10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period___to ___

Commission file number 1-82

PHELPS DODGE CORPORATION

(Exact name of registrant as specified in its charter)

New York
(State or other jurisdiction of
incorporation or organization) 13-1808503
(I.R.S. Employer
Identification No.)

One North Central Avenue, Phoenix, AZ
(Address of principal executive offices) 85004-4414
(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

	Name of each exchange
Title of each class	on which registered
Common Shares, $6.25 par value per share	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of this Act. Yes o No þ.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ.

The aggregate market value of Common Shares of the issuer held by nonaffiliates at June 30, 2005, was approximately $8,962,097,728.

Number of Common Shares outstanding at February 17, 2006: 101,763,500 shares.

Documents Incorporated by Reference:

Document	Location in 10-K
Proxy Statement for 2006 Annual Meeting	Part III

PHELPS DODGE CORPORATION
Annual Report on Form 10-K
For the Year Ended December 31, 2005

Table of Contents	Page
PART I.
Items 1. and 2. Business and Properties		1
Phelps Dodge Mining Company		2
Properties, Facilities and Production		2
U.S. Mines		2
South American Mines		5
Manufacturing Segment		6
Primary Molybdenum Segment		6
Worldwide Copper Production, by Source, Other Metal Production and Sales Data, and Manufacturing and Sales Production		7
Phelps Dodge Copper Production Data, by Source		8
Phelps Dodge Copper Sales Data, by Source		9
Phelps Dodge Other Metal Production and Sales		10
Phelps Dodge Manufacturing and Sales Production		11
Other Mining		12
Ore Reserves		14
Average Drill-Hole Spacing at Ore Reserve Properties		16
Metallurgical Recovery		16
Mill and Leach Stockpiles		16
Copper and Molybdenum Prices		17
Mineralized Material		18
Sales and Competition		19
Prices, Supply and Consumption		19
Costs		21
Environmental and Other Regulatory Matters		21
Ownership of Property		27
Phelps Dodge Industries		27
Wire and Cable Segment		28
Discontinued Operations — Columbian Chemicals		29
Environmental Matters		30
Labor Matters		30
Research and Development		31
Other Environmental Matters		31
Item 1A. Risk Factors		33
Item 3. Legal Proceedings		36
Item 4. Submission of Matters to a Vote of Security Holders		39
Executive Officers of Phelps Dodge Corporation		40
PART II.
Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters		41
Item 6. Selected Financial Data		42
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations		45
Overview of Phelps Dodge Corporation’s Businesses and Management’s Assessment of Key Factors and Indicators that Could Impact Our Business, Operating Results and Cash Flows		45
Critical Accounting Policies and Estimates		47
Results of Phelps Dodge Mining Company		55
Results of Phelps Dodge Industries		71
Discontinued Operations and Assets Held for Sale		73
Other Matters Relating to the Consolidated Statement of Income		74
Changes in Financial Condition; Capitalization		77
Capital Outlays		93
Inflation		93
Dividends and Market Price Ranges		93
Quarterly Financial Data		94
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		44
Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements		96
Report of Management on Internal Control Over Financial Reporting		96
Report of Independent Registered Public Accounting Firm		97
Consolidated Statement of Income		98
Consolidated Balance Sheet		99
Consolidated Statement of Cash Flows		100
Consolidated Statement of Shareholders’ Equity		101
Notes to Consolidated Financial Statements		102
Financial Data by Geographic Area		142
Financial Data by Business Segment		143
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		44
Item 9A. Controls and Procedures		44
Item 9B. Other Information		44
PART III.
Item 10. Directors and Executive Officers of the Registrant		146
Item 11. Executive Compensation		146
Item 12. Security Ownership of Certain Beneficial
Owners and Management		146
Item 13. Certain Relationships and Related Transactions		146
Item 14. Principal Accounting Fees and Services		146
Item 15. Exhibits, Financial Statement Schedules		146
Valuation and Qualifying Accounts and Reserves		151
Signatures		152
Exhibit 10.10
Exhibit 10.13
Exhibit 10.18
Exhibit 10.22
Exhibit 10.26
Exhibit 10.31
Exhibit 10.32
Exhibit 10.33
Exhibit 10.34
Exhibit 11
Exhibit 12.1
Exhibit 12.2
Exhibit 21
Exhibit 23
Exhibit 24
Exhibit 31
Exhibit 32

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PHELPS DODGE CORPORATION
2005 Annual Report on Form 10-K

PART I

Items 1. and 2. Business and Properties

     Phelps Dodge Corporation (the Company, which also may be referred to as Phelps Dodge, PD, we, us or our) is one of the world’s leading producers of copper and molybdenum, and is the world’s largest producer of molybdenum-based chemicals and continuous-cast copper rod.

     The Company consists of two major divisions: (i) Phelps Dodge Mining Company (PDMC) and (ii) Phelps Dodge Industries (PDI).

     (i) PDMC includes our worldwide, vertically integrated copper operations from mining through rod production, marketing and sales; molybdenum operations from mining through conversion to chemical and metallurgical products, marketing and sales; other mining operations and investments; and worldwide mineral exploration, technology and project development programs. PDMC includes 11 reportable segments – Morenci, Bagdad, Sierrita, Chino/Cobre and Tyrone (located in the United States), Candelaria/Ojos del Salado, Cerro Verde and El Abra (located in South America), Manufacturing, Sales and Primary Molybdenum – and other mining activities. In 2005, the Company reassessed its reportable segments and determined that Miami/Bisbee will no longer be an individual reportable segment.

     In 2005, PDMC produced 1,228,000 tons of copper on a consolidated basis (1,042,300 tons on a pro rata basis, which reflects our ownership interest) from worldwide mining operations, and an additional 60,000 tons of copper for our partner’s 15 percent undivided interest in the Morenci mine. Gold, silver, molybdenum, rhenium and sulfuric acid are by-products of our copper and molybdenum operations. Production of copper for our own account (our pro rata share) from our U.S. operations constituted approximately 53 percent of the copper mined in the United States in 2005. Much of our U.S. copper cathode production, together with additional copper cathode purchased from others, is used to produce continuous-cast copper rod, the basic feed for the electrical wire and cable industry. We also are engaged in exploration efforts for metals and minerals throughout the world.

     In 2005, PDMC produced 62.3 million pounds of molybdenum from mining operations. High-purity, chemical-grade molybdenum concentrate is produced at our Henderson mine in Colorado. Most of the concentrate produced at Henderson is roasted at our Fort Madison, Iowa, facility and is further processed at the facility’s chemical plant into value-added molybdenum chemical products. In addition, some of the concentrate is processed into salable molysulfide for use primarily in the lubricant industry.

     Molybdenum concentrate is also produced as a by-product at three of our U.S. copper operations. This concentrate generally is roasted at one of our three roasting operations to produce technical-grade molybdic oxide for sale into metallurgical markets (i.e., steel industries).

     We also have research and process technology facilities primarily at our Process Technology Center in Safford, Arizona, and a research and development facility for engineered materials at our Climax Technology Center in Sahuarita, Arizona.

     (ii) PDI, our manufacturing division, consists of our Wire and Cable segment, which produces engineered products principally for the global energy sector.

     Our Wire and Cable segment has operations in the United States, Latin America, Asia and Africa. This segment produces magnet wire, copper and aluminum energy cables, specialty conductors and other products for sale principally to original equipment manufacturers for use in electrical motors, generators, transformers, medical applications and public utilities.

     On November 15, 2005, the Company entered into an agreement to sell Columbian Chemicals Company (Columbian Chemicals or Columbian), previously disclosed as our Specialty Chemicals segment, to a company owned jointly by One Equity Partners, a private equity affiliate of JPMorgan Chase & Co., and South Korean-based DC Chemical Co. Ltd. This transaction is expected to be completed in the 2006 first quarter. In addition, on November 15, 2005, the Company entered into an agreement to sell substantially all of its North American magnet wire assets to Rea Magnet Wire Company, Inc. (Rea). This transaction was completed on February 10, 2006. (Refer to Note 3, Discontinued Operations and Assets Held for Sale, for further discussion of these transactions.)

     The Company is continuing to explore strategic alternatives for Phelps Dodge High Performance Conductors, a unit of Wire and Cable.

     Note 23, Business Segment Data, to our Consolidated Financial Statements contained herein includes financial data for each of the last three years relating to our business segments, including data by geographic area.

     Phelps Dodge was incorporated as a business corporation under the laws of the state of New York in 1885. Our corporate headquarters is located in Phoenix, Arizona, and is a leased property. We employed approximately 15,000 people worldwide on February 15, 2006.

     Throughout this document, unless otherwise stated, all references to tons are to short tons, and references to ounces are to troy ounces.

Available Information. Phelps Dodge files annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission (the SEC). You may read and copy any document we file at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for information on the Public Reference Room. The SEC maintains a Web site that contains annual, quarterly and current reports, proxy statements and other information that issuers (including Phelps Dodge) file electronically with the SEC. The SEC’s Web site is http://www.sec.gov.

     Phelps Dodge’s Web site is http://www.phelpsdodge.com. Phelps Dodge makes available free of charge through its internet site, via a link to the SEC’s Web site at http://www.sec.gov, its annual reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K; Forms 3, 4 and 5 filed on behalf of directors and executive officers; and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934 as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.

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     Phelps Dodge also makes available free of charge on its internet site its most recent annual report on Form 10-K, its quarterly reports on Form 10-Q for the current fiscal year, its most recent proxy statement and its most recent summary annual report to shareholders, although in some cases these documents are not available on our site as soon as they are available on the SEC’s site. Some of these documents are in PDF format and require Adobe Acrobat^® Reader software for viewing, which is available at no cost. A link to Adobe’s Internet site is provided to download the software, if needed. The information on Phelps Dodge’s Web site is not incorporated by reference into this report.

PHELPS DODGE MINING COMPANY

     PDMC has five reportable copper production segments in the United States (Morenci, Bagdad, Sierrita, Chino/Cobre and Tyrone) and three reportable copper production segments in South America (Candelaria/Ojos del Salado, Cerro Verde and El Abra). These segments include open-pit mining, underground mining, sulfide ore concentrating, leaching, solution extraction and electrowinning. In addition, the Candelaria/Ojos del Salado, Bagdad, Sierrita and Chino/Cobre segments also produce gold and silver, and the Bagdad, Sierrita and Chino mines also produce molybdenum and rhenium as by-products.

     The Manufacturing segment consists of conversion facilities including our smelter, refinery and rod mills. The Manufacturing segment processes copper produced at our mining operations and copper purchased from others into copper anode, cathode and rod. In addition, at times it smelts and refines copper and produces copper rod for customers on a toll basis. Toll arrangements require the tolling customer to deliver appropriate copper-bearing material to our facilities, which we then process into a product that is returned to the customer. The customer pays PDMC for processing its material into the specified products.

     The Sales segment functions as an agent to sell copper from our U.S. mines and Manufacturing segment. The Sales segment also purchases and sells any copper not sold by the South American mines to third parties. Copper is sold to others primarily as rod, cathode or concentrate, and as rod to PDI’s Wire and Cable segment.

     The Primary Molybdenum segment consists of the Henderson and Climax mines, related conversion facilities and a technology center. This segment is an integrated producer of molybdenum, with mining, roasting and processing facilities that produce high-purity, molybdenum-based chemicals, molybdenum metal powder and metallurgical products, which are sold to customers around the world. In addition, at times this segment roasts and/or processes material on a toll basis. Toll arrangements require the tolling customer to deliver appropriate molybdenum-bearing material to our facilities, which we then process into a product that is returned to the customer. The customer pays PDMC for processing its material into the specified products. This segment also includes a technology center whose primary activity is developing, marketing and selling new engineered products and applications.

     Our U.S. Mining Operations and our South American Mines are discussed herein together, where appropriate, as our Worldwide Copper Mining Operations. U.S. Mining Operations comprise the following reportable segments: Morenci, Bagdad, Sierrita, Chino/Cobre, Tyrone, Manufacturing and Sales, along with other mining activities. South American Mines comprise the following reportable segments: Candelaria/Ojos del Salado, Cerro Verde and El Abra.

Properties, Facilities and Production

     Following is a map indicating the approximate location of PDMC’s U.S. copper and molybdenum mines:

United States Mines

U.S. Mines

     We produce electrowon copper cathode at leaching and solution extraction/electrowinning (SX/EW) operations near Tyrone and Silver City (Chino), New Mexico mines, and Morenci, Bagdad and Green Valley (Sierrita), Arizona mines. We produce copper concentrate from open-pit mines and concentrators located at Bagdad and Green Valley, Arizona (Bagdad and Sierrita mines, respectively) and Silver City, New Mexico (Chino mine). Our Miami mine in Arizona, which has the capability to produce electrowon copper cathode, has been curtailed since 2002.

     We are the world’s leading producer of copper using the SX/EW process. In 2005, we produced a total of 532,700 tons of copper cathode at our SX/EW facilities in the United States, which includes our partner’s 15 percent undivided interest in our Morenci mine. This compares with 567,100 tons in 2004 and 569,600 tons in 2003. SX/EW is a cost-effective process for extracting copper from certain types of ores and is a major factor in our continuing efforts to maintain internationally competitive costs. The annual design plating capacity of our electrowon copper plants is 410,000 tons at Morenci, 105,000 tons at Miami, 75,000 tons at Chino, 84,000 tons at Tyrone, 25,000 tons at Sierrita and 32,500 tons at Bagdad, which includes 17,500 tons of capacity associated with its concentrate-leach facility.

     Morenci

     The Morenci complex in southeastern Arizona is the largest copper producing operation in North America. Morenci comprises an open-pit mine, a concentrator, four solution extraction facilities and three electrowinning tankhouses. We operate Morenci and own an 85 percent undivided interest; the remaining 15 percent interest is owned by Sumitomo Metal Mining Arizona, Inc., a jointly owned subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation. Each partner takes in kind its share of Morenci production.

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     In 2001, Morenci was converted to a mine-for-leach facility, and as a result, the Morenci concentrator was placed on care-and-maintenance status. Morenci’s annual electrowon cathode production is approximately 410,000 tons, and its crush-leach facility processes approximately 85,000 tons of ore daily with the remaining ore processed through stockpile leaching.

     On June 1, 2005, the Company’s board of directors approved expenditures of $210 million to construct a concentrate-leach, direct-electrowinning facility at Morenci, and to restart its concentrator. The concentrate-leaching facility will utilize Phelps Dodge’s proprietary medium-temperature, pressure leaching and direct-electrowinning technology that has been demonstrated at our Bagdad, Arizona, copper mine. The concentrate-leach, direct-electrowinning facility is expected to be in operation by mid-2007, and copper production is projected to be approximately 150 million pounds per year. We have also made plans to accelerate the restart of the Morenci concentrator, which is expected to allow us to produce approximately 32,000 tons of concentrate in 2006. We plan to treat this concentrate at our smelter located in Miami, Arizona. Concentrate-leach technology, in conjunction with a conventional milling and flotation concentrator, allows copper in sulfide ores to be transformed into copper cathode through efficient pressure leaching and electrowinning processes instead of smelting and refining. Historically, sulfide ores have been processed into copper anodes through a smelter.

     We are, at present, a party to litigation that could adversely impact the allocation of available water supplies for the Morenci operation and our other properties in Arizona. (Refer to Item 3, Legal Proceedings, for information concerning the status of these proceedings.)

     Bagdad

     Our wholly owned Bagdad operation in northwestern Arizona mines copper sulfide and oxide ore. The operation consists of an open-pit mine, a sulfide ore concentrator producing copper and molybdenum concentrates, and a leaching system with an SX/EW operation producing copper cathode. In January 2002, as a result of the then-current economic environment, Bagdad’s mill throughput was curtailed temporarily to approximately one-half capacity. In January 2004, Bagdad began increasing production and resumed producing at full capacity in the 2004 second quarter. This decision was based upon the rapid increase in copper prices, our view of market fundamentals for copper and molybdenum over the next several years, and our internal concentrate and sulfuric acid balance.

     In 2002, Bagdad constructed a high-temperature, pressure copper leaching demonstration plant for approximately $40 million designed to recover annually 35 million pounds of commercial-grade copper cathode from chalcopyrite concentrates. The plant was commissioned in the 2003 first quarter and achieved full production in the 2003 second quarter. The facility is the first of its kind in the world to use high-temperature pressure leaching to process chalcopyrite concentrates.

     In early 2005, this plant was converted to operate at medium-temperature conditions (i.e., 160°C) to prove an alternative technology that generates significantly less sulfuric acid and requires less oxygen than the high-temperature process. This process has potential application in operations and projects where excess by-product sulfuric acid cannot be beneficially used in stockpile or heap leaching operations, and could result in a lower-cost option for certain applications. The facility’s conversion was completed in May 2005, and the plant was operated in this mode for approximately seven months. The proprietary Phelps Dodge medium-temperature process (incorporating direct electrowinning) was successfully demonstrated during the seven-month period of operation, producing LME Grade A cathode that was processed through Phelps Dodge rod mills. At the conclusion of the planned demonstration period, the facility was converted back to operate at high-temperature conditions (225°C) in December 2005 to provide the Bagdad operation with a greater amount of by-product acid necessary for low-grade stockpile leaching operations. This technology is proprietary and is covered under a Technology Development Agreement between Phelps Dodge and Placer Dome, Inc. This technology could assist in our long-term, cost-reduction strategy. Our medium-temperature technology will be utilized at the Morenci concentrate-leaching facility.

     Sierrita

     We own the Sierrita mine near Green Valley, Arizona. The facility consists of an open-pit mine, a sulfide ore concentrator producing copper and molybdenum concentrates, two molybdenum roasters and a rhenium processing facility. Sierrita also uses an oxide and low-grade sulfide ore stockpile leaching system with an SX/EW operation to produce copper cathode. Late in 2004, the Company completed construction of a plant that is capable of producing approximately 40 million pounds of copper sulfate pentahydrate. This is an alternative to cathode production and production commenced in early 2005. The Sierrita operation leases property adjacent to its mine upon which its electrowinning tankhouse is located.

     Sierrita’s on-site roasters process molybdenum concentrates produced at Sierrita, Bagdad and Chino, as well as purchased concentrates or concentrates tolled for third parties. The resulting metallurgical-grade molybdic oxide and related products are either packaged for shipment to customers worldwide or transported to other facilities for further processing.

     At year-end 2001, as a result of the then-current economic environment, mill throughput at the Sierrita mine was reduced temporarily to approximately one-half of its capacity. In January 2004, Sierrita began increasing production and resumed producing at full capacity in the 2004 fourth quarter. This decision was based upon the rapid increase in copper prices, our view of market fundamentals for copper and molybdenum over the next several years, and our internal concentrate and sulfuric acid balance.

     Miami/Bisbee

     Our wholly owned operations at Miami, Arizona, consist of an open-pit copper mine, an SX/EW operation producing copper cathode, a smelter, an acid plant, an electrolytic refinery (permanently closed in 2005) and a copper rod plant. The small Bisbee copper precipitation operation is located in southern Arizona. In January 2002, as a result of the then-current economic environment, the Miami mine and refinery were closed temporarily and remained closed through 2005. For 2005, 2004 and 2003, Miami’s production of 12,300 tons, 9,800 tons and 17,800 tons, respectively, reflected only residual leach production.

     In June 2005, with the decision to construct a concentrate-leach, direct-electrowinning facility at the Morenci copper mine, the company reassessed its operating capacity, flexibilities, efficiencies

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and costs, which resulted in the permanent closure of the Miami refinery. The closure of the Miami refinery resulted in an asset impairment charge of $59.1 million ($45.2 million after-tax) in the 2005 second quarter. (See the Manufacturing segment for additional discussion.)

     In January 2003, as a result of reduced production at our Bagdad and Sierrita mines along with reduced toll concentrate terms, the Miami smelter was partially curtailed. In the 2004 second quarter, the Miami smelter resumed operating at full capacity. This decision was based upon the rapid increase in copper prices, our view of market fundamentals for copper over the next several years, and our internal concentrate and sulfuric acid balance.

     Chino/Cobre

     We operate an open-pit copper mine, concentrator, leaching and SX/EW facility near Silver City, New Mexico, and a smelter (permanently closed in 2005) in Hurley, New Mexico, that are owned by Chino Mines Company (Chino), a general partnership in which we held a two-thirds interest through December 18, 2003, and a 100 percent interest thereafter. Heisei Minerals Corporation (Heisei), a subsidiary of Mitsubishi Materials Corporation and Mitsubishi Corporation, owned the remaining one-third interest in Chino. On December 19, 2003, we purchased Heisei’s interest in Chino. Prior to December 19, 2003, each partner purchased its proportionate share of Chino’s monthly copper production.

     Beginning in late 1998 and extending through the first half of 1999, production was curtailed resulting in a reduction of approximately 35,000 tons of annual copper production. In March 2001, the concentrator was temporarily shut down, and in January 2002, the Chino mine and smelter were closed temporarily. Chino’s SX/EW operations continued producing copper through leaching of existing stockpiles. The production from these stockpiles declined steadily during 2002 and 2003, and limited mining for leach material was renewed in April 2003. In September 2003, Chino resumed a full mine-for-leach operation. Chino’s milling operations increased to approximately 80 percent of capacity in the 2004 third quarter and remained there through 2005.

     In June 2005, with the decision to construct a concentrate-leach, direct-electrowinning facility at the Morenci copper mine, the company reassessed its operating capacity, flexibilities, efficiencies and costs, which resulted in the permanent closure of the Chino smelter. The closure of the Chino smelter resulted in an asset impairment charge of $89.6 million ($68.6 million after-tax) in the 2005 second quarter. (See the Manufacturing segment for additional discussion.)

     On December 19, 2003, a wholly owned subsidiary of the Company acquired Heisei’s one-third general partnership interest in Chino. In connection with this transaction, Heisei paid, on behalf of Chino, approximately $64 million in cash to a trust to provide a portion of the financial assurance for mine closure/close out obligations. That amount represented a one-third share of the then-current estimate by the state of New Mexico of the amount of financial assurance Chino must provide in connection with its current permits. In addition, Heisei paid $50 million to the Company’s subsidiary to cover other Heisei obligations. Due to our business expectations and plans, which resulted in significant differences in the assumed operating life of Chino compared with that assumed by Heisei, we recognized an extraordinary gain of $68.3 million upon completing the transaction.

     Cobre Mining Company Inc. (Cobre) is located in southwestern New Mexico, adjacent to our Chino operations. The primary assets of Cobre include an open-pit copper mine, a concentrator and the surrounding 12,000 acres of land, including mineral rights. In 1999, production was suspended, reducing copper production by approximately 35,000 tons per year. In December 2002, after revising mine plans and assessing recoverability, the Company recognized an impairment charge to write down Cobre’s assets by $115.5 million (before and after taxes). In 2004, Cobre resumed limited mining activities, including rehabilitation of haul roads, drilling and blasting to establish new access to mining areas, and cleaning of pit benches. In 2005, permitting to optimize future production with Chino’s mining operations was initiated. In June 2005, with the decision to construct a concentrate-leach, direct-electrowinning facility at the Morenci copper mine, the Company reassessed the recoverability of Cobre’s long-lived assets. This assessment, which was based on an analysis of cash flows associated with the related assets, indicated that the assets were not recoverable, resulting in the recognition of an asset impairment charge of $59.9 million ($45.9 million after-tax). The asset impairment charges resulted from projected higher acid, external smelting and freight costs. As a result of the Chino smelter being permanently closed, the charges also reflected estimated higher restart and operating costs of running the Cobre mill, and increased costs for building a tailing pipeline from Cobre to the Chino mine based upon a recent detailed engineering evaluation.

     Tyrone

     Phelps Dodge operates its wholly owned Tyrone open-pit mine and SX/EW plant near Tyrone, New Mexico. Tyrone has been a mine-for-leach operation since 1992. Beginning in late 2003, we partially curtailed production at Tyrone to focus on stockpile reclamation. During 2005, a combination of mining and reclamation activities was conducted. These activities are expected to continue through 2006 as Tyrone focuses on site reclamation while mining its remaining ore reserves. The Tyrone SX/EW operations continue at a declining production rate.

     In June 2005, with the decision to construct a concentrate-leach, direct-electrowinning facility at the Morenci copper mine, the Company reassessed the recoverability of Tyrone’s long-lived assets. This reassessment, which was based on an analysis of cash flows associated with the related assets, indicated that the assets were not recoverable, and resulted in an asset impairment charge of $210.5 million ($161.2 million after-tax). The asset impairment charge resulted from fundamental changes to its life-of-mine cash flows. In addition to higher expected acid costs, Phelps Dodge decided to accelerate reclamation of portions of stockpiles around the mine perimeter. At the same time, the estimated cost associated with reclaiming the perimeter stockpiles increased. These factors increased costs and also decreased Tyrone’s copper ore reserves by approximately 155 million pounds, or 14 percent.

     Even though we remain optimistic about the strong copper and molybdenum markets, we will remain disciplined about our production profile. We will continue to configure our operations so that we can quickly respond both to positive and negative market demand and price swings.

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     Following is a map indicating the approximate location of PDMC’s South American mines:

South American Mines

South American Mines

     We produce electrowon copper cathode at leaching and SX/EW operations near Arequipa, Peru, and near Calama, Chile. We produce copper concentrate from an open-pit and three underground mines and two concentrators located near Copiapó, Chile.

     In 2005, we produced a total of 335,300 tons of copper cathode at our SX/EW facilities in South America, compared with 337,900 tons in 2004 and 346,100 tons in 2003. Our total annual design capacity of electrowon copper cathode production is 248,000 tons at El Abra and 96,000 tons at Cerro Verde.

     Candelaria/Ojos del Salado

     We operate the Candelaria mine located near Copiapó in the Atacama Desert of northern Chile. The operation consists of an open-pit and underground copper mines, a concentrator, port and associated facilities. We own an 80 percent partnership interest in Candelaria, a Chilean contractual mining company, through Phelps Dodge Candelaria, Inc., a wholly owned subsidiary, and the remaining 20 percent interest is jointly owned by SMMA Candelaria, Inc., Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation. In addition, we own two underground mines, a concentrator and associated infrastructure as part of our Ojos del Salado operation. These facilities are owned through our Chilean subsidiary, Compañía Contractual Minera Ojos del Salado. In 2004, due to the rapid increase in copper prices, we resumed operation of the concentrator and the two underground mines. The facilities had been curtailed since 1998. On December 22, 2005, Ojos del Salado completed a general capital increase transaction in which SMMA Candelaria, Inc. acquired a 20 percent equity interest in Ojos del Salado. As a result of the transaction, Ojos del Salado received cash of $24.8 million (net of $0.2 million of expenses) and Phelps Dodge’s interest in Ojos del Salado was reduced to 80 percent from 100 percent. Phelps Dodge continues to retain a majority interest in Ojos del Salado, which we fully consolidate (and report minority interest). (Refer to Change in Interest Gains on pages 75 and 76 for additional discussion of this transaction.)

     El Abra

     The El Abra operation consists of a mine-for-leach, open-pit mining operation that uses three stages of crushing prior to leaching, an on/off heap leach pad, and an SX/EW operation to produce copper cathode. Other lower-grade material is placed as uncrushed, run-of-mine material and leached. Phelps Dodge owns a 51 percent partnership interest in Sociedad Contractual Minera El Abra (El Abra), a Chilean contractual mining company. The remaining 49 percent is owned by the state-owned copper enterprise Corporación Nacional del Cobre de Chile (CODELCO). El Abra holds mining concessions over more than 33,000 acres of land near Calama in the copper-rich Second Region of northern Chile.

     Cerro Verde

     The Cerro Verde operation, located approximately 30 kilometers southwest of Arequipa, Peru, consists of two open-pit mines, Cerro Verde and Santa Rosa, a heap-leach operation and an SX/EW operation. Cerro Verde produces copper cathode. The ore is processed through three stages of crushing and placed on a leach pad after agglomeration. Other lower-grade material is placed as uncrushed, run-of-mine material and leached.

     On June 1, 2005, Cerro Verde completed a general capital increase transaction. The transaction resulted in SMM Cerro Verde Netherlands B.V., also an indirect subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation, acquiring an equity position in Cerro Verde totaling 21 percent. In addition, Compañía de Minas Buenaventura S.A. (Buenaventura), a publicly traded Peruvian mining concern, increased its ownership position in Cerro Verde to 18.2 percent. The remaining minority shareholders own 7.2 percent of Cerro Verde through shares publicly traded on the Lima Stock Exchange. As a result of the transaction, Cerro Verde received cash of $441.8 million (net of $1.0 million of expenses) and Phelps Dodge’s interest in Cerro Verde was reduced to 53.6 percent from 82.5 percent. Phelps Dodge continues to maintain a majority interest in Cerro Verde, which we fully consolidate (and report minority interests).

     In early February 2005, the Phelps Dodge board of directors approved proceeding with an approximate $850 million expansion of the Cerro Verde mine simultaneously with financing efforts. On September 30, 2005, the Company obtained debt-financing facilities in the overall amount of $450 million, subject to certain conditions, for the expansion. The above-mentioned cash invested by Sumitomo and Buenaventura to establish or increase their ownership interests in Cerro Verde is a major source of funds for the expansion. For the year ended December 31, 2005, approximately $300 million was spent on the Cerro Verde expansion.

     The expansion permits the mining of a primary sulfide ore body beneath the leachable ore body currently in production. Through the expansion, approximately 1.4 billion tons of sulfide ore reserves averaging 0.49 percent copper and 0.02 percent molybdenum will be processed through a new concentrator. Processing of the sulfide ore is expected to begin in the 2006 fourth quarter, and the expanded production rate should be achieved in the first half of 2007. The current copper production at Cerro Verde is approximately 100,000 tons per year of copper cathode. After completion of the expansion, copper production is expected to approximate 300,000 tons per year (approximately 160,700 tons per year for Phelps Dodge’s share).

6

Manufacturing Segment

     We own and operate a copper smelter in Miami, Arizona, and prior to 2002 we operated a smelter in Hurley, New Mexico (Chino smelter). We smelt virtually all of our share of our U.S. copper concentrate production and on occasion, depending on market circumstances and internal production requirements, concentrate production from our South American operations. In addition, we may purchase concentrate to keep our smelter operating at efficient levels. We refine our share of anode copper production from our smelter at our refinery in El Paso, Texas, and from late 1999 to early 2002 also at our refinery in Miami, Arizona. The El Paso refinery has an annual production capacity of about 450,000 tons of copper cathode, which is sufficient to refine all the anode copper we produce for our account at our operating smelter.

     Our El Paso refinery also produces nickel sulfate (converted to nickel carbonate production in 2004), copper telluride, and autoclaved slimes material containing gold, silver, platinum and palladium.

     In January 2002, the Chino smelter was temporarily closed. From 2001 to 2005, the El Paso refinery operated significantly below capacity due to the conversion of the Morenci operation to a mine-for-leach operation in 2001 and the curtailment of certain production facilities in early 2002. As a result of production curtailments announced in the 2001 fourth quarter, the Miami refinery was temporarily closed in 2002. In June 2005, the decision to construct a concentrate-leach, direct-electrowinning facility at the Morenci copper mine had consequences for several of Phelps Dodge’s southwest operations. With future Morenci copper concentrate production being fed into the concentrate-leach facility, the Miami smelter will be sufficient to treat virtually all remaining concentrate expected to be produced by Phelps Dodge at its operations in the southwestern United States. Accordingly, the Chino smelter, which had been on care-and-maintenance status, was permanently closed and demolition initiated. With the closing of the Chino smelter, Phelps Dodge will have unnecessary refining capacity in the region. Because of its superior capacity and operating flexibility, the refinery in El Paso, Texas, will continue to operate. The El Paso refinery is more than twice the size of our refinery in Miami, Arizona, and has sufficient capacity to refine all anodes expected to be produced from Phelps Dodge’s operations in the southwestern United States given the changes brought by the above-mentioned Morenci project. Accordingly, the Miami refinery, which had been on care-and-maintenance, was permanently closed. As a result of the decision to close the Chino smelter and Miami refinery, we recorded asset impairment charges during the 2005 second quarter of $89.6 million ($68.6 million after-tax) and $59.1 million ($45.2 million after-tax), respectively, to reduce the related carrying values of these properties to their respective salvage values.

     We are the world’s largest producer of continuous-cast copper rod, the basic feed for the electrical wire and cable industry. Most of our refined copper and additional purchased copper cathode are converted into rod at our continuous-cast copper rod facilities in El Paso, Texas; Norwich, Connecticut; Miami, Arizona; and Chicago, Illinois. Our four plants have a collective annual capacity to convert more than 1.1 million tons of refined copper into rod and other refined copper products.

Primary Molybdenum Segment

     See the United States Mines map on page 2 for the location of our molybdenum mines.

     Phelps Dodge owns the underground Henderson molybdenum mine near Empire, Colorado. The operation consists of an underground, block-cave mine where molybdenite ore is mined and transported to a conventional sulfide concentrator. The concentrator is capable of operating at a rate of 32,000 tons of ore per day, producing molybdenum concentrate containing up to 58 percent molybdenum. Most of the concentrate is shipped to our Fort Madison, Iowa, roasting and chemical processing facility where high-purity products are made for final sale to customers. A portion of Henderson’s production is further refined and sold to customers as molysulfide.

     In May 2000, as a result of an oversupply of molybdenum and continued low prices in the world market, Phelps Dodge announced a plan to curtail molybdenum production by approximately 20 percent and reduce its Henderson workforce by approximately 130 workers. This production curtailment essentially remained in place through 2003. In 2004, based on rapidly increasing molybdenum prices and our view of market fundamentals for molybdenum, we increased annual production at Henderson to approximately 28 million pounds, and in 2005, annual production at Henderson was approximately 32 million pounds. Henderson is expected to be capable of producing up to 40 million pounds annually by mid-2006. Henderson is currently developing the new 7210-foot production level. The 7700-foot production level of the mine that has been the principal ore production level since 1991 will be depleted by mid-2007. The cost to add the increased capacity is expected to total $20 million to $24 million.

     Phelps Dodge also owns the Climax molybdenum mine near Leadville, Colorado. The operation consists of an underground and open-pit mine, and a 16,000-ton-per-day concentrator. The Climax molybdenum mine was placed on care-and-maintenance in 1995 by its previous owner. We expect to bring Climax into production concurrent with the exhaustion of the Henderson molybdenum mine ore reserves for continued long-term primary molybdenum supply for the chemicals business. Nonetheless, we continue to evaluate short- and mid-term production opportunities for the Climax mine based on market conditions and projections as well as manage the facility in a manner that allows its production to commence in a timely and efficient manner. If it is brought on line, production from the Climax mine could range from 5 million to 24 million pounds a year. The property comprises more than 14,000 acres.

     Phelps Dodge processes molybdenum concentrates at its conversion plants in the United States and Europe into such products as technical-grade molybdic oxide, ferromolybdenum, pure molybdic oxide, ammonium molybdates, molybdenum metal powders and molysulfide. The Company operates molybdenum roasters at Green Valley, Arizona; Fort Madison, Iowa; and Rotterdam, the Netherlands.

     The Fort Madison, Iowa, facility consists of two molybdenum roasters, a sulfuric acid plant, a metallurgical (technical oxide) packaging facility, and a chemical conversion plant, which includes a wet chemicals plant and sublimation equipment. In the chemical plant, molybdic oxide is further refined into various high-purity molybdenum chemicals for a wide range of uses by chemical and

7

catalyst manufacturers. In addition to metallurgical oxide products, the Fort Madison facility produces ammonium dimolybdate, pure molybdic oxide, ammonium heptamolybdate, ammonium octamolybdate, sodium molybdate, sublimed pure molybdic oxide and molysulfide.

     The Rotterdam conversion plant consists of a molybdenum roaster, sulfuric acid plant, a metallurgical packaging facility and a chemical conversion plant. The plant produces metallurgical products primarily for third parties. Ammonium dimolybdate and pure molybdic oxide are produced in the wet chemical plant.

     We also produce ferromolybdenum and molysulfide for worldwide customers at our conversion plant located in Stowmarket, United Kingdom. The plant is operated both as an internal and external customer tolling facility.

     Climax has a technology center located in Sahuarita, Arizona, focused on new product development and product applications as an extension of our metals business.

Worldwide Copper Production, by Source, Other Metal Production and Sales Data, and Manufacturing and Sales Production

     The following tables show our worldwide copper production by source for the years 2001 through 2005; aggregate production and sales data for copper, gold, silver, molybdenum and sulfuric acid from these sources for the same years; annual average copper and molybdenum prices; and production from our smelters and refineries. Major changes in operations during the five-year period included:

• conversion of Morenci operations to mine-for-leach during 1999 and 2000, with completion in the 2001 first quarter; concentrator was placed on care-and-maintenance status in 2001;

• curtailment of mill throughput at Bagdad to approximately one-half capacity in January 2002, followed by an increase in mill throughput to approximately 80 percent in January 2003, and an increase in production in January 2004, reaching full capacity in the 2004 second quarter;

• curtailment of mill throughput at Sierrita to approximately one-half capacity in January 2002, followed by an increase in production in January 2004, reaching full capacity in the 2004 fourth quarter;

• temporary closure of the Miami mine and refinery in January 2002; partial curtailment of Miami’s smelter throughput in January 2003, followed by restart at full capacity in the 2004 second quarter; permanent closure of the Miami refinery in the 2005 second quarter;

• curtailment of Chino operations beginning in the 1998 fourth quarter, followed by temporary shut-down of the concentrator in March 2001 and temporary closure of the mine and smelter in January 2002; a partial restart of mining for leach material in April 2003, with a full restart of mining for leach materials in September 2003; an increase in milling operations to 80 percent of capacity in the 2004 third quarter; permanent closure of the Chino smelter in the 2005 second quarter;

• curtailment of Cobre mining and milling operations that have remained unchanged since its temporary shutdown in March 1999;

• partial curtailment at Tyrone beginning in September 2003; Tyrone mining operations were temporarily curtailed in 2004 to focus on stockpile reclamation. A combination of mining and reclamation activities were conducted in 2005, and are expected to continue through 2006, as Tyrone focuses on site reclamation while mining its remaining ore reserves. Tyrone SX/EW operations continue at a declining production rate;

• restart of Ojos del Salado underground mining and milling operations in the 2004 second quarter;

• completion of the run-of-mine leach project at El Abra with production commencing January 2002;

• partial curtailment of Henderson operations beginning in the 2000 second quarter to 18 million pounds, followed by an increase in production to approximately 28 million pounds by the end of 2004 and 32 million annual pounds in 2005.

8

Phelps Dodge Copper Production Data, by Source
(thousand tons)

	2005		2004		2003		2002		2001
Material mined (a)
Morenci		255,887		234,491		237,338		248,505		281,474
Bagdad		64,093		61,194		48,935		42,912		63,680
Sierrita		63,358		53,231		35,525		23,066		60,869
Chino		65,060		43,443		12,299		220		59,277
Tyrone		28,840		1,647		16,319		45,515		73,990
Miami		—		—		—		—		32,702
Candelaria		105,344		106,585		108,442		109,211		126,509
Ojos del Salado		2,800		836		—		—		—
Cerro Verde		68,620		75,727		72,965		75,982		68,685
El Abra		85,140		83,705		87,682		76,831		82,737
Total material mined		739,142		660,859		619,505		622,242		849,923
Less 15% undivided interest at Morenci		38,383		35,174		35,601		37,276		42,220
Material mined on a consolidated basis		700,759		625,685		583,904		584,966		807,703
Less minority participants’ shares previously accounted for on a pro rata basis:
Chino (b)		—		—		3,785		73		19,758
Candelaria (c)		21,069		21,317		21,688		21,842		25,302
Ojos del Salado (d)		15		—		—		—		—
Cerro Verde (e)		23,810		13,252		12,769		13,297		12,020
El Abra (f)		41,719		41,015		42,964		37,647		40,541
Material mined on a pro rata basis		614,146		550,101		502,698		512,107		710,082
Mill ore processed
Morenci		—		—		—		—		4,301
Bagdad		26,592		27,157		26,103		19,783		31,667
Sierrita		39,199		34,885		26,654		21,439		38,133
Chino		12,604		4,895		—		—		3,109
Candelaria (g)		25,064		27,318		26,407		28,507		27,365
Ojos del Salado		2,586		742		—		—		—
Total mill ore processed		106,045		94,997		79,164		69,729		104,575
Less 15% undivided interest at Morenci		—		—		—		—		645
Mill ore processed on a consolidated basis		106,045		94,997		79,164		69,729		103,930
Less minority participants’ shares previously accounted for on a pro rata basis:
Chino (b)		—		—		—		—		1,036
Candelaria (c)		5,013		5,464		5,281		5,701		5,473
Ojos del Salado (d)		12		—		—		—		—
Mill ore processed on a pro rata basis		101,020		89,533		73,883		64,028		97,421
Leach ore placed in stockpiles
Morenci		239,052		224,918		228,940		241,955		258,202
Bagdad (h)		23,857		23,627		—		328		696
Sierrita		1,888		1,330		375		170		14,347
Chino (h)		28,103		30,799		11,066		198		31,009
Tyrone (h)		20,328		18,185		10,722		34,835		27,513
Miami		—		—		—		—		10,208
Cerro Verde		22,839		22,628		21,014		24,096		23,436
El Abra (h)		83,620		71,361		80,604		71,224		75,875
Total leach ore placed in stockpiles		419,687		392,848		352,721		372,806		441,286
Less 15% undivided interest at Morenci		35,858		33,738		34,341		36,293		38,729
Leach ore placed in stockpiles on a consolidated basis		383,829		359,110		318,380		336,513		402,557
Less minority participants’ shares previously accounted for on a pro rata basis:
Chino (b)		—		—		3,376		66		10,336
Cerro Verde (e)		8,025		3,959		3,677		4,217		4,101
El Abra (f)		40,974		34,967		39,496		34,900		37,179
Leach ore placed in stockpiles on a pro rata basis		334,830		320,184		271,831		297,330		350,941

See footnote explanations on page 11.

9

Phelps Dodge Copper Production Data, by Source
(thousand tons)

	2005		2004		2003		2002		2001
Grade of ore mined — percent copper
Morenci — mill		—		—		—		—		0.78
Morenci — leach		0.28		0.29		0.28		0.28		0.30
Bagdad — mill		0.40		0.41		0.43		0.43		0.43
Bagdad — leach		0.10		0.09		—		0.29		0.28
Sierrita — mill		0.22		0.25		0.29		0.32		0.29
Sierrita — leach		0.20		0.23		0.26		0.21		0.22
Miami — leach		—		—		—		—		0.41
Chino — mill		0.51		0.81		—		—		0.79
Chino — leach		0.26		0.35		0.80		0.29		0.48
Tyrone — leach		0.26		0.17		0.34		0.35		0.29
Candelaria — mill		0.79		0.89		0.97		0.84		0.96
Ojos del Salado — mill		1.35		1.57		—		—		—
Cerro Verde — mill		—		—		—		—		—
Cerro Verde — leach		0.59		0.66		0.60		0.55		0.53
El Abra — leach		0.43		0.47		0.49		0.50		0.60
Average copper grade — mill		0.46		0.52		0.56		0.56		0.54
Average copper grade — leach		0.31		0.33		0.37		0.35		0.38
Copper production
Morenci:
Concentrate		—		—		—		—		23.5
Electrowon		400.0		420.3		421.2		412.7		368.1
Bagdad:
Concentrate		84.8		82.1		82.5		68.4		118.1
Electrowon		15.8		28.0		24.5		15.6		10.5
Sierrita:
Concentrate		71.8		73.5		66.3		60.0		94.6
Electrowon		7.5		4.0		9.3		16.2		26.3
Chino:
Concentrate		50.7		29.8		—		—		18.3
Electrowon		54.1		61.9		39.9		53.8		59.9
Tyrone:
Electrowon		40.5		43.1		56.9		69.9		76.4
Miami:
Electrowon		12.3		9.8		17.8		10.5		44.1
Bisbee:
Precipitate		—		—		—		0.1		0.2
Tohono:
Electrowon		2.5		—		—		—		—
Candelaria:
Concentrate		179.3		220.5		234.5		219.5		243.2
Ojos del Salado:
Concentrate		31.1		10.4		—		—		—
Cerro Verde:
Electrowon		103.1		97.6		96.3		95.3		84.9
El Abra:
Electrowon		232.2		240.3		249.8		248.2		239.8
Manufacturing (i)		2.3		2.3		6.6		5.4		3.0
Total copper production		1,288.0		1,323.6		1,305.6		1,275.6		1,410.9
Less 15% undivided interest at Morenci		60.0		63.0		63.3		61.9		58.8
Copper production on a consolidated basis		1,228.0		1,260.6		1,242.3		1,213.7		1,352.1
Less minority participants’ shares previously accounted for on a pro rata basis:
Chino (b)		—		—		12.5		17.9		26.1
Candelaria (c)		35.9		44.1		46.9		43.9		48.6
Ojos del Salado (d)		0.1		—		—		—		—
Cerro Verde (e)		35.9		17.1		16.8		16.7		14.9
El Abra (f)		113.8		117.7		122.4		121.7		117.5
Manufacturing (i)		—		—		1.2		1.4		(0.2	)
Copper production on a pro rata basis		1,042.3		1,081.7		1,042.5		1,012.1		1,145.2

See footnote explanations on page 11.

10

Phelps Dodge Copper Sales Data, by Source
(thousand tons)

	2005		2004		2003		2002		2001
Copper sales:
From own mines (j):
Morenci		400.0		420.3		421.2		412.7		391.8
Bagdad		104.4		111.9		111.0		92.3		132.9
Sierrita		82.8		79.2		79.3		83.8		125.1
Chino		104.8		91.7		40.7		53.7		78.2
Tyrone		40.5		43.1		56.9		69.9		76.4
Miami		14.5		10.9		20.0		15.2		46.6
Bisbee		—		—		—		0.1		0.3
Tohono		2.5		—		—		—		—
Candelaria		179.7		223.2		234.3		218.3		237.6
Ojos del Salado		30.9		10.3		—		—		—
Cerro Verde		102.7		98.2		95.6		94.9		84.7
El Abra		233.3		240.8		251.8		254.1		248.4
Manufacturing (i)		2.3		2.3		6.6		5.9		4.2
Total copper sales from own mines		1,298.4		1,331.9		1,317.4		1,300.9		1,426.2
Less 15% undivided interest at Morenci		60.0		63.0		63.3		61.9		58.8
Copper sales from own mines on a consolidated basis		1,238.4		1,268.9		1,254.1		1,239.0		1,367.4
Less minority participants’ shares previously accounted for on a pro rata basis:
Chino (b)		—		—		13.3		17.9		26.1
Candelaria (c)		36.0		44.6		46.9		43.7		47.5
Ojos del Salado (d)		0.1		—		—		—		—
Cerro Verde (e)		36.4		17.2		16.7		16.6		14.8
El Abra (f)		114.3		118.0		123.4		124.5		121.7
Manufacturing (i)		—		—		1.2		1.8		1.3
Copper sales from own mines on a pro rata basis		1,051.6		1,089.1		1,052.6		1,034.5		1,156.0
Purchased copper:
Candelaria (c)		23.1		37.1		22.1		35.8		37.0
El Abra (f)		—		—		7.3		56.5		5.8
Manufacturing (i)		369.5		394.0		274.6		267.7		342.6
Sales		18.1		1.9		70.5		83.0		75.8
Total purchased copper		410.7		433.0		374.5		443.0		461.2
Total copper sales on a consolidated basis (k)		1,649.1		1,701.9		N/A		N/A		N/A
Total copper sales on a pro rata basis (k)		N/A		N/A		1,427.1		1,477.5		1,617.2

Phelps Dodge Other Metal Production and Sales

	2005		2004		2003		2002		2001
Gold (thousand ounces)
Total production		134		134		129		132		140
Less minority participants’ shares previously accounted for on a pro rata basis:		20		23		26		24		31
Net Phelps Dodge share		114		111		103		108		109
Sales (j)		114		112		108		136		77
Silver (thousand ounces)
Total production		3,090		3,018		2,754		2,582		3,773
Less minority participants’ shares previously accounted for on a pro rata basis:		250		284		265		225		490
Net Phelps Dodge share		2,840		2,734		2,489		2,357		3,283
Sales (j)		2,866		3,249		2,292		3,317		2,504
Molybdenum (thousand pounds)
Primary Molybdenum — Henderson		32,201		27,520		22,247		20,517		18,603
By-product		30,105		29,969		29,747		24,448		36,912
Total production		62,306		57,489		51,994		44,965		55,515
Less minority participants’ shares previously accounted for on a pro rata basis:
Chino (b)		—		—		—		—		50
Net Phelps Dodge share		62,306		57,489		51,994		44,965		55,465
Sales — Net Phelps Dodge share from own mines (j)		59,947		63,108		54,158		46,665		55,105
Purchased molybdenum		12,830		12,844		8,199		7,393		1,609
Total sales		72,777		75,952		62,357		54,058		56,714
Sulfuric acid (thousand tons)
Copper smelters (l)		726.1		722.0		647.6		748.6		1,236.7
Molybdenum (l)		130.5		122.5		116.5		114.3		97.8
Total production		856.6		844.5		764.1		862.9		1,334.5
Copper smelters (l)		98.6		99.0		45.5		14.5		15.9
Molybdenum (l)		144.8		121.4		117.9		115.4		102.3
Total sales		243.4		220.4		163.4		129.9		118.2

See footnote explanations on page 11.

