UPDATE 2-Xstrata Sudbury talks resume as deadline looms

(Recasts with latest information from union)

TORONTO, Jan 29 (Reuters) - Xstrata Plc (XTA.L) and the union representing workers at its Sudbury, Ontario, nickel operations held initial talks on Monday evening, after the parties rejected each other's contract proposals late last week.

"We had some probing sessions tonight," said Hemi Mitic, spokesman with the Canadian Auto Workers union. "We chatted about some of the issues."

Another set of talks are scheduled for about 9:00 a.m. EDT on Tuesday as the deadline for a new labor contract looms.

More than 1,000 mine, mill and smelter workers are set to walk off the job if the company and union fail to reach a new deal before the current contract expires at midnight on Wednesday.

"Just the fact that we are talking is helpful," said Mitic, who noted that everything from contract language to monetary issues is being discussed at this point.

Previously, talks had stalled on the language surrounding postings and vacations.

The parties exchanged initial proposals last month and had been trying to hash out contract language when Xstrata Nickel presented the union with a tentative proposal.

The company has been trying to reach a deal ahead of the deadline to avoid a strike. The previous three contract talks have resulted in walkouts and disruptions to production.

"There are a couple days until the deadline and the negotiating teams are working," said Ian Hamilton, a spokesman for Xstrata Nickel.

This is the first set of talks in Sudbury for Swiss-based Xstrata, which inherited the operations when it bought Canada's Falconbridge in 2006. The operations account for about 4 percent of the world's nickel smelting capacity.

The mediator has held talks with the union as well as the vice-president of Xstrata Nickel's Sudbury operations.