##### 



| | 
| | 
| | 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K/ A

(Amendment No. 1)


|                                                 |  |                                                                                             
|------------------------------------------------ |  | --------------------------------------------------------------------------------------------
|þ                                                |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                
|For the fiscal year ended: December 31,
    2003

Commission File Number 1-1143

Inco Limited

(Name of Registrant as specified in its
charter)


|                                                                                                          |  |                                     
|--------------------------------------------------------------------------------------------------------- |  | ------------------------------------
|Canada                                                                                                    |  | 98-0000676                          
|(Jurisdiction of incorporation)                                                                           |  | (I.R.S. Employer Identification No.)
|                                                                                                         
|145 King Street West, Suite 1500
    Toronto, Ontario, Canada(Address of principal executive
    offices) |  | M5H 4B7(Postal Code)                

(416) 361-7511

(Telephone number)


Securities
registered pursuant to Section 12(b) of the Securities
Exchange Act of 1934 (the Act):

|                               |  |                                           |                          | 
|------------------------------ |  | ----------------------------------------- | ------------------------ | 
|Title of Each Class            |  | Name of Each Exchange on Which Registered
|                               |  |                                          
|Common Shares                  |  |                                           | New York Stock Exchange* | 
|Stock Purchase Rights          |  |                                           | New York Stock Exchange | 
|Common Share Purchase Warrants |  |                                           | New York Stock Exchange | 

The Registrant
(1) has filed all reports required to be filed by Section
13 or 15(d) of the Act during the preceding 12 months, and
(2) has been subject to such filing requirements for the
past 90 days.

The Registrant is
an accelerated filer (as defined in Rule 12b-2 under the
Act).

As of June 30,
2003, the aggregate market value, based upon the closing sale
price of the Common Shares on the New York Stock Exchange, of
the Registrants voting shares held by non-affiliates
equaled $3,951 million.§

As of
February 20, 2004, 187,300,108 Common Shares (including
non-voting fractional interests aggregating 5,096 Common Shares)
of the Registrant were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the
Registrants proxy circular and statement dated February
20, 2004 for the 2004 Annual and Special Meeting of Shareholders
of the Registrant are incorporated by reference in Part III
of this Report to the extent set forth in Items 10, 11, 12
and 14 hereof.



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|  |                                                                                                                                                                                                                   
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | In addition, the Common Shares are listed on the
    Toronto and London stock exchanges and are traded on certain
    other exchanges principally through independent arrangements
    made by securities dealers.



|  |                                                                                                                                
|- | -------------------------------------------------------------------------------------------------------------------------------
| | In addition, the Stock Purchase Rights and the
    Common Share Purchase Warrants are listed on the Toronto Stock
    Exchange.
| 
|§ | Unless otherwise stated, all dollar amounts in
    this Report are expressed in United States currency.                        



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##### 



INCO LIMITED



Explanatory Note

Inco Limited (Inco or the
Company) is filing this Amendment No. 1 to its
Annual Report on Form 10-K for its fiscal year ended
December 31, 2003 (Originally Filed 2003
10-K), which was originally filed with the Securities and
Exchange Commission (SEC) on March 15, 2004, to
amend (1) Note 23 to the Companys consolidated
financial statements, Significant differences between
Canadian and United States GAAP, included as part of
Item 8, Financial Statements and Supplementary
Data, and (2) certain information and one of the
tables included in Item 6, Selected Financial
Data, which table reconciles the Companys results as
reported under Canadian generally accepted accounting principles
(GAAP), the principles which apply to the
Companys primary financial statements, with those results
that would have been reported under United States GAAP. The
amendments reflect the restatement of certain financial
information under United States GAAP based upon a revision in
accounting treatment made by the Company in the second quarter
of 2004 to correct an error under United States GAAP with
respect to the treatment of unrealized non-cash currency
translation gains and losses relating to the Companys
Voiseys Bay deferred income and mining tax liabilities.
While the amendments relate only to certain parts of Item 6
and Item 8, in compliance with the requirements of
Rule 12b-15 under the Securities Exchange Act of 1934 the
Company has included in this Amendment No. 1 the full text
of Items 6 and 8, as amended. For a description of the
restatements, reference is made to part (q)(2) in Note 23
to the Companys consolidated financial statements herein.
The revision in accounting treatment for unrealized non-cash
currency translation gains and losses with respect to the
Companys Voiseys Bay deferred income and mining tax
liabilities for United States GAAP purposes made by the Company
in the second quarter of 2004 has the effect of recognizing in
earnings, rather than deferring, as a component of property,
plant and equipment, the unrealized non-cash currency
translation gains or losses with respect to such deferred income
and mining tax liabilities. This revision has had no effect on
the cash flows of the Company for any period.

The revision in accounting treatment under United
States GAAP has had no effect on the Companys primary
financial statements and related notes prepared in accordance
with Canadian GAAP since the policy of deferring unrealized
non-cash currency translation gains and losses on the
Voiseys Bay deferred income and mining tax liabilities is
in accordance with Canadian GAAP.

As a result of this change, under United States
GAAP for the years 2003, 2002 and 2001 the Company had
(1) a restated net loss of $129 million in 2003,
compared with net earnings of $78 million before this
revision and resulting restatement, (2) a restated net loss
of $2,380 million in 2002, compared with a net loss of
$2,078 million before this revision and resulting
restatement and (3) restated net earnings of
$394 million in 2001, compared with net earnings of
$272 million before this revision and resulting
restatement. Restatements reflecting these revisions have been
made to the Companys property, plant and equipment,
retained earnings (deficit) and asset impairment charge
relating to the Companys Voiseys Bay project for the
applicable periods covered in Item 6 and Note 23 to the
Companys consolidated financial statements in Item 8.
This revision in accounting treatment under United
States GAAP affects our results under United
States GAAP for the quarterly periods of each of the
comparative years reported, with the effects (which are
quantified for the quarters in 2003, 2002 and 2001 in
Note 23(r) to the Companys consolidated financial
statements herein) varying on a quarter-to-quarter basis
depending principally upon the Canadian dollar to United States
dollar exchange rate at the end of the applicable quarter.

This Amendment No. 1 amends and restates
Item 6 and Item 8, both of which were included in the
Originally Filed 2003 10-K. The explanatory note at the
beginning of each item of this Amendment No. 1 sets forth
the nature of the principal changes made to the particular Items
(Items 6 and 8).

The other items of the Originally Filed 2003 10-K
have not been repeated in this Amendment No. 1.

2



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##### 



For a discussion of events and developments
relating to the Company subsequent to December 31, 2003,
please refer to the following items, which are not being
incorporated by reference into this Amendment No. 1:



| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our Quarterly Reports on Form 10-Q filed
    with the SEC subsequent to March 15, 2004.                                                                                                         
|
| | Amendment No. 1 to our Quarterly Report on
    Form 10-Q containing our corrected Quarterly Report for the
    quarterly period ended March 31, 2004, filed with the SEC
    on August 10, 2004.
|
| | Our Current Reports on Form 8-K filed with
    or furnished to the SEC subsequent to December 31, 2003.                                                                                         

Other than the foregoing items, this Amendment
No. 1 does not amend, update or restate any items or
sections of the Originally Filed 2003 10-K. The filing of this
Amendment No. 1 should not be understood to mean that any
statements contained in the amended Report on Form 10-K are
true or complete as of any date subsequent to March 15,
2004, the date of the filing with the SEC of the Originally
Filed 2003 10-K. Investors should not rely upon this amendment
as a reaffirmation or reiteration of any forward-looking
statements set forth in the Originally Filed 2003 10-K.



---

Definitions:Unless
the context otherwise requires, all references in this Amendment
No. 1 to Inco or the Company
include all of its consolidated subsidiaries, unincorporated
units and divisions.



---

3



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##### 





|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

Note Explaining Amendments to
Item 6:The paragraph above the
second table in this Item and the second table itself, which
table reconciles the results as reported under Canadian GAAP
with those results that would have been reported under United
States GAAP, have been revised and restated to reflect the
effect of recognizing for purposes of United States GAAP in
earnings, rather than deferring, as a component of property,
plant and equipment, the unrealized non-cash currency
translation gains or losses with respect to the Companys
Voiseys Bay deferred income and mining tax liabilities.

The following table provides selected financial
data as reported in the Companys Consolidated Financial
Statements on the basis of Canadian generally accepted
accounting principles (GAAP):

|                                                              |  |                                           |       |            |  |            |        |            |  |            |       |   |  |  |       |   |  |  |       |  
|------------------------------------------------------------- |  | ----------------------------------------- | ----- | ---------- |  | ---------- | ------ | ---------- |  | ---------- | ----- | - |  |  | ----- | - |  |  | ----- | -
|                                                              |  |                                          
|                                                              |  | Year Ended December 31,                  
|                                                              |  |                                          
|                                                              |  | 2003                                      |       | 2002(3)    |  | 2001(3)    |        | 2000(3)    |  | 1999(1)(3)
|                                                              |  |                                           |       |            |  |            |        |            |  |           
|                                                              |  |                                           |       | (Restated) |  | (Restated) |        | (Restated) |  | (Restated)
|                                                              |  |                                          
|                                                              |  | ($ in millions, except per share amounts)
|Net sales                                                     |  | $                                         | 2,474 |            |  |            | 2,161  |            |  |            | 2,066 |   |  |  | 2,917 |   |  |  | 2,113 |  
|Cost of sales and operating expenses                          |  | $                                         | 1,735 |            |  |            | 1,378  |            |  |            | 1,416 |   |  |  | 1,776 |   |  |  | 1,604 |  
|Depreciation and depletion                                    |  | $                                         | 265   |            |  |            | 255    |            |  |            | 263   |   |  |  | 265   |   |  |  | 248   |  
|Selling, general and administrative                           |  | $                                         | 169   |            |  |            | 136    |            |  |            | 111   |   |  |  | 105   |   |  |  | 99    |  
|Asset impairment charges                                      |  | $                                         |      |            |  |            | 2,415  |            |  |            |      |   |  |  |      |   |  |  |      |  
|Interest expense                                              |  | $                                         | 44    |            |  |            | 50     |            |  |            | 56    |   |  |  | 83    |   |  |  | 73    |  
|Income and mining taxes                                       |  | $                                         | (49   | )          |  |            | (639   | )          |  |            | (85   | ) |  |  | 225   |   |  |  | 25    |  
|Earnings (loss) from continuing operations                    |  | $                                         | 137   |            |  |            | (1,482 | )          |  |            | 304   |   |  |  | 399   |   |  |  | 16    |  
|Earnings (loss) from discontinued operations                  |  | $                                         |      |            |  |            |       |            |  |            |      |   |  |  |      |   |  |  | (5    | )
|Net earnings (loss)                                           |  | $                                         | 137   |            |  |            | (1,482 | )          |  |            | 304   |   |  |  | 399   |   |  |  | 11    |  
|Preferred dividends                                           |  | $                                         | (6    | )          |  |            | (26    | )          |  |            | (26   | ) |  |  | (26   | ) |  |  | (26   | )
|Accretion of convertible debt                                 |  | $                                         | (7    | )          |  |            | (4     | )          |  |            | (3    | ) |  |  |      |   |  |  |      |  
|Premium on redemption of Preferred Shares                     |  | $                                         | (15   | )          |  |            |       |            |  |            |      |   |  |  |      |   |  |  |      |  
|Net earnings (loss) applicable to common
    shares           |  | $                                         | 109   |            |  |            | (1,512 | )          |  |            | 275   |   |  |  | 373   |   |  |  | (15   | )
|Net earnings (loss) per common
    share  basic (2)          |  | $                                         | 0.59  |            |  |            | (8.27  | )          |  |            | 1.51  |   |  |  | 2.06  |   |  |  | (0.08 | )
|Common shares outstanding (weighted average, in
    millions) |  |                                           | 185   |            |  |            | 183    |            |  |            | 182   |   |  |  | 182   |   |  |  | 176   |  
|Total assets                                                  |  | $                                         | 9,006 |            |  |            | 8,577  |            |  |            | 9,630 |   |  |  | 9,726 |   |  |  | 9,618 |  
|Long-term debt                                                |  | $                                         | 1,409 |            |  |            | 1,546  |            |  |            | 759   |   |  |  | 952   |   |  |  | 1,154 |  
|Convertible debt                                              |  | $                                         | 606   |            |  |            | 238    |            |  |            | 231   |   |  |  |      |   |  |  |      |  
|Preferred shares                                              |  | $                                         |      |            |  |            | 472    |            |  |            | 472   |   |  |  | 472   |   |  |  | 471   |  
|Class VBN shares                                              |  | $                                         |      |            |  |            |       |            |  |            |      |   |  |  |      |   |  |  | 753   |  



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|    |                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Certain information for the year 1999 has been
    restated to reflect the retroactive application of the asset and
    liability method to calculate deferred income and mining taxes
    (see Note 2 to the Companys 2001 financial statements).
|(2) | Net earnings (loss) per common share is
    calculated by dividing net earnings (loss) applicable to
    Common Shares by the weighted-average number of Common Shares
    issued and outstanding for the relevant period.                         
|(3) | Reference is made to Note 2(c) to the
    financial statements under Item 8 of this Report.                                                                                                                                                        

There are a number of differences between
Canadian and United States GAAP. The differences, insofar as
they affect the Companys Consolidated Financial
Statements, relate to accounting for post-retirement benefits,
depreciation and depletion, intangible assets, research and
development, exploration, asset impairment, our convertible
debt, derivative instruments, investments, certain currency
translation gains and losses, income and mining taxes and
reporting of comprehensive income. A full discussion of these
differences is presented in the Notes to the financial
statements under Item 8 of this Report and, in particular,
Note 23 to such financial statements.

4



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##### 



The following table reconciles results as
reported under Canadian GAAP with those that would have been
reported under United States GAAP:

|                                                                                                                                           |                                                           |                                           |       |               |   |               |        |               |   |               |      |      |  |   |      |      |  |   |       |       |  
|------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------- | ----------------------------------------- | ----- | ------------- | - | ------------- | ------ | ------------- | - | ------------- | ---- | ---- |  | - | ---- | ---- |  | - | ----- | ----- | -
|                                                                                                                                           |                                                           |                                          
|                                                                                                                                           |                                                           | Year Ended December 31,                  
|                                                                                                                                           |                                                           |                                          
|                                                                                                                                           |                                                           | 2003                                      |       | 2002          |   | 2001          |        | 2000          |   | 1999(1)      
|                                                                                                                                           |                                                           |                                           |       |               |   |               |        |               |   |              
|                                                                                                                                           |                                                           | (Restated)(2)                             |       | (Restated)(2) |   | (Restated)(2) |        | (Restated)(3) |   | (Restated)(3)
|                                                                                                                                           |                                                           |                                          
|                                                                                                                                           |                                                           | ($ in millions, except per share amounts)
|Earnings (loss) from continuing
    operations  Canadian GAAP                                                                             |                                                           | $                                         | 137   |               |   | $             | (1,482 | )             |   | $             | 304  |      |  | $ | 400  |      |  | $ | 17    |      
|Increased post-retirement benefits expense                                                                                                 |                                                           |                                           | (37   | )             |   |               | (23    | )             |   |               | (22  | )    |  |   | (22  | )    |  |   |      |      
|Decreased depreciation and depletion expense                                                                                               |                                                           |                                           | 38    |               |   |               | 13     |               |   |               |     |      |  |   |     |      |  |   |      |      
|Increased intangible assets amortization expense                                                                                           |                                                           |                                           | (2    | )             |   |               | (2     | )             |   |               |     |      |  |   |     |      |  |   |      |      
|Increased research and development expense                                                                                                 |                                                           |                                           | (5    | )             |   |               | (6     | )             |   |               | (8   | )    |  |   |     |      |  |   |      |      
|Increased exploration expense                                                                                                              |                                                           |                                           | (4    | )             |   |               | (3     | )             |   |               | (7   | )    |  |   |     |      |  |   |      |      
|Increased asset impairment charges                                                                                                         |                                                           |                                           |      |               |   |               | (961   | )             |   |               |     |      |  |   |     |      |  |   |      |      
|Increased interest expense                                                                                                                 |                                                           |                                           | (25   | )             |   |               | (9     | )             |   |               | (11  | )    |  |   |     |      |  |   |      |      
|Unrealized net gain (loss) on derivative
    instruments                                                                                   |                                                           |                                           | (1    | )             |   |               | 5      |               |   |               | (4   | )    |  |   |     |      |  |   |      |      
|Unrealized currency translation gains (losses) on
    Voiseys Bay project deferred income and mining tax
    liabilities                  |                                                           |                                           | (207  | )             |   |               | (49    | )             |   |               | 122  |      |  |   | 79   |      |  |   | (128  | )    
|Increased income and mining tax expense                                                                                                    |                                                           |                                           | (15   | )             |   |               |       |               |   |               |     |      |  |   |     |      |  |   |      |      
|Decreased (increased) minority interest                                                                                                    |                                                           |                                           | (9    | )             |   |               | (3     | )             |   |               | 2    |      |  |   |     |      |  |   |      |      
|Change in accounting policy                                                                                                                |                                                           |                                           |      |               |   |               | 1      |               |   |               | 1    |      |  |   |     |      |  |   |      |      
|Taxes on United States GAAP differences                                                                                                    |                                                           |                                           | 18    |               |   |               | 141    |               |   |               | 17   |      |  |   | 9    |      |  |   |      |      
|                                                                                                                                           |                                                           |                                           |       |               |   |               |        |               |   |               |      |      |  |   |      |      |  |   |       |      
|Earnings (loss) from continuing
    operations  United States GAAP                                                                        |                                                           |                                           | (112  | )             |   |               | (2,378 | )             |   |               | 394  |      |  |   | 466  |      |  |   | (111  | )    
|Discontinued operations                                                                                                                    |                                                           |                                           |      |               |   |               |       |               |   |               |     |      |  |   |     |      |  |   | (5    | )    
|                                                                                                                                           |                                                           |                                           |       |               |   |               |        |               |   |               |      |      |  |   |      |      |  |   |       |      
|Net earnings (loss)  United States
    GAAP before cumulative effect of a change in accounting principle                                  |                                                           |                                           | (112  | )             |   |               | (2,378 | )             |   |               | 394  |      |  |   | 466  |      |  |   | (116  | )    
|Cumulative effect of a change in accounting
    principle                                                                                  |                                                           |                                           | (17   | )             |   |               | (2     | )             |   |               |     |      |  |   |     |      |  |   |      |      
|                                                                                                                                           |                                                           |                                           |       |               |   |               |        |               |   |               |      |      |  |   |      |      |  |   |       |      
|Net earnings (loss)  United States GAAP                                                                                                   |                                                           | $                                         | (129  | )             |   | $             | (2,380 | )             |   | $             | 394  |      |  | $ | 466  |      |  | $ | (116  | )    
|                                                                                                                                           |                                                           |                                           |       |               |   |               |        |               |   |               |      |      |  |   |      |      |  |   |       |      
|Net earnings (loss) per share  basic
    net earnings (loss) per share before cumulative effect of a
    change in accounting principle   |                                                           | $                                         | (0.72 | )             |   | $             | (13.15 | )             |   | $             | 2.02 |      |  | $ | 2.42 |      |  | $ | (0.78 | )    
|                                                                                                                                           | Cumulative effect of a change in accounting
    principle |                                           |       | (0.09         | ) |               |        | (0.01         | ) |               |      |     |  |   |      |     |  |   |       |      |  
|                                                                                                                                           |                                                           |                                           |       |               |   |               |        |               |   |               |      |      |  |   |      |      |  |   |       |      
|                                                                                                                                           | Net earnings (loss) per share  basic                     |                                           | $     | (0.81         | ) |               | $      | (13.16        | ) |               | $    | 2.02 |  |   | $    | 2.42 |  |   | $     | (0.78 | )
|                                                                                                                                           |                                                           |                                           |       |               |   |               |        |               |   |               |      |      |  |   |      |      |  |   |       |      
|Net earnings (loss) per share  diluted
    net earnings (loss) per share before cumulative effect of a
    change in accounting principle |                                                           | $                                         | (0.72 | )             |   | $             | (13.15 | )             |   | $             | 1.98 |      |  | $ | 2.21 |      |  | $ | (0.78 | )    
|                                                                                                                                           | Cumulative effect of a change in accounting
    principle |                                           |       | (0.09         | ) |               |        | (0.01         | ) |               |      |     |  |   |      |     |  |   |       |      |  
|                                                                                                                                           |                                                           |                                           |       |               |   |               |        |               |   |               |      |      |  |   |      |      |  |   |       |      
|                                                                                                                                           | Net earnings (loss) per share  diluted                   |                                           | $     | (0.81         | ) |               | $      | (13.16        | ) |               | $    | 1.98 |  |   | $    | 2.21 |  |   | $     | (0.78 | )
|                                                                                                                                           |                                                           |                                           |       |               |   |               |        |               |   |               |      |      |  |   |      |      |  |   |       |      



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|    |                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Certain information for the year 1999 has been
    restated to reflect the retroactive application of the asset and
    liability method to calculate deferred income and mining taxes.
|(2) | Reference is made to Note 23,
    parts (b), (c), (d), (e), (f), (i), (n), (o), (q) and
    (r) to the consolidated financial statements under
    Item 8 of this Report.              
|(3) | Reference is made to Note 23, parts (i)
    and (q) to the consolidated financial statements under
    Item 8 of this Report.                                                          

5



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##### 



The selected financial data item Preferred
shares would be reported in the same amounts under
Canadian and United States GAAP. Under United States GAAP,
convertible debt would be classified as debt and the selected
financial data item Long-term debt would be
increased by $626 million at December 31, 2003. Under
United States GAAP, Total assets would be reported
as $7,973 million at December 31, 2003 (2002 
$7,727 million; 2001  $9,755 million;
2000  $9,856 million; 1999 
$9,670 million).



---

6



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##### 





|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

Note Explaining Amendments to Note 23 to
the Companys Consolidated Financial
Statements:Note 23 to the
Companys consolidated financial statements has been
amended to reflect the revision in accounting treatment for
United States GAAP of unrealized non-cash currency translation
gains and losses relating to the Voiseys Bay deferred
income and mining tax liabilities and restatement of related
balances. Accordingly, the amendments made relate principally to
(1) the first table in this Note which reconciles results
as reported under Canadian GAAP with those that would have been
reported under United States GAAP, (2) asset impairment
charges referred to in (f), (3) the addition of a new part
(i) which provides an explanation of this revision, the
United States GAAP difference and resulting restatements,
(4) earnings/(loss) per share in (n), (5) stock-based
compensation in (o), (6) an explanation and presentation of
the effect of the restatement of United States GAAP financial
information in (q) and (7) comparative figures in (r). As a
result of the addition of the new part (i), all succeeding
parts of Note 23 (originally parts (i)-(r)) have been
relettered as (j)-(s).

AUDITORS REPORTS

To the Shareholders of Inco Limited:

We have audited the consolidated balance sheet of
Inco Limited as at December 31, 2003, 2002 and 2001 and the
consolidated statements of earnings, retained earnings
(deficit) and cash flows for the years then ended. In
addition, we have audited Schedule VIII 
Valuation Accounts and Reserves under Item 8 of this
Report. These consolidated financial statements and the
financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements and the
financial statement schedule based on our audits.

We conducted our audits in accordance with
Canadian generally accepted auditing standards and the standards
of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, these consolidated financial
statements present fairly, in all material respects, the
financial position of the Company as at December 31, 2003,
2002 and 2001 and the results of its operations and its cash
flows for the years then ended in accordance with Canadian
generally accepted accounting principles. In addition, in our
opinion, Schedule VIII  Valuation Accounts and
Reserves presents fairly, in all material respects, the
financial information set forth therein when read in conjunction
with the related consolidated financial statements.

PRICEWATERHOUSECOOPERS LLP

Chartered Accountants


Toronto, Ontario


February 3, 2004

7



---



##### 



Comments by Auditors for United States Readers
on Canada  United States Accounting
Differences

Accounting principles generally accepted in
Canada vary in certain significant respects from accounting
principles generally accepted in the United States. Information
relating to the nature and effect of such differences is
presented in note 23, as restated, to the consolidated financial
statements of the Company.

PRICEWATERHOUSECOOPERS LLP

Chartered Accountants


Toronto, Ontario


February 3, 2004 (except as to
Note 23(q)(1) which is as of March 12, 2004 and
except as to Note 23(q)(2) which is as of
August 4, 2004)

8



---



##### 



CONSOLIDATED STATEMENT OF EARNINGS

|                                                                                              |         |                                       |       |            |  |            |        |       |   |   |       |      | 
|--------------------------------------------------------------------------------------------- | ------- | ------------------------------------- | ----- | ---------- |  | ---------- | ------ | ----- | - | - | ----- | ---- | 
|                                                                                              |         |                                      
|                                                                                              |         | Year ended December 31               
|                                                                                              |         |                                      
|                                                                                              |         | 2003                                  |       | 2002       |  | 2001      
|                                                                                              |         |                                       |       |            |  |           
|                                                                                              |         |                                       |       | (Restated) |  | (Restated)
|                                                                                              |         |                                      
|                                                                                              |         | (in millions of United States dollars
|                                                                                              |         | except per share amounts)            
|Revenues                                                                                      |         |                                       |       |            |  |            |        |       |   |   |       |     
|Net sales (Note 19)                                                                           |         | $                                     | 2,474 |            |  | $          | 2,161  |       |   | $ | 2,066 |     
|Other income, net (Note 6)                                                                    |         |                                       | 104   |            |  |            | 40     |       |   |   | 13    |     
|                                                                                              |         |                                       |       |            |  |            |        |       |   |   |       |     
|                                                                                              |         |                                       | 2,578 |            |  |            | 2,201  |       |   |   | 2,079 |     
|                                                                                              |         |                                       |       |            |  |            |        |       |   |   |       |     
|Costs and operating expenses
    (income)                                                     |         |                                       |       |            |  |            |        |       |   |   |       |     
|Cost of sales and other operating expenses,
    excluding depreciation and depletion (Note 3) |         |                                       | 1,735 |            |  |            | 1,378  |       |   |   | 1,416 |     
|Depreciation and depletion (Note 3)                                                           |         |                                       | 265   |            |  |            | 255    |       |   |   | 263   |     
|Selling, general and administrative                                                           |         |                                       | 169   |            |  |            | 136    |       |   |   | 111   |     
|Research and development                                                                      |         |                                       | 27    |            |  |            | 17     |       |   |   | 20    |     
|Exploration                                                                                   |         |                                       | 27    |            |  |            | 24     |       |   |   | 23    |     
|Currency translation adjustments                                                              |         |                                       | 177   |            |  |            | 5      |       |   |   | (39   | )   
|Interest expense                                                                              |         |                                       | 44    |            |  |            | 50     |       |   |   | 56    |     
|Asset impairment charges (Note 4)                                                             |         |                                       |      |            |  |            | 2,415  |       |   |   |      |     
|Goro project suspension costs (Note 5)                                                        |         |                                       | (4    | )          |  |            | 25     |       |   |   |      |     
|                                                                                              |         |                                       |       |            |  |            |        |       |   |   |       |     
|                                                                                              |         |                                       | 2,440 |            |  |            | 4,305  |       |   |   | 1,850 |     
|                                                                                              |         |                                       |       |            |  |            |        |       |   |   |       |     
|Earnings (loss) before income and mining
    taxes and minority interest                      |         |                                       | 138   |            |  |            | (2,104 | )     |   |   | 229   |     
|Income and mining taxes (Note 7)                                                              |         |                                       | (49   | )          |  |            | (639   | )     |   |   | (85   | )   
|                                                                                              |         |                                       |       |            |  |            |        |       |   |   |       |     
|Earnings (loss) before minority interest                                                      |         |                                       | 187   |            |  |            | (1,465 | )     |   |   | 314   |     
|Minority interest                                                                             |         |                                       | 50    |            |  |            | 17     |       |   |   | 10    |     
|                                                                                              |         |                                       |       |            |  |            |        |       |   |   |       |     
|Net earnings (loss)                                                                           |         |                                       | 137   |            |  |            | (1,482 | )     |   |   | 304   |     
|Dividends on preferred shares (Note 15)                                                       |         |                                       | (6    | )          |  |            | (26    | )     |   |   | (26   | )   
|Accretion of convertible debt (Note 14)                                                       |         |                                       | (7    | )          |  |            | (4     | )     |   |   | (3    | )   
|Premium on redemption of preferred shares
    (Note 15)                                       |         |                                       | (15   | )          |  |            |       |       |   |   |      |     
|                                                                                              |         |                                       |       |            |  |            |        |       |   |   |       |     
|Net earnings (loss) applicable to common
    shares                                           |         | $                                     | 109   |            |  | $          | (1,512 | )     |   | $ | 275   |     
|                                                                                              |         |                                       |       |            |  |            |        |       |   |   |       |     
|Net earnings (loss) per common share (Note 8)                                                 |         |                                       |       |            |  |            |        |       |   |   |       |     
|                                                                                              | Basic   |                                       | $     | 0.59       |  |            | $      | (8.27 | ) |   | $     | 1.51 | 
|                                                                                              | Diluted |                                       | $     | 0.58       |  |            | $      | (8.27 | ) |   | $     | 1.49 | 
|                                                                                              |         |                                       |       |            |  |            |        |       |   |   |       |     

CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(DEFICIT)

|                                                                             |  |                                        |      |            |  |            |        |   |  |   |       |  
|---------------------------------------------------------------------------- |  | -------------------------------------- | ---- | ---------- |  | ---------- | ------ | - |  | - | ----- | -
|                                                                             |  |                                       
|                                                                             |  | Year ended December 31                
|                                                                             |  |                                       
|                                                                             |  | 2003                                   |      | 2002       |  | 2001      
|                                                                             |  |                                        |      |            |  |           
|                                                                             |  |                                        |      | (Restated) |  | (Restated)
|                                                                             |  |                                       
|                                                                             |  | (in millions of United States dollars)
|Retained earnings (deficit) at beginning of
    year, as previously reported |  | $                                      | (335 | )          |  | $          | 1,194  |   |  | $ | 918   |  
|Change in accounting policy (Note 2)                                         |  |                                        |     |            |  |            | (17    | ) |  |   | (16   | )
|                                                                             |  |                                        |      |            |  |            |        |   |  |   |       |  
|Retained earnings (deficit) at beginning of
    year, as restated            |  |                                        | (335 | )          |  |            | 1,177  |   |  |   | 902   |  
|Net earnings (loss)                                                          |  |                                        | 137  |            |  |            | (1,482 | ) |  |   | 304   |  
|Dividends on preferred shares                                                |  |                                        | (6   | )          |  |            | (26    | ) |  |   | (26   | )
|Accretion of convertible debt                                                |  |                                        | (7   | )          |  |            | (4     | ) |  |   | (3    | )
|Premium on redemption of preferred shares
    (Note 15)                      |  |                                        | (15  | )          |  |            |       |   |  |   |      |  
|                                                                             |  |                                        |      |            |  |            |        |   |  |   |       |  
|Retained earnings (deficit) at end of year                                   |  | $                                      | (226 | )          |  | $          | (335   | ) |  | $ | 1,177 |  
|                                                                             |  |                                        |      |            |  |            |        |   |  |   |       |  

The Notes to Consolidated Financial Statements
below are an integral part of these statements.