11

Prices
(per pound)

	2005		2004		2003		2002		2001
COMEX — copper price (m)	$	1.68		1.29		0.81		0.72		0.73
LME — copper price (n)	$	1.67		1.30		0.81		0.71		0.72
Metals Week — molybdenum Dealer Oxide mean price (o)	$	31.73		16.41		5.32		3.77		2.36

Phelps Dodge Manufacturing and Sales Production

	2005		2004		2003		2002		2001
Smelters (p)
Total copper (thousand tons)		218.9		214.4		200.8		243.8		463.5
Less minority participants’ shares previously accounted for on a pro rata basis		—		—		—		0.5		36.7
Net Phelps Dodge share		218.9		214.4		200.8		243.3		426.8
Refineries (q)
Copper (thousand tons)		295.0		308.4		284.6		319.6		502.6
Gold (thousand ounces) (r)		—		—		—		79.0		86.6
Silver (thousand ounces) (r)		—		—		—		1,786.0		3,719.1
Rod (s)
Total copper (thousand tons)		1,008.1		1,014.6		825.8		850.6		879.8

Footnotes to tables on pages 8 through 11:

(a)	Included material mined for leaching operations, excluded material mined from stockpiles.
(b)	Reflected a one-third partnership interest in Chino Mines Company from January 1, 2001 to December 18, 2003 (minority interest acquired by PDMC on December 19, 2003).
(c)	Reflected a 20 percent partnership interest in Candelaria.
(d)	Reflected a 20 percent equity interest in Ojos del Salado beginning December 23, 2005.
(e)	Reflected a 17.5 percent equity interest in Cerro Verde through May 31, 2005, and a 46.4 percent equity interest beginning June 1, 2005.
(f)	Reflected a 49 percent partnership interest in El Abra.
(g)	Included mill ore from stockpiles.
(h)	Leach ore placed in the stockpiles included previously considered waste material that is now being leached.
(i)	Included smelter production from custom receipts and flux as well as tolling gains or losses.
(j)	Excluded sales of purchased copper, molybdenum, silver and gold.
(k)	2005 and 2004 reflected full consolidation of El Abra and Candelaria, 2003 and prior reflected El Abra and Candelaria on a pro rata basis (51 percent and 80 percent, respectively).
(l)	Sulfuric acid production resulted from smelter and molybdenum air quality control operations; sales do not include internal usage.
(m)	New York Commodity Exchange annual average spot price per pound — cathodes.
(n)	London Metal Exchange annual average spot price per pound — cathodes.
(o)	Annual Metals Week molybdenum Dealer Oxide mean price per pound — as quoted in Platts Metals Week.
(p)	Included production from purchased concentrates and copper smelted for others on a toll basis.
(q)	Included production from purchased material and copper refined for others on a toll basis.
(r)	El Paso closed its precious metals processing facility in the 2002 fourth quarter.
(s)	Included rod, wire, oxygen-free billets/cakes, scrap and other shapes.

12

Other Mining

     Other mining comprises our worldwide mineral exploration and development programs, a process technology center that directs its activities at improving existing processes and developing new cost-competitive technologies, other ancillary operations and mining investments.

     Exploration

     Our exploration group’s primary objectives are to increase PDMC’s ore reserve base through discoveries and joint ventures and, where appropriate, to diversify into other metals, minerals and geographic areas. Exploration is focused on finding large-scale copper and copper/gold deposits in the four principal copper-producing regions of the world: southwest U.S./Mexico, South American Cordillera, Central Africa and Australasia, as well as in other highly prospective areas. This group operates in more than 12 countries and maintains offices in Australia, Brazil, Bulgaria, Canada, Chile, Mexico, Peru, the Philippines and the United States.

     In 2005, Phelps Dodge expended $81.0 million on worldwide exploration, compared with $35.6 million in 2004 and $25.8 million in 2003. The increase in exploration for 2005 primarily was due to increased exploration in Central Africa, mostly associated with Tenke Fungurume, and at our U.S. mines. Approximately 36 percent of the 2005 expenditures occurred in the United States, with approximately 31 percent being spent at our U.S. mine sites, and the remainder for support of U.S. and international exploration activities. This compares with 40 percent in 2004 (31 percent at U.S. mine sites) and 32 percent in 2003 (25 percent at U.S. mine sites). In addition, approximately 34 percent was spent in Central Africa and approximately 7 percent was spent at our South American mine sites. The balance of exploration expenditures was spent principally in Chile, Europe, Australasia, Peru, Mexico, Canada and Brazil.

     During 2005, exploration programs continued at some of our existing copper operations. A high-grade, underground mineable reserve was added at our Candelaria operation. At our Morenci mine, significant progress was made on definition drilling of the Garfield and Shannon deposits. In the Safford district, we commenced exploration drilling of two deposits situated within four miles of the Dos Pobres ore body.

     In August 2002, Phelps Dodge announced it had replaced BHP Billiton as option holder under an existing agreement among BHP Billiton, Tenke Mining Corp. and others to acquire a controlling interest and operatorship in the Tenke Fungurume Mining (TFM) copper/cobalt project in the Democratic Republic of the Congo (DRC). On January 16, 2004, Phelps Dodge Exploration Corporation entered into a joint venture agreement with Tenke Holdings Limited with respect to the exploration, development and, if warranted, commercial production associated with the TFM copper/cobalt mineral deposit. On November 2, 2005, Phelps Dodge exercised its option to acquire a controlling interest of the TFM copper/cobalt mining concessions in the DRC. The action came after the government of the DRC and La Generale des Carrieres et des Mines (Gecamines), a state-owned mining company, executed amended agreements governing development of the concessions and after approval by DRC presidential decree. Phelps Dodge now holds an effective 57.75 percent interest in the project, along with Tenke Mining Corp. at 24.75 percent and Gecamines at 17.5 percent (non-dilutable). A Phelps Dodge subsidiary will be the operator of the project as it is developed and put into production. As part of the transaction, Gecamines will receive asset transfer payments totaling $50 million, including a $15 million asset transfer payment that was paid by Phelps Dodge on November 16, 2005, over a period of approximately five years as specified project milestones are reached. Phelps Dodge is responsible for funding all pre-development costs and an additional $10 million of asset transfer payments; thereafter, the Company and Tenke Mining Corp. are responsible for funding 70 percent and 30 percent, respectively, of any advances. Phelps Dodge has the right to withdraw from the project any time prior to approval of the bankable feasibility study by paying a $750,000 withdrawal fee. If Phelps Dodge withdraws, Tenke Mining Corp. then will be responsible for funding the remaining project costs, asset transfer payments, and any other advances, if required.

     The Tenke Fungurume feasibility study is expected to be completed in mid-2006, with construction of basic infrastructure in early 2007. Production could commence as early as late 2008 or early 2009.

     In 2004, an updated feasibility study was completed on our Safford project in eastern Arizona. On September 16, 2005, the federal Bureau of Land Management (BLM) completed a land exchange with the Company. This action allows us to advance development of the proposed copper mining operation near Safford, Arizona, which will include development of the Dos Pobres and San Juan copper ore bodies, about eight miles north of Safford in southeastern Arizona.

     On February 1, 2006, the Phelps Dodge board of directors conditionally approved development of the new copper mine near Safford, Arizona. Final approval is contingent upon receiving certain state permits needed for the mine. The Safford mine will require a capital investment of approximately $550 million and will be the first major new copper mine to be opened in the United States in more than 30 years.

     The two deposits, Dos Pobres and San Juan, contain an estimated total of 538 million tons of leachable reserves with an ore grade of 0.37 percent copper. We anticipate that the Safford mine will be in full production during the second half of 2008, with full copper production expected to be approximately 240 million pounds per year. Life of the operation is expected to be at least 18 years.

     In December 2004, Phelps Dodge Mining (Zambia) Ltd., a subsidiary of Phelps Dodge Corporation, sold the remaining portion (49 percent) of the Lumwana exploration property to Equinox Minerals Ltd. for $5.0 million in cash and a 1 percent future production royalty. Lumwana is a copper deposit in the Zambian copper belt located in northwestern Zambia.

     In October 2003, Phelps Dodge Australasia, Inc., a subsidiary of Phelps Dodge Corporation, sold its Australian exploration property portfolio to Red Metal Limited, a newly formed junior mining exploration company that listed on the Australian Stock Exchange. As consideration, Phelps Dodge Australasia acquired a 15 percent shareholding in Red Metal Limited and rights to acquire interests in properties explored.

     In mid-2004, Phelps Dodge transferred a 53 percent interest in the Ambatovy nickel/cobalt deposit in central Madagascar to Dynatec as Dynatec had completed its portion of a joint venture agreement. In February 2005, the Company sold its remaining 47 percent interest in

13

the project to Dynatec in exchange for 20.9 million Dynatec common shares, subject to certain holding restrictions, resulting in a 9.9 percent interest in Dynatec Corporation. We also received 100 preferred shares of Dynatec Corporation (BVI) Inc., a wholly owned subsidiary of Dynatec Corporation. The preferred shares are subject to a put/call arrangement that upon certain triggering events, including the commencement of commercial production, would entitle the Company to receive in the form of cash and stock the difference between $70 million and the then-current value of the 20.9 million Dynatec shares.

     In October 2001, Phelps Dodge sold its 50 percent interest in Mineração Serra do Sossego to Companhia Vale do Rio Doce (CVRD) for $42.5 million in cash. Sossego is a copper-gold mine in the Carajas region of Brazil.

     Process Technology

     The objective of PDMC’s process technology center (PTC) based in Safford, Arizona, is to enhance and strengthen Phelps Dodge’s competitive position in the world copper market. The PTC provides metallurgical process development capabilities, process optimization services, metallurgical testing and advanced material characterization services to meet the needs of PDMC and its operations. The PTC is ISO-9001-2000 certified. The activities at PTC are directed at the development of new cost-competitive, “step change” technologies and the continuous improvement of existing processes. A strong focus is maintained on the effective implementation, transfer and sharing of technology within PDMC operations and projects. The PTC employs approximately 119 engineers, scientists and technical support staff. The facilities include:

• a large-diameter, column-leach facility for testing run-of-mine material, which is capable of processing up to approximately 600 tons of ore annually;

• a continuous SX/EW test facility capable of producing approximately 1.5 tons of copper cathode per day;

• a small-diameter, column-leach facility with a capacity of about 250 individual tests per year for crushed material;

• a metallurgical laboratory for the development of biological leaching processes and enhancements, and other biological applications;

• a demonstration facility for production of new copper products; and

• a state-of-the-art material characterization laboratory with advanced mineralogy, analytical chemistry and metallography capabilities.

     The principal areas of activity include hydrometallurgy (leaching, solution extraction and electrowinning), mineral processing (crushing, grinding and flotation), material characterization, environmental technology, new copper products and technical information services. Some of the most important projects and milestones in 2005 were as follows:

• The high-temperature, concentrate pressure-leaching demonstration plant at the Bagdad mine was converted in early 2005 to operate at medium-temperature conditions (i.e., 160ºC) to prove an alternative technology that generates significantly less sulfuric acid and requires less oxygen than the high-temperature process. This process has potential application in operations and projects where excess by-product sulfuric acid cannot be beneficially used in stockpile or heap-leaching operations, and consequently could result in a lower-cost option for certain applications. The facility’s conversion at Bagdad was completed in May 2005, and the plant was operated in this mode for approximately seven months. The proprietary Phelps Dodge medium-temperature process (incorporating direct electrowinning) was successfully demonstrated during the seven-month period of operation, producing LME Grade A cathode that was processed through Phelps Dodge rod mills. At the conclusion of the planned demonstration period, the facility was converted back to operate at high temperature (i.e., 225ºC) in December 2005 to provide the Bagdad operation with a greater amount of by-product acid necessary for low-grade stockpile leaching operations. This technology is proprietary and is covered under a Technology Development Agreement between Phelps Dodge and Placer Dome, Inc.

• The decision was made to install concentrate leaching at Morenci in conjunction with a re-start of the Morenci concentrator to process chalcopyrite-containing ores from Western Copper, Garfield and other areas of the mine. The concentrate-leaching facility will utilize Phelps Dodge’s proprietary medium-temperature pressure-leaching and direct-electrowinning technology that has been demonstrated at Bagdad, Arizona. The facility is expected to be in operation by mid-2007 and copper production is projected to be approximately 150 million pounds per year. The capital cost of the facility is estimated to be $106 million, with approximately $8 million spent in 2005.

• Construction of a Central Analytical Service Center (CASC) to provide routine analytical services for PDMC’s operations in Arizona and New Mexico was essentially completed and commissioning started prior to the end of 2005. The facility, located in Safford, Arizona, will replace most analytical functions and capabilities at Phelps Dodge mining operations in Arizona and New Mexico, and will ensure that high-quality, timely and cost-effective analytical capability is provided to PDMC’s operations on a consistent basis.

• Proprietary technology for heap and stockpile leaching of low-grade chalcopyrite ores was advanced, including the continued operation of a large-scale (27 million ton) demonstration plant at Bagdad.

• The investigation of cost-effective, heap-leaching options for primary sulfide material at El Abra was advanced during the year. Biological heap leaching is expected to provide an alternative technology to conventional milling, flotation and smelting of bornite-rich primary sulfide ore at El Abra in the future.

• Investigation and commercial demonstration of alternative technologies to reduce the cost of copper electrowinning continued during 2005.

• Investigation and commercial demonstration of alternative sulfuric acid production techniques were advanced during 2005.

• The commercial demonstration of proprietary alternative copper products and production techniques was in progress during the second half of 2005.

• We continued the operation and ramp-up of a facility at Bisbee, Arizona, using technology owned by BioteQ (Vancouver, Canada)

14

to recover copper as a sulfide precipitate from low-grade, copper-bearing solution.

     Total expenditures for PTC in 2005 were approximately $45 million, compared with $26 million in 2004 and $18 million in 2003. PDMC intends to advance all of the aforementioned research and development projects aggressively in 2006; however, there is no assurance that any of these technologies will be commercialized.

     Other Ancillary Operations

     Our Tohono copper operation in south central Arizona includes an SX/EW facility capable of producing copper cathode. It is located on land leased from the Tohono O’odham Nation. Ore mining at Tohono ceased in July 1997, but copper cathode production continued from existing leach stockpiles until early 1999 at which time the site was placed on care-and-maintenance status. As a result of higher copper prices, the facility restarted operations in the 2004 fourth quarter to recover copper from existing leach stockpiles. Cathode production commenced in January 2005.

     Mining Investments

     Through June 15, 2005, we owned a 14.0 percent interest in Southern Peru Copper Corporation (SPCC), which operates two open-pit copper mines, two concentrators, an SX/EW operation, a smelter and a refinery in Peru.

     On June 9, 2005, the Company entered into an Underwriting Agreement with Citigroup Global Markets, Inc., UBS Securities LLC, SPCC, Cerro Trading Company, Inc. and SPC Investors, LLC. On June 15, 2005, pursuant to the Underwriting Agreement, the Company sold all of its SPCC common shares to the underwriters for a net price of $40.635 per share (based on a market price of $42.00 per share less underwriting fees). This transaction resulted in a special, pre-tax gain of $438.4 million ($388.0 million after-tax).

     SPCC’s results are not included in our earnings because we accounted for our investment in SPCC on a cost basis. During 2005, we received dividend payments of $40.5 million from SPCC, compared with $26.7 million and $6.3 million in 2004 and 2003, respectively.

Ore Reserves

     Ore reserves are those estimated quantities of proven and probable material that may be economically mined and processed for extraction of their constituent values. Estimates of our ore reserves are based upon engineering evaluations of assay values derived from samplings of drill holes and other openings. In our opinion, the sites for such samplings are spaced sufficiently closely and the geologic characteristics of the deposits are sufficiently well defined to render the estimates reliable. The ore reserve estimates include assessments of the resource, mining and metallurgy as well as consideration of economic, marketing, legal, environmental, social and governmental factors.

     Phelps Dodge’s calculations of its ore reserves are based on our mine designs for each property. In addition to the evaluations and assessments referred to above, Phelps Dodge uses several additional factors to determine our mine designs that can limit the amount of material classified as reserves, but which we believe maximizes the value of future cash flows for each mine by eliminating the mining of material that does not add to the net present value of the property. Time-valued concepts recognize, for example, the elapsed time between mining of overburden and the mining of ore. Our mine design concepts also recognize the amount of capital and other expenditures required to extract the ore reserves over the life of the mine. Finally, cutoff-grade strategies are implemented to maximize time-valued cash flows. Phelps Dodge believes its ore reserve estimation methodology is prudent and consistent with appropriate industry standards.

     Proven and probable ore reserves at December 31, 2005, and 2004, for each of our operating, curtailed and development properties are summarized on the following page.

15

	Total Ore Reserves Estimated at December 31, 2005 (1)
							Leachable Reserves								Phelps
	Millable Reserves						Crushed Leach				Run-of-Mine (ROM)				Dodge
	Million		%		%		Million		%		Million		%		Interest
	Tons		Copper		Moly		Tons		Copper		Tons		Copper		(%)
Operating and Curtailed Operations
Morenci (2)		247.6		0.49		—		587.5		0.54		2,490.7		0.19		85.0
Bagdad (3)		618.9		0.35		0.02		—		—		16.3		0.31		100.0
Sierrita (3)		1,061.6		0.26		0.03		—		—		26.1		0.18		100.0
Chino (3)		72.6		0.70		0.02		—		—		156.0		0.40		100.0
Cobre (3), (4) & (8)		—		—		—		—		—		110.3		0.35		100.0
Tyrone (3)		—		—		—		—		—		49.3		0.29		100.0
Miami (4)		—		—		—		—		—		112.1		0.37		100.0
Candelaria (3), (5) & (6)		339.0		0.73		—		—		—		—		—		80.0
Ojos del Salado (5) & (9)		15.1		1.33		—		—		—		—		—		80.0
Cerro Verde (7) & (9)		1,392.0		0.49		0.02		268.1		0.50		97.1		0.29		53.6
El Abra		—		—		—		227.7		0.47		226.4		0.32		51.0
Primary Molybdenum:
Climax (4)		156.4		—		0.19		—		—		—		—		100.0
Henderson		150.7		—		0.21		—		—		—		—		100.0
Undeveloped Copper Ore Reserves — require substantial capital investments to bring into production
Safford (8)		—		—		—		455.3		0.40		82.7		0.21		100.0

	Total Ore Reserves Estimated at December 31, 2004 (1)
							Leachable Reserves								Phelps
	Millable Reserves						Crushed Leach				Run-of-Mine (ROM)				Dodge
	Million		%		%		Million		%		Million		%		Interest
	Tons		Copper		Moly		Tons		Copper		Tons		Copper		(%)
Operating and Curtailed Operations
Morenci		224.0		0.46		—		585.7		0.55		2,434.1		0.19		85.0
Bagdad		676.3		0.34		0.02		—		—		14.4		0.29		100.0
Sierrita		1,075.1		0.26		0.03		—		—		27.1		0.18		100.0
Chino		111.4		0.71		0.02		—		—		282.6		0.39		100.0
Cobre		57.6		0.55		—		—		—		77.8		0.26		100.0
Tyrone		—		—		—		—		—		274.7		0.31		100.0
Miami		—		—		—		—		—		126.4		0.37		100.0
Candelaria		422.0		0.72		—		—		—		—		—		80.0
Ojos del Salado		17.9		1.31		—		—		—		—		—		100.0
Cerro Verde		1,428.1		0.49		0.02		228.0		0.57		159.2		0.27		82.5
El Abra		—		—		—		243.4		0.49		239.5		0.29		51.0
Primary Molybdenum:
Climax		156.4		—		0.19		—		—		—		—		100.0
Henderson		158.7		—		0.21		—		—		—		—		100.0
Undeveloped Copper Ore Reserves — require substantial capital investments to bring into production Safford		—		—		—		455.3		0.40		82.7		0.21		100.0

(1)	Total ore reserves estimated (i) are presented on a 100% basis (i.e., included 100 percent of Morenci, Candelaria, Ojos del Salado, Cerro Verde and El Abra), (ii) included only in-situ tonnages, and (iii) excluded stockpiled ores.
(2)	Morenci ore reserves increased with the inclusion of additional ore reserves in the Shannon, American Mountain and Garfield areas.
(3)	Bagdad, Sierrita, Chino, Cobre, Tyrone and Candelaria ore reserves reflected new pit designs based on updated slope and economic parameters. At Cobre, most of the material previously classified as millable reserves has been reclassified as leachable reserves consistent with the current development plan, which does not include operation of the Cobre mill.
(4)	Miami and Climax properties have been on care-and-maintenance status with no mining taking place; Cobre had limited activity in 2004 and 2005 to improve and establish access to mining areas.
(5)	The Candelaria and Ojos del Salado deposits also contained 0.004 ounces and 0.012 ounces of gold per ton, respectively.
(6)	The Candelaria ore reserves included 4.6 million tons of underground ore reserves from the Candelaria Norte area.
(7)	Cerro Verde millable ore reserves reflect the approved development of the mill project.
(8)	The Safford and Hanover (Cobre) leach deposits were at various stages of the permitting process. On February 1, 2006, the Company’s board of directors conditionally approved development of the Safford mine subject to receiving certain state permits.
(9)	Reflects change in ownership interest in Cerro Verde and Ojos del Salado.

16

Average Drill-Hole Spacing at Ore Reserve Properties

     The following table sets forth the average drill-hole spacing for proven and probable ore reserves by process types:

	As of December 31, 2005
	Proven				Probable
	(average spacing-feet)				(average spacing-feet)
Property	Mill		Leach		Mill		Leach
Morenci		283		283		400		400
Bagdad		190		81		441		323
Sierrita		224		143		348		243
Chino		141		200		200		283
Cobre		150		200		200		300
Tyrone		N/A		283		N/A		283
Miami		N/A		200		N/A		300
Candelaria		115		N/A		230		N/A
Ojos del Salado		82		N/A		164		N/A
Cerro Verde		164		164		328		328
El Abra		N/A		233		N/A		328
Climax		200		N/A		200		N/A
Henderson		65		N/A		290		N/A
Safford		N/A		200		N/A		400

Metallurgical Recovery

     The following table sets forth the average expected metallurgical recovery by process type:

	As of December 31, 2005
	Copper				Molybdenum
Property	Mill % (a)		Leach % (b)		Mill % (c)
Morenci		79.3		56.4		N/A
Bagdad		84.0		43.3		72.7
Sierrita		82.9		54.0		78.3
Chino		78.1		64.2		25.9
Cobre		N/A		62.1		N/A
Tyrone		N/A		73.5		N/A
Miami		N/A		64.0		N/A
Candelaria		91.2		N/A		N/A
Ojos del Salado		90.2		N/A		N/A
Cerro Verde		85.0		73.4		54.5
El Abra (d)		N/A		59.0		N/A
Safford		N/A		70.2		N/A
Climax		N/A		N/A		85.1
Henderson		N/A		N/A		86.2

(a)	Mill recoveries include expected mill and smelter recoveries and an allowance for concentrate transportation losses.
(b)	Leach recoveries are the expected total recoveries over multiple leach cycles.
(c)	Molybdenum recoveries include mill recoveries and roaster deductions.
(d)	El Abra average leach recoveries for both oxides and sulfide ores.

Mill and Leach Stockpiles

     Stockpiled copper-bearing material that has been removed from the mine, and for which we have reasonable certainty of processing, is summarized below. We begin capitalization of costs for mill and leach stockpiles when we have reasonable certainty that the material will be processed. The capitalized costs are evaluated periodically to ensure carrying amounts are stated at the lower of cost or market. (Refer to Note 1, Summary of Significant Accounting Policies, and Note 8, Mill and Leach Stockpiles, Inventories and Supplies, for additional financial information regarding mill and leach stockpiles.) Effective January 1, 2004, for accounting purposes, El Abra (51 percent) and Candelaria (80 percent) are fully consolidated. The Phelps Dodge pro rata basis in the tables below reflects our ownership interests in El Abra (51 percent), Candelaria (80 percent), Ojos del Salado (80 percent), Cerro Verde (53.6 percent) and Morenci (85 percent). In 2004, Cerro Verde is included at 100 percent for all categories presented.

(in million tons)	As of December 31, 2005
			Contained
	Stockpile		Copper		Recovery		Recoverable
	Material		(%)*		(%)		Copper
Mill stockpiles:
100% basis		101		0.47		83.0		0.4
Consolidated basis								0.4
Phelps Dodge pro rata basis								0.3
Leach stockpiles:
100% basis		8,737		0.27		5.8		1.4
Consolidated basis								1.3
Phelps Dodge pro rata basis								1.2

* Copper grade of ore when placed.

(in million tons)	As of December 31, 2004
			Contained
	Stockpile		Copper		Recovery		Recoverable
	Material		(%)*		(%)		Copper
Mill stockpiles:
100% basis		96		0.48		83.1		0.4
Consolidated basis								0.4
Phelps Dodge pro rata basis								0.3
Leach stockpiles:
100% basis		8,331		0.27		6.4		1.4
Consolidated basis								1.4
Phelps Dodge pro rata basis								1.3

* Copper grade of ore when placed.

     We employ reasonable estimation methods to determine copper contained in mill and leach stockpiles.

     Mill Stockpiles

     Mill stockpiles contain low-grade ore that has been extracted from the mine and is available for processing to recover the contained copper by milling, concentrating, smelting and refining, or alternatively, by concentrate leaching. The quantity of material delivered to the stockpiles is based on surveyed volumes of mined material and daily production records. Sampling and assaying of blast-hole cuttings determine the estimated copper grades of the material delivered to the mill stockpiles.

     Expected copper recovery rates are determined by metallurgical testing. The recoverable copper in mill stockpiles can be extracted into copper concentrate almost immediately upon processing. Estimates of copper contained in mill stockpiles are adjusted as material is added or removed.

     Leach Stockpiles

     Leach stockpiles contain low-grade ore that has been extracted from the mine and is available for processing to recover the contained copper through a leaching process. Leach stockpiles are exposed to acidic solutions that dissolve contained copper and deliver the copper in solution to the extraction processing facilities. The quantity of material is based on surveyed volumes of mined material and daily production records. Sampling and assaying of

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blast-hole cuttings determine the estimated copper grade of the material delivered to the leach stockpiles.

     Expected copper recovery rates are determined using small-scale laboratory tests, medium-and large-scale column testing (which simulates the production-scale process), historical trends and other factors, including mineralogy of the ore and rock type.

     Ultimate recovery of copper contained in leach stockpiles can vary from a very low percentage to more than 90 percent depending on several variables, including type of processing, mineralogy and particle size of the rock. Although as much as 70 percent of the copper ultimately recoverable may be extracted during the first year of processing, recovery of the remaining copper may take many years.

     The estimated recoverable copper contained in stockpiles at each mine was as follows:

(in million tons)

	December 31,
	2005		2004
Mill stockpiles:
Candelaria		0.3		0.3
Cerro Verde		0.1		0.1
		0.4		0.4
Leach stockpiles:
Morenci		0.2		0.3
Bagdad		0.1		0.1
Sierrita		0.2		0.1
Chino		0.6		0.5
Tyrone		0.1		0.1
Miami		0.0		0.1
Cerro Verde		0.1		0.1
El Abra		0.1		0.1
		1.4		1.4
Total (100% basis)		1.8		1.8
Consolidated basis		1.7		1.8
Phelps Dodge pro rata basis		1.5		1.6

     Note: The Candelaria mill stockpiles are expected to be processed late in the mine’s life as milling capacity is available. Some of the Cerro Verde mill stockpiles will be processed during initial mill start-up operations in 2007. The leach stockpiles are expected to be processed over the lives of the respective mines.

     Our estimated share of aggregate copper and molybdenum ore reserves as of December 31 was as follows:

	2005		2004		2003		2002		2001
Milling reserves on a pro rata basis (billion tons) (a)		3.3		4.2		3.5		3.4		3.6
Leaching reserves on a pro rata basis (billion tons) (a)		4.1		4.5		4.0		4.3		5.2
Commercially recoverable copper (million tons):
Ore reserves		17.7		23.2		19.5		19.6		22.1
Stockpiles and in-process inventories		1.5		1.6		1.6		1.4		0.9
Total Phelps Dodge pro rata basis		19.2		24.8		21.1		21.0		23.0
Total consolidated basis (b)		23.7		26.1		N/A		N/A		N/A
Commercially recoverable molybdenum (billion pounds)
Phelps Dodge pro rata basis		1.9		2.1		2.0		2.1		2.1
Total consolidated basis		2.0		2.1		2.0		2.1		2.1

(a)	Milling and leaching reserves on a 100% basis would have been 4.1 and 4.9 billion tons, respectively, as of December 31, 2005, if El Abra, Candelaria, Cerro Verde, Morenci and Ojos del Salado were reflected on a 100% basis.
(b)	Commercially recoverable copper on a 100% basis would have been 24.5 million tons of copper as of December 31, 2005, if El Abra, Candelaria, Cerro Verde, Morenci and Ojos del Salado were reflected on a 100% basis.

     The decrease in commercially recoverable copper at December 31, 2005, was primarily due to the reduction of the Company’s interest in Cerro Verde to 53.6 percent from 82.5 percent, new pit designs at Bagdad, Cerro Verde, Chino, Cobre, Tyrone and Candelaria, as well as 2005 production.

Copper and Molybdenum Prices

     The volatility of copper and molybdenum prices is reflected in the following table, which gives the high, low and average COMEX price of high-grade copper and the Platts Metals Week mean price of molybdenum oxide for each of the last 15 years:

	Cents per pound						Dollars per pound
	of Copper						of Molybdenum Dealer Oxide
	COMEX						Platts Metals Week
Year	High		Low		Average		High		Low		Mean
1991		120		96		105		2.78		2.08		2.38
1992		116		93		103		2.44		1.82		2.21
1993		107		72		85		2.80		1.82		2.32
1994		140		78		107		17.00		2.68		4.51
1995		146		121		135		17.50		3.90		8.08
1996		131		86		106		5.50		2.90		3.79
1997		123		76		104		4.90		3.52		4.31
1998		86		64		75		4.60		2.00		3.41
1999		85		61		72		2.90		2.48		2.65
2000		93		74		84		2.98		2.15		2.56
2001		87		60		73		2.65		2.15		2.36
2002		78		65		72		8.30		2.40		3.77
2003		104		71		81		7.80		3.15		5.32
2004		154		106		129		33.25		7.20		16.41
2005		228		140		168		40.00		26.00		31.73

     Phelps Dodge’s reported ore reserves are economic at the most-recent three-year historical average COMEX copper price of $1.26 per pound and the most-recent three-year historical average molybdenum price of $17.82 per pound (Metals Week Dealer Oxide mean price).

     Phelps Dodge develops its business plans using a time horizon that is reflective of the historical moving average for the full price cycle. Through 2005, we used a long-term average COMEX price of 90 cents per pound of copper and an average molybdenum price of $5.00 per pound (Metals Week Dealer Oxide mean price), along with near-term price forecasts reflective of the current price environment,

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to develop mine plans and production schedules (effective for 2006, we have begun to use a long-term average COMEX price of 95 cents per pound of copper for these purposes).

     The per pound COMEX copper price during the past 10 years, 15 years and 20 years averaged 96 cents, $1.00 and $1.00, respectively. The per pound Metals Week Dealer Oxide molybdenum mean price over the same periods averaged $7.63, $6.39 and $5.57, respectively.

Mineralized Material

     We hold various properties containing mineralized material that we believe could be brought into production should market conditions warrant. Permitting and significant capital expenditures would likely be required before operations could commence at these properties. The deposits are estimated to contain the following mineralized material as of December 31, 2005:

		Milling Material				Leaching Material								Phelps Dodge
Property/Deposit	Location	Millions of Tons		% Copper		Millions of Tons		% Copper		% Molybdenum		% Cobalt		Interest (%)
Ajo	Arizona		205		0.50		—		—		—		—		100.0
Candelaria Norte & Sur (1)	Chile		10		2.00		—		—		—		—		80.0
Climax	Colorado		87		—		—		—		0.25		—		100.0
Cochise/Bisbee	Arizona		—		—		276		0.47		—		—		100.0
El Abra (2)	Chile		300		0.50		500		0.50		—		—		51.0
Lone Star	Arizona		—		—		1,600		0.38		—		—		100.0
Safford	Arizona		330		0.65		—		—		—		—		100.0
Sanchez	Arizona		—		—		230		0.29		—		—		100.0
Tenke Fungurume (3)	Dem. Rep. Congo		—		—		103		3.44		—		0.34		57.8
Tohono	Arizona		276		0.70		404		0.63		—		—		100.0
Tyrone	New Mexico		—		—		123		0.34		—		—		100.0

(1)	Candelaria Norte and Sur are potential underground mines that would utilize the existing process facilities and infrastructure. The stated tonnage also contains 0.015 oz. gold per ton. Approximately 4 million tons of underground ores were transferred into the stated Candelaria reserves at year-end 2005, and development of these ores commenced in late 2005.
(2)	Phelps Dodge moved the leachable portion of the sulfide mill material to leachable material at the end of 2005. The remaining millable material is mostly primary sulfides that have very low leach recoveries.
(3)	Phelps Dodge exercised its option with Tenke Mining, resulting in the acquisition of 57.75% of the Tenke Fungurume copper/cobalt project in the Democratic Republic of the Congo.

Note: Mineralized material is a mineralized body that has been delineated by appropriately spaced drilling and/or underground sampling to support the reported tonnage and average grade of metal(s). Such a deposit does not qualify as a reserve until legal and economic feasibility are concluded based upon a comprehensive evaluation of unit costs, grade, recoveries and other material factors.

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Sales and Competition

U.S. Mining Operations

     The majority of our copper produced or purchased at our U.S. Mining Operations is cast into rod. Rod sales to outside wire and cable manufacturers constituted approximately 75 percent of PDMC’s U.S. sales in 2005, 70 percent in 2004 and 65 percent in 2003. The remainder of our U.S. copper sales is primarily in the form of copper cathode or copper concentrate. Sales of rod and cathode are made directly to wire and cable fabricators and brass mills under contracts principally of a one-year duration. Cathode contract prices are generally based on the prevailing COMEX copper monthly average spot price for shipments in that period. Our rod also is used by our Wire and Cable segment. We generally sell our copper rod and cathode produced at our U.S. Mining Operations at a premium over COMEX prices.

South American Mines

     The production from our South American mines is sold as copper concentrate or as copper cathode. Our Candelaria mine sells its production in the form of copper concentrate primarily to copper smelters located in Japan and elsewhere in Asia under long-term contracts. Production not committed under long-term contracts is either shipped to North America for smelting at our Miami smelter (under certain circumstances) or sold on a spot basis to other smelters or merchants. The majority of our Ojos del Salado concentrate production is sold to local Chilean smelters. Copper concentrate sold by our South American operations primarily is based on LME prices.

     Most of Candelaria’s concentrate contracts allow for an annual pricing election that must be declared prior to the beginning of the contract year. The options allowed under this pricing election are the monthly average price of either (i) the month of shipment or (ii) the third calendar month following the month of arrival of concentrates at destination. During 2005 and 2004, approximately 90 percent of Candelaria’s concentrate sales were priced on the basis of the third calendar month following arrival. During 2003, over 95 percent of its sales were priced on the basis of the month of shipment.

     El Abra produces copper cathodes that are sold primarily under annual or multi-year contracts to Asian or European rod or brass mill customers or to merchants. Cerro Verde produces copper cathode, with the majority shipped to our U.S. rod mills for processing. The remainder of Cerro Verde’s production is sold under annual contracts to South American customers or to merchants on a spot basis. Cathode contract prices are generally based on the prevailing LME copper monthly average spot price in the month of arrival. The copper cathode sold by our international operations generally is sold at a premium over LME prices.

Worldwide Copper Mining Operations

     Most of the refined copper we sell is incorporated into electrical wire and cable products worldwide for use in the construction, electric utility, communications and transportation industries. It also is used in industrial machinery and equipment, consumer products and a variety of other electrical and electronic applications.

     When we sell copper as rod, cathode and concentrate, we compete, directly or indirectly, with many other sellers, including at least two other U.S. primary producers, as well as numerous foreign producers, metal merchants, custom refiners and scrap dealers. Some major producers outside the United States have cost advantages resulting from richer ore grades, lower labor costs and, in some cases, a lack of strict regulatory requirements. We believe our ongoing programs to contain costs, improve productivity and employ new technologies will significantly narrow these cost advantages and place us in a more competitive position with respect to a number of our international competitors.

     Other materials that compete with copper include aluminum, plastics, stainless steel and fiber optics. Our principal methods of competing include pricing, product properties, product quality, customer service and dependability of supply.

     From time to time, we engage in hedging programs designed to enable us to realize current average prices for metal delivered or committed to be delivered. We also have entered into price protection arrangements from time to time, depending on market circumstances, to ensure a minimum price for a portion of expected future sales.

Primary Molybdenum Segment

     Molybdic oxide is used primarily in the steel industry for corrosion resistance, strengthening and heat resistance. Molybdenum chemicals are used in a number of diverse applications such as lubricants, additives for water treatment, feedstock for the production of pure molybdenum metal and catalysts used for petroleum refining. Pure molybdenum metal powder products are used in a number of diverse applications, such as lighting, electronics and specialty steel alloys. Approximately 60 percent of Phelps Dodge’s expected 2006 molybdenum production is committed for sale throughout the world pursuant to annual or quarterly agreements based primarily on prevailing market prices one month prior to the time of sale.

     The metallurgical market for molybdenum is characterized by cyclical and volatile prices, little product differentiation and strong competition. The chemical market is more diverse and contains more specialty products and segments. In both markets, prices are influenced by production costs of domestic and foreign competitors, worldwide economic conditions, world and regional supply/demand balances, inventory levels, governmental regulatory actions, currency exchange rates and other factors. Molybdenum prices also are affected by the demand for end-use products in, for example, the construction, transportation and durable goods markets. A substantial portion of world molybdenum is produced as a by-product of copper mining, which is relatively insensitive to molybdenum price levels. By-product production is estimated to account for approximately 65 percent of global molybdenum production in 2005.

Prices, Supply and Consumption

Worldwide Copper Mining Operations

     Copper is an internationally traded commodity, and its prices are effectively determined by the three major metals exchanges – COMEX, LME and Shanghai Futures Exchange (SHFE). The prices on these exchanges generally reflect the worldwide balance of copper demand and supply, but are also influenced significantly from time to time by speculative actions and by currency exchange rates.

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     Copper is a critical component of the world’s infrastructure. The demand for copper ultimately reflects the rate of underlying world economic growth, particularly the growth in industrial production, construction and durable goods. Copper’s end-use markets reflect its fundamental role in the world economy. Estimated percentages of copper consumption by end-use markets comprise (i) construction – 37 percent, (ii) electrical applications – 26 percent, (iii) industrial machinery – 15 percent, (iv) transportation – 11 percent, and (v) consumer products – 11 percent. Since 1990, refined copper consumption grew by an estimated annual compound rate of 3.1 percent to 17.1 million tons, according to published data by the World Bureau of Metals Statistics (WBMS) and Phelps Dodge’s estimate for 2005. This rate of increase was slightly higher than the growth of world industrial production, which grew at an estimated compound annual rate of 2.7 percent over the same period. Asian copper consumption, led by China, was particularly strong, increasing by almost 6.5 percent per year from 1990 through 2005. Asia now represents approximately half of the world’s refined copper consumption, compared with 22 percent for Western Europe and 21 percent for the Americas. The strong demand for copper in Asia has been driven by the increasing standard of living in this region as well as production of value-added products for export to the developed world.

     From 1990 through 2005, refined copper production has grown at an average annual rate of 3.0 percent, according to WBMS (based on published data through 2004) and Phelps Dodge’s estimates for 2005. This growth was influenced by a number of factors. First, limited investment in new mine production in the latter half of the 1980s coupled with growing demand for copper during that period resulted in market deficits and declining copper inventories that in turn encouraged new investment. Second, an improved investment climate in Latin America, particularly Chile, encouraged investment in that region. In 2005, Latin America represented 47 percent of world mine production, a significant increase from 25 percent in 1990. Third, SX/EW technology made some previously uneconomic resources viable investments.

     Copper demand and price tend to follow economic cycles and, therefore, copper price has historically experienced significant fluctuations. Considering the period 1991 through 2005, the LME price of copper averaged 99 cents per pound and ranged from a high annual average price of $1.67 per pound in 2005 to a low annual average price of 71 cents per pound in 2002. The COMEX price of copper averaged $1.00 per pound from 1991 through 2005, but has ranged from a high annual average price of $1.68 per pound in 2005 to a low annual average price of 72 cents per pound in 2002.

     In 2005, the average COMEX price of $1.68 per pound was almost 40 cents above the prior year’s average. Critically low global inventory levels combined with production shortfalls more than offset the effects of lower than anticipated consumption levels. Refined production was estimated to increase approximately 5.7 percent year-on-year while consumption was estimated to increase by a modest 1 to 2 percent year-on-year. Consumption was again led by Asia, specifically China, which grew at approximately 9.0 percent year-on-year. U.S. demand for copper cathode was down 2.0 percent for the year due to de-stocking of inventory build in 2004. Exchange inventories were up slightly, 32,000 metric tons over the prior year, to approximately 156,000 metric tons.

     In 2004, the average COMEX price of $1.29 per pound was almost 50 cents above the previous year average. The large increase in price was led by year-on-year consumption growth of approximately 7.5 percent. This was only partially offset by a more modest growth in refined production of 5.1 percent. Consumption was driven by Asia, which we estimate grew approximately 9.7 percent year-on-year led by China, which experienced an estimated 15 percent growth year-on-year. Demand also benefited from a recovery in the U.S. manufacturing sector. We estimate that U.S. copper consumption grew by approximately 9.0 percent year-on-year in 2004. Production increases were drawn from re-started idled capacity and brownfield expansions. Only one significant greenfield project began production in 2004. The imbalance between supply and demand drove exchange inventories down more than 80 percent, or 675,000 metric tons.

     In 2003, the average COMEX price of 81 cents per pound was almost 9 cents higher than the 2002 average price. The higher price levels were driven by moderate consumption rates combined with flat production growth and a depreciating U.S. dollar. U.S. economic recovery in the second half of the year combined with continued strong growth rates in Asia, led by China, boosted consumption levels in 2003.

     Global demand for copper in 2003 grew by 3.5 percent led by Asia, specifically China, which grew at 18 percent. China’s double digit consumption rate continues to be based on domestic economic growth and a burgeoning export market. Speculative activity, in anticipation of a U.S. recovery, reached record levels in October 2003, and led to a large price increase in the 2003 fourth quarter.

     On the production side, a number of disruptions due to accidents and strikes offset restarts from some major producers. Global refined production is estimated to have declined slightly (0.3 percent) in 2003. The rise in consumption combined with production disruptions led to an approximate 495,000 metric ton reduction in global exchange inventories, which were just over 800,000 metric tons at year-end 2003. This also led to an estimated deficit for the global copper market of approximately 360,000 metric tons for the year.

Primary Molybdenum Segment

     Molybdenum demand is heavily dependent on the worldwide steel industry, which uses the metal as a hardening and corrosion inhibiting agent. Approximately 80 percent of molybdenum is used for this application. The balance is used in specialty chemical applications such as refinery catalysts, water treatment and lubricants.

     Molybdenum continued to experience price improvement during 2005 for the fourth straight year, with molybdenum prices in 2005 reaching historical highs. Production increases were primarily experienced in by-product copper production, although North American primary production also experienced an increase resulting principally from an increase in production from the Henderson mine as metal prices improved throughout the year. Production in China remains difficult to estimate; however, based on published reports, production was negatively impacted in several molybdenum producing regions due to new government tax, regulatory and restructuring directives related to safety and environmental concerns and operational issues. Tight supply of western, high-quality materials continued throughout the first half of the year and eased in the second half as demand slowed in the metallurgical segment.

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Supply was also restricted by limited western roaster capacity for much of the year. Some additional roasting capacity became available late in the year. The overall market fundamentals shifted from a supply deficit in the first half of 2005 to a slight supply surplus late in the year.

     Annual Metals Week Dealer Oxide mean prices averaged $31.73 per pound in 2005, compared with $16.41 per pound in 2004 and $5.32 per pound in 2003. Continued strong demand, which has outpaced supply over the past several years (deficit market conditions), has reduced inventory levels throughout the industry; however, in 2005 concentrate inventory increased due to limited Western roasting capacity. The majority of our molybdenum sales are based on published pricing (i.e., Platts Metals Week, Ryan’s Notes or Metal Bulletin), plus a premium. The remaining sales are priced on a fixed basis (capped), or on a variable basis within certain ranges, for periods of varying duration. Given this mix of pricing, Phelps Dodge received an average realized price of $25.88 per pound in 2005, compared with $12.65 per pound in 2004 and $5.79 per pound in 2003, reflecting a broad mix of upgraded molybdenum products as well as technical grade molybdic oxide.

Costs

Worldwide Copper Mining Operations

     Energy, including electricity, diesel fuel and natural gas, represents a significant portion of production costs for our operations. The principal sources of energy for our mining operations are electricity, purchased petroleum products and natural gas.

     In response to volatile energy markets in 2000 and 2001, we implemented a power cost stabilization plan that moderated electricity-related costs at our U.S. mining operations. Under the plan, we use a combination of multi-year energy contracts that we put in place at favorable points in the price cycle as well as self-generation and natural gas hedging. Additionally, we enter into price protection programs for our diesel fuel and natural gas purchases to protect us against significant short-term upward movements in energy prices while maintaining the flexibility to participate in any favorable price movements. However, because energy is a significant portion of our production costs, we could be negatively impacted by future energy availability issues or increases in energy prices. For example, as our diesel fuel and natural gas price protection programs were extended at gradually increasing price levels, our energy cost per pound of copper increased in 2005. In 2006, we may continue to experience higher energy costs if the current energy commodity prices remain at the levels experienced in 2005 or higher.

     We continue to explore alternatives to moderate or offset the impact to increasing energy costs. To address volatility associated with a shortfall of power generation capacity experienced during the 2000 energy crisis in the western United States, in late 2004 we purchased a one-third interest in a partially constructed power plant in New Mexico owned by Duke Energy Luna, LLC. The plant is expected to be operating by the 2006 second quarter. One-third of its electricity (approximately 190 megawatts) is expected to be consumed by PDMC operations in New Mexico and Arizona. This investment in an efficient, low-cost plant, which utilizes natural gas, is expected to continue to stabilize our southwest U.S. operations’ energy costs and increase the reliability of our energy supply.

     To mitigate the Company’s exposure to increases in diesel fuel and natural gas prices, we utilize several price protection programs designed to protect the Company against a significant short-term upward movement in prices. The Company’s diesel fuel price protection program consists of a combination of purchased, out-of-the-money (OTM) diesel fuel call options and fixed-price diesel fuel swaps for our North American and Chilean operations. The OTM call options give the holder the right, but not the obligation, to purchase a specific commodity at a pre-determined dollar cost, or “strike price.” OTM call options are options with a strike price above the prevailing market price for that commodity when purchased.

     OTM diesel fuel call options mitigate a portion of our exposure to volatile markets by capping the cost of the commodity if prices rise above the strike price. If the price of diesel fuel is less than the strike price, the Company has the flexibility to purchase diesel fuel at prices lower than the strike price and the options expire with no value. The swaps allow us to establish a fixed price for a specific commodity product for delivery during a specific future period.

     Our natural gas price protection program consists of purchasing OTM call options for our North American operations. OTM call options cap the commodity purchase cost at the strike price while allowing the Company the ability to purchase natural gas at a lower cost when market prices are lower than the strike price.

     As a result of the above-mentioned programs, in 2005, 2004 and 2003, Phelps Dodge was able to reduce and partially mitigate the impacts of volatile electricity markets and rising diesel fuel and natural gas prices. Nevertheless, we pay more for our energy needs during these times of progressively higher energy prices. For PDMC, energy accounted for 19.5 cents per pound of copper produced in 2005, compared with 14.6 cents in 2004 and 13.5 cents in 2003.

     In addition, we realized cost increases in 2005 that were the result of the overall improved business climate. Some of these cost increases were anticipated. For example, we realized additional compensation costs resulting from certain employee bonus and variable compensation programs that are contingent on copper price and/or company performance. Additionally, our decision to bring back into production certain higher-cost properties, in response to very strong demand for copper, has increased our average cost of copper production. Other costs that have increased due to business conditions include taxes, freight and transportation, smelting and refining rates, and materials and supplies that are manufactured from metal or fossil fuels. We would anticipate that at least a portion of these cost increases may reverse in periods of lower metal and commodity prices.

Environmental and Other Regulatory Matters

U.S. Mining Operations

Significant Federal Environmental Programs

     Our operations in the United States are subject to stringent federal, state and local laws and regulations related to improving or maintaining environmental quality. Our global operations also are subject to many environmental protection laws in the jurisdictions where we operate. We pursue environmental performance at all of our operations with the same diligence that we pursue financial, health and safety performance. We are committed to pollution prevention and responsible environmental stewardship worldwide.

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     Environmental regulatory programs create potential liability for our domestic operations, which may result in requirements to perform environmental investigations or corrective actions under federal and state laws and to federal and state Superfund requirements. (Refer to the discussion of Superfund requirements in Other Environmental Matters on pages 31 through 33.) Major environmental programs and developments of particular interest are summarized in the paragraphs that follow.

     Most air emissions from our domestic operations are subject to regulation under the federal Clean Air Act (CAA) and related state laws. These laws impose permitting, performance standards, emission limits, and monitoring and reporting requirements on sources of regulated air pollutants.

     Several of our domestic operations have obtained major source operating permits under Title V of the CAA and related state laws. Facilities with a smelter, rod mill, molybdenum roaster or power plants are the primary examples of our operations that are subject to this program. These permits typically do not impose new substantive requirements, but rather incorporate all existing requirements into one permit. However, they can increase compliance costs by imposing new monitoring requirements, such as more frequent emission testing, to demonstrate compliance with existing requirements. The process of developing and renewing these comprehensive permits also can bring to light new or previously unknown agency interpretations of existing regulations, which also may increase compliance costs.

     Our smelter is subject to one or more Maximum Achievable Control Technology (MACT) standards under the CAA. These standards do not have immediate compliance dates; instead they allow two or three years after promulgation to provide the opportunity to come into compliance or to reduce emissions to avoid regulation before the compliance date. For example, the copper smelter MACT standard was issued in 2002, and the compliance date for that standard was June 2005. We continue to monitor the development and implementation of other MACT standards.

     Most discarded materials from our domestic operations are subject to regulation as solid waste under the federal Resource Conservation and Recovery Act (RCRA) and related state laws. These laws impose design, operating, closure and post-closure care requirements on facilities used to store, treat or dispose of solid waste.

