þ   Preliminary Proxy Statement
o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o   Definitive Proxy Statement
o   Definitive Additional Materials
o   Soliciting Material Pursuant to § 240.14a-11(c) or § 240.14a-12

o	No fee required.
þ	Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1)	Title of each class of securities to which transaction applies:

(2)	Aggregate number of securities to which transaction applies: 302,736,109 shares of Phelps Dodge Corporation’s common stock

(3)	Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): $76.125 (average of high and low prices of Phelps Dodge Corporation common stock reported on the New York Stock Exchange for such shares on June 27, 2006)

(4)	Proposed maximum aggregate value of transaction: $30,078,572,055.88

(5)	Total fee paid: $3,218,407.21 — computed in accordance with Rule 0-11(c)(i) of the Securities Exchange Act of 1934, as amended, by multiplying the proposed aggregate value of the transaction by 0.0001070

o	Fee paid previously with preliminary materials.
o	Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

(1)	Amount Previously Paid:

(2)	Form, Schedule or Registration Statement No.:

(3)	Filing Party:

(4)	Date Filed:

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	1. a proposal to amend and restate Phelps Dodge’s restated certificate of incorporation in the form attached as Annex B to the proxy statement to which this letter is attached, which we refer to as the charter amendment proposal, to (i) change the company’s name to Phelps Dodge Inco Corporation from Phelps Dodge Corporation, (ii) increase the number of authorized shares of the common stock of Phelps Dodge from 300 million to 1.5 billion and (iii) increase the maximum number of members of Phelps Dodge’s board of directors from 12 to 15; and
	2. the proposed issuance of Phelps Dodge common stock to finance the combination of Phelps Dodge with both Inco and Falconbridge or with Inco only, which we refer to as the share issuance proposal.

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	Sincerely,

	J. Steven Whisler
	Chairman and Chief Executive Officer

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	1. to consider and vote on a proposal to amend and restate Phelps Dodge’s restated certificate of incorporation to (i) change the company’s name to Phelps Dodge Inco Corporation from Phelps Dodge Corporation, (ii) increase the number of authorized shares of Phelps Dodge common stock from 300 million to 1.5 billion shares and (iii) increase the maximum number of members of Phelps Dodge’s board of directors from 12 to 15;
	2. to consider and vote on the proposed issuance of Phelps Dodge common stock, par value $6.25 per share, to finance the combination of Phelps Dodge with both Inco and Falconbridge or with Inco only; and
	3. to conduct any other business as may be properly brought before the special meeting including, in the event that there are not sufficient votes for approval of the charter amendment proposal at the special meeting, to consider and vote upon any proposal to postpone or adjourn the special meeting to a later date to solicit additional proxies with respect to such proposal.

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	By Order of the Board of Directors,
	Catherine R. Hardwick
	Assistant General Counsel and Secretary

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			Page
REFERENCE TO ADDITIONAL INFORMATION				iv
INDUSTRY DATA				iv
REPORTING CURRENCIES AND ACCOUNTING PRINCIPLES				iv
EXCHANGE RATES				v
QUESTIONS AND ANSWERS				1
SUMMARY				7
	The Companies			7
	The Combination			8
	Combination Consideration and Financing			8
	Post-Combination Shareholding, Board of Directors and Management			9
	Phelps Dodge’s Reasons for the Combination			9
	Unanimous Recommendation of the Phelps Dodge Board of Directors			10
	Opinions of Phelps Dodge’s Financial Advisors			10
	Interests of Phelps Dodge Directors and Employees in the Combination			11
	Accounting Treatment of the Combination			11
	Regulatory Matters Related to the Combination			11
	New York Stock Exchange Listing; Delisting and Deregistration of Inco Common Shares			12
	Completion of the Combination			12
	No Dissenters Rights			12
	The Combination Agreement			12
	Court Approval Will be Required to Complete the Combination			13
	Conditions to the Combination			13
	Termination of the Combination Agreement			14
	Effect of Termination; Termination Fees and Expenses			14
SELECTED HISTORICAL FINANCIAL DATA OF PHELPS DODGE				16
SELECTED HISTORICAL FINANCIAL DATA OF INCO				20
SELECTED HISTORICAL FINANCIAL DATA OF FALCONBRIDGE				23
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA				26
UNAUDITED COMPARATIVE PER SHARE DATA				28
COMPARATIVE PER SHARE DIVIDEND INFORMATION				30
RISK FACTORS				31
THE COMBINATION				36
	The Companies			36
	The Combination			36
	Combination Consideration and Financing			36
	Cooperation Agreement			39
	Post-Combination Shareholding, Board of Directors and Management			40
	Background of the Combination			40
	Phelps Dodge’s Reasons for the Combination			46
	Unanimous Recommendation of the Phelps Dodge Board of Directors			51
	Opinions of Phelps Dodge’s Financial Advisors			52

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			Page
	Interests of Phelps Dodge Directors and Employees in the Combination			67
	Accounting Treatment of the Combination			70
	Regulatory Matters Related to the Combination			70
	Fees, Costs and Expenses			71
	No Dissenters Rights			71
	Repurchase of Phelps Dodge Common Stock			71
	New York Stock Exchange Listing; Delisting and Deregistration of Inco Common Shares			71
INFORMATION ABOUT THE SPECIAL MEETING				72
	Time, Date and Place			72
	Purpose			72
	Record Date and Shares Entitled to Vote			72
	Vote Required; Security Ownership of Management			72
	Solicitation and Revocation of Proxies			73
	Unanimous Recommendation of Phelps Dodge’s Board of Directors			73
	Quorum			73
	How to Vote			73
	To Attend the Special Meeting			74
	Expenses of Soliciting			74
	Questions About Voting Your Shares			74
THE COMBINATION AGREEMENT				75
	Closing and Effective Time			75
	Combination Consideration			76
	Representations and Warranties			77
	Covenants			79
	Conditions to the Combination			87
	Amendment and Waiver			88
	Termination			88
	Termination Fees and Expenses			89
	Fees and Expenses			91
OTHER AGREEMENTS AND DOCUMENTS				91
	Restated Certificate of Incorporation			91
	Phelps Dodge’s Post-Closing Board of Directors and Officers			91
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS				92
DESCRIPTION OF PHELPS DODGE CAPITAL STOCK				113
	Common Stock			113
	Preferred Stock			113
	Transfer and Dividend Paying Agent and Registrar			114
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT				115
SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS				116
FORWARD-LOOKING INFORMATION				117
REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM				118
SHAREHOLDER PROPOSALS				119
WHERE YOU CAN FIND MORE INFORMATION AND INCORPORATION BY REFERENCE				120

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		Page
COMBINATION AGREEMENT			Annex  A
FORM OF RESTATED CERTIFICATE OF INCORPORATION OF PHELPS DODGE CORPORATION			Annex  B
FAIRNESS OPINION OF CITIGROUP GLOBAL MARKETS INC.			Annex  C
FAIRNESS OPINION OF HSBC SECURITIES (USA) INC.			Annex  D

iii

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	Phelps Dodge Corporation One North Central Avenue Phoenix, Arizona 85004-4414 Attention: Assistant General Counsel and Secretary (602) 366-8100

iv

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		Three Months
		Ended				Year Ended December 31,
		March 31,
		2006				2005				2004				2003				2002				2001
		(In $ per Cdn.$1)
High			0.8834				0.8690				0.8493				0.7738				0.6619				0.6697
Low			0.8528				0.7872				0.7158				0.6349				0.6200				0.6241
Average			0.8660				0.8254				0.7682				0.7139				0.6368				0.6458
Period End			0.8569				0.8579				0.8310				0.7738				0.6329				0.6279

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		Three Months
		Ended				Year Ended December 31,
		March 31,
		2006				2005				2004				2003				2002				2001
		(In Cdn.$ per $1)
High			1.1726				1.2703				1.3970				1.5750				1.6128				1.6023
Low			1.1320				1.1507				1.1775				1.2923				1.5108				1.4933
Average			1.1547				1.2115				1.3017				1.4008				1.5704				1.5485
Period End			1.1670				1.1656				1.2034				1.2923				1.5800				1.5925

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Q1:		Why am I receiving this proxy statement?
A1:		You are receiving this proxy statement and enclosed proxy card because, as of      l     , 2006, the record date for the special meeting, you owned shares of Phelps Dodge common stock. Only holders of record of shares of Phelps Dodge common stock as of close of business on      l      , 2006, will be entitled to vote those shares at the special meeting. This proxy statement describes the issues on which we would like you, as a shareholder, to vote. It also provides you with important information about these issues to enable you to make an informed decision as to whether to vote your shares of Phelps Dodge common stock for the matters described herein.
		As more fully described herein, we have agreed to combine Phelps Dodge with Inco pursuant to a combination agreement, made and entered into as of June 25, 2006, between Phelps Dodge and Inco. If Inco successfully acquires all of the outstanding common shares of Falconbridge prior to the consummation of our combination with Inco on the terms set forth in the combination agreement, we intend to combine Phelps Dodge with both Inco and Falconbridge. If Inco does not complete its acquisition of Falconbridge and the support agreement, made as of October 10, 2005, between Inco and Falconbridge, as amended, is terminated prior to the consummation of our combination with Inco, we intend to combine Phelps Dodge with Inco only. In either case, the combination will be effected pursuant to a plan of arrangement under Section 192 of the Canada Business Corporations Act under which Phelps Dodge Canada Inc., our newly formed, wholly owned subsidiary, will acquire all of Inco’s outstanding common stock and will amalgamate with Inco.
		We are holding a special meeting of shareholders in order to obtain the shareholder approval necessary to authorize and issue shares of our common stock to shareholders of Inco, change our company’s name and increase the size of our board of directors in accordance with the combination agreement.
		We will be unable to complete our combination with both Inco and Falconbridge or with Inco only, unless you approve the proposals described in this proxy statement at the special meeting.
		We have included in this proxy statement important information about a combination of our company with both Inco and Falconbridge or with Inco only, the combination agreement and the special meeting. You should read this information carefully and in its entirety. We have attached a copy of the combination agreement to this proxy statement as Annex A. The enclosed voting materials allow you to vote your shares without attending the special meeting. Your vote is very important and we encourage you to complete, sign, date and mail your proxy card, as soon as possible, whether or not you plan to attend the special meeting. Convenient telephone and Internet voting options also are available.
Q2:		When and where will the special meeting be held?
A2:		The special meeting is scheduled to be held at  l a.m. (MST), at The Heard Museum, 2301 North Central Avenue, Phoenix, Arizona, on        l        , 2006.
Q3:		Who is entitled to vote at the special meeting?
A3:		Phelps Dodge has fixed        l        , 2006, as the record date for the special meeting. If you were a Phelps Dodge shareholder at the close of business on the record date, you are entitled to vote on

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		matters that come before the special meeting. However, a Phelps Dodge shareholder may only vote his or her shares if he or she is present in person or is represented by proxy at the special meeting.
Q4:		What will happen at the special meeting?
A4:		At the special meeting, our shareholders will be asked to:
		1. consider and vote on a proposal to amend and restate Phelps Dodge’s restated certificate of incorporation in the form attached as Annex B to this proxy statement, which we refer to as the charter amendment proposal, to (i) change the company’s name to Phelps Dodge Inco Corporation from Phelps Dodge Corporation, (ii) increase the number of authorized shares of the common stock of Phelps Dodge from 300 million shares to 1.5 billion shares and (iii) increase the maximum number of members of Phelps Dodge’s board of directors from 12 to 15;
		2. consider and vote on the proposed issuance of Phelps Dodge common stock, which we refer to as the share issuance proposal, to finance the combination of Phelps Dodge with both Inco and Falconbridge or with Inco only; and
		3. conduct any other business as may be properly brought before the special meeting including, in the event that there are not sufficient votes for approval of the charter amendment proposal at the special meeting, to consider and vote upon any proposal to postpone or adjourn the special meeting to a later date to solicit additional proxies with respect to such proposal.
		Your board of directors unanimously recommends that you vote “FOR” the adoption of the charter amendment proposal and “FOR” the share issuance proposal.
Q5:		How does Phelps Dodge intend to finance the combination and related transactions?
A5:		In the case of either a combination of our company with both Inco and Falconbridge, or with Inco only, we have agreed to pay 0.672 shares of Phelps Dodge common stock and Cdn.$17.50 in cash for each Inco common share held immediately prior to the consummation of the combination. In addition, holders of Inco restricted common stock and Inco stock options will be entitled to receive shares of Phelps Dodge common stock or options to acquire Phelps Dodge common stock, respectively, in exchange for such securities. See “The Combination Agreement — Combination Consideration” beginning on page 76 of this proxy statement.
		The issuance of the requisite shares of the common stock of Phelps Dodge to Inco’s shareholders requires the approval of Phelps Dodge’s shareholders, which is one of the purposes of the special meeting. Phelps Dodge will finance the cash component of the combination consideration, in part, from its available cash and with borrowings under new credit facilities to be entered into in connection with the combination. The new credit facilities will have aggregate borrowing capacity of $20.6 billion, which, together with available cash, will be available for the following purposes:
		• to finance up to $7.2 billion of the cash consideration to be paid by Phelps Dodge in connection with the combination;
		• to finance the purchase by Phelps Dodge of up to $3 billion stated principal amount of 8% convertible subordinated notes of Inco due April 1, 2012;
		• to finance our post-combination share repurchase program, pursuant to which we intend to repurchase up to $5 billion of the common stock of Phelps Dodge, less the stated principal amount of up to $3 billion of 8% convertible subordinated notes of Inco due April 1, 2012, purchased by us, if any, from Inco;
		• to repurchase or refinance up to $6.9 billion of Inco’s indebtedness (including indebtedness incurred in connection with the Falconbridge acquisition) and, if Inco has completed the Falconbridge acquisition, $250 million of Falconbridge’s existing indebtedness;

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		• if Inco has completed the Falconbridge acquisition, to purchase or repurchase up to $600 million in liquidation amount of existing preference shares of Falconbridge;
		• to refinance liabilities outstanding under our existing revolving credit agreement; and
		• to finance transaction expenses related to the combination.
		Phelps Dodge has received executed commitments from Citigroup Global Markets Inc. and HSBC Securities (USA) Inc. for the entire $20.6 billion principal amount of the new credit facilities. In addition, Citigroup and HSBC have agreed to increase the capacity of the credit facilities, subject to certain limitations, on the same terms and on a pro rata basis at Phelps Dodge’s request. The combination consideration and financing, including the new credit facilities and the Inco convertible subordinated notes, are more fully described in this proxy statement. See “The Combination — Combination Consideration and Financing” beginning on page 36 of this proxy statement.
Q6:		What will the share ownership, board of directors and management of Phelps Dodge look like after the combination?
A6:		If we combine with both Inco and Falconbridge, we estimate that, upon completion of the combination, former shareholders of Inco and Falconbridge will own approximately 31% and 29%, respectively, of the outstanding common stock of the combined company. If we combine with Inco only, we estimate that, upon completion of the combination, former shareholders of Inco will own approximately 44% of the outstanding common stock of the combined company.
		We expect that, upon consummation of the combination of our company with both Inco and Falconbridge, J. Steven Whisler, the chairman and chief executive officer of Phelps Dodge, will be chairman and chief executive officer of the combined new company; Scott M. Hand, the chairman and chief executive officer of Inco, will become the vice chairman of the combined company; Timothy R. Snider, the president and chief operating officer of Phelps Dodge, will hold the same positions in the combined company; Derek Pannell, the chief executive officer of Falconbridge, will become the president of the combined company’s nickel division and will head the combined company’s nickel, zinc and aluminum operations; and Ramiro G. Peru, executive vice president and chief financial officer of Phelps Dodge, will hold the same positions in the combined company. We expect Messrs. Whisler, Snider and Peru to be based in Phoenix and Messrs. Hand and Pannell to be based in Toronto. In the event that Phelps Dodge combines with Inco only, Mr. Pannell will not be employed by the combined company, and Mr. Hand will become the president of the combined company’s nickel division.
		We expect the board of directors of the combined company to be composed of 15 members, 11 of which will be members of the current Phelps Dodge board of directors and four of which will be members of the current boards of Inco and, assuming the consummation of the Falconbridge acquisition, Falconbridge.
Q7:		Will Phelps Dodge consummate a combination with Inco if Inco fails to acquire Falconbridge?
A7:		If Inco fails to acquire Falconbridge and the support agreement has been terminated prior to the consummation of our combination with Inco, we will consummate the combination of our company with Inco only, subject to the conditions more fully discussed in this proxy statement. See “The Combination Agreement — Conditions to the Combination” beginning on page 87 of this proxy statement.
Q8:		Why does Phelps Dodge want to consummate a combination with both Inco and Falconbridge or with Inco only?
A8:		The Phelps Dodge board of directors believes that a combination of Phelps Dodge with both Inco and Falconbridge or with Inco only will create a combined company with the scope, scale and financial strength to more efficiently develop existing opportunities and assets and to capitalize

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		quickly on new growth and other opportunities within the mining industry. The Phelps Dodge board of directors believes that the combined company will be able to benefit from:
		• its position as an industry-leading, diversified metals and mining company with a portfolio of world-class assets with leading market positions in multiple commodities;
		• relatively lower cost positions in the combined company’s primary commodities, which should allow the combined company to better weather any future downturns in commodity prices;
		• enhanced growth opportunities from a broad portfolio of brownfield and greenfield growth projects, primarily in nickel, copper, molybdenum and cobalt;
		• significant synergies and cost savings;
		• greater financial strength and flexibility as a result of the combined company’s increased size, asset diversification and expected synergies

and cost savings;

		• increased market liquidity and the potential for valuation enhancement as a result of the combined company’s position as the largest mining company based in North America;
		• reduced risks associated with (i) price fluctuations for any particular commodity and (ii) production costs associated with any particular mining or production site;
		• reduced risks associated with political or economic instability or natural disasters in any particular geographical locale; and
		• a highly skilled and experienced management team.
		The Phelps Dodge board of directors’ reasons for the combination are discussed in more detail beginning on page 46 of this proxy statement under “The Combination — Phelps Dodge’s Reasons for the Combination.” Please review the disclosure under “Risk Factors” and “Forward-Looking Information” in this proxy statement for a more complete description of certain other considerations that you should consider in deciding how to vote at the special meeting.
Q9:		When do you expect the combination to close?
A9:		We expect the combination to close in September 2006, subject to the factors and conditions set forth elsewhere in this proxy statement. See “The Combination Agreement — Conditions to the Combination” and “The Combination — Regulatory Matters Related to the Combination” beginning on page 70 of this proxy statement.
Q10:		Are there risks I should consider in deciding whether to vote for the charter amendment proposals and the share issuance proposals?
A10:		Yes. The proposed combination of our company with both Inco and Falconbridge or with Inco only is subject to a number of risks and uncertainties. We may not realize the benefits we currently anticipate from the combination, including those described in the answer to Question 8 above, due to challenges associated with integrating the companies. We may fail to realize increased earnings and cost savings and enhanced growth opportunities described elsewhere in this proxy statement. Further, we may fail to successfully integrate the companies’ technologies and personnel in an efficient and effective manner. In particular, if we combine with both Inco and Falconbridge, any failure to integrate the operations, systems and personnel of Inco and Falconbridge (particularly those in Sudbury, Canada) could have a material adverse effect on our ability to realize the anticipated benefits of a combination with both Inco and Falconbridge. In addition, the combination is subject to the receipt of consents and approvals from government entities that could delay completion of the combination or impose conditions on the combined company. See “The Combination Agreement — Conditions to the Combination” beginning on page 87 of this proxy statement.

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Q11:		What vote is required to approve each proposal?
A11:		Approval of the charter amendment proposal requires: the affirmative vote of the holders of a majority of our outstanding common shares entitled to vote.
		Approval of the share issuance proposal requires: the affirmative vote of the holders of a majority of our common shares voting on the proposal, so long as the total vote cast on the proposal represents a majority of our common shares outstanding.
Q12:		How do I vote?
A12:		If you are entitled to vote at the special meeting, you can vote by proxy before the special meeting or you can vote in person by completing a ballot at the special meeting. Even if you plan to attend the special meeting, we encourage you to vote your shares by proxy as soon as possible. After carefully reading and considering the information contained in this proxy statement, please submit your proxy by telephone or Internet in accordance with the instructions set forth on the enclosed proxy card or voting instruction form, or complete, sign, date and mail the proxy card or voting instruction form, in the enclosed postage-paid envelope as soon as possible so that your shares may be voted at the special meeting. For detailed information, please see “Information About the Special Meeting — How to Vote” beginning on page 73 of this proxy statement.
Q13:		I hold my shares in “street name.” How are my shares voted?
A13:		If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial holder” of the shares held for you in what is known as “street name.” If this is the case, this proxy statement has been forwarded to you by your brokerage firm, bank or other nominee, or their agent. As the beneficial holder, you have the right to direct your broker, bank or other nominee as to how to vote your shares. If you hold your shares in “street name” and do not provide your broker, bank or other nominee with instructions on how to vote your shares, your broker, bank or other nominee will not be permitted to vote them on the charter amendment proposal or the share issuance proposal. Shares not voted in favor of the charter amendment proposal will have the effect of a vote against that proposal. You should, therefore, be sure to provide your broker, bank or other nominee with instructions on how to vote your shares. Your broker or bank may also provide telephone or Internet voting options, and you should refer to the instructions that accompanied this proxy statement.
Q14:		How many votes do I have?
A14:		You are entitled to one vote for each share of Phelps Dodge common stock that you own as of the record date. As of the close of business on June 20, 2006, there were approximately 203,921,787 outstanding shares of Phelps Dodge common stock. As of that date, less than 1% of the outstanding shares of Phelps Dodge common stock were held by the directors and executive officers of Phelps Dodge.
Q15:		What constitutes a quorum?
A15:		Holders of at least a majority of our outstanding common stock as of the close of business on the record date who are entitled to vote must be present or represented by proxy in order to constitute a quorum to conduct business at the special meeting under our corporate by-laws.
Q16:		If I participate in the Mellon Investor Services, L.L.C. Investor Services Program, how will my shares be voted?
A16:		If you participate in the Mellon Investor Services, L.L.C. Investor Services Program for Phelps Dodge shareholders, all common shares held for your account under that plan will be voted in accordance with your proxy.

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Q17:		What if I return my proxy card but do not mark it to show how I am voting?
A17:		If your proxy card is signed and returned without specifying your choices, your shares will be voted in favor of all proposals in accordance with the unanimous recommendations of the Phelps Dodge board of directors.
Q18:		Can I change my vote after I have submitted a proxy by telephone or Internet or mailed my signed proxy card?
A18:		Yes. You can change your vote by revoking your proxy at any time before it is exercised at the special meeting.
		You may revoke your proxy before it is voted at the special meeting by delivering a signed revocation letter or a new proxy, dated later than your first proxy, to Catherine R. Hardwick, Assistant General Counsel and Secretary. If your shares are held in “street name” you must contact your broker or banker for instructions if you wish to revoke your voting instructions.
Q19:		What do I need to do now?
A19:		Read and consider the information contained in this proxy statement carefully, and then please vote your shares as soon as possible so that your shares may be represented at the special meeting. Your vote is important, so please act today.
Q20:		Who should I call if I have questions about the proxy materials or voting procedures?
A20:		If you have questions or need assistance in voting your shares or you need additional copies of the proxy statement, you should contact D.F. King & Co., Inc., which is assisting us, at 1-800-659-5550 (toll free in the U.S. and Canada). Non-U.S. or -Canadian investors may contact D.F. King at +44 20 7920 9700. You may also contact your banker, broker or financial advisor for assistance.

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	•	to finance up to $7.2 billion of the cash consideration to be paid by Phelps Dodge in connection with the combination;
	•	to finance the purchase by Phelps Dodge of up to $3 billion stated principal amount of 8% convertible subordinated notes of Inco due April 1, 2012;
	•	to finance our post-combination share repurchase program, pursuant to which we intend to repurchase up to $5 billion of the common stock of Phelps Dodge, less the stated principal amount of up to $3 billion of 8% convertible subordinated notes of Inco due April 1, 2012, purchased by us, if any, from Inco;
	•	to repurchase or refinance up to $6.9 billion of Inco’s indebtedness (including indebtedness incurred in connection with the Falconbridge acquisition) and, if Inco has completed the Falconbridge acquisition, $250 million of Falconbridge’s existing indebtedness;
	•	if Inco has completed the Falconbridge acquisition, to purchase or repurchase up to $600 million in liquidation amount of existing preference shares of Falconbridge;

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	•	to refinance liabilities outstanding under our existing revolving credit agreement; and
	•	to finance transaction expenses related to the combination.

	•	its position as an industry-leading, diversified metals and mining company with a portfolio of world-class assets with leading market positions in multiple commodities;
	•	relatively lower cost positions in the combined company’s primary commodities, which should allow the combined company to better weather any future downturns in commodity prices;

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	•	enhanced growth opportunities from a broad portfolio of brownfield and greenfield growth projects, primarily in nickel, copper, molybdenum and cobalt;
	•	significant synergies and cost savings;
	•	greater financial strength and flexibility as a result of the combined company’s increased size, asset diversification and expected synergies and cost savings;
	•	increased market liquidity and the potential for valuation enhancement as a result of the combined company’s position as the largest mining company based in North America;
	•	reduced risks associated with (i) price fluctuations for any particular commodity and (ii) production costs associated with any particular mining or production site;
	•	reduced risks associated with political or economic instability or natural disasters in any particular geographical locale; and
	•	a highly skilled and experienced management team.

The Phelps Dodge board of directors’ reasons for the combination are discussed in more detail beginning on page 46 of this proxy statement under “The Combination — Phelps Dodge’s Reasons for the Combination.” Please review the disclosure under “Risk Factors” and “Forward-Looking Information” in this proxy statement for a more complete description of certain other considerations that you should consider in deciding how to vote at the special meeting.

	•	the charter amendment proposal;
	•	the share issuance proposal; and
	•	the combination,

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	•	approval of the charter amendment proposal and the share issuance proposal by Phelps Dodge’s shareholders;
	•	approval of the Plan of Arrangement by Inco’s shareholders;
	•	receipt of an interim order and a final order approving the Plan of Arrangement from the Superior Court of Justice (Ontario) in form and terms reasonably satisfactory to Phelps Dodge and Inco, and those orders having not been set aside or modified in a manner unacceptable to Phelps Dodge and Inco;
	•	receipt of the Competition Act Approval and the Investment Canada Act Approval;
	•	expiration or termination of the waiting period under the HSR Act;
	•	expiration or termination of the waiting period under the Council Regulation;
	•	receipt of approval from the New York Stock Exchange and the Toronto Stock Exchange for the listing, subject to notice of issuance, of the shares of Phelps Dodge common stock to be issued to Inco shareholders;
	•	amendment and restatement of Phelps Dodge’s restated certificate of incorporation and by-laws in accordance with the applicable charter amendment proposal;
	•	either (i) Inco has completed the Falconbridge acquisition prior to the consummation of our combination with Inco or (ii) the support agreement has been terminated; and
	•	absence of any injunction, orders or laws restraining or enjoining or making illegal the combination.

	•	accuracy of the representations and warranties of the other party, except as would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on such party;
	•	performance in all material respects by the other party of its pre-closing obligations under the combination agreement; and

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	•	absence of any events or changes which, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on the other party.

