EXHIBIT 2

The audited Consolidated Financial Statements for the fiscal year ended December 31, 2003 and the accompanying Management's
Discussion and Analysis of Falconbridge Limited, appearing on pages 34 to 52 and pages 16 to 32, respectively, of the Falconbridge Limited 2003 Annual Report, which are
incorporated by reference into the Annual Information Form of Falconbridge Limited.

---





Auditors' Report

To the Shareholders of Falconbridge Limited:

We have audited the consolidated statements of financial position of Falconbridge Limited as at December 31, 2003 and 2002, and the consolidated statements
of earnings, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In
our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Corporation as at December 31, 2003 and 2002, and
the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

|                                                                          |  | 
|------------------------------------------------------------------------- |  | 
|/s/ DELOITTE AND TOUCHE LLP
Deloitte and Touche LLP Chartered Accountants |  | 
|Toronto, Ontario
February 4, 2004                                         |  | 

34

---





Consolidated Statements of Earnings

|IN THOUSANDS OF UNITED STATES DOLLARS
YEARS ENDED DECEMBER 31, |                                                                     | 2003 |           | 2002      |  
|-------------------------------------------------------------- | ------------------------------------------------------------------- | ---- | --------- | --------- | -
|
|Revenues                                                       |                                                                     | $    | 2,083,480 |           | $
|                                                               |                                                                     |      |           |           |  
|Operating expenses                                             |                                                                     |      |           |           |  
|Costs of sales                                                 |                                                                     |      |           |           |  
|                                                               | Costs of metal and other product sales                              |      |           | 1,414,829 |  
|                                                               | Depreciation of plant and equipment (note 2)                        |      |           | 174,758   |  
|                                                               | Amortization of development and preproduction expenditures (note 2) |      |           | 69,950    |  
|                                                               |                                                                     |      |           |           |  
|                                                               |                                                                     |      | 1,659,537 |           |  
|Selling, general and administrative                            |                                                                     |      | 85,968    |           |  
|Exploration                                                    |                                                                     |      | 22,875    |           |  
|Research and process development                               |                                                                     |      | 13,042    |           |  
|Other income (note 16)                                         |                                                                     |      | (2,916    | )         |  
|                                                               |                                                                     |      |           |           |  
|                                                               |                                                                     |      | 1,778,506 |           |  
|                                                               |                                                                     |      |           |           |  
|Operating income                                               |                                                                     |      | 304,974   |           |  
|Interest (notes 2, 11)                                         |                                                                     |      | 42,873    |           |  
|                                                               |                                                                     |      |           |           |  
|Earnings before taxes and non-controlling interest             |                                                                     |      | 262,101   |           |  
|Income and mining taxes (note 7)                               |                                                                     |      | 63,137    |           |  
|Non-controlling interest in earnings (loss) of subsidiaries    |                                                                     |      | 4,540     |           |  
|                                                               |                                                                     |      |           |           |  
|Earnings for the year                                          |                                                                     | $    | 194,424   |           | $
|Dividends on preferred shares                                  |                                                                     |      | 8,606     |           |  
|                                                               |                                                                     |      |           |           |  
|Earnings attributable to common shares                         |                                                                     | $    | 185,818   |           | $
|                                                               |                                                                     |      |           |           |  
|Basic earnings per common share(note 10(c))                    |                                                                     | $    | 1.05      |           | $
|Diluted earnings per common share(note 10(c))                  |                                                                     | $    | 1.04      |           | $
|                                                               |                                                                     |      |           |           |  

See
accompanying Notes to Consolidated Financial Statements.

35

---



Consolidated Statements of Financial Position

|IN THOUSANDS OF UNITED STATES DOLLARS
AS AT DECEMBER 31, |  | 2003 |           | 2002
|-------------------------------------------------------- |  | ---- | --------- | ----
|
|ASSETS                                                   |  |      |           |     
|Current                                                  |  |      |           |     
|Cash and cash equivalents                                |  | $    | 298,091   |     
|Accounts and metals settlements receivable (note 15)     |  |      | 257,835   |     
|Inventories (note 3)                                     |  |      | 441,733   |     
|                                                         |  |      |           |     
|Total current assets                                     |  |      | 997,659   |     
|                                                         |  |      |           |     
|Property, plant and equipment (note 4)                   |  |      | 2,903,118 |     
|Deferred expenses and other assets (note 5)              |  |      | 203,983   |     
|                                                         |  |      |           |     
|Total assets                                             |  | $    | 4,104,760 |     
|                                                         |  |      |           |     
|LIABILITIES AND SHAREHOLDERS' EQUITY                     |  |      |           |     
|Current                                                  |  |      |           |     
|Accounts payable and accrued charges (note 15)           |  | $    | 255,084   |     
|Income and other taxes payable                           |  |      | 23,158    |     
|Long-term debt due within one year (note 6)              |  |      | 70,637    |     
|                                                         |  |      |           |     
|Total current liabilities                                |  |      | 348,879   |     
|                                                         |  |      |           |     
|Long-term debt (note 6)                                  |  |      | 1,356,589 |     
|Future income and mining taxes (note 7)                  |  |      | 198,551   |     
|Employee future benefits (note 8)                        |  |      | 150,399   |     
|Other long-term liabilities (note 9)                     |  |      | 98,573    |     
|Non-controlling interest                                 |  |      | 26,566    |     
|                                                         |  |      |           |     
|Total liabilities                                        |  |      | 2,179,557 |     
|                                                         |  |      |           |     
|Commitments and contingencies (notes 6, 9, 14, 17)       |  |      |           |     
|Shareholders' equity                                     |  |      | 1,925,203 |     
|                                                         |  |      |           |     
|Total liabilities and shareholders' equity               |  | $    | 4,104,760 |     
|                                                         |  |      |           |     

See
accompanying Notes to Consolidated Financial Statements.

|                                    |  |                                        
|----------------------------------- |  | ---------------------------------------
|On behalf of the Board:             |  |                                        
|                                    |  |                                        
|/s/ DAVID KERR
David Kerr, Director |  | /s/ AARON REGENT
Aaron Regent, Director

36

---



Consolidated Statements of Shareholders' Equity

|                                  |                                                                           | 2003                                             |                                                             | 2002        |          
|--------------------------------- | ------------------------------------------------------------------------- | ------------------------------------------------ | ----------------------------------------------------------- | ----------- | ---------
|
|
|Share capital                     |                                                                           |                                                  |                                                             |             |          
|                                  | Authorized                                                                |                                                  |                                                             |             |          
|                                  |                                                                           | Unlimited preferred shares                       |                                                             |             |          
|                                  |                                                                           | Unlimited common shares                          |                                                             |             |          
|                                  | Issued                                                                    |                                                  |                                                             |             |          
|                                  | Common shares                                                             |                                                  |                                                             |             |          
|                                  |                                                                           | Balance, beginning of year                       |                                                             | 177,603,432 |          
|                                  |                                                                           |                                                  | Issued (note 10(d))                                         |             |         
|                                  |                                                                           |                                                  | Shares repurchased and cancelled (note 10(e))               |             | (600,000 
|                                  |                                                                           |                                                  | Issued pursuant to employee stock option plan (note 10 (a)) |             | 1,789,060
|                                  |                                                                           |                                                  |                                                             |             |          
|                                  |                                                                           | Balance, end of year                             |                                                             | 178,792,492 |          
|                                  |                                                                           |                                                  |                                                             |             |          
|                                  | Preferred shares Series 1 (note 10(b))
Balance, beginning and end of year |                                                  | 89,835                                                      |             |          
|                                  |                                                                           |                                                  |                                                             |             |          
|                                  | Preferred shares Series 2 (note 10(b))
Balance, beginning and end of year |                                                  | 7,910,165                                                   |             |          
|                                  |                                                                           |                                                  |                                                             |             |          
|Contributed surplus               |                                                                           |                                                  |                                                             |             |          
|                                  | Balance, beginning of year                                                |                                                  |                                                             |             |          
|                                  |                                                                           | Amortization of fair value of stock options, net |                                                             |             |          
|                                  |                                                                           |                                                  |                                                             |             |          
|                                  | Balance, end of year                                                      |                                                  |                                                             |             |          
|                                  |                                                                           |                                                  |                                                             |             |          
|Surplus (deficit)                 |                                                                           |                                                  |                                                             |             |          
|                                  | Balance, beginning of year                                                |                                                  |                                                             |             |          
|                                  |                                                                           | Adjustment for change in accounting policies     |                                                             |             |          
|                                  |                                                                           |                                                  | Capitalization of interest and inventory costing (note 2)   |             |          
|                                  |                                                                           |                                                  | Stock based compensation (note 2)                           |             |          
|                                  |                                                                           | Earnings for the year                            |                                                             |             |          
|                                  |                                                                           | Dividends  Common shares                        |                                                             |             |          
|                                  |                                                                           |  Preferred shares                               |                                                             |             |          
|                                  |                                                                           | Share issue costs, net of taxes                  |                                                             |             |          
|                                  |                                                                           | Loss on repurchase of common shares (note 10(e)) |                                                             |             |          
|                                  |                                                                           |                                                  |                                                             |             |          
|                                  | Balance, end of year                                                      |                                                  |                                                             |             |          
|                                  |                                                                           |                                                  |                                                             |             |          
|Cumulative translation adjustment |                                                                           |                                                  |                                                             |             | 214,707  
|                                  |                                                                           |                                                  |                                                             |             |          
|                                  | Total shareholders' equity                                                |                                                  |                                                             |             | $        
|                                  |                                                                           |                                                  |                                                             |             |          

See
accompanying Notes to Consolidated Financial Statements.

37

---



Consolidated Statements of Cash Flows

|IN THOUSANDS OF UNITED STATES DOLLARS
YEARS ENDED DECEMBER 31, |                                                                      | 2003                                                       |          | 2002     |         
|-------------------------------------------------------------- | -------------------------------------------------------------------- | ---------------------------------------------------------- | -------- | -------- | --------
|
|Operating activities                                           |                                                                      |                                                            |          |          |         
|                                                               | Earnings for the year                                                |                                                            | $        | 194,424  |         
|                                                               | Add (deduct) items not affecting cash                                |                                                            |          |          |         
|                                                               |                                                                      | Depreciation of plant and equipment                        |          |          | 169,369 
|                                                               |                                                                      | Amortization of development and preproduction expenditures |          |          | 69,949  
|                                                               |                                                                      | Future income and mining taxes (note 7)                    |          |          | 25,406  
|                                                               |                                                                      | Non-controlling interest in earnings of subsidiaries       |          |          | 4,540   
|                                                               |                                                                      | Other                                                      |          |          | 7,381   
|                                                               | Contributions to pension fund in excess of amounts expensed          |                                                            |          | (29,847  | )       
|                                                               |                                                                      |                                                            |          |          |         
|                                                               | Cash provided by operating activities before working capital changes |                                                            |          | 441,222  |         
|                                                               | Net change in receivables, inventories and payables                  |                                                            |          | 4,115    |         
|                                                               |                                                                      |                                                            |          |          |         
|Cash provided by operating activities                          |                                                                      |                                                            | 445,337  |          |         
|                                                               |                                                                      |                                                            |          |          |         
|Investing activities                                           |                                                                      |                                                            |          |          |         
|                                                               | Capital investments and deferred project costs                       |                                                            |          | (370,318 | )       
|                                                               | Other                                                                |                                                            |          | (17,995  | )       
|                                                               |                                                                      |                                                            |          |          |         
|Cash used in investing activities                              |                                                                      |                                                            | (388,313 | )        |         
|                                                               |                                                                      |                                                            |          |          |         
|Financing activities                                           |                                                                      |                                                            |          |          |         
|                                                               | Long-term debt, including current portion (note 6):                  |                                                            |          |          |         
|                                                               |                                                                      | Issued                                                     |          |          | 246,229 
|                                                               |                                                                      | Repaid                                                     |          |          | (129,705
|                                                               | Dividends paid                                                       |                                                            |          | (58,106  | )       
|                                                               | Repurchase of common shares                                          |                                                            |          | (6,608   | )       
|                                                               | Issue of common shares (note 10(a), (d))                             |                                                            |          | 24,694   |         
|                                                               |                                                                      |                                                            |          |          |         
|Cash provided by financing activities                          |                                                                      |                                                            | 76,504   |          |         
|                                                               |                                                                      |                                                            |          |          |         
|Cash provided during the year                                  |                                                                      |                                                            | 133,528  |          |         
|Cash and cash equivalents, beginning of year                   |                                                                      |                                                            | 164,563  |          |         
|                                                               |                                                                      |                                                            |          |          |         
|Cash and cash equivalents, end of year                         |                                                                      | $                                                          | 298,091  |          | $       
|                                                               |                                                                      |                                                            |          |          |         
|Supplementary information:                                     |                                                                      |                                                            |          |          |         
|                                                               | Cash paid for interest                                               |                                                            | $        | 58,955   |         
|                                                               | Cash paid for income and mining taxes                                |                                                            | $        | 17,337   |         

See
accompanying Notes to Consolidated Financial Statements.

38

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Notes to Consolidated Financial Statements(Tabular figures in thousands of United States dollars, except where otherwise noted)

1.    Summary of significant accounting policies

The consolidated financial statements of Falconbridge Limited have been prepared in accordance with Canadian generally accepted accounting
principles (GAAP), consistently applied. In these consolidated financial statements, references to the Corporation mean only Falconbridge Limited, the parent company, and references to Falconbridge
include the Corporation and its consolidated subsidiaries. The principal accounting policies followed by Falconbridge are summarized hereunder.

BASIS OF CONSOLIDATION

Falconbridge
consolidates the financial statements of subsidiary companies and proportionately consolidates the financial statements of joint ventures.

TRANSLATION OF FOREIGN CURRENCIES

Effective
July 1, 2003, the functional currency of Falconbridge Limited was changed from the Canadian to U.S. dollar. Concurrent with this change in functional currency,
Falconbridge adopted the U.S. dollar as its reporting currency.

Prior
to the change, foreign currency balances and the financial statements of integrated foreign operations were translated into Canadian dollars using the temporal method. Under this
method, monetary items are translated at the rate of exchange in effect at the year-end. Non-monetary items are translated at historical exchange rates. Revenue and expense
items are translated at the average exchange rates prevailing during the year, except for depreciation and amortization, which are translated at the same exchange rates as the assets to which they
relate. Exchange gains and losses are included in income in the current year, except when hedged. Certain monetary items were hedged by foreign currency forward and option contracts. Financial
statements of self-sustaining foreign operations were translated into Canadian dollars using the current rate method. Under this method, assets and liabilities are translated at the rate
of exchange in effect at the year-end while revenue and expense items (including depreciation and amortization) are translated at the average exchange rates prevailing during the year.
Exchange gains and losses from the translation of such financial statements are deferred and disclosed as a separate component of shareholders' equity. Falconbridge used a combination of its
U.S. dollar long-term debt and forward exchange contracts and options for the sale of U.S. dollars to fully hedge its net investments in self-sustaining foreign
operations. Gains or losses on these hedge instruments are reported in the same manner as exchange gains and losses from the translation of the financial statements of its self-sustaining
foreign operations.

Subsequent
to the change, Falconbridge does not have any self-sustaining subsidiaries whose functional currency is not the U.S. dollar. Balances denominated in
currencies other than the U.S. dollar, and the financial statements of integrated foreign operations, are translated into U.S. dollars using the temporal method described above. The
economic exposure of certain foreign currency monetary items are managed through the use of foreign currency forward and option contracts.

REVENUE RECOGNITION

Revenues
are generated from the sale of refined metals, concentrates and ferronickel and are recorded in the accounts when the ownership and control of goods passes to the buyer, which
generally occurs upon shipment. Prices used for provisionally priced sales are based on market prices prevailing at the time of shipment and are adjusted upon final settlement with customers pursuant
to the terms of sales contracts.

CASH AND CASH EQUIVALENTS

Cash
and cash equivalents include cash on account, demand deposits and short-term investments with original maturities of three months or less and are stated at cost, which
approximates market value.

VALUATION OF INVENTORIES

Metals
inventories are valued at the lower of cost, determined on a "first-in, first-out" basis, and net realizable value. Supplies inventories are valued at the
lower of average cost of acquisition, less appropriate allowances for obsolescence, and replacement cost. Effective January 1, 2003, the Corporation retroactively changed its accounting policy
for inventory costing. Under the previous policy, depreciation and amortization of property, plant and equipment was treated as a period cost. Under the new policy depreciation and amortization is
treated as a product cost and expensed when the inventory is sold.

FINANCIAL INSTRUMENTS

Falconbridge
periodically uses forward foreign exchange and option contracts to hedge the effect of exchange rate changes on identifiable foreign currency exposures. Generally,
Falconbridge does not hedge the price it realizes on the sale of its own production and accepts realizations based on market prices prevailing around the time of delivery of metals to customers. Under
certain circumstances, Falconbridge enters into futures and option contracts to hedge the effect of price changes on a portion of the commodities it sells. Gains and losses on these contracts are
reported as a component of the related transactions. Falconbridge may enter into futures and forward contracts for the purchase or sale of commodities and currencies not designated as hedges. These
contracts are carried at estimated fair values and gains or losses arising from the changes in the market values of these contracts are recognized in the earnings of the period in which the changes
occur.