     Mineral extraction (mining) and beneficiation (the concentration of economic minerals) occur at our mining operations. The solid wastes uniquely associated with these activities are exempt from hazardous waste regulation. Mineral processing (the segregation of minerals or the alteration of a mineral from one mineralogic state to another) occurs at our smelter, refinery and molybdenum roasting operations. Except for a list of 20 exempt processing wastes (three of which include wastes from copper mineral processing operations), all mineral processing wastes generated at our U.S. Mining Operations are subject to hazardous waste regulation if they exhibit a hazardous waste characteristic or if the U.S. Environmental Protection Agency (EPA) specifically designates them as a listed hazardous waste. In 1998, EPA finalized its supplemental Land Disposal Restriction Phase IV (LDR) rules that imposed regulation on certain hazardous mineral processing wastes. This final LDR rule also subjects certain mineral processing wastes that exhibit a hazardous waste characteristic to stringent treatment standards if the materials are disposed on land. A portion of the LDR rule was judicially vacated on appeal in 2000. While EPA’s final LDR rule likely will require us to continue to make expenditures to manage hazardous mineral processing wastes, it is not possible to determine the full impact on us of the new LDR requirements until the requirements are fully adopted and implemented.

     The federal Emergency Planning and Community Right-to-Know Act (EPCRA) was expanded in 1997 to cover mining operations. This law requires companies to report to EPA the amount of certain materials managed in or released from their operations each year. Annually, we report a significant volume of naturally occurring minerals and other substances that we managed during the previous year. While these materials are very high in volume, how they are safely managed is governed by existing regulations and permit requirements outside of EPCRA.

     The federal National Pollutant Discharge Elimination System (NPDES) program requires a permit for the point source discharge of pollutants to surface waters that qualify as waters of the United States. Although most states, including Arizona and Colorado, have received authorization to implement this program in lieu of EPA, New Mexico has not received such authorization and therefore the NPDES permit program in New Mexico continues to be implemented primarily by EPA. The NPDES permit program also regulates the discharge of stormwater runoff from active and inactive mines and construction activities. EPA and authorized states have issued general permits that cover stormwater discharges from active and inactive mines. We likely will continue to have to make expenditures to comply with the NPDES permit program, especially as the program continues to expand as applied to stormwater discharges.

     The Clean Water Act requires states to periodically evaluate surface waters to determine whether they meet levels of water quality adequate to support the designated uses of the waters as determined by the state. Surface waters that do not meet water quality standards may be identified as impaired waters. Waters listed as impaired must be further evaluated by the state. Unless further study shows that the water is not impaired, the state must establish a “total maximum daily load” (TMDL) for the water. A TMDL must establish the allowable pollutant load and allocate the allowable load among the sources of the pollutant. Following the establishment of a TMDL, sources of the pollutant may be required to take measures to reduce the pollutant load to acceptable levels. Some of the Company’s operations are located in the vicinity of waters that are listed as impaired and for which TMDLs have been or may be established. Operations in the vicinity of such waters may be required to take measures to reduce pollutant loading to the listed waters.

Significant Arizona Environmental and Reclamation Programs

     Arizona Department of Environmental Quality (ADEQ) has adopted regulations for its aquifer protection permit (APP) program that replaced the previous Arizona groundwater quality protection permit regulations. Several of our properties continue to operate pursuant to the transition provisions for existing facilities under the APP regulations. The APP regulations require permits for certain facilities, activities and structures for mining, concentrating and

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smelting. The APP requires compliance with aquifer water quality standards at an applicable point of compliance well or location. The APP also may require mitigation and discharge reduction or elimination of some discharges. Existing facilities operating under the APP transition provisions are not required to modify operations until requested by the state of Arizona, or unless a major modification at the facility alters the existing discharge characteristics.

     An application for an APP requires a description of a closure strategy to meet applicable groundwater protection requirements following cessation of operations and a cost estimate to implement the closure strategy. An APP may specify closure requirements, which may include post-closure monitoring and maintenance requirements. A more detailed closure plan must be submitted within 90 days after a permittee notifies ADEQ of its intent to cease operations. A permit applicant must demonstrate its financial capability to meet the closure costs required under the APP. In 2005, ADEQ amended the financial assurance requirements under the APP regulations. As a result of the amendments, facilities covered by APPs may have to provide additional financial assurance demonstrations or mechanisms for closure and post-closure costs.

     We have received an APP for our Morenci operations, for portions of our Bagdad and Miami mines, for the sewage treatment facility at Ajo, and for a closed tailing impoundment in Clarkdale, Arizona. We have conducted groundwater studies and submitted APP applications for several of our other properties and facilities, including the Bagdad, Sierrita and Miami mines, our Safford development property and Copper Queen and United Verde branches. Permits for most of these other properties and facilities likely will be issued by ADEQ during 2006. We will continue to submit all required APP applications for our remaining properties and facilities, as well as for any new properties or facilities. We do not know what the APP requirements are going to be for all existing and new facilities, and, therefore, it is not possible for us to estimate costs associated with those requirements. For instance, at our Sierrita and Copper Queen properties, ADEQ has proposed detailed requirements to protect public drinking water sources with respect to non-hazardous substances, such as sulfate. We are likely to continue to have to make expenditures to comply with the APP program.

     Portions of the Company’s Arizona mining operations that operated after January 1, 1986, also are subject to the Arizona Mined Land Reclamation Act (AMLRA). AMLRA requires reclamation to achieve stability and safety consistent with post-mining land use objectives specified in a reclamation plan. Reclamation plans require approval by the State Mine Inspector and must include a cost estimate to perform the reclamation measures specified in the plan. Financial assurance must be provided under AMLRA covering the estimated cost of performing the reclamation plan.

     Both under APP regulations and AMLRA, a publicly traded company may satisfy the financial assurance requirements by showing that its unsecured debt rating is investment grade and that it meets certain requirements regarding assets in relation to estimated closure and post-closure cost and reclamation cost estimates. Phelps Dodge’s senior unsecured debt currently carries an investment-grade rating. Additionally, the Company currently meets another financial strength test under Arizona law that is not ratings dependent. Under the amended APP regulations, Phelps Dodge may provide guarantees for the financial assurance obligations of its subsidiaries.

     At December 31, 2005 and 2004, we had accrued closure costs of approximately $68 million and $48 million, respectively, for our Arizona operations. The amount of financial assurance currently demonstrated for closure and reclamation activities is approximately $104 million.

     Cyprus Tohono Corporation (Cyprus Tohono) leases lands on the Tohono O’odham Nation (the Nation). The leased lands include the site of a mining operation comprising an open pit, underground mine workings, leach and non-leach rock stockpiles, tailing and evaporation ponds, SX/EW operations and ancillary facilities. Ore mining at Tohono ceased in July 1997, but copper cathode production continued from existing leach stockpiles until early 1999 at which time the site was placed on care-and-maintenance status. As a result of higher copper prices, the facility restarted operations to recover copper from existing leach stockpiles in the 2004 fourth quarter, which allowed initial cathode production in January 2005. Many of these facilities are covered by Mine Plans of Operations (MPOs) that were issued by the federal Bureau of Land Management (BLM). The leases and MPOs impose certain environmental compliance, closure and reclamation requirements upon Cyprus Tohono. The closure and reclamation requirements under the leases require action to be taken upon termination of the leases, which currently expire between 2012 and 2017, unless terminated earlier in accordance with the terms of the leases. Previous studies indicate that closure and reclamation requirements, excluding any potential Superfund environmental response costs, are estimated to cost approximately $5 million; updated studies will be completed in 2006.

     The Nation, along with several federal agencies, has notified Cyprus Tohono of groundwater quality concerns and concerns with other environmental impacts of historical mining operations. In 2003, Cyprus Tohono expanded its groundwater-monitoring well network, and samples from a few of the new wells show contaminant values above primary and secondary drinking water standards. Tests of a neighboring Native American village’s water supply well indicate elevated concentrations of sulfate. Cyprus Tohono has installed new water wells and provided an alternative water supply to the village.

     EPA has completed a Preliminary Assessment and Site Investigation (PA/SI) of the Tohono mine under the federal Superfund program and has concluded that the site is eligible for listing on the National Priorities List. Cyprus Tohono initiated an Engineering Evaluation/Cost Analysis (EE/CA) study of potential remedial alternatives to address the former tailing impoundment and evaporation pond areas; this study has been conducted through the EPA Superfund program’s Removal Branch. Based on information in the October 2005 EE/CA, the Company increased its reserve for this Superfund matter from approximately $15 million to approximately $20 million. Cyprus Tohono is subject to financial assurance for mine reclamation. It has provided interim financial assurance in the amount of $5.1 million, of which $5.0 million is in the form of a Company performance guarantee. Cyprus Tohono is evaluating its closure obligations in order to update its closure plans in 2006.

     The Company’s historical United Verde mine has obtained an APP for closure of a tailing impoundment located near Clarkdale, Arizona, and is awaiting approval of an APP for existing mine water

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discharge containment facilities at the mine near Jerome, Arizona. The tailing impoundment has not received tailing discharges since the early 1950s, but has received discharges of municipal sewage effluent from the town of Clarkdale since the late 1970s. Closure work under the APP for the tailing impoundment has been partially completed, and the Company is seeking an amendment to alter the cap design for final closure. The Company plans on initiating cap construction on the tailing impoundment during 2006. Implementation of the plan under the proposed United Verde mine APP is required under the terms of a Consent Decree settling alleged Clean Water Act violations and entered by the U.S. District Court for the District of Arizona on November 23, 2003. A voluntary remediation project also has commenced under supervision of ADEQ at the nearby historic Iron King mine to manage potential discharges of acidic water from an adit. Additional work may be required at historical mine workings in the district that are owned by the Company to satisfy requirements under stormwater discharge permits. At the United Verde mine, APP and remedial costs are estimated to be approximately $14 million; at the Clarkdale tailing, APP costs are estimated to be approximately $12 million; and at the Iron King mine, voluntary remediation costs are estimated to be approximately $2 million. These amounts, totaling approximately $28 million, were included in environmental reserves at December 31, 2005.

Significant New Mexico Environmental and Reclamation Programs

     The Company’s New Mexico operations, Chino Mines Company (Chino), Phelps Dodge Tyrone, Inc. (Tyrone), Cobre Mining Company (Cobre) and Phelps Dodge Hidalgo, Inc. (Hidalgo), each are subject to regulation under the New Mexico Water Quality Act and the Water Quality Control Commission (WQCC) regulations adopted under that Act. The New Mexico Environmental Department (NMED) has required each of these operations to submit closure plans for NMED’s approval. The closure plans must describe the measures to be taken to prevent groundwater quality standards from being exceeded following closure of the discharging facilities and to abate any groundwater or surface water contamination.

     Chino, Tyrone and Cobre also are subject to regulation under the New Mexico Mining Act (the Mining Act), which was enacted in 1993, and the Mining Act Rules, which are administered by the Mining and Minerals Division (MMD) of the New Mexico Energy, Minerals and Natural Resources Department. Under the Mining Act, Chino, Tyrone and Cobre are required to submit and obtain approval of closeout plans describing the reclamation to be performed following closure of the mines or portions of the mines.

     Financial assurance is required to ensure that funding will be available to perform both the closure and the closeout plans if the operator is not able to perform the work required by the plans. The amount of the financial assurance is based upon the estimated cost for a third party to complete the work specified in the plans, including any long-term operation and maintenance, such as operation of water treatment systems. NMED and MMD calculate the required amount of financial assurance using a “net present value” (NPV) method, based upon approved discount and escalation rates, when the closure plan and/or closeout plan require performance over a long period of time.

     In April 2005, the governor of New Mexico signed Senate Bill 986, effective June 17, 2005, that removes the requirement to provide financial assurance for the gross receipts tax levied on closure work. Eliminating this requirement is expected to reduce our New Mexico financial assurance by approximately $27 million (NPV basis).

     The Company’s cost estimates to perform the work itself (internal cost basis) generally are lower than the cost estimates used for financial assurance due to the Company’s historical cost advantages, savings from the use of the Company’s own personnel and equipment as opposed to third-party contractor costs, and opportunities to prepare the site for more efficient reclamation as mining progresses.

     Chino, Tyrone and Cobre each have NMED-issued closure permits and MMD-approved closeout plans. Chino’s closure permit was appealed to the WQCC by a third party. The appeal originally was dismissed by the WQCC on procedural grounds, but that decision was overturned by the New Mexico Court of Appeals. Consequently, there may be a hearing on that permit before the WQCC during 2006. Tyrone appealed certain conditions in its closure permit to the WQCC, which upheld the permit conditions. The WQCC’s decision is on appeal to the New Mexico Court of Appeals, which held oral argument on the appeal on January 19, 2006. Hidalgo has applied for renewal of its discharge permit, which includes a requirement for an updated closure plan. Hidalgo expects NMED to issue a new permit, including permit conditions regarding closure and financial assurance, within the next few months.

     The terms of the NMED closure permits and MMD-approved closeout plans for Chino, Tyrone and Cobre require the facilities to conduct supplemental studies concerning closure and closeout, including feasibility studies to evaluate additional closure and reclamation alternatives. The feasibility study is due, along with amended closure plans, before the end of the five-year permit terms, which end in 2008 for Chino and Tyrone and in 2009 for Cobre. The terms of the NMED closure permits also require the facilities to prepare and submit abatement plans to address groundwater that exceeds New Mexico groundwater quality standards as well as potential sources of future groundwater contamination. Changes to the existing closure plans and additional requirements arising from the abatement plans could increase or decrease the cost of closure and closeout. Cobre also has submitted an application to MMD and NMED for a standby permit to defer implementation of closure and reclamation requirements while Cobre continues on care-and-maintenance status.

     The terms of the permits also require Chino, Tyrone, Cobre and Hidalgo to provide and maintain financial assurance based upon the estimated cost to the state of New Mexico to implement the closure and closeout plans in the event of a default by the operators. The third-party cost estimates for financial assurance under the existing permits are $395 million for Chino, $439 million for Tyrone and $45 million for Cobre on an undiscounted and unescalated basis over the 100-year period of the closure and closeout plans. Hidalgo is updating its cost estimate as part of its pending closure permit renewal. These cost estimates are converted to a NPV basis to determine the amount of financial assurance required for each facility. The current financial assurance amounts are $196 million for Chino, $275 million for Tyrone and $30 million for Cobre. In addition,

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Hidalgo has provided financial assurance for approximately $11 million under the terms of its existing discharge permit.

     Up to 70 percent of the financial assurance for Chino, Tyrone and Cobre is in the form of third-party guarantees provided by Phelps Dodge. The terms of the guarantees require Phelps Dodge to meet certain financial tests that, in part, require Phelps Dodge to maintain an investment-grade rating on its senior unsecured debt. Phelps Dodge’s senior unsecured debt currently carries an investment-grade rating. In the event of a ratings downgrade below investment-grade, some additional portion of the financial assurance would have to be provided in a different form. The balance of the financial assurance (approximately 30 percent) is provided in the form of trust funds, real estate collateral, surety bonds and letters of credit.

     The Company estimates its cost, on an internal cost basis, to perform the requirements of the approved closure and closeout permits to be approximately $287 million for Chino, $354 million for Tyrone and $41 million for Cobre (undiscounted and unescalated) over the 100-year period of the closure and closeout plans. That estimate is lower than the estimated costs used as the basis for financial assurance amounts due to the factors discussed above, and reflects our internal cost estimate. Our cost estimates, on a third-party cost basis used to determine the fair value of our closure and closeout accrual for SFAS No. 143, were approximately $395 million for Chino, $460 million for Tyrone and $47 million for Cobre (undiscounted and unescalated). Tyrone’s cost estimate includes approximately $21 million of net costs in addition to the financial assurance cost estimate that primarily relates to an increased scope of work for the tailing, stockpiles and other projects, and updated estimates for actual closure expenditures incurred. Cobre’s cost estimate includes approximately $2 million of costs in addition to the financial assurance cost estimate primarily for increased scope of work for stockpiles and characterization studies. At December 31, 2005, we had accrued approximately $65 million for Chino, $186 million for Tyrone, $8 million for Cobre and $4 million for Hidalgo. For comparison, at December 31, 2004, we had accrued approximately $52 million for Chino, $99 million for Tyrone, $7 million for Cobre and $4 million for Hidalgo.

     During 2005, Tyrone continued certain closure activities, including completion of a project to remove a portion of the 1C stockpile and initiating reclamation of the area, accelerated reclamation of tailing impoundments located in the Mangas Valley, including completion of reclamation of one tailing impoundment, and commencement of reclamation of a portion of the leach and waste stockpiles. Through December 31, 2005, approximately $39 million has been spent on these actions, including approximately $20 million on the 1C stockpile. In 2005, Tyrone submitted an application to reduce the required amount of financial assurance by $32 million to reflect the completion of the 1C stockpile removal project and 2005 legislation that eliminated a requirement to include New Mexico gross receipts tax in the cost estimates used for financial assurance. On December 12, 2005, the state concurred with the reduction.

     In December 1994, Chino entered into an Administrative Order on Consent (AOC) with NMED. The AOC requires Chino to perform a Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) quality investigation of environmental impacts and potential risks to human health and the environment associated with portions of the Chino property affected by historical mining operations. The remedial investigations began in 1995 and are still under way, although substantial portions of the remedial investigations are near completion. The Company expects that some remediation will be required and is considering interim remediation proposals, although no feasibility studies have yet been completed. Chino has begun remediating residential yards in the town of Hurley after agreement was reached with NMED on cleanup levels. NMED has not yet issued a record of decision regarding any additional remediation that may be required under the AOC. The Company’s estimated cost for all aspects of the AOC, as of December 31, 2005, is approximately $21 million. In addition to work under the AOC, Chino is continuing ongoing projects to control blowing dust from tailing impoundments at an estimated cost of approximately $5 million. Chino initiated work on excavating and removing copper-bearing material from an area known as “Lake One” for copper recovery in existing leach stockpiles at the mine. The Company’s estimated cost, as of December 31, 2005, for the remaining work at Lake One is approximately $2 million. The Company’s aggregate environmental reserve for liability under the Chino AOC, the interim work on the tailing impoundments and Lake One, as described above, is approximately $28 million at December 31, 2005.

Significant Colorado Reclamation Programs

     Our Climax and Henderson mines in Colorado are subject to permitting requirements under the Colorado Mined Land Reclamation Act, which requires approval of reclamation plans and provisions for financial assurance. These mines have had approved mined-land reclamation plans for several years and have provided the required financial assurance to the state of Colorado in the amount of $52.4 million and $28.5 million, respectively, for Climax and Henderson. The Climax financial assurance comprises a single surety bond in the amount of $52.4 million. The Henderson financial assurance comprises $18.2 million in collateralized Climax Molybdenum water rights, a $10.1 million surety bond and a letter of credit in the amount of $0.2 million. As a result of adjustments to the approved cost estimates for various reasons, the amount of financial assurance requirements can increase or decrease over time. In 2005, PD finalized Henderson’s reclamation plan and related financial assurance with the Colorado Division of Minerals and Geology, which resulted in a revision to our asset retirement obligations (ARO) estimates. At December 31, 2005 and 2004, we had accrued closure costs of approximately $24 million and $20 million, respectively, for our Colorado operations.

Avian Mortalities and Natural Resources Damage Claims

     Since the fall of 2000, we have been sharing information and discussing various approaches with the U.S. Fish and Wildlife Service (FWS) in conjunction with the FWS investigations of avian mortalities at some of the Company’s mining operations, including Cyprus Tohono, Tyrone, Chino and Morenci. As a result of the FWS investigations, federal authorities have raised issues related to the avian mortalities under two federal laws, the Migratory Bird Treaty Act (MBTA) and the natural resource damages provision of CERCLA. As part of the discussions regarding the MBTA, the FWS has requested that the mining operations undertake various measures to reduce the potential for future avian mortalities, including measures to eliminate or reduce avian access to ponds that contain acidic

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water. The FWS interprets the MBTA as strictly prohibiting the unauthorized taking of any migratory bird, and there are no licensing or permitting provisions under the MBTA that would authorize the taking of migratory birds as a result of industrial operations such as mining.

     On August 9, 2004, a plea agreement was entered in the U.S. District Court for the District of Arizona to resolve MBTA charges at Morenci, under which Morenci pled guilty to one misdemeanor count. The plea agreement requires Morenci to implement a corrective action plan to address the avian concerns at that mine during a five-year probation period. The plea agreement also required payment of a $15,000 fine and expenditures totaling $90,000 toward identifying options to conduct mitigation projects and bird rehabilitation.

     On August 30, 2005, the United States Court for the District of New Mexico entered a plea agreement to resolve MBTA charges at Tyrone, under which Tyrone also pled guilty to one misdemeanor count. The Tyrone plea agreement is similar to the Morenci plea agreement and requires Tyrone to implement a corrective action plan to address the avian concerns at Tyrone during a five-year probation period. The corrective action plan includes implementation of the tailing closure project required under Tyrone’s approved closure and closeout permits. The plea agreement also requires payment of a $15,000 fine and a $15,000 contribution for avian habitat restoration and/or migratory bird studies, and acknowledged a previous $5,000 contribution by Tyrone toward bird rehabilitation.

     The Company received a letter, dated August 21, 2003, from the U.S. Department of Interior as trustee for certain natural resources, and on behalf of trustees from the states of New Mexico and Arizona, asserting claims for natural resource damages relating to the avian mortalities and other matters. The notice cited CERCLA and the Clean Water Act and identified alleged releases of hazardous substances at the Chino, Tyrone and Continental (Cobre Mining Company) mines in New Mexico and the Morenci mine in Arizona. In addition to allegations of natural resource damages relating to avian mortalities, the letter alleges injuries to other natural resources, including other wildlife, surface water and groundwater. The letter was accompanied by a Preassessment Screen report. On July 13, 2004, the Company entered into a Memorandum of Agreement (MOA) to conduct a cooperative assessment of the alleged injury. The Company has entered into tolling agreements with the trustees to toll the statute of limitations while the Company and the trustees engage in the cooperative assessment process.

     The Bureau of Indian Affairs (BIA) and the Tohono O’odham Nation have notified Cyprus Tohono of potential claims for natural resource damages resulting from groundwater contamination and avian mortalities. The Company has entered into a cooperative assessment process with federal and tribal trustees.

     On February 6, 2004, the Company received a Notice of Intent to Initiate Litigation for Natural Resource Damages from the New Jersey Department of Environmental Protection for the Company’s Port Carteret facility. The Company offered to settle New Jersey’s claim through restoration work. The state has not responded to the Company’s settlement offer.

     The Kansas Trustee Council has notified Cyprus Amax of the Council’s intent to perform a natural resource damage assessment in the Cherokee County Superfund site in Cherokee County, Kansas. The Council has initiated the assessment. Cyprus Amax is in settlement discussions with the Council to resolve its potential natural resource damage liabilities at the site.

Significant Changes in International Closure and Reclamation Programs

     Sociedad Minera Cerro Verde S.A.A.

     On August 15, 2005, the Peruvian Ministry of Energy and Mines published the final regulation associated with the Mine Closure Law. The regulation requires companies to submit closure plans for existing projects within one year after August 15, 2005, and for new projects within one year after approval of the Environment Impact Statement. Additionally, the regulation sets forth the financial assurance requirements, including guidance for calculating the estimated cost and the types of financial assurance instruments that can be utilized.

     In accordance with the new regulation, Cerro Verde is required to submit a closure plan before August 15, 2006. Cerro Verde is currently in the process of reviewing the technical requirements and revising its cost estimates both for its existing operations and the sulfide expansion project to comply with the regulation. It is also in the process of determining its financial assurance obligations associated with the new regulation. At both December 31, 2005 and 2004, Cerro Verde had accrued closure costs of approximately $5 million, which were based on the requirements set forth in the environmental permits. Upon completion of its review, Cerro Verde’s ARO estimates will be updated.

     Other

     On February 7, 2004, the Chilean Ministry of Mining published and passed a modification to its mining safety regulations. The current published regulation requires a company to submit a reclamation plan within five years of the published regulation. In the 2005 fourth quarter, El Abra and Candelaria completed their comprehensive review of the revised cost estimates based on existing regulations, which resulted in a revision to the ARO estimates. (Refer to Note 21, Contingencies, for further discussion.) ARO estimates may require further revision if new interpretations or additional technical guidance are published to further clarify the regulation. Final closure plans and related financial assurance requirements will be filed with the Ministry before February 2009. At December 31, 2005 and 2004, we had accrued closure costs of approximately $20 million and $14 million, respectively, for our Chilean operations.

Other

     Some portions of our mining operations located on public lands are subject to mine plans of operation approved by the federal BLM. BLM’s regulations include financial assurance requirements for reclamation plans required as part of the approved plans of operation. As a result of recent changes to BLM’s regulations, including more stringent financial assurance requirements, increases in existing financial assurance amounts held by BLM could be required. Currently, financial assurance for the Company’s operations held by BLM totals $3.6 million.

     The Company is investigating available options to provide additional financial assurance and, in some instances, to replace existing financial assurance. The cost of surety bonds, the traditional source of financial assurance, has increased significantly during the past few

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years, and many surety companies now are requiring an increased level of collateral supporting the bonds such that they no longer are economically prudent. Some surety companies that issued surety bonds to the Company are seeking to exit the market for reclamation bonds. The terms and conditions presently available from one of our principal surety bond providers for reclamation and other types of long-lived surety bonds have made this type of financial assurance economically impracticable in certain instances. We are working with the impacted state and federal agencies to put in place acceptable alternative forms of financial assurance in a timely fashion.

     Portions of Title 30, Chapter 2, of the United States Code govern access to federal lands for exploration and mining purposes (the General Mining Law). In 2003, and again in late 2005, legislation was introduced in the U.S. House of Representatives to amend the General Mining Law. Similar legislation was introduced in Congress during the 1990s. None of these bills has been enacted into law. Concepts in the legislation over the years have included the payment of royalties on minerals extracted from federal lands, payment of fair market value for patenting federal lands and reversion of patented lands used for non-mining purposes to the federal government. Several of these same concepts and others likely will continue to be pursued legislatively in the future.

     The federal Endangered Species Act protects species listed by the FWS as endangered or threatened, as well as designated critical habitat for those species. Some listed species and critical habitat may be found in the vicinity of our mining operations. When a federal permit is required for a mining operation, the agency issuing the permit must determine whether the activity to be permitted may affect a listed species or critical habitat. If the agency concludes that the activity may affect a listed species or critical habitat, the agency is required to consult with the FWS concerning the permit. The consultation process can result in delays in the permit process and the imposition of requirements with respect to the permitted activities as are deemed necessary to protect the listed species or critical habitat. The mine operators also may be required to take or avoid certain actions when necessary to avoid affecting a listed species.

     We also are subject to federal and state laws and regulations pertaining to plant and mine safety and health conditions. These laws include the Occupational Safety and Health Act of 1970 and the Mine Safety and Health Act of 1977. Present and proposed regulations govern worker exposure to a number of substances and conditions present in work environments. These include dust, mist, fumes, heat and noise. We are making, and will continue to make, expenditures to comply with health and safety laws and regulations.

     We estimate that our share of capital expenditures for programs to comply with applicable environmental laws and regulations that affect our mining operations will total approximately $80 million in 2006 and approximately $30 million in 2007; approximately $42 million was spent on such programs in 2005. The increase in environmental capital expenditures for 2006 is primarily due to higher spending associated with accelerated reclamation projects in Arizona and New Mexico, as well as for air and water quality projects. We also anticipate making significant capital and other expenditures beyond 2007 for continued compliance with such laws and regulations. In light of the frequent changes in the laws and regulations and the uncertainty inherent in this area, we are unable to reasonably estimate the total amount of such expenditures over the longer term, but it may be material. (Refer to the discussion of Other Environmental Matters on pages 31 through 33.)

     We do not expect that additional capital and operating costs associated with achieving compliance with the many environmental, health and safety laws and regulations will have a material adverse affect on our competitive position relative to other U.S. copper producers. These domestic copper producers are subject to comparable requirements. However, because copper is an internationally traded commodity, these costs could significantly affect us in our efforts to compete globally with those foreign producers not subject to such stringent requirements.

Ownership of Property

U.S. Mining Operations

     In the United States, most of the land occupied by our copper and molybdenum mines, concentrators, SX/EW facilities, smelter, refinery, rod mills, and molybdenum roasters, processing facilities and the Climax technology center generally is owned by, or is located on unpatented mining claims owned by, the Company. Certain portions of our Henderson, Miami, Bagdad, Sierrita, Tyrone, Chino and Cobre operations are located on government-owned land and are operated under a Mine Plan of Operations, or other use permit. The Sierrita operation leases property adjacent to its mine upon which its electrowinning tankhouse is located. Cyprus Tohono Corporation holds leases for land, water and business purposes on land owned by the Tohono O’odham Nation. Various federal and state permits or leases on government land are held for purposes incidental to mine operations.

South American Mining

     At the Candelaria, Ojos del Salado, El Abra and Cerro Verde operations in South America, mine properties and facilities are controlled through mining concessions under the general mining laws of the relevant country. The concessions are owned or controlled by the operating companies in which the Company or its subsidiaries have an ownership interest.

Primary Molybdenum Operations

     Climax’s Rotterdam processing operation is located on leased property. The Company has leased the land through a series of three 25-year lease periods that commenced on December 1, 1964. The lease agreement will expire on November 30, 2039, unless the Company chooses not to use its renewal option for the third extension of 25 years, in which case the lease will end on November 30, 2014.

PHELPS DODGE INDUSTRIES

     PDI, our manufacturing division, consists of our Wire and Cable segment which produces engineered products principally for the global energy sector. Its operations are characterized by products with significant market share, internationally competitive cost and quality, and specialized engineering capabilities.

     In prior years, PDI consisted of two segments—Specialty Chemicals and Wire and Cable. On November 15, 2005, the Company entered into an agreement to sell Columbian Chemicals to a company owned jointly by One Equity Partners, a private equity affiliate of JPMorgan Chase & Co., and South Korean-based DC Chemical Co. Ltd. This transaction is expected to be completed in

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the 2006 first quarter. In addition, on November 15, 2005, the Company entered into an agreement to sell substantially all of its North American magnet wire assets to Rea Magnet Wire Company, Inc. (Rea). This transaction was completed on February 10, 2006. In the 2005 Form 10-K, Specialty Chemicals is reflected as a discontinued operation.

     The Company is continuing to explore strategic alternatives for Phelps Dodge High Performance Conductors, a unit of the Wire and Cable segment.

Wire and Cable Segment

     The Wire and Cable segment, headquartered in Phoenix, Arizona, consists of three worldwide product line businesses comprising magnet wire, energy cables and specialty conductors.

     Magnet wire, the insulated conductor used in most electrical motors, was manufactured in 2005 in the United States at our plant in Fort Wayne, Indiana. We also manufactured magnet wire at our wholly owned subsidiary at Monterrey, Mexico during 2005. In 2003, we began construction of a new magnet wire production facility in China. The facility, which is in Suzhou, began production during 2004, and is serving the fast-growing demand for magnet wire in China.

     Under the November 15, 2005, agreement, Rea agreed to purchase the North American magnet wire assets, including certain copper inventory, for approximately $125 million in cash, subject to a working capital adjustment at the time of closing. This transaction was completed on February 10, 2006, at which time the working capital adjustment was estimated at approximately $14 million, increasing the estimated sales proceeds to approximately $139 million.

     In January 2004, Phelps Dodge Magnet Wire announced plans to consolidate its North American manufacturing operations to reduce costs and strengthen its competitiveness in the global marketplace. This action resulted in special, pre-tax charges of $7.2 million associated with the closure of the manufacturing plant in El Paso, Texas, which ceased operations during the 2004 fourth quarter. During 2005, additional pre-tax asset impairment charges of $2.1 million were recorded at our El Paso, Texas, facility, which were determined through an assessment of fair market value based on projected cash flows.

     In the 2004 third quarter, Phelps Dodge Magnet Wire entered into a strategic partnership with Schwering und Hasse Elektrodaht Ltd. in Germany to produce its product at its Lugde, Germany, facility. This action resulted in special, pre-tax charges of $3.3 million associated with the closure of our PD Austria facility, which included severance-related, plant removal and dismantling expenses, and take-or-pay contracts.

     In the 2003 fourth quarter, based upon the continuing reduced market conditions in North America for magnet wire, we determined that our Laurinburg, North Carolina, plant would not re-open and its value was written down by $0.5 million to reflect appraised value. At the end of 2002, this facility was temporarily closed with production being shifted to the El Paso, Texas, and Fort Wayne, Indiana, facilities, and its value was written down by $15.3 million.

     In addition, as part of annual assessment of goodwill, in the 2003 fourth quarter we recognized an impairment charge of $0.9 million to write off the remaining goodwill balance of Phelps Dodge Magnet Wire, which was based on a comparison of the carrying value to the respective fair value, using an estimate of discounted cash flows.

     Phelps Dodge International Corporation manufactures energy cables for international markets in factories located in 10 countries. We provide management, marketing assistance, technical support, and engineering and purchasing services to these companies. Three of our international wire and cable companies have continuous-cast copper rod facilities, and three of our international wire and cable companies have continuous-cast aluminum rod facilities. We have majority interests in companies with production facilities in seven countries – Brazil, Chile, Costa Rica, Honduras, Thailand, Venezuela and Zambia. We also have minority interests in companies located in Hong Kong and the Philippines, accounted for on the equity basis, and in a company located in India, accounted for on the cost basis. We operate distribution centers in eight countries in addition to the United States – Guatemala, El Salvador, Honduras, Panama, Puerto Rico, Colombia, Ecuador and South Africa.

     We manufacture and market highly engineered conductors of copper and copper alloy wire electroplated with silver, tin or nickel for sophisticated, specialty product niches in the aerospace, automotive, biomedical, computer and consumer electronics markets. Those products are manufactured in plants located in Inman, South Carolina, and Trenton, Georgia. As part of the manufacturing rationalization program originally initiated in 1999, the West Caldwell, New Jersey, plant was temporarily closed in 2002 and its value was written down by $1.6 million. In the 2003 fourth quarter, based upon the continuing reduced market conditions in North America for high performance conductors, we determined that our West Caldwell plant would not re-open and its value was written down by $0.8 million to reflect appraised value. Its productive capacities were transferred to the remaining facilities.

     In the 2002 third quarter, actions were taken to improve efficiencies and consolidate certain wire and cable operations. In addition to the above-mentioned closures of our Laurinburg and West Caldwell facilities, we streamlined operational and production support at other high performance conductor facilities in order to reduce costs and increase operating efficiencies, and restructured and consolidated certain administrative functions. The restructuring plan included the reduction of approximately 300 positions and charges associated with employee severance and relocation ($3.9 million) and pension and other postretirement obligations ($2.8 million).

Competition and Markets

     Until the sale of our North American magnet wire assets on February 10, 2006, Phelps Dodge was one of the world’s largest manufacturers of magnet wire. Our plants draw, roll and insulate copper and aluminum wire that is sold as magnet wire and bare conductors to original equipment manufacturers for use in electric motors, generators, transformers, televisions, automobiles and a variety of small electrical appliances. Magnet wire also was sold to electrical equipment repair shops and smaller original equipment manufacturers through a network of distributors. We principally competed with two international and two U.S. magnet wire producers.

     Our international energy cable companies primarily sell products to contractors, distributors, and public and private utilities. Our

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products are used in lighting, power distribution, and other electrical applications. Our competitors range from worldwide wire and cable manufacturers to small local producers.

     Our specialty conductors are sold primarily to intermediaries (insulators, assemblers, subcontractors and distributors). Approximately 40 percent of these products ultimately are sold to commercial and military aerospace companies for use in airframes, avionics, space electronics, radar systems and ground control electronics. Specialty conductors also are used in appliances, instrumentation, computers, telecommunications, military electronics, medical equipment and other products. We have two primary U.S. competitors and compete with three importers in the specialty conductor market; however, in those few markets where we compete for high volume products, we face competition from several U.S. fabricators.

Raw Materials and Energy Supplies

     The principal raw materials used by our magnet wire manufacturing operations are copper, aluminum and various chemicals and resins used in the manufacture of electrical insulating materials. Most of the copper purchased for our magnet wire operations is from our PDMC division.

     The principal raw materials used by our international energy cable companies are copper, copper alloy, aluminum, aluminum alloy, copper-clad steel and various electrical insulating materials.

     The specialty conductor product line usually is plated with silver, nickel or tin. With the exception of copper needed in specialty conductors, the majority of the materials used by these companies are purchased from others. We do not believe that the loss of any one supplier would have a material adverse effect on our financial condition or on the results of our operations.

     Most of our wire and cable operations generally use purchased electricity and natural gas as their principal sources of energy. Our magnet wire company’s principal manufacturing equipment uses natural gas; however, it is also equipped to use alternative fuels.

Ownership of Property

     We owned most of the plants and land on which our wire and cable operations are located. The exceptions are the leased land of our Suzhou, China, magnet wire facility and our closed specialty conductor facility in Montville, New Jersey. This land is not material to our overall operations.

     On February 10, 2006, we completed the sale of substantially all of our North American magnet wire assets.

     Phelps Dodge estimates special, net after-tax charges of approximately $16 million associated with this transaction, mostly resulting from employee-related costs and asset impairment charges. Of this amount, approximately $11 million after-tax was recognized in the 2005 fourth quarter.

Discontinued Operations—Columbian Chemicals

     Columbian Chemicals and its subsidiaries, previously disclosed as our Specialty Chemicals segment headquartered in Marietta, Georgia, is an international producer and marketer of carbon black. Columbian Chemicals produces a full range of rubber and industrial carbon black in 12 plants worldwide, with approximately 38 percent of its production in North America and the remaining 62 percent at facilities in Europe, Asia and South America. Its El Dorado, Arkansas, plant is idled.

     Rubber carbon black improves the tread wear and durability of tires, and extends the service lives of many rubber products, such as belts and hoses. Industrial carbon black is used in such diverse applications as pigmentation of coatings, inks and plastics; ultraviolet stabilization of plastics; and as conductive insulation for wire and cable. Columbian also maintains sales offices worldwide and uses a network of distributors where appropriate.

     Extensive research and development is performed at technology centers located at Marietta, Georgia, and Avonmouth, United Kingdom. These technology centers are responsible for studies specific both to industrial and rubber applications of carbon black. Carbon black product and process development at these technology centers is supported by development work at Columbian’s plants worldwide.

     Beginning in December 2001, Columbian curtailed 54,000 metric tons of annual North American carbon black production at its El Dorado, Arkansas, plant due to significant over-capacity in the U.S. market caused by economic recession. Columbian recognized a full impairment of the plant’s fixed assets in the amount of $5.9 million in 2004. The Company will continue to maintain the plant in an idled status, to allow for a restart of operations, until such time as it is determined there is no possibility of bringing the facility back on line.

Competition and Markets

     The principal competitive factors in the various markets in which Columbian Chemicals competes are product quality, customer service, price, dependability of supply, delivery lead time, breadth of product line, and technical service and innovation.

     Columbian is among the world’s largest producers of carbon black. Approximately 90 percent of the carbon black it produces is used in rubber applications, a substantial portion of which is used in the tire industry. Major tire manufacturers worldwide account for a significant portion of Columbian’s carbon black sales. In addition, it has maintained a strong competitive position in both the mechanical rubber goods market and the industrial carbon black market based on a commitment to quality, service and technical innovation. Despite ongoing attempts to substitute carbon black with silica, reclaimed rubber or other materials, none has been able to match the cost and performance of carbon black in its principal applications. The closest successful substitute is a silane-treated silica that has made some in-roads in the tire market due to its increased wet traction characteristics for specific applications.

     Including Columbian, there are a total of five major carbon black producers in the United States, three in Canada, three in Western Europe and three in South America. There also are many producers in Asia and Eastern Europe (Russia and the Ukraine). The carbon black industry is highly competitive, particularly in the rubber black market.

Raw Materials and Energy Supplies

     Carbon black is produced primarily from heavy residual oil, a by-product of the crude oil refining process. Columbian purchases substantially all of its feedstock at market prices that fluctuate with world oil prices. Residual oil feedstock and other raw materials for the specialty chemicals business are purchased from various

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suppliers. The cost of this feedstock is a significant factor in the cost of carbon black. To achieve satisfactory financial results during periods of high and/or increasing oil prices, Columbian must be able to pass through these high and/or increasing costs to its customers. Hence, Columbian has put in place a number of “formula-based contracts” that allow selling prices to increase/decrease with feedstock costs. We do not believe that the loss of any one supplier would have a material adverse effect on Columbian’s financial condition or results of operations.

     Columbian’s specialty chemical operations generally use purchased or internally generated electricity and natural gas as their principal sources of energy.

Ownership of Property

     Columbian owns all property other than the leased land at its U.K., German and Korean facilities. This leased land is not material to Columbian’s overall operations.

Environmental Matters

     Columbian’s domestic carbon black operations have obtained major source operating permits under Title V of the CAA and related state laws. These permits do not impose new substantive requirements, but rather incorporate in one permit all existing requirements.

     Domestic carbon black plants are subject to the carbon black MACT standard issued in 2002. The compliance deadline of July 2005 was met at all facilities, except in the case of the Marshall, West Virginia, plant, which has an extended deadline until April 17, 2006. The Fort Wayne magnet wire plant is subject to the Miscellaneous Metal Parts and Products (MMPP) MACT standard under the federal CAA. The MMPP MACT standard for magnet wire plants was issued in 2003 with a compliance date of 2007. We continue to monitor the development and implementation of other MACT standards.

     The European Union (EU) is working on finalizing the Best Available Technology (BAT) for the carbon black industry. The current BAT Reference Document (BREF Note) proposes to control sulfur dioxide emissions by limiting the annual sulfur content in feedstocks to between 0.5 percent to 1.5 percent, depending upon local ambient conditions. The lower part of this range, if adopted, could negatively impact the carbon black industry, including Columbian. Columbian, through the carbon black industry trade association, is actively involved in reviewing with the EU the proposed limits. The BREF Note is expected to be finalized by October 31, 2006, so that BAT can be reflected in EU environmental operating (IPPC) permits that must be issued by the end of October 2007.

     The EU, certain other countries and certain states of the United States are beginning to implement greenhouse gas (GHG) reduction plans for various industry segments to meet targets under the Kyoto Treaty. Carbon black production is not currently listed as an activity subject to the European Directive, but will likely be included by certain member states or specifically included in later lists. The initial step is to be identified as a potential GHG generating facility so that a GHG inventory can be developed, with GHG reduction targets ultimately being established by industry sector. Columbian continues to monitor this process.

     Because of the frequent changes in environmental laws and regulations and the uncertainty these changes create for us, we are unable to estimate reasonably the total amount of such expenditures over the longer term, but it may be material to Columbian’s results of operations. (Refer to the discussion of Other Environmental Matters on pages 31 through 33.)

LABOR MATTERS

     The Company employs approximately 15,000 people to sustain its global operations. Approximately 10,500 employees work for PDMC, and most of these employees are not represented by unions. Those PDMC employees represented by unions are listed below, with the approximate number of employees represented and the expiration date of the applicable union agreements. Negotiations for Rotterdam on new agreements began in January 2006 and the union-represented employees continue to work. We expect to reach final agreement during the 2006 first quarter.

Phelps Dodge Mining Company
			Number of Union
Location	Number of Unions		Employees		Expiration Date
El Abra — Chile		2		484	Oct-08
Candelaria — Chile		2		505	Oct-09
Cerro Verde — Peru		1		429	Dec-08
Chino — New Mexico		1		289	Nov-09
Rotterdam, The Netherlands		2		41	Dec-05
Stowmarket, United Kingdom		1		44	May-06

     In addition, we currently have labor agreements covering most of our U.S. and international manufacturing division plants. Columbian Chemicals (reflected in this Form 10-K as discontinued operations) employs approximately 1,300 individuals. Below is a list of those operations within this segment that have employees who are represented by unions. Also included are the approximate number of employees represented and the expiration date of the applicable union agreements. Negotiations are expected to begin in the first quarter of 2006 in regard to the Trecate, Italy; Yosu, South Korea; Santander, Spain; and North Bend, Louisiana; agreements. Trecate is governed by a national contract that will be announced after the Consumer Price Index (CPI) is determined. Typically the contract is settled mid-year and is retroactive. Wage negotiations for Yosu generally start in the second quarter of the year and are retroactive. Santander negotiations, like Trecate, do not start until after the CPI is established. Negotiations will start mid-year and will be retroactive. North Bend negotiations are currently ongoing. The represented employees at these locations continue to work.

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Columbian Chemicals
			Number of Union
Location	Number of Unions		Employees		Expiration Date
Trecate, Italy		2		85	Dec-05
Trecate, Italy		1		9	Dec-08
Hamilton, Ontario		1		60	Nov-06
Cubatao, Brazil		1		216	Oct-06
Sao Paulo, Brazil		1		27	Oct-06
Bristol, United Kingdom		2		51	Apr-06
Hannover, Germany		1		50	Mar-07
Yosu, South Korea		1		40	Feb-06
Santander, Spain		1		44	Dec-05
Marshall, West Virginia		2		59	Jun-08
North Bend, Louisiana		1		109	Feb-06

     Wire and Cable employs approximately 3,400 people (including employees of the North American magnet wire plants). Employees at Wire and Cable’s operations in Bentonville, Arkansas; Inman, South Carolina; Trenton, Georgia; China, Costa Rica, Honduras and Thailand are not represented by any unions. Below is a list of those operations within this segment that have employees who are represented by unions, along with the approximate number of employees represented and the expiration date of the applicable union agreements.

Phelps Dodge Wire and Cable Operations
			Number of Union
Location	Number of Unions		Employees		Expiration Date
Elizabeth, New Jersey		1		47	Apr-07
Luanshya, Zambia		1		75	Jul-06
Monterrey, Mexico		1		314	Mar-06
Fort Wayne, Indiana		1		172	May-08
Pocos de Caldas, Brazil		1		408	Sep-06
Sao Paulo, Brazil		1		37	Nov-06
Valencia, Venezuela		1		138	Oct-06
Valencia, Venezuela		1		113	Dec-06
Santiago, Chile		1		184	May-07

     On November 15, 2005, the Company announced that it had agreed to sell its Columbian Chemicals group and substantially all of Phelps Dodge’s North American magnet wire assets. The closing of these transactions will have an impact on the labor matters reported above. With respect to Columbian Chemicals, all of the union-represented employees will remain with that group and will be the responsibility of the new owner. With respect to Wire and Cable, the Monterrey, Mexico, union-represented employees will remain in the employ of Rea and will no longer be the responsibility of Phelps Dodge, while the union-represented employees at the Fort Wayne plant will be separated from service consistent with the sale of the Fort Wayne assets.

     In November 2005, the Company exercised its option to acquire a controlling interest in the Tenke Fungurume copper/cobalt mining concessions in the Democratic Republic of the Congo resulting in the addition of two labor agreements presently governed by a National Labor Convention between the Congolese Federation of National Labor Union Organizations. These labor agreements, covering approximately 95 employees, expired in December 2005. Negotiations on the new labor agreements have been finalized; however, we are awaiting final approval by the Ministry of Labor. The employees represented under these agreements continue to work.

RESEARCH AND DEVELOPMENT

     We conduct research and development programs relating to technology for exploration for minerals, mining and recovery of metals from ores, concentrates and solutions, smelting and refining of copper, metal processing, reclamation and remediation, and product and engineered materials development. Research and development programs related to carbon products are conducted through Columbian Chemicals, and wire insulating processes and materials and conductor materials and processes through our Wire and Cable segment. Expenditures for research and development programs, including expenditures associated with discontinued operations, together with contributions to industry and government-supported programs, totaled $48.6 million in 2005, $32.5 million in 2004 and $30.2 million in 2003.

OTHER ENVIRONMENTAL MATTERS

     Phelps Dodge is subject to various stringent federal, state and local environmental laws and regulations that govern emissions of air pollutants; discharges of water pollutants; and generation, handling, storage and disposal of hazardous substances, hazardous wastes and other toxic materials. The Company also is subject to potential liabilities arising under CERCLA or similar state laws that impose responsibility on persons who arranged for the disposal of hazardous substances, and on current and previous owners and operators of a facility for the cleanup of hazardous substances released from the facility into the environment, including injuries to natural resources. In addition, the Company is subject to potential liabilities under the RCRA and analogous state laws that require responsible parties to remediate releases of hazardous or solid waste constituents into the environment associated with past or present activities.

     Phelps Dodge or its subsidiaries have been advised by EPA, the U.S. Forest Service and several state agencies that they may be liable under CERCLA or similar state laws and regulations for costs of responding to environmental conditions at a number of sites that have been or are being investigated by EPA, the U.S. Forest Service or states to determine whether releases of hazardous substances have occurred and, if so, to develop and implement remedial actions to address environmental concerns. Phelps Dodge also has been advised by trustees for natural resources that the Company may be liable under CERCLA or similar state laws for injuries to natural resources caused by releases of hazardous substances.

     Phelps Dodge has established reserves for potential environmental obligations that management considers probable and for which reasonable estimates can be made. For closed facilities and closed portions of operating facilities with environmental obligations, an environmental liability is accrued when a decision to close a facility or a portion of a facility is made by management, and when the environmental liability is considered to be probable. Environ-

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mental liabilities attributed to CERCLA or analogous state programs are considered probable when a claim is asserted, or is probable of assertion, and we have been associated with the site. Other environmental remediation liabilities are considered probable based upon specific facts and circumstances. Liability estimates are based on an evaluation of, among other factors, currently available facts, existing technology, presently enacted laws and regulations, Phelps Dodge’s experience in remediation, other companies’ remediation experience, Phelps Dodge’s status as a potentially responsible party (PRP), and the ability of other PRPs to pay their allocated portions. Accordingly, total environmental reserves of $367.9 million and $303.6 million were recorded as of December 31, 2005 and 2004, respectively. The long-term portion of these reserves is included in other liabilities and deferred credits on the Consolidated Balance Sheet and amounted to $285.6 million and $239.5 million at December 31, 2005 and 2004, respectively.

     The site currently considered to be the most significant is the Pinal Creek site near Miami, Arizona. The sites with the most significant reserve changes in 2005 were the Anniston Lead and PCB sites, and the Laurel Hill site, and in 2004 the Yonkers site.

