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Inco Ltd. $54 – Toronto symbol N

INCO LTD. $54 (Toronto symbol N) struggled as the Asian economic crisis led to lower nickel demand and prices.

In light of the bleak outlook, it seemed that Inco overpaid for the huge Voisey’s Bay nickel deposit in Labrador. The Newfoundland government’s demand that Inco build a smelter in the province to process the ore also threatened the project’s feasibility. The high cost of the Voisey’s Bay purchase also forced Inco to quit paying dividends.

But spreading prosperity around the world has spurred nickel demand and prices. That helped make it economical for Inco to build a smelter in Newfoundland. Voisey’s Bay began operations in 2005.

We feel nickel prices will stay high for the next few years. So does Inco, which recently resumed dividend payments; the annual rate of $0.50 U.S. a share yields 1.1%.

In light of all this, we’ve raised Inco’s SI Rating from “Extra risk” to “Average”.

Inco is a buy.

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