
Update on Goro and Voisey's Bay Projects
Goro
During the first quarter of 2002, continued progress on engineering work and
other areas was made with respect to the Company's Goro nickel-cobalt project in
the French Overseas Territory of New Caledonia. The Company received the
construction permit for the Goro project's commercial plant in March 2002.
Public hearings on the Goro project's application for its required operating
permit were completed during the quarter. It is currently expected that the
operating permit will be approved by the end of the second quarter of 2002,
enabling initial production to commence in late 2004.
In addition, in March 2002 an agreement in principle was signed with a
consortium to build, own and operate a 100-megawatt power plant. The Goro
project would plan to use approximately 50 per cent of the power generated by
this plant, with the balance being sold to a local power company to meet New
Caledonia's electricity requirements. The benefits to Goro from this arrangement
are expected to include lower capital and operating costs. Inco continues to
explore ways to further reduce the cost and schedule for the Goro project.
A contract to build the camp for 2,500 workers was awarded to Atco Structures
during the first quarter of 2002. It is expected that the modular buildings will
be manufactured in Brisbane, Australia and will be installed by local
contractors. The entire camp installation is expected to be completed by the end
of September 2002. Heavy equipment also continued to be moved onto the site
during the quarter.
The Company has also continued discussions about partnership details with a
number of companies interested in buying a minority interest in the Goro project
and currently expects to complete an agreement covering such a purchase in the
near future.
Voisey's Bay
Confidential negotiations between representatives of the Company and its
wholly-owned subsidiary, Voisey's Bay Nickel Company Limited ("VBNCL"), and
representatives of the Province of Newfoundland and Labrador concerning the
terms of an agreement on the commercial development of the Voisey's Bay deposit
continued through the first quarter of 2002 and significant progress has been
made in these negotiations and in negotiations with the Labrador Inuit
Association ("LIA") and Innu Nation on impacts and benefits agreements ("IBAs").
While neither the Company nor VBNCL can predict at this time whether agreements
can ultimately be reached with the Province and certain other parties, only a
limited number of issues remain to be resolved with the Province to the mutual
satisfaction of the parties concerning (i) the terms of the movement of
intermediate concentrate to be produced by the project to the Company's existing
Canadian operations as part of the financing of the project, (ii) the scope of
the guarantee covering processing in the Province required by the Provincial
government, (iii) government financial participation and (iv) the required
flexibility in the timing of the project's development and financing
arrangements that would enable the Company to proceed in a prudent and measured
way given the current uncertain economic environment. As the Company has
indicated previously, there are also a limited number of issues that would have
to be resolved, in addition to reaching an agreement with the Province, before
commercial development of the Voisey's Bay deposit could proceed, including (1)
the Company reaching mutually acceptable IBAs; (2) the Company being satisfied
that the project is appropriately dealt with under the arrangements on land
claims between the federal and provincial governments and the LIA and Innu
Nation; and (3) completion of the necessary permitting and design and
engineering parameters for project facilities.
The Company reviews and evaluates its property, plant and equipment and other
assets for impairment when events or changes in economic and other circumstances
indicate that the carrying value of such assets may not be fully recoverable. It
is possible that events such as any eventual agreements with governments and
other interested parties to enable the development of the Voisey's Bay project
to proceed or changes in future economic conditions and other circumstances, and
the resulting adverse impact on some or all of the assumptions used to value the
Voisey's Bay project, may require a significant reduction in the carrying value
of the Voisey's Bay project, in the related deferred income and mining tax
liability and in shareholders' equity.
Dividends
The Board of Directors today declared a dividend of $0.6875 per share in respect
of the Company's 5.5% Convertible Redeemable Preferred Shares Series E, payable
June 3, for the quarter ending May 31, 2002, to shareholders of record on May 6.