	•	by mutual written consent duly authorized by the boards of directors of Phelps Dodge and Inco; or
	•	by either Inco or Phelps Dodge, if:

	•	the arrangement shall not have been consummated by March 31, 2007, subject to specified exceptions;
	•	any law is passed that makes the combination illegal or otherwise prohibited or a governmental authority in the United States or Canada issues a final, non-appealable order restraining, enjoining or otherwise prohibiting consummation of the combination;
	•	Inco shareholders fail to approve the arrangement or the Phelps Dodge shareholders fail to approve the charter amendment proposal and the share issuance proposal;
	•	the other party cannot satisfy the conditions related to its representations, warranties, covenants and agreements in the combination agreement on or before March 31, 2007; or
	•	the board of directors of the other party withdraws, modifies or qualifies its recommendation in favor of the transactions contemplated by the combination agreement.

	•	If the combination agreement is terminated by either party in specified circumstances, either Phelps Dodge or Inco may be required to pay to the other party expenses incurred by the other party in connection with the combination transaction up to $40 million provided that, if a third-party acquisition proposal had been made in relation to the party obligated to pay expenses prior to termination and, within 12 months after termination, that party consummates any merger, combination or similar transaction pursuant to which a person or group acting in concert acquires a majority of such party’s shares (aggregated with such person’s or group’s other holdings), such party, if Phelps Dodge, will owe a termination fee of $500 million to Inco or, if Inco, will owe a termination fee of $475 million to Phelps Dodge and, from and after the date that Inco has

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		acquired at least two-thirds of the common shares of Falconbridge, an additional $450 million (for a total of $925 million), in all cases less any amounts previously paid.
	•	Inco will owe to Phelps Dodge a termination fee of $475 million if Inco or Phelps Dodge terminates the agreement due to a withdrawal, modification or qualification by Inco’s board of directors of its recommendation in favor of the transactions contemplated by the combination agreement (other than as a result of the occurrence of a material adverse effect with respect to Phelps Dodge); provided that Inco will owe to Phelps Dodge an additional $450 million (for a total of $925 million) from and after the date that Inco acquires at least two-thirds of the outstanding common shares of Falconbridge;
	•	Inco will owe to Phelps Dodge a termination fee of $475 million if Inco terminates the combination agreement to accept a superior proposal; provided that Inco will owe to Phelps Dodge an additional $450 million (for a total of $925 million) from and after the date that Inco acquires at least two-thirds of the outstanding common shares of Falconbridge;
	•	Inco will owe to Phelps Dodge a termination fee of $125 million if the combination agreement is terminated by either Phelps Dodge or Inco if (i) the arrangement has not been consummated by March 31, 2007, and between the date of the combination agreement and the termination of the combination agreement, an alternate business combination involving Inco and not involving Phelps Dodge has been publicly announced or otherwise communicated to the shareholders of Inco or (ii) Inco’s shareholders fail to approve the arrangement upon a vote taken thereon at the duly convened meeting of Inco shareholders or at any adjournment or postponement thereof; provided that, in each case, if within 12 months after termination, Inco consummates any merger, combination or similar transaction pursuant to which a person or group acting in concert acquires a majority of Inco shares (aggregated with such person’s or group’s other holdings), Inco will owe to Phelps Dodge $475 million and, from and after the date that Inco has acquired at least two-thirds of the common shares of Falconbridge, an additional $450 million (for a total of $925 million), less any amounts previously paid;
	•	Phelps Dodge will owe to Inco a termination fee of $500 million if Inco terminates the combination agreement due to a withdrawal, modification or qualification by Phelps Dodge’s board of directors of its recommendation in favor of the transactions contemplated by the combination agreement (other than as a result of the occurrence of a material adverse affect with respect to Inco);
	•	Phelps Dodge will owe to Inco a termination fee of $125 million if the combination agreement is terminated by either Phelps Dodge or Inco if (i) the arrangement has not been consummated by March 31, 2007, and between the date of the combination agreement and the termination of the combination agreement, an alternate business combination involving Phelps Dodge and not involving Inco has been publicly announced or otherwise communicated to the shareholders of Phelps Dodge or (ii) Phelps Dodge’s shareholders fail to approve the charter amendment proposal and share issuance proposal upon a vote taken thereon at the duly convened meeting of Phelps Dodge’s shareholders or at any adjournment or postponement thereof; provided that, in each case, if within 12 months after termination, Phelps Dodge consummates any merger, combination or similar transaction pursuant to which a person or group acting in concert acquires a majority of Phelps Dodge common stock (aggregated with such person’s or group’s other holdings), Phelps Dodge will owe to Inco $500 million, less any amounts previously paid.

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		At or for the
		Three Months
		Ended March 31,*								Year Ended December 31,*
		2006(a)				2005(b)				2005(c)				2004(d)				2003(e)				2002(f)				2001(g)
		($ in millions, except per share amounts)
Statement of Operations Data
Sales and other operating revenues		$	2,224.6				1,886.5				8,287.1				6,415.2				3,498.5				3,173.2				3,420.4
Operating income (loss)		$	574.2				535.8				1,764.9				1,474.9				142.8				(257.4	)			(90.6	)
Income (loss) from continuing operations before extraordinary item and cumulative effect of accounting changes		$	350.7				377.4				1,583.9				1,023.6				(21.1	)			(356.5	)			(377.7	)
Income (loss) from discontinued operations, net of taxes**		$	(16.9	)			9.3				(17.4	)			22.7				39.2				41.3				48.2
Income (loss) before extraordinary item and cumulative effect of accounting changes		$	333.8				386.7				1,566.5				1,046.3				18.1				(315.2	)			(329.5	)
Net income (loss)		$	333.8				386.7				1,556.4				1,046.3				94.8				(338.1	)			(331.5	)
Basic earnings (loss) per common share from continuing operations***		$	1.73				1.95				8.06				5.41				(0.19	)			(2.17	)			(2.41	)
Diluted earnings (loss) per common share from continuing operations***		$	1.72				1.87				7.82				5.18				(0.19	)			(2.17	)			(2.41	)
Basic earnings (loss) per common share from discontinued operations, extraordinary item and cumulative effect of accounting changes***		$	(0.08	)			0.05				(0.14	)			0.12				0.65				0.11				0.30
Diluted earnings (loss) per common share from discontinued operations, extraordinary item and cumulative effect of accounting changes***		$	(0.08	)			0.05				(0.13	)			0.11				0.65				0.11				0.30
Basic earnings (loss) per common share***		$	1.65				2.00				7.92				5.53				0.46				(2.06	)			(2.11	)
Diluted earnings (loss) per common share***		$	1.64				1.92				7.69				5.29				0.46				(2.06	)			(2.11	)

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			At or for the
			Three Months
			Ended March 31,*								Year Ended December 31,*
			2006(a)				2005(b)				2005(c)				2004(d)				2003(e)				2002(f)				2001(g)
			($ in millions, except per share amounts)
Balance Sheet Data (at period end)
Cash (including restricted cash)			$	2,163.0				1,398.0				1,937.5				1,200.1				683.8				349.8				386.9
Current assets (including cash)			$	4,192.7				3,118.9				4,070.7				2,661.7				1,790.0				1,428.2				1,531.2
Total assets			$	10,555.3				9,023.2				10,358.0				8,594.1				7,272.9				7,029.0				7,584.3
Total debt			$	704.4				1,046.8				694.5				1,096.9				1,959.0				2,110.6				2,871.6
Long-term debt			$	674.8				970.7				677.7				972.2				1,703.9				1,948.4				2,538.3
Shareholders’ equity			$	5,584.4				4,752.5				5,601.6				4,343.1				3,063.8				2,813.6				2,730.1
Cash dividends declared per common share****			$	2.1875				0.125				3.125				0.25				—				—				0.375
Other Data
Net cash provided by operating activities			$	533.3				316.1				1,769.7				1,700.1				461.6				359.1				310.7
Capital expenditures and investments in subsidiaries, net of cash received and acquired			$	291.7				68.3				698.2				317.3				102.4				133.2				311.0
Net cash provided by (used in) investing activities			$	117.8				(71.1	)			(368.0	)			(291.0	)			(87.7	)			(140.3	)			(266.8	)
Net cash provided by (used in) financing activities			$	(424.6	)			(45.1	)			(685.8	)			(947.2	)			(48.8	)			(244.8	)			101.0
Division Results
Phelps Dodge Mining Company operating income (loss)			$	606.6				550.4				1,929.9				1,606.7				265.2				(65.0	)			(83.6	)
Phelps Dodge Industries operating income (loss)				5.3				12.0				14.6				18.8				13.7				(17.5	)			12.2
Corporate and other operating loss				(37.7	)			(26.6	)			(179.6	)			(150.6	)			(136.1	)			(174.9	)			(19.2	)
			$	574.2				535.8				1,764.9				1,474.9				142.8				(257.4	)			(90.6	)
Copper
Copper production (consolidated basis — thousand tons)				304.2				311.2				1,228.0				1,260.6				1,242.3				1,213.7				1,352.1
Copper production (pro rata basis — thousand tons)				251.2				267.7				1,042.3				1,081.7				1,042.5				1,012.1				1,145.2
Copper sales from own mines (consolidated basis — thousand tons)				304.5				311.2				1,238.4				1,268.9				1,254.1				1,239.0				1,367.4
Copper sales from own mines (pro rata basis — thousand tons)				254.0				267.4				1,051.6				1,089.1				1,052.6				1,034.5				1,156.0
COMEX copper price (per pound)(h)			$	2.25				1.47				1.68				1.29				0.81				0.72				0.73
LME copper price (per pound)(i)			$	2.24				1.48				1.67				1.30				0.81				0.71				0.72
Commercially recoverable copper (pro rata basis — million tons):
	Ore reserves(j)			N/A				N/A				17.7				23.2				19.5				19.6				22.1
	Stockpiles and in-process inventories			1.5				1.6				1.5				1.6				1.6				1.4				0.9
												19.2				24.8				21.1				21.0				23.0

	*	2005 and 2004 reflected full consolidation of El Abra and Candelaria; prior to 2004, El Abra and Candelaria are reflected on a pro rata basis (51 percent and 80 percent, respectively).

	**	As a result of the Company’s agreement to sell Columbian Chemicals Company (Columbian), previously disclosed as our Specialty Chemicals segment, the operating results for Columbian have been reported separately from continuing operations and shown as discontinued operations for all periods presented in the statement of operations data.

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***	Basic and diluted earnings per common share have been adjusted to reflect the March 10, 2006, two-for-one stock split for all periods presented.

****	All periods presented reflect post-split cash dividends per common share.

(a)		Reported amounts for the first three months of 2006 included after-tax, net special charges of $28.8 million, or 14 cents per common share, for additional charges associated with discontinued operations in connection with the sale of Columbian Chemicals Company, which included transaction and employee-related costs of $14.7 million, or 7 cents per common share, and a loss on the disposal of $14.1 million, or 7 cents per common share; $6.7 million, or 3 cents per common share, for environmental provisions; $4.9 million, or 3 cents per common share, from the sale of Phelps Dodge’s High Performance Conductors of SC & GA, Inc., which included transaction and employee-related costs of $2.7 million, or 2 cents per common share, and a loss on the disposal of $2.2 million, or 1 cent per common share; $4.7 million, or 2 cents per common share, for additional charges associated with the completion of the sale of substantially all of Phelps Dodge’s North American magnet wire assets, which included transaction and employee-related costs of $3.6 million, or 2 cents per common share, and a loss on the disposal of $1.1 million; and $0.2 million for historical legal matters; partially offset by $0.4 million for the sale of non-core real estate.
(b)		Reported amounts for the first three months of 2005 included after-tax, net special gains of $4.5 million, or 2 cents per common share, for legal matters; and $0.8 million for Phelps Dodge’s magnet wire restructuring activities; partially offset by net special charges of $3.3 million, or 1 cent per common share, for environmental provisions; and $1.9 million, or 1 cent per common share, for foreign dividend taxes.
(c)		Reported amounts for 2005 included after-tax, net special charges of $331.8 million, or $3.28 per common share, for asset impairment charges; tax expense of $88.1 million, or 87 cents per common share, for foreign dividend taxes; $86.4 million, or 85 cents per common share, for environmental provisions; $42.6 million, or 42 cents per common share, for charges associated with discontinued operations in connection with the pending sale of Columbian; $41.3 million, or 41 cents per common share, for early debt extinguishment costs; $34.5 million (net of minority interest), or 35 cents per common share, for tax on unremitted foreign earnings; $23.6 million, or 23 cents per common share, for a tax charge associated with minimum pension liability reversal; $10.1 million, or 10 cents per common share, for cumulative effect of accounting change; $5.9 million, or 6 cents per common share, for transaction and employee-related costs associated with the sale of North American magnet wire assets; partially offset by special gains of $388.0 million, or $3.83 per common share, for sale of a cost-basis investment; $181.7 million, or $1.80 per common share, for change-of-interest gains at Cerro Verde and Ojos del Salado; $15.6 million, or 16 cents per common share, for legal matters; $11.9 million, or 12 cents per common share, for the reversal of PD Brazil deferred tax asset valuation allowance; $8.5 million, or 8 cents per common share, for the sale of non-core real estate; $4.0 million, or 4 cents per common share, for the reversal of U.S. deferred tax asset valuation allowance; $0.4 million, or 1 cent per common share, for environmental insurance recoveries; and $0.1 million for Magnet Wire restructuring activities. The after-tax, net special charges of $42.6 million associated with discontinued operations consisted of $67.0 million (net of minority interests), or 66 cents per common share, for a goodwill impairment charge; taxes of $7.6 million, or 8 cents per common share, associated with the sale and dividends paid in 2005; and $5.0 million, or 5 cents per common share, for a loss on disposal of Columbian associated with transaction and employee-related costs; partially offset by a deferred income tax benefit of $37.0 million, or 37 cents per common share.
(d)		Reported amounts for 2004 included after-tax, net special charges of $44.7 million, or 45 cents per common share, for environmental provisions; $30.9 million (net of minority interests), or 31 cents per common share, for early debt extinguishment costs; $9.9 million, or 10 cents per common share, for the write-down of two cost-basis investments; $9.6 million, or 10 cents per common share, for taxes on anticipated foreign dividends; $9.0 million, or 9 cents per common share, for a deferred tax asset valuation allowance at our Brazilian wire and cable operation; $7.6 million, or 8 cents per common share, for Magnet Wire restructuring activities; $5.9 million, or 6 cents per common share, for asset impairments (included $4.5 million, or 4 cents per common share, for discontinued

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		operations); and $0.7 million, or 1 cent per common share, for interest on a Texas franchise tax matter; partially offset by special gains of $30.0 million, or 31 cents per common share, for the reversal of a U.S. deferred tax asset valuation allowance; $15.7 million (net of minority interest), or 16 cents per common share, for the reversal of an El Abra deferred tax asset valuation allowance; $10.1 million, or 10 cents per common share, for the gain on the sale of uranium royalty rights; $7.4 million, or 7 cents per common share, for environmental insurance recoveries; and $4.7 million, or 5 cents per common share, for the settlement of historical legal matters.
(e)		Reported amounts for 2003 included after-tax, net special gains of $2.4 million, or 3 cents per common share, for the termination of a foreign postretirement benefit plan associated with discontinued operations; $0.5 million, or 1 cent per common share, for environmental insurance recoveries; $0.2 million for the reassessment of prior restructuring programs; $6.4 million, or 7 cents per common share, on the sale of a cost-basis investment; $8.4 million, or 9 cents per common share, for cumulative effect of an accounting change; $1.0 million, or 1 cent per common share, for the tax benefit relating to additional 2001 net operating loss carryback; and an extraordinary gain of $68.3 million, or 76 cents per common share, on the acquisition of our partner’s one-third interest in Chino Mines Company; partially offset by charges of $27.0 million, or 30 cents per common share, for environmental provisions (included a gain of $0.5 million, or 1 cent per common share, for discontinued operations); $8.0 million, or 9 cents per common share, for a probable Texas franchise tax matter; $2.9 million, or 3 cents per common share, for the settlement of historical legal matters; and $2.6 million, or 3 cents per common share, for asset and goodwill impairments.
(f)		Reported amounts for 2002 included after-tax, net special charges of $153.5 million, or $1.82 per common share, for Phelps Dodge Mining Company asset impairment charges and closure provisions; $53.0 million, or 63 cents per common share, for historical lawsuit settlements; $45.0 million, or 54 cents per common share, for a historical arbitration award; $26.6 million, or 32 cents per common share, for early debt extinguishment costs; $23.0 million, or 27 cents per common share, for Phelps Dodge Industries restructuring activities; $22.9 million, or 27 cents per common share, for cumulative effect of an accounting change; $14.0 million, or 17 cents per common share, for environmental provisions (included a gain of $0.6 million, or 1 cent per common share, for discontinued operations); $1.2 million, or 1 cent per common share, for the write-off of two cost-basis investments; $1.0 million, or 1 cent per common share, for the settlement of legal matters; and $0.5 million, or 1 cent per common share, for the reassessment and additional retirement benefits in connection with prior restructuring programs; partially offset by special gains of $29.1 million, or 35 cents per common share, for environmental insurance recoveries; $22.6 million, or 27 cents per common share, for the gain on the sale of a non-core parcel of real estate; $13.0 million, or 15 cents per common share, for the release of deferred taxes previously provided with regard to Plateau Mining Corporation; and $66.6 million, or 79 cents per common share, for the tax benefit relating to the net operating loss carryback prior to 2002 resulting from a change in U.S. tax legislation; and $0.5 million, or 1 cent per common share, associated with discontinued operations for the reassessment of a prior restructuring program.
(g)		Reported amounts for 2001 included after-tax, net special gains of $61.8 million, or 79 cents per common share, for environmental insurance recoveries; $39.9 million, or 51 cents per common share, for the gain on the sale of Sossego; $9.0 million, or 11 cents per common share, for an insurance settlement for potential future legal matters; offset by special charges of $57.9 million, or 74 cents per common share, to provide a deferred tax valuation allowance; $31.1 million, or 40 cents per common share, for environmental provisions (included $1.4 million, or 2 cents per common share, for discontinued operations); $29.8 million, or 38 cents per common share, for restructuring activities; $12.9 million, or 16 cents per common share, for investment impairments; $2.0 million, or 3 cents per common share, for cumulative effect of an accounting change; and $3.4 million, or 4 cents per common share, for other items, net.
(h)		New York Commodity Exchange annual average spot price per pound — cathodes.
(i)		London Metal Exchange annual average spot price per pound — cathodes.
(j)		Ore reserves are calculated on an annual basis.

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	•	to finance up to $7.2 billion of the cash consideration to be paid by us in connection with the combination;
	•	to finance the purchase by Phelps Dodge of up to $3 billion stated principal amount of 8% convertible subordinated notes of Inco due April 1, 2012;
	•	to finance our post-combination share repurchase program, pursuant to which we intend to repurchase up to $5 billion of our common stock, less the stated principal amount of up to $3 billion of 8% convertible subordinated notes of Inco due April 1, 2012, purchased by us, if any, from Inco;
	•	to repurchase or refinance up to $6.9 billion of Inco’s indebtedness (including indebtedness incurred in connection with the Falconbridge acquisition) and, if Inco has completed the Falconbridge acquisition, $250 million of Falconbridge’s existing indebtedness;
	•	if Inco has completed the Falconbridge acquisition, to purchase or repurchase up to $600 million in liquidation amount of Falconbridge’s existing preference shares;
	•	to refinance liabilities outstanding under our existing revolving credit agreement; and
	•	to fund transaction expenses related to the combination which we estimate will be approximately $400 million.

	•	an $8.5 billion unsecured 12-month multiple draw term loan facility. The facility will mature at the earlier of (i) the first anniversary of the closing date under the facility and (ii) March 31, 2008, and have an interest rate of, at the borrower’s option, a base rate established by Citibank or LIBOR plus a margin, subject to the combined company’s long-term senior unsecured debt rating. However, if Inco has not completed the Falconbridge acquisition prior to the combination of Phelps Dodge with Inco, then the amount of the facility will become $3 billion;
	•	a $5.0 billion unsecured three-year multiple draw term loan facility. The facility will include a $2 billion tranche that can be drawn by Phelps Dodge prior to the closing of our combination with Inco. It will mature on the date that is three years after the date on or prior to September 30, 2006, on which the facility becomes effective and have an interest rate of, at the borrower’s option, a base rate established by Citibank or LIBOR plus a margin, subject to the combined company’s long-term senior unsecured debt rating. However, if Inco has not completed the Falconbridge acquisition prior to the combination of Phelps Dodge with Inco, then the facility will not be available for further drawings;
	•	a $5.0 billion unsecured five-year term loan facility. The facility will mature on the date which is five years and one day after the date of funding under the facility and will be payable in quarterly installments on an amortizing basis requiring 0%, 5%, 5% and 15% of the indebtedness under the facility to be repaid in the first, second, third and fourth year, respectively, following the funding date with the balance payable on the maturity date. However, if Inco has not acquired Falconbridge prior to the combination of Phelps Dodge with Inco, then the facility will become a multi-draw facility with $3 billion available for drawings by Phelps Dodge and $2 billion available for drawings by Phelps Dodge Canada, and the facility will be payable in quarterly installments on an amortizing

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		basis requiring 0%, 0%, 10%, 15% and 75% of the indebtedness under the facility to be repaid in the first, second, third, fourth and fifth year, respectively, following the funding date with the balance payable on the maturity date. The facility will have an interest rate of, at the borrower’s option, a base rate established by Citibank or LIBOR plus a margin, subject to the combined company’s long-term senior unsecured debt rating;
	•	a $1.0 billion five-year unsecured revolving credit facility. The facility will terminate on the fifth anniversary after the closing date and have an interest rate of, at the borrower’s option, (i) for U.S.$ loans, a base rate established by Citibank or LIBOR plus a margin and (ii) for Cdn.$ loans, a bankers acceptance discount rate plus a margin, in each case, subject to the combined company’s long-term senior unsecured debt rating. However, if Inco has not completed the Falconbridge acquisition prior to the combination of Phelps Dodge with Inco, then the amount of the facility will be reduced to $750 million; and
	•	a $1.1 billion five-year unsecured revolving credit facility. The facility will terminate on the fifth anniversary after the closing date and have an interest rate of, at the borrower’s option, a base rate established by Citibank or LIBOR plus a margin, subject, in each case, to the combined company’s long-term senior unsecured debt rating.

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	Combination of Phelps Dodge with Both Inco and Falconbridge:

	Global Industry Leader with High-Quality, Long-Lived Assets

	•	the world’s largest nickel producer at 738 million pounds;
	•	the world’s largest publicly traded copper corporation at 3.4 billion pounds;
	•	the world’s second-largest producer of molybdenum at 68 million pounds; and
	•	the world’s third-largest cobalt producer at 14 million pounds.

	Commodity and Asset Diversification

	•	With its leading positions in nickel, copper, molybdenum and cobalt, the combined company should benefit from significantly enhanced commodity diversification.
	•	The board believes that Inco and Falconbridge have relatively low cost positions in their respective commodities, which the board believes will allow the combined company to better weather any future downturns in commodity prices.
	•	Based on 2005 revenue figures, approximately 53%, 28% and 9% of the combined company’s revenue would be derived from copper, nickel and molybdenum, respectively. Phelps Dodge currently derives approximately 77% of its revenues from copper production.
	•	The board believes that the combined company’s numerous mines will reduce production disruption risks.

	Low Political Risk

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	•	Based on 2005 revenue, approximately 62% of the combined company’s revenue would derive from operations in North America and Europe.
	•	An additional 21% would be derived from operations in Latin America (primarily Chile).

	Greater Opportunities for Growth

	Synergies and Cost Savings

	•	synergies in connection with the integration of Inco’s and Falconbridge’s operations, including their nickel operations in the Sudbury Basin, Canada;
	•	benefits from exploration synergies resulting from prioritizing exploration efforts, including prioritizing and reducing overall exploration spending;
	•	general and administrative savings resulting from consolidating various functions and eliminating duplicative activities and costs, including establishing one corporate headquarters in Phoenix, Arizona and the head of the combined company’s nickel operations in Toronto, Canada; and
	•	benefits from general operating improvements and from economies of scale in purchasing, operating supplies and capital equipment and technology management.

	Greater Financial Strength

	•	the company’s expectation that the transaction will be immediately accretive to cash flow;
	•	the company’s expectation that the transaction will be accretive to earnings per share beginning in 2008;
	•	greater ability to fund future acquisitions and capital return programs; and
	•	the company’s expectation that the diversification in its asset base and lower relative cost position, together with its greater size, will result in improvements in its overall cost of capital.

	Increased Market Liquidity

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	Experienced Management

	Other Factors Considered by the Phelps Dodge Board of Directors

	•	the information concerning Phelps Dodge’s, Inco’s and Falconbridge’s respective historical businesses and financial results and prospects, including the results of Phelps Dodge’s due diligence investigation of both Inco and Falconbridge;
	•	Phelps Dodge management’s assessment that it can, working with Inco’s and Falconbridge’s managers and employees, effectively and efficiently integrate the three companies; and
	•	the opinions of Phelps Dodge’s financial advisors, Citigroup and HSBC, that, as of June 25, 2006, and based on and subject to the factors, assumptions, procedures, limitations and considerations in their respective opinions, the Combination Consideration was fair, from a financial point of view, to Phelps Dodge. The full text of the written opinions of Citigroup and HSBC, each dated June 25, 2006, are attached as Annexes C and D to this proxy statement and set forth assumptions made, general procedures followed, factors considered and limitations and qualifications on the review undertaken by each of Citigroup and HSBC in connection with their respective opinions.

	Potential Risks Considered by the Phelps Dodge Board of Directors

	•	The risks of integrating the operations of businesses the size of Phelps Dodge, Inco and Falconbridge, including that integration costs may be greater, and that cost savings, growth prospects and other synergies may be lower, than anticipated by Phelps Dodge’s board of directors.
	•	The risk that regulatory agencies may not approve the combination or may impose terms and conditions on their approvals that adversely affect the projected financial results of the combined company.
	•	Risks, associated with the combined company’s greater indebtedness when compared with Phelps Dodge’s, Inco’s and Falconbridge’s outstanding pre-combination total indebtedness.
	•	Other risks discussed more fully in “Risk Factors” beginning on page 31 of this proxy statement.

	Combination of Phelps Dodge with Inco Only:

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	Global Industry Leader With High-Quality, Long-Lived Assets

	•	the world’s second-largest nickel producer at 487 million pounds;
	•	the world’s second-largest publicly traded copper corporation at 2.4 billion pounds;
	•	the world’s second-largest producer of molybdenum at 62 million pounds; and
	•	a major cobalt producer at 4 million pounds.

	Commodity and Asset Diversification

	•	With its leading positions in nickel, copper, molybdenum and cobalt, the combined company should benefit from significantly enhanced commodity diversification.
	•	The board believes that Inco has relatively low cost positions in its commodities, which the board believes will allow the combined company to better weather any future downturns in commodity prices.
	•	Based on 2005 revenue figures, approximately 53%, 29% and 15% of the combined company’s revenue would be derived from copper, nickel and molybdenum, respectively. Phelps Dodge currently derives approximately 77% of its revenues from copper production.
	•	The board believes that the combined company’s numerous mines will reduce production disruption risks.

	Low Political Risk

	•	Based on 2005 revenue, approximately 64% of the combined company’s revenue would derive from operations in North America and Europe.
	•	An additional 17% would be derived from operations in Latin America (primarily Chile).

	Greater Opportunities for Growth

	Synergies and Cost Savings

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	•	benefits from exploration synergies resulting from prioritizing exploration efforts, including prioritizing and reducing overall exploration spending;
	•	general and administrative savings resulting from consolidating various functions and eliminating duplicative activities and costs, including establishing one corporate headquarters in Phoenix, Arizona and the head of the combined company’s nickel operations in Toronto, Canada; and
	•	benefits from general operating improvements and from economies of scale in purchasing, operating supplies and capital equipment and technology management.

