Phelps Dodge News

Phelps Dodge Corporation, Inco Limited, & Falconbridge Limited announced today they have agreed to combine in a US$56 billion transaction to create a North American-based mining company that is one of the world’s largest. The new company will be named Phelps Dodge Inco Corporation.

Phelps Dodge Inco will be the world’s leading nickel producer, the world’s largest publicly traded copper producer & a leading producer of molybdenum & cobalt, & it will have a world-class portfolio of growth projects & exciting exploration opportunities. For the quarter ended March 31st, 2006, the 3 companies had combined revenues of US$6.3 billion & EBITDA (earnings before interest, taxes, depreciation & amortization) of US$1.9 billion. The corporate office & the new company’s copper division will be headquartered in Phoenix.
Inco Nickel, the new company’s nickel division, will be headquartered in Toronto. The Phelps Dodge board of directors also announced, as part of the transaction, a share repurchase program of up to US$5.0 billion to be commenced after closing. Phelps Dodge Inco will have operations in more than 40 countries & will employ approx., 40,000 people globally. Phelps Dodge Inco will be listed on the New York Stock Exchange & will apply for a listing on the Toronto Stock Exchange. As a result of the 3-way combination, Phelps Dodge Inco will have a significantly increased weighting in the S&P 500 Index. A Web site with detailed info on the transaction is available at www.phelpsdodgeinco.com.

Terms of the Transaction

Under the terms of the transaction, Phelps Dodge will acquire all of the outstanding common shares of Inco for a combination of cash & common shares of Phelps Dodge having a value of C$80.13 per Inco share, based upon the closing price of Phelps Dodge stock & the closing US/Canadian dollar exchange rate on Friday, June 23rd, 2006. Each shareholder of Inco would receive 0.672 shares of Phelps Dodge stock plus C$17.50 per share in cash for each share of Inco stock. This represents a premium of 23% to Inco’s market price as of close of trading on June 23rd & a 19% premium to the value of the existing Teck Cominco Limited unsolicited offer for Inco.

Simultaneous with its entry into the combination agreement with Phelps Dodge, Inco has entered into an agreement with Falconbridge to increase its previously recommended offer for Falconbridge. Under the terms of this enhanced offer, Inco has increased the cash component of the offer from C$12.50 to C$17.50 and the exchange ratio from 0.524 shares of Inco for each share of Falconbridge to 0.55676 shares of Inco for each share of Falconbridge. The board of Falconbridge has unanimously agreed to recommend this revised offer & also approved an amendment of the Support Agreement with Inco to reflect the revised price.

Based upon the value of the consideration offered by Phelps Dodge for Inco of C$80.13 per share, the implied value of the revised agreed offer for Falconbridge including the increased cash component is C$62.11 per share, representing a 12% premium to Falconbridge’s closing price on June 23rd, & an 18% premium to the existing Xstrata plc unsolicited offer for Falconbridge.

At Phelps Dodge’s June 23rd closing price of US$82.95, the total enterprise value of the acquisition by Phelps Dodge of the combined Inco & Falconbridge is approximately US$40 billion.

The acquisition of Falconbridge by Inco is subject to regulatory approvals & other customary closing conditions, & Inco’s tender offer is expected to close in July. Inco anticipates conducting a 2nd-stage transaction to acquire the remaining Falconbridge shares, which is expected to close in August. Upon the closing of the Phelps Dodge-Inco combination, shareholders of Falconbridge who have been issued Inco common shares in the Inco-Falconbridge transaction will be entitled to receive for those shares the same package of cash and Phelps Dodge shares as will other Inco shareholders.

Phelps Dodge strongly supports Inco’s agreed offer for Falconbridge & has entered into a definitive agreement under which it will purchase up to US$3.0 billion of convertible subordinated notes issued by Inco to provide Inco with substantial additional liquidity at the time of its purchase of Falconbridge common shares & to satisfy related dissent rights, as needed. The convertible subordinated notes will only be funded in the event the Inco/Falconbridge combination is consummated. The instrument will be redeemable for cash at any time by Inco after the merger with Falconbridge & may be converted at any time beginning 6 months after issuance by Phelps Dodge at a conversion rate equal to 95% of the market value of Inco’s common shares plus accrued interest of the security at the time of conversion. The instrument will bear an 8% PIK coupon. The issuance of the convertible subordinated notes will be subject to regulatory approval.

