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Inco Limited

Inco Limited

145 King Street West, Suite 1500
Toronto, Ontario M5H 4B7
Canada
Telephone: (416) 361-7511
Fax: (416) 361-7781
Web site: http://www.incoltd.com

Public Company
Incorporated: 1916 as International Nickel Co. of Canada, Ltd.
Employees: 10,000
Sales: US$2.9 billion (2000)
Stock Exchanges: New York Toronto London Paris Brussels Frankfurt Swis
Ticker Symbol: N
NAIC: 212234 Copper Ore and Nickel Ore Mining; 212221 Gold Ore Mining; 212299 All Other Metal Ore Mining; 325188 All Other Basic Inorganic Chemicals Manufacturing; 331419 Primary Smelting and Refining of Nonferrous Metal (Except Copper and Aluminum); 331491 Nonferrous Metal (Except Copper and Aluminum) Rolling, Drawing, and Extruding; 331525 Copper Foundries (Except Die-Casting); 551112 Offices of Other Holding Companies

Inco Limited is one of the worlds top producers of nickel. It operates Canadas largest mining and processing operation in Sudbury, Ontario, and runs other mines in Canada, the United Kingdom, and Indonesia. It has interests in refineries in Japan, Taiwan, and South Korea, and sales and operations in over 40 countries worldwide. Overall Inco provides about 25 percent of the nickel used globally. The company also produces cobalt, copper, precious metals, and specialty nickel products.

Early Years

Nickel was first isolated as an element in the middle of the 18th century, but not until the following century did it come into demand as a coin metal. Up to around 1890, coining remained the metals only use, and most of the worlds nickel was mined by Le Nickel, a Rothschild company, on the island of New Caledonia. At that time, however, it was determined that steel made from an iron-nickel alloy could be rolled into exceptionally hard plates, called armor plate, for warships, tanks, and other military vehicles, and the resulting surge in demand spurred a worldwide search for nickel deposits. The worlds largest nickel deposit ever discovered was in Ontarios Sudbury Basin; before long, one of the areas big copper mining companies, Canadian Copper, began shipping quantities of nickel to a U.S. refinery in Bayonne, New Jersey, the Orford Copper Company. Orford had devised the most economical process for refining nickel, and its alliance with Canadian Copper proved an unbeatable combination. Orford dominated the U.S. nickel business, supplying much of the metal needed by the growing steel industry, and managed to make inroads into the European market as well.

The U.S. steel industry did not feel comfortable relying on a single Canadian source for one of its essential materials; so in 1902 Charles Schwab of U.S. Steel and a group of other steelmen used the financial backing of J.P. Morgan to take control of and merge Orford and Canadian Copper. The new company was called International Nickel, nicknamed Inco, and was based in New York. From the first, Inco was able to control a majority of the U.S. nickel market, and had increased its share to 70 percent by 1913. Its large-scale operations in the Sudbury Basin allowed the company to eliminate competition through price wars and sheer staying power. According to Fortune magazine in May 1957, Inco had maintained its control of the U.S. market without interruption for nearly 40 years.

As the worlds leading nickel producer, Inco enjoyed an enormous increase in business during World War I, when the need for armor-plate drove up steel sales. This good fortune soon changed, when the 1921 world disarmament agreements killed the munitions market and Inco was left with a huge backlog of nickel. Its record 1921 profit of US$2 million slipped to a US$1.2 million loss the following year, and the Sudbury mines were shut down for over six months. The shock of this setback stayed with the company for many years in the form of a conservative management policy and a determination to avoid large inventories. In 1922, Robert Crooks Stanley began a 30-year tenure as presidentand later chairmanof Inco, intent upon building new markets in fields other than munitions. Stanley created a vigorous research and development department to find new peacetime uses for nickel. So effective were the Inco engineers that many of the innovations in nickel metallurgy over the next 50 years can be traced to their efforts. In effect, Inco became the research department for the entire nickel industry, sharing its findings with customer and competitor alike. Of course, for many years Inco had few of the latter.

By the late 1920s, Stanley brought Inco sales back up to their wartime peak, much of the peacetime addition coming from the automobile industry. Incos first major postwar investment was a US$3 million rolling mill in Huntington, West Virginia, designed to produce Monel metal, a widely used copper-nickel alloy. At the same time, Stanley effectively blocked the growth of competition from such newcomers as British America Nickel, which in 1923 made a serious bid for the U.S. market. Inco promptly lowered its price from 34 to 25 cents per pound, driving British America to bankruptcy a year later. When no one purchased the fallen companys assets, a little-known firm, Anglo-Canadian Mining & Refining, bought them very cheaply. Anglo-Canadian was actually a corporation owned by Inco, which simply took what it could use from British Americas refinery and sold the rest for scrap.