	Greater Financial Strength

	•	the company’s expectation that the transaction will be immediately accretive to cash flow;
	•	the company’s expectation that the transaction will be accretive to earnings per share beginning in 2008;
	•	greater ability to fund future acquisitions and capital return programs; and
	•	the company’s expectation that the diversification in its asset base and lower relative cost position, together with its greater size, will result in improvements in its overall cost of capital.

	Increased Market Liquidity

	Experienced Management

	Other Factors Considered by the Phelps Dodge Board of Directors

	•	the information concerning Phelps Dodge’s and Inco’s respective historical businesses and financial results and prospects, including the results of Phelps Dodge’s due diligence investigation of Inco;

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	•	Phelps Dodge’s management’s assessment that it can, working with Inco’s managers and employees, effectively and efficiently integrate the two companies; and
	•	the opinions of Phelps Dodge’s financial advisors, Citigroup and HSBC, that, as of June 25, 2006, and based on and subject to the factors, assumptions procedures, limitations and considerations in their respective opinions, the Combination Consideration was fair, from a financial point of view, to Phelps Dodge. The full text of the written opinions of Citigroup and HSBC, each dated June 25, 2006, are attached as Annexes C and D to this proxy statement and set forth assumptions made, general procedures followed, factors considered and limitations and qualifications on the review undertaken by each of Citigroup and HSBC in connection with their respective opinions.

	Potential Risks Considered by the Phelps Dodge Board of Directors

	•	The risks of integrating the operations of businesses the size of Phelps Dodge and Inco, including that integration costs may be greater, and that cost savings, growth prospects and other synergies may be lower, than anticipated by Phelps Dodge’s board of directors.
	•	The risk that regulatory agencies may not approve the combination or may impose terms and conditions on their approvals that adversely affect the projected financial results of the combined company.
	•	Risks, associated with the combined company’s greater indebtedness when compared to Phelps Dodge’s and Inco’s outstanding pre-combination total indebtedness.
	•	Other risks discussed more fully under “Risk Factors” beginning on page 31 of this proxy statement.

	1. the proposed amendment to and restatement of our restated certificate of incorporation, which we refer to as the charter amendment proposal, to (i) change the company’s name to Phelps Dodge Inco Corporation from Phelps Dodge Corporation, (ii) increase the number of authorized shares of Phelps Dodge common stock from 300 million shares to 1.5 billion shares and (iii) increase the maximum number of members of Phelps Dodge’s board of directors from 12 to 15; and
	2. the proposed issuance of Phelps Dodge common stock, which we refer to as the share issuance proposal, to finance the combination of Phelps Dodge with Inco and Falconbridge or with Inco only.

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	(i) reviewed certain publicly available financial statements and other business and financial information relating to Phelps Dodge, Inco and Falconbridge;
	(ii) reviewed certain internal financial forecasts and other information and data relating to Phelps Dodge, Inco and Falconbridge which were provided to or discussed with it by the respective managements of Phelps Dodge and Inco, including information relating to the potential strategic implications and operational benefits (including the amount, timing and achievability thereof) anticipated by the managements of Phelps Dodge, Inco and Falconbridge to result from the Three- Way Business Combination and Two-Way Business Combination, which financial projections included financial projections prepared by the management of Phelps Dodge assuming the Three-Way Business Combination or, in the alternative, the Two-Way Business Combination;

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	(iii) discussed with certain senior officers, directors and other representatives and advisors of Phelps Dodge, certain senior officers and other representatives and advisors of Inco and certain representatives and advisors of Falconbridge concerning, as may be applicable, the businesses, financial condition, operations and prospects of Phelps Dodge, Inco and Falconbridge;
	(iv) discussed the strategic rationale for, and potential benefits of, the Three-Way Business Combination and the Two-Way Business Combination with certain senior officers, directors and other representatives and advisors of Phelps Dodge and certain senior officers and other representatives and advisors of Inco;
	(v) reviewed the financial terms of the arrangement as set forth in the combination agreement in relation to, among other things: current and historical market prices and trading volumes of Phelps Dodge common stock and Inco common shares; the historical and projected earnings and other operating data of Phelps Dodge and Inco; and the capitalization and financial condition of Phelps Dodge and Inco;
	(vi) evaluated certain potential pro forma financial effects of the arrangement on Phelps Dodge;
	(vii) considered, to the extent publicly available, the financial terms of certain other transactions which it considered relevant in evaluating the arrangement and analyzed certain financial, stock market and other publicly available information relating to the businesses of other companies whose operations it considered relevant in evaluating those of Phelps Dodge, Inco and Falconbridge;
	(viii) participated in discussions and negotiations among representatives of Phelps Dodge, Inco and their respective financial and legal advisors; and
	(ix) reviewed the combination agreement, the support agreement and certain related documents.

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	•	consideration in the form of approximately 22% cash and 78% Phelps Dodge common stock (as of June 23, 2006);
	•	the fixed exchange ratio of 0.672x (Phelps Dodge share per Inco share);
	•	the implied offer value of Cdn.$80.13 (US$71.32) per share (based on the closing price of the common stock of Phelps Dodge of $82.95 and an US$/Cdn.$ exchange rate of 0.89, each on June 23, 2006);
	•	a premium of 22.8% (based on the closing price of Inco’s common shares of Cdn.$65.25 on June 23, 2006); and
	•	Phelps Dodge announcement of a share repurchase plan of up to $5 billion post-closing, less the stated principal amount of up to $3.0 billion of 8% convertible subordinated notes of Inco due April 1, 2012 purchased by us, if any, from Inco.

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										Phelps Dodge/ Inco
		Inco at				Falconbridge at				Post-Falconbridge
June 23, 2006		Offer Price:				Offer Price:				at Offer Price:
EV/2006E EBITDA(1)			5.1	x			4.7	x			4.9x
EV/2007E EBITDA(1)			5.5	x			5.6	x			5.5x
Premium to(2):
1 day (based on Inco’s common shares of Cdn.$65.25 and Falconbridge’s common shares of Cdn.$55.50 on June 23, 2006)			22.8	%			11.9	%			N/A
10 day average			22.4	%			13.4	%			N/A
30 day average			17.0	%			13.0	%			N/A
60 day average			13.4	%			16.6	%			N/A
90 day average			16.9	%			20.7	%			N/A
180 day average			26.7	%			34.7	%			N/A
52 week high			2.1	%			9.5	%			N/A
52 week low			76.0	%			199.1	%			N/A

	(1)	Earnings before interest, taxes, depreciation and amortization (EBITDA) for Inco and Falconbridge based on Phelps Dodge management base case estimates, excluding synergies.
	(2)	Average prices weighted by volumes.

	Pro Forma Merger Analysis.

		2006E				2007E				2008E
Management Base Case		$	2.85			$	2.25			$	1.75
Management Upside Case		$	3.50			$	3.00			$	2.50
Management Downside Case		$	2.25			$	1.25			$	0.75
Street Case(1)		$	2.80			$	2.49			$	2.12

	(1)	Street Case was based on the average of publicly available equity research estimates published from April 11, 2006, through June 19, 2006, for 10 commodities, including copper, nickel, molybdenum, zinc, aluminum, cobalt, silver, gold, platinum and palladium. The price estimates for copper were based on the average of up to 24 equity research estimates.

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		2006E				2007E				2008E
Management Base Case		$	8.25			$	7.60			$	6.20
Management Upside Case		$	9.30			$	10.00			$	8.20
Management Downside Case		$	7.00			$	5.85			$	3.50
Street Case(1)		$	7.81			$	7.16			$	6.10

(1)	Street Case was based on the average of publicly available equity research estimates published from April 11, 2006, through June 19, 2006, for 10 commodities, including copper, nickel, molybdenum, zinc, aluminum, cobalt, silver, gold, platinum and palladium. The price estimates for nickel were based on the average of up to 20 equity research estimates.

	•	September 30, 2006, closing;
	•	pre-tax synergies (i) for the Three-Way Business Combination of $484 million for 2007 and $923 million in 2008 and (ii) for the Two-Way Business Combination of $143 million in 2007 and $272 million in 2008;
	•	asset write-up based on Phelps Dodge management estimate of net asset value amortized over a weighted average life of approximately 20 years;
	•	repurchase of $5.0 billion of Phelps Dodge common stock (assumed to be effected at market price on closing of the combination);
	•	Phelps Dodge dividend policy of $0.80 per common share maintained; and
	•	stock prices and a US$/Cdn.$ exchange rate of 0.890, each as of June 23, 2006.

		Base		Upside		Downside		Street
2007E		(3.5%)		3.4%		(11.1%)		(12.0%)
2008E		6.2%		3.7%		Not Meaningful		(9.2%)
Break-Even Synergies (cushion) — 2007/2008 (in billions)(1)		$0.3/($0.4)		($0.5)/($0.4)		$0.2/Not Meaningful		$1.2/$0.7

(1)	Break-even synergies/(cushion) equals incremental pre-tax synergies required, or cushion available, to result in no dilution.

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		Base		Upside		Downside		Street
2007E		14.6%		14.0%		47.9%		5.3%
2008E		32.3%		17.9%		Not Meaningful		13.5%
Break-Even Synergies (cushion) — 2007/2008 (in billions)(1)		($1.5)/($2.4)		($2.3)/($2.4)		($1.7)/Not Meaningful		($0.6)/($1.3)

(1)	Break-even synergies/(cushion) equals incremental pre-tax synergies required, or cushion available, to result in no dilution.

		Base		Upside		Downside		Street
2007E		(6.7%)		(0.8%)		(15.7%)		(12.5%)
2008E		(0.2%)		1.3%		Not Meaningful		(9.3%)
Break-Even Synergies (cushion) — 2007/2008 (in billions)(1)		$0.4/$0.0		$0.1/($0.1)		$0.2/Not Meaningful		$0.9/$0.5

(1)	Break-even synergies/(cushion) equals incremental pre-tax synergies required, or cushion available, to result in no dilution.

		Base		Upside		Downside		Street
2007E		9.7%		8.9%		38.6%		3.0%
2008E		25.7%		15.0%		Not Meaningful		12.1%
Break-Even Synergies (cushion) — 2007/2008 (in billions)(1)		($0.7)/($1.3)		($1.0)/($1.4)		($0.9)/Not Meaningful		($0.2)/($0.8)

(1)	Break-even synergies/(cushion) equals incremental pre-tax synergies required, or cushion available, to result in no dilution.

	Selected Companies Analysis.

	Large Cap Base Metals/ Diversified

	•	Teck Cominco Limited
	•	Antofagasta plc
	•	Freeport McMoRan Copper & Gold, Inc.

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	•	Southern Copper Corporation
	•	Vedanta Resources plc

	Super Major Diversified

	•	Rio Tinto plc
	•	BHP Billiton Limited
	•	Anglo American plc
	•	Xstrata plc
	•	Companhia Vale do Rio Doce

	Nickel

	•	Jubilee Platinum plc
	•	Minara Resources Limited
	•	FNX Mining Company Inc.
	•	MMC Norilsk Nickel Group
	•	The Eramet Group

	Copper

	•	Kazakhmys plc
	•	KGHM Polska Miedz S.A.
	•	Aur Resources Inc.
	•	Inmet Mining Corporation
	•	Southern Copper Corporation

	•	the enterprise value, which is the market value of common equity plus the book value of net debt (total debt minus cash), preferred stock and minority interest, less investments in unconsolidated affiliates, as a multiple of estimated 2007 EBITDA;
	•	the ratio of the price per share to the estimated 2007 EPS, or Price/ Earnings (P/E) multiple; and
	•	the ratio of the price per share to the estimated 2007 CFPS, or Price/ Cash Flow Per Share multiple.

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Enterprise Value/

EBITDA

P/E

P/CFPS

2007E

2007E

2007E

Selected Companies in the Metals and Mining Industry

Large Cap Base

3.4x-4.5x

5.8x-10.1x

5.0x-8.1x

Metals/ Diversified(1)

Super Major Diversified

6.0x-6.9x

8.6x-10.3x

7.2x-8.8x

Nickel(2)

4.1x-7.8x

7.1x-16.6x

6.2x-12.1x

Copper

3.0x-4.6x

5.6x-7.1x

4.0x-6.1x

Phelps Dodge Stand-alone

Management estimate

3.3x

6.4x

5.4x

First Call Consensus estimate

3.2x

6.4x

5.4x

Three-Way Business Combination

Upside Case

3.4x

5.4x

4.3x

Base Case

5.3x

9.4x

6.4x

Street Case

5.4x

9.7x

6.6x

Downside Case

10.2x

29.7x

12.0x

Two-Way Business Combination

Upside Case

3.5x

6.5x

5.1x

Base Case

5.4x

10.7x

7.5x

Street Case

5.8x

11.6x

7.9x

Downside Case

9.7x

24.3x

12.3x

	(1)	Excludes Falconbridge and Inco.
	(2)	Excludes Inco.

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	Precedent Transactions Analysis.

Acquiror				Target
•		*Teck		•		Inco
•		*Xstrata		•		Falconbridge
•		*Inco		•		Falconbridge
•		BHP Billiton		•		WMC Resources
•		BHP Company Limited		•		Magma Copper Company
•		Noranda		•		Falconbridge

	•	enterprise value as multiple of EBITDA for the last 12 months (LTM EBITDA); and
	•	enterprise value as multiple of estimated forward fiscal year EBITDA (Forward EBITDA).

		Multiple of LTM EBITDA:				Multiple of Forward EBITDA:
Teck/Inco(1)			11.2x				8.5x
Xstrata/ Falconbridge(1)			8.6x				7.1x
Inco/ Falconbridge(1)			8.4x				6.9x
BHP Billiton/ WMC Resources			6.9x				7.6x
BHP Company Limited/ Magma Copper Company			6.1x				5.0x
Noranda/ Falconbridge			5.3x				5.1x
Two-Way Business Combination(2)			9.5x				7.3x
Three-Way Business Combination(2)			8.3x				6.7x

(1)		Pending as of June 25, 2006. Implied LTM transaction multiples for pending transactions based on LTM 3/31/06, which is assumed to be the latest publicly available 12-month period to be disclosed prior to the expected closing date of the transaction.
(2)		Implied LTM transaction multiples for Two-Way Business Combination and Three-Way Business Combination based on LTM 6/30/06 EBITDA, which is assumed to be the latest publicly available 12-month period to be disclosed prior to the expected closing date of the transaction.

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	Net Asset Value Analysis

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							Implied Multiple
Case			NAV/ share				@ Cdn.$80.13
Base Case (7% discount)
	Inco/ Falconbridge		Cdn.$	41.11				1.9x
	plus Inco/ Falconbridge Synergies			49.11				1.6
	plus PD/ Falconbridge Synergies			51.59				1.6
	plus PD/ Inco Synergies			54.91				1.5
Upside Case (7% discount)
	Inco/ Falconbridge		Cdn.$	80.88				1.0x
	plus Inco/ Falconbridge Synergies			88.88				0.9
	plus PD/ Falconbridge Synergies			91.36				0.9
	plus PD/ Inco Synergies			94.68				0.8
Downside Case (7% discount)
	Inco/ Falconbridge		Cdn.$	1.15				Not Meaningful
	plus Inco/ Falconbridge Synergies			9.16				8.8x
	plus PD/ Falconbridge Synergies			11.63				6.9
	plus PD/ Inco Synergies			14.95				5.4
Street Case (7% discount)
	Inco/ Falconbridge		Cdn.$	42.49				1.9x
	plus Inco/ Falconbridge Synergies			50.49				1.6
	plus PD/ Falconbridge Synergies			52.97				1.5
	plus PD/ Inco Synergies			56.29				1.4
Base Case (8% discount)
	Inco/ Falconbridge		Cdn.$	36.21				2.2x
	plus Inco/ Falconbridge Synergies			43.81				1.8
	plus PD/ Falconbridge Synergies			46.16				1.7
	plus PD/ Inco Synergies			49.29				1.6

							Implied Multiple
Case			NAV/share				@ Cdn.$80.13
Base Case (7% discount)
	Inco Stand-alone		Cdn.$	41.69				1.9x
	plus PD Synergies			48.09				1.7
Upside Case (7% discount)
	Inco Stand-alone		Cdn.$	79.70				1.0x
	plus PD Synergies			86.10				0.9
Downside Case (7% discount)
	Inco Stand-alone		Cdn.$	9.77				8.2x
	plus PD Synergies			16.17				5.0

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							Implied Multiple
Case			NAV/share				@ Cdn.$80.13
Street Case (7% discount)
	Inco Stand-alone		Cdn.$	43.24				1.9x
	plus PD Synergies			49.64				1.6
Base Case (8% discount)
	Inco Stand-alone		Cdn.$	36.35				2.2x
	plus PD Synergies			42.38				1.9

	Assessment of the NAV Approach

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	1. consider and vote on the charter amendment proposal pursuant to which Phelps Dodge’s restated certificate of incorporation would be amended and restated to (i) change the company’s name to Phelps Dodge Inco Corporation from Phelps Dodge Corporation, (ii) increase the number of authorized shares of Phelps Dodge common stock from 300 million to 1.5 billion shares and (iii) increase the maximum number of members of Phelps Dodge’s board of directors from 12 to 15;
	2. consider and vote on the share issuance proposal pursuant to which shares of Phelps Dodge common stock would be authorized for issuance in connection with the combination of Phelps Dodge with both Inco and Falconbridge or with Inco only; and
	3. conduct any other business as may be properly brought before the special meeting including, in the event that there are not sufficient votes for approval of the charter amendment proposal at the special meeting, to consider and vote upon any proposal to postpone or adjourn the special meeting to a later date to solicit additional proxies with respect to such proposal.

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	•	due organization, valid existence, good standing, qualification and power and authority to operate its respective business;

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	•	ownership of subsidiaries;
	•	no violations of organizational documents;
	•	capitalization and capital structure;
	•	the corporate authorization and enforceability of, and board approval of, the combination agreement and the combination;
	•	the absence of conflicts with or breaches or violations of, organizational documents, applicable law, material contracts or licenses in connection with performance under the combination agreement as a result of entering into the combination agreement or consummating the combination;
	•	compliance with laws, permits, contracts and stock exchange requirements;
	•	the material accuracy of (i) reports required to be filed with Canadian securities regulatory authorities and the Toronto Stock Exchange, in the case of Inco, and with the Securities and Exchange Commission and the New York Stock Exchange, in the case of Phelps Dodge, since January 1, 2004, and (ii) the financial statements included in those reports;
	•	the design and maintenance of disclosure controls and procedures;
	•	absence of undisclosed liabilities;
	•	absence of any litigation, claims, complaints or other similar actions which, if determined adversely, have had or would reasonably be expected to have a material adverse effect;
	•	employee plans;
	•	labor matters;
	•	rights with respect to real and operating property;
	•	mining and other operations;
	•	mineral reserves and resources;
	•	insurance;
	•	taxes;
	•	environmental matters;
	•	intellectual property;
	•	material contracts;
	•	brokers and finders fees;
	•	the securityholder votes required to approve, in the case of Inco, the Plan of Arrangement and, in the case of Phelps Dodge, the restated certificate of incorporation and the authorization and issuance of its shares of common stock to be issued in connection with the combination; and
	•	the absence of any material adverse effect and certain other material changes or events since December 31, 2005.

	•	the opinion of each of its financial advisors; and
	•	the support agreement contracts in connection with the Falconbridge acquisition.

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	•	the condition (financial or otherwise) of properties, assets, liabilities, obligations, businesses, operations or results of operations of that party and its subsidiaries and material joint ventures, taken as a whole, or
	•	the ability of that party to consummate the combination.

	•	the announcement of the execution of the combination agreement or the combination, including the consummation of the acquisition of Falconbridge pursuant to the support agreement and any exercise of dissenter’s rights or divestitures or other actions required for regulatory approval of the Falconbridge acquisition;
	•	changes, circumstances or conditions generally affecting the mining industry that do not have a materially disproportionate effect on the applicable party;
	•	changes in general economic conditions in the United States or Canada;
	•	changes in any of the principal markets served by the applicable party’s business generally;
	•	shortages or price changes with respect to raw materials, metals or other products (including, but not limited to, copper, nickel, cobalt, molybdenum, any platinum-group metals, sulfur, sulphuric acid, electricity, zinc or aluminum) used or sold by that party;
	•	changes in generally applicable laws or regulations (other than orders, judgments or decrees against the applicable party or any of its subsidiaries or material joint ventures);
	•	changes in United States or Canadian generally accepted accounting principles; or
	•	a change in the trading prices of the applicable party’s equity securities or a failure by any party to reach any internal or published projections, forecasts or revenue, synergy or earnings predictions, although the events underlying such a change may constitute a material adverse effect.

	•	amend its governing documents;
	•	split, combine, subdivide or reclassify its capital stock, pay any dividend or make any distribution or redeem, repurchase or otherwise acquire any of its securities, subject to certain exceptions such as dividends in the ordinary course of business or, in the case of Inco, paid by wholly owned

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		subsidiaries to Inco or another subsidiary or paid by non-wholly owned subsidiaries in the ordinary course, or, in the case of Phelps Dodge, paid by a subsidiary to Phelps Dodge or another subsidiary;
	•	adopt any complete or partial plan of liquidation, dissolution, winding up, merger, consolidation, amalgamation, restructuring, recapitalization or other material reorganization (other than a merger or consolidation between wholly owned subsidiaries or, in the case of Inco, in connection with the transactions contemplated by the support agreement);
	•	issue, deliver or sell equity securities, or securities convertible into or exchangeable for equity securities, subject to specified exceptions such as the exercise or granting of stock options in the ordinary course or conversion of convertible securities outstanding on the date of the combination agreement or as permitted by the support agreement or combination agreement;
	•	except as required to ensure that any employee plans comply with applicable law or as specifically required or permitted by the combination agreement or, in the case of Inco, required in connection with the termination of its Non-Employee Director Share Ownership Plan or the payment of any amount to the holders of deferred share units issued under such plan in consideration for the cancellation of such deferred share units:

	•	adopt, enter into, terminate or amend any employee plan, other than in the ordinary course of business consistent with past practice;
	•	increase the compensation or benefits of, or pay any bonus to, any employee (including employees of subsidiaries), except for increases in base salary or payments of bonuses in the ordinary course of business consistent with past practice, as required to comply with any employee plan in effect on the date of the combination agreement, or in 2007 in connection with annual performance assessments consistent with past practice;
	•	pay or provide to any employee (including employees of subsidiaries) any benefit not provided for under an employee plan already in effect on the date of the combination agreement, other than the payment of base compensation in the ordinary course of business consistent with prior practice or as otherwise provided in the combination agreement;
	•	except to the extent expressly permitted under the combination agreement, grant any awards under any employee plan (including the grant of rights and awards in connection with stock or equity) or remove existing restrictions in any employee plan or awards;
	•	take any action to fund or in any other way secure the payment of compensation or benefits under any employee plan, except as required to comply with any employee plan as in effect on the date of the combination agreement; or
	•	take any action to accelerate the vesting or payment of any compensation or benefits under any employee plan;

	•	acquire any material business other than, in the case of Inco, Falconbridge in accordance with the terms of the support agreement;
	•	sell or otherwise transfer or encumber any material assets or material rights, other than under current contracts or ordinary course sales of inventory;
	•	incur, assume or guarantee any indebtedness for borrowed money or issue or sell any debt securities or enter into any keep-well or other arrangements to maintain the financial condition of another person, other than short-term borrowings in the ordinary course consistent with past practices and, in the case of Inco, debt incurred in connection with payment to Falconbridge’s shareholders (including dissenting shareholders) in accordance with the support agreement;
	•	make any loan, advance or capital contribution, subject to specified exceptions such as loans to subsidiaries, under contracts currently in effect or otherwise in the ordinary course of business to the extent not material individually or in the aggregate;

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	•	change its methods of accounting or accounting practices in any material respect, or its fiscal year, except as required by law or applicable generally accepted accounting principles;
	•	take any action that would or reasonably would be expected to prevent or materially impair or delay the ability to consummate the combination transaction; or
	•	agree or commit to do any of the foregoing.

	•	enter into, cancel, terminate or grant any waiver in respect of any contract relating to the Falconbridge acquisition without Phelps Dodge’s prior written consent, except that Inco may terminate any such contract in accordance with its terms after consultation with Phelps Dodge, or
	•	file any registration statement or amendment to a registration statement under the Securities Act of 1933, as amended, except for amendments to its registration statement on Form F-8 in connection with the Falconbridge acquisition.

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	•	any merger, take-over bid, amalgamation, plan of arrangement, business combination, consolidation, recapitalization, liquidation or winding-up in respect of Inco;
	•	any sale or acquisition of 20% or more of the fair market value of the assets of Inco on a consolidated basis;
	•	any sale or acquisition of 20% or more of Inco’s shares of any class or rights or interests in or to such shares;
	•	any sale of any material interest in any material joint ventures or material mineral properties;
	•	any similar business combination or transaction, of or involving Inco, any of its subsidiaries or material joint venture of Inco, other than with Phelps Dodge; and
	•	any proposal or offer to, or public announcement of an intention to do, any of the foregoing from any person, entity or organization other than Phelps Dodge;

	•	that is reasonably capable of being completed, taking into account all legal, financial, regulatory (including applicable regulatory approvals) and other aspects of such proposal and the party making such proposal;
	•	in respect of which any required financing to complete such acquisition proposal has been demonstrated, to the satisfaction of the Inco board of directors, acting in good faith (after receipt of advice from its financial advisors and outside legal counsel), is reasonably likely to be obtained;
	•	that is not subject to any due diligence condition;
	•	that is offered or made available to all shareholders of Inco in Canada and the United States on the same terms; and
	•	in respect of which the Inco board of directors determines in good faith:

	•	after receipt of advice from outside legal counsel, that failure to recommend the acquisition proposal to Inco shareholders would be inconsistent with its fiduciary duties; and
	•	after receipt of advice from its financial advisors, that taking into account all of the terms and conditions of the acquisition proposal, if consummated in accordance with its terms (but not assuming away any risk of non-completion), the acquisition proposal would result in a transaction more favorable to shareholders from a financial point of view than the combination transaction (including any adjustment to the terms and conditions of the arrangement set out in the Plan of Arrangement and the combination agreement proposed by Phelps Dodge, as summarized below),

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		and taking into account the long-term value and anticipated synergies anticipated to be realized as a result of the combination of Phelps Dodge and Inco.

	•	solicit, assist, initiate, encourage or otherwise facilitate any inquiries, proposals or offers regarding any acquisition proposal, including by furnishing non-public information or permitting any visit to any facilities or properties of Inco or any of its subsidiaries (including any material joint ventures or material mineral properties);
	•	engage in any discussions or negotiations regarding, or provide any confidential information with respect to, any acquisition proposal, except that Inco may advise any person making an unsolicited acquisition proposal that such acquisition proposal does not constitute a superior proposal when the Inco board of directors has so determined;
	•	withdraw, modify or qualify, or propose publicly to withdraw, modify or qualify, in any manner adverse to Phelps Dodge, the approval or recommendation of the Inco board of directors or any committee of the board of directors;
	•	approve or recommend, or, for longer than 15 calendar days following its formal commencement, remain neutral with respect to, or propose publicly to approve or recommend, or remain neutral with respect to, any acquisition proposal; or
	•	accept or enter into, or publicly propose to accept or enter into, any letter of intent, agreement in principle, agreement, arrangement or undertaking related to any acquisition proposal.