Outlook
The Company's current estimates for its production for the second quarter
of 2002 and the full year 2002 of nickel, copper and platinum-group metals
(PGMs), including PGMs produced from purchased material, are as follows, taking
into account actual production levels for the first quarter of 2002, and are
essentially unchanged for the full year 2002 from the guidance provided on
February 5, 2002:
Second Quarter Full Year
2002 2002
---------------------- ---------------------
Nickel - tonnes (thousands) 54 213
- pounds (millions) 120 470
Copper - tonnes (thousands) 32 125
- pounds (millions) 70 275
PGMs - troy ounces (thousands) 105 405
The Company's nickel unit cash costs of sales after by-product credits, and the
premium it expects to realize over LME cash nickel prices, for the second
quarter of 2002 and the full year 2002 are currently projected to be $1.35 to
$1.40 per pound ($2,976 to $3,086 per tonne) and $0.15 to $0.20 per pound ($331
to $441 per tonne), respectively. As reflected in the table above, the Company
has historically experienced, and expects to continue to experience, some
quarter-to-quarter variability in production levels of its primary metals
products due to planned summer shutdowns of operations and other normal planned
actions.
Based upon the current consensus for the average LME cash nickel price for
2002 assumed by analysts in their earnings estimates, which is understood to be
approximately $2.87 per pound, and their consensus prices for 2002 for Inco's
other metals products, the Company is comfortable, taking into full account the
actual results for the first quarter of 2002, with the current First Call
consensus estimate for 2002 for Inco's normalized net earnings per share, on a
diluted basis, of 75 cents. The Company's policy continues to be that it does
not publicly forecast where nickel and other metals prices will be given the
historic volatility in these prices and the high level of economic uncertainty
that currently exists in many of our key geographic markets. The LME cash nickel
price averaged $2.86 per pound ($6,305 per tonne) for the January 2 - April 16,
2002 period.
In terms of the current sensitivity of the Company's earnings per share to
changes in nickel prices, for every change of 10 cents, up or down, per pound in
Inco's realized nickel price over a full year, Inco's earnings per share over
that year would change, up or down, by about 15 cents. As reflected in the table
below, while Inco's financial results are most sensitive to movements in nickel
prices, they are also sensitive to changes in copper and other prices as well
as, on the cost side, changes in oil prices and in the Canadian-U.S. dollar
exchange rate given that a substantial portion of expenses are incurred in
Canadian dollars and the Company has substantial Canadian dollar denominated
liabilities:
CURRENT 2002 SENSITIVITY OF EPS(1) TO CERTAIN
METALS PRICES AND OTHER CHANGES
OVER ONE YEAR (IN U.S.$)
Amount of Change
(up or down) EPS Effect(1)
Realized Nickel Price $ 0.10/lb. $ 0.15
Realized Copper Price 0.10/lb. 0.09
Realized Palladium Price 50.00/troy oz 0.03
Realized Platinum Price 50.00/troy oz 0.02
Cdn.-U.S. Exchange Rate 0.01 0.09
Oil Price (West Texas Intermediate) 1.00/bbl 0.002
(1) Inco's basic earnings per share
This news release contains forward-looking statements regarding the Company's
nickel, copper and precious metals production levels and costs, its position as
a low-cost producer of nickel, premiums realized on its metals prices,
sensitivity of financial results to changes in metals prices and exchange rates
and other costs, and other issues and aspects relating to its business and
operations. Inherent in those statements are known and unknown risks,
uncertainties and other factors well beyond the Company's ability to control or
predict. Actual results and developments may differ materially from those
contemplated by these statements depending on, among others, such key factors as
business and economic conditions in the principal markets for the Company's
products, the supply and demand for metals to be produced, deliveries,
production levels, production and other anticipated and unanticipated costs and
expenses, metals prices, premiums realized over London Metal Exchange cash and
other benchmark prices, tax benefits, the Canadian-U.S. dollar and other
exchange rates, the timing of the development of, and capital costs and
financing and other arrangements associated with, the Goro and other projects,
the timing of the receipt of governmental and other approvals, political unrest
or instability in countries such as Indonesia, risks involved in mining,
processing and exploration activities, and marketing of products, market
competition and labour relations and other risk factors listed from time to time
in the Company's reports filed with the U.S. Securities and Exchange Commission.
