Xstrata Nickel extends olive branch to Inco Ltd.

Xstrata officials are holding out an olive branch to Inco and the future owners of the Canadian nickel mining giant to consider teaming up on a Sudbury joint venture.

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Newly-appointed Xstrata Nickel CEO Ian Pearce and Xstrata CFO Trevor Reid toured the company's recently-acquired Falcon-bridge assets, in late August, while meeting with employees and community leaders to outline their "value-creating" growth strategy, and allay any fears associated with a hostile takeover.

The Anglo-Swiss miner has promised no job cuts in operations personnel for three years while giving complete authority and autonomy for the nickel business unit to run their own operations.

"We are responsible for providing the capital, they are responsible for running their businesses," Reid told a Sudbury and District Chamber of Commerce breakfast crowd of business people, local politicians, labour leaders, mining suppliers and Inco officials on Aug. 31.

As a well-connected company on the London financial market, Reid pledged to be a good corporate citizen and promised to provide the necessary capital to maximize the Sudbury operation while seeking partnership opportunities wherever possible. Xstrata has fostered global partnerships with Anglo American, BHP Billiton and Teck Cominco.

"We're not going to spend $20 billion on a company to see it whither and die through lack of support," said Reid.

Xstrata's Aug. 17 acquisition of Falcon-bridge fulfilled a long-held desire to grab a foothold in the nickel industry and add to their diversified copper, zinc, coal and chrome portfolio.

Renowned for its lean management structure, with some 30 employees at their London and Zug, Switzerland corporate offices, Reid stressed Xstrata's approach to creating shareholder value is not to lower costs by "slashing and burning", but increasing efficiencies through growing operations.

Part of Xstrata's plan for Sudbury is to improve efficiencies by pursuing a partnership with the prospective new owner of Inco, most likely Brazilian miner Companhia Vale do Rio Doce (CVRD).

Soon after Xstrata chief executive Mick Davis appointed Pearce (formerly Falcon-bridge's chief operating officer) to the head of his nickel business, he extended an invitation for Inco's suitor to join them in creating a consolidated mining camp.

Last fall, Inco and Falconbridge began early legwork to consolidate operations during their merger talks.

With Inco's North American president Mark Cutifani in the audience, Reid urged Inco officials not to wait. "We should be continuing because I know a lot of work has been done. That it is in the greatest interests of the two companies involved and in the greatest interests of this community."

Added Pearce, "Anyone with any knowledge of Sudbury knows that Inco and Xstrata Nickel mines and processing facilities can work together to increase the productivity and the competitiveness of the mining assets in the Sudbury Basin."

"In our minds, we believe there is value for shareholders, whoever owns Inco, and we're ready to find those synergies and bring them to the table," Pearce later told reporters.

"It was well progressed during the discussions between Falconbridge and Inco and we're ready to continue those discussions today."

Pearce says he couldn't give specifics on the possible structure of an Xstrata-CVRD joint venture until Inco's ownership question is settled.

Inco's Cutifani expressed a keen interest to any partnership proposal although his company had not received any formal overtures from Xstrata.

"We're very like-minded and want to see Sudbury developed. We're been investing very heavily in Sudbury during the last two to three years and anything we can do together with our friends at Xstrata, we'd be more than happy to work together and see what we can do."

Cutifani says, "when they're ready, we're ready to talk."

Pearce and Reid say they've received enthusiastic feedback from Falconbridge management and workers after outlining Xstrata's business approach. Pearce says some managers "felt they had the shackles removed."

Dick DeStefano, executive director of the Sudbury Area Mining Supply and Service Association, hoped new ownership will honour the operation's existing relationships with area mining suppliers.

Reid says Xstrata is "totally against" any concept of centralized procurement and would rather push those decisions down to the operating level where "local people deal with local people."

Pearce would not comment on a London published report stating that Xstrata, CVRD and Rio Tinto may make a possible bid to break up Anglo American, the world's third largest mining company.

www.xstrat.com

By IAN ROSS

Northern Ontario Business