Filed by Inco Limited
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: Falconbridge Limited
Commission File No. 1-11284
Inco Limited Commission File No. 1-1143
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 1
INCO LIMITED
MODERATOR: SCOTT HAND
APRIL 20, 2006
2:00 PM CT
Operator: This presentation contains forward-looking information
about Inco and the company after completion of the
purchase by Inco of all outstanding shares of Falconbridge
that are intended to be covered by the Safe Harbor for
forward-looking statements provided by the Private
Securities Litigation Reform Act of 1995.
The forward-looking statements are statements that are not
historical facts, words such as "expect," "feel,"
"believe," "will," "may," "anticipate" and similar
expressions are intended to identify forward-looking
statements.
These statements include, but are not limited to,
financial projections and estimates and their underlying
assumptions; statements regarding plans, objectives and
expectations with respect to future operations, products
and services and projects; statements regarding business
and financial prospects, financial multiples and accretion
estimates; statements regarding anticipated financial or
operating performance and cash flows; statements regarding
expected synergies and cost savings, including the timing
of the proposed combination of the two companies;
statements concerning possible divestitures; and
statements regarding strategies, objectives, goals and
targets.
Such statements are subject to certain risks and
uncertainties, many of which are difficult to predict and
are generally beyond the control of Inco that could cause
actual results to differ materially from those expressed
in or implied or projected by the forward-looking
information and statements.
These risks and uncertainties included those discussed and
identified in public filings with the US Securities and
Exchange Commission made by Inco and include, but are not
limited to, the possibility that approvals or clearances
required to be obtained by Inco and Falconbridge from
regulatory and other agencies and bodies will not be
obtained in a timely manner; the possibility that
divestitures required by regulatory agencies may not be
acceptable or may not be completed in a timely manner; the
possibility that anticipated benefits and synergies and
cost savings from the acquisition or related divestitures
cannot be fully realized; the possibility that the costs
or difficulties related to the (unintelligible) of
Falconbridge operations with Inco will be greater than
expected and that will of cash payments to shareholders at
Falconbridge who exercise their statutory (unintelligible)
rights in connection with the unexpected eventual
combination of the two companies; the possible delay in
the completion of the
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 2
steps required to be taken for the eventual combination of
the two companies; business and economic conditions and
the principal market (unintelligible) of the companies
products; the supply, demand and prices for metals to be
produced, purchased, intermediates and substitutes and
competing products for the primary metals and other
products produced by the two companies; production and
other anticipated - and unanticipated costs and expenses
and other risk factors relating to the metals and mining
industry as detailed from time to time in Falconbridge and
Inco's reports filed with the SEC.
The forward-looking statements included in this
presentation representing (unintelligible) of the date
hereof.
While Inco anticipates that subsequent events and
developments may cause Inco's view to change, Inco
specifically disclaims any obligations to update these
forward-looking statements.
These forward-looking statements should not be relied upon
as representing Inco's views as of any date subsequent to
the date hereof.
Readers are urged to carefully review and consider the
various disclosures in Inco's various SEC filings
including, but not limited to, Inco's annual report on
Format 10-K for the year and the December 31, 2005.
This presentation may be deemed to be salutation material
in respect of Inco's proposed combination with
Falconbridge.
Inco filed with the SEC on October 14, 24, 2005 with
registration statement on Form F-8 containing an offer to
purchase and to share, exchange takeover bid circular and
on each of December 15, 2005, January 20, 2006, and
February 27, 2006, and amendment to such Form F-8 in
connection with the proposed combination.
Inco has also filed and will file if required the other
documents with the SEC in connection with the proposed
combination.
Falconbridge has filed a Schedule 14D-9F in connection
with Inco's offer and has filed and will file if required
other documents regarding the proposed combination in each
case with the SEC.
Investors and security holders are urged to read the
registration statement and any other relevant documents
filed or that will be filed with the SEC when they become
available because they will contain important information.
Investors and security holders may obtain copies of the
registration statement and Inco's and Falconbridge's SEC
filings free of charge at the SEC's Web site www.sec.gov.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 3
In addition, documents filed with the SEC by Inco may be
obtained free of charge by contacting Inco's media or
Investor Relations department.
Ladies and gentlemen, thank you for standing by and
welcome to the Inco First Quarter Results conference call.
During this following presentation, all participants will
be in a listen-only mode. Afterwards, we will be conduct a
question and answer session.
And at that time, should you have a question, please press
the 1 followed by the 4 on your telephone.
Should you need to reach an audio operator, you may press
star-0 at any time.
As a reminder, this teleconference is being recorded on
Thursday, April 20, 2006.
It is now my pleasure to turn the conference over to
Sandra Scott, Director, Investor Relations.
Please go ahead.
Sandra Scott: Good afternoon and thanks for joining us.
This call is being Webcast on a live, listen-only basis.
Our first quarter results news release went out early this
morning and can be found at www.inco.com or by calling
Investor Relations at 416-361-7670.
Following this call, a PDF version of our remarks will be
available through the latest quarterly Webcast link on
Inco's homepage.
Joining me at Toronto office are members of Inco's
management team.
After opening remarks by our Chairman and CEO Scott Hand;
Bob Davies, Inco's CFO, will give you our financial
update.
Inco's President and COO, Peter Jones will discuss our
operating results and Peter Goudie, Inco's Executive Vice
President Marketing, will update you on nickel market
conditions.
I'll begin with a few housekeeping items.
First, we're including news media and members of the
public on this Webcast on a live, listen-only basis.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 4
Second, the Safe Harbor text appears on our Webcast
slides.
The third item is our definition of adjusted net earnings.
Fourth, all dollar amount are in US currency unless
otherwise stated.
(This) - all forward-looking statements exclude the impact
of Inco's offer to acquire Falconbridge unless otherwise
stated.
Given recent changes in Canadian Securities Legislation, I
should make a few additional points.
Actual results could differ materially from our 2006
outlook and other forward-looking statements we make.
Certain material assumptions were made in developing our
2006 outlook and other forward-looking statements.
We have filed the texts and slides used in this
presentation on SEDAR in Canada, and our press release
today and other filings on SEDAR contain additional
information on material factors, risks and assumptions
that could cause the results to differ materially from our
forward-looking information or statements, and were used
in developing our forecast or projections.
Now I'll turn the call over to Scott Hand.
Scott Hand: Thanks, Sandra.
I'll begin with the big picture, which remains a very good
one for Inco.
We continue to operate in a nickel market that is very
healthy. Demand is strong in virtually all areas. We're
making excellent progress in maximizing the
competitiveness and the productivity of our operations in
Canada and in Indonesia in order to fully capitalize our
great opportunity.
With Voisey's Bay on stream, our financial position is
strong, enabling us to achieve more low cost growth to
Goro and expanding PT Inco.
So with this in mind, I'll highlight six key areas. The
first is the Quarter 1 results.
Adjusted net earnings were $200 million with 90 cents per
share on a diluted basis, and that's above the first call
consensus of 88 cents a share.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 5
We have another quarter of consistent and reliable
production. We met or exceeded our February Q1 guidance
for nickel, copper, PGM production, as well as the price
premium on our nickel products.
Unit cash costs were slightly above our February first
half 2006 guidance at $2.50 to $2.55 a pound, and that's
largely due to a strong Canadian dollar and shutdown cost
for PT Inco that added 6 cents a pound to these costs.
For 2006 overall, we expect to beat or meet - meet or beat
our February nickel, copper, and PGM production, unit -
nickel cash cost and premium guidance, which is given in
our Q1 results.
Second, our Goro project. You have no doubt read or heard
about the recent extensive vandalism and blockade of
access at our Goro project in the New Caledonia.
As a result, in order to protect our employees and
contractors, we decided to temporarily stop work at the
site with about 200 of the 1,600 personnel still there.