Pinal Creek Site

     The Pinal Creek site was listed under the ADEQ Water Quality Assurance Revolving Fund program in 1989 for contamination in the shallow alluvial aquifers within the Pinal Creek drainage near Miami, Arizona. Since that time, environmental remediation has been performed by the members of the Pinal Creek Group (PCG), comprising Phelps Dodge Miami, Inc. (a wholly owned subsidiary of the Company) and two other companies. (Refer to page 38 for further discussion of the litigation associated with this site including litigation in respect of other potentially responsible parties.)

     While significant recoveries may be achieved in the contribution litigation, the Company cannot reasonably estimate the amount and, therefore, has not taken potential recoveries into consideration in the recorded reserve.

Anniston Lead and PCB Sites

     Phelps Dodge Industries, Inc. (PDII) formerly operated a brass foundry in Anniston, Alabama, and has been identified by EPA as a PRP at the Anniston Lead and PCB sites. The Anniston Lead site consists of lead contamination originating from historical industrial operations in and about Anniston; the Anniston PCB site consists of PCB contamination originating primarily from historical PCB manufacturing operations in Anniston. Pursuant to an administrative order on consent/settlement agreement (Settlement Agreement), PDII, along with 10 other parties identified by EPA as PRPs, agreed to conduct a non-time-critical removal action at certain residential properties identified to have lead and PCB contamination above certain thresholds. While PDII and the other parties to the Settlement Agreement have some responsibility to address residential PCB contamination, that responsibility is limited, with EPA characterizing PDII and the parties to the Settlement Agreement as de minimis PRPs. The Settlement Agreement was subject to public comment, which ended on October 11, 2005. Upon EPA issuance of its response to public comment, the Settlement Agreement became final on January 17, 2006. PDII and the other PRPs have entered into an interim cost-sharing agreement that assigns PDII approximately one-eighth of the costs to be incurred under the Settlement Agreement. During the 2005 third quarter, PDII increased its reserve by approximately $20 million to a total reserve of approximately $27 million at December 31, 2005, which covers remedial costs, PRP group settlement costs, and legal and consulting costs.

Laurel Hill Site

     Phelps Dodge Refining Corporation, a subsidiary of the Company, owns a portion of the Laurel Hill property in Maspeth, New York, that formerly was used for metal-related smelting, refining and manufacturing. All industrial operations at the Laurel Hill site ceased in 1984. In June 1999, the Company entered into an Order on Consent with New York State Department of Environmental Conservation (NYSDEC) that required the Company to perform, among other things, a remedial investigation and feasibility study relating to environmental conditions and remedial options at the Laurel Hill site. NYSDEC issued a final remedial decision in January 2003 in the form of a Record of Decision (ROD) regarding the property. The Company expects to complete the work under the ROD in 2006.

     In July 2002, Phelps Dodge entered into another Order on Consent with NYSDEC requiring the Company to conduct a remedial investigation and feasibility study relating to sediments in Newtown and Maspeth Creeks, which are located contiguous to the Laurel Hill site. The Company commenced the remedial investigation in 2004. The Company is currently scheduled to submit to the NYSDEC in 2006 its remedial investigation report and its remedial feasibility report. The Company is currently engaged in settlement discussions with the NYSDEC concerning the types of remedial actions in the feasibility study that would be acceptable to the agency. Based on the types of remedial actions being discussed and associated transactional costs, the environmental reserve was increased to approximately $20 million in December 2005. The amount encompasses ongoing consulting and legal costs to complete the required studies and assess contributions from other potential parties plus remedial action costs for impacted sediments associated with the Laurel Hill site.

Yonkers Site

     In 1984, the Company sold a cable manufacturing facility located in Yonkers, New York. Pursuant to the sales agreement, the Company agreed to indemnify the buyer for certain environmental liabilities at the facility. In 2000, the owner of the property entered into a consent order with the NYSDEC under which the owner committed to complete a remedial investigation and feasibility study. In December 2001, the Company entered into an Interim Agreement with the owner of the property regarding the owner’s claim for both contractual and statutory indemnification from the Company for certain environmental liabilities at the facility. The owner submitted its revised feasibility study to NYSDEC in September 2004. On November 30, 2004, NYSDEC issued a Proposed Remedial Action Plan (PRAP) for the Yonkers site. The PRAP accepted the remedy recommendation of the feasibility study, with certain modifications. On December 31, 2004, the Company and the Yonkers site owner finalized a settlement agreement that relieves the Company of financial responsibility for implementation of the NYSDEC’s remedy at the Yonkers site. Pursuant to this settlement agreement, the Company agreed to pay a portion of the future anticipated remedial costs, as well as portions of the premiums associated with cost cap and pollution legal liability insurance associated with future site

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remedial actions. In addition, the Company resolved the site owner’s claims of contractual and statutory indemnity for past remedial costs at the site. To address all aspects of the settlement agreement, the reserve was increased from approximately $20 million to $50 million during 2004. A partial payment of approximately $43 million was made on December 31, 2004; final payments of approximately $7 million were made in 2005.

Other

     In 2005, the Company recognized net charges of $113.4 million for environmental remediation. As discussed above, the sites with significant charges were the Anniston Lead and PCB sites and Laurel Hill sediment site (an increase of $43.2 million). The remainder of environmental remediation charges was primarily at closed sites, none of which increased or decreased individually more than approximately $10 million.

     At December 31, 2005, the cost range for reasonably possible outcomes for all reservable environmental remediation sites (including Pinal Creek’s estimate of approximately $104 million to $211 million) was estimated from approximately $329 million to approximately $642 million, of which $367.9 million has been reserved. Significant work is expected to be completed in the next several years on the sites that constitute a majority of the reserve balance, subject to inherent delays involved in the remediation process.

     Phelps Dodge believes certain insurance policies partially cover the foregoing environmental liabilities; however, some of the insurance carriers have denied coverage. We presently are negotiating with the carriers over some of these disputes. Further, Phelps Dodge believes it has other potential claims for recovery from other third parties, including the United States Government and other PRPs. Neither insurance recoveries nor other claims or offsets are recognized unless such offsets are considered probable of realization. In 2005 and 2004, the Company recognized proceeds from settlements reached with several insurance companies on historical environmental liability claims of $0.6 million and $9.3 million, net of fees and expenses, respectively.

     Phelps Dodge has a number of sites that are not the subject of an environmental reserve because it is not probable that a successful claim will be made against the Company for those sites, but for which there is a reasonably possible likelihood of an environmental remediation liability. At December 31, 2005, the cost range for reasonably possible outcomes for all such sites for which an estimate can be made was estimated to be from approximately $2 million to approximately $14 million. The liabilities arising from potential environmental obligations that have not been reserved at this time may be material to the operating results of any single quarter or year in the future. Management, however, believes the liability arising from potential environmental obligations is not likely to have a material adverse effect on the Company’s liquidity or financial position as such obligations could be satisfied over a period of years.

     Our operations are subject to many environmental laws and regulations in jurisdictions both in the United States and in other countries in which we do business. For further discussion of these laws and regulations, refer to PDMC — Environmental and Other Regulatory Matters and PDI - Environmental Matters. The estimates given in those discussions of the capital expenditures to comply with environmental laws and regulations in 2006 and 2007, and the expenditures in 2005 are separate from the reserves and estimates described above.

     In July 2005, the Henderson mine and mill, the Miami mine, smelter, refinery and rod plant, the El Paso refinery and rod plant, and the Norwich rod and wire plant received the International Organization for Standardization (ISO) 14001 environmental certification. On January 4, 2006, the Fort Madison molybdenum processing facility received the ISO 14001 environmental certification. The ISO is a worldwide federation of national standards bodies. The International Environmental Management System Standard, also known as 14001, is the recognized standard for environmental management as well as a benchmark for environmental excellence.

     The environmental, health and safety committee of the board of directors comprises six non-management directors. The Committee met five times in 2005 to review, among other things, the Company’s policies with respect to environmental, health and safety matters, and the adequacy of management’s programs for implementing those policies. The committee reports on such reviews and makes recommendations with respect to those policies to the board of directors and to management.

Item 1A. Risk Factors

Copper and Molybdenum Price Volatility May Reduce Our Profits and Cash Flow

     Our financial performance is heavily dependent on the price of copper, which is affected by many factors beyond our control. Copper is a commodity traded on the London Metal Exchange (LME), the New York Commodity Exchange (COMEX) and the Shanghai Futures Exchange (SHFE). Most of our copper is sold at prices based on those quoted on the LME or COMEX exchanges. The price of copper as reported on these exchanges is influenced significantly by numerous factors, including (i) the worldwide balance of copper demand and supply, (ii) rates of global economic growth, trends in industrial production and conditions in the housing and automotive industries, all of which correlate with demand for copper, (iii) economic growth and political conditions in China, which has become the largest consumer of refined copper in the world, and other major developing economies, (iv) speculative investment positions in copper and copper futures, (v) the availability and cost of substitute materials and (vi) currency exchange fluctuations, including the relative strength of the U.S. dollar.

     The copper market is volatile and cyclical. During the past 15 years, COMEX prices per pound have ranged from a high of $2.28 to a low of 60 cents. Any material change in the price we receive for copper has a significant effect on our results. Based upon expected 2006 annual consolidated production of approximately 2.5 billion to 2.6 billion pounds of copper, each 1 cent per pound change in our average annual realized copper price (or our average annual unit cost of production) causes a variation in annual operating income of up to approximately $26 million, excluding the impact of our copper collars and before taxes and adjustments for minority interests. Consequently, a sustained period of low copper prices would adversely affect our profits and cash flow.

     In addition, sustained low copper prices could (i) reduce revenues as a result of production cutbacks due to curtailment of

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operations or temporary or permanent closure of mines or portions of deposits that have become uneconomical at the then-prevailing copper prices, (ii) delay or halt exploration or the development of new process technology or projects and (iii) reduce funds available for exploration and the building of ore reserves.

     Our financial performance is also significantly dependent on the price of molybdenum. Molybdenum is characterized by volatile, cyclical prices, even more so than copper. Molybdenum prices are influenced by numerous factors, including (i) the worldwide balance of molybdenum demand and supply, (ii) rates of global economic growth, especially construction and infrastructure activity that requires significant amounts of steel, (iii) the volume of molybdenum produced as a by-product of copper production, (iv) inventory levels, (v) currency exchange fluctuations, including the relative strength of the U.S. dollar and (vi) production costs of U.S. and foreign competitors.

     Molybdenum demand depends heavily on the global steel industry, which uses the metal as a hardening and corrosion inhibiting agent. Approximately 80 percent of molybdenum production is used in this application. The remainder is used in specialty chemical applications such as catalysts, water treatment agents and lubricants. Approximately 65 percent of global molybdenum production is a by-product of copper mining, which is relatively insensitive to molybdenum prices. During the past 15 years, Metals Week Dealer Oxide prices per pound have ranged from a high of $40.00 to a low of $1.82. A sustained period of low molybdenum prices would adversely affect our profits and cash flows.

Our Copper Price Protection Programs May Cause Significant Volatility in Financial Performance

     Our copper price protection programs may cause significant volatility in our financial performance. At December 31, 2005, we had in place zero-premium copper collars for approximately 564 million pounds and 486 million pounds of our expected global copper production for 2006 and 2007, respectively. The annual average LME call strike price (ceiling) on our zero-premium copper collars is $1.632 per pound and $2.002 per pound for 2006 and 2007, respectively. At December 31, 2005, we also had in place copper put options for approximately 564 million pounds and 730 million pounds of our expected global copper production for 2006 and 2007, respectively. The annual average LME put strike price per pound for both 2006 and 2007 is $0.950 per pound. In accordance with generally accepted accounting principles in the United States, we are required to mark-to-market our copper price protection programs each reporting period with the gain or loss recorded in earnings. These adjustments represent non-cash events as the contracts are settled in cash only after the end of the relevant year based on the annual average LME price. For the year ended December 31, 2005, the unrealized pre-tax charges, including premium expense arising from our 2006 and 2007 copper price protection programs, reduced operating income by approximately $224 million. We are unable to estimate any future gains or losses that will be realized under these copper price protection programs.

Increased Energy Costs Could Reduce Our Profitability or Result in Losses

     Energy, including electricity, diesel fuel and natural gas, represents a significant portion of the production costs for our operations. The principal sources of energy for our mining operations are electricity, purchased petroleum products and natural gas. The principal sources of energy for our wire and cable operations are purchased electricity and natural gas.

     To moderate or offset the impact of increasing energy costs, we use a combination of multi-year energy contracts that we put in place at favorable points in the price cycle as well as self-generation and natural gas hedging. Additionally, we enter into price protection programs for our diesel fuel and natural gas purchases to protect against significant short-term upward movements in energy prices while maintaining the flexibility to participate in any favorable price movements. As a result of these programs, we have reduced and partially mitigated the impacts of volatile electricity markets and rising diesel fuel and natural gas prices. Nevertheless, we pay more for our energy needs during these times of progressively higher energy prices. During 2005, energy accounted for 19.5 cents per pound of copper production, compared with 14.6 cents in 2004 and 13.5 cents in 2003. As energy is a significant portion of our production costs, if we are unable to procure sufficient energy at reasonable prices in the future, it could adversely affect our profits and cash flow.

We Continue to Experience Pressure on Our Copper Production Costs

     In recent years we have experienced increases in our worldwide copper production costs. One factor in the increase in average cost of copper production is our decision, in response to very strong demand for copper, to bring back into production certain higher cost properties. In addition to energy, our cash costs are affected by the prices of commodities, such as sulfuric acid, grinding media, liners, explosives and diluent, which we consume or otherwise use in our operations. The prices of such commodities are influenced by supply and demand trends affecting the copper industry in general and other factors, many of which are outside our control, and are at times subject to volatile price movements. Increases in the cost of these commodities could make production at certain of our operations less profitable, even in an environment of relatively high copper prices. Increases in the costs of commodities we consume or otherwise use in our operations may also significantly affect the capital costs of our new projects.

     In addition, our cost structure for copper production is generally higher than that of some major copper producers whose principal mines are located outside the United States. This is due to lower ore grades, higher labor costs (including pension and health-care costs) and, in some cases, stricter regulatory requirements.

Our Business Is Subject to Complex and Evolving Laws and Regulations and Environmental and Regulatory Compliance May Impose Substantial Costs on Us

     Our global operations are subject to various federal, state and local environmental laws and regulations relating to improving or maintaining environmental quality. Environmental laws often require parties to pay for remedial action or to pay damages regardless of fault and may also often impose liability with respect to divested or

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terminated operations, even if the operations were terminated or divested many years ago. The federal Clean Air Act has had a significant impact, particularly on our smelters and power plants. We also have potential liability for certain sites we currently operate or formerly operated and for certain third-party sites under the federal Superfund law and similar state laws. We are also subject to claims for natural resource damages where the release of hazardous substances is alleged to have injured natural resources.

     Our mining operations and exploration activities, both inside and outside the United States, are subject to extensive laws and regulations governing prospecting, development, production, exports, taxes, labor standards, occupational health, waste disposal, protection and remediation of the environment, protection of endangered and protected species, mine safety, toxic substances and other matters. Mining also is subject to risks and liabilities associated with pollution of the environment and disposal of waste products occurring as a result of mineral exploration and production. Compliance with these laws and regulations imposes substantial costs on us and subjects us to significant potential liabilities.

     The laws and regulations that apply to us are complex and are continuously evolving in the jurisdictions in which we do business. Costs associated with environmental and regulatory compliance have increased over time, and we expect these costs to continue to increase in the future. In addition, the laws and regulations that apply to us may change in ways that could otherwise have an adverse effect on our operations or financial results. The costs of environmental obligations may exceed the reserves we have established for such liabilities. (Refer to Note 21, Contingencies, for further discussion of our significant environmental matters.)

Mine Closure Regulations May Impose Substantial Costs

     Our operations in the United States are subject to various federal and state mine closure and mined-land reclamation laws. The requirements of these laws vary depending upon the jurisdiction. Over the last several years, there have been substantial changes in these laws and regulations in the states in which our mines are located, as well as the regulations promulgated by the federal Bureau of Land Management (BLM), for mining operations located on unpatented mining claims located on federal public lands. The amended BLM regulations governing mined-land reclamation for mining on federal lands will likely increase our regulatory obligations and compliance costs over time with respect to mine closure reclamation. As estimated costs increase, our mines are required to post increasing amounts of financial assurance to ensure the availability of funds to perform future closure and reclamation.

     As a result of an agreement we reached with two New Mexico state agencies, the amount of required financial assurance for our Chino, Tyrone and Cobre mines totals approximately $500 million. Approximately 70 percent of such financial assurance either is, or is expected to be, provided in the form of third-party guarantees issued by us on behalf of our operating subsidiaries and the balance, or approximately 30 percent, is expected to be provided in the form of trust funds, real property collateral, surety bonds and letters of credit. The actual amount required for financial assurance is subject to the completion of additional permitting procedures, final agency determinations and the results of administrative appeals, all of which could result in some changes to the closure and reclamation plans and further increases in the cost estimates and our related financial assurance obligations. In addition, our Arizona mining operations have obtained approval of reclamation plans for our mined land and approval of financial assurance totaling approximately $105 million, but applications for approval of closure plans for groundwater quality protection are pending for some portions of our mines. We also have approved mined-land reclamation plans and financial assurance in place for our two Colorado mines totaling approximately $81 million.

     Most of the financial assurance provided for our southwestern U.S. mines requires a demonstration that we meet financial tests showing our capability to perform the required closure and reclamation. Demonstrations of financial capability have been made for all of the financial assurance for our Arizona mines. The financial tests required for continued use of the financial capability demonstrations and third-party guarantees include maintaining an investment-grade rating on our senior debt securities. If, in the future, we should no longer maintain an investment-grade rating, we will be required to replace most of the financial assurance currently satisfied through financial demonstrations and third-party guarantees with other forms of financial assurance, such as letters of credit, real property collateral or cash.

     The cost of surety bonds (the traditional source of financial assurance) has increased significantly in recent years. Also, many surety companies are now requiring an increased level of collateral supporting the bonds. If surety bonds are unavailable at commercially reasonable terms, we could be required to post other collateral or cash or cash equivalents directly in support of financial assurance obligations.

     In addition, our international mines are subject to various mine closure and mined-land reclamation laws. There have recently been significant changes in closure and reclamation programs in Peru and Chile. We cannot estimate the potential impact of these new regulations or any additional changes to regulations in these or other non-U.S. jurisdictions in which we do business at this time.

Levels of Ore Reserves and Mill and Leach Stockpiles Are Subject to Uncertainty and Our Ability to Replenish Ore Reserves Is Important for Long-Term Viability

     There are a number of uncertainties inherent in estimating quantities of ore reserves and copper recovered from stockpiles, including many factors beyond our control. Ore reserve estimates are based upon engineering evaluations of assay values derived from samplings of drill holes and other openings. The quantity of copper contained in mill and leach stockpiles is based upon surveyed volumes of mined material and daily production records. The reserve and recoverable copper in stockpiles data included in this annual report are estimates. The volume and grade of ore reserves recovered, rates of production and recovered copper from stockpiles may be less than we anticipate.

     Declines in the market price of a particular metal also may render the exploitation of reserves containing relatively lower grades of mineralization uneconomical. If the price we realize for a particular commodity were to decline substantially below the price at which ore reserves were calculated for a sustained period of time, we could experience reductions in reserves resulting in increased depreciation charges and potential asset write-downs. Under some such circumstances, we may discontinue the development of a project or

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mining at one or more properties. Further, changes in operating and capital costs and other factors, including but not limited to short-term operating factors such as the need for sequential development of ore bodies and the processing of new or different ore grades, may reduce ore reserves.

     Ore reserves are depleted as we mine. Our ability to replenish our ore reserves is important to our long-term viability. We use several strategies to replenish and grow our copper and molybdenum ore reserves, including exploration and investment in properties located near our existing mine sites, investing in technology that could extend the life of a mine by allowing us to cost-effectively process ore types that were previously considered uneconomic and an exploration strategy that includes pursuing opportunities with joint venture partners. Acquisitions may also contribute to increased ore reserves and we review potential acquisition opportunities on a regular basis.

Operational Risks

          Mines by their nature are subject to many operational risks and factors that are generally outside of our control and could impact our business, operating results and cash flows. These operational risks and factors include, but are not limited to (i) unanticipated ground and water conditions and adverse claims to water rights, (ii) geological problems, including earthquakes and other natural disasters, (iii) metallurgical and other processing problems, (iv) the occurrence of unusual weather or operating conditions and other force majeure events, (v) lower than expected ore grades or recovery rates, (vi) accidents, (vii) delays in the receipt of or failure to receive necessary government permits, (viii) the results of litigation, including appeals of agency decisions, (ix) uncertainty of exploration and development, (x) delays in transportation, (xi) labor disputes, (xii) inability to obtain satisfactory insurance coverage, (xiii) unavailability of materials and equipment, (xiv) the failure of equipment or processes to operate in accordance with specifications or expectations, (xv) unanticipated difficulties consolidating acquired operations and obtaining expected synergies and (xvi) the results of financing efforts and financial market conditions.

Our Operations Outside the United States Are Subject to the Risks of Doing Business in Foreign Countries

          In 2005, our international operations provided 30 percent of the Company’s consolidated sales (including sales through PDMC’s U.S. based sales company) and our international operations (including international exploration) contributed 46 percent of the Company’s consolidated operating income. We fully consolidate the results of certain of our domestic and international mining operations in which we own less than a 100 percent interest (and report the minority interest). During 2005, our minority partners in our South American mines were entitled to approximately 185,700 tons, or 34 percent, of our international copper production.

          Our international activities are conducted in Canada, Latin America, Europe, Asia and Africa, and are subject to certain political and economic risks, including but not limited to (i) political instability and civil strife, (ii) changes in foreign laws and regulations, including those relating to the environment, labor, tax, royalties on mining activities and dividends or repatriation of cash and other property to the United States, (iii) foreign currency fluctuations, (iv) expropriation or nationalization of property, (v) exchange controls and (vi) import, export and trade regulations.

Item 3. Legal Proceedings

I. We are a member of several trade associations that, from time to time, initiate legal proceedings challenging administrative regulations or court decisions that the membership considers to be improper and potentially adverse to their business interests. These legal proceedings are conducted in the name of the trade associations, and the members of the trade association are not parties, named or otherwise.

II. Arizona water regulations, water rights adjudications and other related water cases.

     A. General Background

          Arizona surface water law is based on the doctrine of prior appropriation (first in time, first in right). Surface water rights in Arizona are usufructuary rights, and as such the water right holder is granted only the right to use public waters for a statutorily defined beneficial use, at a designated location. Groundwater in Arizona is governed by the doctrine of reasonable use. Arizona has initiated two water rights adjudications in order to quantify and prioritize all of the surface water rights and water right claims to two of the state’s river systems and sources. Groundwater is not subject to the adjudication; however, wells may be adjudicated to the extent that they are found to produce or impact appropriable surface water. The two adjudication cases that could potentially impact Phelps Dodge’s surface water rights and claims (including some wells) are entitled In Re The General Adjudication of All Rights to Use Water in the Little Colorado Water System and Source, Arizona Superior Court, Apache County, Cause No. 6417 filed on or about February 17, 1978 and In Re The General Adjudication of All Rights to Use Water in the Gila River System and Source, Arizona Superior Court, Maricopa County, Cause Nos. W-1 (Salt), W-2 (Verde), W-3 (Upper Gila), W-4 (San Pedro), (consolidated) filed on February 17, 1978. The major parties in addition to Phelps Dodge in the Gila River adjudication are: Gila Valley Irrigation District, the San Carlos Irrigation and Drainage District, the state of Arizona, the San Carlos Apache Tribe, the Gila River Indian Community, and the United States on behalf of those Tribes, on its own behalf, and on the behalf of the White Mountain Apache Tribe, Ft. McDowell Mohave-Apache Indian Community, Salt River Pima-Maricopa Indian Community and the Payson Community of Yavapai Apache Indians. The major parties in addition to Phelps Dodge in the Little Colorado adjudication are: the state of Arizona, the Salt River Project, Arizona Public Service Company, the Navajo Nation, the Hopi Indian Tribe, the San Juan Southern Paiute Tribe and the United States on behalf of those Indian Tribes, on its own behalf, and on behalf of the White Mountain Apache Tribe.

          Phelps Dodge has four active mining operations in Arizona: Morenci, Miami, Sierrita and Bagdad. Each operation requires water for mining and all related support facilities. With the exception of Bagdad, each operation is located in a watershed within an ongoing surface water adjudication. Each operation has sufficient water claims to cover its operational demands. In many instances, the water supply may come from a variety of possible sources. The potential impact of the surface water adjudications on each active operation is discussed below.

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     B. Operations

          Morenci – The Morenci operation is located in eastern Arizona. Morenci water is supplied by a combination of sources, including decreed surface water rights in the San Francisco River, Chase Creek and Eagle Creek drainages, groundwater from the Upper Eagle Creek wellfield, and Central Arizona Project (CAP) water leased from the San Carlos Apache Tribe and delivered to Morenci via exchange through the Black River Pump Station. Phelps Dodge has filed Statements of Claimants in the adjudication for each of its water sources for Morenci except the CAP water.

          Phelps Dodge’s decreed water rights are subject to the Gila River adjudication and potentially could be impacted. Although the purpose of the adjudication is to determine only surface water rights, wells such as those in the Upper Eagle Creek wellfield may be subject to the Gila River adjudication, but only to the extent those wells may be determined to capture or impact appropriable surface water. The CAP water provided via exchange is not subject to any state adjudication process. The CAP lease became effective as of January 1, 1999, and has a 50-year term.

          Miami – The Miami operation obtains water from a number of sources in the Salt River watershed. Statements of Claimants have been filed in connection with these water sources, each of which is subject to the adjudication and could be potentially impacted. Miami currently holds a CAP subcontract, although CAP water is not currently used at the operation. CAP water is not subject to adjudication; however, an exchange agreement has been executed to allow the delivery of this water to the Miami operation.

          Sierrita – The Sierrita operation is located in the Santa Cruz River watershed. The water for the operation is groundwater. The wells that supply the water may be subject to the Gila River adjudication only to the extent that such wells are determined to be pumping or impacting appropriable surface water. Phelps Dodge has filed Statements of Claimants in the adjudication for these water sources in case any are later determined to produce or impact appropriable surface water. In 1980, the Arizona legislature enacted the Arizona Groundwater Code. The Code established Active Management Areas (AMA’s) in several groundwater basins, including the Santa Cruz Groundwater Basin. The groundwater at this operation is subject to regulation under the Santa Cruz AMA.

          Bagdad – The Bagdad operation is located in the Bill Williams River watershed. The water supply includes claims both to surface water and groundwater. There is not an active adjudication proceeding in this watershed; however, the legal precedent set in the active adjudications regarding the determination of whether water pumped from wells is treated as surface water or groundwater may impact the use of water from some wells.

     C. Other Arizona Mining Properties

          The potential impact of the ongoing adjudication on other mining properties is discussed below.

          Safford – Water for the planned future operation at Safford may come from a combination of sources. Wells that supply groundwater may be used and those wells will be subject to the adjudication only to the extent that such wells are determined to be pumping or impacting appropriable surface water. CAP water may also be considered for use at the operation some time in the future. CAP water is not subject to adjudication; however, an exchange agreement will need to be negotiated in order to deliver the water. The implementation of such an exchange will require approval of the Globe Equity Court as well as environmental reviews and related agency approvals.

          Ajo – The potential water supply for Ajo is groundwater. The wells that supply the water may be subject to the Gila River adjudication to the extent that such wells are determined to be pumping or impacting appropriable surface water. Phelps Dodge has filed a Statement of Claimant in the adjudication for these water sources in case any are later determined to produce or impact appropriable surface water.

          Bisbee – The potential water supply for Bisbee is groundwater. The wells that supply the water may be subject to the Gila River adjudication to the extent that such wells are determined to be pumping or impacting appropriable surface water. Phelps Dodge has filed a Statement of Claimant in the adjudication for these water sources in case any are later determined to produce or impact appropriable surface water.

     D. Water Settlements

          1. Gila River Indian Community Water Settlement

     On May 4, 1998, Phelps Dodge executed a settlement agreement with the Gila River Indian Community (the Community) that resolves the issues between Phelps Dodge and the Community pertinent to the Gila River adjudication. Since that time, comprehensive settlement negotiations with users all along the Gila River have been initiated. Phelps Dodge’s settlement with the Community is now included in the comprehensive settlement. Federal legislation authorizing the settlement was passed in December 2004. The final enforceability date, however, will not occur until certain provisions in the associated agreements are met. The parties have until December 31, 2007, to meet their obligations for the settlement to become enforceable.

          2. San Carlos Apache Tribe

     In 1997, issues of dispute arose between Phelps Dodge and the San Carlos Apache Tribe (the Tribe) regarding Phelps Dodge’s use and occupancy of the Black River Pump Station, which delivers water to the Morenci operation. In May 1997, Phelps Dodge reached an agreement with the Tribe, and subsequently federal legislation (Pub. L. No. 105-18, 5003, 111 stat. 158, 181-87) was adopted. The legislation prescribes arrangements intended to ensure a future supply of water for the Morenci mining complex in exchange for certain payments by Phelps Dodge. The legislation does not address any potential claims by the Tribe relating to Phelps Dodge’s historical occupancy and operation of Phelps Dodge facilities on the Tribe’s reservation, but does require that any such claims be brought, if at all, exclusively in federal district court. As of this writing, no such claims have been filed.

     The 1997 legislation required that the Company and the Tribe enter a lease for the delivery of CAP water through the Black River Pump Station to Morenci on or before December 31, 1998. In the event a lease was not signed, the legislation expressly provided that the legislation would become the lease. On January 24, 2002, a lease between the San Carlos Apache Tribe, Phelps Dodge and the United States was executed (effective as of January 1, 1999) in accordance with that legislation. On the same date, and in accor-

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dance with the legislation, an Exchange Agreement between the San Carlos Apache Tribe, the United States and the Salt River Project Water User’s Association was executed and subsequently approved by Phelps Dodge. Since that date, CAP water has been delivered to Morenci. Phelps Dodge has not reached a settlement with the Tribe on general water issues and Phelps Dodge water claims within the Gila River adjudication are still subject to litigation with the Tribe and other parties.

     E. Other Related Cases

          The following proceedings involving water rights adjudications are pending in the U.S. District Court of Arizona:

          1. On June 29, 1988, the Gila River Indian Community filed a complaint-in-intervention in United States v. Gila Valley Irrigation District, et al., and Globe Equity No. 59 (D. Ariz.). The underlying action was initiated by the United States in 1925 to determine conflicting claims to water rights in certain portions of the Gila River watershed. Although Phelps Dodge was named and served as a defendant in that action, Phelps Dodge was dismissed without prejudice as a defendant in March 1935. In June 1935, the Court entered a decree setting forth the water rights of numerous parties, but not Phelps Dodge’s. The Court retained, and still has, jurisdiction of the case. The complaint-in-intervention does not name Phelps Dodge as a defendant, however, it does name the Gila Valley Irrigation District as a defendant. Therefore, the complaint-in-intervention could affect the approximately 3,000 acre-feet of water that Phelps Dodge has the right to divert annually from Eagle Creek, Chase Creek or the San Francisco River pursuant to Phelps Dodge’s decreed rights and an agreement between Phelps Dodge and the Gila Valley Irrigation District.

          During 1997 and 1998, Phelps Dodge purchased farmlands with associated water rights that are the subject of this litigation. As a result, Phelps Dodge has been named and served as a party in this case. The lands and associated water rights are not currently used in connection with any Phelps Dodge mining operation.

          Phelps Dodge’s Miami operation’s predecessor in interest (formerly named Cyprus Miami Mining Corporation) was named and served as a defendant in this action in 1989. These proceedings may affect water rights associated with former Cyprus Miami lands in the Gila River watershed.

          2. Prior to January 1, 1983, various Indian tribes filed several suits in the U.S. District Court for the District of Arizona claiming prior and paramount rights to use waters, which at present are being used by many water users, including Phelps Dodge, and claiming damages for prior use in derogation of their allegedly paramount rights. These federal proceedings have been stayed pending state court adjudication.

          3. Cyprus Sierrita Corporation’s predecessor in interest was a defendant in United States, et al. v. City of Tucson, et al., No. CIV 75-39 (D. Ariz.). This is a consolidation of several actions seeking a declaration of the rights of the United States, the Papago Indian Tribe (now known as the Tohono O’odham Nation), and individual allottees of the Tohono O’odham Nation, to surface water and groundwater in the Santa Cruz River watershed; damages from the defendants’ use of surface water and groundwater from the watershed in derogation of those rights; and injunctive relief. Congress in 1982 enacted the Southern Arizona Water Rights Settlement Act, which was intended to resolve the water right claims of the Tohono O’odham Nation and its member allottees relating to the San Xavier Reservation and the Schuk Toak District of the Sells Papago Reservation. The allottees contested the validity of the Act and contended that the Court could not dismiss the litigation without their consent. This prompted additional litigation, and eventually culminated in settlement negotiations. The Court suspended most aspects of the litigation to enable the parties to negotiate a settlement with the allottees. The Court’s recent attention has been devoted to the composition of appropriate classes of allottees and identification of class representatives, so that any settlement that is reached would bind the allottees. It is anticipated that a settlement and authorizing legislation would conclude all litigation on behalf of the Tohono O’odham Nation, its allottee members, and the United States as Trustee for the nation and its allottee members, relating to water rights. Federal legislation has been passed authorizing a settlement. The parties have until December 31, 2007, to finalize the agreements and meet certain obligations for the settlement to become enforceable. The outcome of this dispute could impact water right claims associated with the acquired Cyprus operations at Sierrita, and miscellaneous former Cyprus land holdings in the Santa Cruz River watershed.

III. The Pinal Creek site was listed under the Arizona Department of Environmental Quality’s Water Quality Assurance Revolving Fund program in 1989 for contamination in the shallow alluvial aquifers within the Pinal Creek drainage near Miami, Arizona. Since that time, environmental remediation has been performed by members of the Pinal Creek Group (PCG), comprising Phelps Dodge Miami, Inc. (a wholly owned subsidiary of the Company) and two other companies. In 1998, the District Court approved a Consent Decree between the PCG members and the state of Arizona resolving all matters related to an enforcement action contemplated by the state of Arizona against the PCG members with respect to the groundwater matter. The Consent Decree committed Phelps Dodge Miami, Inc. and the other PCG members to complete the remediation work outlined in the Consent Decree. That work continues at this time pursuant to the Consent Decree and consistent with state law and the National Contingency Plan prepared by EPA under CERCLA.

          Phelps Dodge Miami, Inc. and the other PCG members have been pursuing contribution litigation against three other parties involved with the site. Phelps Dodge Miami, Inc. dismissed its contribution claims against one defendant when another PCG member agreed to be responsible for any share attributable to that defendant. Phelps Dodge Miami, Inc. and the other members of the PCG settled their contribution claims against another defendant in April 2005, which resulted in cancellation of the Phase I trial. While the terms of the settlement are confidential, the proceeds of the settlement will be used to address remediation at the Pinal Creek site. The Phase II trial, which will allocate liability, is scheduled for October 30, 2006, subject to approval by the trial judge.

          Approximately $108 million remained in the Company’s Pinal Creek remediation reserve at December 31, 2005. While significant recoveries may be achieved in the contribution litigation, the Company cannot reasonably estimate the amount and, therefore, has not taken potential recoveries into consideration in the recorded reserve.

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IV. Phelps Dodge Tyrone, Inc. (Tyrone) appealed a decision by the New Mexico Water Quality Control Commission (WQCC) upholding certain conditions imposed by the New Mexico Environment Department in Tyrone’s Supplemental Discharge Permit for Closure, DP-1341. Phelps Dodge Tyrone, Inc. v. New Mexico Water Quality Control Commission, No. 25027. Oral arguments were held on January 19, 2006. In this case, Tyrone objects to permit conditions requiring Tyrone to perform approximately $75 million of additional closure work. Chino Mines Company’s (Chino) Supplemental Discharge Permit for Closure, DP-1340, was appealed by a third party, whose appeal was dismissed by the WQCC on procedural grounds. The WQCC’s decision dismissing the appeal was overturned by the New Mexico Court of Appeals. Gila Resources Information Project v. New Mexico Water Quality Control Commission, No. 24,478. The permit decision has been remanded to the WQCC for further proceedings.

V. Since approximately 1990, Phelps Dodge or its subsidiaries have been named as a defendant in a number of product liability or premises lawsuits brought by electricians and other skilled tradesmen or contractors claiming injury from exposure to asbestos found in limited lines of electrical wire products produced or marketed many years ago, or from asbestos at certain Phelps Dodge properties. Phelps Dodge presently believes its liability, if any, in these matters will not have a material adverse effect, either individually or in the aggregate, upon its business, financial condition, liquidity, results of operations or cash flow. There can be no assurance, however, that future developments will not alter this conclusion.

VI. The Company and Columbian Chemicals Company, together with several other companies, were named as defendants in an action entitled Technical Industries, Inc. v. Cabot Corporation, et al., No. CIV 03-10191 WGY, filed on January 30, 2003, in the U.S. District Court in Boston, Massachusetts, and 14 other actions filed in four U.S. district courts, on behalf of a purported class of all individuals or entities who purchased carbon black directly from the defendants since January 1999. The Judicial Panel on Multidistrict Litigation consolidated all of these actions in the U.S. District Court for the District of Massachusetts under the caption In Re Carbon Black Antitrust Litigation. The consolidated amended complaint filed in these actions does not name the Company as a defendant. The consolidated amended complaint, which alleges that the defendants fixed the prices of carbon black and engaged in other unlawful activities in violation of the U.S. antitrust laws, seeks treble damages in an unspecified amount and attorneys’ fees. The court certified a class that includes all direct purchasers of carbon black in the United States from January 30, 1999 through January 18, 2005. Discovery is ongoing.

          A separate action entitled Carlisle Companies Incorporated, et al. v. Cabot Corporation, et al., was filed against Columbian and other defendants on behalf of a group of affiliated companies that opted out of the federal class action. This action, which asserts similar claims as the class action, was filed in the Northern District of New York on July 28, 2005, but was transferred to the District of Massachusetts, where the class action is pending, and has been consolidated with the class action for pretrial purposes.

          Actions are pending in state courts in California, Florida, Kansas, South Dakota and Tennessee on behalf of purported classes of indirect purchasers of carbon black in those and six other states, alleging violations of state antitrust and deceptive trade practices laws. Motions to dismiss are pending in the Florida, Kansas and South Dakota actions. A motion for class certification has been filed in the Tennessee action. Similar actions filed in state courts in New Jersey and North Carolina, and additional actions in Florida and Tennessee, have been dismissed. Columbian also has received a demand for relief on behalf of indirect purchasers in Massachusetts, but no lawsuit has been filed.

          The Company believes the claims are without merit and intends to defend the lawsuits vigorously.

VII. In October 2005, the Company’s wholly owned subsidiary, Western Nuclear, Inc., and two other companies, Kerr McGee Chemical Worldwide, L.L.C. and Fremont Lumber Company (collectively, the PRPs) executed a Consent Decree with the United States resolving claims among the parties, including certain government agencies, for liability associated with the White King/Lucky Lass Uranium Mines site near Lakeview, Oregon (Site). The Consent Decree was entered by the United States District Court, District of Oregon on January 20, 2006, and requires the PRPs to perform remedial design (RD) and remedial action (RA) at the Site, to collectively pay a penalty for alleged failure to comply with a unilateral administrative order (UAO) issued by EPA and to perform a supplemental environmental project at the Site. In exchange, the Government agreed to contribute to the cost associated with the RD and RA at the Site, and further agreed to provide the PRPs with a covenant not to sue and contribution protection. The PRPs have also resolved liability claims among each other.

Item 4. Submission of Matters to a Vote of Security Holders

     No matters were submitted during the fourth quarter of 2005 to a vote of security holders through solicitation of proxies or otherwise.

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Executive Officers of Phelps Dodge Corporation

     The executive officers of Phelps Dodge Corporation are elected to serve at the pleasure of its board of directors. As of February 27, 2006, the executive officers of Phelps Dodge Corporation were as follows:

				Officer of the
	Age at			Corporation
Name	2/27/06		Position	Since
J. Steven Whisler		51	Chairman of the Board		1987
			and Chief Executive Officer
Timothy R. Snider		55	President and Chief Operating		1997
			Officer
Ramiro G. Peru		50	Executive Vice President		1995
			and Chief Financial Officer
David C. Naccarati		53	President, Phelps Dodge
			Mining Company
Arthur R. Miele		64	Senior Vice President-Marketing;		1987
			President, Phelps Dodge
			Sales Company
Kalidas V. Madhavpeddi		50	Senior Vice President-Asia;		1999
			President, Phelps Dodge
			Wire and Cable Group
S. David Colton		50	Senior Vice President and		1998
			General Counsel
Nancy Mailhot		42	Vice President-		2004
			Human Resources

     Mr. Whisler was elected Chairman of the Company in May 2000, and has been Chief Executive Officer since January 2000. He was President from December 1997 to October 2003 and was also Chief Operating Officer from December 1997 until January 2000. He was President of Phelps Dodge Mining Company, a division of the Company, from 1991 to October 1998.

     Mr. Snider was elected President and Chief Operating Officer in November 2003. Prior to that time, Mr. Snider was Senior Vice President of the Company, a position he held since 1998.

     Mr. Peru was elected Executive Vice President in October 2004. He was elected Senior Vice President and Chief Financial Officer in January 1999. Prior to that time, Mr. Peru was Senior Vice President for Organization Development and Information Technology, a position he held since January 1997. Prior to that, Mr. Peru was Vice President and Treasurer of the Company, a position he held since 1995.

     Mr. Naccarati was appointed to the Company’s Senior Management Team, as well as elected President, Phelps Dodge Mining Company, in October 2004. He was elected Vice President, North American Mining, Phelps Dodge Mining Company, in October 2003. Prior to that time, Mr. Naccarati was President, Phelps Dodge Morenci, Inc., a position he held since 2001. Prior to that time, he was President, PD Candelaria, Inc., a position he held since 1999. Prior to that, he was President, Phelps Dodge Tyrone, Inc., a position he held since 1997.

     Mr. Miele was elected Senior Vice President-Marketing in June 2000. Prior to that time, he served as Vice President-Marketing since 1987. Mr. Miele is also President, Phelps Dodge Sales Company, a position he has held since October 1987.

     Mr. Madhavpeddi was elected Senior Vice President-Asia in October 2004. He was elected President, Phelps Dodge Wire and Cable Group in May 2002 and Senior Vice President, Business Development in November 2000. Prior to that time, Mr. Madhavpeddi was elected Vice President, Business Development in November 1999.

     Mr. Colton was elected Senior Vice President in November 1999. He was elected Vice President and General Counsel in April 1998. Prior to that time, Mr. Colton was Vice President and Counsel for Phelps Dodge Exploration, a position he held since 1995.

     Ms. Mailhot was elected Vice President-Human Resources and appointed to the Company’s Senior Management Team in October 2005. She previously served as Vice President-Global Supply Chain Management since October 2004. Ms. Mailhot joined the Company in March 2001 as Vice President-Global Supply Chain Management for Phelps Dodge Mining Company. Prior to joining the Company, Ms. Mailhot served in various positions with Owens Corning.

41

PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

     The information called for in paragraphs (a) and (b) of Item 5 appears on pages 93 and 94 and page 123 of this report.

(c) Issuer Purchases of Equity Securities

The following table sets forth information with respect to shares of common stock of the Company purchased by the Company during the three months ended December 31, 2005:

					(c) Total Number of		(d) Maximum Number (or
					Shares (or Units)		Approximate Dollar Value)
	(a) Total Number		(b) Average Price		Purchased as Part of		of Shares (or Units) That May
	of Shares (or Units)		Paid Per		Publicly Announced		Yet Be Purchased Under
Period	Purchased*		Share (or Unit)		Plans or Programs		the Plans or Programs
––––––––––––––––––––––––––––	–––––––––––––––––		––––––––––––––		–––––––––––––––––		––––––––––––––––––––––––
October 1-31, 2005		851	$	128.59		—		—
November 1-30, 2005		594		120.94		—		—
December 1-31, 2005		489		140.00		—		—
Total		1,934		129.12		—		—

* This category includes shares repurchased under the Company’s applicable stock option and restricted stock plans (Plans) and its non-qualified supplemental savings plan (SSP). Through the Plans, the Company repurchases shares to satisfy tax obligations on restricted stock awards, and in the SSP, the Company repurchases shares as a result of changes in investment elections by plan participants.

42

Item 6. Selected Financial Data

     The following financial and operating data should be read in conjunction with the information set forth in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes thereto appearing in this Annual Report.

($ in millions except per share and per pound amounts)

	Year Ended December 31,*
	2005 (a)			2004 (b)			2003 (c)			2002 (d)			2001 (e)
Statement of Operations Data
Sales and other operating revenues	$	8,287.1			6,415.2			3,498.5			3,173.2			3,420.4
Operating income (loss)		1,764.9			1,474.9			142.8			(257.4	)		(90.6	)
Income (loss) from continuing operations before cumulative effect of accounting changes		1,583.9			1,023.6			(21.1	)		(356.5	)		(377.7	)
Income (loss) from discontinued operations, net of taxes**		(17.4	)		22.7			39.2			41.3			48.2
Income (loss) before cumulative effect of accounting changes		1,566.5			1,046.3			18.1			(315.2	)		(329.5	)
Net income (loss)		1,556.4			1,046.3			94.8			(338.1	)		(331.5	)
Basic earnings (loss) per common share from continuing operations***		16.12			10.82			(0.39	)		(4.35	)		(4.81	)
Diluted earnings (loss) per common share from continuing operations***		15.64			10.35			(0.39	)		(4.35	)		(4.81	)
Basic earnings (loss) per common share from discontinued operations, extraordinary item and cumulative effect of accounting changes***		(0.28	)		0.24			1.31			0.22			0.59
Diluted earnings (loss) per common share from discontinued operations, extraordinary item and cumulative effect of accounting changes***		(0.27	)		0.23			1.31			0.22			0.59
Basic earnings (loss) per common share***		15.84			11.06			0.92			(4.13	)		(4.22	)
Diluted earnings (loss) per common share***		15.37			10.58			0.92			(4.13	)		(4.22	)
Balance Sheet Data (at period end)
Current assets	$	4,070.7			2,661.7			1,790.0			1,428.2			1,531.2
Total assets		10,358.0			8,594.1			7,272.9			7,029.0			7,584.3
Total debt		694.5			1,096.9			1,959.0			2,110.6			2,871.6
Long-term debt		677.7			972.2			1,703.9			1,948.4			2,538.3
Shareholders’ equity		5,601.6			4,343.1			3,063.8			2,813.6			2,730.1
Cash dividends declared per common share		6.25			0.50			—			—			0.75
Other Data
Net cash provided by operating activities	$	1,769.7			1,700.1			461.6			359.1			310.7
Capital expenditures and investments		698.2			317.3			102.4			133.2			311.0
Net cash (used in) investing activities		(368.0	)		(291.0	)		(87.7	)		(140.3	)		(266.8	)
Net cash provided by (used in) financing activities		(685.8	)		(947.2	)		(48.8	)		(244.8	)		101.0
Division Results
Phelps Dodge Mining Company operating income (loss)	$	1,929.9			1,606.7			265.2			(65.0	)		(83.6	)
Phelps Dodge Industries operating income		14.6			18.8			13.7			(17.5	)		12.2
Corporate and other operating loss		(179.6	)		(150.6	)		(136.1	)		(174.9	)		(19.2	)
	$	1,764.9			1,474.9			142.8			(257.4	)		(90.6	)
Copper
Copper production — thousand short tons (h)		1,228.0			1,260.6			1,042.5			1,012.1			1,145.2
Copper sales from own mines — thousand short tons (h)		1,238.4			1,268.9			1,052.6			1,034.5			1,156.0
COMEX copper price (per pound) (f)	$	1.68			1.29			0.81			0.72			0.73
LME copper price (per pound) (g)	$	1.67			1.30			0.81			0.71			0.72
Commercially recoverable copper (million tons)
Ore reserves (h)		17.7			23.2			19.5			19.6			22.1
Stockpiles and in-process inventories (h)		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; 2003-2001 reflected El Abra and Candelaria 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.
**	Refer to Note 3, Discontinued Operations and Assets Held for Sale, to our Consolidated Financial Statements contained herein for further discussion.
***	Basic and diluted earnings per common share do not reflect the stock split, which was approved by the board of directors on February 1, 2006. Refer to Note 24, Stock Split, for further discussion.

43

     All references to per share earnings or loss are based on diluted earnings (loss) per share.

(a)	Reported amounts 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.
(b)	Reported amounts 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 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.
(c)	Reported amounts 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.
(d)	Reported amounts 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.
(e)	Reported amounts 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.
(f)	New York Commodity Exchange annual average spot price per pound — cathodes.
(g)	London Metal Exchange annual average spot price per pound — cathodes.
(h)	2005 and 2004 reflected production, sales and commercially recoverable copper on a consolidated basis; 2003-2001 reflected that information on a pro rata basis. The decrease in ore reserves at December 31, 2005, was primarily due to the reduction of the Company’s interest in Cerro Verde to 53.6 percent from 82.5 percent, new pit designs at Bagdad, Cerro Verde, Chino, Cobre, Tyrone and Candelaria, as well as 2005 production.

44

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information called for in Item 7 appears on pages 45 through 95 of this report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The information called for in Item 7A appears on pages 33 through 36, 45 through 47 and 81 through 87 of this report.

Item 8. Financial Statements and Supplementary Data

The information called for in Item 8 appears on pages 98 through 145 of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

     Disclosure Controls and Procedures

     The Company maintains a system of disclosure controls and procedures that is designed to ensure information required to be disclosed by the Company is accumulated and communicated to management, including our chief executive officer and chief financial officer, in a timely manner.

     An evaluation of the effectiveness of this system of disclosure controls and procedures was performed under the supervision and with the participation of the Company’s management, including the Company’s chief executive officer and chief financial officer, as of the end of the period covered by this report. Based upon this evaluation, the Company’s management, including the Company’s chief executive officer and chief financial officer, concluded that the current system of controls and procedures is effective.

     Management’s Annual Report on Internal Control over Financial Reporting and Report of Independent Registered Public Accounting Firm

     The reports required to be furnished pursuant to this item appear on pages 96 and 97, respectively.

     Changes in Internal Control over Financial Reporting

     The Company’s management, including the Company’s chief executive officer and chief financial officer, has evaluated the Company’s internal control over financial reporting to determine whether any changes occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, there has been no such change in the Company’s internal control over financial reporting that occurred during the year ended December 31, 2005.

Item 9B. Other Information

None.

45

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following provides information that management believes is relevant to an assessment and understanding of the consolidated results of operations and financial condition of Phelps Dodge Corporation (the Company, which also may be referred to as Phelps Dodge, PD, we, us or our). It should be read in conjunction with the Consolidated Financial Statements and accompanying Notes. Our business consists of two major divisions, Phelps Dodge Mining Company (PDMC) and Phelps Dodge Industries (PDI).

     The U.S. securities laws provide a “safe harbor” for certain forward-looking statements. This annual report contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected in such forward-looking statements. Statements regarding the expected commencement dates of operations, projected quantities of commercially recoverable copper and molybdenum from ore reserves and stockpiles, projected quantities of future production, capital costs, production rates, cash flow and other operating and financial data are based on expectations that the Company believes are reasonable, but we can give no assurance that such expectations will prove to have been correct.

     Factors that could cause actual results to differ materially include, among others: risks and uncertainties relating to general U.S. and international economic and political conditions; the cyclical and volatile price of copper, molybdenum and other commodities; volatility in our financial performance caused by our copper price protection programs; volatility in energy prices, including the price of electricity, diesel fuel and natural gas; pressure on our copper production costs; the cost of environmental and regulatory compliance; the cost of mine closure regulations, including the ability to obtain surety bonds or other financial assurance for reclamation obligations; uncertainty relating to levels of ore reserves and mill and leach stockpiles; the ability to replenish our copper and molybdenum ore reserves; political and economic risks associated with foreign operations; and operational risks, including: unanticipated ground and water conditions and adverse claims to water rights; geological problems; metallurgical and other processing problems; the occurrence of unusual weather or operating conditions and other force majeure events; lower than expected ore grades and recovery rates; accidents; delays in the receipt of or failure to receive necessary government permits; the results of appeals of agency decisions or other litigation; uncertainty of exploration and development; delays in transportation; labor disputes; inability to obtain satisfactory insurance coverage; unavailability of materials and equipment; the failure of equipment or processes to operate in accordance with specifications or expectations; unanticipated difficulties consolidating acquired operations and obtaining expected synergies; and the results of financing efforts and financial market conditions.

     These and other risk factors are discussed in more detail under Risk Factors on pages 33 through 36 and elsewhere herein. Many such factors are beyond our ability to control or predict. Readers are cautioned not to put undue reliance on forward-looking statements. We disclaim any intent or obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise.

Overview of Phelps Dodge Corporation’s Businesses and Management’s Assessment of Key Factors and Indicators that Could Impact Our Business, Operating Results and Cash Flows

     Phelps Dodge is one of the world’s leading producers of copper and molybdenum, and is the world’s largest producer of molybdenum-based chemicals and continuous-cast copper rod. PDMC is an international business division comprising our vertically integrated copper operations from mining through rod production, marketing and sales; molybdenum operations from mining through conversion to chemical and metallurgical products, marketing and sales; other mining operations and investments; and worldwide mineral exploration, technology and project development programs. Our copper mines include Morenci, Bagdad, Sierrita, Miami, Chino, Cobre, Tyrone and Tohono in the United States and Candelaria, Cerro Verde, El Abra and Ojos del Salado in South America. The Primary Molybdenum segment includes our Henderson and Climax molybdenum mines in the United States.

     PDI, our manufacturing division, consists of our Wire and Cable segment which produces engineered products principally for the global energy sector. Its operations are characterized by products with significant market share, internationally competitive costs and quality, and specialized engineering capabilities. Wire and Cable consists of three worldwide product-line businesses comprising magnet wire, energy cables and specialty conductors.

     On November 15, 2005, the Company entered into an agreement to sell Columbian Chemicals Company (Columbian Chemicals or Columbian), previously disclosed as our Specialty Chemicals segment, to a company owned jointly by One Equity Partners, a private equity affiliate of JPMorgan Chase & Co., and South Korean-based DC Chemical Co. Ltd. This transaction is expected to be completed in the 2006 first quarter. As a result of this proposed transaction, the operating results of Columbian, which were previously reported as a segment of PDI, are now reported separately from continuing operations and shown as discontinued operations in the Consolidated Statement of Income. In addition, on November 15, 2005, the Company entered into an agreement to sell substantially all of its North American magnet wire assets to Rea Magnet Wire Company, Inc. This transaction was completed on February 10, 2006. (Refer to Note 3, Discontinued Operations and Assets Held for Sale, for further discussion of these transactions.)

     The Company is continuing to explore strategic alternatives for Phelps Dodge High Performance Conductors, a unit of Wire and Cable.

     From an overall Phelps Dodge perspective, the most significant risks associated with our businesses, or factors that could impact our businesses, operating results and cash flows, have been described under Risk Factors on pages 33 through 36, which we hereby incorporate into this Management’s Discussion and Analysis of Financial Condition and Results of Operations by reference. Below, we describe how certain risks, including the volatility of copper and

46

molybdenum prices, increased energy costs, our cost structure, environmental and regulatory compliance, and mine closure regulations, affected our operations and financial results during 2005 and impact our short-term outlook. Additionally, our ability to replenish our copper and molybdenum ore reserves, which are depleted as we mine, is important to our long-term viability.

     Markets. Copper is a fundamental material used in residential and commercial construction, electrical and electronics equipment, transportation, industrial machinery and consumer durable goods. Copper is an internationally traded commodity and the copper market is volatile and cyclical. During the past 15 years, the New York Commodity Exchange (COMEX) prices per pound have ranged from a high of $2.28 to a low of 60 cents. Any material change in the price we receive for copper has a significant effect on our results.

     After a protracted downturn in demand and correspondingly lower prices that began in the early part of 2000, the market dynamics for copper began improving at the end of 2003 and have continued through 2005.

     In 2003, China overtook the United States as the largest consumer of refined copper in the world and during 2005 retained this position. In 2005, global copper production was constrained by numerous production disruptions at mines and smelters throughout the world. Production was affected by many factors including strikes, earthquakes, equipment failures and various other interruptions. This reduced supply more than offset lower consumption growth of 1 to 2 percent during the year. As a result, reported world exchange inventories remained at very low levels throughout 2005, declining from approximately 125,000 metric tons at the end of 2004 to approximately 72,000 metric tons in mid-2005, and increasing to approximately 156,000 metric tons at the end of 2005. For 2005, the copper market continued to be in a deficit of approximately 200,000 metric tons. These market fundamentals, combined with large speculative positions, a weakening U.S. dollar and low U.S. interest rates, resulted in COMEX prices averaging $1.68 per pound in 2005, almost 40 cents above the average for 2004. COMEX copper prices increased to $2.28 per pound at the end of 2005.

     Even if global copper production problems do not recur and the copper market returns to a modest surplus, Phelps Dodge expects that continued strong demand for copper, led by China, the expected improvements in consumption in the United States and Europe and the current low inventory levels will continue to support copper prices in 2006.

     Molybdenum is characterized by volatile, cyclical prices, even more so than copper. During the past 15 years, Metals Week Dealer Oxide prices per pound have ranged from a high of $40.00 to a low of $1.82. Molybdenum experienced a significant price improvement during 2005, far outpacing those recorded in the previous two years. The Metals Week Dealer Oxide mean price increased 93 percent from the 2004 mean price of $16.41 per pound to $31.73 per pound in 2005. Global production increased approximately 6 percent in 2005. We estimate that demand increased approximately 3 percent in 2005. In 2006, supply from China is expected to increase; however, it remains difficult to estimate. Molybdenum oxide supply is expected to increase as western roasting capacity restraints are moderated. The stainless steel, specialty steel and specialty chemical sectors are expected to continue to grow, led by capital spending increases and growth in China.

     Wire and cable products serve a variety of markets, including energy, construction, consumer and industrial products, aerospace, medical devices, transportation and natural resources. Products include magnet wire, energy cables and specialty conductors. These products advance technology and support infrastructure development in growing regions of the world.

     During 2005, wire and cable sales experienced an increase in sales and profitability resulting from increased demand in the international markets. For 2006, wire and cable products are expected to continue to experience an increase in sales and profitability as the U.S., Asian and Latin American economies continue to grow.

     Energy Costs. Energy, including electricity, diesel fuel and natural gas, represents a significant portion of the production costs for our operations. During 2005, energy costs increased significantly, affecting our profitability. In 2005, energy accounted for 19.5 cents of our per pound copper production cost, compared with 14.6 cents in 2004 and 13.5 cents in 2003.

     To moderate or offset the impact of increasing energy costs, we use a combination of multi-year energy contracts that we put in place at favorable points in the price cycle as well as self-generation and natural gas hedging. Additionally, we enter into price protection programs for our diesel fuel and natural gas purchases to protect against significant short-term upward movements in energy prices while maintaining the flexibility to participate in any favorable price movements. However, increasing energy costs have affected our profitability. For example, as our diesel fuel and natural gas price protection programs were extended at gradually increasing prices, our energy costs increased to 19.5 cents per pound of copper production. In 2006, we may continue to experience higher energy costs if the current energy commodity prices remain at the levels experienced in 2005.

     We continue to explore alternatives to moderate or offset the impact to increasing energy costs. To address volatility associated with a shortfall of power generation capacity experienced during the 2000 energy crisis in the western United States, in late 2004 we purchased a one-third interest in a partially constructed power plant in New Mexico owned by Duke Energy Luna, LLC (Luna). The plant is expected to be operating by the 2006 second quarter. One-third of its electricity (approximately 190 megawatts) is expected to be consumed by PDMC operations in New Mexico and Arizona. This investment in an efficient, low-cost plant is expected to continue to stabilize our southwest U.S. operations’ energy costs, and increase the reliability of our energy supply.

     Cost Structure. We continue to experience increases in our worldwide copper production costs. One factor affecting our increase in average cost of copper production is our decision, in response to strong demand for copper, to return to production certain higher cost properties. Our costs are also affected by the prices of commodities and equipment we consume or use in our operations. In addition, our cost structure for copper production is generally higher than that of some major producers, whose principal mines are located outside the United States. This is due to lower ore grades, higher labor costs (including pension and health-care costs) and, in some cases, stricter

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regulatory requirements. Our competitive cost position receives much attention from senior management and we continue to drive cost savings through common site processes and sharing best practices, as well as developing improvements in technologies.

Environmental and Mine Closure Regulatory Compliance. Our global operations are subject to stringent various federal, state and local laws and regulations related to improving or maintaining environmental quality. Environmental laws often require parties to pay for remedial action or to pay damages regardless of fault and may also often impose liability with respect to divested or terminated operations, even if the operations were terminated or divested many years ago. The amended federal Bureau of Land Management (BLM) regulations governing mined-land reclamation for mining on federal lands will likely increase our regulatory obligations and compliance costs over time with respect to mine closure reclamation. We are also subject to state and international laws and regulations that establish requirements for mined-land reclamation and financial assurance. During 2005, we accelerated certain reclamation and remediation activities on a voluntary basis. In addition, during 2005, the Company’s board of directors approved establishing a trust dedicated to help fund our global environmental reclamation and remediation activities. The Company made an initial cash contribution of $100 million to the trust on December 22, 2005, and expects to contribute an additional $300 million in the 2006 first quarter. The Company also has trust assets that are legally restricted to fund a portion of its AROs for Chino, Tyrone and Cobre as required for New Mexico financial assurance. At December 31, 2005 and 2004, the fair value of the trust assets was approximately $191 million and $85 million, respectively, of which approximately $91 million and $85 million, respectively, were legally restricted.

Ore Reserves. We use several strategies to replenish and grow our copper and molybdenum ore reserves. Our first consideration is to invest in mining and exploration properties near our existing operations. These additions allow us to develop adjacent properties with relatively small, incremental investments in operations. On September 16, 2005, the federal BLM completed a land exchange with the Company for property in Safford, Arizona, and on February 1, 2006, the Company’s board of directors conditionally approved, subject to obtaining several key state permits, development of a new copper mine on the property. Various resources from our nearby operations and additional local resources will be used to develop the facility. (Refer to PDMC — Other Matters on pages 70 and 71 for further discussion.)

     Technology innovations not only improve productivity, but also may increase our ore reserves. Developing and applying new technologies, such as our success with solution extraction/electrowinning beginning in the early 1980s, creates the ability to process ore types we previously considered uneconomic. During 2005, the Company successfully tested proprietary technology that more cost-effectively processes chalcopyrite concentrates, which we are planning to use at our expanded Morenci facility. Other technologies are currently being developed and tested for additional ore types.

     Our exploration strategy focuses on identifying new mining opportunities in Latin America, Asia, Australia, Central Africa and other regions. In several cases, we pursue these opportunities with joint-venture partners. By working with others, we maximize the potential benefits of our exploration expenditures and spread costs and risks among several parties. For example during 2005, we exercised our option to acquire a 57.75 percent controlling interest in the Tenke Fungurume copper/cobalt mining concessions in the Democratic Republic of the Congo. (Refer to PDMC — Other Matters on pages 70 and 71 for further discussion.)

     Acquisitions also may contribute to increased ore reserves. If acquisition opportunities present themselves, we consider them, but we pursue them only if they pass our rigorous screenings for adding economic value to the Company.

Critical Accounting Policies and Estimates

     Phelps Dodge’s discussion and analysis of its financial condition and results of operations are based upon its Consolidated Financial Statements, which have been prepared in accordance with generally accepted accounting principles in the United States (GAAP). The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves that are the basis for future cash flow estimates and units-of-production depreciation and amortization calculations; environmental and asset retirement obligations; estimates of recoverable copper in mill and leach stockpiles; asset impairments (including estimates of future cash flows); pension, postemployment, postretirement and other employee benefit liabilities; bad debt reserves, realization of deferred tax assets; reserves for contingencies and litigation; and fair value of financial instruments. Phelps Dodge bases its estimates on the Company’s historical experience and its expectations of the future and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

     Phelps Dodge believes the following significant assumptions and estimates affect its more critical practices and accounting policies used in the preparation of its Consolidated Financial Statements.

Ore Reserves. Phelps Dodge, at least annually, estimates its ore reserves at active properties and properties on care-and-maintenance status. There are a number of uncertainties inherent in estimating quantities of ore reserves, including many factors beyond the control of the Company. Ore reserve estimates are based upon engineering evaluations of assay values derived from samplings of drill holes and other openings. Additionally, declines in the market price of a particular metal may render certain reserves containing relatively lower grades of mineralization uneconomic to mine. Further, availability of operating and environmental permits, changes in operating and capital costs, and other factors could materially and adversely affect our ore reserve estimates. Phelps Dodge uses its ore reserve estimates in determining the unit basis for units-of-production depreciation and amortization rates, as well as in evaluating mine asset impairments. Changes in ore reserve estimates could significantly affect these items. For example, a 10 percent increase in ore reserves at each mine would decrease total

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depreciation expense by approximately $24 million in 2006; a 10 percent decrease would increase total depreciation expense by approximately $27 million in 2006.

     Phelps Dodge’s reported ore reserves are economic at the most recent three-year historical average COMEX copper price of $1.26 per pound, and the most recent three-year historical average molybdenum price of $17.82 per pound (Metals Week Dealer Oxide mean price).

Asset Impairments. Phelps Dodge evaluates its long-term assets (to be held and used) for impairment when events or changes in economic circumstances indicate the carrying amount of such assets may not be recoverable. Goodwill, investments and long-term receivables, and our identifiable intangible assets are evaluated at least annually for impairment. PDMC’s evaluations are based on business plans that are developed using a time horizon that is reflective of the historical, moving average for the full price cycle. We currently use a long-term average COMEX price of 95 cents per pound of copper and an average molybdenum price of $5.00 per pound (Metals Week Dealer Oxide mean price), along with near-term price forecasts reflective of the current price environment, for our impairment tests. It should be noted that a long-term copper price of 90 cents per pound was used to develop mine plans and production schedules. PDI’s business plans are based on the remaining asset life of the asset group and PDI bases its economic projections on market supply and demand forecasts. We use an estimate of the future undiscounted net cash flows of the related asset or asset grouping over the remaining life to measure whether the assets are recoverable and measure any impairment by reference to fair value. Fair value is generally estimated using the Company’s expectation of discounted net cash flows.

     The per pound COMEX copper price during the past 10 years, 15 years and 20 years averaged 96 cents, $1.00 and $1.00, respectively. The molybdenum per pound Metals Week Dealer Oxide mean price over the same periods averaged $7.63, $6.39 and $5.57, respectively. Should estimates of future copper and molybdenum prices decrease, impairments may result.

Recoverable Copper. Phelps Dodge capitalizes applicable costs for copper contained in mill and leach stockpiles that are expected to be processed in the future. The mill and leach stockpiles are evaluated periodically to ensure that they are stated at the lower of cost or market. Because the determination of copper contained in mill and leach stockpiles by physical count is impractical, we employ reasonable estimation methods.

     The quantity of material delivered to mill stockpiles is based on surveyed volumes of mined material and daily production records. Sampling and assaying of blast-hole cuttings determine the estimated amount of copper contained in the material delivered to the mill stockpiles. Expected copper recovery rates are determined by metallurgical testing. The recoverable copper in mill stockpiles can be extracted into copper concentrate almost immediately upon processing. Estimates of copper contained in mill stockpiles are reduced as material is removed and fed to the mill. At December 31, 2005, the estimated amount of recoverable copper contained in mill stockpiles was 0.4 million tons on a consolidated basis (0.3 million tons on a pro rata basis) with a carrying value of $54.9 million. At December 31, 2004, the estimated amount of recoverable copper contained in mill stockpiles was 0.4 million tons on a consolidated basis (0.3 million tons on a pro rata basis) with a carrying value of $56.5 million.

     The quantity of material in leach stockpiles is based on surveyed volumes of mined material and daily production records. Sampling and assaying of blast-hole cuttings determine the estimated amount of copper contained in material delivered to the leach stockpiles. Expected copper recovery rates are determined using small-scale laboratory tests, small- and large-scale column testing (which simulates the production-scale process), historical trends and other factors, including mineralogy of the ore and rock type. Estimated amounts of copper contained in the leach stockpiles are reduced as stockpiles are leached, the leach solution is fed to the electrowinning process, and copper cathodes are produced. Ultimate recovery of copper contained in leach stockpiles can vary significantly depending on several variables, including type of processing, mineralogy and particle size of the rock. Although as much as 70 percent of the copper ultimately recoverable may be extracted during the first year of processing, recovery of the remaining copper may take many years. At December 31, 2005, the estimated amount of recoverable copper contained in leach stockpiles was 1.3 million tons on a consolidated basis (1.2 million tons on a pro rata basis) with a carrying value of $115.0 million. At December 31, 2004, the estimated amount of recoverable copper contained in leach stockpiles was 1.4 million tons on a consolidated basis (1.3 million tons on a pro rata basis) with a carrying value of $100.7 million.

Deferred Taxes. In preparing our Consolidated Financial Statements, we recognize income taxes in each of the jurisdictions in which we operate. For each jurisdiction, we estimate the actual amount of taxes currently payable or receivable as well as deferred tax assets and liabilities attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

     With the exception of amounts provided for undistributed earnings of Candelaria and El Abra, deferred income taxes have not been provided on our share (approximately $280 million) of undistributed earnings of foreign manufacturing and mining subsidiaries over which we have sufficient influence to control the distribution of such earnings and have determined that such earnings have been reinvested indefinitely.

     The recent enactment of the American Jobs Creation Act of 2004 (Act) caused us to re-evaluate our current policy with respect to the repatriation of foreign earnings. The Act allows U.S. corporations to elect to deduct 85 percent of certain cash dividends received from qualifying foreign subsidiaries during a one-year period (2005 for PD), but also results in the loss of any foreign tax credits associated with these earnings. During the 2005 fourth quarter, we completed our evaluation of the repatriation provision and concluded that no election would be made. Our analysis determined that the 85 percent deduction did not result in a tax savings for Phelps Dodge as the U.S.

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tax liability associated with a repatriation of qualifying foreign earnings would be offset by available foreign tax credits.

     A valuation allowance is provided for those deferred tax assets for which it is more likely than not that the related benefits will not be realized. In determining the amount of the valuation allowance, we consider estimated future taxable income as well as feasible tax planning strategies in each jurisdiction. If we determine that we will not realize all or a portion of our deferred tax assets, we will increase our valuation allowance with a charge to income tax expense. Conversely, if we determine that we will ultimately be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced with a credit to income tax expense.

     At December 31, 2005, our valuation allowances totaled $363.5 million and covered a portion of our minimum tax credits, a portion of our stock basis differences, a portion of our state net operating loss carryforwards, all of our Peruvian net operating loss carryforwards and all of our U.S. capital loss carryforwards. At December 31, 2004, our valuation allowances totaled $282.8 million and primarily covered a portion of our minimum tax credits, a portion of our state net operating loss carryforwards and the deferred tax assets of our Brazilian wire and cable manufacturing operation.

     During 2005, our valuation allowances increased by $80.7 million primarily due to the impact of the U.S. corporate alternative minimum tax and limitations on the utilization of net operating and capital loss carryforwards. The increase comprised valuation allowances attributable to minimum tax credits ($61.2 million), a portion of our stock basis differences ($15.6 million), U.S. capital loss carryforwards ($8.0 million) and Peruvian net operating loss carryforwards ($14.2 million); partially offset by decreases associated with U.S. state net operating loss carryforwards ($9.3 million) and Brazilian net operating loss carryforwards ($9.0 million).

Pension, Postemployment, Postretirement and Other Employee Benefit Liabilities. Phelps Dodge has trusteed, non-contributory pension plans covering substantially all its U.S. employees and some employees of international subsidiaries. The applicable plan design determines the manner in which the benefits are calculated for any particular group of employees.

     Under current financial accounting standards, the discount rate used to calculate the actuarial present value of our accumulated pension and other postretirement benefit obligations must be set each year based on current yields available on high-quality corporate bonds. The discount rates for pension, retiree medical, and retiree life were 5.63, 5.37, and 5.41 percent respectively at year end 2005. The discount rates for pension, retiree medical, and retiree life were 5.75, 5.75, and 6.00 percent respectively at year end 2004 and 6.25, 6.25, and 6.25 percent respectively at year end 2003. The discount rate assumption is designed to reflect yields on high-quality, fixed-income investments for a given duration. For our U.S. plans, we utilized a nationally recognized, third-party actuary to assist in the determination of the discount rate based on expected future benefit payments for service to date together with the Citibank Pension Discount Curve. This approach generated a discount rate of approximately 5.63 percent for our U.S. pension plans. Changes in this assumption are reflected in our benefit obligation and, therefore, in the liabilities and income or expense we record. Changes in the discount rate affect several components of pension expense/income, one of which is the amount of the cumulative gain or loss that will be recognized. Because gains or losses are only recognized when they fall outside of a calculated corridor, the effect of changes in the discount rate on pension expense may not be linear. For example, the first four 25-basis-point increases in our assumed discount rate assumption as of the beginning of 2006 would decrease our pension expense by approximately $4 million per year during the next three years. Each of the next four 25-basis-point increases would decrease our pension expense by less than $1 million per year over the next three years. Each 25-basis-point decrease in our assumed discount rate assumption would increase our pension expense by approximately $4 million per year during the next three years. The change would not affect the minimum required contribution.

     Our pension plans were valued between December 1, 2003, and January 1, 2004, and between December 1, 2004, and January 1, 2005. Obligations were projected and assets were valued as of the end of 2004 and 2005. The majority of plan assets are invested in a diversified portfolio of stocks, bonds, and cash or cash equivalents. A small portion of the plan assets is invested in pooled real estate and other private investment funds.

     The Phelps Dodge Corporation Defined Benefit Master Trust (Master Trust), which holds plan assets for the Phelps Dodge Retirement Plan and U.S. pension plans for bargained employees, constituted 96 percent of total plan assets as of year-end 2005. These plans accounted for approximately 90 percent of benefit obligations. The investment portfolio for this trust as of year-end 2005 had an asset mix that included 58 percent equities (41 percent U.S. equities, 10 percent international equities and 7 percent emerging market equities), 34 percent fixed income (19 percent U.S. fixed income, 5 percent international fixed income, 3 percent emerging market fixed income, 4 percent U.S. high yield, and 3 percent treasury inflation-protected securities), 5 percent real estate and real estate investment trusts, and 3 percent other.

     Our policy for determining asset-mix targets for the Master Trust includes the periodic development of asset/liability studies by a nationally recognized, third-party investment consultant (to determine our expected long-term rate of return and expected risk for various investment portfolios). Management considers these studies in the formal establishment of asset-mix targets that are reviewed by the finance committee of the board of directors.

     Our expected long-term rate of return on plan assets is updated at least annually, taking into consideration our asset allocation, historical returns on the types of assets held in the Master Trust, and the current economic environment. Based on these factors, we expect our pension assets will earn an average of 8.5 percent per annum over the 20 years beginning December 1, 2005, with a standard deviation of 10.6 percent. The 8.5 percent estimation was based on a passive return on a compound basis of 8.0 percent and a premium for active management of 0.5 percent reflecting the target asset allocation and current investment array. On an arithmetic average basis, the passive return would have been 8.5 percent with a premium for active management of 0.5 percent. Our rate of return and standard deviation estimates remain unchanged from December 1, 2004.

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     For estimation purposes, we assume our long-term asset mix generally will be consistent with the current mix. Changes in our asset mix could impact the amount of recorded pension income or expense, the funded status of our plans and the need for future cash contributions. A lower-than-expected return on assets also would decrease plan assets and increase the amount of recorded pension expense (or decrease recorded pension income) in future years. When calculating the expected return on plan assets, the Company uses a market-related value of assets that spreads asset gains and losses over five years. As a result, changes in the fair value of assets prior to year-end 2005 will be reflected in the results of operations by January 1, 2011. A 25-basis-point increase/decrease in our expected long-term rate of return assumption as of the beginning of 2006 would decrease/increase our pension expense by approximately $3 million per year during the next three years. In addition, a 25-basis-point decrease in the long-term rate of return assumption would not affect the minimum required contribution to our pension plan during the same three-year period. Due to better-than-expected returns in 2003, 2004 and 2005, combined with company contributions made during 2005, there is no minimum 2006 cash contribution for the Phelps Dodge Retirement Plan and U.S. pension plans for bargained employees. We continue to analyze funding strategies and monitor pension reform under various economic scenarios to effectively manage future contribution requirements.

     In 2005 and 2004, the Company made cash contributions of $250 million and $85 million, respectively, to the Phelps Dodge Retirement Plan and U.S. pension plans for bargained employees. As a result of these contributions, the entire benefit obligation for these plans is funded at year-end 2005. The Company does not anticipate any further appreciable funding requirements for these plans through 2008.

     Phelps Dodge has postretirement medical and life insurance benefit plans covering certain of its U.S. employees and, in some cases, employees of international subsidiaries. During 2005, the Company eliminated postretirement life insurance coverage, unless otherwise provided pursuant to the terms of a collective bargaining agreement, for all active employees who separate from service and retire on or after January 1, 2006. During 2005, the Company also eliminated postretirement medical coverage, unless otherwise provided pursuant to the terms of a collective bargaining agreement, for employees hired or rehired on or after February 1, 2005. Postretirement benefits vary among plans, and many plans require contributions from retirees. We account for these benefits on an accrual basis. Our funding policy provides that contributions to our postretirement and other employee benefits, other than pensions, shall be at least equal to our cash basis obligation, plus additional amounts that may be approved by us from time to time.

     In December 2005, the Company’s board of directors approved establishing two trusts, one dedicated to funding postretirement medical obligations and the other dedicated to funding postretirement life insurance obligations, for eligible U.S. retirees. These trusts were established in connection with certain employee benefit plans sponsored by the Company and are intended to constitute Voluntary Employees’ Beneficiary Association (VEBA) trusts under Section 501(c)(9) of the Internal Revenue Code. The trusts will help provide assurance to participants in these plans that the Company will continue to have funds available to meet its obligations under the covered retiree medical and life insurance programs. The trusts, however, will not reduce retiree contribution obligations that help fund these benefits and will not guarantee that retiree contribution obligations will not increase in the future. On December 21, 2005, the Company contributed a total of $200 million to these trusts, consisting of $175 million for postretirement medical obligations and $25 million for postretirement life insurance obligations.

     Assumed health-care cost trend rates have a significant effect on the amounts reported for the health-care plan. The medical care cost trend rates for major medical and basic only plans over the next year are assumed to be approximately 10 percent and approximately 8 percent, respectively. The rate to which the cost trend rate is assumed to decline (i.e., the ultimate trend rate) is 5 percent by 2012. A 1 percentage-point increase in the assumed health-care cost trend rate would increase net periodic benefit cost by approximately $1 million and increase our postretirement benefit obligation by approximately $14 million; a 1 percentage-point decrease in the assumed health-care cost trend rate would decrease net periodic benefit cost by approximately $1 million and decrease our postretirement benefit obligation by approximately $12 million. The long-term expected rate of return on plan assets for our postretirement medical and life insurance benefit plans and the discount rate were determined on the same basis as our pension plan. Based on our asset allocation, historical returns on the types of assets held in the trust, and the current economic environment, we expect our postretirement medical and life insurance benefit assets will earn an average of 3.50 and 5.00 percent per annum, respectively over the long-term beginning January 1, 2006. The Citibank Pension Discount Curve together with projected future cash flow from the postretirement medical and life insurance benefit plans resulted in discount rates of approximately 5.37 percent for the retirement medical plan and 5.41 percent for the retiree life plan. Changes in this assumption are reflected in our benefit obligation and, therefore, in our liabilities and income or expense we record. Changes in the discount rate affect several components of periodic benefit expense/income, one of which is the amount of the cumulative gain or loss that will be recognized. Because gains or losses are only recognized when they fall outside of a calculated corridor, the effect of changes in the discount rate on postretirement expense may not be linear. For example, the first four 25-basis-point increases in our assumed discount rate assumption as of the beginning of 2006 would decrease our periodic benefit cost by less than $1 million per year during the next three years. The first two 25-basis-point decreases in our assumed discount rate assumption would increase our periodic benefit cost by less than $1 million per year during the next three years. The next 25-basis-point decrease would not affect our periodic benefit cost over the next three years, and the next 25-basis-point decrease in the assumed discount rate would decrease our periodic benefit cost by less than $1 million per year during the next three years.

Environmental Obligations. Phelps Dodge develops natural resources and creates products that contribute to an enhanced standard of living for people throughout the world. Our mining, exploration, production and historic operating activities are subject to

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various laws and regulations governing the protection of the environment which require, from time to time, significant expenditures. These environmental expenditures for closed facilities and closed portions of operating facilities are expensed or capitalized depending upon their future economic benefits. The general guidance provided by U.S. GAAP requires that liabilities for contingencies be recorded when it is probable that a liability has been incurred before the date of the balance sheet and that the amount can be reasonably estimated. (Refer to Note 1, Summary of Significant Accounting Policies, for further discussion on our accounting policy for environmental expenditures.)

     Significant management judgment and estimates are required to comply with this guidance. Accordingly, each month senior management reviews with the Company’s environmental remediation management, as well as with its financial and legal management, changes in facts and circumstances associated with its environmental obligations. The judgments and estimates are based upon available facts, existing technology, and current laws and regulations, and they take into consideration reasonably possible outcomes. The estimates can change substantially as additional information becomes available regarding the nature or extent of site contamination, required remediation methods, and other actions by or against governmental agencies or private parties.

     At December 31, 2005, environmental reserves totaled $367.9 million for environmental liabilities attributed to Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) or analogous state programs and for estimated future costs associated with environmental matters at closed facilities and closed portions of certain facilities. The cost range for reasonably possible outcomes for all reservable remediation sites for which a liability was recognized was estimated to be from approximately $329 million to $642 million.

     Phelps Dodge has a number of sites that are not the subject of an environmental reserve because it is not probable that a successful claim will be made against the Company for those sites, but for which there is a reasonably possible likelihood of an environmental remediation liability. At December 31, 2005, the cost range for reasonably possible outcomes for all such sites was estimated to be from approximately $2 million to $14 million. The liabilities arising from potential environmental obligations that have not been reserved at this time may be material to the operating results of any single quarter or year in the future. Management, however, believes the liability arising from potential environmental obligations is not likely to have a material adverse effect on the Company’s liquidity or financial position as such obligations could be satisfied over a period of years.

Reclamation. Reclamation is an ongoing activity that occurs throughout the life of a mine. Effective January 1, 2003, we adopted Statement of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations.” We recognize asset retirement obligations (AROs) as liabilities when incurred, with the initial measurement at fair value. These liabilities are accreted to full value over time through charges to income. In addition, asset retirement costs (ARCs) are capitalized as part of the related asset’s carrying value and are depreciated primarily on a units-of-production basis over the asset’s useful life. Reclamation costs for future disturbances will be recognized as an ARO and as a related ARC in the period incurred. The Company’s cost estimates are reflected on a third-party cost basis and comply with the Company’s legal obligation to retire tangible long-lived assets as defined by SFAS No. 143. These cost estimates may differ from financial assurance cost estimates due to a variety of factors, including obtaining updated cost estimates for reclamation activities, the timing of reclamation activities, changes in the scope of reclamation activities and the exclusion of certain costs not accounted for under SFAS No. 143.

     Effective December 31, 2005, we adopted Financial Accounting Standards Board’s (FASB) Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations – an Interpretation of FASB Statement No. 143” (FIN 47). With the adoption of this Interpretation, we recognize conditional AROs as liabilities when sufficient information exists to reasonably estimate the fair value. Any uncertainty about the amount and/or timing of future settlement of a conditional ARO is factored into the measurement of the liability.

     (Refer to Note 1, Summary of Significant Accounting Policies, for further discussion of our accounting policy for asset retirement obligations and the impacts of adoption of SFAS No. 143 and FIN 47.)

     Generally, ARO activities are specified by regulations or in permits issued by the relevant governing authority. Significant management judgment and estimates are required in estimating the extent and timing of expenditures based on life-of-mine planning. Accordingly, each quarter senior management reviews with the Company’s environmental and remediation management, as well as its financial and legal management, changes in facts and circumstances associated with its AROs. The judgments and estimates are based upon available facts, existing technology and current laws and regulations, and they take into consideration reasonably possible outcomes.

     At December 31, 2005, AROs totaled $398.4 million, compared with estimated ARO costs, including anticipated future disturbances, of approximately $1.4 billion (unescalated, undiscounted and on a third-party cost basis), leaving approximately $1.0 billion to be accreted over the remaining reclamation period. These aggregate costs may increase or decrease materially in the future as a result of changes in regulations, technology, mine plans or other factors and as actual reclamation spending occurs. For example, the fair value cost estimate for our Chino Mines Company has increased from an initial estimate (third-party cost basis) of approximately $100 million in early 2001 to approximately $395 million primarily resulting from negotiations with the relevant governing authorities.

     In December 2005, the Company’s board of directors approved establishing a trust dedicated to help fund our global environmental reclamation and remediation activities. The Company made an initial cash contribution of $100 million on December 22, 2005, and expects to contribute an additional $300 million in the 2006 first quarter. The Company also has trust assets that are legally restricted to fund a portion of its AROs for Chino, Tyrone and Cobre as required for New Mexico financial assurance. At December 31, 2005 and 2004, the fair value of the trust assets was approximately $191 million and $85 million, respectively, of which approximately $91 million and $85 million, respectively, were legally restricted.

     (Refer to Note 21, Contingencies, for additional discussion on our New Mexico closure and reclamation programs.)

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     Liabilities for contingencies and litigation are recorded when it is probable that obligations have been incurred and the costs reasonably can be estimated. Gains for contingencies and litigation are recorded when realized.

Consolidated Financial Results

     In accordance with FIN 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,” and the revised Interpretation (FIN 46-R), beginning January 1, 2004, we fully consolidated the results of operations for our El Abra and Candelaria mines in Chile, in which we hold 51 percent and 80 percent partnership interests, respectively, and report the minority interest in our Consolidated Financial Statements. Historically, the Company had accounted for its partnership interests in these mines using the proportional consolidation method. (Refer to Note 1, Summary of Significant Accounting Policies, under New Accounting Pronouncements, for further discussion.)

     Other investments in undivided interests and unincorporated mining joint ventures that are limited to the extraction of minerals are accounted for using the proportional consolidation method, which include the Morenci mine, located in Arizona, in which we hold an 85 percent undivided interest. In addition, prior to 2004, the Chino mine, located in New Mexico, was accounted for using the proportional consolidation method. We held a two-thirds partnership interest in the Chino mine through December 18, 2003, and a 100 percent interest thereafter. (Refer to Note 2, Acquisitions and Divestitures, for further discussion.) Interests in other majority-owned subsidiaries are reported using the full consolidation method. We include 100 percent of the assets and liabilities of these subsidiaries and report the minority interest in our Consolidated Financial Statements. All material intercompany balances and transactions are eliminated.

     As discussed in Note 3, Discontinued Operations and Assets Held for Sale, on November 15, 2005, the Company entered into an agreement to sell Columbian Chemicals. Accordingly, the results of operations for Columbian have been excluded from the results of continuing operations for all periods presented and shown as discontinued operations. Note that the results of discontinued operations are not necessarily indicative of the results of Columbian on a stand-alone basis. Except as otherwise indicated, all discussions and presentations of financial results are based on results from continuing operations.

     Consolidated financial results for the years 2005, 2004 and 2003 were as follows:

($ in millions except per share data)

	2005*			2004*			2003*
Sales and other operating revenues	$	8,287.1			6,415.2			3,498.5
Operating income	$	1,764.9			1,474.9			142.8
Minority interests in consolidated subsidiaries	$	(190.4	)		(201.1	)		(7.2	)
Income (loss) from continuing operations before extraordinary item and cumulative effect of accounting changes	$	1,583.9			1,023.6			(21.1	)
Income (loss) from discontinued operations		(17.4	)		22.7			39.2
Extraordinary gain on acquisition of partner’s interest in Chino		—			—			68.3
Cumulative effect of accounting changes		(10.1	)		—			8.4
Net income	$	1,556.4			1,046.3			94.8

($ in millions except per share data)

	2005*			2004*		2003*
Basic earnings per common share:**
Income (loss) from continuing operations before extraordinary item and cumulative effect of accounting changes	$	16.12			10.82		(0.39	)
Income (loss) from discontinued operations		(0.18	)		0.24		0.45
Extraordinary gain on acquisition of partner’s interest in Chino		—			—		0.77
Cumulative effect of accounting changes		(0.10	)		—		0.09
Basic earnings per common share	$	15.84			11.06		0.92
Diluted earnings per common share:**
Income (loss) from continuing operations before extraordinary item and cumulative effect of accounting changes	$	15.64			10.35		(0.39	)
Income (loss) from discontinued operations		(0.17	)		0.23		0.45
Extraordinary gain on acquisition of partner’s interest in Chino		—			—		0.77
Cumulative effect of accounting changes		(0.10	)		—		0.09
Diluted earnings per common share	$	15.37			10.58		0.92

*	2005 and 2004 reflected full consolidation of El Abra and Candelaria; 2003 reflected El Abra and Candelaria on a pro rata basis (51 percent and 80 percent, respectively).
**	Basic and diluted earnings per common share do not reflect the stock split, which was approved by the board of directors on February 1, 2006. Refer to Note 24, Stock Split, for further discussion.

     In 2005, the Company had consolidated net income of $1,556.4 million, or $15.37 per common share, including special, net charges of $54.1 million, or 53 cents per common share, after taxes. (All references to per share earnings or losses are based on diluted earnings per share.) Included in 2005 consolidated net income was a loss from discontinued operations of $17.4 million, or 17 cents per common share, including special, net charges of $42.6 million, or 42 cents per common share, after taxes. In 2004, consolidated net income was $1,046.3 million, or $10.58 per common share, including special, net charges of $50.4 million, or 51 cents per common share, after taxes. Included in 2004 consolidated net income was income from discontinued operations of $22.7 million, or 23 cents per common share, including special charges of $4.5 million, or 4 cents per common share, after taxes. Excluding discontinued operations, the $550.2 million increase in consolidated net income in 2005, compared with 2004, primarily included the effects of (i) higher average copper prices (approximately $585 million), including copper pricing adjustments essentially for our copper collars and premiums of approximately $361 million, (ii) the gain recognized on the sale of our Southern Peru Copper Corporation (SPCC) investment ($430.8 million), (iii) higher molybdenum earnings, including earnings from primary molybdenum mines (approximately $222 million) and by-product molybdenum contribution (approximately $551 million) and (iv) the change in interest gains associated with Cerro Verde ($159.5 million) and Ojos del Salado ($8.8 million) stock issuances. These were partially offset by (i) higher copper production costs (approximately $525 million), which exclude by-product molybdenum revenues, (ii) a higher tax provision ($445.7 million) due to higher earnings, higher foreign dividend taxes and tax on unremitted foreign earnings, (iii) higher asset impairment charges ($430.8 million) mostly recorded at PDMC in the 2005 second quarter and (iv) higher special, net charges for environmental provisions recognized for

53

closed facilities and closed portions of operating facilities ($54.4 million).

     In 2003, consolidated net income was $94.8 million, or 92 cents per common share, including special, net gains of $46.7 million, or 52 cents per common share, after taxes. Included in 2003 consolidated net income was income from discontinued operations of $39.2 million, or 45 cents per common share, including special gains of $2.9 million, or 3 cents per common share, after taxes. Excluding discontinued operations, the $968.0 million increase in consolidated net income in 2004, compared with 2003, primarily included the effects of higher average copper prices (approximately $1,068 million), including copper pricing adjustments and premiums, and higher molybdenum earnings, including earnings from primary molybdenum mines (approximately $94 million) and by-product molybdenum contribution (approximately $275 million). These were offset by (i) higher copper production costs (approximately $278 million), which exclude by-product molybdenum revenues, (ii) a higher tax provision ($103.7 million) primarily due to higher earnings, (iii) the absence of the 2003 extraordinary gain on the acquisition of partner’s interest in Chino ($68.3 million) and (iv) higher early debt extinguishment costs ($43.2 million).

Special Items and Provisions

     Throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations there is disclosure and discussion of what management believes to be special items and provisions. We view special items and provisions as unpredictable and atypical of our operations in the period. We believe consistent identification, disclosure and discussion of such items, both favorable and unfavorable, provide additional information to assess the quality of our performance and our earnings or losses. In addition, management measures the performance of its reportable segments excluding special items. This supplemental information is not a substitute for any U.S. GAAP measure and should be evaluated within the context of our U.S. GAAP results. The tax impacts of the special items were determined at the marginal effective tax rate of the appropriate taxing jurisdiction, including provision for a valuation allowance, if warranted. Any supplemental information references to earnings, losses or results excluding special items or before special items is a non-GAAP measure that may not be comparable to similarly titled measures reported by other companies.

Note: Supplemental Data

     The following table summarizes consolidated net income, special items and provisions, and the resultant net income excluding these special items and provisions for the years 2005, 2004 and 2003:

($ in millions)

	2005			2004			2003
Net income	$	1,556.4			1,046.3			94.8
Special items and provisions, net of taxes		(54.1	)		(50.4	)		46.7
Net income excluding special items and provisions (after taxes)	$	1,610.5			1,096.7			48.1

Note: Supplemental Data

     The following table summarizes the special items and provisions for the year ended December 31, 2005 (refer to Note 4, Special Items and Provisions, for additional discussion):

($ in millions except per share data)

							$/Share
Consolidated Statement of Income Line Item	Pre-tax			After-tax			After-tax
Special items and provisions, net:
PDMC (see Business Segment disclosure)	$	(447.3	)		(342.4	)		(3.38	)
PDI (see Business Segment disclosure)		(18.6	)		(14.2	)		(0.14	)
Corporate and Other -
Environmental provisions, net		(75.4	)		(57.6	)		(0.57	)
Environmental insurance recoveries, net		2.1			1.6			0.02
Sale of non-core real estate		11.2			8.5			0.08
Historical legal matters		4.9			4.6			0.05
		(57.2	)		(42.9	)		(0.42	)
		(523.1	)		(399.5	)		(3.94	)
Early debt extinguishment costs		(54.0	)		(41.3	)		(0.41	)
Gain on sale of cost-basis investment		438.4			388.0			3.83
Change in interest gains:
Cerro Verde stock issuance		159.5			172.9			1.71
Ojos del Salado stock issuance		8.8			8.8			0.09
		168.3			181.7			1.80
Provision for taxes on income:
Foreign dividend taxes		—			(88.1	)		(0.87	)
Tax on unremitted foreign earnings		—			(43.1	)		(0.43	)
Tax charge associated with minimum pension liability reversal		—			(23.6	)		(0.23	)
Reversal of U.S. deferred tax asset valuation allowance		—			4.0			0.04
Reversal of PD Brazil deferred tax asset valuation allowance		—			11.9			0.12
		—			(138.9	)		(1.37	)
Minority interests in consolidated subsidiaries:
Tax on unremitted foreign earnings		—			8.6			0.08
Special items and provisions, net from continuing operations		29.6			(1.4	)		(0.01	)
Discontinued operations:
Loss on disposal of Columbian Chemicals		(5.8	)		(5.0	)		(0.05	)
Goodwill impairment charge		(89.0	)		(67.0	)		(0.66	)
Transaction and dividend taxes		—			(7.6	)		(0.08	)
Deferred income tax benefit		—			37.0			0.37
		(94.8	)		(42.6	)		(0.42	)
Cumulative effect of accounting change		(13.5	)		(10.1	)		(0.10	)
	$	(78.7	)		(54.1	)		(0.53	)

54

     The following table summarizes the special items and provisions for the year ended December 31, 2004 (refer to Note 4, Special Items and Provisions, for additional discussion):

($ in millions except per share data)

							$/Share
Consolidated Statement of Income Line Item	Pre-tax			After-tax			After-tax
Special items and provisions, net:
PDMC (see Business Segment disclosure)	$	(11.3	)		(8.3	)		(0.09	)
PDI (see Business Segment disclosure)		(11.4	)		(8.3	)		(0.09	)
Corporate and Other -
Environmental provisions, net		(41.8	)		(31.8	)		(0.32	)
Environmental insurance recoveries, net		0.2			0.1			—
Historical legal matters		2.7			(0.5	)		—
		(38.9	)		(32.2	)		(0.32	)
		(61.6	)		(48.8	)		(0.50	)
Interest expense:
Texas franchise tax matter		(0.9	)		(0.7	)		(0.01	)
Early debt extinguishment costs		(43.2	)		(34.3	)		(0.35	)
Miscellaneous income and expense, net:
Cost-basis investment write-downs		(11.1	)		(9.9	)		(0.10	)
Gain on sale of miscellaneous asset		10.1			10.1			0.10
Historical legal matters		9.5			7.2			0.07
		8.5			7.4			0.07
Provision for taxes on income:
Reversal of El Abra deferred tax asset valuation allowance		—			30.8			0.31
Reversal of U.S. deferred tax asset valuation allowance		—			30.0			0.31
PD Brazil deferred tax asset valuation allowance		—			(9.0	)		(0.09	)
Foreign dividend taxes		—			(9.6	)		(0.10	)
		—			42.2			0.43
Minority interests in consolidated subsidiaries:
Reversal of El Abra deferred tax asset valuation allowance		—			(15.1	)		(0.15	)
Candelaria early debt extinguishment costs		—			2.5			0.03
El Abra early debt extinguishment costs		—			0.9			0.01
		—			(11.7	)		(0.11	)
Special items and provisions, net from continuing operations		(97.2	)		(45.9	)		(0.47	)
Discontinued operations:
Asset impairment charge		(5.9	)		(4.5	)		(0.04	)
	$	(103.1	)		(50.4	)		(0.51	)

     The following table summarizes the special items and provisions for the year ended December 31, 2003 (refer to Note 4, Special Items and Provisions, for additional discussion):

($ in millions except per share data)

							$/Share
Consolidated Statement of Income Line Item	Pre-tax			After-tax			After-tax
Special items and provisions, net:
PDMC (see Business Segment disclosure)	$	(5.5	)		(5.2	)		(0.06	)
PDI (see Business Segment disclosure)		(2.0	)		(2.0	)		(0.02	)
Corporate and Other –
Environmental provisions, net		(23.8	)		(22.7	)		(0.26	)
Environmental insurance recoveries, net		0.5			0.5			0.01
Historical Cyprus Amax legal matters		(2.9	)		(2.9	)		(0.03	)
Potential Texas franchise tax matter		(8.0	)		(8.0	)		(0.09	)
		(34.2	)		(33.1	)		(0.37	)
		(41.7	)		(40.3	)		(0.45	)
Miscellaneous income and expense, net:
Gain on sale of cost-basis investment		6.4			6.4			0.07
Provision for taxes on income:
Tax benefit for additional 2001 net operating loss carryback		—			1.0			0.01
Special items and provisions, net from continuing operations		(35.3	)		(32.9	)		(0.37	)
Discontinued operations:
Environmental provisions, net		0.5			0.5			0.01
Termination of a foreign postretirement benefit plan		3.2			2.4			0.02
		3.7			2.9			0.03
Extraordinary gain on acquisition of partner’s one-third interest in Chino Mines Company		68.3			68.3			0.77
Cumulative effect of accounting change		9.7			8.4			0.09
	$	46.4			46.7			0.52

Business Divisions

     Results for 2005, 2004 and 2003 can be meaningfully compared by separate reference to our business divisions, PDMC and PDI. PDMC is our international business division comprising our vertically integrated copper operations from mining through rod production, marketing and sales; molybdenum operations from mining through conversion to chemical and metallurgical products, marketing and sales; other mining operations and investments; and worldwide mineral exploration, technology and project development programs. PDI, our manufacturing division, consists of our Wire and Cable segment, which produces engineered products principally for the global energy sector.

