Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended:            December 31, 2002
Commission File Number 1-1143

INCO LIMITED

(Name of Registrant as specified in its charter)

145 KING STREET WEST, SUITE 1500
TORONTO, ONTARIO, CANADA M5H 4B7

                                                                                   (Postal Code)
(Address of principal executive offices)

(416) 361-7511
(Telephone number)

        Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the “Act”):

        The Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Act during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
         The Registrant is an accelerated filer (as defined in Rule 12b-2 under the Act).
        As of February 10, 2003, the aggregate market value, based upon the closing sale price of the Common Shares and 5.5% Convertible Redeemable Preferred Shares Series E (“Series E Preferred Shares”) on the New York Stock Exchange, of the Registrant’s voting shares (Common Shares and Series E Preferred Shares) held by non-affiliates equaled $4,253 million.^§
        As of February 10, 2003, 183,481,450 Common Shares (including non-voting fractional interests aggregating 5,891 Common Shares) and 9,439,600 Series E Preferred Shares of the Registrant were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Registrant’s proxy circular and statement dated February 10, 2003 for the 2003 Annual Meeting of Shareholders of the Registrant are incorporated by reference in Part III of this Report to the extent set forth in Items 10, 11 and 12 hereof.

INDEX TO INCO LIMITED
2002 ANNUAL REPORT ON FORM 10-K

UNLESS OTHERWISE STATED, ALL DOLLAR AMOUNTS IN THIS REPORTARE
EXPRESSED IN UNITED STATES CURRENCY

PART I

i

PART II

ii

iii

PART III

PART IV

iv

PART I

Items 1. and 2. Business and Properties of Inco Limited

Introduction

        Inco Limited (“Inco”, the “Company”, “we” or “us”) was incorporated in 1916 under the laws of Canada, succeeding a business established in 1902. In 1979, the Company was continued by articles of continuance under the Canada Business Corporations Act and is governed by that Act. The Company’s executive offices are located at 145 King Street West, Suite 1500, Toronto, Ontario, Canada M5H 4B7. Unless the context otherwise requires, all references in this Report to “Inco” or the “Company” include all of its consolidated subsidiaries, unincorporated units and divisions.

        Inco is one of the world’s premier mining and metals companies. The Company is a leading producer of nickel, a hard, malleable metal which, given its properties and wide range of applications, can be found in thousands of products. The Company is also an important producer of copper, precious metals and cobalt and produces sulphuric acid and liquid sulphur dioxide as by-products from its processing operations at Sudbury, Ontario. The Company’s principal mines and processing operations are located in the Sudbury area of Ontario, the Thompson area of Manitoba and, through a subsidiary in which the Company has an equity interest of 59 per cent, PT International Nickel Indonesia Tbk (“PT Inco”), on the island of Sulawesi, Indonesia. The Company has additional wholly-owned metals refineries at Port Colborne, Ontario and in the United Kingdom at Clydach, Wales and Acton, England. The Company also has interests in nickel refining capacity in the following Asian countries: in Japan, through contractual arrangements with Inco TNC Limited (“ITL”), in which the Company has an equity interest of 67 per cent; in Taiwan, through Taiwan Nickel Refining Corporation (“Taiwan Nickel”), in which the Company has an equity interest of 49.9 per cent; and in South Korea, through Korea Nickel Corporation (“Korea Nickel”), in which the Company has an equity interest of 25 per cent. The Company also has a 65 per cent equity interest in Jinco Nonferrous Metals Co., Ltd. (“Jinco”), a company which produces nickel salts for plating and other applications at a plant near Shanghai in the People’s Republic of China (“China”).

        Inco is currently developing two major new or “greenfield” projects, its 85 per cent-owned Goro nickel-cobalt project in the French overseas territorial community (Collectivité territoriale) of New Caledonia (“New Caledonia”) and its wholly-owned Voisey’s Bay nickel-copper-cobalt project in the Province of Newfoundland and Labrador.

