Bloomberg News

Inco 2nd-Quarter Profit Doubles on Nickel Price Rally

July 19, 2006

Inco Ltd., the world's second-biggest nickel producer, said second-quarter profit more than doubled to a record on higher prices for the metal used to make stainless steel.

Net income rose to $472 million, or $2.11 a share, from $215 million, or 99 cents, a year earlier, Toronto-based Inco said today in a statement. Sales rose 52 percent to $1.81 billion.

The average price Inco got for nickel jumped 22 percent to $20,208 a metric ton. Phelps Dodge Corp., Inco and Falconbridge Ltd. on July 16 sweetened the terms of their three-way combination to thwart hostile suitors in the biggest mining takeover ever. Xstrata Plc (XTA) increased its offer for Falconbridge today by 7.2 percent.

``We'll produce a very strong finish for the year'' amid high nickel and copper prices, Inco Chief Executive Officer Scott Hand said on a conference call with analysts and investors. ``Inco is the only publicly traded mining company whose costs will fall this year in absolute terms, despite challenging oil prices and currency levels.''

Shares of Inco rose C$2.35, or 3.1 percent, to C$79.29 on the Toronto Stock Exchange. Earlier, they reached a record C$80.63. The shares have gained 54 percent from a year ago.

Global production of nickel will fall short of demand this year by 30,000 metric tons, Inco has forecast. On July 17, nickel for delivery in three months on the London Metal Exchange reached $26,900 a ton, the highest in at least 19 years.

`Tightest Market Ever'

This year marks ``the tightest nickel market we have ever seen,'' Peter Goudie, executive vice president of marketing, said on the call. ``We are unable to accept all orders for nickel from customers. Prices will have to stay high to keep demand in line with available supply.''

Nickel output in the second quarter rose 26 percent to 63,557 metric tons from a year earlier because of new production from Voisey's Bay in eastern Canada, Inco said.

Third-quarter output will be 61,000 to 63,000 tons for nickel and 76 million pounds for copper, the company said. Nickel production in 2006 will be 261,000 tons, Inco said.

Inco opted to combine with Toronto-based Falconbridge and be bought by Phelps Dodge, the world's third-largest copper producer, rejecting a hostile bid by Teck Cominco Ltd. Inco and Falconbridge have mined nickel and copper in the Sudbury Basin in northern Ontario since the early 1900s.

The combination of Phoenix-based Phelps Dodge, Inco and Falconbridge was valued at C$43.5 billion ($38.2 billion) based on today's closing share prices.

Xstrata, Falconbridge

Zug, Switzerland-based Xstrata, which owns 20 percent of Falconbridge, said it will pay C$62.50 a share for the rest, up from its offer of C$59 on July 11.

Falconbridge shareholders will get C$18.50 cash and 0.55676 of an Inco share and a special dividend of 75 Canadian cents a share as part of the July 16 sweetened offer by Inco and Phelps Dodge. The bid is valued at C$62.65 based on Inco's closing price today.

``Our bid remains very competitive'' and a ``great deal,'' Hand said on the call.

Falconbridge shareholders have a choice of taking Xstrata's cash or getting some cash and the prospect of greater benefits from the combination of Phelps Dodge and Inco, Hand said.

Russia's OAO GMK Norilsk Nickel is the world's biggest nickel producer by 2005 output. Chile's state-owned Codelco is the largest copper producer, followed by BHP Billiton Ltd.

To contact the reporter on this story: Choy Leng Yeong in Seattle at clyeong@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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