     On November 15, 2005, the Company entered into an agreement to sell Columbian Chemicals to a company owned jointly by One Equity Partners, a private equity affiliate of JPMorgan Chase & Co., and South Korean-based DC Chemical Co. Ltd. This transaction is expected to be completed in the 2006 first quarter. As a result of this proposed transaction, the operating results of Columbian, which were previously reported as a segment of PDI, are now reported separately from continuing operations and shown as discontinued operations in the Consolidated Statement of Income. In addition, on

55

November 15, 2005, the Company entered into an agreement to sell substantially all of its North American magnet wire assets to Rea Magnet Wire Company, Inc. This transaction was completed on February 10, 2006.

     The Company is continuing to explore strategic alternatives for Phelps Dodge High Performance Conductors, a unit of Wire and Cable.

     Significant events and transactions have occurred within the reportable segments of each business division that, as indicated in the separate discussions presented below, are material to an understanding of the particular year’s results and to a comparison with results of the other periods.

     (Refer to Discontinued Operations and Assets Held for Sale in this Management’s Discussion and Analysis of Financial Condition and Results of Operations on page 73 and Note 3, Discontinued Operations and Assets Held for Sale, for further discussion of these transactions.)

RESULTS OF PHELPS DODGE MINING COMPANY

     PDMC is our international business division comprising our vertically integrated copper operations from mining through rod production, molybdenum operations from mining through conversion to chemical and metallurgical products, marketing and sales; and worldwide mineral exploration, technology and project development programs. PDMC includes 11 reportable segments and other mining activities.

     In 2005, the Company reassessed its reportable segments considering the increase in copper and molybdenum prices. Based upon our assessment, we are no longer separately disclosing Miami/Bisbee as an individual reportable segment. In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” segment information for 2003 and 2004 has been revised to conform to the 2005 presentation.

     PDMC has five reportable copper production segments in the United States (Morenci, Bagdad, Sierrita, Chino/Cobre, and Tyrone) and three reportable copper production segments in South America (Candelaria/Ojos del Salado, Cerro Verde and El Abra). These segments include open-pit mining, underground mining, sulfide ore concentrating, leaching, solution extraction and electrowinning. In addition, the Candelaria/Ojos del Salado, Bagdad, Sierrita and Chino/Cobre segments also produce gold and silver, and the Bagdad, Sierrita and Chino mines produce molybdenum and rhenium as by-products.

     The Manufacturing segment consists of conversion facilities, including our smelter, refinery and rod mills. The Manufacturing segment processes copper produced at our mining operations and copper purchased from others into copper anode, cathode and rod. In addition, at times it smelts and refines copper and produces copper rod for customers on a toll basis. Toll arrangements require the tolling customer to deliver appropriate copper-bearing material to our facilities, which we then process into a product that is returned to the customer. The customer pays PDMC for processing its material into the specified products.

     The Sales segment functions as an agent to sell copper from our U.S. mines and Manufacturing segment. The Sales segment also purchases and sells any copper not sold by the South American mines to third parties. Copper is sold to others primarily as rod, cathode or concentrate, and as rod to PDI’s Wire and Cable segment.

     The Primary Molybdenum segment consists of the Henderson and Climax mines, related conversion facilities and a technology center. This segment is an integrated producer of molybdenum, with mining, roasting and processing facilities that produce high-purity, molybdenum-based chemicals, molybdenum metal powder and metallurgical products, which are sold to customers around the world. In addition, at times this segment roasts and/or processes material on a toll basis. Toll arrangements require the tolling customer to deliver appropriate molybdenum-bearing material to our facilities, which we then process into a product that is returned to the customer. The customer pays PDMC for processing its material into the specified products. This segment also includes a technology center whose primary activity is developing, marketing and selling new engineered products and applications.

     Major operating and financial results of PDMC for the years 2005, 2004 and 2003 are illustrated in the following table:

($ in millions except per pound amounts)

	2005			2004			2003
Sales and other operating revenues to unaffiliated customers*	$	7,097.5			5,443.4			2,828.6
Operating income*	$	1,929.9			1,606.7			265.2
Operating income before special items and provisions*	$	2,377.2			1,618.0			270.7
Minority interests in consolidated subsidiaries (B)*	$	(184.9	)		(196.8	)		(3.5	)
Copper production (thousand short tons):
Total copper production		1,288.0			1,323.6			1,305.6
Less undivided interest (A)		60.0			63.0			63.3
Copper production on a consolidated basis		1,228.0			1,260.6			1,242.3
Less minority participants’ shares (B)		185.7			178.9			199.8
Copper production on a pro rata basis		1,042.3			1,081.7			1,042.5
Copper sales (thousand short tons):
Total copper sales from own mines		1,298.4			1,331.9			1,317.4
Less undivided interest (A)		60.0			63.0			63.3
Copper sales from own mines on a consolidated basis		1,238.4			1,268.9			1,254.1
Less minority participants’ shares (B)		186.8			179.8			201.5
Copper sales from own mines on a pro rata basis		1,051.6			1,089.1			1,052.6
Purchased copper		410.7			433.0			374.5
Total copper sales on a consolidated basis		1,649.1			1,701.9			N/A
Total copper sales on a pro rata basis		N/A			N/A			1,427.1
LME average spot copper price per pound — cathodes	$	1.669			1.300			0.807
COMEX average spot copper price per pound — cathodes	$	1.682			1.290			0.811
Molybdenum production (million pounds)		62.3			57.5			52.0
Molybdenum sales (million pounds):
Net Phelps Dodge share from own mines		59.9			63.1			54.2
Purchased molybdenum		12.9			12.9			8.2
Total molybdenum sales		72.8			76.0			62.4
Metals Week:
Annual molybdenum Dealer Oxide mean price per pound	$	31.73			16.41			5.32

56

* 2005 and 2004 reflected full consolidation of El Abra and Candelaria; 2003 reflected El Abra and Candelaria on a pro rata basis (51 percent and 80 percent, respectively).

(A) Represents a 15 percent undivided interest in Morenci, Arizona, copper mining complex held by Sumitomo Metal Mining Arizona, Inc.

(B) Minority participant interests include (i) a one-third partnership interest in Chino Mines Company in New Mexico held by Heisei Minerals Corporation through December 18, 2003, (ii) a 20 percent partnership interest in Candelaria in Chile owned by SMMA Candelaria, Inc., Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation, (iii) a 49 percent partnership interest in the El Abra copper mining operation in Chile held by Corporación Nacional del Cobre de Chile (CODELCO), (iv) a 17.5 percent equity interest through May 31, 2005, and a 46.4 percent equity interest beginning June 1, 2005, in the Cerro Verde copper mining operation in Peru held by SMM Cerro Verde Netherlands B.V. and Compañía de Minas Buenaventura S.A.A., and (v) a 20 percent equity interest beginning December 23, 2005, in the Ojos del Salado copper mining operation in Chile held by SMMA Candelaria, Inc.

(thousand short tons)
	2005		2004		2003
Minority participants’ share of copper production:
Chino		—		—		13.7
Candelaria		35.9		44.1		46.9
Cerro Verde		35.9		17.1		16.8
El Abra		113.8		117.7		122.4
Ojos del Salado		0.1		—		—
		185.7		178.9		199.8

Total PDMC Division – Sales

     PDMC’s sales and other operating revenues to unaffiliated customers increased $1,654.1 million, or 30 percent, in 2005 compared with 2004. The increase primarily reflected (i) higher average molybdenum realizations (approximately $962 million), (ii) higher average copper realizations (approximately $882 million), including copper pricing adjustments essentially for our copper collars, (iii) higher molybdenum tolling revenue (approximately $24 million) and (iv) higher precious metals and by-product revenues (approximately $16 million); partially offset by lower copper sales volumes, including purchased copper (approximately $150 million), higher markdown of concentrates from cathode prices due to higher treatment and refining charges (approximately $59 million) and lower primary molybdenum sales volumes (approximately $40 million).

     In 2004, the increase of $2,614.8 million, or 92 percent, in sales and other operating revenues to unaffiliated customers compared with 2003, reflected (i) higher average copper realizations (approximately $1,480 million), (ii) the impact of fully consolidating El Abra and Candelaria (approximately $273 million), (iii) higher average molybdenum realizations (approximately $521 million), (iv) higher copper sales volumes, including purchased copper (approximately $232 million), (v) higher primary molybdenum sales volumes (approximately $79 million) and (vi) higher copper rod premiums due to higher sales volumes (approximately $29 million).

Total PDMC Division – Operating Income

     PDMC reported operating income of $1,929.9 million in 2005, including special, net pre-tax charges of $447.3 million, compared with operating income of $1,606.7 million in 2004, including special, net pre-tax charges of $11.3 million and operating income of $265.2 million in 2003, including special, net pre-tax charges of $5.5 million.

     The increase in operating income of $323.2 million, or 20 percent, for 2005, compared with 2004, primarily included (i) the effects of higher average copper prices (approximately $946 million), offset by higher copper pricing adjustments essentially for our copper collars and premiums (approximately $361 million), (ii) higher molybdenum earnings, including earnings from primary molybdenum mines (approximately $222 million) and by-product molybdenum contribution (approximately $551 million) primarily due to higher prices, and (iii) gains associated with the sale of exploration properties (approximately $15 million). These were partially offset by (i) higher special, net pre-tax charges ($436.0 million) mostly associated with asset impairment charges recorded in the 2005 second quarter, (ii) higher copper production costs (approximately $525 million), (iii) higher exploration and research expense (approximately $61 million) and (iv) lower copper sales volumes (approximately $38 million). Higher copper production costs, which exclude by-product molybdenum revenues, were primarily due to higher mining rates mostly due to lower production volumes, and repairs and maintenance (approximately $328 million), higher energy costs (approximately $112 million) and higher smelting, refining and freight costs (approximately $85 million). (Refer to PDMC’s segments on pages 64 through 70 for further discussion.)

     The increase in operating income of $1,341.5 million for 2004, compared with 2003, primarily resulted from (i) higher average copper prices, including copper pricing adjustments and premiums (approximately $1,068 million), (ii) the impact of fully consolidating El Abra and Candelaria (approximately $192 million), (iii) higher molybdenum earnings, including earnings from primary molybdenum mines (approximately $94 million) and by-product molybdenum contribution (approximately $275 million) and (iv) higher copper sales volumes (approximately $10 million). These were partially offset by higher copper production costs (approximately $278 million) and higher exploration and research expense (approximately $11 million). Higher copper production costs, which exclude by-product molybdenum revenues, were primarily due to higher mining and operating costs primarily associated with the ramp up of certain mining operations in 2004 and higher maintenance, labor and energy costs. (Refer to PDMC’s segments on pages 64 through 70 for further discussion.)

     For 2003 through 2005, higher average copper prices, including premiums, reflected improved copper market fundamentals and an improved economic environment.

     Copper is an internationally traded commodity, and its price is effectively determined by the major metals exchanges – COMEX, the London Metal Exchange (LME) and the Shanghai Futures Exchange (SHFE). The prices on these exchanges generally reflect the worldwide balance of copper supply and demand, but also are influenced significantly from time to time by speculative actions and by currency exchange rates.

     The price of copper, our principal product, was a significant factor influencing our results over the three-year period ended December 31, 2005. We principally base our selling price for U.S. sales on the COMEX spot price per pound of copper cathode, which averaged $1.682 in 2005, $1.290 in 2004 and 81.1 cents in 2003. Internationally, our copper selling prices are generally based on the LME spot price for cathode. The LME spot price per pound of copper averaged

57

$1.669 in 2005, $1.300 in 2004 and 80.7 cents in 2003. The COMEX and LME prices averaged $2.219 and $2.201 per pound, respectively, for the first 54 days of 2006, and closed at $2.210 and $2.253, respectively, on February 23, 2006.

     Certain of PDMC’s sales agreements provide for provisional pricing based on either COMEX or LME, as specified in the contract, when shipped. Final settlement is based on the average applicable price for a specified future period (quotational period or QP), generally from one to three months after arrival at the customer’s facility. PDMC records revenues upon passage of title using anticipated pricing based on the commodity exchange forward rate. For accounting purposes, these revenues are adjusted to fair value through earnings each period until the date of final copper pricing. At December 31, 2005, approximately 240 million pounds of copper sales were provisionally priced at an average of $2.029 per pound with final quotational periods of January 2006 through May 2006. Candelaria accounted for approximately 59 percent of the outstanding provisionally priced sales at December 31, 2005.

     Phelps Dodge has entered into copper swap contracts to protect certain provisionally priced sales exposures in a manner designed to allow it to receive the average LME price for the month of shipment, while our Candelaria customers receive the QP price they requested (i.e., one to three months after month of arrival at the customer’s facility). These hedge contracts are in accordance with our Copper Quotational Period Swap Program discussed in Note 22, Derivative Financial Instruments and Fair Value of Financial Instruments. As of January 30, 2006, we had in place copper swap contracts for approximately 91 percent of Candelaria’s provisionally priced copper sales outstanding at December 31, 2005, at an average of $1.937 per pound. This program is expected to ameliorate the volatility that provisionally priced copper sales could have on our revenues.

     Phelps Dodge entered into programs to protect a portion of its expected global copper production by purchasing zero-premium copper collars (consisting both of put and call options) and copper put options. The copper collars and put options are settled on an average LME pricing basis for their respective hedge periods. For 2005 and 2006, the copper collar put options are based on monthly settlements, and for 2007, all of the copper collar put options are based on annual settlements; the copper collar call options are settled annually. The copper put options are settled monthly for 2006, and annually for 2007. Phelps Dodge entered into the programs as insurance to help ameliorate the effects of unanticipated copper price decreases. None of these programs qualify for hedge accounting treatment under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” accordingly, all fair value adjustments are recognized in earnings each period.

     The following table provides a summary of PDMC’s zero-premium copper collar and copper put option programs for 2005, 2006 and 2007:

	2005		2006		2007
Copper Collars:
Pounds of zero-premium copper collars purchased (in millions) (A)		198		564		486
Average LME put strike price (floor) per pound	$	0.943		0.954		0.950
Annual average LME call strike price (ceiling) per pound	$	1.400		1.632		2.002
Associated pre-tax charges for 2005 (in millions) (B)	$	54		164		35
Copper Put Options:
Pounds of copper put options purchased (in millions)		—		564		730
Average LME put strike price per pound	$	—		0.950		0.950
Premium cost per pound	$	—		0.020		0.023
Associated pre-tax charges for 2005 (in millions)	$	—		11		14

(A)

2005 excludes El Abra; refer to the table below, which provides a summary of El Abra’s 2005 zero-premium copper collar program.

(B)

The 2005 realized pre-tax charges resulted from the 2005 LME price average of $1.671 per pound exceeding the $1.40 per pound ceiling of our 2005 zero-premium copper collars. Substantially all of the 2006 unrealized pre-tax charges resulted from changes in fair value of the options based on the 2006 LME forward price average of $1.912 per pound (weighted average call strike of $1.632 per pound). The 2007 unrealized pre-tax charges resulted from changes in the fair value of the options based on the 2007 LME forward price average of $1.654 per pound (Note: the 2007 option fair value entirely consists of the time value component, which includes volatility).

     The following table provides a summary of El Abra’s zero-premium copper collar program for 2005:

	2005
El Abra Copper Collars:
Pounds of zero-premium copper collars purchased (in millions)		452
Monthly average LME put strike price (floor) per pound	$	1.000
Annual average LME call strike price (ceiling) per pound	$	1.376
Associated pre-tax charges for 2005 (in millions) (A)	$	133

(A) The realized pre-tax charges resulted from the 2005 LME price average of $1.671 per pound exceeding the $1.376 per pound ceiling of our 2005 zero-premium copper collars (approximately $68 million for PD’s share).

     Transactions under these copper price protection programs do not qualify for hedge accounting treatment under SFAS No. 133 and are adjusted to fair market value each reporting period with the gain or loss recorded in earnings. The actual impact of our 2006 and 2007 zero-premium copper collar programs will not be fully determinable until the maturity of the collars at each respective year-end.

     Energy, including electricity, diesel fuel and natural gas, represents a significant portion of production costs for our operations. The principal sources of energy for our mining operations are electricity, purchased petroleum products and natural gas. To moderate or

58

offset the impact of increasing energy costs, we use a combination of multi-year energy contracts that we put in place at favorable points in the price cycle as well as self-generation and natural gas hedging.

     We continue to explore alternatives to moderate or offset the impact to increasing energy costs. To address volatility associated with a shortfall of power generation capacity experienced during the 2000 energy crisis in the western United States, in late 2004 we purchased a one-third interest in a partially constructed power plant in New Mexico owned by Luna. The plant is expected to be operating by the 2006 second quarter. One-third of its electricity (approximately 190 megawatts) is expected to be consumed by PDMC operations in New Mexico and Arizona. This investment in an efficient, low-cost plant, which utilizes natural gas, is expected to continue to stabilize our southwest U.S. operations’ energy costs and increase the reliability of our energy supply.

     To mitigate the Company’s exposure to increases in diesel fuel and natural gas prices, we utilize several price protection programs designed to protect the Company against a significant short-term upward movement in prices. The Company’s diesel fuel price protection program consists of a combination of purchased, out-of-the-money (OTM) diesel fuel call options and fixed-price diesel fuel swaps for our North American and Chilean operations. The OTM call options give the holder the right, but not the obligation, to purchase a specific commodity at a pre-determined dollar cost, or “strike price.” OTM call options are options with a strike price above the prevailing market price for that commodity when purchased.

     OTM diesel fuel call options mitigate a portion of our exposure to volatile markets by capping the cost of the commodity if prices rise above the strike price. If the price of diesel fuel is less than the strike price, the Company has the flexibility to purchase diesel fuel at prices lower than the strike price and the options expire with no value. The swaps allow us to establish a fixed price for a specific commodity product for delivery during a specific future period.

     Our natural gas price protection program consists of purchasing OTM call options for our North American operations. OTM call options cap the commodity purchase cost at the strike price while allowing the Company the ability to purchase natural gas at a lower cost when market prices are lower than the strike price.

     As a result of the above-mentioned programs, in 2005, 2004 and 2003 Phelps Dodge was able to reduce and partially mitigate the impacts of volatile electricity markets and rising diesel fuel and natural gas prices. Nevertheless, we pay more for our energy needs during these times of progressively higher energy prices. Energy accounted for 19.5 cents per pound of copper produced in 2005, compared with 14.6 cents in 2004 and 13.5 cents in 2003.

     Any material change in the price we receive for copper, or in PDMC’s cost of copper production, has a significant effect on our results. Based on expected 2006 annual consolidated production of approximately 2.5 billion to 2.6 billion pounds of copper, each 1 cent per pound change in our average annual realized copper price (or our average annual cost of copper production) causes a variation in annual operating income, excluding the impact of our copper collars and before taxes and adjustments for minority interests, of up to approximately $26 million.

     Due to the market risk arising from the volatility of copper prices, our objective is to sell copper cathode and rod produced at our U.S. operations at the COMEX average price in the month of shipment, and copper cathode and concentrate produced at our international operations at the LME average price in the month of settlement with our customers.

     During 2005, PDMC sold approximately 52 percent, 30 percent and 18 percent of its copper as copper rod, copper cathode and concentrates, respectively. During 2004, approximately 50 percent, 31 percent and 19 percent of PDMC’s copper was sold as copper rod, copper cathode and concentrates, respectively.

     Additionally in 2005, operations outside the United States provided 25 percent of PDMC’s sales (including sales through PDMC’s U.S.-based sales company), compared with 30 percent in 2004 and 26 percent in 2003. During 2005, operations outside the United States (including international exploration) contributed 40 percent of the division’s operating income, compared with 44 percent for 2004 and 63 percent for 2003.

     The 2005 exploration program continued to place emphasis on the search for and delineation of large-scale copper and copper/gold deposits. Phelps Dodge expended $81.0 million on worldwide exploration during 2005, compared with $35.6 million in 2004 and $25.8 million in 2003. The increase in exploration for 2005 primarily was due to increased exploration in Central Africa, mostly associated with Tenke Fungurume (refer to PDMC—Other Matters on pages 70 and 71 for further discussion) and at our U.S. mines. Approximately 36 percent of the 2005 expenditures occurred in the United States, with approximately 31 percent being spent at our U.S. mine sites, and the remainder for support of U.S. and international exploration activities. In addition, approximately 34 percent was spent in Central Africa and approximately 7 percent was spent at our South American mine sites. The balance of exploration expenditures was spent principally in Chile, Europe, Australasia, Peru, Mexico, Canada and Brazil.

Note: Supplemental Data

     Special, pre-tax items and provisions in operating income were as follows:

($ in millions)

	2005			2004			2003
Asset impairment charges	$	(424.6	)		(1.1	)		—
Environmental provisions, net		(35.7	)		(16.8	)		(5.5	)
Environmental insurance recoveries, net		(1.5	)		9.1			—
Historical legal matters		14.5			(2.5	)		—
	$	(447.3	)		(11.3	)		(5.5	)

     In the 2005 second quarter, PDMC recorded special charges for asset impairments of $419.1 million ($320.9 million after-tax) at the Tyrone and Cobre mines, Chino smelter and Miami refinery. On June 1, 2005, the Company’s board of directors approved expenditures of $210 million to construct a concentrate-leach, direct-electrowinning facility at the Morenci copper mine, and to restart its concentrator, which has been idle since 2001. The concentrate-leach facility will utilize our proprietary medium-temperature, pressure leaching and direct-electrowinning technology that has been demonstrated at our Bagdad, Arizona, copper mine. The concentrate-leach, direct-electrowinning facility is expected to be in operation by mid-2007,

59

and copper production is projected to be approximately 150 million pounds per year. Concentrate-leach technology, in conjunction with a conventional milling and flotation concentrator, allows copper in sulfide ores to be transformed into copper cathode through efficient pressure leaching and electrowinning processes instead of smelting and refining. Historically, sulfide ores have been processed into copper anodes through a smelter. This decision had consequences for several of our other southwest U.S. copper operations, resulting in the impairment of certain assets.

     With future Morenci copper concentrate production being fed into the concentrate-leach facility, the operating smelter in Miami, Arizona, will be sufficient to treat virtually all remaining concentrate expected to be produced by Phelps Dodge at our operations in the southwestern United States. Accordingly, the Chino smelter located near Hurley, New Mexico, which has been on care-and-maintenance status since 2002, was permanently closed and demolition initiated. With the closing of the Chino smelter, we have unnecessary refining capacity in the region. Because of its superior capacity and operating flexibility, our refinery in El Paso, Texas, will continue to operate. The El Paso refinery is more than twice the size of our refinery in Miami, Arizona, and has sufficient capacity to refine all anodes expected to be produced from our operations in the southwestern United States given the changes brought by the above-mentioned Morenci project. Accordingly, the Miami refinery, which has been on care-and-maintenance status since 2002, was permanently closed. As a result of the decision to close the Chino smelter and the Miami refinery, we recorded asset impairment charges during the 2005 second quarter of $89.6 million ($68.6 million after-tax) and $59.1 million ($45.2 million after-tax), respectively, to reduce the related carrying values of these properties to their respective salvage values.

     The steps being taken at Morenci also will impact our Tyrone and Cobre mines in New Mexico. The Tyrone mine has been partially curtailed since 2003, while activities at the Cobre mine were suspended in 1999, with the exception of limited activities. Future economics of these mines will be affected by significantly higher acid costs resulting from their inability to obtain low-cost acid from the Chino smelter. These factors caused Phelps Dodge to reassess the recoverability of the long-lived assets at both the Tyrone and Cobre mines. This reassessment, which was based on an analysis of cash flows associated with the related assets, indicated that the assets were not recoverable and that asset impairment charges were required.

     Tyrone’s impairment of $210.5 million ($161.2 million after-tax) primarily resulted from fundamental changes to its life-of-mine cash flows. In addition to higher expected acid costs, we decided to accelerate reclamation of portions of stockpiles around the mine perimeter. At the same time, the estimated cost associated with reclaiming the perimeter stockpiles increased. These factors increased costs and also decreased Tyrone’s copper ore reserves by approximately 155 million pounds, or 14 percent.

     Cobre’s impairment of $59.9 million ($45.9 million after-tax) primarily resulted from projected higher acid, external smelting and freight costs. As a result of the Chino smelter being permanently closed, the charges also reflected estimated higher restart and operating costs of running the Cobre mill, reflecting our recent experience with restarting the Chino mill. Additionally, the cost for building a tailing pipeline from Cobre to the Chino mine has increased based upon a recent detailed engineering evaluation recommending (i) extending the pipeline an additional nine miles, (ii) adding a new thickener and booster pump station, and (iii) requiring larger pipe size.

     During the 2005 fourth quarter, management determined that the El Paso precious metals plant, which was temporarily closed in 2002, would not be reopened, resulting in an asset impairment charge of $5.5 million ($4.2 million after-tax) to write off these assets.

     In 2005, 2004 and 2003, pre-tax charges for environmental provisions of $35.7 million, $16.8 million and $5.5 million, respectively, were recognized for closed facilities and closed portions of operating facilities. (Refer to Note 21, Contingencies, for further discussion of environmental matters.)

     During 2005, a pre-tax net gain of $14.5 million was recognized for legal matters, which included net settlements on historical legal matters ($15.3 million); offset by a charge associated with potential future legal matters ($0.8 million).

     In the 2004 third quarter, an asset impairment charge of $1.1 million ($0.9 million after-tax) was recognized at our Hidalgo facility resulting from the anticipated sale of the townsite. The amount of the asset impairment was determined through an assessment of fair market value, as determined by independent appraisals.

     In 2004, pre-tax net insurance recoveries of $9.1 million were received from settlements reached with several insurance companies on historical environmental liability claims.

     In 2004, a pre-tax net charge of $2.5 million was recognized for the settlement of historical legal matters.

60

PDMC Results By Reportable Segments

The following tables summarize, on a segment basis, production and sales statistics, operating income (loss), special items and

provisions, net, and operating income (loss) excluding special items and provisions for 2005, 2004 and 2003:

	U.S. Mines																South American Mines
								Chino/									Candelaria/		Cerro
	Morenci			Bagdad		Sierrita		Cobre			Tyrone			Subtotal			Ojos del Salado*		Verde		El Abra*		Subtotal
2005
Copper production (thousand short tons):
Total production		400.0			100.6		79.3		104.8			40.5			725.2			210.4		103.1		232.2		545.7
Less undivided interest		60.0			—		—		—			—			60.0			—		—		—		—
Copper production on a consolidated basis		340.0			100.6		79.3		104.8			40.5			665.2			210.4		103.1		232.2		545.7
Less minority participants’ shares		—			—		—		—			—			—			36.0		35.9		113.8		185.7
Copper production on a pro rata basis		340.0			100.6		79.3		104.8			40.5			665.2			174.4		67.2		118.4		360.0
Copper sales (thousand short tons):
Total copper sales from own mines		400.0			104.4		82.8		104.8			40.5			732.5			210.6		102.7		233.3		546.6
Less undivided interest		60.0			—		—		—			—			60.0			—		—		—		—
Copper sales from own mines on a consolidated basis		340.0			104.4		82.8		104.8			40.5			672.5			210.6		102.7		233.3		546.6
Less minority participants’ shares		—			—		—		—			—			—			36.1		36.4		114.3		186.8
Copper sales from own mines on a pro rata basis		340.0			104.4		82.8		104.8			40.5			672.5			174.5		66.3		119.0		359.8
Total purchased copper (thousand short tons)		—			—		—		—			—			—			23.1		—		—		23.1
Total copper sales on a consolidated basis		340.0			104.4		82.8		104.8			40.5			672.5			233.7		102.7		233.3		569.7
($ in millions)
Operating income (loss)	$	399.9			389.8		568.8		(15.3	)		(209.1	)		1,134.1			306.8		209.8		274.7		791.3
Special items and provisions, net		(0.2	)		12.1		1.2		(64.5	)		(215.7	)		(267.1	)		—		—		—		—
Operating income (loss) excluding special items and provisions	$	400.1			377.7		567.6		49.2			6.6			1,401.2			306.8		209.8		274.7		791.3
2004
Copper production (thousand short tons):
Total production		420.3			110.1		77.5		91.7			43.1			742.7			230.9		97.6		240.3		568.8
Less undivided interest		63.0			—		—		—			—			63.0			—		—		—		—
Copper production on a consolidated basis		357.3			110.1		77.5		91.7			43.1			679.7			230.9		97.6		240.3		568.8
Less minority participants’ shares		—			—		—		—			—			—			44.1		17.1		117.7		178.9
Copper production on a pro rata basis		357.3			110.1		77.5		91.7			43.1			679.7			186.8		80.5		122.6		389.9
Copper sales (thousand short tons):
Total copper sales from own mines		420.3			111.9		79.2		91.7			43.1			746.2			233.5		98.2		240.8		572.5
Less undivided interest		63.0			—		—		—			—			63.0			—		—		—		—
Copper sales from own mines on a consolidated basis		357.3			111.9		79.2		91.7			43.1			683.2			233.5		98.2		240.8		572.5
Less minority participants’ shares		—			—		—		—			—			—			44.6		17.2		118.0		179.8
Copper sales from own mines on a pro rata basis		357.3			111.9		79.2		91.7			43.1			683.2			188.9		81.0		122.8		392.7
Total purchased copper (thousand short tons)		—			—		—		—			—			—			37.1		—		—		37.1
Total copper sales on a consolidated basis		357.3			111.9		79.2		91.7			43.1			683.2			270.6		98.2		240.8		609.6
($ in millions)
Operating income (loss)	$	375.7			174.9		264.3		57.6			22.9			895.4			303.3		130.0		273.7		707.0
Special items and provisions, net		(0.6	)		—		—		(1.2	)		(5.8	)		(7.6	)		—		—		—		—
Operating income (loss) excluding special items and provisions	$	376.3			174.9		264.3		58.8			28.7			903.0			303.3		130.0		273.7		707.0

Refer to segment discussion on pages 64 through 70.
Revenues, operating costs and expenses of PDMC’s segments included allocations that may not be reflective of market conditions. Additionally, certain costs were not allocated to the reportable segments. (Refer to page 64 for further discussion.)
*	2005 and 2004 reflected full consolidation of El Abra and Candelaria; 2003 reflected El Abra and Candelaria on a pro rata basis (51 percent and 80 percent, respectively).

61

PDMC Results By Reportable Segments (continued)

	U.S. Mines																South American Mines
								Chino/									Candelaria/		Cerro
	Morenci			Bagdad		Sierrita		Cobre			Tyrone			Subtotal			Ojos del Salado*		Verde		El Abra*		Subtotal
2003
Copper production (thousand short tons):
Total production		421.2			107.0		75.6		39.9			56.9			700.6			234.5		96.3		249.8		580.6
Less minority participants’ shares		63.3			—		—		12.5			—			75.8			46.9		16.8		122.4		186.1
Copper production on a pro rata basis		357.9			107.0		75.6		27.4			56.9			624.8			187.6		79.5		127.4		394.5
Copper sales (thousand short tons):
Total copper sales from own mines		421.2			111.0		79.3		40.7			56.9			709.1			234.3		95.6		251.8		581.7
Less minority participants’ shares		63.3			—		—		13.3			—			76.6			46.9		16.7		123.4		187.0
Copper sales from own mines on a pro rata basis		357.9			111.0		79.3		27.4			56.9			632.5			187.4		78.9		128.4		394.7
Purchased copper		—			—		—		—			—			—			22.1		—		7.3		29.4
Total copper sales on a pro rata basis		357.9			111.0		79.3		27.4			56.9			632.5			209.5		78.9		135.7		424.1
($ in millions)
Operating income (loss)	$	77.4			30.1		50.9		(5.4	)		(17.2	)		135.8			100.5		42.7		39.4		182.6
Special items and provisions, net		(1.1	)		—		—		(1.3	)		(0.5	)		(2.9	)		—		—		—		—
Operating income (loss) excluding special items and provisions	$	78.5			30.1		50.9		(4.1	)		(16.7	)		138.7			100.5		42.7		39.4		182.6

Refer to segment discussion on pages 64 through 70. Revenues, operating costs and expenses of PDMC’s segments included allocations that may not be reflective of market conditions. Additionally, certain costs were not allocated to the reportable segments. (Refer to page 64 for further discussion.)
*	2005 and 2004 reflected full consolidation of El Abra and Candelaria; 2003 reflected El Abra and Candelaria on a pro rata basis (51 percent and 80 percent, respectively).

62

PDMC Results By Reportable Segments (continued)

	Primary								PDMC
	Molybdenum			Manufacturing			Sales		Segments			Other			Total PDMC
2005
Copper production (thousand short tons):
Total production		—			2.3			—		1,273.2			14.8			1,288.0
Less undivided interest		—			—			—		60.0			—			60.0
Copper production on a consolidated basis		—			2.3			—		1,213.2			14.8			1,228.0
Less minority participants’ shares		—			—			—		185.7			—			185.7
Copper production on a pro rata basis		—			2.3			—		1,027.5			14.8			1,042.3
Copper sales (thousand short tons):
Total copper sales from own mines		—			2.3			—		1,281.4			17.0			1,298.4
Less undivided interest		—			—			—		60.0			—			60.0
Copper sales from own mines on a consolidated basis		—			2.3			—		1,221.4			17.0			1,238.4
Less minority participants’ shares		—			—			—		186.8			—			186.8
Copper sales from own mines on a pro rata basis		—			2.3			—		1,034.6			17.0			1,051.6
Total purchased copper (thousand short tons)		—			369.5			18.1		410.7			—			410.7
Total copper sales on a consolidated basis		—			371.8			18.1		1,632.1			17.0			1,649.1
Molybdenum production (thousand pounds):
Primary — Henderson		32,201			—			—		32,201			—			32,201
By-product		30,105			—			—		30,105			—			30,105
Total production		62,306			—			—		62,306			—			62,306
Molybdenum sales (thousand pounds):
Net Phelps Dodge share from own mines		59,947			—			—		59,947			—			59,947
Purchased molybdenum		12,830			—			—		12,830			—			12,830
Total molybdenum sales		72,777			—			—		72,777			—			72,777
($ in millions)
Operating income (loss)	$	324.3			(148.1	)		1.7		2,103.3			(173.4	)		1,929.9
Special items and provisions, net		(0.8	)		(154.0	)		—		(421.9	)		(25.4	)		(447.3	)
Operating income (loss) excluding special items and provisions	$	325.1			5.9			1.7		2,525.2			(148.0	)		2,377.2
2004
Copper production (thousand short tons):
Total production		—			2.3			—		1,313.8			9.8			1,323.6
Less undivided interest		—			—			—		63.0			—			63.0
Copper production on a consolidated basis		—			2.3			—		1,250.8			9.8			1,260.6
Less minority participants’ shares		—			—			—		178.9			—			178.9
Copper production on a pro rata basis		—			2.3			—		1,071.9			9.8			1,081.7
Copper sales (thousand short tons):
Total copper sales from own mines		—			2.3			—		1,321.0			10.9			1,331.9
Less undivided interest		—			—			—		63.0			—			63.0
Copper sales from own mines on a consolidated basis		—			2.3			—		1,258.0			10.9			1,268.9
Less minority participants’ shares		—			—			—		179.8			—			179.8
Copper sales from own mines on a pro rata basis		—			2.3			—		1,078.2			10.9			1,089.1
Total purchased copper (thousand short tons)		—			394.0			1.9		433.0			—			433.0
Total copper sales on a consolidated basis		—			396.3			1.9		1,691.0			10.9			1,701.9
Molybdenum production (thousand pounds):
Primary — Henderson		27,520			—			—		27,520			—			27,520
By-product		29,969			—			—		29,969			—			29,969
Total production		57,489			—			—		57,489			—			57,489
Molybdenum sales (thousand pounds):
Net Phelps Dodge share from own mines		63,108			—			—		63,108			—			63,108
Purchased molybdenum		12,844			—			—		12,844			—			12,844
Total molybdenum sales		75,952			—			—		75,952			—			75,952
($ in millions)
Operating income (loss)	$	103.3			29.1			4.1		1,738.9			(132.2	)		1,606.7
Special items and provisions, net		0.3			(3.2	)		—		(10.5	)		(0.8	)		(11.3	)
Operating income (loss) excluding special items and provisions	$	103.0			32.3			4.1		1,749.4			(131.4	)		1,618.0

Refer to segment discussion on pages 64 through 70.

Revenues, operating costs and expenses of PDMC’s segments included allocations that may not be reflective of market conditions. Additionally, certain costs were not allocated to the reportable segments. (Refer to page 64 for further discussion.)

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PDMC Results By Reportable Segments (continued)

	Primary							PDMC
	Molybdenum		Manufacturing			Sales		Segments			Other			Total PDMC
2003
Copper production (thousand short tons):
Total production		—		6.6			—		1,287.8			17.8			1,305.6
Less minority participants’ shares		—		1.2			—		263.1			—			263.1
Copper production on a pro rata basis		—		5.4			—		1,024.7			17.8			1,042.5
Copper sales (thousand short tons):
Total copper sales from own mines		—		6.6			—		1,297.4			20.0			1,317.4
Less minority participants’ shares		—		1.2			—		264.8			—			264.8
Total copper sales from own mines on a pro rata basis		—		5.4			—		1,032.6			20.0			1,052.6
Purchased copper		—		274.6			70.5		374.5			—			374.5
Total copper sales on a pro rata basis		—		280.0			70.5		1,407.1			20.0			1,427.1
Molybdenum production (thousand pounds):
Primary — Henderson		22,247		—			—		22,247			—			22,247
By-product		29,747		—			—		29,747			—			29,747
Total production		51,994		—			—		51,994			—			51,994
Molybdenum sales (thousand pounds):
Net Phelps Dodge share from own mines		54,158		—			—		54,158			—			54,158
Purchased molybdenum		8,199		—			—		8,199			—			8,199
Total molybdenum sales		62,357		—			—		62,357			—			62,357
($ in millions)
Operating income (loss)	$	8.6		26.4			5.5		358.9			(93.7	)		265.2
Special items and provisions, net		—		(0.1	)		—		(3.0	)		(2.5	)		(5.5	)
Operating income (loss) excluding special items and provisions	$	8.6		26.5			5.5		361.9			(91.2	)		270.7

Refer to segment discussion on pages 64 through 70.

Revenues, operating costs and expenses of PDMC’s segments included allocations that may not be reflective of market conditions. Additionally, certain costs were not allocated to the reportable segments. (Refer to page 64 for further discussion.)

64

Sales of Copper (U.S. and South America)
and Molybdenum

     PDMC’s Manufacturing and Sales segments are responsible for selling all copper produced at the U.S. mines. Intersegment revenues of the individual U.S. mines represent an internal allocation based on PDMC’s sales to unaffiliated customers. Therefore, the following discussion and analysis combines U.S. Mining Operations with the Manufacturing and Sales segments, along with other mining activities. The Sales segment purchases and sells any copper not sold by the South American mines to third parties. In 2005, the South American mines sold approximately 45 percent of their copper to the Sales segment, compared with approximately 41 percent in 2004 and 44 percent in 2003. Intersegment sales by the South American mines are based upon arms-length prices at the time of the sale. Intersegment sales of any individual mine may not be reflective of the actual prices PDMC ultimately realizes due to a variety of factors, including additional processing, timing of sales to unaffiliated customers and transportation premiums. These sales are reflected in the Manufacturing and Sales segments.

($ in millions)

	2005			2004			2003
U.S. Mining Operations*
Unaffiliated customers	$	4,182.3			3,518.5			2,048.9
Intersegment elimination		(814.8	)		(663.7	)		(309.9	)
		3,367.5			2,854.8			1,739.0
South American Mines**
Unaffiliated customers		977.1			939.6			396.1
Intersegment		814.8			663.7			309.9
		1,791.9			1,603.3			706.0
Primary Molybdenum
Unaffiliated customers		1,938.1			985.3			383.6
Intersegment		–			–			–
		1,938.1			985.3			383.6
Total PDMC
Unaffiliated customers	$	7,097.5			5,443.4			2,828.6

*	U.S. Mining Operations comprised the following reportable segments: Morenci, Bagdad, Sierrita, Chino/Cobre, Tyrone, Manufacturing and Sales, along with other mining activities.
**	South American Mines comprised the following segments: Candelaria/Ojos del Salado, Cerro Verde and El Abra. 2005 and 2004 reflected full consolidation of El Abra and Candelaria; 2003 reflected El Abra and Candelaria on a pro rata basis (51 percent and 80 percent, respectively).

U.S. Mining Operations – Sales

     Sales and other operating revenues by U.S. Mining Operations increased $512.7 million, or 18 percent, in 2005 compared with 2004 primarily due to higher average copper prices (approximately $553 million), including copper pricing adjustments essentially for our copper collars, and higher by-product sales (approximately $8 million); partially offset by lower copper sales volumes, including purchased copper (approximately $45 million).

     In 2004, the increase of $1,115.8 million, or 64 percent, in sales and other operating revenues compared with 2003 primarily was due to higher average copper prices (approximately $1,035 million), higher copper sales volumes, including purchased copper (approximately $234 million) and higher copper rod sales volumes and prices (approximately $29 million); partially offset by a decrease associated with the elimination of intersegment sales resulting from fully consolidating El Abra and Candelaria (approximately $179 million).

South American Mines Segments – Sales

     South American Mines sales and other operating revenues increased $188.6 million, or 12 percent, in 2005 compared with 2004 primarily due to higher average copper prices (approximately $329 million), including copper pricing adjustments essentially for our copper collars, and higher precious metals revenue (approximately $6 million); partially offset by lower copper sales volumes, including purchased copper (approximately $105 million) and higher markdown of concentrates from cathode prices due to higher treatment and refining charges (approximately $59 million).

     In 2004, the increase of $897.3 million, or 127 percent, in sales and other operating revenues compared with 2003 primarily was due to higher average copper prices (approximately $445 million), the impact of fully consolidating El Abra and Candelaria (approximately $273 million), and higher intersegment sales associated with fully consolidating El Abra and Candelaria (approximately $179 million).

Primary Molybdenum Segment – Sales

     Primary Molybdenum sales and other operating revenues to unaffiliated customers increased $952.8 million, or 97 percent, in 2005 compared with 2004 primarily due to higher average molybdenum realizations (approximately $962 million) and higher molybdenum tolling revenue (approximately $24 million); partially offset by lower primary molybdenum sales volumes (approximately $40 million).

     In 2004, the increase of $601.7 million, or 157 percent, in sales and other operating revenues to unaffiliated customers compared with 2003 primarily was due to higher average molybdenum realizations (approximately $521 million) and higher primary molybdenum sales volumes (approximately $79 million).

Operating Income for Copper (U.S. and South America) and Molybdenum

     In addition to the allocation of revenues, management allocates certain operating costs, expenses and capital of PDMC’s segments that may not be reflective of market conditions. We also do not allocate all costs and expenses applicable to a mine or operation from the division or corporate offices. Accordingly, the segment information reflects management determinations that may not be indicative of actual financial performance of each segment as if it was an independent entity.

65

Note: Supplemental Data

     The following table summarizes PDMC’s operating income, special items and provisions, and the resultant operating income excluding these special items and provisions for the years 2005, 2004 and 2003:

($ in millions)

	2005			2004			2003
Segment operating income:
U.S. Mining Operations*	$	814.3			796.4			74.0
South American Mines**		791.3			707.0			182.6
Primary Molybdenum		324.3			103.3			8.6
	$	1,929.9			1,606.7			265.2
Special, pre-tax items and provisions:
U.S. Mining Operations*	$	(446.5	)		(11.6	)		(5.5	)
South American Mines**		—			—			—
Primary Molybdenum		(0.8	)		0.3			—
	$	(447.3	)		(11.3	)		(5.5	)
Segment operating income excluding special items and provisions:
U.S. Mining Operations*	$	1,260.8			808.0			79.5
South American Mines**		791.3			707.0			182.6
Primary Molybdenum		325.1			103.0			8.6
	$	2,377.2			1,618.0			270.7

*	U.S. Mining Operations comprised the following reportable segments: Morenci, Bagdad, Sierrita, Chino/Cobre, Tyrone, Manufacturing and Sales, along with other mining activities.
**	South American Mines comprised the following segments: Candelaria/Ojos del Salado, Cerro Verde and El Abra. 2005 and 2004 reflected the full consolidation of El Abra and Candelaria; 2003 reflected El Abra and Candelaria on a pro rata basis (51 percent and 80 percent, respectively).

Note: Our non-GAAP measure of special items and provisions may not be comparable to similarly titled measures reported by other companies.

U.S. Mining Operations – Operating Income

     U.S. Mining Operations reported operating income of $814.3 million, including special, net pre-tax charges of $446.5 million in 2005, compared with $796.4 million, including special, net pre-tax charges of $11.6 million in 2004, and operating income of $74.0 million, including a special, net pre-tax charge of $5.5 million in 2003. (Refer to the separate discussion of PDMC’s U.S. Mining Operations below for further discussion.)

Curtailed Properties and Recommencement of Previously Curtailed Properties

     The Company bases its decision to temporarily curtail production on a variety of factors. We may temporarily curtail production in response to external, macro-level factors such as prevailing and projected global copper production and demand, and the magnitude and trend of changes in world copper inventories. We may simply prefer to avoid depleting valuable, finite ore reserves unnecessarily during periods of potentially low margins despite the fact that cash flow and/or earnings may be positive at the time. The lead times involved in temporarily curtailing and restarting open-pit copper mines are such that careful consideration must be given to long-term planning rather than immediate reaction to price fluctuations.

     Our decisions concerning temporary curtailment of certain mining operations also take into account molybdenum market conditions. This includes overall molybdenum market supply-demand fundamentals, inventory levels and published prices.

     We also may adjust production at various properties in response to internal, micro-level factors such as the need to balance smelter feed or an internal shortage or surplus of sulfuric acid for our leaching operations. In other cases, facilities may be temporarily curtailed as a result of changes in technology that may make one technology, at a given copper price, more attractive than another technology. Unique regional issues, such as the energy crisis in the southwestern United States in 2000 and 2001, also may result in temporary curtailments.

     Any decision to recommence full operations depends on several factors, including prevailing copper prices, management’s assessment of copper market fundamentals and its estimates of future copper price trends and the extent to which any such new production is necessary for the efficient integration of the Company’s other copper-producing operations at that time. Management’s assessment of copper market fundamentals will reflect its judgment about future global economic activity and demand, and its estimates of the likelihood and timing of new projects of competitors being brought back into production. There is no single copper price threshold that would necessarily trigger the recommencement of full operations.

     Other steps necessary to recommence operations that had been temporarily closed include such actions as assembling an appropriate labor force, preparation and set-up of idle equipment, restocking consumables and similar activities. We believe most of our temporarily curtailed facilities could be brought into production within a few months to a year depending on the status of applicable environmental permitting.

     Based upon the above-mentioned factors regarding recommencement of full operations at our curtailed mines, in January 2004, we resumed production at certain previously curtailed properties. This decision was based on the rapid increase in copper prices, our view of market fundamentals for copper and molybdenum over the next several years, and our internal concentrate and sulfuric acid balance. The actual production ramp-ups and timing occurred as follows:

• Our Bagdad mine in Arizona began increasing production in January 2004 and resumed producing at full capacity in the 2004 second quarter.

• Our Sierrita mine in Arizona began increasing production in January 2004 and resumed producing at full capacity in the 2004 fourth quarter.

• Our Chino mine in New Mexico began increasing production in the 2003 fourth quarter as it resumed full mine-for-leach operation. The Chino milling operation increased to approximately 80 percent of capacity in the 2004 third quarter, which better balances our concentrate and acid production in the southwest.

• Our Ojos del Salado mine in Chile, which had been curtailed since 1998, resumed underground mining and milling operations in the 2004 second quarter.

• Our Miami smelter in Arizona resumed operating at full capacity in the 2004 second quarter.

     Including the effect of the above-mentioned recommencements, we expect our pro rata share of copper production in 2006 to be

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approximately 2.0 billion to 2.1 billion pounds (2.5 billion to 2.6 billion pounds on a consolidated basis); our molybdenum production is expected to total approximately 64 million pounds.

     Even though we continue to be optimistic about the strong copper and molybdenum markets, we will remain disciplined with our production profile. We will continue to configure our operations so that we can quickly respond both to positive and negative market demand and price swings.

     The following operations or portions of these operations remained curtailed or partially curtailed in 2005:

• Tyrone mining operations were temporarily curtailed in 2004 to focus on stockpile reclamation. During 2005, a combination of mining and reclamation activities was conducted. These activities are expected to continue through 2006 as Tyrone focuses on site reclamation while mining its remaining ore reserves. The Tyrone SX/EW operations continue at a declining production rate.

• Cobre mining and milling operations have remained curtailed since its temporary shutdown in March 1999. Permitting was initiated in 2005 to optimize future production with Chino’s mining operations.

• The Chino smelter was temporarily curtailed in January 2002. This action followed temporary suspension of the concentrator operation in 2001 and was taken due to continuing depressed copper market conditions and the need to balance smelter feed and sulfuric acid production and consumption.

• The Miami refinery was temporarily curtailed in January 2002. This action was taken due to continuing depressed copper market conditions and to balance refinery feed within PDMC.

• On June 1, 2005, the Company’s board of directors approved expenditures of $210 million to construct a concentrate-leaching, direct-electrowinning facility at the Morenci copper mine to restart its concentrator. The new facility is expected to begin operations in 2007. With future Morenci copper concentrate production being fed into the concentrate-leach facility, the Company reassessed its operating capacity, flexibility, efficiencies and costs at its Chino smelter and Miami refinery. Accordingly, the Chino smelter and Miami refinery, which have been on care-and-maintenance status since 2002, were closed. Demolition of the Chino smelter has been initiated. Completion of this project is expected in 2007.

     We have additional sources of copper that could be developed; however, such additional sources would require the development of greenfield projects or major brownfield expansions that would involve much greater capital expenditures and far longer lead-times than would be the case for facilities on care-and-maintenance status. The capital expenditures required to develop such additional production capacity include the costs of necessary infrastructure and would be substantial. In addition, significant lead-time would be required for permitting and construction.