A more serious competitor was handled in a different manner. Mond Nickel Company had been operating in the Sudbury Basin since just after the turn of the century, shipping its nickel to Europe to compete with Frances Le Nickel and Incos European offices. Mond, the creation of Ludwig Mond, the British chemist who founded Imperial Chemical Industries (ICI), owned half of the best nickel deposits in Sudbury, in an area known as the Frood. The other owner of these deposits was Inco. In 1928, Inco decided it would be wiser to join forces rather than fight over the worlds largest nickel mine. Mond and Inco were then merged at the end of that year to form International Nickel Co. of Canada, Ltd., still nicknamed Inco. Mond remained a U.K. subsidiary of Inco, handling both European and Asian customers. By moving its incorporation to a foreign country, Inco was better able to deflect inevitable and periodic attempts by the U.S. Department of Justice to prosecute the company for antitrust violations. The 1929 appearance of a small competitor called Falconbridge Nickel Mines Ltd., another European supplier, was only tolerated to avoid the impression of absolute monopoly.

Depression and World War II

The Great Depression caused Inco temporary losses for the second time in its history, but the growing number of industrial uses for nickel soon pulled sales back up to a healthy level. By this time, Inco had become a major producer of copper and platinum as well as nickel, thanks to Sudbury Basins rich supply of minerals. The company was now the sixth largest copper producer in the world and the largest supplier of platinum, a metal whose unusual properties had found many industrial applications; however, it was in nickel that Inco held unchallenged power as the source of 90 percent of the non-communist worlds supply. Incos metal was needed by all of the worlds arms makers and for the production of super-hard steel for a variety of uses, from armorplate to exhaust valves on aircraft engines to gun recoil systems.

In a move that stirred up plenty of controversy, Inco became the nickel supplier to both sides of the approaching World War II, which included signing a long-term contract with Germanys I.G. Farben in the mid-1930s. In antitrust action ten years later, the Department of Justice charged that Incos agreement with Farben was part of an effort to form a worldwide nickel cartel, and that in the process it had supplied Germany with a stockpile of nickel critical to its imminent war plans. The antitrust action was settled in 1948 when Inco signed a consent decree, agreeing only that it would sell nickel in the United States at fair prices; its worldwide monopoly, however, was beyond the reach of the U.S. Department of Justice.

World War II taxed Incos capacity and strained its relationship with the U.S. armed forces. Still mindful of its near collapse after World War I, Inco refused to stockpile the inventory desired by the armed forces, instead committing only to the timely delivery of critical metal. As an insurance policy, the U.S. government financed the creation of Nicaro Nickel Company in 1942, a Cuban venture under the direction of the Freeport Sulphur Company. Although Nicaro managed to produce some nickel, it never really got off the ground and was mothballed soon after the war. Its decline may have been hastened by Incos price cuts on nickel oxides, Nicaros specialty. The full extent of Incos nickel monopoly was further suggested by the fact that, aside from the case of nickel oxide, its nickel price never varied between 1928 and 1946an indication of complete freedom from the normal pressures of competition. At the wars end, Incos assets were valued at about US$135 million, sales stood at US$148 million, and the company showed a very healthy net income of about US$30 million.

Incos hesitation to expand its nickel production helped it to avoid a serious postwar slump, but it also left the company unprepared for what soon followed. In the booming economy of the 1950s nickel assumed new importance, finding applications in stainless steel, home appliances, automobiles, jet engines, and atomic power plants. When the Korean War added the usual backlog of orders for armorplate, Inco faced a severe and growing nickel shortage. The U.S. government made the situation more difficult by adding nickel to its list of stockpiled metals critical to national defense, a contract Inco was naturally called upon to fulfill.

Company Perspectives:

Our goal is to become the most profitable nickel producer in the world. At Inco, we are making good progress toward that goal through our three-part strategy. Our strategy is: to be a low-cost producer at all our operations; to pursue profitable and low-cost growth at our development properties; to grow our specialty-nickel products business.

Indeed, Inco and the U.S. Department of Commerce together allocated nickel to customers across the country. Yet this nickel shortage had two long-term consequences for Inco. First, it made a rise in prices inevitableprices increased by 60 percent between 1946 and 1950 alone. Second, a host of new competitors entered the nickel market, encouraged by the acute shortage, rising prices, and the U.S. governments willingness to finance alternative suppliers of the important metal. Incos share of the free-world market, which was estimated at 85 percent as late as 1950, soon began a decline to what would eventually mirror its 1990s level of 34 percent.

Ups and Downs in the Postwar Nickel Market

Once assured the boom in nickel was permanent, Inco increased production and began to search for new deposits. After several years of exploration, a major find was made in northern Manitoba in 1956, a field it christened Thompson after company Chairman John F. Thompson, successor to Robert Stanley. Thompson was the most significant new deposit of nickel found since the discovery of Sudbury in the 1880s. After Inco spent about US$175 million building mines, smelters, refineries, a town to house its employees, and a railroad to reach the town, the site added about 30 percent to the companys 1956 sales of US$445 million. Inco remained extremely profitable despite its new competitors and still carried no long-term debt. In the recession of 1958, sales dropped to US$322 million but a strike by the Mill, Mine and Smelter Workers Union kept inventories low and prevented a loss for the year.