Phelps Dodge intends to complete its share repurchase program within the 12 months after closing of the Inco transaction in an amount equal to US $5 billion, less the amount of any convertible subordinated notes purchased by Phelps Dodge.

The transaction between Phelps Dodge & Inco is not conditioned upon the completion of the Inco & Falconbridge combination. Thus, in the event the Inco-Falconbridge merger is not completed, Inco shareholders will receive the same 0.672 shares of Phelps Dodge & C$17.50 per share in cash that they would have received in the proposed three-way combination. Should Inco not complete the Falconbridge transaction, the Phelps Dodge board of directors intends to execute the full US$5.0 billion share repurchase program within 12 months of closing a transaction with Inco.

Inco has agreed to pay a break-up fee to Phelps Dodge under certain circumstances of US$475 million on a stand-alone basis & US$925 million in conjunction with its combination with Falconbridge. Inco has also given Phelps Dodge certain other customary rights, including a right to match competing offers. Phelps Dodge has agreed to pay Inco a US$500 million break-up fee under certain circumstances.

Phelps Dodge has received financing commitments from Citigroup & HSBC that may be drawn upon to fund the contemplated transactions and the up to US$5.0 billion share repurchase program.

Inco has received additional financing commitments from Morgan Stanley, Goldman, Sachs & Co., Royal Bank of Canada, & Bank of Nova Scotia in support of the increased cash component of its revised agreed offer for Falconbridge.

After completion of the transaction, current Phelps Dodge shareholders would own approx., 40% of Phelps Dodge Inco, current Inco shareholders would own approx., 31%, & current Falconbridge holders would own approx., 29%. The transaction, which is subject to Phelps Dodge & Inco shareholder approval, regulatory approvals & customary closing conditions, is expected to close in September 2006.

Delivering Significant Value to Shareholders Through Synergies & Growth

The combination of Phelps Dodge, Inco & Falconbridge is expected to result in total annual synergies of approx., US$900 million by 2008. This includes US$550 million in total expected annual synergies from the combination of Inco & Falconbridge. The net present value of total synergies, at a 7.0% discount rate, is approx., US$5.8 billion after-tax.

The combination brings together 3 companies with unique, complementary skill sets. The synergies previously identified by Inco & Falconbridge will be generated in part by joint operation of facilities in the Sudbury Basin, where there are contiguous, interwoven mines & processing facilities. Consolidation of the district allows feed flow changes that result in production increases & cost reductions. Also, consolidation of management allows for the sharing of best practices.

The inclusion of Phelps Dodge enhances these synergies. Its 3-year-old North American One Mine processes are an excellent blueprint for the consolidation of the Sudbury district. In addition, Phelps Dodge brings a focus on technology that can be applied to improve process recoveries & throughput in Sudbury & elsewhere. Also, the larger company will realize savings in procurement & supply-chain management because of its much larger size. Based on these synergies, the combination is expected to be immediately accretive to cash flow & accretive to earnings per share in 2008, excluding integration & transaction costs. The new, larger company will benefit from a strengthened financial position to take advantage of future growth opportunities. This increased financial strength, coupled with its combined assets & expertise, will enable it to pursue current & future development projects more effectively.

The combined company will have an impressive list of greenfield & brownfield projects & expansions. Those now in commissioning or in the late stages of construction include Voisey’s Bay (nickel), Cerro Verde (copper/molybdenum) & Henderson (molybdenum). Other projects include Safford (copper), Tenke Fungurume (copper/cobalt), Climax (molybdenum), Lomas Bayas (copper), Collahuasi (copper/molybdenum), El Morro (copper), El Pachon (copper), El Abra (copper), Goro (nickel), Koniambo (nickel), & Nickel Rim (nickel).

Management Team & Board of Directors

J. Steven Whisler, 51, chairman & CEO of Phelps Dodge, will be chairman & CEO of the new company. Scott M. Hand, 64, chairman & CEO of Inco, will become vice chairman of Phelps Dodge Inco. Derek Pannell, 60, CEO of Falconbridge, will become president: Inco Nickel & will head the new company’s nickel, zinc & aluminum operations. Timothy R. Snider, 56, president & CEO of Phelps Dodge, will hold the same position in the new company. Ramiro G. Peru, 50, executive vice president & CFO of Phelps Dodge, will be the CFO of the new company. Whisler, Snider & Peru will be based in Phoenix. Hand & Pannell will be based in Toronto.