We are satisfied that the authorities have taken the
measures required for a safe and secure workplace, and we
will be given a gradual restart of the project on April
24.
The first teams will be remobilized with the companies
that work at the power station, support, and the
earthwork.
Peter Jones was in New Caledonia when the incidents began
and he can confirm that people from all walks of life are
very disturbed by what happened at Goro.
Government and community leaders of every political
strife, business people, contractors, employees and
average citizens condemn the action.
They express strong support for the Goro project and its
importance to New Caledonia.
For Inco, security not only means a safe work site, but
also means building strong bond of mutual trust with the
community.
We remain committed to demonstrating our respect for
insensitivity to the social, cultural and environmental
concerns of the Melanesian people.
Inco has worked hard to earn local trust and support, and
we will continue to do so to ensure a successful project
for everyone.
At this point, the cost and schedule impacts of the recent
events are still being assessed. We are considering items
such as direct damage, repair and downtime costs, as well
as consequential expenses such as equipment, contractor
and personnel retention.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 6
And despite the disruptions at the site, other aspects of
the projects are proceeding.
For instance, we are progressing well in terms of
engineering in the building of 400 modules and
preassembled units in the Philippines. Engineering work on
Goro was about 72% complete at the end of the first
quarter and the way this estimate for the CAPEX for the
mine, process, plan and infrastructure was indicative of
the upper end of the $1.878 billion plus 15% costs range.
We are reviewing this in light of the disruption and the
definitive estimate will be provided later this year.
Turning to our existing operations, my third topic, we've
started formal negotiations in Ontario with a current
collective agreement covering about 3,100 unionized
employees, expires at the end of May of this year.
Our goal in labor negotiation is the same as in our
day-to-day operation and, that is, we aim to reach an
agreement that is fair to our employees while ensuring
that our business can be efficient and competitive in
world markets.
Fourth, long-term underlying nickel market conditions are
very favorable, including strong demand in stainless and
non-stainless markets and limited supply growth. And Peter
Goudie will provide a perspective shortly.
Fifth, our financial position remains very good. And we're
generating very strong cash flows and Bob Davies, our CFO,
will speak about this.
The sixth and the last area that I will highlight is our
friendly offer for Falconbridge. We continue to meet with
authorities from the US Department of Justice or the DOJ
and the European Commission, the EC, and we believe that
we have made progress in our efforts to obtain the
required clearances.
Our recent meetings and our on-going discussions are
focused on the terms of the remedy that these authorities
would require to address their competitive concerns about
the transaction.
We remain optimistic that we'll be able to reach usually
acceptable remedies with both agencies.
And once we obtained the remaining regulatory clearances,
we will proceed with our offer for Falconbridge. And the
acquisition will transform Inco. We will become the
world's largest nickel company and a leading copper
company. We will diversify the metals that we produced,
where we produce them and where they are sold with the
properties and the financing to grow.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 7
When we complete the acquisition, we will be well-prepared
to proceed and succeed with our integration plan,
achieving annual pretax synergies of $350 million by mid
2008 with a net present value of $2.5 billion using a
discount rate of 7%.
And these synergies are real, and they're uniquely
available to Inco and Falconbridge as we come together as
one company.
I've heard suggestions that this major undertaking could
be done by joint venture. That sounds nice in theory, but
it's not reality. Realizing the synergies in Sudbury will
require major changes in material flows in the Sudbury
basin, an important long-term commitment and investment
which we believe are only possible to the combination of
our two companies.
It took about two years of working together just to
achieve the copper refining agreement between Inco and
Falconbridge, which we entered into in mid-2005.
And very importantly, we need and want the backing of our
people, both unions and non-unions and we have it. The
skilled workers are very supportive of our deal and we
also have strong support from all levels of government in
Canada.
The new Inco means excellent value opportunities for
investors and even better prospects for our future.
Having gone to those points, I will now turn it over to
Bob Davies, who will review the Inco's first quarter
financial results and our financial position.
Bob?
Robert Davies: Thanks, Scott. Good afternoon.
Our adjusted net earnings for the quarter were $200
million or 90 cents per share diluted, that compares with
$242 million or $1.09 per share diluted for the first
quarter of 2005.
The reconciling items for Canadian GAAP earnings were
insignificant in this quarter.
The key differences year-over-year were stronger Canadian
dollar, which negatively affected costs, higher energy
costs and interest expense along with lower realized
prices for nickel. These were partially offset by higher
Inco source deliveries and higher byproduct credits.
Inco source and total nickel deliveries were up 9% to 130
million pounds as we produced more nickel to deliver into
stronger demand.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 8
The Inco premium was 11 cents a pound higher than in the
first quarter of 2005 primarily because of a smaller
unfavorable LME (unintelligible) in the first quarter of
2006 relative to the Q1 2005 number.
The 2006 first quarter LME cash nickel price average $6.72
a pound, down from $6.97 a pound during the first quarter
of 2005.
A reminder, our results are strongly leveraged to key
commodity prices and currencies. The LME cash copper price
averaged $2.24 a pound during the quarter, up from $1.48 a
pound in the first quarter of 2005.
Our selling price was $2 a pound. Since the sale of 46
million pounds of copper covered by the derivatives fixed
the maximum price realization to us at $1.54 per pound.
We have a further 17.2 million pounds of copper hedged in
the second quarter of 2006 at the maximum realizable price
of $1.54 a pound. We have no copper hedges in place for
the second half of 2006. On the screen, you can see the
balance of our commodity hedges for 2006. Our adjusted Q1
effective tax rate was 35% in line with our guidance.
For the full year 2006 adjusted net earnings, the current
first call consensus of 19 analysts is $3.86 a share.
That's based on a nickel price of $6.71 a pound and a
copper price of $2.02 for the year. The year-to-date
average nickel price is about $6.89 a pound and nickel was
trading today at over $8.25 per pound.
Based on the consensus price assumptions, we remained
comfortable with this first call EPS for 2006.
In the 2006 first quarter we generated $303 million of
cash from operations before a working capital increase of
$101 million. Our cash position was $751 million at March
31. As planned, we have drawn on our cash position to fund
our growth projects.
Our debt to capitalization ratio was 26% at the end of the
quarter compared to 28% at the year-end, giving us the
financial strength needed to continue to grow.
At the first call consensus 2006 LME cash nickel price of
$6.71 a pound, we should generate about $1.47 billion of
cash flow from operations this year before changes in
working capital and CAPEX.
This is a cash flow per share of about $6.60 assuming 223
million shares on issue.
At the year-to-date nickel price of $6.89 a pound, we
should generate $1.52 billion or an additional $50 million
of cash, about $6.80 cash flow per share.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 9
On a full-year basis, every 10 cents per share increase in
the nickel price - every 10 cents per year increase in the
nickel price, holding other factors constant, raises the
2006 cash flow from operations by $27 million.
Capital expenditures for Q1 were $337 million or $111
million more than in the 2005 period.
Increases reflected planned spending on Goro and higher
sustaining capital partially offset by the planned reduced
spending for Voisey's Bay.
Total 2006 CAPEX should be $1.82 billion this year before
partner and government funding.
Sustaining CAPEX will be about 315 million.
Depreciation and amortization should be 455 million this
year and about 510 million in 2007.
Net CAPEX funding needs will be about $1.5 billion after
the Girardin Act tax investor financing for Goro,
contributions from our Goro partners and government
support for Voisey's Bay.
CAPEX funding requirements are expected to decrease in
future years.
Now Peter Jones will review Inco's operations.
Peter Jones: Thanks, Bob.
During the first quarter, our operations continue to do
well. Our first quarter nickel unit cash cost of sales
after byproduct credits was $2.59 a pound, that was about
5 cents above for 2005 Q1 number due to higher Canadian
dollar, increased energy costs, greater spending on
supply, and higher employment costs; largely offset by the
favorable impact on cost of more nickel production, higher
byproduct credits and low volume of external feed.