After the 1958 recession, sales of nickel took off once again. Incos research engineers continued to provide a new generation of customers with ingenious uses for nickel, as in the rapidly growing electronics and aerospace industries where the use of stainless steel was just beginning to mushroom. Under the leadership of new Chairman Harry S. Wingate, Incos sales hit US$572 million in 1965, and its net income remained a remarkably high US$136 million. The Thompson field had grown into a thriving town and its deposits proved to be every bit as rich as hoped.

Nickel sales were given yet another boost by the Vietnam War, in which the United States employed a vast array of sophisticated weaponry, the bulk of which required nickel-hardened steel. Responding to the bull market, Inco launched a comprehensive refurbishment and expansion program eventually costing more than US$1 billion. For the first time in its history, Inco borrowed money and chose to continue concentrating on the mining of high-grade, relatively expensive nickel at a time when many competitors had come up with inexpensive, readily available nickel oxides and ferronickels.

The impact of these decisions was felt when a devastating strike by 17,000 Sudbury workers in 1969-70 was followed by the sharp recession of 1971; nickel sales dropped by 25 percent and Incos stock fell by 50 percent in a matter of months. The company did not show a loss for the year, but it was thoroughly shaken by the low sales and a mounting debt burden. Wingate retired and his successor, L. Edward Grubb, moved to curtail the expansion program then just coming on line. Grubb cut production back to 80 percent of capacity and reduced labor where possible. To protect Inco against the further erosion of sales by ferronickel competitors, he spent another US$750 million to exploit the companys own ferronickel sources in Guatemala and Indonesia, where nickel was extracted from laterite ore by means of a refining process using petroleum.

In 1974, Inco made its first and only major acquisition, paying US$224 million for ESB Inc., a leading manufacturer of large storage batteries using nickel. Inco believed ESBs sales would help balance cyclical downturns in nickel, and that demand for batteries would increase in a world growing short of oil. Incos share of the worlds nickel sales had slipped below 50 percent by this time. Except in 1974, a boom year for commodities, the nickel market was generally soft for the rest of the decade. More worrisome, the soaring price of oil made Incos huge investments in laterite nickel practically a dead loss, as the cost of refining the ore with petroleum rendered the product too expensive to sell.

New Challenges in the 1980s and 1990s

In 1976 International Nickel Co. of Canada, Ltd. officially changed its name to Inco Limited. A looming problem for the newly named company was Incos US$850 million debt burden, which grew less manageable as interest rates reached a peak in the early 1980s. Additionally, Incos new battery subsidiary was floundering, and in the severe recession of 1981 Inco found itself in deep trouble. Forced to write off its Guatemalan investment, sales began a steep slide; the company reported a disastrous year-end loss of US$470 million, its first since 1932. In the following three years, Incos sales fell another US$500 million, as the recession and corporate debt proved an almost fatal combination.

Inco, however, had one asset that remained invulnerable: it still owned the worlds richest nickel fields. Under CEO Donald J. Phillips, Inco wrote off its ill-fated battery venture for $245 million, almost halved its workforce, closed all excess production facilities, and sat tight, waiting for the severely depressed price of nickel to recover. New techniques allowed the extraction of ore in far bigger chunks than previously possible, and the reduced staff performed the smelting and refining tasks with improved methods. A rebound in the nickel market in 1987 brought the boost Inco needed: an increase in market share to nearly 35 percent and a year-end profit of US$125 million.

When nickel prices reached an all-time high in 1988, Incos worldwide shipments of 495 million pounds of nickel (its highest level in 14 years) sent profits soaring to US$735 million and a stunning US$753 million in 1989.

Key Dates:

1902:
International Nickel is formed in New York.
1916:
Company is incorporated in Canada as International Nickel Company of Canada, Ltd. (Inco).
1928:
Inco merges with Mond Nickel Company.
1956:
Company discovers giant Thompson nickel deposit in Manitoba.
1974:
Inco acquires ESB Inc.
1996:
Inco acquires stake in Voiseys Bay nickel deposit.

As a reward for his efforts in raising productivity, Phillips was made chairman and CEO of Inco. His first task was to decide what to do with US$1 billion in retained earnings. Mindful of the poor results of past efforts at diversification, Phillips put some into further production refinements; however, the bulk was used for a $10 per share special cash dividend as part of a controversial recapitalization and shareholders rights package. Taking cues from its U.S. neighbors, Incos poison pill plan was the first of its kind in Canada. Spurring heated debate from all sides, Quebecs pension fund management group, Caisse de Depot et Placement du Quebec, filed suit on behalf of its 3.2 million Inco shares to legally overturn shareholders December 1988 approval of the poison pill.