9



---



##### 



CONSOLIDATED BALANCE SHEET

|                                                         |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |       | 
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ----- | ---------- | - | ---------- | ----- | ----- | - | - | ----- | ----- | 
|                                                         |                                                                                                                         |                                       
|                                                         |                                                                                                                         | December 31                           
|                                                         |                                                                                                                         |                                       
|                                                         |                                                                                                                         | 2003                                   |       | 2002       |   | 2001      
|                                                         |                                                                                                                         |                                        |       |            |   |           
|                                                         |                                                                                                                         |                                        |       | (Restated) |   | (Restated)
|                                                         |                                                                                                                         |                                       
|                                                         |                                                                                                                         | (in millions of United States dollars)
|ASSETS                                                  
|Current assets                                           |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|Cash and cash equivalents (Notes 20 and 22)              |                                                                                                                         | $                                      | 418   |            |   | $          | 1,087 |       |   | $ | 306   |      
|Accounts receivable                                      |                                                                                                                         |                                        | 435   |            |   |            | 251   |       |   |   | 277   |      
|Inventories (Note 9)                                     |                                                                                                                         |                                        | 746   |            |   |            | 576   |       |   |   | 500   |      
|Other (Note 7)                                           |                                                                                                                         |                                        | 112   |            |   |            | 73    |       |   |   | 44    |      
|                                                         |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|Total current assets                                     |                                                                                                                         |                                        | 1,711 |            |   |            | 1,987 |       |   |   | 1,127 |      
|Property, plant and equipment (Note 10)                  |                                                                                                                         |                                        | 6,976 |            |   |            | 6,382 |       |   |   | 8,260 |      
|Deferred charges and other assets (Notes 12 and
    20)  |                                                                                                                         |                                        | 319   |            |   |            | 208   |       |   |   | 243   |      
|                                                         |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|Total assets                                             |                                                                                                                         | $                                      | 9,006 |            |   | $          | 8,577 |       |   | $ | 9,630 |      
|                                                         |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|LIABILITIES AND SHAREHOLDERS
    EQUITY                
|Current liabilities                                      |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|Long-term debt due within one year (Notes 11 and
    20) |                                                                                                                         | $                                      | 103   |            |   | $          | 97    |       |   | $ | 81    |      
|Accounts payable                                         |                                                                                                                         |                                        | 253   |            |   |            | 338   |       |   |   | 132   |      
|Accrued payrolls and benefits                            |                                                                                                                         |                                        | 165   |            |   |            | 118   |       |   |   | 107   |      
|Other accrued liabilities                                |                                                                                                                         |                                        | 332   |            |   |            | 210   |       |   |   | 189   |      
|Income and mining taxes payable                          |                                                                                                                         |                                        | 27    |            |   |            | 167   |       |   |   | 58    |      
|                                                         |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|Total current liabilities                                |                                                                                                                         |                                        | 880   |            |   |            | 930   |       |   |   | 567   |      
|Deferred credits and other
    liabilities               |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|Long-term debt (Notes 11 and 20)                         |                                                                                                                         |                                        | 1,409 |            |   |            | 1,546 |       |   |   | 759   |      
|Deferred income and mining taxes (Note 7)                |                                                                                                                         |                                        | 1,696 |            |   |            | 1,352 |       |   |   | 2,105 |      
|Post-retirement benefits (Note 12)                       |                                                                                                                         |                                        | 603   |            |   |            | 475   |       |   |   | 451   |      
|Asset retirement obligation (Note 13)                    |                                                                                                                         |                                        | 141   |            |   |            | 119   |       |   |   | 121   |      
|Minority interest                                        |                                                                                                                         |                                        | 415   |            |   |            | 368   |       |   |   | 350   |      
|                                                         |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|Total liabilities                                        |                                                                                                                         |                                        | 5,144 |            |   |            | 4,790 |       |   |   | 4,353 |      
|                                                         |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|Commitments and contingencies (Note 21)                  |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|Shareholders equity                                     |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|Convertible debt (Note 14)                               |                                                                                                                         |                                        | 606   |            |   |            | 238   |       |   |   | 231   |      
|                                                         |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|Preferred shares (Note 15)                               |                                                                                                                         |                                        |      |            |   |            | 472   |       |   |   | 472   |      
|                                                         |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|Common shareholders equity                              |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|                                                         | Common shares issued and outstanding
    186,915,865
    (2002  183,238,351, 2001  182,192,732)
    (Notes 17 and 18) |                                        |       | 2,858      |   |            |       | 2,771 |   |   |       | 2,756 | 
|                                                         | Warrants (Note 16)                                                                                                      |                                        |       | 62         |   |            |       | 62    |   |   |       | 62    | 
|                                                         | Contributed surplus (Note 18)                                                                                           |                                        |       | 562        |   |            |       | 559   |   |   |       | 559   | 
|                                                         | Retained earnings (deficit)                                                                                             |                                        |       | (226       | ) |            |       | (335  | ) |   |       | 1,177 | 
|                                                         |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|                                                         |                                                                                                                         |                                        | 3,256 |            |   |            | 3,057 |       |   |   | 4,554 |      
|                                                         |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|Contingently issuable equity (Notes 15 and 17)           |                                                                                                                         |                                        |      |            |   |            | 20    |       |   |   | 20    |      
|                                                         |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|Total shareholders equity                               |                                                                                                                         |                                        | 3,862 |            |   |            | 3,787 |       |   |   | 5,277 |      
|                                                         |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      
|Total liabilities and shareholders equity               |                                                                                                                         | $                                      | 9,006 |            |   | $          | 8,577 |       |   | $ | 9,630 |      
|                                                         |                                                                                                                         |                                        |       |            |   |            |       |       |   |   |       |      

The Notes to Consolidated Financial Statements
below are an integral part of these statements.

10



---



##### 



CONSOLIDATED STATEMENT OF CASH FLOWS

|                                                                          |                                          |                                        |       |            |   |            |        |       |   |   |      |      |  
|------------------------------------------------------------------------- | ---------------------------------------- | -------------------------------------- | ----- | ---------- | - | ---------- | ------ | ----- | - | - | ---- | ---- | -
|                                                                          |                                          |                                       
|                                                                          |                                          | Year ended December 31                
|                                                                          |                                          |                                       
|                                                                          |                                          | 2003                                   |       | 2002       |   | 2001      
|                                                                          |                                          |                                        |       |            |   |           
|                                                                          |                                          |                                        |       | (Restated) |   | (Restated)
|                                                                          |                                          |                                       
|                                                                          |                                          | (in millions of United States dollars)
|Operating activities                                                      |                                          |                                        |       |            |   |            |        |       |   |   |      |     
|Earnings (loss) before minority interest                                  |                                          | $                                      | 187   |            |   | $          | (1,465 | )     |   | $ | 314  |     
|Charges (credits) not affecting cash                                      |                                          |                                        |       |            |   |            |        |       |   |   |      |     
|                                                                          | Depreciation and depletion               |                                        |       | 265        |   |            |        | 255   |   |   |      | 263  |  
|                                                                          | Deferred income and mining taxes         |                                        |       | 26         |   |            |        | (745  | ) |   |      | (127 | )
|                                                                          | Asset impairment charges (Note 4)        |                                        |       |           |   |            |        | 2,415 |   |   |      |     |  
|                                                                          | Other                                    |                                        |       | 81         |   |            |        | 41    |   |   |      | (43  | )
|Decrease (increase) in non-cash working
    capital related to operations |                                          |                                        |       |            |   |            |        |       |   |   |      |     
|                                                                          | Accounts receivable                      |                                        |       | (184       | ) |            |        | (8    | ) |   |      | 88   |  
|                                                                          | Inventories                              |                                        |       | (170       | ) |            |        | (77   | ) |   |      | 20   |  
|                                                                          | Accounts payable and accrued liabilities |                                        |       | 124        |   |            |        | 98    |   |   |      | (10  | )
|                                                                          | Income and mining taxes payable          |                                        |       | (140       | ) |            |        | 106   |   |   |      | (125 | )
|                                                                          | Other                                    |                                        |       | (35        | ) |            |        | (26   | ) |   |      | (10  | )
|Other                                                                     |                                          |                                        | (23   | )          |   |            | 5      |       |   |   | (10  | )   
|                                                                          |                                          |                                        |       |            |   |            |        |       |   |   |      |     
|Net cash provided by operating activities                                 |                                          |                                        | 131   |            |   |            | 599    |       |   |   | 360  |     
|                                                                          |                                          |                                        |       |            |   |            |        |       |   |   |      |     
|Investing activities                                                      |                                          |                                        |       |            |   |            |        |       |   |   |      |     
|Capital expenditures                                                      |                                          |                                        | (591  | )          |   |            | (600   | )     |   |   | (263 | )   
|Other                                                                     |                                          |                                        | 26    |            |   |            | (9     | )     |   |   | 2    |     
|                                                                          |                                          |                                        |       |            |   |            |        |       |   |   |      |     
|Net cash used for investing activities                                    |                                          |                                        | (565  | )          |   |            | (609   | )     |   |   | (261 | )   
|                                                                          |                                          |                                        |       |            |   |            |        |       |   |   |      |     
|Financing activities                                                      |                                          |                                        |       |            |   |            |        |       |   |   |      |     
|Long-term borrowings                                                      |                                          |                                        | 314   |            |   |            | 884    |       |   |   | 2    |     
|Repayments of long-term debt                                              |                                          |                                        | (574  | )          |   |            | (81    | )     |   |   | (192 | )   
|Convertible debt issued                                                   |                                          |                                        | 470   |            |   |            |       |       |   |   | 226  |     
|Preferred shares redeemed                                                 |                                          |                                        | (487  | )          |   |            |       |       |   |   |     |     
|Common shares issued                                                      |                                          |                                        | 60    |            |   |            | 15     |       |   |   | 5    |     
|Preferred dividends paid                                                  |                                          |                                        | (6    | )          |   |            | (26    | )     |   |   | (26  | )   
|Dividends paid to minority interest                                       |                                          |                                        | (7    | )          |   |            | (1     | )     |   |   | (1   | )   
|Other                                                                     |                                          |                                        | (5    | )          |   |            |       |       |   |   |     |     
|                                                                          |                                          |                                        |       |            |   |            |        |       |   |   |      |     
|Net cash provided by (used for) financing
    activities                  |                                          |                                        | (235  | )          |   |            | 791    |       |   |   | 14   |     
|                                                                          |                                          |                                        |       |            |   |            |        |       |   |   |      |     
|Net increase (decrease) in cash and cash
    equivalents                  |                                          |                                        | (669  | )          |   |            | 781    |       |   |   | 113  |     
|Cash and cash equivalents at beginning of year                            |                                          |                                        | 1,087 |            |   |            | 306    |       |   |   | 193  |     
|                                                                          |                                          |                                        |       |            |   |            |        |       |   |   |      |     
|Cash and cash equivalents at end of year
    (Notes 20 and 22)            |                                          | $                                      | 418   |            |   | $          | 1,087  |       |   | $ | 306  |     
|                                                                          |                                          |                                        |       |            |   |            |        |       |   |   |      |     

The Notes to Consolidated Financial Statements
below are an integral part of these statements.

11



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


Note 1. Summary of significant accounting
policies

The consolidated financial statements of Inco
Limited (Inco) and its subsidiaries (referred to as
we, us and our) are prepared
in accordance with Canadian generally accepted accounting
principles (GAAP), consistently applied which, in
our case, conform in all material respects with United States
GAAP except as explained in Note 23.



| |                            
| | ---------------------------
| | Principles of consolidation

The financial statements of entities which are
controlled by Inco either directly or indirectly, through
wholly-owned subsidiaries, are consolidated. Control is
established by our ability to determine strategic, operating,
investing and financing policies without the co-operation of
others. The criteria we use include an analysis of our level of
ownership, voting rights and our level of representation on the
board of directors. We evaluate these criteria in terms of
determining whether the existence of one of the criteria alone
(such as a majority ownership of all voting securities), or a
combination of the criteria when taken together, would result in
having control, or the right to exercise control, of the
management, business focus or strategy and/or critical policies
of the particular entity. Entities which are not controlled and
for which our ownership in all voting securities is greater than
20 per cent are accounted for using the equity method and
are included in deferred charges and other assets. We have no
entities for which we have used the equity method and own less
than 20 per cent of all voting securities. We have no
entities for which we own greater than 50 per cent of all
voting securities but do not consolidate. We do not have
subsidiaries or joint ventures for which we use the
proportionate consolidation method nor do we consolidate any
entities for which we own less than 50 per cent of all
voting securities. Investments in other entities are accounted
for using the cost method.



| |          
| | ---------
| | Estimates

Financial statements prepared in accordance with
GAAP require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.



| |                                                                                
| | -------------------------------------------------------------------------------
| | Translation of consolidated financial
    statements into United States dollars

These consolidated financial statements are
expressed in United States dollars. The United States dollar is
our functional currency. Accordingly, we use the temporal method
of translation. Monetary assets and liabilities are translated
into United States dollars using year-end rates of exchange. All
other assets and liabilities are translated at applicable
historical rates of exchange. Revenues, expenses and certain
costs are translated at monthly average exchange rates except
for inventoried costs, depreciation and depletion which are
translated at historical rates. Realized exchange gains and
losses and currency translation adjustments are included in
earnings.



| |                          
| | -------------------------
| | Cash and cash equivalents

Cash and cash equivalents comprise cash, time
deposits and other interest bearing instruments with original
maturity dates of less than three months.



| |            
| | -----------
| | Inventories

Inventories consist of finished metal products,
work in process and operating supplies. Inventories are stated
at the lower of cost and estimated net realizable value.

Work in process includes inventory at all stages
in the production process, from stockpiled ore through to final
refined metal. Broken ore in our mines is not recognized as
inventory until delivered to the mine head or temporary storage
areas for blending. Cost includes all direct costs incurred
through to the applicable stage of

12



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


production, including direct labour and
materials, depreciation and depletion as well as an allocated
portion of overheads. Costs are allocated based on contained
metal. For costing purposes, copper and nickel are treated as
co-products and share expenses pro-rata based on pounds unless a
plant is specifically for the upgrading of only one metal or the
other.

Period costs such as shutdown expenses, standby
costs, property write-offs, costs of delivering the product to
the end customer, including freight and sales administration,
are not allocated to inventory but charged directly to cost of
sales and other operating expenses.

The point in our production cycle that costs
related to mine and other property, plant and equipment begin to
be capitalized as a cost of inventory is at the mine head.



| |                              
| | -----------------------------
| | Property, plant and equipment

Property, plant and equipment are stated at cost.
Such cost, in the case of mines and undeveloped properties,
represents related acquisition and development expenditures.
Costs are capitalized for an undeveloped property when it is
probable that such costs will be recovered from the exploitation
of the property. Capitalization ceases when the property is
substantially complete and ready for use. Financing costs,
including interest, are capitalized when they arise from
indebtedness incurred to finance the development, construction
or expansion of significant mineral properties and facilities.
Development costs are charged as an expense in the period
incurred unless we believe a development project meets generally
accepted criteria for deferral and amortization.



| |                                   
| | ----------------------------------
| | Research and development
    costs

Research costs are expensed in the period in
which they are incurred. Development costs are capitalized where
the product or process is clearly defined, the technical
feasibility has been established and we are committed to, and
have the resources to, complete the project.



| |                 
| | ----------------
| | Asset impairment

When the net carrying value of an item or group
of items of property, plant and equipment exceeds the estimated
undiscounted future net cash flows together with its residual
value, the excess of the carrying value over the fair value is
charged to earnings. In estimating future net cash flows, assets
are grouped at the lowest level for which there are identifiable
cash flows that are largely independent of cash flows from other
asset groups taking into consideration movements of intermediate
products to ensure the utilization of available capacity across
our operations. Generally, all assets at a particular operation
are used together to generate cash flow. Estimates of future
cash flows are subject to risks and uncertainties.

We periodically review our equity method
investments to determine whether a decline in fair value (as
measured by discounted future cash flows) below the carrying
amount is other than temporary.



| |                    
| | -------------------
| | Revenue recognition

Our primary products are nickel and copper. Most
of our nickel is sold as refined nickel and our copper is
predominantly sold as copper cathode. We also sell precious
metals, cobalt and other by-products. Sales of all commodities
are recognized as revenue when title has passed under the terms
of the relevant contracts or sale, which is generally when
shipped. Net sales include revenues from the sale of all metals
produced by us, including metals which we refer to as
by-products as well as sulphuric acid and liquid sulphur.

For most of our sales, the price is fixed at the
time revenue is recognized, and is based on quoted commodity
prices on recognized exchanges. A small portion of our revenues
are provisionally priced at the time of shipment. For
provisionally priced sales, final settlement is generally based
on the average LME cash nickel price for a specified future
period generally after the month of arrival at the
customers facility which is within 90 days of sale.
As such any proceeds received represent provisional sales
proceeds and not final sales proceeds.

13



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)




| |            
| | -----------
| | Exploration

Exploration expenditures are expensed as incurred
except in areas currently under development, where production is
probable, or in areas under feasibility study, where there is a
reasonable expectation to convert existing estimated mineral
resources to estimated ore reserves and add additional mineral
resources with additional drilling and evaluations in areas near
existing ore reserves, and existing or planned production
facilities, in which case they are capitalized and amortized
using the unit-of-production method.



| |                           
| | --------------------------
| | Depreciation and depletion

Property, plant and equipment is generally
depreciated on a straight line basis over the following
estimated economic lives:

|                           |  |               
|-------------------------- |  | --------------
|Mine and mobile equipment  |  | 3 to 10 years 
|Processing facilities      |  | 15 to 20 years
|Smelter equipment          |  | 15 to 20 years
|Refinery equipment         |  | 5 to 20 years 
|Power generation equipment |  | 10 to 20 years
|Furniture and fixtures     |  | 10 years      

The estimated economic life is assessed on an
annual basis, taking into account the state of the equipment,
technological changes and the related facilities or the
estimated proven and probable ore reserves where the equipment
is located. Some equipment has an estimated economic life in
excess of 20 years, and is being amortized on a 5 per cent
declining balance basis. When an assessment is made that the
remaining life of that equipment is less than 20 years, the
depreciation method is switched to straight line. Depreciation
starts when the asset is ready for use.

Mine development costs are amortized on a
composite basis based on our twenty-year mine plan. Total
historical capitalized costs and estimated future development
costs relating to developed and undeveloped ore reserves are
depreciated using the unit-of-production method based on total
developed and undeveloped estimated proven and probable ore
reserves. Amortization is limited to forecast production in the
twenty-year mine plan even where we have additional estimated
proven and probable ore reserves. Depletion starts when
production commences.

For our nickel operations in Indonesia, property,
plant and equipment and mine development costs are amortized
using the unit-of-production method described in the preceding
paragraph.



| |                             
| | ----------------------------
| | Asset retirement obligations

The accounting for asset retirement obligations
encompasses the accounting for legal obligations associated with
the retirement of a tangible long-lived asset that results from
the acquisition, construction or development and/or the normal
operation of a long-lived asset. The retirement of a long-lived
asset is its other than temporary removal from service,
including its sale, abandonment, recycling or disposal in some
other manner but not its temporary idling.

We recognize asset retirement obligations as
liabilities when a legal obligation with respect to the
retirement of an asset is incurred, with the initial measurement
of the obligation at fair value. These obligations are accreted
to full value over time through charges to income. In addition,
an asset retirement cost equivalent to the liabilities is
capitalized as part of the related assets carrying value
and is subsequently depreciated over the assets useful
life. A liability for an asset retirement obligation is incurred
over more than one reporting period when the events that create
the obligation occur over more than one reporting period. For
example, if a facility is permanently closed but the closure
plan is developed over more than one reporting period, the cost
of the closure of the facility is incurred over the reporting
periods when the closure plan is finalized. Any incremental
liability incurred in a

14



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


subsequent reporting period is considered to be
an additional layer of the original liability. Each layer is
initially measured at fair value. As required, a separate layer
shall be measured and recognized and accounted for
prospectively. Our asset retirement obligations consist
primarily of costs associated with mine reclamation and closure
activities.

Our operations have been, and may in the future
be, affected from time to time in varying degrees by changes in
environmental laws and regulations, including those for asset
retirement obligation costs. Both the likelihood of future
changes in laws and regulations and their overall effect upon us
vary greatly from country to country and are not predictable.
Our policy is to meet or, if possible, surpass environmental
standards set by relevant legislation, by the application of
technically proven and economically feasible measures.

For environmental issues that may not involve the
retirement of an asset, where we are a responsible party and it
is determined that a liability exists, and amounts can be
quantified and determined, we will accrue for the estimated
liability. In determining whether a liability exists in respect
of such environmental issues, we apply the criteria for
liability recognition under applicable accounting standards.



| |                        
| | -----------------------
| | Income and mining taxes

Income and mining taxes comprise the provision
(relief) for taxes actually paid or payable (received or
receivable) and deferred taxes. Deferred income and mining taxes
are computed using the asset and liability method whereby
deferred income and mining tax assets and liabilities are
recognized for the expected future tax consequences attributable
to temporary differences between the tax bases of assets and
liabilities and their reported amounts in the financial
statements. Deferred income and mining tax assets and
liabilities are computed using current foreign currency exchange
rates and using income tax rates in effect when the temporary
differences are expected to reverse. The effect on deferred
income and mining tax assets and liabilities of a change in tax
rates is recognized in earnings in the period of substantive
enactment. The provision or relief for deferred income and
mining taxes is based on the changes in deferred income and
mining tax assets and liabilities during the period. In
estimating deferred income and mining tax assets, a valuation
allowance is determined to reduce the future income tax assets
to that amount that it is more likely than not to be realized.

Investment tax credits are accounted for by the
cost reduction method whereby investment tax credits related to
the acquisition of assets are deferred and recognized in
earnings as the related assets are depreciated, while those
related to research and development expenses are included in
earnings.



| |                                                    
| | ---------------------------------------------------
| | Financial instruments and commodities
    contracts

Forward, option and swap contracts are
periodically used to hedge the effect of exchange rate changes
on our future currency requirements. In addition, forward,
option and swap contracts are used to hedge the effect of price
changes on a portion of the metals we sell. Fuel oil swap
contracts are used to hedge the effect of price changes in
respect of a portion of our energy requirements in Indonesia.
Gains and losses on these contracts are deferred and recognized
as a component of the related transaction. Interest rate swaps
are used to hedge interest rate risk exposure. Amounts
receivable or payable related to the swaps are recorded in
interest expense concurrently with the interest expense of the
underlying debt. We also purchase and sell foreign currencies
and metals by using forward contracts which have not been
specifically identified as hedges. The values of these contracts
are marked to market with resulting gains and losses included in
earnings.



| |                         
| | ------------------------
| | Post-retirement benefits

The cost of providing benefits through defined
benefit pensions and post-retirement benefits other than
pensions is actuarially determined and recognized in earnings
using the projected benefit method prorated on service.
Differences arising from plan amendments are recognized in
earnings over the expected average remaining service life of
employees. Differences arising from changes in assumptions and
experience gains and losses are recognized in earnings by
amortizing the excess of the net actuarial gains and losses over
10 per cent of

15



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


the greater of the post-retirement benefits
obligation and the fair value of plan assets over the expected
average remaining service life of employees. The cost of
providing benefits through defined contribution pension plans is
charged to earnings in the period in respect of which
contributions become payable.



| |                         
| | ------------------------
| | Stock compensation plans

Cash received from employees upon exercise of
options to purchase Common Shares is credited to then issued and
outstanding Common Shares. In respect of Common Share
appreciation rights, compensation expense is determined and
accrued over the vesting period of the options based on the
excess of the quoted market value of the respective shares over
the exercise price. In respect of our other stock options, we
recognize as an expense the cost over the vesting period based
on the estimated fair value of the stock options. The fair value
of each stock option granted is estimated on the date of the
grant using an option-pricing model.



| |                                         
| | ----------------------------------------
| | Net earnings (loss) per Common
    Share

Basic earnings (loss) per Common Share is
computed by dividing net earnings (loss) applicable to
Common Shares by the weighted-average number of Common Shares
issued and outstanding for the relevant period. Diluted earnings
(loss) per Common Share is computed by dividing net
earnings applicable to Common Shares, as adjusted for the
effects of dilutive convertible securities, by the sum of the
weighted-average number of Common Shares issued and outstanding
and all additional Common Shares that would have been
outstanding if potentially dilutive Common Shares had been
issued.



| |                                             
| | --------------------------------------------
| | Generally accepted accounting
    principles

Effective January 1, 2004, we will adopt
Canadian Institute of Chartered Accountants (CICA)
section 1100, Generally Accepted Accounting
Principles. CICA 1100 describes what constitutes
Canadian GAAP and its sources. We are currently evaluating how
this standard will be implemented and what impact the adoption
of this new standard will have on our consolidated financial
statements.



|        |                               
|------- | ------------------------------
|Note 2. | Changes in accounting policies



| |                                 
| | --------------------------------
| | (a) Stock-based
    compensation

Effective January 1, 2003, we changed our
accounting for stock options from the intrinsic value method to
one that recognizes as an expense the cost of stock-based
compensation based on the estimated fair value of new stock
options granted to employees in 2003 and in future years. The
fair value of each stock option granted is estimated on the date
of the grant using an option-pricing model. As a result of this
change in accounting policy, which was applied prospectively, an
expense of $3 million was recorded in 2003, to reflect the
fair value of stock options granted to employees in 2003.



| |                                        
| | ---------------------------------------
| | (b) Impairment of long-lived
    assets

Effective January 1, 2003, we adopted a new
accounting standard of the CICA in respect of the impairment or
disposal of long-lived assets. The new standard requires that a
fair value determination be made for long-lived assets to be
disposed of by sale, whether previously held and used or newly
acquired, and broadens the presentation of discontinued
operations to include more disposal transactions. The initial
adoption of the new standard had no impact on our results of
operations or financial condition.



| |                                     
| | ------------------------------------
| | (c) Asset retirement
    obligations

Effective January 1, 2003, we adopted a new
accounting standard of the CICA relating to asset retirement
obligations. This standard significantly changed the method of
accounting for asset retirement obligation costs. Under this new
standard, asset retirement obligations are recognized when
incurred and recorded as liabilities at

16



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


fair value. The liability is accreted over time
through periodic charges to earnings. In addition, the asset
retirement cost is capitalized as part of the assets
carrying value and depreciated over the assets useful
life. This change in accounting policy was applied retroactively
and, accordingly, the consolidated financial statements of prior
periods were restated. As a result of this change, certain
balance sheet accounts as of December 31, 2002 were
restated as follows: the deficit increased by $18 million
(2001  $17 million); property, plant and
equipment increased by $37 million (2001 
$43 million); deferred income and mining taxes decreased by
$12 million (2001  $12 million); and the
asset retirement obligation increased by $67 million
(2001  $72 million). Net earnings have been
reduced by $1 million each for the years ended
December 31, 2002 and December 31, 2001.



| |                                     
| | ------------------------------------
| | (d) Foreign currency
    translation

Effective January 1, 2002, we adopted a new
standard of the CICA in respect of foreign currency translation
that eliminated the deferral and amortization of currency
translation adjustments related to long-term monetary items with
a fixed and ascertainable life. There was no significant impact
on our results of operations or financial condition as a result
of the adoption of this standard.



| |                       
| | ----------------------
| | (e) Earnings Per Share

Effective January 1, 2001, we adopted,
retroactively, as a change in accounting policy, a new
accounting standard of the CICA in respect of earnings per
share. This new standard changed the method in which diluted
earnings per share are calculated.



| |                                     
| | ------------------------------------
| | (f) Interim Financial
    Statements

Effective January 1, 2001, we adopted,
retroactively, a new accounting standard of the CICA in respect
of interim financial statements. As a consequence, we changed
our accounting policy, for interim reporting purposes only, in
connection with the timing of recognizing the costs associated
with the planned annual shutdown of operations for maintenance.
Previously, these costs were expensed evenly over the year
whereas under the new standard such costs are expensed in the
period in which they are incurred.



|        |                
|------- | ---------------
|Note 3. | Strike expenses

A strike of the unionized workforce at our
Ontario operations began on June 1, 2003 and a new
collective agreement ending the strike was entered into at the
end of August 2003. Strike expenses are those ongoing costs,
such as salaries and certain employment benefits, depreciation,
property taxes, utilities and maintenance incurred during the
strike period which would normally be treated as production
costs and charged to inventory but, in the absence of
production, have been expensed because we were not achieving
commercial production at the related facilities over the period
of the strike. During the course of this 13-week strike, we
incurred strike expenses in the amount of $107 million
during 2003. Included in these expenses was depreciation expense
of $19 million in 2003. The balance of the strike expenses
was included in cost of sales and other operating expenses.



|        |                         
|------- | ------------------------
|Note 4. | Asset impairment charges

On June 11, 2002, we announced that we would
be undertaking a review of the net carrying value of our
Voiseys Bay project in view of the statement of principles
entered into with the Government of the Province of Newfoundland
and Labrador on that date and other arrangements with key
stakeholders that would enable the development of that project
to proceed. We had noted on a number of occasions in our public
filings and other documents that such events, if and when they
were to occur, might require a significant reduction in the
carrying value of the Voiseys Bay project and in the
related deferred income and mining tax liability and in
shareholders equity. This review, which was completed in
July 2002, included an analysis of the key assumptions which we
utilized in evaluating this net carrying value on a
quarter-to-quarter basis relating to a number of important

17



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


factors, including our best assessment of the
expected cash flows from the project, how the development of
Voiseys Bay, taking into account the agreements which have
been reached, fits within our overall long-term development
plans and updated mining and other cost assumptions. As a result
of this review, we recorded a non-cash charge of
$1,552 million, net of deferred income and mining taxes of
$770 million in 2002.

In addition, in 2002, we recorded a non-cash
charge of $74 million, net of income and mining taxes of
$19 million to reduce the carrying values of certain plant,
equipment and other assets to their estimated net recoverable
amounts based on an evaluation of their recoverability. The
principal component of this charge related to capitalized
exploration and development costs of the Victor Deep exploration
project at our Ontario operations that, as a result of the
development of the deposits covered by our Voiseys Bay
projects, would probably not be put into production. The balance
of this charge consisted primarily of reductions to certain
redundant plant, equipment and non-core assets as well as an
additional provision for losses relating to certain receivables
and other assets arising from our commercial relationships with
one of our principal customers that had filed for bankruptcy
protection in late March 2002.



|        |                              
|------- | -----------------------------
|Note 5. | Goro project suspension costs

In early September 2002, the Goro project
experienced temporary labour disruptions by personnel associated
with certain project construction subcontractors. As a result of
these disruptions, a decision was made to curtail certain
activities at the projects site to enable us, contractors,
subcontractors and other interested parties to develop
procedures to avoid future disruptions. Over the
September  November 2002 period, a number of
procedures were put in place as part of a phased resumption of
certain of the project activities that had been curtailed.
During this period, we also initiated an update of the status of
certain key aspects of the project, including the necessary
permitting, capital cost estimate, project schedule and
organization. Work on certain critical parts of the project,
including engineering, continued during this update process.

On December 5, 2002, we announced that we
would be undertaking a comprehensive review of the Goro project.
This action had been based upon information from the
projects principal firms providing project engineering,
procurement and construction management services that we had
received that, if confirmed, would indicate an increase in the
capital cost for the project in the range of 30 to
45 per cent above the then current capital cost
estimate of $1,450 million. As a result of the temporary
suspension of certain development activities and other actions
which had been taken by year-end 2002 during this review
process, we recorded a pre-tax charge of $25 million in the
fourth quarter of 2002. This charge comprised $62 million
relating to the cancellation or termination of certain
outstanding contractual obligations, to accrue for
demobilization costs and to reduce the carrying value of certain
assets relating to the project, partially offset by currency
hedging gains of $37 million on certain forward currency
contracts. These contracts, which had been entered into to
reduce exposure to exchange rate changes associated with certain
planned project expenditures to be incurred in certain
currencies, were closed out in early January 2003 since they no
longer matched the timing of such expenditures due to their
expected deferral as a result of the review being undertaken.
The close out of these contracts resulted in a further gain of
$11 million during the first quarter of 2003 which was
recorded as other income.

In 2003, additional contracts became ineffective
which resulted in a further gain of $21 million. These
gains were partially offset by expenses of $17 million
incurred for the on-going care and custody costs associated with
the construction site while the project is under suspension. The
overall project review process is still underway given its
planned scope. We do not currently expect to be in a position to
report on the results of this review, including an updated
capital cost estimate for the project and project schedule, and
the additional effect, if any, that this review could have on
our results of operations and financial condition, until at
least the summer of 2004.