Nickel unit cash cost of sales processing our own mine
production was $2.25 a pound for the quarter.
In the second half 2006, with the Voisey's Bay pipeline
(fault), our overall nickel unit cash cost of sales after
byproduct credit should be about $2.20 to $2.25 a pound.
For the full year, at consensus commodity price
assumptions, we expect nickel unit cash cost of sales
after byproduct credits to average $2.35 to $2.40 a pound
and for processing our own mine output, about $2.15 to
$2.20 a pound.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 10
In a period when all of us in the mining industry are
facing increased costs for energy supplies and other
inputs, our costs are going down.
We're realizing on our strategy to bring on new low cost
capacity and improve our operating position.
During the first quarter of 2006, we produced 135 million
pounds of nickel including 6 million pounds of total
material. This was at the high end of the range of our
February guidance, and they're 11% greater than in the
first quarter of 2005 due to increased production at our
operations including the total material.
Ontario's nickel output were 62 million pounds, 5 million
pounds above last year's first quarter due to Voisey's Bay
source material and very good performance of the nickel
refineries in both Sudbury and Clydach and Wales.
The commissioning of the new oxygen plant is going well
and along with the fluid bed roaster installation, set
stage for better production reliability and consistency.
We have a three-week maintenance shutdown scheduled in
July. Ontario output for the full year is expected to be
248 million pounds including metal from Voisey's Bay and
external feed.
We produced 38 million pounds of finished nickel from PT
Inco matte in the quarter, above the first quarter '05 due
to operational improvements and a steady power supply.
We should meet our 2006 goals of 167 million pounds of
finished nickel in PT Inco matte.
By building a third hydroelectric power facility, we plan
to increase PT Inco's production capacity by 33% from the
nameplate amount to 200 million pounds of nickel in matte
annually by 2009, while lowering annual cash costs by 10
cents to 15 cents a pound, and cutting energy supply
risks.
Major construction is expected to begin the middle of this
year. Manitoba's 29 million pounds of production for the
first quarter was in line with the first quarter of '05.
For the first time, we will operate for an entire year
without shutting down our processing facility.
Nickel output should be about 120 million pounds for 2006
including material from Voisey's Bay and external feed.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 11
During the quarter, we produced 34 million pounds of
nickel in concentrate at Voisey's Bay. Given the great
(ramp up), our estimates for 2006 is about 120 million
pounds of low cost, high-grade nickel concentrates.
During 2006, we'll produce about 83 million pounds of
nickel from Voisey's Bay concentrates with Sudbury and
Thompson reflecting lower production earlier in the year
as we fill the pipeline.
At our demonstration plant at Argentia, Newfoundland, we
successfully completed a 15-day continuous and integrated
operation campaign, and achieved 97% to 98% metal
extraction through the autoclave.
For Inco as a whole, we expect second quarter production
of 135 million to 140 million pounds including 5 million
to 10 million pounds of total material.
Our 2006 production forecast remains at 565 million pounds
of nickel including 30 million pounds of total material.
We produced 78 million pounds of copper products in the
first quarter, 4% ahead of our February guidance and we
should produce about 85 million pounds in the second
quarter including 50 million pounds of copper in Voisey's
Bay concentrate.
Our 2006 target is 340 million pounds including 65 million
pounds from Voisey's Bay.
Platinum-group metal production in the first quarter was
86,000 ounces above our 80,000-ounce guidance, but below
the 112,000 ounces produced in the first quarter of 2005.
We should produce 85,000 ounces of platinum-group metals
in the second quarter and we continue to forecast
full-year platinum-group metal production at 40,000
ounces.
Now I'll turn you over to Peter Goudie to update you on
the nickel markets.
Peter Goudie: Thank you.
Well, here we are again with nickel prices over $17,000
per tonne for the third time in three years. This is an
important point, and I'll come back to it.
The other times many market commentators describe prices
as being driven by speculation and fund activity; in other
words, very little relationship to the fundamentals. And
here we are again.
We have consistently believed that the fundamentals
pointed to strong market. Our key point has been that
nickel prices will continue to be driven by the need to
force demand in line with available supply.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 12
So here we are again. What we are seeing is the market's
fundamentals in action -- nothing more, nothing less.
This year has already exceeded our expectation. In
February, we highlighted four key drivers in the market in
2006, a strong rebound in global stainless production, a
tightening scrap market, exceptionally non-stainless
strengths, and limited nickel supply growth with low and
falling inventories. And hey, have you noticed that LME
stocks are down 23% from their February peak.
Each of these practices played an important in Q1 and
remained key to our view of 2006.
Stainless production growth has recovered faster than even
we expected. As a result, we have increased our production
forecast by more than a 4 percentage point to 8.2%.
We expect stainless production in Q1 to surpass Q4 2005 by
more than 11%, with strength across all markets.
And the story is more than just one of increased
production. The combination of a higher austenitic ratio
and lowest scrap ratio has boosted primary nickel demand
from stainless steel by more than 13% from the fourth
quarter of 2005.
Reported shipments in austenitic given indication of
market strength. German orders set an all-time record in
the first quarter of this year, up 50% from Q4 and 60%
from the prior year as consumers refilled depleted
pipelines and placed new orders.
Japanese order showed double-digit gains.
We had expected some improvement in austenitic stainless,
and in fact austenitic ratios seemed so far this year has
been even higher than we anticipated.
As a result, we have boosted our forecast for 2006 by a
full percentage point.
The scrap market is tightened in line with expectations.
Higher scrap prices, lowew scrap imports into the key
swing scrap market such as Korea, Taiwan, and China, and
reduced exports from Russia clearly demonstrate the
tightness in the market.
We clearly see our stainless customers are increasing
their nickel requirement; this is a fact.
Non-stainless demand remains at very good levels. We are
struggling to meet our customer request for additional
material in the plating and high nickel alloy market,
which continue to grow solidly, particularly in the energy
and aerospace segments.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 13
Supply growth remained consistent with expectations, all
producers are operating at or near capacity, and there is
downside risk to supply from potential labor or
operational disruptions. This leaves me concerns that
supply may disappoint us.
Our outlook for the rest of 2006 remained very strong.
There's always potential for second half weakness in the
markets, which occurred last year. But several factors
suggest that this risk is quite low.
Firstly, stainless inventories in the beginning of 2006
were well below prior year peak levels in a number of
areas. For example, inventories at US service centers
declined by 120,000 tonnes alone, and by 14% of the main
stocklist markets in China.
Secondly, industrial production leading indicators and
global industrial production improved during Q1, which
given the correlation with nickel demand will lead to
higher underlying nickel and stainless demand growth. At
the outset of 2005 on the other hand, the OECD leading
indicator had been falling for years.
Third, all of the new stainless production capacity for
2006 comes online during the second half of the year, more
than 3 million tonnes beginning in June.
Nickel requirements for new stainless capacity are higher
than for steady state operations as the supply change
feeding the stainless mill and the customer must be
filled.
Most analysts have not fully incorporated the impact of
this into their forecast.
In the medium term, nickel and stainless demand will
benefit from several trends including continuing strength
and higher nickel alloys and most importantly, the fact
that we are entering the sweet spot on the Chinese
stainless consumption curve.
China is already a substantial stainless consumer at over
4 kilograms per capita. And this number will continue to
grow at high double-digit rate from an increasing base.
China should duplicate Japan's performance and reach 9
kilograms per capita by 2009. This growth alone is
equivalent to about 6 million tonnes of stainless steel or
180,000 to 240,000 tonnes of primary nickel.
I hope Goro, Ravensthorpe, Onca Puma and Vermelho are all
developed on time. The markets will require all of this
nickel.
