##### 



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended: December 31, 2005
 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
    
    M5H 4B7Toronto, Ontario, Canada
    
    (Postal code)(Address of principal executive offices)
 (416) 361-7511  (Telephone number)
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Shares
    
    New York Stock Exchange (1)Stock Purchase Rights
    
    New York Stock Exchange (2)Common Share Purchase Warrants
    
    New York Stock Exchange (2)
  þ Yes           o No
  o Yes           þ No
  þ Yes           o No
 þ
  þ o o
  oYes           þ No
 (3)
  DOCUMENTS INCORPORATED BY REFERENCE
  
 (1)
    
    In addition, the Common Shares are listed on the Toronto Stock Exchange and are traded on
certain other exchanges principally through independent arrangements made by securities
dealers.(2)
    
    In addition, the Stock Purchase Rights and the Common Share Purchase Warrants are listed on
the Toronto Stock Exchange.(3)
    
    Unless otherwise stated, all dollar amounts in this Report are expressed in United States
currency.




---



##### 



INDEX TO INCO LIMITED
2005 ANNUAL REPORT ON FORM 10-K
 UNLESS OTHERWISE STATED, ALL DOLLAR AMOUNTS IN THIS REPORT
ARE EXPRESSED IN UNITED STATES CURRENCY
 Items 1. and 2. Business and Properties of Inco Limited
    
    
    1Introduction
    
    
    1Availability of Documents
    
    
    2Cautionary
Statement Regarding Forward-Looking Statements and Forward-Looking Information
    
    
    2Material Assumptions
    
    
    4Description of Business
    
    
    4Sales
    
    
    4Deliveries
    
    
    5Prices
    
    
    5Nickel
    
    
    5Copper
    
    
    6Other Metals
    
    
    6Results of Operations
    
    
    7Customers
    
    
    7Competitors
    
    
    7Inventories
    
    
    7Nickel Unit Cash Cost of Sales
    
    
    7Business Segment Information
    
    
    9Nickel
    
    
    9Applications for Nickel
    
    
    9Historical Review of the Nickel Industry; Recent Industry Conditions
    
    
    10Participants in the Nickel Industry
    
    
    15Incos Position in the Nickel Industry
    
    
    16Inco Special Products
    
    
    16Copper
    
    
    17Other Primary Metals and Related Products
    
    
    18Mining and Production
    
    
    19General
    
    
    19Capital Expenditures
    
    
    21Mining and Mine Production
    
    
    21Concentrating, Smelting and Refining
    
    
    26Ore Reserves and Mining Rights
    
    
    27Ore Reserves
    
    
    27Mineral
Resources
    
    
    33Mining and Other Rights
    
    
    37PT International Nickel Indonesia Tbk
    
    
    40General
    
    
    40Contract of Work Extension and 1999 Expansion of Facilities
    
    
    43Operations
    
    
    44Sales
    
    
    45Voiseys Bay Nickel Company Limited
    
    
    45Voiseys Bay Deposits
    
    
    45Environmental Review Process
    
    
    46Arrangements with Aboriginal Groups
    
    
    46Arrangements with the Provincial Government
    
    
    47Project Phases
    
    
    48Goro Nickel S.A.S.
    
    
    48Goro Deposits
    
    
    48Ownership of Goro Nickel
    
    
    50Goro Project
    
    
    51Project Review Process
    
    
    51
 i




---



##### 



Fiscal Regime
    
    
    52Girardin Act Financing
    
    
    52New Caledonia
    
    
    54Prony West Deposit
    
    
    54Exploration and Mine Development
    
    
    54Research and Development
    
    
    59Metals Recycling
    
    
    60Environment, Health and Safety
    
    
    61Environmental and Health and Safety Management Systems
    
    
    61Environment, Health and Safety Audits
    
    
    61SO2 Emissions
    
    
    62Port Colborne and Sudbury Soils
    
    
    63Decommissioning and Reclamation
    
    
    67Re-vegetation Programs
    
    
    67PT Inco
    
    
    68Future
Removal and Site Restoration; Closure and Post-Closure Plans
    
    
    68Health and Safety
    
    
    70Regulation of Nickel and Other Nonferrous Metals
    
    
    73Other Environmental Control Regulations
    
    
    80Employees
    
    
    80Exmibal
    
    
    81Miscellaneous Investments
    
    
    82Other Information
    
    
    82Shareholder Rights Plan
    
    
    82Proposed Acquisition of Falconbridge Limited
    
    
    83Items 1A. Risk Factors
    
    
    85Items 1B. Unresolved Staff Comments
    
    
    85Item 3. Legal Proceedings
    
    
    85Item 4. Submission of Matters to a Vote of Security Holders
    
    
    85Item 5. Markets for Inco Limiteds Common Shares, Related Shareholder Matters
and Inco Limiteds Issuances or Purchases of Equity Securities
    
    
    86Common Shares
    
    
    86Market Information
    
    
    86Issuance of Unregistered Securities
    
    
    86Holders of Common Shares
    
    
    86Dividends
    
    
    86Common Share Purchase Warrants
    
    
    87Other Information
    
    
    87Class VBN Shares
    
    
    88Preferred Shares
    
    
    88Certain Provisions of the Preferred Shares as a Class
    
    
    88Securities Authorized for Issuance Under Equity Compensation Plans
    
    
    89Other Information
    
    
    89Item 6. Selected Financial Data
    
    
    91Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    93Overview
    
    
    93Nature of our Business
    
    
    93Key Factors Affecting our Business
    
    
    942005 Nickel Market Highlights
    
    
    962004 Nickel Market Highlights
    
    
    98Results of Operations
    
    
    992005 Compared with 2004
    
    
    99Earnings Summary
    
    
    99Nickel Production
    
    
    99Copper Production
    
    
    100Commencement of Voiseys Bay Operations
    
    
    100
 ii




---



##### 



Net Sales
    
    
    100Realized Prices
    
    
    101Costs and Expenses/Other Income
    
    
    101Cost of Sales and Other Expenses
    
    
    102Selling, General and Administrative
    
    
    102Currency Translation Adjustments
    
    
    102Interest Expense
    
    
    102Asset Impairment Charges
    
    
    102Other Income, Net
    
    
    102Income and Mining Taxes
    
    
    102Minority Interest
    
    
    103Nickel Unit Cash Cost of Sales
    
    
    103Energy Costs and Relative Advantages
    
    
    104Intermediates Segment
    
    
    104Development Projects Segment
    
    
    1052004 Compared with 2003
    
    
    106Earnings Summary
    
    
    106Nickel Production
    
    
    106Copper Production
    
    
    106Net Sales
    
    
    106Cost of Sale and Other Expenses
    
    
    107Selling, General and Administrative
    
    
    107Currency Translation Adjustments
    
    
    107Interest Expense
    
    
    107Asset Impairment Charges
    
    
    107Other Income, Net
    
    
    107Income and Mining Taxes
    
    
    108Minority Interest
    
    
    108Nickel Unit Cash Cost of Sales
    
    
    108Energy Costs and Relative Advantages
    
    
    108Intermediates Segment
    
    
    108Cash Flows, Liquidity and Capital Resources
    
    
    1102005 Compared with 2004
    
    
    110Operating Activities
    
    
    110Investing Activities
    
    
    111Financing Activities
    
    
    111Reinstatement of Common Shares Dividend
    
    
    1132004 Compared with 2003
    
    
    113Operating Activities
    
    
    113Investing Activities
    
    
    114Financing Activities
    
    
    114Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
    
    
    114Contractual Obligations
    
    
    114Contingencies and Guarantees
    
    
    115Derivative Instrument Positions
    
    
    116Other Off-Balance Sheet Arrangements
    
    
    119Risks and Uncertainties
    
    
    119Market Risk
    
    
    119Metals and Commodities Risk
    
    
    121Foreign Exchange Risk
    
    
    122Interest Rate Risk
    
    
    123Counterparty Risk
    
    
    123Environment Risk
    
    
    123Other Risks and Uncertainties
    
    
    127PT Inco
    
    
    127Risks
Associated with, and Importance of, Future Low-Cost Nickel Projects
    
    
    127
 iii




---



##### 



Uncertainty of Production and Capital and Other Cost Estimates
    
    
    128Goro
    
    
    128Operations
    
    
    129Construction Risks and Technological Risks
    
    
    129Governmental Regulations
    
    
    130Capital Requirements and Operating Risks
    
    
    130Labour Relations
    
    
    131Uncertainty of Ore/Mineral Reserve Estimates
    
    
    131The Falconbridge Transaction
    
    
    132Sensitivities
    
    
    132Critical Accounting Policies and Estimates
    
    
    134Depreciation and Depletion
    
    
    134Impairment
    
    
    135Asset Retirement Obligations
    
    
    135Future Employee Benefits and Costs
    
    
    136Income and Mining Taxes
    
    
    137Accounting Changes
    
    
    137Outlook
    
    
    138Nickel Market Conditions
    
    
    138Operations
    
    
    1382006 Planned Capital Expenditures
    
    
    139Pending Acquisition of Falconbridge
    
    
    139Non-GAAP Financial Measure
    
    
    139Other Information
    
    
    140Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    141Item 8. Financial Statements and Supplementary Data
    
    
    142Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    187Item 9A. Controls and Procedures
    
    
    187Item 9B. Other Information
    
    
    187Item 10. Directors and Executive Officers of Inco Limited
    
    
    188Directors
    
    
    188Executive Officers
    
    
    188Code of Ethics
    
    
    189Item 11. Executive Compensation
    
    
    189Item 12. Security Ownership of Certain Beneficial Owners and Management
    
    
    189Security Ownership of Certain Beneficial Owners and Management
    
    
    189Changes in Control
    
    
    189Item 13. Certain Relationships and Related Transactions
    
    
    190Item 14. Principal Accountant Fees and Services
    
    
    190Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    
    
    191Signatures
    
    
    194Consent of Independent Auditors
    
    
    196
 iv




---



##### 



PART I
 Items 1. and 2.
    
    Business and Properties of Inco Limited
 Introduction
 Canada Business Corporations Act
   collectivité territoriale
 1




---



##### 



Availability of Documents
  Cautionary Statement Regarding Forward-Looking Statements and Forward-Looking Information
 Securities Exchange Act of 1934 Securities Act
 2




---



##### 



3




---



##### 



Material Assumptions
  Description of Business
 Sales
  2005
    
    
    2004
    
    
    2003(in millions)Primary nickel
    
    $
    3,655
    
    
    $
    3,503
    
    
    $
    2,109Copper
    
    
    463
    
    
    
    364
    
    
    
    171Precious metals (1)
    
    
    267
    
    
    
    246
    
    
    
    114Cobalt
    
    
    57
    
    
    
    72
    
    
    
    17Other (2)
    
    
    76
    
    
    
    93
    
    
    
    63Net sales to customers
    
    $
    4,518
    
    
    $
    4,278
    
    
    $
    2,474
 
   4




---



##### 



Deliveries
  2005
    
    2004
    
    2003Nickel, including intermediates(1) (tonnes)(2)
    
    
    246,282
    
    
    
    251,882
    
    
    
    213,890Copper(3) (tonnes)
    
    
    120,543
    
    
    
    124,884
    
    
    
    93,335Cobalt (tonnes)
    
    
    1,694
    
    
    
    1,542
    
    
    
    903Platinum(4) (troy ounces, in thousands)
    
    
    172
    
    
    
    183
    
    
    
    83Palladium(4) (troy ounces, in thousands)
    
    
    220
    
    
    
    221
    
    
    
    101Rhodium(4) (troy ounces, in thousands)
    
    
    16
    
    
    
    9
    
    
    
    17Ruthenium(4) (troy ounces, in thousands)
    
    
    2
    
    
    
    3
    
    
    
    2Iridium(4) (troy ounces, in thousands)
    
    
    5
    
    
    
    4
    
    
    
    6Gold(4) (troy ounces, in thousands)
    
    
    76
    
    
    
    80
    
    
    
    50Silver(4) (troy ounces, in thousands)
    
    
    1,429
    
    
    
    1,990
    
    
    
    1,435Sulphuric acid and liquid sulphur dioxide (tonnes)
    
    
    695,000
    
    
    
    747,000
    
    
    
    548,000
 
 (1)
    
    Includes 22,471 tonnes in 2005, 16,697 tonnes in 2004 and 29,780 tonnes in
2003 purchased by Inco.(2)
    
    A tonne is a metric unit equal to approximately 2,204.6 pounds.(3)
    
    Includes 1,133 tonnes in 2003 purchased by Inco.(4)
    
    Excludes toll-refined materials. Prices
 Nickel
     5




---



##### 



Year
    
    Nickel($ per tonne)
    
    ($ per pound)2001
    
    
    6,468
    
    
    
    2.932002
    
    
    7,143
    
    
    
    3.242003
    
    
    9,860
    
    
    
    4.472004
    
    
    13,906
    
    
    
    6.312005First Quarter
    
    
    15,312
    
    
    
    6.95Second Quarter
    
    
    16,578
    
    
    
    7.52Third Quarter
    
    
    14,857
    
    
    
    6.74Fourth Quarter
    
    
    12,780
    
    
    
    5.80Year
    
    
    14,842
    
    
    
    6.73
 Copper
   Year
    
    Copper($ per tonne)
    
    ($ per pound)2001
    
    
    1,668
    
    
    
    0.762002
    
    
    1,629
    
    
    
    0.742003
    
    
    1,832
    
    
    
    0.832004
    
    
    2,916
    
    
    
    1.322005First Quarter
    
    
    3,365
    
    
    
    1.53Second Quarter
    
    
    3,427
    
    
    
    1.56Third Quarter
    
    
    3,921
    
    
    
    1.78Fourth Quarter
    
    
    4,528
    
    
    
    2.05Year
    
    
    3,839
    
    
    
    1.74
 Other Metals
  Year
    
    Cobalt
    
    Platinum
    
    Palladium
    
    Rhodium
    
    Gold
    
    Silver($ per tonne)
    
    
    
    
    
    ($ per troy ounce)2001
    
    
    23,216
    
    
    
    541.27
    
    
    
    711.32
    
    
    
    1,475.85
    
    
    
    270.50
    
    
    
    4.402002
    
    
    15,124
    
    
    
    545.92
    
    
    
    419.70
    
    
    
    804.59
    
    
    
    309.17
    
    
    
    4.582003
    
    
    18,846
    
    
    
    588.96
    
    
    
    297.36
    
    
    
    530.66
    
    
    
    367.72
    
    
    
    4.862004
    
    
    46,442
    
    
    
    762.73
    
    
    
    225.56
    
    
    
    1,166.85
    
    
    
    398.68
    
    
    
    6.732005
    
    
    32,828
    
    
    
    841.27
    
    
    
    209.46
    
    
    
    2,055.55
    
    
    
    423.21
    
    
    
    7.06
  6




---



##### 



Results of Operations
  Customers
    Competitors
  Inventories
  Incos FinishedYear-end
    
    Nickel(in tonnes)2001
    
    
    26,5172002
    
    
    23,1262003
    
    
    25,6042004
    
    
    27,3342005
    
    
    23,444
  Nickel Unit Cash Cost of Sales
   7




---



##### 



Nickel Unit Cash
    
    Nickel Unit CashCost of Sales
    
    Cost of SalesBefore By-
    
    After By-Year
    
    Product Credits
    
    Product Credits($ per pound)2001
    
    
    1.56
    
    
    
    1.352002
    
    
    1.58
    
    
    
    1.452003
    
    
    2.02
    
    
    
    2.152004
    
    
    2.60
    
    
    
    2.322005
    
    
    3.04
    
    
    
    2.65
  8




---



##### 



Business Segment Information
   Nickel
 Applications for Nickel 1
     
 1
    
    Unless otherwise indicated, data in this
Report on applications for nickel are on a global basis. Reports prior to 2003
from the Company included data on a Western-World-plus-China basis.
Western World is defined as the world excluding the former East
Bloc countries (Russia and other members of the former Commonwealth of
Independent States, China, Cuba, Bulgaria, the Czech Republic, Slovakia,
Hungary, Poland and Romania). 9




---



##### 



Historical Review of the Nickel Industry; Recent Industry Conditions 2
    
 2
    
    Data and estimates included in this
historical review through 2002 are limited to the Western World because of
limited available data for certain countries. See Note 1 above with respect to
our definition of Western World. 10




---



##### 



11




---



##### 



12




---



##### 



13




---



##### 



14




---



##### 



World
    
    WorldPrimary Nickel
    
    Stainless SteelYear
    
    Demand(1)
    
    Production(in tonnes)
    
    (in millions of tonnes)2001
    
    
    1,085,000
    
    
    
    19.02002
    
    
    1,168,000
    
    
    
    20.82003
    
    
    1,244,000
    
    
    
    22.72004
    
    
    1,262,000
    
    
    
    24.62005(2)
    
    
    1,270,000
    
    
    
    24.3
 
 (1)
    
    Previously disclosed figures were provided on a Western World-plus-China basis.(2)
    
    Preliminary estimates.  Year-EndWorld
    
    World
    
    Combined Western
    
    
    
    
    
    AveragePrimary
    
    Primary
    
    World Producers
    
    Year-End
    
    Annual LMENickel
    
    Nickel
    
    and
    
    LME
    
    Cash NickelYear
    
    Demand
    
    Supply
    
    LME Inventories(2)
    
    Inventories
    
    Prices(in tonnes)
    
    
    
    
    
    ($ per tonne)2001
    
    
    1,085,000
    
    
    
    1,148,000
    
    
    
    106,000
    
    
    
    19,188
    
    
    $
    5,9482002
    
    
    1,168,000
    
    
    
    1,176,000
    
    
    
    100,000
    
    
    
    21,972
    
    
    
    6,7722003
    
    
    1,244,000
    
    
    
    1,264,000
    
    
    
    104,000
    
    
    
    24,072
    
    
    
    9,6402004
    
    
    1,262,000
    
    
    
    1,255,000
    
    
    
    111,000
    
    
    
    20,898
    
    
    
    13,8522005
    
    
    1,270,000
    (1)
    
    
    1,285,000
    (1)
    
    
    127,000
    (1)
    
    
    36,042
    
    
    
    14,733
 
 (1)
    
    Preliminary estimates.(2)
    
    Excludes Russia, other members of the former CIS, China, Cuba and Eastern Europe.  Participants in the Nickel Industry
  15




---



##### 



Incos Position in the Nickel Industry
      LME
    
    LME
    
    IncoInco
    
    Inco
    
    Average
    
    Average
    
    AverageDeliveries of
    
    Share of
    
    Cash
    
    3-Month
    
    RealizedWorld Primary
    
    Total Inco
    
    Purchased
    
    World
    
    Nickel
    
    Nickel
    
    NickelYear
    
    Nickel Demand
    
    Deliveries(1)
    
    Nickel
    
    Demand
    
    Price
    
    Price
    
    Price(1)(in tonnes)
    
    
    
    
    
    (%)
    
    
    
    
    
    ($ per tonne)2001
    
    
    1,085,000
    
    
    
    230,049
    
    
    
    22,978
    
    
    
    21
    
    
    
    5,948
    
    
    
    5,877
    
    
    
    6,4682002
    
    
    1,168,000
    
    
    
    231,590
    
    
    
    19,343
    
    
    
    20
    
    
    
    6,772
    
    
    
    6,755
    
    
    
    7,1432003
    
    
    1,244,000
    
    
    
    213,890
    
    
    
    29,780
    
    
    
    17
    
    
    
    9,640
    
    
    
    9,610
    
    
    
    9,8602004
    
    
    1,262,000
    
    
    
    251,882
    
    
    
    16,697
    
    
    
    20
    
    
    
    13,852
    
    
    
    13,765
    
    
    
    13,9062005
    
    
    1,270,000
    (2)
    
    
    246,282
    
    
    
    22,471
    
    
    
    19
    (2)
    
    
    14,733
    
    
    
    14,551
    
    
    
    14,842
 
 (1)
    
    Includes intermediates and purchased nickel.(2)
    
    Preliminary estimates. Inco Special Products
  16




---



##### 



3
 Copper
       
 3
    
    Inco trademark 17




---



##### 



Other Primary Metals and Related Products
     2
 18




---



##### 



Mining and Production
 General
      19




---



##### 



20




---



##### 



Capital Expenditures
    Mining and Mine Production
  Ontario
    
    Manitoba
    
    Voiseys BayCopper Cliff North
    
    Birchtree
    
    OvoidCopper Cliff South
    
    ThompsonCreighton (1)GarsonGertrudeMcCreedy East/ColemanStobie
 
 (1)
    
    Excludes Creighton 3 Mine which is located near the main Creighton Mine and accessible
by a separate shaft and ramp.   21




---



##### 



Ontario Operations
Location of Operating Mines, Non-Operating Mines, Undeveloped Properties
and Processing and Other Facilities
 
 22




---



##### 



Manitoba Operations
Location of Operating Mines, Non-Operating Mines and and Processing and Other Facilities
 
  23




---



##### 



Voiseys Bay Project (Initial Phase)
Location of Operating Mines, Concentrator and Other Facilities
 
 24




---



##### 



Annual Mine Production
 2005
    
    2004
    
    2003Ontario Operations Operating MinesCopper Cliff North Mine
    
    Mine production
    
    
    1,261
    
    
    
    1,085
    
    
    
    701Copper (per cent)
    
    
    1.32
    
    
    
    1.07
    
    
    
    1.16Nickel (per cent)
    
    
    1.09
    
    
    
    1.04
    
    
    
    1.21Copper Cliff South Mine
    
    Mine production
    
    
    890
    
    
    
    838
    
    
    
    769Copper (per cent)
    
    
    1.84
    
    
    
    2.45
    
    
    
    2.50Nickel (per cent)
    
    
    1.36
    
    
    
    1.92
    
    
    
    1.80Creighton Mine
    
    Mine production
    
    
    988
    
    
    
    968
    
    
    
    713Copper (per cent)
    
    
    1.62
    
    
    
    1.48
    
    
    
    1.53Nickel (per cent)
    
    
    2.09
    
    
    
    2.06
    
    
    
    2.10Stobie Mine
    
    Mine production
    
    
    3,018
    
    
    
    3,005
    
    
    
    2,222Copper (per cent)
    
    
    0.79
    
    
    
    0.83
    
    
    
    0.83Nickel (per cent)
    
    
    0.86
    
    
    
    0.88
    
    
    
    0.90Garson Mine
    
    Mine production
    
    
    721
    
    
    
    610
    
    
    
    434Copper (per cent)
    
    
    1.09
    
    
    
    1.04
    
    
    
    1.10Nickel (per cent)
    
    
    1.67
    
    
    
    1.74
    
    
    
    1.87McCreedy East/Coleman Mine
    
    Mine production
    
    
    1,401
    
    
    
    1,210
    
    
    
    870Copper (per cent)
    
    
    2.78
    
    
    
    3.05
    
    
    
    3.57Nickel (per cent)
    
    
    1.68
    
    
    
    1.69
    
    
    
    1.78Gertrude Mine
    
    Mine production
    
    
    474
    
    
    
    504
    
    
    
    453Copper (per cent)
    
    
    0.31
    
    
    
    0.33
    
    
    
    0.36Nickel (per cent)
    
    
    0.80
    
    
    
    0.95
    
    
    
    1.01Total Ontario Operations
    
    Mine production
    
    
    8,753
    
    
    
    8,220
    
    
    
    6,162Copper (per cent)
    
    
    1.38
    
    
    
    1.41
    
    
    
    1.53Nickel (per cent)
    
    
    1.28
    
    
    
    1.33
    
    
    
    1.39Manitoba Operations Operating MinesThompson Mine
    
    Mine production
    
    
    1,323
    
    
    
    1,377
    
    
    
    1,393Nickel (per cent)
    
    
    2.01
    
    
    
    2.10
    
    
    
    2.21Birchtree Mine
    
    Mine production
    
    
    1,121
    
    
    
    962
    
    
    
    640Nickel (per cent)
    
    
    1.54
    
    
    
    1.64
    
    
    
    1.83Total Manitoba Operations
    
    Mine production
    
    
    2,444
    
    
    
    2,339
    
    
    
    2,033Nickel (per cent)
    
    
    1.80
    
    
    
    1.91
    
    
    
    2.09Voiseys Bay Project
    
    Mine production
    
    
    351
    
    
    
    
    
    
    
    Copper (per cent)
    
    
    1.78
    
    
    
    
    
    
    
    Nickel (per cent)
    
    
    3.44
    
    
    
    
    
    
    
    
 25




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##### 



2005
    
    2004
    
    2003PT Inco Operating Mining AreasSorowako Mining Area
    
    Mine production
    
    
    4,689
    
    
    
    4,350
    
    
    
    3,891Nickel (per cent)
    
    
    1.84
    
    
    
    1.85
    
    
    
    1.91Pomalaa-Antam Mining Area
    
    Mine production
    
    
    370
    
    
    
    
    
    
    
    Nickel (per cent)
    
    
    2.30
    
    
    
    
    
    
    
    Total PT Inco
    
    Mine production
    
    
    5,059
    
    
    
    4,350
    
    
    
    3,891Nickel (per cent)
    
    
    1.87
    
    
    
    1.85
    
    
    
    1.91
 Concentrating, Smelting and Refining
  4 5
      Finished Nickel and Copper Production2005
    
    2004
    
    2003
    
    2002
    
    2001(in tonnes)Nickel
    
    
    220,727
    
    
    
    236,817
    
    
    
    187,173
    
    
    
    209,728
    
    
    
    207,077Copper
    
    
    125,595
    
    
    
    124,456
    
    
    
    91,134
    
    
    
    111,787
    
    
    
    116,255
 
 4
    
    Inco trademark5
    
    Inco trademark 26




---



##### 



Finished Nickel from PT Inco Matte2005
    
    2004
    
    2003
    
    2002
    
    2001(in tonnes)Nickel
    
    
    73,965
    
    
    
    75,087
    
    
    
    65,704
    
    
    
    61,692
    
    
    
    61,856
    Ore Reserves and Mining Rights
 Ore Reserves
  27




---



##### 



Total Estimated Ore Reserves as of December 31, 2005  (1)(2)(3)(7)(8)
 Platinum
    
    Palladium
    
    GoldQuantity
    
    Nickel
    
    Copper
    
    Cobalt
    
    (grams/
    
    (grams/
    
    (grams/Class
    
    (Mt)
    
    (per cent)
    
    (per cent)
    
    (per cent)
    
    tonne)
    
    tonne)
    
    tonne)ONTARIO OPERATIONS(4)(6)Operating Mines
    
    Proven
    
    
    69
    
    
    
    1.22
    
    
    
    1.32
    
    
    
    0.04
    
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.2Probable
    
    
    42
    
    
    
    1.30
    
    
    
    1.71
    
    
    
    0.03
    
    
    
    1.1
    
    
    
    1.1
    
    
    
    0.4Total/Average
    
    
    111
    
    
    
    1.25
    
    
    
    1.47
    
    
    
    0.04
    
    
    
    0.8
    
    
    
    0.8
    
    
    
    0.3Non-Operating Mines
    
    Proven
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Probable
    
    
    48
    
    
    
    1.13
    
    
    
    0.98
    
    
    
    0.04
    
    
    
    0.7
    
    
    
    0.8
    
    
    
    0.3Total/Average
    
    
    48
    
    
    
    1.12
    
    
    
    0.98
    
    
    
    0.04
    
    
    
    0.7
    
    
    
    0.8
    
    
    
    0.3Undeveloped Properties
    
    Proven
    
    
    1
    
    
    
    1.09
    
    
    
    0.50
    
    
    
    0.03
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    Probable
    
    
    3
    
    
    
    1.41
    
    
    
    0.97
    
    
    
    0.05
    
    
    
    0.5
    
    
    
    0.3
    
    
    
    0.1Total/Average
    
    
    4
    
    
    
    1.38
    
    
    
    0.93
    
    
    
    0.05
    
    
    
    0.4
    
    
    
    0.3
    
    
    
    0.1Total
    
    Proven
    
    
    69
    
    
    
    1.22
    
    
    
    1.32
    
    
    
    0.04
    
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.2Probable
    
    
    94
    
    
    
    1.22
    
    
    
    1.31
    
    
    
    0.04
    
    
    
    0.9
    
    
    
    0.9
    
    
    
    0.3Total/Average
    
    
    163
    
    
    
    1.22
    
    
    
    1.31
    
    
    
    0.04
    
    
    
    0.8
    
    
    
    0.8
    
    
    
    0.3MANITOBA OPERATIONS(4)(6)Operating Mines
    
    Proven
    
    
    14
    
    
    
    1.94
    
    
    
    0.13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Probable
    
    
    11
    
    
    
    1.86
    
    
    
    0.12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    25
    
    
    
    1.90
    
    
    
    0.13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    PT INCO(5)(6)Mining Areas
    
    Proven
    
    
    59
    
    
    
    1.80
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Probable
    
    
    88
    
    
    
    1.81
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    147
    
    
    
    1.80
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    VOISEYS BAY PROJECT(4)(6)Operating Mine
    
    Proven
    
    
    29
    
    
    
    2.99
    
    
    
    1.73
    
    
    
    0.15
    
    
    
    
    
    
    
    
    
    
    
    Probable
    
    
    3
    
    
    
    0.64
    
    
    
    0.37
    
    
    
    0.03
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    32
    
    
    
    2.75
    
    
    
    1.59
    
    
    
    0.14
    
    
    
    
    
    
    
    
    
    
    
    GORO PROJECT(5)(6)Development Property
    
    Proven
    
    
    96
    
    
    
    1.34
    
    
    
    
    
    
    
    0.12
    
    
    
    
    
    
    
    
    
    
    
    Probable
    
    
    24
    
    
    
    2.01
    
    
    
    
    
    
    
    0.09
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    120
    
    
    
    1.48
    
    
    
    
    
    
    
    0.11
    
    
    
    
    
    
    
    
    
    
    
    
 28




---



##### 



Total Estimated Ore Reserves as of December 31, 2004  (1)(2)(3)(7)(8)
 Platinum
    
    Palladium
    
    GoldQuantity
    
    Nickel
    
    Copper
    
    Cobalt
    
    (grams/
    
    (grams/
    
    (grams/Class
    
    (Mt)
    
    (per cent)
    
    (per cent)
    
    (per cent)
    
    tonne)
    
    tonne)
    
    tonne)ONTARIO OPERATIONS(4)(6)Operating Mines
    
    Proven
    
    
    70
    
    
    
    1.24
    
    
    
    1.34
    
    
    
    0.04
    
    
    
    0.65
    
    
    
    0.71
    
    
    
    0.24Probable
    
    
    59
    
    
    
    1.35
    
    
    
    1.59
    
    
    
    0.03
    
    
    
    1.02
    
    
    
    1.13
    
    
    
    0.39Total/Average
    
    
    129
    
    
    
    1.29
    
    
    
    1.46
    
    
    
    0.04
    
    
    
    0.82
    
    
    
    0.91
    
    
    
    0.32Non-Operating Mines
    
    Proven
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Probable
    
    
    44
    
    
    
    1.09
    
    
    
    0.87
    
    
    
    0.04
    
    
    
    0.52
    
    
    
    0.52
    
    
    
    0.20Total/Average
    
    
    44
    
    
    
    1.09
    
    
    
    0.87
    
    
    
    0.04
    
    
    
    0.52
    
    
    
    0.52
    
    
    
    0.20Undeveloped Properties
    
    Proven
    
    
    1
    
    
    
    1.09
    
    
    
    0.50
    
    
    
    0.03
    
    
    
    0.10
    
    
    
    0.10
    
    
    
    0.03Probable
    
    
    3
    
    
    
    1.41
    
    
    
    0.97
    
    
    
    0.05
    
    
    
    0.45
    
    
    
    0.34
    
    
    
    0.07Total/Average
    
    
    4
    
    
    
    1.38
    
    
    
    0.93
    
    
    
    0.05
    
    
    
    0.41
    
    
    
    0.32
    
    
    
    0.07Total
    
    Proven
    
    
    71
    
    
    
    1.24
    
    
    
    1.34
    
    
    
    0.04
    
    
    
    0.65
    
    
    
    0.72
    
    
    
    0.24Probable
    
    
    106
    
    
    
    1.24
    
    
    
    1.28
    
    
    
    0.04
    
    
    
    0.79
    
    
    
    0.86
    
    
    
    0.31Total/Average
    
    
    177
    
    
    
    1.24
    
    
    
    1.30
    
    
    
    0.04
    
    
    
    0.72
    
    
    
    0.79
    
    
    
    0.27MANITOBA OPERATIONS(4)(6)Operating Mines
    
    Proven
    
    
    14
    
    
    
    2.08
    
    
    
    0.14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Probable
    
    
    13
    
    
    
    2.13
    
    
    
    0.14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    27
    
    
    
    2.10
    
    
    
    0.14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    PT INCO(5)(6)Mining Areas
    
    Proven
    
    
    88
    
    
    
    1.84
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Probable
    
    
    20
    
    
    
    1.81
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    108
    
    
    
    1.83
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    VOISEYS BAY PROJECT(4)(6)Development Property
    
    Proven
    
    
    29
    
    
    
    3.05
    
    
    
    1.77
    
    
    
    0.15
    
    
    
    
    
    
    
    
    
    
    
    Probable
    
    
    3
    
    
    
    0.76
    
    
    
    0.45
    
    
    
    0.04
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    32
    
    
    
    2.82
    
    
    
    1.54
    
    
    
    0.14
    
    
    
    
    
    
    
    
    
    
    
    GORO PROJECT(5)(6)Development Property
    
    Proven
    
    
    73
    
    
    
    1.39
    
    
    
    
    
    
    
    0.13
    
    
    
    
    
    
    
    
    
    
    
    Probable
    
    
    22
    
    
    
    2.01
    
    
    
    
    
    
    
    0.09
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    95
    
    
    
    1.53
    
    
    
    
    
    
    
    0.12
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Estimated ore reserves represent, in accordance with applicable rules and regulations of
the SEC, including the definitions thereunder, that part of a mineral deposit which could be
economically and legally extracted or produced at the time of the reserve determination.
Proven ore reserves are reserves for which (i) the quantity is computed from dimensions
revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed
from the results of detailed sampling and (ii) the sites for inspection, sampling and
measurement are spaced so closely and the geologic character is so well defined that size,
shape, depth and mineral content of reserves are well-established. Probable ore reserves
are reserves for which the quantity and grade and/or quality are computed from information
similar to that used for proven reserves, but the sites for inspection, sampling and
measurement are farther apart or are otherwise less adequately spaced. The degree of
assurance, although lower than that for proven ore reserves, is high enough to assume
continuity between points of observation. For the purposes of the SECs rules and
regulations, the ore reserves at our Ontario and Manitoba operations operating mines are
estimated based upon, among other factors, operating costs, and the ore reserves at such
operations non-operating mines are estimated based on, among other factors, mining costs
derived from certain mining feasibility studies.(2)
    
    The Company, in accordance with applicable Canadian securities regulatory requirements,
also estimates its mineral reserves (as well as mineral resources as discussed on the
following pages) in compliance with the definitions under the CIM Standards on Mineral
Resources and Reserves Definitions and Guidelines adopted by the CIM Council of the Canadian
Institute of Mining, Metallurgy and Petroleum in November 2004 (the CIM Guidelines). If
the reserve numbers in the tables above estimated as of year-end 2005 and 2004 were prepared in accordance
with such definitions for mineral reserve, probable mineral reserve and proven mineral
reserve in the CIM Guidelines, there would be no substantive difference in such estimates
from the total estimates for proven and probable ore reserves in the tables above or with
respect to the other reserve estimates set forth elsewhere in this Report. For the purposes
of the CIM Guidelines, the Ontario and Manitoba operations ore reserves at their operating
mines are estimated based on, among other factors, operating costs, and the ore reserves
estimates at such operations non-operating mines are based on, among other factors, mining
costs derived from certain mining feasibility studies. Our total ore reserve estimates are
based on a number of assumptions such as mining methods, production and other costs, metal
recovery rates and ore recovery dilution factors.We develop our business plans using a time horizon that reflects our view of long-term metals
prices over the relevant historical cycle for each metal we produce and other key long-term
assumptions. We also use these long-term metals prices and other key assumptions in preparing
our ore reserve estimates. These long-term metals prices and other key assumptions are
different (in some cases materially different) than the latest three-year averages for the
metals we 29




---



##### 



produce and relevant exchange rates. We used the following long-term metals prices and other
assumptions as of year-end 2005 and 2004 for our business plans and ore reserve estimates;
nickel at $3.50 per pound (LME cash nickel price), with adjustments made for the premiums on
special products realized in our Ontario and Manitoba operations and discounts for the matte
product at PT Inco and the planned nickel oxide product to be produced at the Goro project;
copper at $0.90 per pound; cobalt at $9.00 per pound for cobalt metal with adjustments made
for other cobalt products; platinum at $550 per troy ounce; palladium at $200 per troy ounce;
and gold at $275 per troy ounce; with respect to currencies, a long-term average of the U.S.
dollar-Canadian dollar exchange rate of $1.00 = $1.39, and a long-term average of the U.S.
dollar-Indonesian rupiah (Rp) exchange rate of $1.00 to 10,000 Rp. The following represent
the approximately three-year averages for the period from January 1, 2003 to September 30,
2005 for these same metals prices and exchange rates; nickel at $5.78 per pound LME cash nickel
price, with adjustments made for the premiums on speciality products realized in our Ontario
and Manitoba operations, and discounts for the matte product produced at PT Inco and the
planned nickel oxide product to be produced at the Goro project; copper at $1.20 per pound;
cobalt at $14.95 per pound for cobalt metal with adjustments made for other cobalt products;
platinum at $784 per troy ounce; palladium at $207 per troy ounce; and gold at $400 per troy
ounce; and with respect to currencies, the latest three-year average U.S. dollar-Canadian
dollar exchange rate of $1.00 = Cdn. $1.32 and the latest three-year average U.S.
dollar-Indonesian rupiah (Rp) exchange rate of $1.00 = Rp. 8,969. For the period from January
1, 2002 to November 30, 2004 the averages for these same metals prices and exchange rates were as follows:
nickel at $4.56 per pound (LME cash nickel price), with adjustments made for the premiums on
speciality products realized in our Ontario and Manitoba operations, and discounts for the
matte product produced at PT Inco and the planned nickel oxide product to be produced at the
Goro project; copper at $0.95 per pound; cobalt at $12.07 per pound for cobalt metal with
adjustments made for other cobalt products; platinum at $679 per troy ounce; palladium at $256
per troy ounce; and gold at $358 per troy ounce; and with respect to currencies, the latest
three-year average U.S. dollar-Canadian dollar exchange rate of $1.00 = Cdn. $1.43 and the
latest three-year average U.S. Dollar-Indonesian rupiah (Rp) exchange rate of $1.00 = Rp.
8,934. If these approximately three-year averages were used, as applicable, for our ore
reserve estimates as of year-end 2005 and 2004, respectively, these estimates as of year-end
2005 and 2004 would not change to any significant degree given the nature of the
mineralization in our deposits and the relative importance of a number of other factors that
are used in developing our reserve estimates for these applicable periods.(3)
    
    For the purpose of estimating and reporting Incos ore reserves, all persons preparing
and/or reviewing the estimates are designated as responsible persons for internal
requirements. As part of our internal processes and procedures in developing these
estimates, the role of each such responsible person is to review those key parts of the
estimated ore reserves for which such person has the appropriate professional expertise
and/or experience, and/or supervisory or management responsibility to ensure that the
estimates are reasonable, economically viable and consistent with our production plans and
that they are not aware of any environmental, permitting, legal, ownership, taxation,
political or social issues that would materially affect the estimates.In accordance with applicable Canadian securities regulatory requirements, including the
recently revised National Instrument 43-101, Standards of Disclosure for Mineral Projects,
Mr. S. Nicholas Sheard, Vice-President of Exploration, Dr. Olivier Tavchandjian, Principal
Geologist, Mineral Reserves and Mineral Resources, and Dr. Lawrence B. Cochrane, Director of
Mines Exploration, each as a qualified person within the meaning of such National Instrument
(which means generally an individual with relevant experience as an engineer or geoscientist
who is also a member in good standing of a recognized engineering or similar professional
association) indirectly supervised the preparation of the ore reserves estimates as of
December 31, 2005 and 2004 and other information set forth in the above tables relating to
2005 and 2004 and each has, in accordance with the requirements of such National Instrument,
conducted either directly by himself or indirectly through employees of the Company reporting
directly or indirectly to him, a comprehensive review and confirmation of the application of
the detailed procedures, systems and processes the Company has developed and implemented for
the purpose of verifying such data. Each of Mr. Sheard, Dr. Tavchandjian and Dr. Cochrane, as
well as the responsible persons described above and other staff of the Company involved in the
process of developing these estimates, also periodically check the adequacy of such
procedures, systems and processes which are intended to provide sufficient verification of
such data based upon recognized sampling, analytical testing, modeling and other procedures in
the mining industry.(4)
    
    The ore reserve estimates for the Ontario and Manitoba operations and the Voiseys Bay
project are of in-place material after adjustments for mining dilution and mining recovery.
No adjustments have been made to these estimates for metal losses due to processing
(beneficiation, smelting and refining at the Ontario and Manitoba operations and
beneficiation at the Voiseys Bay project). For the Ontario operations, the average metal
recoveries after processing in 2005 were as follows: nickel  76.4 per cent, copper  89.3
per cent, platinum  74.0 per cent, palladium  76.2 per cent and gold  66.1 per cent. For
the Manitoba operations, the average metal recoveries after processing in 2005 were as
follows: nickel  85.1 per cent, copper  82.6 per cent and cobalt  42.8 per cent. For
2004, the average metal recoveries after processing at our Ontario operations were as
follows: nickel  76.6 per cent, copper  90.0 per cent, platinum  75.1 per cent, palladium
 77.1 per cent and gold  68.2 per cent and at the Manitoba operations were as follows:
nickel  86.3 per cent, copper  84.3 per cent and cobalt  41.8 per cent. The metal
recoveries for each operating mine, non-operating mine and undeveloped property vary
depending on the metal grades and mineralogy for each mine or undeveloped property. In
addition, the metal recoveries at both the Ontario and Manitoba operations vary depending on
the nature and quantity of concentrates acquired from external sources. Overall metals
recoveries for the Voiseys Bay project are expected to be 82 per cent for nickel, 94 per
cent for copper, and 39 per cent for cobalt. The Voiseys Bay metal recoveries include
beneficiation which was determined from extensive pilot plant tests. Smelting and refinery
recoveries are estimated from actual recoveries at the Ontario and Manitoba operations,
given that the Voiseys Bay nickel-containing concentrates planned to be produced over the
2006-2011 period are to be processed at these operations. The realized metal recoveries in
each zone may vary depending on the metal grades and the mineralogy of the ore in each zone.(5)
    
    The ore reserve estimates for PT Incos Sorowako mining area represent Dry Kiln Product.
The estimated ore reserves for the Sorowako mining area include factors for dilution and ore
losses due to mining and screening recovery during ore preparation. The estimated ore
reserves do not include nickel losses due to smelting. The average nickel recovery after
processing used for PT Incos 2005 and 2004 ore reserve estimate was 90.0 per cent. The
estimated Pomalaa mining area ore reserves of 1.8 million tonnes grading 2.30 per cent
nickel are included in PT Incos estimated total proven ore reserves. For the Goro project,
the ore reserve estimates include factors for dilution due to mining and for ore losses due
to mining recovery and screening recovery during feed preparation. The ore reserve is
estimated using a screened fraction recovered of minus 50 millimetres. The ore reserve
estimates do not include the nickel or cobalt losses due to processing. The planned
processing recoveries for the Goro project are anticipated to be 93.0 per cent for nickel
and 90.0 per cent for cobalt.(6)
    
    At the Ontario operations, the drill-spacing for the estimated ore reserves classified as
proven ranges from 30 metres by 46 metres to 15 metres by 23 metres, averaging 23 metres by
34 metres. The drill-spacing for the estimated ore reserves classified as probable ranges
from 61 metres by 91 metres to 30 metres by 61 metres, averaging 46 metres by 76 metres.
The classifications are also dependent on the mining method and mining selectivity. At the
Manitoba operations, the drill-spacing for the estimated ore reserves classified as proven
ranges from 15 metres by 18 metres to 12 metres by 12 metres, averaging 14 metres by 15
metres. The drill-spacing for the estimated ore reserves classified as probable ranges from
30 metres by 30 metres to 61 metres by 61 metres, averaging 45 metres by 45 metres. The
classifications are also dependent on the mining method and mining selectivity. For the
Voiseys Bay project, the drill-spacing for the estimated ore reserves classified as proven
averages 50 metres by 25 metres and the drill-spacing for the estimated ore reserves
classified as probable averages 50 metres by 50 metres. For the 2005 ore reserve estimates
of PT Inco, the drill-spacing requirements were revised based on recent drill-spacing
reconciliation studies conducted by PT Inco and our Inco Technical Services Limited unit and
confirmed by external consultants. The drill-spacing for the estimated ore reserves
classified as proven are 50 metres by 50 metres and the drill-spacing for the estimated ore
reserves classified as probable are 100 metres by 100 metres. The drill-spacing for the
estimated ore reserves classified as proven for the PT Inco 2004 ore reserve estimates
ranged from 50 metres 30




---



##### 



by 100 metres to 50 metres by 50 metres, whereas the drill-spacing for the estimated ore
reserves classified as probable ranged from 150 metres by 150 metres to 100 metres by 100
metres. The total ore reserve tonnage and grade remain essentially the same, with about 44
million tonnes of proven ore reserves having been reclassified to probable ore reserves. This
reclassification does not affect the mining plan. At the PT Inco Pomalaa mining area, where
more selective mining is conducted with smaller equipment than at the Sorowako mining area,
the drill-spacing for the ore reserves classified as proven is 25 metres by 25 metres. For
the Goro project, the average drill-spacing for the estimated ore reserves classified as
proven is 100 metres by 100 metres and 100 metres by 200 metres for the estimated ore reserves
classified as probable.(7)
    
    All estimated proven and probable ore reserves referred to in this Report, including the
estimates referred to under Exploration and Mine Development below, are included in the
tables above.(8)
    
    The estimates shown in the above tables may reflect rounding differences and,
accordingly, may not be consistent with certain of the subtotal or total numbers shown.
Certain corrections have been made to grades for 2004.         31




---



##### 



32




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##### 



Mineral Resources
  Cautionary note to U.S. investors  We use the terms mineral resources and measured and
indicated mineral resources. U.S. investors should be aware that, while these terms are
recognized under applicable Canadian regulations, the SEC does not recognize them. U.S. investors
are cautioned not to assume that any part or all of the mineral deposits in these categories will
ever be converted into reserves. We also use the term inferred mineral resources. U.S.
investors should be aware that, while this term is also recognized under applicable Canadian
regulations, the SEC does not recognize it. Inferred mineral resources have a greater amount of
uncertainty as to their existence, and great uncertainty with respect to their economic
feasibility. It should not be assumed that all or any part of an inferred mineral resource will
ever be upgraded to a higher category. While the SEC generally permits registered U.S. mining
companies, in their filings with the SEC, to disclose only those mineral deposits that a company
can economically and legally extract or produce, it does permit companies subject to the
multi-jurisdictional disclosure system between Canada and the United States, such as Inco to
disclose, on a voluntary basis, in their Form 10-K or other Annual Reports filed with the SEC,
their estimated mineral resources.
  33




---



##### 



Total
Estimated Mineral
Resources (1)(3) as of December 31, 2005
 Platinum
    
    Palladium
    
    GoldQuantity
    
    Nickel
    
    Copper
    
    Cobalt
    
    (grams/
    
    (grams/
    
    (grams/Class
    
    (Mt)
    
    (per cent)
    
    (per cent)
    
    (per cent)
    
    tonne)
    
    tonne)
    
    tonne)ONTARIO OPERATIONSOperating Mines
    
    Measured
    
    
    11
    
    
    
    1.20
    
    
    
    1.09
    
    
    
    0.05
    
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.3Indicated
    
    
    18
    
    
    
    1.42
    
    
    
    1.63
    
    
    
    0.05
    
    
    
    0.9
    
    
    
    1.1
    
    
    
    0.4Total/Average
    
    
    29
    
    
    
    1.34
    
    
    
    1.43
    
    
    
    0.05
    
    
    
    0.8
    
    
    
    1.0
    
    
    
    0.3Inferred(2)
    
    
    23
    
    
    
    1.9
    
    
    
    1.8
    
    
    
    0.04
    
    
    
    1.2
    
    
    
    1.4
    
    
    
    0.5Non-Operating Mines
    
    Measured
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    13
    
    
    
    1.45
    
    
    
    0.54
    
    
    
    0.05
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    Total/Average
    
    
    13
    
    
    
    1.45
    
    
    
    0.54
    
    
    
    0.05
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    Inferred(2)
    
    
    13
    
    
    
    1.6
    
    
    
    3.2
    
    
    
    0.03
    
    
    
    1.5
    
    
    
    1.5
    
    
    
    0.5Undeveloped Properties
    
    Measured
    
    
    0.4
    
    
    
    1.03
    
    
    
    0.35
    
    
    
    0.05
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    4.3
    
    
    
    1.16
    
    
    
    0.89
    
    
    
    0.05
    
    
    
    0.6
    
    
    
    1.2
    
    
    
    0.2Total/Average
    
    
    5
    
    
    
    1.15
    
    
    
    0.85
    
    
    
    0.05
    
    
    
    0.5
    
    
    
    1.1
    
    
    
    0.2Inferred(2)
    
    
    12
    
    
    
    1.6
    
    
    
    0.9
    
    
    
    0.02
    
    
    
    0.5
    
    
    
    0.7
    
    
    
    0.1Total
    
    Measured
    
    
    11
    
    
    
    1.19
    
    
    
    1.07
    
    
    
    0.05
    
    
    
    0.7
    
    
    
    0.7
    
    
    
    0.2Indicated
    
    
    36
    
    
    
    1.40
    
    
    
    1.14
    
    
    
    0.05
    
    
    
    0.6
    
    
    
    0.8
    
    
    
    0.2Total/Average
    
    
    47
    
    
    
    1.36
    
    
    
    1.12
    
    
    
    0.05
    
    
    
    0.6
    
    
    
    0.8
    
    
    
    0.2MANITOBA OPERATIONSOperating Mines
    
    Measured
    
    
    1
    
    
    
    1.94
    
    
    
    0.12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    3
    
    
    
    2.56
    
    
    
    0.15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    4
    
    
    
    2.41
    
    
    
    0.14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inferred(2)
    
    
    6
    
    
    
    1.8
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Operating Mines
    
    Measured
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inferred(2)
    
    
    24
    
    
    
    0.8
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    Measured
    
    
    1
    
    
    
    1.94
    
    
    
    0.12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    3
    
    
    
    2.56
    
    
    
    0.15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    4
    
    
    
    2.41
    
    
    
    0.14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    PT INCOMining Areas
    
    Measured
    
    
    0.4
    
    
    
    1.85
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    0.5
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    1
    
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inferred(2)
    
    
    2
    
    
    
    1.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Undeveloped Properties
    
    Measured
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    27
    
    
    
    1.67
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    27
    
    
    
    1.67
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inferred(2)
    
    
    319
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    Measured
    
    
    0.4
    
    
    
    1.85
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    28
    
    
    
    1.67
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    28
    
    
    
    1.65
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 34




---



##### 



Platinum
    
    Palladium
    
    GoldQuantity
    
    Nickel
    
    Copper
    
    Cobalt
    
    (grams/
    
    (grams/
    
    (grams/Class
    
    (Mt)
    
    (per cent)
    
    (per cent)
    
    (per cent)
    
    tonne)
    
    tonne)
    
    tonne)VOISEYS BAY PROJECTUndeveloped Properties
    
    Measured
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    40
    
    
    
    1.89
    
    
    
    0.9
    
    
    
    0.12
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    40
    
    
    
    1.89
    
    
    
    0.9
    
    
    
    0.12
    
    
    
    
    
    
    
    
    
    
    
    Inferred(2)
    
    
    6
    
    
    
    2.3
    
    
    
    1.0
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    GORO PROJECTDevelopment Property
    
    Measured
    
    
    39
    
    
    
    1.31
    
    
    
    
    
    
    
    0.12
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    36
    
    
    
    1.68
    
    
    
    
    
    
    
    0.12
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    75
    
    
    
    1.49
    
    
    
    
    
    
    
    0.12
    
    
    
    
    
    
    
    
    
    
    
    Inferred(2)
    
    
    128
    
    
    
    1.7
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
 Total
Estimated Mineral
Resources(1)(3)as of December 31, 2004
 Platinum
    
    Palladium
    
    GoldQuantity
    
    Nickel
    
    Copper
    
    Cobalt
    
    (grams/
    
    (grams/
    
    (grams/Class
    
    (Mt)
    
    (per cent)
    
    (per cent)
    
    (per cent)
    
    tonne)
    
    tonne)
    
    tonne)ONTARIO OPERATIONSOperating Mines
    
    Measured
    
    
    18
    
    
    
    1.36
    
    
    
    1.24
    
    
    
    0.05
    
    
    
    0.7
    
    
    
    0.7
    
    
    
    0.3Indicated
    
    
    6
    
    
    
    1.13
    
    
    
    2.49
    
    
    
    0.04
    
    
    
    1.4
    
    
    
    2.3
    
    
    
    0.7Total/Average
    
    
    24
    
    
    
    1.30
    
    
    
    1.57
    
    
    
    0.05
    
    
    
    0.9
    
    
    
    1.1
    
    
    
    0.4Inferred(2)
    
    
    19
    
    
    
    2.1
    
    
    
    1.9
    
    
    
    0.05
    
    
    
    1.3
    
    
    
    1.5
    
    
    
    0.5Non-Operating Mines
    
    Measured
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    17
    
    
    
    1.38
    
    
    
    0.55
    
    
    
    0.05
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.1Total/Average
    
    
    17
    
    
    
    1.38
    
    
    
    0.55
    
    
    
    0.05
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.1Inferred(2)
    
    
    7
    
    
    
    1.8
    
    
    
    5.8
    
    
    
    0.01
    
    
    
    2.7
    
    
    
    2.7
    
    
    
    0.9Undeveloped Properties
    
    Measured
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    4
    
    
    
    1.21
    
    
    
    0.64
    
    
    
    0.04
    
    
    
    0.4
    
    
    
    0.5
    
    
    
    0.1Total/Average
    
    
    4
    
    
    
    1.21
    
    
    
    0.64
    
    
    
    0.04
    
    
    
    0.4
    
    
    
    0.5
    
    
    
    0.1Inferred(2)
    
    
    12
    
    
    
    1.6
    
    
    
    0.9
    
    
    
    0.02
    
    
    
    0.5
    
    
    
    0.6
    
    
    
    0.1Total
    
    Measured
    
    
    18
    
    
    
    1.36
    
    
    
    1.24
    
    
    
    0.05
    
    
    
    0.7
    
    
    
    0.7
    
    
    
    0.3Indicated
    
    
    27
    
    
    
    1.30
    
    
    
    1.02
    
    
    
    0.04
    
    
    
    0.5
    
    
    
    0.7
    
    
    
    0.2Total/Average
    
    
    45
    
    
    
    1.33
    
    
    
    1.11
    
    
    
    0.05
    
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.2MANITOBA OPERATIONSOperating Mines
    
    Measured
    
    
    2
    
    
    
    2.57
    
    
    
    0.16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    2
    
    
    
    2.3
    
    
    
    0.14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    4
    
    
    
    2.42
    
    
    
    0.15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inferred(2)
    
    
    3
    
    
    
    1.8
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Operating Mines
    
    Measured
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inferred(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    Measured
    
    
    2
    
    
    
    2.57
    
    
    
    0.16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    2
    
    
    
    2.30
    
    
    
    0.14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    4
    
    
    
    2.42
    
    
    
    0.15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 35




---



##### 



Platinum
    
    Palladium
    
    GoldQuantity
    
    Nickel
    
    Copper
    
    Cobalt
    
    (grams/
    
    (grams/
    
    (grams/Class
    
    (Mt)
    
    (per cent)
    
    (per cent)
    
    (per cent)
    
    tonne)
    
    tonne)
    
    tonne)PT INCOMining Areas
    
    Measured
    
    
    1
    
    
    
    1.71
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    32
    
    
    
    1.80
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    33
    
    
    
    1.80
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inferred(2)
    
    
    2
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Undeveloped Properties
    
    Measured
    
    
    2.5
    
    
    
    2.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    74
    
    
    
    1.66
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    76
    
    
    
    1.68
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Inferred(2)
    
    
    319
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    Measured
    
    
    4
    
    
    
    2.10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    106
    
    
    
    1.70
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    110
    
    
    
    1.72
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    VOISEYS BAY PROJECTUndeveloped Properties
    
    Measured
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    50
    
    
    
    1.66
    
    
    
    0.78
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    50
    
    
    
    1.66
    
    
    
    0.78
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    Inferred(2)
    
    
    12
    
    
    
    1.7
    
    
    
    0.7
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    GORO PROJECTDevelopment Property
    
    Measured
    
    
    29
    
    
    
    1.39
    
    
    
    
    
    
    
    0.14
    
    
    
    
    
    
    
    
    
    
    
    Indicated
    
    
    26
    
    
    
    1.84
    
    
    
    
    
    
    
    0.12
    
    
    
    
    
    
    
    
    
    
    
    Total/Average
    
    
    55
    
    
    
    1.60
    
    
    
    
    
    
    
    0.13
    
    
    
    
    
    
    
    
    
    
    
    Inferred(2)
    
    
    144
    
    
    
    1.7
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    The following sets forth the definitions that we use for our estimated mineral resources,
inferred mineral resources, indicated mineral resources and measured mineral resources.A mineral resource is a concentration or occurrence of natural, solid, inorganic or
fossilized organic material in or on the Earths crust in such form and quantity and of such a
grade or quality that it has reasonable prospects for economic extraction. The location,
quantity, grade, geological characteristics and continuity of a mineral resource are known,
estimated or interpreted from specific geological evidence and knowledge. Mineral resources
are sub-divided, in order of increasing geological confidence, into inferred, indicated and
measured categories. Mineral resources which are not ore reserves do not have demonstrated
economic viability.An inferred mineral resource is that part of a mineral resource for which quantity and grade
or quality can be estimated on the basis of geological evidence and limited sampling and
reasonably assumed, but not verified, geological and grade continuity. The estimate is based
on limited information and sampling through appropriate techniques from locations such as
outcrops, trenches, pits, workings and drill holes.An indicated mineral resource is that part of a mineral resource for which quantity and
grade or quality, densities, shape and physical characteristics can be estimated with a level
of confidence sufficient to allow the appropriate application of technical and economic
parameters to support mine planning and evaluation of the economic viability of the deposit.
The estimate is based on detailed and reliable exploration and testing information gathered
through appropriate techniques from locations such as outcrops, trenches, pits, workings and
drill holes that are spaced closely enough for geological and grade continuity to be
reasonably assumed.A measured mineral resource is that part of a mineral resource for which quantity and grade
or quality, densities, shape and physical characteristics are so well established that they
can be estimated with confidence sufficient to allow the appropriate application of technical
and economic parameters to support production planning and evaluation of the economic
viability of the deposit. The estimate is based on detailed and reliable exploration,
sampling and testing information gathered through appropriate techniques from locations such
as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to
confirm both geological and grade continuity.For the purposes of data collection, data verification, geological modeling, block modeling,
mineral resource estimation and ore reserve estimation, we apply the CIM Guidelines and
Estimation of Mineral Resources and Reserves  Best Practice Guidelines (2003) for all our
current operations and development projects. Mineral resource estimates as reported are in
addition to the estimated ore reserves and do not include diluting material and allowances for
losses that may occur when the material is mined. Cut-off values or grade and other shape and
physical criteria, as applicable, for such estimated mineral resources are based upon cost
estimates appropriate to the proposed mining and processing methods. Costs are derived on the
same basis as those used to determine the cut-off values or grades and other criteria as
applicable for the estimated ore reserves at each operation or development project except for
mine capital costs. The cut-off values or grades and other criteria, as applicable, may
change with additional data and economic evaluations.(2)
    
    Inferred mineral resources have a great amount of uncertainty as to their existence and
with respect to their economic feasibility. Investors are cautioned not to assume that any
part or all of an inferred mineral resource exists or is economically or legally mineable.(3)
    
    For the purpose of estimating and reporting Incos mineral resources, all persons
preparing and/or reviewing the estimates are designated as responsible persons for internal
requirements. As part of our internal processes and procedures in developing these
estimates, the role of each such responsible person is to review those key parts of the
estimated mineral resources for which such person has the appropriate professional expertise and/or experience, and/or
supervisory or management responsibility to ensure that the estimates are reasonable,
economically viable and consistent with our production plans and that 36




---



##### 



they are not aware of any environmental, permitting, legal, ownership, taxation, political or
social issues that would materially affect the estimates. In accordance with applicable
Canadian securities regulatory requirements, including the recently revised National
Instrument 43-101, Standards of Disclosure for Mineral Projects, Mr. S. Nicholas Sheard,
Vice-President of Exploration, Dr. Olivier Tavchandjian, Principal Geologist, Mineral Reserves
and Mineral Resources, and Dr. Lawrence B. Cochrane, Director of Mines Exploration, each as a
qualified person within the meaning of such National Instrument (which means generally an
individual with relevant experience as an engineer or geoscientist who is also a member in
good standing of a recognized engineering or similar professional association) indirectly
supervised the preparation of the mineral resource estimates as of December 31, 2005 and 2004
and other information set forth in the above tables relating to 2005 and 2004 and each has, in
accordance with the requirements of such National Instrument, conducted either directly by
himself or indirectly through employees of the Company reporting directly or indirectly to
him, a comprehensive review and confirmation of the application of the detailed procedures,
systems and processes the Company has developed and implemented for the purpose of verifying
such data. Each of Mr. Sheard, Dr. Tavchandjian and Dr. Cochrane, as well as the responsible
persons described above and other staff of the Company involved in the process of developing
these estimates, also periodically check the adequacy of such procedures, systems and
processes which are intended to provide sufficient verification of such data based upon
recognized sampling, analytical testing, modeling and other procedures in the mining industry.Mining and Other Rights
  Ontario Operations
   Manitoba Operations
  37




---



##### 



Voiseys Bay Project
    38




---



##### 



PT Inco
  Goro Project
 permis de recherches permis dexploitation occupation des sols
  39




---



##### 



PT International Nickel Indonesia Tbk
 General
      40




---



##### 



PT Inco  Sulawesi Concessions
Location of Operating Mining Areas and Undeveloped Properties
 
 41




---



##### 



PT Inco 
Location of Operating Mines, Plant and Facilities,
Undeveloped Properties and Concessions
 
 42




---



##### 



Contract of Work Extension and 1999 Expansion of Facilities
        43




---



##### 



Operations
    Production
    
    Deliveries ofof Nickel-
    
    Finished NickelYear
    
    in-Matte
    
    to Customers(1)(in tonnes)2001
    
    
    62,600
    
    
    
    61,0182002
    
    
    59,500
    
    
    
    61,9972003
    
    
    70,200
    
    
    
    65,5122004
    
    
    72,200
    
    
    
    73,8532005
    
    
    76,400
    
    
    
    73,965
 
 (1)
    
    Includes 12,283 tonnes in 2001, 12,557 tonnes in 2002, 14,307 tonnes in 2003, 14,716
tonnes in 2004 and 15,441 tonnes in 2005 of nickel-in-matte delivered to Sumitomo as a final
product. 44




---



##### 



6
   Sales
     Voiseys Bay Nickel Company Limited
 Voiseys Bay Deposits
  
 6
    
    Reference is made to Note (3) to
the tables entitled Total Estimated Ore Reserves as of December 31,
2005 and Total Estimated Ore Reserves as of December 31,
2004 above for the qualified persons under applicable Canadian
securities regulatory requirements who conducted, either directly by themselves
or indirectly through employees of the Company reporting directly or indirectly
to them, a comprehensive review and confirmation of the application of the
detailed procedures, systems and processes the Company has developed and
implemented for the purpose of verifying these estimated ore reserves. 45




---



##### 



Environmental Review Process
    Arrangements with Aboriginal Groups
   46




---



##### 



Indian Act
 Arrangements with the Provincial Government
   47




---



##### 



Project Phases
    Goro Nickel S.A.S.
 Goro Deposits
 7
  
 7
    
    Reference is made to Note (3) to the tables
entitled Total Estimated Ore Reserves as of December 31, 2005 and
Total Estimated Ore Reserves as of December 31, 2004 above for
the qualified persons under applicable Canadian securities regulatory
requirements who conducted, either directly by themselves or indirectly through
employees of the Company reporting directly or indirectly to them, a
comprehensive review and confirmation of the application of the detailed
procedures, systems and processes the Company has developed and implemented for
the purpose of verifying these estimated ore reserves. 48




---



##### 



Goro Project
Location of Concessions, Ore Reserves and Mineral Resources, Process Plant Site and Other Facilities
 
 49




---



##### 



Ownership of Goro Nickel
    50




---



##### 



Goro Project
    Project Review Process
   51




---



##### 



Fiscal Regime
  Girardin Act Financing
 Girardin Act
 52




---



##### 



53




---



##### 



New Caledonia
 collectivité territoriale
  Prony West Deposit
  Exploration and Mine Development
  54




---



##### 



55




---



##### 



56




---



##### 



57




---



##### 



58




---



##### 



Research and Development
    59




---



##### 



8
  Metals Recycling
 9
  
 8
    
    Inco trademark9
    
    Inco trademark 60




---



##### 



Environment, Health and Safety
  Environmental and Health and Safety Management Systems
    Environment, Health and Safety Audits
   61




---



##### 



SO 2
 Sudbury
 2 2
 2 2 2 2 2 2
 2 2 2 2
 2
  62




---



##### 



Thompson
 2
 2
 Port Colborne and Sudbury Soils
  63




---



##### 



Environmental
Protection Act
 Port Colborne Soils
     64




---



##### 



65




---



##### 



Sudbury Soils
   66




---



##### 



Decommissioning and Reclamation
  Re-vegetation Programs
    67




---



##### 



PT Inco
    Future Removal and Site Restoration; Closure and Post-Closure Plans
    68




---



##### 



installation classée)
     69




---



##### 



.
 Health and Safety
  Research Networks on Metals
   70




---



##### 



Diesel Particulate Matter
 3 3
 3 3
 3 3 3
  WSIB Occupational Disease Policies
  71




---



##### 



Workers Compensation Act
  Worker Safety
  2005
    
    2004
    
    2003DIF
    
    
    1.3
    
    
    
    1.4
    
    
    
    1.7
    72




---



##### 



Regulation of Nickel and Other Nonferrous Metals
  Ontario Air Standards
 Environmental Protection Act
 Air Pollution Regulation  Local Air Quality
  Occupational Exposure Limits (OELs) in the U.S. and the U.K.
  3 3
 73




---



##### 



3 3
  U.S. Environmental Regulatory Actions
 Clean Air Act
    74




---



##### 



Toxic Substances Control Act
 Canadian Environmental Protection Act
  2 2
  75




---



##### 



California Regulatory Actions
    Right-to-Know Legislation
  Harmonization of Classification and Labeling of Chemicals
  76




---



##### 



European Union Actions
     77




---



##### 



78




---



##### 



WHO Drinking Water Guidelines
  79




---



##### 



Other Environmental Control Regulations
     Employees
   80




---



##### 



Exmibal
    81




---



##### 



Miscellaneous Investments
  Other Information
    Shareholder Rights Plan
    82




---



##### 



Proposed Acquisition of Falconbridge Limited
     83




---



##### 



84




---



##### 



Items 1A. Risk Factors
  Items 1B. Unresolved Staff Comments
  Item 3. Legal Proceedings
   Item 4. Submission of Matters to a Vote of Security Holders
  85




---



##### 



PART II
 Item 5. Markets for Inco Limiteds Common Shares, Related Shareholder Matters and Inco
Limiteds Issuances or Purchases of Equity Securities
 Common Shares
 Market Information
   New York Stock Exchange (U.S. $)2005
    
    
    20041st Q
    
    
    2nd Q
    
    
    3rd Q
    
    
    4th Q
    
    
    1st Q
    
    
    2nd Q
    
    
    3rd Q
    
    
    4th QHigh
    
    
    43.25
    
    
    
    41.43
    
    
    
    47.35
    
    
    
    46.93
    
    
    
    41.34
    
    
    
    36.43
    
    
    
    39.20
    
    
    
    40.25Low
    
    
    32.32
    
    
    
    34.18
    
    
    
    38.00
    
    
    
    40.10
    
    
    
    31.72
    
    
    
    28.19
    
    
    
    31.21
    
    
    
    34.28
 Toronto Stock Exchange (Cdn. $)2005
    
    
    20041st Q
    
    
    2nd Q
    
    
    3rd Q
    
    
    4th Q
    
    
    1st Q
    
    
    2nd Q
    
    
    3rd Q
    
    
    4th QHigh
    
    
    52.55
    
    
    
    51.04
    
    
    
    54.99
    
    
    
    54.95
    
    
    
    53.10
    
    
    
    47.99
    
    
    
    49.87
    
    
    
    50.58Low
    
    
    40.00
    
    
    
    43.30
    
    
    
    46.02
    
    
    
    47.20
    
    
    
    42.49
    
    
    
    39.10
    
    
    
    41.03
    
    
    
    42.35
  Issuance of Unregistered Securities
 Securities Act of
1933 Securities Act of 1933
 Holders of Common Shares
  Dividends
   86




---



##### 



Common Share Purchase Warrants
        Other Information
    87




---



##### 



Class VBN Shares
  Preferred Shares
 Certain Provisions of the Preferred Shares as a Class
 Issuable in Series
  Priority
  Creation and Issue of Additional Preferred Shares
  Class Voting Rights
   88




---



##### 



Modification
  Securities Authorized for Issuance Under Equity Compensation Plans
  (A)
    
    
    (B)
    
    
    (C)Number ofNumber of
    
    
    Weighted
    
    
    remaining securitiessecurities to be
    
    
    average
    
    
    available for futureissued upon
    
    
    exercise price
    
    
    issuance underexercise of
    
    
    of outstanding
    
    
    equity compensationoutstanding
    
    
    options,
    
    
    plans (excludingoptions, warrants
    
    
    warrants and
    
    
    securities reflectedPlan category
    
    and rights(1)
    
    
    rights
    
    
    in column (A))(2)Equity compensation plans approved by security holders
    
    
    3,116,261
    
    
    $
    30.98
    
    
    
    7,773,950Equity compensation plans not approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    3,116,261
    
    
    $
    30.98
    
    
    
    7,773,950
 
 (1)
    
    Consists of Common Shares authorized for issuance upon the exercise of options
outstanding as of December 31, 2005 under (i) the 1993 and 1997 Key Employee Incentive Plans
which have been superseded and under which no further options may be granted, (ii) the 2001
Key Employees Incentive Plan (the 2001 KEIP), (iii) the 2005 Key Employees Incentive Plan
(the 2005 KEIP), and (iv) the 2002 Non-Employee Director Share Option Plan (the 2002
NEDSOP) which was suspended by Incos Board of Directors as of February 3, 2004.(2)
    
    Consists of Common Shares authorized for issuance as of December 31, 2005 pursuant to the
exercise of options which may be granted under the 2001 KEIP (1,773,950) and the 2005 KEIP
(5,500,000) or as restricted share awards under the 2005 KEIP (500,000). Does not include
200,000 Common Shares available for future issuance under the 2002 NEDSOP, given the Boards
decision to suspend option grants under that plan. The 2001 KEIP is nearing the end of its
term. No share options/SARS may be granted under the 2001 KEIP after April 24, 2006 and no
incentive compensation awards may be made under the 2001 KEIP in respect of any financial
year after December 31, 2006. Other Information
 Investment Canada Act
  89




---



##### 



90




---



##### 



Item 6. Selected Financial Data
  Year Ended December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)($ in millions, except per share amounts)Net sales
    
    $
    4,518
    
    
    
    4,278
    
    
    
    2,474
    
    
    
    2,161
    
    
    
    2,066Cost of sales and operating expenses, excluding depreciation and depletion
    
    $
    2,633
    
    
    
    2,348
    
    
    
    1,735
    
    
    
    1,378
    
    
    
    1,416Depreciation and depletion (2)
    
    $
    256
    
    
    
    248
    
    
    
    227
    
    
    
    242
    
    
    
    263Selling, general and administrative
    
    $
    207
    
    
    
    192
    
    
    
    169
    
    
    
    136
    
    
    
    111Asset impairment charges
    
    $
    25
    
    
    
    201
    
    
    
    
    
    
    
    2,415
    
    
    
    Interest expense(3)
    
    $
    26
    
    
    
    36
    
    
    
    56
    
    
    
    58
    
    
    
    62Income and mining taxes (2)(3)
    
    $
    408
    
    
    
    432
    
    
    
    (27
    )
    
    
    (641
    )
    
    
    (88
    )Net earnings (loss) (2)(3)
    
    $
    836
    
    
    
    619
    
    
    
    146
    
    
    
    (1,475
    )
    
    
    302Dividends per common share
    
    $
    0.30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Preferred dividends
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (26
    )
    
    
    (26
    )Premium on redemption of preferred shares
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    Net earnings (loss) applicable to common shares (2)(3)
    
    $
    836
    
    
    
    619
    
    
    
    125
    
    
    
    (1,501
    )
    
    
    276Net earnings (loss) per common share  basic(1)(2)(3)
    
    $
    4.41
    
    
    
    3.30
    
    
    
    0.68
    
    
    
    (8.21
    )
    
    
    1.52Common shares outstanding (weighted average, in millions)
    
    
    189
    
    
    
    188
    
    
    
    185
    
    
    
    183
    
    
    
    182Total assets (2)(3)
    
    $
    12,010
    
    
    
    10,716
    
    
    
    9,058
    
    
    
    8,596
    
    
    
    9,630Long-term debt(3)
    
    $
    1,852
    
    
    
    1,761
    
    
    
    1,603
    
    
    
    1,636
    
    
    
    842Convertible debt(3)
    
    $
    362
    
    
    
    418
    
    
    
    418
    
    
    
    148
    
    
    
    148Preferred shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    472
    
    
    
    472
 
 (1)
    
    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.(2)
    
    Amounts reported in 2001 have not been restated for the change in depreciation and
depletion as discussed in Note 2(d) to the financial statements under Item 8 of this Report.(3)
    
    Prior year amounts have been restated for a change in accounting principles and a
restatement. Reference is made to Notes 2(a), 2(b) and 2  Restatements to the financial
statements under Item 8 of this Report.  91




---



##### 



Year Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Restated)(1)
    
    
    (Restated)(1)
    
    
    (Restated)(1)
    
    
    (Restated)(1)($ in millions, except per share amounts)Net earnings (loss)  Canadian GAAP
    
    $
    836
    
    
    $
    619
    
    
    $
    146
    
    
    $
    (1,475
    )
    
    $
    302Increased post-retirement benefits expense
    
    
    (64
    )
    
    
    (53
    )
    
    
    (45
    )
    
    
    (24
    )
    
    
    (24
    )Currency translation gains (losses)
    
    
    (62
    )
    
    
    (89
    )
    
    
    (219
    )
    
    
    (49
    )
    
    
    123Increased intangible assets amortization expense
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )
    
    
    Increased research and development expense
    
    
    (47
    )
    
    
    (17
    )
    
    
    (5
    )
    
    
    (6
    )
    
    
    (8
    )Decreased (increased) exploration expense
    
    
    (8
    )
    
    
    1
    
    
    
    (4
    )
    
    
    (3
    )
    
    
    (7
    )Decreased (increased) asset impairment charges
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    (961
    )
    
    
    Increased interest expense
    
    
    (23
    )
    
    
    (14
    )
    
    
    (13
    )
    
    
    (1
    )
    
    
    (5
    )Cash settlement of LYON Notes tendered for conversion
    
    
    (26
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized net gain (loss) on derivative instruments
    
    
    (17
    )
    
    
    5
    
    
    
    (1
    )
    
    
    5
    
    
    
    (4
    )Increased income and mining tax expense
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    Decreased (increased) minority interest
    
    
    9
    
    
    
    (8
    )
    
    
    1
    
    
    
    2
    
    
    
    2Change in accounting policy
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Taxes on United States GAAP differences
    
    
    30
    
    
    
    22
    
    
    
    28
    
    
    
    139
    
    
    
    15Net earnings (loss) before cumulative effect of a
change in accounting principle  United States GAAP
    
    
    628
    
    
    
    477
    
    
    
    (129
    )
    
    
    (2,374
    )
    
    
    395Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    (2
    )
    
    
    Net earnings (loss)  United States GAAP
    
    $
    628
    
    
    $
    477
    
    
    $
    (146
    )
    
    $
    (2,376
    )
    
    $
    395Net earnings (loss) per share  BasicNet earnings (loss) per share before cumulative
effect of a change in accounting principle
    
    $
    3.32
    
    
    $
    2.54
    
    
    $
    (0.82
    )
    
    $
    (13.13
    )
    
    $
    2.03Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (0.09
    )
    
    
    (0.01
    )
    
    
    Net earnings (loss) per share  Basic
    
    $
    3.32
    
    
    $
    2.54
    
    
    $
    (0.91
    )
    
    $
    (13.14
    )
    
    $
    2.03Net earnings (loss) per share  DilutedNet earnings (loss) per share before cumulative
effect of a change in accounting principle
    
    $
    2.87
    
    
    $
    2.30
    
    
    $
    (0.82
    )
    
    $
    (13.13
    )
    
    $
    1.99Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (0.09
    )
    
    
    (0.01
    )
    
    
    Net earnings (loss) per share  Diluted
    
    $
    2.87
    
    
    $
    2.30
    
    
    $
    (0.91
    )
    
    $
    (13.14
    )
    
    $
    1.99
 
 (1)
    
    Reference is made to Notes 2 and 24 to the financial statements under Item 8 of this
Report.  92




---



##### 



Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Overview
  Nature of our Business
     93




---



##### 



Key Factors Affecting our Business
    94




---



##### 



Inco Average Realized
    
    Average LME Cash
    
    Cash Flow fromPrice for Nickel1
    
    Nickel Price
    
    OperationsYear
    
    ($ per tonne)
    
    ($ per tonne)
    
    ($ in millions)1996
    
    
    7,959
    
    
    
    7,500
    
    
    
    3781997
    
    
    7,407
    
    
    
    6,916
    
    
    
    243
    21998
    
    
    5,291
    
    
    
    4,617
    
    
    
    1741999
    
    
    6,415
    
    
    
    6,027
    
    
    
    128
    22000
    
    
    9,007
    
    
    
    8,641
    
    
    
    8422001
    
    
    6,468
    
    
    
    5,948
    
    
    
    3602002
    
    
    7,143
    
    
    
    6,772
    
    
    
    5992003
    
    
    9,860
    
    
    
    9,640
    
    
    
    131
    22004
    
    
    13,906
    
    
    
    13,852
    
    
    
    1,3932005
    
    
    14,842
    
    
    
    14,733
    
    
    
    739
 
 (1)
    
    Includes intermediates.(2)
    
    Cash flow from operations for 1997 reflects a one-month strike at the Ontario operations.
Cash flow from operations for 1999 and 2003 reflect three-months strikes at our Manitoba
and Ontario operations, respectively. 95




---



##### 



2005 Nickel Market Highlights
     96




---



##### 



97




---



##### 



Year-End CombinedWestern
    
    
    
    
    
    AverageWorld2
    
    
    
    
    
    AnnualWorld Primary Nickel
    
    World Primary Nickel
    
    Producers and LME
    
    Year-End LME
    
    LMEYear
    
    Demand
    
    Supply
    
    Inventories
    
    Inventories
    
    Cash Nickel Prices2001
    
    
    1,085,000
    
    
    
    1,148,000
    
    
    
    106,000
    
    
    
    19,188
    
    
    $
    5,9482002
    
    
    1,168,000
    
    
    
    1,176,000
    
    
    
    100,000
    
    
    
    21,972
    
    
    
    6,7722003
    
    
    1,244,000
    
    
    
    1,264,000
    
    
    
    104,000
    
    
    
    24,072
    
    
    
    9,6402004
    
    
    1,262,000
    
    
    
    1,255,000
    
    
    
    111,000
    
    
    
    20,898
    
    
    
    13,8522005
    
    
    1,270,000
    1
    
    
    1,285,000
    1
    
    
    127,000
    1
    
    
    36,042
    
    
    
    14,733
 
 (1)
    
    Preliminary estimates.(2)
    
    Excludes Russia, other members of the former Commonwealth of Independent States, China,
Cuba and Eastern Europe. 2004 Nickel Market Highlights
      98




---



##### 



Results of Operations
 2005 Compared with 2004
 Earnings Summary
   Principal Factors Affecting 2005 Net Earnings in Comparison
with 2004  (in millions of dollars)
 
 Nickel Production
  99




---



##### 



Copper Production
  Commencement of Voiseys Bay Operations
  Net Sales
  Deliveries
    
    
    
    
    
    Deliveries
    
    
    
    
    
    Deliveries(tonnes
    
    Net Sales
    
    (tonnes except as
    
    Net Sales
    
    (tonnes except as
    
    Net Salesexcept as indicated)
    
    (in $ millions)
    
    indicated)
    
    (in $ millions)
    
    indicated)
    
    (in $ millions)2005
    
    2005
    
    2004
    
    2004
    
    2003
    
    2003Primary nickel,
Including intermediatesInco-source
    
    
    223,811
    
    
    
    
    
    
    
    235,185
    
    
    
    
    
    
    
    184,110Purchased
    
    
    22,471
    
    
    
    
    
    
    
    16,697
    
    
    
    
    
    
    
    29,780246,282
    
    
    $
    3,655
    
    
    
    251,882
    
    
    $
    3,503
    
    
    
    213,890
    
    
    $
    2,109CopperFinished
    
    
    120,543
    
    
    
    
    
    
    
    124,884
    
    
    
    
    
    
    
    92,202Purchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,133120,543
    
    
    
    463
    
    
    
    124,884
    
    
    
    364
    
    
    
    93,335
    
    
    
    171Cobalt
    
    
    1,694
    
    
    
    57
    
    
    
    1,542
    
    
    
    72
    
    
    
    903
    
    
    
    17Precious metals (in
thousands of troy
ounces)1
    
    
    1,920
    
    
    
    267
    
    
    
    2,490
    
    
    
    246
    
    
    
    1,694
    
    
    
    114Other
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    93
    
    
    
    
    
    
    
    63Net Sales to customers
    
    
    
    
    
    $
    4,518
    
    
    
    
    
    
    $
    4,278
    
    
    
    
    
    
    $
    2,474
 
 (1)
    
    Excludes toll-refined materials. 100




---



##### 



Realized Prices
  ($ per tonne/per pound)
    
    2005
    
    
    2004
    
    
    2003Primary nickel, including
intermediates
    
    $
    14,842/6.73
    
    
    $
    13,906/6.31
    
    
    $
    9,860/4.47Copper
    
    
    3,839/1.74
    
    
    
    2,916/1.32
    
    
    
    1,832/0.83Cobalt
    
    
    32,828/14.89
    
    
    
    46,442/21.07
    
    
    
    18,846/8.55
 ($ per troy ounce)Platinum
    
    $
    841.27
    
    
    $
    762.73
    
    
    $
    588.96Palladium
    
    
    209.46
    
    
    
    225.56
    
    
    
    297.36Rhodium
    
    
    2,055.55
    
    
    
    1,166.85
    
    
    
    530.66Gold
    
    
    423.21
    
    
    
    398.68
    
    
    
    367.72Silver
    
    
    7.06
    
    
    
    6.73
    
    
    
    4.86
      101




---



##### 



Costs and Expenses/Other Income
  2005
    
    
    2004
    
    
    2003($ millions)
    
    
    
    
    
    (Restated)1
    
    
    (Restated)1Cost of sales and other expenses
    
    $
    2,633
    
    
    $
    2,348
    
    
    $
    1,735Depreciation and depletion
    
    
    256
    
    
    
    248
    
    
    
    227Selling, general and administrative
    
    
    207
    
    
    
    192
    
    
    
    169Research and development
    
    
    35
    
    
    
    29
    
    
    
    27Exploration
    
    
    43
    
    
    
    32
    
    
    
    27Currency translation adjustments
    
    
    59
    
    
    
    85
    
    
    
    177Interest expense
    
    
    26
    
    
    
    36
    
    
    
    56Asset impairment charges
    
    
    25
    
    
    
    201
    
    
    
    Other income, net
    
    
    (83
    )
    
    
    (49
    )
    
    
    (108
    )Income and mining taxes
    
    
    408
    
    
    
    432
    
    
    
    (27
    )Minority interest
    
    
    73
    
    
    
    105
    
    
    
    45
 
 (1)
    
    Reference is made to note 2 to our 2005 consolidated financial statements. Cost of Sales and Other Expenses
  Selling, General and Administrative
  Currency Translation Adjustments
  Interest Expense
  Asset Impairment Charges
  Other Income, Net
  Income and Mining Taxes
  102




---



##### 



Minority Interest
  Nickel Unit Cash Cost of Sales
  2005
    
    
    2004Nickel unit cash cost of sales before by-product credits per tonne
    
    $
    6,702
    
    
    $
    5,732 per pound
    
    
    3.04
    
    
    
    2.60Nickel unit cash cost of sales after by-product credits per tonne
    
    $
    5,842
    
    
    $
    5,115 per pound
    
    
    2.65
    
    
    
    2.32
  Principal Factors Affecting Our 2005 Nickel Unit Cash Costs of Sales After By-Product Credits
in Comparison with Such Costs for 2004
 
  103




---



##### 



Energy Costs and Relative Advantages
   Intermediates Segment
   104




---



##### 



Development Projects Segment
  Goro
     Voiseys Bay
  105




---



##### 



2004 Compared with 2003
 Earnings Summary
   Nickel Production
  Copper Production
  Net Sales
     106




---



##### 



Cost of Sale and Other Expenses
  Selling, General and Administrative
  Currency Translation Adjustments
  Interest Expense
  Asset Impairment Charges
  Other Income, Net
  107




---



##### 



Income and Mining Taxes
  Minority Interest
  Nickel Unit Cash Cost of Sales
     Energy Costs and Relative Advantages
  Intermediates Segment
  108




---



##### 



109




---



##### 



Cash Flows, Liquidity and Capital Resources
 2005 Compared with 2004
  Principal Sources and Uses of Cash in 2005  (in millions of dollars)
 
 Operating Activities
  2005
    
    
    2004
    
    
    2003($ millions)
    
    
    
    
    
    (Restated)
    
    
    (Restated)Earnings before minority interest
    
    $
    909
    
    
    $
    724
    
    
    $
    191Charges not affecting cash
    
    
    415
    
    
    
    626
    
    
    
    363Contributions greater than post-retirement benefits expense
    
    
    (137
    )
    
    
    (140
    )
    
    
    (23
    )1,187
    
    
    
    1,210
    
    
    
    531Decrease (increase) in non-cash working capital related to operations
    
    
    (448
    )
    
    
    183
    
    
    
    (400
    )Net cash provided by operating activities
    
    $
    739
    
    
    $
    1,393
    
    
    $
    131
   110




---



##### 



Investing Activities
  ($ millions)
    
    2005
    
    
    2004
    
    
    2003Capital ExpendituresOntario operations
    
    $
    (261
    )
    
    $
    (152
    )
    
    $
    (101
    )Manitoba operations
    
    
    (86
    )
    
    
    (42
    )
    
    
    (50
    )PT Inco
    
    
    (105
    )
    
    
    (79
    )
    
    
    (45
    )Goro Project
    
    
    (344
    )
    
    
    (138
    )
    
    
    (249
    )Voiseys Bay project
    
    
    (353
    )
    
    
    (447
    )
    
    
    (138
    )Other
    
    
    (19
    )
    
    
    (18
    )
    
    
    (8
    )Other Investing ActivitiesPartial sale of interest in Goro Nickel S.A.S.
    
    
    150
    
    
    
    
    
    
    
    Proceeds from the sale of a non-core investment
    
    
    103
    
    
    
    
    
    
    
    Other
    
    
    23
    
    
    
    (5
    )
    
    
    26Total
    
    $
    (892
    )
    
    $
    (881
    )
    
    $
    (565
    )
 Financing Activities
    111




---



##### 



($ millions)
    
    2005
    
    
    2004
    
    
    2003Long-term borrowingsTerm loan
    
    $
    200
    
    
    $
    200
    
    
    $
    5.70% Debentures due 2015
    
    
    
    
    
    
    
    
    
    
    300Other
    
    
    14
    
    
    
    5
    
    
    
    14Total
    
    $
    214
    
    
    $
    205
    
    
    $
    314Repayments of long-term debtPT Inco loan facilities and other debt
    
    
    (91
    )
    
    
    (85
    )
    
    
    (82
    )5 3/4% Convertible Debentures due 2004
    
    
    
    
    
    
    
    
    
    
    (173
    )7 3/4% Convertible Debentures due 2016
    
    
    
    
    
    
    
    
    
    
    (145
    )9.60% Debentures due 2022
    
    
    
    
    
    
    
    
    
    
    (159
    )Other
    
    
    (14
    )
    
    
    (15
    )
    
    
    (15
    )Total
    
    $
    (105
    )
    
    $
    (100
    )
    
    $
    (574
    )
      112




---



##### 



2005
    
    2004
    
    2003December 31
    
    
    
    (Restated)
    
    (Restated)Total debt as % of total debt plus shareholders equity
    
    
    28
    %
    
    
    30
    %
    
    
    32
    %
   Reinstatement of Common Shares Dividend
  2004 Compared with 2003
 Operating Activities
  113




---



##### 



Investing Activities
  Financing Activities
   1 2 1 2 1 2
 Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
 Contractual Obligations
  (in $ millions)
    
    Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    After 5 yearsLong-term debt obligations
    
    $
    1,974
    
    
    $
    122
    
    
    $
    35
    
    
    $
    226
    
    
    $
    1,591Operating lease obligations
    
    
    83
    
    
    
    33
    
    
    
    36
    
    
    
    8
    
    
    
    6Purchase obligations1
    
    
    1,815
    
    
    
    1,081
    
    
    
    486
    
    
    
    224
    
    
    
    24Post-retirement benefit obligations2
    
    
    180
    
    
    
    180
    
    
    
    
    
    
    
    
    
    
    
    Asset retirement obligations
    
    
    1,090
    
    
    
    2
    
    
    
    7
    
    
    
    6
    
    
    
    1,075Other long-term liabilities and contractual
obligations
    
    
    99
    
    
    
    2
    
    
    
    6
    
    
    
    10
    
    
    
    81Total
    
    $
    5,241
    
    
    $
    1,420
    
    
    $
    570
    
    
    $
    474
    
    
    $
    2,777
 (1)
    
    These purchase obligations are largely related to the Goro project, with the balance
comprising routine orders to purchase goods and services at our current operating locations.(2)
    
    We have only included these obligations in the table for one year since such obligations
are calculated on an annual basis.
  114




---



##### 



Contingencies and Guarantees
    115




---



##### 



Derivative Instrument Positions
   As at December 31, 2005
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    TotalMetalsLME forward nickel purchase
contracts1 (tonnes)
    
    
    12,462
    
    
    
    420
    
    
    
    
    
    
    
    
    
    
    
    12,882Average price ($  per tonne)
    
    
    12,795
    
    
    
    10,496
    
    
    
    
    
    
    
    
    
    
    
    12,720Contract amount (in $ millions)
    
    
    160
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    164Fair value (in $ millions)
    
    
    8
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    9LME forward nickel sell contracts1(tonnes)
    
    
    4,086
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,086Average price ($  per tonne)
    
    
    13,342
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,342Contract amount (in $ millions)
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55Fair value (in $ millions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    COMEX forward copper sell contracts2(tonnes)
    
    
    181
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181Average price ($  per tonne)
    
    
    4,003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,003Contract amount (in $ millions)
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Fair value (in $ millions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Copper range forward options2
(tonnes)
    
    
    19,500
    
    
    
    58,992
    
    
    
    48,384
    
    
    
    
    
    
    
    126,876Average (minimum-maximum)
($  per tonne)
    
    
    2,535-3,400
    
    
    
    2,205-2,988
    
    
    
    2,205-2,773
    
    
    
    
    
    
    
    2,256-2,969Contract amount (in $ millions)
    
    
    49-66
    
    
    
    130-177
    
    
    
    107-134
    
    
    
    
    
    
    
    286-377Fair value (in $ millions)
    
    
    (20
    )
    
    
    (46
    )
    
    
    (35
    )
    
    
    
    
    
    
    (101
    )Copper put options2 (tonnes)
    
    
    15,000
    
    
    
    
    
    
    
    9,996
    
    
    
    
    
    
    
    24,996Average price ($  per tonne)
    
    
    2,425
    
    
    
    
    
    
    
    2,491
    
    
    
    
    
    
    
    2,451Contract amount (in $ millions)
    
    
    36
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    61Fair value (in $ millions)
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Platinum fixed price swaps3
(troy ounces)
    
    
    12,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,000Average price ($  per troy ounce)
    
    
    651
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    651Contract amount (in $ millions)
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Fair value (in $ millions)
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Platinum range forward options3
(troy ounces)
    
    
    20,009
    
    
    
    24,174
    
    
    
    34,644
    
    
    
    
    
    
    
    78,827Average (minimum-maximum)
($  per troy ounce)
    
    
    688-802
    
    
    
    720-823
    
    
    
    700-808
    
    
    
    
    
    
    
    703-811Contract amount (in $ millions)
    
    
    14-16
    
    
    
    17-20
    
    
    
    24-28
    
    
    
    
    
    
    
    55-64Fair value (in $ millions)
    
    
    (4
    )
    
    
    (5
    )
    
    
    (8
    )
    
    
    
    
    
    
    (17
    )
 116




---



##### 



As at December 31, 2005
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    TotalFuel oil
swaps4 (tonnes)
    
    
    32,150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,150Average price ($  per tonne)
    
    
    290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    290Contract amount (in $ millions)
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Fair value (in $ millions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    CurrenciesCdn.$ forward contracts5 (millions)
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21Average price (U.S.$)
    
    
    0.845
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.845Contract amount (in $ millions)
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18Fair value (in $ millions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Aus.$ forward contracts5 (millions)
    
    
    155
    
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    200Average price (U.S.$)
    
    
    0.668
    
    
    
    0.712
    
    
    
    
    
    
    
    
    
    
    
    0.678Contract amount (in $ millions)
    
    
    102
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    134Fair value (in $ millions)
    
    
    11
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    12Euro forward contracts5 (millions)
    
    
    86
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    116Average price (U.S.$)
    
    
    1.193
    
    
    
    1.213
    
    
    
    
    
    
    
    
    
    
    
    1.198Contract amount (in $ millions)
    
    
    103
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    139Fair value (in $ millions)
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Pounds sterling forward contracts5
(millions)
    
    
    8
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    9Average price (U.S.$)
    
    
    1.743
    
    
    
    1.766
    
    
    
    
    
    
    
    
    
    
    
    1.746Contract amount (in $ millions)
    
    
    14
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    16Fair value (in $ millions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swap6(notional principal amount in $ millions)(maturity 2011)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200Fair value (in $ millions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
 (1)
    
    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.(2)
    
    We had outstanding put option contracts, giving us the right but not the obligation to
sell copper, and sold call option contracts, giving the buyer the right but not the
obligation, to purchase copper for time periods extending to 2008. We also enter into
forward copper sell contracts based upon quotations for copper on the COMEX Division of the
New York Mercantile Exchange.(3)
    
    Depending on market conditions, we enter into precious metals hedging contracts. 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. Under these swap contracts, we receive fixed prices for platinum
and pay a floating price based on monthly average spot prices. We also had outstanding put
option contracts, giving us the right but not the obligation to sell platinum and sold call
option contracts, giving the buyer the right but not the obligation, to purchase platinum
during the same time period.(4)
    
    We use fuel oil swap contracts to reduce the effect of fuel oil price changes in respect
of a portion of our energy requirements at PT Inco. Under these swap contracts, we pay
fixed prices for fuel oil and receive a floating price based on monthly average spot price
quotations.(5)
    
    We use forward currency contracts to eliminate the risk of exchange rate movements on a
portion of our future construction costs of capital assets at our Ontario operations and the
planned production facilities for the Goro project.(6)
    
    As at December 31, 2005, we had an outstanding interest rate swap of a notional amount of
$200 million on our term loan due 2011, whereby we initially receive a floating rate at
0.875 per cent over the 3-month London interbank offered rate and pay a fixed rate of 5.098
per cent.
 117




---



##### 



As at December 31, 2004
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    TotalMetalsLME forward nickel purchase
Contracts1 (tonnes)
    
    
    5,274
    
    
    
    804
    
    
    
    348
    
    
    
    
    
    
    
    6,426Average price ($  per tonne)
    
    
    12,283
    
    
    
    9,748
    
    
    
    9,667
    
    
    
    
    
    
    
    11,824Contract amount (in $ millions)
    
    
    65
    
    
    
    8
    
    
    
    3
    
    
    
    
    
    
    
    76Fair value (in $ millions)
    
    
    13
    
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    17LME forward nickel sell contracts (tonnes)
    
    
    1,464
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,464Average price ($  per tonne)
    
    
    14,543
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,543Contract amount (in $ millions)
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21Fair value (in $ millions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Palladium fixed price swaps
(troy ounces)
    
    
    9,390
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,390Average price ($  per troy ounce)
    
    
    295
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    295Contract amount (in $ millions)
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Fair value (in $ millions)
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Platinum fixed price swaps
(troy ounces)
    
    
    30,828
    
    
    
    12,000
    
    
    
    
    
    
    
    
    
    
    
    42,828Average price ($  per troy ounce)
    
    
    647
    
    
    
    651
    
    
    
    
    
    
    
    
    
    
    
    648Contract amount (in $ millions)
    
    
    20
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    28Fair value (in $ millions)
    
    
    (7
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (9
    )Gold fixed price swaps
(troy ounces)
    
    
    29,956
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,956Average price ($  per troy ounce)
    
    
    390
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    390Contract amount (in $ millions)
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Fair value (in $ millions)
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Platinum range forward options
(troy ounces)
    
    
    35,173
    
    
    
    20,009
    
    
    
    24,174
    
    
    
    34,644
    
    
    
    114,000Average (minimum-maximum)
($  per troy ounce)
    
    
    698-829
    
    
    
    688-802
    
    
    
    720-823
    
    
    
    700-808
    
    
    
    701-816Contract amount (in $ millions)
    
    
    25-29
    
    
    
    14-16
    
    
    
    17-20
    
    
    
    24-28
    
    
    
    80-93Fair value (in $ millions)
    
    
    (2
    )
    
    
    (2
    )
    
    
    (2
    )
    
    
    (2
    )
    
    
    (8
    )Fuel oil
swaps (tonnes)
    
    
    83,650
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,650Average Price ($  per tonne)
    
    
    165
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165Contract amount (in $ millions)
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14Fair value (in $ millions)
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2CurrenciesCdn.$ forward contracts (millions)
    
    
    458
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    479Average price (U.S.$)
    
    
    0.782
    
    
    
    0.845
    
    
    
    
    
    
    
    
    
    
    
    0.785Contract amount (in $ millions)
    
    
    358
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    376Fair value (in $ millions)
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23Aus.$ (millions)
    
    
    100
    
    
    
    155
    
    
    
    45
    
    
    
    
    
    
    
    300Average price (U.S.$)
    
    
    0.675
    
    
    
    0.668
    
    
    
    0.712
    
    
    
    
    
    
    
    0.677Contract amount (in $ millions)
    
    
    67
    
    
    
    104
    
    
    
    32
    
    
    
    
    
    
    
    203Fair value (in $ millions)
    
    
    9
    
    
    
    14
    
    
    
    2
    
    
    
    
    
    
    
    25Pounds sterling (millions)
    
    
    6
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    14Average price (U.S.$)
    
    
    1.749
    
    
    
    1.743
    
    
    
    
    
    
    
    
    
    
    
    1.746Contract amount (in $ millions)
    
    
    10
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    24Fair value (in $ millions)
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2Interest rate swaps (notional principal
amount in $ millions)(maturity 2011)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200(maturity 2012)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400(maturity 2015)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300Fair value (in $ millions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
 118




---



##### 



Other Off-Balance Sheet Arrangements
     Risks and Uncertainties
  Market Risk
  119




---



##### 



120




---



##### 



Metals and Commodities Risk
      121




---



##### 



Foreign Exchange Risk
     122




---



##### 



Interest Rate Risk
   Counterparty Risk
  Environment Risk
  123




---



##### 



124




---



##### 



125




---



##### 



126




---



##### 



Other Risks and Uncertainties
 PT Inco
   Risks Associated with, and Importance of, Future Low-Cost Nickel Projects
    127




---



##### 



Uncertainty of Production and Capital and Other Cost Estimates
   Goro
   128




---



##### 



Operations
   Construction Risks and Technological Risks
   129




---



##### 



Governmental Regulations
   Capital Requirements and Operating Risks
     130




---



##### 



Labour Relations
   Uncertainty of Ore/Mineral Reserve Estimates
   131




---



##### 



The Falconbridge Transaction
  Sensitivities
  Impact on BasicNet EarningsSensitivities as of December 31, 2005
    
    10% change
    
    per Share1MetalsNickel
    
    $0.60 per pound
    
    $
    0.84Copper
    
    0.21 per pound
    
    
    0.18Cobalt
    
    1.17 per pound
    
    
    0.02Platinum
    
    96 per troy ounce
    
    
    0.05Palladium
    
    25 per troy ounce
    
    
    0.02EnergyFuel Oil
    
    4.56 per bbl
    
    
    0.03Natural Gas
    
    1.05 per MM BTU
    
    
    0.02CurrenciesU.S. $1.00 per Cdn$2
    
    0.086 cents
    
    
    0.47U.S. $1.00 per Indonesian rupiah (per thousand)
    
    0.01 cents
    
    
    0.01Share appreciation rights
    
    4.36 per share
    
    
    0.02
 
 (1)
    
    Canadian GAAP basic net earnings per share. Each sensitivity assumes other factors
are held constant.(2)
    
    Represents the impact on Canadian dollar-denominated operating costs and excludes the
translation effect relating to the Canadian dollar-denominated liabilities and to accrued
taxes for Canadian dollar currency translation effects associated with U.S.
dollar-denominated liabilities.   132




---



##### 



Impact on BasicNet EarningsSensitivities as of December 31, 2004
    
    10% change
    
    per Share1MetalsNickel
    
    $0.68 per pound
    
    $
    0.80Copper
    
    0.15 per pound
    
    
    0.12Cobalt
    
    1.86 per pound
    
    
    0.02Platinum
    
    86 per troy ounce
    
    
    0.05Palladium
    
    18 per troy ounce
    
    
    0.01EnergyFuel Oil
    
    2.83 per bbl
    
    
    0.02Natural Gas
    
    0.74 per MM BTU
    
    
    0.01CurrenciesU.S. $1.00 per Cdn$2
    
    0.083 cents
    
    
    0.36U.S. $1.00 per Indonesian rupiah (per thousand)
    
    0.01 cents
    
    
    0.01Share appreciation rights
    
    3.70 per share
    
    
    0.02
 
 (1)
    
    Canadian GAAP basic net earnings per share. Each sensitivity assumes other factors
are held constant.(2)
    
    Represents the impact on Canadian dollar-denominated operating costs and excludes the
translation effect relating to the Canadian dollar-denominated liabilities and to accrued
taxes for Canadian dollar currency translation effects associated with U.S.
dollar-denominated liabilities.     133




---



##### 



Critical Accounting Policies and Estimates
  Depreciation and Depletion
      134




---



##### 



Impairment
       Asset Retirement Obligations
   135




---



##### 



Future Employee Benefits and Costs
    136




---



##### 



Income and Mining Taxes
    Accounting Changes
   137




---



##### 



Outlook
 Nickel Market Conditions
    Operations
  138




---



##### 



2006 Planned Capital Expenditures
  Pending Acquisition of Falconbridge
      Non-GAAP Financial Measure
  139




---



##### 



Reconciliation of Nickel Unit Cash Cost of Sales Before and After By-Product Credits
to Canadian GAAP Cost of Sales
 ($ millions except per pound and per tonne data)
    
    2005
    
    2004
    
    2003Cost of sales and other operating expenses,
excluding depreciation and depletion
    
    $
    2,633
    
    
    $
    2,348
    
    
    $
    1,735By-product costs
    
    
    (635
    )
    
    
    (572
    )
    
    
    (383
    )Purchased finished nickel
    
    
    (331
    )
    
    
    (234
    )
    
    
    (279
    )Delivery expense
    
    
    (35
    )
    
    
    (33
    )
    
    
    (25
    )Other businesses cost of sales
    
    
    (39
    )
    
    
    (38
    )
    
    
    (25
    )Strike expense, excluding depreciation
    
    
    
    
    
    
    
    
    
    
    (88
    )Non-cash items1
    
    
    (32
    )
    
    
    (28
    )
    
    
    (24
    )Remediation, demolition and other related expenses
    
    
    (57
    )
    
    
    (30
    )
    
    
    (55
    )Adjustments associated with affiliate transactions
    
    
    34
    
    
    
    (54
    )
    
    
    (28
    )Asset write-offs and related charges 2
    
    
    (32
    )
    
    
    
    
    
    
    Other
    
    
    (9
    )
    
    
    (11
    )
    
    
    (8
    )Nickel cash cost of sales before by-product credits 3
    
    
    1,497
    
    
    
    1,348
    
    
    
    820By-product net sales
    
    
    (825
    )
    
    
    (719
    )
    
    
    (330
    )By-product costs
    
    
    635
    
    
    
    572
    
    
    
    383Nickel cash cost of sales after by-product credits 3
    
    $
    1,307
    
    
    $
    1,201
    
    
    $
    873Inco-source nickel deliveries (millions of pounds)
    
    
    493
    
    
    
    518
    
    
    
    406Nickel unit cash cost of sales before by-product credits per pound
    
    $
    3.04
    
    
    $
    2.60
    
    
    $
    2.02Nickel unit cash cost of sales before by-product credits per tonne
    
    $
    6,702
    
    
    $
    5,732
    
    
    $
    4,453Nickel unit cash cost of sales after by-product credits per pound
    
    $
    2.65
    
    
    $
    2.32
    
    
    $
    2.15Nickel unit cash cost of sales after by-product credits per tonne
    
    $
    5,842
    
    
    $
    5,115
    
    
    $
    4,740
 
 (1)
    
    Post-retirement benefits other than pensions.(2)
    
    Relates to certain assets at PT Inco that had no future value to PT Incos operations and
the write-off of the book values of certain equipment assessed to be beyond economic repair
and to PT Incos change in accounting for asset sales and other dispositions.(3)
    
    Nickel cash cost of sales before and after by-product credits includes costs for both
Inco-source and purchased nickel intermediates. Other Information
  140




---



##### 



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  141




---



##### 



Item 8. Financial Statements and Supplementary Data
 Managements Report on Internal Control Over Financial Reporting
  Internal Control 
Integrated Framework Committee of Sponsoring Organizations of the Treadway Commission
   142




---



##### 



Auditors Report
 To the Shareholders of Inco Limited
 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission
   Internal Control  Integrated Framework issued by the
COSO Internal Control  Integrated Framework issued by the COSO
  
  143




---



##### 



Consolidated Statement of Earnings
 Year ended December 31
    
    2005
    
    2004
    
    2003(in millions of United States dollars except per share amounts)
    
    
    
    
    
    (Restated)
    
    (Restated)Net sales(Note 18)
    
    $
    4,518
    
    
    $
    4,278
    
    
    $
    2,474Costs and operating expensesCost of sales and other expenses, excluding
depreciation and depletion
    
    
    2,633
    
    
    
    2,348
    
    
    
    1,735Depreciation and depletion
    
    
    256
    
    
    
    248
    
    
    
    227Selling, general and administrative
    
    
    207
    
    
    
    192
    
    
    
    169Research and development
    
    
    35
    
    
    
    29
    
    
    
    27Exploration
    
    
    43
    
    
    
    32
    
    
    
    27Currency translation adjustments
    
    
    59
    
    
    
    85
    
    
    
    177Interest expense
    
    
    26
    
    
    
    36
    
    
    
    56Asset impairment charges (Note 3)
    
    
    25
    
    
    
    201
    
    
    
    3,284
    
    
    
    3,171
    
    
    
    2,418Other income, net (Note 4)
    
    
    83
    
    
    
    49
    
    
    
    108Earnings before income and mining taxes and minority interest
    
    
    1,317
    
    
    
    1,156
    
    
    
    164Income and mining taxes (Note 5)
    
    
    408
    
    
    
    432
    
    
    
    (27
    )Earnings before minority interest
    
    
    909
    
    
    
    724
    
    
    
    191Minority interest (Note 22)
    
    
    73
    
    
    
    105
    
    
    
    45Net earnings
    
    
    836
    
    
    
    619
    
    
    
    146Dividends on preferred shares (Note 14)
    
    
    
    
    
    
    
    
    
    
    (6
    )Premium on redemption of preferred shares (Note 14)
    
    
    
    
    
    
    
    
    
    
    (15
    )Net earnings applicable to common shares
    
    $
    836
    
    
    $
    619
    
    
    $
    125Net earnings per common share (Note 6)Basic
    
    $
    4.41
    
    
    $
    3.30
    
    
    $
    0.68Diluted
    
    $
    3.75
    
    
    $
    2.95
    
    
    $
    0.64
 Consolidated Statement of Retained Earnings (Deficit)
 Year ended December 31
    
    2005
    
    2004
    
    2003(in millions of United States dollars)
    
    
    
    
    
    (Restated)
    
    (Restated)Retained earnings (deficit) at beginning of year,
as previously reported
    
    $
    390
    
    
    $
    (206
    )
    
    $
    (331
    )Change in accounting policies and restatements (Note 2)
    
    
    38
    
    
    
    15
    
    
    
    15Retained earnings (deficit) at beginning of year, as restated
    
    
    428
    
    
    
    (191
    )
    
    
    (316
    )Net earnings
    
    
    836
    
    
    
    619
    
    
    
    146Cash settlement of LYON Notes tendered for conversion (Note 13)
    
    
    (26
    )
    
    
    
    
    
    
    Dividends on common shares  $0.30 per share (2004-nil; 2003-nil)
    
    
    (57
    )
    
    
    
    
    
    
    Dividends on preferred shares
    
    
    
    
    
    
    
    
    
    
    (6
    )Premium on redemption of preferred shares (Note 14)
    
    
    
    
    
    
    
    
    
    
    (15
    )Retained earnings (deficit) at end of year
    
    $
    1,181
    
    
    $
    428
    
    
    $
    (191
    )
  144




---



##### 



Consolidated Balance Sheet
 December 31
    
    2005
    
    2004
    
    2003(in millions of United States dollars )
    
    
    
    
    
    (Restated)
    
    (Restated)ASSETSCurrent assetsCash and cash equivalents (Note 21)
    
    $
    958
    
    
    $
    1,076
    
    
    $
    418Accounts receivable
    
    
    673
    
    
    
    601
    
    
    
    435Inventories (Note 7)
    
    
    996
    
    
    
    834
    
    
    
    746Other
    
    
    68
    
    
    
    42
    
    
    
    98Total current assets
    
    
    2,695
    
    
    
    2,553
    
    
    
    1,697Property, plant and equipment (Note 8)
    
    
    8,459
    
    
    
    7,587
    
    
    
    7,035Accrued pension benefits asset (Note 10)
    
    
    611
    
    
    
    422
    
    
    
    226Deferred charges and other assets (Note 19)
    
    
    245
    
    
    
    154
    
    
    
    100Total assets
    
    $
    12,010
    
    
    $
    10,716
    
    
    $
    9,058LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesLong-term debt due within one year (Notes 9 and 19)
    
    $
    122
    
    
    $
    107
    
    
    $
    103Accounts payable
    
    
    253
    
    
    
    331
    
    
    
    253Accrued payrolls and benefits
    
    
    221
    
    
    
    208
    
    
    
    165Other accrued liabilities
    
    
    533
    
    
    
    399
    
    
    
    332Income and mining taxes payable
    
    
    36
    
    
    
    279
    
    
    
    27Total current liabilities
    
    
    1,165
    
    
    
    1,324
    
    
    
    880Deferred credits and other liabilitiesLong-term debt (Notes 9 and 19)
    
    
    1,852
    
    
    
    1,761
    
    
    
    1,603Deferred income and mining taxes (Note 5)
    
    
    2,018
    
    
    
    1,891
    
    
    
    1,718Accrued post-retirement benefits liability (Note 10)
    
    
    732
    
    
    
    671
    
    
    
    603Asset retirement obligation (Note 11)
    
    
    168
    
    
    
    171
    
    
    
    141Deferred credits and other liabilities (Note 12)
    
    
    131
    
    
    
    58
    
    
    
    Total liabilities
    
    
    6,066
    
    
    
    5,876
    
    
    
    4,945Minority interest
    
    
    761
    
    
    
    470
    
    
    
    404Commitments and contingencies (Note 20)Shareholders equityConvertible debt (Note 13)
    
    
    362
    
    
    
    418
    
    
    
    418Common shareholders equityCommon shares issued and outstanding 192,237,394
(2004 - 188,133, 439; 2003 - 186,915,865) (Notes 16 and 17)
    
    
    3,000
    
    
    
    2,891
    
    
    
    2,858Warrants (Note 15)
    
    
    62
    
    
    
    62
    
    
    
    62Contributed surplus (Note 17)
    
    
    578
    
    
    
    571
    
    
    
    562Retained earnings (deficit)
    
    
    1,181
    
    
    
    428
    
    
    
    (191
    )4,821
    
    
    
    3,952
    
    
    
    3,291Total shareholders equity
    
    
    5,183
    
    
    
    4,370
    
    
    
    3,709Total liabilities and shareholders equity
    
    $
    12,010
    
    
    $
    10,716
    
    
    $
    9,058
  145




---



##### 



Consolidated Statement of Cash Flows
 Year ended December 31
    
    2005
    
    2004
    
    2003(in millions of United States dollars)
    
    
    
    
    
    (Restated)
    
    (Restated)Operating activitiesEarnings before minority interest
    
    $
    909
    
    
    $
    724
    
    
    $
    191Charges (credits) not affecting cashDepreciation and depletion
    
    
    256
    
    
    
    248
    
    
    
    227Deferred income and mining taxes
    
    
    77
    
    
    
    63
    
    
    
    43Asset impairment charges (Note 3)
    
    
    25
    
    
    
    201
    
    
    
    Other
    
    
    57
    
    
    
    114
    
    
    
    93Contributions greater than post-retirement benefits expense
    
    
    (137
    )
    
    
    (140
    )
    
    
    (23
    )Decrease (increase) in non-cash working capital related to operationsAccounts receivable
    
    
    (72
    )
    
    
    (166
    )
    
    
    (184
    )Inventories
    
    
    (149
    )
    
    
    (88
    )
    
    
    (170
    )Accounts payable and accrued liabilities
    
    
    34
    
    
    
    126
    
    
    
    124Income and mining taxes payable
    
    
    (235
    )
    
    
    249
    
    
    
    (140
    )Other
    
    
    (26
    )
    
    
    62
    
    
    
    (30
    )Net cash provided by operating activities
    
    
    739
    
    
    
    1,393
    
    
    
    131Investing activitiesCapital expenditures
    
    
    (1,168
    )
    
    
    (876
    )
    
    
    (591
    )Partial sale of interest in Goro Nickel S.A.S. (Note 22)
    
    
    150
    
    
    
    
    
    
    
    Proceeds from the sale of an investment
    
    
    103
    
    
    
    
    
    
    
    Other
    
    
    23
    
    
    
    (5
    )
    
    
    26Net cash used for investing activities
    
    
    (892
    )
    
    
    (881
    )
    
    
    (565
    )Financing activitiesLong-term borrowings
    
    
    214
    
    
    
    205
    
    
    
    314Repayments of long-term debt
    
    
    (105
    )
    
    
    (100
    )
    
    
    (574
    )French government-sponsored Girardin Act financing (Note 12)
    
    
    49
    
    
    
    41
    
    
    
    Cash settlement of LYON Notes tendered for conversion
    
    
    (76
    )
    
    
    
    
    
    
    Convertible debt issued
    
    
    
    
    
    
    
    
    
    
    470Preferred shares redeemed (Note 14)
    
    
    
    
    
    
    
    
    
    
    (487
    )Common shares issued
    
    
    40
    
    
    
    30
    
    
    
    60Common dividends paid
    
    
    (57
    )
    
    
    
    
    
    
    Preferred dividends paid
    
    
    
    
    
    
    
    
    
    
    (6
    )Dividends paid to minority interest
    
    
    (49
    )
    
    
    (20
    )
    
    
    (7
    )Other
    
    
    19
    
    
    
    (10
    )
    
    
    (5
    )Net cash provided by (used for) financing activities
    
    
    35
    
    
    
    146
    
    
    
    (235
    )Net increase (decrease) in cash and cash equivalents
    
    
    (118
    )
    
    
    658
    
    
    
    (669
    )Cash and cash equivalents at beginning of year
    
    
    1,076
    
    
    
    418
    
    
    
    1,087Cash and cash equivalents at end of year(Note 21)
    
    $
    958
    
    
    $
    1,076
    
    
    $
    418
  146




---



##### 



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
  Principles of consolidation
  Estimates
  Translation of consolidated financial statements into United States dollars
  Cash and cash equivalents
  Inventories
   147




---



##### 



Property, plant and equipment
  Research and development costs
  Asset impairment
   148




---



##### 



Revenue recognition
   Exploration
   Depreciation and depletion
  Mine and mobile equipment
    
    
    3 to 10 yearsProcessing facilities and smelter equipment
    
    
    15 to 20 yearsRefinery equipment
    
    
    5 to 20 yearsPower generation facilities and equipment
    
    
    10 to 40 yearsFurniture and fixtures
    
    10 yearsPort facilities and transportation equipment
    
    14 years
    149




---



##### 



Asset retirement obligations
     Income and mining taxes
   150




---



##### 



Financial instruments and commodities contracts
  Post-retirement benefits
  Stock compensation plans
  Net earnings per Common Share
  Note 2. Changes in accounting policies and restatements
 Changes in accounting policies
 (a) Convertible Debentures
 Financial Instruments  Disclosure and
Presentation Financial Instruments that may be Settled at the Issuers Option in
Cash or its own Equity Instruments
 151




---



##### 



(b) Earnings per share
 The Effects of Contingently Convertible Instruments on the
Computation of Diluted Earnings per Share
 (c) Variable interest entities
 Consolidation of
Variable Interest Entities
  (d) Depreciation and depletion expense
   (e) Generally accepted accounting principles
 Generally Accepted Accounting
Principles
 152




---



##### 



(f) Hedging Relationships
 Hedging Relationships
 (g) Stock-based compensation
  (h) Impairment of long-lived assets
 Impairment of Long-Lived Assets
 (i) Asset retirement obligations
 Asset
Retirement Obligations
 Recent Accounting Pronouncements
 Financial Instruments  Recognition and Measurement Hedges Hedging Relationships Comprehensive Income
  Restatements
  153




---



##### 



Note 3. Asset impairment charges
   Note 4. Other income, net
  Year ended December 31
    
    2005
    
    
    2004
    
    
    2003Interest and dividend income
    
    $
    29
    
    
    $
    13
    
    
    $
    16Gains from sales of securities and other assets
    
    
    88
    
    
    
    9
    
    
    
    59Gains (losses) from derivative positions in metals
    
    
    (12
    )
    
    
    (4
    )
    
    
    12Gain from closure of derivative foreign currency contracts
    
    
    
    
    
    
    10
    
    
    
    11Loss from cash settlement of LYON Notes
tendered for conversion (Note 13)
    
    
    (9
    )
    
    
    
    
    
    
    Interest from a tax refund
    
    
    
    
    
    
    
    
    
    
    7Goro project suspension, net
    
    
    
    
    
    
    1
    
    
    
    4Earnings from affiliates accounted for using equity method
    
    
    2
    
    
    
    5
    
    
    
    2Loss on redemption of securities
    
    
    
    
    
    
    
    
    
    
    (2
    )Other, net
    
    
    (15
    )
    
    
    15
    
    
    
    (1
    )Other income, net
    
    $
    83
    
    
    $
    49
    
    
    $
    108
    154




---



##### 



Note 5. Income and mining taxes
   Year ended December 31
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    
    (Restated)Current taxesCanadian
    
    $
    241
    
    
    $
    165
    
    
    $
    (47
    )Foreign
    
    
    123
    
    
    
    147
    
    
    
    11364
    
    
    
    312
    
    
    
    (36
    )Deferred taxesCanadian
    
    
    50
    
    
    
    123
    
    
    
    (33
    )Foreign
    
    
    (6
    )
    
    
    (3
    )
    
    
    4244
    
    
    
    120
    
    
    
    9Income and mining taxes
    
    $
    408
    
    
    $
    432
    
    
    $
    (27
    )
  Year ended December 31
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    
    (Restated)Canada
    
    $
    875
    
    
    $
    830
    
    
    $
    55Foreign
    
    
    442
    
    
    
    326
    
    
    
    109$
    1,317
    
    
    $
    1,156
    
    
    $
    164
 155




---



##### 



Year ended December 31
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    
    (Restated)Provision at Combined Canadian federal-
provincial statutory income tax rate
    
    $
    510
    
    
    $
    461
    
    
    $
    66Resource and depletion allowances
    
    
    (64
    )
    
    
    (77
    )
    
    
    (12
    )Adjusted income taxes
    
    
    446
    
    
    
    384
    
    
    
    54Mining taxes
    
    
    48
    
    
    
    66
    
    
    
    17494
    
    
    
    450
    
    
    
    71Currency translation adjustments
    
    
    2
    
    
    
    (7
    )
    
    
    42Currency translation adjustments on long-term debt
    
    
    13
    
    
    
    23
    
    
    
    58Non-taxable gains
    
    
    (41
    )
    
    
    (1
    )
    
    
    (33
    )Benefit of net capital losses not previously recognized
    
    
    
    
    
    
    (42
    )
    
    
    Adjustment of prior year tax issues and tax rate changes
    
    
    (19
    )
    
    
    (17
    )
    
    
    (142
    )Foreign tax rate differences
    
    
    (39
    )
    
    
    (39
    )
    
    
    (17
    )Asset impairment charges
    
    
    
    
    
    
    70
    
    
    
    Other
    
    
    (2
    )
    
    
    (5
    )
    
    
    (6
    )Effective income and mining taxes
    
    $
    408
    
    
    $
    432
    
    
    $
    (27
    )
  December 31
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    
    (Restated)Liabilities:Property, plant and equipment
    
    $
    2,130
    
    
    $
    2,038
    
    
    $
    1,889Deferred charges and other assets
    
    
    215
    
    
    
    135
    
    
    
    65Long-term debt
    
    
    97
    
    
    
    90
    
    
    
    60Other
    
    
    13
    
    
    
    1
    
    
    
    32,455
    
    
    
    2,264
    
    
    
    2,017Assets:Post-retirement benefits
    
    
    236
    
    
    
    217
    
    
    
    204Asset retirement obligations
    
    
    71
    
    
    
    69
    
    
    
    45Tax loss carryforwards
    
    
    129
    
    
    
    86
    
    
    
    70Tax credit carryforwards
    
    
    9
    
    
    
    12
    
    
    
    7Other
    
    
    15
    
    
    
    18
    
    
    
    460
    
    
    
    402
    
    
    
    326Valuation allowance
    
    
    (23
    )
    
    
    (29
    )
    
    
    (27
    )437
    
    
    
    373
    
    
    
    299Net deferred income and mining tax liability
    
    $
    2,018
    
    
    $
    1,891
    
    
    $
    1,718
  156




---



##### 



Note 6. Net earnings per Common Share
  Year ended December 31
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    
    (Restated)Basic earnings per share computationNumerator:Net earnings
    
    $
    836
    
    
    $
    619
    
    
    $
    146Dividends on preferred shares
    
    
    
    
    
    
    
    
    
    
    (6
    )Premium on redemption of preferred shares
    
    
    
    
    
    
    
    
    
    
    (15
    )Net earnings applicable to common shares
    
    $
    836
    
    
    $
    619
    
    
    $
    125Denominator:Weighted-average common shares outstanding (thousands)
    
    
    189,425
    
    
    
    187,550
    
    
    
    184,500Basic earnings per common share
    
    $
    4.41
    
    
    $
    3.30
    
    
    $
    0.68Diluted earnings per share computationNumerator:Net earnings applicable to common shares
    
    $
    836
    
    
    $
    619
    
    
    $
    125Dilutive effect of:Convertible debentures
    
    
    
    
    
    
    2
    
    
    
    3Net earnings applicable to common shares, assuming dilution
    
    $
    836
    
    
    $
    621
    
    
    $
    128Denominator:Weighted-average common shares outstanding (thousands)
    
    
    189,425
    
    
    
    187,550
    
    
    
    184,500Dilutive effect of:Convertible debentures
    
    
    28,055
    
    
    
    17,440
    
    
    
    13,080Stock options
    
    
    1,008
    
    
    
    1,426
    
    
    
    1,707Warrants
    
    
    4,218
    
    
    
    3,740
    
    
    
    1,308Weighted-average common shares outstanding, assuming dilution
    
    
    222,706
    
    
    
    210,156
    
    
    
    200,595Diluted earnings per common share
    
    $
    3.75
    
    
    $
    2.95
    
    
    $
    0.64
 157




---



##### 



The Effects of Contingently Convertible Instruments on the Computation
of Diluted Earnings per Share
 Note 7. Inventories
  December 31
    
    2005
    
    
    2004
    
    
    2003Finished metals
    
    $
    259
    
    
    $
    228
    
    
    $
    193In-process metals
    
    
    608
    
    
    
    511
    
    
    
    478Supplies
    
    
    129
    
    
    
    95
    
    
    
    75$
    996
    
    
    $
    834
    
    
    $
    746
 Note 8. Property, plant and equipment
  December 31
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    
    (Restated)Mines and mining plants
    
    $
    6,452
    
    
    $
    3,003
    
    
    $
    2,902Processing facilities
    
    
    3,546
    
    
    
    3,399
    
    
    
    3,383Voiseys Bay project under development
    
    
    1,371
    
    
    
    4,399
    
    
    
    3,817Goro project
    
    
    1,085
    
    
    
    703
    
    
    
    804Other
    
    
    751
    
    
    
    723
    
    
    
    598Total property, plant and equipment, at cost
    
    
    13,205
    
    
    
    12,227
    
    
    
    11,504Accumulated depreciation
    
    
    3,359
    
    
    
    3,317
    
    
    
    3,185Accumulated depletion
    
    
    1,387
    
    
    
    1,323
    
    
    
    1,284Total accumulated depreciation and depletion
    
    
    4,746
    
    
    
    4,640
    
    
    
    4,469Property, plant and equipment, net
    
    $
    8,459
    
    
    $
    7,587
    
    
    $
    7,035
   158




---



##### 



Note 9. Long-term debt
  December 31
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    
    (Restated)Inco Limited15.75% Sterling Unsecured Loan Stock (2006) (a)
    
    $
    45
    
    
    $
    45
    
    
    $
    45Term loan (2009-2011) (b)
    
    
    400
    
    
    
    200
    
    
    
    7.75% Notes (2012) (c)
    
    
    400
    
    
    
    400
    
    
    
    4005.70% Debentures (2015) (d)
    
    
    300
    
    
    
    300
    
    
    
    300LYON Notes (2021) (e)
    
    
    75
    
    
    
    109
    
    
    
    100Convertible Debentures (2006-2023) (f)
    
    
    113
    
    
    
    108
    
    
    
    1047.20% Debentures (2032) (g)
    
    
    400
    
    
    
    400
    
    
    
    400Subordinated Convertible Debentures (2006-2052) (h)
    
    
    106
    
    
    
    106
    
    
    
    105PT International Nickel Indonesia TbkLoan facilities (5.3%) (2006) (i)
    
    
    38
    
    
    
    115
    
    
    
    192OtherOther (7.6%) (2006-2031)
    
    
    97
    
    
    
    85
    
    
    
    601,974
    
    
    
    1,868
    
    
    
    1,706Long-term debt due within one year
    
    
    122
    
    
    
    107
    
    
    
    103$
    1,852
    
    
    $
    1,761
    
    
    $
    1,603
      159




---



##### 



1 2
 1 2
     160




---



##### 



Note 10. Post-retirement benefits
   Post-retirement benefitsPension benefits
    
    
    other than pensionsYear ended December 31
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Change in post-retirement benefits obligationObligation at beginning of year
    
    $
    3,049
    
    
    $
    2,734
    
    
    $
    2,172
    
    
    $
    999
    
    
    $
    894
    
    
    $
    677Service cost
    
    
    44
    
    
    
    38
    
    
    
    33
    
    
    
    19
    
    
    
    10
    
    
    
    10Interest cost
    
    
    169
    
    
    
    160
    
    
    
    153
    
    
    
    56
    
    
    
    50
    
    
    
    49Plan amendments
    
    
    9
    
    
    
    2
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    Changes in assumptions
    
    
    265
    
    
    
    82
    
    
    
    73
    
    
    
    128
    
    
    
    47
    
    
    
    36Actuarial losses (gains)
    
    
    13
    
    
    
    31
    
    
    
    1
    
    
    
    (16
    )
    
    
    (26
    )
    
    
    11Benefits paid
    
    
    (212
    )
    
    
    (193
    )
    
    
    (184
    )
    
    
    (44
    )
    
    
    (41
    )
    
    
    (38
    )Currency translation adjustments
    
    
    72
    
    
    
    195
    
    
    
    466
    
    
    
    36
    
    
    
    65
    
    
    
    149Obligation at end of year
    
    $
    3,409
    
    
    $
    3,049
    
    
    $
    2,734
    
    
    $
    1,178
    
    
    $
    999
    
    
    $
    894Change in pension plan assetsFair value of plan assets at beginning of year
    
    $
    2,273
    
    
    $
    1,857
    
    
    $
    1,367
    
    
    $
    
    
    
    $
    
    
    
    $
    Actual return on plan assets
    
    
    274
    
    
    
    193
    
    
    
    231
    
    
    
    1
    
    
    
    
    
    
    
    Employer contributions
    
    
    271
    
    
    
    265
    
    
    
    142
    
    
    
    3
    
    
    
    
    
    
    
    Benefits paid
    
    
    (196
    )
    
    
    (177
    )
    
    
    (165
    )
    
    
    
    
    
    
    
    
    
    
    Currency translation adjustments
    
    
    62
    
    
    
    135
    
    
    
    282
    
    
    
    
    
    
    
    
    
    
    
    Fair value of plan assets at end of year
    
    $
    2,684
    
    
    $
    2,273
    
    
    $
    1,857
    
    
    $
    4
    
    
    $
    
    
    
    $
    Unfunded status of plans at end of year
    
    $
    (725
    )
    
    $
    (776
    )
    
    $
    (877
    )
    
    $
    (1,174
    )
    
    $
    (999
    )
    
    $
    (894
    )Unrecognized actuarial and investment losses
    
    
    1,246
    
    
    
    1,106
    
    
    
    1,007
    
    
    
    385
    
    
    
    277
    
    
    
    252Unrecognized prior service costs
    
    
    75
    
    
    
    77
    
    
    
    84
    
    
    
    1
    
    
    
    
    
    
    
    Net post-retirement benefits asset
(liability) at end of year
    
    $
    596
    
    
    $
    407
    
    
    $
    214
    
    
    $
    (788
    )
    
    $
    (722
    )
    
    $
    (642
    )
  Post-retirement benefitsPension benefits
    
    
    other than pensionsDecember 31
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Accrued benefits pension asset
    
    $
    611
    
    
    $
    422
    
    
    $
    226
    
    
    $
    
    
    
    $
    
    
    
    $
    Accrued payrolls and benefits
    
    
    (15
    )
    
    
    (15
    )
    
    
    (12
    )
    
    
    (56
    )
    
    
    (51
    )
    
    
    (39
    )Accrued post-retirement benefits liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (732
    )
    
    
    (671
    )
    
    
    (603
    )Net post-retirement benefits asset (liability)
    
    $
    596
    
    
    $
    407
    
    
    $
    214
    
    
    $
    (788
    )
    
    $
    (722
    )
    
    $
    (642
    )
 161




---



##### 



Post-retirement benefitsPension benefits
    
    
    other than pensionsYear ended December 31
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Service cost
    
    $
    44
    
    
    $
    38
    
    
    $
    33
    
    
    $
    19
    
    
    $
    10
    
    
    $
    10Interest cost
    
    
    169
    
    
    
    160
    
    
    
    153
    
    
    
    56
    
    
    
    50
    
    
    
    49Expected return on plan assets
    
    
    (182
    )
    
    
    (169
    )
    
    
    (162
    )
    
    
    
    
    
    
    
    
    
    
    Loss on plan settlement
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of actuarial and investment losses
    
    
    67
    
    
    
    64
    
    
    
    62
    
    
    
    14
    
    
    
    14
    
    
    
    11Amortization of unrecognized prior service costs
    
    
    12
    
    
    
    14
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    Defined benefit pension and post-retirement
benefits other than pensions expense
    
    
    110
    
    
    
    109
    
    
    
    102
    
    
    
    89
    
    
    
    74
    
    
    
    70Defined contribution pension expense
    
    
    4
    
    
    
    5
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Post-retirement benefits expense
    
    $
    114
    
    
    $
    114
    
    
    $
    107
    
    
    $
    89
    
    
    $
    74
    
    
    $
    70
  Post-retirement benefitsPension benefits
    
    
    other than pensionsYear ended December 31
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Discount rate
    
    
    5.75
    %
    
    
    6.0
    %
    
    
    6.5
    %
    
    
    5.75
    %
    
    
    6.0
    %
    
    
    6.5
    %Expected return on plan assets
    
    
    7.75
    %
    
    
    8.0
    %
    
    
    8.5
    %Rate of compensation increase
    
    
    3.0
    %
    
    
    3.0
    %
    
    
    3.0
    %
   Year ended December 31
    
    2005
    
    2004
    
    2003Equity securities
    
    
    59
    %
    
    
    60
    %
    
    
    57
    %Debt securities
    
    
    41
    %
    
    
    40
    %
    
    
    43
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Post-retirement benefitsPension benefits
    
    other than pensions2006
    
    $
    222
    
    
    $
    562007
    
    
    213
    
    
    
    542008
    
    
    220
    
    
    
    582009
    
    
    224
    
    
    
    602010
    
    
    220
    
    
    
    612011-2015
    
    
    991
    
    
    
    298
  162




---



##### 



Pension benefitsDecember 31
    
    2005
    
    
    2004
    
    
    2003Projected benefits obligation
    
    $
    3,409
    
    
    $
    3,049
    
    
    $
    2,734Fair value of plan assets
    
    
    2,684
    
    
    
    2,273
    
    
    
    1,857Unfunded status
    
    $
    (725
    )
    
    $
    (776
    )
    
    $
    (877
    )
   Post-retirement benefitsother than pensions1% Increase
    
    
    1% DecreaseEffect on accumulated benefits obligation
    
    $
    159
    
    
    $
    (121
    )Effect on net periodic expense
    
    
    12
    
    
    
    (9
    )
 Note 11. Asset retirement obligation
   163




---



##### 



Year ended December 31
    
    2005
    
    
    2004
    
    
    2003Obligation at beginning of year
    
    $
    174
    
    
    $
    149
    
    
    $
    127Accretion expense
    
    
    8
    
    
    
    8
    
    
    
    6Liabilities settled
    
    
    (5
    )
    
    
    (5
    )
    
    
    (6
    )Revisions in estimated cash flows
    
    
    (6
    )
    
    
    22
    
    
    
    22Obligation at end of year
    
    
    171
    
    
    
    174
    
    
    
    149Current portion of asset retirement obligations
    
    
    (3
    )
    
    
    (3
    )
    
    
    (8
    )$
    168
    
    
    $
    171
    
    
    $
    141
   Note 12. Girardin Act financing
    164




---



##### 



Note 13. Convertible debt
  SubordinatedLYON
    
    
    Convertible
    
    
    ConvertibleNotes (a)
    
    
    Debentures (b)
    
    
    Debentures (b)
    
    
    Total(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)December 31, 2002
    
    $
    148
    
    
    $
    
    
    
    $
    
    
    
    $
    148Convertible debt issued
    
    
    
    
    
    
    148
    
    
    
    122
    
    
    
    270December 31, 2003 and December 31, 2004
    
    
    148
    
    
    
    148
    
    
    
    122
    
    
    
    418Tendered for conversion
    
    
    (56
    )
    
    
    
    
    
    
    
    
    
    
    (56
    )December 31, 2005
    
    $
    92
    
    
    $
    148
    
    
    $
    122
    
    
    $
    362
  165




---



##### 



166




---



##### 



Financial Instruments  Disclosure and Presentation
 Note 14. Preferred shares
   Numberof shares
    
    
    AmountDecember 31, 2002
    
    
    9,439,600
    
    
    $
    472Shares converted to Common Shares
    
    
    (1,193
    )
    
    
    Shares redeemed
    
    
    (9,438,407
    )
    
    
    (472
    )December 31, 2003, December 31, 2004 and December 31, 2005
    
    
    
    
    
    $
    
 Note 15. Warrants
   Numberof Warrants
    
    
    AmountDecember 31, 2002
    
    
    11,023,497
    
    
    $
    62Warrants issued
    
    
    416
    
    
    
    Warrants exercised
    
    
    (849
    )
    
    
    December 31, 2003
    
    
    11,023,064
    
    
    
    62Warrants issued
    
    
    1,878
    
    
    
    Warrants exercised
    
    
    (2,184
    )
    
    
    December 31, 2004
    
    
    11,022,758
    
    
    
    62Warrants issued
    
    
    186
    
    
    
    Warrants exercised
    
    
    (6,927
    )
    
    
    December 31, 2005
    
    
    11,016,017
    
    
    $
    62
 167




---



##### 



Note 16. Common shares
   Numberof shares
    
    
    AmountDecember 31, 2002
    
    
    183,238,351
    
    
    $
    2,771Options exercised
    
    
    3,130,556
    
    
    
    68Shares issued under incentive plans
    
    
    40,249
    
    
    
    1Shares issued on conversion of Preferred Shares Series E
    
    
    1,424
    
    
    
    Shares issued upon exercise of former Diamond Fields stock options
    
    
    485,471
    
    
    
    17Shares issued on conversion of debentures
    
    
    18,965
    
    
    
    1Shares issued on exercise of Warrants
    
    
    849
    
    
    
    December 31, 2003
    
    
    186,915,865
    
    
    
    2,858Options exercised
    
    
    1,175,525
    
    
    
    31Shares issued under incentive plans
    
    
    39,865
    
    
    
    1Shares issued on exercise of Warrants
    
    
    2,184
    
    
    
    Transfer from contributed surplus in respect of options exercised
    
    
    
    
    
    
    1December 31, 2004
    
    
    188,133,439
    
    
    
    2,891Options exercised
    
    
    1,477,969
    
    
    
    40Shares issued under incentive plans
    
    
    61,698
    
    
    
    2Shares issued on exercise of Warrants
    
    
    6,927
    
    
    
    Shares issued on conversion of LYON Notes
    
    
    2,557,361
    
    
    
    59Transfer from contributed surplus in respect of options exercised
    
    
    
    
    
    
    5Transfer from accrued liabilities in respect of stock appreciation rights exercised
    
    
    
    
    
    
    3December 31, 2005
    
    
    192,237,394
    
    
    $
    3,000
     168




---



##### 



Note 17. Stock compensation plans
      Number of Common SharesYear ended December 31
    
    2005
    
    
    2004
    
    
    2003Outstanding at beginning of year
    
    
    4,082,030
    
    
    
    4,572,605
    
    
    
    7,476,506Options granted
    
    
    1,059,750
    
    
    
    1,047,500
    
    
    
    1,155,000Options exercised
    
    
    (1,938,769
    )
    
    
    (1,251,325
    )
    
    
    (3,867,151
    )Options terminated
    
    
    (86,750
    )
    
    
    (286,750
    )
    
    
    (191,750
    )Outstanding at end of year
    
    
    3,116,261
    
    
    
    4,082,030
    
    
    
    4,572,605Available for grant at December 31
    
    
    7,973,950
    
    
    
    2,792,750
    
    
    
    3,785,000Exercisable at December 31
    
    
    2,606,635
    
    
    
    3,540,780
    
    
    
    3,954,107
 169




---



##### 



Weighted-average exercise priceYear ended December 31
    
    2005
    
    
    2004
    
    
    2003Outstanding at beginning of year
    
    $
    26.45
    
    
    $
    23.43
    
    
    $
    21.42Options granted
    
    
    39.67
    
    
    
    36.40
    
    
    
    20.90Options exercised
    
    
    (26.06
    )
    
    
    (23.63
    )
    
    
    (18.63
    )Options terminated
    
    
    (33.81
    )
    
    
    (26.91
    )
    
    
    (26.74
    )Outstanding at end of year
    
    $
    30.98
    
    
    $
    26.45
    
    
    $
    23.43
   Common Share Options Outstanding
    
    Common Share Options ExercisableNumber
    
    Weighted-average
    
    
    
    
    
    NumberRange of
    
    outstanding
    
    remaining
    
    
    
    
    
    exercisableexercise
    
    at December
    
    contractual life
    
    Weighted-average
    
    at December
    
    Weighted-averageprices
    
    31, 2005
    
    (years)
    
    exercise price
    
    31, 2005
    
    exercise price$11-16
    
    
    138,350
    
    
    
    2.6
    
    
    $
    13.49
    
    
    
    138,350
    
    
    $
    13.4917-19
    
    
    492,750
    
    
    
    5.0
    
    
    
    17.66
    
    
    
    492,750
    
    
    
    17.6620-22
    
    
    445,700
    
    
    
    7.1
    
    
    
    20.76
    
    
    
    445,700
    
    
    
    20.7632-35
    
    
    311,286
    
    
    
    1.0
    
    
    
    34.01
    
    
    
    311,286
    
    
    
    34.0136-37
    
    
    739,300
    
    
    
    8.1
    
    
    
    36.40
    
    
    
    739,300
    
    
    
    36.4039-41
    
    
    988,875
    
    
    
    9.1
    
    
    
    39.67
    
    
    
    479,249
    
    
    
    39.67$11-41
    
    
    3,116,261
    
    
    
    6.8
    
    
    $
    30.98
    
    
    
    2,606,635
    
    
    $
    29.28
   Year ended December 31
    
    2005
    
    
    2004
    
    
    2003Stock price at grant date
    
    $
    39.67
    
    
    $
    36.40
    
    
    $
    20.85Exercise price
    
    $
    39.67
    
    
    $
    36.40
    
    
    $
    20.85Weighted-average fair value of
options granted during the year
    
    $
    12.21
    
    
    $
    10.37
    
    
    $
    6.29Expected life of options (years)
    
    
    3.6
    
    
    
    3.4
    
    
    
    3.0Expected stock price volatility
    
    
    34.8
    %
    
    
    35.0
    %
    
    
    41.1
    %Expected dividend yield
    
    
    
    %
    
    
    
    %
    
    
    
    %Risk-free interest rate
    
    
    3.6
    %
    
    
    2.5
    %
    
    
    2.1
    %
 170




---



##### 



Note 18. Nature of operations and segment information
   Year ended December 31
    
    2005
    
    
    2004
    
    
    2003Nickel  Finished
    
    $
    3,655
    
    
    $
    3,503
    
    
    $
    2,109Copper
    
    
    463
    
    
    
    364
    
    
    
    171Precious metals
    
    
    267
    
    
    
    246
    
    
    
    114Cobalt
    
    
    57
    
    
    
    72
    
    
    
    17Other
    
    
    76
    
    
    
    93
    
    
    
    63$
    4,518
    
    
    $
    4,278
    
    
    $
    2,474
   Data by operating segments
 Finished products
    
    
    Intermediates
    
    
    Development Projects
    
    
    Eliminations
    
    
    TotalYear ended December 31
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003(Restated)
    
    
    
    
    
    
    (Restated)
    
    
    
    
    
    
    (Restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Restated)Net sales to customers
    
    $
    4,342
    
    
    
    4,120
    
    
    
    2,369
    
    
    $
    176
    
    
    
    158
    
    
    
    105
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    4,518
    
    
    
    4,278
    
    
    
    2,474Intersegment sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    709
    
    
    
    634
    
    
    
    404
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (709
    )
    
    
    (634
    )
    
    
    (404
    )
    
    
    
    
    
    
    
    
    
    
    Net sales
    
    $
    4,342
    
    
    
    4,120
    
    
    
    2,369
    
    
    $
    885
    
    
    
    792
    
    
    
    509
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    (709
    )
    
    
    (634
    )
    
    
    (404
    )
    
    $
    4,518
    
    
    
    4,278
    
    
    
    2,474Earnings (loss) before income
and mining taxes and minority
interest by segment
    
    $
    1,077
    
    
    
    1,154
    
    
    
    266
    
    
    $
    382
    
    
    
    430
    
    
    
    190
    
    
    $
    
    
    
    
    (220
    )
    
    
    (18
    )
    
    $
    8
    
    
    
    (8
    )
    
    
    (31
    )
    
    $
    1,467
    
    
    
    1,356
    
    
    
    407Expenses (income) not specifically allocable to segments:Corporate selling, general and administrative expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    148
    
    
    
    128
    
    
    
    118Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59
    
    
    
    85
    
    
    
    177Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    36
    
    
    
    56Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (83
    )
    
    
    (49
    )
    
    
    (108
    )Earnings before income and mining taxes and minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,317
    
    
    
    1,156
    
    
    
    164Depreciation and depletion
    
    $
    191
    
    
    
    186
    
    
    
    167
    
    
    $
    65
    
    
    
    62
    
    
    
    60
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    256
    
    
    
    248
    
    
    
    227Capital expenditures
    
    $
    381
    
    
    
    217
    
    
    
    158
    
    
    $
    108
    
    
    
    119
    
    
    
    45
    
    
    $
    759
    
    
    
    601
    
    
    
    343
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    1,248
    
    
    
    937
    
    
    
    546Identifiable assets at December 31
    
    $
    6,586
    
    
    
    2,793
    
    
    
    2,496
    
    
    $
    1,568
    
    
    
    1,559
    
    
    
    1,373
    
    
    $
    2,798
    
    
    
    5,394
    
    
    
    4,650
    
    
    $
    (46
    )
    
    
    (54
    )
    
    
    (46
    )
    
    $
    10,906
    
    
    
    9,692
    
    
    
    8,473Other assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,104
    
    
    
    1,024
    
    
    
    585Total assets at December 31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    12,010
    
    
    
    10,716
    
    
    
    9,058
   171




---



##### 



Data by geographic location
 Net sales to customers
    
    
    Property, plant and equipmentYear ended December 31
    
    
    at December 312005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003(Restated)Canada
    
    $
    231
    
    
    $
    100
    
    
    $
    71
    
    
    $
    6,104
    
    
    $
    5,637
    
    
    $
    5,048United States
    
    
    1,434
    
    
    
    1,353
    
    
    
    669
    
    
    
    21
    
    
    
    21
    
    
    
    22United Kingdom
    
    
    724
    
    
    
    691
    
    
    
    357
    
    
    
    19
    
    
    
    20
    
    
    
    26Indonesia
    
    
    175
    
    
    
    158
    
    
    
    104
    
    
    
    1,183
    
    
    
    1,166
    
    
    
    1,108New Caledonia
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,081
    
    
    
    699
    
    
    
    800Japan
    
    
    610
    
    
    
    618
    
    
    
    374
    
    
    
    18
    
    
    
    18
    
    
    
    19China
    
    
    617
    
    
    
    583
    
    
    
    379
    
    
    
    31
    
    
    
    25
    
    
    
    11Other
    
    
    727
    
    
    
    775
    
    
    
    520
    
    
    
    2
    
    
    
    1
    
    
    
    1Total foreign
    
    
    4,287
    
    
    
    4,178
    
    
    
    2,403
    
    
    
    2,355
    
    
    
    1,950
    
    
    
    1,987Total
    
    $
    4,518
    
    
    $
    4,278
    
    
    $
    2,474
    
    
    $
    8,459
    
    
    $
    7,587
    
    
    $
    7,035
  Note 19. Financial instruments and commodities contracts
  December 31
    
    2005
    
    
    2004
    
    
    2003Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fairvalue
    
    
    value
    
    
    value
    
    
    value
    
    
    value
    
    
    valueFinancial assets:Deferred charges and other assets
    
    $
    245
    
    
    $
    278
    
    
    $
    154
    
    
    $
    235
    
    
    $
    100
    
    
    $
    170Financial liabilities:Long-term debt including amount due
within one year
    
    
    1,974
    
    
    
    2,305
    
    
    
    1,868
    
    
    
    2,315
    
    
    
    1,706
    
    
    
    2,121Derivatives:LME forward nickel contracts
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    30Copper put options
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Copper call options
    
    
    
    
    
    
    (106
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Platinum put options
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    1Platinum call options
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (4
    )Palladium fixed price swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Platinum fixed price swaps
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (11
    )Gold fixed price swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Fuel oil swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    4Forward currency contracts
    
    
    6
    
    
    
    13
    
    
    
    14
    
    
    
    52
    
    
    
    
    
    
    
    47Interest rate swaps
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    2
   172




---



##### 



As at December 31, 2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    TotalMetalsLME forward nickel purchase
contracts1 (tonnes)
    
    
    12,462
    
    
    
    420
    
    
    
    
    
    
    
    
    
    12,882Average price ($  per tonne)
    
    
    12,795
    
    
    
    10,496
    
    
    
    
    
    
    
    
    
    12,720Contract amount (in $ millions)
    
    
    160
    
    
    
    4
    
    
    
    
    
    
    
    
    
    164Fair value (in $ millions)
    
    
    8
    
    
    
    1
    
    
    
    
    
    
    
    
    
    9LME forward nickel sell contracts1(tonnes)
    
    
    4,086
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,086Average price ($  per tonne)
    
    
    13,342
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,342Contract amount (in $ millions)
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    
    
    55Fair value (in $ millions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    COMEX forward copper sell contracts2(tonnes)
    
    
    181
    
    
    
    
    
    
    
    
    
    
    
    
    
    181Average price ($  per tonne)
    
    
    4,003
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,003Contract amount (in $ millions)
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Fair value (in $ millions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Copper range forward options2
(tonnes)
    
    
    19,500
    
    
    
    58,992
    
    
    
    48,384
    
    
    
    
    
    126,876Average (minimum-maximum)
($  per tonne)
    
    
    2,535-3,400
    
    
    
    2,205-2,988
    
    
    
    2,205-2,773
    
    
    
    
    
    2,256-2,969Contract amount (in $ millions)
    
    
    49-66
    
    
    
    130-177
    
    
    
    107-134
    
    
    
    
    
    286-377Fair value (in $ millions)
    
    
    (20
    )
    
    
    (46
    )
    
    
    (35
    )
    
    
    
    
    (101
    )Copper put options2 (tonnes)
    
    
    15,000
    
    
    
    
    
    
    
    9,996
    
    
    
    
    
    24,996Average price ($  per tonne)
    
    
    2,425
    
    
    
    
    
    
    
    2,491
    
    
    
    
    
    2,451Contract amount (in $ millions)
    
    
    36
    
    
    
    
    
    
    
    25
    
    
    
    
    
    61Fair value (in $ millions)
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Platinum fixed price swaps3
(troy ounces)
    
    
    12,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,000Average price ($  per troy ounce)
    
    
    651
    
    
    
    
    
    
    
    
    
    
    
    
    
    651Contract amount (in $ millions)
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Fair value (in $ millions)
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Platinum range forward options3
(troy ounces)
    
    
    20,009
    
    
    
    24,174
    
    
    
    34,644
    
    
    
    
    
    78,827Average (minimum-maximum)
($  per troy ounce)
    
    
    688-802
    
    
    
    720-823
    
    
    
    700-808
    
    
    
    
    
    703-811Contract amount (in $ millions)
    
    
    14-16
    
    
    
    17-20
    
    
    
    24-28
    
    
    
    
    
    55-64Fair value (in $ millions)
    
    
    (4
    )
    
    
    (5
    )
    
    
    (8
    )
    
    
    
    
    (17
    )Fuel oil swaps4 (tonnes)
    
    
    32,150
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,150Average price ($  per tonne)
    
    
    290
    
    
    
    
    
    
    
    
    
    
    
    
    
    290Contract amount (in $ millions)
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Fair value (in $ millions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    CurrenciesCdn.$ forward contracts5 (millions)
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    21Average price (U.S.$)
    
    
    0.845
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.845Contract amount (in $ millions)
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    
    
    18Fair value (in $ millions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 173




---



##### 



As
at December 31, 2005
    
    2006
    
    
    2007
    
    
    2008
    

    2009
    
    TotalAus.$ forward contracts5 (millions)
    
    
    155
    
    
    
    45
    
    
    
    
    
    
    
    
    
    200Average price (U.S.$)
    
    
    0.668
    
    
    
    0.712
    
    
    
    
    
    
    
    
    
    0.678Contract amount (in $ millions)
    
    
    102
    
    
    
    32
    
    
    
    
    
    
    
    
    
    134Fair value (in $ millions)
    
    
    11
    
    
    
    1
    
    
    
    
    
    
    
    
    
    12Euro forward contracts5 (millions)
    
    
    86
    
    
    
    30
    
    
    
    
    
    
    
    
    
    116Average price (U.S.$)
    
    
    1.193
    
    
    
    1.213
    
    
    
    
    
    
    
    
    
    1.198Contract amount (in $ millions)
    
    
    103
    
    
    
    36
    
    
    
    
    
    
    
    
    
    139Fair value (in $ millions)
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Pounds sterling forward contracts5
(millions)
    
    
    8
    
    
    
    1
    
    
    
    
    
    
    
    
    
    9Average price (U.S.$)
    
    
    1.743
    
    
    
    1.766
    
    
    
    
    
    
    
    
    
    1.746Contract amount (in $ millions)
    
    
    14
    
    
    
    2
    
    
    
    
    
    
    
    
    
    16Fair value (in $ millions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swap6 (notional principal
amount in $ millions) (maturity 2011)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200Fair value (in $ millions)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
 
 (1)
    
    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.(2)
    
    We had outstanding put option contracts, giving us the right but not the obligation to
sell copper, and sold call option contracts, giving the buyer the right but not the
obligation to purchase copper, during the period extending to 2008. We also enter into
forward sell contracts based upon quotations for copper on the COMEX Division of the New
York Mercantile Exchange.(3)
    
    Depending on market conditions, we enter into precious metals hedging contracts. 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. Under these swap contracts, we receive fixed prices for platinum
and pay a floating price based on monthly average spot prices. We also had outstanding put
option contracts, giving us the right but not the obligation to sell platinum and sold call
option contracts, giving the buyer the right but not the obligation, to purchase platinum
during the same time period.(4)
    
    We use fuel oil swap contracts to reduce the effect of fuel oil price changes in respect
of a portion of our energy requirements at PT Inco. Under the swap contracts, we pay fixed
prices for fuel oil and receive a floating price based on monthly average spot price
quotations.(5)
    
    We use forward currency contracts to eliminate the risk of exchange rate movements on a
portion of our future construction costs of capital assets at our Ontario operations and the
planned production facilities for the Goro project.(6)
    
    As at December 31, 2005, we had an outstanding interest rate swap of a notional amount of
$200 million on our term loan due 2011, whereby we initially receive a floating rate at
0.875 per cent over 3-month LIBOR and pay a fixed rate of 5.098 per cent.  174




---



##### 



Note 20. Commitments and contingencies
 (a) Commitments
  Payments due in2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterPurchase obligations (1)
    
    $
    1,081
    
    
    $
    282
    
    
    $
    204
    
    
    $
    215
    
    
    $
    9
    
    
    $
    24Operating leases
    
    
    33
    
    
    
    24
    
    
    
    12
    
    
    
    5
    
    
    
    3
    
    
    
    6Other
    
    
    2
    
    
    
    3
    
    
    
    3
    
    
    
    3
    
    
    
    7
    
    
    
    81Total
    
    $
    1,116
    
    
    $
    309
    
    
    $
    219
    
    
    $
    223
    
    
    $
    19
    
    
    $
    111
 
 (1)
    
    These purchase obligations largely relate to the Goro project with the balance comprising
routine orders to purchase goods and services at current operating locations.  (b) Contingencies
    175




---



##### 



Note 21. Supplemental information
  Year ended December 31
    
    2005
    
    2004
    
    2003Interest paid, net of capitalized interest
    
    $
    10
    
    
    $
    25
    
    
    $
    48Income and mining taxes paid, net
    
    $
    572
    
    
    $
    94
    
    
    $
    120Cash
    
    $
    342
    
    
    $
    240
    
    
    $
    42Cash equivalents
    
    
    616
    
    
    
    836
    
    
    
    376Cash and cash equivalents
    
    $
    958
    
    
    $
    1,076
    
    
    $
    418
 Note 22. Sale of Interests in Goro Nickel S.A.S. (Goro Nickel)
    176




---



##### 



Note 23. Outstanding offer to purchase Falconbridge Limited
    177




---



##### 



Note 24. Significant differences between Canadian and United States GAAP
   Year ended December 31
    
    2005
    
    2004
    
    2003(Restated)
    
    (Restated)Net earnings  Canadian GAAP
    
    $
    836
    
    
    $
    619
    
    
    $
    146Increased post-retirement benefits expense (a)
    
    
    (64
    )
    
    
    (53
    )
    
    
    (45
    )Currency translation losses (b)
    
    
    (62
    )
    
    
    (89
    )
    
    
    (219
    )Increased intangible assets amortization expense (c)
    
    
    
    
    
    
    
    
    
    
    (2
    )Increased research and development expense (d)
    
    
    (47
    )
    
    
    (17
    )
    
    
    (5
    )Decreased (increased) exploration expense (e)
    
    
    (8
    )
    
    
    1
    
    
    
    (4
    )Decreased asset impairment charges (f)
    
    
    
    
    
    
    11
    
    
    
    Increased interest expense (g)
    
    
    (23
    )
    
    
    (14
    )
    
    
    (13
    )Cash settlement of LYON Notes tendered for conversion (g)
    
    
    (26
    )
    
    
    
    
    
    
    Unrealized net gain (loss) on derivative instruments (h)
    
    
    (17
    )
    
    
    5
    
    
    
    (1
    )Increased income and mining tax expense (i)
    
    
    
    
    
    
    
    
    
    
    (15
    )Decreased (increased) minority interest (d) (e) (f)
    
    
    9
    
    
    
    (8
    )
    
    
    1Taxes on United States GAAP differences
    
    
    30
    
    
    
    22
    
    
    
    28Net earnings (loss) before cumulative effect of a change
in accounting principle  United States GAAP
    
    
    628
    
    
    
    477
    
    
    
    (129
    )Cumulative effect of a change in accounting principle (j)
    
    
    
    
    
    
    
    
    
    
    (17
    )Net earnings (loss)  United States GAAP
    
    $
    628
    
    
    $
    477
    
    
    $
    (146
    )Other comprehensive income (loss) (l):Reclassification of net gain on derivatives
designated as cash flow hedges (h)
    
    
    (15
    )
    
    
    (6
    )
    
    
    (21
    )Reclassification to earnings of net gain on
derivatives due to ineffectiveness (h)
    
    
    
    
    
    
    (9
    )
    
    
    (8
    )Changes in fair value of derivatives designated
as cash flow hedges (h)
    
    
    (97
    )
    
    
    25
    
    
    
    5Unrealized gains on long-term investments (k)
    
    
    7
    
    
    
    11
    
    
    
    68Long-term investments reclassifications (k)
    
    
    (54
    )
    
    
    
    
    
    
    (18
    )Minimum additional pension liability adjustment (a)
    
    
    (71
    )
    
    
    (53
    )
    
    
    (76
    )Taxes on other comprehensive income (loss)
    
    
    79
    
    
    
    (8
    )
    
    
    49Other comprehensive loss  United States GAAP (l)
    
    
    (151
    )
    
    
    (40
    )
    
    
    (1
    )Comprehensive income (loss)  United States GAAP (l)
    
    $
    477
    
    
    $
    437
    
    
    $
    (147
    )Net earnings (loss) per share  Basic (m)Net earnings (loss) per share before cumulative effect of a
change in accounting principle  United States GAAP
    
    $
    3.32
    
    
    $
    2.54
    
    
    $
    (0.82
    )Cumulative effect of a change in accounting principle (j)
    
    
    
    
    
    
    
    
    
    
    (0.09
    )Net earnings (loss) per share  Basic (m)
    
    $
    3.32
    
    
    $
    2.54
    
    
    $
    (0.91
    )Net earnings (loss) per share  Diluted (m)Net earnings (loss) per share before cumulative effect of a
change in accounting principle  United States GAAP
    
    $
    2.87
    
    
    $
    2.30
    
    
    $
    (0.82
    )Cumulative effect of a change in accounting principle (j)
    
    
    
    
    
    
    
    
    
    
    (0.09
    )Net earnings (loss) per share  Diluted (m)
    
    $
    2.87
    
    
    $
    2.30
    
    
    $
    (0.91
    )
 178




---



##### 



(a) Post-retirement benefits
   (b) Currency translation gains (losses)
   (c) Intangible assets
   (d) Research and development expense
  (e) Exploration expense
  179




---



##### 



(f) Asset impairment charges
  (g) Convertible debt
  Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Companys Own Stock
 (h) Derivative instruments
    180




---



##### 



(i) Income and mining taxes
  (j) Asset retirement obligations
  (k) Investments
  (l) Comprehensive income
  181




---



##### 



(m) Earnings (loss) per share
  Year ended December 31
    
    2005
    
    2004
    
    2003(Restated)
    
    (Restated)Basic earnings (loss) per share computationNumerator:Net earnings (loss)
    
    $
    628
    
    
    $
    477
    
    
    $
    (146
    )Dividends on preferred shares
    
    
    
    
    
    
    
    
    
    
    (6
    )Premium on redemption of preferred shares
    
    
    
    
    
    
    
    
    
    
    (15
    )Net earnings (loss) applicable to common shares
    
    $
    628
    
    
    $
    477
    
    
    $
    (167
    )Denominator:Weighted-average common shares outstanding (thousands)
    
    
    189,425
    
    
    
    187,550
    
    
    
    184,500Basic earnings (loss) per common share
    
    $
    3.32
    
    
    $
    2.54
    
    
    $
    (0.91
    )Diluted earnings (loss) per share computationNumerator:Net earnings (loss) applicable to common shares
    
    $
    628
    
    
    $
    477
    
    
    $
    (167
    )Dilutive effect ofConvertible debentures
    
    
    12
    
    
    
    7
    
    
    
    Net earnings (loss) applicable to common shares, assuming dilution
    
    $
    640
    
    
    $
    484
    
    
    $
    (167
    )Denominator:Weighted-average common shares outstanding (thousands)
    
    
    189,425
    
    
    
    187,550
    
    
    
    184,500Dilutive effect of:Convertible debentures
    
    
    28,055
    
    
    
    17,440
    
    
    
    Stock options
    
    
    1,008
    
    
    
    1,426
    
    
    
    Warrants
    
    
    4,218
    
    
    
    3,740
    
    
    
    Weighted-average common shares outstanding, assuming dilution
    
    
    222,706
    
    
    
    210,156
    
    
    
    184,500Diluted earnings (loss) per common share
    
    $
    2.87
    
    
    $
    2.30
    
    
    $
    (0.91
    )
   182




---



##### 



Canadian GAAP
    
    
    
    
    
    
    
    
    
    United States GAAPDecember 31
    
    2005
    
    2004
    
    2003
    
    
    
    
    
    2005
    
    2004
    
    2003(Restated)
    
    (Restated)
    
    
    
    
    
    
    
    
    
    (Restated)
    
    (Restated)Assets:Accounts receivable
    
    
    673
    
    
    
    601
    
    
    
    435
    
    
    
    
    
    
    
    677
    
    
    
    636
    
    
    
    474Property, plant and equipment
    
    
    8,459
    
    
    
    7,587
    
    
    
    7,035
    
    
    
    
    
    
    
    7,197
    
    
    
    6,444
    
    
    
    3,500Intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,467Accrued pension benefits asset
    
    
    611
    
    
    
    422
    
    
    
    226
    
    
    
    
    
    
    
    76
    
    
    
    78
    
    
    
    84Deferred charges and other assets
    
    
    245
    
    
    
    154
    
    
    
    100
    
    
    
    
    
    
    
    277
    
    
    
    242
    
    
    
    172Liabilities:Long-term debt due within one year
    
    
    122
    
    
    
    107
    
    
    
    103
    
    
    
    
    
    
    
    111
    
    
    
    107
    
    
    
    92Other accrued liabilities
    
    
    533
    
    
    
    399
    
    
    
    332
    
    
    
    
    
    
    
    669
    
    
    
    405
    
    
    
    369Long-term debt
    
    
    1,852
    
    
    
    1,761
    
    
    
    1,603
    
    
    
    
    
    
    
    2,209
    
    
    
    2,194
    
    
    
    2,035Deferred income and mining taxes
    
    
    2,018
    
    
    
    1,891
    
    
    
    1,718
    
    
    
    
    
    
    
    1,357
    
    
    
    1,338
    
    
    
    1,154Accrued post-retirement benefits liability
    
    
    732
    
    
    
    671
    
    
    
    603
    
    
    
    
    
    
    
    1,445
    
    
    
    1,430
    
    
    
    1,445Minority interest
    
    
    761
    
    
    
    470
    
    
    
    404
    
    
    
    
    
    
    
    750
    
    
    
    468
    
    
    
    394Shareholders equity:Convertible debt
    
    
    362
    
    
    
    418
    
    
    
    418
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Retained earnings (deficit)
    
    
    1,181
    
    
    
    428
    
    
    
    (191
    )
    
    
    
    
    
    
    (100
    )
    
    
    (671
    )
    
    
    (1,148
    )Accumulated other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (641
    )
    
    
    (490
    )
    
    
    (450
    )
  Year ended December 31
    
    2005
    
    2004
    
    2003(Restated)
    
    (Restated)Deficit at beginning of year, as previously reported
    
    $
    (665
    )
    
    $
    (1,144
    )
    
    $
    (994
    )Restatements
    
    
    (6
    )
    
    
    (4
    )
    
    
    13Deficit at beginning of year, as restated
    
    
    (671
    )
    
    
    (1,148
    )
    
    
    (981
    )Net earnings (loss)
    
    
    628
    
    
    
    477
    
    
    
    (146
    )Common share dividends
    
    
    (57
    )
    
    
    
    
    
    
    Preferred dividends
    
    
    
    
    
    
    
    
    
    
    (6
    )Premium on redemption of preferred shares
    
    
    
    
    
    
    
    
    
    
    (15
    )Deficit at end of year
    
    $
    (100
    )
    
    $
    (671
    )
    
    $
    (1,148
    )Accumulated other comprehensive loss at beginning of year, as previously reported
    
    $
    (589
    )
    
    $
    (516
    )
    
    $
    (485
    )Restatements
    
    
    99
    
    
    
    66
    
    
    
    36Accumulated other comprehensive loss at beginning of year, as restated
    
    
    (490
    )
    
    
    (450
    )
    
    
    (449
    )Other comprehensive loss
    
    
    (151
    )
    
    
    (40
    )
    
    
    (1
    )Accumulated other comprehensive loss at end of year
    
    $
    (641
    )
    
    $
    (490
    )
    
    $
    (450
    )
 Restatements
  Recent Accounting Pronouncements
 Accounting for Certain Hybrid Financial Instruments
 183




---



##### 



Inventory Costs  An Amendment of ARB No. 43, Chapter 4
 Accounting for Changes and Error Corrections
 Share-Based Payments
 184




---



##### 



SCHEDULE VIII
 INCO LIMITED AND SUBSIDIARIES
VALUATION ACCOUNTS AND RESERVES
(in thousands)
 Additions
    
    
    DeductionsBalance at
    
    
    Charged to
    
    
    For Accounts
    
    
    BalanceBeginning
    
    
    Costs and
    
    
    Receivable
    
    
    at Endof Year
    
    
    Expenses
    
    
    Written Off
    
    
    of YearYear ended December 31, 2005Allowance for doubtful accounts
    
    $
    871
    
    
    $
    10
    
    
    $
    42
    
    
    $
    839
 Year ended December 31, 2004Allowance for doubtful accounts
    
    $
    15,406
    
    
    $
    7
    
    
    $
    14,542
    
    
    $
    871
 Year ended December 31, 2003Allowance for doubtful accounts
    
    $
    17,456
    
    
    $
    636
    
    
    $
    2,686
    
    
    $
    15,406
 185




---



##### 



SUPPLEMENTAL FINANCIAL INFORMATION
 Quarterly Financial Information
 First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Year(Restated)
    
    
    (Restated)
    
    
    (Restated)(in millions of United States dollars except per share amounts)2005Net sales
    
    $
    1,121
    
    
    $
    1,194
    
    
    $
    1,082
    
    
    $
    1,121
    
    
    $
    4,518Net earnings
    
    $
    317
    
    
    $
    220
    
    
    $
    64
    
    
    $
    235
    
    
    $
    836Net earnings per Common ShareBasic
    
    $
    1.68
    
    
    $
    1.16
    
    
    $
    0.34
    
    
    $
    1.23
    
    
    $
    4.41Diluted
    
    $
    1.43
    
    
    $
    0.99
    
    
    $
    0.29
    
    
    $
    1.06
    
    
    $
    3.75
 First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Year(Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(in millions of United States dollars except per share amounts)2004Net sales
    
    $
    1,094
    
    
    $
    992
    
    
    $
    1,031
    
    
    $
    1,161
    
    
    $
    4,278Net earnings (loss)
    
    $
    259
    
    
    $
    (12
    )
    
    $
    146
    
    
    $
    226
    
    
    $
    619Net earnings (loss) per Common ShareBasic
    
    $
    1.38
    
    
    $
    (0.06
    )
    
    $
    0.78
    
    
    $
    1.20
    
    
    $
    3.30Diluted
    
    $
    1.23
    
    
    $
    (0.06
    )
    
    $
    0.70
    
    
    $
    1.08
    
    
    $
    2.95
 186




---



##### 



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  Item 9A. Controls and Procedures
  Securities Exchange Act of 1934 Securities Exchange Act of
1934
 Item 9B. Other Information
  187




---



##### 



PART III
 Item 10. Directors and Executive Officers of Inco Limited
 Directors
  Executive Officers
  OfficerName
    
    Office
    
    Age
    
    SinceScott M. Hand
    
    Chairman and Chief Executive Officer
    
    
    63
    
    
    
    1984Peter C. Jones(1)
    
    President and Chief Operating Officer
    
    
    58
    
    
    
    1997Stuart F. Feiner(2)
    
    Executive Vice-President, General
Counsel and Secretary
    
    
    57
    
    
    
    1992Peter J. Goudie
    
    Executive Vice-President, Marketing
    
    
    57
    
    
    
    1997Robert D. J. Davies
    
    Executive Vice-President and Chief
Financial Officer
    
    
    56
    
    
    
    2005Ronald C. Aelick
    
    Executive Vice-President, Technical Services
    
    
    57
    
    
    
    1995Mark Cutifani
    
    Executive Vice-President and President, North
America and Europe
    
    
    47
    
    
    
    2005Stephanie E. Anderson
    
    Vice-President and Treasurer
    
    
    44
    
    
    
    2004Subhash Bhandari
    
    Vice-President and Chief Information Officer
    
    
    61
    
    
    
    2001Edward H. Bassett
    
    Vice-President, Capital Projects and Engineering
    
    
    59
    
    
    
    2005Mark J. Daniel
    
    Vice-President, Human Resources
    
    
    59
    
    
    
    2000Bruce R. Drysdale
    
    Vice-President, Public and Government Affairs
    
    
    39
    
    
    
    2004Philippus F. du Toit
    
    Managing Director, Voiseys
Bay Nickel Company Limited
    
    
    53
    
    
    
    2003Anthony O. Filmer
    
    Vice-President, Research and Development
    
    
    52
    
    
    
    2005John B. Jones
    
    Vice-President, Business Development  Asia
    
    
    63
    
    
    
    1999Gary G. Kaiway
    
    Vice-President, Taxation
    
    
    57
    
    
    
    2001William B. Kipkie
    
    Vice-President, Inco Special Products
    
    
    60
    
    
    
    2003Ronald A. Lehtovaara
    
    Vice-President and Comptroller
    
    
    55
    
    
    
    1996William A. Napier
    
    Vice-President, Environment and Health
    
    
    51
    
    
    
    2000S. Nicholas Sheard
    
    Vice-President, Exploration
    
    
    56
    
    
    
    2003
 
 (1)
    
    Mr. Jones plans to retire from all of his positions with the Company when the pending
acquisition of Falconbridge is completed.(2)
    
    Mr. Feiner will be succeeded in this position by Simon A. Fish in late March 2006 when
he will then serve as Executive Vice-President, Corporate Affairs, until his planned
retirement in mid-2006. Prior to joining Inco in December 2005, Mr. Fish held senior
management positions, most recently Vice-President, General Counsel and Secretary, with
Shell Canada Limited, an integrated oil and gas company based in Calgary, Alberta from
January 2003 until November 2005, and from
July 2000 until January 2003, Mr. Fish was Secretary to the Committee of Managing Directors
of Royal Dutch Shell plc based in London, England.   188




---



##### 



Code of Ethics
  Item 11. Executive Compensation
  Item 12. Security Ownership of Certain Beneficial Owners and Management
 Security Ownership of Certain Beneficial Owners and Management
  Changes in Control
  189




---



##### 



Item 13. Certain Relationships and Related Transactions
  Item 14. Principal Accountant Fees and Services
  190




---



##### 



PART IV
 Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
 (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(a)3.
    
    
    
    
    
    
    
    Schedule VIII  Valuation accounts and reserves
Exhibits(2)(i)

    
    
    
    Support Agreement dated October 10, 2005 between Inco Limited
and Falconbridge Limited relating to the proposed acquisition by
the Company of all of the common shares of Falconbridge
(incorporated by reference to Exhibit 2.1 to the Companys
Current Report on Form 8-K dated October 11, 2005)  filed
October 13, 2005(ii)
    
    
    
    Amending Agreement dated January 12, 2006 between Inco Limited
and Falconbridge amending the Support Agreement dated October
10, 2005 (incorporated by reference to Exhibit 2.4 to the
Companys Current Report on Form F-8/A dated January 19, 2006)(iii)
    
    
    
    Second Amending Agreement dated February 20, 2006 between Inco
Limited and Falconbridge amending the Support Agreement dated
October 10, 2005 (incorporated by reference to Exhibit 2.5 to
the Companys Current Report on Form F-8/A dated February 27,
2006)(3)(i)
    
    
    
    Restated Articles of Incorporation of Inco Limited dated May 7,
2004 (incorporated by reference to Exhibit 3.1 to the Companys
Originally Filed Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2004)(ii)
    
    (a)
    
    General By-law No. 1 of Inco Limited as amended to February 3,
2004 (incorporated by reference to Exhibit 3(ii)(a) to the
Companys Annual Report on Form 10-K for the year ended December
31, 2003)(4)(i)
    
    (b)
(a)
(b)
    
    Standing Resolution of the Board of
Directors of  Inco Limited as amended to July 18, 2005
Reference is made to(3)(i) and (ii) above
Warrant Agreement dated December 1, 2000 among Inco Limited,
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)(ii)
    
    (c)
    
    Shareholder Rights Plan Agreement dated as of September 14,
1998, as amended and restated as of April 20, 2005, between Inco
Limited and CIBC Mellon Trust Company, as Rights Agent
(incorporated by reference to Exhibit A to the 2005 Proxy
Statement attached as Exhibit 99 to the Companys Annual Report
on Form 10-K for the year ended December 31, 2004)
Inco Limited 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)
 191




---



##### 



(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)(1)(d)
    
    2005 Key Employees Incentive Plan (incorporated by reference to
Exhibit B to the 2005 Proxy Statement attached as Exhibit 99 to
the Companys Annual Report on Form 10-K for the year ended
December 31, 2004)(1)(e)
    
    2001 Key Employees Incentive Plan (incorporated by reference to
Exhibit A to the 2001 Proxy Statement filed as Exhibit 99 to the
Companys Annual Report on Form 10-K for the year ended December
31, 2000)(1)(f)
    
    1997 Key Employees Incentive Plan (incorporated by reference to
Exhibit A to the 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))(1)(g)
    
    1993 Key Employees Incentive Plan (incorporated by reference to
the Prospectus in Registration Statement No.
33-71298)(1)(h)
    
    1998 Non-Employee Director Share Ownership Plan (incorporated by
reference to Exhibit 10(g) to the Companys Annual Report on
Form 10-K for the year ended December 31, 2001)(1)(i)
    
    Forms of two Agreements, each dated as of between March 23, 1998
and December 3, 2002 between certain executive officers of Inco
Limited (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 and P.C. Jones 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 Inco Limiteds Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1998 (File No.
1-1143))(1)(j)
    
    Description of Inco Limiteds Management Incentive Plans
(incorporated by reference to the first paragraph under
Management Incentive Plans in the 2006 Proxy
Statement)(1)(k)
    
    Electricity Supply Agreement dated October 28, 2004 between
Enercal S.A. and Goro Nickel S.A. relating to the supply of
electricity by Enercal to Goro Nickel for the Goro project.
(incorporated by reference to Exhibit 10(k) to the Companys
Annual Report on Form 10-K for the year ended December 31, 2004)(l)
    
    Lease Agreement dated December 30, 2004 between GNiFi as lessor
and Goro Nickel S.A. as lessee under which GNiFi will lease to
Goro Nickel S.A. a portion of the Goro project processing plant
which is financed under French tax legislation (the Girardin
Act) (incorporated by reference to Exhibit 10(l) to the
Companys Annual Report on Form 10-K for the year ended December
31, 2004)(m)
    
    Construction Agreement dated December 30, 2004 between GNiFi as
owner and Goro Nickel S.A. as project manager under which Goro
Nickel S.A. has been appointed as construction agent on behalf
of GNiFi to purchase, construct and commission a portion of the
Goro project processing plant which is financed under French tax
legislation (the Girardin Act) (incorporated by reference to
Exhibit 10(m) to the Companys Annual Report on Form 10-K for
the year ended December 31, 2004)(n)
    
    Contract of Work between the Government of the Republic of
Indonesia and P.T. International Nickel Indonesia Tbk,
consisting of (i) Agreement on Modification and Extension of
1968 Contract of Work dated January 15, 1996; (ii) Contract of
Work dated as of July 27, 1968, and (iii) Memorandum of
Understanding dated January 15, 1996 Relating to Agreement on
Modification and Extension of 1968 Contract of Work dated
January 15, 1996 (incorporated by reference to Exhibit 10(n) to
the Companys Annual Report on Form 10-K for the year ended
December 31, 2004)(o)
    
    Loan Agreement dated December 22, 2005 between Inco Limited and
a group of banks and financial institutions, including Morgan
Stanley Senior Funding (Nova Scotia) Co., RBC Capital Markets,
Goldman Sachs Canada Credit Partners Co. and The Bank of Nova
Scotia, as lead arrangers, and Morgan Stanley Senior Funding
 192




---



##### 



(21
    )
    
    
    
    (Nova Scotia) Co. and RBC Capital Markets, as joint book running
managers, providing the Company with loan facilities in
connection with the acquisition of Falconbridge, together with
amendments dated January 13, 2006 and February 20, 2006, portions of which have been omitted
pursuant to a request for confidential treatment. Such
confidential portions have been filed with the SEC
Subsidiaries of Inco Limited(23
    )
    
    (a)
    
    Consents of Lawrence B. Cochrane, S. Nicholas Sheard and Olivier
Tavchandjian, each as a Qualified Person named in this Report
pursuant to National Instrument 43-101 issued by the Canadian
Securities Administrators(b)
    
    Consent of Independent Auditors(24
    )
    
    (a)
    
    Powers of Attorney(b)
    
    Resolutions of the Board of Directors(31
    )
    
    
    
    Rule 13a-14(a)/15d-14(a) Certifications(32
    )
    
    
    
    Section 1350 Certifications(99
    )
    
    
    
    2006 Proxy Statement
 
 (1)
    
    Indicates a management contract or compensatory plan or arrangement. 193




---



##### 



Signatures
  INCO LIMITED 
(Registrant)By:
    (Signed) STUART F. FEINERStuart F. FeinerExecutive Vice-President,
General Counsel & Secretary  Signature
    
    Title(Signed) SCOTT M. HAND
    
    Chairman and Chief Executive OfficerScott M. Hand
    
    and Director(Principal Executive Officer)(Signed) ROBERT D.J. DAVIES
    
    Executive Vice-President andRobert D.J. Davies
    
    Chief Financial Officer(Principal Financial Officer)(Signed) RONALD A. LEHTOVAARA
    
    Vice-President and ComptrollerRonald A. Lehtovaara
    
    (Principal Accounting Officer)
 194




---



##### 



Signature
    
    Title*GLEN A. BARTON
    
    Director(Glen A. Barton)*ANGUS A. BRUNEAU
    
    Director(Angus A. Bruneau)*RONALD C. CAMBRE
    
    Director(Ronald C. Cambre)*JANICE K. HENRY
    
    Director(Janice K. Henry)*CHAVIVA
M. HOEK
    
    Director(Chaviva
M. Hoek)*PETER C. JONES
    
    Director(Peter C. Jones)*JOHN T. MAYBERRY
    
    Director(John T. Mayberry)*FRANCIS MER
    
    Director(Francis Mer)*DAVID P. OBRIEN
    
    Director(David P. OBrien)*ROGER PHILLIPS
    
    Director(Roger Phillips)*RICHARD E. WAUGH
    
    Director(Richard E. Waugh)(Signed) EDWARD A. STEEN
    
    Authorized Representative in theEdward A. Steen
    
    United StatesInternational Nickel, Inc.Park 80 West, Plaza TwoSaddle Brook, NJ 07663
 
 *
    
    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 Report on
behalf of each of such directors, in each case in the capacity of director, on the 16th day of March, 2006. (Signed) STUART F. FEINERStuart F. Feiner, attorney-in-fact
 195




---



##### 



Consent of Independent Auditors
  
 196




---



##### 



INCO LIMITED
 EXHIBIT INDEX
TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2005
 Exhibit No.
    
    Exhibit3(ii)(b)
    
    Standing Resolution of the Board of Directors of Inco Limited as
amended to July 18, 200510(o)
    
    Loan Agreement dated December 22, 2005 between Inco Limited and
a group of banks and financial institutions, including Morgan
Stanley Senior Funding (Nova Scotia) Co., RBC Capital Markets,
Goldman Sachs Canada Credit Partners Co. and The Bank of Nova
Scotia, as lead arrangers, and Morgan Stanley Senior Funding
(Nova Scotia) Co. and RBC Capital Markets, as joint book running
managers, providing the Company with loan facilities in
connection with the acquisition of Falconbridge, together with
amendments dated January 31, 2006 and February 20, 2006,
portions of which have been omitted pursuant to a request for
confidential treatment.21
    
    Subsidiaries of Inco Limited23(a)
    
    Consents of Lawrence B. Cochrane, S. Nicholas Sheard and Olivier
Tavchandjian, each as a Qualified Person named in this Report
pursuant to National Instrument 43-10123(b)
    
    Consent of Independent Auditors24(a)
    
    Powers of Attorney24(b)
    
    Resolutions of the Board of Directors of Inco Limited31
    
    Rule 13a-14(a)/15d-14(a) Certifications32
    
    Section 1350 Certifications99
    
    Proxy Circular and Statement dated February 17, 2006 1
 
 1
    
    Portions of the Proxy circular and Statement are incorporated by reference in Part III of this Report.