18



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)




|        |                  
|------- | -----------------
|Note 6. | Other income, net

Other income (expense), net is comprised of the
following:

|                                                                   |  |                        |     |      |  |      |    |  |  |   |    |  
|------------------------------------------------------------------ |  | ---------------------- | --- | ---- |  | ---- | -- |  |  | - | -- | -
|                                                                   |  |                       
|                                                                   |  | Year ended December 31
|                                                                   |  |                       
|                                                                   |  | 2003                   |     | 2002 |  | 2001
|                                                                   |  |                        |     |      |  |     
|Interest income                                                    |  | $                      | 16  |      |  | $    | 13 |  |  | $ | 14 |  
|Gains from sales of securities and other assets                    |  |                        | 59  |      |  |      | 5  |  |  |   |   |  
|Gains from derivative positions in metals                          |  |                        | 12  |      |  |      |   |  |  |   |   |  
|Interest from a tax refund                                         |  |                        | 7   |      |  |      | 14 |  |  |   |   |  
|Gain from closure of ineffective derivative
    contracts (Note 5) |  |                        | 11  |      |  |      |   |  |  |   |   |  
|Loss on redemption of securities                                   |  |                        | (2  | )    |  |      |   |  |  |   |   |  
|Other, net                                                         |  |                        | 1   |      |  |      | 8  |  |  |   | (1 | )
|                                                                   |  |                        |     |      |  |      |    |  |  |   |    |  
|Other income, net                                                  |  | $                      | 104 |      |  | $    | 40 |  |  | $ | 13 |  
|                                                                   |  |                        |     |      |  |      |    |  |  |   |    |  

Gains from sales of securities and other assets
included a milestone payment under the terms of sale of a
non-core exploration property in 1998 in the amount of
$24 million as well as $35 million realized from the
sale or transfer of shares and other interests contributed to or
received in conjunction with strategic and other collaborations
relating to our primary metals operations.



|        |                        
|------- | -----------------------
|Note 7. | Income and mining taxes

In carrying on our mining operations, we are
subject to both income and mining taxes. The amount of such
taxes will vary depending on the provisions set out by the
relevant legislative authority. Generally, most expenditures
incurred by us are deductible in computing income tax, whereas
mining tax legislation, although based on a measure of
profitability from carrying on mining operations, is more
restrictive in respect of the deductions permitted in computing
income subject to mining tax. In most jurisdictions deductions
for financing expenses, such as interest and royalties, are not
allowed to be claimed in computing income subject to mining tax.
In addition, income unrelated to carrying on mining operations
would not be subject to mining tax.

The provision (relief) for income and mining
taxes was as follows:

|                        |          |                        |     |      |   |            |      |      |   |   |      |      |  
|----------------------- | -------- | ---------------------- | --- | ---- | - | ---------- | ---- | ---- | - | - | ---- | ---- | -
|                        |          |                       
|                        |          | Year ended December 31
|                        |          |                       
|                        |          | 2003                   |     | 2002 |   | 2001      
|                        |          |                        |     |      |   |           
|                        |          |                        |     |      |   | (Restated)
|Current taxes           |          |                        |     |      |   |            |      |      |   |   |      |     
|                        | Canadian |                        | $   | (47  | ) |            | $    | 129  |   |   | $    | 26   |  
|                        | Foreign  |                        |     | 11   |   |            |      | (10  | ) |   |      | 18   |  
|                        |          |                        |     |      |   |            |      |      |   |   |      |     
|                        |          |                        | (36 | )    |   |            | 119  |      |   |   | 44   |     
|                        |          |                        |     |      |   |            |      |      |   |   |      |     
|Deferred taxes          |          |                        |     |      |   |            |      |      |   |   |      |     
|                        | Canadian |                        |     | (61  | ) |            |      | (776 | ) |   |      | (146 | )
|                        | Foreign  |                        |     | 48   |   |            |      | 18   |   |   |      | 17   |  
|                        |          |                        |     |      |   |            |      |      |   |   |      |     
|                        |          |                        | (13 | )    |   |            | (758 | )    |   |   | (129 | )   
|                        |          |                        |     |      |   |            |      |      |   |   |      |     
|Income and mining taxes |          | $                      | (49 | )    |   | $          | (639 | )    |   | $ | (85  | )   
|                        |          |                        |     |      |   |            |      |      |   |   |      |     

19



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


Earnings (loss) before income and mining taxes
and minority interest, by geographic source, were as follows:

|        |  |                        |     |            |  |            |        |   |  |   |     | 
|------- |  | ---------------------- | --- | ---------- |  | ---------- | ------ | - |  | - | --- | 
|        |  |                       
|        |  | Year ended December 31
|        |  |                       
|        |  | 2003                   |     | 2002       |  | 2001      
|        |  |                        |     |            |  |           
|        |  |                        |     | (Restated) |  | (Restated)
|Canada  |  | $                      | 63  |            |  | $          | (2,067 | ) |  | $ | 142 | 
|Foreign |  |                        | 75  |            |  |            | (37    | ) |  |   | 87  | 
|        |  |                        |     |            |  |            |        |   |  |   |     | 
|        |  | $                      | 138 |            |  | $          | (2,104 | ) |  | $ | 229 | 
|        |  |                        |     |            |  |            |        |   |  |   |     | 

The reconciliation between taxes at the combined
federal-provincial statutory income tax rate in Canada and the
effective income and mining tax rate was as follows:

|                                                                                         |  |                        |      |            |  |            |      |   |  |   |      |  
|---------------------------------------------------------------------------------------- |  | ---------------------- | ---- | ---------- |  | ---------- | ---- | - |  | - | ---- | -
|                                                                                         |  |                       
|                                                                                         |  | Year ended December 31
|                                                                                         |  |                       
|                                                                                         |  | 2003                   |      | 2002       |  | 2001      
|                                                                                         |  |                        |      |            |  |           
|                                                                                         |  |                        |      | (Restated) |  | (Restated)
|Provision (relief) at combined Canadian
    federal-provincial statutory income tax rate |  | $                      | 56   |            |  | $          | (863 | ) |  | $ | 96   |  
|Resource and depletion allowances                                                        |  |                        | (12  | )          |  |            | (27  | ) |  |   | (24  | )
|                                                                                         |  |                        |      |            |  |            |      |   |  |   |      |  
|Adjusted income taxes                                                                    |  |                        | 44   |            |  |            | (890 | ) |  |   | 72   |  
|Mining taxes                                                                             |  |                        | 17   |            |  |            | 20   |   |  |   | 17   |  
|                                                                                         |  |                        |      |            |  |            |      |   |  |   |      |  
|                                                                                         |  |                        | 61   |            |  |            | (870 | ) |  |   | 89   |  
|Currency translation adjustments                                                         |  |                        | 42   |            |  |            | 20   |   |  |   | (2   | )
|Currency translation adjustments on long-term debt                                       |  |                        | 48   |            |  |            |     |   |  |   |     |  
|Non-deductible losses (non-taxable gains)                                                |  |                        | (33  | )          |  |            | 30   |   |  |   | 1    |  
|Tax rate changes                                                                         |  |                        | (142 | )          |  |            | (6   | ) |  |   | (173 | )
|Foreign tax rate differences                                                             |  |                        | (19  | )          |  |            | (10  | ) |  |   | (8   | )
|Asset impairment charges                                                                 |  |                        |     |            |  |            | 182  |   |  |   |     |  
|Other                                                                                    |  |                        | (6   | )          |  |            | 15   |   |  |   | 8    |  
|                                                                                         |  |                        |      |            |  |            |      |   |  |   |      |  
|Effective income and mining taxes                                                        |  | $                      | (49  | )          |  | $          | (639 | ) |  | $ | (85  | )
|                                                                                         |  |                        |      |            |  |            |      |   |  |   |      |  

20



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


Deferred income and mining tax liabilities and
assets consisted of the following:

|                                             |                                   |             |       |            |  |            |       |       |  |   |       |       | 
|-------------------------------------------- | --------------------------------- | ----------- | ----- | ---------- |  | ---------- | ----- | ----- |  | - | ----- | ----- | 
|                                             |                                   |            
|                                             |                                   | December 31
|                                             |                                   |            
|                                             |                                   | 2003        |       | 2002       |  | 2001      
|                                             |                                   |             |       |            |  |           
|                                             |                                   |             |       | (Restated) |  | (Restated)
|Liabilities:                                 |                                   |             |       |            |  |            |       |       |  |   |       |      
|                                             | Property, plant and equipment     |             | $     | 1,879      |  |            | $     | 1,589 |  |   | $     | 2,312 | 
|                                             | Deferred charges and other assets |             |       | 65         |  |            |       | 23    |  |   |       | 29    | 
|                                             | Long-term debt                    |             |       | 48         |  |            |       |      |  |   |       |      | 
|                                             | Other                             |             |       |           |  |            |       | 2     |  |   |       | 3     | 
|                                             |                                   |             |       |            |  |            |       |       |  |   |       |      
|                                             |                                   |             | 1,992 |            |  |            | 1,614 |       |  |   | 2,344 |      
|                                             |                                   |             |       |            |  |            |       |       |  |   |       |      
|Assets:                                      |                                   |             |       |            |  |            |       |       |  |   |       |      
|                                             | Long-term debt                    |             |       |           |  |            |       | 23    |  |   |       | 23    | 
|                                             | Post-retirement benefits          |             |       | 204        |  |            |       | 142   |  |   |       | 141   | 
|                                             | Asset retirement obligations      |             |       | 45         |  |            |       | 44    |  |   |       | 43    | 
|                                             | Tax loss carryforwards            |             |       | 70         |  |            |       | 106   |  |   |       | 75    | 
|                                             | Other                             |             |       | 4          |  |            |       | 4     |  |   |       | 5     | 
|                                             |                                   |             |       |            |  |            |       |       |  |   |       |      
|                                             |                                   |             | 323   |            |  |            | 319   |       |  |   | 287   |      
|Valuation allowance                          |                                   |             | (27   | )          |  |            | (57   | )     |  |   | (48   | )    
|                                             |                                   |             |       |            |  |            |       |       |  |   |       |      
|                                             |                                   |             | 296   |            |  |            | 262   |       |  |   | 239   |      
|                                             |                                   |             |       |            |  |            |       |       |  |   |       |      
|Net deferred income and mining tax liability |                                   | $           | 1,696 |            |  | $          | 1,352 |       |  | $ | 2,105 |      
|                                             |                                   |             |       |            |  |            |       |       |  |   |       |      

The restatements reflect a reclassification of
previously reported amounts and the inclusion of the deferred
tax asset and corresponding increase in valuation allowance in
respect of the tax effect of potential Canadian tax losses which
would arise if U.S. dollar denominated debt held by Inco and its
Canadian subsidiaries was settled at the Canadian/ U.S. exchange
rates in effect at the relevant reporting date. These
restatements do not result in a change to our deferred income
tax position in any of the years reported.

At December 31, 2003, other current assets
included current and deferred income and mining taxes of
$94 million (2002  $51 million;
2001  $39 million).

During 2001, tax legislation was passed covering
projects meeting certain criteria. Goro Nickel S.A. qualified
for certain tax incentives under this legislation in connection
with its Goro project in New Caledonia. These incentives include
an income tax holiday during the construction phase of the
project and throughout a 15-year period commencing in the first
year in which commercial production is achieved, as defined by
the applicable legislation, followed by a five-year, 50 per
cent income tax holiday. In addition Goro Nickel S.A. would
qualify for certain exemptions from indirect taxes such as
import duties during the construction phase and throughout the
commercial life of the project. Certain of these tax benefits,
including the income tax holiday, are subject to an earlier
phase out should the project achieve a specified cumulative rate
of return. To date, we have not realized any net income for New
Caledonia tax purposes and the benefits of this legislation are
expected to apply with respect to any income taxes otherwise
payable once the Goro project is in operation.

In determining the likelihood of realizing an
income tax asset we take into account a number of factors,
including current conditions and anticipated changes in mine or
production plans.

We have non-capital loss carry forwards in the
amount of $60 million available for New Caledonia income
tax purposes. These losses expire in 2007 and 2008. The benefits
of these tax loss carry forwards have not been recognized for
accounting purposes.

21



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


We have capital loss carry forwards in the amount
of $38 million available for United Kingdom income tax
purposes to reduce taxable income in certain circumstances. The
capital losses may be carried forward indefinitely. The benefits
of these tax loss carry forwards have not been recognized for
accounting purposes.

In computing our income tax liability, no amount
has been recorded in respect of additional potential taxes which
might arise should we distribute income realized in certain of
our foreign subsidiaries on the basis that it is our intention
to reinvest such income in the foreign operations of the
relevant subsidiary. Should managements intentions change
in respect of such distribution, additional taxes, if any, would
be recorded in respect of the distribution from, or disposition
or liquidation of, the relevant foreign entity. For those
foreign entities from which distributions occur on a regular
basis, any additional taxes that would arise on such
distributions, if any, have been included in deriving the annual
income tax provision for the year in which the income is earned
by the foreign subsidiary.

Note 8. Net earnings (loss) per
Common Share

The computation of basic and diluted earnings
(loss) per share was as follows:

|                                                |                                                            |                        |      |            |   |            |       |         |   |   |      |         |  
|----------------------------------------------- | ---------------------------------------------------------- | ---------------------- | ---- | ---------- | - | ---------- | ----- | ------- | - | - | ---- | ------- | -
|                                                |                                                            |                       
|                                                |                                                            | Year ended December 31
|                                                |                                                            |                       
|                                                |                                                            | 2003                   |      | 2002       |   | 2001      
|                                                |                                                            |                        |      |            |   |           
|                                                |                                                            |                        |      | (Restated) |   | (Restated)
|Basic earnings (loss) per share
    computation |                                                            |                        |      |            |   |            |       |         |   |   |      |        
|Numerator:                                      |                                                            |                        |      |            |   |            |       |         |   |   |      |        
|                                                | Net earnings (loss)                                        |                        | $    | 137        |   |            | $     | (1,482  | ) |   | $    | 304     |  
|                                                | Dividends on preferred shares                              |                        |      | (6         | ) |            |       | (26     | ) |   |      | (26     | )
|                                                | Accretion of convertible debt                              |                        |      | (7         | ) |            |       | (4      | ) |   |      | (3      | )
|                                                | Premium on redemption of preferred shares                  |                        |      | (15        | ) |            |       |        |   |   |      |        |  
|                                                |                                                            |                        |      |            |   |            |       |         |   |   |      |        
|                                                | Net earnings (loss) applicable to common
    shares        |                        | $    | 109        |   |            | $     | (1,512  | ) |   | $    | 275     |  
|                                                |                                                            |                        |      |            |   |            |       |         |   |   |      |        
|Denominator:                                    |                                                            |                        |      |            |   |            |       |         |   |   |      |        
|                                                | Weighted-average common shares outstanding
    (thousands) |                        |      | 184,500    |   |            |       | 182,830 |   |   |      | 182,074 |  
|                                                |                                                            |                        |      |            |   |            |       |         |   |   |      |        
|Basic earnings (loss) per common share          |                                                            | $                      | 0.59 |            |   | $          | (8.27 | )       |   | $ | 1.51 |        
|                                                |                                                            |                        |      |            |   |            |       |         |   |   |      |        

22



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


|                                                  |                                                                        |                        |      |            |       |            |       |         |   |   |      |         |       | 
|------------------------------------------------- | ---------------------------------------------------------------------- | ---------------------- | ---- | ---------- | ----- | ---------- | ----- | ------- | - | - | ---- | ------- | ----- | 
|                                                  |                                                                        |                       
|                                                  |                                                                        | Year ended December 31
|                                                  |                                                                        |                       
|                                                  |                                                                        | 2003                   |      | 2002       |       | 2001      
|                                                  |                                                                        |                        |      |            |       |           
|                                                  |                                                                        |                        |      | (Restated) |       | (Restated)
|Diluted earnings (loss) per share
    computation |                                                                        |                        |      |            |       |            |       |         |   |   |      |        
|Numerator:                                        |                                                                        |                        |      |            |       |            |       |         |   |   |      |        
|                                                  | Net earnings (loss) applicable to common
    shares                    |                        | $    | 109        |       |            | $     | (1,512  | ) |   | $    | 275     |      
|                                                  | Dilutive effect of:                                                    |                        |      |            |       |            |       |         |   |   |      |         |      
|                                                  |                                                                        | Convertible debentures |      |            | 2     |            |       |         |  |   |      |         | 6     | 
|                                                  |                                                                        |                        |      |            |       |            |       |         |   |   |      |        
|                                                  | Net earnings (loss) applicable to common
    shares, assuming dilution |                        | $    | 111        |       |            | $     | (1,512  | ) |   | $    | 281     |      
|                                                  |                                                                        |                        |      |            |       |            |       |         |   |   |      |        
|Denominator:                                      |                                                                        |                        |      |            |       |            |       |         |   |   |      |        
|                                                  | Weighted-average common shares outstanding
    (thousands)             |                        |      | 184,500    |       |            |       | 182,830 |   |   |      | 182,074 |      
|                                                  | Dilutive effect of:                                                    |                        |      |            |       |            |       |         |   |   |      |         |      
|                                                  |                                                                        | Convertible debentures |      |            | 4,360 |            |       |         |  |   |      |         | 5,750 | 
|                                                  |                                                                        | Stock options          |      |            | 1,707 |            |       |         |  |   |      |         | 868   | 
|                                                  |                                                                        | Warrants               |      |            | 1,308 |            |       |         |  |   |      |         |      | 
|                                                  |                                                                        |                        |      |            |       |            |       |         |   |   |      |        
|                                                  | Weighted-average common shares outstanding,
    assuming dilution      |                        |      | 191,875    |       |            |       | 182,830 |   |   |      | 188,692 |      
|                                                  |                                                                        |                        |      |            |       |            |       |         |   |   |      |        
|Diluted earnings (loss) per common share          |                                                                        | $                      | 0.58 |            |       | $          | (8.27 | )       |   | $ | 1.49 |        
|                                                  |                                                                        |                        |      |            |       |            |       |         |   |   |      |        

At December 31, 2003, convertible debt which
is convertible into nil Common Shares (2002 
9,705,111; 2001  4,180,601), options on 819,000
Common Shares (2002  7,476,506; 2001 
5,261,534), Preferred Shares convertible into nil Common Shares
(2002  11,277,868; 2001  11,277,987) and
Warrants exercisable for nil Common Shares (2002 
11,023,497; 2001  11,021,947) were excluded from the
computation of diluted earnings (loss) per Common Share
because their effects were not dilutive.

Note 9. Inventories

Inventories consisted of the following:

|                  |  |             |     |      |  |      |     |  |  |   |     | 
|----------------- |  | ----------- | --- | ---- |  | ---- | --- |  |  | - | --- | 
|                  |  |            
|                  |  | December 31
|                  |  |            
|                  |  | 2003        |     | 2002 |  | 2001
|                  |  |             |     |      |  |     
|Finished metals   |  | $           | 193 |      |  | $    | 149 |  |  | $ | 145 | 
|In-process metals |  |             | 478 |      |  |      | 361 |  |  |   | 290 | 
|Supplies          |  |             | 75  |      |  |      | 66  |  |  |   | 65  | 
|                  |  |             |     |      |  |      |     |  |  |   |     | 
|                  |  | $           | 746 |      |  | $    | 576 |  |  | $ | 500 | 
|                  |  |             |     |      |  |      |     |  |  |   |     | 

23



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


Note 10. Property, plant and
equipment

Property, plant and equipment consisted of the
following:

|                                             |  |             |        |            |  |            |        |  |  |   |        | 
|-------------------------------------------- |  | ----------- | ------ | ---------- |  | ---------- | ------ |  |  | - | ------ | 
|                                             |  |            
|                                             |  | December 31
|                                             |  |            
|                                             |  | 2003        |        | 2002       |  | 2001      
|                                             |  |             |        |            |  |           
|                                             |  |             |        | (Restated) |  | (Restated)
|Mines and mining plants                      |  | $           | 2,902  |            |  | $          | 2,806  |  |  | $ | 2,746  | 
|Processing facilities                        |  |             | 3,383  |            |  |            | 3,304  |  |  |   | 3,192  | 
|Voiseys Bay project                         |  |             | 3,817  |            |  |            | 3,338  |  |  |   | 5,532  | 
|Goro project                                 |  |             | 802    |            |  |            | 637    |  |  |   | 180    | 
|Other                                        |  |             | 598    |            |  |            | 595    |  |  |   | 604    | 
|                                             |  |             |        |            |  |            |        |  |  |   |        | 
|Total property, plant and equipment, at cost |  |             | 11,502 |            |  |            | 10,680 |  |  |   | 12,254 | 
|                                             |  |             |        |            |  |            |        |  |  |   |        | 
|Accumulated depreciation                     |  |             | 3,277  |            |  |            | 3,111  |  |  |   | 2,888  | 
|Accumulated depletion                        |  |             | 1,249  |            |  |            | 1,187  |  |  |   | 1,106  | 
|                                             |  |             |        |            |  |            |        |  |  |   |        | 
|Total accumulated depreciation and depletion |  |             | 4,526  |            |  |            | 4,298  |  |  |   | 3,994  | 
|                                             |  |             |        |            |  |            |        |  |  |   |        | 
|Property, plant and equipment, net           |  | $           | 6,976  |            |  | $          | 6,382  |  |  | $ | 8,260  | 
|                                             |  |             |        |            |  |            |        |  |  |   |        | 

Evaluation of the future cash flows from major
development projects such as the Voiseys Bay and Goro
projects entails a number of assumptions regarding project
scope, the timing, receipt and terms of regulatory approvals,
estimates of future metals prices, estimates of the ultimate
size of the deposits, ore grades and recoverability, timing of
commercial production, commercial viability of new technological
processes, production volumes, operating and capital costs, and
foreign currency exchange rates. Inherent in these assumptions
are significant risks and uncertainties.

At December 31, 2003, property, plant and
equipment, at cost included capitalized development costs
relating to infill drilling, gathering geological and
geotechnical data, further reserve and other mineralized
material evaluation and other related activities of
$27 million (2002  $22 million;
2001  $89 million). In 2002, such costs in the
amount of $71 million were written off as a result of the
review of the carrying value of the Voiseys Bay project
and certain other assets discussed in Note 4.

Effective January 1, 2004, we will adopt for
Canadian GAAP purposes the depreciation and depletion method
described in Note 23(b) for United States GAAP purposes. We are
evaluating what impact this change will have on our 2004
consolidated financial statements and whether we are able to
retroactively apply this change although applicable
pronouncements indicate that it is to be applied prospectively.
Had this method been applied beginning January 1, 2002, net
earnings for 2003 and 2002 would have increased by
$16 million and $5 million, respectively.

At December 31, 2003, the net carrying value
of property, plant and equipment under construction or
development not subject to depreciation or depletion was
$4,720 million (2002  $4,109 million;
2001  $5,761 million) which is comprised of
amounts for the Voiseys Bay project totalling $3,777
million (2002  $3,299 million; 2001 
$5,492 million), the Goro project of $802 million
(2002  $637 million; 2001 
$180 million) and other assets under construction at our
operations of $141 million (2002 
$173 million; 2001  $89 million). It is
currently expected, assuming that a favourable decision will be
made in 2004 to proceed with the Goro project, that depreciation
and depletion for the Voiseys Bay and Goro projects will
commence in 2006, in line with the projected or planned start of
commercial production at these projects. Capitalized interest
costs included in capital expenditures were $54 million in
2003 (2002  $27 million; 2001 
$13 million).

24



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


Note 11. Long-term debt

Long-term debt consisted of the following
(weighted-average interest rates, where applicable, and
repayment periods at December 31, 2003 are shown in
parentheses):

|                                                       |  |             |       |      |  |      |       |  |  |   |     | 
|------------------------------------------------------ |  | ----------- | ----- | ---- |  | ---- | ----- |  |  | - | --- | 
|                                                       |  |            
|                                                       |  | December 31
|                                                       |  |            
|                                                       |  | 2003        |       | 2002 |  | 2001
|                                                       |  |             |       |      |  |     
|Inco Limited                                           |  |             |       |      |  |      |       |  |  |   |     | 
|5.75% Convertible Debentures(a)                        |  | $           |      |      |  | $    | 173   |  |  | $ | 173 | 
|15.75% Sterling Unsecured Loan Stock
    (2006)(b)     |  |             | 45    |      |  |      | 45    |  |  |   | 45  | 
|7.75% Notes (2012)(c)                                  |  |             | 400   |      |  |      | 400   |  |  |   |    | 
|5.70% Debentures (2015)(d)                             |  |             | 300   |      |  |      |      |  |  |   |    | 
|7.75% Convertible Debentures(e)                        |  |             |      |      |  |      | 151   |  |  |   | 160 | 
|9.6% Debentures(f)                                     |  |             |      |      |  |      | 159   |  |  |   | 159 | 
|Convertible Debentures (2004-2023)(g)                  |  |             | 15    |      |  |      |      |  |  |   |    | 
|7.20% Debentures (2032)(h)                             |  |             | 400   |      |  |      | 400   |  |  |   |    | 
|Subordinated Convertible Debentures
    (2004-2052)(i) |  |             | 100   |      |  |      |      |  |  |   |    | 
|PT International Nickel Indonesia
    Tbk              |  |             |       |      |  |      |       |  |  |   |     | 
|Loan facilities (2.3%) (2004 
    2006)(j)            |  |             | 192   |      |  |      | 269   |  |  |   | 292 | 
|Other                                                  |  |             |       |      |  |      |       |  |  |   |     | 
|Other (7.6%) (2004  2031)                             |  |             | 60    |      |  |      | 46    |  |  |   | 11  | 
|                                                       |  |             |       |      |  |      |       |  |  |   |     | 
|                                                       |  |             | 1,512 |      |  |      | 1,643 |  |  |   | 840 | 
|Long-term debt due within one year                     |  |             | 103   |      |  |      | 97    |  |  |   | 81  | 
|                                                       |  |             |       |      |  |      |       |  |  |   |     | 
|                                                       |  | $           | 1,409 |      |  | $    | 1,546 |  |  | $ | 759 | 
|                                                       |  |             |       |      |  |      |       |  |  |   |     | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The 5.75 per cent Convertible Debentures
    were convertible, at the option of the holders, into Common
    Shares, at a conversion price of U.S.$30 per share. The
    Debentures were redeemable, at our option, commencing in 1999 at
    an initial premium of 2.875 per cent, declining annually to
    redemption at par in 2004. The Debentures were redeemed in May
    2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(b) | The 15.75 per cent Sterling Unsecured Loan
    Stock is redeemable in 2006 in sterling or, at the option of the
    holders, in U.S. dollars at a fixed exchange rate of one
    pound sterling to $1.98. In 1981, Inco Limited issued Pound
    Sterling 25 million aggregate principal amount of unsecured
    bonds which were called unsecured loan stock in the
    United Kingdom. These bonds were issued under a Trust Deed which
    contained many of the same provisions that are included in a
    trust indenture covering the issuance of unsecured bonds in the
    United States. These bonds rank equally and ratably with all of
    Incos other unsecured and unsubordinated debt. Holders of
    these debt securities were defined as bondholders under the
    Trust Deed. Under United Kingdom law, unsecured loan stock
    represent an unsecured bond issued in bearer form.
|(c) | On May 13, 2002, we issued and sold through
    an underwritten public offering in the United States
    $400 million aggregate principal amount of 7.75% Notes due
    2012. The Notes are redeemable, at our option, at any time at a
    price equal to the greater of the principal amount of the Notes
    and the sum of the present values of the remaining scheduled
    payments of principal and interest. The interest payments under
    the Notes were swapped in exchange for a floating rate of 3.25
    per cent over LIBOR.                                                                                                                                                                                                                                                                                                                                                             
|(d) | On September 26, 2003, we issued and sold
    through an underwritten public offering in the United States
    $300 million aggregate principal amount of our 5.70%
    Debentures due 2015. The Debentures are redeemable, at our
    option, at any time at a price equal to the greater of the
    principal amount of the Notes and the sum of the present values
    of the remaining scheduled payments of principal and interest.
    The interest payments under the Debentures were swapped in
    exchange for a floating rate of 0.57 per cent over LIBOR.                                                                                                                                                                                                                                                                                                                                    
|(e) | The 7.75 per cent Convertible Debentures
    were convertible, at the option of the holders, into Common
    Shares at a conversion price of U.S.$38.25 per share. The
    Debentures were redeemable, at our option, in 1999 at a premium
    of 1.55 per cent, declining annually to redemption at par
    in 2001 and thereafter. The Debentures were redeemed in October
    2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(f) | The 9.6 per cent Debentures were redeemable,
    at our option, commencing in 2002 at an initial premium of
    4.8 per cent, declining annually to redemption at par in
    2012 and thereafter. The interest payments under the Debentures
    were swapped in exchange for a floating rate of 3.05 per
    cent over LIBOR. The swap was cancelled in May 2003 and the
    Debentures were subsequently redeemed in October 2003.

|    |                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(g) | In March 2003, we issued and sold
    $273 million amount payable at maturity of Convertible
    Debentures due 2023. Reference is made to Note 14 for the
    details of the Convertible Debentures.

25



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(h) | On September 23, 2002, we issued and sold
    through an underwritten public offering in the United States
    $400 million aggregate principal amount of 7.20% Debentures
    due 2032. The Debentures are redeemable, at our option, at any
    time at a price equal to the greater of the principal amount of
    the Debentures and the sum of the present values of the
    remaining scheduled payments of principal and interest.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | In March 2003, we issued and sold
    $227 million aggregate principal amount of 3 1/2%
    Subordinated Convertible Debentures due 2052. Reference is made
    to Note 14 for the details of the Subordinated Debentures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(j) | Our 59 per cent-owned subsidiary, PT
    International Nickel Indonesia Tbk (PT Inco), had
    outstanding at December 31, 2003 loan facilities
    aggregating $192 million consisting of a $131 million
    expansion loan (2002  $183 million;
    2001  $236 million); a $31 million loan
    (2002  $44 million; 2001 
    $56 million) and a $30 million loan (2002 
    $42 million; 2001  $nil million). All loans
    under the loan facilities are repayable in 13 equal semi-annual
    instalments commencing March 31, 2000. The expansion loan
    and the $31 million loan bear interest, when drawn,
    at  7/8 per cent over LIBOR in the first five
    years and one per cent over LIBOR in the last five years. The
    $30 million loan bears interest at
    1 1/2 per cent over LIBOR. As security for these
    loans, PT Inco has assigned and pledged certain of its cash and
    cash equivalents, sales agreements, service agreements and
    insurance policies.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(k) | We maintain committed bank credit facilities
    aggregating $680 million. These facilities are provided by
    a group of banks under separate agreements, the terms of each
    agreement being substantially the same. Except for four
    facilities totalling $145 million in commitments, the
    facilities include revolving commitments from 364 days to
    four years. The four facilities totalling $145 million in
    commitments have only revolving periods, which expire either in
    June 2005, June 2006 or June 2007. The respective revolving
    period of all of the facilities may be extended for an
    additional 364-day period at the discretion of the respective
    bank under the particular facility, subject to the approval of
    lenders representing, in the aggregate, at least
    66 2/3 per cent of the total aggregate
    commitments under the facilities, and any amounts outstanding at
    the maturity of the revolving period are repayable at that time.
    The revolving periods for the facilities currently expire on
    dates ranging from June 1, 2004 to June 4, 2007, with
    $273 million of these facilities expiring on June 1,
    2004.

Each facility provides that, so long as advances
are outstanding, we will be required to maintain a Tangible Net
Worth, as defined in the facility agreements, of not less than
$1.5 billion and a ratio of Consolidated Indebtedness, as
defined, to Tangible Net Worth, as defined in the facility
agreements, not to exceed 50:50. At December 31, 2003,
Tangible Net Worth was $3.8 billion and the ratio of
Consolidated Indebtedness to Tangible Net Worth was 26:74.

Interest expense on long-term debt for the years
2003, 2002 and 2001 was $36 million, $46 million and
$54 million, respectively. Taking into account the
aforementioned interest rate swaps, the average effective
interest rate on long-term debt at December 31, 2003 was
5.1 per cent and approximately 61 per cent of
long-term debt bears interest at rates that are subject to
periodic adjustments based on market interest rates.
Approximately 97 per cent of long-term debt is
effectively payable in U.S. dollars.

At December 31, 2003, long-term debt
maturities and sinking fund requirements for each of the five
years through 2008 were: 2004  $103 million;
2005  $87 million; 2006 
$90 million; 2007  $4 million;
2008  $4 million.



|         |                         
|-------- | ------------------------
|Note 12. | Post-retirement benefits

Our pension plans cover essentially all employees
and provide certain health care and life insurance benefits for
retired employees.

