Glencore Xstrata and Vale could and likely will one day merge their Sudbury operations.
If and when that happens, it will be a marriage of convenience, not a "Rock Hudson- Doris Day romance," says a nickel analyst.
It would be complicated to join the companies' operations, but it may be necessary to compete against record-high production of nickel pig iron in China, says Terry Orstlan.
He wasn't surprised last week when Reuters broke the news Vale and Glencore Xstrata were in talks to explore combining their Sudbury operations.
Orstlan has been advising that for years.
"Talks, that is exactly what they are, talks," said Ortslan of TSO & Associates in Montreal.
"Let's have coffee and talk. Let's have tea and talk. Let's go out and talk," he said.
It would have made sense 30 years ago for the nickel giants to join forces, said Ortslan.
When Vale was owned by Inco and Glencore Xstrata by Falconbridge, their vastly differ-e nt cultures and powerful unions made a merger unthinkable.
"Now that's over. There is no more culture," nor are unions a hurdle, said Ortslan.
One of the biggest difficulties today would be putting together the two companies' processing facilities, which are quite different.
"They each have smelters, they own a refinery, their own mills, and there is the question of how this is going to work out," he said.
It's a difficult obstacle to overcome, but in the meantime China is "running the show" with its low-cost iron production, made with ore from Indonesia.
"It's a question of how long it's going to last," said Ortslan of Chinese production and how long Indonesia will continue to supply China with ore.
In the meantime, serious investments have to be made in facilities and skilled tradespeople have to be retained in Sudbury, said Ortslan.
Nickel is one of the most complicated metals to mine. "It's not digging a hole. it's more high-tech (to produce) than other metals," said Ortslan.
With both companies needing to make those large investments, it would make sense for them to consider a full or partial merger, or one phased in in the future.
"They can talk, but you know, it's going to happen," s a i d Ortslan." They should do it, otherwise they (will both) have to put a lot of money and skills into this area."
The current situation, with nickel dropping as low as $6 a pound in recent weeks, can't go on, and it's being imposed by China. The demand for nickel is high in China, which is in a building boom, but rather than importing Canadian nickel to manufacture stainless steel, it's making its own cheaper, and some say poorer quality, nickel pig iron.
Jean-Charles Cachon, a professor in the faculty of management at Laurentian University, agrees a merger of Vale and Glencore Xstrata is probably inevitable.
Cachon recalled a tentative agreement reached in 2006, by Inco and Falconbridge, to merge the companies that was led by Mark Cutifani, who was then chief operating officer at what was then CVRD Inco.
Cutifani's plan, projected to generate $550 million in savings by applying what he called a "one-mine" approach, was for a friendly acquisition of Falconbridge by Vale.
That deal fell through and Cutifani, whom Cachon said was revered in Sudbury for his ability to draw people together, moved on become CEO of AngloGoldAshanti Ltd. and now CEO of Anglo American.
The situation at the two Sudbury miners has changed a great deal in seven years, said Cachon, and pressure has been increasing on both to produce more nickel with fewer skilled workers.
It would be difficult to join the companies because of the different processing systems in place at Vale and Glencore Xstrata, he said.
But synergies would be created and some expenses trimmed by merging.
"It does make sense and there is no question it will be more efficient if whoever owns these mines comes to an agreement with the other.
"But it's not a simple task and it takes someone that has the wherewithal to do it," said Cachon.
Cutifani had the vision to bring the two companies together, but Cachon doesn't see that characteristic in leaders at the companies today.