RNS Number:2446E
Inco Ld
19 October 2004
INCO REPORTS RESULTS FOR THIRD QUARTER OF 2004
_______________________
CANADIAN GAAP THIRD QUARTER NET EARNINGS REFLECT CONTINUED STRONG NICKEL MARKET
(All dollar amounts are expressed in U.S. currency)
TORONTO, October 19, 2004 - Inco Limited today reported adjusted net earnings
(1) of $212 million, or $1.12 per share ($1.05 per share on a diluted basis(2)),
for the third quarter of 2004, compared with adjusted net earnings(1) of $20
million, or 10 cents per share (10 cents per share on a diluted basis(2)), for
the third quarter of 2003. The adjustments made in arriving at adjusted net
earnings(1) for the third quarter of 2004 reflected primarily the exclusion of
unfavourable non-cash currency translation adjustments relating to changes in
the Canadian-U.S. dollar exchange rate of $62 million, or 33 cents per share.
The adjustments made in arriving at adjusted net earnings(1) for the third
quarter of 2003 reflected primarily the exclusion of an expense associated with
a strike by production and maintenance employees at our Ontario operations of
$46 million, or 25 cents per share.
Adjusted net earnings(1) for the third quarter of 2004 represent a significant
improvement compared with adjusted net earnings(1) for the third quarter of 2003
principally due to substantially higher prices realized for all of the metals
produced by us, higher deliveries of all metals produced as compared with the
lower deliveries due to the strike and ramp-up issues experienced at our Ontario
operations in the third quarter of 2003. The positive factors experienced in the
third quarter of 2004 were partially offset by increased nickel unit cash cost
of sales before by-product credits due principally to increased prices and
volumes for purchased nickel intermediates processed, higher energy costs and
earnings-based compensation payments and a stronger Canadian dollar.
Our net earnings for the third quarter of 2004 in accordance with Canadian
generally accepted accounting principles ("Canadian GAAP") were $148 million, or
78 cents per share (73 cents per share on a diluted basis(2)), compared with a
net loss of $23 million, or 13 cents per share (13 cents per share on a diluted
basis(2)), for the third quarter of 2003.
All of the adjustments made in arriving at adjusted net earnings for the third
quarter of 2004 and 2003, respectively, and our adjusted net earnings and net
earnings in accordance with Canadian GAAP for the first nine months of 2004 and
2003, respectively, are set forth under "Reconciliation Between Adjusted Net
Earnings and Net Earnings in Accordance with Canadian GAAP" below.
__________________________
(1) The adjusted net earnings reported in this release have not been
calculated in accordance with Canadian GAAP, the accounting principles
under which our consolidated financial statements are prepared, and there
is no standard definition in such principles for such adjusted net earnings
or loss. Accordingly, it is unlikely that comparisons can be made among
different companies in terms of such adjusted results reported by them. A
reconciliation of adjusted net earnings to net earnings in accordance with
Canadian GAAP appears below as well as an explanation of why we believe
adjusted net earnings is useful information.
(2) The calculation of adjusted net earnings per share and net earnings per
share in accordance with Canadian GAAP on a diluted basis takes into
account the dilutive effect of our outstanding warrants, share options and
convertible debentures. The amount of dilution per share due to these items
is dependent on our level of earnings and the price of our common shares.
Chief Executive Officer's Message
I am happy to report that we achieved significantly improved earnings in the
third quarter of 2004 as world nickel markets remained strong, yet volatile, and
we met or exceeded our expectations for production, for premiums realized over
London Metal Exchange (LME) nickel prices and for costs. We also made solid
progress in advancing our strategy for profitable growth at Voisey's Bay, Goro
and PT Inco.
Nickel market outlook
The average LME cash nickel price for the third quarter 2004 was $6.35 per
pound, the fourth highest quarterly average LME cash nickel price since nickel
became one of the metals traded on that exchange, as nickel markets remained
tight. Nickel prices were volatile due, we believe, in large measure to trading
activities by hedge and other funds in nickel. Reflecting this volatility, the
difference between the high and low LME cash nickel price for the quarter was
approximately $1.80 per pound. We believe that underlying nickel demand remains
strong as we continue to see stainless steel demand growth in many markets and a
better than expected recovery in nickel demand in a number of non-stainless
applications. However, market volatility and high prices continue to cause
substantial quantities of nickel-containing stainless steel scrap, a substitute
for our primary nickel in certain applications, to enter the market. There has
also been a high level of stocking and de-stocking activity in both nickel and
stainless steel as consumers of these materials reacted to price volatility.
We believe that the overall trends we have seen this year will continue for the
remainder of the year, with prices expected to remain at relatively high levels
in order to keep demand in line with limited supply. We do expect to see
continued volatility in nickel prices at least for the balance of 2004. Our
strategy continues to be doing all we can to meet the needs of our customers in
this tight market, both by maximizing production at our existing operations and
by bringing new sources of supply on stream.
Production and costs
We produced 118 million pounds of nickel during the third quarter of 2004, 3
million pounds ahead of our guidance for the quarter. We have increased our 2004
total production guidance modestly for nickel, copper and platinum-group metals
(PGMs). Our current forecast is to produce 505 to 510 million pounds of nickel
for the full year, our highest annual production since 1974.