	•	the Inco board of directors has received an unsolicited bona fide written acquisition proposal from such person and the Inco board of directors has determined in good faith based on information then available and after consultation with its financial advisors that the proposal constitutes or could reasonably be expected to result in a superior proposal;
	•	prior to providing any confidential information or data to any person making an acquisition proposal that is or could reasonably be expected to result in a superior proposal, the Inco board of directors receives from such person an executed confidentiality agreement which includes a standstill provision that restricts such person from acquiring, or publicly announcing an intention to acquire, or acquiring, any securities or assets of Inco other than pursuant to a superior proposal for a period of not less than one year from the date of such confidentiality agreement, and the Inco board of directors (a) provides a copy of any such confidentiality agreement to Phelps Dodge promptly upon its execution and (b) promptly provides Phelps Dodge a list of, or in the case of information that was not previously made available to Phelps Dodge, copies of, any information provided to such person; and
	•	Inco promptly (and in any event within 24 hours) notifies Phelps Dodge, at first orally and then in writing, of any:

	•	proposal, inquiry, offer (including any amendment) or request relating to or constituting an acquisition proposal;
	•	request for discussions, negotiations or representation on the Inco board of directors; or
	•	request for non-public information relating to Inco, any subsidiary, material joint venture or material mining property relating to or constituting an acquisition proposal of which Inco’s directors, officers, representatives or agents are or become aware.

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	•	the acquisition proposal constitutes a superior proposal;
	•	Inco has provided Phelps Dodge with notice in writing that there is a superior proposal and all documentation (including any confidentiality agreements) detailing that proposal and at least 10 business days have elapsed from the date that Phelps Dodge received a copy of the written proposal (or any amendment or revision thereof);
	•	if Phelps Dodge proposes to amend the terms of the arrangement and the combination agreement in accordance with the procedures set forth in the combination agreement, the Inco board of directors (after receiving advice from its financial advisors and outside legal counsel) determines in good faith (after taking into account such amendments) that the alternative acquisition proposal continues to be a superior proposal;
	•	Inco’s board of directors, after consultation with outside legal counsel, determines in good faith that the failure to take such action would be inconsistent with its fiduciary duties under all applicable laws; and
	•	Inco, prior to entering into an agreement relating to a superior proposal (other than a confidentiality agreement), has terminated the combination agreement in accordance with its terms and paid to Phelps Dodge the applicable termination fee set forth in the combination agreement and summarized under “Termination Fees and Expenses” beginning on page 89 of this proxy statement.

	•	cease and cause to be terminated any existing solicitation, encouragement, activity, discussion or negotiation with any person by Inco or any of its subsidiaries or any of their representatives or agents in respect of any acquisition proposal, whether or not initiated by Inco;
	•	discontinue access to any virtual or other data rooms;
	•	request (and reasonably exercise all rights it has to require) the return or destruction of all information regarding Inco and its subsidiaries previously provided to any person in connection with an acquisition proposal;
	•	request (and reasonably exercise all rights it has to require) the destruction of all material including or incorporating or otherwise reflecting any information regarding Inco and its subsidiaries in connection with an acquisition proposal; and
	•	not terminate, amend, modify or waive any provision of any confidentiality or standstill or similar agreement to which Inco or any of its subsidiaries is a party with any other person, other than to allow such person to make and consummate a superior proposal.

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	•	comply with the confidentiality agreement previously executed by each them in favor of each other;
	•	provide, and use its reasonable best efforts to cause its subsidiaries to provide, the other party and its representatives with reasonable access to its advisors, books, records, contracts and properties as may be reasonably requested by the other party during the period prior to the effective time, subject to the confidentiality agreements or as restricted by applicable law;
	•	cooperate in the preparation, filing and mailing of each party’s shareholder solicitations, provide reasonable opportunities to review and comment on such statements (and any amendments or supplements), to review any comments received from any governmental entity, furnish each other with information required by the parties in connection with such filings and solicitations, and to advise the other party when such solicitations have been referred by the applicable governmental entity or of any request for amendment by such entity;
	•	furnish to the other party all information concerning it and its shareholders required and available for the preparation of information statements and solicitations;
	•	use reasonable best efforts to develop a joint communications plan, ensure that any public announcements in respect of the combination are consistent with such plan and, except in connection with any announcement required by applicable law or by any listing agreement or rules of any securities exchange, to consult with each other before making public statements regarding the combination;
	•	not make, unless required by law, any public statement or disclosure concerning the other party’s business, financial condition or results of operations without such other party’s consent, which will not be unreasonably withheld or delayed;
	•	use reasonable best efforts to do all things, take all actions necessary or advisable to consummate the combination as soon as reasonably practicable, including to (i) obtain approval of its respective securityholders (unless the party’s board of directors has changed its recommendation in respect of the combination in compliance with the terms of the combination agreement), (ii) obtain all requisite governmental approvals required to be obtained by the applicable party, including any merger notification forms and other information required by United States, Canadian, European Union and other governmental authorities and, in so doing, to consult with and keep the other party informed to the extent legally permitted and to obtain the other party’s prior written consent before agreeing with governmental authorities to take certain actions under antitrust or competition laws, (iii) obtain any required non-governmental third-party approvals and consents and (iv) comply with all legal requirements, including those of the Superior Court of Justice (Ontario);
	•	cooperate in all reasonable respects and use commercially reasonable efforts to contest any action or proceeding and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order that prohibits, prevents or restricts the combination;
	•	take all actions necessary to eliminate or minimize the effects of any fair price, moratorium, control share acquisition or other anti-takeover statute or regulation that is or may become applicable to the combination agreement and the combination;
	•	take all actions necessary or appropriate to exempt the exchange of Inco common shares for Phelps Dodge common stock from the reporting requirements of Section 16(b) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder; and
	•	take all reasonable steps to ensure that the acquisition of Inco common shares by Phelps Dodge Canada is treated as a “qualified stock purchase” for U.S. federal income tax purposes.

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	•	as soon as reasonably practicable, apply for an order approving the combination and to seek the applicable interim and final orders of the Superior Court of Justice (Ontario) under the CBCA or, if the parties so determine, the Business Corporations Act (Ontario);
	•	in accordance with such interim order, as soon as reasonably practicable, convene and hold a special meeting of the Inco shareholders for the purpose of approving the Plan of Arrangement;
	•	at least 10 days prior to the special meeting, provide to Phelps Dodge a list of those persons who may be deemed to be, in Inco’s reasonable judgment, affiliates of Inco within the meaning of Rule 145 promulgated under the Securities Act of 1933, as amended;
	•	provide Phelps Dodge with a copy of any purported exercise of any dissenters’ rights and written communications relating to such exercise;
	•	not settle or compromise any claim, litigation, complaint or other similar action brought by any present, former or purported holder of any of Inco securities in connection with the combination without the prior written consent of Phelps Dodge, not to be unreasonably withheld or delayed;
	•	in the event that the Falconbridge acquisition is consummated and at the request of Phelps Dodge, cause Falconbridge to use its reasonable best efforts to redeem or repurchase all of Falconbridge’s outstanding preference shares and convertible debentures and to not, without Phelps Dodge’s prior written consent, amalgamate with Falconbridge prior to the time that all such convertible debentures and preference shares have been redeemed or repurchased in full; and
	•	subject to obtaining the final order of the Superior Court of Justice (Ontario) and the satisfaction or waiver of the closing conditions described below in “Conditions to the Combination”, send to the Director (as defined in the CBCA) all documents required in order to give effect to the arrangement.

	•	in the event that the exemption from registration under the Securities Act of 1933, as amended, is not available for the issuance of the Phelps Dodge common stock to be issued in connection with the combination, take all necessary action to file a registration statement in order to register such Phelps Dodge common stock, and use its reasonable best efforts to cause the registration statement to become effective by the effective time;
	•	use its reasonable best efforts to obtain the approval of the New York Stock Exchange and the Toronto Stock Exchange for the listing of the Phelps Dodge common stock to be issued in connection with the combination on each such exchange;
	•	take all actions necessary to restate its certificate of incorporation in accordance with the terms and conditions set forth in Exhibit C to the combination agreement and summarized in “Other Agreements and Documents — Restated Certificate of Incorporation”, subject to the approval of (i) the shareholders of Phelps Dodge and (ii) the satisfaction or waiver of the closing conditions described below in “Conditions to the Combination”;
	•	use its reasonable best efforts to cause the full board of directors of the combined company, at the effective time, to consist of 11 individuals who are currently members of the Phelps Dodge board of directors and four individuals who are currently members of the board of directors of Inco or, if the Falconbridge acquisition has been completed, of the board of directors of Inco and Falconbridge;
	•	take all actions necessary to cause, at the effective time: J. Steven Whisler, the current chairman and chief executive officer of Phelps Dodge to serve as chairman and chief executive officer of the combined company; Scott M. Hand, the current chairman and chief executive officer of Inco

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		to become the vice chairman of the combined company and, if the Falconbridge acquisition does not occur, the president of the combined company’s nickel division; and Derek G. Pannell, the current chief executive officer of Falconbridge to become the president of the combined company’s nickel division and head of the combined company’s nickel, zinc and aluminum operations only if the Falconbridge acquisition has occurred; and
	•	from and after the effective time, (i) fulfill and cause Inco’s successors to fulfill indemnification obligations to the present and former directors and officers of Inco as in effect immediately prior to the effective time, (ii) not modify in a way adverse to directors and officers of Inco any charter provisions related to indemnification and exculpation and (iii) provide directors’ and officers’ liability insurance policies with a claims period of six years with coverage and benefits comparable to those currently provided by Inco.

	•	the approval of the Plan of Arrangement by the Inco shareholders, in accordance with any conditions imposed by the interim order;
	•	the approval by the Phelps Dodge shareholders of the restated certificate of incorporation and the authorization and issuance of the Phelps Dodge common stock to be issued in connection with the combination;
	•	receipt of the interim order and the final order approving the Plan of Arrangement from the Superior Court of Justice (Ontario) in form and terms reasonably acceptable to Phelps Dodge and Inco, and those orders having not been set aside or modified in a manner unacceptable to Phelps Dodge or Inco;
	•	the absence of injunctions, orders or laws restraining, enjoining or making illegal the consummation of the combination;
	•	receipt of approvals required under the Competition Act and the Investment Canada Act, and the expiration or termination of applicable waiting periods under the HSR Act and the Council Regulation;
	•	receipt of New York Stock Exchange and Toronto Stock Exchange approval for listing of the Phelps Dodge common stock to be issued in connection with the combination;
	•	Inco having completed the Falconbridge acquisition or the support agreement having been terminated; and
	•	the amendment and restatement of the Phelps Dodge’s certificate of incorporation in accordance with the combination agreement.

	•	the representations and warranties of the other party in the combination agreement (without giving effect to any materiality or material adverse effect qualification and, in the case of Inco, not including Falconbridge as a subsidiary or material joint venture of Inco) being true and correct as of the closing date of the combination (or other date specified in the applicable representation and warranty), except as would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the other party, and the delivery of an officer’s certificate with respect thereto;

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	•	performance and compliance in all material respects with all agreements and covenants required by the combination agreement to have been complied with, on, or by the closing date and the delivery of an officer’s certificate with respect thereto; and
	•	the absence of any fact, event, change, development, circumstance or effect since the date of the combination agreement which, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on the other party.

	•	the combination is not consummated on or before March 31, 2007, except that a party whose action in breach of the agreement has been a principal cause of or resulted in such failure does not have the right to terminate for the failure of the combination to occur;
	•	any law is passed that makes the arrangement illegal or otherwise prohibited or a governmental entity in the United States or Canada issues a final, non-appealable order or takes another final, non-appealable action with the effect of permanently restraining, enjoining or otherwise prohibiting consummation of the combination;
	•	the shareholders of Inco fail to approve the Plan of Arrangement, or the shareholders of Phelps Dodge fail to approve the restated certificate of incorporation or the authorization and issuance of the Phelps Dodge common stock to be issued in connection with the combination, in each case, upon a vote taken at the applicable shareholder meeting or any adjournment or postponement thereof;
	•	the other party cannot satisfy the conditions related to its representations, warranties, covenants and agreements on or before March 31, 2007; or
	•	it or the other party withdraws, modifies or qualifies the recommendation of its board of directors in favor of the transactions contemplated by the combination agreement.

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	•	by Phelps Dodge or Inco if Inco’s board of directors withdraws, modifies or qualifies its recommendation that the Inco shareholders approve the plan of arrangement, unless the withdrawal, modification or qualification is due to a material adverse effect in respect of Phelps Dodge having occurred since the date of the combination agreement, and the Inco board has determined in good faith (after receipt of advice from its legal and financial advisors) that failure to so withdraw, modify or change its recommendation, or refusal to reaffirm its recommendation, would be inconsistent with its fiduciary duties, which fee shall be payable by Inco within one business day of demand by Phelps Dodge; or
	•	by Inco if Inco proposes to enter into a definitive agreement in respect of a superior proposal in compliance with the provisions of the combination agreement, which fee shall be payable by Inco immediately prior to the termination.

	•	by Phelps Dodge or Inco, if such party terminates the combination agreement after March 31, 2007, in accordance with the terms of the combination agreement and, between the date of the combination agreement and the date of termination, an acquisition proposal (or an intention to make a proposal) for Inco has been publicly announced or otherwise made known to Inco shareholders, which proposal, if consummated, would result in the person making the proposal holding, directly or indirectly or acting jointly or in concert with others, a majority of the outstanding shares of Inco; or
	•	by Inco or Phelps Dodge if the Inco shareholder vote was taken at Inco’s duly convened shareholder meeting or an adjournment or postponement thereof and Inco’s shareholder approval was not obtained.

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	•	by Phelps Dodge or Inco, if such party terminates the combination agreement after March 31, 2007 in accordance with the terms of the combination agreement and, between the date of the combination agreement and the date of termination, an acquisition proposal (or an intention to make a proposal) for Phelps Dodge has been publicly announced or otherwise made known to Phelps Dodge shareholders, which proposal, if consummated, would result in the person making the proposal holding, directly or indirectly or acting jointly or in concert with others, a majority of the outstanding capital stock of Phelps Dodge; or
	•	by Phelps Dodge or Inco, if the Phelps Dodge shareholder vote was taken at Phelps Dodge’s duly convened shareholder meeting or an adjournment or postponement thereof and of Phelps Dodge’s shareholder approval was not obtained.

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92

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			Historical												Pro Forma
															Adjustments				Pro Forma
			Phelps Dodge				Inco				Falconbridge				(Note 3)				Combined
Sales and other operating revenues			$	2,225				1,211				2,858				(162	)(I)
																(168	)(Q)			5,964
Operating costs and expenses:
	Cost of products sold			1,448				752				1,949				(162	)(I)
																(36	)(N)
																1	(P)
																(117	)(Q)			3,835
	Depreciation, depletion and amortization			107				71				167				127	(J)
																(1	)(P)
																(4	)(Q)			467
	Selling and general administrative expense			49				47				23								119
	Exploration and research expense			30				31				40								101
	Special items and provisions, net			17				—				—								17
				1,651				901				2,179				(192	)			4,539
Operating income (loss)				574				310				679				(138	)			1,425
	Interest expense			(16	)			(17	)			(29	)			(49	)(A)
																(187	)(O)
																(1	)(Q)			(299	)
	Capitalized interest			11				(4	)			—				34	(A)			41
	Miscellaneous income and expense, net			34				27				10				15	(A)			86
Income (loss) from continuing operations before taxes, minority interests in consolidated subsidiaries and equity in net earnings (losses) of affiliated companies				603				316				660				(326	)			1,253
	Provision for taxes on income			(136	)			(108	)			(214	)			107	(F)
																4	(Q)			(347	)
	Minority interests in consolidated subsidiaries			(117	)			(18	)			(2	)							(137	)
	Equity in net earnings (losses) of affiliated companies			1				—				—								1
Income (loss) from continuing operations			$	351				190				444				(215	)			770
Earnings per share from continuing operations:
	Basic		$	1.73																1.53
	Diluted		$	1.72																1.52
Weighted average shares outstanding:
	Basic			202.0																504.7	(M)
	Diluted			203.4																506.1	(M)

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			Historical												Pro Forma
															Adjustments				Pro Forma
			Phelps Dodge				Inco				Falconbridge				(Note 3)				Combined
Sales and other operating revenues			$	8,287				4,518				8,148				(384	)(I)
																(773	)(Q)			19,796
Operating costs and expenses:
	Cost of products sold			5,282				2,697				5,779				(384	)(I)
																(123	)(N)
																2	(P)
																(595	)(Q)			12,658
	Depreciation, depletion and amortization			442				256				548				508	(J)
																(1	)(P)
																(15	)(Q)			1,738
	Selling and general administrative expense			158				207				79								444
	Exploration and research expense			117				133				162								412
	Special items and provisions, net			523				25				—				2	(A)			550
				6,522				3,318				6,568				(606	)			15,802
Operating income (loss)				1,765				1,200				1,580				(551	)			3,994
	Interest expense			(79	)			(22	)			(134	)			(197	)(A)
																(749	)(O)
																(2	)(Q)			(1,183	)
	Capitalized interest			16				(27	)			—				156	(A)			145
	Early debt extinguishment costs			(54	)			(26	)			—				(14	)(A)			(94	)
	Gain on sale of cost-basis investment			439				—				—								439
	Change in interest gains			168				—				—								168
	Miscellaneous income and expense, net			93				(55	)			24				55	(A)
																(2	)(Q)			115
Income (loss) from continuing operations before taxes, minority interests in consolidated subsidiaries and equity in net earnings (losses) of affiliated companies				2,348				1,070				1,470				(1,304	)			3,584
	Provision for taxes on income			(577	)			(378	)			(479	)			430	(F)
																24	(Q)			(980	)
	Minority interests in consolidated subsidiaries			(190	)			(64	)			(150	)			22	(Q)
																140	(R)			(242	)
	Equity in net earnings (losses) of affiliated companies			3				—				—				2	(A)			5
Income (loss) from continuing operations			$	1,584				628				841				(686	)			2,367
Earnings per share from continuing operations:
	Basic		$	8.06																4.75
	Diluted		$	7.82																4.68
Weighted average shares outstanding:
	Basic			195.7																498.4	(M)
	Diluted			202.5																505.2	(M)

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				Historical												Pro Forma
																Adjustments				Pro Forma
				Phelps Dodge				Inco				Falconbridge				(Note 3)				Combined
ASSETS
Current Assets:
	Cash and cash equivalents			$	2,153				751				1,000				(34	)(A)
																	(13,018	)(B)
																	(390	)(C)
																	(495	)(E)
																	501	(H)
																	(1,212	)(I)
																	400	(K)
																	12,276	(L)
																					1,932
	Restricted cash				10				—				—				34	(A)			44
	Accounts receivable, less allowance				1,207				717				1,279				(3	)(I)
																	(65	)(K)			3,135
	Mill and leach stockpiles				59				—				—								59
	Inventories				362				1,105				1,788				(355	)(A)
																	2,189	(D)
																	(200	)(K)			4,889
	Supplies				201				—				—				374	(A)			575
	Prepaid expenses and other current assets				119				86				—				145	(A)
																	250	(K)			600
	Deferred income taxes				82				—				—				44	(A)			126
		Current assets			4,193				2,659				4,067				441				11,360
	Investments and long-term receivables				197				—				—				79	(A)			276
	Property, plant and equipment, net				4,971				7,398				8,154				30	(D)
																	10,152	(D),(J)
																	(373	)(K)			30,332
	Long-term mill and leach stockpiles				178				—				—								178
	Deferred income taxes				73				—				—				216	(F)			289
	Goodwill				12				—				—				20,343	(D)			20,355
	Intangible assets, net				7				—				—								7
	Trust assets				564				—				—								564
	Other assets and deferred charges				360				401				332				(287	)(A)
																	(76	)(D)
																	60	(L)			790
				$	10,555				10,458				12,553				30,585				64,151

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					Historical												Pro Forma
																	Adjustments				Pro Forma
					Phelps Dodge				Inco				Falconbridge				(Note 3)				Combined
LIABILITIES
	Current liabilities:
		Short-term debt			$	27				—				—								27
		Current portion of long-term debt				3				64				853				(500	)(I)			420
		Accounts payable and accrued expenses				1,482				1,274				1,731				52	(A)
																		(15	)(D)
																		(3	)(I)
																		(45	)(K)			4,476
		Accrued income taxes				84				88				—				(62	)(K)			110
			Current liabilities			1,596				1,426				2,584				(573	)			5,033
	Long-term debt					675				2,192				2,771				(59	)(D)
																		(769	)(G)
																		(250	)(I)
																		12,276	(L)			16,836
	Deferred income taxes					610				1,313				1,071				4,321	(F)			7,315
	Other liabilities and deferred credits					1,071				1,752				743				(52	)(A)
																		715	(D)
																		4	(K)			4,233
						3,952				6,683				7,169				15,613				33,417
Minority interests in consolidated subsidiaries						1,019				757				53								1,829
Shareholders’ equity
	Preferred shares					—				—				452				(452	)(I)			—
	Common shares					1,273				3,034				4,325				1,892	(G)
																		(7,359	)(I)			3,165
	Capital in excess of par value					1,343				577				—				21,429	(G)
																		(577	)(I)			22,772
	Retained earnings					3,067				66				349				(405	)(I)
																		(10	)(I)			3,067
	Accumulated other comprehensive loss					(99	)			(721	)			205				977	(D)
																		(382	)(F)
																		(79	)(I)			(99)
	Warrants					—				62				—				(62	)(I)			—
						5,584				3,018				5,331				14,972				28,905
					$	10,555				10,458				12,553				30,585				64,151

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1.	BASIS OF PRESENTATION

2.	THE OFFER

98

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Common shares outstanding (combined Inco and Falconbridge)			450.500
Exchange offer ratio of Phelps Dodge common stock for Inco/Falconbridge combined common share			0.672
Phelps Dodge common shares to be issued			302.736
Weighted average market price of each share of Phelps Dodge common stock from June 22-27, 2006		$	77.04
Cash consideration for each Falconbridge and combined Inco and Falconbridge common share		$	15.58
Fair value of Phelps Dodge common stock issued, comprising par value of $1,892 ($6.25 per share) and capital in excess of par of $21,429		$	23,321
Cash consideration of $15.58 for each Falconbridge common share(1)			5,999
Cash consideration of $15.58 for each combined Inco and Falconbridge common share			7,019
Change of control costs and related employee benefits			495
Estimated transaction costs			390
Purchase Price		$	37,224

(1)	Represents cash paid for 384.971 million Falconbridge common shares of $15.58 per share in the transaction between Inco and Falconbridge.

3.	PRO FORMA ASSUMPTIONS AND ADJUSTMENTS

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	(A) Reclassifications have been made to the Inco and Falconbridge historical consolidated financial information to conform to Phelps Dodge’s presentation.
	(B) These pro forma adjustments represent payment of the cash component of the purchase price for Falconbridge’s and combined Inco and Falconbridge’s common shares and for Inco’s and Falconbridge’s outstanding stock options, warrants and convertible debt of $783 million.
	(C) Phelps Dodge estimates it will incur approximately $390 million of transaction costs, consisting primarily of investment bankers, attorneys, financing and accountants fees, and financial printing and other charges related to the purchase of Inco and Falconbridge. These estimates are preliminary and, therefore, are subject to change.
	(D) The pro forma adjustments to fair value Inco’s and Falconbridge’s net reported assets are estimated as follows (in millions):

Adjustment to fair value inventory		$	2,189
Adjustment to fair value asset retirement costs(P)		$	30
Adjustment to fair value debt(O)		$	(59	)
Adjustment to fair value pension obligations		$	1,135
Adjustment to fair value post retirement obligations other than pensions		$	407
Adjustment to fair value asset retirement obligations(P)		$	106
Adjustment to fair value derivative instrument obligations		$	105
Adjustment to fair value property, plant and equipment(J)		$	10,152
Goodwill		$	20,343

	Due to limited publicly available information, the allocation of the purchase price is based upon management’s preliminary estimates and certain assumptions with respect to the fair value increment associated with the assets to be acquired and the liabilities to be assumed. The actual fair values of

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	the assets and liabilities will be determined as of the date of acquisition and may differ materially from the amounts disclosed above in the assumed pro forma purchase price allocation due to the changes in fair values of the assets and liabilities until the date of the transaction, and as further analysis is completed. The actual allocation of the purchase price may result in different adjustments in the Unaudited Pro Forma Combined Statement of Income.
	(E) This pro forma adjustment recognizes certain estimated change of control obligations arising from the combination of Inco, Falconbridge and Phelps Dodge.
	(F) The estimated income tax effect of the pro forma adjustments has been recorded based upon the estimated statutory tax rates of approximately 34% for Inco and 32% for Falconbridge, which have been derived from public quarterly and annual filings of Inco and Falconbridge. The business combinations are expected to be non-taxable to the respective companies with Inco’s and Falconbridge’s historical tax bases surviving for income tax reporting purposes. Additional deferred income taxes have been recognized based on the pro forma fair value adjustments to assets and liabilities, including an adjustment to eliminate $382 million in accumulated other comprehensive loss related to the pro forma adjustment of minimum pension liabilities.
	Provisions for pro forma income tax expense have been recorded as pro forma adjustments to the Unaudited Pro Forma Combined Statement of Income.
	(G) This pro forma adjustment reflects the issue of 302.736 million shares of Phelps Dodge common stock in connection with the exchange offer for all the outstanding common shares of Inco (following Inco’s acquisition of Falconbridge). The common stock of Phelps Dodge represents common shares of $1,892 million at $6.25 per share par value and capital in excess of par of $21,429 million. These shares include the potential shares issued in connection with the outstanding stock options, warrants and $769 million (book value) of convertible debt instruments of Inco and Falconbridge.
	(H) This pro forma adjustment gives effect to $501 million of proceeds deemed to be received from the exercise of in-the-money stock options and warrants. Phelps Dodge has assumed that all of Inco’s and Falconbridge’s stock options and warrants are exercised prior to the purchase transaction.
	(I) These pro forma adjustments give effect to the redemption of Falconbridge’s preferred shares and the elimination of the historical shareholders’ equity accounts of Inco and Falconbridge and intercompany transactions.
	(J) This pro forma adjustment represents the estimated increase to depreciation, depletion and amortization expense associated with the preliminary fair value adjustment of approximately $10,152 million allocated to plant, property and equipment as further discussed in Note (D) of the Notes to the Unaudited Pro Forma Combined Financial Statements. Phelps Dodge has not completed an assessment of the fair values of assets and liabilities of Inco and Falconbridge and the related business integration plans and synergies. The ultimate purchase price allocation will include possible adjustments to fair values of depreciable tangible assets, proven and probable reserves, reserves related to current development projects and intangible assets after a full review has been completed.
	The preliminary allocation of $10,152 million to property, plant and equipment is primarily based on an assessment of estimated cash flows from the long-lived reserves and resources that Inco and Falconbridge own directly or through joint ventures with other companies and a valuation of certain undeveloped properties and project opportunities based on either estimated cash flows or estimated comparable values.