As well, all the new Chinese stainless production capacity
being added in the next few years will be necessary. There
will, of course, be fluctuations in demand over a few
quarters at various times. But the market will need all of
this stainless capacity by 2009.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 14
Prices for many metals have increased sharply during the
last 12 months, but nickel prices and austenitic stainless
steel moved higher earlier in the cycle than almost every
other metal.
This is the third time in three years that nickel prices
have been above the $17,000 per tonne levels, back to my
opening point.
In the first quarter of 2003, I said that nickel prices
would have to rise to force demand in line with available
supply through substitution. Well, this has been very
effective. And more than a hundred thousand tonnes of
nickel demand is being offset by substitution.
In other words, substitution at these price levels has
happened, but price has been here before and the market
has worked. Additional substitution effective in reducing
nickel demand will occur only when nickel prices rise to
new levels in the cycle.
All prices remained where they are for a while longer.
Global industrial production growth in 2006 on nickel
demand growth is expected to exceed 6% compared to supply
growth of 3.5%.
Demand substitution will still be required over the next
few years to keep the market in balance.
But the question is at what price.
Austenitic stainless steel, one of the world's most useful
and versatile materials is now as competitively priced as
it ever has been.
Stainless steel prices in the past quarter were less than
half those for copper and lower than aluminum. When nickel
prices first crossed the $17,000 per tonne threshold in
January 2004, they were six times higher than copper and
nine times more than aluminum prices.
The second time this nickel price level was breached in
May 2005, nickel prices were five times copper prices and
almost 10 times aluminum.
Today nickel is less than three times copper and less than
seven times the aluminum.
The substantial improvement in relative price
competitiveness will have a positive impact on both nickel
and stainless demand. And it will also require a more
substantial increase in nickel prices or a more sustained
period at current price levels to achieve the substitution
required to bring demand in line with supply.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 15
Do not misunderstand one thing. I will repeat what I had
said many times over the past few years. This price of
market means high volatility in prices.
In conclusion, 2006 begun even more strongly than we
anticipated. Although, our view was seen at the time as
overly optimistic by many commentators.
This nickel market is about fundamentals. The fundamentals
are real. The fundamentals are strong. So as I said at the
beginning of my comment, here we are again.
With that, I'll pass it back to Scott.
Scott Hand: Thanks, Peter.
I'll summarize by reviewing the highlights.
We met or exceeded our target for production in price
premiums and our operations had an excellent quarter and
we're striving to produce every pound of nickel that we
can.
So we'll begin a gradual restart of the Goro project in
April 24, and we are working to get the project back on
track as soon as possible.
Voisey's Bay, Goro, and the PT Inco expansion most
significantly raised our low cost production and increased
Inco's earnings and cash flow.
And as you just heard from Peter Goudie, here we are again
-- the fundamentals for the nickel market continue to be
very strong.
Our financial position remained strong and our cash
generation is impressive, particularly at the high nickel
prices we're experiencing right now.
Finally, we're looking at a great future with our
acquisition of Falconbridge, the new Inco will be the
leader in nickel and a great copper company with all
resources necessary to grow and deliver value to our
shareholders.
With that, we would welcome your questions, and could we
have the first question?
Sandra Scott: Could we have the first question, please, George?
Operator: Certainly.
Ladies and gentlemen, if you'd like to register a
question, please press the 1 followed by the 4 on your
telephone. You will hear a three-tone prompt to
acknowledge your request.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 16
If your question has been answered and you would like to
withdraw your registration, you may press the 1 followed
by the 3.
If you are using a speakerphone, we ask that you please
lift your handset before entering your request.
One moment, please, for our first question.
The first question is from the line of Hongyu Cai with
Goldman Sachs.
Please proceed with your question.
Hongyu Cai: Good afternoon. Congratulations on the great quarter.
My question is related to the interest expense. Is that to
include Voisey's Bay's impact into the result this
quarter? I just wonder is this the level we should expect
going forward.
Scott Hand: Could you repeat that again, Hongyu?
Hongyu Cai: My question is about interest expense. (Is that to)
include Voisey's Bay in the report this quarter. I just
wonder is this the level we should expect going forward.
Scott Hand: Bob Davies, could you handle that?
Robert Davies: Sure.
The interest expense does include the interest on Voisey's
Bay. It was capitalized up until completion of the
project, and it's now being expensed.
On a go-forward basis, the interest that is capitalized
will increase as we increase our spending on Goro
throughout the year. But the level of interest expense
from the Voisey's Bay project now would not change from
what you saw in the first quarter.
Hongyu Cai: Okay. Thank you.
Operator: And our next question is from the line of David Charles
with GMP Securities.
Please proceed with your question.
One moment, please.
Mr. Charles, your line is open. Please proceed with your
question.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 17
David Charles: Yeah. I was just wondering if there has been any change in
your timetable for Goro given the problems that you've
had. I know officially you've said there is no change. But
I'm just wondering that, you know, given that you'll
restart slowly on April 24, is there any reason why we
would expect that the project will be delayed and if so by
how long?
Peter Jones: David, it's Peter.
Obviously, it's going to have some impact, but we need to
do some work to determine what the impact is because it's
by no means just the length of the shutdown because we
continue to do work in the yards in the Philippines where
we're building the modules. So, all of the things offsite
has gone ahead normally.
So, you know, once we're back, we'll turn ourselves to the
schedule and we would anticipate probably in the third
quarter issuing our definitive project cost and schedule.
David Charles: Would you just repeat what the current plan is, I mean,
assuming no change?
Peter Jones: Well, if there was no change, we'll be looking starting up
at the end of 2007 and bringing on all three autoclaves by
second quarter of 2008. And then a ramp up, so we're 70%
of production by the end of the first year, 90% of
production by the end of the second year after startup.
David Charles: And so, we'll just to wait then till Q3? And do you think
you'll be in a position during the third quarter to get,
you know, you mentioned in your comments today that you
will give a definitive number on the CAPEX. Do you think
when you'll have a better number on the timing, you'll
also be able to be in a position to give a number on the
capital expenditures?
Peter Jones: Yeah, that's our plan, David, to do the whole thing
together.
David Charles: And is it true to say that it's more likely to occur just
like this at the end of the, you know, with the quarterly
meeting in the third quarter?
Peter Jones: Yeah. We're - that would be, you know, the second quarter
figures would be out in July. And I think that would a
pretty tight squeeze to have it done by that early in
July.
David Charles: Okay. So it'll likely be somewhere in August or
September?
Peter Jones: That's correct.
David Charles: Okay, thank you very much.
Operator: And our next question is from the line of John Hill with
Citigroup.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 18
Please proceed with your question.
John Hill: Very good, and congratulations on soldering through to a
strong result everyone.
Scott Hand: Thanks, John.
John Hill: I was wondering if we could switch to a different southern
hemisphere location and talk about PTI for a moment. If
you just update us on number one, the forestry permits;
number two, lake levels, the dust capture equipment and
whether we are still running occasionally up with those
very high rates around 180 million pounds per year, even
though those are only temporary?
Peter Jones: Good. John, that's pretty widespread.
Let me deal with the lake levels first because that is
what affected our production in the first quarter of 2005.
And I'm happy to say that in the fourth quarter of '05, we
were getting pretty good rainfall and that's continued.
So, lake levels are already at the same level as the
highest they were last year. So that bodes pretty well for
us, so pretty competent (unintelligible).
In the third quarter, we've actually had a number of
shutdowns both to prepare for the gas handling, so that we
can improve our dust capture. As you know, we're going to
put a second furnace with a full dust capture by late this
year, probably November, December. And then the final two
will be done in August and September of 2007.
So that's going ahead. We'll also at the same time upgrade
in the transformer, so we can put more power into the
furnaces and this is part of our plan to move towards 200
million pounds.
So I'd say overall it's going very, very well. We have
seen when we've had all four furnaces online. So it's high
level. It's 180 million pound plus on an annualized basis,
and absolutely no reason to believe that we won't be where
we say we're going to be.