Falconbridge
also enters into interest-rate swap agreements, including foreign exchange cross currency swaps, to modify the interest characteristics of its outstanding debt.
The differential to be paid or received is accrued as interest rates change and recognized as an adjustment to interest expense related to the debt.

INTEREST

Effective
January 1, 2003, the Corporation retroactively changed its accounting policy for interest capitalization. Under the previous policy, interest costs incurred, prior to
commencement of commercial production, were capitalized to projects that were financed by project specific debt. Under the new policy, a portion of interest costs incurred on the corporate debt are
allocated and capitalized to all major projects, prior to commencement of commercial production. Interest costs incurred after the commencement of commercial production are expensed.

39

---



PROPERTY, PLANT AND EQUIPMENT

Property,
plant and equipment and related capitalized development and preproduction expenditures are recorded at cost. Repairs and maintenance expenditures are charged to operations;
major betterments and replacements are capitalized.

The
Corporation generally depreciates plant and equipment on a straight-line basis over the lesser of their useful service lives or the lives of the producing mines to which
they relate. At the Kidd Creek Operations, mine facilities are depreciated over the estimated lives of the mines based on the unit of production basis. Up to and including the period ended
September 30, 2002, reduction and refining facilities were depreciated on the straight-line basis over 25 years ending in 2010. Effective October 1, 2002, the
straight-line depreciation period of the reduction and refining facilities was extended to 2022 to coincide with the revised estimated useful life of these facilities. Generally,
subsidiary companies calculate depreciation on a straight-line basis at rates varying from 5% to 25%.

Depletion
of resource properties is provided over the estimated lives of the reserves recoverable from the properties on the unit of production basis.

Development
and preproduction expenditures are capitalized until the commencement of commercial production. These, together with certain subsequent development expenditures, which are
also capitalized, are amortized over periods not exceeding the lives of the producing mines and properties.

EXPLORATION

Exploration
costs incurred to the date of establishing that a property has reserves, which have the potential of being economically recoverable, are expensed. Costs incurred subsequent
to the determination of economically recoverable reserves, including allocated interest costs, are deferred. Upon reaching commercial production, such deferred costs are amortized as appropriate under
the policy for property, plant and equipment as described above.

EMPLOYEE FUTURE BENEFITS

The
costs of retirement benefits and certain post-employment benefits are recognized over the period in which employees render services in return for the benefits.

Pension
expense recorded for Falconbridge's defined benefit plans is the net of management's best estimate of the cost of benefits provided, the interest cost of projected benefits,
return on pension plan assets and amortization of experience gains or losses and other pension plan surpluses or deficits.

Pension
fund assets are valued at current market values. Pension plan surpluses or deficits, experience gains or losses and the cost of pension plan improvements are amortized, on a
straight-line basis, over the expected average remaining service life of the employee group or the term of the employment contract to which the items relate, depending on the nature of the
item. Funding is subject to applicable government regulations.

Under
its defined contribution retirement savings program, Falconbridge makes payments based on employee earnings and partially matches employee contributions, to a defined maximum.
Employees may receive profit sharing credits based on earnings.

Falconbridge
also provides certain health care and life insurance benefits for retired employees and their dependents. The cost of these benefits is expensed over the period in which the
employees render services in return for the benefits.

INCOME AND MINING TAXES

Current
income taxes are recognized for the estimated income and mining taxes payable for the current year. Future income tax assets and liabilities are recognized for temporary
differences between the tax and accounting bases of assets and liabilities as well as for the benefit of losses, available to be carried forward to future years for tax purposes, that are likely to be
realized. Where appropriate, income and withholding taxes are provided on the portion of any interest in consolidated foreign subsidiaries' undistributed net income, which it is reasonable to assume,
will be transferred in a taxable distribution.

ENVIRONMENTAL AND RECLAMATION COSTS

Costs
related to ongoing site restoration programs are expensed when incurred. A provision for mine closure and site closure costs is charged to earnings during the life of the
operations.

USE OF ESTIMATES

The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Falconbridge primarily uses estimates in the determination of asset lives to compute depreciation, impairment of assets, the cost of employee future benefits, reclamation and
environmental obligations, the determination of mineral reserves, the determination of taxes, and allowances for unrecoverable receivables. Actual results could differ from those estimates.

STOCK OPTION PLAN

The
Corporation has a stock option plan, which is described in note 10. Effective January 1, 2002, the Corporation adopted retroactively, without restatement of the
prior-period comparative financial statements, the new CICA accounting standards for Stock-Based Compensation and Other Stock-Based Payments. Under this standard, the Corporation now accounts for
stock options using the fair value method. Under this method, compensation expense for stock options, that are direct awards of stock granted since January 1, 2002, is measured at the fair
value at the grant date using the Black-Scholes valuation model and is recognized over the vesting period of the options granted.

40

---



2.    Accounting changes

(a)   Change in functional and reporting currency

Effective July 1, 2003, the functional currency of Falconbridge Limited was changed from the Canadian to the U.S. dollar. In general, this change
resulted from a gradual increase in the overall proportion of business activities conducted in U.S. dollars. Concurrent with this change in functional currency, Falconbridge adopted the
U.S. dollar as its reporting currency. In accordance with Canadian GAAP, the change was effected by translating assets and liabilities, at the end of prior reporting periods, at the existing
U.S./Canadian dollar foreign exchange spot rate, while earnings for those periods were translated at the average rate for each period. Equity transactions have been translated at historic rates; with
opening equity on January 1, 1999, restated at the rate of exchange on that date. The resulting net translation adjustment has been credited to the cumulative translation adjustment account.

(b)   Capitalization of interest and inventory costing

Effective January 1, 2003, the Corporation changed its accounting polices for interest capitalization and inventory costing. These changes were made to
harmonize Falconbridge's policies with predominant industry practices and international accounting standards.

CAPITALIZATION OF INTEREST

As
at January 1, 2003, the effect of adopting the new policy for interest capitalization (note 1, Interest) was to increase property, plant and equipment by
$59.2 million, increase future income tax by $21.4 million, and increase retained earnings by $37.8 million. The change resulted in an increase of $5.8 million to
previously reported earnings for 2002.

INVENTORY COSTING

As
at January 1, 2003, the effect of adopting the new policy (note 1, Valuation of inventories) was to increase inventory by $48.2 million, increase future income
tax by $14.5 million, and increase retained earnings by $33.7 million. The change resulted in a decrease of $1.9 million to previously reported earnings for 2002.

(c)   Stock-based compensation and other stock-based payments

The effect of adopting the standard for Stock-Based Compensation and Other Stock-Based Payments (note 1, Stock option plan) was to decrease retained
earnings by $0.2 million for those awards granted and outstanding before January 1, 2002.

The
prior year's comparative figures have been restated to reflect the retroactive impact with respect to items (a) and (b) above.

3.    Inventories

Inventories of $441.7 million (2002  $330.2 million) includes,
in-process  $217.8 million (2002  $148.5 million); finished
metals  $122.6 million (2002  $99.8 million);
supplies  $85.0 million (2002  $81.9 million); and raw
materials  $16.3 million (2002  nil).

4.    Property, plant and equipment

Property, plant and equipment consist of the following:

|                                                |                                                  | 2003 |           | 2002     
|----------------------------------------------- | ------------------------------------------------ | ---- | --------- | ---------
|
|Plant and equipment:                            |                                                  |      |           |          
|                                                | Mines, mining plants and ancillary mining assets |      | $         | 2,683,600
|                                                | Smelters                                         |      |           | 535,181  
|                                                | Refineries                                       |      |           | 673,089  
|                                                | Other                                            |      |           | 165,689  
|                                                |                                                  |      |           |          
|                                                |                                                  |      | 4,057,559 |          
|Land and properties                             |                                                  |      | 291,671   |          
|                                                |                                                  |      |           |          
|                                                |                                                  | $    | 4,349,230 |          
|                                                |                                                  |      |           |          
|Development and preproduction expenditures, net |                                                  |      |           |          
|                                                |                                                  |      |           |          
|                                                |                                                  |      |           |          
|                                                |                                                  |      |           |          

41

---



5.    Deferred expenses and other assets

Deferred expenses and other assets consist of the following:

|AS AT DECEMBER 31,                              |                | 2003 |         | 2002   
|----------------------------------------------- | -------------- | ---- | ------- | -------
|Deferred pre-development costs                  |                |      |         |        
|                                                | Koniambo       |      | $       | 122,672
|                                                | Other projects |      |         | 7,574  
|Unrealized gain on Canadian debt hedge contract |                |      | 24,107  |        
|Inventories and supplies                        |                |      | 13,847  |        
|Debt discount and issue expenses, net           |                |      | 9,727   |        
|Water rights                                    |                |      | 6,510   |        
|Employee housing advances                       |                |      | 3,697   |        
|Other                                           |                |      | 15,849  |        
|                                                |                |      |         |        
|                                                |                | $    | 203,983 |        
|                                                |                |      |         |        

6.    Long-term debt

Long-term debt consists of the following:

|AS AT DECEMBER 31,    |                                                                    | 2003 |           | 2002     
|--------------------- | ------------------------------------------------------------------ | ---- | --------- | ---------
|Falconbridge Limited: |                                                                    |      |           |          
|                      | 7.35% Debentures, due November 1, 2006 (b)                         |      | $         | 250,000  
|                      | 7.35% Debentures, due June 5, 2012 (a), (b)                        |      |           | 250,000  
|                      | 5.375% Debentures, due June 1, 2015 (a), (b)                       |      |           | 250,000  
|                      | 73/8% Debentures, due September 1, 2005 (b)                        |      |           | 200,000  
|                      | 8.5% Debentures, due December 8, 2008 (Cdn$175.0 million) (a), (c) |      |           | 135,336  
|                      | Credit facilities (d)                                              |      |           |         
|                      | Compañía Minera Doña Inés de Collahuasi S.C.M.: Senior Debt (e)    |      |           | 281,890  
|                      | Compañía Minera Lomas Bayas: Senior Debt (f)                       |      |           | 60,000   
|                      |                                                                    |      |           |          
|                      | Total                                                              |      | $         | 1,427,226
|                      | Less long-term debt due within one year                            |      |           | 70,637   
|                      |                                                                    |      |           |          
|                      |                                                                    | $    | 1,356,589 |          
|                      |                                                                    |      |           |          

(a)   In
May 2003, the Corporation issued $250.0 million, 5.375% debentures repayable on June 1, 2015. These debentures, along with the
$250.0 million, 7.35% debentures repayable on June 5, 2012, and the Cdn$175.0 million, 8.5% debentures repayable on December 8, 2008, were issued under a shelf prospectus,
as amended, that provided for the issuance, during a two-year period which ended in September 2003, of debt securities of up to $750.0 million. The debentures are subordinate
to all indebtedness and other liabilities of subsidiaries.

In
January 2004, the Corporation filed a shelf prospectus that provided for the issuance, during a twenty-five month period ending February 2006, of debt
securities of up to $600.0 million.

(b)   The
Corporation has entered into a number of interest rate swap and option transactions with terms up to 11.5 years. As a result of these transactions, at
December 31, 2003, interest costs on $550.0 million (2002  $425.0 million) of the debentures were swapped to an average fixed interest rate
of 6.01% (2002  6.28%) and interest costs on $400.0 million (2002  $275.0 million) were swapped to a
floating rate basis at an average interest rate of 3.28% (2002  3.91%). The weighted average interest rate on these debentures at December 31, 2003, was
4.86% (2002  5.35%). If these positions had been settled at December 31, 2003, the Corporation would have received $23.9 million
(2002  received $39.3 million).

(c)   The
Corporation has entered into several cross currency interest rate swap transactions with terms of five years. As a result of these transactions, at
December 31, 2003, interest costs on $86.3 million (2002  $86.3 million) of the debentures were swapped to an average floating interest rate
of 5.32% (2002  5.55%) and interest costs on $25.0 million (2002  $25.0 million) were swapped to a fixed
interest rate of 5.00% (2002  5.00%). If these positions had been settled at December 31, 2003, the Corporation would have received $30.6 million
(2002  received $0.9 million).

(d)   The
Corporation has unsecured committed credit facilities with various banks outstanding at December 31, 2003, (individually a "Credit Facility" and collectively
the "Credit Facilities"). These three-year revolving Credit Facilities mature on December 13, 2006. The aggregate principal amount of the Credit Facilities is $405.0 million
(2002  $415.0 million). The revolving period of the credit facilities may be renewed and extended annually to maintain the three-year term of
the revolver.

The
Corporation has also established a Commercial Paper Program. Unused lines of credit and cash on hand are used to support the Commercial Paper Program.

Borrowings
may be made under the Credit Facilities in Canadian dollars in the form of prime rate loans or bankers' acceptances or in U.S. dollars in the form of U.S. base
rate loans or LIBOR loans. In some cases, borrowings may be in the form of Letters of Credit which offset amounts available under the Credit Facility. As at December 31, 2003, the Corporation
had no borrowings (2002  $ 63.5 million) and had drawn Letters of Credit totalling $17.3 million (2002 $36.5 million) under a
Credit Facility. As at December 31, 2003, the Corporation had no Commercial Paper outstanding (2002  $27.6 million and Cdn$10.0 million).
Interest on $91.1 million outstanding at December 31, 2002, was payable at 2.34% and on Cdn$10.0 million was payable at 2.85%.

42

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Amounts
outstanding under the Commercial Paper program are classified as debt not maturing within one year since the Corporation has both the intent and ability to refinance the
borrowings on a long-term basis. The Corporation pays a standby fee, included with interest expense, on the unused portion of each Credit Facility.

The
Corporation also has an uncommitted letter of credit facility of $19.3 million. At December 31, 2003, $14.6 million
(2002  $13.0 million) of letters of credit had been issued under this facility.

(e)   In
November 2002, Collahuasi negotiated $270.0 million of additional replacement Senior Debt to partially finance the Ujina/Rosario transition/expansion
project. The principal of the initial Senior Debt is repayable in successive, semi-annual installments which commenced in December 1999, continuing until December 2009.
Proceeds from drawdowns from the replacement Senior Debt are used to make the scheduled initial Senior Debt interest and principal payments during project construction. The principal of the
replacement debt is payable in 10 successive, semi-annual installments following completion of the project. The weighted average interest rate on the Senior Debt outstanding at
December 31, 2003, was 2.52% (2002  2.69%).

(f)    In
December 2002, Lomas Bayas renegotiated the term loan due January 2003. The term was extended to January 31, 2008, with semi-annual
principal repayments of US$7.5 million, commencing July 31, 2003. Under the terms of the agreement the Corporation has guaranteed the repayment of the debt. Lomas Bayas has entered into
two interest rate swap transactions. As a result of these transactions, at December 31, 2003, interest costs on $11.0 million
(2002  $29.0 million) have been swapped to a fixed rate of 8.2% (2002  8.2%). The weighted average interest rate on
the loan at December 31, 2003, was 3.66% (2002  6.54%). If these positions had been settled at December 31, 2003, Falconbridge would have paid
$0.3 million (2002  paid $1.6 million). During 2003 Lomas Bayas made a special unscheduled pay down of $22.8 million on this loan.

The
weighted average interest rate on the long-term debt portfolio, including the effect of interest rate swap agreements, at December 31, 2003, was 4.37%
(2002  4.63%). Long-term debt will mature as follows:

|Years ending December 31, 2004 |  | $ | 70,637   
|------------------------------ |  | - | ---------
|2005                           |  |   | 282,559  
|2006                           |  |   | 298,713  
|2007                           |  |   | 48,713   
|2008                           |  |   | 169,121  
|thereafter                     |  |   | 557,483  
|                               |  |  
|                               |  | $ | 1,427,226
|                               |  |  

At
December 31, 2003, the market value of Falconbridge's total debt, excluding the effect of interest rate swap agreements, was $1,520.8 million
(2002  $1,328.8 million).