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	For the purpose of preparing the Unaudited Pro Forma Combined Statement of Income, Phelps Dodge assumed an estimated remaining useful life of 20 years, which was based on an analysis of Inco’s and Falconbridge’s estimated mine lives and on their estimated useful lives of other property, plants and equipment disclosed in their public filings. A one year change in the estimated useful life would have a 5% impact on the pro forma depreciation, depletion and amortization expense. Additionally, for each $1 billion that the final fair value of property, plant and equipment and intangible assets differs from the pro forma fair value, related depreciation, depletion and amortization expense would increase or decrease approximately $50 million annually or $12.5 million quarterly assuming a weighted average 20 year life.
	(K) These pro forma adjustments eliminate Falconbridge’s Nikkelverk refinery in Norway and the related nickel-marketing assets proposed to be sold to LionOre Mining International, Ltd. The gain on the sale is not reflected in the Unaudited Pro Forma Combined Financial Statements.
	(L) This pro forma adjustment relates to borrowings under the company’s $8.5 billion one-year term loan facility and its $5.0 billion five-year term loan facility. The proceeds from these loan facilities, in conjunction with available cash, would be used for: (i) the Cdn.$17.50 per share cash payment to Inco shareholders, including payments for shares issued as a result of certain debt that is convertible into Inco shares (approximately $7 billion), (ii) repayments of Inco acquisition debt and other debt that may be callable upon a change of control (approximately $7 billion), (iii) payments for Falconbridge redeemable and non-redeemable preferred shares and (iv) payments for other transaction fees and expenses.
	(M) Pro forma weighted average common stock and common stock equivalents outstanding are estimated as follows (in millions):

		Three Months Ended								Year Ended
		March 31, 2006								December 31, 2005
		Basic				Diluted				Basic				Diluted
Average number of Phelps Dodge common shares outstanding			201.972				203.400				195.717				202.502
Shares of Phelps Dodge common stock to be issued in connection with the business combination (Note 2)			302.736				302.736				302.736				302.736

	(N) This pro forma adjustment eliminates amortization expense for past service costs and net actuarial losses relating to postretirement benefits.
	(O) This pro forma adjustment recognizes imputed interest expense in the year ended December 31, 2005, and the three months ended March 31, 2006, resulting from the fair value adjustment of Inco’s and Falconbridge’s long-term debt and acquisition related debt discussed at (L) above at an assumed interest rate of approximately 6.0%. A 12.5-basis point change in interest rates would increase (decrease) interest expense by approximately $15 million for the year ended December 31, 2005, and by approximately $4 million for the three months ended March 31, 2006.

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	(P) These pro forma adjustments reflect the net impact on accretion and depreciation expense for the year ended December 31, 2005, and the three months ended March 31, 2006, associated with the fair value adjustment to the asset retirement cost and asset retirement obligation. The accretion adjustment primarily reflects the impact of applying current, credit-adjusted, risk-free interest rate and current escalation rate in the fair value calculation.
	(Q) These pro forma adjustments eliminate the results of operations of Falconbridge’s Nikkelverk refinery due to its proposed sale. See additional discussion in (K).
	(R) This pro forma adjustment reflects the elimination of the Falconbridge minority interest in earnings assuming that Falconbridge and Noranda Inc. were amalgamated at January 1, 2005.

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			Historical								Pro Forma
											Adjustments				Pro Forma
			Phelps Dodge				Inco				(Note 3)				Combined
Sales and other operating revenues			$	2,225				1,211								3,436
Operating costs and expenses:
	Cost of products sold			1,448				752				(29	)(N)
												3	(P)			2,174
	Depreciation, depletion and amortization			107				71				53	(J)			231
	Selling and general administrative expense			49				47								96
	Exploration and research expense			30				31								61
	Special items and provisions, net			17				—								17
				1,651				901				27				2,579
Operating income (loss)				574				310				(27	)			857
	Interest expense			(16	)			(17	)			(16	)(A)
												(34	)(O)			(83	)
	Capitalized interest			11				(4	)			16	(A)			23
	Miscellaneous income and expense, net			34				27								61
Income (loss) from continuing operations before taxes, minority interests in consolidated subsidiaries and equity in net earnings (losses) of affiliated companies				603				316				(61	)			858
	Provision for taxes on income			(136	)			(108	)			21	(F)			(223	)
	Minority interests in consolidated subsidiaries			(117	)			(18	)							(135	)
	Equity in net earnings (losses) of affiliated companies			1				—								1
Income (loss) from continuing operations			$	351				190				(40	)			501
Earnings (loss) per share:
	Basic		$	1.73												1.39
	Diluted		$	1.72												1.38
Weighted average shares outstanding:
	Basic			202.0												360.7	(M)
	Diluted			203.4												362.1	(M)

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			Historical								Pro Forma
											Adjustments				Pro Forma
			Phelps Dodge				Inco				(Note 3)				Combined
Sales and other operating revenues			$	8,287				4,518				(55	)(I)			12,750
Operating costs and expenses:
	Cost of products sold			5,282				2,697				(55	)(I)
												(93	)(N)
												10	(P)			7,841
	Depreciation, depletion and amortization			442				256				212	(J)
												1	(P)			911
	Selling and general administrative expense			158				207								365
	Exploration and research expense			117				133								250
	Special items and provisions, net			523				25								548
				6,522				3,318				75				9,915
Operating income (loss)				1,765				1,200				(130	)			2,835
	Interest expense			(79	)			(22	)			(103	)(A)
												(134	)(O)			(338	)
	Capitalized interest			16				(27	)			103	(A)			92
	Early debt extinguishment costs			(54	)			(26	)			(9	)(A)			(89	)
	Gain on sale of cost-basis investment			439				—								439
	Change in interest gains			168				—								168
	Miscellaneous income and expense, net			93				(55	)			7	(A)			45
Income (loss) from continuing operations before taxes, minority interests in consolidated subsidiaries and equity in net earnings (losses) of affiliated companies				2,348				1,070				(266	)			3,152
	Provision for taxes on income			(577	)			(378	)			87	(F)			(868	)
	Minority interests in consolidated subsidiaries			(190	)			(64	)							(254	)
	Equity in net earnings (losses) of affiliated companies			3				—				2	(A)			5
Income (loss) from continuing operations			$	1,584				628				(177	)			2,035
Earnings per share from continuing operations:
	Basic		$	8.06												5.74
	Diluted		$	7.82												5.63
Weighted average shares outstanding:
	Basic			195.7												354.4	(M)
	Diluted			202.5												361.2	(M)

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				Historical								Pro Forma
												Adjustments				Pro Forma
				Phelps Dodge				Inco				(Note 3)				Combined
ASSETS
Current assets:
	Cash and cash equivalents			$	2,153				751				(3,680	)(B)
													(148	)(C)
													(243	)(E)
													384	(H)
													300	(K)
													1,992	(L)			1,509
	Restricted cash				10				—								10
	Accounts receivable, less allowance				1,207				717								1,924
	Mill and leach stockpiles				59				—								59
	Inventories				362				1,105				(135	)(A)
													1,516	(D)			2,848
	Supplies				201				—				135	(A)			336
	Prepaid expenses and other current assets				119				86				(44	)(A)			161
	Deferred income taxes				82				—				44	(A)			126
		Current assets			4,193				2,659				121				6,973
Investments and long-term receivables					197				—								197
Property, plant and equipment, net					4,971				7,398				28	(D)
													4,235	(D),(J)			16,632
Long-term mill and leach stockpiles					178				—								178
Deferred income taxes					73				—				179	(F)			252
Goodwill					12				—				8,836	(D)			8,848
Intangible assets, net					7				—								7
Trust assets					564				—								564
Other assets and deferred charges					360				401				(76	)(D)
													48	(L)			733
				$	10,555				10,458				13,371				34,384

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				Historical								Pro Forma
												Adjustments				Pro Forma
				Phelps Dodge				Inco				(Note 3)				Combined
LIABILITIES
Current liabilities:
	Short-term debt			$	27				—								27
	Current portion of long-term debt				3				64								67
	Accounts payable and accrued expenses				1,482				1,274				(15	)(D)			2,741
	Accrued income taxes				84				88								172
		Current liabilities			1,596				1,426				(15	)			3,007
	Long-term debt				675				2,192				13	(D)
													(630	)(G)
													1,992	(L)			4,242
	Deferred income taxes				610				1,313				2,276	(F)			4,199
	Other liabilities and deferred credits				1,071				1,752				527	(D)			3,350
					3,952				6,683				4,163				14,798
Minority interests in consolidated subsidiaries					1,019				757								1,776
Shareholders’ equity
	Common shares				1,273				3,034				992	(G)
													(3,034	)(I)			2,265
	Capital in excess of par value				1,343				577				11,234	(G)
													(577	)(I)			12,577
	Retained earnings				3,067				66				(66	)(I)			3,067
	Accumulated other comprehensive loss				(99	)			(721	)			977	(D)
													(382	)(F)
													126	(I)			(99	)
	Warrants				—				62				(62	)(I)			—
					5,584				3,018				9,208				17,810
				$	10,555				10,458				13,371				34,384

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1.	BASIS OF PRESENTATION

2.	THE OFFER

Phelps Dodge’s acquisition of Inco:
Common shares outstanding			236,164
Exchange offer ratio of Phelps Dodge common stock for Inco common share			0.672
Shares of Phelps Dodge common stock to be issued			158.702
Weighted average market price of each share of Phelps Dodge common stock from June 22-27, 2006		$	77.04
Cash consideration for each Inco common share		$	15.58
Fair value of Phelps Dodge common shares issued, comprising par value of $992 ($6.25 per share) and capital in excess of par of $11,234		$	12,226
Cash consideration of $15.58 for each Inco common share			3,680
Change of control costs and related employee benefits			243
Estimated transaction costs			148
Purchase price		$	16,297

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3.	PRO FORMA ASSUMPTIONS AND ADJUSTMENTS

	(A) Reclassifications have been made to the Inco historical consolidated financial information to conform to Phelps Dodge’s presentation.
	(B) These pro forma adjustments represent payment of the cash component of the purchase price for Inco’s common shares and for Inco’s outstanding stock options, warrants and convertible debt of $591 million.
	(C) Phelps Dodge estimates it will incur approximately $148 million of transaction costs, consisting primarily of investment bankers, attorneys, financing and accountants fees, and financial printing and other charges related to the purchase of Inco and debt acquisition costs. These estimates are preliminary and, therefore, are subject to change.

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	(D) The pro forma adjustments to fair value Inco’s net reported assets are estimated as follows (in millions):

Adjustment to fair value inventory		$	1,516
Adjustment to fair value asset retirement costs(P)		$	28
Adjustment to fair value debt(O)		$	13
Adjustment to fair value pension obligations		$	1,037
Adjustment to fair value postretirement obligations other than pensions		$	329
Adjustment to fair value asset retirement obligations(P)		$	94
Adjustment to fair value derivative instrument obligations		$	105
Adjustment to fair value property, plant and equipment(J)		$	4,235
Goodwill		$	8,836

	Due to limited publicly available information, the allocation of the purchase price is based upon management’s preliminary estimates and certain assumptions with respect to the fair value increment associated with the assets to be acquired and the liabilities to be assumed. The actual fair values of the assets and liabilities will be determined as of the date of acquisition and may differ materially from the amounts disclosed above in the assumed pro forma purchase price allocation due to the changes in fair values of the assets and liabilities until the date of the transaction, and as further analysis is completed. The actual allocation of the purchase price may result in different adjustments in the Unaudited Pro Forma Combined Statement of Income.
	(E) This pro forma adjustment recognizes certain estimated change of control obligations arising from the combination of Inco and Phelps Dodge.
	(F) The estimated income tax effect of the pro forma adjustments has been recorded based upon the estimated statutory tax rate of approximately 34% for Inco, which has been derived from public quarterly and annual filings of Inco. The business combination is expected to be non-taxable to the respective companies with Inco’s historical tax bases surviving for income tax reporting purposes. Additional deferred income taxes have been recognized based on the pro forma fair value adjustments to assets and liabilities, including an adjustment to eliminate $382 million in accumulated other comprehensive loss related to the pro forma adjustment of minimum pension liabilities.
	Provisions for pro forma income tax expense have been recorded as pro forma adjustments to the Unaudited Pro Forma Combined Statement of Income.
	(G) This pro forma adjustment reflects the issue of 158.702 million shares of Phelps Dodge common stock in connection with the exchange offer for all the outstanding common shares of Inco. The common stock of Phelps Dodge represents common shares of $992 million at $6.25 per share par value and capital in excess of par of $11,234 million. These shares include the potential shares issued in connection with the outstanding stock options, warrants and $630 million (book value) of convertible debt instruments of Inco.
	(H) This pro forma adjustment gives effect to $384 million of proceeds deemed to be received from the exercise of in-the-money stock options and warrants. Phelps Dodge has assumed that all of Inco’s stock options and warrants are exercised prior to the purchase transaction.
	(I) These pro forma adjustments eliminate the historical shareholders’ equity accounts of Inco and intercompany transactions.
	(J) This pro forma adjustment represents the estimated increase to depreciation, depletion and amortization expense associated with the preliminary fair value adjustment of approximately

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	$4,235 million allocated to plant, property and equipment as further discussed in Note (D) of the Notes to the Unaudited Pro Forma Combined Financial Statements. Phelps Dodge has not completed an assessment of the fair values of assets and liabilities of Inco and the related business integration plans and synergies. The ultimate purchase price allocation will include possible adjustments to fair values of depreciable tangible assets, proven and probable reserves, reserves related to current development projects and intangible assets after a full review has been completed.
	The preliminary allocation of $4,235 million to property, plant and equipment is primarily based on an assessment of estimated cash flows from the long-lived reserves and resources that Inco owns directly or through joint ventures with other companies and a valuation of certain undeveloped properties and project opportunities based on either estimated cash flows or estimated comparable values.
	For the purpose of preparing the Unaudited Pro Forma Combined Statement of Income, Phelps Dodge assumed an estimated remaining useful life of 20 years, which was based on an analysis of Inco’s estimated mine lives and on the estimated useful lives of other property, plant and equipment disclosed in Inco’s public filings. A one-year change in the estimated useful life would have a 5% impact on the pro forma depreciation, depletion and amortization expense. Additionally, for each $1 billion that the final fair value of property, plant and equipment and intangible assets differs from the pro forma fair value, related depreciation, depletion and amortization expense would increase or decrease approximately $50 million annually or $12.5 million quarterly, assuming a weighted average 20-year life.
	(K) This pro forma adjustment is associated with the termination payment for the support agreement between Inco and Falconbridge.
	(L) This pro forma adjustment relates to borrowings under the company’s $3.0 billion one-year term loan facility and its $5.0 billion five-year term loan facility. The proceeds from these loan facilities, in conjunction with available cash, would be used for: (i) the Cdn.$17.50 per share cash payment to Inco shareholders, including payments for shares issued as a result of certain debt that is convertible into Inco shares (approximately $3 billion), (ii) repayments of Inco debt that may be callable upon a change of control and (iii) payments for other transaction fees and expenses.
	(M) Pro forma weighted average common stock and common stock equivalents outstanding are estimated as follows (in millions):

		Three Months Ended								Year Ended
		March 31, 2006								December 31, 2005
		Basic				Diluted				Basic				Diluted
Average number of Phelps Dodge common shares outstanding			201.972				203.400				195.717				202.502
Shares of Phelps Dodge common stock to be issued in connection with the business combination (Note 2)			158.702				158.702				158.702				158.702

The average number of common shares outstanding gives effect to Inco’s outstanding stock options, warrants and convertible debt, all of which are assumed to be exercised or converted. Based upon public information reported and the current exchange offer ratio, Phelps Dodge estimates that the incremental number of shares of Phelps Dodge stock issuable upon the exercise of Inco stock options, warrants and convertible debt is approximately 25.507 million.

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	(N) This pro forma adjustment eliminates amortization expense for past service costs and net actuarial losses relating to postretirement benefits.
	(O) This pro forma adjustment recognizes imputed interest expense in the year ended December 31, 2005, and the three months ended March 31, 2006, resulting from the fair value adjustment of Inco’s long-term debt and acquisition related debt discussed at (L) above at an assumed interest rate of approximately 6.1%. A 12.5-basis point change in interest rates would increase (decrease) interest expense by approximately $2.5 million for the year ended December 31, 2005, and by approximately $0.6 million for the three months ended March 31, 2006.
	(P) These pro forma adjustments reflect the net impact on accretion and depreciation expense for the year ended December 31, 2005, and the three months ended March 31, 2006, associated with the fair value adjustment to the asset retirement cost and asset retirement obligation. The accretion adjustment primarily reflects the impact of applying current, credit-adjusted, risk-free interest rate and current escalation rate in the fair value calculation.

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113

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						Percent of
		Number of				Outstanding
Name and Address		Shares(a)				Shares
Atticus Management, L.L.C.(b)			20,151,800				9.9	%
152 West 57th Street, 45th Floor New York, NY 10019
Barclays Global Investors, NA(c)			17,862,316				8.8	%
45 Fremont Street San Francisco, CA 94105

(a)		On February 1, 2006, the company announced that the board of directors had approved a two-for-one split of the company’s outstanding common stock, to be effected in the form of a 100 percent stock dividend. Common shareholders of record at the close of business on February 17, 2006, received one additional share of common stock for every share they owned as of the date. The additional shares were distributed on March 10, 2006. The share numbers presented in this table reflect the effect of this stock dividend, as explained more fully in notes (b) and (c).
(b)		Reports on Schedule 13D/ A, dated February 15, 2006, and December 2, 2005, disclosed that this entity, as a registered investment adviser, had sole voting and dispositive power over 10,075,900 shares which represented 9.9% of the outstanding common shares, comprised of (i) 5,210,900 shares of common stock and (ii) 4,865,000 shares of common stock issuable upon exercise of stock options. If the stock dividend referred to in note (a) above had occurred on or prior to the date of the report, this entity would have had voting and dispositive power over 20,151,800 common shares, comprised of (i) 10,421,800 shares of common stock and 9,730,000 shares of common stock issuable upon exercise of stock options.
(c)		A report on Schedule 13G, dated January 26, 2006, disclosed that this entity, as a registered investment adviser, had sole voting power over 7,868,320 shares and sole dispositive power over 8,931,158 shares which represented 8.8% of the outstanding common shares at December 31, 2005. If the stock dividend referred to in note (a) above had occurred on or prior to the date of the report, this entity would have had voting power over 15,736,640 common shares and dispositive power over 17,862,316 common shares.

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						Options
		Shares				Exercisable
		Beneficially				Within				Stock
Name of Beneficial Owner		Owned(a)				60 Days				Units(b)				Total
S. David Colton			41,796				0				0				41,796
Archie W. Dunham			0				0				32,230	(c)			32,230
William A. Franke			4,000				0				19,448				23,448
Robert D. Johnson			1,086				0				4,118				5,204
Marie L. Knowles			2,000				0				17,338				19,338
Charles C. Krulak			0				0				1,053				1,053
Jon C. Madonna			2,000				0				4,118				6,118
Dustan E. McCoy			0				0				0				0
Arthur R. Miele			38,592				0				0				38,592
Gordon R. Parker			8,538				0				17,640				26,178
Ramiro G. Peru			83,380				1				0				83,381
William J. Post			2,000				0				10,899				12,899
Martin H. Richenhagen			0				0				0				0
Timothy R. Snider			104,184				0				0				104,184
Jack E. Thompson			4,000				0				4,118				8,118
J. Steven Whisler			362,306				181,800				0				544,106
Directors and executive officers as a group (18 persons)			707,201				183,134				110,962				1,001,296

(a)		Includes, as of May 31, 2006, the following shares of restricted stock awarded under the Phelps Dodge 1998 Stock Option and Restricted Stock Plan and the Phelps Dodge 2003 Stock Option and Restricted Stock Plan: Mr. Whisler, 237,250 shares, Mr. Snider, 78,586 shares, Mr. Peru, 73,380 shares, Mr. Colton, 29,290 shares and Mr. Miele, 23,154 shares.
(b)		Except where indicated below, represents stock units awarded under the Directors Stock Unit Plan.
(c)		Includes stock units credited under the Deferred Compensation Plan for Directors of Phelps Dodge.

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	•	the ability to obtain governmental approvals of the combination on the proposed terms and schedule;
	•	the failure of Inco’s shareholders to approve the Plan of Arrangement;
	•	the failure of Phelps Dodge’s shareholders to authorize (i) the issuance of Phelps Dodge common stock, (ii) the change of Phelps Dodge Corporation’s name to Phelps Dodge Inco Corporation and (iii) an increase in the size of Phelps Dodge’s board of directors as required under the combination agreement;
	•	the risks that the businesses of Phelps Dodge and Inco and Falconbridge, if applicable, will not be integrated successfully;
	•	in the case of a combination with both Inco and Falconbridge, the risks that the businesses of Inco and Falconbridge will not be integrated successfully;
	•	the risks that the cost savings, growth prospects and any other synergies from the combination may not be fully realized or may take longer to realize than expected;
	•	the combined company’s inability to refinance indebtedness incurred in connection with the combination on favorable terms or at all;
	•	the combined company’s inability to maintain positive relations with its combined global work force;
	•	the possibility that Phelps Dodge will not combine with both Inco and Falconbridge;
	•	the possible impairment of goodwill resulting from the combination and the resulting impact on the combined company’s assets and earnings;
	•	general U.S. and international economic, financial market and political conditions;
	•	political and economic risks associated with operations outside the U.S.;
	•	currency fluctuations;
	•	the cyclical and volatile price of copper and other commodities;

117

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	•	the volatility in the price or availability of oil (the main feedstock of our carbon black operations), diesel fuel, electricity and natural gas;
	•	unanticipated ground, water, weather or operating conditions;
	•	force majeure events;
	•	unanticipated ore grade and geological problems;
	•	metallurgical and other processing problems;
	•	the availability of materials and equipment;
	•	delays in the receipt of or failure to receive necessary government permits;
	•	changes in laws or regulations or the interpretation and enforcement thereof;
	•	appeals of agency decisions or other litigation;
	•	labor relations and accidents;
	•	the ability to obtain satisfactory insurance coverage; and
	•	environmental risks.

118

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	•	For both shareholder proposals and director nominations, the proposing shareholder must deliver to the Secretary of Phelps Dodge at its principal executive office a notice that includes the shareholder’s name, address, and the number of shares of stock the shareholder owns of record and beneficially. If the shareholder holds shares through a nominee or “street name” holder of record, the shareholder must deliver evidence establishing the shareholder’s indirect ownership of and entitlement to vote the shares.
	•	If a shareholder proposes to nominate any person for election as director, the shareholder must also deliver to Phelps Dodge a statement in writing setting forth the name, age and address of the nominated person, the principal occupation or employment of the nominated person, the number of shares of stock owned of record and beneficially by the nominated person, the information regarding the nominated person as required by paragraphs (a), (d), (e) and (f) of Item 401 of Regulation S-K adopted by the Securities and Exchange Commission, and the nominated person’s signed consent to serve as a director of Phelps Dodge if elected. Director nominations must be received by Phelps Dodge no earlier than the close of business on January 25, 2007, and no later than the close of business on February 24, 2007.
	•	If the shareholder proposes another matter (other than the nomination of a director), the shareholder must also deliver to Phelps Dodge a description of the proposal and the reasons for bringing the proposal before the annual meeting and a statement identifying any material interest the shareholder has in the matter proposed (other than as a shareholder). Proposals must be received by Phelps Dodge no earlier than the close of business on January 26, 2007, and no later than the close of business on February 25, 2007.
	•	If the date of the 2007, annual meeting of shareholders is changed, and the meeting is held before April 26, 2007, or after July 25, 2007, notice of shareholder nominations of directors or proposals that will not appear in Phelps Dodge’s proxy statement must be received by Phelps Dodge at its principal executive office no earlier than the close of business on the 120th day prior to the new date of such annual meeting and no later than the close of business on the later of (i) the 90th day prior to the new date of such meeting, and (ii) the 10th day following the day on which a public announcement of the new date of such annual meeting is first made.

119

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Phelps Dodge Filings:		Periods:
Annual Report on Form 10-K		Year ended December 31, 2005.
Quarterly Reports on Form 10-Q		Quarter ended March 31, 2006.
Proxy Statement for the Annual Meeting of Stockholders		April 13, 2006.
Current Reports on Form 8-K		Filed on July 5, 2006, June 29, 2006, June 28, 2006, June 26, 2006, June 2, 2006, April 10, 2006, March 17, 2006, March 9, 2006, February 14, 2006, February 7, 2006 and February 6, 2006.

Inco Filings:		Periods:
Annual Report on Form 10-K		Year ended December 31, 2005.
Quarterly Reports on Form 10-Q		Quarter ended March 31, 2006.

Falconbridge Filings:		Periods:
Annual Report on Form 40-F		Year ended December 31, 2005.
Current Reports on Form 6-K		Filed on May 3, 2006.

120

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	Assistant General Counsel and Secretary
	Phelps Dodge Corporation
	One North Central Avenue
	Phoenix, AZ 85004-4414
	Telephone (602) 366-8100

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					Page
ARTICLE I DEFINITIONS						A-1
	1.1.		Certain Definitions			A-1
	1.2.		Terms Defined in Other Sections			A-6
	1.3.		Interpretation			A-8
ARTICLE II THE ARRANGEMENT						A-8
	2.1.		The Arrangement			A-8
	2.2.		Implementation Steps by Italy			A-9
	2.3.		Implementation Steps by Portugal			A-10
	2.4.		Interim Order			A-10
	2.5.		Closing			A-10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ITALY						A-11
	3.1.		Organization and Qualification; Subsidiaries			A-11
	3.2.		Articles of Incorporation and Bylaws			A-12
	3.3.		Capitalization			A-12
	3.4.		Authority Relative to this Agreement			A-13
	3.5.		No Conflict; Required Filings and Consents			A-13
	3.6.		Compliance; Permits			A-14
	3.7.		Reports; Financial Statements			A-14
	3.8.		No Undisclosed Liabilities			A-16
	3.9.		Absence of Certain Changes or Events			A-16
	3.10.		Absence of Litigation			A-16
	3.11.		Employee Plans			A-16
	3.12.		Labor Matters			A-17
	3.13.		Property and Title			A-18
	3.14.		Mineral Reserves and Resources			A-18
	3.15.		Operational Matters			A-18
	3.16.		Insurance			A-18
	3.17.		Taxes			A-19
	3.18.		Environmental Matters			A-20
	3.19.		Intellectual Property			A-20
	3.20.		Agreements, Contracts and Commitments			A-21
	3.21.		Brokers			A-21
	3.22.		Opinions of Financial Advisors			A-21
	3.23.		Vote Required			A-21
	3.24.		No Other Representations and Warranties			A-22
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PORTUGAL						A-22
	4.1.		Organization and Qualification; Subsidiaries			A-22
	4.2.		Certificate of Incorporation and Bylaws			A-23
	4.3.		Capitalization			A-23
	4.4.		Authority Relative to this Agreement			A-24
	4.5.		No Conflict; Required Filings and Consents			A-24

A-i

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					Page
	4.6.		Compliance; Permits			A-25
	4.7.		SEC Filings; Financial Statements			A-25
	4.8.		No Undisclosed Liabilities			A-27
	4.9.		Absence of Certain Changes or Events			A-27
	4.10.		Absence of Litigation			A-27
	4.11.		Employee Plans			A-27
	4.12.		Labor Matters			A-28
	4.13.		Property and Title			A-28
	4.14.		Mineral Reserves and Resources			A-29
	4.15.		Operational Matters			A-29
	4.16.		Insurance			A-29
	4.17.		Taxes			A-30
	4.18.		Environmental Matters			A-30
	4.19.		Intellectual Property			A-31
	4.20.		Agreements, Contracts and Commitments			A-31
	4.21.		Brokers			A-32
	4.22.		Vote Required			A-32
	4.23.		Portugal Common Shares			A-32
	4.24.		No Other Representations and Warranties			A-32
ARTICLE V COVENANTS OF ITALY						A-32
	5.1.		Conduct of Business			A-32
	5.2.		Shareholders Meeting			A-34
	5.3.		No Solicitation; Opportunity to Match			A-35
	5.4.		Dissent Rights			A-38
	5.5.		Italy Affiliates			A-38
	5.6.		Preference Shares and Convertible Debentures			A-38
ARTICLE VI COVENANTS OF PORTUGAL						A-38
	6.1.		Conduct of Business			A-38
	6.2.		Shareholders Meeting			A-40
	6.3.		Section 3(a)(10) Exemption			A-40
	6.4.		Stock Exchange Listings			A-40
	6.5.		Amendment to Governing Documents of Portugal			A-40
	6.6.		Board Composition			A-40
	6.7.		Certain Officers			A-40
ARTICLE VII ADDITIONAL AGREEMENTS						A-41
	7.1.		Confidentiality; Access to Information			A-41
	7.2.		Cooperation in Filings			A-41
	7.3.		Public Announcements			A-42
	7.4.		Reasonable Best Efforts			A-42
	7.5.		Regulatory Filings			A-43
	7.6.		Indemnification			A-44
	7.7.		Takeover Statutes			A-44

A-ii

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					Page
	7.8.		Section 16(b)			A-44
	7.9.		U.S. Tax Treatment			A-44
ARTICLE VIII CONDITIONS						A-45
	8.1.		Conditions to Obligations of Each Party to Effect the Arrangement			A-45
	8.2.		Additional Conditions to Obligations of Italy			A-45
	8.3.		Additional Conditions to the Obligations of Portugal			A-46
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER						A-47
	9.1.		Termination			A-47
	9.2.		Notice of Termination; Effect of Termination			A-47
	9.3.		Fees and Expenses			A-48
	9.4.		Amendment			A-50
	9.5.		Extension; Waiver			A-50
ARTICLE X GENERAL PROVISIONS						A-51
	10.1.		Non-Survival of Representations and Warranties			A-51
	10.2.		Notices			A-51
	10.3.		Counterparts			A-52
	10.4.		Entire Agreement; Third Party Beneficiaries			A-52
	10.5.		Severability			A-52
	10.6.		Other Remedies; Specific Performance			A-52
	10.7.		Governing Law			A-52
	10.8.		No Personal Liability			A-53
	10.9.		Assignment			A-53
	10.10.		WAIVER OF JURY TRIAL			A-53
	10.11.		Currency			A-53

	Exhibit A			Form of Italy Resolution
	Exhibit B			Form of Plan of Arrangement
	Exhibit C			Form of Restated Certificate of Incorporation
	Exhibit D			Form of Support Agreement Amendment
	Exhibit E			Form of Portugal — France Agreement
	Exhibit F			Form of Convertible Note Purchase Agreement

A-iii

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	“1933 Act” means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated from time to time thereunder.
	“1934 Act” means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated from time to time thereunder.
	“Action” means any action, claim, suit, litigation, demand, cause of action, charge, complaint, arbitration or other proceeding.
	“Affiliate” means, with respect to any Person, any other Person that directly, or through one or more intermediaries, controls or is controlled by or is under common control with such Person. For purposes of the foregoing, “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. For the avoidance of doubt, a Subsidiary of any Person shall be deemed to be an Affiliate of such Person, and such Person shall be deemed to be an Affiliate of such Subsidiary.
	“Agreement” means this Combination Agreement, including the Exhibits and schedules hereto, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof.

