-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LQLH5xCRzhNzdaieSjQiwqtiMtd3KQsAh7Lb1nUrcWdN0IDq/ph1aOMM66Qxn62+ N+iKc3dkKiADG/awT58TXQ== 0000947871-99-000356.txt : 19990824 0000947871-99-000356.hdr.sgml : 19990824 ACCESSION NUMBER: 0000947871-99-000356 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990823 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990823 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHELPS DODGE CORP CENTRAL INDEX KEY: 0000078066 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY SMELTING & REFINING OF NONFERROUS METALS [3330] IRS NUMBER: 131808503 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-00082 FILM NUMBER: 99697478 BUSINESS ADDRESS: STREET 1: 2600 NORTH CENTRAL AVE CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6022348100 MAIL ADDRESS: STREET 1: 2600 NORTH CENTRAL AVENUE CITY: PHOENIX STATE: AZ ZIP: 85004-3089 8-K 1 CURRENT REPORT ON FORM 8-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: August 23, 1999 (Date of earliest event reported) Phelps Dodge Corporation (Exact name of registrant as specified in its charter) New York 1-82 13-1808503 (State or other jurisdiction (Commission File (I.R.S. Employer of incorporation) Number) Identification No.) 2600 North Central Avenue, Phoenix, AZ 85004-3089 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (602) 234-8100 ---------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Item 5. Other Events. The information set forth in the press release issued by Phelps Dodge Corporation on August 20, 1999 and in the Phelps Dodge Presentation on Proposed Acquisition of Asarco and Cyprus Amax, dated August 20, 1999, which was posted on Phelps Dodge Corporation's Internet site, attached hereto as Exhibits 99.1 and 99.2, respectively, are incorporated herein by reference. Item 7. Financial Statements and Exhibits. (c) Exhibits 99.1 Press Release of Phelps Dodge Corporation, dated August 20, 1999 99.2 Phelps Dodge Presentation on Proposed Acquisition of Asarco and Cyprus Amax, dated August 20, 1999, which was posted on Phelps Dodge Corporation's Internet site. 2 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized. PHELPS DODGE CORPORATION (Registrant) By: /s/ S. David Colton ----------------------------------------- Name: S. David Colton Title: Vice President & General Counsel Date: August 23, 1999 3 EXHIBIT INDEX Exhibit Number Exhibit - ------- ------- 99.1 Press Release of Phelps Dodge Corporation, dated August 20, 1999 99.2 Phelps Dodge Presentation on Proposed Acquisition of Asarco and Cyprus Amax, dated August 20, 1999, which was posted on Phelps Dodge Corporation's Internet site. 4 EX-99.1 2 PRESS RELEASE FOR IMMEDIATE RELEASE Contacts: INVESTORS MEDIA Phelps Dodge Phelps Dodge Thomas M. Foster Susan M. Suver (602) 234-8139 (602) 234-8003 Gregory W. Stevens (602) 234-8166 Arthur Schmidt & Associates, Inc. Sard Verbinnen & Co Martin Zausner/Alan Weinstein/Joan George Sard/David Reno/Debbie Miller Harper (212) 687-8080 (212) 953-5555 PHELPS DODGE SENDS LETTERS TO ASARCO AND CYPRUS AMAX BOARDS ------------------------------------------------------------ PHOENIX, AZ, August 20, 1999 - Phelps Dodge Corporation (NYSE: PD) today sent the following letters to the Boards of Directors of Asarco Incorporated (NYSE:AR) and Cyprus Amax Minerals Company (NYSE: CYM): Board of Directors of ASARCO Incorporated c/o Mr. Francis R. McAllister Chairman and Chief Executive Officer ASARCO Incorporated 180 Maiden Lane New York, NY 10038 Gentlemen: We are disappointed in your response to our proposed three-way combination of Asarco, Cyprus Amax and Phelps Dodge. As you know, we have on three recent occasions requested the opportunity to discuss our proposal, which we believe would be far superior to your shareholders than your proposed combination with Cyprus Amax. 1 We are particularly disappointed that instead of accepting our previous requests to meet to discuss our proposal to acquire Asarco for a substantial premium, you chose today to announce unilaterally our interest in acquiring Asarco and Cyprus Amax and to reject our proposal in favor of your no-premium merger proposal with Cyprus Amax. This appears consistent with the manner in which you have chosen to treat your own shareholders by announcing just today, at the same time you first disclosed the terms of your July 15 merger agreement, that the record date for your shareholder vote on the no- premium merger with Cyprus Amax would be August 25. Since trades after today will settle after August 25, this effectively precluded any significant trading in the market on an informed basis before the determination of shareholders eligible to vote at your meeting. In light of your unilateral announcement, we have no other choice than to publicly announce our proposal to enter into a business combination with Asarco and Cyprus Amax, so that share owners of all