8-K

UNITED STATES 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

September 5, 2006
(Date of Report/Date of earliest event reported)

PHELPS DODGE CORPORATION

(Exact name of registrant as specified in its charter)

NEW YORK
(State or other jurisdiction
of incorporation) 001-00082
(Commission File Number) 13-1808503
(IRS Employer
Identification No.)

One North Central Avenue
Phoenix, Arizona 85004-4414
(Address and zip code of principal executive offices)

(602) 366-8100
(Registrant’s telephone number, including area code)

N/A
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

EX-10.1: TERMINATION AGREEMENT

EX-99.1: PRESS RELEASE

ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

     Phelps Dodge Corporation (“Phelps Dodge”) entered into a Termination Agreement, dated as of September 5, 2006 (the “Termination Agreement”), between Phelps Dodge and Inco Limited (“Inco”), pursuant to which the parties terminated the Combination Agreement, dated as of June 25, 2006, between Phelps Dodge and Inco, as amended by the Waiver and First Amendment to Combination Agreement, made and entered into as of July 16, 2006, between Phelps Dodge and Inco (as so amended, the “Combination Agreement”).

     In addition, pursuant to the Termination Agreement Inco will pay Phelps Dodge a fee of US$125 million on September 5, 2006 and has agreed to pay Phelps Dodge an additional fee of US$350 million within one business day of Phelps Dodge’s request for payment in the event that an Italy Competing Proposal (as defined in the Combination Agreement) is consummated on or prior to September 7, 2007.

     The foregoing description of the Termination Agreement is qualified in its entirety by reference to the Termination Agreement attached as Exhibit 10.1 and incorporated herein by reference.

ITEM 1.02 TERMINATION OF A MATERIAL DEFINITIVE AGREEMENT

     The disclosure set forth in Item 1.01 of this Current Report is incorporated by reference herein.

ITEM 8.01 OTHER EVENTS

     As a result of the termination of the Combination Agreement, the special meeting of the shareholders of Phelps Dodge, scheduled to be held on September 25, 2006, has been canceled and Phelps Dodge shareholders will not have the opportunity to consider or approve the proposals set forth in Phelps Dodge’s proxy statement dated August 25, 2006 and mailed to Phelps Dodge shareholders on August 25, 2006. Phelps Dodge shareholders should, therefore, disregard such proxy statement.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS

(d) Exhibits:

10.1	Termination Agreement, dated as of September 5, 2006, between Phelps Dodge Corporation and Inco Limited.
99.1	Press release of Phelps Dodge Corporation dated September 5, 2006.

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SIGNATURES

     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 hereunto duly authorized.

PHELPS DODGE CORPORATION
(Registrant)
By:	/s/ S. David Colton
	Name:	S. David Colton
	Title:	Senior Vice President and
		General Counsel
Date: September 5, 2006

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EXHIBIT INDEX

Exhibit
Number	Exhibit
10.1	Termination Agreement, dated as of September 5, 2006, between Phelps Dodge Corporation and Inco Limited.
99.1	Press release of Phelps Dodge Corporation dated September 5, 2006.

EX-10.1

Exhibit 10.1

TERMINATION AGREEMENT

     This TERMINATION AGREEMENT (this “Termination Agreement”) is made and entered into as of September 5, 2006, between Phelps Dodge Corporation, a New York corporation (“Portugal”), and Inco Limited, a corporation organized and existing under the laws of Canada (“Italy”). With reference to the Combination Agreement, dated as of June 25, 2006, between Portugal and Italy, as amended by the Waiver and First Amendment to Combination Agreement, made and entered into as of July 16, 2006, between Portugal and Italy (as so amended, the “Combination Agreement”), and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties to this Termination Agreement agree as follows:

1.	Pursuant to Section 9.1(a) of the Combination Agreement, the Combination Agreement is hereby terminated and is of no further force or effect, effective as of the date hereof.
2.	In connection with such termination of the Combination Agreement, Italy shall pay to Portugal, in immediately available funds, the amount of US$125 million, on the date hereof.
3.	If an Italy Competing Proposal is consummated on or prior to September 7, 2007, then Italy shall pay to Portugal, within one (1) business day after demand by Portugal, the amount of US$350 million.
4.	Except for the payments contemplated by paragraphs 2 and 3 of this Termination Agreement, Portugal and Italy agree that neither party hereto shall have any obligations to make any other payments to the other party, under Section 9.3 of the Combination Agreement or otherwise, and notwithstanding anything in Section 9.2 of the Combination Agreement to the contrary, each of Portugal and Italy, on behalf of itself and each of its parents, partners, Affiliates and Subsidiaries, and its directors, officers, employees, successors and assigns (collectively, the “Releasing Parties”), hereby irrevocably releases, acquits, forever discharges and covenants not to sue the other, and each and all of its parents, partners, Affiliates and Subsidiaries, and their past and present officers, directors, employees, agents, representatives, attorneys, successors and assigns (collectively, the “Released Parties”) of and from any and all claims, demands and causes of action that the Releasing Parties, severally or jointly with others, had, has or may have against the Released Parties, or any of them by reason of, arising out of or relating to any aspect of the Combination Agreement (collectively, the “Released Claims”), including without limitation any claim relating to any intentional or willful breach of the Combination Agreement. Notwithstanding the foregoing, the Released Claims shall not include any claims, demands or causes of action that arise out of or relate to the Confidentiality Agreements or this Termination Agreement.
5.	Each of Italy and Portugal hereby represents and warrants that: (a) it has full power and authority to enter into this Termination Agreement and to perform its obligations