We produced 118,000 troy ounces of PGMs in the third quarter. Our current
full-year PGMs production forecast is 405,000 troy ounces. We produced 76
million pounds of copper for the quarter, and our full-year forecast is 265
million pounds.
Our third quarter nickel unit cash cost of sales, after by-product credits, was
$2.30 per pound, above the $2.26 per pound level of the third quarter of 2003.
This was due to greater volumes of higher cost external feed used to fill our
processing facilities in Canada in advance of the start-up of Voisey's Bay. We
also experienced a stronger Canadian dollar, higher earnings-based compensation
payouts, and increased energy costs at PT Inco. These increases were partially
offset by higher by-product credits, the absence of ramp-up issues related to
the strike at our Ontario operations which we experienced in the third quarter
of 2003, and cost reductions and savings of almost $20 million. We remain on
track to achieve our goal of $63 million in cost reductions and related savings
although some of these cost reductions and related savings are not expected to
be realized until early 2005. We remain as committed to productivity
improvements and programs to offset the cost pressures we face when nickel
prices are high as we do when nickel prices are low. We recognize that this must
continue to be a firm objective for all of us at Inco.
Progress on growth projects
We recently completed Phase 2 of our Goro project review. We will announce the
final results of the review and update our plans for Goro in a separate press
release today.
Our Voisey's Bay project remains about six months ahead of its original schedule
and on budget in Canadian dollars, with first production expected to enter the
market in the first quarter of 2006. Work on the mine and concentrator is going
smoothly, with engineering complete and pre-stripping of the Ovoid deposit
underway. This year we plan to deliver all equipment to the site before
freeze-up to allow construction and equipment installation to continue through
the winter.
PT Inco has announced plans to build a third dam which will increase its
hydroelectric capacity by 90 megawatts to 365 megawatts. The third dam, at a
capital cost of about $150 million, represents the first stage of a four-year,
$250 million capital program at PT Inco aimed at raising its annual production
by 25 per cent to about 200 million pounds of nickel in matte by 2009, while
cutting its unit cash costs by about 7 per cent, or about $0.10 to $0.15 per
pound, from its current 2004 expected annual level of $1.65 to $1.70 per pound.
Building on a strong financial foundation
We generated $380 million of cash from operations, after changes in working
capital, during the third quarter of 2004. If the First Call consensus 2004 mean
LME cash nickel price of $6.14 per pound is achieved, we should generate about
$1.35 billion of cash from operations in 2004, after changes in working capital,
an amount well in excess of our estimated $965 million in capital expenditures
for the year. Given how we pay taxes in Canada, we expect to pay the balance of
our 2004 taxes of about $275 million in early 2005. As a matter of long-standing
policy, we continue not to publicly forecast future nickel prices.
With our cash position of $869 million at the end of the quarter, a ratio of
total debt to total debt plus shareholders' equity of 25 per cent and strong
cash generation given the nickel and other metal markets which we are seeing, we
believe that we are in a very favourable position to finance our aggressive
growth plans going forward.
We are pleased with what we have accomplished during the first nine months of
2004. We will continue our efforts to do everything possible to maximize
production and reduce expenditures across our operations. We have a nickel
market that should be very robust into the foreseeable future, but we will not
rely on the nickel market to deliver value. Rather, we will do so by maximizing
the potential of our existing operations and realizing the promise of our growth
projects.
I look forward to reporting on our performance for the fourth quarter and the
full year of 2004.
Scott Hand
Chairman and Chief Executive Officer
Reconciliation Between Adjusted Net Earnings and Net Earnings in Accordance with
Canadian GAAP
We define adjusted net earnings and adjusted net earnings per share as a
calculation of net earnings that excludes items that, because of the nature,
timing or extent of such items, we believe do not reflect or relate to our
ongoing operating performance. Accordingly, the items that are excluded from
this calculation would include asset impairment charges, non-cash currency
translation adjustments relating principally to liabilities that are not
expected to be discharged or settled for a number of years, income tax benefits
(charges) relating to the impact of currency translation adjustments and
adjustments for tax rulings and other decisions, interpretations and
determinations covering transactions in prior periods and for revaluation of
recorded future tax liabilities due to changes in laws or regulations affecting
future tax rates, interest income associated with tax refunds, project
suspension and similar costs, including related project currency hedging gains
and losses, losses or gains on debt retirements, strike expenses, gains and
losses of a non-recurring nature and, for earnings per share calculations, the
premium payable on preferred share redemptions. The determination of which items
to exclude when calculating adjusted net earnings involves the application of
judgment by us.