The board of directors of the new company will be composed of 15 members, 11 from the board of Phelps Dodge & 4 from the boards of Inco & Falconbridge.

Benefits to Canada

Canada will derive benefits not only from the new Phelps Dodge Inco’s scale & global reach, but its continuing strong commitment to Canada overall & the local communities in which it operates. As the largest mining company based in North America, Phelps Dodge Inco will have ready access to global capital markets & be well positioned to draw upon its leading market position, combined management teams, technical depth & the expertise of its collective workforce. In Canada, Phelps Dodge Inco will continue to pursue all major capital expenditure projects that Inco & Falconbridge have initiated.

Regarding Canadian employment, Phelps Dodge Inco will not lay off any employees at any of its Canadian operating companies for at least 3 years after the completion of the transaction, unless those employees are part of an already announced shutdown or reduction in workforce. Canadians will occupy a majority of management positions of the Canadian businesses at Phelps Dodge Inco. While there will be some head-office workforce reduction, as is natural in any such combination, Phelps Dodge Inco will provide severance & make available appropriate outplacement &/or counseling services. Phelps Dodge Inco has committed to establish the head office of the global nickel business in Toronto. The company will maintain a major nickel research & development facility in Canada, & continue all existing Canadian exploration activities for a period of at least 3 years. Additionally, Phelps Dodge Inco will abide by any practices or agreements engaged in by Inco or Falconbridge with provincial Canadian governments concerning the export or processing of intermediate ore products.

In local communities, Phelps Dodge Inco will maintain all community & educational programs currently in place. In Ontario, Manitoba, Newfoundland & Labrador, Quebec, & New Brunswick, Phelps Dodge Inco has committed to direct resources toward training, education & other initiatives with the specific goal of training potential new employees, as well as enhancing the resources & quality of training available to existing employees. The new company will also maintain & carry forward the practice of environmental protection established over many years by each company, as well as keeping an unwavering focus on worker health & safety.

A World Leader in Metals and Mining

The combined entity will have large-scale production capabilities, significant proven & probable reserves in all of its core commodities & a diversified asset base. CopperPro-forma 2005 copper production for the combined entity was 3.4 billion pounds. Pro-forma 2005 copper revenues were US $11.13 billion. Phelps Dodge Inco will be the world’s largest publicly traded copper corporation after the closing. NickelPro-forma 2005 nickel production for the combined entity was 738 million pounds. Pro-forma 2005 nickel revenues were US$5.8 billion. Upon closing of the transaction, Phelps Dodge Inco will be the world’s largest nickel producer.

MolybdenumPro-forma 2005 molybdenum production for the combined entity was 68 million pounds. Pro-forma 2005 molybdenum revenues were US$1.89 billion. Phelps Dodge Inco will be the world’s 2nd largest producer of molybdenum.

CobaltPro-forma 2005 cobalt production for the combined entity was 14 million pounds. Pro-forma 2005 cobalt revenues were US$210 million. Phelps Dodge Inco will be the world’s 3rd-largest producer of cobalt.

Phelps Dodge is 1 of the world’s leading producers of copper & molybdenum & is the largest producer of molybdenum-based chemicals & continuous-cast copper rod. The company employs 13,500 people worldwide.

Inco is a primary metals company. In business for 100 years, it is 1 of Canada's best-known companies & largest exporters. It employs 12,000 people around the world at mining operations, production facilities, a research center & through its marketing & sales network.

Falconbridge is a leading copper & nickel company with investments in fully integrated zinc & aluminum assets. Its primary focus is the identification & development of world-class copper & nickel ore bodies. It employs 14,500 people at its operations & offices in 18 countries.

Advisors & Counsel

Phelps Dodge is being advised by Citigroup Corporate & Investment Banking & by HSBC Securities. Phelps Dodge’s counsel are Debevoise & Plimpton LLP & Heenan Blaikie LLP. Inco is being advised by Morgan Stanley, RBC Capital Markets & Goldman Sachs. Inco’s counsel are Sullivan & Cromwell & Osler Hoskin & Hartcourt LLP. Falconbridge is being advised by CIBC World Markets. Falconbridge’s counsel are McCarthy Tetrault LLP & Fried Frank Harris Shriver & Jacobson LLP.