Company says nickel market fundamentals should remain strong through 2006

Inco Limited today announced that it currently expects its net earnings for the second quarter of 2006 will be the highest quarterly net earnings in the company's history, adding that it expects continued strong performance for the second half of the year.

Based on quarter-to-date commodity prices, the company currently estimates that its adjusted diluted net earnings for the second quarter 2006 will be approximately $1.70 to $1.75 per share, 21 per cent above the current First Call estimate of $1.43 per share, 60 per cent above the adjusted diluted earnings per share for the second quarter 2005, and 92% above the adjusted diluted earnings per share for the first quarter 2006 of $0.90 per share.

"Everything is coming together to deliver an outstanding quarter – a great market, strong production from our operations, and lower than expected costs," said Chairman and CEO Scott Hand.

The company currently expects to meet or exceed the guidance it provided in April 2006 for second quarter 2006 production of nickel, copper and platinum group metals (PGMs). It is raising its guidance on nickel production for the full 2006 year by 10 million pounds to 575 million pounds.

Using quarter-to-date per pound prices of $9.01 for nickel and $3.31 for copper, Inco's nickel unit cash cost of sales after by-product credits for the second quarter are forecast to be $1.90 to $1.95 per pound, about 25 per cent below the April 2006 guidance of $2.50 to $2.55 per pound, due largely to higher prices for by-products.

The company expects that the positive impact of production ramp-up at its new Voisey's Bay operation on overall production, costs and cash flow will be felt most strongly in the second half of 2006. "With more Voisey's Bay concentrate reaching our Canadian processing facilities, the second half of the year should look even better," Mr. Hand said.

Inco currently expects to produce 295 to 300 million pounds of nickel in the second half of 2006, compared with 275 to 280 million pounds in the first half of 2006. Using the second quarter-to-date price of $3.31 per pound for copper, we currently expect that our nickel unit cash cost of sales after by-product credits for the second half of 2006 will be $1.30 to $1.35 per pound. This revised cost forecast is about 40 per cent better than the company's first half cost guidance of $2.25 to $2.30 per pound, resulting from an expected sharp drop in external feed consumption as more Voisey's Bay concentrate is processed by Inco's operations in Sudbury and Thompson.

"We believe that we are the only publicly traded mining company in the world whose costs are going down in 2006, despite higher oil prices and currency exchange impacts," said Mr. Hand. "Meanwhile, we expect our cash flow to increase to about $1.9 billion for the year or about $8.40 per share, based on our revised production guidance and year-to-date prices for nickel and copper."

Peter Goudie, Inco's Executive Vice-President Marketing, said that the nickel market "continues to outpace expectations", and he is forecasting a very strong market for the remainder of 2006.

"Previously we forecast a supply deficit of 5,000 to 20,000 tonnes for the full year," he said. "We are now increasing our deficit projection for 2006 to 30,000 tonnes."

Mr. Goudie said there has been a continuous drawdown of London Metal Exchange (LME) nickel stocks, which have fallen by over 22,000 tonnes this year to less than 14,000 tonnes. "There are no significant stocks of nickel out there, and available stocks to meet demand are falling," he said.

Meanwhile, he said, a number of key indicators show that nickel demand should remain robust through the remainder of the year. "Stainless steel inventories are at low levels globally; stainless steel mills have strong order books and they are booked past the third quarter; stainless steel production across all regions has been stronger than anticipated; LME and producers' nickel inventories are falling rather than rising; and the scrap stainless steel market is very tight," he says. "All the key facts add up to a strong second half for nickel."

"The nickel market story is very straightforward – it's all about supply and demand fundamentals – but it's unfolding even faster than we expected this year," Mr. Goudie said.