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Inco follows the money east

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Meanwhile, in the downstream battery material business, competition comes not from alter ego Falconbridge, but from Asian industrial giants and Chinese players with names that, until recently, most people in Inco's Bay Street offices hadn't even heard of — companies such as Lyrun, from the inland province of Hunan.

Not that Inco is a rookie in this Chinese hothouse. The Dalian venture is just the latest in a network of interests stitched together by Mr. Goudie, a 30-year company veteran whose father and grandfather were both underground miners in Broken Hill, Australia.

For a decade, Inco has operated a sales office in Shanghai; for the past seven years, it has been producing nickel salts for the plating industry in a nearby factory. It is now lending its ore-finding expertise to a joint venture with Jike Mining Co., a state-controlled firm looking for nickel in China — part of the explosion of mining exploration in China and neighbouring Mongolia.

Dalian is also a leading candidate to become the site of a new Inco plant that would process output from its massive Goro mine in New Caledonia, which Inco indicated this week should begin production in September, 2007, after a delay from cost overruns.

China, in other words, will become a major theatre of operations for Inco. Although still a Canadian company, its executives would like nothing better than to have a large integrated exploration-to-refinery operation in China.

"In the long term you always want to look for a complete approach," Mr. Hand says. "We have to find new ore bodies, and wouldn't it be great to find one in what next year will be the world's biggest nickel market?"

Inco also wants to participate in future consolidation of the Chinese battery materials industry. Last weekend, Mr. Goudie signed an agreement to buy the assets and business of a Chinese nickel foam producer in Shenyang, just north of Dalian. Such acquisitions would help secure its market leadership in high-end nickel batteries and fuel cells, used in everything from cellphones to scooters and cars.


The major producers are shifting to China, and it was the search for a nickel-foam presence here that led Mr. Goudie to Dalian, an ice-free port in the northeast region once known as Manchuria, an area rich with reminders of former occupation by Russian and Japanese forces.

The factory setting is itself another striking collision of history and future. On a nearby highway, a man strains to pull a cart filled with his possessions up a steep hill, as BMWs and Buick minivans whiz by. Alongside the factory sprawls a crude collection of tin and wood shacks, temporary housing for the workers on the construction site.

Yet the plant's interior is a monument to the latest production technology. Several PhDs are on staff, testimony to Dalian's status as an educational centre.

Inco's venture here defies the stereotype of China as a low-cost, manufacturing ghetto. At a meeting at Dalian city offices, Mr. Goudie takes pains to assure the local mayor, Xia Deren, that the company is performing its lower-value extraction and processing in Canada while the local plant undertakes higher-value-added work. The mayor smiles contentedly — it's the kind of thing that municipal officials love to hear, whether in Northern Ontario or Northern China.

By the end of the year, the nickel foam plant will employ 250 people, roughly 80 per cent of Inco's China work force. Dalian will not mean the loss of Canadian jobs, but it will clearly benefit from future expansion. The complex contains three production lines and capacity for a fourth to be brought on line quickly. Inco, which has already invested $17-million on the venture, owns enough land to triple the size of the operation.

Management says it still has strong commitment to value-added work in Canada, and it has been hiring in Sudbury. "It's not a case of a loss of Canadian jobs but it's about being realistic and being in the markets you want to be in," Mr. Goudie says.

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