The following table provides for the periods indicated a reconciliation between
our adjusted net earnings and net earnings (loss) as reported in accordance with
Canadian GAAP:
(in millions Net Earnings (Loss) Basic Net Earnings (Loss) Per Share
except per share
amounts)
Third Quarter Nine Months Third Quarter Nine Months
______________________________________________________________________________________________________________________
2003 2003 2003 2003
2004 (Restated)(1) 2004 (Restated)(1) 2004 (Restated)(1) 2004 (Restated)(1)
______________________________________________________________________________________________________________________
Adjusted net earnings $ 212 $ 20 $ 597 $ 153 $ 1.12 $ 0.10 $ 3.15 $ 0.77
Asset impairment charge - - (191) - - - (1.02) -
Currency translation (62) (6) (29) (156) (0.33) (0.03) (0.15) (0.85)
adjustments
Income tax benefits (9) (8) 2 126 (0.05) (0.04) 0.01 0.69
(charges)(2)
Interest on an accrued - 9 - 9 - 0.05 - 0.05
tax refund
Goro project suspension (1) 8 2 13 - 0.04 0.01 0.07
costs and related currency
hedging gains, net
Gains on forward currency 8 - 8 - 0.04 - 0.04 -
contracts (3)
Strike expense - (46) - (69) - (0.25) - (0.38)
Loss on redemption of - - - (2) - - - (0.01)
convertible debentures
Redemption premium on - - - - - - - (0.08)
Series E Preferred Shares
______________________________________________________________________________________________________________________
Canadian GAAP net $ 148 $ (23) $ 389 $ 74 $ 0.78 $(0.13) $ 2.04 $ 0.26
earnings (loss),
as reported
______________________________________________________________________________________________________________________
_____________________
(1) The 2003 results have been restated due to the retroactive application of
a change in accounting policy for depreciation and depletion.
(2) Relates to the tax effect of currency translation adjustments on long-term
debt, partially offset by certain tax rulings and other determinations
relating to prior year transactions.
(3) Relates to gains relating to forward foreign currency contracts to purchase
Australian dollars which were entered into with respect to anticipated
Australian dollar-denominated expenditures relating to our Goro project.
We believe that the reporting of adjusted net earnings, a calculation that, as
noted above, excludes asset impairment charges, non-cash currency translation
adjustments and other items that, given their nature, timing or extent, may
obscure trends in the performance of our operations or otherwise not be
representative of our ongoing operations, provides our shareholders and other
investors with a potentially useful picture that eliminates the volatility of
such items, whether they are favourable or unfavourable, and may assist them in
assessing our operating performance. In addition, management uses such
information internally for operating, budgeting and financial planning purposes.
Outlook for Balance of 2004 and Certain Factors Expected to Affect 2005
Our current estimates for production for the fourth quarter of 2004 and the full
year 2004 of nickel, copper and platinum-group metals ("PGMs"), including PGMs
produced from purchased material, are as follows:
Fourth Quarter Full Year
2004 2004
Nickel - tonnes (thousands) 58 to 60 229 to 231
- pounds (millions) 129 to 134 505 to 510
Copper - tonnes (thousands) 27 120
- pounds (millions) 60 265
PGMs - troy ounces (thousands) 66 405
We currently project that our nickel unit cash cost of sales after by-product
credits for the full year 2004 will be about $2.25 to $2.35 per pound ($4,961 to
$5,181 per tonne). A reconciliation between our nickel unit cash costs of sales
both before and after by-product credits as indicated and cost of sales in
accordance with Canadian GAAP is set forth in the table entitled "Reconciliation
of Nickel Unit Cash Cost of Sales to Canadian GAAP Cost of Sales" below. The
premium on our nickel products for 2004 we currently expect to realize over the
London Metal Exchange ("LME") cash nickel prices will be between $0.00 and $0.06
per pound ($0 and $132 per tonne). Our premiums are affected by fluctuations in
the LME cash nickel price and the effect this has on the price we receive for
the matte product produced by PT International Nickel Indonesia Tbk ("PT Inco"),
the lag effect that changes in the LME benchmark price have on the pricing of
certain of our nickel products, and how certain of our specialty nickel products
are priced. As reflected in the chart above, we have historically experienced,
and expect to continue to experience, some quarter-to-quarter variability in
production levels of our primary metals products due to planned maintenance
shutdowns of operations and other normal planned actions.
The current First Call consensus mean estimate for our adjusted net earnings per
share for 2004 is $3.78 on a diluted basis. Based upon the current First Call
mean forecast for the average LME cash nickel price for 2004, which we
understand to be $6.14 per pound, and our understanding of First Call's and
Reuters' latest mean forecasts for 2004 for the prices for our other metal
products, we are comfortable with the current First Call consensus estimate for
2004 for our adjusted net earnings per share of $3.78, on a diluted basis. We
are not endorsing the First Call's mean forecasts for the LME cash nickel price
and First Call's and Reuters' other benchmark metal prices for 2004. Our policy
continues to be that we do not publicly forecast where nickel and other metal
prices will be in the future given the historic volatility of these prices and
the level of economic uncertainty that currently exists in at least some of our
key geographic markets. The LME cash nickel price averaged $6.29 per pound
($13,861 per tonne) for the January 2 - October 18, 2004 period. The LME cash
nickel price on October 18, 2004 was $6.10 per pound ($13,450 per tonne).
The earnings per share consensus mean estimate above refers to an estimate for
adjusted net earnings and excludes certain adjustments that would be made in the
calculation of net earnings in accordance with Canadian GAAP. Since such
adjustments would include assumptions or forecasts relating to changes in the
Canadian-U.S. dollar exchange rate and other currency exchange rate changes and
other external factors that we do not believe we are in a position to predict
with any degree of certainty, we do not provide a reconciliation between any
adjusted net earnings estimate and a corresponding net earnings estimate in
accordance with Canadian GAAP.
