PT International Nickel Indonesia Tbk reports second quarter 2006 net earnings
PT International Nickel Indonesia Tbk (“PT Inco”, or the “Company”, JSX:INCO) today reported second quarter 2006 unaudited sales of $258.6 million, a 1.8% decrease from $263.4 million in the same quarter last year. net earnings in the quarter ended June 30, 2006 were $79.7 million, or $0.08 per share, down 15.1% from net earnigs of $93.9 million, or $0.09 per share, in the same quarter of 2005.
Sales rose 1.4% to $440.5 million in the first six months of 2006 from $434.3 million in the same period in 2005. Net earnings in the first half of 2006 decreased 17.1% to $123.3 million, or $0.12 per share, from $148.7 million, or $0.15 per share, in the first half of 2005.
“As a result of a transformer fire at furnace No.2 in late May, PT Inco has reduced its 2006 production goal from 167 million pounds of nickel in matte to approximately 158-to-159 million pounds of nickel in matte, since we do not expect to recover lost production in the second half of the year. However, our target output still puts us on track for a level just below the 159.1 million pounds recorded in 2004, our second highest production year ever,” said Arif Siregar, President and Chief Executive Officer.
“The fire means a transformer must be replaced. Reheating of the furnace is expected to take about 7-to-8 weeks. We have decided to delay the heat-up process by 2-to-3 weeks in order to complete a risk analysis of certain peripheral elefctrical components to ensure smooth ongoing operation. Damage from the fire is estimated at $3 million and insurance will cover the cost, subject to a deductible. The Company is also covered for loss of earnings, subject to a waiting period,” Mr. Siregar said.
“PT Inco’s balance sheet remains strong. After dividend payments of US$ 109.3 million in the last 12 months, our cash balance at the end of the second quarter of 2006 stood at $170.4 million compared with $239.2 million at the end of the same period last year,” Mr. Siregar added.
“Work continues on our project to raise annual production capacity to 200 million pounds of neckel in matte by 2009, which requires the construction of a new dam and generating facility at Karebbe on the Larona River. PT Inco is finalizing discussions with Indonesian governments at the local, regional and central levels regarding amendments to the forestry permit we received in the fourth quarter of 2005. We are reviewing the financial impact of delays related to the permit and will report our conclusions once this analysis is done,” Mr. Siregar said.
The Company’s realized price for nickel in matte averaged $14,326 per tonne ($6.50 per pound) in the second quarter of 2006, compared with $12,897 per tonne ($5.85 per pound) in the corresponding 2005 period and $11,136 per tonne ($5.05 per pound) in the first quarter of 2006. Under PT Inco’s long-term, must-take U.S. dollar-denominated sales contracts, the selling price of its nickel in matte is determined by a formula based on the higher of the London Metal Exchange cash price for nickel, and Inco Limited’s net average realized price for nickel.
Production of nickel in matte for the second quarter of 2006 was 15,900 tonnes (35.0 million pounds), a reduction of 15% from 18,700 tonnes (41.3 million pounds) in the corresponding 2005 period. Production of neckel in matte in the first half of 2006 declined by 7.8% to 33,200 tonnes (73.3 million pounds)
from 36,000 tonnes (79.4 million pounds) in the first six months of 2005. net cash cost of production in the second quarter of 2006 rose 37.6% to $3.11 per pound from $2.26 per pound in the same period last year. The principal reasons for this change are increases in high sulphur fuel oil prices, which climbed to an average of $54.06 per barrel in the second quarter of 2006 from $35.86 per barrel in the prior year period, and reduced production levels. With the nickel price remaining strong, PT Inco h as supplemented its hydroelectric power generation with more espensive diesel-fired power generation. This enables the Company to maximize production and, as was the case in the second quarter, allows for maintenance of critical generating equipmenft. Prices continued to rise for other major commoditfies and inputs required for the Company’s operations, including diesel fuel and tires. Increased costs associated with mobile equipment operations also contributed to higher unit cash costs in the second quarter.
In the first half of 2006, cash provided by operating activities, but before capital expenditures, fell to $103.8 million from $140.4 million for the prior period, primarily due to increased payments to suppliers of ($89.8 million), partly offset by lower tax payments of ($28.6 million) and higher receipts from customers of $36 million. Cash capital expenditures in the first six months of 2006 rose to $50.8 million from $47.4 million in the corresponding 2005 period. Cash used for dividend payments in the first half of 2006 declined to $85.4 million from $97.2 million in the first h alf of 2005. As a result of higher supplier payments, capital expenditures and dividend payments, a net cash outflow of $78.7 million occurred in the first half of 2006 compared with an outflow of $53.8 million for the corresponding period in 2005
A change in accounting policy relafting to asset retirement obligations adopted during the 2006 second quarter affected certain financial results reported by the Company. Based on a recently completed third party study, PT Inco recognized retroactive to January 1, 1995 an asset retirement obligation for the rehabilitation, decommissioning and reclaiming of facilities at the Company’s operations in Sulawesi. The Company believes that recognizing such obligations when incurred and treating them as liabilities improves information available regarding future cash outflows, liquidity, and the fair value of liabilities, while enhancing the comparability and transparency of its financial statements. As a result of adopting this policy, in the 2006 second quarter, PT
Inco recognized a provision for decommissioning of $23.0 million and recorded a decrease of $10.4 million in retained earings (net of tax effect of $4.5 million) for the period up to December 31, 2005. Also, earnings for the six months ended June 30, 2006 fell by $0.8 million, with both accretion and depreciation expenses charged to cost.
At June 30, 2006, the Company’s inventories of nickel in matte were 128 tonnes (0.3 million pounds), compared with 2,028 tonnes (4,5 million pounds) at March 31, 2006 and 1,475 tonnes (3.3 million pounds), on June 30, 2005. Variations in inventories and deliveries are largely due to shipment scheduling.
For further information, please contact:
Indra Ginting Phone: 62 21 524 9000
Jan Kees van Gaalen Phone 62 21 524 9001
