Inco predicts strong 2005 as earnings treble in record year

A record year in 2004 saw Canadian nickel producer Inco treble net earnings to $848 million or $4.48 per share, compared with $276 million or $1.42 per share for 2003.

"With the average realised price for nickel, nickel production, net sales and cash flow from operations before working capital changes the highest ever in its history, 2004 was a marker year for Inco," said chief executive Scott Hand "We also made significant progress advancing our strategy for profitable growth through our Voisey's Bay and Goro projects and launched a capital expenditure programme to increase production at our PT Inco subsidiary in Indonesia.

"With favourable nickel demand-supply fundamentals expected to continue in 2005, we anticipate another year of strong earnings and cash flow in 2005, although our 2005 production will be lower due to planned maintenance shutdowns that were not required in 2004."

Chinese nickel demand growth in the fourth quarter of 2004 was up 36 per cent year-on-year, accounting for over one-third of full year Chinese demand, as the nickel inventory de-stocking phase in China ended during the third quarter and stainless steel production strengthened.

The fourth quarter also saw continued recovery in the global aerospace market which helped to drive double-digit demand growth for high-nickel alloys in 2004. Most nickel producers operated at capacity and have little potential for increased production in the short-term. While availability of nickel-containing stainless steel scrap increased significantly it could not bridge the nickel supply gap last year in 2004.

Strong nickel demand driven by China and the continued recovery of the global aerospace market, coupled with low nickel inventories, tighter stainless steel scrap conditions and limited nickel production growth, are expected to lead to tight nickel market conditions in 2005. In short, 2005 should be another year where nickel demand will be limited by available supply, a situation that should again lead to high nickel prices.

But in addition to record nickel production, Inco also realised some of its highest levels of copper, precious metals and cobalt production.

The company produced 146 million pounds of nickel during the fourth quarter of 2004, compared with 131 million pounds in the corresponding period of 2003. Nickel production for the full year was 522 million pounds, surpassing the previous production record of 510 million pounds set in 1974, and ahead of our October 2004 guidance of 505-510 million pounds of nickel production in 2004.

Inco produced 83 000 troy ounces of platinum-group metals (PGM) in the fourth quarter of 2004. Full-year PGM production was 422 000 troy ounces, as compared with the October 2004 guidance of 405 000 troy ounces, and was also one of our best years on record for PGM production. The company's mines produced 69 million pounds of copper in the fourth quarter and 274 million pounds for the full year, representing the best year for copper production since it shifted to bulk smelting of copper at the Ontario operation in 1994.

"We expect that nickel, copper and PGM production will be lower in 2005," said Mr Hand. This will be due to a planned maintenance shutdown in the second quarter of 2005 at our Ontario operations, a scheduled furnace overhaul at our Manitoba operations, and somewhat lower production at PT Inco due to lower water reservoir levels as a result of reduced rainfall which, in turn, affects the amount of hydroelectric power available to run those operations at capacity. Overall, we plan to produce 490 to 500 million pounds of nickel in 2005. With initial finished nickel production from Voisey's Bay concentrate, our nickel production for 2006 should increase significantly to about 540 million pounds.

"It should be noted that 2005 is the last transition year before Voisey's Bay concentrate becomes available to our Ontario and Manitoba operations, a development that will significantly reduce the need for purchased external feeds that we have used in the past few years to maximise the utilisation of our production capacity in Ontario and Manitoba.

"With Voisey's Bay concentrate flowing to our Ontario and Manitoba operations, we currently expect our nickel unit cash cost of sales after by-product credits to drop to about $1.95 per pound in 2006."

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