In terms of the current estimated sensitivity of our earnings per share to
changes in nickel prices, for every change of 10 cents, up or down, per pound in
our realized nickel price over a full year, our Canadian GAAP basic net earnings
per share (EPS) over a full year would change, up or down, by about 12 cents. As
reflected in the table below, while our financial results are most sensitive to
changes in (1) the Canadian-U.S. dollar exchange rate given that a substantial
portion of our expenses are incurred in Canadian dollars and we have substantial
Canadian dollar-denominated liabilities and (2) nickel prices, our results are
also sensitive to changes in copper and other prices as well as, on the cost
side, changes in oil and natural gas prices and changes in our share price given
how we account for share appreciation rights granted in connection with certain
share options:
ESTIMATES OF CURRENT 2004 SENSITIVITY OF EPS(1) TO CERTAIN
METALS PRICES AND OTHER CHANGES
OVER ONE YEAR (IN U.S.$)
Amount of Change
(up or down) EPS Effect(1)
Realized nickel price $ 0.10/lb. $ 0.12
Realized copper price 0.10/lb. 0.09
Realized palladium price 50.00/troy oz 0.03
Realized platinum price(2) 50.00/troy oz 0.03
Realized cobalt price 1.00/lb. 0.01
Cdn.-U.S. exchange rate(3) (4) 0.01 0.13
Fuel oil price (West Texas Intermediate) (2) (4) 1.00/bbl 0.006
Natural gas price(2) (4) 0.10/MM BTU 0.001
Share appreciation rights(4) (5) 1.00 0.006
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(1) Canadian GAAP basic net earnings per share. Each sensitivity assumes other
factors are held constant.
(2) Includes the impact of hedging activities as of September 30, 2004.
(3) The EPS effect represents (a) $0.06 for a non-cash balance sheet
translation effect relating to Canadian dollar-denominated liabilities, (b)
$0.02 relating to accrued taxes for Canadian dollar currency translation
gains associated with U.S. dollar-denominated liabilities and (c) $0.05 for
operating cost translation effect.
(4) Increases in these costs, exchange rates and our share price have a
negative effect on EPS.
(5) Reflects the effect on EPS of a change in our common share price on our
expense accrual for share appreciation rights granted in connection with
certain share options.
Our capital expenditures for our existing operations and growth projects are
also sensitive to changes in exchange rates depending upon the currency in which
such expenditures are incurred. We currently project that our total capital
expenditures for 2004 will be approximately $965 million.
While we are still in the process of putting together our plan for 2005, we
currently expect that the following factors will affect 2005 production and
results. We did not have a scheduled maintenance shutdown at our Ontario
operations in 2004 but, consistent with our current plan to have such a
scheduled shutdown at these operations every eighteen months, we will have one
in 2005. Such a shutdown would be expected to reduce our annual nickel
production by about 20 million pounds, our copper production by about 25 million
pounds and our PGMs production by about 35,000 troy ounces from levels at these
operations if there were no shutdown. Assuming a continuation of the current
prices for oil and natural gas and expected increases in electricity rates in
Ontario for industrial users, our energy costs are currently projected to
increase in 2005 by about $0.10 per pound of nickel to be produced. During the
third quarter of 2004, lower rainfall in the area of PT Inco's operations has
reduced water inflow to the dam reservoirs for PT Inco's hydroelectric
facilities. If rainfall were to continue in 2005 at the levels recently
experienced, this development could reduce hydroelectric power generation and,
accordingly, adversely affect PT Inco's production for 2005.
Commentary on Results for the Third Quarter of 2004
(Tabular amounts are in millions of U.S. dollars
except per share amounts)
Results of Operations
The following table summarizes our results in accordance with Canadian GAAP for
the periods indicated:
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
________________________________________________________________________________
(Restated) (Restated)
Net sales $ 1,031 $ 450 $ 3,117 $ 1,642
Net earnings (loss) 148 (23) 389 74
Net earnings (loss)
per common share
- basic 0.78 (0.13) 2.04 0.26
- diluted 0.73 (0.13) 1.92 0.26
Cash provided by
operating activities 380 19 1,099 2
________________________________________________________________________________
The significant increase in results of operations between the third quarter of
2004 and the third quarter of 2003 was primarily the result of the higher
realized prices for all of the metals produced by us as well as higher
deliveries for all of these metals. This was partially offset by the
unfavourable effect of higher nickel cash cost of sales before by-product
credits and an unrealized currency translation loss as discussed below.
With respect to net earnings for the third quarter and first nine months of
2003, those results included a charge in respect of a three-month strike which
began on June 1, 2003 at our Ontario operations.
The effect of certain of these items on our results of operations is set forth
under "Reconciliation Between Adjusted Net Earnings and Net Earnings in
Accordance with Canadian GAAP" above.
Net sales
Net sales increased substantially to $1,031 million and $3,117 million,
respectively, in the third quarter and first nine months of 2004, compared with
$450 million and $1,642 million for the same periods in 2003. This improvement
in net sales was primarily due to higher selling prices for all of the metals we
produced, particularly for nickel and copper, as well as higher deliveries of
Inco-source nickel, copper, cobalt and PGMs. Deliveries of Inco-source nickel in
the third quarter of 2004 increased by 51 per cent compared with the third
quarter of 2003 due to increased production at our Canadian and U.K. operations
as well as at PT Inco. Production for all metals for the third quarter and first
nine months of 2003 was adversely affected by a three-month strike at our
Ontario operations that began on June 1, 2003.
