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Inco under foreign ownership

By Kelly Louiseize One of Canada’s largest mining houses, Inco ltd, is now under foreign control with Companhia Vale do Rio Doce (CVRD) at the helm.

By Kelly Louiseize

One of Canada’s largest mining houses, Inco ltd, is now under foreign control with Companhia Vale do Rio Doce (CVRD) at the helm.

CVRD, CEO Roger Agnelli (left), and former Inco, CEO Scott Hand (right) view merger as the foundation, not the ceiling, where opportunities can flourish. The purchase worth approximately (Cdn) $19 billion secured CVRD-Inco as the fifth largest nickel, copper, iron ore producer in the world.

“The price was extremely cheap considering the grade assets and the great people,” Mark Cutifani, COO of CVRD-Inco nickel operations says.

While this strengthened Brazil’s international mineral position, it may have weakened Canada’s status as a progressive force in the mining sector says Leo Gerard, president, United Steelworkers International.

The provincial and federal government sat on the sidelines, while the mineral resources were decimated, he says.

The year 2006 marked Inco as being unable to emerge intact from a series of takeover attempts from larger mining giants with relative new standing in the sector. Increased metal demand in China increased the company’s price tag helping to spur the takeover frenzy.

It appears Inco’s loss of independence correlates back to the failed attempt to acquire Falconbridge by way of friendly takeover. The combined organization would have been one of the world’s premier mining and metals companies in both nickel and copper with one of the most attractive portfolios of low cost profitable growth projects.

 The bidding process for Falconbridge began last October, when it ran into extensive regulatory setbacks from the United States and Europe. This enabled Xstrata Plc, which acquired a 20 per cent stake in Falconbridge the year before, to emerge as the owner.

 A last-minute attempt to save the Inco-Falconbridge deal was initiated when Phoenix-based copper producer Phelps Dodge put a bid in to acquire both companies under one umbrella. When Xstrata emerged the winner of Falconbridge, Phelps walked away from its cash and stock offer that paralleled Companhia Vale do Rio Doce’s  (CVRD’s ) all-cash bid for Inco.

“I think everyone was disappointed that the Inco - Falconbridge didn’t occur,” Cutifani says.

“At the end of the day we were doing what was right for the shareholders...”

Once CVRD’s all cash offer had government and shareholder approval, Inco’s chair, Scott Hand, and Cutifani along with Gerard decided to let the deal work in Greater Sudbury’s favour. Hand accepted a position under the new CVRD-Inco overseeing the company’s global nickel business.

“The people from Inco have certainly been embraced by the people at CVRD. I think everyone is looking forward to the future,” Cutifani says.

The future includes potential partnerships with Xstrata Nickel. For months now he has been in discussion with Xstrata Nickel executives to determine mineral processing strategies, and collaborative mining projects.

“I think there are lots of opportunities on the mining side,” Cutifani says. “How we do that will be a bit tougher. It will require some thought, but again I think we are both open and optimistic.”

So too is Steelworkers' president Gerard. The union is the dominant representative in the carbon and stainless steel workforce, while CVRD is the dominant producer of iron ore. Steel requires the mixture of nickel and iron ore to make carbon and stainless products.

“There is an opportunity to have a relationship here,” Gerard says.

Inco boasted the highest ever quarterly earnings in the company’s 104 year history in their third quarter report.

Adjusted earnings for the third quarter of 2006 were $653 million or $3.13 per share.

“Our record quarterly earnings reflect the unprecedented sustained strength we’ve seen in the nickel market combined with strong production from our operations,” Hand said, while still working as Inco’s chair.

Inco produced 125 million pounds of finished nickel in the third quarter, almost 13 per cent higher than the company’s production the same time last year. With one of the best ore bodies in the world, Gerard says, there is at least 100 years of mining left in Sudbury.

 “There is an opportunity if we pull together to make sure we not only maintain the mining superiority, but to grow it.”

With minimal debt, Inco has always been a well managed company, pioneering its way into new technology, Gerard says.

“It has not been a company that has put its head in the sand.”

Although Inco has been taken over by foreign ownership, up to 90 per cent of the dollars will be kept in Canada, Cutifani says. Greater Sudbury may see more investment dollars than ever before as a result of the mergers, future opportunities and the creation of a consolidated mining camp.

When asked if CVRD would consider acquiring Xstrata Nickel, Cutifani says the two companies share a mutual respect for one another and would do nothing to jeopardize their relationship.

But the North has not seen the last of the mining mergers.

“It seems to be the way of the world,” Cutifani says. “Yeah, I expect to see more activity across the borderline of industries.”

CVRD’s intent is to maximize Greater Sudbury’s resources.

“We expect to be the most significant player in Sudbury going forth.”

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