three companies are fully informed. Terms of our Proposal We propose a business combination of Phelps Dodge and Asarco pursuant to which all of the outstanding common stock of Asarco would be exchanged for Phelps Dodge common stock at an exchange ratio of 0.4098 Phelps Dodge common shares for each Asarco common share. We are also independently proposing to Cyprus Amax a business combination of Phelps Dodge and Cyprus Amax pursuant to which all of the outstanding common stock of Cyprus Amax would be exchanged for Phelps Dodge common stock at an exchange ratio of 0.3135 Phelps Dodge common shares for each Cyprus Amax common share. Based on share prices for the three companies' common shares before trading was halted this morning, these ratios imply a premium of approximately 30% for Asarco and a premium of approximately 29% for Cyprus Amax, while preserving the relative economics of the exchange ratio under your proposed combination with Cyprus Amax. Following the combination, we plan to continue the current $2.00 per share Phelps Dodge common dividend. This would result in a substantial dividend increase for Asarco shareholders to 4.1 times the dividend contemplated in your proposed merger with Cyprus Amax. Our proposed transaction would be tax-free for your shareholders. In addition, through their ownership of Phelps Dodge common stock, your shareholders would continue to participate in the ongoing value creation of the combined company. Although we prefer a transaction involving all three companies, we are prepared to enter 2 into a negotiated business combination with either Asarco or Cyprus Amax, regardless of whether the other company is willing to proceed on a negotiated basis. We believe that consideration in the form of Phelps Dodge common stock should be particularly attractive to your shareholders. Over the past several years Phelps Dodge's stock price has significantly outperformed the stock prices of Asarco and Cyprus Amax. As a result of Phelps Dodge's higher dividend, the level of outperformance is even greater when viewed on the basis of the total return to shareholders assuming reinvestment of dividends. Over the past 10 years Phelps Dodge's total return has been 161% as compared to negative 20% and negative 26% for Asarco and Cyprus Amax, respectively. Similarly, over the past 15 years, Phelps Dodge's total return has been 1,024% as compared to 25% for Asarco and 102% for Cyprus Amax. We are very proud of this strong management and operational track record over a difficult copper environment. The Combined Company We believe that our proposal presents a unique opportunity to create a large, resource-rich portfolio of lower-cost global copper assets with enhanced flexibility to deliver superior results in all business cycles. Our proposal would create a much stronger company than would your proposed merger with Cyprus Amax through: o the significantly stronger ability of the combined company, relative to the Asarco-Cyprus Amax combination, to integrate southwestern U.S. mining operations, administrative functions in the U.S., Chile and Peru, and worldwide exploration and development activities; o the financial strength of the combined company and ability to create a world class portfolio of cost-competitive mining assets; o a strong and deep management team, at both the operating and corporate levels, with strong credibility in the marketplace; o the ability to eliminate substantial overhead, exploration, purchasing and other expenses through the consolidation; o the tremendous operating leverage of the combined company, together with enough diversity in other businesses to mitigate cyclical downturns; o the immediate and substantial accretion to the cash flow of the combined company resulting from the transaction; 3 o the significant accretion to earnings per share of the combined company beginning in the second year after closing, based on the current portfolio of the combined companies and analysts' estimates of copper prices of $0.80 to $0.85 per pound in 2001; o the total current annual copper production of the combined company of 3.8 billion pounds and attributable copper reserves of 80 billion pounds; o the increased ability of the combined company to compete for world-class projects; o the ability of the combined company to reduce capital expenditures; o the strong, liquid balance sheet of the combined company, with excellent access to capital; and o the way all of these factors would build greater shareholder value, on an ongoing basis, for the shareholders of all three companies. Through the measures described above we estimate that in a three-way combination we could achieve approximately $200 million in annual cash cost savings, fully phased in by the end of the second year after closing of the transaction. In addition, we expect lower depreciation of approximately $65 million