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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Inco | LSE:IN. | London | Ordinary Share | CA4532584022 | COM NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.00 | - |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
Hot Features
Premium
RNS Number:0489B
Inco Ld
20 July 2004
INCO REPORTS RESULTS FOR SECOND QUARTER OF 2004
_______________________________________________
CANADIAN GAAP SECOND QUARTER LOSS OF $14 MILLION INCLUDES PREVIOUSLY ANNOUNCED
$191 MILLION AFTER-TAX NON-CASH CHARGE FOR SCOPE CHANGES TO THE GORO PROJECT
______________________________________________________________________________
CANADIAN GAAP SECOND QUARTER RESULTS OF OPERATIONS EXCLUDING NON-CASH CHARGE
REFLECT STRONG NICKEL MARKET AND NEARLY THREEFOLD INCREASE OVER 2003 SECOND
QUARTER
(All dollar amounts are expressed in U.S. currency)
TORONTO, July 20, 2004 - Inco Limited today reported adjusted net earnings(1)
of $156 million, or 82 cents per share (77 cents per share on a diluted basis
(2), for the second quarter of 2004, compared with adjusted net earnings(1) of
$69 million, or 37 cents per share (37 cents per share on a diluted basis(2),
for the second quarter of 2003. The adjustments made in arriving at adjusted net
earnings(1) for the second quarter of 2004 reflected primarily the exclusion of
(a) our previously announced non-cash impairment charge, net of minority
interest and taxes, as discussed under "Non-cash impairment charge" below,
totalling $191 million, or $1.02 per share, related to changes in the scope of
our approximately 85 per cent owned Goro nickel-cobalt project, and (b)
favourable non-cash currency translation adjustments relating to changes in the
Canadian-U.S. dollar exchange rate of $18 million, or 10 cents per share. The
adjustments made in arriving at adjusted net earnings(1) for the second quarter
of 2003 reflected primarily the exclusion of (a) a non-cash income tax benefit
of $96 million, or 52 cents per share, (b) unfavourable non-cash currency
translation adjustments relating to changes in the Canadian-U.S. dollar exchange
rate of $72 million, or 39 cents per share, and (c) an expense associated with a
strike by production and maintenance employees at our Ontario operations of $23
million, or 13 cents per share.
Reflecting the $191 million after-tax non-cash charge noted above, we incurred a
net loss for the second quarter of 2004 in accordance with Canadian generally
accepted accounting principles ("Canadian GAAP") of $14 million, or nine cents
per share (nine cents per share on a diluted basis(2), compared with net
earnings of $64 million, or 34 cents per share (34 cents per share on a diluted
basis(2), for the second quarter of 2003. Net earnings for the first six months
of 2004 in accordance with Canadian GAAP were $241 million, or $1.27 per share
($1.19 per share on a diluted basis(2), compared with net earnings of $97
million, or 40 cents per share (39 cents per share on a diluted basis(2), for
the first six months of 2003. All of the adjustments made in arriving at
adjusted net earnings for the second quarter and first six months of 2004 and
2003, respectively, are set forth under "Reconciliation Between Adjusted Net
Earnings and Net Earnings in Accordance with Canadian GAAP" below.
Chief Executive Officer's Message
The second quarter of 2004 represented another strong quarter for our business
as we met or exceeded our expectations for production, unit costs and premiums,
and we remained on track to hit our highest nickel production levels in nearly
thirty years. While nickel prices were volatile during the quarter,
supply-demand fundamentals remain strong and we currently believe that the
nickel market, although expected to continue to experience volatility, will
remain robust into the foreseeable future.
We have made very good progress on the construction schedule for Phase 1 of our
Voisey's Bay project, and believe that we have the opportunity to advance the
project timetable by about six months, so that commissioning of the mine and
concentrator could begin in August 2005. As we announced in late May 2004, Phase
2 of our Goro project review has progressed well, and we have developed an
updated preliminary capital cost estimate that puts us well on our way to
meeting our goal of reaching a favourable decision on restarting the project.
However, as a result of this review, significant changes to the project scope
have made us reach a determination that certain capitalized costs incurred are
no longer of value and we took a previously announced non-cash charge, after
minority interest and taxes, of $191 million for the quarter.
