TORONTO, Feb. 1 -- Contract talks between Xstrata (XTA.L: Quote) and workers at its main Canadian mining operation look set to go down to the wire ahead of Sunday's strike deadline.

A walkout at the nickel operations in Sudbury, Ontario, would likely give a boost to nickel prices, while a deal ahead of the deadline is expected by some to help facilitate the resolution of a strike at cross-town rival Vale (VALE5.SA: Quote) that is now in its seventh month.

"We are at the negotiating table and we are hopeful that we can successfully conclude a renewed agreement prior to the deadline," Dominique Dionne, vice-president of corporate affairs at Xstrata's nickel division, said on Friday.

Talks to renew the main contract at the Sudbury nickel operation began in mid-December. The Anglo-Swiss miner acquired the asset when it bought Canada's Falconbridge in 2006.

Unionized workers -- represented by the Canadian Auto Workers -- voted two weeks ago to give the union a strike mandate if a deal was not reached.

Richard Paquin, president of CAW Local 598, which represents the 570 workers covered by the contract, said both sides had exchanged monetary proposals and would continue talking ahead of the deadline.

A labor stoppage would further choke off nickel production at the historic Sudbury mining camp, as workers at Vale's operations there have been on strike since July. Brazil's Vale took over Sudbury miner Inco in 2006.

Terry Ortslan, an analyst at TSO and Associates, said a quick deal with Xstrata could pave the way for Vale to resolve its walkout, as historically Inco and Falconbridge followed the same deal pattern in negotiating.

"If the union settles with Xstrata, there's not much of an excuse for Vale or its union to have another model, he said.

However, others note that Vale and Xstrata are much larger parent companies than Inco and Falconbridge, and may not follow the same patterns.

"I don't think there's going to be a material pressure one way or another in the event that Xstrata did settle early," said Desjardins Securities analyst John Hughes, adding that he doubts Xstrata will avoid a strike.

The expiration of the labor contracts has come at an inconvenient time for workers, as the price of nickel has only partially rebounded from last year's crash.

Spot nickel MNI0 was around $8.50 a pound on Friday, down from an all-time high of just under $25 a pound hit in May 2007, but up from a low of around $4 a pound in December 2008.

Nickel inventories are high, which has kept demand low and gives producers little incentive to try to meet union demands.

Both Xstrata and Vale produced just under 90,000 tonnes of nickel from Sudbury in 2008, but both reduced operations last year due to weak demand, with Xstrata cutting nearly 700 jobs.