annually, bringing total estimated annual savings to approximately $265 million. These cost savings are based on public information and our expectation that we can deliver at least $75 million in incremental savings above the new cash synergy figure of $125 million that you have projected in the proposed Asarco-Cyprus Amax combination. This does not include any cost savings from the rationalization of high-cost production during periods of low copper prices. Following the combination, we would expect to operate all properties in accordance with Phelps Dodge's disciplined management approach. This means that each property would be run on a basis intended to earn in excess of the cost of capital over a full copper price cycle. We believe that Phelps Dodge's management team has the credibility to make the tough decisions necessary to rapidly integrate all three businesses and to create value for shareholders. A three-way combination, by creating a more efficient global competitor, would also benefit the employees and customers of all three companies. We have conducted an in-depth analysis of the three-way combination from a regulatory perspective and have concluded that it will be possible to obtain the necessary approvals on a timely basis. 4 Our Board of Directors has authorized this proposal and we are resolutely committed to its consummation. We are confident that your shareholders will find our proposal to be a unique and compelling opportunity. We continue to prefer to proceed on a mutually satisfactory, negotiated basis but are prepared to pursue all other avenues should that be necessary. We are ready to meet with you or your management at any time. Sincerely, /s/ D.C. Yearley /s/ J. Steven Whistler - ----------------------------------- ------------------------------------- Chairman and President and Chief Executive Officer Chief Operating Officer 5 Board of Directors of Cyprus Amax Minerals Company c/o Milton H. Ward Chairman, Chief Executive Officer and President Cyprus Amax Minerals Company 9100 East Mineral Circle Englewood, CO 80112 Ladies and Gentlemen: We are disappointed in your response to our proposed three-way combination of Cyprus Amax, Asarco and Phelps Dodge. As you know, we have on three recent occasions requested the opportunity to discuss our proposal, which we believe would be far superior to your shareholders than your proposed combination with Asarco. We are particularly disappointed that instead of accepting our previous requests to meet to discuss our proposal to acquire Cyprus Amax for a substantial premium, you chose today to announce unilaterally our interest in acquiring Cyprus Amax and Asarco and to reject our proposal in favor of your no-premium merger proposal with Asarco. This appears consistent with the manner in which you have chosen to treat your own shareholders by announcing just today, at the same time you first disclosed the terms of your July 15 merger agreement, that the record date for your shareholder vote on the no-premium merger with Asarco would be August 25. Since trades after today will settle after August 25, this effectively precluded any significant trading in the market on an informed basis before the determination of shareholders eligible to vote at your meeting. In light of your unilateral announcement, we have no other choice than to publicly announce our proposal to enter into a business combination with Cyprus Amax and Asarco, so that share owners of all three companies are fully informed. Terms of our Proposal We propose a business combination of Phelps Dodge and Cyprus Amax pursuant to which all of the outstanding common stock of Cyprus Amax would be exchanged for Phelps Dodge common stock at an exchange ratio of 0.3135 Phelps Dodge common shares for each Cyprus Amax common share. We are also independently proposing to Asarco a business combination of Phelps Dodge and Asarco pursuant to which all of the outstanding common stock of Asarco would be exchanged for Phelps Dodge common stock at an exchange ratio of 0.4098 Phelps Dodge common shares for each Asarco common share. Based on share prices for the three companies' common shares before trading was halted this morning, these ratios imply a premium of approximately 29% for Cyprus Amax and a premium of approximately 30% for Asarco, while preserving the relative economics of the exchange ratio under your proposed combination with Asarco. 