26



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


The change in the funded status of
post-retirement defined benefit plans was as follows:

|                                                                  |  |                  |       |                          |  |      |       |      |  |      |       |      |  |   |      |   |  |   |      |   |  |   |      |  
|----------------------------------------------------------------- |  | ---------------- | ----- | ------------------------ |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | - | ---- | - |  | - | ---- | - |  | - | ---- | -
|                                                                  |  |                  |       |                          |  |      |       |     
|                                                                  |  |                  |       | Post-retirement benefits
|                                                                  |  | Pension benefits |       | other than pensions     
|                                                                  |  |                  |       |                         
|Year ended December 31                                            |  | 2003             |       | 2002                     |  | 2001 |       | 2003 |  | 2002 |       | 2001
|                                                                  |  |                  |       |                          |  |      |       |      |  |      |       |     
|Change in post-retirement benefits
    obligation                 |  |                  |       |                          |  |      |       |      |  |      |       |      |  |   |      |   |  |   |      |   |  |   |      |  
|Obligation at beginning of year                                   |  | $                | 2,172 |                          |  | $    | 2,031 |      |  | $    | 2,101 |      |  | $ | 677  |   |  | $ | 581  |   |  | $ | 561  |  
|Service cost                                                      |  |                  | 33    |                          |  |      | 27    |      |  |      | 27    |      |  |   | 10   |   |  |   | 6    |   |  |   | 6    |  
|Interest cost                                                     |  |                  | 153   |                          |  |      | 140   |      |  |      | 138   |      |  |   | 49   |   |  |   | 41   |   |  |   | 39   |  
|Plan amendments                                                   |  |                  | 20    |                          |  |      | 10    |      |  |      |      |      |  |   |     |   |  |   |     |   |  |   |     |  
|Changes in assumptions                                            |  |                  | 73    |                          |  |      | 69    |      |  |      |      |      |  |   | 36   |   |  |   | 68   |   |  |   | 29   |  
|Actuarial losses                                                  |  |                  | 1     |                          |  |      | 18    |      |  |      | 28    |      |  |   | 11   |   |  |   | 9    |   |  |   | 10   |  
|Benefits paid                                                     |  |                  | (184  | )                        |  |      | (150  | )    |  |      | (142  | )    |  |   | (38  | ) |  |   | (32  | ) |  |   | (31  | )
|Currency translation adjustments                                  |  |                  | 466   |                          |  |      | 27    |      |  |      | (121  | )    |  |   | 149  |   |  |   | 4    |   |  |   | (33  | )
|                                                                  |  |                  |       |                          |  |      |       |      |  |      |       |      |  |   |      |   |  |   |      |   |  |   |      |  
|Obligation at end of year                                         |  | $                | 2,734 |                          |  | $    | 2,172 |      |  | $    | 2,031 |      |  | $ | 894  |   |  | $ | 677  |   |  | $ | 581  |  
|                                                                  |  |                  |       |                          |  |      |       |      |  |      |       |      |  |   |      |   |  |   |      |   |  |   |      |  
|Change in pension plan assets                                     |  |                  |       |                          |  |      |       |      |  |      |       |      |  |   |      |   |  |   |      |   |  |   |      |  
|Fair value of plan assets at beginning of year                    |  | $                | 1,367 |                          |  | $    | 1,507 |      |  | $    | 1,731 |      |  |   |      |   |  |   |      |   |  |   |      |  
|Actual return on plan assets                                      |  |                  | 231   |                          |  |      | (91   | )    |  |      | (54   | )    |  |   |      |   |  |   |      |   |  |   |      |  
|Employer contributions                                            |  |                  | 142   |                          |  |      | 67    |      |  |      | 60    |      |  |   |      |   |  |   |      |   |  |   |      |  
|Benefits paid                                                     |  |                  | (165  | )                        |  |      | (138  | )    |  |      | (136  | )    |  |   |      |   |  |   |      |   |  |   |      |  
|Currency translation adjustments                                  |  |                  | 282   |                          |  |      | 22    |      |  |      | (94   | )    |  |   |      |   |  |   |      |   |  |   |      |  
|                                                                  |  |                  |       |                          |  |      |       |      |  |      |       |      |  |   |      |   |  |   |      |   |  |   |      |  
|Fair value of plan assets at end of year                          |  | $                | 1,857 |                          |  | $    | 1,367 |      |  | $    | 1,507 |      |  |   |      |   |  |   |      |   |  |   |      |  
|                                                                  |  |                  |       |                          |  |      |       |      |  |      |       |      |  |   |      |   |  |   |      |   |  |   |      |  
|Unfunded status of plans at end of year                           |  | $                | (877  | )                        |  | $    | (805  | )    |  | $    | (524  | )    |  | $ | (894 | ) |  | $ | (677 | ) |  | $ | (581 | )
|Unrecognized actuarial and investment losses                      |  |                  | 1,007 |                          |  |      | 864   |      |  |      | 562   |      |  |   | 252  |   |  |   | 173  |   |  |   | 101  |  
|Unrecognized prior service costs                                  |  |                  | 84    |                          |  |      | 67    |      |  |      | 70    |      |  |   |     |   |  |   |     |   |  |   |     |  
|                                                                  |  |                  |       |                          |  |      |       |      |  |      |       |      |  |   |      |   |  |   |      |   |  |   |      |  
|Net post-retirement benefits asset
    (liability) at end of year |  | $                | 214   |                          |  | $    | 126   |      |  | $    | 108   |      |  | $ | (642 | ) |  | $ | (504 | ) |  | $ | (480 | )
|                                                                  |  |                  |       |                          |  |      |       |      |  |      |       |      |  |   |      |   |  |   |      |   |  |   |      |  

The net post-retirement benefits asset
(liability) is reflected in the Consolidated Balance Sheet
as follows:

|                                               |  |                  |     |                          |  |      |     |      |  |      |     |      |  |   |      |   |  |   |      |   |  |   |      |  
|---------------------------------------------- |  | ---------------- | --- | ------------------------ |  | ---- | --- | ---- |  | ---- | --- | ---- |  | - | ---- | - |  | - | ---- | - |  | - | ---- | -
|                                               |  |                  |     |                          |  |      |     |     
|                                               |  |                  |     | Post-retirement benefits
|                                               |  | Pension benefits |     | other than pensions     
|                                               |  |                  |     |                         
|December 31                                    |  | 2003             |     | 2002                     |  | 2001 |     | 2003 |  | 2002 |     | 2001
|                                               |  |                  |     |                          |  |      |     |      |  |      |     |     
|Deferred charges and other assets              |  | $                | 226 |                          |  | $    | 138 |      |  | $    | 120 |      |  | $ |     |   |  | $ |     |   |  | $ |     |  
|Accrued payrolls and benefits                  |  |                  | (12 | )                        |  |      | (12 | )    |  |      | (12 | )    |  |   | (39  | ) |  |   | (29  | ) |  |   | (29  | )
|Post-retirement benefits                       |  |                  |    |                          |  |      |    |      |  |      |    |      |  |   | (603 | ) |  |   | (475 | ) |  |   | (451 | )
|                                               |  |                  |     |                          |  |      |     |      |  |      |     |      |  |   |      |   |  |   |      |   |  |   |      |  
|Net post-retirement benefits asset (liability) |  | $                | 214 |                          |  | $    | 126 |      |  | $    | 108 |      |  | $ | (642 | ) |  | $ | (504 | ) |  | $ | (480 | )
|                                               |  |                  |     |                          |  |      |     |      |  |      |     |      |  |   |      |   |  |   |      |   |  |   |      |  

27



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


Post-retirement benefits expense included the
following components:

|                                                                                     |  |                  |      |                          |  |      |      |      |  |      |      |      |  |   |    |  |  |   |    |  |  |   |    | 
|------------------------------------------------------------------------------------ |  | ---------------- | ---- | ------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  | - | -- |  |  | - | -- |  |  | - | -- | 
|                                                                                     |  |                  |      |                          |  |      |      |     
|                                                                                     |  |                  |      | Post-retirement benefits
|                                                                                     |  | Pension benefits |      | other than pensions     
|                                                                                     |  |                  |      |                         
|Year ended December 31                                                               |  | 2003             |      | 2002                     |  | 2001 |      | 2003 |  | 2002 |      | 2001
|                                                                                     |  |                  |      |                          |  |      |      |      |  |      |      |     
|Service cost                                                                         |  | $                | 33   |                          |  | $    | 27   |      |  | $    | 27   |      |  | $ | 10 |  |  | $ | 6  |  |  | $ | 6  | 
|Interest cost                                                                        |  |                  | 153  |                          |  |      | 140  |      |  |      | 138  |      |  |   | 49 |  |  |   | 41 |  |  |   | 39 | 
|Expected return on plan assets                                                       |  |                  | (162 | )                        |  |      | (152 | )    |  |      | (150 | )    |  |   |   |  |  |   |   |  |  |   |   | 
|Amortization of actuarial and investment losses                                      |  |                  | 62   |                          |  |      | 35   |      |  |      | 17   |      |  |   | 11 |  |  |   | 6  |  |  |   | 4  | 
|Amortization of unrecognized prior service costs                                     |  |                  | 16   |                          |  |      | 13   |      |  |      | 18   |      |  |   |   |  |  |   |   |  |  |   |   | 
|                                                                                     |  |                  |      |                          |  |      |      |      |  |      |      |      |  |   |    |  |  |   |    |  |  |   |    | 
|Defined benefit pension and post-retirement
    benefits other than pensions expense |  |                  | 102  |                          |  |      | 63   |      |  |      | 50   |      |  |   | 70 |  |  |   | 53 |  |  |   | 49 | 
|Defined contribution pension expense                                                 |  |                  | 5    |                          |  |      | 4    |      |  |      | 4    |      |  |   |   |  |  |   |   |  |  |   |   | 
|                                                                                     |  |                  |      |                          |  |      |      |      |  |      |      |      |  |   |    |  |  |   |    |  |  |   |    | 
|Post-retirement benefits expense                                                     |  | $                | 107  |                          |  | $    | 67   |      |  | $    | 54   |      |  | $ | 70 |  |  | $ | 53 |  |  | $ | 49 | 
|                                                                                     |  |                  |      |                          |  |      |      |      |  |      |      |      |  |   |    |  |  |   |    |  |  |   |    | 

The weighted-average assumptions used in the
determination of the post-retirement benefits expense and
obligation were as follows:

|                               |  |                  |     |                     |  |      |     |                 |  |      |     |      |  |  |     |   |  |  |     |   |  |  |     |  
|------------------------------ |  | ---------------- | --- | ------------------- |  | ---- | --- | --------------- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | - |  |  | --- | -
|                               |  |                  |     |                     |  |      |     |                
|                               |  |                  |     |                     |  |      |     | Post-retirement
|                               |  |                  |     | benefits other than
|                               |  | Pension benefits |     | pensions           
|                               |  |                  |     |                    
|Year ended December 31         |  | 2003             |     | 2002                |  | 2001 |     | 2003            |  | 2002 |     | 2001
|                               |  |                  |     |                     |  |      |     |                 |  |      |     |     
|Discount rate                  |  |                  | 6.5 | %                   |  |      | 7.0 | %               |  |      | 7.0 | %    |  |  | 6.5 | % |  |  | 7.0 | % |  |  | 7.0 | %
|Expected return on plan assets |  |                  | 8.5 | %                   |  |      | 9.0 | %               |  |      | 9.0 | %    |  |  |     |   |  |  |     |   |  |  |     |  
|Rate of compensation increase  |  |                  | 3.0 | %                   |  |      | 3.0 | %               |  |      | 3.0 | %    |  |  |     |   |  |  |     |   |  |  |     |  

Effective December 31, 2003, the assumption
for the discount rate used to determine the pension benefits
obligation was changed to 6 per cent. Effective
January 1, 2004, the assumption for the expected return on
plan assets was changed to 8 per cent.

The pension plan weighted-average asset
allocations, by asset category were as follows:

|                  |  |             |     |      |  |      |     |   |  |  |     |  
|----------------- |  | ----------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                  |  |            
|                  |  | December 31
|                  |  |            
|                  |  | 2003        |     | 2002 |  | 2001
|                  |  |             |     |      |  |     
|Equity securities |  |             | 57  | %    |  |      | 55  | % |  |  | 56  | %
|Debt securities   |  |             | 43  | %    |  |      | 45  | % |  |  | 44  | %
|                  |  |             |     |      |  |      |     |   |  |  |     |  
|Total             |  |             | 100 | %    |  |      | 100 | % |  |  | 100 | %
|                  |  |             |     |      |  |      |     |   |  |  |     |  

The asset allocation policy for the plans is 40%
fixed income and 60% equities for most of the significant
pension plans, with the exception of the United Kingdom pension
plan which has a policy mix of 50% fixed income and 50%
equities. The actual asset mix is maintained fairly close to the
policy mix at most times by the use of a rigorous rebalancing
policy.

Equity securities include Inco Limited common
shares in the amount of $7 million (2002 
$5 million, 2001  $4 million).

The return on assets assumption has been based on
an estimate of the future long-term average return that can
reasonably be earned on the assets of the pension fund. The
starting point for the calculation of this assumption is the
current yield obtainable from the fixed income portion of the
portfolio. The yield available on the benchmark used, the Scotia
Capital Universe Bond Index (50% of the bond component) and the
Scotia Capital Long Bond Index (the remainder of the bond
component), is used as the expected return on the bond indices
since, in our view, this represents the best estimate of
long-term future returns for the bond portfolio.

28



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


Equity investments are assumed in aggregate to
have an expected long-term future return of 3% in excess of the
yield available on long-term Government of Canada bonds; for
2002 and 2003, the 10 Year+ index was used and for 2004,
the 10-Year benchmark bond yield was used (this change reflects
the marketplace change and significant lack of issuance for
30 year maturities). For the portion of the assets that are
invested in actively managed investment managers, an additional
return expectation is included to recognize each managers
target anticipated long-term value added above the index return.
We note that actual added value over the past periods has been
substantially in excess of this amount. The weighted average of
the returns determined for each portion of the fund becomes the
return on assets assumption (rounded to the next lower
50 basis points).

The composite health care cost trend rate used in
measuring post-retirement benefits other than pensions was
assumed to begin at 8 per cent, gradually declining to
5 per cent by 2007 and remaining at that level
thereafter.

The projected pension benefits obligation and
fair value of plan assets for pension plans with accumulated
benefits obligations in excess of plan assets were as follows:

|                              |  |                  |       |      |  |      |       |   |  |   |       |  
|----------------------------- |  | ---------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                              |  |                 
|                              |  | Pension benefits
|                              |  |                 
|December 31                   |  | 2003             |       | 2002 |  | 2001
|                              |  |                  |       |      |  |     
|Projected benefits obligation |  | $                | 2,734 |      |  | $    | 2,172 |   |  | $ | 1,940 |  
|Fair value of plan assets     |  |                  | 1,857 |      |  |      | 1,367 |   |  |   | 1,415 |  
|                              |  |                  |       |      |  |      |       |   |  |   |       |  
|Unfunded status               |  | $                | (877  | )    |  | $    | (805  | ) |  | $ | (525  | )
|                              |  |                  |       |      |  |      |       |   |  |   |       |  

A one per cent change in the assumed composite
health care cost trend rate would have the following effects:

|                                          |  |                          |     |             |  |   |      |  
|----------------------------------------- |  | ------------------------ | --- | ----------- |  | - | ---- | -
|                                          |  |                         
|                                          |  | Post-retirement benefits
|                                          |  | other than pensions     
|                                          |  |                         
|                                          |  | 1% Increase              |     | 1% Decrease
|                                          |  |                          |     |            
|Effect on accumulated benefits obligation |  | $                        | 101 |             |  | $ | (125 | )
|Effect on net periodic expense            |  |                          | 8   |             |  |   | (9   | )



|         |                            
|-------- | ---------------------------
|Note 13. | Asset retirement obligation

The estimation of asset retirement obligation
costs depends on the development of environmentally acceptable
closure and post-closure plans, which, in some cases, may
require significant research and development to identify
preferred methods for such plans which are economically sound
and which, in many cases, may not be implemented for several
decades. We have continued to utilize appropriate technical
resources, including outside consultants, to develop specific
site closure and post-closure plans in accordance with the
requirements of the various jurisdictions in which we operate.
Typical closure and progressive rehabilitation activities
include, where applicable, demolition of buildings, removal of
underground equipment, sealing of mine openings, treatment to
reduce or prevent acid generation from stockpiled waste
materials such as tailings, general clean-up activities aimed at
returning the area to an environmentally acceptable condition,
and post-closure care and maintenance.

In accordance with environmental regulations
adopted by the Province of Ontario in 1991, we developed
rehabilitation and site restoration plans associated with the
eventual closure of our operations in that province. Three
closure plans were filed by the end of 1997, having previously
received approval from the Province of Ontario for the
consolidation of our operating mines and properties in that
province into 15 sites for purposes of closure plans, and the
remaining 12 closure plans were filed by the end of 1998. As a
result of provincial regulatory changes which became effective
in 2000, the plans were refiled to meet these changes in 2001.
We have continued to develop future tailings disposal and water
management alternatives to accommodate up to approximately
40 years of future production. We believe that
cost-effective tailings disposal alternatives exist

29



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


within the ongoing operating activities of the
Sudbury operations which would limit site restoration at closure
to a care and maintenance activity, thus significantly reducing
the costs of such site restoration.

In accordance with environmental regulations
adopted by the Province of Manitoba in 1999, we have developed
reclamation plans associated with the eventual closure of
operations in that province. The Province of Manitoba has
accepted the closure plans for all of our operations in the
province.

Closure plans for the proposed mine and mill
facilities were prepared and submitted in 1998 in connection
with the environmental review process of the Voiseys Bay
project in the Province of Newfoundland and Labrador. This plan
is currently being updated and will be completed in 2004.
Closure plans were prepared and submitted in 2001 in connection
with the bankable feasibility study for the Goro project in New
Caledonia.

We follow a policy of progressive rehabilitation
at our Indonesian operations whereby land disturbed by mining
activities is revegetated on an ongoing basis. Based on an
independent feasibility study, the expansion of facilities in
Sorowako meets or surpasses current standards in Indonesia and
Canada for containment of contaminant discharges to air, water
and land.

Closure plans are in the process of being
prepared for the surface facilities in the United States and the
United Kingdom. However, based on currently available
information, there are no required significant site restoration
activities associated with these facilities.

Substantial asset retirement obligations are
incurred on an ongoing basis which will significantly reduce
asset retirement obligation costs that may otherwise be incurred
following the closure of any sites. This progressive
rehabilitation includes tailings management, land reclamation
and revegetation programs, decommissioning and demolition of
plants and buildings, and waste management activities. Operating
costs associated with ongoing environmental and reclamation
programs, including progressive rehabilitation, aggregated $39
million in 2003, $13 million in 2002 and $12 million
in 2001 and are included in cost of sales and other operating
expenses. Capital expenditures on environmental projects were
$28 million in 2003, $9 million in 2002 and $17
million in 2001.

Although the ultimate amount to be incurred is
uncertain, the total liability for asset retirement obligations
in respect of worldwide operations, to be incurred primarily
after cessation of operations, is estimated to be approximately
$904 million at December 31, 2003 on an undiscounted
basis. The estimate of the total liability for asset retirement
obligations has been developed from independent environmental
studies including an evaluation of, among other factors,
currently available information with respect to closure plans
and closure alternatives, the anticipated method and extent of
site restoration using current costs and existing technology,
and compliance with presently enacted laws, regulations and
existing industry standards. The total liability represents
estimated expenditures associated with closure, progressive
rehabilitation and post-closure care and maintenance. Potential
recoveries of funds from the future sale of assets upon the
ultimate closure of operations have not been reflected in the
estimate of the total liability or related annual provision.

Effective January 1, 2003, we adopted a new
accounting standard of the CICA relating to asset retirement
obligations. This standard significantly changed the method of
accounting for asset retirement obligations and prior period
financial statements have been restated to reflect this change.
Under the new standard, the asset retirement obligations are
recognized when incurred and recorded as liabilities at fair
value assuming a credit-adjusted risk-free rate of approximately
5.5 per cent on average. Due to the nature of our closure plans,
the timing of such cash expenditures is expected to occur over a
significant period of time being from one year for plans which
are already in progress and over 100 years for the longest
plan. The liability is accreted over time through periodic
charges to cost of sales and other operating expenses. In
addition, the asset retirement cost is capitalized

30



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


as part of the assets carrying value and
depreciated over the assets useful life. The following
table shows the movement in the liability for asset retirement
obligations:

|                                  |  |             |     |      |  |      |     |   |  |  |     |  
|--------------------------------- |  | ----------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                                  |  |            
|                                  |  | Year ended 
|                                  |  | December 31
|                                  |  |            
|                                  |  | 2003        |     | 2002 |  | 2001
|                                  |  |             |     |      |  |     
|Obligation at beginning of year   |  |             | 119 |      |  |      | 121 |   |  |  | 124 |  
|Accretion expense                 |  |             | 6   |      |  |      | 5   |   |  |  | 5   |  
|Liabilities settled               |  |             | (6  | )    |  |      | (7  | ) |  |  | (8  | )
|Revisions in estimated cash flows |  |             | 22  |      |  |      |    |   |  |  |    |  
|                                  |  |             |     |      |  |      |     |   |  |  |     |  
|Obligation at end of year         |  |             | 141 |      |  |      | 119 |   |  |  | 121 |  
|                                  |  |             |     |      |  |      |     |   |  |  |     |  

As of December 31, 2003, we had outstanding
letters of credit in the amount of $21 million to secure a
portion of our closure costs related to the closure of three
mines in Ontario. These letters of credit have a term of one
year and will automatically renew without any action by either
Inco or the counterparty until the earlier of (i) Inco
having complied with the terms of the certified closure plans or
(ii) funds from such letters of credit being utilized by
the Ontario Ministry of Northern Development and Mines, the
Ministry responsible for overseeing such closure plans, to
perform rehabilitation work if we did not meet the requirements
with respect to such closure plans. We are required to submit
annual updates on changes to the closure plans, including any
decommissioning and rehabilitation work completed during the
previous year.

In view of the uncertainties concerning
environmental remediation, the ultimate cost of asset retirement
obligations could differ materially from the estimated amounts
provided. The estimate of the total liability for asset
retirement obligation costs is subject to change based on
amendments to laws and regulations and as new information
concerning our operations becomes available. Future changes, if
any, to the estimated total liability as a result of amended
requirements, laws, regulations and operating assumptions may be
significant and would be recognized prospectively as a change in
accounting estimate, when applicable. Environmental laws and
regulations are continually evolving in all regions in which we
operate. We are not able to determine the impact, if any, of
environmental laws and regulations that may be enacted in the
future on our results of operations or financial position due to
the uncertainty surrounding the ultimate form that such future
laws and regulations may take.



|         |                 
|-------- | ----------------
|Note 14. | Convertible debt

On March 29, 2001, we issued and sold, on a
bought deal basis, zero-coupon convertible notes (LYON
Notes), representing an aggregate amount payable at
maturity of $438 million, which are due and payable
March 29, 2021, for net cash proceeds of $226 million.
No interest is payable on the LYON Notes prior to maturity
except in connection with any term or condition where the holder
receives the then accreted value of the LYON Notes.

The LYON Notes are convertible, at the option of
the holder, at any time on or prior to their maturity date into
Common Shares at a fixed conversion rate of 26.5530 Common
Shares per LYON Note, representing an initial conversion price
of $19.76 per share, with such conversion rate and price being
subject to certain anti-dilution adjustment provisions. Holders
of LYON Notes also have a special conversion right, exercisable
on March 29 in 2007, 2011 and 2016, giving such holders the
right to convert the then accreted value of their LYON Notes
into Common Shares based upon the then market price for such
shares. The LYON Notes are also subject to redemption at our
option on or after March 29, 2007 at their then accreted
value.

We have the right, subject to certain conditions,
in connection with the exercise by a holder of such conversion
or special conversion rights, to pay such holders cash, in whole
or in part, in lieu of Common Shares. We also have the right,
subject to certain conditions, in connection with any redemption
or certain purchases of the LYON Notes, to pay the redemption or
purchase price in Common Shares, based upon the then market price

31



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


thereof, or in cash or any combination of Common
Shares and cash. We are required to offer to purchase the LYON
Notes if there is a change in control of Inco, as defined in the
Trust Indenture dated as of March 29, 2001 between Inco and
The Bank of New York, as Trustee, occurring before
March 29, 2007.

The LYON Notes accrete over the 20-year term of
the LYON Notes to their value at maturity through periodic
after-tax charges to retained earnings. The LYON Notes are not
dilutive for purposes of calculating diluted earnings per share
based on our right to and current intention that we will
eventually meet the redemption and conversion terms of these
Notes in cash.

In March 2003, we issued and sold in concurrent
private offerings (i) $273 million amount payable at maturity of
Convertible Debentures due March 14, 2023
(Convertible Debentures), representing
$249 million in gross proceeds to us, and
(ii) $227 million aggregate principal amount of
Subordinated Convertible Debentures due March 14, 2052
(Subordinated Convertible Debentures). The total
combined gross proceeds were $476 million from these two
issues of convertible debt securities and the net cash proceeds
were $470 million after deduction of commissions and other
after-tax expenses. The Convertible Debentures and Subordinated
Convertible Debentures pay a cash coupon of
3.5 per cent and 1.0943 per cent,
respectively.

The Convertible Debentures and the Subordinated
Convertible Debentures are convertible at the option of the
holders into Common Shares at the conversion rates referred to
below, subject to certain anti-dilution adjustment provisions,
only in the following circumstances: (i) if our Common
Share price, calculated over a specified period, has exceeded
120% of the effective conversion price of the Convertible
Debentures or the Subordinated Convertible Debentures, as
applicable; (ii) if the trading price of the Convertible
Debentures or the Subordinated Convertible Debentures, as
applicable, over a specified period has fallen below
95 per cent of the amount equal to our then prevailing
Common Share price times the applicable conversion rate;
(iii) if we were to call the Convertible Debentures or the
Subordinated Convertible Debentures, as applicable, for
redemption; or (iv) if certain specified corporate events
were to occur. Each Convertible Debenture will be convertible
into 31.9354 Common Shares, representing an initial conversion
price of approximately $28.61 per Common Share, and each
Subordinated Convertible Debenture will be convertible into
38.4423 Common Shares, representing a conversion price of
approximately $26.01 per Common Share.

Holders of the Convertible Debentures have the
right to have us redeem these Debentures at their issue price
plus accrued interest on March 14 in each of 2010, 2014 and
2018. We have the right to redeem the Convertible Debentures at
any time on or after March 19, 2010. We have the right to
redeem the Subordinated Convertible Debentures on or after
March 19, 2008 if our Common Shares trade over a specified
period above 125 per cent of the conversion price for these
securities. Holders of the Subordinated Convertible Debentures
have no right to require us to redeem these subordinated
securities. In meeting the conversion, redemption, payment at
maturity and other related terms of these convertible debt
securities, we have the right, at our option, to satisfy these
obligations in cash, Common Shares or any combination thereof.

In the case of the Convertible Debentures, these
securities rank equally and rateably with all of our existing
and future unsecured and unsubordinated indebtedness. The
Subordinated Convertible Debentures are subordinated to all of
our senior indebtedness, which includes, among other
obligations, all of our existing and future unsecured and
unsubordinated indebtedness.

For Canadian reporting purposes, these
convertible debt securities were initially recorded as
$114 million of debt and $356 million of equity. The
portion recorded as debt represents the present value of the
cash coupons discounted as at the date of issuance.

32



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


Changes in the convertible debt were as follows:

|                              |  |       |     |             |  |              |     |       |  |   |     |  |  |   |     | 
|----------------------------- |  | ----- | --- | ----------- |  | ------------ | --- | ----- |  | - | --- |  |  | - | --- | 
|                              |  |       |     |             |  | Subordinated |     |      
|                              |  | LYON  |     | Convertible |  | Convertible  |     |      
|                              |  | Notes |     | Debentures  |  | Debentures   |     | Total
|                              |  |       |     |             |  |              |     |      
|December 31, 2000             |  | $     |    |             |  | $            |    |       |  | $ |    |  |  | $ |    | 
|Convertible debt issued       |  |       | 226 |             |  |              |    |       |  |   |    |  |  |   | 226 | 
|Accretion of convertible debt |  |       | 5   |             |  |              |    |       |  |   |    |  |  |   | 5   | 
|                              |  |       |     |             |  |              |     |       |  |   |     |  |  |   |     | 
|December 31, 2001             |  |       | 231 |             |  |              |    |       |  |   |    |  |  |   | 231 | 
|Accretion of convertible debt |  |       | 7   |             |  |              |    |       |  |   |    |  |  |   | 7   | 
|                              |  |       |     |             |  |              |     |       |  |   |     |  |  |   |     | 
|December 31, 2002             |  |       | 238 |             |  |              |    |       |  |   |    |  |  |   | 238 | 
|Convertible debt issued       |  |       |    |             |  |              | 230 |       |  |   | 126 |  |  |   | 356 | 
|Accretion of convertible debt |  |       | 9   |             |  |              | 3   |       |  |   |    |  |  |   | 12  | 
|                              |  |       |     |             |  |              |     |       |  |   |     |  |  |   |     | 
|December 31, 2003             |  | $     | 247 |             |  | $            | 233 |       |  | $ | 126 |  |  | $ | 606 | 
|                              |  |       |     |             |  |              |     |       |  |   |     |  |  |   |     | 



|         |                 
|-------- | ----------------
|Note 15. | Preferred Shares

We are authorized to issue 45,000,000 Preferred
Shares with no par value, which are issuable in series for a
maximum consideration of Cdn.$1.5 billion or its equivalent
in other currencies.



| |                              
| | -----------------------------
| | Preferred Shares
    Series E

On August 21, 1996, we issued 9,424,657 5.5
per cent Convertible Redeemable Preferred Shares Series E
(Preferred Shares Series E), with an issue
price of $50 per share, for an aggregate face value of
$471 million as partial consideration for the acquisition
of Diamond Fields Resources Inc. (Diamond Fields).
The Preferred Shares Series E had an annual cumulative
dividend of 5.5 per cent payable in U.S. dollars
or the equivalent in Canadian dollars. The Preferred Shares
Series E were convertible at any time into Common Shares at
a conversion rate, subject to certain adjustments in the event
of stock splits, stock dividends, certain exchange or tender
offers and certain fundamental corporate changes, of 1.19474
Common Shares for each Preferred Share Series E and were
redeemable at our option after five years at an initial premium
of 2.75 per cent, declining annually to
0.55 per cent in 2005, and were subject to mandatory
redemption at the $50 issue price (or the equivalent in Canadian
dollars at the option of the holder), together with all then
accrued and unpaid dividends, on August 21, 2006. We had
the right, subject to certain exceptions, to satisfy the
optional or mandatory redemption price payable by issuing Common
Shares based upon a formula equivalent to 95 per cent
of a weighted-average trading price for the Common Shares over a
20-day period ending five days prior to the particular
redemption date. The Preferred Shares Series E had general
voting rights on the basis, subject to certain adjustments in
the event of certain fundamental corporate changes, of one vote
per share and had a separate series vote in the event of certain
fundamental changes which required a series vote under
applicable corporate laws. The Preferred Shares Series E
also had a right to elect two Directors in the event that, and
so long as, cumulative quarterly dividends on the series were in
arrears for six or more quarters. At the date of issue, a
beneficial conversion feature for the Preferred Shares
Series E did not exist because the conversion price to
common shares was above the then current market price.

Contingently issuable equity included Preferred
Shares Series E contingently issuable upon exercise of
stock options held by former employees of Diamond Fields, which
were exercisable through to December 13, 2003. On
April 17, 2003, all remaining outstanding options held by
one holder were exercised and upon exercise the holder received
a combination of 485,471 Common Shares with a value of
$17 million and cash in the amount of $3 million
partially in lieu of the Preferred Shares Series E that had
been called for redemption.

33



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


On March 28, 2003, we announced that we
would exercise our optional right to redeem all of our issued
and outstanding Preferred Shares Series E having a
$472 million aggregate liquidation preference and which
were subject to mandatory redemption in 2006, with such
redemption to be effective May 1, 2003. Pursuant to their
terms, we redeemed the Preferred Shares Series E by paying
the optional redemption price of $51.10 per share plus all
accrued and unpaid dividends to the May 1, 2003 redemption
date. Holders of the Series E Preferred Shares had the
right to convert their shares into Common Shares at a fixed
conversion rate of 1.19474 Common Shares for each Preferred
Share Series E held at any time prior to the May 1,
2003 redemption date. The conversion rate represented an
effective conversion price of $41.85 per Common Share. The total
aggregate redemption price for the Preferred Shares
Series E was $487 million, including a redemption
premium of $11 million based upon the $50 issue price per
Preferred Share Series E and $4 million in accrued
dividends.

Changes in the Preferred Shares Series E
were as follows:

|                                  |  |           |            |        |  |   |      |  
|--------------------------------- |  | --------- | ---------- | ------ |  | - | ---- | -
|                                  |  | Number of |            |       
|                                  |  | shares    |            | Amount
|                                  |  |           |            |       
|December 31, 2000                 |  |           | 9,439,725  |        |  | $ | 472  |  
|Shares converted to Common Shares |  |           | (25        | )      |  |   |     |  
|                                  |  |           |            |        |  |   |      |  
|December 31, 2001                 |  |           | 9,439,700  |        |  |   | 472  |  
|Shares converted to Common Shares |  |           | (100       | )      |  |   |     |  
|                                  |  |           |            |        |  |   |      |  
|December 31, 2002                 |  |           | 9,439,600  |        |  |   | 472  |  
|Shares converted to Common Shares |  |           | (1,193     | )      |  |   |     |  
|Shares redeemed                   |  |           | (9,438,407 | )      |  |   | (472 | )
|                                  |  |           |            |        |  |   |      |  
|December 31, 2003                 |  |           |           |        |  | $ |     |  
|                                  |  |           |            |        |  |   |      |  



|         |         
|-------- | --------
|Note 16. | Warrants

On December 14, 2000, we issued warrants
upon the redemption of our Class VBN Shares. Each Common Share
purchase warrant (a Warrant) has an exercise price,
for each whole Warrant, of Cdn.$30.00 (or the equivalent in
U.S. dollars) for the purchase of one Common Share at any
time on or before August 21, 2006. The exercise price
and/or the number and kind of securities issuable on the
exercise of the Warrants are subject to adjustment in certain
events, as set forth in the Warrant Agreement dated as of
December 1, 2000 among Inco, CIBC Mellon Trust Company and
ChaseMellon Shareholder Services LLC, as Canadian and U.S.
Warrant Agents, respectively, covering the issuance of the
Warrants. These adjustments include, among others, certain
changes in our capital structure such as any subdivision or
consolidation of Common Shares, stock dividends or other
distributions, the consolidation, amalgamation or merger of Inco
with another company, or the transfer of all or substantially
all of our assets.

34



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


Changes in the Warrants were as follows:

|                   |  |           |            |        |  |   |    | 
|------------------ |  | --------- | ---------- | ------ |  | - | -- | 
|                   |  | Number of |            |       
|                   |  | warrants  |            | Amount
|                   |  |           |            |       
|December 31, 2000  |  |           | 10,997,903 |        |  | $ | 62 | 
|Warrants issued    |  |           | 26,987     |        |  |   |   | 
|Warrants exercised |  |           | (2,943     | )      |  |   |   | 
|                   |  |           |            |        |  |   |    | 
|December 31, 2001  |  |           | 11,021,947 |        |  |   | 62 | 
|Warrants issued    |  |           | 1,782      |        |  |   |   | 
|Warrants exercised |  |           | (232       | )      |  |   |   | 
|                   |  |           |            |        |  |   |    | 
|December 31, 2002  |  |           | 11,023,497 |        |  |   | 62 | 
|Warrants issued    |  |           | 416        |        |  |   |   | 
|Warrants exercised |  |           | (849       | )      |  |   |   | 
|                   |  |           |            |        |  |   |    | 
|December 31, 2003  |  |           | 11,023,064 |        |  | $ | 62 | 
|                   |  |           |            |        |  |   |    | 



|         |              
|-------- | -------------
|Note 17. | Common shares

We are authorized to issue an unlimited number of
Common Shares without nominal or par value.

Changes in the Common Shares were as follows:

|                                                                        |  |           |             |        |  |   |       | 
|----------------------------------------------------------------------- |  | --------- | ----------- | ------ |  | - | ----- | 
|                                                                        |  | Number of |             |       
|                                                                        |  | shares    |             | Amount
|                                                                        |  |           |             |       
|December 31, 2000                                                       |  |           | 181,807,214 |        |  | $ | 2,751 | 
|Options exercised                                                       |  |           | 367,350     |        |  |   | 5     | 
|Shares issued under incentive plans                                     |  |           | 15,196      |        |  |   |      | 
|Shares issued on conversion of Preferred Shares
    Series E            |  |           | 29          |        |  |   |      | 
|Shares issued on exercise of Warrants                                   |  |           | 2,943       |        |  |   |      | 
|                                                                        |  |           |             |        |  |   |       | 
|December 31, 2001                                                       |  |           | 182,192,732 |        |  |   | 2,756 | 
|Options exercised                                                       |  |           | 1,012,635   |        |  |   | 14    | 
|Shares issued under incentive plans                                     |  |           | 32,633      |        |  |   | 1     | 
|Shares issued on conversion of Preferred Shares
    Series E            |  |           | 119         |        |  |   |      | 
|Shares issued on exercise of Warrants                                   |  |           | 232         |        |  |   |      | 
|                                                                        |  |           |             |        |  |   |       | 
|December 31, 2002                                                       |  |           | 183,238,351 |        |  |   | 2,771 | 
|Options exercised                                                       |  |           | 3,130,556   |        |  |   | 68    | 
|Shares issued under incentive plans                                     |  |           | 40,249      |        |  |   | 1     | 
|Shares issued on conversion of Preferred Shares
    Series E            |  |           | 1,424       |        |  |   |      | 
|Shares issued upon exercise of former Diamond
    Fields stock options |  |           | 485,471     |        |  |   | 17    | 
|Shares issued on conversion of Debentures                               |  |           | 18,965      |        |  |   | 1     | 
|Shares issued on exercise of Warrants                                   |  |           | 849         |        |  |   |      | 
|                                                                        |  |           |             |        |  |   |       | 
|December 31, 2003                                                       |  |           | 186,915,865 |        |  | $ | 2,858 | 
|                                                                        |  |           |             |        |  |   |       | 

Contingently issuable equity included Common
Shares contingently issuable upon exercise of stock options held
by former employees of Diamond Fields Resources Inc. On
April 17, 2003, all remaining outstanding options held by
one holder were exercised and upon exercise the holder received
a combination of 485,471

35



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


Common Shares with a value of $17 million
and cash in the amount of $3 million in lieu of certain
securities that had been called for redemption.

In September 1998, our Board of Directors, given
the expiration of a shareholder rights plan which had been
implemented in October 1988, adopted a new shareholder rights
plan that took effect on October 3, 1998. This new plan,
set forth in a Rights Plan Agreement entered into between Inco
and CIBC Mellon Trust Company, as Rights Agent, is designed to
(i) encourage the fair and equal treatment of shareholders
in connection with any bid for control by providing them with
more time than the minimum statutory period during which such
bid must remain open in order to fully consider their options,
and (ii) provide the Board of Directors with additional
time, if appropriate, to pursue other alternatives to maximize
shareholder value.

The new plan, amended in certain respects by the
Board of Directors in February 1999, was approved by
shareholders at the 1999 Annual and Special Meeting of
Shareholders and will remain in effect until October 2008
subject to reconfirmation of such plan, as may be further
amended, by holders of the voting securities at the annual
meeting of shareholders to be held in April 2005. The following
represents a summary of some of the key terms of the plan.

The rights issued under the plan will initially
attach to and trade with the Common Shares and no separate
certificates will be issued unless an event triggering these
rights occurs. Certificates evidencing Common Shares will be
legended to reflect that they evidence the rights until the
Separation Time (as defined below). Holders of the Convertible
Debentures, Subordinated Convertible Debentures and LYON Notes
and the certificates of entitlement attached thereto (which
entitle their holders to receive rights in the event that the
related security is converted into Common Shares) will generally
be entitled to receive, upon conversion of the relevant security
and presentment of the certificate of entitlement, respectively,
rights in an amount equal to the number of Common Shares issued
upon conversion of such securities.

The rights will separate from the Common Shares
(Separation Time) and be transferable, trade
separately from the Common Shares and become exercisable only
when a person acquires, or announces their intention to acquire,
beneficial ownership of 20 per cent or more of (i) the then
outstanding Voting Securities, or (ii) the then outstanding
Common Shares alone, in either case without complying with the
permitted bid provisions of the plan (as summarized
below), or without the approval of the Board of Directors.
Should such an acquisition occur, each right would entitle its
holder, other than the acquiring person or persons related to or
acting jointly or in concert with such person, to purchase
additional Common Shares at a 50 per cent discount to the then
current market price. The acquisition by any person (an
Acquiring Person) of 20 per cent or more
of the Common Shares or Voting Securities, other than by way of
a permitted bid, is referred to as a Flip-in-Event.
Any rights held by an Acquiring Person will become void upon the
occurrence of a Flip-in-Event.

A permitted bid is a bid made to all
holders of the outstanding Voting Securities that is open for at
least 60 days. If, at the end of such 60-day period, more
than 50 per cent of the then outstanding Common Shares, other
than those securities owned by the party making the bid and
certain related persons, have been tendered, such party may take
up and pay for the Common Shares but must extend the bid for a
further 10 business days to allow other shareholders to tender,
thus providing shareholders who had not tendered to the bid with
enough time to tender to the bid once it is clear that a
majority of Common Shares have been tendered.

Under this plan, we can (i) waive our
application to enable a particular takeover bid to proceed, in
which case the plan will be deemed to have been waived with
respect to any other takeover bid made prior to the expiry of
any bid subject to such waiver or (ii) with the prior
approval of the holders of Voting Securities or rights, redeem
the rights for nominal consideration at any time prior to a
Flip-in-Event.



|         |                         
|-------- | ------------------------
|Note 18. | Stock compensation plans

The stock option plans authorize the granting of
options to key employees to purchase Common Shares at prices not
less than 100 per cent of their market value on the day the
option is granted. The 2001 employee plan,

36



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


which replaced the 1997 employee plan and has a
term of five years, authorized the granting of options to
purchase up to 6,000,000 Common Shares. The Non-Employee
Director Share Option Plan, which came into effect in April 2002
and has a term of five years, authorized the granting of options
to the non-employee members of our board of directors to
purchase up to 300,000 Common Shares. The stock option plans
provide that no shares subject to any options granted shall be
purchasable after 10 years from the date of grant and also
include an anti-dilution provision to protect the option-holder
in the event of stock splits or other significant capital
changes.

At December 31, 2003, outstanding options
for 1,884,400 Common Shares, as amended for the anti-dilution
adjustment, also carry share appreciation rights
(SARs). These SARs entitle an optionee, in lieu of
exercising an option to purchase Common Shares, to surrender all
or a portion of the related option in exchange for an amount
equal to the difference between the then market price per share
and the exercise price per share specified in the stock option,
multiplied by the number of shares covered by the stock option,
or portion thereof so surrendered. We may elect to deliver
Common Shares, cash, or a combination of Common Shares and cash,
equal in value to such difference. Compensation expense in
respect of SARs for the years 2003, 2002 and 2001 was
$36 million, $7 million and $nil, respectively.

One-half of stock options granted are exercisable
on or after six months from the grant date, with the remaining
options exercisable on or after 18 months from the grant
date.

Pursuant to our mid-term incentive plans (MTIPs),
awards in the form of Common Shares are made to certain key
employees subject to transfer, sale and encumbrance restrictions
for a three-year period from the date of the award. In the year
ended December 31, 2003, 40,249 Common Shares were awarded
in respect of MTIPs (2002  32,633; 2001 
15,196).

Changes in Common Share options outstanding are
summarized as follows:

|                                   |  |                         |            |      |  |      |            |   |  |  |           |  
|---------------------------------- |  | ----------------------- | ---------- | ---- |  | ---- | ---------- | - |  |  | --------- | -
|                                   |  |                        
|                                   |  | Number of Common Shares
|                                   |  |                        
|Year ended December 31             |  | 2003                    |            | 2002 |  | 2001
|                                   |  |                         |            |      |  |     
|Outstanding at beginning of year   |  |                         | 7,476,506  |      |  |      | 7,729,634  |   |  |  | 6,977,984 |  
|Options granted                    |  |                         | 1,155,000  |      |  |      | 1,377,000  |   |  |  | 1,272,500 |  
|Options exercised                  |  |                         | (3,867,151 | )    |  |      | (1,140,700 | ) |  |  | (427,350  | )
|Options terminated                 |  |                         | (191,750   | )    |  |      | (489,428   | ) |  |  | (93,500   | )
|                                   |  |                         |            |      |  |      |            |   |  |  |           |  
|Outstanding at end of year         |  |                         | 4,572,605  |      |  |      | 7,476,506  |   |  |  | 7,729,634 |  
|                                   |  |                         |            |      |  |      |            |   |  |  |           |  
|Available for grant at December 31 |  |                         | 3,785,000  |      |  |      | 4,928,250  |   |  |  | 6,000,000 |  
|                                   |  |                         |            |      |  |      |            |   |  |  |           |  
|Exercisable at December 31         |  |                         | 3,954,107  |      |  |      | 6,765,756  |   |  |  | 7,095,134 |  
|                                   |  |                         |            |      |  |      |            |   |  |  |           |  

Changes in the weighted-average exercise price of
Common Share options are summarized as follows:

|                                 |  |                                 |        |      |  |      |        |   |  |   |        |  
|-------------------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                 |  |                                
|                                 |  | Weighted-average exercise price
|                                 |  |                                
|Year ended December 31           |  | 2003                            |        | 2002 |  | 2001
|                                 |  |                                 |        |      |  |     
|Outstanding at beginning of year |  | $                               | 21.42  |      |  | $    | 21.49  |   |  | $ | 21.83  |  
|Options granted                  |  |                                 | 20.90  |      |  |      | 17.80  |   |  |   | 16.96  |  
|Options exercised                |  |                                 | (18.63 | )    |  |      | (14.11 | ) |  |   | (12.47 | )
|Options terminated               |  |                                 | (26.74 | )    |  |      | (29.43 | ) |  |   | (26.17 | )
|                                 |  |                                 |        |      |  |      |        |   |  |   |        |  
|Outstanding at end of year       |  | $                               | 23.43  |      |  | $    | 21.42  |   |  | $ | 21.49  |  
|                                 |  |                                 |        |      |  |      |        |   |  |   |        |  

37



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


The following table summarizes information about
Common Share options outstanding at December 31, 2003.

|                         |  |                                  |           |                      |  |                  |     |                |  |                  |       |  |  |  |           |  |  |   |       | 
|------------------------ |  | -------------------------------- | --------- | -------------------- |  | ---------------- | --- | -------------- |  | ---------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                         |  |                                  |           |                      |  |                  |     |               
|                         |  |                                  |           | Common Share Options
|                         |  | Common Share Options Outstanding |           | Exercisable         
|                         |  |                                  |           |                     
|                         |  | Number                           |           | Weighted-average     |  |                  |     | Number         |  |                 
|                         |  | outstanding at                   |           | remaining            |  |                  |     | exercisable at |  |                 
|                         |  | December 31,                     |           | contractual life     |  | Weighted-average |     | December 31,   |  | Weighted-average
|Range of exercise prices |  | 2003                             |           | (years)              |  | exercise price   |     | 2003           |  | exercise price  
|                         |  |                                  |           |                      |  |                  |     |                |  |                 
|$11-16                   |  |                                  | 465,500   |                      |  |                  | 4.5 |                |  | $                | 13.40 |  |  |  | 465,500   |  |  | $ | 13.40 | 
|17-24                    |  |                                  | 2,387,675 |                      |  |                  | 8.0 |                |  |                  | 18.95 |  |  |  | 1,804,177 |  |  |   | 18.40 | 
|25-37                    |  |                                  | 1,719,430 |                      |  |                  | 2.6 |                |  |                  | 32.36 |  |  |  | 1,684,430 |  |  |   | 32.46 | 
|                         |  |                                  |           |                      |  |                  |     |                |  |                  |       |  |  |  |           |  |  |   |       | 
|$11-37                   |  |                                  | 4,572,605 |                      |  |                  | 5.6 |                |  | $                | 23.43 |  |  |  | 3,954,107 |  |  | $ | 23.80 | 
|                         |  |                                  |           |                      |  |                  |     |                |  |                  |       |  |  |  |           |  |  |   |       | 

The expiration dates of Common Share options
outstanding at December 31, 2003 ranged from
February 16, 2004 to September 29, 2013. At
December 31, 2003, there were 310 employees
participating in the Common Share option plans.

Effective January 1, 2003, we prospectively
adopted the fair value method of accounting for stock-based
compensation. Had we elected to recognize the cost of
stock-based compensation based on the estimated fair value of
stock options granted, net earnings (loss) would have been as
follows for 2001 and 2002:

|                                                       |  |             |        |      |  |   |      | 
|------------------------------------------------------ |  | ----------- | ------ | ---- |  | - | ---- | 
|                                                       |  |            
|                                                       |  | Year ended 
|                                                       |  | December 31
|                                                       |  |            
|                                                       |  | 2002        |        | 2001
|                                                       |  |             |        |     
|Pro forma net earnings (loss)                          |  | $           | (1,486 | )    |  | $ | 301  | 
|Pro forma basic earnings (loss) per common
    share   |  | $           | (8.29  | )    |  | $ | 1.49 | 
|Pro forma diluted earnings (loss) per common
    share |  | $           | (8.29  | )    |  | $ | 1.47 | 

For 2003, an expense of $3 million was
charged to earnings with the offset credited to contributed
surplus to reflect the fair value of stock options granted to
employees in 2003. The fair value of each stock option granted
is estimated on the date of grant using an option pricing model
with the following assumptions:

|                                                                   |  |                        |       |      |  |      |       |   |  |   |       |  
|------------------------------------------------------------------ |  | ---------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                                   |  |                       
|                                                                   |  | Year ended December 31
|                                                                   |  |                       
|                                                                   |  | 2003                   |       | 2002 |  | 2001
|                                                                   |  |                        |       |      |  |     
|Stock price at grant date                                          |  | $                      | 20.85 |      |  | $    | 17.62 |   |  | $ | 16.96 |  
|Exercise price                                                     |  | $                      | 20.85 |      |  | $    | 17.62 |   |  | $ | 16.96 |  
|Weighted-average fair value of options granted
    during the year |  | $                      | 6.29  |      |  | $    | 5.92  |   |  | $ | 6.24  |  
|Expected life of options (years)                                   |  |                        | 3     |      |  |      | 3     |   |  |   | 3     |  
|Expected stock price volatility                                    |  |                        | 41.1  | %    |  |      | 44.1  | % |  |   | 47.3  | %
|Expected dividend yield                                            |  |                        |      | %    |  |      |      | % |  |   |      | %
|Risk-free interest rate                                            |  |                        | 2.1   | %    |  |      | 3.6   | % |  |   | 4.8   | %



|         |                                                 
|-------- | ------------------------------------------------
|Note 19. | Nature of operations and segment
    information

We are a leading producer of nickel and an
important producer of copper, precious metals and cobalt. Our
operations consist of the finished products segment, which
comprises the mining and processing operations in Ontario and
Manitoba, Canada, and refining operations in the United Kingdom
and interests in refining operations in Japan and other Asian
countries, and the intermediates segment, which comprises the
mining and processing operations in Indonesia, where
nickel-in-matte, an intermediate product, is produced and sold
primarily into the Japanese market. In addition, we hold mineral
claims and licenses for development projects

38



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


which include the Voiseys Bay
nickel-copper-cobalt project under development in the Province
of Newfoundland and Labrador and the Goro nickel-cobalt project
in the French Overseas Territory of New Caledonia.

Net sales to customers by product were as follows:

|                |  |                        |       |      |  |      |       |  |  |   |       | 
|--------------- |  | ---------------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                |  |                       
|                |  | Year ended December 31
|                |  |                       
|                |  | 2003                   |       | 2002 |  | 2001
|                |  |                        |       |      |  |     
|Primary nickel  |  | $                      | 2,109 |      |  | $    | 1,654 |  |  | $ | 1,488 | 
|Copper          |  |                        | 171   |      |  |      | 184   |  |  |   | 195   | 
|Precious metals |  |                        | 114   |      |  |      | 238   |  |  |   | 292   | 
|Cobalt          |  |                        | 17    |      |  |      | 24    |  |  |   | 34    | 
|Other           |  |                        | 63    |      |  |      | 61    |  |  |   | 57    | 
|                |  |                        |       |      |  |      |       |  |  |   |       | 
|                |  | $                      | 2,474 |      |  | $    | 2,161 |  |  | $ | 2,066 | 
|                |  |                        |       |      |  |      |       |  |  |   |       | 

Net sales to customers include sales at market
prices to affiliates in Taiwan and South Korea aggregating
$547 million in 2003, $346 million in 2002 and
$245 million in 2001. No single non-affiliated customer
accounted for more than 10 per cent of total sales in 2003, 2002
or 2001. At December 31, 2003, accounts receivable included
amounts due from affiliates of $100 million
(2002  $19 million; 2001 
$23 million).



| |                           
| | --------------------------
| | Data by operating segments

|                                                                                        |  |                   |       |               |  |                      |        |              |  |       |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  |            |       |      |  |      |        |   |  |  |       |   |  |   |      |   |  |  |      |   |  |  |      |   |  |   |       |  |  |  |        |   |  |  |       | 
|--------------------------------------------------------------------------------------- |  | ----------------- | ----- | ------------- |  | -------------------- | ------ | ------------ |  | ----- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---------- | ----- | ---- |  | ---- | ------ | - |  |  | ----- | - |  | - | ---- | - |  |  | ---- | - |  |  | ---- | - |  | - | ----- |  |  |  | ------ | - |  |  | ----- | 
|                                                                                        |  |                   |       |               |  |                      |        |              |  |      
|                                                                                        |  | Finished products |       | Intermediates |  | Development Projects |        | Eliminations |  | Total
|                                                                                        |  |                   |       |               |  |                      |        |              |  |      
|Year ended December 31                                                                  |  | 2003              |       | 2002          |  | 2001                 |        | 2003         |  | 2002  |       | 2001 |  | 2003 |       | 2002 |  | 2001 |       | 2003 |  | 2002 |       | 2001 |  | 2003       |       | 2002 |  | 2001
|                                                                                        |  |                   |       |               |  |                      |        |              |  |       |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  |            |       |      |  |     
|                                                                                        |  |                   |       |               |  |                      |        |              |  |       |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  |           
|                                                                                        |  |                   |       | (Restated)    |  |                      |        |              |  |       |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  | (Restated)
|Net sales to customers                                                                  |  | $                 | 2,369 |               |  |                      | 2,096  |              |  |       | 2,007 |      |  | $    | 105   |      |  |      | 65    |      |  |      | 59    |      |  | $          |      |      |  |      |       |   |  |  |      |   |  | $ |     |   |  |  |     |   |  |  |     |   |  | $ | 2,474 |  |  |  | 2,161  |   |  |  | 2,066 | 
|Intersegment sales                                                                      |  |                   |      |               |  |                      |       |              |  |       |      |      |  |      | 404   |      |  |      | 256   |      |  |      | 237   |      |  |            |      |      |  |      |       |   |  |  |      |   |  |   | (404 | ) |  |  | (256 | ) |  |  | (237 | ) |  |   |      |  |  |  |       |   |  |  |      | 
|                                                                                        |  |                   |       |               |  |                      |        |              |  |       |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  |            |       |      |  |      |        |   |  |  |       |   |  |   |      |   |  |  |      |   |  |  |      |   |  |   |       |  |  |  |        |   |  |  |       | 
|Net sales                                                                               |  | $                 | 2,369 |               |  |                      | 2,096  |              |  |       | 2,007 |      |  | $    | 509   |      |  |      | 321   |      |  |      | 296   |      |  | $          |      |      |  |      |       |   |  |  |      |   |  | $ | (404 | ) |  |  | (256 | ) |  |  | (237 | ) |  | $ | 2,474 |  |  |  | 2,161  |   |  |  | 2,066 | 
|                                                                                        |  |                   |       |               |  |                      |        |              |  |       |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  |            |       |      |  |      |        |   |  |  |       |   |  |   |      |   |  |  |      |   |  |  |      |   |  |   |       |  |  |  |        |   |  |  |       | 
|Earnings (loss) before income and mining taxes
    and minority interest by
    segment |  | $                 | 266   |               |  |                      | 307    |              |  |       | 253   |      |  | $    | 156   |      |  |      | 53    |      |  |      | 34    |      |  | $          | (18   | )    |  |      | (2,353 | ) |  |  | (6    | ) |  | $ | (31  | ) |  |  | (10  | ) |  |  | 15   |   |  | $ | 373   |  |  |  | (2,003 | ) |  |  | 296   | 
|                                                                                        |  |                   |       |               |  |                      |        |              |  |       |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  |            |       |      |  |      |        |   |  |  |       |   |  |   |      |   |  |  |      |   |  |  |      |   |  |   |       |  |  |  |        |   |  |  |       | 
|Expenses (income) not specifically
    allocable to segments:                           |  |                   |       |               |  |                      |        |              |  |       |       |     
|Corporate selling, general and
    administrative expenses                              |  |                   | 118   |               |  |                      | 86     |              |  |       | 63    |     
|Currency translation adjustments                                                        |  |                   | 177   |               |  |                      | 5      |              |  |       | (39   | )   
|Interest expense                                                                        |  |                   | 44    |               |  |                      | 50     |              |  |       | 56    |     
|Other income, net                                                                       |  |                   | (104  | )             |  |                      | (40    | )            |  |       | (13   | )   
|                                                                                        |  |                   |       |               |  |                      |        |              |  |       |       |     
|Earnings (loss) before income and
    mining taxes and minority
    interest            |  | $                 | 138   |               |  |                      | (2,104 | )            |  |       | 229   |     
|                                                                                        |  |                   |       |               |  |                      |        |              |  |       |       |     
|Depreciation and depletion                                                              |  | $                 | 171   |               |  |                      | 184    |              |  |       | 190   |      |  | $    | 94    |      |  |      | 71    |      |  |      | 73    |      |  | $          |      |      |  |      |       |   |  |  |      |   |  | $ |     |   |  |  |     |   |  |  |     |   |  | $ | 265   |  |  |  | 255    |   |  |  | 263   | 
|                                                                                        |  |                   |       |               |  |                      |        |              |  |       |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  |            |       |      |  |      |        |   |  |  |       |   |  |   |      |   |  |  |      |   |  |  |      |   |  |   |       |  |  |  |        |   |  |  |       | 
|Capital expenditures                                                                    |  | $                 | 158   |               |  |                      | 132    |              |  |       | 141   |      |  | $    | 45    |      |  |      | 42    |      |  |      | 29    |      |  | $          | 342   |      |  |      | 556    |   |  |  | 93    |   |  | $ |     |   |  |  |     |   |  |  |     |   |  | $ | 545   |  |  |  | 730    |   |  |  | 263   | 
|                                                                                        |  |                   |       |               |  |                      |        |              |  |       |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  |            |       |      |  |      |        |   |  |  |       |   |  |   |      |   |  |  |      |   |  |  |      |   |  |   |       |  |  |  |        |   |  |  |       | 
|Identifiable assets at December 31                                                      |  | $                 | 2,531 |               |  |                      | 2,137  |              |  |       | 2,154 |      |  | $    | 1,295 |      |  |      | 1,217 |      |  |      | 1,230 |      |  | $          | 4,648 |      |  |      | 4,011  |   |  |  | 5,730 |   |  | $ | (46  | ) |  |  | (15  | ) |  |  | (5   | ) |  | $ | 8,428 |  |  |  | 7,350  |   |  |  | 9,109 | 
|                                                                                        |  |                   |       |               |  |                      |        |              |  |       |       |      |  |      |       |      |  |      |       |      |  |      |       |      |  |            |       |      |  |      |        |   |  |  |       |   |  |   |      |   |  |  |      |   |  |  |      |   |  |   |       |  |  |  |        |   |  |  |       | 
|Other assets                                                                            |  |                   | 578   |               |  |                      | 1,227  |              |  |       | 521   |     
|                                                                                        |  |                   |       |               |  |                      |        |              |  |       |       |     
|Total assets at December 31                                                             |  | $                 | 9,006 |               |  |                      | 8,577  |              |  |       | 9,630 |     
|                                                                                        |  |                   |       |               |  |                      |        |              |  |       |       |     

39



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


Other assets, which are not allocated to
operating segments, consist of corporate assets, principally
cash and cash equivalents, investments, deferred charges,
pension assets and certain receivables.



| |                            
| | ---------------------------
| | Data by geographic location

|               |  |                             |       |                               |  |      |       |      |  |            |       |            |  |   |       |  |  |   |       |  |  |   |       | 
|-------------- |  | --------------------------- | ----- | ----------------------------- |  | ---- | ----- | ---- |  | ---------- | ----- | ---------- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|               |  |                             |       |                              
|               |  | Net sales to customers year |       | Property, plant and equipment
|               |  | ended December 31           |       | at December 31               
|               |  |                             |       |                              
|               |  | 2003                        |       | 2002                          |  | 2001 |       | 2003 |  | 2002       |       | 2001      
|               |  |                             |       |                               |  |      |       |      |  |            |       |           
|               |  |                             |       |                               |  |      |       |      |  | (Restated) |       | (Restated)
|Canada         |  | $                           | 71    |                               |  | $    | 80    |      |  | $          | 55    |            |  | $ | 5,083 |  |  | $ | 4,606 |  |  | $ | 6,907 | 
|               |  |                             |       |                               |  |      |       |      |  |            |       |            |  |   |       |  |  |   |       |  |  |   |       | 
|United States  |  |                             | 669   |                               |  |      | 667   |      |  |            | 698   |            |  |   | 22    |  |  |   | 22    |  |  |   | 23    | 
|United Kingdom |  |                             | 357   |                               |  |      | 443   |      |  |            | 520   |            |  |   | 26    |  |  |   | 24    |  |  |   | 34    | 
|Indonesia      |  |                             | 104   |                               |  |      | 65    |      |  |            | 59    |            |  |   | 1,016 |  |  |   | 1,067 |  |  |   | 1,071 | 
|New Caledonia  |  |                             |      |                               |  |      |      |      |  |            |      |            |  |   | 798   |  |  |   | 635   |  |  |   | 196   | 
|Japan          |  |                             | 374   |                               |  |      | 313   |      |  |            | 285   |            |  |   | 19    |  |  |   | 18    |  |  |   | 18    | 
|Other          |  |                             | 899   |                               |  |      | 593   |      |  |            | 449   |            |  |   | 12    |  |  |   | 10    |  |  |   | 11    | 
|               |  |                             |       |                               |  |      |       |      |  |            |       |            |  |   |       |  |  |   |       |  |  |   |       | 
|Total foreign  |  |                             | 2,403 |                               |  |      | 2,081 |      |  |            | 2,011 |            |  |   | 1,893 |  |  |   | 1,776 |  |  |   | 1,353 | 
|               |  |                             |       |                               |  |      |       |      |  |            |       |            |  |   |       |  |  |   |       |  |  |   |       | 
|Total          |  | $                           | 2,474 |                               |  | $    | 2,161 |      |  | $          | 2,066 |            |  | $ | 6,976 |  |  | $ | 6,382 |  |  | $ | 8,260 | 
|               |  |                             |       |                               |  |      |       |      |  |            |       |            |  |   |       |  |  |   |       |  |  |   |       | 

Net sales to customers by geographic location are
based on the location in which the sale originated.



|         |                                                    
|-------- | ---------------------------------------------------
|Note 20. | Financial instruments and commodities
    contracts

The carrying values for all financial instruments
and commodities contracts approximated fair values with the
following exceptions:

|                       |                                                         |             |   |       |  |          |   |       |   |          |   |       |  |  |   |       |   |  |   |     |  |  |   |     |  
|---------------------- | ------------------------------------------------------- | ----------- | - | ----- |  | -------- | - | ----- | - | -------- | - | ----- |  |  | - | ----- | - |  | - | --- |  |  | - | --- | -
|                       |                                                         |            
|                       |                                                         | December 31
|                       |                                                         |            
|                       |                                                         |             |   |       |  |         
|                       |                                                         | 2003        |   | 2002  |  | 2001    
|                       |                                                         |             |   |       |  |         
|                       |                                                         | Carrying    |   | Fair  |  | Carrying |   | Fair  |   | Carrying |   | Fair 
|                       |                                                         | value       |   | value |  | value    |   | value |   | value    |   | value
|                       |                                                         |             |   |       |  |          |   |       |   |          |   |      
|Financial assets:      |                                                         |             |   |       |  |          |   |       |   |          |   |       |  |  |   |       |   |  |   |     |  |  |   |    
|                       | Cash and cash equivalents                               |             | $ | 418   |  |          | $ | 418   |   |          | $ | 1,087 |  |  | $ | 1,087 |   |  | $ | 306 |  |  | $ | 307 |  
|                       | Deferred charges and other assets                       |             |   | 319   |  |          |   | 389   |   |          |   | 208   |  |  |   | 226   |   |  |   | 243 |  |  |   | 221 |  
|Financial liabilities: |                                                         |             |   |       |  |          |   |       |   |          |   |       |  |  |   |       |   |  |   |     |  |  |   |    
|                       | Long-term debt including amount due within one
    year |             |   | 1,512 |  |          |   | 1,724 |   |          |   | 1,643 |  |  |   | 1,686 |   |  |   | 840 |  |  |   | 832 |  
|Derivatives:           |                                                         |             |   |       |  |          |   |       |   |          |   |       |  |  |   |       |   |  |   |     |  |  |   |    
|                       | LME forward nickel contracts                            |             |   |      |  |          |   | 30    |   |          |   |      |  |  |   | 7     |   |  |   |    |  |  |   | 1   |  
|                       | Platinum put options                                    |             |   |      |  |          |   | 1     |   |          |   |      |  |  |   |      |   |  |   |    |  |  |   |    |  
|                       | Platinum call options                                   |             |   |      |  |          |   | (4    | ) |          |   |      |  |  |   |      |   |  |   |    |  |  |   |    |  
|                       | Palladium fixed price swaps                             |             |   |      |  |          |   | 1     |   |          |   |      |  |  |   | 10    |   |  |   |    |  |  |   | 21  |  
|                       | Platinum fixed price swaps                              |             |   |      |  |          |   | (11   | ) |          |   |      |  |  |   | (3    | ) |  |   |    |  |  |   | 3   |  
|                       | Gold fixed price swaps                                  |             |   |      |  |          |   | (2    | ) |          |   |      |  |  |   |      |   |  |   |    |  |  |   |    |  
|                       | Fuel oil swaps                                          |             |   |      |  |          |   | 4     |   |          |   |      |  |  |   | 3     |   |  |   |    |  |  |   | (2  | )
|                       | Forward currency contracts                              |             |   |      |  |          |   | 47    |   |          |   |      |  |  |   | 62    |   |  |   |    |  |  |   | (4  | )
|                       | Interest rate swaps                                     |             |   |      |  |          |   | 2     |   |          |   |      |  |  |   | 8     |   |  |   |    |  |  |   | (4  | )

40



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


The fair value of financial instruments at
December 31 is based on relevant market information, the
contractual terms of the applicable instrument or contract and,
in some cases the application of a financial model. The fair
value of cash and cash equivalents and investments, including
debt securities (both available-for-sale and held-to-maturity
investments) and equity investments, is based on market prices
at the reporting date for those or similar investments. The fair
value of long-term debt, platinum put and call options, and the
interest rate swaps are estimated based on market prices. The
fair value of LME forward nickel, fuel oil swaps, palladium
swaps, platinum swaps and forward currency contracts generally
reflect the estimated amounts that we would receive (pay) to
terminate such contracts at the reporting date, thereby taking
into account the current unrealized gains or losses in respect
of open contracts.