Market outlook
Nickel prices fell during the first two months of this quarter, reaching a low
of $10,530 per tonne ($4.78 per pound) before recovering to end the quarter at
$14,990 per tonne ($6.80 per pound). London Metal Exchange (LME) stocks
continued to decline throughout the quarter, reaching 7,980 tonnes in late June
- the lowest level since 1991. LME stocks ended the quarter at 8,394 tonnes.
Global stainless steel production is expected to increase for 2004, and we
anticipate an increase in nickel consumption for both stainless and
non-stainless applications. Nickel and stainless steel demand continues to
improve in Japan and the United States as the industrial economies in those
countries begin to recover after prolonged slumps.
Our current view is that the global supply-demand balance for nickel in 2004
will reflect a deficit, with the economies of the United States, Japan and
Europe experiencing improved underlying demand for nickel from 2003 levels and
continued growth in nickel demand in China.
Production and costs
We produced 131 million pounds of nickel during the second quarter of 2004, one
million pounds ahead of our April 2004 guidance. We remain on target to produce
500 to 510 million pounds of nickel for the full year, our highest annual
production since 1974. We continue to seek to implement programs designed to
maximize 2004 production.
Meanwhile, we produced 74,000 troy ounces of platinum-group metals (PGMs) in the
second quarter, about 23 per cent ahead of our April 2004 guidance. Our
full-year PGMs production target remains at 400,000 troy ounces. We produced 67
million pounds of copper for the second quarter, one million pounds ahead of our
April 2004 guidance, and we expect to produce 260 million pounds for the year.
In our Ontario operations, nickel production was 56 million pounds for the
quarter and we are on target to meet our goal of 233 to 237 million pounds for
the year. Our Ontario mines, mill and refineries operated well during the
quarter and we are working to improve smelter throughput. Our Manitoba
operations' 32 million pounds of production for the second quarter was 10 per
cent ahead of the same period last year and sets the stage for on target 2004
production of 109 to 111 million pounds of nickel. Finished nickel production of
43 million pounds from nickel in matte produced by PT International Nickel
Indonesia Tbk ("PT Inco") was almost 20 per cent ahead of the second quarter
2003 equivalent production level. Finished nickel production from PT Inco matte
for 2004 is forecast at between 158 and 162 million pounds, above the 2003
record finished nickel production from PT Inco matte.
We continue to face uncontrollable cost challenges at our operations but we are
working hard to offset them. During the second quarter, we realized cost
reductions and related savings of almost $14 million, bringing our total cost
reductions and related savings year-to-date to $24 million. We expect these cost
reductions and related savings will build through the second half of 2004
through innovative changes in the way we run our business. We currently plan to
realize cost reductions and related savings of about $63 million, in line with
our original target, by the end of 2004. These cost reductions and related
savings may be offset due largely to the higher volumes of and costs associated
with the purchased feeds we are processing in Canada until we begin shipment of
intermediate nickel in concentrate form from our Voisey's Bay project.
Progress on growth projects
With the progress made on our Voisey's Bay project, we expect that the first
shipment of concentrate from the project could be made in the fourth quarter of
2005, in comparison with the original construction schedule, which had assumed
initial production in early 2006. Our R&D program to test hydrometallurgical
processes for Voisey's Bay is going very well and construction is underway on
the demonstration plant in Argentia, which should be ready to receive its first
shipment of nickel in concentrate when it is expected to be operational in the
fourth quarter of 2005. We expect to be able to ship the concentrates to be
produced at the Voisey's Bay site in Labrador for 40 of the 52 weeks each year
in accordance with our agreements governing the project with the Province of
Newfoundland and Labrador, the Labrador Inuit Association and Innu Nation.
Some 1,200 people are currently employed to work at the mine and concentrator
site in Labrador. We have completed 91 per cent of the project engineering,
started cladding the mill/concentrator building, finished the port site
excavation, and begun overburden removal of the Ovoid open pit deposit. The
project remains on budget in Canadian dollars.
In late May 2004, we provided an update on the results to date of Phase 2 of our
Goro project review. Through this review, we have identified significant capital
cost reductions, notably by reducing the footprint of the process plant by 50
per cent, and have enhanced the project's overall operability and increased its
production capacity. The current preliminary capital cost estimate for the
project's planned mine, process plant and infrastructure, taking into account
the non-cash charge discussed above, of approximately $1.85 billion is within a
plus 20 per cent to minus 5 per cent reliability range. As previously noted, the
changes to the project scope have meant that certain engineering, equipment, and
related capitalized costs incurred are no longer of value for the project or
otherwise and, as a result, we took the $191 million non-cash charge this
quarter.