Scott Hand: (Unintelligible).
Peter Jones: Oh, in terms of the forestry permits, that's actually
going pretty well. I took out saying shortly because each
time I've said that, somebody else would come up and slow
it down.
And as you know, these things happen in Indonesia from
time to time, but things are actually moving quite well
and the - I will say the minister is very much engaged in
this at this point in time. So, that's pretty hopeful. I
would hope that in a couple (weeks, yeah).
John Hill: Great and congratulations, again.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 19
Peter Jones: Thank you.
Scott Hand: Thanks, John.
Operator: And our next question is from (the line of) Terence
Orstlan with TSO and Associates.
Please proceed with your question.
Terence Orstlan: Thanks.
We've seen a quite a variance in Sudbury in (grade) of
Falconbridge in the last quarter or so. Can you tell us
about your quarterly or at this annual (grade), expected
year? Any surprise we're going to see that, because your
higher production comes from Voisey's Bay and all, but
your (grades) will be sustainable all throughout the year.
Peter Jones: Yeah. Actually, Mark Cutifani is here, so why don't I
have him answer that.
Mark Cutifani: Yeah. Thanks, Peter.
Yeah, the (grades) are being pretty consistent, Terry,
around the 1.3% (for the month), so we see that it's being
consistent.
And the addition of Voisey's Bay actually helps our
concentrate (grade). So, we're looking at doing a little
better on our smelter output as a consequence.
Terence Orstlan: Okay. And your production cost - because in the second
half that's (previously) due to the higher PGM production
and also less of a hedge program, correct?
Mark Cutifani: It's really Voisey's Bay, Terry. As we fill up the
pipeline, we'll be having more production from Voisey's
Bay.
Terence Orstlan: Okay, okay. And a question to Peter Goudie on the...
Scott Hand: I guess, Terry, a little bit of an editorial there. You
know, I think it's unique in the mining industry to see a
company where your cost in this environment, they're going
down rather than up and that's we're going to be
delivering during the year 2006. Our cost will be going
down. That's pretty unique.
Terence Orstlan: (Now), given the circumstance of the Canadian dollar
energy cost, it is pretty unique, but you're also getting
benefit of the higher PGM in the second half, aren't you?
Scott Hand: To some degree, but I think as Peter Jones said, it's
really...
Terence Orstlan: Yeah.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 20
Scott Hand: As we expected that - we're pushing that Voisey's Bay
material right through the pipeline is coming out, and
that's terrific.
Terence Orstlan: That's great.
And just in a market question.
Peter Goudie, can you talk about the non-stainless on the
alloy, special alloys, how sustainable the markets are,
please?
Peter Goudie: Yes, certainly.
Terry, on the aerospace on the high nickel alloy is going
in aerospace. There's really no much change from the more
detail that I gave when I spoken Sudbury. The build rate
of aircraft is still very, very good.
If you talk to the people in the high nickel alloy (bid)
business, if you talk to the aerospace companies
themselves, this cycle - everybody says, we've still got a
few more years with the build rates of aircraft very -
that's very high.
And as you know, Terry, I do a lot of travel in China or
any in Asia and all I can say is the planes are always
full and they need a lot more out there. So, that is going
well. The non-stainless side continues to be very, very
good.
Terence Orstlan: All right. Thank you.
Scott Hand: Thanks, Terry.
Operator: And our next question is from the line of Kerry Smith with
Haywood Securities.
Please proceed with your question.
Kerry Smith: Thanks, operator.
A couple of questions for Bob. Bob, in 2007, could you
give us some idea of how the copper hedges that you have
in the - that you reported in the annual and that's Page
49 or something, just how they might come out over the
course of that year. Would they be kind of split evenly
quarter to quarter, or do we see more say in the first
half?
Bob Davies: In the '07 year, I think they're spread across the year.
Kerry Smith: Okay. So we could just kind of divide it by four and
that's a good guess then?
Bob Davies: (Unintelligible), yes.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 21
Kerry Smith: Okay. And can you give us any guidance on what the total
interest expense might be for 2006 now?
Bob Davies: You know, off the top of my head, I'd give you a number,
probably roughly in the $60-million range or between 55
and 60.
Kerry Smith: Okay, okay, great.
And, Peter Goudie, could you comment at all on what you
think the impact of the commodity funds or the, you know,
the speculators in the copper, the nickel markets may or
may not be? You talked about it but just the fundamentals
of the market. But what do you think the impact is of the
speculators out there?
Peter Goudie: You know, it's quite obvious that there is money from the
funds in the (institutional divestures) and importantly I
think from the pension funds. Now, recognizing the
fundamentals and very certainly that money in there
because I think it is driven by view of what the
fundamentals are.
And I think as I've said in the prepared text that the
fundamentals has remained particularly strong going
throughout the rest of '06 and going into '07. There is
fund money in there, but I still believe the market is
being driven by the fundamental.
Kerry Smith: Yeah, okay.
And, Scott, this one last question, could you - I may not
get the pronunciation right, but this group in - yeah, at
Goro called Rheebu Nuu, could you just explain to me who
they are and how many people they represent, et cetera, et
cetera?
Scott Hand: I'll take the first stab and I'll let Peter Jones follow
it up. It's a pretty small group, a very small group. And
they are a group that has been raising questions about the
project consistently now for some period of time. We never
anticipated nor did the (French state) nor did the New
Caledonia government anticipate that they would move to
vandalism and those sorts of thing.
But it's a pretty small group, and I think it's fair to
say, Kerry, that the, you know, if you're at our annual
meeting that you have seen pictures that Peter Jones put
up in his remarks to show that the outpouring of public
support condemning the actions of this Rheebu Nuu group.
And it's not just, you know, the people working on the
project of which there are many, it's all across New
Caledonia whether it'd be - including Melanesian people,
including many of the labor unions, including contractors,
so that the group is pretty small. And the reaction that
people have taken against (unintelligible) has been very
strong.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 22
At the end of the day, that's very encouraging. But at the
end of the day, we have to and we will work harder to be
sure that we explained any concerns that people may have
regarding the project in New Caledonia. But it's a small
group.
Kerry Smith: And when you say small, how would you - I mean, in terms
of numbers, is that like less than 50 or...?
Peter Goudie: Yeah, I'd say actually, Kerry, probably somewhere between
20 and 30 is the core group. But of course, anytime people
have a demonstration out there. There's always more people
join in.
Kerry Smith: Right.
Peter Goudie: With a lot more people in the demonstrations pro Goro, I'd
say probably (eight or nine to one).
Kerry Smith: Uh-huh. Okay, okay. That's great. Thanks very much.
Operator: And our next question is from the line of Lawrence Smith
with Blackmont Capital.
Please proceed with your question.
Lawrence Smith: ...they will respond by July 12, but you...
Scott Hand: Larry, Larry, we didn't get the first part of your
question.
Lawrence Smith: I was asking about your friendly offer for Falconbridge.
Scott Hand: Yeah, uh-huh.
Lawrence Smith: And the expiry date of your offer is June 30, and you had
indicated that you will respond by July 12. And the
implication of that they may respond before July 12?
Scott Hand: Where we are Larry is as that, as we've indicated with the
Department of Justice, we would expect to get that done by
the end of April?
Lawrence Smith: Yeah.
Scott Hand: And then on the EC, (unintelligible) followed a full
process, why then they would go until the end of June or
early July, whether or not it will be sooner than that
remains to be seen.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 23
I think for the time being, you have to assume that it
will be in the time periods that we have indicated. And if
we have any new information, of course, we'll disclose it
as soon as we can.
The only I can say is, I indicated in my remarks; we are
focusing on the remedy as both places, and so that may
affect the time schedule. But for the time being, I would
say to you that you should just stick with the dates that
we've got right now.