In general, we do not use derivative instruments
to hedge our exposure to fluctuating nickel prices. We do enter
into LME forward purchase contracts which are substantially
offset by fixed price customer contracts in order to more fully
expose us to nickel price risk. We also enter into LME forward
sales contracts to minimize nickel price risk associated with
purchased nickel inventories of intermediates and finished
nickel products. In respect of these types of hedges, at
December 31, 2003 we had outstanding LME forward contracts
to purchase 9,048 tonnes of nickel during the 2004 to 2006
period at an average price of $12,250 per tonne ($5.56 per
pound) and LME forward contracts to sell 4,104 tonnes of nickel
during 2004 at an average price of $15,858 per tonne ($7.19 per
pound).

At December 31, 2003, we had outstanding put
option contracts, giving us the right but not the obligation, to
sell 60,317 troy ounces of platinum at an average price of $643
per troy ounce at various dates over the 2004 to 2006 period,
and sold call option contracts, giving the buyer the right, but
not the obligation, to purchase platinum at an average price of
$777 per troy ounce during the same time period. At
December 31, 2003, we also had outstanding put option
contracts, giving us the right, but not the obligation, to sell
15,324 troy ounces of gold at an average price of $345 per troy
ounce at various dates during 2004, and sold call option
contracts, giving the buyer the right, but not the obligation,
to purchase gold at an average price of $415 per troy ounce
during the same time period.

Depending on market conditions, we enter into
precious metals hedging contracts with various financial
counterparties. These contracts, in the form of swap contracts
(whereby we simultaneously sell at a fixed price and buy the
same quantities for the same maturity dates at a floating
price), are intended to provide certain minimum price
realizations in respect of a portion of our future production of
such metals. At December 31, 2003, we had outstanding swap
contracts to exchange payments on 9,390 troy ounces of palladium
during 2005. Under the swap contracts, we receive a fixed price
of $295 per troy ounce and pay a floating price based on monthly
average spot prices. At December 31, 2003, we had
outstanding swap contracts to exchange payments on 82,428 troy
ounces of platinum in aggregate over the period from 2004 to
2006. Under these swap contracts, we receive fixed prices
ranging from $555 to $718 per troy ounce and pay a floating
price based on monthly average spot prices. At December 31,
2003, we had outstanding swap contracts to exchange payments on
60,604 troy ounces of gold in aggregate during 2004 and 2005.
Under these swap contracts, we receive fixed prices ranging from
$374 to $405 per troy ounce and pay a floating price based on
monthly average spot prices.

We use fuel oil swap contracts to hedge the
effect of fuel oil price changes in respect of a portion of our
energy requirements in Indonesia. Under these contracts, we
receive or make payments based on the difference between a fixed
and a floating price for fuel oil. At December 31, 2003, we
had entered into swap contracts with financial institutions to
exchange payments on 120,000 tonnes of fuel oil in
aggregate during 2004 and 2005. Under the swap contracts, we pay
fixed prices averaging $134 per tonne for fuel oil and receive a
floating price based on monthly average spot price quotations.

At December 31, 2003, we had outstanding
forward currency contracts to purchase Aus.$66 million and
40 million Euros at average exchange rates of $0.525 and
$0.873, respectively, during 2004. The purpose of these
contracts, as discussed above, is to hedge a portion of the
future construction costs of the planned production facilities
for the Goro project in New Caledonia assuming a decision is
made to proceed with the project. In

41



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


respect of our currency contracts to hedge
against the foreign exchange risks associated with the Goro
project, total gains in the amount of $21 million were
recorded in 2003 as income due to forward currency contracts
that became ineffective due to the deferral of a portion of the
originally planned expenditures for this project.

At December 31, 2003, we had outstanding
forward currency contracts to purchase Cdn.$50 million at
an average exchange rate of $0.697 during 2004. The purpose of
these contracts is to hedge a portion of the future construction
costs of the planned facilities for the initial phase of the
Voiseys Bay project. We also had outstanding at
December 31, 2003, forward currency contracts to purchase
Cdn.$35 million at an average exchange rate of $0.745
during 2004. The purpose of these contracts is to reduce the
risk that the eventual U.S. dollar cash flows relating to a
portion of our future Canadian production costs will be
adversely affected by an appreciation of the Canadian dollar.

As at December 31, 2003, we had an
outstanding interest rate swap of a notional principal amount of
$300 million on our 5.70% Debentures due 2015, whereby we
receive a fixed rate of interest of 5.70% and pay a floating
rate at 0.57% over 6-month LIBOR. We also had an interest rate
swap of a notional principal amount of $400 million on our
7.75% Notes due 2012, whereby we receive a fixed rate of
interest of 7.75% and pay a floating rate at 3.25% over 6-month
LIBOR.

At December 31, 2002, we had an interest
rate swap to manage the entire amount of the change in fair
value associated with our 9.6% Debentures due 2022. Under the
swap, we received a fixed rate of interest of 9.6 per cent
and paid a floating rate at 3.05 per cent over LIBOR. The
counterparty to the swap held a call option giving it the right
to cancel the swap commencing in 2002 at an initial premium of
4.8 per cent, declining annually to redemption at par in 2012
and thereafter. This swap was cancelled and the related debt was
redeemed during the course of 2003.

We are exposed to credit risk in the event of
non-performance by counterparties in connection with our
derivative contracts. We do not obtain collateral or other
security to support derivative instruments subject to credit
risk but mitigate this risk by dealing only with financially
sound counterparties and, accordingly, do not anticipate loss
for non-performance. There is no substantial concentration of
credit risk resulting from these contracts.

We had a limited recourse liability in respect of
the sale of undivided interests in certain accounts receivable
in the amount of $17 million at December 31, 2003.

Effective January 1, 2004, we will adopt new
accounting guidelines issued by the CICA in respect of hedging
relationships. We have determined that there will be no
significant impact on our results of operations or financial
condition as a result of the adoption of these guidelines.

42



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


Note 21. Commitments and
contingencies



| |  |                
| |  | ---------------
| |  | (a) Commitments

The following table summarizes as of
December 31, 2003 certain of our long-term contractual
obligations and commercial commitments for each of the next five
years and thereafter:

|                        |  |                 |     |      |  |      |    |      |  |      |    |            |  |   |    |  |  |   |   |  |  |   |     | 
|----------------------- |  | --------------- | --- | ---- |  | ---- | -- | ---- |  | ---- | -- | ---------- |  | - | -- |  |  | - | - |  |  | - | --- | 
|                        |  |                
|                        |  | Payments due in
|                        |  |                
|                        |  | 2004            |     | 2005 |  | 2006 |    | 2007 |  | 2008 |    | Thereafter
|                        |  |                 |     |      |  |      |    |      |  |      |    |           
|Purchase obligations(1) |  | $               | 324 |      |  | $    | 65 |      |  | $    | 5  |            |  | $ | 1  |  |  | $ | 1 |  |  | $ |    | 
|Operating leases        |  |                 | 30  |      |  |      | 23 |      |  |      | 17 |            |  |   | 11 |  |  |   | 3 |  |  |   | 4   | 
|Other                   |  |                 | 2   |      |  |      | 2  |      |  |      | 2  |            |  |   | 3  |  |  |   | 3 |  |  |   | 97  | 
|                        |  |                 |     |      |  |      |    |      |  |      |    |            |  |   |    |  |  |   |   |  |  |   |     | 
|Total                   |  | $               | 356 |      |  | $    | 90 |      |  | $    | 24 |            |  | $ | 15 |  |  | $ | 7 |  |  | $ | 101 | 
|                        |  |                 |     |      |  |      |    |      |  |      |    |            |  |   |    |  |  |   |   |  |  |   |     | 



---



|    |                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These purchase obligations largely relate to the
    Goro and Voiseys Bay projects with the balance comprising
    routine orders to purchase goods and services at current
    operating locations.

In connection with our 1996 acquisition of
Diamond Fields Resources Inc., we assumed an obligation to
pay to a company retained by Diamond Field Resources Inc.
to provide certain exploration and other services an annual
royalty amounting to three per cent of the net proceeds received
from the sale of ores, metals and other minerals produced from
our Voiseys Bay project, after deducting certain costs
associated with the production and sale of the ores, metals and
minerals produced. We have not incurred any such royalty
payments to date since the Voiseys Bay project is not yet
in production.

We are also committed to pay a quarterly
production royalty to the Indonesian government in respect of
our nickel ore production in Indonesia. The royalty is
determined based on the nickel or cobalt, as applicable, content
of the ore and ranges from $0.015 to $0.03 per kilogram
contained in the ore, based on certain assumptions with respect
to the market price of nickel. During the years ended
December 31, 2003, 2002 and 2001, we paid royalties to the
Indonesian government amounting to $5 million,
$3 million and $4 million, respectively.

We are required to make certain periodic payments
in connection with the use of our mining properties and
processing facilities, including payments for our mining
licenses, leases, occupation and surface rights. During the
years ended December 31, 2003, 2002 and 2001 we paid
$4 million, $4 million and $3 million,
respectively, in such payments.



|    |              
|--- | -------------
|(b) | Contingencies

In the course of our operations, we and our
subsidiaries are subject to routine claims and litigation
incidental to the business conducted by them, to various
environmental proceedings, and to other litigation related to
such business. With respect to the environmental proceedings
currently pending or threatened against us, they include
(1) a proceeding brought under the Ontario class action
legislation covering claims relating to the alleged decline in
property values in a community where we had operated a nickel
refinery over the 1918  1984 period,
(2) claims for personal injury, (3) enforcement
actions, (4) alleged violations of, including exceeding
regulatory limits relating to discharges under, certain
environmental or similar laws and regulations applicable to our
operations in Canada and elsewhere and (5) certain claims
dating back a number of years in which one of our subsidiaries
was designated, under the United States federal environmental
law known as Superfund or CERCLA, as a
potentially responsible party. We believe that the ultimate
resolution of such proceedings, claims and litigation will not
significantly impair our operations or have a material adverse
effect on our financial position or results of operation.

43



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


Note 22. Supplemental
information

Supplemental information in connection with the
Consolidated Statement of Cash Flows follows:

|                                             |  |                        |     |      |  |      |       |   |  |   |     | 
|-------------------------------------------- |  | ---------------------- | --- | ---- |  | ---- | ----- | - |  | - | --- | 
|                                             |  |                       
|                                             |  | Year ended December 31
|                                             |  |                       
|                                             |  | 2003                   |     | 2002 |  | 2001
|                                             |  |                        |     |      |  |     
|Interest paid, net of capitalized interest   |  | $                      | 48  |      |  | $    | 38    |   |  | $ | 61  | 
|                                             |  |                        |     |      |  |      |       |   |  |   |     | 
|Income and mining taxes paid (refunded), net |  | $                      | 120 |      |  | $    | (9    | ) |  | $ | 190 | 
|                                             |  |                        |     |      |  |      |       |   |  |   |     | 
|Cash                                         |  | $                      | 42  |      |  | $    | 36    |   |  | $ | 21  | 
|Cash equivalents                             |  |                        | 376 |      |  |      | 1,051 |   |  |   | 285 | 
|                                             |  |                        |     |      |  |      |       |   |  |   |     | 
|Cash and cash equivalents                    |  | $                      | 418 |      |  | $    | 1,087 |   |  | $ | 306 | 
|                                             |  |                        |     |      |  |      |       |   |  |   |     | 



|         |                                                                    
|-------- | -------------------------------------------------------------------
|Note 23. | Significant differences between Canadian and
    United States GAAP

Our consolidated financial statements are
prepared in accordance with Canadian GAAP. The differences
between Canadian and United States GAAP, insofar as they
affect our consolidated financial statements, relate to
accounting for post-retirement benefits, depreciation and
depletion, intangible assets, research and development,
exploration, asset impairment, our convertible debt, derivative
instruments, investments, certain currency translation gains and
losses, income and mining taxes and reporting of comprehensive
income. As noted in (q) below, certain figures have been
restated in 2003, 2002 and 2001.

44



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


The following table reconciles results as
reported under Canadian GAAP with those that would have been
reported under United States GAAP:

|                                                                                                                              |                                                                                                                         |                        |      |            |   |            |        |        |   |   |      |      |  
|----------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | ---------------------- | ---- | ---------- | - | ---------- | ------ | ------ | - | - | ---- | ---- | -
|                                                                                                                              |                                                                                                                         |                       
|                                                                                                                              |                                                                                                                         | Year ended December 31
|                                                                                                                              |                                                                                                                         |                       
|                                                                                                                              |                                                                                                                         | 2003                   |      | 2002       |   | 2001      
|                                                                                                                              |                                                                                                                         |                        |      |            |   |           
|                                                                                                                              |                                                                                                                         | (Restated)             |      | (Restated) |   | (Restated)
|Net earnings (loss)  Canadian GAAP                                                                                           |                                                                                                                         | $                      | 137  |            |   | $          | (1,482 | )      |   | $ | 304  |     
|Increased post-retirement benefits expense (a)                                                                                |                                                                                                                         |                        | (37  | )          |   |            | (23    | )      |   |   | (22  | )   
|Decreased depreciation and depletion expense (b)                                                                              |                                                                                                                         |                        | 38   |            |   |            | 13     |        |   |   |     |     
|Increased intangible assets amortization expense
    (c)                                                                      |                                                                                                                         |                        | (2   | )          |   |            | (2     | )      |   |   |     |     
|Increased research and development expense (d)                                                                                |                                                                                                                         |                        | (5   | )          |   |            | (6     | )      |   |   | (8   | )   
|Increased exploration expense (e)                                                                                             |                                                                                                                         |                        | (4   | )          |   |            | (3     | )      |   |   | (7   | )   
|Increased asset impairment charges (f)                                                                                        |                                                                                                                         |                        |     |            |   |            | (961   | )      |   |   |     |     
|Increased interest expense (g)                                                                                                |                                                                                                                         |                        | (25  | )          |   |            | (9     | )      |   |   | (11  | )   
|Unrealized net gain (loss) on derivative
    instruments (h)                                                                  |                                                                                                                         |                        | (1   | )          |   |            | 5      |        |   |   | (4   | )   
|Unrealized currency translation gains
    (losses) on Voiseys Bay project deferred income and
    mining tax liabilities (i) |                                                                                                                         |                        | (207 | )          |   |            | (49    | )      |   |   | 122  |     
|Increased income and mining tax expense (j)                                                                                   |                                                                                                                         |                        | (15  | )          |   |            |       |        |   |   |     |     
|Decreased (increased) minority interest
    (b)(d)(e)                                                                         |                                                                                                                         |                        | (9   | )          |   |            | (3     | )      |   |   | 2    |     
|Change in accounting policy (k)                                                                                               |                                                                                                                         |                        |     |            |   |            | 1      |        |   |   | 1    |     
|Taxes on United States GAAP differences                                                                                       |                                                                                                                         |                        | 18   |            |   |            | 141    |        |   |   | 17   |     
|                                                                                                                              |                                                                                                                         |                        |      |            |   |            |        |        |   |   |      |     
|Net earnings (loss) before cumulative effect
    of a change in accounting principle  United States
    GAAP                 |                                                                                                                         | $                      | (112 | )          |   | $          | (2,378 | )      |   | $ | 394  |     
|Cumulative effect of a change in accounting
    principle (b)(k)                                                              |                                                                                                                         |                        | (17  | )          |   |            | (2     | )      |   |   |     |     
|                                                                                                                              |                                                                                                                         |                        |      |            |   |            |        |        |   |   |      |     
|Net earnings (loss)  United States GAAP                                                                                      |                                                                                                                         | $                      | (129 | )          |   | $          | (2,380 | )      |   | $ | 394  |     
|                                                                                                                              |                                                                                                                         |                        |      |            |   |            |        |        |   |   |      |     
|Other comprehensive income (loss) (m):                                                                                        |                                                                                                                         |                        |      |            |   |            |        |        |   |   |      |     
|                                                                                                                              | Unrealized net loss on derivatives designated as
    cash flow hedges at January 1, 2001 (h)                            |                        |      |           |   |            |        |       |   |   |      | (4   | )
|                                                                                                                              | Reclassification to earnings of net loss
    (gain) on derivatives designated as cash flow
    hedges (h)               |                        |      | (21        | ) |            |        | (19    | ) |   |      | 4    |  
|                                                                                                                              | Reclassification to earnings of net loss
    (gain) on derivatives due to ineffectiveness (h)                           |                        |      | (8         | ) |            |        |       |   |   |      |     |  
|                                                                                                                              | Changes in fair value of derivatives designated
    as cash flow hedges (h)                                             |                        |      | 5          |   |            |        | 26     |   |   |      | 23   |  
|                                                                                                                              | Unrealized gains (losses) on long-term
    investments (l)                                                              |                        |      | 68         |   |            |        | 17     |   |   |      | (3   | )
|                                                                                                                              | Unrealized gains (losses) on marketable
    securities (l)                                                              |                        |      |           |   |            |        |       |   |   |      | (1   | )
|                                                                                                                              | Long-term investments reclassified to
    earnings (l)                                                                  |                        |      | (18        | ) |            |        | 24     |   |   |      |     |  
|                                                                                                                              | Marketable securities reclassifications (l)                                                                             |                        |      |           |   |            |        | (1     | ) |   |      |     |  
|                                                                                                                              | Minimum additional pension liability
    adjustment (a)                                                                 |                        |      | (125       | ) |            |        | (318   | ) |   |      | (180 | )
|                                                                                                                              | Taxes on other comprehensive income (loss)                                                                              |                        |      | 68         |   |            |        | 102    |   |   |      | 56   |  
|                                                                                                                              |                                                                                                                         |                        |      |            |   |            |        |        |   |   |      |     
|Other comprehensive loss  United
    States GAAP (m)                                                                         |                                                                                                                         |                        | (31  | )          |   |            | (169   | )      |   |   | (105 | )   
|                                                                                                                              |                                                                                                                         |                        |      |            |   |            |        |        |   |   |      |     
|Comprehensive income (loss)  United
    States GAAP (m)                                                                      |                                                                                                                         | $                      | (160 | )          |   | $          | (2,549 | )      |   | $ | 289  |     
|                                                                                                                              |                                                                                                                         |                        |      |            |   |            |        |        |   |   |      |     
|Net earnings (loss) per share 
    Basic (n)                                                                                 |                                                                                                                         |                        |      |            |   |            |        |        |   |   |      |     
|                                                                                                                              | Net earnings (loss) per share before
    cumulative effect of a change in accounting
    principle  United States GAAP |                        | $    | (0.72      | ) |            | $      | (13.15 | ) |   | $    | 2.02 |  
|                                                                                                                              | Cumulative effect of a change in accounting
    principle (b)(k)                                                        |                        | $    | (0.09      | ) |            | $      | (0.01  | ) |   | $    |     |  
|                                                                                                                              |                                                                                                                         |                        |      |            |   |            |        |        |   |   |      |     
|                                                                                                                              | Net earnings (loss) per share 
    Basic (n)                                                                           |                        | $    | (0.81      | ) |            | $      | (13.16 | ) |   | $    | 2.02 |  
|                                                                                                                              |                                                                                                                         |                        |      |            |   |            |        |        |   |   |      |     

45



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


|                                                |                                                                                                                         |                        |   |            |   |            |   |        |   |  |   |      | 
|----------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | ---------------------- | - | ---------- | - | ---------- | - | ------ | - |  | - | ---- | 
|                                                |                                                                                                                         |                       
|                                                |                                                                                                                         | Year ended December 31
|                                                |                                                                                                                         |                       
|                                                |                                                                                                                         | 2003                   |   | 2002       |   | 2001      
|                                                |                                                                                                                         |                        |   |            |   |           
|                                                |                                                                                                                         | (Restated)             |   | (Restated) |   | (Restated)
|Net earnings (loss) per share 
    Diluted (n) |                                                                                                                         |                        |   |            |   |            |   |        |   |  |   |     
|                                                | Net earnings (loss) per share before
    cumulative effect of a change in accounting
    principle  United States GAAP |                        | $ | (0.72      | ) |            | $ | (13.15 | ) |  | $ | 1.98 | 
|                                                | Cumulative effect of a change in accounting
    principle (b)(k)                                                        |                        | $ | (0.09      | ) |            | $ | (0.01  | ) |  | $ |     | 
|                                                |                                                                                                                         |                        |   |            |   |            |   |        |   |  |   |     
|                                                | Net earnings (loss) per share 
    Diluted (n)                                                                         |                        | $ | (0.81      | ) |            | $ | (13.16 | ) |  | $ | 1.98 | 
|                                                |                                                                                                                         |                        |   |            |   |            |   |        |   |  |   |     

(a) Post-retirement
benefits

For Canadian reporting purposes, we amortize the
excess of the net actuarial gains and losses over 10 per cent of
the greater of the post-retirement benefits obligation and the
fair value of plan assets over the expected average remaining
service life of employees. For United States reporting purposes,
we amortize all actuarial gains and losses systematically over
the expected average remaining service life of employees.

United States GAAP also requires the recognition
of a minimum additional pension liability in the amount of the
excess of the unfunded accumulated benefits obligation over the
recorded pension benefits liability; an offsetting intangible
pension asset is recorded equal to the unrecognized prior
service costs, with any difference recorded as a reduction in
accumulated other comprehensive income. At December 31,
2003, the minimum additional pension liability would have been
$1,042 million (2002  $900 million;
2001  $582 million) and the intangible pension asset
would have been $84 million (2002  $67 million;
2001  $67 million), resulting in a
$581 million reduction, after taxes, (2002 
$523 million; 2001  $309 million) in
accumulated other comprehensive income.

(b) Depreciation
and depletion expense

Under Canadian GAAP, we deplete mine development
costs on a composite basis. Total historical capitalized costs
and estimated future development costs relating to our developed
and undeveloped reserves are depreciated using the
unit-of-production method based on total developed and
undeveloped proven and probable reserves in our twenty-year
plan. For PT Inco, all assets are being depreciated on the basis
of this unit-of-production method.

For United States GAAP purposes, amortization of
the deferred mine development costs is calculated on a
unit-of-production basis over the estimated proven and probable
ore reserves which relate to the particular category of
development, either life of mine plan or area-specific. No
future development costs are taken into account in calculating
the amortization charge.

Life of mine plan development comprises capital
expenditures that will be utilized in the extraction of all the
estimated proven and probable ore reserves in the current
detailed mine plan. These expenditures are predominantly
incurred up front and in advance of any ore extraction or in
advance of major expansions. The types of development included
in this category include ore haulage shafts, initial decline,
ore passes, ventilation, and chutes and underground ore crusher
cavities and are intended to be used for the extraction of all
ore within the current mine plan. These costs are amortized on a
unit-of-production basis over the total estimated proven and
probable ore reserves.

Area-specific development costs, which are
amortized over estimated proven and probable ore reserves for
which no further capital is required, consist of capital
expenditures to provide access to various areas within the mine
to allow the extraction of ore to commence. The types of
development costs that are within this category include: access
and perimeter drives, ventilation drives and rises, and
progressive declining subsequent to initial contact with the
orebody. Annual deferred mine development costs incurred to
access specific ore blocks or areas

46



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


are amortized on a unit-of-production basis over
the estimated proven and probable ore reserves that can be
currently accessed in those areas without future capital
development costs being incurred.

Ongoing mine development costs that provide
access to ore for less than two years production are
expensed as incurred.

For United States GAAP purposes, we have restated
PT Incos depreciation and depletion expense for the
amortization of deferred mine development costs and changed the
amortization of other assets from a unit-of-production method to
a straight line method over the lesser of the assets
useful life up to 10 years in respect of mine and mobile
equipment; the lesser of the assets useful life and the
term of the current contract of work that expires in 2025 in
respect of roads, bridges and process plant buildings and
equipment; and, in the case hydroelectric facilities, the lesser
of the assets useful life up to 50 years.

We have restated our depreciation and depletion
expense for 2002 to conform to United States GAAP. As a result
of this change, certain balance sheet accounts as of
January 1, 2002 were restated as follows: the deficit
increased by $2 million; property, plant and equipment
increased by $4 million; minority interest increased by
$12 million; and deferred income and mining taxes decreased
by $6 million. The effect of the change in methodology was
a decrease to depreciation and depletion expense of
$38 million in 2003 (2002  $13 million); an
increase to property, plant and equipment of $38 million
(2002  $13 million); an increase to minority
interest of $10 million (2002  $5 million); and
an increase to deferred income and mining taxes of
$12 million (2002  $3 million). The
cumulative effect was a decrease to our net earnings of
$2 million, or 1 cent per share, in 2002, which is shown as
a cumulative effect of a change in accounting principle. For
2001, the impact would have been a decrease in depreciation and
depletion expense of $9 million.



|    |                  
|--- | -----------------
|(c) | Intangible assets

Canadian GAAP contains an apparent conflict in
the treatment of mineral rights with respect to balance sheet
classification. CICA 1581, Business Combinations,
defines such assets as intangible assets, while CICA 3061,
Property, Plant and Equipment, defines acquired mineral
rights as property, plant and equipment. We have interpreted the
adoption of CICA 1581 and its companion statement CICA 3062,
Goodwill and Other Intangible Assets, in a manner that
has led us to conclude that we are not required to change how we
account for such mineral rights under Canadian GAAP. In the
United States, SFAS No. 141, Business Combinations, which
is consistent with CICA 1581, requires that under United States
GAAP mineral rights are classified as intangible assets. This
matter has been referred to the Emerging Issues Task Force
(EITF) of the United States Financial Accounting
Standards Board for its consideration. There can be no certainty
as to the conclusions the EITF will reach, nor as to whether the
apparent conflict under Canadian GAAP will be resolved. For
Canadian GAAP, we have classified such assets, less the related
accumulated depreciation, depletion and amortization, as
Property, plant and equipment, net on our
consolidated balance sheet.

Under United States GAAP acquisition costs
associated with mining interests are classified according to the
land tenure position. Under United States GAAP costs associated
with owned mineral claims and mining leases where we do not own
the underlying land are classified as finite life intangible
assets and amortized over the period of intended use. For
mineral claims with estimated proven and probable ore reserves,
amortization is taken on a unit-of-production basis resulting in
no charge during the exploration and development phase. For
mineral claims where we have not determined that estimated
proven and probable ore reserves exist the associated costs are
amortized on a straight-line basis over their estimated useful
lives taking into account residual values. At such time as an
undeveloped mineral interest is determined to contain proven and
probable ore reserves, the remaining unamortized balance is
amortized on a unit-of-production basis as described above.

Residual values for undeveloped mineral interests
represent the expected fair value of the interests at the time
that we plan to convert, develop, further explore or dispose of
the interests. Residual values are determined based on
(1) discounted cash flow analyses and (2) reference to
recent transactions of third parties involving similar
undeveloped mineral interests. Based on our knowledge of
secondary markets that exist and are expected

47



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


to continue to exist for the purchase and sale of
such assets, we believe that the methods described above to
determine residual values are representative of the amounts that
we expect to receive if the undeveloped mineral interests were
sold to a third party.

These assets are tested for recoverability
whenever events or changes in circumstances indicate that their
carrying value may not be recoverable.

The only significant mineral rights that have a
carrying value on our balance sheet relate to the Voiseys
Bay deposits acquired in 1996. For United States GAAP purposes,
with respect to this acquisition, the carrying value has been
reclassified from property, plant and equipment to intangible
assets on the balance sheet and comprises a gross carrying value
of $2,471 million in 2003 and 2002. There is no impact on
the amortization of the portion of the intangible asset value
assigned to the estimated proven and probable ore reserves until
commencement of mine production currently estimated to start in
2006.

With respect to the portion of the intangible
asset value assigned to the remainder of the deposit, the
difference between the gross carrying value of $480 million
and the residual value is being amortized on a straight line
basis over the period until estimated proven and probable ore
reserves are established and underground development and mining
are expected to commence. We have restated the results for 2002
to adopt the accounting treatment described above which resulted
in a pre-tax charge of $2 million under United States GAAP.