As the 1990s dawned, environmental issues became an increasingly expensive concern for Inco. The company faced an $80,000 fine for a sulphur trioxide leak from its Copper Cliff refinery in April 1987 and also faced repeated requests to regulate the sulphur dioxide released into the atmosphere by its smelting operations in Sudbury. Responding to what Macleans called the largest single source of sulphur dioxide pollution on the continent, Inco launched a series of abatement programs (with a price tag of over $500 million) to substantially lower emissions by 1994. To meet this goal, Inco planned to implement new magnetic separators to extract sulphur from ore and replace natural-gas burning furnaces with oxygen flash furnaces, which used oxygen rather than fossil fuels, eliminating toxic emissions altogether. Additionally, the new processes would significantly lower energy costs and boost efficiency.

In 1991, Michael Sopko, an Inco employee since 1964, was named president while Phillips retained the titles of CEO and chairman. Though annual net sales for 1991 fell to just under US$3 billion, net earnings plunged from 1990s US$441 million to US$83 million. In 1992, Sopko replaced the retiring Phillips as chairman and CEO, and Scott M. Hand assumed the presidency. The changing of the guard, however, had little effect on the continued downward trend of nickel prices, sluggish demand, and increased competition from Russian exportsall of which contributed to a year-end loss of US$18 million on net sales of US$2.56 billion. In response, Inco slashed executive salaries, decreased capital expenditures by $50 million, and closed its Ontario and Manitoba facilities for several weeks to cut production by 40 million pounds. Next Inco sold its 62 percent stake in TVX Gold Inc. for $371 million in 1993, as nickel prices plunged to their lowest level since 1987. Finishing 1993 with sales of only US$2.13 billion, the company had managed to post a profit of US$28 million rather than another loss.

Although earnings were not spectacular, they were nonetheless encouraging. The following year, Inco continued to struggle, announcing plans to prune upper management, eliminate 1,000 union jobs, and fund expansion at the companys low-cost Soroako mine in Indonesiajust as 4,900 laborers announced their intention to strike. Narrowly averting the strike, Inco took its employee relations in a different direction, funding more research into automated mining, with which the company had increasing success. The company also increased financing for the research and development of scores of new nickel applications and products. Nickel alloys, foam, foil, and powders, as well as nickel coating on fibers, papers, cloths, and even gold, were providing excellent results.

In 1996 the company bought a 25 percent stake in what was reputed to be the richest nickel discovery in 30 years. This was a tract known as Voiseys Bay in northern Labrador. The find belonged to a small Canadian mining concern, Diamond Fields. Its operatives had discovered the nickel deposits by accident in 1993. Diamond Fields was on the verge of selling a stake in the area to another Canadian mining firm, Falconbridge, when Inco stepped in with a bigger offer. The deal was worth about C$4.5 billion, financed by a complex strategy that created a special category of Inco stock. It was deemed a high price for the relatively unexplored Voiseys Bay, but Inco expected great things from the area.

However, plans to develop Voiseys Bay were being hindered. The mine could not be dug until an environmental impact study was completed, and local government insisted that metal mined in the area also be refined there, and not shipped elsewhere. Negotiations over these issues with government and tribal groups dragged on for years. Meanwhile, competition from nickel suppliers in Russia, Australia, and Cuba cut into Incos profits. Bad weather forced the companys Indonesian mine to shut down for part of 1997, and a strike in Sudbury further chipped away at Incos profits. In addition, the company was burdened with about US$1.5 billion in debt.

Inco looked for innovative ways to get the most out of its business. It continued to investigate high-tech mining, investing in a joint-venture Mining Automation Program in 1996. New equipment allowed miners to operate machinery by remote control from the surface. Though development of so-called telemining was expensive and not always smooth, the company stood to gain a lot in saved labor costs. To go into deep pits, some miners spent as much as two hours out of each eight-hour shift commuting in trains or elevators. Automation would ostensibly eliminate much of this lost time. The company also formed a new marketing group, called Inco Special Products, to exploit some more specialized niches. It formed the new division in 2000 to market nickel foams, powders, oxides, particles, and fibers. These were used in batteries, auto parts, and consumer electronics. Inco hoped to reach sales of $200 million from the new division within the next five years.

Inco then pledged to develop a nickel-cobalt mine in the French dependency of New Caledonia in 2001. The plant was expected to yield some 54,000 tons of nickel annually, and 5,400 tons of cobalt. The cost to develop the mine was estimated at about $1.4 billion. The companys Voiseys Bay property was still embattled by the fall of 2001, though negotiations with provincial governments continued. Inco was unable to start building a pilot smelting plant in the area until it guaranteed that it would also build a permanent plant. By 2001 costs for developing the mine were estimated at US$1.25 billion, with another US$500 million to build the pilot smelter. The economic downturn of 2001 made the companys plans all the more variable. Production was hoped to begin by 2005.