Cost of sales and other expenses
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
________________________________________________________________________________
Nickel unit cash cost of
sales before by-product
credits per pound $ 2.66 $ 2.20 $ 2.54 $ 1.97
Nickel unit cash cost of
sales after by-product
credits per pound $ 2.30 $ 2.26 $ 2.22 $ 2.04
________________________________________________________________________________
For the third quarter and first nine months of 2004 compared with the
corresponding periods of 2003, the increase in nickel unit cash cost of sales
before by-product credits was principally due to the higher cost for, and
volumes of, purchased intermediates, the higher average Canadian dollar exchange
rate relative to the U.S. dollar exchange rate compared with 2003, higher costs
for heavy oil at PT Inco and higher earnings-based compensation payments,
partially offset by the absence of ramp-up costs which we incurred in the third
quarter of 2003 after the end of a strike at our Ontario operations, and the
cost reductions and related savings as discussed below.
For the third quarter and first nine months of 2004 compared with the
corresponding periods of 2003, the increase in nickel unit cash cost of sales
after by-product credits was due to higher unit cash cost of sales before
by-product credits, partially offset by higher by-product credits as a result of
higher realized selling prices for and higher deliveries of certain by-products.
We use purchased intermediates to increase processing capacity utilization at
our Canadian operations. While the cost of purchased intermediates is higher
than that for processing our own mine production and such cost increases as the
prevailing prices, LME cash nickel or other benchmark prices, on which basis
this material is purchased by us increases, the price realizations are also
higher, resulting in margins on these purchases remaining relatively unchanged.
A reconciliation of our nickel unit cash cost of sales before and after
by-product credits to cost of sales under Canadian GAAP is shown in the table
entitled "Reconciliation of Nickel Unit Cash Cost of Sales to Canadian GAAP Cost
of Sales" below.
In the third quarter of 2004, we realized cost reductions and related savings of
about $20 million, bringing the total cost reductions and related savings
realized for the first nine months of 2004 to $44 million. We currently expect
to meet our goal of $63 million in cost reductions and related savings, with
some of these reductions and related savings to be realized in early 2005.
Nickel production increased to 53,365 tonnes (118 million pounds) and 170,622
tonnes (376 million pounds) in the third quarter and first nine months of 2004,
respectively, compared with 32,072 tonnes (71 million pounds) and 127,497 tonnes
(281 million pounds) in the corresponding periods of 2003. The increases
primarily reflect higher production at our Canadian and U.K. operations compared
with the production for the third quarter of 2003 which was negatively affected
by the three-month strike at our Ontario operations that began on June 1, 2003
and a difficult ramp-up of operations in September 2003 following the strike. PT
Inco's production increased by about 5 million pounds during the first nine
months of 2004 compared with the same period in 2003.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $13 million and $28
million in the third quarter and first nine months of 2004, respectively,
compared with the corresponding periods in 2003. These increases for both the
third quarter and first nine months of 2004 were due primarily to higher
expenses associated with share options and other awards under our corporate
incentive compensation programs, reflecting our higher share price and improved
earnings.
Currency translation adjustments
Currency translation adjustments represented primarily the effect of exchange
rate movements on the translation of Canadian dollar-denominated liabilities,
principally post-retirement benefits, accounts payable and certain deferred
income and mining taxes, into U.S. dollars. Unfavourable currency translation
adjustments were $62 million and $29 million in the third quarter and first nine
months of 2004, respectively, and were due to the strengthening of the Canadian
dollar as of September 30, 2004 relative to the U.S. dollar. The Canadian - U.S.
dollar exchange rate appreciated by six per cent during the third quarter of
2004 and by two per cent during the first nine months of 2004.
Income and mining taxes
The effective tax rates for the third quarter and first nine months of 2004 were
35 per cent and 43 per cent, respectively, compared with the combined statutory
income and mining tax rate in Canada of 39.9 per cent. The lower effective tax
rate in the third quarter of 2004 was due principally to proportionately higher
earnings generated in lower tax rate jurisdictions. The higher tax rate for the
first nine months of 2004 was primarily due to the negligible tax relief
recorded with respect to the $201 million non-cash impairment charge before
minority interest and taxes, recorded in the second quarter of 2004. This was
partially offset by the impact of earnings generated in lower tax rate
jurisdictions.
Cash Flows and Financial Condition
Net cash provided by operating activities in the third quarter of 2004 was $380
million, compared with $19 million in the third quarter of 2003. The increase in
net cash provided by operating activities was primarily due to higher earnings.
Cash provided by operations for the first nine months of 2004 has also increased
given that a significant portion of income and mining taxes payable in respect
of the 2004 taxation year will not be paid until the first quarter of 2005.
Net cash used for investing activities increased to $247 million and $562
million in the third quarter and first nine months of 2004, respectively,
compared with $123 million and $400 million in the same periods of 2003. Capital
expenditures in the third quarter of 2004 were higher due to higher capital
spending for our Voisey's Bay project, at our Ontario operations as compared
with the strike-affected level for the third quarter and first nine months of
2003, and at PT Inco, partially offset by lower capital expenditures for our
Goro project. During the first quarter of 2004, we used cash of $28 million to
acquire an additional two per cent of the issued and outstanding shares of PT
Inco from a shareholder, increasing our ownership of PT Inco to approximately 61
per cent.