Morenci Segment – Operating Income

     The Morenci open-pit mine, located in southeastern Arizona, primarily produces electrowon copper cathodes. We own an 85 percent undivided interest in Morenci and apply the proportional consolidation method of accounting.

     On June 1, 2005, the Company’s board of directors approved expenditures of $210 million to construct a concentrate-leach, direct-electrowinning facility at the Morenci copper mine, and to restart its concentrator, which has been idle since 2001. The concentrate-leaching facility will utilize Phelps Dodge’s proprietary medium-temperature, pressure leaching and direct-electrowinning technology that has been demonstrated at our Bagdad, Arizona, copper mine. The concentrate-leach, direct-electrowinning facility is expected to be in operation by mid-2007, and copper production is projected to be approximately 150 million pounds per year. We have also made plans to accelerate the restart of the Morenci concentrator, which is expected to allow us to produce approximately 32,000 tons of concentrate in 2006. We plan to treat this concentrate at our smelter located in Miami, Arizona.

     Concentrate-leach technology, in conjunction with a conventional milling and flotation concentrator, allows copper in sulfide ores to be transformed into copper cathode through efficient pressure leaching and electrowinning processes instead of smelting and refining. Historically, sulfide ores have been processed into copper anodes through a smelter. This decision had consequences for several of our other southwest copper operations, resulting in the impairment of certain assets. (Refer to Note 4, Special Items and Provisions, for additional discussion.)

     Operating income of $399.9 million for 2005 increased $24.2 million compared with 2004, primarily due to higher average copper prices (approximately $135 million), including copper pricing adjustments essentially for our copper collars; partially offset by higher cost of copper production (approximately $70 million) and lower copper sales volumes (approximately $45 million). Higher cost of copper production primarily was due to (i) higher operating and repair costs (approximately $63 million) primarily associated with higher supply costs, 2005 first quarter weather-related events and the initial preparations for the restart of milling operations, (ii) higher energy costs (approximately $25 million) and (iii) higher freight costs (approximately $7 million); partially offset by lower depreciation expense (approximately $13 million) primarily due to lower production and depreciation rates, and a decrease in work-in-process inventories (approximately $7 million).

     Operating income of $375.7 million for 2004 increased $298.3 million compared with 2003, primarily due to higher average copper prices (approximately $335 million); partially offset by higher cost of copper production (approximately $24 million), intercompany management fees (approximately $11 million) and insurance proceeds received in 2003 (approximately $2 million). Higher cost of copper production was primarily due to (i) higher mining and operating costs (approximately $20 million) primarily due to higher leaching and SX/EW flow rates and lower grades and higher legal, insurance and employee-related expenses, (ii) higher freight costs (approximately $5 million), (iii) higher severance taxes due to higher copper prices (approximately $4 million) and (iv) higher energy costs (approximately $3 million); partially offset by a favorable change in heap-leach and work-in-process inventories (approximately $7 million).

67

Bagdad Segment – Operating Income

     Our wholly owned Bagdad open-pit mine, located in northwest Arizona, produces copper and molybdenum concentrates and electrowon copper cathodes.

     Operating income of $389.8 million for 2005 increased $214.9 million compared with 2004, primarily due to higher by-product molybdenum revenues (approximately $234 million) resulting from higher average prices and volumes, and higher average copper prices (approximately $41 million), including copper pricing adjustments essentially for our copper collars; partially offset by higher cost of copper production (approximately $49 million), which excludes by-product molybdenum revenues, and lower copper sales volumes (approximately $23 million). Higher cost of copper production primarily was due to (i) higher labor, supply and maintenance costs (approximately $18 million), (ii) higher diesel costs (approximately $9 million), (iii) higher smelting, refining and freight costs (approximately $6 million) resulting from higher concentrate production volume, (iv) higher depreciation expense (approximately $4 million), (v) higher severance and property taxes (approximately $4 million) due to higher copper and molybdenum prices and (vi) the mitigation of damage and additional costs necessitated by record rainfall in the 2005 first quarter (approximately $4 million).

     Operating income of $174.9 million for 2004 increased $144.8 million compared with 2003, primarily due to higher average copper prices (approximately $105 million) and higher by-product molybdenum revenues (approximately $79 million) resulting from higher average prices and volumes; partially offset by higher cost of copper production (approximately $40 million), which excludes by-product molybdenum revenues. Higher cost of copper production was primarily due to (i) higher mining, milling and operating costs (approximately $34 million) primarily due to the ramp-up of operations in 2004 and the impact of a slope slippage in the 2004 second quarter, (ii) higher energy costs (approximately $4 million), (iii) higher severance taxes due to higher copper and molybdenum prices and increased production (approximately $3 million) and (iv) higher depreciation expense (approximately $4 million).

Sierrita Segment – Operating Income

     Our wholly owned Sierrita open-pit mine, located near Green Valley, Arizona, produces copper and molybdenum concentrates, electrowon copper cathodes and copper sulfates.

     Operating income of $568.8 million for 2005 increased $304.5 million compared with 2004, primarily due to higher by-product molybdenum revenues (approximately $300 million) resulting from higher average prices, higher average copper prices (approximately $35 million), including copper pricing adjustments essentially for our copper collars, and higher copper sales volumes (approximately $7 million); partially offset by higher cost of copper production (approximately $38 million), which excludes by-product molybdenum revenues. Higher cost of copper production primarily was due to (i) higher mining and milling rates (approximately $21 million) associated with ramped-up capacity, (ii) higher diesel costs (approximately $5 million) and (iii) higher severance and property taxes (approximately $5 million) resulting from higher copper and molybdenum prices and volumes.

     Operating income of $264.3 million for 2004 increased $213.4 million compared with 2003, primarily due to higher average copper prices (approximately $75 million) and higher by-product molybdenum revenues (approximately $196 million) resulting from higher average prices and volumes; partially offset by higher cost of copper production (approximately $57 million), which excludes by-product molybdenum revenues. Higher cost of copper production was primarily due to (i) higher mining, milling and operating costs (approximately $46 million) primarily due to the ramp-up of operations in 2004 and lower ore grade, (ii) higher energy costs (approximately $11 million) and (iii) higher severance taxes (approximately $3 million) due to higher copper and molybdenum prices and volumes.

Chino/Cobre Segment – Operating Income (Loss)

     The Chino open-pit mine, located near Silver City, New Mexico, primarily produces electrowon copper cathodes and copper concentrates. On December 19, 2003, we completed the acquisition of Heisei’s one-third partnership interest in Chino Mines Company, which is now wholly owned by subsidiaries of Phelps Dodge. Prior to the acquisition, we owned a two-thirds partnership interest in Chino and applied the proportional consolidation method of accounting. Our wholly owned Cobre mine, which is adjacent to the Chino mine, resumed limited mining activities in 2004, including rehabilitation of haul roads, drilling and blasting to establish new access to mining areas, and cleaning of pit benches.

     An operating loss of $15.3 million for 2005 was unfavorable by $72.9 million compared with 2004, primarily due to higher special, net pre-tax charges ($63.3 million) primarily associated with asset impairment charges of $59.9 million recorded at Cobre in the 2005 second quarter (refer to Note 4, Special Items and Provisions, for additional discussion) and higher cost of copper production (approximately $103 million), which excludes by-product molybdenum revenues; partially offset by higher copper sales volumes (approximately $34 million), higher average copper prices (approximately $44 million), including copper pricing adjustments essentially for our copper collars, and higher by-product molybdenum revenues (approximately $17 million) resulting from higher average prices and volumes. Higher cost of copper production primarily was due to (i) higher mining and milling costs (approximately $71 million) resulting from the restart of milling operations and ramp-up of mining operations, including increased stripping costs, (ii) higher smelting and refining costs related to increased concentrate production (approximately $15 million), (iii) the impact of changes in heap-leach and work-in-process inventories (approximately $5 million) and (iv) higher depreciation expense (approximately $6 million) due to higher production volumes and straight-line depreciation of equipment.

     Operating income of $57.6 million for 2004 increased $63.0 million compared with 2003, primarily due to higher average copper prices (approximately $87 million), higher sales volumes (approximately $5 million) and lower shutdown costs (approximately $3 million); partially offset by higher cost of copper production (approximately $31 million). Higher cost of copper production was primarily due to (i) higher milling costs associated with the restart of the sulfide mill (approximately $34 million), (ii) higher mining and operating costs (approximately $13 million) primarily associated with the ramp-up of operations in 2004 and (iii) an unfavorable change in heap-leach and

68

work-in-process inventories (approximately $2 million); partially offset by lower depreciation expense (approximately $15 million) and higher precious metals revenue resulting from higher prices (approximately $4 million).

Tyrone Segment – Operating Income (Loss)

     Our wholly owned Tyrone open-pit mine, located near Tyrone, New Mexico, produces electrowon copper cathodes.

     An operating loss of $209.1 million for 2005 was unfavorable by $232.0 million compared with 2004 primarily due to higher special, net pre-tax charges ($209.9 million) primarily associated with asset impairment charges of $210.5 million recorded in the 2005 second quarter (refer to Note 4, Special Items and Provisions for additional discussion), higher mining costs resulting from an increase in tons mined (approximately $36 million) and lower copper sales volumes (approximately $7 million); partially offset by (i) the effect of higher average copper prices (approximately $16 million), including copper pricing adjustments essentially for our copper collars, (ii) the impact of changes in heap-leach and work-in-process inventories (approximately $5 million) and (iii) lower depreciation expense (approximately $4 million) mostly due to lower production.

     Operating income of $22.9 million for 2004 increased $40.1 million compared with 2003, primarily due to higher average copper prices (approximately $45 million) and lower cost of copper production (approximately $1 million); partially offset by higher special, net pre-tax charges for environmental provisions ($5.3 million). Lower cost of copper production was primarily due to a favorable change in heap-leach and work-in-process inventories (approximately $13 million); partially offset by higher mining and operating costs, including higher maintenance and repairs (approximately $11 million).

Manufacturing Segment – Operating Income (Loss)

     The Manufacturing segment consists of conversion facilities, including our smelter, refinery and rod mills. This segment processes copper produced at our mining operations and copper purchased from others into copper anode, cathode and rod. In addition, at times it smelts and refines copper and produces copper rod for customers on a toll basis. Toll arrangements require the tolling customer to deliver appropriate copper-bearing material to our facilities, which we then process into a product that is returned to the customer. The customer pays PDMC for processing its material into the specified products.

     An operating loss of $148.1 million for 2005 was unfavorable by $177.2 million compared with 2004 primarily due to (i) higher special, net pre-tax charges ($150.8 million) primarily associated with asset impairment charges of $89.6 million and $59.1 million recorded at the Chino smelter and Miami refinery, respectively, in the 2005 second quarter, and $5.5 million recorded at the El Paso refinery in the 2005 fourth quarter (refer to Note 4, Special Items and Provisions, for additional discussion), (ii) higher energy costs (approximately $10 million), (iii) higher costs associated with a fire at our Norwich rod mill on January 7, 2005 (approximately $4 million) and (iv) higher smelter turnaround amortization (approximately $4 million) mostly due to the early maintenance turnaround of the Miami smelter in July 2005.

     Operating income of $29.1 million for 2004 increased $2.7 million compared with 2003, primarily due to higher rod sales (approximately $12 million); partially offset by lower smelter credits associated with in-process material (approximately $4 million), higher special, net pre-tax charges for environmental provisions ($3.1 million) and higher refinery operating expenses (approximately $2 million).

South American Mines – Operating Income

     South American Mines reported operating income for 2005 of $791.3 million, compared with operating income of $707.0 million in 2004 and $182.6 million in 2003.

     See U.S. Mining Operations – Operating Income for a discussion of factors influencing the decision to recommence curtailed operations and the principal steps necessary to recommence such operations. (Refer to the separate discussion of PDMC’s South American mine segments below for further discussion.)

Candelaria/Ojos del Salado Segment – Operating Income

     The Candelaria open-pit and underground mine, located near Copiapó in northern Chile, produces copper concentrates. We own an 80 percent partnership interest in Candelaria, a Chilean contractual mining company, which we fully consolidate (and report minority interest) as of January 1, 2004. Prior to that date, we applied the proportional consolidation method of accounting. The segment also includes the nearby Ojos del Salado underground mine that produces copper concentrates. The Ojos del Salado underground mine, which had been curtailed since 1998, resumed underground mining and milling operations during the 2004 second quarter.

     On December 22, 2005, Ojos del Salado completed a general capital increase transaction in which SMMA Candelaria, Inc. acquired a 20 percent equity interest in Ojos del Salado. As a result of the transaction, Ojos del Salado received cash of $24.8 million (net of $0.2 million of expenses) and Phelps Dodge’s interest in Ojos del Salado was reduced to 80 percent from 100 percent. Phelps Dodge continues to retain a majority interest in Ojos del Salado, which we fully consolidate (and report minority interest). (Refer to Change in Interest Gains on pages 75 and 76 for additional discussion of this transaction.)

     Operating income of $306.8 million for 2005 increased $3.5 million compared with 2004 primarily due to higher average copper prices (approximately $153 million); partially offset by higher cost of copper production (approximately $91 million) and lower copper sales volumes (approximately $58 million) due to lower copper ore grade mined and harder ore, which affected mill throughput. Higher cost of copper production primarily was due to (i) higher mining and milling costs (approximately $43 million) associated with higher repair, labor, supply and energy costs, (ii) the ramp-up of production at Ojos del Salado (approximately $21 million), (iii) higher smelting and refining costs (approximately $24 million), (iv) the impact of changes in work-in-process inventories (approximately $8 million) and (v) lower precious metals revenue (approximately $5 million); partially offset by lower depreciation expense (approximately $15 million) primarily due to increased ore reserves.

     Operating income of $303.3 million for 2004 increased $202.8 million compared with 2003, primarily due to higher average copper prices (approximately $177 million), the impact of fully consolidating Candelaria (approximately $59 million) and a favorable impact of commencing production at Ojos del Salado (approximately $9 million); partially offset by higher cost of copper production (approxi-

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mately $37 million). Higher cost of copper production included higher mining and operating costs (approximately $26 million) primarily due to higher maintenance, blasting and labor costs, and higher freight, smelting and refining costs (approximately $15 million); partially offset by higher precious metals revenue resulting from higher prices (approximately $11 million).

Cerro Verde Segment – Operating Income

     The Cerro Verde open-pit mine, located near Arequipa, Peru, produces electrowon copper cathodes. On June 1, 2005, Cerro Verde completed a general capital increase transaction. The transaction resulted in SMM Cerro Verde Netherlands B.V. acquiring an equity position in Cerro Verde totaling 21.0 percent. In addition, Compañía de Minas Buenaventura S.A.A. (Buenaventura), a publicly traded Peruvian mining concern, increased its ownership position in Cerro Verde to 18.2 percent. The remaining minority shareholders own 7.2 percent of Cerro Verde through shares publicly traded on the Lima Stock Exchange. As a result of the transaction, Cerro Verde received cash of $441.8 million (net of $1.0 million of expenses) and Phelps Dodge’s interest in Cerro Verde was reduced to 53.6 percent from 82.5 percent. Phelps Dodge continues to maintain a majority interest in Cerro Verde, which we fully consolidate (and report minority interests). (Refer to Change in Interest Gains on pages 75 and 76 for additional discussion of this transaction.)

     In early February 2005, the Phelps Dodge board of directors approved proceeding with an approximate $850 million expansion of the Cerro Verde mine simultaneously with financing efforts. On September 30, 2005, the Company obtained debt-financing facilities in the overall amount of $450 million, subject to certain conditions, for the expansion. (Refer to PDMC – Other Matters on pages 70 and 71 for additional discussion of the Cerro Verde mine expansion.)

     Operating income of $209.8 million for 2005 increased $79.8 million compared with 2004 primarily due to higher average copper prices (approximately $90 million) and higher copper sales volumes (approximately $13 million); partially offset by higher cost of copper production (approximately $20 million) primarily due to higher energy costs (approximately $13 million) and higher maintenance and supply costs (approximately $6 million).

     Operating income of $130.0 million for 2004 increased $87.3 million from 2003, primarily due to higher average copper prices (approximately $101 million); partially offset by higher cost of copper production (approximately $15 million). Higher cost of copper production included higher mining costs associated with a sulfide feasibility study and higher acid cost (approximately $11 million), higher depreciation expense (approximately $3 million) and higher energy costs (approximately $2 million); partially offset by a favorable change in work-in-process inventories (approximately $2 million).

El Abra Segment – Operating Income

     The El Abra open-pit mine, located in northern Chile, produces electrowon copper cathodes. We own a 51 percent partnership interest in El Abra, a Chilean contractual mining company, and the remaining 49 percent interest is owned by Corporación Nacional del Cobre de Chile (CODELCO), a Chilean state-owned company. We fully consolidate El Abra (and report minority interest) as of January 1, 2004. Prior to that date, we applied the proportional consolidation method of accounting.

     Operating income of $274.7 million for 2005 increased $1.0 million compared with 2004 primarily due to higher average copper prices (approximately $63 million); partially offset by lower copper sales volumes (approximately $21 million) and higher cost of copper production (approximately $41 million). Higher cost of copper production primarily was due to (i) higher operating costs associated with supplies, labor, energy and contracted services (approximately $30 million), (ii) higher leased equipment and maintenance costs (approximately $9 million), (iii) the unfavorable impact of exchange rates (approximately $8 million) and (iv) higher freight (approximately $5 million); partially offset by the impact of changes in heap-leach and work-in-process inventories (approximately $15 million). Average copper prices benefited from higher LME prices (approximately $196 million), but were offset by the realized mark-to-market effects of copper collars related to 2005 production (approximately $133 million).

     Operating income of $273.7 million for 2004 increased $234.3 million from 2003, primarily due to higher average copper prices (approximately $123 million) and the impact of full consolidation (approximately $133 million); partially offset by higher cost of copper production (approximately $22 million). Higher cost of copper production included higher mining costs, including higher costs associated with acid and diesel fuel, and higher maintenance expenses (approximately $35 million); partially offset by lower depreciation expense (approximately $7 million).

Primary Molybdenum – Operating Income

     Primary Molybdenum includes our wholly owned Henderson and Climax molybdenum mines in Colorado and conversion facilities in the United States and Europe. Henderson produces high-purity, chemical-grade molybdenum concentrates, which are further processed into value-added molybdenum chemical products. The Climax mine is currently on care-and-maintenance status. We expect to bring Climax into production concurrent with the exhaustion of the Henderson molybdenum mine ore reserves for continued long-term primary molybdenum supply for the chemicals business. Nonetheless, we continue to evaluate short- and mid-term production opportunities for the Climax mine based on market conditions and projections as well as manage the facility in a manner that allows its production to commence in a timely and efficient manner.

     In 2004, based on rapidly increasing molybdenum prices and our view of market fundamentals for molybdenum, we increased annual production at Henderson to approximately 28 million pounds, and in 2005, annual production at Henderson was approximately 32 million pounds.

     Primary Molybdenum is in the process of increasing mine production capacity at its Henderson operation to 40 million pounds per year by mid-2006. The cost to add the increased capacity is expected to total $20 million to $24 million. Primary Molybdenum is also evaluating the possibility of bringing the Climax mine on line in response to market conditions. If it is brought on line, production from the Climax mine could range from 5 million to 24 million pounds a year.

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     The molybdenum market is generally characterized by cyclical and volatile prices, little product differentiation and strong competition. The annual Metals Week Dealer Oxide mean price was $31.73 per pound in 2005, versus $16.41 and $5.32 per pound in 2004 and 2003, respectively. Prices for chemical products are generally less directly based on the previously noted reference prices. Prices are influenced by production costs of domestic and foreign competitors, worldwide economic conditions, world supply/demand balances, inventory levels, currency exchange rates and other factors. Molybdenum prices also are affected by the demand for end-use products in, for example, the construction, transportation and durable goods markets. Approximately 65 percent of global molybdenum production is a by-product of copper mining, which is relatively insensitive to molybdenum price levels.

     Our expected 2006 molybdenum production is approximately 64 million pounds (approximately 32 million pounds from our primary mine and 32 million pounds from by-product mines). Approximately 70 percent of our molybdenum sales are priced based on published prices (i.e., Platts Metals Week, Ryan’s Notes or Metal Bulletin), plus premiums. The majority of these sales use the average of the previous month (i.e., price quotation period is the month prior to shipment, or M-1). The other sales generally have pricing that is either based on a fixed price or adjusts within certain price ranges. Based upon the assumption that approximately 70 percent of our molybdenum sales, depending on customer and product mix at the time, are adjusted based on the underlying published prices, each $1.00 per pound change in the average annual underlying published molybdenum price causes a variation in annual operating income before taxes of approximately $45 million.

     Operating income of $324.3 million for 2005 increased $221.0 million compared with 2004 primarily due to higher average molybdenum realizations (approximately $962 million), lower production costs (approximately $3 million) and higher tolling revenue (approximately $24 million) due to volume and price; partially offset by higher cost of molybdenum purchased from third parties as well as by-product molybdenum purchased from certain of our U.S. copper operations (approximately $719 million), lower molybdenum sales volumes (approximately $40 million) and higher shutdown expenses (approximately $6 million). Lower production costs primarily resulted from lower cost of material drawn from inventory (approximately $57 million); partially offset by higher costs resulting from increased volumes and included (i) higher labor, maintenance and energy costs (approximately $24 million), (ii) higher conversions costs (approximately $11 million), (iii) higher tolling costs (approximately $8 million), (iv) higher depreciation expense (approximately $5 million) and (v) higher freight costs (approximately $4 million).

     Operating income of $103.3 million for 2004 increased $94.7 million compared with 2003, primarily due to higher average molybdenum prices (approximately $521 million), higher sales volumes (approximately $79 million) and lower shutdown expenses (approximately $2 million); partially offset by higher cost of molybdenum purchased from third parties as well as by-product molybdenum purchased from certain of our U.S. copper operations (approximately $452 million) and higher production costs (approximately $55 million). Higher production costs resulted primarily from increased volumes and included (i) higher labor and maintenance costs (approximately $15 million), (ii) higher conversion costs (approximately $11 million), (iii) higher cost of material drawn from inventory (approximately $11 million), (iv) higher energy costs (approximately $7 million), (v) higher freight and warehousing costs (approximately $6 million) and (vi) higher depreciation expense (approximately $5 million).

PDMC – Other Matters

     On September 16, 2005, the federal BLM completed a land exchange with the Company. This action allows us to advance development of the proposed copper mining operation near Safford, Arizona, which will include development of the Dos Pobres and San Juan copper ore bodies, about eight miles north of Safford in southeastern Arizona.

     On February 1, 2006, the Phelps Dodge board of directors conditionally approved development of the new copper mine near Safford, Arizona. Final approval is contingent upon receiving certain state permits needed for the mine. The Safford mine will require a capital investment of approximately $550 million and will be the first major new copper mine to be opened in the United States in more than 30 years.

     We anticipate that the Safford mine will be in full production during the second half of 2008, with full copper production expected to be approximately 240 million pounds per year. Life of the operation is expected to be at least 18 years.

     On June 1, 2005, the Company’s board of directors approved expenditures of $210 million to construct a concentrate-leach, direct-electrowinning facility at the Morenci copper mine, and to restart its concentrator, which has been idle since 2001. The concentrate-leach, direct-electrowinning facility is expected to be in operation by mid-2007, and copper production is projected to be approximately 150 million pounds per year. Concentrate-leach technology, in conjunction with a conventional milling and flotation concentrator, allows copper in sulfide ores to be transformed into copper cathode through efficient pressure leaching and electrowinning processes instead of smelting and refining. Historically, sulfide ores have been processed into copper anodes through a smelter. This decision had consequences for several of our other southwest copper operations, resulting in the impairment of certain assets. (Refer to Note 4, Special Items and Provisions, for additional discussion.)

     In early February 2005, the Phelps Dodge board of directors approved proceeding with an approximate $850 million expansion of the Cerro Verde mine simultaneously with financing efforts. On September 30, 2005, the Company obtained debt-financing facilities in the overall amount of $450 million, subject to certain conditions, for the expansion. (Refer to Note 14, Debt and Other Financing, for additional information on the Cerro Verde debt-financing facilities.) The $442.8 million invested by Sumitomo and Buenaventura to establish or increase their ownership interests in Cerro Verde is a major source of funds for the expansion. For the year ended December 31, 2005, approximately $300 million was spent on the Cerro Verde expansion.

     The expansion permits the mining of a primary sulfide ore body beneath the leachable ore body currently in production. Through the expansion, approximately 1.4 billion tons of sulfide ore reserves averaging 0.49 percent copper and 0.02 percent molybdenum will be processed through a new concentrator. Processing of the sulfide ore

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is expected to begin in the 2006 fourth quarter, and the expanded production rate should be achieved in the first half of 2007. The current copper production at Cerro Verde is approximately 100,000 tons per year. After completion of the expansion, copper production initially is expected to approximate 300,000 tons per year (approximately 160,700 tons per year for PD’s share).

     On November 2, 2005, Phelps Dodge, through a wholly owned subsidiary, exercised its option to acquire a controlling interest in the Tenke Fungurume copper/cobalt mining concessions in the Democratic Republic of the Congo (DRC). The action came after the government of the DRC and La Generale des Carrieres et des Mines (Gecamines), a state-owned mining company, executed amended agreements governing development of the concessions and after approval by DRC presidential decree. Phelps Dodge now holds an effective 57.75 percent interest in the project, along with Tenke Mining Corp. at 24.75 percent and Gecamines at 17.5 percent (non-dilutable). A Phelps Dodge subsidiary will be the operator of the project as it is developed and put into production. As part of the transaction, Gecamines will receive asset transfer payments totaling $50 million, including a $15 million asset transfer payment that was paid by Phelps Dodge on November 16, 2005, over a period of approximately five years as specified project milestones are reached. Phelps Dodge is responsible for funding all pre-development costs and an additional $10 million of asset transfer payments; thereafter, the Company and Tenke Mining Corp. are responsible for funding 70 percent and 30 percent, respectively, of any advances. Phelps Dodge has the right to withdraw from the project any time prior to approval of the bankable feasibility study by paying a $750,000 withdrawal fee. If Phelps Dodge withdraws, Tenke Mining Corp. then will be responsible for funding the remaining project costs, asset transfer payments, and any other advances, if required.

     The Tenke Fungurume feasibility study is expected to be completed in mid-2006, with construction of basic infrastructure in early 2007. Production could commence as early as late 2008 or early 2009.

     In November 2004, PD Energy Services (PDES), a subsidiary of Phelps Dodge, purchased a one-third interest in Luna, whose only assets consisted of a partially constructed power plant in Deming, New Mexico, for $13.3 million (PD’s share). PNM Resources and Tucson Electric Power, a subsidiary of Unisource Energy Corporation, joined PDES in purchasing the plant. The plant is expected to be operating by the 2006 second quarter. One-third of the electricity from the plant (approximately 190 megawatts) is expected to be consumed by PDMC operations in New Mexico and Arizona.

     Additional capital expenditures for the Luna power plant were estimated at approximately $110 million (approximately $37 million for PD’s share) to complete construction. For the year ended December 31, 2005, the Company spent approximately $22 million on construction of the Luna power plant. PNM Resources is functioning as the construction agent and operator of the plant. PNM Resources and Tucson Electric Power each own one-third of the plant, and each is responsible for one-third of the costs and expenses.

RESULTS OF PHELPS DODGE INDUSTRIES

     PDI, our manufacturing division, consists of our Wire and Cable segment, which produces engineered products principally for the global energy sector. Its operations are characterized by products with significant market share, internationally competitive costs and quality, and specialized engineering capabilities. Wire and Cable consists of three worldwide product-line businesses comprising energy cables, specialty conductors and magnet wire.

     On November 15, 2005, the Company entered into an agreement to sell Columbian Chemicals to a company owned jointly by One Equity Partners, a private equity affiliate of JPMorgan Chase & Co., and South Korean-based DC Chemical Co. Ltd. As a result of this proposed transaction, the operating results of Columbian, which were previously reported as a segment of PDI, have been reported separately from continuing operations and shown as discontinued operations in the Consolidated Statement of Income. In addition, on November 15, 2005, the Company entered into an agreement to sell substantially all of its North American magnet wire assets to Rea. This transaction was completed on February 10, 2006. (Refer to Discontinued Operations and Assets Held for Sale in this Management’s Discussion and Analysis of Financial Condition and Results of Operations on page 73 and Note 3, Discontinued Operations and Assets Held for Sale, for further discussion of these transactions.)

     The Company is continuing to explore strategic alternatives for Phelps Dodge High Performance Conductors, a unit of Wire and Cable.

     Major financial results of PDI for the years 2005, 2004 and 2003 are illustrated in the following table:

($ in millions)

	2005			2004			2003
Sales and other operating revenues to unaffiliated customers	$	1,189.6			971.8			669.9
Operating income	$	14.6			18.8			13.7
Special items and provisions, net	$	(18.6	)		(11.4	)		(2.0	)
Operating income before special items and provisions, net	$	33.2			30.2			15.7
Minority interests in consolidated subsidiaries	$	(5.5	)		(4.3	)		(3.7	)

Wire and Cable – Sales

     Wire and Cable reported sales to unaffiliated customers of $1,189.6 million in 2005, compared with $971.8 million in 2004 and $669.9 in 2003. The increase of $217.8 million, or 22 percent, in 2005 primarily was due to higher sales resulting from increased metal prices (approximately $156 million), higher sales of energy cables and building wire in the international markets (approximately $86 million) and a favorable foreign exchange rate impact (approximately $19 million); partially offset by lower magnet wire sales (approximately $46 million) primarily in the North American markets and due to the closure of the PD Austria facility.

     The increase of $301.9 million, or 45 percent, in 2004 compared with 2003, primarily was due to higher sales resulting from increased metal prices (approximately $119 million), higher sales volumes for energy cables and building wire in international markets (approximately $79 million), higher magnet wire sales in North America (approximately $79 million) mostly due to higher copper prices, and increased sales of specialty metal products in North America

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(approximately $25 million) primarily due to higher metal prices and higher sales volumes.

Wire and Cable – Operating Income

     Wire and Cable reported operating income of $14.6 million in 2005, including special, net pre-tax charges of $18.6 million, compared with $18.8 million in 2004 including special, net pre-tax charges of $11.4 million, and operating income of $13.7 million in 2003, including special, net pre-tax charges of $2.0 million.

     Operating income in 2005 decreased $4.2 million, compared with 2004, primarily due to higher special, net pre-tax charges ($7.2 million) and lower sales volumes and margins for magnet wire (approximately $10 million); partially offset by improved margins and higher sales volumes for energy cables and building wire in the international markets (approximately $10 million) and lower depreciation expense (approximately $5 million).

     Operating income in 2004 increased $5.1 million, compared with 2003, due to higher sales volumes and improved margins primarily for energy cables and building wire in international markets and for specialty metal products in North America (approximately $39 million); partially offset by higher operating costs in international markets related to increased sales volumes (approximately $19 million), lower magnet wire margins due to competitive pricing pressures (approximately $7 million) and higher special, net pre-tax charges ($9.4 million).

     In 2005, operations outside the United States provided 58 percent of Wire and Cable’s sales, compared with 56 percent in 2004 and 53 percent in 2003. During 2005, operations outside the United States contributed 278 percent of PDI’s operating income, compared with 174 percent in 2004 and 155 percent in 2003.

Note: Supplemental Data

     The following table summarizes Wire and Cable’s special items and provisions in operating income for the years 2005, 2004 and 2003:

($ in millions)

	2005			2004			2003
Environmental provisions, net	$	(2.2	)		(0.3	)		0.4
Restructuring programs/closures		(0.7	)		(10.5	)		0.2
Asset impairment charges		(7.9	)		(0.6	)		(1.7	)
Employee and transaction costs — sale of North American magnet wire assets		(7.8	)		—			—
Goodwill impairment		—			—			(0.9	)
Special, pre-tax items	$	(18.6	)		(11.4	)		(2.0	)

     As a result of the agreement to sell substantially all of its North American magnet wire assets to Rea, special charges of $13.2 million ($10.7 million after-tax) were recognized in the 2005 fourth quarter, which consist of an asset impairment charge of $5.4 million ($4.8 million after-tax) to reduce the carrying value of the assets to their estimated fair value less costs to sell, and transaction and employee-related costs of $7.8 million ($5.9 million after-tax).

     In January 2004, Phelps Dodge Magnet Wire announced plans to consolidate its North American manufacturing operations to reduce costs and strengthen its competitiveness in the global marketplace. This action resulted in special charges of $7.2 million ($4.9 million after-tax) associated with the closure of the manufacturing plant in El Paso, Texas, which ceased operations during the 2004 fourth quarter. During 2005, additional asset impairment charges of $2.1 million ($1.6 million after-tax) were recorded at our El Paso, Texas, facility, which were determined through an assessment of fair market value based on projected cash flows.

     In the 2004 third quarter, Phelps Dodge Magnet Wire entered into a strategic partnership with Schwering und Hasse Elektrodaht Ltd. in Germany to produce its product at its Lugde, Germany, facility. This action resulted in special charges of $3.3 million ($2.7 million after-tax) associated with the closure of the PD Austria facility, which included severance-related, plant removal and dismantling expenses, and take-or-pay contracts.

     In the 2003 fourth quarter, we determined that the Laurinburg, North Carolina, and West Caldwell, New Jersey, facilities, both temporarily closed in the 2002 fourth quarter, would not be re-opened. This action resulted in asset impairment charges of $1.3 million (before and after taxes), which were determined through an assessment of fair value based on independent appraisals of the existing assets of these two plants. During 2005, an additional asset impairment charge of $0.4 million ($0.3 million after-tax) was recorded at our Laurinburg, North Carolina, facility, which was determined through an assessment of fair market value based on projected cash flows.

     In addition, as part of our annual assessment of goodwill, in the 2003 fourth quarter we recognized an impairment charge of $0.9 million (before and after taxes) to write off the remaining goodwill balance of Phelps Dodge Magnet Wire, which was based on a comparison of the carrying value to the respective fair value using an estimate of discounted cash flows.

     During the 2003 fourth quarter, an asset impairment charge of $0.4 million (before and after taxes) was recognized to reduce the carrying value of the assets of our Hopkinsville, Kentucky, facility which closed in 2000. This adjustment reflected our current view of the fair value of these assets. Due to continued depressed market conditions, in the 2004 second quarter, a further charge of $0.6 million ($0.5 million after-tax) was recorded for asset impairments at our Hopkinsville, Kentucky, facility, which was determined through an assessment of market value as determined by an independent appraisal. In the 2004 fourth quarter, Phelps Dodge Magnet Wire completed the sale of the Hopkinsville, Kentucky, facility.

     During 2005, 2004 and 2003, special, net pre-tax charges for environmental provisions of $2.2 million, $0.3 million and an adjustment of $0.4 million, respectively, were recognized for closed facilities and closed portions of operating facilities. (Refer to Note 21, Contingencies, for further discussion of environmental matters.)

     During 2005 and 2003, special, net pre-tax charges of $0.7 million and a special, net pre-tax gain of $0.2 million, respectively, were recorded reflecting reassessments of prior restructuring programs and facility closures.

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DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

Discontinued Operations

     Columbian Chemicals is one of the world’s largest producers of engineered carbon black with facilities in North America, Europe, South America and Asia. Carbon black is a key raw material used in the manufacture of tires, rubber and plastic products, inks, paints and coatings, and a variety of other applications. Demand for carbon black is primarily driven by the needs of the tire industry, which consumes nearly 70 percent of world production.

     On November 15, 2005, Phelps Dodge entered into an agreement to sell Columbian to a company owned jointly by One Equity Partners, a private equity affiliate of JPMorgan Chase & Co., and South Korean-based DC Chemical Co. Ltd. Under the terms of the agreement, Phelps Dodge expects to receive cash proceeds of approximately $600 million, including approximately $100 million of Columbian’s foreign-held cash to be distributed to Phelps Dodge prior to the closing of the transaction. The transaction is expected to be completed in the 2006 first quarter.

     As a result of this proposed transaction, the operating results of Columbian have been reported separately from continuing operations and shown as discontinued operations in the Consolidated Statement of Income. The following table details selected financial information, which has been reported as discontinued operations for the years 2005, 2004 and 2003:

($ in millions)

	2005			2004			2003
Sales and other operating revenues	$	743.3			674.1			644.2
Operating income (loss)	$	(60.1	)		28.7			54.8
Operating income before special items and provisions, net	$	34.7			34.6			51.1
Benefit (provision) for taxes on income	$	37.0			(11.0	)		(20.7	)
Income (loss) from discontinued operations	$	(17.4	)		22.7			39.2

     In connection with the transaction, net, special charges of $94.8 million ($42.6 million after-tax and net of minority interest) were recorded in discontinued operations in the 2005 fourth quarter, which consisted of a goodwill impairment charge of $89.0 million ($67.0 million after-tax and net of minority interest) to reduce the carrying value of Columbian to its estimated fair value less costs to sell, a loss on disposal of $5.8 million ($5.0 million after-tax) associated with transaction and employee-related costs, and taxes of $7.6 million associated with the sale and dividends paid in 2005; partially offset by a deferred income tax benefit of $37.0 million.

     The assets and liabilities of Columbian have been presented separately in the Consolidated Balance Sheet as assets held for sale and liabilities related to assets held for sale. The following table provides the major classes of these assets and liabilities at December 31, 2005:

($ in millions)

Current assets:
Cash and cash equivalents	$	11.0
Accounts receivable, net		163.9
Inventories		70.9
Supplies		15.7
Prepaid expenses and other current assets		12.1
	$	273.6
Property, plant and equipment, net	$	367.2
Deferred income taxes		4.7
Goodwill		2.0
Other assets and deferred charges		2.9
	$	376.8
Current liabilities:
Short-term debt	$	4.3
Accounts payable and accrued expenses		96.9
Accrued income taxes		12.7
	$	113.9
Deferred income taxes	$	35.4
Other liabilities and deferred credits		25.7
	$	61.1

     We have not separately identified cash flows from discontinued operations, for the years 2005, 2004 and 2003, in the Company’s Consolidated Statement of Cash Flows.

Assets Held for Sale

     On November 15, 2005, Phelps Dodge entered into an agreement to sell substantially all of its North American magnet wire assets to Rea. Under the terms of the agreement, Rea agreed to purchase the assets, including certain copper inventory, for approximately $125 million in cash, subject to a working capital adjustment at the time of closing. This transaction was completed on February 10, 2006, at which time the working capital adjustment was estimated at approximately $14 million, increasing the estimated sales proceeds to approximately $139 million.

     In connection with the transaction, special charges of $13.2 million ($10.7 million after-tax) were recognized in the 2005 fourth quarter. These charges consisted of an asset impairment charge of $5.4 million ($4.8 million after-tax) to reduce the carrying value of the assets to their estimated fair value less costs to sell, and transaction and employee-related costs of $7.8 million ($5.9 million after-tax).

     The North American magnet wire sale does not meet the criteria for classification as discontinued operations as the Company will continue to supply Rea with copper rod after the closing.

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     The North American magnet wire assets and liabilities associated with the sale are presented separately in the Consolidated Balance Sheet as assets held for sale and liabilities related to assets held for sale. The following table provides the major classes of these assets and liabilities at December 31, 2005:

($ in millions)

Current assets:
Accounts receivable, net	$	57.1
Inventories		36.4
Supplies		4.2
Prepaid expenses and other current assets		2.5
	$	100.2
Property, plant and equipment, net	$	54.6
Current liabilities:
Accounts payable and accrued expenses	$	7.9
Accrued income taxes		1.4
	$	9.3
Other liabilities and deferred credits	$	0.2

OTHER MATTERS RELATING TO THE CONSOLIDATED STATEMENT OF INCOME

Cost of Products Sold

     Cost of products sold was $5,281.8 million in 2005, compared with $4,226.7 million in 2004 and $2,766.1 million in 2003. The 2005 increase of $1,055.1 million primarily was attributable to an increase in copper and molybdenum production costs (approximately $481 million — refer to PDMC’s segments on pages 64 through 70 for further discussion), higher purchased cathode and concentrate (approximately $286 million) primarily resulting from higher average copper prices, higher costs of molybdenum purchased from third parties (approximately $169 million) and increases at our Wire and Cable segment for third-party raw material purchases and higher sales volumes (approximately $149 million).

     The 2004 increase of $1,460.6 million primarily was attributable to higher purchased cathode and concentrate (approximately $504 million) due to higher copper prices and volumes, an increase in copper and molybdenum production costs (approximately $614 million — refer to PDMC’s segments on pages 64 through 70 for further discussion), increases at wire and cable for third-party raw material purchases and higher sales volumes (approximately $198 million) and higher costs of molybdenum purchased from third parties (approximately $176 million).

Depreciation, Depletion and Amortization Expense

     Depreciation, depletion and amortization expense was $441.8 million in 2005, compared with $455.5 million in 2004 and $376.7 million in 2003. The 2005 decrease of $13.7 million primarily was due to decreases at PDMC associated with higher reserves and net production (approximately $24 million); partially offset by higher depreciation expense associated with asset retirement costs (approximately $5 million) and straight-line assets (approximately $3 million).

     The 2004 increase of $78.8 million primarily was due to net production increases at PDMC (approximately $73 million) primarily due to the impact of fully consolidating Candelaria and El Abra, and an increase in straight-line depreciation expenses (approximately $14 million).

Selling and General Administrative Expense

     Selling and general administrative expense was $158.5 million in 2005, compared with $140.1 million in 2004 and $126.9 million in 2003. The 2005 increase of $18.4 million primarily resulted from higher contributions to charitable organizations (approximately $4 million), higher salaries and wages (approximately $5 million), and higher restricted stock amortization associated with the issuance of additional shares (approximately $4 million).

     The 2004 increase of $13.2 million primarily resulted from a 2004 charitable contribution to the Phelps Dodge Foundation (approximately $6 million), higher legal and professional fees (approximately $1 million), higher accruals for company-wide annual incentive compensation plans (approximately $4 million), higher restricted stock amortization associated with the issuance of additional shares (approximately $4 million), higher pension and retirement benefits (approximately $2 million), higher directors’ and officers’ liability insurance premiums (approximately $1 million) and higher deferred profit sharing (approximately $1 million); partially offset by lower employee benefit costs mostly associated with mark-to-market adjustments for stock unit plans (approximately $7 million).

Exploration and Research Expense

     Net exploration and research expense was $117.0 million in 2005, compared with $56.4 million in 2004 and $44.3 million in 2003. The 2005 increase of $60.6 million resulted from higher research expense for PDMC (approximately $15 million) due to increased project development work at the Process Technology Center, and higher exploration spending (approximately $45 million) primarily in central Africa and at our U.S. mines.

     The 2004 increase of $12.1 million primarily resulted from higher U.S. exploration spending (approximately $5 million) primarily for increased project work at Morenci and Safford, higher international exploration (approximately $4 million) primarily in South America, including the impact of fully consolidating Candelaria and El Abra (approximately $2 million), and higher research expense for PDMC (approximately $3 million) due to increased project development work at the Process Technology Center.

Interest Expense, Net

     Interest expense, net of capitalized interest, was $62.3 million in 2005, compared with $122.9 million in 2004 and $141.8 million in 2003. The 2005 decrease of $60.6 million primarily was attributable to net reductions associated with the repayment of long-term debt during 2004 and 2005 (approximately $45 million) and higher capitalized interest (approximately $16 million) primarily associated with the Cerro Verde expansion.

     The 2004 decrease of $18.9 million was primarily attributable to net reductions (approximately $34 million) related to the payment of long-term debt; partially offset by increases attributable to the impact of fully consolidating Candelaria and El Abra (approximately $7 million), higher effective interest rates for certain notes primarily resulting from the favorable unwinding of certain interest rate swaps in 2003 (approximately $5 million) and interest associated with a

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Texas franchise tax matter and prior year tax returns (approximately $2 million).

     Third-party interest paid by the Company in 2005 was $88.0 million, compared with $134.6 million in 2004 and $154.2 million in 2003.

Early Debt Extinguishment Costs

     In July 2005, the Company completed a tender offer for its 8.75 percent Notes due in 2011, which resulted in the retirement of long-term debt with a book value of approximately $280 million (representing approximately 72 percent of the outstanding notes). This resulted in a 2005 third quarter special charge of $54.0 million ($41.3 million after-tax), including purchase premiums, for early debt extinguishment costs.

     In December 2004, the Company redeemed its 5.45 percent Greenlee County Pollution Control Bonds due June 1, 2009. These bonds had a book value of approximately $81 million and were redeemed for $82.7 million. This resulted in a 2004 special charge of $1.9 million ($1.6 million after-tax) for early debt extinguishment costs, including unamortized issuance costs of $0.3 million.

     In November 2004, the Company completed the full repayment of El Abra’s senior debt and executed the termination and release of the existing financing obligations and associated security package with the lenders. The full repayment of long-term debt with a book value of approximately $316 million, including the November 2004 scheduled payment, resulted in a 2004 special charge of $2.8 million ($0.9 million after-tax and net of minority interest) for early debt extinguishment costs. The debt repayment had no impact on the full consolidation of El Abra as it continues to meet the criteria of a variable interest entity and Phelps Dodge remains the primary beneficiary of this entity.

     In October 2004, the Company redeemed its 6.50 percent Air Quality Control Obligations due April 1, 2013. These bonds had a book value of approximately $90 million and were redeemed for $90.9 million. This resulted in a 2004 special charge of $0.9 million ($0.7 million after-tax) for early debt extinguishment costs.

     In June 2004, the Company completed the full repayment of Candelaria’s senior debt and executed the termination and release of the existing financing obligations and associated security package with the bank group. The full repayment of long-term debt with a book value of approximately $166 million, including the June 2004 scheduled payment, resulted in a 2004 special charge of $15.2 million ($10.1 million after-tax and net of minority interest) for early debt extinguishment costs, including unamortized issuance costs and the unwinding of associated floating-to-fixed interest rate swaps. The debt repayment had no impact on the full consolidation of Candelaria as it continues to meet the criteria of a variable interest entity and Phelps Dodge remains the primary beneficiary of this entity.

     In March 2004, the Company redeemed its 8.375 percent debentures due in 2023. These debentures had a book value of approximately $149 million and were redeemed for a total of $152.7 million, plus accrued interest. This resulted in a 2004 special charge of $3.9 million ($3.1 million after-tax) for early debt extinguishment costs, including certain purchase premiums of $1.1 million.

     In March 2004, the Company completed tender offers for its 6.625 percent Notes due 2005 and its 7.375 percent Notes due in 2007. The tender offers resulted in the retirement of long-term debt with a book value of approximately $305 million, which resulted in a 2004 special charge of $18.5 million ($14.5 million after-tax) for early debt extinguishment costs, including purchase premiums.

Gain on Sale of Cost-Basis Investment

     On June 9, 2005, the Company entered into an Underwriting Agreement with Citigroup Global Markets, Inc., UBS Securities LLC, SPCC Cerro Trading Company, Inc. and SPC Investors, LLC. On June 15, 2005, pursuant to the Underwriting Agreement, the Company sold all of its SPCC common shares to the underwriters for a net price of $40.635 per share (based on a market price of $42.00 per share less underwriting fees). This transaction resulted in a special gain of $438.4 million ($388.0 million after-tax).

Change in Interest Gains

     In the 2005 fourth quarter, Ojos del Salado completed a general capital increase transaction. The transaction resulted in Sumitomo acquiring an equity position in Ojos del Salado totaling 20 percent and reducing Phelps Dodge’s interest to 80 percent from 100 percent.

     In connection with the transaction, Ojos del Salado issued 2,500 of its Series B Preferential Stock (Series B Common Shares) at $10,000 per share to Sumitomo and received $24.8 million in cash (net of $0.2 million in expenses). The stock issuance transaction resulted in a special gain of $8.8 million (before and after taxes) associated with our change in interest.

     In the 2005 second quarter, Cerro Verde completed a general capital increase transaction. The transaction resulted in Sumitomo acquiring an equity position in Cerro Verde totaling 21.0 percent. In addition, Buenaventura increased its ownership position in Cerro Verde to 18.2 percent, and the remaining minority shareholders own 7.2 percent of Cerro Verde through shares publicly traded on the Lima Stock Exchange. As a result of the transaction, Phelps Dodge’s interest in Cerro Verde was reduced to 53.6 percent from 82.5 percent.

     In connection with the transaction, Cerro Verde issued 122.7 million of its common shares at $3.6074 per share to Sumitomo, Buenaventura and the remaining minority shareholders, and received $441.8 million in cash (net of $1.0 million of expenses). The stock issuance transactions resulted in a special gain of $159.5 million ($172.9 million after-tax) associated with our change of interest. The $13.4 million tax benefit related to this transaction included a reduction in deferred tax liabilities ($16.1 million) resulting from the recognition of certain book adjustments to reflect dilution of our ownership interest, partially offset by taxes charged ($2.7 million) on the transfer of stock subscription rights to Buenaventura and SMM Cerro Verde Netherlands B.V. The capital increase will be used to partially finance the approximate $850 million expansion to mine a primary sulfide ore body beneath the leachable ore body currently in production at Cerro Verde. The cash received in this transaction from SMM Cerro Verde Netherlands B.V. may only be used for the sulfide expansion project and was reflected as restricted cash for financial reporting purposes. At December 31, 2005, restricted cash associated with the sulfide expansion project was $10.9 million. (Refer to

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PDMC — Other Matters on pages 70 and 71 for additional discussion of the Cerro Verde mine expansion.)

Miscellaneous Income and Expense, Net

     Miscellaneous income and expense, net was $93.3 million in 2005, compared with $45.3 million in 2004 and $10.0 million in 2003. The 2005 increase of $48.0 million resulted primarily from higher dividends received from SPCC during the first half of 2005 ($13.8 million), higher interest income ($47.5 million) and the absence of the 2004 write-downs of cost-basis investments ($11.1 million); partially offset by decreases resulting from the absence of the 2004 gains from the sale of uranium royalty rights in Australia ($10.1 million) and settlement of an historical legal matter ($9.5 million).