Lawrence Smith: Well, I guess what I'm asking is, you've got a June 30 to
expire for your offer and (everything) July 12, I mean, is
it conceivable they would respond before July 12 or do
they automatically go to July 12? And therefore, meaning,
you have to extend your offer.
Scott Hand: Well, if they did go only to July 12, we will. But as - so
there's always a possibility, and you make a judgment here
that accelerating by a few weeks or a couple of weeks is
reasonable to assume, and that's why we picked June 30.
Lawrence Smith: Great. Thank you very much.
((Crosstalk))
Scott Hand: It's very hard to be quite decisive in that one at this
time.
Lawrence Smith: Okay, thank you.
Scott Hand: Okay. Thanks, Larry.
Operator: Our next question is from the line of Onno Rutten with
Scotia Capital.
Please proceed with your question.
Scott Hand: Onno?
Operator: Yes.
Mr. Rutten, your line is open. Please go ahead.
Onno Rutten: Good afternoon everyone. Can you hear me?
Scott Hand: Good afternoon.
Onno Rutten: Okay.
First of all, a question for Bob with regards to the
depreciation, 68 million in the quarter. The annual
guidance that was given of 455 million, does that still
stand?
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 24
Bob Davies: Yes. The annual guidance still stands. The depreciation
for the first quarter, if you average the full year
guidance quarter by quarter, the first quarter is lower
simply because the way we deal with the Voisey's Bay
depreciation and amortization about the project cost and
the acquisition cost, the cost of production get hang -
and as a consequence, it hangs up in inventory until the
material is actually sold.
So in the second quarter, well, the first quarter from
Voisey's Bay, we had only a couple of million dollars of
depreciation. It found its way in the cost of sales. In
the second quarter, it will be closer to 60 million.
Onno Rutten: Sixteen, 1-6?
Bob Davies: No, 6-0.
Onno Rutten: Six-zero.
Bob Davies: Yes.
Onno Rutten: And then going forward?
Bob Davies: And going forward about the same. The annual depreciation
for Voisey's Bay is about 235 million with the project and
the acquisition combined. And so, 60 million a quarter is
about what you'd expect on average going forward.
Onno Rutten: Okay, thank you.
And in that number, over what base do you depreciate
actually the entire acquisition and (fraction) cost? Is
that over the reserve or with the resource?
Bob Davies: Over the existing reserve.
Onno Rutten: The existing reserve? Okay, thank you.
And then a question for Peter with regards to Goro.
Obviously, you're suggesting to go back into the fields
next week. What is giving you, let's say, the confidence
or the assurances with regards to the situation that you
actually can make that decision?
((Crosstalk))
Peter Jones: I'm sorry.
Scott Hand: Sorry, Onno, could you repeat that again?
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 25
Onno Rutten: With regards to going back into the fields in Goro next
week.
Man: Yeah.
Onno Rutten: What is giving you the confidence and the assurances to
send people back in the field? Has further discussions
taken place, or is it purely a matter of enhanced security
on the site?
((Crosstalk))
Scott Hand: (Unintelligible) (I have to answer) that question because
Peter has just left for the airport to go to New
Caledonia.
Onno Rutten: Okay.
Scott Hand: But I'll give you the answer.
And the answer is that we - quite clearly, we've had
discussions with the French State, which is responsible
for security in New Caledonia.
We've also had ongoing discussions with the President of
the South Province of New Caledonia and with other people.
And by seeing what has been happening in terms of clearing
(box) blockades and things like that which had been
cleared, it's all sorts of things that we've looked at to
have the confidence to go back to work.
Onno Rutten: Okay. And further discussions with the interest groups,
are those scheduled, or will those not take place in the
future?
Scott Hand: Well, what we've had is we had a roundtable, which was set
up in New Caledonia, in the office of the High
Commissioner, who's the representative of the Governor of
France in New Caledonia, that being a French overseas
territory.
And the roundtable discussion was intended to address any
concerns or to explain better any concerns that people
might have, and it was attended by virtually every
representative in New Caledonia.
The people associated with the Rheebu Nuu, which I
referred to, walked out of it. So, they don't seem to be
interested in dialogue right now, but everybody else is,
and so that will continue.
And of course, as I said in my remarks, this is an ongoing
process. It could be - to be in good and effective
communication with all people, and especially the
Melanesian group that live around the plant.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 26
And, you know, this is something that we have to work on.
We have to explain better. Not suggesting that because we
have to do that, that there are big problems that are not.
But it's our job to explain what is an unprecedented
industrial installation being put in New Caledonia. And so
continually, we're doing new things that require good
explanations to the people there and we will do that.
Onno Rutten: Okay, pretty well. Thank you.
And the last question quickly on the copper. That
production was obviously quite a bit higher than the
sales. Is this concentrate from Voisey's Bay essentially
in the pipeline?
Man: Yes, it is because (unintelligible), we produced copper
concentrate under the arrangements we have with our - with
the Impacts and Benefits Agreement with the Inuit. We are
now allowed to ship copper during the winter month. And
therefore, when you have a freeze up in December, we will
be shipping out that copper until June.
Onno Rutten: Okay, very well. Thank you.
Scott Hand: Thanks, Onno.
Operator: Our next question is from the line of (Wayne Hotwell).
Please proceed with your question.
Wayne Atwell: Thank you.
Most of my questions have been answered.
In the case of Goro, what is the critical path,
construction, projects or factors that you might outline?
And are they being delayed or things that they catch up
being delayed?
Scott Hand: Well, the critical path is a power plant. And of course,
that's - they're back to work on that right now. That's
being build by a company called Prony Energies.
The other critical path is the support installation
because we have all the required barges and those sorts of
things to do that. They are there and we would expect to
get back to work on that early next week.
So I think, that assuming that we are able to scale up,
(Wayne), as we've indicated in April 24, we should be able
to maintain the critical path assuming, you know,
everything moves smoothly going forward.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 27
But as Peter Jones indicated before he left, we have to
reassess whether this delay, or shutdown or cut back for
the last couple of weeks, how that will affect the
schedule.
But Peter also pointed out lots of activity continues
offsite and lots of things around ships on their way to
site. So it's hard to tell what the impacts of that will
be right now. But we are focusing very much on the
critical path items.
Wayne Atwell: And this protest group, have they expressed an opinion on
Koniambo, or is that not something that's really been an
issue?
Scott Hand: No, I don't believe that they have. They really focused on
Goro at this point. The Koniambo project, as you know, is
much earlier on in terms of where they are. It has
vested - the property has vested with the north province
and the company (SMS fee) there.
But right now, they're really in a planning stage and
doing the engineering and working on permits. So it's
earlier days for that. So I've been - there hasn't been
any impact on Koniambo project that I'm aware.
Wayne Atwell: Right. But I was thinking more - have they expressed an
opinion that they would prefer not to be builders. (It's
an) acquired issue with them?
Scott Hand: Oh, no, I think that the (contra) I think to Koniambo
project is will receive universal support in New Caledonia
to rebalance the economic development in New Caledonia to
have economic development in the north, and the Koniambo
project is very fundamental to that objective. And so,
there's strong support for the Koniambo project in New
Caledonia.
Wayne Atwell: Okay. And then lastly, Falconbridge, if you get the
European approval when you hope - and if I'm not mistaken
then that requires a shareholder vote, so are we looking
at - what are we looking at, maybe late July or early
August, what's the soonest you could close on this
assuming the European (take) the maximum amount of time
allowable?
Scott Hand: I never like to (correct), (Wayne), that will. But
there's no shareholder vote required.
Wayne Atwell: Oh, okay.
Scott Hand: So once we received the approvals and we're clear to move,
why then we would be able to make the formal offer and
take up the shares and if you assume something at the end
of June, we would be looking to get the 66-2/3, which we
want - which we must get.
