Inco raise first quarter 2010 earnings of US$76.2 million

PT International Nickel Indonesia Tbk (Inco) recorded net earnings of US$76.2 million in the first quarter of 2010 (US$0.008 per share), an increase of 27.2% compared to the US$60.0 million (US$0.006 per share) achieved in the fourth quarter of 2009. EBITDA totalled US$121.7 million in the first quarter of 2010, compared to US$106.1 million in the fourth quarter of 2009.

The increase in EBITDA and net earnings in the first quarter of 2010 compared to the fourth quarter of 2009 was mainly impacted by higher deliveries and higher average realized prices.
Sales revenue was US$255.6 million for the three months ended March 31, 2010, an increase
of 8.9% compared to US$234.8 million in the fourth quarter of 2009.

This was mainly due to higher deliveries of nickel in matte combined with higher net average realized prices. In the first quarter of 2010, deliveries totalled 18,021 metric tons compared to 17,095 metric tons in the fourth quarter of 2009. The Company recorded an average realized price for nickel in matte of US$14,182 per metric ton during the first quarter of 2010, compared to US$13,733 per metric ton in the fourth quarter of 2009.

“Production of nickel in matte in the first quarter of 2010 increased 16.3% to 19,811 metric tons from 17,029 metric tons in the fourth quarter of 2009, when we carried out a regular maintenance shutdown. This increase was mainly due to higher actual throughput – aided by the rescheduling of a roof repair to one of our electric furnaces that moved to the second quarter of 2010 from the first quarter. The furnace shutdown was started on April 5, 2010 and repairs were completed on time on April 19, 2010. The furnace is now running at full capacity.” said Tony Wenas, Inco President Director.

Production was 1,790 metric tons more than the deliveries in the first quarter 2010 due to the shipment schedule. This resulted in higher nickel in matte inventories, which may offset the impact in second quarter 2010 production due to maintenance shutdown.

“Our earnings in the first quarter of 2010 were driven by higher nickel in matte deliveries and increased average selling prices, as compared to the fourth quarter of 2009. In addition, the Company achieved a structural operating cost reduction that improved its cost of production per unit. An example of this is a reduction in fixed costs in the area of supplies and contracts and services,” said Tony Wenas.

The company’s total cost of goods sold in the first quarter of 2010 increased to US$150.4 million from US$142.2 million in the fourth quarter of 2009, primarily due to higher deliveries. The cost of goods sold per metric ton delivered in the first quarter was consistent with the fourth quarter of 2009 despite an increase in consumables prices and fuel usage. This is primarily a result of cost reductions in other areas.

Inco consumed 32,000 kilolitres of diesel fuel at an average cost of US$0.59 per litre in the first quarter of 2010 compared to 24,700 kilolitres at an average cost of US$0.56 per litre in the fourth quarter of 2009. In addition, the company used 741,831 barrels of HSFO at an average cost of US$76.03 per barrel compared to 605,706 barrels at an average cost of US$69.81 per barrel in the fourth quarter of 2009.

The increase in fuel usage was primarily due to the fact that the company was operating in water conservation mode by operating the thermal generators. Inco has operated in water conservation mode since the beginning of 2010 because of lower precipitation levels in the fourth quarter of 2009.

“More recently, the water level in our main catchment area has improved to its maximum level supported by heavy rainfall and we had to spill water to avoid flooding of the areas surrounding the lakes. Management of the company is now maximizing the use of hydro generated power and minimizing the use of thermal power which is consistent with our objective of operating in an energy-efficient manner while maintaining production output,” noted Mr. Wenas.

Work has continued to build the Karebbe hydroelectric power generating plant at a total cost of US$410 million. All fabrication packages are progressing as planned and construction works have been 20% completed. The Karebbe project is expected to come on stream in the second half of 2011. The project will produce enough hydroelectric energy to displace all existing oil and diesel use to feed the electric furnaces at the Sorowako facility and is the main initiative in Inco’s energy cost reduction program.

As at March 31, 2010, Inco drawn US$150 million of the US$300 million loan facility provided by a group of Japanese banks, with the support of Nippon Export and Investment Insurance to fund the Karebbe hydroelectric project.

These resources have enhanced the cash position to face the significant disbursements made under the investments on our Karebbe hydroelectric project. The final drawdown may be done in the next two years, from the signing date of the facility, to fund the completion of the Karebbe project.

“We are looking at increasing our production capacity under our production optimization project. The company is in the middle of several studies on how to further optimize the operation of our facilities in Sorowako, primarily by eliminating bottlenecks in the current process. We are reviewing our business to identify areas for efficiency and productivity improvements, including enhancing process stability and equipment reliability. This ongoing optimization project sets the stage for further production increases” said Tony Wenas.
In the first quarter of 2010, cash provided by operating activities, but before capital expenditures, was US$99.9 million. Cash used for capital expenditures in the first quarter of 2010 was US$33.0 million in line with the US$33.3 million spent in the fourth quarter of 2009. There was a net cash inflow of US$65.7 million in the first quarter of 2010 compared to a cash inflow of US$91.4 million in the fourth quarter of 2009 which was mainly driven by US$150 million of loan withdrawal. The company plans to spend US$257.7 million on capital expenditures in 2010, which consists of US$112.1 million for sustaining capital, US$141.3 million for growth capital, and US$4.3 million for health, safety and environment.