Inco's
Headed
For Ballooning Profit
by Patrick McKeough, editor,
The Successful Investor
INCO
Ltd. (TSE N $26 SI Rating: Extra risk) has suffered more
than other commodity producers in the past decade. Early in the
1990s, Russian producers dumped nickel on world markets for anything
it would fetchthey were desperate for foreign exchange that they
could take out of that country. As Russian selling dried up and
the world economy grew, nickel prices moved up from $4,000 U.S.
per tonne to $10,000 per tonne in 1993 and 1994. Then Diamond
fields discovered the massive Voisey's Bay nickel find in Labrador.
This deposit appeared
big and low-cost enough to flood the world market with nickel
and drive prices back down again. So Inco felt obliged to buy
the property at a substantial cost, even though it knew Voisey's
Bay faced political obstacles and would only go into production
years in the future. In the second half of the decade, Asian
economic turmoil undermined nickel demand and the metal fell
as low as $3,700 a tonne in mid-1998.
Since then, however,
nickel has rebounded to $10,000 a tonne, thanks to the Asian
economic revival and continuing world economic growth. Nickel
is a key ingredient in stainless steel, and is used in many common
and high-tech products. So demand for the metal is apt to keep
rising with world economic liberalization and prosperity.
Nickel contributed
78.4% of Inco's revenues last year, and the proportion is apt
to rise. The company lost money in 1997 and 1998, but earned
$0.12 a share in 1999. If nickel demand and prices keep rising,
however, its earnings will balloon these next few years. The
company has yet to secure a mining license for Voisey's Bay property
because the Newfoundland government wants Inco to process the
ore in the province. Inco will only agree if that's the economic
choice. Agreements will, of course, be easier to achieve with
higher nickel prices.
Inco is a buy for long-term
gains.
Editor's Note: Patrick
McKeough is editor of The Succesful Investor, 6021 Yonge St.,
Ste. 977, Toronto, ON M2M 3W2, Canada. 1 year, 12 issues, $99.