	hereunder in accordance with its provisions, (b) it has duly authorized, executed and delivered this Termination Agreement, and (c) this Termination Agreement constitutes a legal, valid and binding obligation of such party, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, moratorium or other similar laws affecting creditors’ rights generally and by general principles of equity.
6.	All capitalized terms used herein without being specifically defined are used as defined in the Combination Agreement.
7.	This Termination Agreement may be executed in one or more counterparts, which may be delivered by facsimile transmission, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that all parties need not sign the same counterpart.
8.	This Termination Agreement shall be deemed to be made in and in all respects shall be interpreted, construed and governed by and in accordance with, and any disputes arising out of or related to this Termination Agreement shall be interpreted, construed and governed by and in accordance with, the laws of the State of New York. The parties hereby irrevocably submit to the jurisdiction of the courts of the State of New York solely in respect of the interpretation and enforcement of the provisions of this Termination Agreement and of the documents referred to herein, and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any Action for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such Action may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Termination Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such Actions shall be heard and determined in such New York court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such Action in the manner provided in Section 10.2 of the Combination Agreement or in such other manner as may be permitted by Law shall be valid and sufficient service thereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]

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     IN WITNESS WHEREOF, the parties hereto have caused this Termination Agreement to be executed by their duly authorized respective officers as of the date first written above.

PHELPS DODGE CORPORATION
By:	/s/ S. David Colton
	Name:	S. David Colton
	Title:	Senior Vice President and General Counsel
INCO LIMITED
By:	/s/ Simon A. Fish
	Name:	Simon A. Fish
	Title:	Executive Vice President, General Counsel and Secretary

EX-99.1

Exhibit 99.1

NEWS RELEASE

One North Central Avenue, Phoenix, AZ 85004   (602) 366-8100

	For Immediate Release
Media:	Peter J. Faur
	(602) 366-7993
Investors:	Stanton K. Rideout
	(602) 366-8589

Phelps Dodge and Inco Terminate Combination Agreement

Phelps Dodge Receives $125 million payment from Inco;
Additional $350 Million to be Paid upon Consummation of Inco Change of Control

PHOENIX, Sept. 5, 2006 — Phelps Dodge Corp. (NYSE: PD) today announced that it has agreed with Inco Ltd. (TSX, NYSE: N) to terminate their Combination Agreement, effective today. In connection with such termination, Inco has paid to Phelps Dodge $125 million and has agreed to pay Phelps Dodge a further $350 million if it consummates a change-of-control transaction on or prior to Sept. 7, 2007. These terms are the same as would have applied under the Combination Agreement if the Inco shareholders had failed to approve the combination at the meeting of Inco shareholders scheduled for Sept. 7, 2006. As a result of the agreement to terminate the Combination Agreement, Phelps Dodge announced it has canceled the special meeting of Phelps Dodge shareholders called for Sept. 25, 2006.

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

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

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

Phelps Dodge Page 2 of 2

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

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

Phelps Dodge is one of the world’s leading producers of copper and molybdenum and is the largest producer of molybdenum-based chemicals and continuous-cast copper rod. The company employs 14,500 people worldwide.

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Cautionary Language Concerning Forward-Looking Statements

These materials include “forward-looking statements” (as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). All statements other than historical information are forward-looking statements. These forward-looking statements are based on management’s current beliefs and expectations, speak only as of the date made, and are subject to a number of significant risks and uncertainties that cannot be predicted or quantified and are beyond our control. Future developments and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Factors that may affect future results are set forth in Phelps Dodge’s filings with the Securities and Exchange Commission, which filings are available at the SEC’s Web Site at (www.sec.gov). Except as required by law, we are under no obligation, and expressly disclaim any obligation, to update, alter or otherwise revise any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise.