Inco Case Study (Background Reading): The End of Monopoly:A New World Order for Inco (Part 2 of 3)

The Advent of Nickel: From Discovery to Mid-20th Century

Canadian Business History Professor Joe Martin

This reading was prepared by Joe Martin to supplement the class discussion on the Inco case. All charts have been omitted.

The Armament Boom and ‘The Nickel Question’

The 1905 Commercial Gazetteer of theWorld states that “there are along the district North of Georgian Bay great deposits of nickel and copper …the only important supply of this metal so far known in America, and probably the most extensive in the world;” and went on to add that New Caledonia “abounds in minerals: nickel is very important.” (13)

But as Viv Nelles writes in The Politics of Development, Canada had permanently overtaken New Caledonia as the world’s most important source of nickel by 1905, and by 1910 Canada was producing three times as much as its rival. Nelles goes on to point out that the ‘poisonous pall that weighed down upon Sudbury’ could not ‘hide the fact that the really important jobs were being exported, with the semi-finished matte, to the United States….popular opinion was summed up in the Toronto Telegram’s tart observation: “A few boarding houses around two or three holes in the ground, plus Sudbury, represents all that Ontario has to show for a monopoly of 90 per cent of the
world’s nickel supply.” (14)

Shortly after the creation of the International Nickel Company, war clouds gathered, and World War I eventually broke out. As well, new applications for nickel were introduced in the various armed forces, including the new Air Force. By 1913, Germany accounted for 57% of International Nickel’s sales outside the United States.

Between 1903 and the outbreak of war 10 years later, nickel production had increased four fold. When war was declared, Canada was nearly the sole supplier. Therefore production nearly doubled again during the war, although price increases did not keep pace with production.

This period was characterized by these two separate, but important developments; the armament boom and what came to be known as ‘the Nickel Question.’ These two developments became intertwined in what became known as the ‘Deutschland affair’.

Ontario’s concerns over the export of raw, unprocessed materials was not restricted to nickel; it applied to electrical power as well as to mining and forestry products. Many people wanted the raw material to be processed in Ontario through the so-called ‘manufacturing condition’ — Ontario’s equivalent of the National Policy. However Ontario was singularly unsuccessful in having Ontario’s mineral products generally, not just nickel, ‘manufactured’ in Ontario. Americans wanted the products manufactured in the U.S., where those products were consumed. The U.S. therefore imposed high tariffs on processed goods and low tariffs on unprocessed goods — such as nickel-matte — which
in essence is nickel in raw form.

When Great Britain declared war against Germany in 1914, Canada — as part of the British Empire — was immediately part of the war as well. However, the United States remained a neutral nation until 1917. Before the war Germany had stockpiled Canadian nickel. Once the war was on, Germany needed more nickel for armaments. Vast amounts of Canadian nickel were being shipped to the neutral U.S. The question was: where did the nickel go from there? It was deduced that Germany was the recipient nation.

Since Krupp, the German arms manufacturer, held an equity position in International Nickel, allegations were made that ‘Canadian nickel is being shipped from the United States to the Krupps to be made into bullets aimed at British soldiers.’

In September 1915, the Ontario government appointed the Royal Ontario Nickel Commission. George Thomas Holloway, vice-president of the British Institute of Mining and Metallurgy and a renowned scientist, chaired the Commission. The other two members were W. G. Miller, the provincial geologist, and T.W. Gibson, the Deputy Minister of Mines.

At the time, the Minister of Mines and later Premier of Ontario, Howard Ferguson, who was responsible for appointing the Royal Commission, wrote to the Prime Minister, “It was not only important from a commercial standpoint, but essential from an Imperial standpoint, that steps should be taken to bring about refining of nickel ore in Canada….”

The appointment of a Royal Commission prompted International Nickel President Ambrose Monell, in January, to announce that Inco would build a refinery in Canada at some time in the future when the company thought it appropriate. Part of the reason for the announcement was that the Ontario government was working hard to develop its own refining technology.