Principal Subsidiaries

Inco Special Products; Inco United States, Inc.; Novamet Specialty Products Corp. (U.S.A.); International Metals Reclamation Company, Inc. (U.S.A.); Exploraciones Y Explotaciones (Guatemala; 70%); Compagnie des Mines de Xere (France; 85%); Goro Nickel SA (New Caledonia); Jinco Nonferrous Metals Co., Ltd. (China; 65%); Ingold Holdins Indonesia, Inc. (Canada); Voiseys Bay Nickel Company Limited.

Principal Divisions

Ontario Division; Clydach Refinery (UK); Acton Refinery (UK); Manitoba Division; PT International Nickel (Indonesia); Inco TNC Limited (Japan).

Principal Competitors

Norilsk Nickel; Falconbridge Limited.

Further Reading

Arnott, Sheila, Inco Shapes Its Labor-Relations Climate, Northern Miner, September 5, 1988, p. 6.

Ball, Matthew, Equity Tailored to Suit the Strategy, Corporate Finance, October 1996, pp. 18-20.

_____, Inco Keeps It Pure with Special Stock, Corporate Finance, December 1996, p. 50.

Cook, Peter, More Eye-Popping Facts About Poison Pills, Globe and Mail, October 20, 1988, p. B2.

Donham, Parker Barss, Newfoundlands Untamed Dog Takes on Inco, Canadian Dimension, May 2000, p. 10.

Gilbert, Ray, Sudbury, Home to One of the Worlds Premier Mining Companies, Northern Miner, October 15, 1990, p. B19.

Heinzl, Mark, Inco Moves to Take Miners Out of Mining, Wall Street Journal, July 6, 1994, p. B6.

Hutchinson, Brian, A Plugged Nickel, Canadian Business, April 24, 1998, pp. 43-47.

Inco Forms New Division to Market Specialty Products, Purchasing, January 13, 2000, p. B32.

Inco Plans $1.4 Billion Nickel-Cobalt Deal, Project Finance, May 2001, p. 13.

Inco Reviews Female Policy After Human Rights Ruling, Northern Miner, March 14, 1988, p. 6.

Incos Focus Shifts from Voiseys Bay, Sulphur, May 2000, p. 10.

Inco to Expand Indonesian Operation, Northern Miner, November 21, 1994, p. 1.

Inco to Sell Stake in TVX Gold Unit to Underwriters for $289.4 Million, Wall Street Journal, June 29, 1993, p. B1.

Inco to Spend $26.9 Million on Mine Project, Northern Miner, November 16, 1987, p. A1.

Lamont, Lansing, Inco: A Giant Learns How to Compete, Fortune, January 1975.

Lamphier, Gary, Voisey Secures Incos Future, Globe and Mail, June 9, 1995, p. B1.

McClearn, Matthew, Bots Way Down in the Mine, Canadian Business, August 20, 2001, pp. 44-47.

Mclnnes, Craig, Court Fines Inco $80,000 Over Acid Cloud Incident, Globe and Mail, January 10, 1989, p. A1.

Mehr, Martin, Inco Tries to Clean Up the Air and Its Image, Marketing, March 27, 1989, pp. B1, B6.

Melnbardis, Caroline, Canadas First Poison Pill Is Leaving a Very Bitter Taste . . ., Financial Times of Canada, October 24, 1988, pp. 27, 30.

Newman, Peter C., Canadas Largest Investor Goes to War, Macleans, November 7, 1988, p. 50.

Reier, Sharon, The Treasure of Voisey Bay, Financial World, July 18, 1995, p. 28.

Report on Corporate Finance: Incos Move Started Wheels Turning in Canadian Boardrooms, Globe and Mail, December 12, 1988, p. B17.

Retooling Mother Inco, Northern Miner Magazine, April 1990, pp. 41-45.

Robinson, Allan, Inco Expects Another Good Year After Seeing 5th Record Quarter, Globe and Mail, April 20, 1989, p. B11.

_____, Inco, Falconbridge Betting Nickel Price Will Keep Shining, Globe and Mail, November 21, 1988, p. B1.

_____, Inco Slashes Production, Globe and Mail, October 6, 1992, p. B1.

_____, Product R&D Pays Off for Inco, Globe and Mail, September 8, 1992, p. B13.

Shortell, Ann, and Caroline Melnbardis, Code Name Monticello: Inco Devised One of the Most Potent Poison Pills in North America, Financial Times of Canada, December 19, 1988, pp. 1, 14-16.

The Squeeze on Nickel, Fortune, November 1950.

Stackhouse, John, Inco Bets on Indonesia, Globe and Mail, May 19, 1994, p. B1.

Tintor, Nicholas, Inco Exposure to Gold Increased with New Firm, Northern Miner, August 17, 1987, pp. 1-2.

Walmsley, Anne, An Acid Test, Macleans, September 17, 1990, p. 62.

Zehr, Leonard, and Jacquie McNish, Inco Plans $1.05-Billion Dividend in Recapitalization, Globe and Mail, October 4, 1988, p. B1.

Jonathan Martin

updates: Taryn Benbow-Pfalzgraf, A. Woodward

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Inco Limited

Inco Limited

Royal Trust Tower
Toronto-Dominion Centre
Toronto, Ontario M5K 1N4
Canada
(416) 361-7511
Fax: (416) 361-7781

Public Company
Incorporated:
1916 as International Nickel Co. of Canada, Ltd.
Employees: 19,387
Sales: US$3.11 billion
Stock Exchanges: Toronto Montreal New York London Paris Amsterdam Brussels Zurich Berne Basel Geneva Lausanne

Inco Limited has been the worlds leading producer of nickel since it was founded in 1902. Though it no longer has the monopoly it once had, Inco still supplies 35% of the free worlds nickel, and after weathering the commodities recession of the early and mid-1980s its earnings have soared to record heights in the recent past. Inco has developed a substantial business in precious metals and produces a number of highly-engineered parts for the aerospace industry, but the bulk of its sales still originate in the vast nickel and copper reserves of its Canadian mines.

Nickel was first isolated as an element in the middle of the 18th century, but it was not until the following century that it came into demand as a coin metal. Up to around 1890, coining remained the metals only use, and most of the worlds nickel was mined by Le Nickel, a Rothschild company on the island of New Caledonia. At that time, however, it was determined that steel made from an iron-nickel alloy could be rolled into exceptionally hard plates, called armorplate, for warships, tanks, and other military vehicles, and the resulting surge in demand spurred a worldwide search for nickel deposits. The worlds largest nickel deposit was in Ontarios Sudbury Basin, and it was not long before one of the areas big copper mining companies, Canadian Copper, began shipping quantities of nickel to a U.S.refinery in Bayonne, New Jersey, the Orford Copper Company. Orford had devised the most economical process for the refining of nickel, and its alliance with Canadian Copper proved an unbeatable combination. Orford dominated the U.S. nickel business, supplying much of the metal needed by the growing steel industry, and managed to make inroads into the European market as well.

The U.S. steel industry did not feel comfortable having to rely on a single Canadian source for one of its essential materials, and in 1902 Charles Schwab of U.S. Steel and a group of other steelmen used the financial backing of J.P. Morgan to take control of and merge Orford and Canadian Copper. The new company was called International Nickel, nicknamed Inco, and was based in New York. From the first, Inco was able to control a majority of the U.S. nickel market, and by 1913 had increased its share to 70%. Its large-scale operations in the Sudbury Basin allowed Inco to eliminate competition by means of price wars and sheer staying power. According to Fortune, May 1957, Inco was able to maintain without interruption its control of the U.S. market for about 40 years. Despite U.S. antitrust laws, the steel industry thus achieved its aim of a guaranteed supply of reasonably priced nickel.

As the worlds leading nickel producer, Inco enjoyed an enormous increase in business during World War I, when the need for armor plate drove up steel sales. This good fortune soon changed, when the 1921 world disarmament agreements killed the munitions market and Inco was left with a huge backlog of nickel. Its record 1921 profit of US$2 million slipped to a US$1.2 million loss the following year, and the Sudbury mines were shut down for over six months. The shock of this setback stayed with the company for many years in the form of a conservative management policy and a determination to avoid large inventories. In 1922 Robert Crooks Stanley began a 30-year tenure as presidentand later chairmanof Inco, intent upon building new markets in fields other than munitions. Stanley created a vigorous research and development department whose task it was to find new peacetime uses for nickel. So effective were the Inco engineers that many of the innovations in nickel metallurgy over the next 50 years can be traced to their efforts. In effect, Inco became the research department for the entire nickel industry, sharing its findings with customer and competitor alike. Of course, for many years Inco had few of the latter.

By the late 1920s, Stanley brought Inco sales back up to their wartime peak, much of the peacetime addition coming from the auto industry. Incos first major postwar investment was a US$3 million rolling mill in Huntington, West Virginia, designed to produce Monel metal, a widely used copper-nickel alloy. At the same time, Stanley effectively blocked the growth of competition from such newcomers as British America Nickel, which in 1923 made a serious bid for the U.S. market. Inco promptly lowered its price from US34c per pound to US25c per pound, driving British America to bankruptcy a year later. No one volunteered to purchase the companys assets until a little-known firm, Anglo-Canadian Mining & Refining bought them very cheaply. Anglo-Canadian was a dummy corporation owned by Inco, which simply took what it could use of British Americas refinery and sold the rest for scrap.

