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Inco Case Study: The End of Monopoly: A New World for Inco (Part 1 of 3)

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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Robert Crooks Stanley (1876-1951) – The Grandfather of the Nickel Industry (Part 2 of 2)

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 Many controversial issues have been omitted however it is still a valuable historical document.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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Robert Crooks Stanley (1876-1951) – The Grandfather of the Nickel Industry (Part 1 of 2)

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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Northern Ontario Separation – by Stan Sudol

This article was originally published in the Sudbury Star on March 9 , 2002

Maybe it’s time for Northern Ontario to think about going it alone

In my 45 years of living in Ontario, I have never seen such a tremendous rift between its southern and northern halves. The corporate, media and political elites of Toronto have grown so out of touch with the economic hardships and challenges of the North that for the second time in my life I have come to the conclusion that it would be in the best interests of Northern Ontario to secede from the south and form its own province.

When I was a teenager in the mid 1970s, I was sympathetic to the Northern Ontario Heritage Party. Ed Deibel, a North Bay businessman, unsuccessfully tried to separate from the south in order to establish social, economic and cultural justice for the distinct people of Northern Ontario.

Perhaps the time is right to revisit Ed Deibel’s worthy dream. A separate Northern Ontario would encompass approximately 85 per cent of the province’s land mass, using the French and Mattawa Rivers as the traditional boundary between north and south. With a population of roughly 838,812, according to the 2001 census, Canada’s eleventh province would be larger than New Brunswick, P.E.I. and Newfoundland, and would be eligible for more money in federal equalization payments as a “have not province” than it currently receives from Queen’s Park.

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Goodby Inco, ‘Bem-Vindos’ to Sudbury Brazillian CVRD – by Stan Sudol

This column was originally published in Northern Life, Greater Sudbury’s community newspaper on October 25, 2006

It was the best of times, it was the worst of times, if I may borrow from Charles Dickens.

On Aug. 24, 2006 , the spot nickel price hit its all time high ever, at $15.76 (US) per pound. Last Friday it was just a tad under that record at $15.65.

Inco’s third quarter net earnings of $701 million—the Ontario operations contributed $US356 million to that figure—were the highest ever quarterly profits in the company’s 104-year history. The 2005 third quarter net earnings were $64-million.

And to add the cherry on the cake, the company officially opened its $115-million Fluid Bed Roaster Dioxide Emission Reduction plant in Copper Cliff that will further reduce SO2 pollution from the Sudbury operations by 34 percent to just 175 kilotonnes a year. This is about a 90 percent reduction from the 2,000 kilotonnes a year the company used to emit in 1970.

However, the drama and trauma of the past year’s “nickel wars” have finally come to an end in a way we didn’t expect.

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The Brazilians are Coming, the Brazilians are Coming – by Stan Sudol

This column was originally published in Northern Life, Greater Sudbury’s community newspaper on August 16, 2006

Combined assets of CVRD and Inco would create the third-largest mining company in the world

Like most other analysts and columnists who have been following this nickel soap opera, we were all collectively given a sucker punch out of nowhere by the Brazilians!

Last Friday, Brazilian iron ore king, Companhia Vale do Rio Doce (CVRD) made an all-cash offer to buy Inco Limited at the price of CDN$ 86.00 per share. The offers of both Teck-Cominco and Phelps Dodge are a mix of cash and share. The hedge fund boys and girls dance with delight with all cash offers as these always trump any cash/share combination and give maximum short term gain.

In addition, Atticus Capital, a large American hedge fund that owns about eight percent of Phelps Dodge does not support the merger with Inco and will recommend shareholders to vote against this deal. If there are no regulatory hurdles, this does appear – notice my hedging – to be a knock-out punch.

Roger Agnelli, chief operating officer of CVRD said in a statement, “This is an exciting opportunity for CVRD. The operations of the two companies are complementary and the combination will enhance our capabilities to benefit from the fast changing global landscape in the metals and mining industry.”

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Canadian Women In Mining Townships Project Offers Choice of Three Mining Moguls – by Marilyn Scales

Marilyn Scales is a field editor for the Canadian Mining Journal, Canada’s first mining publication. She is one of Canada’s most senior mining commentators. What do Eric Sprott, Rob McEwen and Frank Guistra have in common? They have volunteered to be the prizes in a draw of people who donate to The Townships Project, a …

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Nickel Closest Thing to a True ‘War Metal’ – by Stan Sudol

This column was originally published in Northern Life, Greater Sudbury’s community newspaper on February 23, 2007

The metallic “Achilles heel” for any military and navel production has always been nickel

Sudbury was definitely going to be “nuked” by the Russians. At least that was our conclusion back in 1976 when I worked at CVRD Inco’s Clarabell Mill for a year.