In the late September - early October 2004 timeframe, we currently plan to
provide an update on the final results of Phase 2 of the Goro project review. We
remain confident that we will be able to achieve our goal of reaching a
favourable decision on restarting the project.
Continuing to build on a strong financial foundation
We generated $339 million of cash flow from operations, after changes in working
capital, during the second quarter of 2004. If the First Call consensus 2004
mean LME cash nickel price of $6.08 per pound is achieved, we should generate
about $1.4 billion of cash flow from operations, after changes in working
capital, in 2004, in excess of our estimated $980 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.
Our financial leverage remains low at a 26 per cent debt-to-capitalization ratio
and our cash position at the end of the quarter was $774 million, up from $596
million at the end of March 31, 2004. Enhancing our strong financial position
remains a priority as we strive to make the most of our world-class development
opportunities.
We are pleased with what we have accomplished so far in 2004. Inco's combination
of strong operations, leading marketing position, and outstanding prospects for
profitable growth position us to benefit from the strong nickel market today and
in the future.
I look forward to reporting on our performance for the third quarter 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 the $191 million non-cash impairment charge, net
of minority interest and taxes, discussed below under "Non-cash impairment
charge", and any other 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 and interpretations 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 except per share amounts)
Second Quarter Six Months Second Quarter Six Months
------------------------------------------------------------------------------------------------------------------------
2003 2003 2003 2003
2004 (Restated)(1) 2004 (Restated)(1) 2004 (Restated)(1) 2004 (Restated)(1)
------------------------------------------------------------------------------------------------------------------------
Adjusted net earnings $ 156 $ 69 $ 385 $ 133 $ 0.82 $ 0.37 $ 2.03 $ 0.68
Asset impairment charge (191) - (191) - (1.02) - (1.02) -
Currency translation
adjustments 18 (72) 33 (150) 0.10 (0.39) 0.18 (0.82)
Income tax benefits 6 96 11 134 0.03 0.52 0.06 0.73
Goro project
suspension costs
and related
currency hedging
gains, net (3) (6) 3 5 (0.02) (0.03) 0.02 0.03
Strike expense - (23) - (23) - (0.13) - (0.13)
Loss on redemption
of convertible
debentures - - - (2) - - - (0.01)
Redemption premium
on Series E
Preferred Shares - - - - - - - (0.08)
------------------------------------------------------------------------------------------------------------------------
Canadian GAAP net
earnings (loss),
as reported $ (14) $ 64 $ 241 $ 97 $ (0.09) $ 0.34 $ 1.27 $ 0.40
------------------------------------------------------------------------------------------------------------------------
________________________
(1) The 2003 results have been restated due to the retroactive application of
a change in accounting policy for depreciation and depletion.
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
Our current estimates for production for the third 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:
Third Quarter Full Year
2004 2004
------------- ---------
Nickel - tonnes (thousands) 52 227 to 231
- pounds (millions) 115 500 to 510
Copper - tonnes (thousands) 30 118
- pounds (millions) 66 260
PGMs - troy ounces (thousands) 105 400
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 for the second quarter and first six
months of 2004 and 2003, respectively, as indicated and cost of sales in
accordance with Canadian GAAP for such periods is set forth in the table
entitled "Reconciliation of Nickel Unit Cash Cost of Sales to Canadian GAAP Cost
of Sales" below. We do not provide a reconciliation of this range for the full
year 2004 estimate of nickel unit cash cost of sales after by-product credits to
a corresponding estimate in accordance with Canadian GAAP given that it is a
range and the difficulty of and uncertainty associated with making certain
assumptions relating to product mix, including quantities of purchased
intermediates, product movements and certain other factors required to arrive at
such a reconciliation.
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 nickel and other production
estimates 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, as
in the case of our Manitoba operations in the third quarter of 2004, and other
normal planned actions.
The current First Call consensus mean estimate for our adjusted net earnings per
share for 2004 is $3.90 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 $6.08 per pound, and our understanding of First Call's 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 $3.90 on a diluted basis. At the First Call
consensus 2004 mean LME cash nickel price of $6.08 per pound, we currently
project that for 2004 our cash flow from operations, after changes in working
capital, would be about $1.4 billion. Given how we pay taxes in Canada, we
expect to pay the balance of our 2004 taxes of about $275 million in early 2005.