And I think we would complete that by, you know, by the
end of July and then it moved to the second stage where
you would have a shareholder vote for the second stage.
That's the shareholder vote you may have been thinking of
where we would -
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 28
where we can vote the 66-2/3 and put the new two companies
truly together. And that would take another month or so, I
believe, a couple of months.
Wayne Atwell: So you could get the first 2/3 by the end of July and the
whole transaction might be done early September?
Scott Hand: That's generally about right, (Wayne).
Wayne Atwell: Thank you.
Scott Hand: Okay.
Operator: Our next question is from the line of Victor Lazarovici.
Please proceed with your question.
Victor Lazarovici: Thanks.
I wonder, Bob, if you could clarify the accounting for the
startup of Voisey's Bay.
If - I understood, you answered (unintelligible) question.
A significant amount of revenue plus cost plus
depreciation are hanged up in the pipeline or booked to
inventory in the balance sheet. And other items such as
interest that you had been capitalizing are actually
hitting the P&L fully in the first quarter, is that
correct?
Bob Davies: That's correct, yes.
Victor Lazarovici: Okay. So obviously in the second quarter you expect to
essentially write that imbalance and get paid for the
project, and I'll set some of that interest impact.
Man: Yes.
Victor Lazarovici: Copper hedging; could you explain why you are hedging
copper when it's a small portion of your product mix and
market seems to have (waned)?
Bob Davies: Sure, let me...
Scott Hand: Maybe I can give an introduction because that was done
before Bob became the Chief Financial Officer.
Victor Lazarovici: I didn't ask Bob for a personal explanation.
Scott Hand: No, no, but I think you have - I'll speak a little more
strategically here.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 29
We did that at a time, Victor, when we were looking at
lower metals prices obviously and building these projects
and looking for various ways to do risk management.
And hedging our non-primary metal, that being nickel, and
doing things like copper and PGMs, which we have done
before on a number of occasions. We did the copper hedges
on that basis. Our policy has been and will continue to be
to never hedge nickel, but we will always look at in the
past to hedge copper and PGMs.
I would say to you going forward, assuming we are
successful and I assume that we will be to acquire
Falconbridge why we would not be hedging copper, I suspect
we wouldn't be hedging anything at that point because we
are then a company that has a much wider base in terms of
operation in metals.
And therefore the risk management aspects of hedging are
not as important as they would have been in the past
because; one, we're bigger company and on a relative basis
the types of expansion and the cash flow that we're
putting at risk is not as great then as it was when we did
this (fact) last year.
So we did it for risk management purposes, when we were
looking at lower metals prices; hindsight is always a good
thing to have. But that was the reason we did it.
But right now given the very high metals prices that we
have and the fact that we're sort of halfway through our
biggest capital standing which is this year, we see no
need to hedge anything at this point and we're not doing
anything at this point.
So that's my overview and then I'll let Bob add to that in
anyway he would like.
Bob Davies: There are no gaps left to fill there.
Victor Lazarovici: It just seems to me that since copper is not your primary
commodity that the protection hedging offers is probably
not enough to protect you from a collapse in nickel prices
for instance.
Scott Hand: No, it's not. It's really - it's an incremental risk
management. If you look at the kind of things that we do,
you know, look at Inco, we were - a couple of years ago,
people ask me, do you think you're big enough to do Goro,
Voisey's Bay (and expansion) to PT Inco. And I have to
tell you that some of the gray hairs that are on top of my
head that exist today were the result of the fact that we
went ahead with that.
When you do that sort of a thing and we were determined to
succeed on this and we are, you do look at ways to various
different ways not to do everything, not - you have to
look at a number of things to risk manage. That was one of
them. It wasn't the only one.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 30
The other one we've done and we've more success, I
believe, is that we've been hedging the capital cost in
terms of currency. And, you know, I think we hedged on
Voisey's Bay. We hedged about 85%, I think, of the
Voisey's Bay Canadian dollar and thank god we did.
Victor Lazarovici: Uh-huh.
Scott Hand: Because they're hedging - protected us a hell of a lot if
we (had them). Can you imagine, we've been unhedged in the
Canadian dollar given of what happened there?
Victor Lazarovici: Yeah.
Scott Hand: Likewise, we've done the same thing at Goro. We've hedged
significantly the Australian dollars to our benefit, the
Euro.
And so there are number of risk management actions that we
took at that time when we are in a much more risky
position then than we are today and the copper hedging was
just one part of it.
And you're right, you know, you would say, well, geez,
(off to small earnings). We're not really hedging nickel.
We're hedging a risk here in terms of our cashbook.
Victor Lazarovici: Okay. The last question I guess goes back to the Goro
situation.
A shutdown of a project of that size for a relatively
small protest and blockades seems an exercise in excess
caution perhaps. Are we misunderstanding what actually
went on there or are you just that conservative?
Scott Hand: Well, we're conservative because at the end of the day,
the safety of our employees is paramount. And we're not
going to compromise anything for the safety of our people.
And so when you have a blockade, where people are
destroying things and sort of thing, you're obviously
concerned about people's safety.
And at the end today, maybe we're overcautious, but I
would say to you, we will never compromise people's
safety. And I think that's the right way to run an
operation even if it costs us some money.
Victor Lazarovici: And I guess corollary is that, it doesn't take much to
stop the project then?
Scott Hand: Well, you're probably right, but the situation has changed
significantly since then. And the reason I say that is
that we're as perhaps the French day has not been as
active in enforcing this type of disobedience. I can tell
you they're doing it now. And so it's a very different
situation today than it was three weeks ago.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 31
Enforcement is not the only thing, however, as we've said.
And I've said before in this call, it's not just being
sure that we get proper enforcement of law and order by
the French State for which they're responsible but also to
be sure that we do our job to maintain the best dialogue
so it makes it very difficult for people - a small group
of people to do what they did in the last few weeks. And
we will be doing that.
Victor Lazarovici: Uh-huh. Thanks, Scott.
Scott Hand: Thanks, Victor.
Operator: Our next question is from the line of David Martin with
Deutsche Bank.
Please proceed with your question.
David Martin: Yeah, thank you much. I just had that one remaining item.
I wanted to go back to Peter Goudie's comments
specifically on the austenitic ratio, which you see
increasing in 2006.
This contrast a little bit with some of the trade reports
I've seen which, you know, suggest companies like (Posco)
and maybe some others are going the other way.
Can - I guess, first of all, tell me that maybe some of
those facts I saw are false or maybe give us - give me
some examples of some other producers increasing the
ratio?
Peter Goudie: It's a difficult one to answer because I'm certainly not
in a position to disclose the specific changes that
particular stainless steel companies themselves are making
in their production.
David Martin: Uh-huh.
Peter Goudie: So I don't want to comment on any specific stainless steel
producer.
But what I would say is we have had enough discussions
specifically with stainless steel companies. We understand
what their - what changes they are doing. We do see quite
obviously that there is an increase in 300 series compared
to where their plants were even as recently as a couple of
months ago.
David Martin: Uh-huh.
Peter Goudie: That there has been a switch. There is an increase in
300. There is an increase in austenitic. And even within
the austenitic, there's an increase in the average nickel
grade of the austenitic as (it led) 200 series as well.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 32
And we're seeing that with a number of our customers, but
sorry I really can't disclose the specific information
about the production actions plans that different
companies have.
David Martin: Okay, that works. Thanks.
Operator: And our next question is from the line of Raymond Goldie
with Salman Partners.
Please proceed with your question.
Raymond Goldie: Thank you my question has been both asked and answered.
Scott Hand: Okay, Ray.
Operator: And our next question is from the line of Jim Lennon with
Mcquarie Securities.
Please proceed with your question.
Jim Lennon: Yes. Hello, gentlemen. I just like to ask a question
about substitution.
Peter Goudie said that further substitution will be
needed. Have you also mentioned that the 200 series
manganese containing stainless steel is sort of being
backed away from - where is...