In the 1916 legislative debates, the Official Opposition was critical of the government’s lack of control over nickel and stated, “The nation that controls the nickel supply controls the future of naval armaments ….” In July, Ferguson announced that Ontario had obtained two patents for different refining methodologies and that all nickel should be refined in Ontario using Ontario government processes, for which International Nickel and others would have to pay.

International Nickel began to realize that although it was American controlled with American customers, it might have to do something in Ontario, given the anti-International Nickel feelings that were being exhibited both in the legislature and by the government. An additional problem presented itself to International Nickel: a new competitive player appeared on the scene, the British American Nickel Corporation.

Dr. F.H. Pearson, a founder of modern day Brascan, had founded British American before the war. Pearson had teamed up with the railway magnates, William Mackenzie and Donald Mann, to buy out the Dominion-Nickel Copper Company. Included in the sale were rights to a new Norwegian refining process. Despite the fact that British American’s ore body was not as good as that of International Nickel, this new competitor’s refining process was better.

Just as Ontario had established a Royal Commission, the Government of Canada had established a Dominion Munitions Resources Commission. This body insisted that International Nickel should refine in Canada and that money should be supplied to British American to help establish a refinery. Faced with this level of public and government pressure, on July 20, 1916, International Nickel announced that it would build a nickel refining plant in Ontario, but only if the company had full cooperation from the Ontario government. The company also stipulated a number of conditions for building.

This did not impress the government, which now felt that International Nickel could be ignored since British American Nickel was on the scene.

In August 1916, news reached the province of Ontario revealing that a German submarine, the Deutschland, had slipped into an American port and left with a cargo of refined Ontario nickel. During the ‘Deutschland affair’ the provincial opposition party won a seat in a local by-election by charging that the government was doing nothing to prevent the shipment of Ontario nickel to Germany. At this point “governmental insistence replaced mild urgings. If Inco refused to give up its position behind the United States tariff wall, it might find its mines expropriated at the worst, or financial support given to its competitors at the best.” (15)

That same month, International Nickel took steps to buy a site for a refinery in Port Colborne, near Niagara Falls, a key source of hydro-electric power. Access to such power was seen as vital to a refinery in meeting its demands for electrical energy.

In March 1917 the Nickel Commission released its report. Based on this document, the Ontario government introduced legislation requiring that all minerals extracted from Crown resources be refined in Ontario. In 1918 International Nickel’s Port Colborne refinery became operational.(16)

Clearly, the company had a lot to learn about public relations, especially during wartime. International Nickel Co. was depicted in editorial cartoons, along with other natural resource sectors of the economy, including Timber Limits,Water Powers, and Pulp Woods, as ripping off the Toronto taxpayer. Nickel (17) is depicted as carrying off a huge sack of money while the average taxpayer makes do on
very little.

1919-1929 – The Volatile Decade

In what was to become a tumultuous decade, the International Nickel Co. began using the trademark name Inco in 1919.

World War I ended in November 1918.The postwar period saw a drop in demand, and nickel production plunged 50% in 1919. Production rebounded in 1920 and then plunged 70% over the next two years. In some ways nickel production was reflective of the Post War Depression but the decline was more severe.

The depressed demand following the end of World War I led to a research and development program to promote new consumer uses for nickel. This search for new markets was led by the new Inco President, the legendary Robert C. Stanley (18) — the first President to come from a nickel background rather than a steel one. Stanley took over the reins in 1922 following the death of then-President W.A. Bostwick.

Stanley was to serve as Inco’s CEO for 28 years. According to Inco lore, Stanley saved the company. He took over when the economy had hit bottom during the postwar slump. Cash was low and the Sudbury mines were closed, but Stanley managed to turn things around.

A mining engineer, a metallurgist, and a super salesman, Stanley is listed as one of the Harvard Business School’s Great American Leaders of the 20th Century and is described as follows on the School’s web site: “A talented engineer, Stanley spearheaded numerous technological innovations in the production and refining of metals at International Nickel (Inco) and continued to grow the company through expansion, taking advantage of low asset prices during the Great Depression. Able to maintain its monopoly position by officially becoming a Canadian company, under Stanley’s leadership, Inco was able to become the world’s largest nickel company, producing 90% of the world’s nickel in 1951.”

