* Q2 EPS C$0.14 vs C$0.13 year ago
* Agrees to process ore at Xstrata mill
* Shares rise 6.7 percent to C$10.00 (Adds details)
By Cameron French
TORONTO, Aug 14 (Reuters) - FNX Mining FNX.TO posted an 11 percent increase in quarterly profit on Friday and said it will ship stockpiled ore to a mill operated by Xstrata XTA.L, because of a strike at the nearby Sudbury operations of partner Vale Inco (VALE5.SA).
Shares of the Canadian nickel and copper miner rose 6.7 percent on the forecast-beating profit and on news of the processing deal.
FNX, which mines in the metals hub of Sudbury, Ontario, earned a net C$12.5 million, or 14 Canadian cents a share, in the second quarter, ended June 30. This compared with a profit of C$11.3 million, or 13 Canadian cents a share, a year ago.
Revenue fell 45 percent to C$61.9 million, due to a sharp drop in metal prices and lower output, as the company suspended nickel mining in December because of weak demand.
Analysts had expected a profit of 2 Canadian cents a share on revenue of C$43.9 million, according to Reuters Estimates.
Speaking on a conference call, Chief Executive Terry MacGibbon said the results were helped by cost-cutting measures FNX implemented late last year, including a suspension of nickel mining and more than 300 job cuts.
"These actions led to a successful (second quarter)," he said.
FNX had cash, cash equivalents, and working capital of C$131.1 million at June 30.
MacGibbon said recent improvements in commodity and financial markets meant the company was on the lookout for acquisition opportunities.
FNX has continued to mine copper and precious metals in Sudbury, but processing had been hit by a summer shutdown and subsequent strike at Vale Inco's operations, which normally processed its ore.
The company said the agreement with Xstrata covers processing of 150,000 tonnes of copper and precious metals ore. This will cover the 120,000 tonnes FNX has already stockpiled, as well as ore mined into September.
Officials said the company could extend the contract with Xstrata or return to Vale for processing when the strike ends.
MacGibbon said on the call that the Vale strike would pressure FNX's third-quarter revenues because of the interruption in processing.
He also said FNX was in no hurry to resume nickel production until it sees some stability in the recent price increase.
The company's stock, which fell hard last year but has more than tripled so far in 2009, was up 63 Canadian cents at C$10.00 on the Toronto Stock Exchange. The shares are still well below their all-time high of C$39.77 hit in 2007 when nickel prices were near record levels.
$1=$1.09 Canadian Additional reporting by Sakshi A Mattoo in Bangalore; editing by Rob Wilson