7.    Income and mining taxes

(a)   Consolidated
income and mining taxes consist of the following:

|YEARS ENDED DECEMBER 31, |                                     | 2003 |        | 2002   |  
|------------------------ | ----------------------------------- | ---- | ------ | ------ | -
|Current                  |                                     |      |        |        |  
|                         | Federal and provincial income taxes |      | $      | 4,128  |  
|                         | Foreign taxes                       |      |        | 33,603 |  
|                         |                                     |      |        |        |  
|                         |                                     |      | 37,731 |        |  
|                         |                                     |      |        |        |  
|Future                   |                                     |      |        |        |  
|                         | Federal and provincial income taxes |      |        | (6,345 | )
|                         | Provincial mining taxes             |      |        | 4,335  |  
|                         | Foreign taxes                       |      |        | 27,416 |  
|                         |                                     |      |        |        |  
|                         |                                     |      | 25,406 |        |  
|                         |                                     |      |        |        |  
|                         |                                     | $    | 63,137 |        | $
|                         |                                     |      |        |        |  

(b)   The
difference between the amount of the reported consolidated income and mining taxes and the amount computed by multiplying the earnings before taxes by the
Corporation's applicable tax rates is reconciled as follows:

|YEARS ENDED DECEMBER 31,                          |                                   | 2003 |         | 2002    |  
|------------------------------------------------- | --------------------------------- | ---- | ------- | ------- | -
|Taxes computed using the Corporation's tax rates* |                                   | $    | 102,534 |         | $
|Adjust for                                       |                                   |      |         |         |  
|                                                  | Foreign tax rates, net (i)        |      |         | (40,803 | )
|                                                  | Mining taxes                      |      |         | 5,712   |  
|                                                  | Resource and depletion allowances |      |         | (11,648 | )
|                                                  | Currency translation adjustments  |      |         | 12,358  |  
|                                                  | Non-taxable income                |      |         | (2,933  | )
|                                                  | Non-claimable expenses            |      |         | 7,946   |  
|                                                  | Canadian income tax rate changes  |      |         | (9,369  | )
|                                                  | Other                             |      |         | (660    | )
|                                                  |                                   |      |         |         |  
|Income and mining taxes                           |                                   | $    | 63,137  |         | $
|                                                  |                                   |      |         |         |  
|*Federal and provincial income tax rates          |                                   |      | 39.12%  |         |  

43

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(c)   The
components of the future income tax liability at December 31, 2003, are as follows:

|YEARS ENDED DECEMBER 31,                 |                                            | 2003 |         | 2002   
|---------------------------------------- | ------------------------------------------ | ---- | ------- | -------
|Future income and mining tax liabilities |                                            |      |         |        
|                                         | Property, plant and equipment              |      | $       | 218,744
|                                         | Development and preproduction              |      |         | 174,871
|                                         | Accrued withholding taxes                  |      |         | 31,831 
|                                         | Foreign exchange                           |      |         | 9,065  
|                                         | Pensions                                   |      |         | 4,829  
|                                         | Exploration                                |      |         | 2,121  
|                                         | Other                                      |      |         | 5,114  
|                                         |                                            |      |         |        
|                                         |                                            |      | 446,575 |        
|                                         |                                            |      |         |        
|Future income and mining tax assets      |                                            |      |         |        
|                                         | Non-capital losses                         |      |         | 128,665
|                                         | Post-retirement benefits                   |      |         | 57,740 
|                                         | Reclamation provisions                     |      |         | 25,522 
|                                         | Research and development                   |      |         | 15,624 
|                                         | Inventory obsolescence                     |      |         | 9,605  
|                                         | Exploration                                |      |         |       
|                                         | Pensions                                   |      |         |       
|                                         | Other                                      |      |         | 10,868 
|                                         |                                            |      |         |        
|                                         |                                            |      | 248,024 |        
|                                         |                                            |      |         |        
|                                         | Net future income and mining tax liability |      | $       | 198,551
|                                         |                                            |      |         |        

8.    Employee future benefits

Falconbridge has a number of defined benefit plans providing pension, health, dental and life insurance benefits for certain salaried and
hourly-rated employees. Pension benefits are calculated based upon length of service and either final average pensionable earnings or a specified amount per year of service. Funding and pension plan
assets (which consist principally of cash, equity securities and fixed income securities) for the defined benefit plans are primarily governed by theOntario Pension Benefits
Act.

Falconbridge
also has a number of capital accumulation plans. The Kidd Creek Operations and Société Minière Raglan du Québec
Ltéé make monthly contributions on behalf of employees under a deferred profit sharing plan and a group RRSP respectively. In 2003, Falconbridge offered certain groups of
office employees at the corporate office and Sudbury divisions the opportunity to switch from the current defined benefit plan to a defined contribution plan. Approximately 30% of eligible employees
chose to make the switch with $7.0 million in assets to be allocated to the defined contribution plan. Under the terms of this plan, Falconbridge contributes 5% of the employee's pensionable
earnings and matches 50% of employee's contributions up to 2% of the employee's pensionable earnings. Falconbridge is expecting regulatory approval for the defined contribution plan in 2004.

The
funded status of Falconbridge's defined benefit pension plans and post-employment benefit plans other than pensions are as follows:

DEFINED BENEFIT PENSION PLANS

|                                                       |  | 2003 |        | 2002 |  
|------------------------------------------------------ |  | ---- | ------ | ---- | -
|
|Plan assets at fair value                              |  | $    | 64,996 |      | $
|Projected benefit obligations                          |  |      | 51,494 |      |  
|                                                       |  |      |        |      |  
|Plan assets in excess of (less than) projected benefit |  | $    | 13,502 |      | $
|                                                       |  |      |        |      |  

POST-EMPLOYMENT BENEFIT PLANS OTHER THAN PENSIONS

|                                                       |  | 2003 |        | 2002 |  
|------------------------------------------------------ |  | ---- | ------ | ---- | -
|
|Plan assets at fair value                              |  | $    | 17,910 |      | $
|Projected benefit obligations                          |  |      | 16,440 |      |  
|                                                       |  |      |        |      |  
|Plan assets in excess of (less than) projected benefit |  | $    | 1,470  |      | $
|                                                       |  |      |        |      |  

44

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The
accrued asset (liability) for employee future benefits on the Statements of Financial Position, net of valuation allowance, are as follows:

DEFERRED EXPENSES AND OTHER ASSETS

|AS AT DECEMBER 31,                                            |  | 2003 |          | 2002 |  
|------------------------------------------------------------- |  | ---- | -------- | ---- | -
|Defined benefit pension plans                                 |  | $    | 21,299   |      | $
|Post-employment benefit plans other than pensions             |  |      | (171,698 | )    |  
|                                                              |  |      |          |      |  
|Accrued benefit asset (liability), net of valuation allowance |  | $    | (150,399 | )    | $
|                                                              |  |      |          |      |  

Falconbridge's
post-retirement benefit expense included the following components:

|                                                           |                      | 2003 |         | 2002   |  
|---------------------------------------------------------- | -------------------- | ---- | ------- | ------ | -
|
|Service cost                                               |                      | $    | 10,968  |        | $
|Interest cost                                              |                      |      | 52,386  |        |  
|Expected return on plan assets                             |                      |      | (40,122 | )      |  
|Amortization of:                                           |                      |      |         |        |  
|                                                           | Past service costs   |      |         | 3,405  |  
|                                                           | Net actuarial losses |      |         | 13,752 |  
|Valuation allowance provided against accrued benefit asset |                      |      | (3,025  | )      |  
|Settlement losses                                          |                      |      | 2,004   |        |  
|Other                                                      |                      |      |        |        |  
|                                                           |                      |      |         |        |  
|Defined benefit plan expense                               |                      |      | 39,368  |        |  
|Defined contribution plan expense                          |                      |      | 7,608   |        |  
|                                                           |                      |      |         |        |  
|Post-employment benefit expense                            |                      | $    | 46,976  |        | $
|                                                           |                      |      |         |        |  

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

|                             |                                       | 2003 |         | 2002    |  
|---------------------------- | ------------------------------------- | ---- | ------- | ------- | -
|
|Projected benefit obligation |                                       |      |         |         |  
|Balance at beginning of year |                                       | $    | 656,880 |         | $
|                             | Current service cost                  |      |         | 10,968  |  
|                             | Benefits paid                         |      |         | (58,146 | )
|                             | Interest cost                         |      |         | 52,386  |  
|                             | Actuarial losses                      |      |         | 52,031  |  
|                             | Settlements                           |      |         | (7,875  | )
|                             | Net transfers in                      |      |         | 1,017   |  
|                             | Effect of exchange rate changes       |      |         | 131,171 |  
|                             |                                       |      |         |         |  
|Balance at end of year       |                                       | $    | 838,432 |         | $
|                             |                                       |      |         |         |  
|Plan assets                  |                                       |      |         |         |  
|Balance at beginning of year |                                       | $    | 480,604 |         | $
|                             | Expected return on plan assets        |      |         | 40,122  |  
|                             | Experience gain/(loss) on fund assets |      |         | 31,973  |  
|                             | Employer contributions                |      |         | 65,351  |  
|                             | Benefits paid                         |      |         | (54,593 | )
|                             | Settlements                           |      |         | (6,507  | )
|                             | Net transfers in                      |      |         | 1,017   |  
|                             | Effect of exchange rate changes       |      |         | 94,068  |  
|                             |                                       |      |         |         |  
|Balance at end of year       |                                       | $    | 652,035 |         | $
|                             |                                       |      |         |         |  
|Plan deficit                 |                                       | $    | 186,397 |         | $
|                             |                                       |      |         |         |  

45

---



|                                                              |  | 2003 |         | 2002
|------------------------------------------------------------- |  | ---- | ------- | ----
|
|Reconciliation of projected benefit obligation to deficit     |  |      |         |     
|Accrued benefit (asset) liability, net of valuation allowance |  | $    | (21,299 | )   
|Unamortized past service costs                                |  |      | 575     |     
|Unamortized net actuarial losses                              |  |      | 212,654 |     
|                                                              |  |      |         |     
|Accrued benefit liability, net of valuation allowance         |  |      | 191,930 |     
|Valuation allowance                                           |  |      | (5,533  | )   
|                                                              |  |      |         |     
|Plan deficit                                                  |  | $    | 186,397 |     
|                                                              |  |      |         |     

The
significant actuarial assumptions used in measuring Falconbridge's post-retirement benefit obligations were as follows:

|                                                              |  | 2003  |  | 2002  |  | 2003 |         | 2002 |  
|------------------------------------------------------------- |  | ----- |  | ----- |  | ---- | ------- | ---- | -
|
|Discount rate                                                 |  | 6.25% |  | 6.75% |  |      | 6.25%   |      |  
|Expected long-term rate of return on plan assets              |  | 7.00% |  | 7.00% |  |      |         |      |  
|Rate of compensation increase                                 |  | 3.50% |  | 3.50% |  |      |         |      |  
|Effect of 1% increase in assumed health care cost trend rates |  |       |  |       |  |      |         |      |  
|Total of service and interest cost components                 |  |       |  |       |  | $    | 1,916   |      | $
|Post-employment benefit obligation                            |  |       |  |       |  |      | 31,210  |      |  
|Effect of 1% decrease in assumed health care cost trend rates |  |       |  |       |  |      |         |      |  
|Total of service and interest cost components                 |  |       |  |       |  | $    | (1,578  | )    | $
|Post-employment benefit obligation                            |  |       |  |       |  |      | (25,674 | )    |  

The
health care cost trend rate is assumed to start at 9.0% for 2003 (2002  8.5%), decreasing to an ultimate medical trend rate of 4.5%
(2002  4.0%).

9.    Other long-term liabilities

Other long-term liabilities consist of the following:

|AS AT DECEMBER 31,                        |  | 2003 |        | 2002
|----------------------------------------- |  | ---- | ------ | ----
|Future removal and site restoration costs |  | $    | 81,813 |     
|Other                                     |  |      | 16,760 |     
|                                          |  |      |        |     
|                                          |  | $    | 98,573 |     
|                                          |  |      |        |     

The
business conducted by Falconbridge has been, and may in the future be, affected by changes in environmental legislation and other requirements including those related to future
removal and site restoration costs. As Falconbridge operates in many countries, both the likelihood of changes in legislation and its impact upon Falconbridge are not predictable. Falconbridge's
policy is to meet and, if possible, surpass standards set by relevant legislation, through the application of innovative and technically proven economical measures in advance of prescribed deadlines.
In addition, Falconbridge incurs substantial removal and site restoration costs on an ongoing basis, which it believes will mitigate future removal and site restoration costs.

The
total liability for future site restoration costs in relation to Falconbridge's worldwide operations, which will be incurred primarily after the cessation of operations, is estimated
to be approximately $174.1 million (2002  $142.4 million). The increase in the estimated liability is due to the impact of the stronger Canadian
dollar on the liability for the Canadian based operations. This estimate is based on information currently available, including closure plans and alternatives, applicable regulations and planned
spending on site restoration. At December 31, 2003, Falconbridge had provided $81.8 million (2002  $59.0 million), in addition to ongoing
capital and operating expenditures. The remaining balance will be accrued and expensed during the remaining lives of the operations.

In
view of the uncertainties concerning future removal and site restoration costs, the ultimate costs to Falconbridge could differ materially from the amounts estimated. The estimate for
the future liability is subject to change based on amendments to applicable laws and legislation, the nature of ongoing operations and technological innovations. Future changes, if any, due to their
nature and unpredictability, could have a significant impact and would be reflected prospectively, as a change in an accounting estimate.

46

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10.  Share capital

(a)   Employee stock option plan

The Corporation has a stock option plan, through which options may be granted to officers and employees for the purchase of common shares. Options were granted at
prices equal to the closing market value on the last trading day or period prior to the grant. Stock options granted from 1997 through December 31, 1999, have a 10-year term and
contain vesting provisions of 20% on the first anniversary date following the date of the grant, and a further 20% on each of the four subsequent anniversary dates. Stock options granted since
January 1, 2000, have a 10-year term with the same vesting provisions; however, they also contain an accelerated vesting feature specifying that on the first day that the market
price of the common shares is 20% greater than the exercise price of the option, the final tranche of unvested options outstanding on that date will immediately vest and be exercisable. In 2002, the
Corporation amended the terms of its outstanding stock options to eliminate the cash settlement feature. Selling, general and administrative expenses to December 31, 2003, include compensation
costs of $1.7 million (2002  $2.5 million) relating to outstanding options granted since January 1, 2002.

Deferred
Share Unit Plan for Non-Employee Directors: During 2002, the Corporation approved a deferred share unit plan for non-employee directors (DSUPD). Under
the DSUPD, each eligible director may elect to be paid annual retainer fees and/or meeting attendance fees in deferred share units (DSU) rather than in cash. A DSU is a notional unit, equivalent to a
common share. DSUs are credited with dividend equivalents when dividends are paid on the Corporation's common shares. Payment of DSUs is made in cash or common shares after the director leaves the
Board. As of December 31, 2003, a total of 10,264 DSUs (2002  2,176 DSUs) were held by participating directors.

A
summary of the status of the stock option plan and changes during the years is presented below:

|                               |                      |  |  | 2003  |        | 2002
|------------------------------ | -------------------- |  |  | ----- | ------ | ----
|
|Outstanding, beginning of year |                      |  |  | 4,413 |        | $   
|Granted                        |                      |  |  | 760   |        |     
|Exercised                      |                      |  |  |       |        |     
|                               | Purchase option      |  |  |       | (1,789 | )   
|                               | Market growth option |  |  |       |       |     
|Cancelled                      |                      |  |  | (52   | )      |     
|                               |                      |  |  |       |        |     
|Outstanding, end of year       |                      |  |  | 3,332 |        | $   
|                               |                      |  |  |       |        |     

The
following table summarizes information about the stock options outstanding at December 31, 2003:

|                 |  | Options outstanding |  | Options exercisable
|---------------- |  | ------------------- |  | -------------------
|
|$15.67 to $15.93 |  | 827                 |  | 6.5                
|$16.58 to $16.65 |  | 1,475               |  | 8.6                
|$17.45 to $31.10 |  | 1,030               |  | 4.4                
|                 |  |                     |  |                    
|$15.67 to $31.10 |  | 3,332               |  | 6.5                
|                 |  |                     |  |                    

(b)   Preferred shares

On March 7, 1997, the Corporation issued 8,000,000 Units, at a price of Cdn$10.00 per Unit, with each unit consisting of one Cumulative Preferred Share
Series 1 (a "Preferred Share Series 1") and one Cumulative Preferred Share Series 2 Purchase Warrant (a "Warrant"). Since September 1, 1998, the quarterly dividend
on Preferred Share Series 1 has been Cdn$0.02 per share. The holders of the Units had the right to acquire on certain dates, for each Unit held, one Cumulative Preferred Share Series 2
(a "Preferred Share Series 2") of the Corporation by the combined effect of tendering for conversion one Preferred Share Series 1 and the exercise of one Warrant together with the
cash payment of Cdn$15.00 per Warrant. A total of 7,910,165 units have been converted into Preferred Share Series 2.

Until
March 1, 2004, the Preferred Share Series 2 will be entitled to fixed cumulative preferential dividends, as and when declared by the Board of Directors, which will
accrue from the date of issue and be payable quarterly in the amount of Cdn$0.3672 per share or Cdn$1.4688 per share per annum. From March 1, 2004, the Preferred Share Series 2 will be
entitled to floating adjustable cumulative preferential cash dividends as and when declared by the Board of Directors.

47

---



Holders
of Preferred Share Series 2 will have the right to convert their shares into Cumulative Preferred Share Series 3 of the Corporation, subject to certain conditions
on March 1, 2004, and every five years thereafter. On March 1, 2004, the Corporation may redeem for cash the Preferred Share Series 2, in whole but not in part, at the
Corporation's option, at Cdn$25.00 per share plus accrued and unpaid dividends. Subsequent to March 1, 2004, the Corporation may redeem at any time for cash the Preferred Share Series 2,
in whole but not in part, at the Corporation's option, at Cdn$25.50 per share plus accrued and unpaid dividends. Effective March 1, 2004, the Preferred Shares Series 2 shares will pay a
monthly adjustable floating dividend based on a percentage of the Canadian prime rate.

Holders
of the Preferred Shares Series 2 shares had the right to convert their shares into Preferred Shares Series 3 effective March 1, 2004. The Preferred Shares
Series 3 will pay fixed quarterly dividends for 5 years at the annual yield of 4.58%.

(c)   Earnings per common share

Earnings per common share have been calculated after deducting preferred share dividends of $8.6 million
(2002  $7.9 million) and have been based on the weighted average number of common shares outstanding during the year of 177,674,710 shares
(2002  177,021,546 shares). Diluted earnings per share have been based on the weighted average number of common shares outstanding during the year of 178,096,477
shares (2002  181,434,246 shares).

(d)   Flow-through shares

In December 2002, the Corporation completed a private placement of 583,386 flow-through common shares at a price of Cdn$20.75 per share for
gross proceeds of Cdn$12.1 million. The proceeds of the issue were used to fund the Corporation's Canadian exploration expenditures.

(e)   Repurchase of common shares

During 2003, the Corporation redeemed a total of 600,000 common shares, having a book value of $5.1 million, realizing a loss of $1.5 million on the
repurchase.

11.  Interest

Interest includes the following:

|YEARS ENDED DECEMBER 31,            |  | 2003 |        | 2002
|----------------------------------- |  | ---- | ------ | ----
|Interest on long-term debt          |  | $    | 64,844 |     
|Interest capitalized                |  |      | 16,379 |     
|                                    |  |      |        |     
|Interest expensed on long-term debt |  |      | 48,465 |     
|Interest income                     |  |      | 5,592  |     
|                                    |  |      |        |     
|Interest                            |  | $    | 42,873 |     
|                                    |  |      |        |     

12.  Collahuasi joint venture

Compañía Minera Doña Inés de Collahuasi S.C.M. (Collahuasi) is the corporation which
owns the mining and water rights and other assets relating to the Collahuasi project, secured financing, conducts the operations, and markets the products of the property.

The
consolidated financial statements include Falconbridge's 44% share of the financial position, operating results and cash flow of Collahuasi as follows:

|AS AT DECEMBER 31,                               |                      | 2003 |           | 2002     |  
|------------------------------------------------ | -------------------- | ---- | --------- | -------- | -
|Financial Position                               |                      |      |           |          |  
|ASSETS                                           |                      |      |           |          |  
|Current assets                                   |                      | $    | 143,461   |          | $
|Property, plant and equipment                    |                      |      | 899,062   |          |  
|Other                                            |                      |      | 18,354    |          |  
|                                                 |                      |      |           |          |  
|Total assets                                     |                      | $    | 1,060,877 |          | $
|                                                 |                      |      |           |          |  
|LIABILITIES AND SHAREHOLDERS' EQUITY             |                      |      |           |          |  
|Current liabilities                              |                      | $    | 87,248    |          | $
|Long-term debt                                   |                      |      |           |          |  
|                                                 | Senior debt          |      |           | 226,253  |  
|                                                 | Intercompany debt    |      |           | 266,374  |  
|Other long-term liabilities                      |                      |      | 99,779    |          |  
|Shareholders' equity                             |                      |      | 381,223   |          |  
|                                                 |                      |      |           |          |  
|Total liabilities and shareholders' equity       |                      | $    | 1,060,877 |          | $
|                                                 |                      |      |           |          |  
|Earnings                                         |                      |      |           |          |  
|Revenues                                         |                      | $    | 275,483   |          | $
|Earnings for the year                            |                      | $    | 69,758    |          | $
|Cash Flow                                        |                      |      |           |          |  
|Cash flow provided by (used in):                 |                      |      |           |          |  
|                                                 | Operating activities |      | $         | 94,594   |  
|                                                 | Investing activities |      |           | (114,037 | )
|                                                 | Financing activities |      |           | 8,598    |  
|                                                 |                      |      |           |          |  
|(Decrease) Increase in cash and cash equivalents |                      | $    | (10,845   | )        | $
|                                                 |                      |      |           |          |  

Current
assets include cash of $77.6 million (2002  $88.4 million) which is only available for use within the project.

During
2002, the Board of Directors of Compañía Minera Doña Inés de Collahuasi approved the construction of a new grinding
circuit at the Ujina concentrator. This is part of the Ujina to Rosario transition project, which also involves transferring mine production from the Ujina to the Rosario orebody in June of 2004. The
project will increase Collahuasi's concentrator design capacity to 110,000 tonnes per day. The total capital cost of the transition and concentrator expansion project is estimated at
US$654 million, with Falconbridge's 44% share of this cost totalling US$288 million.

48

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13.  Segmented data

Falconbridge operates in one industry  mining, processing and marketing of mineral products. These
activities are conducted through six segments  the Integrated Nickel Operations (INO), Kidd Creek, Falcondo, Collahuasi, Lomas Bayas and Corporate. The INO
includes the accounts of the Corporation and all of its wholly-owned subsidiaries engaged in the integrated operations of mining, milling, smelting, refining and marketing of metals mainly derived
from Sudbury and Raglan nickel/copper ores and its custom feed business. Kidd Creek includes the mining, milling, smelting and refining of its own copper/zinc ores and its custom feed business.
Falcondo mines, mills, smelts and refines its own nickel laterite ores. Collahuasi is a copper mine, in which Falconbridge owns 44%. Lomas Bayas mines and refines its own copper ores. Corporate
includes general and administrative expenditures, exploration, research and development expenditures, foreign exchange gains and losses, and other income and expenses.

The
accounting policies used by these segments are the same as those described in the Summary of Significant Accounting Policies in note 1. Any sales and transfers between the
segments are accounted for as if the sales or transfers were to third parties, that is, at current market prices. During the preparation of the financial statements the transfers between segments are
eliminated.

As
the products and services in each of the reportable segments, except for Corporate, are essentially the same, the reportable segments have been selected at the level where decisions
are made on the provision of resources, capital and where performance is measured. For operations forming part of a reportable segment, performance is measured based on production targets, operating
costs incurred and unit operating costs.

|                             |                                               | Nickel |        | Copper |   |                    |         |   |        |      
|---------------------------- | --------------------------------------------- | ------ | ------ | ------ | - | ------------------ | ------- | - | ------ | -----
|
|
|Year ended December 31, 2003 |                                               |        |        |        |   |                    |         |   |        |      
|                             | Ownership                                     |        |        | (100%  | ) |                    | (85.26% | ) |        | (100%
|                             | Revenues(a)                                   |        | $      | 1,046  |   | $                  | 252     |   | $      | 396  
|                             | Operating income (loss)                       |        |        | 227    |   |                    | 62      |   |        | (70  
|                             | Working capital                               |        |        | 348    |   |                    | 25      |   |        | 28   
|                             | Depreciation, depletion and amortization      |        |        | 121    |   |                    | 9       |   |        | 48   
|                             | Property, plant and equipment                 |        |        | 921    |   |                    | 87      |   |        | 739  
|                             | Capital expenditures & deferred project costs |        |        | 97     |   |                    | 13      |   |        | 97   
|                             |                                               |        |        |        |   |                    |         |   |        |      
|Year ended December 31, 2002 |                                               |        |        |        |   |                    |         |   |        |      
|                             | Ownership                                     |        |        | (100%  | ) |                    | (85.26% | ) |        | (100%
|                             | Revenues(a)                                   |        | $      | 692    |   | $                  | 150     |   | $      | 340  
|                             | Operating income (loss)                       |        |        | 86     |   |                    | 1       |   |        | (48  
|                             | Working capital                               |        |        | 243    |   |                    | 37      |   |        | 44   
|                             | Depreciation, depletion and amortization      |        |        | 105    |   |                    | 6       |   |        | 49   
|                             | Property, plant and equipment                 |        |        | 835    |   |                    | 83      |   |        | 596  
|                             | Capital expenditures & deferred project costs |        |        | 69     |   |                    | 14      |   |        | 85   
|Principal base of operations |                                               |        | Canada |        |   | Dominican
Republic |         |   | Canada |      

(a) Inter-segment sales are eliminated during the preparation of the internal financial statements.

49

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|                   |  | Total
assets |       | Total
assets |   | Property, plant
and equipment |  | Property, plant
and equipment
|------------------ |  | ------------ | ----- | ------------ | - | ----------------------------- |  | -----------------------------
|
|Canada             |  | $            | 2,020 |              | $ | 1,646                         |  | $                            
|Chile              |  |              | 1,370 |              |   | 1,239                         |  |                              
|Barbados           |  |              | 124   |              |   | 58                            |  |                              
|Norway             |  |              | 159   |              |   | 142                           |  |                              
|Dominican Republic |  |              | 199   |              |   | 173                           |  |                              
|Other              |  |              | 233   |              |   | 140                           |  |                              
|                   |  |              |       |              |   |                               |  |                              
|                   |  | $            | 4,105 |              | $ | 3,398                         |  | $                            
|                   |  |              |       |              |   |                               |  |                              

|                                                            |  | 2003 |       | 2002
|----------------------------------------------------------- |  | ---- | ----- | ----
|
|Europe                                                      |  | $    | 891   |     
|U.S.                                                        |  |      | 554   |     
|Other                                                       |  |      | 465   |     
|                                                            |  |      |       |     
|Total foreign*                                              |  |      | 1,910 |     
|Canada                                                      |  |      | 173   |     
|                                                            |  |      |       |     
|                                                            |  | $    | 2,083 |     
|                                                            |  |      |       |     
|*Includes sales by Canadian operations to foreign customers |  | $    | 957   |     
|                                                            |  |      |       |     

|            |  | 2003 |       | 2002
|----------- |  | ---- | ----- | ----
|
|Nickel      |  | $    | 768   |     
|Ferronickel |  |      | 252   |     
|Copper      |  |      | 691   |     
|Zinc        |  |      | 100   |     
|Cobalt      |  |      | 71    |     
|Palladium   |  |      | 35    |     
|Other       |  |      | 166   |     
|            |  |      |       |     
|            |  | $    | 2,083 |     
|            |  |      |       |     

14.  Financial instruments

The Corporation's Board of Directors has an approved financial risk management policy addressing the philosophy, implementation and control of
financial risk management and investment activities. Falconbridge manages its exposures by entering into contractual arrangements (derivatives) which reduce (hedge) the exposures by creating an
offsetting position.

Effective
July 1, 2003, the functional currency of Falconbridge was changed from the Canadian to U.S. dollar. Prior to the change, Falconbridge had significant investments
in foreign domiciled operations where the functional currency was not the Canadian dollar. In addition, the Corporation had monetary assets and liabilities denominated in currencies other than the
Canadian dollar. Consistent with the financial risk management policy, these items were hedged by issuing debt in the same currency as the investment, and by entering into forward exchange and option
contracts. At December 31, 2002, the Corporation had outstanding foreign currency forward contracts relating to these exposures to sell a notional amount of US$61.3 million, with
maturity dates through April 2003 at an average exchange rate of Cdn$1.5637. Subsequent to the change in functional currency, Falconbridge has foreign currency denominated monetary assets and
liabilities denominated in currencies other than the U.S. dollar. At December 31, 2003, the Corporation had outstanding foreign currency forward contracts, relating to these exposures,
to purchase a notional amount of Cdn$510.0 million, with maturity dates through March 2004 at an average exchange rate of Cdn$1.3236. If these contracts had been settled at
December 31, 2003, the Corporation would have received US$8.8 million.

50

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Falconbridge's
sales are denominated primarily in U.S. dollars and to a lesser extent in Euros, Yen and other foreign currencies, and it incurs expenses that are denominated in
foreign currencies, which expose it to increased volatility in earnings due to fluctuations in foreign exchange rates. Falconbridge uses foreign currency forward exchange contracts and options to
reduce these exposures by creating an offsetting position. Prior to the change in functional currency, the
Corporation used foreign currency exchange contracts, designated as a hedge of its U.S. dollar sales revenue. At December 31, 2002, the Corporation had contracts to sell
US$415.0 million maturing over the ensuing 24 months at an average exchange rate of Cdn$1.5734. In addition, the Corporation also had option contracts that if exercised, would result in
additional sales of US$125.0 million over the ensuing 5 months. If these contracts had been settled at December 31, 2002, the Corporation would have paid US$6.9 million.
Subsequent to the change, Falconbridge started using foreign currency exchange contracts, designated as a hedge of its Canadian dollar costs, while maintaining its program of hedging Norwegian Kroner
and Chilean peso expenditures. At December 31, 2003, Falconbridge has foreign currency exchange contracts, designated as a hedge of its Canadian dollar expenditures, to purchase
Cdn$636.0 million maturing over the next 24 months at an average exchange rate of Cdn$1.4941. In addition, the Corporation also has option contracts that if exercised, would result in
additional purchases of Cdn$29.5 million over the next 4 months. If these contracts had been settled at December 31, 2003, Falconbridge would have received US$63.0 million.
At December 31, 2003, Falconbridge also has foreign currency exchange contracts, designated as a hedge of its Norwegian Kroner (NOK) expenditures, to purchase NOK 267.0 million, up to
September 2007, at an average exchange rate of NOK 7.9841 (2002  333.0 million Norwegian Kroner at NOK 7.9617). In addition, the Corporation also
has option contracts that if exercised, would result in additional purchases of 210.0 million Norwegian Kroner over the next 14 months
(2002  165.0 million Norwegian Kroner). If these contracts had been settled at December 31, 2003, Falconbridge would have received
US$6.5 million (2002  received US$3.6 million). At December 31, 2003, Falconbridge also had foreign currency forward contracts to purchase
34,238 million Chilean pesos (2002  66,021 million Chilean pesos) to hedge certain expenditures associated with its Chilean operations for periods
extending through September 2005. If these contracts had been settled at December 31, 2003, Falconbridge would have received US$10.3 million
(2002  paid US$3.7 million).

Falconbridge's
risk management policy provides for the limited use of financial instruments for discretionary trading purposes. In the normal course of business, Falconbridge has
traditionally maintained a limited amount of financial instruments for discretionary trading purposes.

The
fair value of Falconbridge's primary financial instruments, including cash and cash equivalents, accounts and metals settlements receivable, and accounts payable and accrued charges
approximates their carrying value due to the short-term nature of these instruments. The fair value of the long-term debt and interest rate swaps is disclosed in note 6.

Falconbridge
does not consider the credit risk associated with its financial instruments to be significant. Foreign currency and interest rate swap contracts are maintained with high
quality counterparties and Falconbridge does not anticipate that any counterparties will fail to meet their obligation. Falconbridge does not have significant exposure to any individual customer and
these risks are further managed through a highly effective credit management program. Falconbridge's policy is to enter into short-term investments in high quality debt obligations.

Falconbridge
is exposed to interest rate risk as a result of its issuance of debt. Falconbridge reduces its borrowing costs and hedges its exposure to interest rate risk through the use
of interest rate swaps and interest rate swap options, the details of which are disclosed in note 6.

15.  Related-party transactions

At December 31, 2003, Noranda Inc. (Noranda) owned, directly and indirectly, approximately 59.2% of the common shares of the
Corporation. Falconbridge has entered into an agreement with a subsidiary of Noranda, whereby it acts as sales agent for all products, other than sulphuric acid and indium, produced at Falconbridge's
Kidd Creek Operations. Falconbridge has entered into a supply agreement with another subsidiary of Noranda which will purchase and resell Falconbridge's output of sulphuric acid. Accounts receivable,
in the consolidated statements of financial position, includes $30.2 million (2002  $23.6 million) in receivables from Noranda relating to amounts
being collected under the sales agreements and $13.3 million (2002  $6.1 million) from net purchases of material by Noranda. Accounts payable, in
the consolidated statements of financial position includes $35.1 million (2002  Nil) for the purchase of materials from Noranda.

Falconbridge
has agreements with various Noranda group companies for the purchase of custom feeds; the toll treatment of copper concentrates, blister copper and refinery slimes; and the
sale of metals. The following table details related-party production and marketing transactions with Noranda Group Companies:

|YEARS ENDED DECEMBER 31,                                                      |  | 2003 |         | 2002
|----------------------------------------------------------------------------- |  | ---- | ------- | ----
|Sale of materials and technology to Noranda (a)                               |  | $    | 97,665  |     
|Purchase of materials from and smelting and refining fees paid to Noranda (b) |  |      | 159,013 |     
|Commissions and agency fees paid to Noranda (c)                               |  |      | 2,124   |     
|Fees paid relating to sulphuric acid (a)                                      |  |      | 1,336   |     
|Other (a), (b), (d)                                                           |  |      | 35      |     

Included in the Corporation's Consolidated Financial Statements in (a) Revenues; (b) Costs of metal and other product sales; (c) Selling,
general and administrative expenses; (d) Other (income) expenses.

During 2002, a process was initiated to integrate certain operations of Noranda and Falconbridge with the objective of maximizing synergies. The
initiatives undertaken have included the combination of various corporate support services and the merging of management teams. Agreements between Falconbridge and the Noranda group companies are
negotiated in the best interest of Falconbridge, on an arms length basis at market terms.

51

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16.  Other income

Other income includes the following:

|YEARS ENDED DECEMBER 31,     |  | 2003 |         | 2002 |  
|---------------------------- |  | ---- | ------- | ---- | -
|Foreign exchange (loss) gain |  | $    | (17,062 | )    | $
|Metals trading gain (loss)   |  |      | 11,167  |      |  
|Other                        |  |      | 8,811   |      |  
|                             |  |      |         |      |  
|Other income                 |  | $    | 2,916   |      | $
|                             |  |      |         |      |  

17.  Commitments and contingencies

(a)   The
Corporation has received an exemption granted by the Ontario government, until December 31, 2009, from a requirement to refine in Canada ores mined from
certain properties of the Corporation in Ontario. This exemption is limited to the quantity of nickel-copper matte capable of yielding not more than 100,000,000 pounds of refined nickel per year.

(b)   Effective
January 1, 2003, the Corporation adopted Accounting Guideline 14, "disclosure of guarantees", issued by the Canadian Institute of Chartered Accountants,
which expands previously issued accounting guidance and requires additional disclosure by the guarantor in its interim and annual financial statements. In the normal course of business, the
Corporation enters into numerous agreements that contain indemnification commitments and may contain other features that meet the expanded definition of guarantees. The terms of these indemnification
agreements will vary based on the contract and typically do not provide for any limit on the maximum potential liability. Historically, Falconbridge has not made any significant payments under such
indemnifications and no amounts have been accrued in the financial statements with respect to these indemnification commitments.

(c)   From
time to time, Falconbridge is involved in litigation, investigations or proceedings relating to claims arising out of its operations in the ordinary course of
business. In the opinion of management, the aggregate amount of any potential liability is not expected to have a material adverse effect on Falconbridge's financial position or results.

18.  Comparative amounts

Certain of the comparative figures have been restated to conform to the current year's presentation.

52

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Management's Discussion and Analysis

In 2003, Falconbridge achieved net earnings of $194 million, almost four times 2002 earnings of $50 million.
This was mainly as a result of higher metal prices and higher sales volumes of nickel, partially offset by the higher Canada/ U.S. exchange rate. Cash flow from operations before working
capital was $441 million compared to $272 million in 2002.

Overview

Nature of business and strategy

Falconbridge is focused on the production of nickel and copper, two metals which have positive long-term fundamentals and positive
near-term outlooks (see page 27). Both metals have competitive attributes which have led to diversified usage in the world's economy and have had an average annual consumption
growth rate of over 3% for copper and 4% for nickel (see pages 27-28). Falconbridge has a unique position in these markets as one of the world's largest producers of both metals and
substantial operational, technical, exploration and development experience. In addition, the Company has the potential to increase its production as a result of the development of a number of new
projects (see pages 23-25).

Falconbridge's
focus is to increase returns to shareholders as measured by returns on net assets and on shareholders' equity. To achieve this, the goal is to maximize the value of
existing operations, redeploy capital profitably, maintain a conservative financial structure and significant liquidity to support operations and growth initiatives.

Development projects

In 2003, Falconbridge continued to advance its important development programs at Collahuasi and Kidd Creek, ensuring that copper production levels are maintained
for at least the next 17 years. Work on the Collahuasi expansion project progressed as planned and is scheduled for completion in June of 2004. Work also continued on the Mine D project
at Kidd Creek. First production is expected by year-end 2004 with project completion by 2006.

The
Montcalm nickel project was started in November with construction expected to take approximately 15 months. It will add 8,000 tonnes of nickel production per year beginning in
2005. Going forward in nickel, our focus will be on the advancement of the Koniambo, Nickel Rim South, Fraser Morgan and Kabanga projects, and the potential expansion of Falcondo. In copper, further
expansions at Lomas Bayas and Collahuasi are being assessed.

Financial flexibility

The Corporation believes that a conservative financial structure and financial flexibility are important in order to accommodate the capital intensive and
cyclical nature of the business.

In
2003, the Corporation's balance sheet improved as the ratio of net debt to net debt plus equity improved to 37% from 42%. Cash and cash equivalents were $298 million at
December 31, 2003.

Falconbridge
has significant liquidity and financial flexibility, including unused bank lines of credit totalling $405 million. As a result, the Corporation has unused credit and
cash available in excess of $700 million. In addition, the Corporation has no major debt maturities until 2005.

Results of operations

Earnings for the year ended December 31, 2003, were $194 million ($1.05 per common
share  $1.04 on a diluted basis), which was almost four times greater than 2002 net earnings of $50 million.

Operating
income of $305 million in 2003 was also nearly four times or $227 million higher than $78 million in 2002. The significant increase in operating income was
attributable to the following factors:



These
items were offset by the following:



16

---





Income
and expenses were provided from the following non-operating sources:



The
following table summarizes the segmented results of operations for 2003 and 2002:

|YEAR ENDED DECEMBER 31,
$ MILLIONS     |                                    | 2003 |     | 2002 |  
|-------------------------------------- | ---------------------------------- | ---- | --- | ---- | -
|Nickel operations                      |                                    |      |     |      |  
|                                       | Integrated Nickel Operations (INO) |      | $   | 227  |  
|                                       | Falconbridge Dominicana, C. por A. |      |     | 62   |  
|                                       |                                    |      |     |      |  
|                                       |                                    | $    | 289 |      | $
|                                       |                                    |      |     |      |  
|Copper operations                      |                                    |      |     |      |  
|                                       | Kidd Creek                         |      |     | (70  | )
|                                       | Collahuasi                         |      |     | 115  |  
|                                       | Lomas Bayas                        |      |     | 31   |  
|                                       |                                    |      |     |      |  
|                                       |                                    |      | 76  |      |  
|                                       |                                    |      |     |      |  
|Corporate and other                    |                                    |      | (60 | )    |  
|                                       |                                    |      |     |      |  
|Operating income                       |                                    |      | 305 |      |  
|Interest                               |                                    |      | 43  |      |  
|Income and mining taxes                |                                    |      | 63  |      |  
|Non-controlling interest               |                                    |      | 5   |      |  
|                                       |                                    |      |     |      |  
|Earnings for the year                  |                                    |      | 194 |      |  
|Dividends on preferred shares          |                                    |      | 8   |      |  
|                                       |                                    |      |     |      |  
|Earnings attributable to common shares |                                    | $    | 186 |      | $
|                                       |                                    |      |     |      |  

Nickel operations

Falconbridge is the third-largest producer of refined nickel in the world, accounting for roughly 9% of world supply in 2003.

Operating
income of the total nickel business of $289 million in 2003 was more than three times larger than $87 million in 2002. Refined nickel production was 104,400
tonnes in 2003, 14% higher than 91,800 tonnes in 2002. The operating cash cost per pound of mined nickel for all of Falconbridge was 27% higher in 2003 at $2.78, compared with $2.19 in 2002.

Falconbridge
has two nickel divisions. The Integrated Nickel Operations (INO) produces LME-quality nickel. The Falcondo division produces ferronickel.

Integrated Nickel Operations (INO)

The INO includes mines and plants in Sudbury and Raglan in Canada, a smelter in Sudbury, a refinery at Nikkelverk in Norway and a significant custom feed
business.

|                                             |        | 2003  |        | 2002
|-------------------------------------------- | ------ | ----- | ------ | ----
|Sales (tonnes)                               |        |       |        |     
|                                             | Nickel |       | 79,000 |     
|                                             | Copper |       | 59,200 |     
|                                             | Cobalt |       | 3,400  |     
|Revenues ($ millions)                        |        | 1,046 |        | 692 
|Operating cash cost ($ per pound of nickel)* |        | 2.64  |        | 1.96
|Operating income ($ millions)                |        | 227   |        | 86  

* Operating cash cost includes all cash production and selling costs, net of byproduct credits, but excludes interest, corporate, exploration costs and custom
feed profits. Costs incurred during shutdowns or strikes are excluded.

Revenues:Sales volumes of nickel, copper and cobalt increased in 2003 by 11%, 9% and 16%, respectively.
Realized nickel prices in 2003 increased by 40%, copper prices improved by 14%, and cobalt prices rose 34%. Precious metals revenues increased by $12 million to $87 million. In 2003,
consolidated revenues for the INO increased 51% to $1,046 million from $692 million in 2002.

Costs:The operating cash cost of producing a pound of nickel from INO mines, was $2.64. The $0.68, or 35%, increase over
2002 costs was the result of the stronger Canadian dollar, increased costs to access the ore in the Canadian operations and lower ore grades, which were partially offset by higher byproduct credits.

Operating income:The INO's 2003 operating income was $227 million compared with $86 million for 2002. The
$141 million increase was mainly due to higher metal prices and sales volumes, which were offset by higher depreciation and amortization charges, higher administrative charges and higher unit
costs, caused in part by the strengthening of the Canadian dollar.

17

---



Integrated Nickel Operations

|                              |                   | 2003   |        | 2002  
|----------------------------- | ----------------- | ------ | ------ | ------
|
|Production                    |                   |        |        |       
|Sudbury  Mine                |                   |        |        |       
|Craig                         |                   | 889    |        | 1.54  
|Fraser                        |                   | 686    |        | 1.05  
|Lindsley                      |                   | 429    |        | 1.16  
|Lockerby                      |                   | 225    |        | 1.88  
|                              |                   |        |        |       
|Total mined                   |                   | 2,229  |        |       
|                              |                   |        |        |       
|Total  ore processed         |                   | 2,261  |        | 1.35  
|                              |                   |        |        |       
|Raglan mine                   |                   | 834    |        | 3.47  
|                              |                   |        |        |       
|
|Metal in concentrate (tonnes) |                   |        |        |       
|Sudbury mine output           |                   | 24,143 |        | 29,161
|Raglan mine output            |                   | 25,110 |        | 6,628 
|Metal in copper concentrate   |                   | 110    |        | 21,874
|                              |                   |        |        |       
|Smelter, refinery             |                   |        |        |       
|Smelter (tonnes)              |                   |        |        |       
|                              | Mines  Sudbury   |        | 24,687 |       
|                              |  Raglan          |        | 28,708 |       
|                              | Custom            |        | 6,436  |       
|                              |                   |        |        |       
|                              | Total             |        | 59,831 |       
|                              |                   |        |        |       
|Refinery (tonnes)             |                   |        |        |       
|                              | Mines  Sudbury   |        | 25,351 |       
|                              |  Raglan          |        | 27,020 |       
|                              | Custom            |        | 24,812 |       
|                              |                   |        |        |       
|                              | Total             |        | 77,183 |       
|                              |                   |        |        |       
|
|Sales(tonnes)                 |                   |        |        |       
|                              | Mines  Sudbury   |        | 26,278 |       
|                              |  Raglan          |        | 26,627 |       
|                              | Custom            |        | 25,775 |       
|                              | Purchased product |        | 298    |       
|                              |                   |        |        |       
|                              | Total             |        | 78,978 |       
|                              |                   |        |        |       

Production:Sudbury's nickel in concentrate production decreased to 24,100 tonnes in 2003 from 27,800 tonnes in 2002
primarily due to lower average nickel grades. Average nickel ore grades at 1.35% was 11% lower than the 1.51% average mined in 2002. Nickel in concentrate production in Sudbury in 2004 is planned at
21,000 tonnes.

At
Raglan, nickel in concentrate production in 2003 increased 2% to 25,100 tonnes from 24,600 tonnes in 2002 as the increase in nickel ore grades offset the shortfall in mine tonnage.
Production of nickel in concentrate in 2004 is planned at 25,400 tonnes.

At
the Sudbury smelter, nickel in matte production increased 3% from 57,900 tonnes in 2002 to 59,800 tonnes in 2003. The increase in production is due to the successful efforts to
acquire spot lots of custom feed and from reducing
in-process inventories, which more than offset the shortfall in mine feed. Production of nickel in matte in 2004 is planned at 53,000 tonnes.

The
collective agreement with the production and maintenance workers expired on January 31, 2004. The employees went on strike starting on February 1, 2004 for a period of
three weeks. A new collective agreement was completed on February 22, 2004.

18

---



Production
of nickel at the Kristiansand refinery increased 13% from 68,500 tonnes in 2002 to 77,200 tonnes in 2003 due to increases in custom feed deliveries and a small increase in
mine feed. This was a new production record. Production of nickel in 2004 is planned at 71,000 tonnes as some of the feeds acquired on a spot basis in 2003 will not be available this year.
Productivity at the refinery, measured by the equivalent units of metals produced per hour worked, improved by 8% as a result of increased throughput.

The
collective agreements with the workers at the refinery in Kristiansand expire May 31, 2004, and are renegotiated annually.

Reserves & exploration:At planned operating rates, the proven and probable mineral reserves at Sudbury are equal to
approximately seven years of production, not including Nickel Rim South. Production is expected to be significantly extended as it is anticipated that a significant portion of the mineral resources
will be converted to mineral reserves and will extend the life of the operation.

In
2003, the Sudbury Division's proven and probable mineral reserves decreased by an additional 1.0 million tonnes after production of 2.0 million tonnes. The loss of
reserves resulted from a 1.2 million tonne write-down of reserves at Craig Mine due to changes in mining plans and parameters. This loss was partially offset by mining gains in
reserves at the Thayer Lindsley mine. At December 31, 2003, total proven and probable reserves were 14.1 million tonnes.

In
Sudbury, total mineral resources increased significantly in 2003 from 39.0 to 49.4 million tonnes with large additions at Nickel Rim South and Fraser Morgan and smaller
additions at the mining operations. Approximately 5.5 million tonnes were added at Nickel Rim South in 2003. The Nickel Rim South deposit is now estimated to contain 11.7 million tonnes
grading 1.6% nickel, 3.7% copper, 2.0 grams/tonne platinum, 2.3 grams/tonne palladium and 0.7 grams/tonne gold. Drilling at Fraser Morgan Zones 8 and 9 added 3.8 million tonnes grading 1.7%
nickel and 0.5% copper.

At
Raglan, the mineral reserves are equal to approximately 19 years of production at current operating rates. In combination with production of 834,000 tonnes and reserve
adjustments, the overall mineral reserves decreased by only 0.4 million tonnes in 2003. Discovery of approximately 260,000 tonnes of mineral reserves in Zone 3 plus other mining gains, replaced
a large part of the annual production. At December 31, 2003, total proven and probable reserves at Raglan were 17.7 million tonnes. Total mineral resources increased by over 900,000
tonnes in 2003 to 7.2 million tonnes due to discoveries at Zones 2, 3, 5-8, Donaldson and Katinniq.

At
the planned operating rates, mineral reserves at Montcalm are equal to approximately eight years of production. The Montcalm deposit will be put into production based on probable
mineral reserves totalling 5.1 million tonnes grading 1.46% nickel and 0.71% copper. The probable reserves have been established from the 7.0 million tonnes of measured and indicated
mineral resources previously reported. Inferred resources totalling 0.7 million tonnes remain as before.

Falconbridge Dominicana, C. por A. (Falcondo)

Located in the Dominican Republic, Falcondo mines, mills, smelts and refines its own nickel laterite ores. Falconbridge owns 85.26% of Falcondo.

|                                            |  | 2003   |  | 2002  
|------------------------------------------- |  | ------ |  | ------
|Sales of ferronickel (tonnes)               |  | 27,100 |  | 21,400
|Production (tonnes)                         |  | 27,200 |  | 23,300
|Revenues ($ millions)                       |  | 251    |  | 149   
|Operating cash cost ($ per pound of nickel) |  | 3.04   |  | 2.76  
|Operating income ($ millions)               |  | 62     |  | 1     

Revenues:Revenues of $251 million at Falcondo in 2003 were 68% higher compared to $150 million in 2002, due to
the 27% increase in sales to 27,100 tonnes from 21,400 tonnes and the impact of a 33% increase in the realized ferronickel price.Costs:Falcondo's
operating cash cost per pound of ferronickel increased by 10% in 2003 to $3.04, mainly due to the increase in oil prices. It is estimated that a change of $1 in the price of a barrel of oil results in
approximately $0.07 in operating cash cost per pound.

Operating income:Falcondo's 2003 operating income was $62 million, compared with $1 million in 2002. The
$61 million higher contribution reflects a higher ferronickel selling price and increased sales volumes, which were partially offset by higher oil prices. Production:Falcondo's production rate in
2003 returned to more normal levels after the planned shutdown in 2002. For the year, Falcondo produced 27,200
tonnes, in line with its annual target of 27,000 tonnes. Production in 2004 is planned to be 27,000 tonnes. Productivity at Falcondo, measured by nickel units produced per hour worked, increased by
12% in 2003.

Reserves & exploration:At planned operating rates, the proven and probable mineral reserves are equal to
approximately 18 years of production. The proven and probable mineral reserves at Falcondo showed a net decrease of 3.2 million tonnes after production of 3.8 million tonnes in
2003. The decrease due to production was partly offset by the discovery of 0.6 million tonnes in previously un-drilled areas in Lomas Caribe and Larga. At December 31, 2003,
total proven and probable reserves were 60.9 million tonnes.

19

---



Kidd Creek operations

|                            |                                        | 2003 |         | 2002 
|--------------------------- | -------------------------------------- | ---- | ------- | -----
|
|Production                  |                                        |      |         |      
|Kidd Mining Division        |                                        |      |         |      
|                            | No. 1 and 2 Mines                      |      |         |      
|                            | No. 3 Mine                             |      |         |      
|                            |                                        |      |         |      
|Total mined                 |                                        |      |         | 2,108
|                            |                                        |      |         |      
|Total  ore processed       |                                        |      |         | 2,125
|                            |                                        |      |         |      
|
|Kidd Mining Division        |                                        |      |         |      
|                            | Metal in concentrate                   |      |         |      
|                            | (tonnes except 000 troy ounces for Ag) |      | 46,409  |      
|                            |                                        |      |         |      
|Kidd Metallurgical Division |                                        |      |         |      
|                            | (tonnes except 000 troy ounces for Ag) |      |         |      
|                            | Mines                                  |      |         |      
|                            | Custom  Sudbury                       |      |         |      
|                            | Custom  other                         |      |         |      
|                            |                                        |      |         |      
|                            | Total                                  |      |         |      
|                            |                                        |      |         |      
|
|Sales                       |                                        |      |         |      
|                            | (tonnes except 000 troy ounces for Ag) |      |         |      
|                            | Mines                                  |      | 47,184  |      
|                            | Custom  other                         |      | 57,978  |      
|                            | Purchased metal                        |      |        |      
|                            |                                        |      |         |      
|                            | Total                                  |      | 105,162 |      
|                            |                                        |      |         |      

Copper operations

Falconbridge is also an important copper producer, ranking twelfth in the world in mined production during 2003. The Corporation's copper
operations include Kidd Creek in Canada and Collahuasi and Lomas Bayas in Chile.

Operating
income of the copper business was up 46% to $76 million in 2003 compared with $52 million in 2002. Copper production from the mines was 311,200 tonnes in 2003
compared with 327,300 tonnes in 2002. The operating cash cost per pound of copper was $0.53 compared with $0.42 in 2002.

Kidd Creek operations

Kidd Creek is an integrated processing facility engaged in the mining, milling, smelting and refining of its own copper and zinc ores and in the processing of
custom feed.

The
integrated Kidd operations have been adversely impacted by low copper and zinc prices, low treatment charges for third-party concentrates, and by the appreciation of the Canadian
dollar relative to the U.S. dollar. Profitability is expected to improve in 2004 as a result of cost reduction initiatives implemented in 2003, the securing of higher-margin complex
concentrates from third parties and from higher metal prices.

|                                            |                                   | 2003 |         | 2002
|------------------------------------------- | --------------------------------- | ---- | ------- | ----
|Sales (tonnes)                              |                                   |      |         |     
|                                            | Copper (in metal and concentrate) |      | 105,162 |     
|                                            | Zinc (in metal and concentrate)   |      | 120,881 |     
|Revenues ($ millions)                       |                                   | 396  |         | 340 
|Operating cash cost ($ per pound of copper) |                                   | 0.83 |         | 0.68
|Operating loss ($ millions)                 |                                   | 70   |         | 48  

20

---



Revenues:Revenues of $396 million in 2003 were 16% higher than the $340 million realized in 2002 despite the
13-week summer shutdown of the zinc plant and lower copper sales volumes, which were offset by higher precious metal sales volumes and stronger metal prices.

Costs:The 2003 operating cash costs at the Kidd Mine increased to $0.83 per pound from $0.68 per pound in 2002. The increase
reflects lower by-product credits and higher labour, contractor and energy costs, and the impact of a stronger Canadian dollar.

Operating income:Kidd Creek Operations reported a 2003 operating loss of $70 million or a $22 million loss
before depreciation and amortization charges. This compares with an operating loss of $48 million or a profit of $1 million before depreciation and amortization charges for 2002. The
$22 million increase in the operating loss largely reflects lower Kidd concentrate production, the stronger Canadian dollar, lower treatment terms, lower sales volumes, one-time
restructuring costs of $4 million and higher costs for purchased raw materials, partially offset by higher metal prices.

Production:At the Kidd Mining Division, ore hoisted and milled in 2003, both at 2.1 million tonnes, was 5% less than
2002 volumes. The lower tonnage was mainly due to poor ground conditions in the lower mine and delays in the rehabilitation of key stopes in the upper mine.

Copper
metal in concentrate increased marginally to 46,400 tonnes due to the higher ore grades. Zinc in concentrate was 28,600 tonnes lower at 75,500 tonnes due to lower tonnage and ore
grades. Copper ore grade in 2003 was 2.30%, compared with 2.12% in 2002 and the zinc ore grade was 4.27% compared with 5.89% in 2002.

The
copper smelter underwent a four-week maintenance shutdown in 2003 after a record 22-month campaign. Copper blister output and copper cathode production were
131,400 tonnes and 127,600 tonnes, respectively, and 9% and 10% lower, respectively, than in 2002. Zinc metal production was also lower due to the decision to take the 13-week summer
shutdown for market reasons. Zinc metal production at 94,700 tonnes was 50,600 tonnes lower than last year. Sulphuric acid production at 472,100 tonnes was 112,100 tonnes below the 2002 volume.

Reserves:At December 31, 2003, reserves totalled 20.8 million tonnes grading 2.0% copper and 6.1% zinc. After
production of 2.1 million tonnes and a revision of previous estimates of 0.7 million tonnes, reserves decreased 2.8 million tonnes. At current operating rates, the mineral
reserves are equal to approximately nine years based on current proven and probable mineral reserves.

Mine D:Kidd is currently developing Mine D, the depth extension of No. 3 mine orebody, with production
scheduled to start in late 2004. In 2003, $85 million was spent on Mine D development (2002  $78 million), with a total of
$276 million spent to date. Mine D is expected to contribute 1.8 million tonnes of ore annually once in full production. The cost of Mine D has been estimated at
$450 million.

Collahuasi

Compañía Minera Doña Inés de Collahuasi S.C.M., in which Falconbridge holds a 44% interest, operates
the Collahuasi mine in northern Chile. Collahuasi mines and mills copper sulphide ores into concentrate and mines and leaches copper oxide ores to produce cathodes. Collahuasi continues to be a strong
performer and exceeded targeted production for 2003.

|Falconbridge share                          |  | 2003    |  | 2002   
|------------------------------------------- |  | ------- |  | -------
|Sales of copper (tonnes)                    |  | 168,147 |  | 187,524
|Production (tonnes)                         |  | 168,578 |  | 185,014
|Revenues ($ millions)                       |  | 275     |  | 246    
|Operating cash cost ($ per pound of copper) |  | 0.38    |  | 0.39   
|Operating income ($ millions)               |  | 115     |  | 82     

Revenues:Falconbridge's share of revenues at Collahuasi in 2003 was $275 million compared with $246 million in
2002. The increase of $29 million is due to an increase in the realized copper prices, which offset the decrease in sales volumes.

Costs:The operating cash cost of $0.38 per pound of copper in 2003 decreased by one cent US per pound compared to 2002.
Lower treatment and refining charges more than offset the increase in mining costs from lower grades and the strengthening Chilean peso.

Operating income:The Corporation's share of Collahuasi's 2003 operating income was $115 million compared with
$82 million in 2002. The positive variance is mostly attributable to higher copper prices and lower unit production costs.

Production:Falconbridge's share of annual copper production totalled 168,578 tonnes, 9% lower than the production of 185,014
tonnes in 2002. Falconbridge's share of cathode from the oxide plant reached 27,895 tonnes, 27% above the design capacity of the refinery, while production of copper in concentrate was 140,683 tonnes.
The decrease in 2003 production was anticipated and attributable to lower ore grades compared to 2002. Falconbridge's share of total copper production in 2004 is forecast at 206,000 tonnes.

21

---



The
construction of a new grinding circuit at the Ujina concentrator was approved in 2002. It is part of the Ujina to Rosario transition project, which also involves transferring mine
production from the Ujina to the Rosario ore body in June of 2004. The project will increase Collahuasi's concentrator design capacity to 110,000 tonnes per day from 70,000 tonnes per day,
compensating for an expected decline in ore grade and thereby enabling Collahuasi to maintain copper production at current levels. The total capital cost of the transition and concentrator expansion
project is estimated at $654 million, with Falconbridge's 44% share of this cost totalling $288 million. The project to move the operations from the Ujina pit to the new Rosario open pit
and the expansion of the Ujina concentrator is on schedule and on budget. The project is expected to achieve mechanical completion in June 2004. Construction work was 77% complete by the end of
2003, with the civil work 100% complete and the mechanical and electrical work well advanced.

Reserves & exploration:The December 31, 2003, total proven and probable mineral reserves at Collahuasi of
1,808 million tonnes decreased by 30.5 million tonnes due to mine production.

Lomas Bayas

Compañía Minera Falconbridge Lomas Bayas mines and leaches copper oxide ores to produce cathodes. During 2003 Lomas Bayas achieved a
record level of production.

|                                            |  | 2003   |  | 2002  
|------------------------------------------- |  | ------ |  | ------
|Sales of copper (tonnes)                    |  | 61,289 |  | 60,625
|Production (tonnes)                         |  | 60,427 |  | 59,304
|Revenues ($ millions)                       |  | 114    |  | 97    
|Operating cash cost ($ per pound of copper) |  | 0.48   |  | 0.45  
|Operating income ($ millions)               |  | 31     |  | 17    

Revenues:Revenues in 2003 were $114 million compared to $97 million in 2002. The increase of
$17 million was attributable to the impact of higher metal prices and higher sales volumes.

Costs:The operating cash cost of producing a pound of copper in 2003 increased to $0.48 per pound from $0.45 per pound in
2002. The increase in the cash cost resulted from higher sulphuric acid prices and the strengthening of the Chilean peso against the U.S. dollar.

Operating income:Lomas Bayas' 2003 operating income of $31 million, increased by $14 million over 2002. Higher
sales prices and volumes offset the impact of higher production costs.

Production:Lomas Bayas produced a record 60,427 tonnes of copper cathode in 2003 compared to 59,304 tonnes in 2002. Copper
production in 2004 is forecast at 60,000 tonnes.

Reserves & exploration:The December 31, 2003, total proven and probable mineral reserves of
363.9 million tonnes at Lomas Bayas decreased by 33.4 million tonnes due primarily to mine production, which utilized 30.4 million tonnes. A total of 81.2 million tonnes of
mineral resources were added during 2003 as a result of new modeling of the area.

Corporate and other

Corporate and other includes corporate costs, exploration, research and development expenditures, foreign exchange gains and losses and other
income and expenses.

Corporate
costs of $59 million for 2003 improved by $2.0 million over 2002. The decrease was attributable primarily to higher gains on metals trading and reduced corporate
general and administrative costs. These savings were offset by foreign exchange losses attributable to the strengthening of the Chilean Peso and Euro relative to the US dollar, higher spending on
research and development projects, and the impact of the stronger Canadian dollar.

Liquidity and capital resources

The Corporation's cash position and changes in cash in each of the last two years ended December 31 are summarized below:

|$ MILLIONS                                  |  | 2003 |      | 2002 |  
|------------------------------------------- |  | ---- | ---- | ---- | -
|Cash provided by operating activities       |  | $    | 445  |      | $
|Cash used in investing activities           |  |      | (388 | )    |  
|Cash provided by financing activities       |  |      | 77   |      |  
|                                            |  |      |      |      |  
|Cash provided (used) during the year        |  |      | 134  |      |  
|Cash and cash equivalents,beginning of year |  |      | 164  |      |  
|                                            |  |      |      |      |  
|Cash and cash equivalents, end of year      |  | $    | 298  |      | $
|                                            |  |      |      |      |  

Liquidity and cash flow

Consolidated cash and cash equivalents increased by $134 million to $298 million at December 31, 2003, compared with $164 million at
the end of last year. These items were invested primarily in high-quality, short-term money market instruments and liquidity funds.

The
Corporation has three-year committed revolving credit facilities with various banks totalling $405 million at December 31, 2003. This total was increased to
$420 million effective January 1, 2004. Borrowings may be in many forms including letters of credit, which offset amounts available under the credit facilities. As at December 31,
2003, the Corporation had no borrowings and had drawn letters of credit totalling $17 million. The Corporation also has letters of credit outstanding of $15 million under an uncommitted
facility.

The
Corporation has a Commercial Paper Program. Unused lines of credit and cash on hand are used to support the Commercial Paper Program. As at December 31, 2003, the Corporation
had no Commercial Paper outstanding.

Working
capital increased by $206 million to $649 million at the end of 2003, from $443 million, primarily due to the impact of higher metal prices and foreign
exchange.

22

---



Cash generated from operations totalled $445 million compared with $228 million for 2002.

The
ratio of current assets to current liabilities improved to 2.9:1 from 2.7:1 in 2002.

Based
on planned production levels, estimated London Metal Exchange (LME) prices and forecasted Canadian/U.S. dollar exchange rates, it is anticipated that funds provided from
operations, available cash, and proceeds from existing lines of credit will be sufficient to finance planned capital expenditures in 2004 and the dividends declared to date.

Outstanding indebtedness

Total debt increased to $1,427 million at December 31, 2003, from $1,280 million at the end of 2002. The increase was attributable to the
issue of $250 million of new debt offset by debt repayments of $130 million and an unrealized foreign exchange loss of $27 million on Canadian dollar denominated debt. The current
portion of long-term debt is $71 million. The ratio of net debt (debt minus cash and temporary investments) to net debt plus equity improved to 37% at the end of 2003 from 42% in
2002.

Capital expenditures and deferred project costs

The following table summarizes the expenditures incurred or planned for the periods indicated:

|$ MILLIONS            |  | Total 2004 |  | Total 2003
|--------------------- |  | ---------- |  | ----------
|Investment projects   |  |            |  |           
|Nickel                |  |            |  |           
|Montcalm              |  | 75         |  | 5         
|Koniambo              |  | 52         |  | 34        
|Nickel Rim South      |  | 77         |  | 5         
|Copper                |  |            |  |           
|Kidd                  |  | 105        |  | 85        
|Collahuasi            |  | 91         |  | 151       
|Maintenance and other |  | 100        |  | 90        
|                      |  |            |  |           
|Total                 |  | 500        |  | 370       
|                      |  |            |  |           

Expenditures
in 2003 were directed towards development of Mine D at the Kidd Mining Division, the Collahuasi transition from Ujina to Rosario, the crusher expansion at Lomas
Bayas, evaluation work at Koniambo and to maintain and improve productive capacity at all locations.

Expenditures
in 2004 will primarily be used to proceed with the continued development of Mine D at the Kidd Mining Division, the Collahuasi transition from Ujina to Rosario, the
development of the Montcalm deposit, the underground exploration program at the Nickel Rim South ore body, continued evaluation work at Koniambo and to maintain and improve productive capacity at all
locations. Expenditures will be financed from internal sources and existing lines of credit. Based on sustaining capital required for existing operations and planned developments, capital expenditures
beyond 2004 are expected to be in the range of $300 million to 400 million per year over the following three years.

Growth opportunities

Over the last decade, Falconbridge has assembled a significant portfolio of growth projects. Some are closer to its operations and easier to
execute (e.g. brownfield projects); others are new projects unrelated to existing operations (e.g. greenfield projects).

Projects in development

Collahuasi, Chile The Corporation is completing a major investment project
to expand concentrator capacity and move mining operations to a higher-grade open pit (see page 22).

Kidd Mine D, Timmins, Canada (See page 21).

Montcalm, Timmins, Canada The Montcalm mineral reserves consist of 5.1 million tonnes of
1.46% nickel and 0.71% copper. This underground development project is accessed via a ramp system and is expected to be operational in the first quarter of 2005, producing 8,000 tonnes of nickel per
year for seven years.

Brownfield projects

NICKEL

Nickel Rim South, Sudbury, Canada This high-grade deposit is close to existing
operations and could be put in production in late 2008 or early 2009. Surface diamond drilling during 2003 resulted in the tonnage increasing by 87%. The updated inferred mineral resource estimate as
of December 31, 2003, is 11.7 million tonnes of 1.6% nickel, 3.7% copper and significant palladium and platinum. The mineral deposit remains open in an up-dip direction and
additional surface diamond drilling is planned. An underground exploration/development program will start in 2004 leading to the completion of a bankable feasibility study by 2008. This program is
expected to cost $400 million over five years.

Fraser Morgan Diamond drilling at the Fraser Mine has resulted in a combined indicated and
inferred mineral resource of 6.3 million tonnes of 1.6% nickel and 0.5% copper. Diamond drilling will continue in 2004. The mineral deposit is accessible from existing Fraser Mine
infrastructure.

Raglan, Nunavik, Quebec The Corporation is evaluating the possibility of increasing annual
production by 40% to 1.3 million tonnes of ore per year. A scoping study will be completed in 2004. A focused exploration program continues on the Corporation's large property holdings.

23

---



Advanced projects  mineral resources1

|DECEMBER 31, 2003
Project |  | Resource
location |  | Percentage
ownership |  | Category  |  | Million
tonnes |  | Nickel
% |  | Copper
% |  | Cobalt
% |  | Zinc
%
|------------------------- |  | ----------------- |  | -------------------- |  | --------- |  | -------------- |  | -------- |  | -------- |  | -------- |  | ------
|Nickel deposits           |  |                   |  |                      |  |           |  |                |  |          |  |          |  |          |  |       
|Nickel Rim South2         |  | Sudbury           |  | 100%                 |  | Inferred  |  | 11.7           |  | 1.6      |  | 3.7      |  | 0.04     |  |      
|Fraser Morgan2            |  | Sudbury           |  | 100%                 |  | Indicated |  | 3.8            |  | 1.71     |  | 0.52     |  | 0.06     |  |      
|                          |  |                   |  |                      |  | Inferred  |  | 2.5            |  | 1.4      |  | 0.4      |  | 0.05     |  |      
|Onaping Depth2            |  | Sudbury           |  | 100%                 |  | Indicated |  | 14.6           |  | 2.52     |  | 1.15     |  | 0.06     |  |      
|                          |  |                   |  |                      |  | Inferred  |  | 1.2            |  | 3.6      |  | 1.2      |  | 0.07     |  |      
|Côte d'Ivoire             |  | Ivory Coast       |  | 85%                  |  | Indicated |  | 123.9          |  | 1.57     |  |         |  | 0.10     |  |      
|                          |  |                   |  |                      |  | Inferred  |  | 134.0          |  | 1.4      |  |         |  | 0.12     |  |      
|Koniambo3                 |  | New Caledonia     |  | 49%                  |  | Measured  |  | 32.4           |  | 2.21     |  |         |  | 0.07     |  |      
|                          |  |                   |  |                      |  | Indicated |  | 109.7          |  | 2.10     |  |         |  | 0.07     |  |      
|                          |  |                   |  |                      |  |           |  |                |  |          |  |          |  |          |  |       
|                          |  |                   |  |                      |  | Total     |  | 142.1          |  | 2.13     |  |         |  | 0.07     |  |      
|                          |  |                   |  |                      |  |           |  |                |  |          |  |          |  |          |  |       
|                          |  |                   |  |                      |  | Inferred  |  | 156.0          |  | 2.2      |  |         |  | 0.08     |  |      
|Copper deposits           |  |                   |  |                      |  |           |  |                |  |          |  |          |  |          |  |       
|Mine D4                   |  | Timmins           |  | 100%                 |  | Inferred  |  | 14.2           |  |         |  | 3.4      |  |         |  | 4.9   
|Fortuna de Cobre5         |  | Chile             |  | 100%                 |  | Measured  |  | 125.2          |  |         |  | 0.31     |  |         |  |      
|                          |  |                   |  |                      |  | Indicated |  | 345.1          |  |         |  | 0.28     |  |         |  |      
|                          |  |                   |  |                      |  |           |  |                |  |          |  |          |  |          |  |       
|                          |  |                   |  |                      |  | Total     |  | 470.3          |  |         |  | 0.29     |  |         |  |      
|                          |  |                   |  |                      |  |           |  |                |  |          |  |          |  |          |  |       
|                          |  |                   |  |                      |  | Inferred  |  | 150.0          |  |         |  | 0.21     |  |         |  |      
|                          |  |                   |  |                      |  |           |  |                |  |          |  |          |  |          |  |       

Notes:

COPPER

Collahuasi, Chile Currently, the fourth-largest copper mine in the world, Collahuasi has
sufficient reserves and resources for further expansion after the current Phase II project is completed in June 2004. Water rights to enable
further expansion have been secured. Furthermore, the Rosario orebody contains significant molybdenum giving rise to an investment opportunity to construct a molybdenum recovery circuit.

Lomas Bayas, Chile The acquisition of an adjacent deposit, called Fortuna de Cobre, is being
considered. It could increase annual production by 50% to 90,000 tonnes and extend mine life by five years. A decision on the option to buy the deposit must be made by 2006.

Greenfield projects

Kabanga, Tanzania In early February 2004, Falconbridge and Barrick
Gold Corporation reached an understanding under which Barrick would grant Falconbridge an option to acquire 50% of its interest in the Kabanga and Kagera nickel properties in Tanzania. This option
requires Falconbridge to meet certain spending and work plan milestones. Kabanga, located in western Tanzania about 1,500 kilometres from Dar Es Salaam, has a high-grade mineral
resource of more than 26 million tonnes at 2.6% nickel, with significant upside potential. Kabanga, together with the Kagera property, provides a significant land position on the highly
prospective Kagera nickel belt. Falconbridge and Barrick have agreed on a work plan to advance the Kabanga nickel project towards a development decision within 36 months. Depending on the
additional resources found during the exploration program, a mine could produce between 30,000 and 35,000 tonnes of nickel in concentrate annually.

24

---



Key assumptions for mineral resource and reserve estimation

---

Refer to Summary of Mineral Reserves and Mineral Resources on Page 14 and Advanced Projects on
page 24.

Bulk density:the factor used to convert volume into tonnage. This factor is a function of the mineralogy and
physical characteristics of a deposit. Formulae are developed using regression analyses on a suitably large number of individual determinations.

Cut-off grade:the grade that ensures the revenue from the metal content of the lowest grade parcel included in a
deposit will be at least equal to the anticipated prime operating costs of producing this revenue. These costs include mining, milling, smelting, refining, selling and all transportation and
administration costs. The cut-off grade will vary greatly from property to property due to a range of factors including deposit size and shape, metal content and prime cost structure.

Exchange rate (US$ to Cdn$):1.50

Long-term metal prices (US$ per pound):Nickel $3.25, Copper $0.90, Zinc $0.50

Minimum mining width:the smallest horizontal thickness used in an estimation based on the selected mining method and the
minimum opening size required by mining equipment used. The grade across this minimum width must equal or exceed the cutoff grade.

Mining dilution*:all external material with grades lower than the cut-off grade that must be removed with the
ore. The amount of this diluting material can vary considerably and depends upon mining method and the location, attitude, size, shape and wall rocks of the ore zone.

Mining recovery*:the proportion of the ore that is extracted after accounting for mining losses. The mining recovery can
vary widely both within a single mine and from property to property due to a range of factors including deposit geometry and mining method.

---

* Used for mineral reserve estimation only.

Koniambo, New Caledonia Work continued throughout
the year on the Koniambo ferronickel project in the Northern Province of New Caledonia, near the provincial capital of Kone. With measured and indicated saprolite mineral resources estimated to
be 142.1 million tonnes of 2.13% nickel and inferred mineral resources of 156 million tonnes of 2.2% nickel, the Koniambo deposit is one of the largest and highest grade laterite
resources in the world. In addition, the project has an inferred limonite mineral resource estimated to consist of 125 million tonnes of 1.6% nickel and 0.2% cobalt that could be developed at a
later date.

In
1998, Falconbridge entered into a joint-venture agreement with Société Minière du Sud Pacifique S. A. (SMSP) and its controlling
shareholder, Société de Financement et d'Investissement de la Province Nord, for the evaluation and development of the 60,000-tonne per year nickel in
ferro-nickel mining and smelting complex. Falconbridge has a right to earn a 49% interest in the project with SMSP owning 51%. Governance of the project will be on a 50/50 basis.

The
Corporation has assembled an experienced project development and execution team. A pre-feasibility study was completed in 2003 and indicates a capital cost of
$1.57 billion and operating costs of $1.27 per pound. A bankable feasibility study is in progress which will refine the capital and operating cost estimates through greater detailed engineering
and will adjust for foreign exchange rate movements. The bankable feasibility study will be completed in the third quarter of 2004. The Koniambo ferronickel project would use a well-known
smelting process with modern, updated technologies.

Further
geological drilling, completed in March 2003, was undertaken to delineate 25 years of measured resources and indicated resources.

In
2003, $28 million was spent on the project, bringing total expenditure to date to $123 million. A formal application was made in 2003 under the French 'Loi Girardin'
incentive program for investments in overseas territories. Discussions are continuing with the Government of France and with our partner, SMSP.

Exploration

The Falconbridge exploration team conducts worldwide exploration focused primarily on nickel and platinum group metals. Its mandate is to discover
and delineate mineral resources that merit the Board of Directors' approval to proceed to development and production. The team targets mineral resources of strategic size, in locations with acceptable
country risk, with after-tax rates of return on investment of at least 15% and operating costs below the industry mid-point. Its goal is to conduct safe and environmentally
responsible exploration utilizing the latest technological advances in exploration methodology to improve efficiency and the likelihood of success. Joint-venture arrangements are pursued with both
junior and senior mining companies to increase the level of focused activity and to share cost and risk.

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Exploration is being carried out primarily in Canada, Brazil, South Africa, Norway and Australia. Advanced nickel exploration is focused in Sudbury, Ontario and Raglan, Quebec near
existing operations. Diamond drilling at the Nickel Rim South discovery at Sudbury has increased the estimated inferred mineral resource from 6.3 million tonnes to 11.7 million tonnes of
1.6% nickel, 3.7% copper, 2.0grams/tonne platinum, 2.3grams/tonne palladium and 0.7grams/tonne gold. Exploration at Raglan during 2003 has resulted in 1.7 million tonnes being added to the
mineral reserves/resources.

The
Falconbridge exploration budget for 2004 is forecast to be $22 million. The financial investment of worldwide joint-venture participants plus tax credits provided by the
Quebec provincial government to stimulate exploration activity is expected to provide external funding that will leverage the internal budget to an estimated $28 million.

Business development

The business development function plays a critical role in several aspects of the company's management. First, it works in tandem with the various
business units, exploration group and project development teams to plan, coordinate and implement long-term strategies to replace the resources that are depleted in the normal course of
mining operations and to grow the business throughout the cycle. Business development regularly evaluates opportunities for growth. These objectives are achieved by, amongst other things, evaluating
potential acquisitions of mining properties or assets, investing in junior mining companies, partnering with other companies to develop growth opportunities, developing long-term
strategic, commercial relationships or examining potential brownfield expansions within the Corporation's existing asset base. Furthermore, the Corporation focuses on the development of
long-term relationships that bring the Corporation technical, operational, project development, financial, managerial and commercial strengths to bear, so that significant value, in
addition to cash resources, can be deployed to successfully realize potential growth opportunities. The Corporation also focuses on growth opportunities that create additional synergies with its
existing asset base.

Energy

In 2003, energy costs represented approximately 21% of the cash cost breakdown for all of Falconbridge's operations. Significant quantities of
electricity, natural gas, and petroleum products are procured from commodities markets and regulated energy providers in the U.S., Canada, Norway, Mexico and Chile.

Company
profitability is sensitive to energy price volatility. Where energy is purchased in a commodities market, risk management practices are applied in order to stabilize prices and
enhance energy cost management. Of particular concern in the mid term are world oil prices, the availability of sweet crude oil in the Gulf of Mexico and the tight supply situation for natural gas in
North America.

A
formal strategy has been established for strengthening the effective use of energy within the Company. The operations are provided an infrastructure that effectively measures
consumption and performance. Additionally, awareness workshops are being held at each facility to help employees understand how energy use can be controlled.

Furthermore,
energy is being defined as a managed variable within operations management systems. Energy performance indicators are being developed for each level in the organization so
that production processes can be operated to consumption benchmarks. Senior management has endorsed an energy intensity improvement target of 1% per year. Finally, Six Sigma methodology and techniques
were also applied to reduce consumption. In 2003, energy cost reduction initiatives resulted in savings of approximately $5 million.

Sustainable development

Falconbridge is a strong proponent of Sustainable Development where economic prosperity, environmental quality and social equity drive business
activities. This commitment is reflected in theCompany's Sustainable Development Policy.

Providing
a safe and healthy workplace is a priority at Falconbridge. Operations continue to implement effective safety training programs and management systems. Safety performance is
strongly supported by senior management and the Board of Directors. Under the 2003 Safety, Health and Leadership program five Falconbridge operations were visited by senior management to assess,
promote and reinforce the importance of a safe workplace. These initiatives, among others, have resulted in enhanced safety performance in 2003 as the lost-time injury frequency (a measure
of the number of compensable injuries per 200,000 hours worked) declined to 1.26 versus 1.45 in 2002.

For
more details on our progress towards sustainability please refer to the2003 Falconbridge Limited Sustainable Development Report,
which is scheduled for release in April 2004, and will be available on the Corporation's website.

Sensitivities

Falconbridge's earnings and cash flows are sensitive to changes in metal prices and the Canadian/U.S. dollar exchange rate. The following
table shows the approximate impact on operating income, earnings and cash flow due to variations in these factors, based on Falconbridge's normal annual sales volumes, if the change was to remain in
effect for the full year:

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|                                    |  | Impact on
|----------------------------------- |  | ---------
|
|Nickel                              |  | $        
|Ferronickel                         |  |          
|Copper                              |  |          
|Zinc                                |  |          
|Cobalt                              |  |          
|Platinum and Palladium              |  |          
|Silver                              |  |          
|Exchange rate US$1.00 = Cdn$ +/- 1¢ |  |          

(a) Difference between earnings and cash flow relates to deferred tax amount.

Falconbridge periodically uses foreign exchange and options contracts to hedge the effect of exchange rate changes on identifiable foreign
currency exposures. The Canadian dollar sensitivity table above reflects the impact of such currency hedges. In addition, Falconbridge may use futures and option contracts to hedge the effect of price
changes on a portion of the metals it sells. The above sensitivities could accordingly be affected if such hedging programs were to be put in place.

Critical accounting estimates

Management is required to make estimates in preparing its financial statements in conformity with generally accepted accounting principles. These
estimates affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The critical accounting estimates made by Falconbridge are used in the determination of asset lives to compute depreciation, impairment of assets, the cost of
employee future benefits, reclamation and environmental obligations, the determination of mineral reserves, the determination of taxes, and allowances for unrecoverable receivables.

Accounting changes

Effective July 1, 2003, the functional currency of Falconbridge Limited was changed from the Canadian to the U.S. dollar. Concurrent
with this change, Falconbridge adopted the U.S. dollar as its reporting currency. Effective January 1, 2003, the Corporation also adopted new policies for interest capitalization and
inventory costing. These changes were made to harmonize Falconbridge's policies with predominant industry practices and international accounting standards. [See notes 1
and 2].

Markets

Nickel

The world economies remained sluggish during the first half of 2003, primarily due to geopolitical factors such as the Iraq war. But the situation began to change
in the second half of the year as forward-looking indicators began to turn positive. In the U.S., business investment picked up and positive economic data suggested an accelerating and sustainable
trend. The euro-zone economy also started to recover, albeit at a weaker rate. In Japan, supportive macroeconomic policies generated an appreciable improvement in the manufacturing sector.
In China, booming exports and soaring domestic demand counteracted the negative effect of SARS on the Chinese economy and highlighted the country's great influence on practically all base metal
markets during the year. Prices across base and most precious metals rallied in the second half of the year in anticipation of stronger fundamentals ahead.

In
2003, the price of nickel rose from a low of $3.27/lb. at the start of 2003 to $7.55/lb. by year end. Supply-side fundamentals were the main driver behind this
run-up, complemented by the very strong demand for metals in China. In 2003, world production of nickel grew by only 1.7%, less than half the growth seen in 2002. Disruptions at producers
reduced nickel supply in the first half of the year. This was followed by a three-month strike at Inco's Sudbury operations, which removed approximately 30,000 tonnes of nickel from the market in the
second half of the year.

Consumption
of nickel grew 5.9% in 2003, with one-third of the growth coming from China. Stainless steel production, which uses more than two-thirds of the
world's supply of nickel, grew at 6.3%. This rate is well above the trend growth rate. The first half of 2003 was particularly strong as mills in all geographic market sectors, with the exception of
the U.S., produced at record levels. Growth in the availability of external scrap kept pace with growth in
stainless steel production, with the net effect that stainless steel scrap availability remained tight. In the non-stainless steel sectors, electronic alloys and batteries showed some
signs of recovery, but both the aerospace and land-based gas turbine markets remained weak.

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Average U.S. prices and Canadian/U.S. exchange rates

|            |  |       |  | Realized by Falconbridge |      | London Metal Exchange |  
|----------- |  | ----- |  | ------------------------ | ---- | --------------------- | -
|
|
|Nickel      |  | pound |  | $                        | 4.40 |                       | $
|Ferronickel |  | pound |  |                          | 4.20 |                       |  
|Copper      |  | pound |  |                          | 0.82 |                       |  
|Zinc        |  | pound |  |                          | 0.41 |                       |  
|Cobalt      |  | pound |  |                          | 9.42 |                       |  

* As per Metal Bulletin 99.3%

When factoring in the Inco strike, the nickel market deficit was estimated to be 56,000 tonnes in 2003. However, the release of the
60,000-tonne collateral stocks by Norilsk more than offset the deficit, creating an implied surplus of 4,000 tonnes for the period.

Copper

The copper market underwent a significant change during 2003, moving from a sizable surplus position early in the year to a substantial deficit by year end. This
change was brought about by a combination of two factors: supply-side discipline on the part of producers and strong demand for copper from China. Given these improved fundamentals, the
copper price increased by 51% from $0.69/lb. at the end of 2002 to $1.05/lb. by year end. The underlying supporting factor of the copper market in 2003 was restrained supply rather than physical
demand.

Production
cutbacks implemented by producers in 2002 continued in 2003. Codelco, the world's largest copper producer, stockpiled 200,000 tonnes of copper cathodes in 2003. Idled mine
capacity at the start of the year reached 685,000 tonnes and continued at this level until the third quarter, when the restart of two operations brought 125,000 tonnes of capacity back on stream.
Despite the significant production cutbacks, mine output increased slightly in 2003, mainly due to the completion of expansion projects. In 2003, refined metal production fell for a second year in a
row, as a result of the lower availability of concentrates and a shortage of scrap.

Copper
demand remained weak in the Western World in 2003, growing by less than 1%. The U.S. market was particularly slow in the first half of 2003, and while the economy recovered
in the second half, the benefits only filtered down to the copper sector in the fourth quarter. European demand was slightly stronger in the first half of the year, but remained subdued for the second
half of 2003, as manufacturing activity weakened and the strong euro hampered exports. The strongest demand growth occurred in Asia. While Japan's copper consumption was weak, the rest of Asia
experienced 5% growth. Chinese consumption grew at close to 20% year over year, making China the leading copper consuming country in the world and, for the first time, a net importer of refined
copper. Demand is estimated to have exceeded three million tonnes in 2003 and imports were over one million tonnes.

Cobalt

At the beginning of 2003, the cobalt market hit historically low price levels due to continued oversupply and weakness in the key superalloy sector. However,
unsustainable prices in the $6.00/lb. range prompted restructurings at producers, bankruptcies and changes in business practices. This has led the way to improved supply fundamentals, while demand for
cobalt was strengthening throughout the year. The year ended with a supply deficit.

Outlook

Nickel

The prospect of synchronized growth in the three major Western World economies (U.S., Europe, Japan), together with the robust growth continuing in the
non-OECD countries (China, Russia, India, Latin America), should underpin a strong pick-up in metal consumption in 2004.

The
nickel market is expected to remain in significant deficit. Given the industry consensus for higher than average nickel prices for the next couple of years, nickel producers are
trying to maximize output levels. There are a number of small sulphide projects in development, which should increase output levels. Refined nickel production is projected to rise by 6% in 2004, due
in large part to the recovery of production after shortfalls at Inco and other producers in 2003.

With
a recovery in industrial production (IP) expected to take place in 2004, stainless steel production, which is strongly correlated to IP, should continue to experience above-trend
growth. The forecast suggests that it could exceed 8%, but the austenitic ratio (nickel-bearing stainless steel) is expected to weaken, as higher nickel prices push some mills to put more focus on
ferritic grade stainless steel and/or grades with lower nickel content.

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Furthermore,
scrap availability is expected to fall short of demand from stainless steel producers. Scrap dealers have already liquidated all excess inventories, with no surplus
available. The volumes of scrap that normally arise from the industrialized Western World economies will continue and higher nickel prices will draw out further marginal quantities. However, in the
newly industrialized Asian countries, where much of the expansion in stainless steel production is taking place, the economies have little stainless steel to be scrapped. As a result, the overall
scrap ratio is forecast to decline further. Demand from the non-stainless steel sector is expected to grow by 3% in 2004 due to improved economic performance. Overall, nickel demand is
forecast to grow by 4.8%. This is expected to generate a nickel supply deficit in 2004 of approximately 42,000 tonnes.

Copper

The copper deficit is expected to increase in 2004, as Western World consumption is forecast to grow by over 4%. Refined copper demand is expected to be strong in
all market areas, while demand in China is expected grow by more than 10%. Production of both concentrate and cathodes is expected to increase, but should be outpaced by the growth in consumption.
Most of the increased production will come from mine re-starts and continued ramp-up of brownfield expansions and newly expanded capacity. There is only one greenfield mine
project of significance expected to commence production in 2004. The cathode inventories stockpiled by Codelco will also be entering this market, as the company gradually releases them now that
exchange inventories have fallen below its 800,000-tonne threshold.

Cobalt

Cobalt's supply and demand prospects for 2004 continue to be very favourable for prices. Another supply deficit is projected even if demand is conservatively
forecast to grow at only 2.5%. Although there is potential to reactivate idled production capacity and increase the supply of intermediate feeds to chemical producers in China, demand should be much
stronger than previously anticipated. This demand growth is primarily powered by the lithium-ion battery sector. Imports into Japan of cobalt oxide are a good barometer of this growth, as
Japan is the world's leading producer of such batteries. On an annualized basis, imports were up about 44% in 2003. Continued strong demand into 2004 is expected because of favourable contract
negotiations with battery grade cobalt oxide producers, which have resulted in unprecedented pricing and early renewals of contracts, two reliable signals that security of supply has become a cause
for concern for cobalt customers.

Trends, risks and uncertainties

Fluctuating metal prices

As substantially all of Falconbridge's revenues are derived from the sale of nickel, copper, cobalt and zinc, its earnings are directly related to fluctuations in
the prices of these metals. The prices of these metals are subject to volatile price movements over short periods of time. Falconbridge generally does not hedge prices of the metals it produces.
Market prices can be affected by numerous factors beyond Falconbridge's control, including expectations for inflation, speculative activities, relative exchange rates to the U.S. dollar,
production activities of Falconbridge's competitors, global and regional demand and supply, political and economic conditions and production costs in major producing regions. The prices for nickel,
copper or other metals produced by Falconbridge may decline significantly from current levels. A reduction in the prices of one or more of these metals could materially adversely affect the value and
amount of Falconbridge's reserves and its business, financial condition, liquidity and operating results.

Mining and processing risks

The business of mining and processing of metals is generally subject to a number of risks and hazards, including unusual or unexpected geological conditions,
ground conditions, phenomena such as inclement weather conditions, floods and earthquakes and the handling of hazardous substances and emissions of contaminants. Such occurrences could result in
personal injury or death, damage to, or destruction of, mineral properties, processing or production facilities or the environment, monetary losses and possible legal liability. Falconbridge's
business, financial condition, liquidity and operating results could be materially adversely affected if any of these developments were to occur.

Although
Falconbridge maintains insurance to cover some of these risks and hazards to the extent available that Falconbridge believes is consistent with the industry practice, no
assurance can be given that such insurance will continue to be available, or that it will be available at economically feasible premiums. Falconbridge's property, business interruption and liability
insurance may not provide sufficient coverage for losses related to these or other risks or hazards. In such event, Falconbridge's business, financial condition, liquidity and results of operations
could be materially adversely affected.

Environmental risks

Environmental legislation affects nearly all aspects of Falconbridge's operations worldwide. This type of legislation requires Falconbridge to obtain operating
licences and imposes standards and controls on activities relating to mining, exploration, development, production, closure and the refining, distribution and marketing of nickel and other metals
products. Environmental assessments are required before initiating most new products or undertaking significant changes to existing operations. Compliance with environmental legislation can require
significant expenditures, including expenditures for clean-up costs and damages arising out of contaminated properties. In addition to current requirements, Falconbridge expects that
additional environmental regulations will likely be implemented to protect the environment and quality of life, given issues of sustainable development and other similar requirements which
governmental and supragovernmental organizations and other bodies have been pursuing. Some of the issues currently under review by environmental regulatory agencies include reducing or stabilizing
various emissions, including sulphur dioxide and greenhouse gas emissions, mine reclamation and restoration, and water, air and soil quality.

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Canada
ratified the Kyoto Protocol to the United Nations Framework Convention on Climate Change in late 2002. The protocol has not entered into force but may do so in the future. Various
levels of governments in Canada are developing a number of policy measures in order to meet Canada's emission reduction obligations under the protocol. While the impact of the protocol and measures
cannot be quantified at this time, the likely effect will be to increase costs for fossil fuels, electricity and transportation, restrict industrial emission levels, impose added costs for emissions
in excess of permitted levels and increase costs for monitoring and reporting. Compliance with these initiatives could have a material adverse effect on Falconbridge's business, financial condition,
liquidity and operating results.

Further
changes in environmental laws, new information on existing environmental conditions or other events, including legal proceedings based upon such conditions or an inability to
obtain necessary permits, could have a material adverse effect on product demand, product quality and methods of production and distribution or could require increased financial reserves or compliance
expenditures or otherwise have a material adverse effect on Falconbridge's business, financial condition, liquidity and operating results.

Failure
to comply with environmental legislation may result in the imposition of fines and penalties, liability for clean-up costs, damages and the loss of important permits.
There can be no assurance that Falconbridge will at all times be in compliance with all environmental regulations or that steps to bring Falconbridge into compliance would not materially adversely
affect Falconbridge's business, financial condition, liquidity or operating results.

In
view of the uncertainties concerning future removal and site restoration costs on Falconbridge's properties, the ultimate costs for future removal and site restoration to Falconbridge
could differ from the amounts estimated by Falconbridge. The estimate for this future liability is subject to change based on amendments to applicable laws and legislation, the nature of ongoing
operations and technological innovations. Future changes, if any, due to their nature and unpredictability, could have a significant impact and would be reflected prospectively as a change in an
accounting estimate.

In
addition, regulatory authorities in various jurisdictions around the world may require Falconbridge to post financial security to secure in whole or in part future reclamation and
restoration obligations in such jurisdictions. In some instances, Falconbridge has already provided this security. In other instances, such security may be required to be posted upon the occurrence of
certain events including if Falconbridge ceases to maintain a minimum investment grade credit rating, if the regulatory authority ceases to accept alternative forms of comfort to secure the obligation
or as a property nears the end of its operation. Although the posting of this security does not increase the future reclamation and restoration costs (other than costs associated with posting such
security), a portion of Falconbridge's credit may be required to back up these commitments, which could affect Falconbridge's liquidity.

Labour relations

Collective agreements covering Falconbridge's hourly rated employees at Falconbridge's Sudbury operations, Nikkelverk operations, Collahuasi operations, Kidd
metallurgical division, Raglan mine, Falcondo operations and Lomas Bayas operations are currently in place. Falconbridge's collective agreements with unionized workers at Falconbridge's Nikkelverk and
Collahuasi operations remain in effect until 2004. The supervisory, technical, professional and administrative employees at Lomas Bayas are not represented by a union but have historically acted
collectively when renegotiating their individual contracts of employment each of which expires in June 30, 2003. Collective agreements covering Falconbridge's unionized workers at the Kidd
metallurgical division, Raglan mine, Falcondo operations and Lomas Bayas operations will expire between 2005 and 2006. Falconbridge cannot predict at this time whether it will be able to reach new
agreements with these employees upon expiry of their current agreements without a work stoppage. Any lengthy work interruptions could materially adversely affect Falconbridge's business, financial
condition, liquidity and results of operations.

Uncertainty of reserve estimates and production estimates

Falconbridge's reported ore reserves as of year-end 2003 are estimated quantities of proven and probable ore that under present and anticipated
conditions can be legally and economically mined and processed by the extraction of their mineral content. Falconbridge determines the amount of its ore reserves in accordance with the requirements of
the applicable Canadian securities regulatory authorities and established mining standards. Falconbridge does not use outside sources to verify its reserves. The volume and grade of reserves actually
recovered and rates of production from Falconbridge's present ore reserves may be less than geological measurements of the reserves. Market price fluctuations in nickel, copper, other metals and
exchange rates, and changes in operating and capital costs may in the future render certain ore reserves uneconomic to mine. In addition, short-term operating factors relating to the
mineral reserves, such as the need for orderly development of ore bodies or the processing of new or different ore grades, may cause mineral reserves to be modified or Falconbridge's operations to be
unprofitable in any particular fiscal period.

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No
assurance can be given that the indicated amount of ore will be recovered or that it will be recovered at the prices assumed by Falconbridge in determining ore reserves. Ore reserve
estimates are based on limited sampling and, consequently, are uncertain because the samples may not be representative of the entire ore body. As more knowledge and understanding of the ore body is
obtained, the reserve estimates may change significantly, either positively or negatively.

Falconbridge
prepares estimates of future production for particular operations. These production estimates are based on, among other things, reserve estimates; assumptions regarding
ground conditions and physical characteristics of ores, such as hardness and presence or absence of particular metallurgical characteristics; and estimated rates and costs of mining and processing.
Falconbridge's actual production may vary from estimates for a variety of reasons, including actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other
characteristics; short-term operating factors relating to the ore reserves, such as the need for sequential development of ore bodies and the processing of new or different ore grades;
risks and hazards associated with mining, natural phenomena, such as inclement weather conditions, floods, and earthquakes; and unexpected labour shortages or strikes. No assurance can be given that
production estimates will be achieved. Failure to achieve production estimates could have a material adverse impact on Falconbridge's future cash flows, earnings, results of operations and financial
condition.

Exchange rate fluctuations

Fluctuations in currency exchange rates, principally the Canadian/U.S. dollar exchange rate and, to a lesser extent, Norwegian Kroner, Euro, Yen and other
exchange rates, can significantly impact Falconbridge's earnings and cash flows. These exchange rates have varied substantially over time, including over the last five years. Most of Falconbridge's
revenues and debt are denominated in U.S. dollars, whereas most of the operating costs at its Canadian sites are incurred in Canadian dollars. The costs at Falcondo, Lomas Bayas, and Collahuasi
are incurred principally in U.S. dollars, although there are costs denominated in the domestic currency, while Nikkelverk's costs are incurred in Norwegian Kroner. Falconbridge's consolidated
financial statements are expressed in U.S. dollars. Fluctuations in exchange rates between the U.S. dollar and the Canadian dollar and other currencies may give rise to foreign currency
exposure, either favourable or unfavourable, which has materially impacted and may in the future materially impact Falconbridge's financial results. Falconbridge from time to time hedges a portion of
its Canadian dollar and other currency requirements to limit any adverse effect of exchange rate fluctuations with respect to Falconbridge's Canadian dollar and other costs, but such hedges have not
eliminated the potential material adverse effect of such fluctuations.

Interest rate and counterparty risk

Falconbridge's exposure to changes in interest rates results from investing and borrowing activities undertaken to manage its liquidity and capital requirements.
Falconbridge has entered into interest rate swap agreements to manage the interest rate risk associated with a portion of its fixed-rate debt. The interest rate swap changes Falconbridge's
exposure to interest risk by effectively converting a portion of Falconbridge's fixed-rate debt to a floating rate. At December 31, 2003, approximately $817 million, or 57%
of Falconbridge's total debt of $1,427 million, was subject to variable interest rates. Falconbridge may elect in the future to enter into interest rate swaps to effectively convert
floating-rate debt to fixed-rate debt and enter into additional fixed-rate to floating-rate swaps. There can be no assurance that Falconbridge will not
be materially adversely affected by interest rate changes in the future, notwithstanding its use of interest rate swaps.

In
addition, Falconbridge's interest rate swaps, metals hedging and foreign currency and energy risk management activities expose Falconbridge to the risk of default by the
counterparties to such arrangements. Any such default could have a material adverse effect on Falconbridge's business, financial condition and results of operation.

Energy supply and prices

Falconbridge's operations and facilities are intensive users of natural gas, electricity and oil. Procurement of these types of energy sources can be affected by
numerous factors beyond Falconbridge's control, including global and regional supply and demand, political and economic conditions and problems related to local production and delivery conditions.
Falconbridge's supply contracts typically provide that suppliers may be released from their delivery obligations to Falconbridge if certain "force majeure" events occur. Falconbridge's business
operations could be adversely affected, including loss of production and damage to Falconbridge's plants and equipment, if, even temporarily, the supply of energy to one or more of its facilities was
interrupted.

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A
prolonged shortage of supply of energy used in Falconbridge's operations could materially adversely affect its business, financial condition, liquidity and results of operations. As a
significant portion of Falconbridge's costs relate to energy consumption, its earnings are directly related to fluctuations in the cost of natural gas, electricity and oil. Energy prices can be
affected by numerous factors beyond Falconbridge's control, including global and regional demand and supply, and applicable regulatory regimes. The prices for various sources of energy Falconbridge
uses may increase significantly from current levels. An increase in energy prices could materially adversely affect Falconbridge's business, financial condition, liquidity and operating results.

Foreign operations

Some of Falconbridge's activities and related assets are located in countries outside North America, some of which may be considered to be, or may become,
politically or economically unstable. Exploration or development activities in such countries may require protracted negotiations with host governments, international organizations and other third
parties, including non-governmental organizations, and are frequently subject to economic and political considerations, such as taxation, nationalization, inflation, currency fluctuations
and governmental regulation and approval requirements, which could adversely affect the economics of projects. These projects and investments could be adversely affected by war, civil disturbances and
activities of foreign governments which limit or disrupt markets, restrict the movement of funds or supplies or result in the restriction of contractual rights or the taking of property, without fair
compensation.

Falconbridge
performs a thorough risk assessment on a country-by-country basis when considering foreign activities and attempts to conduct its business and
financial affairs so as to protect against political, legal, regulatory and economic risks applicable to operations in the various countries where it operates, but there can be no assurance that
Falconbridge will be successful in so protecting itself. These projects and investments could also be adversely affected by changes in Canadian laws and regulations relating to foreign trade,
investment and taxation.

Treatment and refining charges

Falconbridge receives fees (treatment and refining charges) calculated in U.S. dollars for processing concentrate into refined metal. Fluctuations in these
treatment and refining charges result primarily from changes in the supply of, and demand for, concentrate, finished metal and by-products, all of which are beyond Falconbridge's control.
A shortage in the supply of concentrate will generally have a negative impact on the treatment and refining charges Falconbridge realizes.

Legal proceedings

The nature of Falconbridge's business subjects it to numerous regulatory investigations, claims, lawsuits and other proceedings in the ordinary course of
Falconbridge's business. The results of these legal proceedings cannot be predicted with certainty. There can be no assurance that these matters will not have a material adverse effect on
Falconbridge's results of operations in any future period, and a substantial judgement could have a material adverse impact on Falconbridge's business, financial condition, liquidity and results of
operations.

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