We are not endorsing First Call's mean forecasts for the LME cash nickel price
and 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 $6.27 per pound ($13,819 per tonne)
for the January 2 - July 19, 2004 period. The LME cash nickel price on July 19,
2004 was $6.74 per pound ($14,850 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, we estimate that 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 (a) the Canadian-U.S. dollar exchange rate given
that a substantial portion of expenses are incurred in Canadian dollars and we
have substantial Canadian dollar-denominated liabilities and (b) nickel prices,
our results are also sensitive to changes in copper and other metals 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
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
________________________
(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 June 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 $980 million.
Commentary on Results for the Second 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 Six Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
--------------------------------------------------------------------------------
(Restated) (Restated)
Net sales $ 992 $ 599 $ 2,086 $ 1,192
Net earnings (loss) (14) 64 241 97
Net earnings (loss)
per common share
- basic (0.09) 0.34 1.27 0.40
- diluted (0.09) 0.34 1.19 0.39
--------------------------------------------------------------------------------
Cash provided by (used for)
operating activities 339 81 719 (17)
--------------------------------------------------------------------------------
The significant decrease in results of operations and certain changes in costs
between the second quarter of 2004 and the corresponding quarter of 2003 were
primarily the result of the following factors:
* The $191 million non-cash asset impairment charge, net of minority interest
and taxes, as discussed below, recorded as a result of changes in the scope
of the Goro project based upon the preliminary findings of the second
phase, or Phase 2, of the project review
* Decrease in unusual tax benefits compared with 2003
* Increased costs for nickel production
These items were partially offset by the favourable effect of the following
factors:
* Higher average realized prices for all metals, particularly for nickel and
copper
* The favourable effect of currency translation adjustments, particularly the
effect of changes in the Canadian-U.S. dollar exchange rate
With respect to net earnings for the second quarter and first half 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.
Non-cash impairment charge
As previously announced on May 25, 2004, the key preliminary findings to date of
Phase 2 of our Goro project review resulted in changes in the planned Goro
project configuration, including moving to direct heating of the ore feed and
other changes intended to reduce the capital cost estimate and enhance the
operating efficiency of the planned process plant and the process itself. These
changes have meant that certain capitalized costs incurred, principally for
engineering and related work associated with the original project configuration
and equipment purchased for the indirect heating of ore feed, no longer would
have any value for the project or otherwise. As a result of such changes,
capitalized expenditures incurred totalling $201 million before minority
interest and taxes have been written off in the second quarter of 2004. After
taking into account the minority interest of $9 million and a tax recovery of $1
million, this charge totalled $191 million. The tax relief for this charge was
insignificant due to the fact that essentially all of the charge is not
deductible for tax purposes.
Net sales
Net sales increased substantially to $992 million and $2,086 million,
respectively, in the second quarter and first half of 2004, compared with $599
million and $1,192 million for the same periods in 2003. This improvement in net
sales was primarily due to higher selling prices for all metals, particularly
for nickel and copper, as well as higher deliveries of Inco-source nickel and
copper. Deliveries of Inco-source nickel in the second quarter of 2004 increased
by 18 per cent compared with the second quarter of 2003 due to increased
production at our Canadian and U.K. operations as well as at PT Inco. Production
for the second quarter 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
Nickel unit cash cost of sales before by-product credits increased to $5,600 per
tonne ($2.54 per pound) in the second quarter of 2004 from $4,189 per tonne
($1.90 per pound) in the second quarter of 2003. This increase 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 to 2003, higher spending on maintenance and repairs and higher
employment costs, partially offset by the cost reductions and related savings as
discussed below.
Nickel unit cash cost of sales before by-product credits increased to $5,468 per
tonne ($2.48 per pound) in the first half of 2004 from $4,145 per tonne ($1.88
per pound) in the first half of 2003. This increase was principally due to the
higher cost for, and volumes of, purchased intermediates, and the higher average
Canadian dollar exchange rate relative to the U.S. dollar exchange rate compared
to 2003.
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 this
material is purchased by us increases, the price realizations are also higher,
resulting in margins on these purchases remaining relatively unchanged.
Nickel unit cash cost of sales after by-product credits increased to $5,203 per
tonne ($2.36 per pound) in the second quarter of 2004 compared with $4,189 per
tonne ($1.90 per pound) in the second quarter of 2003. The increase was due to
higher unit cash cost of sales before by-product credits and lower deliveries of
PGMs, partially offset by higher realized selling prices for PGMs.
