Nickel producers taking aim at their labor and hydro costs.

The present mood in the nickel mining industry appears to be one of cautious optimism, a dramatic change from 1991.

The good news is, both Inco Ltd. and Falconbridge Ltd. reported a profit for the first quarter of 1992, following losses in the last quarter of 1991.

Inco's net earnings were $2.2 million (U.S.), compared to a loss of $5.8 million for the fourth quarter of 1991.

Falconbridge reported net earnings of $28 million (U.S.), following a $17-million loss in the fourth quarter.

According to Michael Sopko, Inco's chief executive officer, current demand remains at near-record levels, and the future looks promising.

At the company's annual meeting held in April, Inco shareholders heard of the enormous potential for nickel powders, stainless steel and nickel-based alloys.

"Nickel prices can only go up, up and up," Sopko predicted.

Dave Hansman, manager of business development for the Redpath Group in North Bay, is less optimistic.

"The money isn't being spent," he says. "I'm not so sure people should be planning for prices to come back up."

Contracting business at Redpath has been reduced by more than two-thirds from what it was during the nickel boom. And this recession is worse than the last, according to Hansman.

"Four years ago we did in excess of $160 million (of business). This year we're expecting about $50 million," he says.

Hansman says there are no big contracting jobs available and competition for the smaller jobs is fierce.

"Our company, just like many companies, has to rethink the whole way of doing things as far as how we're providing the service."

"From our point of view, it could get a heck of a lot worse," Hansman says. "We still consider ourselves fortunate."

Warren Holmes, chairman of the Ontario Mining Association, acknowledges that mining contractors and suppliers are being hard hit.

"That difficulty has perhaps been softened by the tremendous amount of capital and development work that has been going on," he adds.

Pat MacIsaac, president of MacIsaac Mining and Tunnelling in Sudbury, admits that the mining industry is "generally very quiet," but offered no further comment.

Mining analysts, meanwhile, say Sopko's prediction of rising prices is possible, particularly because China has recently become a large buyer of commodities.

"Thanks to China, the world recession is over," says Ray Goldie, a Toronto mining analyst for Richardson Greenshields. "The average consumption of base metals in the fourth quarter of 1991 was up 5.2 per cent from the first quarter."

However, what happens this year will depend largely on Russian exports.

"Because 16 per cent of the nickel supply comes from the Russians, and we really don't know what they're doing, this is by far the toughest commodity to call," admits Goldie.

He says nickel could either be $8 or $2.25 (U.S.) per pound by this time next year.

Nickel prices hovered around the $2 mark for most of the 1970s and '80s. The price tripled in 1988/89 following the opening of the Japanese markets, but has been in decline ever since.

Holmes says the nickel boom of 1988 offset the recession in 1982. However, he says it is tough again in the North American market.

"If you look at the return on assets of the Ontario mining industry through the 1980s, you'd find that it's been averaged at a very unsuccessful level. So when a recession hits, it's tough," he explains.

Both Inco and Falconbridge are taking measures to address labor and electricity costs which have increased dramatically over the past four years.

Sopko reports that Inco's nickel production costs have nearly doubled since 1987, reflecting a combination of lower ore grades, higher employment costs, a stronger Canadian dollar and increased depreciation and amortization charges.

"It is our intention to reverse this trend," says Sopko.

The company is taking measures to reduce market over-supply and bolster prices. Last month it closed its Shebandowan Mine near Thunder Bay for a minimum of three months. The mine is scheduled to close for good later this year.

In addition, Inco is extending the summer shutdown at its Sudbury operations from four to five weeks this year. These measures are expected to reduce the company's nickel output by 10 million pounds for the balance of 1992.

Richard Laine, the director of human resources and public affairs at Falconbridge's Sudbury operations, reports that the company has set tight controls on hiring.

"We were also able to reduce the number of contractors, and that's an on-going process," he adds.

Laine says Falconbridge has also appointed a committee to tackle its electricity costs.

Meanwhile, Falconbridge has started production at its new, $300-million Craig Mine, located north of Sudbury. The mine is expected to reach full capacity by the end of next year.

"That's our future," says Laine.