Inco boosting production, cutting costs amid falling nickel prices

The management of nickel miner PT International Nickel Indonesia Tbk (Inco) has targeted to boost nickel production and cut operating costs to keep the company's operation healthy amid falling nickel prices in the international market and the continuing obligations of servicing foreign debt, local media reported on Friday.

Inco president Rumengan Musu said in Jakarta on Thursday the strategy applied by the company was increasing the usage of its production units toward its maximum capacity so that it would be able to reduce production costs.

The company targets to increase its nickel output to 140 million pounds of nickel this year, up 40percent over last year's output of 100 million pounds. And therefore, production costs would drop to US$1.1 per pound of nickel production from $1.28 per pound, with an assumption that crude oil price stayed at $26 per barrel.

In addition to the reduction of costs in the nickel production processes, Inco was also trying to reduce costs in its mining operation as well as in its maintenance of facilities and also in its fuel consumption.

Earlier, Musu disclosed that the company would be able to save fuel costs of up to US$13 million in year 2001 following the operation of water-powered Balambano power plant.

He said Inco had been spending a lot of funds for fuel, accounting for 40percent of all of the company's spending. He noted that Inco's fuel costs soared 60percent following the increase of crude oil prices in the world market from only US$15 per barrel last year to $25 per barrel.

According to Musu, every increase of US$1 per barrel of crude oil, it would push up the company's production costs by 2 U.S. cents per pound of nickel.

Musu said when the company was able to cut fuel costs by 1 percent, the company would be able to save up to US$500,000 a year.

Musu also disclosed that as part of its cost reduction drive, the company would not issue new shares nor bonus shares this year.

Inco has been delisted from the Surabaya Stock Exchange since may 16, 2001, due to lacking of transaction, from 8,000 shares traded in 1999 to no transaction last year. In addition, the requirement from the exchange for all listed company to list all of their shares would burden Inco even more due to the listing cost.

The company booked a net profit of $8.9 million in the first quarter of this year, falling from $18.1 million recorded in the same period of last year. Net profit per share also dropped to 4 U.S. cents from 7 U.S. cents.

The drop in the net profit was sparked by the fall in nickel prices in the world market from $3.06 per pound last year to only $2.47 per pound in the first quarter of this year.

Musu said the company would be more careful in using its cash flow as it was still burdened with debts, including subordination debt to its parent company. Inco had been able to cut the amount of its debt to $385 million this year, from $423 million in 2000 and $500 million in 1999.

Currently, Musu said, Inco's debt to equity ratio sood at 30 percent, down from 39 percent before. (*)