By the mid 1920s, the automobile sector absorbed 36% of all nickel production. Thompson, in his semi-autobiographical work For the Years to Come, contends that the “acceptance of nickel by the automobile industry …had a far greater impact…than any armament race ….”

In Germany, Krupp developed stainless steel, a new and exciting use of nickel. This contributed to a dramatic rebound in the market, and nickel production soared more than six fold between 1922 and 1929. New uses were found for nickel, including Edison storage batteries and structural nickel steels. Inco moved into industrial advertising. Interestingly enough, the dollar value only increased four fold because price levels were held low, partly to drive out competition.

It was Thompson’s contention that the late 1920s saw the company evolve from ‘a mining company to a company where production and the creation of market were of equal importance.’ (19)

Inco and ‘The Competition’

The 1920s were marked by Inco’s shift from a company with a ‘captive’ market to one that held a ‘free’ monopoly position. It previously sold to armament manufacturers and then to government, and during the war, 75% of all sales were to government. Inco made this transition in two ways. Firstly, in the early part of the decade, the company drove out the upstart British American company by cutting prices, which put the latter out of business. Secondly, as the decade drew to a close, Inco effected a merger with the British-based Mond in 1928, effectively creating a monopoly.

After the First World War, the playing field for nickel producers was crowded. There were three major, well-established players and one upstart. Le Nickel, the oldest company mined its nickel in New Caledonia, which after the war was again accessible and held France as a captive market. Mond, the British player, held the rest of the European market and had made forays into the United States. International Nickel was by far the biggest player with its primary market in the U.S., but it also made forays into Europe. And then there was the upstart British American company.

The British American Company (20) aggressively sought nickel markets. Inco responded by reducing prices. The British government, which had been providing financial support to British American, withdrew that support. Norwegian interests took over from the British. The new venture had twelve directors, six from each country. One of the Canadian directors was E.R.Wood, who was the founder of the modern-day RBC Dominion Securities.

Other Canadian directors were: former Prime Minister Sir Robert Borden; E.N. Rhodes, former Speaker of the House of Commons, who would also become a future cabinet minister and Senator as well as serving as President of the Company; and the elderly Ottawa lumber king, J.F. Booth.

Once British American failed, Inco took over the assets.

From the very beginning in the early part of the century, Inco and British based Mond had a good working relationship. (21) In 1928 they merged, through an exchange of stock, which gave the new company virtual control of the Sudbury nickel deposits and worldwide dominance of nickel markets.

As part of the merger agreement the board was enlarged to 25 members. The composition of the board saw an increase in the number of British and Canadian directors from two to nine — with six British and three Canadian directors. The Canadians were a cross section of representatives of Canadian business and mining establishments. They were: financier J.W. McConnell, (22) mining magnate J. B. Bickell, and merchant James Richardson.(23)

(13) pp.235 & 215 of The Commercial Gazetteer of the World, 1905.

(14) p. 328, The Politics of Development by Viv Nelles.

(15) p. 259, O.W. Main in Canadian Business History.

(16) Much of this is drawn from pp. 83-5 of Peter Oliver’s Ferguson supplemented by pp 257-9 of W.O. Main’s article on “International Nickel” in Canadian Business History edited by David S. Macmillan. A reading of Thompson’s For the Years to Come gives the impression that the Port Colborne decision was part of normal business.

(17) Only Inco is depicted as a corporate entity. The others are depicted in generic terms by resource sector.

(18) The Chairman of the Board was Charles Hayden, after whom the New York Planetarium is named. In terms of corporate governance, Hayden, an investment banker, was serving on 58 Boards at the time of his death.

(19) P. 190, Thompson, op. cit.

(20) Unfortunately for British American, its leader, Dr. F.H. Pearson was a victim of war, one of the many hundreds who died with the sinking of the Lusitania.

(21) The Mond Process had been discovered in England in 1889 by Dr. Ludwig Mond and in 1900 the Mond Nickel Company had been formed to work Canadian ores.

(22) See page 2 for details on McConnell and Bickell.

(23) See page 2, footnote 2, for background on Richardson.