A more serious competitor was handled in a different manner. Mond Nickel Company had been operating in the Sudbury Basin since just after the turn of the century, shipping its nickel to Europe to compete with Frances Le Nickel and Incos European offices. Mond, the creation of Ludwig Mond, the British chemist who founded the great Imperial Chemical Industries (ICI), owned half of the best nickel deposits in Sudbury, in an area known as the Frood. The other owner of those deposits was Inco. In 1928 Inco decided that rather than fight over the worlds largest nickel mine, it would be wiser to join forces. Mond and Inco were therefore merged at the end of that year to form International Nickel Co. of Canada, Ltd., still nicknamed Inco. Mond remained as a U.K. subsidiary of Inco, handling both European and Asian customers. By moving its incorporation to a foreign country, Inco was better able to deflect inevitable and periodic attempts by the U.S. Department of Justice to prosecute it for antitrust violations. The 1929 appearance of a small competitor called Falconbridge Nickel Mines Limited, another European supplier, was tolerated by Inco to avoid the impression of absolute monopoly.

The Great Depression caused Inco temporary losses for the second time in its history, but the growing number of industrial uses for nickel soon pulled sales back up to healthy levels. By this time, Inco had become a major producer of copper and platinum as well as nickel, the Sudbury Basin providing a rich supply of many minerals. The company was the sixth-largest copper producer in the world and the largest supplier of platinum, a metal whose unusual properties had found many industrial applications; but it was in nickel that Inco held unchallenged power. As the supplier of 90% of the non-communist worlds nickel, Inco was in a position of importance. Its metal was needed by all of the worlds arms makers in the production of super-hard steel for dozens of uses, from armor plate to exhaust valves on aircraft engines to gun recoil systems. Inco became the supplier of nickel to both sides of the approaching World War II, signing a long-term contract with Germanys I.G. Farben in the mid-1930s. Ten years later, the Department of Justice charged, in antitrust action, that Incos agreement with Farben was part of its effort to form a worldwide nickel cartel, and that it had in the process supplied Germany with a stockpile of nickel critical to its imminent war plans. The antitrust action was settled in 1948 when Inco signed a consent decree, agreeing only that it would sell nickel in the United States at fair prices; its worldwide monopoly, however, was beyond the reach of the Department of Justice.

World War II taxed Incos capacity and strained its relationship with the U.S. armed forces. Still mindful of its near collapse after World War I, Inco refused to stockpile an inventory as large as that which the armed forces desired, but the company provided timely delivery of its critical metal. As an insurance policy, the U.S. government in 1942 financed the creation of Nicaro Nickel Company, a Cuban venture under the direction of the Freeport Sulphur Company. Although Nicaro managed to produce some nickel, it never really got off the ground and was mothballed soon after the war. Its decline may have been hastened by Incos price cutting on nickel oxides, Nicaros specialty. The extent of Incos monopoly on nickel is further suggested by the fact that, aside from the case of nickel oxide, its nickel price never varied between 1928 and 1946 an indication of complete freedom from the normal pressures of competition. At the wars end, Incos assets were valued at about US$135 million, sales stood at US$148 million, and the company showed a very healthy net income of about US$30 million.

Incos hesitation to expand its production of nickel helped it to avoid a serious postwar slump, but it also left the company unprepared for what soon followed. In the booming economy of the 1950s, nickel assumed new importance, finding applications in stainless steel, home appliances, its use with chrome for automobiles, jet engines, and atomic power plants. When the Korean War of 1950-1953 added the usual backlog of orders for armor plate, Inco and the western world faced a severe and growing nickel shortage. The U.S. government made the situation more difficult by adding nickel to its list of stockpiled metals critical to national defense, a contract that Inco was naturally called upon to fulfill. Indeed, Inco and the U.S. Department of Commerce together allocated nickel to customers across the country. This shortage of nickel had two long-term consequences for Inco. First, it made inevitable a rise in price, which increased by 60% between 1946 and 1950 alone. Second, a host of new competitors entered the nickel market, encouraged by the acute shortage, rising prices, and by the U.S. governments willingness to finance alternative suppliers of the important metal. Incos share of the free-world market, which was estimated at 85% as late as 1950, soon began a decline to its early 1990s level of 34%.

Once assured that the boom in nickel was permanent, Inco increased production and began to search for new deposits. After several years of exploration it made a major find in 1956 in northern Manitoba, a field it christened Thompson after company chairman John F. Thompson, successor to Robert Stanley. Thompson was the most significant new deposit of nickel found since the discovery of Sudbury in the 1880s. After Inco had spent about US$175 million building mines, smelters, refineries, a town to house its employees, and a railroad to reach the town, the site added about 30% to the companys 1956 sales of US$445 million. Inco remained an extremely profitable company despite its new competitors, and still carried no long-term debt. In the recession of 1958, sales dropped to US$322 million but a strike by the Mill, Mine and Smelter Workers Union kept inventories low and prevented a loss for the year.

