BY STAN SUDOL
Last Sunday I sat in on the Northern Life/Northern Ontario Business editorial board meeting with Phelps Dodge CEO Steven Whisler. Inco's Mark Cutifani, president North America/Europe and Cory McPhee communications manager were also there.
I would like to confirm that Steven Whisler did not have any horns on his head, no red tail or cloven feet. From the incredible flurry of nationalistic angst and hand-wringing since Phelps Dodge's recent announcement of a friendly merger between that company and Inco and Falconbridge, one might have thought the man was some sort of satanic American carpet bagger prepared to destroy this country's mining sector.
All kidding aside, by his own admission, Mr. Whisler's whirl wind visit to Sudbury -including a helicopter tour of the Basin and Friday evening dinner with most of Sudbury's major political and business leaders - entailed a lot of listening and learning.
However, there are some genuine fears and concerns in the historic heart and soul of the world's nickel mining industry. At last Sunday's meeting these fears were most poignantly expressed by Northern Ontario Business publisher Patricia Mills.
"For better or worse, the company has traditionally been known in this community as "Mother Inco", stated Ms. Mills, "and now "Mother" is marrying an unknown company that will become our step-father who already has many kids/operations in southern Arizona, Peru and Chile. Will the new step-father treat us differently than "Mother Inco? Will he pay more attention to his other kids? Will the new step-father still donate as generously to worthy community organizations? This is a major adjustment for Sudbury who has traditionally been "Mother Inco's" most favourite child."
All very good questions indeed.
Phelps Dodge has a long corporate history - 172 years old and the last 125 years involved in mining. The company's home base is the rich copper producing areas of southern Arizona. In the late 1970s, Phelps Dodge employed about 20,000 workers but like Inco over the past quarter century, went through the same cutbacks and presently employs about 6,000 throughout the entire state. Due to its long history, Phelps Dodge often sees multi-generational families working for the company. Often, the company is the primary employer in the many small towns in which it operates in.
Mr. Whisler stated that the company has a strong social responsibility to all the communities it operates in. He feels that Phelps Dodge's commitment to corporate social responsibility is similar to Inco and Falconbridge, having helped build hospitals and medical facilities in all its host communities.
Two key social commitments that Mr. Whisler highlighted were environmental responsibility and pension issues. Phelps Dodge has set up a $400 million dollar trust fund to protect soil, water, air and water at their operating site. In addition they are spending $150 million on dealing with pollution legacy issues.
The company has also spent one billion dollars to fully fund their pension program as this was an increasing concern to employees in lieu of the recent problems at GM.
Mr. Whisler was also very impressed by the good relationship Inco has developed with their suppliers in Sudbury. There is fear about local mine suppliers loosing business once the corporate head office moves to Phoenix. Aside from the fact that Phelps Dodge will still maintain a strong head office presence in Toronto, most of the copper mining in southern Arizona is done by open pit as opposed to the underground hardrock mining practiced in Sudbury. There doesn't seem to be much over-lap and there is even some potential new opportunity for Sudbury suppliers in Arizona and other South American operations.
One of the most important issues that Mr. Whisler repeated was that Phelps Dodge is committed to the people of Sudbury for the long term and the local synergies in the Sudbury Basin will significantly strengthen the new Phelps Dodge Inco. He stated, "I do believe this deal will make us a stronger company. The goal is to make us as competitive as we can be…This deal creates the strength on the world stage we're all looking for."
Revised Xstrada Bid
Any analysis of the Phelps Dodge/Inco/Falconbridgy/Teck-Cominco/Xstrada possible deal is like trying to nail jello to a wall. There are more twists and turns than a mystery spy novel. On Tuesday, Xstrada plc increased its all cash offer from C$52.50 to C$59 in cash per Falconbridge share - confirming that this corporate soap opera has a few episodes to go, notwithstanding my wrong prediction two weeks ago!
This revised offer price represents a premium of 9.6 percent over the value of the revised offer made by Inco. The company already owns about 20 percent of Falconbridge.
In a July 11 statement, Inco Chairman and CEO Scott Hand said, "Inco's offer for Falconbridge remains the best alternative on the table for Falconbridge shareholders... The implied value of our offer for Falconbridge under our friendly three-way agreement with Falconbridge and Phelps Dodge is C$61.65 per share, based on today's mid-day share price for Phelps Dodge.  This represents a premium of 4.5 percent above the Xstrata offer.
"Xstrata's offer also remains subject to a variety of
conditions … By contrast, Inco
has obtained all of the regulatory clearances required to
complete its transaction.
Two Key Issues for Sudbury
There are two key issues that we must not forget. The first is that for the longer term prosperity and productivity of the community's mining sector, Inco and Falconbridge must be able to merge. It's all about cost and efficiency in a globalized economy. When the downturn comes - and we all know some time in the distant future a commodity slump will come back - the US$550 million in savings that are mainly found by combining the Sudbury Basin operations of Inco and Falconbridge will ensure that this community will be able to still prosper with lower metal prices.
And the second is that regardless who ultimately gains control of Inco and Falconbridge in some form, Sudbury is going to witness an enormous amount of investment in the next few years. That investment will come quicker if the two companies are merged.
Mark Cutifani Speech and Skyrocketing Nickel
Mark Cutifani was kind enough to e-mail me the speech that he gave to the Sudbury Chamber of Commerce on June 30th. There are a two key points I like to highlight. The first is, "Our partnership with Phelps Dodge will ensure that all major capital expenditures that Inco and Falconbridge have initiated will continue. Inco alone is spending approximately $2 billion in our local operations," Mark Cutifani said.
That $2 billion is spread over the next five years. 
Mr. Cutifani continues, "In fact, we believe that the creation of the new company could see new jobs created in the long-term as new mines come into production and the use of shared infrastructure, resources and expertise is maximized."
After thirty years of tough economic downsizing, the building of new mines and employment increases is definitely music to the ears of everyone in the community. The cherry on top of this proverbial cake is the skyrocketing price of nickel.
On Tuesday, for the first time in history, the price of nickel broke the US$25,000 per metric ton mark and ended the day at US$11.55 /lb. on the London Metal Exchange. The price has increased by about 87 per cent this year and some analysts are predicting US$30,000 per metric ton nickel.
The Pot Calling the Kettle Black
During the first week after the Phelps Dodge announcement, some parts of the Toronto media went into a nationalist feeding frenzy about the impending "hollowing out" of corporate Canada and the ensuing loss of specialized mining jobs for the city's lawyers, accountants and financial analysts. These are the same people who shed few tears and probably applauded - in the name of economic efficiency - the devastating cutbacks of thousands of Sudbury jobs in the past few decades.
Barrick Gold Corporation's Peter Munk came out against the deal and publicly stated that, "I have not heard anyone yet who could articulate a major Canadian interest here."  Mr. Munk also said, "I don't believe [Phelps chairman and CEO Steven] Whisler even knows nickel from tin."
In June 2001, Barrik Gold, the world's biggest gold miner with operations around the globe bought out Nevada-based Homestake Mining Company for US$2.3 billion.
Steve Whisler has been with Phelps Dodge for over three decades and in 1983 spent six months filling in for striking miners at the massive Morenci copper mine. During that time he drove dump trucks, changed tires and pulled copper sheets inside a smelter.
Sudbury's Future Made in the Shade
If this deal goes through, the Sudbury Basin and the Canadian mining industry will be fundamentally changed forever. Its human nature to be afraid of such momentous historic upheavals. But remember, the Sudbury Basin is the richest mining district in North America and among the top ten most important globally. Many geologists and industry experts feel that there will be another 100 years of mining in this prolific mineral camp.
In a world where many of the richest metallic deposits are located in politically unstable countries with poor infrastructure and educational levels, Sudbury's stability and unique mine supply and service sector and research capability stand out as a willing partner for more investment and growth.
According to the Australian Institute of Mining and Metallurgy, over the next 50 years the world will use five times all the mineral supplies that have ever been mined up to the year 2000.
Regardless of who the new owners will be, as long as Inco and Falconbridge are merged, the future of the Sudbury Basin has not been this promising and bright since the terrible and traumatic layoffs of 1977. Until the dust finally settles, try to keep those important facts in mind.
Stan Sudol is a Toronto-based communications consultant who writes extensively on mining issues.[email protected]