(d) Research
and development expense

Under Canadian GAAP, development costs are
deferred and amortized if the development project meets certain
generally accepted criteria for deferral and amortization. In
addition, fixed assets including equipment may be acquired or
constructed in order to provide facilities or carry out a
research and development project. The use of such assets will
extend over a number of accounting periods and, accordingly, are
capitalized and amortized over their useful lives. Under United
States GAAP research and development costs are charged to
expense in the period incurred and certain balance sheet
accounts as of December 31, 2002 and 2001 have been
restated as follows to reflect this difference to Canadian GAAP:
the deficit increased by $29 million (2001 
$25 million); property, plant and equipment decreased by
$37 million (2001  $31 million); deferred
income and mining taxes decreased by $3 million
(2001  $2 million); and minority interest
decreased by $5 million (2001  $4 million).
For the year ended December 31, 2003, the impact on our
research and development expense was an increase of
$5 million (2002  $6 million;
2001  $8 million) representing research and
development costs previously capitalized which are now being
expensed, net of any related amortization. For the year ended
December 31, 2003, minority interest expense was decreased
as a result of this restatement in the amount of $nil
(2002  $1 million; 2001 
$1 million).

(e) Exploration
expense

Under Canadian GAAP, capitalized exploration
expenditures are classified under property, plant and equipment
with the related mineral claim. For United States GAAP,
exploration expenditures are not capitalized unless proven and
probable reserves have been established by a feasibility study.
As a result of our adopting this policy for United States GAAP,
certain balance sheet accounts as of December 31, 2002 and
2001 have been restated as follows: the deficit increased by
$56 million (2001  $55 million); property,
plant and equipment decreased by $90 million
(2001  $87 million); deferred income and mining
taxes decreased by $30 million (2001 
$29 million); and minority interest decreased by
$4 million (2001  $3 million). For the year
ended December 31, 2003, the impact on our exploration
expense was an increase of $4 million (2002 
$3 million; 2001  $7 million) representing
exploration costs previously capitalized which are expensed
under United States GAAP, net of any related amortization. For
the year ended December 31, 2003, the minority interest was
decreased as a result of this restatement in the amount of
$1 million (2002  $1 million;
2001  $1 million). A portion of the exploration
expenses referred to above were previously written off as a part
of the asset impairment

48



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


charges discussed below. As a result of this
revision, the asset impairment charges recorded in 2002 were
restated with a reduction of $71 million.

(f) Asset
impairment charges

Under United States GAAP in accordance with SFAS
No. 144, when the net carrying value of a long-lived asset
exceeds the future undiscounted cash flows expected to result
from the use and eventual disposition of the asset, the excess
over its fair value is charged to earnings. Prior to 2003, under
Canadian GAAP, when the net carrying value of a long-lived asset
exceeded the future undiscounted cash flows expected to result
from the use and eventual disposition of the asset, the excess
over its net recoverable amount was charged to earnings. In
addition, financing costs are excluded from the evaluation of a
long-lived asset for impairment purposes under United States
GAAP whereas such costs were previously included under Canadian
GAAP. For United States reporting purposes, in 2002, the
non-cash asset impairment charges would have been
$2,401 million, net of deferred income and mining taxes of
$915 million, in respect of the reduction in the carrying
value of the Voiseys Bay project and $55 million, net
of income and mining taxes of $5 million, in respect of the
reduction in the carrying value of certain property, plant,
equipment and other assets. Fair value was estimated using
discounted probability-weighted expected net cash flows and a
risk-free interest rate. For United States segment reporting
purposes, pre-tax charges of $3,316 million and
$60 million would be included in the development projects
and finished products segments, respectively.

(g) Convertible
debt

Under Canadian GAAP, the convertible debt is
classified as an equity instrument. The convertible debt
accretes over their respective terms to their value at maturity
through periodic after-tax charges to retained earnings. Under
United States GAAP, the convertible debt would be accounted for
as debt and, accordingly, accretion charges and amortization of
debt issuance costs would be recorded as interest expense. For
United States GAAP, the convertible debt would be classified as
current debt in the 12-month periods in advance of their special
conversion dates and as long-term debt during the remainder of
their term.

(h) Derivative
instruments

Under United States GAAP, all derivatives,
whether designated in hedging relationships or not, are required
to be recorded in the balance sheet at fair value. A derivative
must be designated in a hedging relationship in order to qualify
for hedge accounting. These standards include a determination of
what portions of hedges are deemed to be effective versus
ineffective. In general, a hedging relationship is effective
when a change in the fair value of the derivative is offset by
an equal and opposite change in the fair value of the underlying
hedged item. In accordance with these standards, effectiveness
tests are performed in order to assess effectiveness and
quantify ineffectiveness for all designated hedges. At
December 31, 2003, we had outstanding fair value hedges and
cash flow hedges. A fair value hedge is a hedge of the change in
the fair value of an asset, liability or firm commitment. If a
derivative is designated as a fair value hedge, changes in the
fair value of the derivative and of the hedged item attributable
to the hedged risk are recognized in earnings. A cash flow hedge
is a hedge of the exposure in variability in expected future
cash flows that is attributable to a particular risk such as a
forecasted purchase or sale. If a derivative is designated as a
cash flow hedge, the effective portions of the changes in the
fair value of the derivative are recorded in other comprehensive
income and are recognized in earnings when the hedged item
affects earnings. Ineffective portions of changes in the fair
value of the derivatives designated as hedges are recognized in
earnings.

LME forward nickel contracts are used to hedge
the effect of fluctuations in the price of nickel with respect
to sales of Inco-source nickel to customers for delivery three
or more months in the future. These LME forward nickel contracts
have been designated as fair value hedges in connection with
firm sale commitments. For the year ended December 31,
2003, a loss of $1.4 million was charged to net sales due
to the ineffectiveness of such outstanding fair value hedges and
a loss of $0.1 million was charged to other income, net due
to hedged firm

49



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


commitments no longer qualifying as a fair value
hedge. At December 31, 2003, we had two interest rate swaps
intended to manage the interest rate risk associated with a
portion of our fixed-rate debt, which have been designated as
fair value hedges. The interest rate swap changes our exposure
to the change in fair value of certain debt by effectively
converting a portion of our fixed-rate debt to a floating rate.

Depending on market conditions, we enter into
precious metals fixed price swap and option contracts and nickel
option contracts with various financial counterparties who must
meet certain established criteria. These contracts, which have
been designated as cash flow hedges, are intended to provide
certain minimum price realizations in respect of a portion of
forecasted sales. In addition, we have entered into forward
currency contracts to hedge a portion of the future construction
costs of our planned production facilities in New Caledonia and
the Province of Newfoundland and Labrador that will be
denominated in currencies other than the U.S. dollar. For the
year ended December 31, 2003, we recognized a net gain of
$11 million in other income, net which represented the
total ineffectiveness of our outstanding cash flow hedges. A
gain of $21 million, including $8 million with respect to
the reclassification of comprehensive income, was credited to
the charge for Goro project suspension costs due to hedged
forecasted cash flows no longer qualifying as a cash flow value
hedge. At December 31, 2003, $15 million of deferred
net gains on derivative instruments recorded in other
comprehensive income are expected to be reclassified to net
sales during the next 12 months. The maximum term over
which cash flows are hedged is 30 months.

We also purchase and sell metals, fuel oil and
foreign currencies which have not been specifically identified
as hedges. With respect to metals, we use forward contracts to
manage the price risk associated with copper, gold and purchases
of nickel and copper from third parties to meet our
customers requirements. With respect to fuel oil, we use
swaps to manage the cost of a portion of our energy requirements
in Indonesia. With respect to foreign currencies, by virtue of
our international operations, we conduct business in a number of
foreign currencies other than the U.S. dollar. Our primary
exchange risk is to changes in the value of the Canadian dollar,
the currency in which a substantial portion of our costs are
incurred, relative to the U.S. dollar. The impact of this risk
is reduced by entering into forward contracts and foreign
currency options which typically do not extend beyond one year.
At December 31, 2003, an unrealized net gain of
$1.7 million was credited to other income, net in respect
of derivative instruments which were not specifically designated
as hedges.



|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(i) | Unrealized currency translation gains
    (losses) on Voiseys Bay project deferred income and
    mining tax liabilities

Under United States GAAP, unrealized non-cash
currency translation gains and losses arising from the
translation into U.S. dollars, at the end of each period, of
certain Canadian dollar-denominated deferred income and mining
tax liabilities established in 1996 upon the acquisition of the
Voiseys Bay deposits are included in the determination of
earnings. As permitted under Canadian GAAP, these unrealized
non-cash currency translation gains and losses are deferred and
included in property, plant and equipment as part of development
costs for the Voiseys Bay project until operations
commence.

(j) Income
and mining taxes

As discussed in (f) above, there is a
difference in the carrying value of the Voiseys Bay
project due to the impairment charge in 2002. Under both
Canadian and United States GAAP, deferred income and mining
taxes are recorded at the expected rate of reversal. In 2003,
there was a change in tax rates in the jurisdiction of the
Voiseys Bay project. The impact of this change in tax
rates is different for Canadian and United States GAAP due to
the temporary difference created by the asset impairment charge.

(k) Asset
retirement obligations

Effective January 1, 2003, we adopted, for
United States reporting purposes, Statement of Financial
Accounting Standards (SFAS) No. 143, Accounting for
Asset Retirement Obligationsand CICA 3110, Asset

50



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


Retirement
Obligations, which are substantially
identical. Under SFAS No. 143, asset retirement obligations
are recognized when incurred and recorded as liabilities at fair
value. The liability is accreted over time through periodic
charges to earnings. In addition, the asset retirement cost is
capitalized as part of the assets carrying value and
depreciated over either the straight line method and the
unit-of-production method assuming estimated proven and probable
ore reserves depending on the nature of the asset being retired.
The cumulative effect of adopting SFAS No. 143 was a
decrease to our net earnings of $17 million, or 9 cents per
share, in 2003, which is shown as a cumulative effect of a
change in accounting principle. As at January 1, 2003,
property, plant and equipment increased by $39 million,
deferred income and mining taxes decreased by $11 million,
and asset retirement obligations increased by $67 million.
For Canadian GAAP, financial results of comparative periods have
been restated which resulted in a net loss to income of
$1 million for the years ended December 31, 2002 and
2001.

(l) Investments

United States accounting standards for equity
investments, which are set forth in SFAS No. 115, require
that certain equity investments not held for trading be recorded
at fair value with unrealized holding gains and losses excluded
from the determination of earnings and reported as a separate
component of other comprehensive income. At December 31,
2003, deferred charges and other assets would have increased by
$69 million (2002  increase of $19 million;
2001  decrease of $22 million), cash and cash
equivalents would have increased by $nil million
(2002  $nil million; 2001 
$1 million) and accumulated other comprehensive loss would
have decreased by $69 million (2002  decrease of
$19 million; 2001  increase of $21 million)
before taxes.



| |                         
| | ------------------------
| | (m) Comprehensive income

United States accounting standards for reporting
comprehensive income are set forth in SFAS No. 130.
Comprehensive income represents the change in equity during a
reporting period from transactions and other events and
circumstances from non-owner sources. Components of
comprehensive income include items such as net earnings (loss),
changes in the fair value of investments not held for trading,
minimum pension liability adjustments, derivative instruments
and certain foreign currency translation gains and losses.

51



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)




| |                                  
| | ---------------------------------
| | (n) Earnings (loss) per
    share

The computation of basic and diluted earnings
(loss) per share under United States GAAP was as follows:

|                                                  |                                                                        |                        |       |            |   |            |        |         |   |   |      |         |       | 
|------------------------------------------------- | ---------------------------------------------------------------------- | ---------------------- | ----- | ---------- | - | ---------- | ------ | ------- | - | - | ---- | ------- | ----- | 
|                                                  |                                                                        |                       
|                                                  |                                                                        | Year ended December 31
|                                                  |                                                                        |                       
|                                                  |                                                                        | 2003                   |       | 2002       |   | 2001      
|                                                  |                                                                        |                        |       |            |   |           
|                                                  |                                                                        | (Restated)             |       | (Restated) |   | (Restated)
|Basic earnings (loss) per share
    computation   |                                                                        |                        |       |            |   |            |        |         |   |   |      |        
|Numerator:                                        |                                                                        |                        |       |            |   |            |        |         |   |   |      |        
|                                                  | Net earnings (loss)                                                    |                        | $     | (129       | ) |            | $      | (2,380  | ) |   | $    | 394     |      
|                                                  | Dividends on preferred shares                                          |                        |       | (6         | ) |            |        | (26     | ) |   |      | (26     | )    
|                                                  | Premium on redemption of preferred shares                              |                        |       | (15        | ) |            |        |        |   |   |      |        |      
|                                                  |                                                                        |                        |       |            |   |            |        |         |   |   |      |        
|                                                  | Net earnings (loss) applicable to common
    shares                    |                        | $     | (150       | ) |            | $      | (2,406  | ) |   | $    | 368     |      
|                                                  |                                                                        |                        |       |            |   |            |        |         |   |   |      |        
|Denominator:                                      |                                                                        |                        |       |            |   |            |        |         |   |   |      |        
|                                                  | Weighted-average common shares outstanding
    (thousands)             |                        |       | 184,500    |   |            |        | 182,830 |   |   |      | 182,074 |      
|                                                  |                                                                        |                        |       |            |   |            |        |         |   |   |      |        
|Basic earnings (loss) per common share            |                                                                        | $                      | (0.81 | )          |   | $          | (13.16 | )       |   | $ | 2.02 |        
|                                                  |                                                                        |                        |       |            |   |            |        |         |   |   |      |        
|Diluted earnings (loss) per share
    computation |                                                                        |                        |       |            |   |            |        |         |   |   |      |        
|Numerator:                                        |                                                                        |                        |       |            |   |            |        |         |   |   |      |        
|                                                  | Net earnings (loss) applicable to common
    shares                    |                        | $     | (150       | ) |            | $      | (2,406  | ) |   | $    | 368     |      
|                                                  | Dilutive effect of:                                                    |                        |       |            |   |            |        |         |   |   |      |         |      
|                                                  |                                                                        | Convertible debentures |       |            |  |            |        |         |  |   |      |         | 13    | 
|                                                  |                                                                        |                        |       |            |   |            |        |         |   |   |      |        
|                                                  | Net earnings (loss) applicable to common
    shares, assuming dilution |                        | $     | (150       | ) |            | $      | (2,406  | ) |   | $    | 381     |      
|                                                  |                                                                        |                        |       |            |   |            |        |         |   |   |      |        
|Denominator:                                      |                                                                        |                        |       |            |   |            |        |         |   |   |      |        
|                                                  | Weighted-average common shares outstanding
    (thousands)             |                        |       | 184,500    |   |            |        | 182,830 |   |   |      | 182,074 |      
|                                                  | Dilutive effect of:                                                    |                        |       |            |   |            |        |         |   |   |      |         |      
|                                                  |                                                                        | Convertible debentures |       |            |  |            |        |         |  |   |      |         | 9,931 | 
|                                                  |                                                                        | Stock options          |       |            |  |            |        |         |  |   |      |         | 868   | 
|                                                  |                                                                        | Warrants               |       |            |  |            |        |         |  |   |      |         |      | 
|                                                  |                                                                        |                        |       |            |   |            |        |         |   |   |      |        
|                                                  | Weighted-average common shares outstanding,
    assuming dilution      |                        |       | 184,500    |   |            |        | 182,830 |   |   |      | 192,873 |      
|                                                  |                                                                        |                        |       |            |   |            |        |         |   |   |      |        
|Diluted earnings (loss) per common share          |                                                                        | $                      | (0.81 | )          |   | $          | (13.16 | )       |   | $ | 1.98 |        
|                                                  |                                                                        |                        |       |            |   |            |        |         |   |   |      |        

At December 31, 2003, convertible debt which
is convertible into 17,440,696 Common Shares (2002 
9,705,111; 2001  nil), options on 4,572,605 Common
Shares (2002  7,476,506; 2001  5,261,534),
Preferred Shares convertible into nil Common Shares
(2002  11,277,868; 2001  11,277,987) and
Warrants exercisable for 11,023,064 Common Shares
(2002  11,023,497; 2001  11,021,947) were
excluded from the computation of diluted earnings
(loss) per Common Share because their effects were not
dilutive.



| |                                 
| | --------------------------------
| | (o) Stock-based
    compensation

We adopted a new accounting standard of the CICA
in respect of stock-based compensation. This new standard is
substantially identical to United States GAAP. For further
information, reference is made to

52



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


Note 2(a). Had we elected to recognize the
cost of our stock-based compensation based on the estimated fair
value of stock options granted, our United States GAAP proforma
results would have been as follows:

|                                              |         |             |        |            |   |   |     |      | 
|--------------------------------------------- | ------- | ----------- | ------ | ---------- | - | - | --- | ---- | 
|                                              |         |            
|                                              |         | Year ended 
|                                              |         | December 31
|                                              |         |            
|                                              |         | 2002        |        | 2001      
|                                              |         |             |        |           
|                                              |         | (Restated)  |        | (Restated)
|Pro forma net earnings (loss)                 |         | $           | (2,384 | )          |   | $ | 390 |     
|                                              |         |             |        |            |   |   |     |     
|Pro form net earnings (loss) per common share |         |             |        |            |   |   |     |     
|                                              | Basic   |             | $      | (13.18     | ) |   | $   | 2.00 | 
|                                              | Diluted |             | $      | (13.18     | ) |   | $   | 1.96 | 

The fair value of each stock option granted is
estimated on the date of grant using an option pricing model
with the assumptions noted in Note 18.



| |                     
| | --------------------
| | (p) Preferred shares

For United States reporting purposes, the
Preferred Shares Series E would be excluded from
shareholders equity in the Consolidated Balance Sheet.



| |                                                                
| | ---------------------------------------------------------------
| | (q) Restatement of United States GAAP
    financial information



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | We identified certain accounting matters relating
    to our December 31, 2003, 2002 and 2001 Consolidated
    Financial Statements for United States GAAP purposes that
    require restatement. The matters discussed in parts (b) (c)
    (d) and (e) above were restated in our Originally
    Filed 2003 10-K. In addition to these restatements, we have
    amended our Originally Filed 2003 10-K for the matter discussed
    below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (2) | In the second quarter of 2004, for United States
    GAAP reporting purposes, on a retroactive basis, we revised our
    accounting treatment for unrealized non-cash currency
    translation gains and losses arising from the translation into
    U.S. dollars, at the end of each period, of certain
    Canadian dollar-denominated deferred income and mining tax
    liabilities established in 1996 upon the acquisition of the
    Voiseys Bay deposits. We have concluded that, under United
    States GAAP, such currency translation gains and losses should
    be included in the determination of earnings. Previously, these
    unrealized non-cash currency translation gains and losses had
    been deferred and included in property, plant and equipment as
    part of development costs for the Voiseys Bay project
    until operations were to commence. The impact of this revision,
    which has been accounted for retroactively by restating prior
    period results, was to increase unrealized non-cash currency
    translation losses by $207 million in 2003
    (2002  $49 million; 2001  increase in
    unrealized non-cash currency translation gains of
    $122 million) with a corresponding change each year in
    property, plant and equipment. In 2002, as described in
    (f) above, we recorded a non-cash asset impairment charge
    in respect of the Voiseys Bay project. As a result of this
    revision to the accounting treatment of these unrealized
    non-cash currency translation gains and losses, our net book
    value, for United States reporting purposes, at the time of the
    asset impairment charge, would have been higher by
    $253 million. Therefore, an incremental non-cash asset
    impairment charge would have been recorded at that time in the
    amount of $253 million. No tax relief or tax expense, as
    the case may be, is available on or applicable with respect to
    these amounts.

53



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


The following table sets forth the effect of
these restatements on our consolidated net earnings:

|                                                                                                                                                                         |                                                                                                                                  |                        |      |      |   |      |        |      |   |   |     |     |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | ---- | ---- | - | ---- | ------ | ---- | - | - | --- | --- | -
|                                                                                                                                                                         |                                                                                                                                  |                       
|                                                                                                                                                                         |                                                                                                                                  | Year ended December 31
|                                                                                                                                                                         |                                                                                                                                  |                       
|                                                                                                                                                                         |                                                                                                                                  | 2003                   |      | 2002 |   | 2001
|                                                                                                                                                                         |                                                                                                                                  |                        |      |      |   |     
|Net earning (loss) before cumulative effect
    of a change in accounting principle  United States
    GAAP, as previously reported                                     |                                                                                                                                  | $                      | 95   |      |   | $    | (2,119 | )    |   | $ | 283 |    
|Restatements                                                                                                                                                             |                                                                                                                                  |                        |      |      |   |      |        |      |   |   |     |    
|                                                                                                                                                                         | Decreased depreciation and depletion expense (b)                                                                                 |                        |      |     |   |      |        | 13   |   |   |     |    |  
|                                                                                                                                                                         | Increased intangible assets amortization expense
    (c)                                                                         |                        |      |     |   |      |        | (2   | ) |   |     |    |  
|                                                                                                                                                                         | Increased research and development expense (d)                                                                                   |                        |      |     |   |      |        | (6   | ) |   |     | (8  | )
|                                                                                                                                                                         | Increased exploration expense (e)                                                                                                |                        |      |     |   |      |        | (3   | ) |   |     | (7  | )
|                                                                                                                                                                         | Decreased (increased) minority interest
    (b)(d)(e)                                                                            |                        |      |     |   |      |        | (3   | ) |   |     | 2   |  
|                                                                                                                                                                         | Decreased asset impairment charges (e)                                                                                           |                        |      |     |   |      |        | 71   |   |   |     |    |  
|                                                                                                                                                                         | Taxes on restated United States GAAP differences                                                                                 |                        |      |     |   |      |        | (27  | ) |   |     | 2   |  
|                                                                                                                                                                         |                                                                                                                                  |                        |      |      |   |      |        |      |   |   |     |    
|Net earnings (loss) as reported before
    cumulative effect of a change in accounting
    principle  United States GAAP, as reported in
    Originally Filed 2003 10-K |                                                                                                                                  |                        | 95   |      |   |      | (2,076 | )    |   |   | 272 |    
|                                                                                                                                                                         | Increased asset impairment charge (q)(2)                                                                                         |                        |      |     |   |      |        | (253 | ) |   |     |    |  
|                                                                                                                                                                         | Unrealized currency translation gains
    (losses) on Voiseys Bay project deferred income and
    mining tax liabilities (q)(2) |                        |      | (207 | ) |      |        | (49  | ) |   |     | 122 |  
|                                                                                                                                                                         |                                                                                                                                  |                        |      |      |   |      |        |      |   |   |     |    
|Net earning (loss) before cumulative effect
    of a change in accounting principle  United States
    GAAP, as restated                                                |                                                                                                                                  |                        | (112 | )    |   |      | (2,378 | )    |   |   | 394 |    
|Cumulative effect of a change in accounting
    principle (b)                                                                                                            |                                                                                                                                  |                        | (17  | )    |   |      | (2     | )    |   |   |    |    
|                                                                                                                                                                         |                                                                                                                                  |                        |      |      |   |      |        |      |   |   |     |    
|Net earnings (loss)  United States
    GAAP, as restated                                                                                                                |                                                                                                                                  | $                      | (129 | )    |   | $    | (2,380 | )    |   | $ | 394 |    
|                                                                                                                                                                         |                                                                                                                                  |                        |      |      |   |      |        |      |   |   |     |    

54



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


The following table sets forth the effect of the
restatements referred to above with regard to the currency
translation for the Voiseys Bay deferred income and mining
tax liabilities on our balance sheet as at December 31,
2003:

|                      |                                      |                         |   |             |   |            |   |          |  |  |   |      |   |  |   |        |  
|--------------------- | ------------------------------------ | ----------------------- | - | ----------- | - | ---------- | - | -------- |  |  | - | ---- | - |  | - | ------ | -
|                      |                                      |                        
|                      |                                      | As at December 31, 2003
|                      |                                      |                        
|                      |                                      | As Previously           |   |            
|                      |                                      | Reported in             |   | Currency    |   | Asset      |   |         
|                      |                                      | Originally Filed        |   | Translation |   | Impairment |   | As      
|                      |                                      | 2003 10-K               |   | (q)(2)      |   | (q)(2)     |   | Restated
|                      |                                      |                         |   |             |   |            |   |         
|Assets:               |                                      |                         |   |             |   |            |   |          |  |  |   |      |   |  |   |       
|                      | Cash and cash equivalents            |                         | $ | 418         |   |            | $ |         |  |  | $ |     |   |  | $ | 418    |  
|                      | Accounts receivable                  |                         |   | 474         |   |            |   |         |  |  |   |     |   |  |   | 474    |  
|                      | Property, plant and equipment        |                         |   | 3,671       |   |            |   | 82       |  |  |   | (253 | ) |  |   | 3,500  |  
|                      | Intangible assets                    |                         |   | 2,467       |   |            |   |         |  |  |   |     |   |  |   | 2,467  |  
|                      | Deferred charges and other assets    |                         |   | 256         |   |            |   |         |  |  |   |     |   |  |   | 256    |  
|Liabilities:          |                                      |                         |   |             |   |            |   |          |  |  |   |      |   |  |   |       
|                      | Long-term debt due within one year   |                         |   | 92          |   |            |   |         |  |  |   |     |   |  |   | 92     |  
|                      | Other accrued liabilities            |                         |   | 369         |   |            |   |         |  |  |   |     |   |  |   | 369    |  
|                      | Long-term debt                       |                         |   | 2,035       |   |            |   |         |  |  |   |     |   |  |   | 2,035  |  
|                      | Deferred income and mining taxes     |                         |   | 1,115       |   |            |   |         |  |  |   |     |   |  |   | 1,115  |  
|                      | Post-retirement benefits             |                         |   | 1,522       |   |            |   |         |  |  |   |     |   |  |   | 1,522  |  
|                      | Minority interest                    |                         |   | 432         |   |            |   |         |  |  |   |     |   |  |   | 432    |  
|Shareholders equity: |                                      |                         |   |             |   |            |   |          |  |  |   |      |   |  |   |       
|                      | Retained earnings (deficit)          |                         |   | (973        | ) |            |   | 82       |  |  |   | (253 | ) |  |   | (1,144 | )
|                      | Accumulated other comprehensive loss |                         |   | (516        | ) |            |   |         |  |  |   |     |   |  |   | (516   | )

55



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


The following table sets forth the effect of the
restatements referred to in parts (b), (c), (d) and
(e) above on our balance sheet as at December 31, 2002
as reported in our Originally Filed 2003 10-K:

|                      |                                      |                         |  |               |   |            |  |              |   |             |  |            |   |                  |  |     |   |  |  |     |   |  |  |    |  |  |  |        |  
|--------------------- | ------------------------------------ | ----------------------- |  | ------------- | - | ---------- |  | ------------ | - | ----------- |  | ---------- | - | ---------------- |  | --- | - |  |  | --- | - |  |  | -- |  |  |  | ------ | -
|                      |                                      |                        
|                      |                                      | As at December 31, 2002
|                      |                                      |                        
|                      |                                      |                         |  | As Previously
|                      |                                      | As Previously           |  | Depreciation  |   | Intangible |  | Research and |   |             |  | Asset      |   | Reported in     
|                      |                                      | Reported in             |  | and Depletion |   | Assets     |  | Development  |   | Exploration |  | Impairment |   | Originally Filed
|                      |                                      | 2002 10-K               |  | (b)           |   | (c)        |  | (d)          |   | (e)         |  | (e)        |   | 2003 10-K       
|                      |                                      |                         |  |               |   |            |  |              |   |             |  |            |   |                 
|Assets:               |                                      |                         |  |               |   |            |  |              |   |             |  |            |   |                  |  |     |   |  |  |     |   |  |  |    |  |  |  |       
|                      | Cash and cash equivalents            |                         |  | 1,087         |   |            |  |             |   |             |  |           |   |                  |  |    |   |  |  |    |   |  |  |   |  |  |  | 1,087  |  
|                      | Accounts receivable                  |                         |  | 289           |   |            |  |             |   |             |  |           |   |                  |  |    |   |  |  |    |   |  |  |   |  |  |  | 289    |  
|                      | Property, plant and equipment        |                         |  | 5,566         |   |            |  | 17           |   |             |  | (2,471     | ) |                  |  | (37 | ) |  |  | (90 | ) |  |  | 71 |  |  |  | 3,056  |  
|                      | Intangible assets                    |                         |  |              |   |            |  |             |   |             |  | 2,469      |   |                  |  |    |   |  |  |    |   |  |  |   |  |  |  | 2,469  |  
|                      | Deferred charges and other assets    |                         |  | 141           |   |            |  |             |   |             |  |           |   |                  |  |    |   |  |  |    |   |  |  |   |  |  |  | 141    |  
|Liabilities:          |                                      |                         |  |               |   |            |  |              |   |             |  |            |   |                  |  |     |   |  |  |     |   |  |  |    |  |  |  |       
|                      | Long-term debt due within one year   |                         |  | 97            |   |            |  |             |   |             |  |           |   |                  |  |    |   |  |  |    |   |  |  |   |  |  |  | 97     |  
|                      | Other accrued liabilities            |                         |  | 217           |   |            |  |             |   |             |  |           |   |                  |  |    |   |  |  |    |   |  |  |   |  |  |  | 217    |  
|                      | Long-term debt                       |                         |  | 1,781         |   |            |  |             |   |             |  |           |   |                  |  |    |   |  |  |    |   |  |  |   |  |  |  | 1,781  |  
|                      | Deferred income and mining taxes     |                         |  | 882           |   |            |  | (3           | ) |             |  | (1         | ) |                  |  | (3  | ) |  |  | (30 | ) |  |  | 27 |  |  |  | 872    |  
|                      | Post-retirement benefits             |                         |  | 1,304         |   |            |  |             |   |             |  |           |   |                  |  |    |   |  |  |    |   |  |  |   |  |  |  | 1,304  |  
|                      | Minority interest                    |                         |  | 368           |   |            |  | 17           |   |             |  |           |   |                  |  | (5  | ) |  |  | (4  | ) |  |  |   |  |  |  | 376    |  
|Shareholders equity: |                                      |                         |  |               |   |            |  |              |   |             |  |            |   |                  |  |     |   |  |  |     |   |  |  |    |  |  |  |       
|                      | Retained earnings (deficit)          |                         |  | (991          | ) |            |  | 3            |   |             |  | (1         | ) |                  |  | (29 | ) |  |  | (56 | ) |  |  | 44 |  |  |  | (1,030 | )
|                      | Accumulated other comprehensive loss |                         |  | (485          | ) |            |  |             |   |             |  |           |   |                  |  |    |   |  |  |    |   |  |  |   |  |  |  | (485   | )