After the 1958 recession, sales of nickel took off once again. Incos research engineers continued to provide a new generation of customers with ingenious uses for nickel, as in the rapidly growing electronics and aerospace industries, the use of stainless steelthen as now the most important nickel alloywas just beginning to mushroom. Under the leadership of new chairman Harry S. Wingate, Incos sales hit US$572 million in 1965, and its net income remained a remarkably high US$136 million. The Thompson field had grown into a thriving town and its deposits were proving to be every bit as rich as had been hoped. Nickel sales were given yet another boost by the Vietnam War, in which the United States employed a vast array of sophisticated weaponry, the bulk of it requiring nickel-hardened steel. Responding to the bull market, Inco launched a comprehensive program of refurbishment and expansion of its facilities that would eventually cost more than US$1 billion. For the first time in its history, Inco borrowed money to finance its big expansion, and it chose to continue to concentrate on the mining of high-grade, relatively expensive nickel at a time when many competitors had come up with useable nickel oxides and ferro-nickels that were readily available and inexpensive.

The impact of these decisions was felt in the period 1969-1971, when a devastating strike by 17,000 workers at Sudbury was followed by the sharp recession of 1971; nickel sales dropped by 25%, and Incos stock fell by 50% in a matter of months. The company did not show a loss for the year, but it was thoroughly shaken by the loss of sales and mounting debt burden. Wingate retired and his successor, L. Edward Grubb, moved to curtail the expansion program then just coming on-stream. Grubb cut production back to 80% of capacity and reduced labor where possible. To protect Inco against the further erosion of sales by ferro-nickel competitors, he spent another US$750 million to exploit the companys own ferro-nickel sources in Guatemala and Indonesia, where nickel can be extracted from laterite ore by means of a refining process using petroleum. In 1974 Inco made its first and only major acquisition, paying US$224 million for ESB Inc., a leading manufacturer of large storage batteries using nickel. Incos thinking was that ESB sales would help balance cyclical downturns in nickel, and that batteries would be increasingly in demand in a world growing short of oil.

Incos share of the free worlds nickel sales had slipped below 50% by this time. Except in 1974, a boom year for commodities, the nickel market remained generally soft for the rest of the decade. More worrisome, the soaring price of oil made Incos huge investments in laterite nickel practically a dead loss, as the cost of refining the ore with petroleum rendered the product too expensive to sell. In 1976 International Nickel Co. of Canada, Ltd. officially changed its name to Inco Limited. An additional problem was Incos US$850 million debt burden, which grew less manageable as interest rates reached a peak in the early 1980s. Finally, Inco seems to have been unable to run its new battery subsidiary, which was floundering. In the severe recession of 1981, Inco found itself in deep trouble. It was forced to write off its Guatemalan investment. Sales began a steep slide, and the company reported a disastrous year-end loss of US$470 million, its first loss since 1932. In the following three years, Incos sales fell another US$500 million, as the recession and corporate debt proved to be an almost fatal combination.

Inco had one asset that remained invulnerable, however. It still owned the worlds richest nickel fields. Under chief operating officer Donald J. Phillips, Inco wrote off its ill-fated battery venture, almost halved its work force, closed all excess production facilities, and sat tight, waiting for the severely depressed price of nickel to recover. New techniques allowed the extraction of ore in far bigger chunks than was previously possible, and the reduced staff performed the smelting and refining tasks with improved methods. A rebound in the nickel market in 1987 brought the boost that Inco needed. Its profit of US$125 million was encouraging, and would soon be surpassed as the price of nickel reached all-time highs, and Inco achieved a US$735 million profit in 1988 and US$753 in the following year.

As a reward for his efforts in raising productivity, Donald J. Phillips was made chairman and chief executive officer of Inco. His first task was to decide what to do with US$1.5 billion in retained earnings. Mindful of the poor results of past efforts at diversification, Phillips reinvested some of the money in further production refinements and gave the rest of it to Incos stockholders in the form of a special dividend. Inco seems ideally prepared to reach its centennial year, 2002, in good shape. It had cut back its debt, pruned its production methods, and avoided rash investments. Better yet, in the early 1990s Inco still owned the worlds largest known hoard of high-grade nickel.

Principal Subsidiaries

Inco Alloys International, Inc. (U.S.A.); Inco Engineered Products Limited (U.K.); Inco Europe Limited (U.K.); P.T. International Nickel Indonesia; Wiggen Steel & Alloys Limited (U.K.); International Nickel Oceanie S.A. New Caledonia; International Nickel Oceanie S.A. (France); Inco Gold Inc.; Inco Alloys Limited (U.K.).

Further Reading

The Squeeze on Nickel, Fortune, November 1950; Inco, Fortune, May 1957; Lamont, Lansing, Inco: A Giant Learns How to Compete, Fortune, January 1975.

Jonathan Martin

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