A-1

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	“ARC” means an advance ruling certificate issued by the Commissioner pursuant to Section 102 of the Competition Act.
	“Arrangement” means an arrangement under section 192 of the CBCA on the terms and subject to the conditions set out in the Plan of Arrangement, subject to any amendments or variations thereto made in accordance with Section 9.4 hereof or Article VII of the Plan of Arrangement or made at the direction of the Court in the Final Order.
	“Articles of Arrangement” means the articles of arrangement of Italy in respect of the Arrangement, required by the CBCA to be sent to the Director after the Final Order is made.
	“CBCA” means the Canada Business Corporations Act, as now in effect and as it may be amended from time to time prior to the Effective Time.
	“Canadian Securities Regulatory Authorities” means the OSC and each other securities commission or similar regulatory authority in each of the provinces and territories of Canada.
	“Code” means the United States Internal Revenue Code of 1986, as amended.
	“Commissioner” means the Commissioner of Competition under the Competition Act.
	“Competition Act” means the Competition Act (Canada), as amended.
	“Competition Act Approval” means receipt of an ARC or, in the alternative to an ARC, the waiver, expiration or earlier termination of the waiting period under Part IX of the Competition Act and receipt of a letter from the Commissioner or a person authorized by the Commissioner that the Commissioner has determined not to make an application for an order under section 92 of the Competition Act in respect of the transactions contemplated by this Agreement.
	“Contract” means any written agreement, commitment, contract, note, bond, mortgage, indenture, lease, instrument or other binding arrangement.
	“Court” means the Superior Court of Justice (Ontario).
	“Director” means the Director appointed pursuant to section 260 of the CBCA.
	“Disclosed Publicly by Italy” means disclosed in a public filing by Italy with the OSC on or after January 1, 2004 and prior to the date hereof.
	“Disclosed Publicly by Portugal” means disclosed in a public filing by Portugal with the SEC on or after January 1, 2004 and prior to the date hereof.
	“Disclosed to Italy” means disclosed by Portugal in the Portugal Dataroom or made available in writing by Portugal to Italy.
	“Disclosed to Portugal” means disclosed by Italy in the Italy Dataroom or made available in writing by Italy to Portugal.
	“Dissent Rights” means the rights of dissent in respect of the Arrangement described in Article IV of the Plan of Arrangement.
	“Effective Time” has the meaning ascribed thereto in the Plan of Arrangement.
	“Employee Plan” means, with respect to any Person, any “employee benefit plan,” as defined in Section 3(3) of ERISA, and any stock purchase, stock option, stock appreciation, stock incentive, phantom stock, severance, termination, employment, change-in-control, retention, insurance (including self-insurance), split-dollar, health, medical, disability, sick pay, workers compensation, supplemental unemployment, post-employment, pension, savings, retirement, profit sharing, vacation, fringe benefit, multiemployer, collective bargaining, bonus, incentive, deferred compensation, loan and any other employee benefit plan, agreement, program, policy or other arrangement (including any funding mechanism therefor now in effect or required in the future as a result of the transactions

A-2

---

 

	contemplated by this Agreement or otherwise), whether or not subject to ERISA, whether formal or informal.
	“Environmental Laws” means all Laws and Orders of any international, provincial, federal, state, local and any other Governmental Entity that relate to the protection of the environment, protection of wildlife and/or wildlife habitat, protection of cultural or historic resources, including those relating to reclamation, remediation or restoration of mineral or other properties, the natural environment or to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any Hazardous Substances, or to the impact of Hazardous Substances on the environment, health or property.
	“Environmental Lien” means any Lien in favor of any Governmental Entity arising under Environmental Laws.
	“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
	“ERISA Affiliate” means, with respect to any Person, any trade or business (whether or not incorporated) which is a member of a controlled group or which is under common control with such Person within the meaning of Section 414 of the Code.
	“France Subsequent Acquisition Transaction” means the acquisition by Italy of the common shares of France held by Persons who have not accepted the Italy Bid in the manner contemplated under the heading “Acquisition of France Shares Not Deposited” in the Italy Bid Circular.
	“Final Order” means the final order of the Court approving the Arrangement, as such order may be amended or varied at any time prior to the Effective Time or, if appealed, then unless such appeal is withdrawn or denied, as affirmed or as amended on appeal.
	“Governmental Entity” means any (a) multinational, federal, provincial, state, regional, municipal or other government, or governmental department, central bank, court, tribunal, arbitrator, commission, board, bureau or agency, whether U.S., Canadian, foreign or multinational, (b) subdivision, agent, commission, board or authority of any of the foregoing or (c) stock exchange, including the NYSE or TSX.
	“Hazardous Substance” means any chemical, material or substance in any form, whether solid, liquid, gaseous, semisolid or any combination thereof, whether waste material, raw material, finished product, intermediate product, byproduct or any other material or article, that is listed or regulated under any applicable Environmental Laws as a hazardous substance, toxic substance, waste or contaminant or is otherwise listed or regulated under any applicable Environmental Laws because it poses a hazard to human health or the environment, including petroleum products, asbestos, PCBs, urea formaldehyde foam insulation and lead-containing paints or coatings.
	“ICA” means the Investment Canada Act (Canada), as amended, and the regulations thereunder.
	“ICA Approval” means the determination or deemed approval by the Minister responsible for the administration of the ICA that the transactions contemplated hereby are of “net benefit to Canada” pursuant to Part IV of the ICA.
	“In the Money Amount” in respect of a stock option at any time means the amount, if any, by which the aggregate fair market value at that time of the securities subject to the option exceeds the aggregate exercise price under the stock option.
	“Intellectual Property” means all federal, state, provincial, foreign and multinational intellectual and industrial property rights, including without limitation, all (i) patents; (ii) copyrights; (iii) trademarks and service marks, the goodwill of any business symbolized thereby, and all common-law rights relating thereto; (iv) trade secrets; and (v) all registrations, applications, and recordings related to the foregoing.

A-3

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	“Interim Order” means the interim order of the Court, as the same may be amended in respect of the Arrangement, as contemplated by Section 2.4.
	“ITA” means the Income Tax Act (Canada), as amended, and the regulations thereunder, as amended, in each case, except as otherwise provided herein, as of the date hereof.
	“Italy Bid” means the offer, as the same may be amended from time to time, by Italy to acquire all of the outstanding common shares of France as described in the Italy Bid Circular.
	“Italy Bid Circular” means the take-over bid circular of Italy dated October 24, 2005, as the same has been amended or varied and as the same may be amended or varied from time to time, relating to the Italy Bid.
	“Italy Dataroom” means the electronic dataroom relating to Italy to which Portugal has had access prior to the date hereof.
	“Italy Employee Plan” means any Employee Plan under which (i) any current or former director, officer, consultant or employee of Italy or any of its Subsidiaries (or any of their beneficiaries or dependants) has any present or future right to benefits and which is contributed to, entered into, sponsored by or maintained by Italy, any of its Subsidiaries or any of their ERISA Affiliates or (ii) Italy or any of its Subsidiaries has or reasonably would be expected to have any present or future liability.
	“Italy Meeting” means the special meeting of holders of Italy Common Shares, including any adjournment or postponement thereof, to be called and held in accordance with the Interim Order to consider the Arrangement and other matters related to this Agreement and the Arrangement.
	“Italy Option Plans” means the stock option or incentive plans for directors, officers and employees of Italy and its Subsidiaries and other eligible persons (as applicable).
	“Italy Resolution” means the special resolution of the holders of the Italy Common Shares, to be substantially in the form of Exhibit A hereto.
	“Italy SAR” means a stock appreciation right included in an Italy Option and exercisable in lieu of (but not in addition to) such Italy Option.
	“knowledge” of Italy, means the actual knowledge of the Persons set forth in Section 1.2 of the Italy Disclosure Schedule, and of Portugal, means the actual knowledge of the Persons set forth in Section 1.2 of the Portugal Disclosure Schedule.
	“Laws” means laws (including common law), statutes, rules, regulations, orders, ordinances, codes, treaties, and judicial, arbitral, administrative, ministerial or departmental judgments, awards or other requirements of any Governmental Entity.
	“Lien” means, with respect to any property, right or asset, any mortgage, lien, pledge, charge, security interest, purchase option, right of first offer or refusal, encumbrance or other adverse claim of any kind in respect of such property or asset.
	“Material Adverse Effect” means, with respect to each party, any fact, change, event, occurrence or effect (a) that is or would reasonably be expected to be materially adverse to the condition (financial or otherwise), properties, assets, liabilities, obligations (whether absolute, accrued, conditional or otherwise), businesses, operations or results of operations of such party, its Subsidiaries and its material joint ventures, taken as a whole, other than any such fact, change, event, occurrence or effect relating to (i) the announcement of the execution of this Agreement or the transactions contemplated hereby, including the consummation of the acquisition of common shares of France as contemplated by the Support Agreement and this Agreement, the exercise of dissent rights in connection with any subsequent acquisition transaction, and any divestitures or other actions required to obtain all necessary regulatory approvals relating thereto, (ii) changes, circumstances or conditions generally affecting the mining industry and not having a materially disproportionate effect on such

A-4

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	party, (iii) changes in general economic conditions in the United States or Canada, (iv) changes in any of the principal markets served by such party’s business generally or shortages or price changes with respect to raw materials, metals or other products (including, but not limited to, nickel, copper, cobalt, molybdenum, any platinum-group metals, sulfur, sulphuric acid, electricity, zinc or aluminum) used or sold by that party, (v) changes in generally applicable Laws or regulations (other than orders, judgments or decrees against such party, any of its Subsidiaries or any of its material joint ventures), or (vi) changes in US GAAP or Canadian GAAP or (b) that as of the date hereof is, or would reasonably be expected to be, materially adverse to the ability of such party to consummate the transactions contemplated by this Agreement; provided, however, that in no event shall (A) a change in the trading prices of a party’s equity securities, or (B) any failure by a party, including France, to meet any internal or published projections, forecasts or revenue or synergy or earnings predictions (collectively “Estimates”) by itself, be deemed to constitute a Material Adverse Effect (it being understood that the foregoing shall not prevent a party from asserting that any fact, change, event, occurrence or effect that may have contributed to such change in trading prices or Estimates independently constitutes a Material Adverse Effect); it being understood and agreed that, after the consummation of the acquisition of common shares of France as contemplated by the Support Agreement and this Agreement, for purposes of determining whether a Material Adverse Effect with respect to Italy shall have occurred, the financial condition, business and results of operations of Italy shall be deemed to include the financial condition, business and results of operations of Italy, France and their collective Subsidiaries and material joint ventures, taken as a whole.
	“NYSE” means The New York Stock Exchange, Inc.
	“OBCA” means the Business Corporations Act (Ontario), as now in effect and as it may be amended from time to time prior to the Effective Time.
	“Order” means any legally enforceable judgment, order, decision, writ, injunction, stipulation, ruling or decree of, or any settlement under jurisdiction of, any Governmental Entity.
	“OSC” means the Ontario Securities Commission.
	“Person” shall mean any individual, corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company, unlimited liability company or joint stock company), firm or other enterprise, association, organization, entity or Governmental Entity.
	“Plan of Arrangement” means, subject to Section 2.2(a), the plan of arrangement, substantially in the form of Exhibit B hereto as amended by any amendments or variations thereto made in accordance with Section 9.4 hereof or Article VII of the Plan of Arrangement or made at the direction of the Court in the Final Order.
	“Portugal Charter Amendment” means the amendment and restatement of the certificate of incorporation of Portugal so that, after giving effect thereto, the certificate of incorporation of Portugal shall be substantially in the form set forth as Exhibit C.
	“Portugal Dataroom” means the electronic dataroom relating to Portugal to which Italy has had access prior to the date hereof.
	“Portugal Employee Plan” means any Employee Plan under which (i) any current or former director, officer, consultant or employee of Portugal or any of its Subsidiaries (or any of their beneficiaries or dependants) has any present or future right to benefits and which is contributed to, entered into, sponsored by or maintained by Portugal, any of its Subsidiaries or any of their ERISA Affiliates or (ii) Portugal or any of its Subsidiaries has or reasonably would be expected to have any present or future liability.
	“Portugal Meeting” means the special meeting of holders of Portugal Common Shares, including any adjournment or postponement thereof, to be called to consider the Portugal Charter Amendment and the Portugal Share Issuance.

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	“Portugal Share Issuance” means the issuance of Portugal Common Shares pursuant to the Arrangement.
	“Proprietary Subject Matter” means: (i) all information (whether or not protectable by patent, copyright, mask work or trade secret rights) not generally known to the public, including know-how and show-how, discoveries, processes, formulae, designs, methods, techniques, procedures, concepts, specifications, technical manuals and data, libraries, blueprints, drawings, product information, development work-in-process, inventions and trade secrets; (ii) patentable subject matter, patented inventions and inventions subject to patent applications; (iii) industrial models and industrial designs; (iv) works of authorship, software and copyrightable subject matter; (v) mask works; and (vi) trademarks, trade names, service marks, brand names, corporate names, emblems, logos, trade dress, domain names, insignia and related marks.
	“Regulatory Approvals” means, with respect to a party, those Orders, sanctions, consents, exemptions, waivers, permits, agreements, certificates, authorizations and other Approvals (including the lapse, without objection, of a prescribed time under a statute or regulation that states that a transaction may be implemented if a prescribed time lapses following the giving of notice without an objection being made) of Governmental Entities that are necessary or advisable in connection with the transactions contemplated hereby, including, in the case of Italy, those referred to in Section 3.5(b) hereof and, in the case of Portugal, those referred to in Section 4.5(b) hereof.
	“Securities Act (Ontario)” means the Securities Act (Ontario) and all rules and regulations enacted thereunder, as now in effect and as it may be amended from time to time prior to the Effective Time.
	“SEC” means the United States Securities and Exchange Commission.
	“Securities Laws” means the Securities Act (Ontario) and the equivalent legislation in the other provinces and territories of Canada, the 1933 Act, and the 1934 Act, all as now enacted or as the same may from time to time be amended, and the applicable rules and regulations promulgated thereunder.
	“Stock Award Exchange Ratio” means the sum of (i) the Share Exchange Ratio plus (ii) the fraction resulting from dividing the Per Share Cash Amount by the closing price of the Portugal Common Shares on the NYSE on the last trading day immediately preceding the Closing Date expressed in Canadian dollars based upon the noon buying rate of the Bank of Canada on such date.
	“Subsidiary” shall mean, when used with reference to any party, any Person of which such party (either alone or through or together with any other Subsidiary) either owns, directly or indirectly, fifty percent (50%) or more of the outstanding capital stock or other equity interests the holders of which are generally entitled to vote for the election of directors or members of any other governing body of such Person or, in the case of a Person that is a partnership, is a general partner of such partnership, or any Person the accounts of which such party is required to consolidate in its own financial statements under the generally accepted accounting principles applicable to such party.
	“Support Agreement” means the Support Agreement, dated October 10, 2005, between Italy and France, as amended from time to time (including pursuant to amendments dated January 12, 2006, February 20, 2006, March 21, 2006, May 13, 2006 and the date hereof).
	“TSX” means The Toronto Stock Exchange.

Acquisition Proposal		Section 5.3(j)
Approvals		Section 3.1(a)
Canadian GAAP		Section 3.7(b)
Change in Italy Recommendation		Section 5.2(c)

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Change in Portugal Recommendation		Section 6.2(c)
Change in Recommendation		Section 6.2(c)
Closing Date		Section 2.5(a)
Collective Agreements		Section 3.12(a)
Confidentiality Agreements		Section 7.1(a)
Converted Portugal Option		Section 2.1(c)
Converted Portugal Option Exercise Price		Section 2.1(c)
DOJ		Section 7.5
European Commission		Section 7.5
Expenses		Section 9.3(d)
France		Recitals
France Condition		Section 8.1(g)
FTC		Section 7.5
HSR Act		Section 3.5(b)
Indemnified Parties		Section 7.6
Infringe		Section 3.19
IRD		Section 7.5
Italy		Preamble
Italy Charter Documents		Section 3.2
Italy Circular		Section 5.2(b)
Italy Common Shares		Section 3.3(a)
Italy Competing Proposal		Section 9.3(d)
Italy Disclosure Schedule		Article III
Italy Documents		Section 3.7(a)
Italy Environmental Permits		Section 3.18(c)
Italy Financial Statements		Section 3.7(b)
Italy Insurance Policies		Section 3.16
Italy Intellectual Property		Section 3.19
Italy Options		Section 3.3(a)
Italy Preferred Shares		Section 3.3(a)
Italy Property		Section 3.18(a)
Italy Restricted Shares		Section 3.3(a)
Italy Returns		Section 3.17(b)(i)
Italy Shareholder Approval		Section 2.4(b)
Italy Termination Fee		Section 9.3(d)
Italy-Used Proprietary Subject Matter		Section 3.19
KEIP Plans		Section 3.3(a)
LYON Notes		Section 3.3(a)
Material Italy Contract		Section 3.20
Material Portugal Contract		Section 4.20
Permit		Section 3.5(a)
Per Share Cash Amount		Section 2.1(a)(ii)
Portugal		Preamble
Portugal Canada		Section 2.1(a)
Portugal Charter Documents		Section 4.2

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Portugal Competing Proposal		Section 9.3(d)
Portugal Common Shares		Section 4.3(a)
Portugal Disclosure Schedule		Article IV
Portugal Environmental Permits		Section 4.18(c)
Portugal Financial Statements		Section 4.7(b)
Portugal Insurance Policies		Section 4.16
Portugal Intellectual Property		Section 4.19
Portugal Preferred Shares		Section 4.3(a)
Portugal Property		Section 4.18(a)
Portugal Proxy Statement		Section 6.2(b)
Portugal Returns		Section 4.17(a)(i)
Portugal SEC Reports		Section 4.7(a)
Portugal Stockholder Approval		Section 4.22
Portugal Termination Fee		Section 9.3(d)
Portugal-Used Proprietary Subject Matter		Section 4.19
Sarbanes-Oxley Act		Section 3.7(c)
Share Exchange Ratio		Section 2.1(a)(ii)
Shareholder Solicitations		Section 7.2(a)
Superior Proposal		Section 5.3(j)
Support Agreement Contracts		Section 3.20(b)
Takeover Statute		Section 7.7
Tax		Section 3.17(a)
Tax Pools		Section 3.17(b)(iv)
Termination Date		Section 9.1(b)
US GAAP		Section 4.7(b)

(a) A newly-formed, Canadian wholly-owned Subsidiary of Portugal (“Portugal Canada”) will acquire all outstanding Italy Common Shares; Italy and Portugal Canada will amalgamate; and each outstanding Italy Common Share (other than (x) Italy Common Shares held by a holder who has validly exercised its Dissent Rights or by Portugal or any Subsidiary of Portugal and (y) the Italy Restricted Shares) will be exchanged by the holder thereof for:

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	(i) 0.672 Portugal Common Shares (the “Share Exchange Ratio”), plus
	(ii) Cdn.$17.50 in cash (the “Per Share Cash Amount”).

	(b) Each Italy Restricted Share granted under the KEIP Plans and outstanding immediately prior to the Effective Time will be exchanged for the number of restricted Portugal Common Shares (on the same terms and conditions as were applicable prior to the Effective Time to such award of Italy Restricted Shares pursuant to the relevant KEIP Plan under which such Italy Restricted Share was issued and the agreement evidencing the grant thereof) equal to the Stock Award Exchange Ratio.
	(c) Each Italy Option outstanding immediately prior to the Effective Time, whether or not vested, shall be exchanged for a fully vested option granted by Portugal (a “Converted Portugal Option”) to acquire (on the same terms and conditions, other than vesting, as were applicable to such Italy Option pursuant to the relevant Italy Option Plan under which it was issued and the agreement evidencing the grant thereof prior to the Effective Time) the number (rounded down to the nearest whole number) of Portugal Common Shares determined by multiplying (A) the number of Italy Common Shares subject to such Italy Option immediately prior to the Effective Time by (B) the Stock Award Exchange Ratio. The exercise price per Portugal Common Share subject to any such Converted Portugal Option (the “Converted Portugal Option Exercise Price”) will be an amount (rounded up to the nearest one hundredth of a cent) equal to the quotient of (A) the exercise price per Italy Common Share subject to such Italy Option immediately prior to the Effective Time and (B) the Stock Award Exchange Ratio, expressed in U.S. dollars based on the noon buying rate of the Bank of Canada on the last trading day immediately preceding the Closing Date; provided that the exercise price otherwise determined shall be increased to the extent, if any, required to ensure that the In The Money Amount of the Converted Portugal Option immediately after the exchange is equal to the in the Money Amount of the corresponding Italy Option immediately before the exchange. The conversion mechanism set forth in this Section 2.1(c) shall be adjusted to the extent required to comply with Section 409A of the Code and the rules, regulations and guidance promulgated thereunder, where applicable.
	(d) For greater certainty, if a particular Italy Option includes an Italy SAR, the corresponding Converted Portugal Option will include a stock appreciation right subject to the same terms and conditions (other than vesting) as were applicable to the Italy SAR except that the stock appreciation right, which may be exercised in lieu of, but not in addition to the Converted Portugal Option shall represent the right to receive, upon exercise (and consequent surrender of the Converted Portugal Option), (i) the number of Portugal Common Shares (rounded down to the nearest whole share) having an aggregate fair market value on the date of exercise equal to the positive difference between (A) the aggregate fair market value of the Portugal Common Shares subject to the corresponding Converted Portugal Option and (B) the aggregate Converted Portugal Option exercise price, (ii) the equivalent amount of cash, or (iii) an equivalent combination thereof, as Portugal may determine in its sole discretion. The conversion mechanism in relation to the Italy SAR shall be adjusted as necessary to the extent required to comply with section 409A of the Code and the rules, regulations and guidance promulgated thereunder, where applicable.

(a) subject to the terms of this Agreement and the preparation of a substantially complete Italy Circular in accordance with Section 5.2 of this Agreement, as soon as reasonably practicable, apply in a manner reasonably acceptable to Portugal under Section 192 of the CBCA for an order approving the Arrangement and for the Interim Order, and thereafter proceed with and diligently seek the Interim Order. Notwithstanding that this Agreement contemplates that the Arrangement will be implemented under the CBCA, the parties agree that the Arrangement may, if the parties consider it to be appropriate in the circumstances, be effected under the OBCA with necessary modifications to the Plan of Arrangement and without any requirement to amend or otherwise modify this Agreement. In such event, at the option of Portugal, the Plan of Arrangement may be modified at any time prior

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	to the Italy Meeting to provide that the France Subsequent Acquisition Transaction shall be completed as part of the Arrangement;
	(b) subject to the terms of this Agreement and in accordance with the Interim Order, as soon as reasonably practicable, convene and hold the Italy Meeting for the purpose of considering the Italy Resolution;
	(c) provided that Italy has taken up and paid for not less than 662/3 % of the outstanding common shares of France pursuant to the Italy Bid, to use its reasonable best efforts, in consultation and with the prior approval of Portugal, to complete a France Subsequent Acquisition Transaction as soon as practicable and in any event prior to the Effective Time;
	(d) subject to obtaining such approvals as are required by the Interim Order, proceed with and diligently pursue the application to the Court for the Final Order; and
	(e) subject to obtaining the Final Order and the satisfaction or waiver of the other conditions herein contained in favor of each party, send to the Director, for endorsement and filing by the Director, the Articles of Arrangement and such other documents as may be required in connection therewith under the CBCA to give effect to the Arrangement.

	(a) subject to the terms of this Agreement, Portugal shall, as soon as reasonably practicable, convene and hold the Portugal Meeting for the purpose of considering the Portugal Share Issuance and the Portugal Charter Amendment;
	(b) subject to obtaining the Final Order and the satisfaction or waiver of the other conditions herein contained in favor of each party, on the Closing Date and prior to the Effective Time, Portugal shall file the restated certificate of incorporation of Portugal, in the form set forth in Exhibit C hereto, with the Secretary of State of the State of New York.

	(a) for the class of Persons to whom notice is to be provided in respect of the Arrangement and the Italy Meeting and for the manner in which such notice is to be provided;
	(b) that, subject to the approval of the Court, the requisite approval for the Italy Resolution shall be 662/3% of the votes cast on the Italy Resolution by holders of Italy Common Shares present in person or by proxy at the Italy Meeting (the “Italy Shareholder Approval”);
	(c) that, in all other respects, the terms, restrictions and conditions of the Italy Charter Documents, including quorum requirements and all other matters, shall apply in respect of the Italy Meeting;
	(d) for the grant of the Dissent Rights; and
	(e) for the notice requirements with respect to the presentation of the application to the Court for a Final Order.