Nickel unit cash cost of sales after by-product credits increased to $4,828 per
tonne ($2.19 per pound) in the first half of 2004 compared with $4,322 per tonne
($1.96 per pound) in the first half of 2003. The increase 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 and higher
deliveries of PGMs.
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 second quarter of 2004, we realized cost reductions and related savings
of about $14 million, and we are currently on track to realize our planned $63
million in cost reductions and related savings for the full year 2004.
Nickel production increased to 59,586 tonnes (131 million pounds) and 117,257
tonnes (258 million pounds) in the second quarter and first half of 2004,
respectively, compared with 45,197 tonnes (100 million pounds) and 95,425 tonnes
(210 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 second quarter of 2003 which was negatively affected
by the three-month strike at our Ontario operations that began on June 1, 2003.
PT Inco's production increased during the first half of 2004 compared with the
same period in 2003 when a planned furnace rebuild at this operation reduced
production.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $5 million and $15
million in the second quarter and first half of 2004, respectively. These
increases for both the second quarter and first half of 2004 were primarily due
to higher costs for share options and other awards under our corporate incentive
compensation programs.
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. Favourable currency translation
adjustments were $18 million and $33 million in the second quarter and first
half of 2004, respectively, and were due to the weakening of the Canadian dollar
as of June 30, 2004 relative to the U.S. dollar. The Canadian - U.S. dollar
exchange rate depreciated by two per cent during the second quarter of 2004 and
by four per cent during the first half of 2004.
Income and mining taxes
The effective tax rates for the second quarter and first half of 2004 were 93
per cent and 47 per cent, respectively, rates that were higher than the
statutory income tax rate in Canada of 39.9 per cent. These higher tax rates,
particularly the unusually high rate for the second quarter, were primarily due
to the negligible tax relief recorded with respect to the $201 million non-cash
impairment charge, before minority interest and taxes, referred to above. This
was partially offset by the impact of earnings generated in lower tax rate
jurisdictions and the effect of currency translation adjustments. The effective
tax rate for the first half of 2003 was significantly affected by a $134 million
tax benefit from changes in Canadian tax legislation, certain tax rulings and
other decisions relating to prior year transactions and the benefit of
non-taxable gains.
Cash Flows and Financial Condition
Net cash provided by operating activities, after changes in working capital, in
the second quarter of 2004 was $339 million, compared with $81 million in the
second quarter of 2003. The increase in net cash provided by operating
activities was primarily due to higher earnings before the effect of the
non-cash impairment charge noted above. Cash provided by operations was also
higher due to lower tax payments during the second quarter and first half of
2004 compared to the same periods in 2003.
Net cash used for investing activities increased to $148 million and $315
million in the second quarter and first half of 2004, respectively, compared
with $113 million and $277 million in the same periods in 2003. Capital
expenditures in the second quarter of 2004 were higher due to higher capital
spending for our Voisey's Bay project 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 June 30, 2004, cash and cash equivalents were $774 million, up from $418
million at December 31, 2003 and up from $596 million at March 31, 2004,
reflecting the cash provided from operating activities as discussed above. Total
debt was $1,469 million at June 30, 2004, compared with $1,512 million at
December 31, 2003. Total debt as a percentage of total debt plus shareholders'
equity was 26 per cent at June 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,
have 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. The impact of
this change on first half 2003 depreciation and depletion expense was a
reduction of $18 million in such expense.
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 section 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 Second Quarter 2004 Results Presentation to Investment
Community
As previously announced, interested investors can listen to our presentation to
the investment community covering our second quarter 2004 financial and
operating results 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 July 20, 2004, beginning at 3:00 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 August 3, 2004 by dialling 1-800-558-5253
in North America and by entering the reservation number 21199590. 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 third quarter and full year
2004 at its Canadian, Indonesian and other operations, 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, 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, shipping and other aspects of its Goro and Voisey's Bay projects,
process research and development programs, capital expenditures, planned
shutdowns 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 completion and results of a comprehensive review of 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, 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.
