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Nickel in short supply: Inco must stay Canadian - STAN SUDOL (01/06/06)

One of the biggest corporate stories of 2005 - a metallic marriage made in mining heaven - has been the friendly takeover of the world's fourth biggest nickel miner, Falconbridge Limited by number two producer, Inco Limited.

One of the biggest corporate stories of 2005 - a metallic marriage made in mining heaven - has been the friendly takeover of the world's fourth biggest nickel miner, Falconbridge Limited by number two producer, Inco Limited. The "nickel nuptials" should be consummated by Jan. 27, when Inco acquires all the common shares of Falconbridge. However, there are a few gigantic "metal-hungry sharks" patiently swimming beyond the reef who may still spoil the wedding celebrations.

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SUDOL
Not since the 1969 labour strikes in the Sudbury Basin, which cut off about 65 percent of the western world's nickel supply and paralyzed both the British and American manufacturing sectors, has concern about shortages of this strategic metal consistently made the news.

Nickel, a silvery-white metal, is predominately used in austenitic stainless steel, one of the basic building blocks of any modern society. It is also found in a wide variety of other industrial and military applications that have no metallic substitutes. In fact, nickel, which is generally mixed with other metals to form superior alloys, is used in more than 300,000 products.

Furthermore, the rapidly industrializing BRIC countries - Brazil, Russia, India and China - as well as many others are causing demand for this metal to
soar. We are entering a commodity super-cycle that will last for decades.

According to a study by the respected New York stockbroking firm, Goldman Sachs, "nickel is becoming
the new oil."

Like oil, nickel seems to be establishing a similar higher base price due to supply shortages and elevated costs to process laterite deposits.

Inco CEO Scott Hand is forging a lasting legacy in the corporate history of Canada and this community by creating a world-class, base-metal mining company - a $25 billion giant that will rank among the top six in the world - and ensure that these two historic companies stay under Canadian control.

Not since Robert Stanley, Inco president and CEO from 1922 to 1949, has a corporate leader had such a profound impact on the company's future. At the end of the First World War, Stanley had the foresight to invest in research and development that found many new peacetime uses for nickel that saved the company from impending bankruptcy. In addition, Stanley also participated in a merger with U.K. controlled Mond Nickel Company Limited in 1929, and was able to achieve significant cost savings in the development of mines and surface operations in the Sudbury District.

Hand is creating the largest global producer of nickel with the best expertise in the development of both sulphide (Sudbury Basin) and laterite (New Caledonia) deposits. Laterites make up about 72 percent of international nickel resources and will continue to play a much significantly larger role in the future production of this essential metal. Since the mid-1970s, both Inco and Falconbridge have been producing nickel from tropical laterites.

This new, pumped-up Inco - on steroids - has some of the best nickel laterite properties in the world including Goro and Koniambo, both in New Calendonia, the massive deposits on the Indonesian island of Sulawesi, mines in Dominican Republic as well as recent discoveries and strategic investments in Brazil and Australia.

Combined with sulphide deposits at Voisey Bay, Labrador, Raglan in Northern Quebec, Thompson, Manitoba and of course, is the legendary Sudbury Basin - the jewel in Inco's mineral crown.

During the past decade many significant new discoveries by Inco and Falconbridge have ensured that the Sudbury Basin will still be producing a metallic bounty for at least another century. Combined with its other deposits the merged Inco's global supremacy in this vital metal will be ensured for generations to come.

Of the six most important metals used by modern industrial society - iron, aluminum, nickel, copper, zinc and lead - nickel is the most complex and expensive to process. Of these six essential metals, economically exploitable deposits of nickel are the most rare and difficult to find. It has been repeatedly said that the world needs a new Goro-sized project almost every year to match nickel's long term demand growth.

And that is why those nasty little rumours keep circulating throughout the global mining sector. Patient "metal hungry sharks" are waiting for the merger to be finalized before they attempt to swallow whole one of the most important and strategic mining companies in the world.

In part two of this column, which will run in the Sunday edition, I will discuss the possible contenders for a hostile takeover and why the federal government should not allow the new Inco to fall under foreign control.

Stan Sudol is a Toronto-based communications consultant and freelance journalist who writes extensively on mining and provincial issues. He grew up in Sudbury and continues to have an interest is hometown. He can be reached at [email protected].


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