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	(a) all rentals, royalties, overriding royalty interests, production payments, net profits, interest burdens and other payments due or payable on or prior to the date hereof under or with respect to the direct or indirect assets of Italy, its Subsidiaries and its material joint ventures have been properly and timely paid;
	(b) all rentals, payments, and obligations due and payable or performable on or prior to the date hereof under or on account of any of the direct or indirect assets of Italy, its Subsidiaries and its material joint ventures have been duly paid, performed, or provided for prior to the date hereof;
	(c) all (i) mines where Italy or a Subsidiary of Italy is operator at the relevant time have been developed and operated in accordance with good mining practices and in compliance with all then-applicable Laws, and (ii) mines located in or on the lands of Italy, any Subsidiary or material joint venture of Italy, or lands pooled or unitized therewith, which have been abandoned by Italy or any Subsidiary or material joint venture of Italy, have been developed, managed, and abandoned in accordance with good mining practices and in compliance with all applicable Laws, and (iii) all future abandonment, remediation and reclamation obligations have been accurately Disclosed Publicly by Italy without omission of information necessary to make the disclosure not misleading, and (iv) all costs, expenses, and liabilities payable on or prior to the date hereof under the terms of any Material Italy Contract have been properly and timely paid, except for such expenses that are being currently paid prior to delinquency in the ordinary course of business.

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	(i) All Tax returns, statements, reports, forms, declarations, remittances, and similar statements (including estimated Tax returns, claims for refunds, amended returns and reports and information returns and reports) required to be filed with any taxing authority by or on behalf of Italy or any of its Subsidiaries (collectively, the “Italy Returns”) were filed when due with all appropriate taxing authorities (including any applicable extension periods) in accordance with all applicable Laws and were correct and complete in all material respects.
	(ii) Italy and each of its Subsidiaries have timely paid, or withheld and remitted to the appropriate taxing authority, all Taxes due and payable by any of them under any applicable Law, including all Taxes required to be withheld, collected and paid in connection with (i) amounts paid or owing to any present or former employee, independent contractor, creditor or shareholder or to any other Person, (ii) goods and services received from or provided to any Person and (iii) amounts paid or credited to any Person not resident in the jurisdiction of the relevant payor.
	(iii) The charges, accruals and reserves for Taxes with respect to Italy and its Subsidiaries reflected on the Italy Financial Statements (whether or not due and whether or not shown on any Italy Return but excluding any provision for deferred income Taxes) are adequate under Canadian GAAP to cover Taxes accruing through the date thereof.
	(iv) The tax basis of the assets of Italy and its Subsidiaries by category including the classification of such assets as being depreciable, amortizable or resource properties giving rise to resource pools (collectively, the “Tax Pools”) as reflected in the Italy Returns is true and correct in all material respects.
	(v) There is no Action or audit now pending or threatened in writing in respect of any Tax or “tax asset” of Italy or any of its Subsidiaries. For purposes of this Section 3.17 and Section 4.17 below, the term “tax asset” shall include but is not limited to any net operating loss, non-capital

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	losses, net capital losses, Tax Pools, investment tax credit, foreign tax credit, charitable deduction or any other credit or Tax attribute which could reduce Taxes. There are no reassessments of Italy’s or any of its Subsidiaries’ Taxes that have been issued and which remain outstanding.
	(vi) Neither Italy nor any of its Subsidiaries is party to any tax sharing agreement, tax indemnification agreement or other agreement or arrangement relating to Taxes with any Person (other than Italy or any of its Subsidiaries). Neither Italy nor any of its Subsidiaries has been a member of an affiliated, combined or unitary group filing a combined, unitary, or other return for Canadian provincial, local or non-Canadian tax purposes reflecting the income, assets, or activities of affiliated companies, or has any liability for the Taxes of any other Person (other than Italy or any of its Subsidiaries) under any provision of Canadian federal, provincial, local, or non-Canadian Law, or as a transferee or successor, or by contract, or otherwise.

	(a) (i) No Hazardous Substance has been discharged, disposed of, dumped, pumped, deposited, spilled, leaked, emitted or released by Italy or any of its Subsidiaries (or, to the knowledge of Italy, is otherwise present) at, on, under or from any property now or previously owned, leased or operated by Italy or any of its Subsidiaries (“Italy Property”) in such manner or quantity that exceeds remediation criteria or standards under any applicable Environmental Laws or as would require investigation or remediation (either by Italy or its Subsidiaries, or for which Italy or its Subsidiaries would otherwise be liable) under any applicable Environmental Laws or as would adversely affect the business or operations of Italy or any of its Subsidiaries and (ii) to the knowledge of Italy, there are no liabilities of Italy or any of its Subsidiaries arising out of any Environmental Laws or any agreement with a third party and relating to any Hazardous Substances at, on, under or about any property other than a Italy Property.
	(b) The operations of Italy and each of its Subsidiaries are and have been in compliance with all, and have not violated any, applicable Environmental Laws.
	(c) (i) Italy and its Subsidiaries hold all approvals, certificates, authorizations, agreements, permits, licenses, certificates, clearances and consents under or pursuant to applicable Environmental Laws (the “Italy Environmental Permits”) necessary for the conduct of Italy’s and its Subsidiaries’ businesses as conducted currently and through the most recent fiscal year, (ii) all such Italy Environmental Permits are valid and in full force and effect, (iii) Italy and its Subsidiaries have not violated any such Italy Environmental Permits, and (iv) neither Italy nor any of its Subsidiaries has received any notice that any Italy Environmental Permits will be revoked, adversely modified or not renewed, and to the knowledge of Italy there is no reasonable basis for revoking, adversely modifying or refusing to renew any such Italy Environmental Permits.
	(d) No Order or Action is pending, and to Italy’s knowledge, no Order or Action has been threatened, by any Governmental Entity or third party against or, to Italy’s knowledge, affecting Italy or any of its Subsidiaries concerning any alleged violation of or liability under any Environmental Law or concerning any Hazardous Substance.
	(e) No Environmental Lien is pending, and to Italy’s knowledge, no Environmental Lien has been threatened against or affecting Italy, any of its Subsidiaries, or any real or personal property of Italy or any of its Subsidiaries.

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	(a) all rentals, royalties, overriding royalty interests, production payments, net profits, interest burdens and other payments due or payable on or prior to the date hereof under or with respect to the direct or indirect assets of Portugal, its Subsidiaries and its material joint ventures have been properly and timely paid;
	(b) all rentals, payments, and obligations due and payable or performable on or prior to the date hereof under or on account of any of the direct or indirect assets of Portugal, its Subsidiaries and its material joint ventures have been duly paid, performed, or provided for prior to the date hereof;
	(c) all (i) mines where Portugal or a Subsidiary of Portugal is operator at the relevant time have been developed and operated in accordance with good mining practices and in compliance with all then-applicable Laws, and (ii) mines located in or on the lands of Portugal, any Subsidiary or material joint venture of Portugal, or lands pooled or unitized therewith, which have been abandoned by Portugal or any Subsidiary or material joint venture of Portugal, have been developed, managed and abandoned in accordance with good mining practices and in compliance with all applicable Laws, and (iii) all future abandonment, remediation and reclamation obligations have been accurately Disclosed Publicly by Portugal without omission of information necessary to make the disclosure not misleading, and (iv) all costs, expenses, and liabilities payable on or prior to the date hereof under the terms of any Material Portugal Contract have been properly and timely paid, except for such expenses that are being currently paid prior to delinquency in the ordinary course of business.

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	(i) All Tax returns, statements, reports, forms, declarations, remittances, and similar statements (including estimated Tax returns, claims for refunds, amended returns and reports and information returns and reports) required to be filed with any taxing authority by or on behalf of Portugal or any of its Subsidiaries (collectively, the “Portugal Returns”) were filed when due with all appropriate taxing authorities (including any applicable extension periods) in accordance with all applicable Laws and were correct and complete in all material respects.
	(ii) Portugal and each of its Subsidiaries have timely paid, or withheld and remitted to the appropriate taxing authority, all Taxes due and payable by any of them under any applicable Law, including all Taxes required to be withheld, collected and paid in connection with (i) amounts paid or owing to any present or former employee, independent contractor, creditor or shareholder or to any other Person, (ii) goods and services received from or provided to any Person and (iii) amounts paid or credited to any Person not resident in the jurisdiction of the relevant payor.
	(iii) The charges, accruals and reserves for Taxes with respect to Portugal and its Subsidiaries reflected on the Portugal Financial Statements (whether or not due and whether or not shown on any Portugal Return but excluding any provision for deferred income Taxes) are adequate under US GAAP to cover Taxes accruing through the date thereof.
	(iv) The tax basis of the assets of Portugal and its Subsidiaries by category including the classification of such assets as being depreciable or amortizable as reflected in the Portugal Returns is true and correct in all material respects.
	(v) There is no Action or audit now pending or threatened in writing in respect of any Tax or “tax asset” of Portugal or any of its Subsidiaries. There are no reassessments of Portugal’s or any of its Subsidiaries’ Taxes that have been issued and which remain outstanding.
	(vi) Neither Portugal nor any of its Subsidiaries is party to any tax sharing agreement, tax indemnification agreement or other agreement or arrangement relating to Taxes with any Person (other than Portugal or any of its Subsidiaries). Neither Portugal nor any of its Subsidiaries has been a member of an affiliated, combined or unitary group filing a consolidated, combined, unitary or other return for U.S. federal, state, local or non-U.S. tax purposes reflecting the income, assets or activities of affiliated companies (other than a group the common parent of which is Portugal), or has any liability for the Taxes of any other Person (other than Portugal or any of its Subsidiaries) under any provision of U.S. federal, state, local or non-U.S. law, or as a transferee or successor, or by contract, or otherwise.

(a) (i) No Hazardous Substance has been discharged, disposed of, dumped, pumped, deposited, spilled, leaked, emitted or released by Portugal or any of its Subsidiaries (or, to the knowledge of Portugal, is otherwise present) at, on, under or from any property now or previously owned, leased or operated by Portugal or any of its Subsidiaries (“Portugal Property”) in such manner or quantity that exceeds remediation criteria or standards under any applicable Environmental Laws or as would

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	require investigation or remediation (either by Portugal or its Subsidiaries, or for which Portugal or its Subsidiaries would otherwise be liable) under any applicable Environmental Laws or as would adversely affect the business or operations of Portugal or any of its Subsidiaries and (ii) to the knowledge of Portugal, there are no liabilities of Portugal or any of its Subsidiaries arising out of any Environmental Laws or any agreement with a third party and relating to any Hazardous Substances at, on, under or about any property other than a Portugal Property.
	(b) The operations of Portugal and each of its Subsidiaries are and have been in compliance with all, and have not violated any, applicable Environmental Laws.
	(c) (i) Portugal and its Subsidiaries hold all approvals, certificates, authorizations, agreements, permits, licenses, certificates, clearances and consents under or pursuant to applicable Environmental Laws (the “Portugal Environmental Permits”) necessary for the conduct of Portugal’s and its Subsidiaries’ businesses as conducted currently and through the most recent fiscal year, (ii) all such Portugal Environmental Permits are valid and in full force and effect, (iii) Portugal and its Subsidiaries have not violated any such Portugal Environmental Permits, and (iv) neither Portugal nor any of its Subsidiaries has received any notice that any Portugal Environmental Permits will be revoked, adversely modified or not renewed, and to the knowledge of Portugal there is no reasonable basis for revoking, adversely modifying or refusing to renew any such Portugal Environmental Permits.
	(d) No Order or Action is pending, and to Portugal’s knowledge, no Order or Action has been threatened, by any Governmental Entity or third party against or, to Portugal’s knowledge, affecting Portugal or any of its Subsidiaries concerning any alleged violation of or liability under any Environmental Law or concerning any Hazardous Substance.
	(e) No Environmental Lien is pending, and to Portugal’s knowledge, no Environmental Lien has been threatened against or affecting Portugal, any of its Subsidiaries, or any real or personal property of Portugal or any of its Subsidiaries.

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	(a) amend its articles of incorporation or by-laws or other applicable governing instruments;
	(b) split, combine, subdivide or reclassify any shares of its capital stock or other equity interests or declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, or redeem, repurchase or otherwise acquire or offer to redeem, repurchase, or otherwise acquire any of its securities, except for (i) cash dividends with respect to the Italy Common Shares in the ordinary course, in each case with usual declaration, record and payment dates and in accordance with Italy’s current dividend policy and (ii) dividends

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	paid to Italy or any of its Subsidiaries by any Subsidiary that is, directly or indirectly, wholly-owned by Italy; and (iii) dividends paid by non-wholly owned Subsidiaries in the ordinary course consistent with current dividend policy;
	(c) adopt a plan or agreement of complete or partial liquidation, dissolution, winding up, merger, consolidation, amalgamation, restructuring, recapitalization or other material reorganization (other than in connection with the transactions contemplated by the Support Agreement or a merger, amalgamation or consolidation between wholly owned Subsidiaries of Italy);
	(d) issue, deliver or sell, or authorize the issuance, delivery or sale of, any shares of its capital stock of any class or other equity interests or any securities convertible into or exercisable for, or any rights, warrants or options to acquire, any such capital stock or other equity interests, other than (i) the issuances of Italy Common Shares upon the exercise of Italy Options outstanding on the date hereof or issued after the date hereof in compliance with the terms of this Agreement in accordance with their present terms, (ii) grants of options to its employees and directors in the ordinary course of business consistent with past practice, using Italy’s standard form of stock option award agreement as of the date hereof, up to a maximum of 1,114,000 optioned Italy Common Shares in the aggregate in calendar year 2006 and 1,114,000 optioned Italy Common Shares in the aggregate in calendar year 2007 (and up to a further 750,000 optioned Italy Common Shares following the satisfaction of the France Condition), provided that none of the Italy Options referred to in this clause shall accelerate or become vested as a result of the consummation of the transactions contemplated by this Agreement, (iii) issuances of Italy Common Shares required pursuant to the conversion of convertible securities outstanding on the date hereof, and (iv) issuances of Italy Common Shares and Italy Options in connection with the acquisition of France pursuant to and on the terms set forth in the Support Agreement;
	(e) except as required to ensure that any Italy Employee Plan in effect on the date of this Agreement is not then out of compliance with applicable Law or as specifically required or permitted pursuant to this Agreement or as provided in the Italy Disclosure Schedule or as required in connection with the termination of Italy’s Non-Employee Director Share Ownership Plan or the payment of any amount to the holders of deferred share units issued under such plan in consideration for the cancellation of such deferred share units, (A) adopt, enter into, terminate or amend any Italy Employee Plan, other than in the ordinary course of business consistent with past practice, (B) increase in any manner the compensation or benefits of, or pay any bonus to, any employee of Italy or its Subsidiaries, except for increases in base salary or payments of bonuses in the ordinary course of business consistent with past practice, as required to comply with any Italy Employee Plan in effect on the date of this Agreement, or in 2007 in connection with annual performance assessments consistent with past practice, (C) pay or provide to any employee of Italy or its Subsidiaries any benefit not provided for under an Italy Employee Plan as in effect on the date of this Agreement, other than the payment of base compensation in the ordinary course of business consistent with prior practice or as permitted by clause (B) above, (D) except to the extent expressly permitted under Section 5.1(d), grant any awards under any Italy Employee Plan (including the grant of stock or other equity options, stock or other equity appreciation rights, performance units, restricted stock or other equity, stock or other equity purchase rights or other stock or other equity-based or stock-related awards) or remove existing restrictions in any Italy Employee Plan or awards made thereunder, (E) take any action to fund or in any other way secure the payment of compensation or benefits under any Italy Employee Plan, except as required to comply with any Italy Employee Plan as in effect on the date of this Agreement or (F) take any action to accelerate the vesting or payment of any compensation or benefits under any Italy Employee Plan;
	(f) acquire (by merger, consolidation, acquisition of stock or assets or otherwise), directly or indirectly, any material business, other than the acquisition of France pursuant to and on the terms set forth in the Support Agreement;

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	(g) other than pursuant to Contracts in effect as of the date hereof and other than sales of inventory in the ordinary course of business consistent with past practice, sell, lease, license (as licensor or licensee), assign, encumber or otherwise transfer in one transaction or any series of related transactions, any material assets or material rights;
	(h) incur, assume or guarantee any indebtedness for borrowed money or issue or sell any debt securities or warrants or other rights to acquire debt securities or enter into any keep-well or other arrangements to maintain the financial condition of any other Person, other than short-term borrowings in the ordinary course of business and in amounts and on terms consistent with past practices and indebtedness incurred in connection with the payment to the shareholders of France of the cash consideration provided for in the Support Agreement (for greater certainty, including payments to dissenting shareholders with respect to the France Subsequent Acquisition Transaction);
	(i) make any loan, advance or capital contribution to or investment in any Person, other than (i) loans, advances or capital contributions to or investments in its Subsidiaries or pursuant to Contracts in effect at the date hereof, (ii) in connection with acquisitions permitted by Section 5.1(e), or (iii) in the ordinary course of business consistent with past practice, to the extent not individually or in the aggregate material to Italy; provided that none of such transactions permitted by this clause (iii) shall present a material risk of delaying or impairing the parties’ ability to consummate the transactions contemplated by this Agreement;
	(j) change (i) its methods of accounting or accounting practices in any material respect, except as required by concurrent changes in Canadian GAAP or by Law and concurred in by Italy’s external auditors or (ii) its fiscal year;
	(k) take any action that would, or would reasonably be expected to, prevent or materially impair or delay the ability of Italy to consummate the transactions contemplated by this Agreement, including the Arrangement and the transactions contemplated by the Arrangement;
	(l) enter into, cancel, terminate, or grant any waiver in respect of any Support Agreement Contract or any Contract that would be a Support Agreement Contract if in effect on the date hereof; it being understood and agreed between the parties that, notwithstanding anything to the contrary set forth herein, after consultation with Portugal, Italy may, at its sole discretion, terminate any Support Agreement Contract in accordance with its terms;
	(m) file any registration statement under the 1933 Act or an amendment to any 1933 Act registration statement (other than an amendment to its registration statement on Form F-8 relating to the Italy Bid); or
	(n) agree or commit to do any of the foregoing.

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	(i) the Acquisition Proposal constitutes a Superior Proposal;
	(ii) Italy has provided Portugal with notice in writing that there is a Superior Proposal together with all documentation detailing the Superior Proposal (including a copy of the confidentiality agreement between Italy and the Person making the Superior Proposal if not previously delivered);
	(iii) at least 10 business days shall have elapsed from the date that Portugal has received a copy of the written proposal in respect of the purported Superior Proposal (or any amendment or revision thereof);
	(iv) if Portugal has proposed to amend the terms of the Arrangement and this Agreement in accordance with Section 5.3(g), the Italy board of directors (after receiving advice from its financial advisors and outside legal counsel) shall have determined in good faith that the Acquisition Proposal continues to constitute a Superior Proposal after taking into account such amendments;
	(v) Italy’s board of directors, after consultation with outside legal counsel, determines in good faith that the failure to take such action would be inconsistent with its fiduciary duties under all applicable Laws; and

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	(vi) prior to entering into an agreement relating to such Superior Proposal (other than the aforesaid confidentiality agreement) Italy shall have terminated this Agreement pursuant to Section 9.1(j) and paid to Portugal the Italy Termination Fee.

	“Acquisition Proposal” means: (i) any merger, take-over bid, amalgamation, plan of arrangement, business combination, consolidation, recapitalization, liquidation or winding-up in respect of Italy; (ii) any sale or acquisition of 20% or more of the fair market value of the assets of Italy on a consolidated basis; (iii) any sale or acquisition of 20% or more of Italy’s shares of any class or rights or interests therein or thereto; (iv) any sale of any material interest in any material joint ventures or material mineral properties; (v) any similar business combination or transaction, of or involving Italy, any material Subsidiary of Italy or material joint venture of Italy, other than with Portugal; or (vi) any proposal or offer to, or public announcement of an intention to do, any of the foregoing from any Person other than Portugal, provided, however, that the term “Acquisition Proposal” shall not include the transactions contemplated by this Agreement or the Support Agreement.
	“Superior Proposal” means an unsolicited bona fide Acquisition Proposal made by a third party to Italy in writing after the date hereof: (i) to purchase or otherwise acquire, directly or indirectly, by means of a merger, take-over bid, amalgamation, plan of arrangement, business combination, consolidation, recapitalization, liquidation, winding-up or similar transaction, all of the Italy Common Shares; (ii) that is reasonably capable of being completed, taking into account all legal, financial, regulatory (including U.S. and European Competition Authority and any Investment Canada approval) and other aspects of such proposal and the party making such proposal; (iii) in respect of which any required financing to complete such Acquisition Proposal has been demonstrated to the satisfaction of the Italy board of directors, acting in good faith (after receipt of advice from its financial advisors and outside legal counsel), is reasonably likely to be obtained, (iv) that is not subject to any due diligence condition; (v) that is offered or made available to all shareholders of Italy in Canada and the United States on the same terms; and (vi) in respect of which the Italy board of directors determines in good faith (after receipt of advice from its financial advisors with respect to (y) below and outside legal counsel with respect to (x) below) that (x) failure to recommend such Acquisition Proposal to Italy’s shareholders would be inconsistent with its fiduciary duties and (y) such Acquisition Proposal taking into account all of the terms and conditions thereof, if consummated in accordance with its terms (but not assuming away any risk of non-completion), would result in a transaction more favorable to shareholders from a financial point of view than the Arrangement (including any adjustment to the terms and conditions of the Arrangement and this Agreement proposed by Portugal pursuant to Section 5.3(g), and taking into account the long-term value and anticipated synergies anticipated to be realized as a result of the combination of Portugal and Italy).

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	(a) amend its certificate of incorporation or by-laws or other applicable governing instruments;
	(b) split, combine, subdivide or reclassify any shares of its capital stock or other equity interests or declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, or redeem, repurchase or otherwise acquire or offer to redeem, repurchase, or otherwise acquire any of its securities, except for (i) cash dividends with respect to the Portugal Common Shares, consistent with past practice and in the ordinary course, in each case with usual declaration, record and payment dates and in accordance with Portugal’s current dividend policy and (ii) dividends paid to Portugal or any of its Subsidiaries by any Subsidiary of Portugal;
	(c) adopt a plan or agreement of complete or partial liquidation, dissolution, merger, consolidation, amalgamation, restructuring, recapitalization or other material reorganization (other than a merger, amalgamation or consolidation between wholly owned Subsidiaries of Portugal);
	(d) issue, deliver or sell, or authorize the issuance, delivery or sale of, any shares of its capital stock of any class or other equity interests or any securities convertible into or exercisable for, or any rights, warrants or options to acquire, any such capital stock or other equity interests, other than

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	(i) the issuances of Portugal Common Shares upon the exercise of stock options outstanding on the date hereof or issued after the date hereof in compliance with the terms of this Agreement in accordance with their present terms, (ii) grants of options, restricted shares, and/or deferred stock units to its employees and directors in the ordinary course of business consistent with past practice, using Portugal’s standard form of award agreement as of the date hereof, in respect of a maximum of 500,000 Portugal Common Shares in the aggregate; or (iii) issuances of Portugal Common Shares required pursuant to the conversion of convertible securities outstanding on the date hereof;
	(e) except as required to ensure that any Portugal Employee Plan in effect on the date of this Agreement is not then out of compliance with applicable Law or as specifically required or permitted pursuant to this Agreement or as provided in the Portugal Disclosure Schedule, (A) adopt, enter into, terminate or amend any Portugal Employee Plan, other than in the ordinary course of business consistent with past practice, (B) increase in any manner the compensation or benefits of, or pay any bonus to, any employee of Portugal or its Subsidiaries, except for increases in base salary or payments of bonuses in the ordinary course of business consistent with past practice or as required to comply with any Portugal Employee Plan in effect on the date of this Agreement, or in 2007 in connection with annual performance assessments consistent with past practices, (C) pay or provide to any employee of Portugal or its Subsidiaries any benefit not provided for under any Portugal Employee Plan as in effect on the date of this Agreement, other than the payment of base compensation in the ordinary course of business consistent with prior practice or as permitted by clause (B) above, (D) except to the extent expressly permitted under Section 6.1(d), grant any awards under any Portugal Employee Plan (including the grant of stock or other equity options, stock or other equity appreciation rights, performance units, restricted stock or other equity, stock or other equity purchase rights or other stock or other equity-based or stock-related awards) or remove existing restrictions in any Portugal Employee Plan or awards made thereunder, (E) take any action to fund or in any other way secure the payment of compensation or benefits under any Portugal Employee Plan, except as required to comply with any Portugal Employee Plan as in effect on the date of this Agreement or (F) take any action to accelerate the vesting or payment of any compensation or benefits under any Portugal Employee Plan;
	(f) acquire (by merger, consolidation, acquisition of stock or assets or otherwise), directly or indirectly, any material business;
	(g) other than pursuant to Contracts in effect as of the date hereof and other than sales of inventory in the ordinary course of business consistent with past practice, sell, lease, license (as licensor or licensee), assign, encumber or otherwise transfer in one transaction or any series of related transactions, any material assets or material rights;
	(h) incur, assume or guarantee any indebtedness for borrowed money or issue or sell any debt securities or warrants or other rights to acquire debt securities, or enter into any keep-well or other arrangements to maintain the financial condition of any other Person, other than short-term borrowings in the ordinary course of business and in amounts and on terms consistent with past practices;
	(i) make any loan, advance or capital contribution to or investment in any Person, other than (i) loans, advances or capital contributions to or investments in its Subsidiaries or pursuant to Contracts in effect at the date hereof, (ii) in connection with acquisitions permitted by Section 6.1(e), or (iii) in the ordinary course of business consistent with past practice, to the extent not individually or in the aggregate material to Portugal; provided that none of such transactions permitted by this clause (iii) shall present a material risk of delaying or impairing the parties’ ability to consummate the transactions contemplated by this Agreement;
	(j) change (i) its methods of accounting or accounting practices in any material respect, except as required by concurrent changes in US GAAP (or the permitted early adoption of such changes) or by Law and concurred in by Portugal’s external auditors or (ii) its fiscal year;

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	(k) take any action that would, or would reasonably be expected to, prevent or materially impair or delay the ability of Portugal to consummate the transactions contemplated by this Agreement, including the Arrangement and the transactions contemplated by the Arrangement; or
	(l) agree or commit to do any of the foregoing.

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	(i) use its reasonable best efforts to obtain the requisite approvals of this Agreement from its shareholders, except to the extent that the board of directors of such party has effected a Change in Recommendation in compliance with the terms hereof (including Sections 5.2 and 6.2);
	(ii) apply for and use its reasonable best efforts to promptly obtain all Regulatory Approvals to be obtained by it and its Subsidiaries and, in doing so, keep the other party reasonably informed, subject to ensuring that confidential competitively sensitive information is exchanged among outside counsel only, as to the status of the proceedings related to obtaining the Regulatory Approvals, including, but not limited to, (A) providing such other party with copies of all material related applications and notifications prepared for submission to any other Person or Governmental Entity, in draft form, in order for such other party to provide its reasonable comments and providing such other party with copies of all related material communications regarding this Agreement received by such party from, or given by such party to, any Governmental Entity and any material communication received or given in connection with any proceeding by a private party relating to such Regulatory Approvals, (B) consulting with the other party to the extent practicable in advance of any meeting or conference with Governmental Entities or, in connection with any proceeding by a private party, with any other Person and, to the extent permitted by such Governmental Entities, to permit the other party to attend such meetings and conferences, in each case to the extent relating to the transactions contemplated by this Agreement and (C) receiving the prior written consent of the other party before agreeing to extend any waiting period any antitrust merger control Laws or entering into any agreement with any Governmental Entity regarding antitrust, competition or similar Laws;
	(iii) use its reasonable best efforts to obtain all necessary Approvals required to be obtained by it or its Subsidiaries from third parties in connection with the transactions contemplated by this Agreement, including the Arrangement;
	(iv) carry out the terms of the Interim Order and the Final Order applicable to it and use its reasonable best efforts to comply promptly with all requirements which applicable Laws may impose on it or its Subsidiaries with respect to the transactions contemplated by this Agreement; and
	(v) promptly advise the other party orally and, if then requested, in writing of any event occurring subsequent to the date of this Agreement that, if uncured at the Effective Time, would render it incapable of satisfying any condition to be satisfied by it pursuant to Article VII.