* * * * *
Unaudited Condensed Consolidated Financial Statements Are Attached.
IN 09/02
April 16, 2002
For further information:
Media Relations: Steve Mitchell (416) 361-7950
Investor Relations: Sandra Scott (416) 361-7758
or www.inco.com
INCO LIMITED
----------------------
(U.S. dollars in millions)
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
First Quarter
2002 2001
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Net sales $ 506 $ 586
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Costs and operating expenses (income)
Cost of sales and operating expenses 343 371
Depreciation and depletion 64 67
Selling, general and administrative 32 26
Research and development 3 5
Exploration 4 6
Currency translation adjustments 1 (34)
Asset impairment charge on
receivables and other assets 17 -
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464 441
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Operating earnings 42 145
Interest expense 10 17
Other expenses (income), net (3) 1
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Earnings before taxes and
minority interest 35 127
Income and mining taxes 23 38
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Earnings before minority
interest 12 89
Minority interest 1 4
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Net earnings 11 85
Dividends on preferred shares (6) (6)
Accretion of notes (1) -
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Net earnings applicable
to common shares $ 4 $ 79
======= ======
Net earnings per common share
Basic $ 0.02 $ 0.43
======= ======
Diluted $ 0.02 $ 0.42
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Common shares outstanding
(weighted average, in thousands)
Basic 182,279 181,866
======= ======
Diluted 183,427 188,577
======= ======
INCO LIMITED
----------------------
(U.S. dollars in millions)
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
March 31, December 31,
2002 2001
---------------- ----------------
Assets
Cash and marketable securities $ 242 $ 306
Accounts receivable 325 277
Inventories 500 500
Other current assets 60 44
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Total current assets 1,127 1,127
Property, plant and equipment 8,223 8,217
Other assets 229 243
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$9,579 $9,587
=========== ===========
Liabilities and shareholders' equity
Long-term debt due within one year $ 85 $ 81
Accounts payable and accrued liabilities 436 428
Income and mining taxes payable 65 58
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Total current liabilities 586 567
Long-term debt 718 759
Deferred income and mining taxes 2,114 2,117
Post-retirement benefits 456 451
Future removal and site restoration costs 51 49
Minority interest 351 350
Shareholders' equity 5,303 5,294
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$9,579 $9,587
=========== ===========
INCO LIMITED
----------------------
(U.S. dollars in millions)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
First Quarter
2002 2001
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Operating activities
Earnings before minority interest $ 12 $ 89
Charges (credits) not affecting cash
Depreciation and depletion 64 67
Deferred income and mining taxes (3) (4)
Asset impairment charge on
receivables and other assets 17 -
Other 4 (22)
Increase in non-cash
working capital related to
operations (49) (138)
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45 (8)
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Investing activities
Capital expenditures (72) (44)
Other 4 5
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(68) (39)
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Financing activities
Net decrease in borrowings (37) (35)
Notes issued - 226
Common shares issued 3 2
Preferred dividends paid (6) (6)
Other (1) (1)
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(41) 186
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Increase (decrease) in cash and
marketable securities (64) 139
Cash and marketable securities at
beginning of period 306 193
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Cash and marketable securities at
end of period $ 242 $ 332
============= =============
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(1) The normalized results reported in this release by the Company have not been
calculated in accordance with Canadian GAAP. There is no standardized definition
in such principles for normalized earnings and, accordingly, it is unlikely that
comparisons can be made among different companies in terms of the normalized
results as reported by them. The Company has reported these calculations of
normalized results to exclude items of a generally non-recurring nature and
non-cash currency translation adjustments, whether they have a positive or
negative effect on results of operations, since it believes it is appropriate to
provide such information to investors.
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