CLSA Inco – 1Q10 results look good, expect stronger quarters ahead by Olie

The company posted net profit of US$76m in 1Q10, up by four folds for last year. The results accounted for around 26% of our full year 2010 forecast.

Expect more in the coming quarters, if nickel price stays. We think that earning, if nickel price stays at the current spot of US$10/lb, would be around 40% higher in the coming quarters. Note that we are still using a rather conservative nickel price of US$8.0/lb that translates to an average price received of US$6.2/lb for PT Inco.

Costs have gone up but so have productions. Costs of production have been running slightly ahead of forecasts, US$3.8/lb in 1Q10 as compared to US$3.7/lb assumed for the full year average, a reflection of higher fuel consumptions and costs. Nonetheless, production has been better than expected during 1Q10, representing some 27% of forecasts.

New hydropower project is progressing as scheduled. Meanwhile, the work to build Karebbe hydroelectric power plant has continued progressing. All fabrication packages are progressing as planned while construction works have been 20% completed. The Karebbe project is expected to come on stream in the second half of 2011.

While there is upside to our current nickel price assumptions relative to spot, nickel price recently has been hammered as concern over tightening in China and weak Euro-zone economy. We are reviewing our numbers and recommendation.