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	(a) Portugal Stockholder Approval. The Portugal Stockholder Approval shall have been obtained.
	(b) Italy Shareholder Approval. The Italy Shareholder Approval shall have been obtained, in accordance with any conditions which may be imposed by the Interim Order.
	(c) Interim Order; Final Order. The Interim Order and the Final Order shall each have been obtained in form and terms reasonably satisfactory to each of Portugal and Italy, and shall not have been set aside or modified in a manner unacceptable to such parties, acting reasonably, on appeal or otherwise.
	(d) No Orders. No Order or Law entered, enacted, promulgated, enforced or issued by any court or other Governmental Entity of competent jurisdiction shall be in effect which restrains or enjoins the consummation of the Arrangement or makes the Arrangement or the other transactions contemplated by this Agreement illegal.
	(e) Regulatory Approvals.

	(i) Portugal shall have obtained the Competition Act Approval and the ICA Approval;
	(ii) all applicable waiting periods (and any extensions thereof) under the HSR Act shall have expired or been terminated; and
	(iii) the applicable waiting periods under Council Regulation (EC) 139/2004 of 20 January 2004 shall have expired or been terminated.

	(f) Listing of Shares. The Portugal Common Shares issuable pursuant to the Arrangement shall have been approved for listing on the NYSE and TSX, subject to notice of issuance.
	(g) France. Either (i) Italy shall have acquired at least two-thirds of the outstanding common shares of France on the terms set forth in the Support Agreement and the Italy Bid Circular, without the waiver or change of any material term or condition thereof except as approved by Portugal in writing, and shall have completed a France Subsequent Acquisition Transaction (the “France Condition”), or (ii) the Support Agreement has been terminated in accordance with its terms. Italy will give Portugal at least 5 days written notice of any determination to waive any material term or condition of the Support Agreement and the Italy Bid Circular and Portugal will inform Italy within such period whether or not Portugal consents to such waiver.
	(h) Portugal Charter Amendment. Portugal’s certificate of incorporation shall have been amended and restated in the form attached as Exhibit C, provided that (i) such amendment and restatement shall be effectuated only upon satisfaction or waiver of all other conditions set forth in this Article VIII and (ii) Portugal shall not be entitled to rely on this condition precedent to the extent that it is in breach of its obligations hereunder in respect of the implementation of such amendment.

	(a) Representations and Warranties. The representations and warranties of Portugal contained in this Agreement (without giving effect to any materiality (including the word “material”) or “Material Adverse Effect” qualification) shall be true and correct as of the Closing Date with the

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	same effect as if made at and as of the Closing Date (other than such representations that are made as of a specified date, which shall be true and correct as of such date), except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Portugal. Italy shall have received a certificate with respect to the foregoing signed on behalf of Portugal by an authorized officer of Portugal.
	(b) Agreements and Covenants. Portugal shall have performed or complied in all material respects with all material agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing Date, and Italy shall have received a certificate to such effect signed on behalf of Portugal by an authorized officer of Portugal.
	(c) No Material Adverse Effect. Since the date hereof, there shall not have occurred any fact, event, change, development, circumstance or effect which, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect on Portugal.
	(d) Portugal Board of Directors. Portugal shall have taken all such actions as are necessary to cause the board of directors of Portugal as of the Effective Time to be constituted in accordance with Section 6.6.

	(a) Representations and Warranties. The representations and warranties of Italy contained in this Agreement (without giving effect to any materiality (including the word “material”) or “Material Adverse Effect” qualification) shall be true and correct as of the Closing Date with the same effect as if made at and as of the Closing Date (other than such representations that are made as of a specified date, which shall be true and correct as of such date), except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Italy; it being understood and agreed that for purposes of measuring the truth and correctness of the representations and warranties of Italy as of the Closing Date, if the France Acquisition has occurred, France, its Subsidiaries and material joint ventures shall not be considered to be Subsidiaries or material joint ventures of Italy. Portugal shall have received a certificate with respect to the foregoing signed on behalf of Italy by an authorized officer of Italy.
	(b) Agreements and Covenants. Italy shall have performed or complied in all material respects with all material agreements and covenants required by this Agreement to be performed or complied with by it at or prior to the Closing Date, and Portugal shall have received a certificate to such effect signed on behalf of Italy by an authorized officer of Italy.
	(c) No Material Adverse Effect. Since the date hereof, there shall not have occurred any fact, event, change, development, circumstance or effect which, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect on Italy.
	(d) Dissent Rights. The holders of no more than 10% of all of the issued and outstanding Italy Common Shares shall have exercised their Dissent Rights (and shall not have lost or withdrawn such rights) in respect of the Arrangement, provided that in the event that any Person who holds, directly or indirectly, on the date hereof more than 10% of the common shares of France exercises Dissent Rights in respect of the Arrangement in respect of more than 5% of the Italy Common Shares, the first reference to 10% in this Section 8.3(d) shall be increased to 15%.

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	(a) by mutual written consent duly authorized by the boards of directors of each of Portugal and Italy;
	(b) by either Italy or Portugal, if the Arrangement shall not have been consummated by March 31, 2007 for any reason (the “Termination Date”); provided, however, that the right to terminate this Agreement under this Section 9.1(b) shall not be available to any party whose action or failure to act has been a principal cause of or resulted in the failure of the Arrangement to occur on or before such date and such action or failure to act constitutes a breach of this Agreement;
	(c) by either Italy or Portugal, if there shall be passed any Law that makes the consummation of the Arrangement illegal or otherwise prohibited, or if a Governmental Entity in the United States or Canada shall have issued an Order or taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the Arrangement, which Order or other action is final and nonappealable;
	(d) by either Italy or Portugal, if the Italy Shareholder Approval shall not have been obtained by reason of the failure to obtain the Italy Shareholder Approval upon a vote taken thereon at the duly convened Italy Meeting or at any adjournment or postponement thereof;
	(e) by either Italy or Portugal, if the Portugal Stockholder Approval shall not have been obtained by reason of the failure to obtain the Portugal Stockholder Approval upon a vote taken thereon at the duly convened Portugal Meeting or any adjournment or postponement thereof;
	(f) by Italy, upon a breach of any representation, warranty, covenant or agreement on the part of Portugal set forth in this Agreement such that the conditions set forth in Section 8.2(a) or Section 8.2(b) are incapable of being satisfied on or before the Termination Date;
	(g) by Portugal, upon a breach of any representation, warranty, covenant or agreement on the part of Italy set forth in this Agreement such that the conditions set forth in Section 8.3(a) or Section 8.3(b) are incapable of being satisfied on or before the Termination Date;
	(h) by Italy or Portugal if the board of directors of Portugal shall have effected a Change in Portugal Recommendation;
	(i) by Portugal or Italy if the board of directors of Italy shall have effected a Change in Italy Recommendation; or
	(j) by Italy, if Italy proposes to enter into a definitive agreement with respect to a Superior Proposal in compliance with the provisions of Section 5.3(f), provided that Italy has previously or concurrently will have paid to Portugal the Italy Termination Payment.

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	(A) this Agreement is terminated by Portugal or Italy pursuant to Section 9.1(b) and following the date hereof and prior to the termination of this Agreement, an Italy Competing Proposal shall have been publicly announced or otherwise communicated to the shareholders of Italy, or
	(B) this Agreement is terminated by Italy or Portugal pursuant to Section 9.1(d).

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	(A) this Agreement is terminated by Portugal or Italy pursuant to Section 9.1(b), and following the date hereof and prior to the termination of this Agreement, a Portugal Competing Proposal shall have been publicly announced or otherwise communicated to the shareholders of Portugal, or
	(B) this Agreement is terminated by Italy or Portugal pursuant to Section 9.1(e).

	“Expenses” means all out-of-pocket fees and expenses (including all fees and expenses of counsel, accountants, financial advisors and investment bankers to a party hereto and its Affiliates), up to $40 million in the aggregate, incurred by a party or on its behalf in connection with or related to the authorization, preparation, negotiation, execution and performance of this Agreement, the preparation, printing, filing and mailing of its Shareholder Solicitation, the filing of any required notices under applicable antitrust Laws or in connection with other Regulatory Approvals, and all other matters related to the Arrangement (including the Interim Order and Final Order) and the other transactions contemplated hereby.
	“Italy Competing Proposal” means: (i) any merger, take-over bid, amalgamation, plan of arrangement, business combination, consolidation, or similar transaction in respect of Italy; (ii) any purchase or other acquisition by a Person (other than Portugal) of such number of Italy’s Common Shares or any rights or interests therein or thereto which together with such Person’s other direct or indirect holdings of Common Shares and the holdings of any other Person or Persons with whom such first Person may be acting jointly or in concert constitutes at least a majority of Italy’s outstanding Common Shares; (iii) any similar business combination or transaction, of or involving Italy; or (iv) any proposal or offer to, or public announcement of an intention to do, any of the foregoing from any Person other than Portugal; provided that notwithstanding the foregoing neither (a) the

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	acquisition by Italy of a third party, whether structured by means of a merger, amalgamation, consolidation or otherwise, in which Italy remains as the parent company and the shareholders of Italy immediately prior to the consummation of such transaction hold a majority of the outstanding shares of Italy calculated on a fully diluted basis immediately following such consummation nor (b) the acquisition by Italy of France as contemplated by the Support Agreement shall constitute an Italy Competing Proposal, and provided, further, that the offer by Teck Cominco in respect of the Italy Common Shares that was announced on May 8, 2006 shall not be considered an Italy Competing Proposal unless Teck Cominco amends such offer to increase or materially improve the consideration proposed to be paid by Teck Cominco thereunder.
	“Italy Termination Fee” means an amount equal to US$475 million, provided that such amount shall be US$925 million from and after the date that Italy has acquired at least two-thirds of the outstanding common shares of France.
	“Portugal Competing Proposal” means: (i) any merger, take-over bid, amalgamation, plan of arrangement, business combination, consolidation, or similar transaction in respect of Portugal; (ii) any purchase or other acquisition by a Person (other than Italy) of such number of Portugal Common Shares or any rights or interests therein or thereto which together with such Person’s other direct or indirect holdings of Portugal Common Shares and the holdings of any other Person or Persons with whom such first Person may be acting jointly or in concert constitutes at least a majority of Portugal Common Shares outstanding; (iii) any similar business combination or transaction, of or involving Portugal; or (iv) any proposal or offer to, or public announcement of an intention to do, any of the foregoing from any Person other than Italy; provided that notwithstanding the foregoing the acquisition by Portugal of a third party, whether structured by means of a merger, amalgamation, consolidation or otherwise, in which Portugal remains as the parent company and the shareholders of Portugal immediately prior to the consummation of such transaction hold a majority of the outstanding shares of Portugal immediately following such consummation shall not constitute a Portugal Competing Proposal.
	“Portugal Termination Fee” means an amount equal to US$500 million.

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	Phelps Dodge Corporation
	One North Central Ave.
	Phoenix, AZ 85004
	Attention: David Colton
	Telecopy No.: (602) 366-7321
	with copies to:
	Debevoise & Plimpton LLP
	919 Third Avenue
	New York, N.Y. 10022
	Attention: Michael W. Blair
	Gregory V. Gooding
	Telecopy No.: (212) 909-6870
	and
	Heenan Blaikie LLP
	P.O. Box 185, Suite 2600
	200 Bay Street
	South Tower, Royal Bank Plaza
	Toronto, Ontario M5J 2J4
	Attention: Jeff Barnes
	Telecopy No.: (416) 360-8425

	Inco Limited
	145 King Street West
	Suite 1500
	Toronto, Ontario M5H 4B7,
	Canada
	Attention: Simon Fish
	Telecopy No.: (416) 361-7781
	with copies to:
	Sullivan & Cromwell LLP
	125 Broad Street
	New York, New York 10004
	Attention: James C. Morphy
	George J. Sampas
	Telecopy No.: 212-558-3588

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Attention:	Dale R. Ponder

	Telecopy No.: 416-862-6666

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	PHELPS DODGE CORPORATION

	By:	/s/ J. Steven Whisler

	Name: J. Steven Whisler
	Title:   Chairman and Chief Executive Officer
	INCO LIMITED

	By:	/s/ Scott M. Hand

	Name: Scott M. Hand
	Title:   Chairman and Chief Executive Officer

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A. The Preferred Shares may be issued from time to time in one or more series, in such number, and with such distinctive serial designations and relative rights, preferences and limitations, as may be fixed by the Board of Directors. Subject to the limitations set forth herein and any limitations prescribed by law, the Board of Directors is expressly authorized, prior to issuance of any series of Preferred Shares, to fix the number of shares included in such series and the designation, relative rights, preferences and limitations of such series and to file a certificate of amendment pursuant to Section 805 of the Business Corporation Law or any statute amendatory thereof or supplemental thereto, establishing or changing the number, designation and relative rights, preferences and limitations of such series. Pursuant to the foregoing general authority vested in the Board of Directors, but not in limitation of the powers conferred on the Board of Directors thereby and by the laws of the State of New York, the Board of Directors is expressly authorized to determine with respect to each series of Preferred Shares:

	(a) the distinctive designation or designations of such series and the number of shares constituting such series;
	(b) the rate or amount and times at which, and the preferences and conditions under which, dividends shall be payable on shares of such series, the status of such dividends as cumulative or noncumulative, the date or dates from which dividends, if cumulative, shall accumulate, and the status of such shares as participating or non-participating after the payment of dividends as to which such shares are entitled to any preference;
	(c) the rights and preferences, if any, of the holders of shares of such series upon the liquidation, dissolution or winding-up of the affairs of, or upon any distribution of the assets of, the Corporation, which amount may vary depending upon whether such liquidation, dissolution or winding-up is voluntary or involuntary and, if voluntary, may vary at different dates, and the status of the shares of such series as participating or non-participating after the satisfaction of any such rights and preferences;
	(d) the full or limited voting rights, if any, to be provided for shares of such series, in addition to the voting rights provided by law;
	(e) the times, terms and conditions, if any, upon which shares of such series shall be subject to redemption, including the amount the holders of shares of such series shall be entitled to receive upon redemption (which amount may vary under different conditions or at different redemption dates) and the amount, terms, conditions and manner of operation of any purchase, retirement or sinking fund to be provided for the shares of such series;
	(f) the rights, if any, of holders of shares of such series to convert such shares into, or to exchange such shares for, shares of any other class or classes or of any other series of the same class, the prices or rates of conversion or exchange, and adjustments thereto, and any other terms and conditions applicable to such conversion or exchange;

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	(g) the limitations, if any, applicable while such series is outstanding on the payment of dividends or making of distributions on, or the acquisition or redemption of, Common Shares or any other class of share ranking junior, either as to dividends or upon liquidation, to the shares of such series;
	(h) the conditions or restrictions, if any, upon the issue of any additional shares (including additional shares of such series or any other series or of any other class) ranking on a parity with or prior to the shares of such series either as to dividends or upon liquidation; and
	(i) any other preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of shares of such series;

in each case, so far as not inconsistent with the provisions of this Certificate of Incorporation or the laws of the State of New York as then in effect. All Preferred Shares shall be identical and of equal rank except in respect to the particulars that may be fixed by the Board of Directors as provided above, and all shares of each series of Preferred Shares shall be identical and of equal rank except as to the times from which cumulative dividends, if any, thereon shall be cumulative. The number of authorized Preferred Shares may be increased or decreased by the affirmative vote of the holders of a majority of the shares of the Corporation entitled to vote thereon, without any requirement that such increase or decrease be approved by a class vote on the part of the holders of the Preferred Shares or any series thereof, or on the part of any other class of stock of the Corporation, except as may be otherwise required by the laws of the State of New York or provided in the certificate of amendment establishing the voting rights of any series of Preferred Shares. The Board of Directors may from time to time amend any of the provisions of any certificate of amendment establishing any series of Preferred Shares, subject to any class voting rights of the holders of such shares and subject to the requirements of the laws of the State of New York.

	A.1. Junior Participating Cumulative Preferred Shares
	The number, designation, relative rights, preferences and limitations of the Junior Participating Cumulative Preferred Shares are as follows:

	(1) Designation and Number of Shares. 400,000 of the Preferred Shares shall be, and be designated as, Junior Participating Cumulative Preferred Shares (hereinafter referred to as the “Junior Preferred Shares”).
	(2) Dividends.
	A. Subject to the provisions of subclauses B and D of this clause (2), holders of the Junior Preferred Shares shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the tenth day of March, June, September and December in each year (each such date, which is subject to change pursuant to the provisions of subclause D of this clause (2), being hereinafter referred to as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a Junior Preferred Share, in an amount per share (rounded to the nearest cent) equal to the greater of (i) $2.50 per share ($10.00 per annum), and (ii) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in Common Shares or a subdivision of the outstanding Common Shares (by reclassification or otherwise), declared on the Common Shares since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any Junior Preferred Share. In the event the Corporation shall at any time declare or pay any dividend on Common Shares payable in Common Shares, or effect a subdivision or combination or consolidation of the outstanding Common Shares (by reclassification or otherwise than by payment of a dividend in Common Shares) into a greater or lesser number of Common Shares, then the number 100 (or such number to which it may previously have been adjusted) in subclause (ii) of the preceding sentence shall be adjusted (or further adjusted) by multiplying

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	such number by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event.
	B. Holders of the Junior Preferred Shares shall be entitled to receive such dividends in preference to and in priority over dividends upon the Common Shares and upon any other shares which are by their terms junior to the Junior Preferred Shares as to dividends. Junior Preferred Shares shall be junior as to dividends to any other Preferred Shares which are by their terms senior to the Junior Preferred Shares as to dividends, and if at any time the Corporation has failed to pay accrued dividends on any such other Preferred Shares at the time outstanding at the times such dividends are payable, the Corporation shall not declare or pay any dividends on the Junior Preferred Shares.
	C. If at any time the Corporation has failed to pay accrued dividends on any Junior Preferred Shares at the time outstanding at the times such dividends are payable, the Corporation shall not

	(i) declare or pay any dividend on the Common Shares or make any payment on account of, or set apart money for a sinking or other analogous fund for, the purchase, redemption or other retirement of any Common Shares or make any distribution in respect thereof, either directly or indirectly and whether in cash or property or in obligations or shares of the Corporation (other than in Common Shares),
	(ii) purchase any Junior Preferred Shares (except for a consideration payable in Common Shares), or
	(iii) permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase any Common Shares or Junior Preferred Shares,

	unless, in the case of any such dividend, payment, distribution, purchase or redemption, all dividends accrued and payable but unpaid on the Junior Preferred Shares have been or contemporaneously are declared and paid in full or declared and a sum sufficient for the payment thereof set aside for such payment.

	D. The Corporation shall declare a dividend or distribution on the Junior Preferred Shares as provided in subclause A of this clause (2) immediately after it declares a dividend or distribution on the Common Shares (other than a dividend payable in Common Shares); provided that, in the event no dividend or distribution shall have been declared on the Common Shares during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $2.50 per share ($10.00 per annum) on the Junior Preferred Shares shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. The Board of Directors may change any of the Quarterly Dividend Payment Dates to a different date to coincide with the payment date for a dividend or distribution on the Common Shares.
	E. Dividends at the $10.00 minimum annual rate shall begin to accrue and be cumulative on outstanding Junior Preferred Shares from the Quarterly Dividend Payment Date next preceding the date of issue of such Junior Preferred Shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of Junior Preferred Shares entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall accumulate but shall not bear interest. Dividends paid on the shares of Junior Preferred Shares in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the

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	determination of holders of Junior Preferred Shares entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 50 days prior to the date fixed for the payment thereof.
	(3) No Redemption. The Junior Preferred Shares shall not be redeemable.
	(4) Liquidation.
	A. The liquidation price of the Junior Preferred Shares, in case of the voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, shall be an amount per share equal to the greater of (i) $100 and (ii) an aggregate amount (subject to the provisions for adjustment hereinafter set forth) equal to 100 times the aggregate per share amount to be distributed to holders of Common Shares. In the event the Corporation shall at any time declare or pay any dividend on Common Shares payable in Common Shares, or effect a subdivision or combination or consolidation of the outstanding Common Shares (by reclassification or otherwise than by payment of a dividend in Common Shares) into a greater or lesser number of Common Shares, then the number 100 (or such number to which it may previously have been adjusted) in subclause (ii) of the preceding sentence shall be adjusted (or further adjusted) by multiplying such number by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event.
	B. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, the holders of Junior Preferred Shares (i) shall not be entitled to receive the liquidation price of such shares held by them until the liquidation price of any other Preferred Shares which are by their terms senior to the Junior Preferred Shares as to the distribution of assets on any voluntary or involuntary liquidation of the Corporation shall have been paid in full and (ii) shall be entitled to receive the liquidation price of such shares held by them in preference to and in priority over any distributions upon the Common Shares and upon any other shares which are by their terms junior to the Junior Preferred Shares as to the distribution of assets on any voluntary or involuntary liquidation of the Corporation. Upon payment in full of the liquidation price to which the holders of Junior Preferred Shares are entitled, the holders of Junior Preferred Shares will not be entitled to any further participation in any distribution of assets by the Corporation. If the assets of the Corporation are not sufficient to pay in full the liquidation price payable to the holders of Junior Preferred Shares, the holders of all such shares shall share pro rata on a share-by-share basis among all such shares at the time outstanding.
	C. Neither a consolidation or merger of the Corporation with or into any other corporation, nor a merger of any other corporation with or into the Corporation, nor a sale or transfer of all or any part of the Corporation’s assets for cash or securities shall be considered a liquidation, dissolution or winding-up of the Corporation within the meaning of this clause (4).
	(5) Convertibility. The Junior Preferred Shares shall not be convertible into any other securities of the Corporation.
	(6) Other Shares. The Junior Preferred Shares do not restrict in any way the issuance of any additional shares (including additional Junior Preferred Shares) ranking on a parity with or prior to the Junior Preferred Shares either as to dividends or upon liquidation or any additional Common Shares or other shares that may be entitled to vote with the Junior Preferred Shares. Any Junior Preferred Shares which are acquired by the Corporation and subsequently cancelled by the Board of Directors shall have the status of authorized but unissued Preferred Shares, without designation as to series, subject to reissuance by the Board of Directors as Junior Preferred Shares or of any one or more series.

	(7) Voting Rights. The holders of Junior Preferred Shares shall have the following voting rights:

	A. Subject to the provisions for adjustment hereinafter set forth, each Junior Preferred Share shall entitle the holder thereof to 100 votes on all matters submitted to a vote of

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	shareholders of the Corporation and the holders of Junior Preferred Shares and the holders of Common Shares shall vote together as one class on all such matters. In the event the Corporation shall at any time declare or pay any dividend on Common Shares payable in Common Shares, or effect a subdivision or combination or consolidation of the outstanding Common Shares (by reclassification or otherwise than by payment of a dividend in Common Shares) into a greater or lesser number of Common Shares, then the number 100 in the preceding sentence (or such number to which it may previously have been adjusted) shall be adjusted (or further adjusted) by multiplying such number by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event.
	B. Except as otherwise provided herein or required by law, the holders of Junior Preferred Shares shall have no voting rights for taking any corporate action.

	(8) Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the Common Shares are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case (subject to the provision for adjustment hereinafter set forth) each Junior Preferred Share shall at the same time be similarly exchanged for or changed into 100 times the aggregate per share amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, for which or into which each Common Share is exchanged or changed. In the event the Corporation shall at any time declare or pay any dividend on Common Shares payable in Common Shares, or effect a subdivision or combination or consolidation of the outstanding Common Shares (by reclassification or otherwise than by payment of a dividend in Common Shares) into a greater or lesser number of Common Shares, then the number 100 in the preceding sentence (or such number to which it may previously have been adjusted) shall be adjusted (or further adjusted) by multiplying such number by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event.
	(9) Definition of “Common Shares”. As used in this Paragraph A.1 of this Certificate of Incorporation, the term “Common Shares” shall mean the Common Shares of the Corporation having a par value of six dollars and twenty-five cents ($6.25) per share, as such shares may be changed through any subdivision, combination or consolidation thereof.

	B. Except as otherwise provided by the laws of the State of New York or by any certificate of amendment filed pursuant to Paragraph A of this Article THIRD, setting forth the relative rights, preferences and limitations of any series of Preferred Shares, the entire voting power of the shares of the Corporation for the election of Directors and for all other purposes, as well as all other rights appertaining to shares of the Corporation, shall be vested exclusively in the Common Shares. Each Common Share shall have one vote upon all matters to be voted on by the holders of the Common Shares, and shall be entitled to participate equally in all dividends payable with respect to the Common Shares and to share ratably, subject to the rights and preferences of any such Preferred Shares, in all assets of the Corporation in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Corporation.
	C. No present or future holder of any shares of the Corporation, whether heretofore or hereafter issued, shall have any preemptive rights with respect to (a) any shares of the Corporation or (b) any other securities of the Corporation (including bonds and debentures) convertible into or carrying rights or options to purchase any shares of the Corporation.

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		Global Banking 633 West Fifth Street, Suite 6300 Los Angeles, CA 90071 Tel 213-833-2300 Fax 213-833-2389

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	(i) reviewed certain publicly available financial statements and other business and financial information relating to Phelps Dodge, Inco and Falconbridge;

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	(ii) reviewed certain internal financial forecasts and other information and data relating to Phelps Dodge, Inco and Falconbridge which were provided to or discussed with us by the respective managements of Phelps Dodge and Inco, including information relating to the potential strategic implications and operational benefits (including the amount, timing and achievability thereof) anticipated by the managements of Phelps Dodge, Inco and Falconbridge to result from the Arrangement, and the Arrangement in conjunction with the Falconbridge Business Combination, which financial projections included financial projections prepared by the management of Phelps Dodge assuming the consummation of the Arrangement and giving effect either to the Falconbridge Business Combination being consummated or, in the alternative, the termination of the Support Agreement (the “Phelps Dodge Arrangement Projections”);
	(iii) discussed with certain senior officers, directors and other representatives and advisors of Phelps Dodge, certain senior officers and other representatives and advisors of Inco and certain representatives and advisors of Falconbridge concerning, as may be applicable, the businesses, financial condition, operations and prospects of Phelps Dodge, Inco and Falconbridge;
	(iv) discussed the strategic rationale for, and potential benefits of, the Arrangement, and the Arrangement in conjunction with the Falconbridge Business Combination, with certain senior officers, directors and other representatives and advisors of Phelps Dodge and certain senior officers and other representatives and advisors of Inco;
	(v) reviewed the financial terms of the Arrangement as set forth in the Combination Agreement in relation to, among other things: current and historical market prices and trading volumes of Phelps Dodge Common Shares and Inco Common Shares; the historical and projected earnings and other operating data of Phelps Dodge and Inco; and the capitalization and financial condition of Phelps Dodge and Inco;
	(vi) evaluated certain potential pro forma financial effects of the Arrangement on Phelps Dodge;
	(vii) considered, to the extent publicly available, the financial terms of certain other transactions which we considered relevant in evaluating the Arrangement and analyzed certain financial, stock market and other publicly available information relating to the businesses of other companies whose operations we considered relevant in evaluating those of Phelps Dodge, Inco and Falconbridge;
	(viii) participated in discussions and negotiations among representatives of Phelps Dodge, Inco and their respective financial and legal advisors; and
	(ix) reviewed the Combination Agreement, the Support Agreement and certain related documents.

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	Very truly yours,
	HSBC SECURITIES (USA) INC.

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