At September 30, 2004, cash and cash equivalents were $869 million, up from $418
million at December 31, 2003 and up from $774 million at June 30, 2004,
reflecting the cash provided from operating activities as discussed above. Total
debt was $1,432 million at September 30, 2004, compared with $1,512 million at
December 31, 2003. Total debt as a percentage of total debt plus shareholders'
equity was 25 per cent at September 30, 2004, compared with 28 per cent at
December 31, 2003. Under Canadian GAAP, a substantial portion of our convertible
debt is recorded as equity and not debt.
Accounting Changes
Depreciation and depletion expense
Effective January 1, 2004 on a retroactive basis, we changed the method by which
we calculate depreciation and depletion expense. Under the previous method, we
depleted mine development costs on a composite basis. Total historical
capitalized costs and estimated future development costs relating to our
estimated developed and undeveloped proven and probable ore reserves were
depleted using the unit-of-production method based on total estimated developed
and undeveloped proven and probable ore reserves in our twenty-year plan. Under
the revised method, depletion of the deferred mine development costs is
calculated on a unit-of-production basis over the estimated proven and probable
ore reserves which relate to the particular category of development, either life
of mine plan or area-specific. No future development costs are taken into
account in calculating the depletion charge. In addition, the depreciation
method for certain other assets of our 61 per cent owned subsidiary, PT Inco,
has been changed to a straight line basis to conform the depreciation method
used to the depreciation methods generally used for similar assets in our other
locations.
Adoption of this change in accounting policy also removes a significant
difference that had existed between Canadian GAAP and United States GAAP with
respect to the effect on our consolidated financial statements. Depreciation and
depletion expense decreased by $27 million for the first nine months of 2003 as
a result of this change.
Generally accepted accounting principles
Effective January 1, 2004, we adopted Canadian Institute of Chartered
Accountants ("CICA") section 1100, Generally Accepted Accounting Principles.
CICA section 1100 describes what constitutes Canadian GAAP and its sources.
Adoption of this standard did not have a significant impact on our results of
operations or financial condition.
Hedging Relationships
Effective January 1, 2004, we adopted a new accounting guideline issued by the
CICA in respect of hedging relationships which provided guidance concerning
documentation and effectiveness testing for derivative contracts. Adoption of
this guideline did not have a significant impact on our results of operations or
financial condition.
Access to Webcast of Third Quarter 2004 Results and Goro Project Update
Presentation to Investment Community
As previously announced, interested investors can listen to our presentation to
the investment community currently expected to cover (1) our third quarter 2004
financial and operating results and (2) an update on our Goro project in New
Caledonia, including the final results of Phase 2 of our Goro project review and
the status of the key milestones to be met in connection with our decision to
restart this project, on a live, listen-only basis, or access the archival
webcast or the recording of the presentation through the Internet or by calling
the toll-free telephone number in North America as indicated below.
The presentation is scheduled for October 19, 2004, beginning at 4:30 p.m.
(Toronto time), and can be accessed by visiting the website of a third-party
webcasting service we will be using, Canada NewsWire Ltd., at www.newswire.ca/
webcast, at least five minutes before the start of the presentation. Slides or
other statistical information to be used for the presentation can be accessed
and will be available for online viewing through www.newswire.ca/webcast on the
event title or through our website, www.inco.com, by clicking on the "Latest
Quarterly Webcast" link on our homepage.
The archival webcast of the presentation can be accessed via the Internet
through www.newswire.ca/webcast. A recording of the presentation can be listened
to until 11:59 p.m. (Toronto time) on November 2, 2004 by dialling
1-800-558-5253 in North America and by entering the reservation number 21208377.
This recording is also available outside North America by dialling 416-626-4100
and by entering the same reservation number.
This news release contains forward-looking statements regarding the Company's
costs, its position as a low-cost producer of nickel, production levels for
nickel, copper and platinum-group metals for its fourth quarter and full year
2004 and for 2005 at its Canadian, Indonesian and other operations, nickel
market conditions and nickel demand and supply both globally and for certain
markets and uses, premiums realized on its metals prices, nickel unit cash cost
of sales after by-product credits, its financial results, including cash flow
from operations, cash generation, the sensitivity of financial results to
changes in nickel and other metal prices, exchange rates, energy and other costs
and its common share price, cost reduction and related savings objectives,
construction, commissioning, initial shipment and other schedules, capital costs
and other aspects of its Goro and Voisey's Bay projects, capital expenditures
and hydroelectric power generation at PT Inco, overall capital expenditures, tax
payments, planned shutdowns at certain operations 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, demand and prices for metals to
be produced, purchased intermediates and nickel-containing stainless steel scrap
and other substitutes and competing products for the primary metals and other
products the Company produces, developments concerning labour relations, the
Company's deliveries, production levels, production and other anticipated and
unanticipated costs and expenses, metals prices, premiums realized over LME cash
and other benchmark prices, tax benefits and charges, changes in tax
legislation, hedging activities, the Canadian-U.S. dollar and other exchange
rates, changes in the Company's common share price, the capital costs, scope,
schedule, and other key aspects of the Goro project, the timing of receipt of
all necessary permits and governmental, regulatory and other approvals, and
engineering and construction timetables, for the Voisey's Bay and Goro projects
and PT Inco's latest expansion project, the necessary financing plans and
arrangements for, and joint venture, partner or similar investments and other
agreements and arrangements associated with, the Goro project, political unrest
or instability in countries such as Indonesia, risks involved in mining,
processing and exploration activities, market competition and other risk factors
listed from time to time in the Company's reports filed with the U.S. Securities
and Exchange Commission. The forward-looking statements included in this release
represent the Company's views as of the date of this release. While the Company
anticipates that subsequent events and developments may cause the Company's
views to change, the Company specifically disclaims any obligation to update
these forward-looking statements. These forward-looking statements should not be
relied upon as representing the Company's views as of any date subsequent to the
date of this release.
