Nickel is mostly used in the production of stainless steel

The purchase - described as friendly by both firms - would create the world's largest producer of nickel and give Inco greater access to other metals.

Commodity firms are enjoying good times as prices for metals such as copper have been driven to new highs by demand in developing economies like China.

Inco muscled out Swiss miner Xstrata in the battle to buy Falconbridge.

Joining together

The mining industry has been subject to a period of consolidation in recent years as producers look to cut costs and reap the benefit of strong demand for metals and coal.

Even so, analysts said they did not expect London-listed Xstrata - which owns 20% of Falconbridge - to come in with a counter bid.

"I don't think Xstrata are going to do anything apart from walk away with a cheque," said Nick Hatch, an analyst at Investec Securities.

He explained that Inco's bid is 20% higher than the price Xstrata paid for its stake in the business.

Inco is offering either C$34 in cash for each Falconbridge share, or 0.6713 Inco shares plus five Canadian cents.

It also said it would probably have to sell some of Falconbridge's assets, such as its Norwegian refinery, to win regulatory approval for the buyout.

Purse strings

Inco estimates the deal will save the companies an estimated $350m annually by the end of 2007.

The merged firms would have a combined nickel output of 735 million pounds (333,390 tonnes) this year, rising to one billion pounds in 2009.

Despite strong demand for metals, nickel - used to make stainless steel - has dropped back from highs to recently trade at 10-month lows.

Analysts are warning that more declines may follow, though the companies played down the risk.