July 20, 2004
IN 04/13
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 Six Months Ended
June 30, June 30,
2004 2003 2004 2003
---- ---- ---- ----
Average Realized Prices
Nickel(1) - per tonne $ 12,587 $ 8,652 $ 13,608 $ 8,618
- per pound 5.71 3.92 6.17 3.91
Copper - per tonne 2,788 1,641 2,791 1,686
- per pound 1.26 0.74 1.27 0.76
(1) Including intermediates
LME Average Cash Prices
Nickel - per tonne 12,505 8,375 13,621 8,361
- per pound 5.67 3.80 6.18 3.79
Copper - per tonne 2,790 1,641 2,761 1,652
- per pound 1.27 0.74 1.25 0.75
Deliveries
Nickel in all forms (tonnes)
- Inco-source 59,447 50,245 114,064 96,115
- Purchased finished 3,202 6,995 9,385 14,963
--------- --------- --------- ---------
62,649 57,240 123,449 111,078
--------- --------- --------- ---------
Copper (tonnes) 30,380 22,506 60,120 58,759
--------- --------- --------- ---------
Cobalt (tonnes) 358 269 750 595
--------- --------- --------- ---------
Platinum-group metals (in
thousands of troy ounces) 75 96 222 184
--------- --------- --------- ---------
Net Sales to Customers by Product
Primary nickel $ 788 $ 495 $ 1,680 $ 957
Copper 85 37 168 99
Precious metals 46 47 126 94
Other 73 20 112 42
$ 992 $ 599 $ 2,086 $ 1,192
--------- --------- --------- ---------
Nickel Production in 59,586 45,197 117,257 95,425
all Forms (tonnes) --------- --------- --------- ---------
Finished Nickel Inventories
at end of Period (tonnes) 29,080 23,086 29,080 23,086
--------- --------- --------- ---------
Reconciliation of Nickel Unit Cash Cost of Sales to Canadian GAAP Cost of Sales
Three Months Ended Six Months Ended
June 30, June 30,
(in millions of U.S. dollars except where noted) 2004 2003 2004 2003
Cost of sales and other expenses, excluding
depreciation and depletion 580 412 1,137 831
By-product costs (138) (96) (277) (233)
Purchased finished nickel (43) (58) (133) (124)
Delivery expense (8) (6) (16) (12)
Other businesses cost of
sales (9) (6) (20) (12)
Strike expense, excluding depreciation - (29) - (29)
Non-cash items(1) (9) (6) (18) (11)
Remediation, demolition and other related expenses (6) (9) (11) (13)
Adjustments associated with affiliate transactions (35) 2 (41) 1
Other - 7 1 1
---------- ---------- ---------- ----------
Nickel cash cost of sales before by-product credits(2) 332 211 622 399
By-product net sales (161) (96) (350) (218)
By-product costs 138 96 277 233
---------- ---------- ---------- ----------
Nickel cash cost of sales after by-product credits(2) 309 211 549 414
========== ========== ========== ==========
Inco-source nickel deliveries (millions of pounds) 131 111 251 212
========== ========== ========== ==========
Nickel cash cost of sales before by-product
credits per pound 2.54 1.90 2.48 1.88
========== ========== ========== ==========
Nickel cash cost of sales before by-product
credits per tonne 5,600 4,189 5,468 4,145
========== ========== ========== ==========
Nickel cash cost of sales after by-product
credits per pound 2.36 1.90 2.19 1.96
========== ========== ========== ==========
Nickel cash cost of sales after by-product
credits per tonne 5,203 4,189 4,828 4,322
========== ========== ========== ==========
Inco Limited
Consolidated Statement of Earnings
(unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
(in millions of U.S. dollars except per share amounts) 2004 2003 2004 2003
(Restated) (Restated)
------------------------------------------------------------------------------------------------------------------
Revenues
Net sales $ 992 $ 599 $ 2,086 $ 1,192
Other income, net 10 13 15 41
------------------------------------------------------------------------------------------------------------------
1,002 612 2,101 1,233
------------------------------------------------------------------------------------------------------------------
Costs and expenses (income)
Cost of sales and other expenses, excluding
depreciation and depletion 580 412 1,137 831
Depreciation and depletion 62 59 119 113
Selling, general and administrative 41 36 75 60
Research and development 7 9 16 14
Exploration 6 6 12 12
Currency translation adjustments (18) 72 (33) 150
Interest expense 6 12 14 26
Asset impairment charge 201 - 201 -
Goro project suspension 3 6 (3) 6
------------------------------------------------------------------------------------------------------------------
888 612 1,538 1,212
------------------------------------------------------------------------------------------------------------------
Earnings before income and mining taxes and minority interest 114 - 563 21
Income and mining taxes 106 (76) 266 (99)
------------------------------------------------------------------------------------------------------------------
Earnings before minority interest 8 76 297 120
Minority interest 22 12 56 23
------------------------------------------------------------------------------------------------------------------
Net earnings (loss) (14) 64 241 97
Accretion of convertible debt (2) (1) (4) (3)
Dividends on preferred shares - - - (6)