October 19, 2004
IN 04/18
For further information:
Media Relations: Steve Mitchell (416) 361-7950
Investor Relations: Sandra Scott (416) 361-7758
or www.inco.com
Inco Limited
Key Financial and Operating Statistics
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
______________________________________________________________________________________
Average Realized Prices
Nickel(1) - per tonne $ 14,258 $ 9,614 $ 13,815 $ 8,902
- per pound 6.47 4.36 6.27 4.04
Copper - per tonne 2,821 1,329 2,802 1,684
- per pound 1.28 0.60 1.27 0.76
(1) Including intermediates
LME Average Cash Prices
Nickel - per tonne 13,998 9,375 13,747 8,699
- per pound 6.35 4.25 6.24 3.95
Copper - per tonne 2,851 1,753 2,790 1,686
- per pound 1.29 0.80 1.27 0.76
Deliveries
Nickel in all forms (tonnes)
- Inco-source 53,850 35,779 167,914 131,894
- Purchased finished 3,619 8,531 13,004 23,494
______________________________________________________________________________________
57,469 44,310 180,918 155,388
______________________________________________________________________________________
Copper (tonnes) 35,070 355 95,190 59,114
______________________________________________________________________________________
Cobalt (tonnes) 278 85 1,028 680
______________________________________________________________________________________
Platinum-group metals
(in thousands of troy ounces) 117 19 339 203
______________________________________________________________________________________
Net Sales to Customers by
Product (in millions)
Primary nickel $ 819 $ 426 $ 2,499 $ 1,383
Copper 99 1 267 100
Precious
metals 69 9 195 103
Other 44 14 156 56
______________________________________________________________________________________
$ 1,031 $ 450 $ 3,117 $ 1,642
______________________________________________________________________________________
Nickel Production in
all Forms (tonnes) 53,365 32,072 170,622 127,497
______________________________________________________________________________________
Finished Nickel Inventories
at end of Period (tonnes) 28,681 18,304 28,681 18,304
______________________________________________________________________________________
Inco Limited
Reconciliation of Nickel Unit Cash Cost of Sales to Canadian GAAP Cost of Sales
Three Months Ended Nine Months Ended
September 30, September 30,
(in millions of U.S. dollars 2004 2003 2004 2003
except where noted)
________________________________________________________________________________________________________
Cost of sales and other expenses, excluding
depreciation and depletion $ 568 $ 358 $ 1,705 $ 1,189
By-product costs (148) (19) (425) (252)
Purchased finished nickel (49) (78) (182) (202)
Delivery expense (9) (5) (25) (17)
Other businesses cost of sales (9) (6) (29) (18)
Strike expense, excluding depreciation - (59) - (88)
Non-cash items(1) (7) (3) (25) (14)
Remediation, demolition and other (7) (5) (18) (18)
related expenses
Adjustments associated with affiliate (23) (9) (64) (8)
transactions
Other - - 1 1
________________________________________________________________________________________________________
Nickel cash cost of sales before 316 174 938 573
by-product credits (2)
By-product net sales (191) (15) (541) (233)
By-product costs 148 19 425 252
________________________________________________________________________________________________________
Nickel cash cost of sales $ 273 $ 178 $ 822 $ 592
after by-product credits (2)
________________________________________________________________________________________________________
Inco-source nickel deliveries 119 79 370 291
(millions of pounds)
________________________________________________________________________________________________________
Nickel unit cash cost of sales before
by-product credits per pound $ 2.66 $ 2.20 $ 2.54 $ 1.97
________________________________________________________________________________________________________
Nickel unit cash cost of sales before
by-product credits per tonne $ 5,864 $ 4,851 $ 5,600 $ 4,344
________________________________________________________________________________________________________
Nickel unit cash cost of sales after
by-product credits per pound $ 2.30 $ 2.26 $ 2.22 $ 2.04
________________________________________________________________________________________________________
Nickel unit cash cost of sales after
by-product credits per tonne $ 5,071 $ 4,983 $ 4,894 $ 4,498
________________________________________________________________________________________________________
Inco Limited
Consolidated Statement of Earnings
(unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
(in millions of U.S. dollars except 2004 2003 2004 2003
per share amounts)
______________________________________________________________________________________________________
(Restated) (Restated)
Revenues
Net sales $ 1,031 $ 450 $ 3,117 $ 1,642
Other income, net 17 20 32 61
______________________________________________________________________________________________________
1,048 470 3,149 1,703
______________________________________________________________________________________________________
Costs and expenses (income)
Cost of sales and other expenses, excluding
depreciation and depletion 568 358 1,705 1,189
Depreciation and depletion 59 53 178 166
Selling, general and administrative 57 44 132 104
Research and development 6 4 22 18
Exploration 7 6 19 18
Currency translation adjustments 62 6 29 156
Interest expense 6 10 20 36
Asset impairment charge - - 201 -
Goro project suspension 1 (8) (2) (2)
______________________________________________________________________________________________________
766 473 2,304 1,685
______________________________________________________________________________________________________
Earnings (loss) before income and 282 (3) 845 18
mining taxes and minority interest