        Through its wholly-owned subsidiary, Inco S.A., Inco owns an 85 per cent equity interest in Goro Nickel S.A. (“Goro Nickel”), the Goro project company which holds a number of concessions covering nickel-cobalt properties in New Caledonia. In April 2001, the Company announced that it planned to proceed with the construction of a commercial nickel-cobalt project in the south province of New Caledonia to supply nickel to stainless steel customers in South Korea, Taiwan and eventually China and cobalt products to certain markets. This project represents a fully integrated mining and processing facility with a planned annual production capacity of approximately 55,000 tonnes of nickel and 4,500 tonnes of cobalt. During 2002, the Company continued to proceed with the commercial development of the Goro project. In September 2002, the Company initiated an update process covering a number of key aspects of the Goro project, including the capital cost estimate and schedule. In early December 2002, the Company announced a plan to undertake a significantly more comprehensive review of the project following the receipt of information from the engineering firms providing engineering, procurement and construction management services to the project which, if confirmed, would indicate an increase in the capital cost estimate for the project in the range of 30 to 45 per cent above the project’s then current capital cost estimate of $1,450 million. As a result of the temporary suspension of certain development activities and other actions taken by December 31, 2002 during this review process, the Company recorded a pre-tax charge of $25 million in the fourth quarter of 2002 relating to the Goro project. This charge included $62 million (i) relating to the cancellation or termination of certain outstanding contractual obligations, (ii) to accrue for certain demobilization costs and (iii) to reduce the carrying value of certain assets relating to the project, partially offset by currency hedging gains of $37

1

million on certain forward currency contracts which were closed out in early January 2003. For further information on this review and other aspects of the Goro project, see “Goro Nickel S.A.” below.

        Inco holds a 100 per cent equity interest in the Voisey’s Bay nickel-copper-cobalt deposit in the Province of Newfoundland and Labrador through its wholly-owned subsidiary, Voisey’s Bay Nickel Company Limited (“VBNC”). During 2002 the Company reached agreements with key stakeholders to enable the commercial development of the Voisey’s Bay nickel-copper-cobalt deposits in Labrador to proceed. On July 29, 2002, Impacts and Benefits Agreements were entered into with the Labrador Inuit Association and Innu Nation and on October 7, 2002 definitive agreements were entered into with the Province of Newfoundland and Labrador to implement the terms of a non-binding statement of principles which had been entered into on June 11, 2002 covering the commercial development of the Voisey’s Bay deposits. As a result of a review of the net carrying value of the Voisey’s Bay project which was announced on June 11, 2002, the Company recorded a non-cash charge of $1,552 million, net of deferred income and mining taxes of $770 million, in the second quarter of 2002 to reduce the $3,753 million net carrying value of the Voisey’s Bay project to $2,201 million. For further information on the Voisey’s Bay project and related matters, see “Voisey’s Bay Nickel Company Limited” below.

        Inco’s properties are described under “Description of Business” below.

        The information in this Report is as of December 31, 2002 except where an earlier or later date is expressly indicated. Nothing included herein should be considered as implying that any information is correct as of any date other than December 31, 2002, except as otherwise expressly stated.

Availability of Documents

        Inco’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and all amendments to such reports, are available free of charge on the Company’s website, inco.com, as soon as reasonably practicable after such reports are electronically filed with the Securities Exchange Commission. Information contained in or otherwise accessed through the Company’s website does not form part of this Report. All such references to the Company’s website are inactive textual references only.

