Is Sudbury Phelps Dodge city?

So, mother Inco has brought stepfather Phelps Dodge home to meet the children.

The children (community residents, service and supply companies, along with other industry sectors) have grown over 100 years predominantly due to "mother Inco."

Granted the relationship between mother and child has not always been harmonious, but it has always been an intimate relationship, says Northern Ontario Business publisher Patricia Mills. Now there is another parent in the family and the children are scared. Putting facts aside the response to the friendly takeover has been fueled in part by emotion. In Sudbury employers and employees, and perhaps even shareholders, have come to know what to expect over the years from the Sudbury mining houses.

"We are not sure how the rewards will be doled out because of our new step father," Mills says, speaking with Phelps Dodge CEO and chairman J. Steven Whisler.

"Will you treat your new step children the same as your own?" Mills asks.

An estimated $10 million (Cdn) came into Sudbury alone in the last 12 months from Inco and Falconbridge contributions. Although there is no corporate policy on limiting community contributions Phelps Dodge allocates roughly $3.5 million (US) in corporate contributions, and another $2 to $3 million from each operation annually.

The Phelps Dodge Foundation acts as the company's charitable arm and in the last two years a $6 to $8 million (US) injection has brought contributions up to $35 million (US).

"Once we get the three companies combined, one of the things we will do is step back and look at is whether we need to substantially increase that," Whisler says.

Whistler is fully aware of the contributions Inco and Falconbridge have made to this community.

"This is not a new phenomena to us," Whistler says. "We have relationships with communities where we have operated. With up to 7,000 employees here it is very important that those relationships continue to be enhanced and strengthened. It is frankly in our best interest to do exactly that ... it is the right thing to do."

His goal is to make this merger as seamless a transition as possible. The combination of the three companies creates a platform for consolidation, creating a stronger cost competitive company, he says.

With the 125 years of mining experience, "this creates more stability."

Corporate social responsibility means Phelps has taken measures to protect the environment with state-of-the art technology at some of their developing mine sites.

They have put aside $500 million in a global trust fund earmarked for environmental projects and at the same time continue to spend money dissolving some of the legacy issues.

"Those are tougher to do from a cost and technology standpoint. We are spending in the order of $150 million a year that is totally discretionary over and above the $30 to $40 million just addressing those issues. This is just the right thing to do. Not only is it the right thing to do, but it is in our best interest."

The company fully funds their pension plan of more than $500 million.

Phelps has moved to an all-salary plan to consolidate a payment package for its workers. They had pay plans dating back to the late 1890s when workers were compensated at the end of each day. Those distinctions inhibited the progress of a modern forward-looking company Whisler says. Therefore, administration moved to salaried employees without devaluing worker's compensation.

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"This enables everyone to pull the oars in the same direction."

Phelps is not considered a giant player. So, the question arises as to how they were going to drum up the money to purchase the new Inco.

"All the financing has been fully committed," Whisler says.

Citigroup, HSBC Bank Canada and the Bank of Nova Scotia have all approved financing.

The world of mining is quite small. People know one another well. If they don't, they know someone who does. Falconbridge shares a longer relationship with Phelps than Inco as a result of some of the worldwide copper connections. Phelps has been in the mining business for 125 years, and is engaged in a multitude of open pit mines with only one underground operation. Eventually some of those open pit sites will require the North's expertise as some of the deposits will go underground.

Sudbury-based supply companies have an opportunity to become larger worldwide players, Whisler says. The web allows companies to access various international projects and the reality is "this will be a net plus for them."

Inco's North American and European operation's president Mark Cutifani says he will do what he can to "open doors for local business, but in the end, you've got to win the business. We are not going to help fund the social structure. You have to be competitive."

Expanding opportunities

New projects planned locally will provide an arena for companies to show their competitive edge.

Falconbridge's Nickel Rim deposit is next door to Inco's eight-million tonne Victor Advanced Exploration site. Victor was not to be developed for another 15 to 20 years with more exploration work still to be completed. The Nickel Rim infrastructure takes Inco within 1,000 metres of that deposit.

"We expect that resource to expand," Cutifani now says.

The idea is to examine the resource from Nickel Rim's underground infrastructure and "hopefully define better than that eight-million-tonne resource and create twice the size of the operation."

There is a proposal going into Inco's board to expand the Coleman Mine operations and feasibility studies on the new Totten and Kelly Lake Mine are currently underway. Between copper and nickel projects, the new Inco will become the largest player in both those commodities.

"So there is a real commitment coming back to Sudbury," Cutifani says and Phelps has the financial file to help develop significant Sudbury projects over 10 years.

In the last two years Inco teams put forth a plan that would see 40 more years of operating. Prior to that, the old Inco was already reducing in scale. With Voisey's Bay in Labrador and the Goro project in New Caledonia coming on line, Sudbury was becoming a smaller part of the business.

The three companies appear to be on the same page in that they all have generational workers, share a degree of community and environmental interest and are willing to work in conjunction with local organizations including unions.

Community minded

"Frankly I think we owe it to provide the consistency and leadership that (communities and people) deserve. It was the right thing to do."

July 13 was the last date for the Inco's bid for Falconbridge to expire and so began the process of integrating the new Inco. Phelps Dodge will then pursue its bid for the new Inco.

"Between Inco and Falconbridge we would represent 60 per cent of the shareholding in the new company against Phelps' 40 per cent," Cutifani says.

Inco attempted to fuse together with Falconbridge after Anglo-Swiss Xstrata PLC took over Brascan's 19.8-per-cent stake in Noranda.

"Xstrata declared pretty clearly they were going to take Falconbridge," Cutifani says.

Falconbridge then went to Inco with a deal to bring the two companies together. Inco just finished developing a new strategy for Sudbury where they were going to expand operations. Falconbridge came to the table with new resources and plenty of experienced staff.

Teck Cominco came forth with a bid to purchase Inco provided they drop Falconbridge. Inco then knew they needed a third party to help complete the Falconbridge-Inco transaction. Enter Phelps Dodge with a $40-billion merger proposal that would unite his company with the new Inco creating a $56-billion Phelps Dodge Inco.

Xstrata then countered with a $59 per share cash offer for Falconbridge alone. Inco chairman and CEO Scott Hand says the Inco-Falconbridge Phelps union is still the best investment for shareholders for the short- and long-term value. Under the three-way friendly takeover Phelps Dodge shares as of July 11 were $61.65 (Cdn) per share mid-day trading, well above the Xstrata offer. Inco has obtained all the regulatory clearances required, while Xstrata is subject to a variety of conditions.

This story was filed prior to the latest offers from Phelps Dodge and Xstrata for Inco and Falconbridge.

By KELLY LOUISEIZE

Northern Ontario Busines