Premium on redemption of preferred shares - - - (15)
------------------------------------------------------------------------------------------------------------------
Net earnings (loss) applicable to common shares $ (16) $ 63 $ 237 $ 73
------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per common share
Basic $ (0.09) $ 0.34 $ 1.27 $ 0.40
------------------------------------------------------------------------------------------------------------------
Diluted $ (0.09) $ 0.34 $ 1.19 $ 0.39
------------------------------------------------------------------------------------------------------------------
Inco Limited
Consolidated Balance Sheet
(unaudited)
June 30, December 31,
(in millions of U.S. dollars) 2004 2003
--------------------------------------------------------------------------------
(Restated)
ASSETS
Current assets
Cash and cash equivalents $ 774 $ 418
Accounts receivable 490 435
Inventories 839 746
Other 157 112
--------------------------------------------------------------------------------
Total current assets 2,260 1,711
Property, plant and equipment 6,960 7,033
Deferred charges and other assets 336 319
--------------------------------------------------------------------------------
Total assets $ 9,556 $ 9,063
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Long-term debt due within one year $ 101 $ 103
Accounts payable 257 253
Accrued payrolls and benefits 163 165
Other accrued liabilities 358 332
Income and mining taxes payable 260 27
--------------------------------------------------------------------------------
Total current liabilities 1,139 880
Deferred credits and other liabilities
Long-term debt 1,368 1,409
Deferred income and mining taxes 1,697 1,706
Post-retirement benefits 600 603
Asset retirement obligation 144 141
Minority interest 460 442
--------------------------------------------------------------------------------
Total liabilities 5,408 5,181
--------------------------------------------------------------------------------
Shareholders' equity
Convertible debt 612 606
--------------------------------------------------------------------------------
Common shareholders' equity
Common shares issued and outstanding
187,538,813
(2003 - 186,915,865 shares) 2,874 2,858
Warrants 62 62
Contributed surplus 569 562
Retained earnings (deficit) 31 (206)
--------------------------------------------------------------------------------
3,536 3,276
--------------------------------------------------------------------------------
Total shareholders' equity 4,148 3,882
--------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 9,556 $ 9,063
--------------------------------------------------------------------------------
Inco Limited
Consolidated Statement of Cash Flows
(unaudited)
For the Three Months For the Six Months
June 30, June 30,
(in millions of U.S. dollars) 2004 2003 2004 2003
------------------------------------------------------------------------------------------------------------------
(Restated) (Restated)
Operating activities
Earnings before minority interest $ 8 $ 76 $ 297 $ 120
Charges not affecting cash
Depreciation and depletion 62 59 119 113
Deferred income and mining taxes 26 (72) 42 (52)
Asset impairment charge 201 - 201 -
Other 5 40 8 72
Decrease (increase) in non-cash working capital
related to operations
Accounts receivable 5 43 (54) (27)
Inventories 4 (30) (93) (50)
Accounts payable and accrued liabilities (24) (12) 18 (53)
Income and mining taxes payable 66 (41) 234 (162)
Other (9) 6 (43) (3)
Other (5) 12 (10) 25
------------------------------------------------------------------------------------------------------------------
Net cash provided by used for) operating activities 339 81 719 (17)
------------------------------------------------------------------------------------------------------------------
Investing activities
Capital expenditures (156) (128) (295) (291)
Other 8 15 (20) 14
------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (148) (113) (315) (277)
------------------------------------------------------------------------------------------------------------------
Financing activities
Repayments of long-term debt (2) (170) (48) (216)
Convertible debt issued - - - 470
Common shares issued 2 - 14 4
Preferred shares redeemed - (487) - (487)
Preferred dividends paid - - - (6)
Dividends paid to minority interest (14) (1) (15) (2)
Other 1 (3) 1 (3)
------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (13) (661) (48) (240)
------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 178 (693) 356 (534)
Cash and cash equivalents at beginning of period 596 1,246 418 1,087
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 774 $ 553 $ 774 $ 553
------------------------------------------------------------------------------------------------------------------
________________________
(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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR SESFMSSLSEIW
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