Exclusive: Falconbridge president speaks out; Inco and Falconbridge are the belles of the mining ball, and everyone--especially Teck Cominco, Xstrata and now Phelps Dodge--wants to know who they are taking home.

Editor's Note: On the eve of Northern Ontario Business deadline, Inco, Falconbridge and Phelps Dodge Corp. announced a $56-billion proposal that would create the world's largest nickel producer from the three companies. The following interview was conducted in mid-June; for details on the Phelps Dodge proposal, see Around the North on Page 8.

An Inco-Falconbridge marriage promises to bring billions in capital infrastructure projects over 10 years, increases in nickel-copper production and guaranteed employment opportunities to Sudbury's Nickel Basin.

"If you look at production you can expect to see a significant increase in the amount of nickel, copper and PGMs that we are producing out of Sudbury in the order of 50,000 tonnes of nickel and the same amount of copper," says Falconbridge president Aaron Regent.

To reach such production quotas the new Inco Ltd. will have to develop additional mines.

"We are going to be needing people to do that," Regent says.

Inco's workforce is aging. In the next five years over 1,000 people could retire. At the same time Falconbridge will be closing down depleted mines and reducing their workforce by 600.

"Inco is going to need people and we have people available, so you avoid severance (and) training costs," he says. "Beyond that though, we will need additional resources."

The locals of the United Steelworkers of America and the Canadian Autoworkers representing Inco and Falconbridge employees are the backbone of the company, and therefore will be involved in the merging process. How involved Regent cannot predict.

"A high level of communication and understanding is going to be critical," Regent says.

Neither company needs the unions' blessing for the transaction to be complete. It ultimately comes down to shareholders to decide.

As officers of their corporations, both Inco president Scott Hand and Regent ensure shareholders obtain the best proposal.

"I think we have a very compelling investment proposal from Inco," Regent says. "We think it makes a lot of sense for our shareholders. The fact that Xstrata put a bid on the table validates the potential and the value of our company."

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Double your money

Xstrata PLC, which makes its financial home in Zug, Switzerland, has been cleared by the U.S. Department of Justice in its bid for Falconbridge Ltd. Xstrata bought 19.9 per cent of Falconbridge shares valued at approximately $28 last August.

"They almost doubled their money in a year," Regent says.

If they are not successful in the bid they walk away with a significant gain on the investment.

"You can consider it a pretty good consolation prize if that is how you want to characterize it," Regent says.

But management teams do not enter into a bidding war to receive a consolation prize.

Earlier in 2004, Xstrata lost a bid to BHP for Australia's Western Mining Company Resources.

The Falconbridge board remains opposed to the Xstrata bid. The transaction is dependent upon the Inco-Falconbridge merger and regulatory approval.

"We expect (regulatory approval) to come; we just don't have (a receipt) in hand."

The date for this merger is undefined.

"I guess the drop dead date is when someone stops bidding," Regent says, adding he expects a resolution to come by July or August.

Last month, company management teams provided 60 investment community members with a first-hand look at the companies' extensive Sudbury Basin facilities.

Both companies wanted investors to obtain a thorough understanding of the unique opportunity that exists in combining the two companies.

The two-day tour left some investors with an impression that a higher bid could be around the corner. Regent had no comment on this.

The whole merger is dependent on how far both suitors want to push it, says one analyst.

Xstrata has approval from U.S. Justice Department and Competition Canada, but not from Investment Canada or the European Commission.

"Xstrata's bid July 7, will be dependent upon whether it receives Investment Canada approval," Regent says. "That may or may not be on or before July 7."

Canada's process will not take as long as the European reviews, Regent says.

"It depends when those receipts will be on hand," he says.

Combining both nickel operations would provide a reduction in unit costs. This makes other deposits in the vicinity economical.

With billion-dollar capital investments slated for smelters, mills and mines slated over 10 years on each of the companies' properties, it is difficult to predict how companies dependent on Falconbridge and Inco contracts will fare, he says.

Regent expects "it would be status quo, but I just cannot predict how our actions will impact others. That is something that time will tell."

www.falconbridge.com

www.inco.com

By KELLY LOUISEIZE

Northern Ontario Business