Last week’s announcement of Inco Ltd.’s miserable nine-months’earnings results ($2.5 million, compared with $61.9 million for the same period in 1985) points up the continuing agony facing this country’s base metal producers.
It was only in the final quarter of 1984, following 13 consecutive quarters of net losses, that Inco’s balance sheet slipped into the black, although net income of $72.5 million for 1975 was far below the $425 million—at current rates of exchange—earned in 1974. Third-quarter profits for the current year would have been losses except for gains from the sale of securities and currency earnings, and increases in the prices of platinum and gold. Total revenues are down by nearly $132 million year-to-date, entirely due to a drop in the world price of nickel.
Inco remains the free world’s leading producer of nickel, but the company has lost more than $1 billion since base metal prices went into something of a free fall in 1981. The company’s financial viability is not in question: more than half of its outstanding debt has been refinanced to extend maturity dates, and $700 million has been raised in half a dozen public debenture issues.
“What we’ve done over the past half decade,” I was told by Inco chairman Charles Baird recently, “is that we’ve taken close to 40 per cent of the people out of the company, partly by shutting down and writing off our Guatemala mine, but mainly by shrinking our operation worldwide.” The company’s labor force, currently at just under 21,000, compares with 52,000 at the start of the 1980s.
The positive aspect of those dismal statistics is a corresponding jump in productivity. Inco is turning out about the same quantity of metals with its reduced labor force. “We’ve tried wherever we can,” says Baird, “to mitigate the pain by giving incentives to retire early. Seven or eight years ago we had a thousand retirees within 80 km of Sudbury. Today we have 8,000. And there aren’t many people over 55 around the company any more.”
One exception is Baird himself. A former marine and undersecretary of the U.S. Navy during the Vietnam War, he is a spry 64. The Inco chairman, who joined the company in 1969
after a lengthy career in the treasury department of Exxon, plans to move back to settle just outside Washington, D.C., in a house that he has already purchased in Virginia, when he retires a year from now. He also has a summer home in the Hamptons, at the end of Long Island. Of his Canadian commitments, he will hold on only to his directorship in the Bank of Montreal. “I became a sort of Canadianized
American,” he said, “but I did keep my U.S. citizenship.
“At the moment,” he admitted, “we see world nickel demand growing at only about one or two per cent annually for the next five or 10 years. That’s down from about six per cent a year during the 1970s. You have a constantly changing pattern of consumption. If you look for the greatest single use of nickel, it has to be coinage, yet it accounts for only three or four per cent of total sales.”
Inco has tried to diversify, with not
very impressive results. The company lost $340 million when it bought ESB Inc., a battery manufacturer based in Philadelphia. Smaller but significant attempts at diversification have included Inco’s venture capital subsidiary, which has pushed $51 million into 50 start-up programs. That investment, now worth about $100 million, has been centred on such technical fields as the evolution of artificial intelligence, telecommunications and related fields. The most successful single investment is a 17-per-cent interest in Biogen N.V., a Swissand U.S.-based biotechnological company developing therapeutic products. The company has been granted a West German licence to produce gamma interferon, used to combat rheumatoid arthritis. The main thrust at the moment is to get into gold, and Inco holds two potentially important prospects—in Casa Berardi Township in northwestern Quebec and at Crixás in central Brazil.
The company’s main investments outside Canada include a huge mining and processing operation in Indonesia, which supplies mainly the Japanese nickel market, where Inco has tripled its share since 1980. It runs a small chromite ore mine in New Caledonia and owns a large nickel refinery in Wales. They are all healthy subsidiaries, but international growth, like most capital-intensive projects, has been put on hold.
Inco’s head office (divided between Toronto and New York, where all of the financial work is done) has not escaped the drastic cuts. About 56 per cent of positions have been eliminated. Early next year Inco’s Toronto head office will be moved across the street from the First Canadian Place to less expensive quarters in the Royal Trust Tower in the Toronto-Dominion Centre to save $970,000 in annual rents. (Chairman Baird also took a 10-percent salary cut for 2lh years but is now restored to a take-home pay of $600,000-plus.)
The company’s mines and plants keep having to shut down for four to 10 weeks at a time—despite their impressive productivity achievements. Inco is the lowest-cost nickel producer in the free world. The company is efficiently run, its debt load is manageable and there is not much overhead still to be cut away. That this is a company in trouble signals the deep malaise of the Canadian economy.
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