Freeport-McMoRan Copper & Gold Inc. (FCX), a copper and gold mining company, and Phelps Dodge Corp. (PD), a Phoenix, Arizona-based copper and molybdenum producer, revealed that they entered into an agreement under which Freeport-McMoRan will acquire Phelps Dodge for approximately $25.9 billion in cash and stock. The deal would create the world's largest publicly traded copper company as well as the largest North American-based mining company.

Phelps Dodge P S for Acquisition of 126.46

As per the terms of the transaction, New Orleans, Louisiana-based Freeport-McMoRan is to acquire all of the outstanding common shares of Phelps Dodge for a total consideration of $126.46 per Phelps Dodge share. The transaction is anticipated to close at the end of the first quarter of fiscal year 2007, and is expected to be immediately accretive to Freeport-McMoRan's earnings and cash flow.

The boards of directors of both companies have unanimously approved the terms of the agreement and have recommended that shareholders approve the transaction. As per the terms of the transaction, each Phelps Dodge shareholder would receive $88.00 per share in cash and 0.67 common shares of Freeport-McMoRan. The offer represents a premium of 33% to Phelps Dodge's closing price on November 17, 2006.

The cash portion of $18 billion represents

approximately 70% of the total consideration. Also, Freeport-McMoRan is to deliver a total of 137 million shares to Phelps Dodge shareholders, investment broker which would result in Phelps Dodge shareholders owning approximately 38% of the combined capacity. After giving effect to the transaction, the estimated pro forma total debt of Freeport-McMoRan as at December 31, 2006, would be approximately $17.6 billion, or approximately $15 billion net of cash.

Combined company locate in Phoenix

The company said that the corporate headquarters of the combined company would be located in Phoenix, Arizona, while Freeport-McMoRan would maintain its office in New Orleans, Louisiana, for accounting and administrative functions for its Indonesian operations. The parent company would retain the Freeport-McMoRan Copper and Gold Inc. name and trade on the New York Stock Exchange under the symbol FCX'. The company added that the Phelps Dodge name would continue to be used in its existing operations.

Tenke Fungurume project of Congo

The combined company investment broker would represent one of the most geographically diversified portfolios of operation, expansion and growth projects in the copper mining industry, and would have significant proven and probable reserves of copper, gold and molybdenum. Freeport-McMoRan currently operates the Grasberg mine, located in Papua, Indonesia, which is the world's largest copper and gold mine in term of reserves. On the other hand, Phelps Dodge operates mines and also has mines under development in North and South America and also in Africa. The company operates the world-class Tenke Fungurume development project in the Democratic Republic of Congo.

Commenting on the deal, James Moffett, chairman of the board of Freeport-McMoRan said, This transaction combines two leading mining companies to form a strong industry leader at a time when we see significant long-term opportunities in our industry. Freeport-McMoRan has been built through our exploration and development capabilities, and we will focus on aggressively pursuing opportunities in the extensive Phelps Dodge asset portfolio.

Steven Whisler, chairman and CEO, Phelps Dodge, said, This transaction provides Phelps Dodge shareholders a significant premium for their shares and gives them the opportunity to participate in the upside potential of a geographically diversified industry leader possessing the scale and asset quality to compete on the global stage successfully.

I believe our management team, with its industry-recognized reputation for operational excellence and technological innovation, possesses the skills in open pit and underground mining and mineral processing to add value to Freeport-McMoRan's operations. We look forward to working with Freeport-McMoRan to realize all of the benefits of this combination, and its exciting portfolio of growth and expansion projects, for our shareholders, customers, employees and suppliers.

Freeport-McMoRan said that its chairman, James Moffett, would continue as chairman, while Richard Adkerson, CEO of Freeport-McMoRan, would serve as CEO of the combined company. On completion of the transaction, the chairman and CEO of Phelps Dodge, Steven Whisler, is expected to retire after serving for more than thirty years in Phelps Dodge. Timothy Snider will be the chief operating officer of the combined company, while Ramiro Peru would be the chief financial officer and Kathleen Quirk will be the chief investment officer. Further, Mark Johnson will continue as COO of Freeport-McMoRan's Indonesian operations, while Michael Arnold will continue in his executive management role, including serving as the chief financial and administrative officer of the company's Indonesian operations.

Three personals from PD to Freeport-McMoRan's board

Three independent members from Phelps Dodge board of directors will be added to the Freeport-McMoRan's board to increase the size of the board to sixteen directors in total. Freeport-McMoRan also said that it expects to continue its regular annual common dividend of $1.25 per share.

Freeport-McMoRan said that it received financing commitments from JP Morgan and Merrill Lynch to fund the cash required to complete the transaction. The company's legal advisors are Davis Polk & Wardwell and Jones, Walker, Waechter, Poitevent, Carrere & Denegre L.L.P. Phelps Dodge is being advised by Citigroup Corporate and investment broker banking as well as Morgan Stanley & Co. Inc. Its legal counsel is Debevoise & Plimpton LLP.

For the twelve-month ending September 30, 2006, the companies had combined revenues of $16.6 billion and EBITDA of $7.0 million. On a pro forma basis, for 2006, the combined company's production would approximate 3.7 billion pounds of copper, 1.8 million ounces of gold and 69 million pounds of molybdenum. Combined proven and provable reserves at December 31, 2005 would total 75 billion pounds of copper, 41 million ounces of gold and 1.9 billion pounds of molybdenum, net of minority interest. The combined company's copper production growth is expected to be approximately 25% over the next three years. For fiscal year 2006, the two companies are expected to generate combined operating cash flows totaling $6.5 billion.

For the third quarter, Freeport-McMoRan reported an increase in third quarter net income to $350.66 million or $1.67 per share from $165.81 million or $0.86 per share in the year-ago quarter. Revenues for the quarter soared to $1.64 billion from $983.27 million in the prior-year quarter.

Phelps Dodge reported third-quarter profit that more than doubled to $888.0 million or $4.36 per share from $366.1 million or $1.81 per share in the same period last year. Consolidated sales and other operating revenue for the quarter were $3.45 billion, compared to $2.18 billion in the previous-year quarter.

Last month, brokerage Prudential Financial upgraded Freeport-McMoran shares to Overweight' from Neutral Weight', and raised its price target to $82 from $60. Analyst John Tumazos said that the rating and estimate reflected his updated copper price forecast. The analyst acknowledges that this stock has above-average risk owing to uncertainties about its P/E valuation, country risk, environmental risk and transition to eventual underground mining. The analyst said that the company's superior management team has navigated those rough waters for over three decades.

Phelps Dodge had been in the news earlier, when it announced in September that its combination agreement with Canada-based nickel company Inco (N, N.TO), was being terminated, citing shareholder opposition to the $17.4 billion deal. Accordingly, Inco paid $125 million to Phelps Dodge and agreed to pay a further $350 million if it consummated a change-of-control transaction on or before September 7, 2007. Phelps Dodge, Inco and Falconbridge Ltd. (FAL.TO), had agreed to a three-way combination earlier this year. However, Anglo-Swiss mining concern Xstrata PLC won control of Falconbridge in August, while brazil-based mining company, Companhia Vale do Rio Doce (RIO), offered to buy Inco for $17.6 billion.

FCX closed Friday's regular trading session at $57.40, up $1.24 or 2.21% on a volume of 5.94 million shares. In the 52-week period, the stock has been trading in the range of $43.10-$72.20.

PD closed Friday's regular trading session at $95.02, up $0.14 or 0.15%, on a volume of 6.77 million shares. In the 52-week period, the stock has been trading in the range of $63.37-$103.90.