56



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


The following table sets forth the effect of the
restatements referred to above with regard to the currency
translation for the Voiseys Bay deferred income and mining
tax liabilities on our balance sheet as at December 31,
2002:

|                      |                                      |                         |   |             |   |            |   |          |  |  |   |      |   |  |   |       |  
|--------------------- | ------------------------------------ | ----------------------- | - | ----------- | - | ---------- | - | -------- |  |  | - | ---- | - |  | - | ----- | -
|                      |                                      |                        
|                      |                                      | As at December 31, 2002
|                      |                                      |                        
|                      |                                      | As Previously           |   |            
|                      |                                      | Reported in             |   | Currency    |   | Asset      |   |         
|                      |                                      | Originally Filed        |   | Translation |   | Impairment |   | As      
|                      |                                      | 2003 10-K               |   | (q)(2)      |   | (q)(2)     |   | Restated
|                      |                                      |                         |   |             |   |            |   |         
|Assets:               |                                      |                         |   |             |   |            |   |          |  |  |   |      |   |  |   |      
|                      | Cash and cash equivalents            |                         | $ | 1,087       |   |            | $ |         |  |  | $ |     |   |  | $ | 1,087 |  
|                      | Accounts receivable                  |                         |   | 289         |   |            |   |         |  |  |   |     |   |  |   | 289   |  
|                      | Property, plant and equipment        |                         |   | 3,056       |   |            |   | 289      |  |  |   | (253 | ) |  |   | 3,092 |  
|                      | Intangible assets                    |                         |   | 2,469       |   |            |   |         |  |  |   |     |   |  |   | 2,469 |  
|                      | Deferred charges and other assets    |                         |   | 141         |   |            |   |         |  |  |   |     |   |  |   | 141   |  
|Liabilities:          |                                      |                         |   |             |   |            |   |          |  |  |   |      |   |  |   |      
|                      | Long-term debt due within one year   |                         |   | 97          |   |            |   |         |  |  |   |     |   |  |   | 97    |  
|                      | Other accrued liabilities            |                         |   | 217         |   |            |   |         |  |  |   |     |   |  |   | 217   |  
|                      | Long-term debt                       |                         |   | 1,781       |   |            |   |         |  |  |   |     |   |  |   | 1,781 |  
|                      | Deferred income and mining taxes     |                         |   | 872         |   |            |   |         |  |  |   |     |   |  |   | 872   |  
|                      | Post-retirement benefits             |                         |   | 1,304       |   |            |   |         |  |  |   |     |   |  |   | 1,304 |  
|                      | Minority interest                    |                         |   | 376         |   |            |   |         |  |  |   |     |   |  |   | 376   |  
|Shareholders equity: |                                      |                         |   |             |   |            |   |          |  |  |   |      |   |  |   |      
|                      | Retained earnings (deficit)          |                         |   | (1,030      | ) |            |   | 289      |  |  |   | (253 | ) |  |   | (994  | )
|                      | Accumulated other comprehensive loss |                         |   | (485        | ) |            |   |         |  |  |   |     |   |  |   | (485  | )

57



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


The following table sets forth the effect of the
restatements referred to in parts (d) and (e) above on
our balance sheet as at December 31, 2001 as reported in
our Originally Filed 2003 10-K:

|                      |                                      |                         |  |               |   |             |  |                  |   |  |  |     |   |  |  |       |  
|--------------------- | ------------------------------------ | ----------------------- |  | ------------- | - | ----------- |  | ---------------- | - |  |  | --- | - |  |  | ----- | -
|                      |                                      |                        
|                      |                                      | As at December 31, 2001
|                      |                                      |                        
|                      |                                      |                         |  | As Previously
|                      |                                      | As Previously           |  | Research and  |   |             |  | Reported in     
|                      |                                      | Reported in             |  | Development   |   | Exploration |  | Originally Filed
|                      |                                      | 2001 10-K               |  | (d)           |   | (e)         |  | 2003 10-K       
|                      |                                      |                         |  |               |   |             |  |                 
|Assets:               |                                      |                         |  |               |   |             |  |                  |   |  |  |     |   |  |  |      
|                      | Cash and cash equivalents            |                         |  | 307           |   |             |  |                 |   |  |  |    |   |  |  | 307   |  
|                      | Accounts receivable                  |                         |  | 303           |   |             |  |                 |   |  |  |    |   |  |  | 303   |  
|                      | Property, plant and equipment        |                         |  | 8,217         |   |             |  | (31              | ) |  |  | (87 | ) |  |  | 8,099 |  
|                      | Deferred charges and other assets    |                         |  | 164           |   |             |  |                 |   |  |  |    |   |  |  | 164   |  
|Liabilities:          |                                      |                         |  |               |   |             |  |                  |   |  |  |     |   |  |  |      
|                      | Long-term debt due within one year   |                         |  | 317           |   |             |  |                 |   |  |  |    |   |  |  | 317   |  
|                      | Other accrued liabilities            |                         |  | 194           |   |             |  |                 |   |  |  |    |   |  |  | 194   |  
|                      | Long-term debt                       |                         |  | 755           |   |             |  |                 |   |  |  |    |   |  |  | 755   |  
|                      | Deferred income and mining taxes     |                         |  | 1,901         |   |             |  | (2               | ) |  |  | (29 | ) |  |  | 1,870 |  
|                      | Post-retirement benefits             |                         |  | 957           |   |             |  |                 |   |  |  |    |   |  |  | 957   |  
|                      | Minority interest                    |                         |  | 350           |   |             |  | (4               | ) |  |  | (3  | ) |  |  | 343   |  
|Shareholders equity: |                                      |                         |  |               |   |             |  |                  |   |  |  |     |   |  |  |      
|                      | Retained earnings (deficit)          |                         |  | 1,154         |   |             |  | (25              | ) |  |  | (55 | ) |  |  | 1,074 |  
|                      | Accumulated other comprehensive loss |                         |  | (316          | ) |             |  |                 |   |  |  |    |   |  |  | (316  | )

The following table sets forth the effect of the
restatements referred to above with regard to the currency
translation for the Voiseys Bay deferred income and mining
tax liabilities on our balance sheet as at December 31,
2001:

|                      |                                      |                         |   |             |   |          |   |     |  |  |   |       |  
|--------------------- | ------------------------------------ | ----------------------- | - | ----------- | - | -------- | - | --- |  |  | - | ----- | -
|                      |                                      |                        
|                      |                                      | As at December 31, 2001
|                      |                                      |                        
|                      |                                      | As Previously           |   |            
|                      |                                      | Reported in             |   | Currency    |   |         
|                      |                                      | Originally Filed        |   | Translation |   | As      
|                      |                                      | 2003 10-K               |   | (q)(2)      |   | Restated
|                      |                                      |                         |   |             |   |         
|Assets:               |                                      |                         |   |             |   |          |   |     |  |  |   |      
|                      | Cash and cash equivalents            |                         | $ | 307         |   |          | $ |    |  |  | $ | 307   |  
|                      | Accounts receivable                  |                         |   | 303         |   |          |   |    |  |  |   | 303   |  
|                      | Property, plant and equipment        |                         |   | 8,099       |   |          |   | 338 |  |  |   | 8,437 |  
|                      | Deferred charges and other assets    |                         |   | 164         |   |          |   |    |  |  |   | 164   |  
|Liabilities:          |                                      |                         |   |             |   |          |   |     |  |  |   |      
|                      | Long-term debt due within one year   |                         |   | 317         |   |          |   |    |  |  |   | 317   |  
|                      | Other accrued liabilities            |                         |   | 194         |   |          |   |    |  |  |   | 194   |  
|                      | Long-term debt                       |                         |   | 755         |   |          |   |    |  |  |   | 755   |  
|                      | Deferred income and mining taxes     |                         |   | 1,870       |   |          |   |    |  |  |   | 1,870 |  
|                      | Post-retirement benefits             |                         |   | 957         |   |          |   |    |  |  |   | 957   |  
|                      | Minority interest                    |                         |   | 343         |   |          |   |    |  |  |   | 343   |  
|Shareholders equity: |                                      |                         |   |             |   |          |   |     |  |  |   |      
|                      | Retained earnings (deficit)          |                         |   | 1,074       |   |          |   | 338 |  |  |   | 1,412 |  
|                      | Accumulated other comprehensive loss |                         |   | (316        | ) |          |   |    |  |  |   | (316  | )

58



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)




| |                        
| | -----------------------
| | (r) Comparative figures

The following tables compare results reported
under Canadian GAAP with those that would have been reported
under United States GAAP, together with the cumulative effect on
balance sheet accounts. Quarterly results are unaudited.
Restatements in respect of Canadian GAAP are discussed in
Note 2. Restatements in respect of United States GAAP are
discussed in Note 23, parts (b) (c) (d) (e)
and (q) above.

|                                     |                |                        |   |                    |   |            |   |            |   |            |   |            |   |  |   |       |   |  |   |        |   |  |   |      | 
|------------------------------------ | -------------- | ---------------------- | - | ------------------ | - | ---------- | - | ---------- | - | ---------- | - | ---------- | - |  | - | ----- | - |  | - | ------ | - |  | - | ---- | 
|                                     |                |                       
|                                     |                | Year ended December 31
|                                     |                |                       
|                                     |                |                        |   |                   
|                                     |                | Canadian GAAP          |   | United States GAAP
|                                     |                |                        |   |                   
|                                     |                | 2003                   |   | 2002               |   | 2001       |   | 2003       |   | 2002       |   | 2001      
|                                     |                |                        |   |                    |   |            |   |            |   |            |   |           
|                                     |                |                        |   | (Restated)         |   | (Restated) |   | (Restated) |   | (Restated) |   | (Restated)
|Net earnings (loss)                  |                |                        |   |                    |   |            |   |            |   |            |   |            |   |  |   |       |   |  |   |        |   |  |   |     
|                                     | First quarter  |                        | $ | 30                 |   |            | $ | 11         |   |            | $ | 85         |   |  | $ | (55   | ) |  | $ | 5      |   |  | $ | 181  | 
|                                     | Second quarter |                        |   | 60                 |   |            |   | (1,582     | ) |            |   | 192        |   |  |   | (278  | ) |  |   | (2,504 | ) |  |   | 102  | 
|                                     | Third quarter  |                        |   | (27                | ) |            |   | 91         |   |            |   | 33         |   |  |   | (35   | ) |  |   | 128    |   |  |   | 110  | 
|                                     | Fourth quarter |                        |   | 74                 |   |            |   | (2         | ) |            |   | (6         | ) |  |   | 239   |   |  |   | (9     | ) |  |   | 1    | 
|                                     |                |                        |   |                    |   |            |   |            |   |            |   |            |   |  |   |       |   |  |   |        |   |  |   |     
|                                     | Year           |                        | $ | 137                |   |            | $ | (1,482     | ) |            | $ | 304        |   |  | $ | (129  | ) |  | $ | (2,380 | ) |  | $ | 394  | 
|                                     |                |                        |   |                    |   |            |   |            |   |            |   |            |   |  |   |       |   |  |   |        |   |  |   |     
|Net earnings (loss) per common share |                |                        |   |                    |   |            |   |            |   |            |   |            |   |  |   |       |   |  |   |        |   |  |   |     
|                                     | Basic          |                        | $ | 0.59               |   |            | $ | (8.27      | ) |            | $ | 1.51       |   |  | $ | (0.81 | ) |  | $ | (13.16 | ) |  | $ | 2.02 | 
|                                     | Diluted        |                        | $ | 0.58               |   |            | $ | (8.27      | ) |            | $ | 1.49       |   |  | $ | (0.81 | ) |  | $ | (13.16 | ) |  | $ | 1.98 | 

|                      |                                      |               |   |                    |   |            |   |            |   |            |   |            |  |  |   |        |   |  |   |       |   |  |   |       |  
|--------------------- | ------------------------------------ | ------------- | - | ------------------ | - | ---------- | - | ---------- | - | ---------- | - | ---------- |  |  | - | ------ | - |  | - | ----- | - |  | - | ----- | -
|                      |                                      |              
|                      |                                      | December 31  
|                      |                                      |              
|                      |                                      |               |   |                   
|                      |                                      | Canadian GAAP |   | United States GAAP
|                      |                                      |               |   |                   
|                      |                                      | 2003          |   | 2002               |   | 2001       |   | 2003       |   | 2002       |   | 2001      
|                      |                                      |               |   |                    |   |            |   |            |   |            |   |           
|                      |                                      |               |   | (Restated)         |   | (Restated) |   | (Restated) |   | (Restated) |   | (Restated)
|Assets:               |                                      |               |   |                    |   |            |   |            |   |            |   |            |  |  |   |        |   |  |   |       |   |  |   |      
|                      | Cash and cash equivalents            |               | $ | 418                |   |            | $ | 1,087      |   |            | $ | 306        |  |  | $ | 418    |   |  | $ | 1,087 |   |  | $ | 307   |  
|                      | Accounts receivable                  |               |   | 435                |   |            |   | 251        |   |            |   | 277        |  |  |   | 474    |   |  |   | 289   |   |  |   | 303   |  
|                      | Property, plant and equipment        |               |   | 6,976              |   |            |   | 6,382      |   |            |   | 8,260      |  |  |   | 3,500  |   |  |   | 3,092 |   |  |   | 8,437 |  
|                      | Intangible assets                    |               |   |                   |   |            |   |           |   |            |   |           |  |  |   | 2,467  |   |  |   | 2,469 |   |  |   |      |  
|                      | Deferred charges and other assets    |               |   | 319                |   |            |   | 208        |   |            |   | 243        |  |  |   | 256    |   |  |   | 141   |   |  |   | 164   |  
|Liabilities:          |                                      |               |   |                    |   |            |   |            |   |            |   |            |  |  |   |        |   |  |   |       |   |  |   |      
|                      | Long-term debt due within one year   |               |   | 103                |   |            |   | 97         |   |            |   | 81         |  |  |   | 92     |   |  |   | 97    |   |  |   | 317   |  
|                      | Other accrued liabilities            |               |   | 332                |   |            |   | 210        |   |            |   | 189        |  |  |   | 369    |   |  |   | 217   |   |  |   | 194   |  
|                      | Long-term debt                       |               |   | 1,409              |   |            |   | 1,546      |   |            |   | 759        |  |  |   | 2,035  |   |  |   | 1,781 |   |  |   | 755   |  
|                      | Deferred income and mining taxes     |               |   | 1,696              |   |            |   | 1,352      |   |            |   | 2,105      |  |  |   | 1,115  |   |  |   | 872   |   |  |   | 1,870 |  
|                      | Post-retirement benefits             |               |   | 603                |   |            |   | 475        |   |            |   | 451        |  |  |   | 1,522  |   |  |   | 1,304 |   |  |   | 957   |  
|                      | Asset retirement obligations         |               |   | 141                |   |            |   | 119        |   |            |   | 121        |  |  |   | 141    |   |  |   | 52    |   |  |   | 49    |  
|                      | Minority interest                    |               |   | 415                |   |            |   | 368        |   |            |   | 350        |  |  |   | 432    |   |  |   | 376   |   |  |   | 343   |  
|Shareholders equity: |                                      |               |   |                    |   |            |   |            |   |            |   |            |  |  |   |        |   |  |   |       |   |  |   |      
|                      | Convertible debt                     |               |   | 606                |   |            |   | 238        |   |            |   | 231        |  |  |   |       |   |  |   |      |   |  |   |      |  
|                      | Retained earnings (deficit)          |               |   | (226               | ) |            |   | (335       | ) |            |   | 1,177      |  |  |   | (1,144 | ) |  |   | (994  | ) |  |   | 1,412 |  
|                      | Accumulated other comprehensive loss |               |   |                   |   |            |   |           |   |            |   |           |  |  |   | (516   | ) |  |   | (485  | ) |  |   | (316  | )

59



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##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


Changes in retained earnings and accumulated
other comprehensive loss under United States GAAP were as
follows:

|                                                                                                               |  |                        |        |            |  |            |        |   |  |   |       |  
|-------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | ---------- |  | ---------- | ------ | - |  | - | ----- | -
|                                                                                                               |  |                       
|                                                                                                               |  | Year ended December 31
|                                                                                                               |  |                       
|                                                                                                               |  | 2003                   |        | 2002       |  | 2001      
|                                                                                                               |  |                        |        |            |  |           
|                                                                                                               |  | (Restated)             |        | (Restated) |  | (Restated)
|Retained earnings (deficit) at beginning of
    year, as previously reported in our Originally Filed 2003 10-K |  | $                      | (1,030 | )          |  | $          | 1,074  |   |  | $ | 828   |  
|Restatement (q)(2)                                                                                             |  |                        | 36     |            |  |            | 338    |   |  |   | 216   |  
|                                                                                                               |  |                        |        |            |  |            |        |   |  |   |       |  
|Retained earnings (deficit) at beginning of
    year, as restated                                              |  |                        | (994   | )          |  |            | 1,412  |   |  |   | 1,044 |  
|Net earnings (loss)                                                                                            |  |                        | (129   | )          |  |            | (2,380 | ) |  |   | 394   |  
|Preferred dividends                                                                                            |  |                        | (6     | )          |  |            | (26    | ) |  |   | (26   | )
|Premium on redemption of preferred shares                                                                      |  |                        | (15    | )          |  |            |       |   |  |   |      |  
|                                                                                                               |  |                        |        |            |  |            |        |   |  |   |       |  
|Retained earnings (deficit) at end of year                                                                     |  | $                      | (1,144 | )          |  | $          | (994   | ) |  | $ | 1,412 |  
|                                                                                                               |  |                        |        |            |  |            |        |   |  |   |       |  
|Accumulated other comprehensive loss at beginning
    of year                                                  |  | $                      | (485   | )          |  | $          | (316   | ) |  | $ | (211  | )
|Other comprehensive loss                                                                                       |  |                        | (31    | )          |  |            | (169   | ) |  |   | (105  | )
|                                                                                                               |  |                        |        |            |  |            |        |   |  |   |       |  
|Accumulated other comprehensive loss at end of
    year                                                        |  | $                      | (516   | )          |  | $          | (485   | ) |  | $ | (316  | )
|                                                                                                               |  |                        |        |            |  |            |        |   |  |   |       |  



| |                                         
| | ----------------------------------------
| | (s) Recent Accounting
    Pronouncements

Effective January 1, 2003, we adopted, for
United States reporting purposes, SFAS No. 143,
Accounting for Asset Retirement Obligations.Under SFAS
No. 143, retirement obligations will be recognized when
incurred and recorded as liabilities at fair value. The
liability is accreted over time through periodic charges to
earnings. In addition, the asset retirement cost is capitalized
as part of the assets carrying value and depreciated over
the assets useful life. The effect of the adoption of the
new standard is described in Note 23(j) above.

Effective January 1, 2003, we adopted, for
United States reporting purposes, SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 applies to costs associated
with an exit activity that does not involve an entity newly
acquired in a business combination, an asset retirement
obligation covered by SFAS No. 143 or with a disposal
activity covered by SFAS No. 144. SFAS No. 146
requires that a liability for a cost associated with an exit or
disposal activity shall be recognized and measured initially at
its fair value in the period in which the liability is incurred
provided that such fair value can be reasonably estimated. An
exception applies for certain one-time termination benefits that
are incurred over time. The adoption of the new standard had no
impact on our financial statements.

Effective January 1, 2003, we adopted, for
United States reporting purposes, SFAS No. 148,
Accounting for Stock-Based Compensation 
Transition and Disclosure  an amendment of
FAS 123.SFAS No. 148 provides alternative methods
of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. SFAS
No. 148 also amends the disclosure requirements of SFAS
No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method
used on reported results. Effective January 1, 2003, we
have adopted, for stock options granted in 2003 and in future
years, the fair value based method of accounting for our
stock-based employee compensation. This change in accounting
decreased net earnings by $3 million for the year ended
December 31, 2003.

Effective June 30, 2003, we adopted, for
United States reporting purposes, SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. SFAS No. 149 amends
Statement 133 for decisions made (1) as part of the
Derivatives Implementation Group process that effectively
required amendments to Statement 133, (2) in
connection with other FASB projects dealing with financial
instruments, and (3) in

60



---



##### 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Tabular amounts in millions of United States
dollars except number of shares and per share amounts)


connection with implementation issues raised in
relation to the application of the definition of a derivative,
in particular, the meaning of an initial net investment that is
smaller than would be required for other types of contracts that
would be expected to have a similar response to changes in
market factors, the meaning of underlying, and the
characteristics of a derivative that contains financing
components. In particular, this Statement (1) clarifies
under what circumstances a contract with an initial net
investment meets the characteristic of a derivative discussed in
paragraph 6(b) of Statement 133, (2) clarifies
when a derivative contains a financing component,
(3) amends the definition of an underlying to conform it to
language used in FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others, and (4) amends certain other existing
pronouncements. The standard had no impact on our financial
statements.

Effective July 1, 2003, we adopted, for
United States reporting purposes, SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS
No. 150 requires, for financial instruments meeting certain
criteria, that an issuer must classify the instruments as
liabilities (or assets in some circumstances). The adoption of
this new standard did not have a significant impact on our
results of operations or financial condition.

61



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##### 





|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

This Item 15 is amended to include new
Exhibits 31.1 and 32.1 which are included with this Amendment
No. 1 and to list the current reports under subsection (b).

|       |  |         |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                      
|------ |  | ------- |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*(a)1. |  |         |  |     |  | List of Financial Statements Included under
    Item 8 of this Report                                                                                                                                                                                                                                                                                                                                
|       |  |         |  |     |  | Auditors Report                                                                                                                                                                                                                                                                                                                                                                                     
|       |  |         |  |     |  | Consolidated Statement of Earnings                                                                                                                                                                                                                                                                                                                                                                   
|       |  |         |  |     |  | Consolidated Statement of Retained Earnings                                                                                                                                                                                                                                                                                                                                                          
|       |  |         |  |     |  | Consolidated Balance Sheet                                                                                                                                                                                                                                                                                                                                                                           
|       |  |         |  |     |  | Consolidated Statement of Cash Flows                                                                                                                                                                                                                                                                                                                                                                 
|       |  |         |  |     |  | Notes to Consolidated Financial Statements                                                                                                                                                                                                                                                                                                                                                           
|       |  |         |  |     |  | Supplementary Financial Information (unaudited)                                                                                                                                                                                                                                                                                                                                                      
|*(a)2. |  |         |  |     |  | List of Financial Statement Schedules included
    under Item 8 of this Report                                                                                                                                                                                                                                                                                                                       
|       |  |         |  |     |  | Schedule VIII  Valuation accounts
    and reserves                                                                                                                                                                                                                                                                                                                                                  
|*(a)3. |  |         |  |     |  | Exhibits                                                                                                                                                                                                                                                                                                                                                                                             
|       |  | (3)(i)  |  |     |  | Articles of Continuance of the Company as amended
    to April 25, 2001 (incorporated by reference to
    Exhibit 3(i) and 4 to the Companys Quarterly Report
    on Form 10-Q for the quarterly period ended June 30,
    2001)                                                                                                                                                                    
|       |  | *(ii)   |  | (a) |  | General By-law No. 1 of the Company as
    amended to February 3, 2004 (subject to shareholder
    ratification)                                                                                                                                                                                                                                                                                     
|       |  |         |  | (b) |  | Standing Resolution of the Company as amended to
    February 3, 2004                                                                                                                                                                                                                                                                                                                                
|       |  | *(4)(i) |  | (a) |  | Reference is made to(3)(i) and (ii) above                                                                                                                                                                                                                                                                                                                                                            
|       |  |         |  | (b) |  | Warrant Agreement dated December 1, 2000
    among the Company, CIBC Mellon Trust Company and ChaseMellon
    Shareholder Services LLC, as Canadian and U.S. Warrant Agents,
    respectively (incorporated by reference to the Registration
    Statement on Form F-10 (File No. 333-12748) as filed
    with the Commission on December 7, 2000)                                                   
|       |  |         |  | (c) |  | Shareholder Rights Plan Agreement dated as of
    September 14, 1998, as amended and restated as of
    April 28, 1999, between Inco Limited and CIBC Mellon Trust
    Company, as Rights Agent (incorporated by reference to
    Attachment A to the Companys 1999 Proxy Statement attached
    as Exhibit 99 to the Companys Annual Report on
    Form 10-K for the year ended December 31, 1998)
|       |  | (ii)    |  |     |  | The Company hereby agrees to furnish to the
    Commission a copy of any instrument relating to outstanding
    long-term debt of the Company upon request of the Commission                                                                                                                                                                                                                         
|       |  | *(10)   |  | (a) |  | Voiseys Bay Development Agreement dated as
    of September 30, 2002 among Her Majesty the Queen in Right
    of Newfoundland and Labrador, Voiseys Bay Nickel Company
    Limited and Inco Limited (incorporated by reference to
    Exhibit 99(i) to the Companys Current Report on
    Form 8-K dated October 7, 2002)                                                                         
|       |  |         |  | (b) |  | Voiseys Bay Industrial and Employment
    Benefits Agreement dated as of September 30, 2002 among Her
    Majesty the Queen in Right of Newfoundland and Labrador,
    Voiseys Bay Nickel Company Limited and Inco Limited
    (incorporated by reference to Exhibit 99(ii) to the
    Companys Current Report on Form 8-K dated October 7,
    2002)                                             
|       |  |         |  | (c) |  | 2002 Non-Employee Director Share Option Plan
    (incorporated by reference to Exhibit B to the
    Companys 2002 Proxy Statement filed as Exhibit 99 to
    the Companys Annual Report on Form 10-K for the year
    ended December 31, 2001)                                                                                                                                                     
|       |  |         |  | (d) |  | 2001 Key Employees Incentive Plan (incorporated
    by reference to Exhibit A to the Companys 2001 Proxy
    Statement filed as Exhibit 99 to the Companys Annual
    Report on Form 10-K for the year ended December 31,
    2000)                                                                                                                                                                
|       |  |         |  | (e) |  | 1997 Key Employees Incentive Plan (incorporated
    by reference to Exhibit A to the Companys 1997 Proxy
    Statement filed as Exhibit 99 to the Companys Annual
    Report on Form 10-K for the year ended December 31,
    1996 (File No. 1-1143))                                                                                                                                              

62



---



##### 



| |  |       |  |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | ----- |  | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |       |  | (f) |  | 1993 Key Employees Incentive Plan (incorporated
    by reference to the Prospectus in Registration Statement
    No. 33-71298)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  |       |  | (g) |  | 1998 Non-Employee Director Share Ownership Plan
    as amended to December 4, 2001 (incorporated by reference
    to Exhibit 10(g) to the Companys Annual Report on
    Form 10-K for the year ended December 31, 2001)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  |       |  | (h) |  | Forms of two Agreements, each dated as of between
    March 23, 1998 and December 3, 2002 between certain
    executive officers of the Company (all executive officers in the
    case of the form of Agreement referred to in (2) below and
    S.M. Hand, R.C. Aelick S.F. Feiner, P.J. Goudie, F.S. Hakimi,
    P.C. Jones and L. Kruger in the case of the form of Agreement
    referred to in (1) below) and Inco Limited covering
    severance payments and continuation of certain benefits in the
    event of (1) involuntary termination of employment (except
    for cause) or resignation under certain circumstances not wholly
    voluntary or (2) involuntary termination of employment
    (except for cause) or resignation under certain circumstances
    not wholly voluntary within two years following a change in
    control (as defined in such agreements) (incorporated by
    reference to Exhibit 10(iii)(A) to the Companys
    Quarterly Report on Form 10-Q for the quarterly period
    ended March 31, 1998 (File No. 1-1143))
| |  |       |  | (i) |  | Description of the Companys Management
    Incentive Plans (incorporated by reference to the first
    paragraph under Management Incentive Plans and Other
    Arrangements with Officers in the 2004 Proxy Statement)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | *(21) |  |     |  | Subsidiaries of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | *(23) |  |     |  | Consents of Lawrence B. Cochrane, Robert A. Horn
    and Robert C. Osborne, each as a Qualified Person named in this
    Report pursuant to National Instrument 43-101 issued by the
    Canadian Securities Administrators                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | *(24) |  | (a) |  | Powers of Attorney                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  |       |  | (b) |  | Resolution of the Board of Directors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | *(31) |  | (a) |  | Rule 13a-14(a)/15d-14(a) Certifications
    Covering Originally Filed 2003 10-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | 31.1  |  |     |  | Rule 13a-14(a)/15d-14(a) Certifications
    Covering Form 10-K/ A Amendment No. 1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | *(32) |  | (a) |  | Section 1350 Certifications Covering
    Originally Filed 2003 10-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | 32.1  |  |     |  | Section 1350 Certifications Covering
    Form 10-K/ A Amendment No. 1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | *(99) |  |     |  | 2004 Proxy Statement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



---



|  |                                                            
|- | -----------------------------------------------------------
|* | Filed as an Exhibit with the Originally Filed
    2003 10-K

(b) Reports on Form 8-K

Current Report on Form 8-K dated
October 15, 2003 covering Item 12 of Form 8-K
relating to the Companys press release concerning to the
impact of the post-strike ramp-up at the Companys Ontario
operations.

Current report on Form 8-K dated
October 29, 2003 covering Current Report on Form 8-K
dated October 29, 2003 covering Item 12 of
Form 8-K relating to the Companys press release
concerning its third quarter 2003 financial and operating
results.

63



---



##### 



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this Amendment No. 1 to this
Report to be signed on its behalf by the undersigned, thereunto
duly authorized, in Toronto, Ontario, on the 10th day
of August 2004.



| |             
| | ------------
| | INCO LIMITED
| | (Registrant)



| |     |                     
| | --- | --------------------
| | By: | /s/ STUART F. FEINER

| |                            
| | ---------------------------
| |                            
| | Stuart F. Feiner           
| | Executive Vice-President,  
| | General Counsel & Secretary

Pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, this Amendment No. 1 to
this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated on the
10th day of August, 2004.

|                                             |  |                                                                                            |  |  |  | 
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  |  |  | 
|                                             |  |                                                                                            |  | 
|Signature                                    |  | Title                                                                                      |  | 
|                                             |  |                                                                                            |  | 
|                                            
|/s/ SCOTT M. HANDScott M. Hand               |  | Chairman and Chief Executive Officer and Director
    (Principal Executive Officer)        |  | 
|                                            
|/s/ FAROKH S. HAKIMIFarokh S. Hakimi         |  | Executive Vice-President and
    Chief Financial Officer
    (Principal Financial Officer) |  | 
|                                            
|/s/ RONALD A. LEHTOVAARARonald A. Lehtovaara |  | Vice-President and Comptroller
    (Principal Accounting Officer)                          |  | 
|                                            
|*GLEN A. BARTON(Glen A. Barton)              |  | Director                                                                                   |  | 
|                                            
|*ANGUS A. BRUNEAU(Angus A. Bruneau)          |  | Director                                                                                   |  | 
|                                            
|*RONALD C. CAMBRE(Ronald C. Cambre)          |  | Director                                                                                   |  | 
|                                            
|(Janice K. Henry)                            |  | Director                                                                                   |  | 
|                                            
|*CHAVIVA M. HOSEK(Chaviva M. Hosek)          |  | Director                                                                                   |  | 
|                                            
|*PETER C. JONES(Peter C. Jones)              |  | Director                                                                                   |  | 

64



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##### 



|                                                                                                                         |  |                                                    |  |  |  | 
|------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------- |  |  |  | 
|                                                                                                                         |  |                                                    |  | 
|Signature                                                                                                                |  | Title                                              |  | 
|                                                                                                                         |  |                                                    |  | 
|                                                                                                                        
|*JOHN T. MAYBERRY(John T. Mayberry)                                                                                      |  | Director                                           |  | 
|                                                                                                                        
|*DAVID P. OBRIEN(David P. OBrien)                                                                                      |  | Director                                           |  | 
|                                                                                                                        
|*ROGER PHILLIPS(Roger Phillips)                                                                                          |  | Director                                           |  | 
|                                                                                                                        
|*JAMES M. STANFORD(James M. Stanford)                                                                                    |  | Director                                           |  | 
|                                                                                                                        
|/s/ EDWARD A. STEENEdward A. Steen
    International Nickel, Inc.
    Park 80 West, Plaza Two
    Saddle Brook, NJ 07663 |  | Authorized Representative in the
    United States |  | 



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|  |                                                                                                                                                                                                                                                                                                                                             
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Pursuant to powers of attorney executed by the
    directors named above whose names are preceded by an asterisk,
    Stuart F. Feiner, as attorney-in-fact, does hereby sign this
    Amendment No. 1 to this Report on behalf of each of such
    directors, in each case in the capacity of director, on the
    10th day of August 2004.



| |                                   
| | ----------------------------------
| | /s/ STUART F. FEINER              
| |                                   
| | Stuart F. Feiner, attorney-in-fact

65



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##### 



CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by
reference in the Prospectuses constituting part of the
Registration Statements on Form S-3 (Nos. 33-22435 and
33-50816), on Form S-8 (Nos. 33-71298, 333-7798, 333-13714
and 333-98601) and on Form F-10 (Nos. 333-13470, 333-12588,
333-104688 and 333-104687) of Inco Limited of our reports dated
February 3, 2004 and February 3, 2004 (except as to
Note 23(q) (1) which is as of March 12, 2004 and
except as to Note 23 (q) (2) which is as of August 4,
2004) relating to the financial statements and the financial
statement schedule which appear in this Annual Report on
Form 10-K. We also consent to the reference to us under the
heading Experts in each of such Prospectuses.

PricewaterhouseCoopers LLP

Chartered Accountants


Toronto, Ontario


August 10, 2004


66