Freeport-McMoRan Copper & Gold to Acquire Phelps Dodge

Will Create the Worlds Largest Publicly Traded Copper Company ¢ Geographically diverse portfolio of long-lived copper, gold and molybdenum reserves with attractive growth profile ¢ Pro forma company enterprise value of $37.5 billion ¢ Meaningful financial accretion for FCX Shareholders NEW ORLEANS, LA, and PHOENIX, AZ Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) and Phelps Dodge Corporation (NYSE:PD) announced today that they have signed a definitive merger agreement under which FCX will acquire Phelps Dodge for approximately $25.9 billion in cash and stock, creating the worlds largest publicly traded copper company. The combined company will be a new industry leader with large, long-lived, geographically diverse assets and significant proven and probable reserves of copper, gold and olybdenum. The companys increased scale of operations, management depth and strengthened cash flow will provide an improved platform to capitalize on growth opportunities in the global market. The combined company will be the largest North American-based mining company. The company will enjoy an excellent cost position, long reserve life, a diversified geographic footprint, and an attractive growth profile. FCX currently operates the world-class Grasberg mine, located in Papua, Indonesia, which is the worlds largest copper and gold mine in terms of reserves. Phelps Dodge has mines in operation or under development in North and South America, and Africa, including the world-class Tenke Fungurume development project in the Democratic Republic of the Congo. The combined company will represent one of the most geographically diversified portfolios of operating, expansion and growth projects in the copper mining industry. James R. Moffett, chairman of the board of FCX, said: This transaction combines two leading mining companies to form a strong industry leader at a time when we see significant longterm opportunities in our industry. FCX has been built through our exploration and development capabilities, and we will focus on aggressively pursuing opportunities in the extensive Phelps Dodge asset portfolio. Richard C. Adkerson, FCXs president and chief executive officer, said: This acquisition is financially compelling for FCX shareholders, who will benefit from significant cash flow accretion, lower cost of capital, and improved geographic and asset diversification. The new FCX will continue to invest in future growth opportunities with high rates of return and will aggressively seek to reduce debt incurred in the acquisition using the substantial free cash flow generated from the combined business. Adkerson continued: Together, FCX and Phelps Dodge will have the size, management depth and financial strength to optimize existing operations and accelerate our growth by aggressively pursuing promising new development projects, exploration and acquisitions. We are enthusiastic about the addition of Phelps Dodges highly regarded mining team, which will complement our existing organization, and are delighted to welcome Phelps Dodges talented team to the FCX family. J. Steven Whisler, chairman and chief executive officer of 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 FCXs operations. We look forward to working with FCX 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. TERMS OF THE TRANSACTION Under the terms of the transaction, FCX will acquire all of the outstanding common shares of Phelps Dodge for a combination of cash and common shares of FCX for a total consideration of $126.46 per Phelps Dodge share, based on the closing price of FCX stock on November 17, 2006. Each Phelps Dodge shareholder would receive $88.00 per share in cash plus 0.67 common shares of FCX. This represents a premium of 33 percent to Phelps Dodges closing price on November 17, 2006, and 29 percent to its one-month average price at that date. The cash portion of $18 billion represents approximately 70 percent of the total consideration. In addition, FCX would deliver a total of 137 million shares to Phelps Dodge shareholders, resulting in Phelps Dodge shareholders owning approximately 38 percent of the combined company on a fully diluted basis. The boards of directors of FCX and Phelps Dodge have each unanimously approved the terms of the agreement and have recommended that their shareholders approve the transaction. The transaction is subject to the approval of the shareholders of FCX and Phelps Dodge, receipt of regulatory approvals and customary closing conditions. The transaction is expected to close at the end of the first quarter of 2007. FCX has received financing commitments from JPMorgan and Merrill Lynch to fund the cash required to complete the transaction. After giving effect to the transaction, estimated pro forma total debt at December 31, 2006, would be approximately $17.6 billion, or approximately $15 billion net of cash. COMBINED FINANCIALS AND PRODUCTION For the 12-month period ending September 30, 2006, the companies had combined revenues of $16.6 billion, EBITDA (operating income before depreciation, depletion and amortization) of $7.0 billion, and operating cash flows of $5.5 billion. For the year 2006, the combined companys estimated EBITDA would approximate $7.9 billion and operating cash flows would approximate $6.5 billion. On a pro forma basis for 2006, the combined companys production would approximate 3.7 billion pounds of copper (3.1 billion pounds net of minority interests), 1.8 million ounces of gold (1.7 million ounces net of minority interests) and 69 million pounds of molybdenum. Combined proven and probable reserves at December 31, 2005, would approximate 75 billion pounds of copper, 41 million ounces of gold and 1.9 billion pounds of molybdenum, net of minority interests. BENEFITS OF THE TRANSACTION: ¢ The combined company is well-positioned to benefit from the positive copper market at a time when there is a scarcity of large-scale copper development projects combined with strong global demand for copper. The combined companys copper production growth is expected to be approximately 25 percent over the next three years. ¢ The combined company will benefit from long-lived reserves totaling 75 billion pounds of copper, 41 million ounces of gold and 1.9 billion pounds of molybdenum, net of minority interests. ¢ The combined company is expected to generate strong cash flows, enabling significant debt reduction. For the year 2006, the two companies are expected to generate estimated combined operating cash flows totaling $6.5 billion. ¢ FCX expects the transaction to be immediately accretive to FCXs earnings and cash flow. ¢ The combined companys project pipeline will support industry-leading growth by delivering nearly 1 billion pounds of additional copper production capacity over the next three years. Projects include Phelps Dodges recent commissioning of the $850 million expansion of the Cerro Verde mine in Peru; the development of the new $550 million Safford mine in Arizona; a potential project to extend the life of El Abra through sulfide leaching; the exciting Tenke Fungurume copper/cobalt project in the Democratic Republic of the Congo, which is expected to begin production by 2009; the expansion of FCXs DOZ underground mine in Indonesia; and other developments of FCXs large-scale, high-grade underground ore bodies in the Grasberg district in Indonesia. ¢ The combined company will have significant high potential exploration rights in copper regions around the world, including FCXs existing prospective acreage in Papua, Indonesia, and Phelps Dodges opportunities at its Tenke concession, the U.S. and South America, as well as Phelps Dodges portfolio of exciting exploration targets. FCX will continue its longstanding focus on adding value through exploration. ¢ The combination of FCXs and Phelps Dodges proven management and best practices in open pit and underground mining will facilitate the sharing of expertise to optimize operations across the asset base. Phelps Dodges unique mining and processing technology provides opportunities to be applied to optimize metal production at Grasberg.