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.

Re-incorporation in Canada

In 1928, Inco was re-incorporated in Canada. There were claims that the main motivation behind the re-incorporation was to evade American anti-trust laws. In the 1920s, the American trust-busting movement had gathered momentum and was turning to the Morgan trusts. Inco’s lawyers, Sullivan & Cromwell, are said to have advised on relocation to Canada in order to escape antitrust regulation. Once Inco became a Canadian corporation, it was no longer subject to U.S. jurisdiction. In Canada the U.S. anti-trust laws and the reach of American authorities were not an issue.

At that time Inco established dual headquarters in Toronto and New York City, although New York remained the home of headquarters for top management, marketing and finance.

Another important development occurred at the Company in 1928. For the first time, Inco was included in the newly-expanded Dow Jones Industrial Average, consisting of 30 companies, just thirteen years after (24) the company first listed on the New York Stock Exchange.(25)

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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.

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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 International Nickel Company (Inco) is one of Canada’s oldest mining companies and the only Canadian company ever to be part of the Dow Jones Industrial Average (DJIA). Nickel was discovered by accident in the Sudbury basin in 1883 when the rail lines for the CPR were being driven through the hard rock country.

Despite the discovery two decades earlier, the company was not formed until 1902. J. Pierpont Morgan, one of the richest and most powerful men in the world, had recently created US Steel in the world’s first billion-dollar deal. Morgan decided he wanted to control his major supplier of nickel. In the late 1920s Inco became part of the DJIA and was re-incorporated as a Canadian company.

Back in those days, Inco was not really a Canadian company. Although it was true that Inco had a major refinery at Port Colborne in Ontario’s Niagara region, in addition to the mines in the Sudbury area, it should be remembered that the refinery only came to Canada for two reasons. The first was due to intense lobbying on the part of the Ontario government.The second was known as the Deutschland Incident of 1916, when it was suspected that Canadian nickel was being shipped to Germany via the United States and being used to kill Canadian soldiers during World War I.

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Canadian Business History – Professor Joe Martin

This case was prepared by Anne-Mette de Place Filippini and Professor Joe Martin as the basis for class discussion rather than to illustrate either effective or ineffective handling of a managerial situation. All charts, photos, questions and exhibits omitted.

A Successful Break from the Past?

By the end of 1974, the Grubb regime had enjoyed three strong years of performance with net sales more than doubling to upwards of $1.7 billion. Meanwhile net earnings had more than tripled to nearly $300 million with the return on shareholder’s equity jumping to over 20%. Rebounding demand and cost cutting efforts had restored financial health at Inco with profitability levels now back above the levels not seen since the 1960s.

In the 1974 annual report, Grubb and President Carter wrote proudly “The year covered by this report was marked by a record level of sales and earnings, by your company’s first diversification into a completely new line of business and by continued expansion in Canada and abroad….the company acquired ESB Incorporated, one of the world’s leading battery companies, with a sound growth record and a reputation for good management….We intend to seek planned and orderly diversification…. Our criteria in making acquisitions are a good earnings potential, the capacity to offset cyclical swings in earnings in the primary metals industry and a broad compatibility with our own skills and assets.”

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Canadian Business History – Professor Joe Martin

This case was prepared by Anne-Mette de Place Filippini and Professor Joe Martin as the basis for class discussion rather than to illustrate either effective or ineffective handling of a managerial situation. All charts, photos, questions and exhibits omitted.

Times Had Changed

The nickel industry was just not the same, Grubb thought as he settled into his new office in 1972. He believed that the turnaround would be even tougher to achieve than the cost-cutting measures he had implemented in Hereford. He thought back wistfully to an earlier, simpler time. And he asked his Secretary to pull out some old annual reports. At random he picked up the 1955 annual report.

Grubb read the stirring words of John Thompson, the legendary former Chairman after whom Thompson, Manitoba, is named. Grubb also looked at the words of his predecessor Henry Wingate, who was the brand-new President back in 1955 (before Wingate was promoted to Chairman in 1960) and who had just come through a level of prosperity that warranted an upbeat annual report.

The words were buoyant, and revealed to Grubb the contrast between the company’s past and present fortunes. Wingate’s message began, “In 1955 the Company achieved the largest production of nickel and realized the highest earnings in its history. A new record was made for dividend payments to shareholders.(6) Disbursements for wages were larger than ever before.”

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Canadian Business History – Professor Joe Martin

This case was prepared by Anne-Mette de Place Filippini and Professor Joe Martin as the basis for class discussion rather than to illustrate either effective or ineffective handling of a managerial situation. All charts, photos, questions and exhibits omitted.

What a Difference a Year Makes

In October 2005, Inco announced that it had reached a merger agreement with its long-time Canadian rival, Falconbridge. If approved, the $12.5 billion sales entity would have been a diversified mining giant and the world leader in nickel production. It would also have been third in zinc and eighth and rising in copper. The new company would also enjoy a more diversified revenue stream, with about half of its pro forma revenues from nickel, a third from copper, 10% from aluminum and the balance from zinc, precious metals and cobalt.

The combined entity would become the world’s largest producer of nickel with a 25% share, ahead of Russian-based Norilsk, which boasted a market share of 18% at the time. Some observers saw the proposed merger as a way for Inco to fend off the attentions of Xstrata,(1) the Swiss company that bought 20% of Falconbridge in August, 2005.

In a conference call following the merger announcement, Inco CEO Scott Hand said:

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This backgrounder was written by Ken Cherney and researched by Ron Orasi for Inco Limited employees worldwide in August 1989. Please note that this backgrounder is from the company perspective. Many controversial issues have been omitted however it is still a valuable historical document.

Mond Nickel

Outstanding in Stanley’s program was the consolidation with The Mond Nickel Company, Limited, early in 1929, to form The International Nickel Company of Canada, Limited. The marriage made for an efficient development of ore reserves and the economical treatment of the ore mined. It also brought into a single unit, one organization to satisfy some 75 per cent of the world’s annual nickel consumption.

During this period, Stanley and his colleagues had succeeded in establishing a market for a product that had little demand when they stared. It was time for him to change the character of the corporation. In his 1931 speech to a gathering of shareholder he said: “The Company’s main activity has ceased to be that of mining. Its works and business are day by day becoming more commercial and widespread throughout the world, and the Company’s success now depends less on the ore reserves than on the ability to find, or make, markets which will take the manufactured product of the Company.”

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This backgrounder was written by Ken Cherney and researched by Ron Orasi for Inco Limited employees worldwide in August 1989. Please note that this backgrounder is from the company perspective. Many controversial issues have been omitted however it is still a valuable historical document.

It is rare for history to record the accomplishments, drive and leadership of a single person in the development of an industry. Robert Crooks Stanley was such a man.

His achievements, spanning 50 years form the turn of the century, led to Inco’s emergence as one of the world’s leading mining and metallurgical enerprices.

Stanley’s energy, ingenuity and expertise steered Inco and its predecessor companies through the development of nickel and nickel alloys in an era that initially viewed nickel as a troublesome contamination of the copper ores of Sudbury rather than a useful commodity. In fact, nickel has come to take its place on both industry and consumer fronts as a metal that is integral to today’s high standard of living.

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