6 Following the combination, we plan to continue the current $2.00 per share Phelps Dodge common dividend. This would result in a substantial dividend increase for Cyprus Amax shareholders to 4.1 times the dividend contemplated in your proposed merger with Asarco. Our proposed transaction would be tax-free for your shareholders. In addition, through their ownership of Phelps Dodge common stock, your shareholders would continue to participate in the ongoing value creation of the combined company. Although we prefer a transaction involving all three companies, we are prepared to enter into a negotiated business combination with either Cyprus Amax or Asarco, regardless of whether the other company is willing to proceed on a negotiated basis. We believe that consideration in the form of Phelps Dodge common stock should be particularly attractive to your shareholders. Over the past several years Phelps Dodge's stock price has significantly outperformed the stock prices of Cyprus Amax and Asarco. As a result of Phelps Dodge's higher dividend, the level of outperformance is even greater when viewed on the basis of the total return to shareholders assuming reinvestment of dividends. Over the past 10 years Phelps Dodge's total return has been 161% as compared to negative 26% and negative 20% for Cyprus Amax and Asarco, respectively. Similarly, over the past 15 years, Phelps Dodge's total return has been 1,024% as compared to 102% for Cyprus Amax and 25% for Asarco. We are very proud of this strong management and operational track record over a difficult copper environment. The Combined Company We believe that our proposal presents a unique opportunity to create a large, resource-rich portfolio of lower-cost global copper assets with enhanced flexibility to deliver superior results in all business cycles. Our proposal would create a much stronger company than would your proposed merger with Asarco through: o the significantly stronger ability of the combined company, relative to the Cyprus Amax-Asarco combination, to integrate southwestern U.S. mining operations, administrative functions in the U.S., Chile and Peru, and worldwide exploration and development activities; o the financial strength of the combined company and ability to create a world class portfolio of cost-competitive mining assets; o a strong and deep management team, at both the operating and corporate levels, with strong credibility in the marketplace; 7 o the ability to eliminate substantial overhead, exploration, purchasing and other expenses through the consolidation; o the tremendous operating leverage of the combined company, together with enough diversity in other businesses to mitigate cyclical downturns; o the immediate and substantial accretion to the cash flow of the combined company resulting from the transaction; o the significant accretion to earnings per share of the combined company beginning in the second year after closing, based on the current portfolio of the combined companies and analysts' estimates of copper prices of $0.80 to $0.85 per pound in 2001; o the total current annual copper production of the combined company of 3.8 billion pounds and attributable copper reserves of 80 billion pounds; o the increased ability of the combined company to compete for world-class projects; o the ability of the combined company to reduce capital expenditures; o the strong, liquid balance sheet of the combined company, with excellent access to capital; and o the way all of these factors would build greater shareholder value, on an ongoing basis, for the shareholders of all three companies. Through the measures described above we estimate that in a three-way combination we could achieve approximately $200 million in annual cash cost savings, fully phased in by the end of the second year after closing of the transaction. In addition, we expect lower depreciation of approximately $65 million annually, bringing total estimated annual savings to approximately $265 million. These cost savings are based on public information and our expectation that we can deliver at least $75 million in incremental savings above the new cash synergy figure of $125 million that you have projected in the proposed Cyprus Amax-Asarco combination. This does not include any cost savings from the rationalization of high-cost production during periods of low copper prices. Following the combination, we would expect to operate all properties in accordance with Phelps Dodge's disciplined management approach. This means that each property would be run on a basis intended to earn in excess of the cost of capital over a full copper price cycle. We believe that Phelps Dodge's management team has the credibility to make 8 the tough decisions necessary to rapidly integrate all three businesses and to create value for shareholders. A three-way combination, by creating a more efficient global competitor, would also benefit the employees and customers of all three companies. We have conducted an in-depth analysis of the three-way combination from a regulatory perspective and have concluded that it will be possible to obtain the necessary approvals on a timely basis. Our Board of Directors has authorized this proposal and we are resolutely committed to its consummation. We are confident that your shareholders will find our proposal to be a unique and compelling opportunity. We continue to prefer to proceed on a mutually satisfactory, negotiated basis but are prepared to pursue all other avenues should that be necessary. We are ready to meet with you or your management at any time. Sincerely, /s/ D.C. Yearley /s/ J. Steven Whistler - --------------------------------- ------------------------------------ Chairman and President and Chief Executive Officer Chief Operating Officer 9 EX-99.2 3 PRESENTATION ON PROPOSED ACQUISITION PHELPS DODGE CORPORATION AUGUST 20, 1999 PHELPS DODGE CORPORATION PHELPS DODGE CORPORATION Forward-Looking Statements These slides include "forward-looking statements" that express expectations of future events or results. All statements based on future expectations rather than on historical facts are forward-looking statements that involve a number of risks and uncertainties, and the company cannot give assurance that such statements will prove to be correct. Please refer to the Management's Discussion and Analysis section of the company's report on Form 10-K for the year ended December 31, 1998. 2 PHELPS DODGE/ Asarco/Cyprus Amax Combination PHELPS DODGE CORPORATION 3 PHELPS DODGE CORPORATION Rationale For Three-Way Combination - -------------------------------------------------------------------------------- o Unique opportunity to create a large, resource-rich portfolio of lower-cost global copper assets o Industry need for consolidation, improved productivity and cost efficiencies o Ability to optimize operations and achieve cost savings o Opportunity for value-based portfolio management 4 PHELPS DODGE CORPORATION Rationale For Three-Way Combination - -------------------------------------------------------------------------------- o Greater flexibility to excel across business cycles o Increased ability to compete for world-class projects o Strong, liquid balance sheet; excellent access to capital o Enhanced value for shareholders of all three companies o Phelps Dodge's demonstrated track record of delivering superior returns 5 PHELPS DODGE CORPORATION Summary of Phelps Dodge's Proposals - -------------------------------------------------------------------------------- o Terms: Fixed exchange ratio 0.4098 Phelps Dodge shares per Asarco share 0.3135 Phelps Dodge shares per Cyprus Amax share Neither proposal conditioned on the other o Value: $24.05 per share $18.40 per Cyprus Amax share o Current Premium 30% per Asarco share 29% per Cyprus Amax share Note: Valuations/premiums based on share prices before trading was halted for these stocks on the morning of 8/20/99: $58.69 Phelps Dodge; $18.50 Asarco; $14.25 Cyprus Amax; maintains Asarco/Cyprus Amax announced exchange ratio of 0.765 6 PHELPS DODGE CORPORATION Transaction Overview - -------------------------------------------------------------------------------- o Cash Flow: Significantly accretive in Year One o Earnings: Accretive in Year Two* o Cash Cost Savings: $200 million annually o Tax Free: Yes o Accounting: Purchase Accounting o Non-Cash Savings: $65 million annual reduction in depreciation expense *Based on current portfolio and analysts' estimates of copper prices of $0.80 - $0.85 per pound in 2001. 7 PHELPS DODGE CORPORATION Substantial Cost Savings - -------------------------------------------------------------------------------- (In $ Millions) Annual Savings SG&A Reductions $ 85 Integration of Operations 60 Exploration Savings 55 ---- Cash Cost Savings $200 Lower Depreciation $ 65 Total Savings $265 Note: All estimates are based on public information and Phelps Dodge experience 8 PHELPS DODGE CORPORATION Phelps Dodge's Proposals Provide Superior Value - -------------------------------------------------------------------------------- o Immediate and substantial premiums o Opportunity to participate in combined upside - $200 million of cash cost savings achieved within 2 years - Significantly greater synergies than Asarco/Cyprus Amax deal o Significant dividend increases - Phelps Dodge's current $2.00 dividend - 4.1X dividend level in proposed Asarco/Cyprus Amax merger o Experience and discipline in portfolio management o Strong and liquid balance sheet o Enhanced stock liquidity o Proven track record of Phelps Dodge's management team 9 PHELPS DODGE CORPORATION Phelps Dodge's Commitment To Transactions - -------------------------------------------------------------------------------- o Committed to completing value-enhancing transaction o Phelps Dodge will act quickly to consummate the transaction o Would prefer a negotiated transaction o Phelps Dodge is prepared to take all necessary steps o Confident of obtaining regulatory approvals o Confident that proposals to Asarco and Cyprus Amax shareholders represent a unique and compelling opportunity 10 PHELPS DODGE CORPORATION Resource-Rich, Cost-Competitive - -------------------------------------------------------------------------------- o Current production levels = 3.8 billion pounds o Target CASH production cost = less than $0.50 per pound o Target FULL production cost = less than $0.60 per pound o Core portfolio of world-class copper mines represents more than 50% of current annual production - Morenci, SPCC, El Abra, Cerro Verde, Candelaria - 2.0 billion pounds at average cash cost of less than $0.50 per pound o Will review non-core assets 11 PHELPS DODGE CORPORATION Key Statistics - -------------------------------------------------------------------------------- Phelps Cyprus Pro Dodge Asarco Amax Forma ------- ------- ------ ----- (BN of pounds) Current Production* 1.7 1.0 1.0 3.8 (BN of pounds) Copper Reserves* (12/31/98) 29.0 28.3 20.0 80.0 - -------------------------------------------------------------------------------- ($ BN) Assets (6/30/99) $4.9 $4.0 $4.7 $12.0 Debt (6/30/99) $1.1 $1.1 $2.1 $3.2 Cash (6/30/99) $0.1 $0.1 $1.3 $0.5 ($ per share, annually) Dividend $2.00 $0.20 $0.20 $2.00 * Beneficial share 12 PHELPS DODGE CORPORATION Beneficial Copper Production/Cash Cost Profile - -------------------------------------------------------------------------------- [GRAPHICAL DISPLAY OMITTED] [This graph presents cash cost, in cents per pound, and aggregate copper production, in billions of pounds of: El Abra, Cerro Verde, Silver Bell, Candelaria, SPCC, Morenci, Chino, Tyrone, Bagdad, Miami, Montana Resources, Sierrita, Mission, and Ray mines] Source: Brook Hunt; modified 1999 EST 13 PHELPS DODGE CORPORATION Phelps Dodge Management Philosophy - -------------------------------------------------------------------------------- o Shareholder-oriented o Proven track record of delivering shareholder value o Low-cost production is a necessity o Every property must earn in excess of its cost of capital over the copper cycle o Strong management and operating leadership - Not afraid to make tough decisions 14 PHELPS DODGE CORPORATION Superior Shareholder Returns Last 15 Years - -------------------------------------------------------------------------------- [GRAPHICAL DISPLAY OMITTED] This graph displays the total return on the common stock of Phelps Dodge (1024%), Cyprus Amax (102%) and Asarco (25%) over the past 15 years using a base date of August 10, 1994. Source: Morgan Stanley Dean Witter Note: Cyprus Amax returns measured from 5/85 IPO. 15 PHELPS DODGE CORPORATION Total Returns Comparison Through August 11, 1999 - -------------------------------------------------------------------------------- 1 3 5 10 15 Year Years Years Years Years ------ ------- ------- ------- ------- Phelps Dodge 20% 13% 20% 161% 1024% Asarco (7) (16) (27) (20) 25 Cyprus Amax 26 (22) (40) (26) 102 S&P 500 23% 107% 213% 369%* 687%** S&P Metals 36 (22) (16) 25* 124** Source: Morgan Stanley Dean Witter Note: Dividends reinvested * S&P 500 and S&P Metals are from 1/1/90 **Without dividend reinvestment 16 PHELPS DODGE CORPORATION Phelps Dodge's Integration Plan - -------------------------------------------------------------------------------- o Integrate worldwide operations - Administrative functions in United States - Administrative functions in Chile and Peru - Mining operations in southwestern United States - Worldwide exploration and development activities o Reduce operating expenses o Realize additional efficiencies in exploration o In addition, opportunities to reduce capital expenditures o Achieve $200 million in annual cash cost savings 17 PHELPS DODGE CORPORATION Summary of Cash Cost Savings - -------------------------------------------------------------------------------- (In $ Millions) SG&A Expense $85 Exploration 55 --- Operating Synergies Reduce Supply Costs ..................................28 Reducee Electric Power Costs .........................12 Optimize Copper Refining Operations....................7 Optimize Mill/Leach Mix................................7 Integrate Arizona Management and Support Services......6 --- Total Cash Cost Operating Synergies 60 --- Total Cash Cost Savings $200 Note: All estimates are based on public information and Phelps Dodge experience 18 PHELPS DODGE CORPORATION Financial Strength and Operating Flexibility - -------------------------------------------------------------------------------- o Strong, liquid balance sheet o Debt to capital ratio of 40% - Target reduction to near 30% within 3 years - Intention to review non-core assets o Strong cash flow generation o Cost-competitive throughout the business cycle o Poised to prosper in better copper pricing environment 19 PHELPS DODGE CORPORATION Summary - -------------------------------------------------------------------------------- o Unique opportunity o Significant cost savings o Value-based portfolio management o Proven Phelps Dodge track record o Strong resolve to complete transaction Superior Value Creation 20 -----END PRIVACY-ENHANCED MESSAGE-----