Inco upbeat about Asia-Pacific

Inco upbeat about Asia-Pacific

Lynne Olver, Dow Jones/Toronto

Beyond its current development projects in Canada and New Caledonia, nickel producer Inco Ltd. is considering Australia, the Philippines and China for future nickel mines and facilities, Chairman and Chief Executive Scott Hand said Friday.

Asian countries account for 62 percent of Inco's total sales, up from about 50 percent five years ago, Hand said in an interview. China will overtake Japan this year as the world's single biggest consumer of nickel, he noted.

Already a global mining and materials company, Inco is becoming even more international, "both with the production we're doing and our strong involvement in Asia," Hand said.

Construction of the company's big Voisey's Bay nickel, copper and cobalt mine in Labrador is nearly complete and shipment of its first concentrate is expected in November. The US$1.9 billion Goro nickel and cobalt project in the French overseas territory of New Caledonia was given the green light last year, after the project's scope and costs were reined in, and it's due to start production in late 2007.

And growth after that?

"We have some very important properties in Indonesia, beyond our Sorowako operations (the 61 percent-owned PT Inco)," Hand said.

While a lot of people are uncomfortable with risk in Indonesia, Hand noted that Inco's been doing business there since 1968 and considers it a very good place to invest. The company's annual report, however, notes that labor or political activism could affect operations at PT Inco.

In New Caledonia, east of Australia, the company isn't solely focused on building the Goro project. Its intention is to be present "for a hundred years, to be able to expand a number of times in New Caledonia," Hand said.

The "next wave" of nickel projects could come in Sudbury, Ont. and northern Labrador, where Inco already has a mining presence, or in Australia, where it doesn't.

Inco has a 10.5 percent equity stake in, and joint venture with, Australia's Heron Resources Ltd.

Their Kalgoorlie project potentially hosts a significant nickel resource and reserve, but Hand noted that it's premature to say how big. The joint venture could use the processing technology being developed for Goro, he said.

Inco has other Australian exploration ventures on the go as well. "We're a lot more active in Australia than we've ever been before," Hand said.

It is looking at opportunities in the Philippines, where a recent change in legislation opened the door to foreign investment in the mining industry. "A number of people are looking there, as are we. It's early days, but there are lots of prospects," Hand said.

As for China, Inco already has one refinery, two battery-foam plants, plus a nickel shearing and packaging operation in the country. It plans to build another refining operation in China within a couple of years, and is doing exploration work through joint ventures.

"Out of that, hopefully, will come some properties that we can develop," Hand said.

At the PT Inco operation in Indonesia, Hand said the company expects government approval for a $275 million expansion "within the next few weeks." The four-year project will boost PT Inco's production capacity by 25 percent, to 200 million pounds of nickel matte.

"All the planning has been done, the team has been assembled, we've even done some pre-work," Hand said, adding that PT Inco is working on final arrangements with the government and financing.

The company remains bullish on nickel for the next few years at least. The world nickel market "is being forced into balance" by limited supplies, not because demand growth is slowing, Hand said.

"We cannot supply all our customers' needs today."

The first-quarter average nickel price was $6.97 a pound, and the price has averaged more than $7 a pound for the year to date. A high nickel price, plus higher prices for other metals, translated into strong quarterly profit and a renewed dividend for Inco shareholders.

Assuming any "decent" economic scenario in the industrialized countries, combined with vigorous Chinese demand and a lack of supply, it's hard to see the nickel market changing before 2008- 2009, when significant new supplies are due to appear, he argues.

Hand and other executives expect price moves to be volatile, however.

Despite current sky-high prices, Hand hopes that workers take a longer-term view in labor negotiations. The company will start contract talks later this year at its Thompson, Man. operations. A three-year contract covering unionized employees at Thompson expires in September.

Nickel prices "cannot defy the laws of gravity" and must eventually come down, Hand said. "Let's not be enamored by the next three to five years, let's look to the long term, the next 20 years," he said.