((Crosstalk))
Man: (Come again).
Jim Lennon: Where do you expect that substitution come from?
Peter Goudie: I think the substitution, Jim, will continue to come from
those areas where it has been in the past, and it will eat
more into those same types of areas where the nickel or
the nickel containing product is not essentially required
for its properties, especially in the decorative area
certainly in the nickel plating area.
We're seeing continued substitution. And it's not caused
only by the nickel prices. Substitution in plating is
being caused as much by the price of copper and zinc and
other metals as it is in fact by the nickel price.
It's not complete substitution. We're seeing, for example,
a number of plating operations. Plating with a layer of
nickel that's thinner that they would have plated for in
the past, are still nickel plating, but not consuming as
much nickel as they would have in the past.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 33
Those areas that are primarily decorative that we would
expect to see it, offset by very strong growth even in the
plating area, where plating is done for functional
reasons, for example, in the electronics industry. So
there will be substitution in plating. There will be some
substitution in stainless steel. But there is this bounce
back in stainless steel (with the) way we're seeing.
That's the point that I tried to make in the prepared text
that I need to get - more substitution is going to be
required. The price is going to have to be pushed a bit.
Jim Lennon: Okay.
And to what extent is the substitution permanent or is it
just temporary while the nickel price and nickel
availability remains a problem?
Peter Goudie: Jim, I think it's the same as what we (saw) in - back in
1988 and '89 when the price went high before. We saw a
substitution at that time. And I think most analyst would
agree that in the years immediately after that when the
nickel price came down, a large part of that came back
because certainly on the decorative side, we still do get
this weighing between the additional costs for getting a
nice nickel or chrome finish against the cost to, well,
(collect there are) to compete with that.
There is a certain amount of nickel that's consumed, but
it does come down to a price question as the price (posts)
that demand, which you've lost, will come back. (It
wanted) to all come back, but always it's a substantial
part of that will come back which give you a buffer.
It means that as the price falls, you pick up demand that
was not there at the higher price (available). And that
means that gives you some protection as far as where is
the downside when you begin to test (them onsite).
Jim Lennon: Okay, thank you very much.
Operator: Our next question is from the line of Greg Barnes with
TD Securities.
Please proceed with your question.
Greg Barnes: Thank you.
Scott, you've mentioned the (unintelligible) you are
discussing remedies of the regulatory authorities now. Are
there any remedies apart from the sale of nickel being
discussed?
Scott Hand: No, we're discussing the sales of nickel, Greg.
Greg Barnes: Nothing else is on the table?
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 34
Scott Hand: Excuse me?
Greg Barnes: Nothing else is on the table?
Scott Hand: No.
Greg Barnes: Second question; given the potential for labor action at
Sudbury at the end of May, are you beginning to build some
inventory of nickel to maybe take care during the strike?
Scott Hand: Pretty hard to build inventories of nickel when we got
this great demand. Peter, maybe you want to comment on
that?
Peter Goudie: Yeah. I think you can see that fairly clearly simply by
looking at the inventory we reported at the end of the
first quarter. We record the inventory at the end of the
first quarter of 25,000 tonnes. End of the first quarter
last year, it was 29,000 tonnes.
And if you go back average for the last 10 years, our
normal inventory at the end of the first quarter is about
29,000 tonnes. We're sitting at 25,000 tonnes. That for us
at the moment is a very tight position to be in at this
time of the year. Historically, that's extremely
(unintelligible).
Greg Barnes: And subsequently to the end of the quarter, you haven't
built any above that 25,000-tonne level.
Peter Goudie: That's correct.
Greg Barnes: Just one further question, Peter. Do you have a feel for
where that price point in nickel would be that people
start to really substitute seriously?
Peter Goudie: No, I don't. I think we have to see what - see where the
market takes us and see what the response from the
consumers is at different levels of the price. So really
wouldn't like to forecast that.
Greg Barnes: Okay. Thanks very much.
Operator: Our next question is from the line of Cristina Rossi with
Desjardins Securities.
Please proceed with your question.
Cristina Rossi: Hi. Can you comment on why there were lower deliveries of
copper in PGMs during the first quarter?
Hello?
Mark Cutifani: Mark Cutifani. It's Mark Cutifani from Sudbury.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 35
We've actually got some copper in inventory that we'll be
rolling out at the next couple quarters, so that will pick
that backup. And on the PGM, so just consequence of the
mining sequence where in some areas where we've got lower
PGM grade, it will pick up towards the end of the year and
into 2007.
Cristina Rossi: Okay, thank you.
Scott Hand: We'll take a couple more questions.
Operator: Our next question is from the line of Tonney Rizzuto with
Bear Sterns.
Please proceed with your question.
Anthony Rizzuto: Thank you very much.
I'm sorry, I've joined the call a little bit late. I was
on another conference call, but I thought I heard in some
of the formal comments before the Q&A. Peter was talking
about stainless steel and the pricing differential versus
other metals. And specifically you mentioned about copper
where that the multiple is only three times now
difference.
Specifically, Peter, what are some areas that you think
stainless steel and nickel could gain from substitution
loss perhaps away from copper?
Peter Goudie: Certainly there has been a very significant change in the
relationship between copper and nickel and copper and
stainless steel. And maybe you should focus on copper and
stainless steel rather than copper and nickel.
When you get to the point that stainless steel pipes may
be cheaper than copper pipes, I think there are some
obvious areas that people would have to be having second
thoughts about what product is they're going to get.
Anthony Rizzuto: Okay.
Can you expand on that a little bit further?
Peter Goudie: I think anywhere where copper piping is used compared to
nickel containing steel by the stainless steel
specification or other specifications there, there is room
for (revaluation).
Anthony Rizzuto: Right.
I'm not currently aware of any significant studies being
done by any groups with the stainless steel industry
association that be working at it, then working on some of
these areas.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 36
Peter Goudie: I'm not sure of what the stainless steel association is
working on in this type of area and I think, we're in such
a dynamic market with the pricing relationships changing
so fast that I would also be surprised if anybody started
any major review.
I was thinking more in terms of the design as an architect
to maybe looking at the material to use for buildings and
flat that are under design at this time.
Anthony Rizzuto: Okay. Fair enough, thank you very much, Peter.
Scott Hand: Thanks, Tony. We'll just take one more question.
Operator: And last question is from the line of (Dean Sevski) with
Credit Suisse First Bostonne. Please proceed with your
question.
(Dean Sevski): The only subject that you are discussing with respect to
remedying any trust issues in - with the EC was the
disposition of nickel (unintelligible). Is that because
that's your position or you think that that is all you'll
need to do in order to satisfy them?
Scott Hand: I think that's all - all I can really say is that when we
announced this deal back in October, we indicated we're
prepared to dispose of the nickel (unintelligible)
refinery. And that is the one we've been - we're focusing
on. I really can't say much more than that right now
because these are confidential discussion, which we're
having with both agencies.
That's pretty much all I can say right now.
(Dean Sevski): Okay, thank you.
Scott Hand: Okay. Well, thank you very much. We look forward to
talking to you in July on our second quarter conference
call. We will be updating you, I suspect, before that on
progress we're making with the regulatory agencies in
Washington and in Brussels and on the deal.
But just to repeat, I think you've heard there we're
delivering consistent and reliable production. Our costs
will drop as we go through the year 2006 as more Voisey's
Bay fee as we expect to go through the process.
And as Peter Goudie stated, I contest to say it again, the
nickel market is strong and the fundamentals are real.
So thank you very much and we look forward to talking to
you in July, it's not the fourth.
INCO LIMITED
Moderator: Scott Hand
04-20-06/2:00 pm CT
Confirmation #21286262
Page 37
Operator: Ladies and gentlemen, that does conclude the presentation.
We thank you for your participation and ask as you please
disconnect your lines.
END