Income and mining taxes 100 5 366 (94)
______________________________________________________________________________________________________
Earnings (loss) before minority interest 182 (8) 479 112
Minority interest 34 15 90 38
______________________________________________________________________________________________________
Net earnings (loss) 148 (23) 389 74
Accretion of convertible debt (2) (2) (6) (5)
Dividends on preferred shares - - - (6)
Premium on redemption of preferred shares - - - (15)
______________________________________________________________________________________________________
Net earnings (loss) applicable to $ 146 $ (25) $ 383 $ 48
common shares
______________________________________________________________________________________________________
Net earnings (loss) per common share
Basic $ 0.78 $ (0.13) $ 2.04 $ 0.26
______________________________________________________________________________________________________
Diluted $ 0.73 $ (0.13) $ 1.92 $ 0.26
______________________________________________________________________________________________________
Inco Limited
Consolidated Balance Sheet
(unaudited)
September 30, December 31,
(in millions of U.S. dollars) 2004 2003
________________________________________________________________________________
(Restated)
ASSETS
Current assets
Cash and cash equivalents $ 869 $ 418
Accounts receivable 565 435
Inventories 812 746
Other 136 112
________________________________________________________________________________
Total current assets 2,382 1,711
Property, plant and equipment 7,251 7,033
Deferred charges and other assets 371 319
________________________________________________________________________________
Total assets $ 10,004 $ 9,063
________________________________________________________________________________
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Long-term debt due within one year $ 101 $ 103
Accounts payable 267 253
Accrued payrolls and benefits 184 165
Other accrued liabilities 412 332
Income and mining taxes payable 339 27
________________________________________________________________________________
Total current liabilities 1,303 880
Deferred credits and other liabilities
Long-term debt 1,331 1,409
Deferred income and mining taxes 1,785 1,706
Post-retirement benefits 643 603
Asset retirement obligation 145 141
Minority interest 496 442
________________________________________________________________________________
Total liabilities 5,703 5,181
________________________________________________________________________________
Shareholders' equity
Convertible debt 615 606
________________________________________________________________________________
Common shareholders' equity
Common shares issued and outstanding
187,672,653
(2003 - 186,915,865 shares) 2,877 2,858
Warrants 62 62
Contributed surplus 570 562
Retained earnings (deficit) 177 (206)
________________________________________________________________________________
3,686 3,276
________________________________________________________________________________
Total shareholders' equity 4,301 3,882
________________________________________________________________________________
Total liabilities and shareholders' equity $ 10,004 $ 9,063
________________________________________________________________________________
Inco Limited
Consolidated Statement of Cash Flows
(unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
(in millions of U.S. dollars) 2004 2003 2004 2003
_________________________________________________________________________________________________
(Restated) (Restated)
Operating activities
Earnings (loss) before minority interest $ 182 $ (8) $ 479 $ 112
Charges not affecting cash
Depreciation and depletion 59 53 178 166
Deferred income and mining taxes 3 3 45 (49)
Asset impairment charge - - 201 -
Other 53 1 61 73
Decrease (increase) in non-cash working
capital related to operations
Accounts receivable (61) 10 (115) (17)
Inventories 27 (39) (66) (89)
Accounts payable and accrued liabilities 29 3 47 (50)
Income and mining taxes payable 79 24 313 (138)
Other 23 (15) (20) (18)
Other (14) (13) (24) 12
_________________________________________________________________________________________________
Net cash provided by operating activities 380 19 1,099 2
_________________________________________________________________________________________________
Investing activities
Capital expenditures (248) (126) (543) (417)
Other 1 3 (19) 17
_________________________________________________________________________________________________
Net cash used for investing activities (247) (123) (562) (400)
_________________________________________________________________________________________________
Financing activities
Repayments of long-term debt (42) (53) (90) (269)
Long-term borrowings - 308 - 308
Convertible debt issued - - - 470
Common shares issued 4 23 18 27
Preferred shares redeemed - - - (487)
Preferred dividends paid - - - (6)
Dividends paid to minority interest - - (15) (2)
Other - (2) 1 (5)
_________________________________________________________________________________________________
Net cash provided by (used for) financing (38) 276 (86) 36
activities
_________________________________________________________________________________________________
Net increase (decrease) in cash and cash
equivalents 95 172 451 (362)
Cash and cash equivalents at 774 553 418 1,087
beginning of period
_________________________________________________________________________________________________
Cash and cash equivalents at end of period $ 869 $ 725 $ 869 $ 725
_________________________________________________________________________________________________
This information is provided by RNS
The company news service from the London Stock Exchange
END
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