Cautionary Statement Regarding Forward-Looking Statements

        Certain statements contained in this Report are forward-looking statements (as defined in the U.S. Securities Exchange Act of 1934). Examples of such statements include, but are not limited to, statements concerning: (1) the price volatility for nickel and other primary metal products produced by the Company; (2) the long-term demand for and supply of nickel, copper and other metals as well as the availability of, and prices for, intermediates containing nickel purchased by the Company, and nickel-containing stainless steel scrap and other substitutes for primary nickel; (3) the premiums realized by the Company over London Metal Exchange (“LME”) cash prices and the sensitivity of the Company’s results of operations to changes in metals prices, prices of commodities used in its operations and interest rates; (4) the Company’s strategies and plans; (5) the Company’s interest and other expenses; (6) the Company’s energy, pension and other costs; (7) the Company’s position as a low-cost producer of nickel; (8) the Company’s debt-equity ratio and tangible net worth; (9) the political unrest or instability in countries such as Indonesia and its impact on the Company’s Indonesian subsidiary, PT Inco, and political developments in other countries in which the Company operates and elsewhere; (10) the completion and results of a comprehensive review of the capital cost, scope, schedule and other key aspects of the Goro project and the results of the bankable feasibility study for the Voisey’s Bay project (for a discussion of the results of the bankable feasibility study, see “Voisey’s Bay Nickel Company Limited – Project Phases” below); (11) the timing of the start of production and the costs of construction with respect to, the issuance of the necessary permits and other authorizations required for, engineering and construction timetables for, and the necessary financing plans and arrangements for, and partner or similar investment and other agreements or arrangements associated with, the Goro and Voisey’s Bay projects; (12) the Company’s estimates of the quantity and quality of its ore reserves; (13) planned capital expenditures; (14) the Company’s costs of production and production levels, including the costs and potential impact of complying with existing and proposed environmental laws and regulations and net reductions in environmental emissions; (15) the impact of changes in Canadian dollar-U.S. dollar

2

and other exchange rates on the Company’s costs and the results of its operations; (16) the Company’s sales of specialty nickel products; (17) the Company’s cost reduction and other financial and operating objectives; (18) the commercial viability of new production processes and process changes; (19) the Company’s productivity, exploration and research and development initiatives as well as environmental, health and safety initiatives; (20) the negotiation of collective agreements with its unionized employees; (21) the Company’s sales organization and personnel requirements; (22) business and economic conditions; and (23) the enforceability of certain liabilities. Inherent in forward-looking statements are risks and uncertainties well beyond the Company’s ability to predict or control. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this Report. Such statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, assumptions about: (a) business and economic conditions, including exchange rates and energy, pension and other costs and other anticipated and unanticipated costs; (b) the supply and demand for, deliveries of, and the level and volatility of prices of, nickel, copper, cobalt and the Company’s primary and other metals products, purchased intermediates and nickel-containing stainless steel scrap and other substitutes and competing products for the primary nickel and other metal products the Company produces; (c) the timing of the receipt of regulatory and governmental approvals for the Goro and Voisey’s Bay projects and other operations; (d) the availability of financing, including partner or other investment arrangements in the case of the Goro project, for the Company’s development projects on reasonable terms; (e) the Company’s costs of production and production and productivity levels, as well as those of the Company’s competitors; (f) engineering and construction timetables and capital and operating costs for the Goro and Voisey’s Bay projects; (g) market competition; (h) mining, processing, exploration and research and development activities; (i) the accuracy of ore reserve estimates; (j) premiums realized over LME cash and other benchmark prices; (d) tax benefits; (l) the resolution of environmental and other proceedings and the impact on the Company of various environmental regulations and initiatives; (m) political instability in Indonesia and other countries or locations in which the Company operates or otherwise; and (n) the Company’s ongoing relations with its employees at its operations throughout the world. The forward-looking statements included in this Report represent the Company’s views as of the date of this Report. While the Company anticipates that subsequent events and developments may cause the Company’s views to change, the Company specifically disclaims any obligation to update these forward-looking statements. These forward-looking statements should not be relied upon as representing the Company’s views as of any date subsequent to the date of this Report.

Description of Business

Sales

        The following table shows the Company’s net sales to customers for the three years ended December 31, 2002:

3

Deliveries

        The following table shows deliveries of the Company’s principal primary metals and related products for the three years ended December 31, 2002: