TORONTO - Pink slips went out Monday to 686 employees of Xstrata Nickel in Sudbury, further affecting a northern Ontario region hit hard by low commodity prices and a mining industry slump.

Xstrata Nickel, the former Falconbridge Ltd., said it will shut its Fraser mine, reduce production at its Strathcona mill to two shifts from four, and defer its Fraser Morgan development project indefinitely. Xstrata's Craig and Thayer-Lindsley operations, which were reaching the end of their productive lives, will close immediately.

The head of the union local said he knew layoffs were coming, but was surprised at the scale of Monday's announcement.

"We anticipated something. I mean, our current mines are pretty near exhausted, and we're spending a lot of capital to bring online the Nickel Rim (project) and Fraser Morgan," said Dwight Harper, president of Canadian Auto Workers Local 598.

"Obviously with the economics the way they are monies are tight, and so we anticipated something, but not to this scale."

Xstrata, which took over Falconbridge in late 2006, said the announcement won't affect the Nickel Rim South project, and Fraser Morgan "may be re-initiated when economic conditions allow."

Xstrata Nickel's chief executive said the company is "fully committed" to the Sudbury area, where it employs about 1,700 people, and the Nickel Rim development remains a priority.

"The continued decline of the economic environment and deteriorating commodity markets, coupled with high operating costs particularly at our older mines, are negatively impacting our Sudbury operations," Ian Pearce said in a statement.

"The actions announced today aim to reposition our Sudbury complex into the bottom quartile of the cost curve, ensure our operations remain financially robust even during a potentially long period of depressed commodity prices and establish a strong foundation for further growth in the region."

Marc Boissonneault, vice-president of Xstrata Nickel's Sudbury operations, said work will be halted for three days so the restructuring can begin. He added that laid-off employees will have access to job placement services and expanded assistance programs.

"We are making these tough decisions to sustain our business in the immediate and longer term," Boissonneault stated.

But the CAW's Harper said the impact of the layoffs will be felt far beyond Xstrata's operations, affecting the entire northern Ontario community of 150,000.

"This is just going to snowball," he said. "All of the secondary industry that supports Xstrata, and the local economy is sustained by the good wages that Xstrata pays -- are all going to suffer as a result."

Mayor John Rodriguez said Sudbury has been working to diversify to mitigate the cyclical downturns that inevitably come with a resource-based economy.

"This was something that I was keeping my fingers crossed and was praying and hoping wouldn't happen, and up to this point it seemed that the global recessional tsunami was going to stay away from Sudbury," Rodriguez said in an interview.

"But the positive thing about this community is that in the past, we've lived with these (downturns) ... and every time the community has been resilient and it has remade itself."

Canadian Auto Workers national president Ken Lewenza said the layoffs highlight the need for "sector-specific industrial strategies," while the provincial NDP called for an industrial electricity rate ensuring "reasonable, stable energy costs" for operations like Xstrata's.

Falconbridge, the iconic nickel company, was acquired by Swiss-based mining giant Xstrata PLC in November 2006 in a $23.8-billion deal during a takeover binge that also saw the former Inco Ltd. and Alcan Inc. acquired by foreign companies.

Monday's cuts reflect tough times in the mining industry, as companies cut jobs and shut down mines in reaction to falling prices and slumping demand for copper, zinc, aluminum and other base metals.

Nickel has been hit particularly hard. Its price was around US$5 per pound Monday after dropping as low as $4 per pound in December, down from more than $20 a pound in early 2007.

Northern Ontario relies on nickel and copper mines, among others, for a large chunk of its employment. Last year alone, mineral production generated $10 billion and exploration activities amounted to a $600-million industry in Ontario.

Michael Gravelle, the provincial minister of northern development and mines, said he expects the industry will rebound and continue to play an important role.

"It becomes more difficult to remain optimistic in the face of announcements like today's, but the fact is that commodity prices will turn around, the need for the commodities will return," Gravelle said.

"Ultimately I remain optimistic that the mining sector will very much continue to be a major, major economic driver in the province of Ontario."