TORONTO (miningweekly.com) – Mid-tier miner FNX Mining has held discussions with larger rival in the Sudbury region, Xstrata Nickel, on possibly sending ore from its mines to Xstrata's Sudbury mill, CEO Terry MacGibbon said on Tuesday.

FNX has an offtake agreement with the other big miner in the area, Vale Inco, which processes all the ore produced at FNX's Sudbury mines.

However, Vale has shut its Sudbury operations for eight weeks because of weak nickel demand, and there is uncertainty over whether work will resume as planned on July 27, because the firm is in the midst of contract negotiations with its biggest union in Sudbury.

Last month, unionised workers at Vale Inco's Sudbury nickel operations voted to strike if labour negotiations with the company failed.

FNX is prepared to continue mining and stockpiling at its own assets for the eight-week shutdown, but the union negotiations add a bit more “confusion”, MacGibbon said at a conference in Toronto.

“Because if they do go on strike, who knows how long that would be.”

Although it did not anticipate the shutdown, FNX actually started talks some time ago with both Vale and Xstrata Nickel, to ensure that it had a plan in place should the Vale contract negotiations turn sour.

“If there is a labour interruption, then we hope that through these negotiations there would be a possibility of starting to ship to Xstrata Nickel,” MacGibbon said.

Xstrata Nickel's mill is only four kilometers from parts of FNX's operations, and, after extensive testing, the company believes the ore could be processed at Xstrata “quite conveniently”, he said.

Copper and precious metals recoveries may even be better than when the ore is processed by Vale, but this would be offset by the fact that the short-term milling contract with Xstrata would mean higher costs.

Nickel traded above $22/lb in 2007, but fell sharply, to as low as $4/lb late last year, after slowing global economic activity dampened demand for the metal, which is used to make stainless steel.

The price has since recovered to around $6,60/lb.

The nickel-rich Sudbury basin enjoyed an economic revival during the metals boom of the past couple of years, during which the two big stakeholders in the region, Inco and Falconbridge, drew international interest and were acquired by big international mining names - Companhia Vale do Rio Doce and Xstrata Resources respectively.

However, as prices remain depressed, mines are being closed, production scaled back and expansion projects delayed.

After nickel prices dropped last year, FNX suspending nickel-ore mining at its McCreedy West and Levack mines, but continues to mine higher-margin copper and precious-metals rich areas at McCreedy, Levack and the new Podolsky mine.