using hg to do merges for different SCM

Hi, we use a different SCM at work that doesn't have 'merge' feature.
It requires manual merge for non-conflicting files! I am planning on
using mercurial to do merges for me. Does the following approach work?
Is there any better way of doing the same? Thanks in advance.

1. Creation:
   Extract the source from in-house SCM under 'work' directory.
   Put the extracted files under 'hg' too.
   Clone the 'work' hg repository to 'virgin'
   Modify 'work' directory as you wish for my bug fix.
2. Merging to a later version:
   Extract the latest source from in-house SCM and place it in 'virgin'
            working directory.
   Commit the changes to 'virgin' repository.
   Commit my changes in 'work' directory to 'work' repository. 
   Pull the changes in 'virgin' repository to 'work' repository (that is
            hg pull virgin)
   Use 'hg update -m' to merge changes in 'work' directory.
   Use 'hg commit' to commit changes to work repository.


Thanks for your time,
Malahal.