Royal Trust Tower Toronto-Dominion Centre
Inco Limited has been the world's 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 world's 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 metal's only use, and most of the world's 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 world's largest nickel deposit was in Ontario's Sudbury Basin, and it was not long before one of the area's 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 world's 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 president--and later chairman--of 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. Inco's 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 US34¢s; per pound to US25¢s; per pound, driving British America to bankruptcy a year later. No one volunteered to purchase the company's assets until a little-known firm, Anglo-Canadian Mining &dollar¯p; Refining bought them very cheaply. Anglo-Canadian was a dummy corporation owned by Inco, which simply took what it could use of British America's 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 France's Le Nickel and Inco's 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 world's 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 tne 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 tnat Inco held unchallenged power. As the supplier of 90% of the non-communist world's nickel, Inco was in a position of importance. Its metal was needed by all of the world's 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 Germany's I.G. Farben in the mid-1930s. Ten years later, the Department of Justice charged, in antitrust action, that Inco's 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 anti-trust 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 Inco's 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 Inco's price cutting on nickel oxides, Nicaro's specialty. The extent of Inco's 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 war's end, Inco's 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.
Inco's 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. government's willingness to finance alternative suppliers of the important metal. Inco's 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 company's 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. Inco's 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 steel--then as now the most important nickel alloy--was just beginning to mushroom. Under the leadership of new chairman Harry S. Wingate, Inco's 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 Inco's 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 company's 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. Inco's 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.
Inco's share of the free world's 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 Inco's 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 Inco's 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, Inco's 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 world's 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 Inco's 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 world's 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 &dollar¯p; 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.).