Xstrata plc sparking merger mania.

It's no secret in Sudbury there's been decades of legendary animosity between Inco (now Vale Inco) and Falconbridge (now Xstrata Nickel), its two biggest miners.

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The global super-cycle of surging mineral prices and the wave of mining consolidation resulted in new foreign owners for both companies.

All that competitive ill-will has been brushed aside as technical committees from Inco and Xstrata have looked for ways to integrate their Sudbury operations, which in some places is separated by only metres and fence lines.

In November, Xstrata Nickel boss Ian Pearce touched off renewed speculation of the so-called "synergies" in the Sudbury camp when he was quoted by Reuters as saying the company has been in talks with its unionized workers and CVRD-Inco about "options for cost savings."

A deal to integrate Sudbury operations would realize an expected $300 million in cost savings, the report said. Plans were expected to be announced by year's end. Pearce said their decision would likely be a "mutation" of a joint venture or sale of assets in the Nickel Basin.

At press time, the Financial Times reported Xstrata was opening up its global mining assets to be taken over by multiple suitors. The newspaper reports Vale Inco, its Sudbury cross-town mining rival, might have the inside track, having hired Lehman Brothers to look at a possible deal worth more than 38-million (UK) pounds.

Despite the report, Xstrata has been in full acquisition mode since acquiring Falconbridge in 2006, Australia's Jubilee Mines in October and Eland Platinum's holdings in South Africa in August.

Pearce was not made available to Northern Ontario Business for an interview. Corporate spokesman Peter Fuchs would only say in an e-mail, "Xstrata Nickel and CVRD Inco continue to work closely together to unlock a number of value propositions from the two companies' operations in the Sudbury region, but no formal arrangements have yet been made."

But Angie Robson, Vale Inco spokesperson, says the technical committees from both companies have wrapped up their work and put forth options on potential opportunities at operations in Sudbury

Robson says "... those companies are assessing these options independently to take advantage of opportunities that make good business sense for both of our companies."

Combining operations would certainly open up the potential to share ore bodies, while reducing operating and capital costs.

Joint venture projects and sharing of assets in other Canadian and global mining camps have been pursued by competing miners, but not in Sudbury.

"(It's) because they hated each other," says John Fera, president of United Steelworkers Local 6500. "Inco wouldn't cross the street to shake hands with Falconbridge and vice versa.

The Steelworkers represent 3,300 workers at newly renamed Vale Inco.

"I think everybody in this community always said, wouldn't it be easier to finish off the drifts underground and join? Rather than 'I go 500 feet and you go 480 feet and leave a twenty foot wall?

"It never made sense," says Fera. "But they hated each other, were in competition with each other and were pretty arrogant companies. If one had the upper hand they weren't going to share the goodies with the competitor."

Prior to the aborted Falconbridge-Inco merger announcement in the fall of 2005, it was reported in a national paper there were secret and unsuccessful technical talks held in a Sudbury hotel between the two miners.

Fera says there were some discussions during their 2006 contract negotiations revolving around what would happen if CVRD Inco and Xstrata Nickel merged. But his union is not privy to any inside discussions.

"So far as decision-making, if they need our resources, we're there, but we want to make sure that our members are represented, not just the companies."

Fera says the whole scenario presents a "growth atmosphere" but he's not for it if the companies' declare redundancies that cost jobs. "I don't see them saving money on the backs of my guys."

Rick Grylls, president of Local 598 Mine Mill/CAW, representing 1,100 Xstrata Nickel workers, agrees.

"Whenever the changes come we're always concerned with what level it is. We'll get involved and have our say"

In a November 2006 presentation to analysts, Xstrata Nickel reported on a potential Inco-Falconbridge operational merger.

A view of Sudbury Basin and the location of Xstrata Nickel and Vale Inco mines, processing plants and undeveloped properties, makes a joint venture seem like a no-brainer.

On the North Range, Xstrata's Strathcona mill sits next to Inco's Coleman/McCreedy East Mine. As well, Inco is expanding Coleman with a $132 million investment to mine its 170 Ore Body by 2012.

Closer to the city Xstrata's Thayer-Lindsley Mine is clustered near Inco's Frood-Stobie Mine, Clarabelle Mill and the Copper Cliff Smelter complex.

In the presentation, Xstrata reported there was excess capacity at their mill and smelter. It suggested each company's mills could be reconfigured to handle each other's high and low grade nickel and copper ore feeds to maximize extraction and recoveries, clear up any bottle necks and cut costs.

Certainly, there would be logistical advantages in sending North Range copper mined by Inco next door to Xstrata's Strathcona mill. And Xstrata's nickel ore mined at Thayer Lindsley could be sent to Inco's Copper Cliff mill.

The two companies have worked together on occasion to process their cross-town competitor's concentrates, slag and ore.

FNX Mining spokesman Dave Constable, whose mid-tier nickel and copper company relies on Inco to process their ore, is watching with as much interest as anyone.

"At worst, it will be neutral for us. At best, it will provide us with some opportunities."

www.inco.com

www.xstrata.com

By IAN ROSS 

Northern Ontario Business