Phelps Dodge and Inco Terminate Combination Agreement

Phelps Dodge Corp. has announced that it has agreed with Inco Ltd. to terminate their Combination Agreement, effective today. In connection with such termination, Inco has paid to Phelps Dodge $125 million & has agreed to pay Phelps Dodge a further $350 million if it consummates a change-of-control transaction on or prior to Sept. 7th, 2007. These terms are the same as would have applied under the Combination Agreement if the Inco shareholders had failed to approve the combination at the meeting of Inco shareholders scheduled for Sept. 7th, 2006. As a result of the agreement to terminate the Combination Agreement, Phelps Dodge announced it has canceled the special meeting of Phelps Dodge shareholders called for Sept. 25th, 2006.

J. Steven Whisler, chairman & CEO of Phelps Dodge, said: “When we entered into our Combination Agreement with Inco for the 3-way combination with Falconbridge, we saw a unique opportunity to create the preeminent North American-based miner with leading positions in copper & nickel & 1 having enormous synergies. We knew it would be a challenging undertaking to succeed against the various hostile bids for Falconbridge & Inco. However, the risk/reward opportunity to create value for our shareholders was so compelling we decided to make every effort to complete the transaction consistent with the financial discipline we have always brought to the management of our company. When Xstrata increased its all-cash offer for Falconbridge to an amount we could not justify, even with the enormous synergies available in the 3-way combination, we declined to support higher bids for Falconbridge.

“Inco, with its world-class assets, also would have been an attractive transaction for our shareholders at the price we agreed. However, the synergies available in a 2-way combination with Inco were much smaller than those available in the 3-way combination. After CVRD made its all-cash, $86-per-share offer, we elected not to participate further.

“We have appreciated the professionalism of Inco’s management & employees throughout the process. We wish them continued success."

“We continue to explore ways to create shareholder value. We expect to complete an $850- million expansion of our Cerro Verde operation in Peru by the 1st quarter of 2007, have begun construction of a new, $550-million copper mine near Safford, Ariz., & expect to begin construction by year-end of a new, $650-million copper mine at Tenke Fungurume in the Democratic Republic of the Congo. These 3 projects are expected to add approx., 300,000 tons of additional annual copper production to our account by 2009. Additional projects & opportunities remain in queue.

“We are very confident about the prospects of Phelps Dodge. The market fundamentals for copper & molybdenum are excellent, & at current prices we are generating significant amounts of cash. Throughout the past several months, management & the board have focused on our fundamental responsibilities to build long-term value for all our shareholders while managing our balance sheet prudently & maintaining investment-grade credit in this cyclical industry. While we regret the proposed 3-way combination could not be completed on acceptable terms, the future of Phelps Dodge remains very bright.”