During one graveyard shift, a group of us were talking about Cold War politics and atomic bombs. We all agreed that if there ever was a nuclear war between the Americans and Russians then there must have been one Soviet “nuke” with our community’s name stenciled on it. We all laughed a little nervously, but there was also some pride in knowing Sudbury was important enough to get blown-up in the first round of missiles.

Access to strategic materials has always affected the destinies of nations. The Romans conquered Britain in AD 43 to control valuable tin deposits in Cornwall. Combining tin with copper produces bronze, a more valuable and militarily important alloy. Ancient Chinese metallurgical expertise with iron and steel allowed the Middle Kingdom to become a dominate military and economic force during the prosperous Han dynasty.

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Inco’s Record in Indonesia Under Microscope – Mick Lowe (December/2000)

Mick Lowe’s column – On The Rock – was originally published December 6, 2000 in Northern Life, Greater Sudbury’s community newspaper.

What are the environmental and health effects of living near one of the world’s largest laterite nickel mining and smelting complexes, specifically Inco’s operation on the Island of Sulawesi in eastern Indonesia?

That was the big question on Evan Edinger’s mind when he went to visit the village of Soroako earlier this fall. Edinger is a post-doctorate fellow in geology at Laurentian University, and the first scientifically trained, independent observer from Sudbury to visit Inco’s Indonesian operations.

What Edinger found was a lush, mountainous tropical setting which, superficially, at least, has suffered little of the environmental devestation so sommon around Inco’s activities here On the Rock.

Much of the contrast, Edinger believes, is due to the difference in the chemical makeup of sulphide nickel ores, which is what we mine here in Sudbury, and laterite nickel ores, which is the type of nickel mined throughout the tropics.

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Statement by Greater Sudbury Mayor John Rodriguez on the Xstrata Cutbacks

Greater Sudbury Mayor John RodriguezThis statement was released on February 11, 2009

I want to take an opportunity this evening to speak directly to the people of Greater Sudbury.

As Mayor of this great city, both here at home and wherever I have had the opportunity to travel, I have always said that, “if you want to know anything about mining, you come to Sudbury!”  Mining built this community and, though we have made strong advances in economic diversification, mining remains at the heart of our local economy.

On Monday of this week, 686 of our fellow citizens lost their jobs with Xstrata Nickel, and we were reminded once again that being the Mining Capital of Canada means not only benefiting from the boom cycles in metal prices, it means dealing with the bust cycles as well.  This week’s news is a devastating blow to this city, and it will have ripple effects across many sectors.  Just six to twelve months ago, these same employees were spreading the good fortune of their nickel bonuses throughout the community, creating strong demand for housing, cars, recreational equipment and entertainment.  Now their financial pain will also be strongly felt.

Monday’s announcement was not entirely unexpected. 

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Sudbury Angry Over Xstrata Job Cuts – by Marilyn Scales

Marilyn Scales is a field editor for the Canadian Mining Journal, Canada’s first mining publication. She is one of Canada’s most senior mining commentators.

“Xstrata Nickel today [Feb. 9, 2009] announces plans to restructure its Sudbury operations in response to ongoing challenging market conditions.” With those words the Swiss mining giant axed 686 jobs in Sudbury, Ont., and touched off a firestorm of protest from residents and union leaders.

Some of the closures were expected. In November 2008, Xstrata said it would accelerate closure of the Craig and Thayer Lindsley mines that were near the end of their productive lifespans. Operations there ceased with this month’s announcement.

The Fraser mine complex will be placed on care-and-maintenance, and the Strathcona mill will run with two work shifts rather than four due to the reduction in feed tonnage. The smelter is expected to operate at a level similar to 2008 thanks to concentrates from the new Nickel Rim south mine and Xstrata Nickel Australasia. Concentrates from the Montcalm and Raglan mines, as well as third-party feed, will also be treated.

Not all the news is bad, just the loss of 686 jobs.

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A Tune from the Nickelodeon – by Charles Baird (October, 1982)

Most of your readers will have sensed that they were being given a fevered caricature of Inco and the international mineral market in Mick Lowe’s Podium piece “Why Inco Must Be Nationalized”, in the July 19, 1982, issue of Maclean’s. Mr. Lowe is a Sudbury-based freelance journalist, well-known to us for his numerous Inco-related articles of the past, and we question his qualifications as a commentator on the international marketplace.

For example, a key statement in Mr. Lowe’s article is that Inco was debt-free in 1972 and now owes $1.1 billion. He also charges that “Inco’s profits in recent years have been invested everywhere but in Canada.” In fact, Inco’s debt in 1972 exceeded $500 million. This money, as well as profits, was used to finance an investment program of more than $1 billion undertaken in Ontario and Manitoba from 1967 to 1972. Inco has continued to invest in Canada, but did indeed invest outside Canada for two reasons: because Canadian nickel supplies were seen to be inadequate to meet market demand; and to diversity the company’s revenue sources so as to be less dependent on the world metal cycle.

Regrettably, there is no basis for any assumption that Inco’s shareholders have realized more from Inco’s Canadian operations than others. For example, from 1970 to 1980 the tax take from Inco by Canadian governments increased from $54 million to $260 million, or by 382 per cent, and our Canadian unionized workers’ hourly wage rates and related fringe benefits increased from $5 million to $15 million, or by some 200 per cent.

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Why Inco Must Be Nationalized – Mick Lowe (July, 1982)

Inco must be nationalized, and the sooner the better. The need is pressing not because the firm’s management has squandered the immense Canadian wealth of the Sudbury, Ontario, and Thompson, Manitoba, ore bodies in ill-advised adventures in Guatemala, Indonesia and the United States. Nor is it because Inco’s management has exercised almost legendary arrogance and callousness with regard tot eh Canadian environment and in dealing with its Canadian work force (this summer’s strike at the company’s Sudbury operation was the third in seven years).

Inco must be nationalized for strictly economic reasons: it may be necessary in order to save the Canadian nickel industry, for never before has it been threatened at it is today. As stated in World Mineral Markets Stage II, a report recently released by the Ontario ministry of natural resources, North American nickel production will actually decrease over the next 10 years, even though total world nickel demand should increase moderately.

The projections on world nickel production made in the report should be disquieting  to all Canadians, and a truly national debate over its pat management and future development is long overdue. The sad truth is that, despite the projected increase in demand for nickel during the next decade, Inco’s share of the market will continue to decline because of the nature of its competitors: most of the newer nickel-producing companies tend to be in the Third World and state-owned.

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Thayer Lindsley: The Founder of Falconbridge (Present Day Xstrata Nickel) 1882 – 1976

This profile came from the Canadian Mining Hall of Fame. The Canadian Mining Hall of Fame honours the mine finders and developers who helped develop our northern and rural regions and created enormous wealth for the country. For more exciting profiles on the individual who made Canada a global mining powerhouse, go to: http://www.halloffame.mining.ca/halloffame/

Thayer Lindsley, the father of such mining giants as Falconbridge Ltd., Ventures Ltd. and Frobisher, has been described as the greatest mine finder of all time.

Not only did he found Falconbridge, a multinational organization ranked now among the largest mining companies in the world, but throughout his long and extraordinarily dedicated career, Lindsley either found or was involved in the development of such other famous Canadian mining names as Sherritt Gordon, Giant Yellowknife, Canadian Malartic, United Keno Hill, Lake Dufault and Opemiska Copper, Connemara in Southern Rhodesia and Whim Creek in Australia.

His geological and creative genius touched the fortunes of perhaps more than 185 companies in all.

In a book on exploration he published in 1966, he aptly described the kind of attributes that made he himself a giant among mining men: “To be a successful mine finder,” he said, “one must have determination, knowledge, tenacity, a rugged constitution to withstand the rigors of outdoor life, and enjoy overcoming obstacles of every description. Also, a little dash of imagination and enthusiasm is helpful.”

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Aboriginal Communities and the Mining Industry: Moving Forward in 2009 – by Juan Carlos Reyes

Juan Carlos Reyes is the organizer of the annual Learning Together conference and an aboriginal consultant with Efficiency.ca. He is passionate about human rights and works tirelessly to help improve the lives of Canadian aboriginal people.

What a difference a few months can make! If I had written this article six months ago and attempted to predict the outlook of the mineral resource industry, it probably would have been a much different picture. As we all know, the financials of the minerals industry are on a real roller-coaster ride, and currently it seems to be still coasting downward. This decline tends to make a big difference in the amount and quality of capital available to the start or continuation of new initiatives. This has particular significance for aboriginal groups as this is where we would typically see new negotiations taking place.

On the other hand, not much has changed for aboriginal communities across Canada — poverty levels are still running high, government negligence is still a major concern and education about the industry throughout most communities is nearly nonexistent. Add to this the amount of new information now available regarding the need to consult and accommodate, and the impact of the recent jail terms served by the Chief and council from KI First Nation, and you have a recipe for tough negotiations ahead.

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