     The 2004 increase of $35.3 million resulted primarily from higher dividend income from SPCC ($20.4 million), a gain on the sale of uranium royalty rights in Australia ($10.1 million), settlement of an historical legal matter ($9.5 million), lower shutdown expenses ($4.5 million), higher interest income ($2.6 million), mark-to-market benefits on the Chino and Tyrone financial assurance trusts ($3.2 million) and higher foreign currency exchange gains ($4.7 million); partially offset by cost-basis investment write-downs ($11.1 million), the absence of the 2003 gain on sale of a cost-basis investment ($6.4 million) and lower mark-to-market benefits on non-qualified pension plan assets ($1.8 million).

Provision for Taxes on Income

     The effective income tax rate was 24.6 percent in 2005, compared with 9.7 percent in 2004 and 250.9 percent in 2003. The difference between our effective income tax rate for 2005 and the U.S. federal statutory rate of 35 percent was primarily due to (i) withholding taxes on Candelaria’s dividends and unremitted earnings, (ii) percentage depletion deductions for regular tax purposes in the United States, (iii) Peruvian reinvestment deductions associated with the Cerro Verde mine expansion and (iv) the lack of tax charges on the Cerro Verde and Ojos del Salado change in interest gains, as we expect to permanently reinvest our portion of the related proceeds in those entities.

     The difference between the statutory income tax rate and our effective rate for 2004 was primarily due to percentage depletion deductions and the release of valuation allowances associated with net operating loss carryforwards and other deferred tax assets that were determined to be realizable as a result of increased taxable income from improved commodity prices. The difference in 2003 was primarily due to increased valuation allowance adjustments recorded against U.S. net operating loss carryforwards and other deferred tax assets that could not be used to offset earnings at international operations, partially offset by percentage depletion deductions.

     In December 2005, the Company repatriated cash from international operations of approximately $240 million (PD’s share). As a result, the Company recognized taxes on foreign dividends of $82.5 million. Concurrent with its decision to repatriate cash, the Company determined that Candelaria’s earnings would no longer be indefinitely reinvested outside the United States. Accordingly, we increased our 2005 income tax provision by approximately $47 million associated with Candelaria’s 2005 earnings and recognized a special item for taxes of $43.1 million ($34.5 million, net of minority interest) associated with Candelaria’s unremitted earnings. In early January 2006, additional cash of approximately $100 million was repatriated, net of withholding taxes of approximately $6 million.

     The Internal Revenue Service (IRS) has completed its audit of the pre-acquisition Cyprus Amax income tax returns for the years 1997 through October 15, 1999. Because of loss carrybacks to these years from 2000, 2001 and 2002, the audit reports must be reviewed and approved by the Congressional Joint Committee on Taxation before they can become final. We expect this process to take place by the end of 2006.

     Phelps Dodge’s federal income tax returns for the years 2000 through 2002 are currently under examination by the IRS. Management believes that resolution of any issues raised, including application of those determinations to subsequent open years, will not have a material adverse effect on our consolidated financial condition or results of operations.

     Cerro Verde’s Mining Stability Agreement, which was executed in 1998, contains a provision that allows it to exclude from taxable income qualifying profits that are reinvested in an investment program filed with and approved by the Ministry of Energy and Mines (the Mining Authority). On December 9, 2004, Cerro Verde received confirmation from the Mining Authority that its sulfide expansion project of approximately $800 million qualified for the taxable exclusion. The total reinvestment benefit is limited to 30 percent of the qualifying investment, up to $240 million. In order to obtain the tax benefit, Cerro Verde is required to reinvest its qualifying profits of up to $800 million during the four year period from 2004 through 2007, which could be extended, at the discretion of the Mining Authority, for up to three years through 2010. Qualifying profits for each year are limited to 80 percent of the lesser of after-tax book income or undistributed earnings. During 2005, Cerro Verde spent approximately $300 million on the sulfide expansion project, generating a total benefit of approximately $88 million. Based on Cerro Verde’s 2005 qualified earnings of approximately $153 million, a current benefit of approximately $46 million was recorded, with the remainder of approximately $42 million recorded as a deferred tax asset.

     (Refer to Note 7, Income Taxes, for additional discussion of the Company’s provision for taxes on income.)

Cumulative Effect of Accounting Changes

     Effective December 31, 2005, the Company adopted FIN 47, which clarifies the term conditional asset retirement obligation as used in SFAS No. 143. With the adoption of FIN 47, we recognize conditional asset retirement obligations (AROs) as liabilities when sufficient information exists to reasonably estimate the fair value. Any uncertainty about the amount and/or timing of future settlement of a conditional ARO is factored into the measurement of the liability. Upon adoption, we recorded an increase to our closure and reclamation reserve of $17.9 million, a net increase in our mining properties’ assets of $4.4 million, and a cumulative effect loss of $10.1 million, net of deferred income taxes of $3.4 million.

     Effective January 1, 2003, the Company adopted SFAS No. 143. With the adoption of this Statement, we recognize AROs as liabilities when incurred, with the initial measurement at fair value. These

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liabilities are accreted to full value over time through charges to income. In addition, asset retirement costs are capitalized as part of the related asset’s carrying value and are depreciated primarily on a units-of-production basis over the asset’s respective useful life. Upon adoption, we recorded an increase to our closure and reclamation reserve of $2.5 million, net, an increase in our mining properties’ assets of $12.2 million and a cumulative effect gain of $8.4 million, net of deferred income taxes ($1.3 million). For the year ended December 31, 2003, the effect of adopting SFAS No. 143 decreased loss from continuing operations before extraordinary item and cumulative effect of accounting changes by $15.9 million, or 18 cents per basic and diluted common share.

     (Refer to Note 1, Summary of Significant Accounting Policies, for further discussion.)

Pensions and Other Postretirement Benefits

     Our pension expense in 2005 was $39.3 million, compared with $19.0 million in 2004 and $15.2 million in 2003. The 2005 increase of $20.3 million primarily was due to (i) higher amortization of actuarial losses ($10.8 million), (ii) an increase in curtailments and special retirement benefits ($4.5 million), (iii) an increase in service costs ($4.5 million) resulting from the effect of a 50-basis point reduction in the discount rate and (iv) higher interest costs ($2.3 million) resulting from the effect of a 50-basis point reduction in the discount rate and actuarial losses; partially offset by an increase in expected return on plan assets ($2.0 million) associated with higher assets.

     The 2004 increase of $3.8 million primarily was due to an increase in service costs ($2.7 million) resulting from the effect of a 50-basis point reduction in the discount rate, and lower expected return on plan assets ($2.3 million) resulting from the effects of a 25-basis point reduction in the expected rate of return; partially offset by a decrease in special retirement benefits ($1.2 million).

     During 2005 and 2004, the Company made cash contributions of $250 million and $85 million, respectively, to the Phelps Dodge Retirement Plan and U.S. pension plans for bargained employees. As a result of these contributions, the entire projected benefit obligation for those plans was funded as of year-end 2005. We do not anticipate any further appreciable funding requirements for these plans through 2008.

     Our postretirement benefit expense in 2005 was $25.4 million, compared with $30.1 million in 2004 and $40.6 million in 2003. The 2005 decrease of $4.7 million primarily was due to a decrease in interest costs ($3.7 million) resulting from a decrease in our benefit obligation due to a plan amendment associated with limiting employee life insurance and the federal subsidy associated with The Medicare Prescription Drug, Improvement and Modernization Act of 2003.

     The 2004 decrease of $10.5 million was primarily due to a decrease in special retirement benefits and curtailments ($12.5 million); partially offset by an increase in service costs ($1.0 million) primarily due to the effect of a 50-basis point reduction in the discount rate, and unrecognized net gains ($0.8 million).

     See Critical Accounting Policies on pages 47 through 52 for a discussion on the assumptions and factors affecting pension and postretirement costs.

CHANGES IN FINANCIAL CONDITION; CAPITALIZATION

Cash and Cash Equivalents

     Cash and cash equivalents (including restricted cash) at the end of 2005 totaled $1,937.5 million, compared with $1,200.1 million at the beginning of the year. Cash provided by operating activities of $1,769.7 million, which included the funding of the VEBA trusts of $200 million, together with proceeds from the sale of our SPCC investment of $451.6 million and the issuance of Cerro Verde and Ojos del Salado stock of $466.6 million was more than sufficient to fund (i) capital outlays ($686.0 million), (ii) a net decrease in debt ($394.4 million), (iii) dividend payments on common and preferred shares ($640.8 million), (iv) contributions to our global environmental trust ($100.0 million) and (v) minority interest dividend payments ($98.5 million).

     We manage our cash on a global basis and maintain cash at our international operations to fund local operating needs, fulfill local debt requirements and, in some cases, fund local growth opportunities or lend cash to other international operations. At December 31, 2005, $833.2 million, or 43 percent, of the Company’s consolidated cash was held at international locations. Cash at our international operations is subject to foreign withholding taxes of up to 22 percent upon repatriation into the United States. (Refer to Provision for Taxes on Income on page 76 for further discussion of current year taxes associated with repatriated foreign cash.)

     The following table reflects the U.S. and international components of consolidated cash and cash equivalents (including restricted cash) at December 31, 2005 and 2004:

($ in millions)

	2005		2004
U.S. operations:
Phelps Dodge*	$	1,104.3		678.4
International operations:
Phelps Dodge*		570.9		453.3
Minority participants’ shares*		262.3		68.4
		833.2		521.7
Total consolidated cash	$	1,937.5		1,200.1

* 2005 included restricted cash of $9.4 million in U.S. operations, $11.4 million in international operations and $5.0 million associated with minority participants’ shares.

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     Should the current favorable copper and molybdenum price environment continue for the foreseeable future, it is likely that our operations will continue to generate significant cash flows and cash balances. The following table provides a summary of the Company’s cash inflows and outflows for the years 2005, 2004 and 2003:

($ in millions)

	2005*			2004*			2003*
Cash provided by:
Operating activities:
Cash flow from operations	$	2,332.9			1,842.7			478.8
Changes in working capital		(142.5	)		(127.3	)		26.2
Pension plan and VEBA trusts contributions		(450.0	)		(85.4	)		—
Other operating, net		29.3			70.1			(43.4	)
Investing activities:
Capital expenditures		(686.0	)		(303.6	)		(151.4	)
Investments in subsidiaries**		(12.2	)		(13.7	)		49.0
Global environmental trust contributions		(100.0	)		—			—
Proceeds from the sale of SPCC		451.6			—			—
Other investing activities, net		(21.4	)		26.3			14.7
Financing activities:
Payment of debt, net of proceeds		(394.4	)		(1,107.1	)		(147.3	)
Dividends		(739.3	)		(71.5	)		(16.0	)
Proceeds from issuance of stock		466.6			—			—
Issuance of shares, net		55.9			291.0			80.4
Other financing, net		(74.6	)		(59.6	)		34.1
Cash included in assets held for sale		(11.0	)		—			—
Exchange rate impact		11.7			26.1			8.9
Net increase in cash and cash equivalents	$	716.6			488.0			334.0

*	2005 and 2004 reflected full consolidation of El Abra and Candelaria; 2003 reflected El Abra and Candelaria on a pro rata basis (51 percent and 80 percent, respectively).
**	2003 included $50 million of cash received and $0.9 million of cash acquired from Heisei in connection with our acquisition of its one-third partnership interest in Chino.

Chino Mines Company Acquisition

     On December 19, 2003, we acquired, through a wholly owned subsidiary, the one-third partnership interest in Chino Mines Company held by Heisei. Heisei informed the Company that it decided to exit the partnership because Chino was no longer a strategic fit for its business. Under the terms of the agreement, Heisei paid $114 million in cash, including approximately $64 million placed into a trust to provide a portion of the financial assurance for mine closure/closeout obligations, which represented a one-third share of the then-current estimate by the state of New Mexico of the amount of financial assurance Chino must provide in connection with its current permits. Under the terms of the agreement, the Company assumed most ongoing liabilities; however, Heisei retained responsibility for its one-third share of any natural resource damage claims for matters occurring prior to the date of the agreement and, in certain circumstances, adverse changes in the laws and regulations relating to reclamation.

     This acquisition was accounted for as a purchase transaction and recorded in accordance with the guidance of SFAS No. 141, “Business Combinations.” Therefore, the purchase price was allocated to the assets acquired and liabilities assumed based on estimated fair values. The estimated fair value of the assets received (including $50 million of cash received, $0.9 million of cash acquired from Heisei, and $64 million placed into trust) exceeded the fair value of liabilities assumed resulting in negative goodwill, which was allocated to the fair value of the long-lived assets. In accordance with SFAS No. 141, the remaining excess of $68.3 million was recognized as an extraordinary gain. The extraordinary gain principally resulted from negotiating the trust payment based on certain closure assumptions, such as timing of cash flow estimates, discount rates and escalation rates used by the state of New Mexico in early 2002, which differ from assumptions Phelps Dodge used on a viable mine basis utilizing cash flows negotiated with the state in December 2003, with the applicable discount rate and escalation rate used to fair value our then-current asset retirement obligations under SFAS No. 143. Additionally, the cash payment negotiated to cover Heisei’s one-third share of Chino’s other liabilities at the time of the agreement was negotiated on a shut-down basis and included liabilities that would only be incurred if the Chino operations were to cease. The results of operations for Chino Mines Company have been included in the consolidated financial results beginning December 19, 2003, and for the full years of 2005 and 2004.

     (Refer to Note 2, Acquisitions and Divestitures, for further discussion of this transaction.)

Working Capital

     During 2005, net working capital balances (excluding cash and cash equivalents, restricted cash and debt) increased by $122.4 million. This net increase resulted primarily from:

• a $266.5 million increase in accounts receivable primarily due to copper receivables resulting from higher copper prices (approximately $314 million), higher molybdenum receivables resulting from higher molybdenum prices (approximately $29 million), repayment of an accounts receivable securitization program (approximately $85 million) and higher taxes receivable (approximately $53 million); partially offset by reclassification of receivable amounts to assets held for sale ($221.0 million);

• a net increase of $250.6 million in assets held for sale and liabilities related to assets held for sale associated with the reclassification of amounts associated with the pending sale of Columbian ($159.7 million) and Magnet Wire North America ($90.9 million);

• a $37.6 million increase in prepaid expenses and other current assets primarily due to fair value adjustments associated with derivatives (approximately $24 million), the reclassification of the current portion of long-term investments (approximately $6 million) and higher prepaid foreign income taxes (approximately $9 million); and

• a $38.9 million increase in current deferred tax assets primarily due to reclassification from non-current deferred income taxes (approximately $48 million); partially offset by the reclassification of amounts to assets held for sale ($10.5 million); partially offset by

• a $473.6 million increase in accounts payable and accrued expenses mostly due to (i) higher accruals for hedging and price protection programs (approximately $361 million) mostly associated with mark-to-market adjustments on copper collars, of which approximately $187 million was associated with realized 2005 copper price protection programs, (ii) higher balances for copper cathode and concentrate purchases (approximately $86 million),

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(iii) net increases in asset retirement obligations (approximately $47 million) and environmental reserves (approximately $18 million) primarily resulting from the reclassification of the current portions for the acceleration of certain environmental and reclamation projects, (iv) higher accruals associated with capital spending (approximately $35 million) and (v) timing of payments (approximately $20 million); partially offset by reclassification of amounts to liabilities related to assets held for sale ($104.8 million) and lower postretirement liabilities (approximately $29 million) due to funding the VEBA trusts in December 2005; and

• a decrease of $62.6 million in inventories primarily due to the reclassification of amounts to assets held for sale ($107.3 million); partially offset by increases due to lower molybdenum sales (approximately $38 million).

Investing Activities

     Capital expenditures and investments in subsidiaries for 2005 totaled $698.2 million, including $622.3 million for PDMC, $19.5 million for PDI, $15.8 million for other corporate-related activities and $40.6 million associated with discontinued operations. Capital expenditures and investments in subsidiaries for 2004 totaled $317.3 million, including $247.2 million for PDMC, $25.2 million for PDI, $13.9 million for other corporate-related activities and $31.0 million associated with discontinued operations. The increase in capital expenditures for 2005 primarily was due to approximately $300 million spent on the Cerro Verde expansion project in 2005 and approximately $22 million spent for our share of the construction costs for the Luna power plant.

     Capital expenditures and investments for 2006 are expected to be approximately $1.3 billion, including approximately $1.2 billion for PDMC, approximately $30 million for PDI and approximately $20 million for other corporate-related activities. Capital expenditures and investments are expected to increase primarily due to amounts we expect to spend in 2006 associated with the Cerro Verde expansion project (approximately $500 million), development of the recently approved Safford copper mine (approximately $200 million) and the construction of the concentrate-leach, direct-electrowinning facility at Morenci and restart of its concentrator (approximately $150 million). These capital expenditures and investments are expected to be funded primarily from operating cash flows and cash reserves. In addition, the Cerro Verde expansion project will be funded by the cash proceeds received from its equity partners, project financing and internally generated funds.

Financing Activities and Liquidity

     The Company’s total debt at December 31, 2005, was $694.5 million, compared with $1,096.9 million at December 31, 2004, and $1,959.0 million at December 31, 2003. The $402.4 million net decrease in total debt during 2005 primarily was due to prepayments on principal balances and scheduled payments of senior debt (approximately $394 million) net of the $20.0 million in borrowings under the Cerro Verde debt-financing facilities. The Company’s ratio of debt to total capitalization was 9.6 percent at December 31, 2005, compared with 18.3 percent at December 31, 2004.

     The $862.1 million net decrease in total debt during 2004 primarily was attributable to prepayments on principal balances and scheduled payments of senior debt (approximately $1.1 billion), net of the March 2004 issuance of $150 million in 30-year senior notes. (Refer to Early Debt Extinguishment Costs on page 75 for further discussion of the 2004 debt prepayments.) This decrease was offset by an increase of approximately $275 million associated with the full consolidation of El Abra and Candelaria.

     On September 30, 2005, the Company entered into a number of agreements in connection with obtaining debt-financing facilities in the overall amount of $450 million, subject to certain conditions, for the expansion of the Cerro Verde copper mine. (Refer to PDMC – Other Matters on pages 70 and 71 for additional discussion of the Cerro Verde mine expansion.) Export credit agencies and commercial banks supporting the debt-financing facility are the Japan Bank for International Cooperation (JBIC), KfW banking group of Germany (KfW), Calyon New York Branch, Mizuho Corporate Bank of Japan, Scotia Capital of Canada and the Royal Bank of Scotland. The JBIC facility also includes Sumitomo Mitsui Banking Corp. and Bank of Tokyo Mitsubishi. Phelps Dodge has guaranteed its adjusted pro rata share of the financing until completion of construction and has agreed to maintain a net worth of at least $1.5 billion. The security package associated with the debt-financing facilities includes mortgages and pledges of substantially all of the assets of Cerro Verde and requires the Company, Sumitomo and Buenaventura to pledge their respective shares of Cerro Verde.

     The financing comprises (i) a JBIC facility with two tranches totaling $247.5 million (Tranche A of $173.25 million and Tranche B of $74.25 million), (ii) a KfW facility totaling $22.5 million, and (iii) a commercial bank loan facility of $180.0 million, of which $90.0 million represents a stand-by facility intended to be replaced by the issuance of Peruvian bonds, currently planned for 2006. The financing has a maximum 10-year term, and repayment consists of 16 semi-annual installments commencing on the earlier of the March 20 or the September 20 next occurring after commencement of commercial operations or March 20, 2008. Under the JBIC and commercial bank loan facilities, interest is payable at a floating rate based on LIBOR, plus a fixed margin. Under the KfW facility, interest is payable at a variable or fixed rate, determined by Cerro Verde based on market rates at the time of drawdown. At December 31, 2005, $20.0 million was borrowed and outstanding under these facilities. Copper market conditions and internally generated cash will determine future borrowings.

     In October 2005, we retired our remaining 6.625 percent Notes ($41.1 million), then due, in their entirety.

     In July 2005, the Company completed a tender offer for its 8.75 percent Notes due in 2011, which resulted in the retirement of long-term debt with a book value of approximately $280 million (representing approximately 72 percent of the outstanding notes). This resulted in a 2005 third quarter special charge of $54.0 million ($41.3 million after-tax), including purchase premiums, for early debt extinguishment costs. We estimate that this prepayment of debt will reduce our 2006 pre-tax interest expense by approximately $24 million.

     In July 2005, El Abra fully repaid subordinated debt of $34.3 million to CODELCO, its minority owner.

     In April 2005, Columbian Chemicals Korea (South Korea) retired its bank loan of $2.0 million.

     On December 14, 2005, Cerro Verde entered into a Peruvian bond indenture with an aggregate principal amount not to exceed

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$250 million. The indenture has been filed for review with, and is subject to the approval of, the National Supervisory Commission of Companies and Securities of Peru. We are planning to issue bonds of up to $90 million during 2006. As of February 23, 2006, no bonds have been issued under the indenture.

     On April 1, 2005, the Company amended the agreement for its $1.1 billion revolving credit facility, extending its maturity to April 20, 2010, and slightly modifying its fee structure. The facility is to be used for general corporate purposes. The agreement permits borrowings of up to $1.1 billion, with a $300 million sub-limit for letters of credit. Under the agreement, interest is payable at a variable rate based on the agent bank’s prime rate or at a fixed rate based on LIBOR or fixed rates offered independently by the several lenders, for maturities of up to 360 days. The agreement requires the Company to maintain a minimum earnings before interest, taxes, depreciation and amortization (EBITDA — as defined in the agreement) to interest ratio of 2.25 on a rolling four-quarter basis, and limits consolidated indebtedness to 55 percent of total consolidated capitalization (as defined in the agreement). At December 31, 2005, the Company met all financial covenants. At December 31, 2005, there were $73.8 million of letters of credit issued under the new revolver. Total availability under the revolving credit facility at December 31, 2005, amounted to approximately $1,026 million, of which approximately $226 million could be used for additional letters of credit.

     Short-term debt was $14.3 million, all by our international operations, at December 31, 2005, compared with $78.8 million at December 31, 2004. The $64.5 million decrease primarily was due to a net decrease in short-term borrowings for El Abra (approximately $62 million).

     Due to economic conditions and continuing unsatisfactory copper prices, the Company eliminated the quarterly dividend on its common shares in 2001. Accordingly, there were no dividends declared or paid on common shares in 2003. On June 2, 2004, the Company reinstated quarterly dividend payments at 25 cents per common share, and on June 2, 2005, the quarterly dividend payments were increased to 37.5 cents per common share. In addition, as part of the Company’s program to return $1.5 billion in capital to shareholders by the end of 2006, a special cash dividend of $5.00 per common share was paid on December 2, 2005, and a special cash dividend of $4.00 per common share is payable on March 3, 2006. Total common dividend payments were $630.7 million for 2005, and $47.5 million for 2004.

     On August 15, 2005, our Series A Mandatory Convertible Preferred Stock (Series A Stock) automatically converted into 4.2 million shares of common stock. In 2005, the Company paid quarterly dividends of $5.0625 per share of Series A Stock amounting to $10.1 million. In 2004 and 2003, the Company declared dividends of $6.75 per share of Series A Stock, or $13.5 million.

     In November 2001, the Company entered into an agreement (the Receivables Facility), which was extended for three one-year periods in December 2004, whereby it sold on a continuous basis an undivided interest in eligible trade accounts receivable. Pursuant to the Receivables Facility, the Company formed PD Receivables LLC (PD Receivables), a wholly owned, special-purpose, bankruptcy-remote subsidiary. PD Receivables was formed for the sole purpose of buying and selling receivables generated by the Company and was consolidated with the operations of the Company. Under the Receivables Facility, the Company transferred certain of its trade receivables to PD Receivables. PD Receivables, in turn, sold and, subject to certain conditions, from time to time sold an undivided interest in these receivables, and was permitted to receive advances of up to $90 million for the sale of such undivided interest. During 2005, the Company repaid $85 million previously received under the Receivables Facility and on December 30, 2005, the Company terminated the program.

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Contractual Obligations, Commercial Commitments and Other Items that May Affect Liquidity

     The following table summarizes Phelps Dodge’s contractual obligations at December 31, 2005, and the effect such obligations are expected to have on its liquidity and cash flow in future periods. For a discussion of environmental and closure obligations, refer to Environmental Matters in Management’s Discussion and Analysis of Financial Condition and Results of Operations:

Contractual Obligations:
($ in millions)

			Less Than						After
	Total		1 Year		1-3 Years		4-5 Years		5 Years
Short-term debt	$	14.3		14.3		—		—		—
Long-term debt		680.2		2.5		65.7		30.2		581.8
Scheduled interest payment obligations*		982.8		52.7		97.5		93.2		739.4
Asset retirement obligations**		62.2		26.1		26.2		8.8		1.1
Take-or-pay contracts***		1,469.1		863.5		259.2		128.8		217.6
Operating lease obligations***		95.0		18.2		33.2		23.9		19.7
Mineral royalty obligations		20.0		1.9		3.8		3.6		10.7
Total contractual cash obligations****	$	3,323.6		979.2		485.6		288.5		1,570.3

*	Scheduled interest payment obligations were calculated using stated coupon rates for fixed debt and interest rates applicable at December 31, 2005, for variable rate debt.
**	Asset retirement obligations only include our estimated contractual cash payments associated with reclamation activities at certain sites for which our costs are estimable and the timing of payments is reasonably determinable as of December 31, 2005. The timing and the amount of these payments could change as a result of changes in regulatory requirements, changes in scope of reclamation activities and as actual reclamation spending occurs. The table excludes remaining cash payments of approximately $81 million that are expected to be incurred in connection with accelerating certain closure projects, which are in the Company’s discretion. (Refer to Other Items that May Affect Liquidity on pages 82 through 84 for further discussion of the Accelerated Projects.) Additionally, we have also excluded payments for reclamation activities that are expected to occur after five years that are either not estimable and/or for which the timing is not determinable because the majority of these cash flows are expected to occur over an extended period of time commencing near the end of the mine life.
***	Included in our take-or-pay contracts and operating leases are obligations of approximately $392 million and $7 million, respectively, associated with discontinued operations.
****	This table excludes certain other obligations that we have reflected in our Consolidated Balance Sheet, including: (i) estimated funding for pension obligations as the funding may vary from year-to-year based on changes in the fair value of plan assets and actuarial assumptions. For 2006, there is no minimum funding requirement for the Phelps Dodge Retirement Plan or for our U.S. pension plans for bargained employees, but we expect to provide funding of approximately $4 million for our international subsidiaries and supplemental retirement plan; and (ii) environmental obligations and contingencies for which the timing of payments is not determinable.

     The increase in our take-or-pay obligations at year-end 2005, compared with year-end 2004, primarily was due to obligations associated with the Cerro Verde mine expansion and Morenci mill restart (approximately $330 million), copper cathode contracts (approximately $279 million), petroleum-based products (approximately $227 million), and Candelaria and Cerro Verde contracted ocean freight rates (approximately $75 million).

     Our take-or-pay contracts primarily include contracts for petroleum-based feedstock for conversion into carbon black (approximately $356 million), contracts for other supplies and services (approximately $398 million), of which approximately $321 million was associated with the expansion of the Cerro Verde mine, contracts for copper cathodes and anodes for deliveries of specified volumes at market-based prices (approximately $338 million), contracts for electricity (approximately $139 million), transportation and port fee commitments (approximately $157 million), contracts for sulfuric acid for deliveries of specified volumes based on negotiated rates to El Abra and Cerro Verde (approximately $53 million), contracts for natural gas (approximately $19 million) and oxygen obligations for deliveries of specified volumes at fixed prices to Bagdad (approximately $9 million). Approximately 53 percent of our take-or-pay electricity obligations are through PDES, the legal entity used to manage power for PDMC North American operations at generally fixed-priced arrangements. PDES has the right and the ability to resell the electricity as circumstances warrant. Obligations for petroleum-based feedstock for conversion into carbon black are for specific quantities, and ultimately will be purchased based upon prevailing market prices at the time. These petroleum-based products may be re-sold to others if circumstances warrant. Obligations for natural gas provide for deliveries of specified volumes, at market-based prices, primarily at Columbian’s carbon black operation in Brazil. Transportation obligations total approximately $136 million primarily for Candelaria and Cerro Verde contracted ocean freight rates and El Abra sulfuric acid freight arrangements. Columbian’s carbon black facility in the United Kingdom has port fee commitments of approximately $14 million over approximately 43 years. Our copper mine in Peru has port fee commitments of approximately $7 million over approximately 21 years.

     Office leases comprise approximately 62 percent of our operating lease commitments (excluding sublease receipts). The Company has subleased certain office space for which it expects to receive sublease payments of $3.3 million over seven years. The balance of our operating lease commitments is for vehicles, equipment and other facilities.

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Commercial Commitments:
($ in millions)

			Less Than						After
	Total		1 Year		1-3 Years		4-5 Years		5 Years
Standby letters of credit	$	75.3		74.6		0.7		—		—
Corporate guarantees		370.0		—		—		—		370.0
Sales performance guarantees		39.4		28.4		10.9		0.1		—
Surety bonds		165.0		0.3		2.6		—		162.1
Asset pledges		27.6		27.6		—		—		—
Total commercial commitments	$	677.3		130.9		14.2		0.1		532.1

     Standby letters of credit primarily were issued in support of commitments or obligations. Approximately 28 percent related to insurance programs, 44 percent related to collateral for reclamation surety bonds, and 28 percent related to environmental remediation and reclamation obligations. Approximately 99 percent of our standby letters of credit outstanding at December 31, 2005, will expire within one year and are expected to be renewed as necessary.

     We also have corporate performance guarantees in place for financial assurance requirements related to closure/reclamation/post-closure care costs primarily associated with our mining and refining operations. Approximately 91 percent of our corporate performance guarantees relate to our Chino and Tyrone mining operations, which were entered into during 2003 and 2004, respectively. (Refer to Note 21, Contingencies, for further discussion of the associated liabilities recorded in accordance with SFAS No. 143.)

     At December 31, 2005, Phelps Dodge had sales performance guarantees of $39.4 million primarily associated with our Wire and Cable segment’s bid and sales contracts.

     Phelps Dodge had surety bonds of $165.0 million at December 31, 2005, primarily related to reclamation, closure and environmental obligations ($138.1 million), self-insurance bonds primarily for workers’ compensation ($24.6 million) and miscellaneous bonds ($2.3 million). Also, we pledged land to support a $27.6 million mortgage (expires December 1, 2006) for our 50 percent-owned joint venture, Port Carteret, which is accounted for on an equity basis.

     At December 31, 2005, the Company had pledged $27.6 million of assets related to a joint venture investment.

     Generally, Phelps Dodge does not have any debt-rating triggers that would accelerate the maturity dates of its debt.

     Phelps Dodge’s credit rating could adversely affect its ability to renew existing or obtain access to new credit facilities in the future and could increase the cost of such facilities. The Company’s ability to utilize third-party guarantees for reclamation financial assurance may be adversely impacted if its credit ratings were downgraded below investment grade. The Company has the ability, provided it continues to be in compliance with the covenant requirements, to draw upon its $1.1 billion revolving credit facility prior to its commitment termination on April 20, 2010. Changes in credit ratings may affect the revolving credit facility fee and the costs of borrowings under that facility, but credit ratings do not impact the availability of the facility.

Other Items that May Affect Liquidity

     On February 1, 2006, the Company’s board of directors approved a two-for-one split of the Company’s outstanding common stock. The split will be effected in the form of a 100 percent stock dividend and will increase the number of shares outstanding to approximately 203.2 million from approximately 101.6 million. Common shareholders of record at the close of business on February 17, 2006, will receive one additional share of common stock for every share they own as of that date. The additional shares will be distributed on March 10, 2006. The Company’s common stock will begin trading at its post-split price at the beginning of trading on March 13, 2006. (Refer to Note 24, Stock Split, for further discussion.)

     On October 20, 2005, the Company’s board of directors approved a program to return $1.5 billion in capital to shareholders by the end of 2006, to be implemented in several stages. As part of this program, the board declared special cash dividends of $5.00 per common share, or approximately $500 million, which was paid to shareholders on December 2, 2005, and $4.00 per common share, or approximately $406 million, which is payable on March 3, 2006, to common shareholders of record at the close of business on February 14, 2006. Based on the Company’s current balance sheet, its view of 2006 and overall world economic conditions, the board also approved a share repurchase program. The Company, however, may issue additional special dividends in lieu of share repurchases. The timing, form and amounts of additional distributions during 2006 will depend upon market conditions and other factors.

     On December 6, 2005, the Phelps Dodge board of directors approved establishing two trusts, one dedicated to funding postretirement medical obligations and the other dedicated to funding postretirement life insurance obligations, for eligible U.S. retirees. These trusts are being established in connection with certain employee benefit plans sponsored by Phelps Dodge and are intended to constitute VEBA trusts under section 501(c)(9) of the Internal Revenue Code. The trusts will help provide assurance to participants in these plans that Phelps Dodge will continue to have funds available to meet its obligations under the covered retiree medical and life insurance programs. The trusts will not reduce retiree contribution obligations that help fund these benefits and will not guarantee that retiree contribution obligations will not increase in the future. On December 21, 2005, the Company contributed a total of $200 million to these trusts, consisting of $175 million for postretirement medical obligations and $25 million for postretirement life insurance obligations.

     Additionally, on December 6, 2005, the Phelps Dodge board of directors approved establishing a trust dedicated to help fund the Company’s global environmental reclamation and remediation activities. On December 22, 2005, the Company made an initial cash contribution of $100 million to this trust and expects to contribute an additional $300 million in the 2006 first quarter.

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     On July 13, 2005, the Company made a cash contribution of $250 million to the Phelps Dodge Retirement Plan and U.S. pension plan for bargained employees. As a result, the entire projected benefit obligation for those plans was funded at year-end 2005. We do not anticipate any further appreciable funding requirements for these plans through 2008.

     On May 27, 2005, shareholders approved an amendment to the Company’s Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 200 million shares to 300 million shares. This increase provides additional flexibility for the Company to pursue various corporate objectives.

     The Company filed a $1 billion shelf registration statement on Form S-3 with the Securities and Exchange Commission, which was declared effective May 10, 2005, to combine the $400 million shelf registration filed April 15, 2005, and $600 million outstanding under a shelf registration statement that was declared effective on July 15, 2003. The shelf registration provides flexibility to efficiently access capital markets should financial circumstances warrant.

     On March 24, 2005, Moody’s Investors Service upgraded Phelps Dodge’s senior unsecured ratings to Baa2 (stable outlook) from Baa3 (stable outlook).

     On February 9, 2005, Standard and Poor’s Rating Services (S&P) revised Phelps Dodge’s senior unsecured debt rating from BBB- (positive outlook) to BBB (positive outlook). On October 27, 2005, S&P revised the Company’s outlook to stable from positive.

     On September 14, 2004, Fitch Ratings (Fitch) raised our senior unsecured debt rating from BBB- to BBB. Fitch also raised the Company’s commercial paper rating from F3 to F2.

     New Mexico and Colorado’s mined-land reclamation laws require financial assurance covering the future cost of reclamation. Arizona’s Mine Land Reclamation Act (the Arizona Act) permits a company to satisfy financial assurance requirements by demonstrating it has financial strength to fund future reclamation costs identified in an approved reclamation plan. An investment-grade bond rating is one of the financial strength tests under the Arizona Act. Phelps Dodge’s senior unsecured debt currently carries an investment-grade rating. Additionally, the Company currently meets another financial strength test in Arizona that is not ratings dependent.

     For New Mexico, financial assurance may be provided in several forms, including third-party performance guarantees, collateral bonds, surety bonds, letters of credit and trust funds. Based upon current permit terms and agreements with the state of New Mexico, up to 70 percent of the financial assurance for Chino, Tyrone and Cobre may be provided in the form of third-party performance guarantees. Under the Mining Act Rules and the terms of the guarantees, certain financial soundness tests must be met by the guarantor. A publicly traded company may satisfy these financial tests by showing that its senior unsecured debt rating is investment grade and that it meets certain requirements regarding assets in relation to the required amount of financial assurance. Phelps Dodge has provided performance guarantees for a portion of the financial assurance required for Chino, Tyrone and Cobre. Phelps Dodge’s senior unsecured debt currently carries an investment-grade rating. If the Company’s bond rating falls below investment grade, unless a different financial soundness test is met, the New Mexico mining operations having a performance guarantee for a portion of their financial assurance would be required to supply financial assurance in another form.

     The cost of surety bonds (the traditional source of financial assurance) has increased significantly in recent years. Also, many surety companies are now requiring an increased level of collateral supporting the bonds. If surety bonds are unavailable at commercially reasonable terms, the Company could be required to post other collateral or cash or cash equivalents directly in support of financial assurance obligations.

     The Company purchases a variety of insurance products to mitigate insurable losses. The various insurance products typically have specified deductible amounts, or self-insured retentions, and policy limits. The Company purchases all-risk property insurance with varying site deductibles and an annual aggregate corporate deductible of $30 million. The Company generally is self-insured for workers’ compensation, but purchases excess insurance up to statutory limits. An actuarial study is performed twice a year by an independent, third-party actuary for the Company’s various casualty programs, including workers’ compensation, to estimate required insurance reserves. (Refer to Note 21, Contingencies, for further discussion of insurance.)

     On June 16, 2005, the Chilean government instituted a progressive tax rate on the operational margin generated from mining activities in Chile (5 percent for companies, including our El Abra and Candelaria subsidiaries, whose annual sales exceed 50,000 metric tons of copper). This law is effective January 1, 2006, and upon review of the final regulations, El Abra and Candelaria have opted to elect the special incentives provided by law. The special incentives include (i) a reduction in the Mining Tax rate from 5 percent to 4 percent for a 12-year period and a guarantee that there will be no changes in other mining-related taxes, including the mining license fee, (ii) a tax credit equal to 50 percent of the Mining Tax during 2006 and 2007, and (iii) the use of accelerated depreciation in determining the Mining Tax and remittance of tax dividends through 2007. In addition, both El Abra and Candelaria will be required to disclose certain financial information, including audited financial statements to the Chilean Securities and Insurance Commission.

     On June 24, 2004, the Executive Branch of the Peruvian government approved legislation incorporating a royalty on mining activities. If payable by Cerro Verde, the royalty would be assessed at a graduated rate of up to 3 percent on the value of Cerro Verde’s sales, net of certain related expenses. It is not clear what, if any, effect the new royalty law will have on operations at Cerro Verde.

     Cerro Verde’s Mining Stability Agreement, which was executed in 1998, contains a provision that allows it to exclude from taxable income qualifying profits that are reinvested in an investment program filed with and approved by the Ministry of Energy and Mines (the Mining Authority). On December 9, 2004, Cerro Verde received confirmation from the Mining Authority that its sulfide expansion project of approximately $800 million qualified for the taxable exclusion. The total reinvestment benefit is limited to 30 percent of the qualifying investment or up to $240 million. In order to obtain the tax benefit, Cerro Verde is required to reinvest its qualifying profits of up to $800 million during the four year period from 2004 through 2007, which could be extended, at the discretion of the Mining

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Authority, for up to three years through 2010. Qualifying profits for each year are limited to 80 percent of the lesser of after-tax book income or undistributed earnings. During 2005, Cerro Verde spent approximately $300 million on the sulfide expansion project, generating a total benefit of approximately $88 million. Based on Cerro Verde’s 2005 qualified earnings of approximately $153 million, a current benefit of approximately $46 million was recorded, with the remainder of approximately $42 million recorded as a deferred tax asset.

     On August 15, 2005, our Series A Stock automatically converted, at the rate of 2.083 common shares per share of Series A Stock, into 4.2 million shares of common stock. The conversion rate was based on the average closing market price for the 20 consecutive trading days ending with the third trading day immediately preceding the conversion date. Each share of Series A Stock was non-voting and entitled to an annual dividend of $6.75, paid quarterly.

     During the 2005 third quarter, the Company finalized a year-long process of identifying and prioritizing opportunities to accelerate certain demolition, environmental reserve and asset retirement obligation projects. The increased spending was prioritized based on projects where we have regulatory flexibility to remediate at a faster pace, structures that can be readily demolished, reclamation of visibly impacted areas, and projects in Arizona and New Mexico where we have substantial long-term closure obligations (Accelerated Projects). For the years 2001 to 2003, environmental reserve and asset retirement obligation payments averaged approximately $28 million per year. In 2004 and 2005, they were approximately $101 million and $117 million, respectively. The increase in spending in 2004 was due to a large settlement at our Yonkers, New York, site and work conducted to satisfy permit modifications related to our Tyrone mine in New Mexico. The increase in spending in 2005 reflected the initial work associated with the Accelerated Projects, as discussed above. Our current plan is to spend, including capital, an average of approximately $150 million per year for 2006 and 2007.

     Health-care costs continue to escalate at 10 to 15 percent annually. This is a burden that companies like Phelps Dodge cannot sustain over the long term. Phelps Dodge has continued to implement management tools to mitigate the impact of the increasing medical trend rate; nonetheless, this medical cost trend may have an adverse impact on the Company.

     Our earnings and cash flows primarily are determined by the results of our copper and molybdenum mining business. Based on expected 2006 annual consolidated production of approximately 2.5 billion to 2.6 billion pounds of copper, each 1 cent per pound change in the average annual copper price (or in the average annual cost of copper production) causes a variation in annual operating income, excluding the impact of our copper collars and before taxes and adjustments for minority interests of approximately $26 million. The effect of such changes in copper prices or costs similarly affects our pre-tax cash flows. We have taken steps intended to improve our costs and operating income. Higher copper prices are generally expected to be sustained when there is a worldwide balance of copper supply and demand, and copper warehouse stocks are reasonable in relation to consumption.

     Based on our expected 2006 molybdenum production of approximately 64 million pounds and the assumption that approximately 70 percent of our molybdenum sales, depending on customer and product mix at the time, are adjusted based on the underlying published prices, each $1.00 per pound change in the average annual underlying published molybdenum price causes a variation in annual operating income before taxes of approximately $45 million.

     Consumption of copper is dependent on general economic conditions and expectations. Although copper consumption has improved, it is not assured that underlying drivers of consumption will be sustained in 2006. Should copper and molybdenum prices and costs approximate 2005 realizations, the Company would project earnings in 2006 of a similar magnitude to those realized in 2005. In that circumstance, 2006 cash flow from operations, existing cash balances and other sources of cash would be expected to significantly exceed current projected 2006 capital expenditures and investments, and debt payment obligations. (Refer to Risk Factors on pages 33 through 36.)

Hedging Programs

     We do not purchase, hold or sell derivative financial instruments unless we have an existing asset or obligation or we anticipate a future activity that is likely to occur and will result in exposing us to market risk. We do not enter into any instruments for speculative purposes. We use various strategies to manage our market risk, including the use of derivative instruments to limit, offset or reduce our market exposure. Derivative financial instruments are used to manage well-defined commodity price, energy, foreign exchange and interest rate risks from our primary business activities. The market sensitivity analyses shown in our derivative programs are calculated based on valuations provided by third parties, purchased derivative pricing models or widely published market closing prices at year end. Effective January 1, 2001, we adopted SFAS No. 133, (as amended by SFAS Nos. 137 and 149) and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” These Statements require recognition of all derivatives as either assets or liabilities on the balance sheet and measurement of those instruments at fair value. Changes in the fair value of derivatives are recorded each period in earnings or other comprehensive income.

Copper Fixed-Price Hedging. Some of our copper wire customers request a fixed sales price instead of the COMEX average price in the month of shipment. As a convenience to these customers, we hedge our fixed-price sales exposure in a manner that will allow us to receive the COMEX average price in the month of shipment while our customers receive the fixed price they requested. We accomplish this by entering into copper swap and futures contracts and then liquidating the copper futures contracts and settling the copper swap contracts during the month of shipment, which generally results in the realization of the COMEX average price. Hedge gains or losses from these contracts are recognized in revenue.

     During 2005, 2004 and 2003, we had hedge programs in place for approximately 492 million, 381 million and 339 million pounds of copper sales, respectively. All realized gains or losses from hedge transactions were substantially offset by a similar amount of loss or gain on the related customer sales contracts at maturity. At December 31, 2005, we had copper futures and swaps contracts outstanding for approximately 85 million pounds of copper sales maturing through December 2006.

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     At December 31, 2005, we prepared an analysis to determine the sensitivity of our copper futures contracts to changes in copper prices. If copper prices had dropped a hypothetical 10 percent at the end of 2005, we would have had a net loss from our copper futures contracts of approximately $18 million. All realized losses would be substantially offset by a similar amount of gain on the related customer sales.

Copper Price Protection Programs. Phelps Dodge entered into programs to protect a portion of its expected global copper production by purchasing zero-premium copper collars (consisting both of put and call options) and copper put options. The copper collars and put options are settled on an average LME pricing basis for their respective hedge periods. For 2005 and 2006, the copper collar put options are based on monthly settlements. For 2007, the copper collar put options are based on annual settlements. The copper collar call options are settled annually. The copper put options are settled monthly for 2006, and annually for 2007. The Company entered into these programs as insurance to help ameliorate the effects of copper price decreases. None of these programs qualifies for hedge accounting treatment under SFAS No. 133; accordingly, all fair value adjustments are recognized in earnings each period. The actual impact of our 2006 and 2007 zero-premium copper collar programs will not be fully determinable until the maturity of the collars at each respective year-end.

     During the 2005 fourth quarter, the Company determined that it had incorrectly accounted for the time-value component of put and call options contained in its various price protection programs but that the related impacts were immaterial to the consolidated financial statements both for 2004 and 2005, as well as for the interim periods within those years. The cumulative impact of the unrecorded amounts was a $39.2 million charge as of September 30, 2005 ($29.6 million after-tax) which was recorded during the 2005 fourth quarter. This amount consisted of a pre-tax charge of $48.0 million relating to 2004 and a pre-tax credit of $8.8 million relating to the first nine months of 2005. At December 31, 2005, the time-value amount remaining of the above-mentioned put and call options, totaled $13.3 million.

     At December 31, 2005, we had a total of 2.3 billion pounds of PDMC’s expected 2006 and 2007 copper sales protected. (Refer to page 57 for tables that provide a summary of PDMC and El Abra’s zero-premium copper collar and copper put option programs for 2005, 2006 and 2007.)

     At December 31, 2005, we prepared an analysis to determine the sensitivity of our copper price protection contracts to changes in market prices. If market prices had increased a hypothetical 10 percent at the end of 2005, we would have recognized a reduction in net income of approximately $124 million from our copper option contracts.

Copper COMEX-LME Arbitrage Program. A portion of the copper cathode consumed by our North American rod mills to make copper products are purchased using the monthly average LME copper price. North American refined copper products are sold using the monthly average COMEX copper price in the month of shipment. As a result, domestic rod mill purchases of LME priced copper are subject to price risk between the LME purchase price and the COMEX sales price. From time to time, we may transact copper swaps to protect the COMEX-LME price differential for LME-priced copper cathodes purchased for sale in the North American market. Our COMEX-LME arbitrage program began in 2004. During 2005, we converted approximately 155 million pounds of LME-priced copper cathode purchases to a COMEX price basis. At December 31, 2005, we had outstanding copper swap contracts to convert approximately 36 million pounds of 2006 LME-priced copper cathode purchases to a COMEX-price basis for sale in the North American market through the use of copper swaps maturing through March 2006.

     At December 31, 2005, we prepared an analysis to determine the sensitivity of our COMEX-LME copper arbitrage contracts to changes in market prices. If the COMEX-LME arbitrage market prices had increased a hypothetical 10 percent at the end of 2005, we would have had a negligible net loss from our contracts. All losses on these hedge transactions would have been substantially offset by a similar amount of gain on the underlying copper purchases.

Metal Purchase Hedging. Our international wire and cable operations may enter into metal (aluminum, copper and lead) swap contracts to hedge our raw material purchase price exposure on fixed-price sales contracts to allow us to lock in the cost of the raw material used in fixed-price cable sold to customers. These swap contracts are generally settled during the month of finished product shipment and result in a net raw material LME price consistent with that agreed to with our customers. During 2005, 2004 and 2003, we had settled metal hedge swaps in place for approximately 33 million, 23 million and 26 million pounds of metal sales, respectively. At December 31, 2005, we had outstanding swaps on 38 million pounds of metal purchases maturing through August 2006.

     At December 31, 2005, we prepared an analysis to determine the sensitivity of our metal swap contracts to changes in market prices. If market prices had dropped a hypothetical 10 percent at the end of 2005, we would have had a net loss from our swap contracts of approximately $4 million. All losses on these hedge transactions would have been substantially offset by a similar amount of gain on the underlying metal purchases.

Gold and Silver Price Protection Program. Our 80 percent partnership interest in Candelaria in Chile produces and sells a substantial amount of copper concentrate. The copper concentrate contains small amounts of precious metals, including gold and silver. In 2003, we entered into zero-premium gold collars and added zero-premium silver collars in 2004. The zero-premium collars allow for the simultaneous purchase of a put option and sale of a call option (collar), to protect a portion of our precious metals selling prices. The program protects our exposure to reduced selling prices while retaining the ability to participate in some price increases and is settled on an average pricing basis for their respective hedge periods.

     During 2005, 2004 and 2003, we settled gold collars protecting 97,000, 108,000 and 38,000 ounces of gold included in copper concentrate sales, respectively. Our zero-premium gold collars consist of monthly put options and annual call options. The gains and losses on these hedge transactions were substantially offset by a similar amount of loss or gain on the underlying concentrate sales. At December 31, 2005, we had outstanding collar contracts in place to hedge approximately 116,000 ounces of gold included in copper concentrate sales maturing through December 2006.

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     During 2005, we settled silver collars protecting 660,000 ounces of silver included in copper concentrate sales. Our zero-premium silver collars consist of monthly put options and annual call options. At December 31, 2005, we had outstanding collar contracts in place to hedge approximately 1.2 million ounces of silver included in copper concentrate sales maturing through December 2006.

     At December 31, 2005, we prepared an analysis to determine the sensitivity of our zero-premium gold and silver collars to changes in gold and silver prices. If gold and silver prices had increased a hypothetical 10 percent at the end of 2005, we would have had a net loss of approximately $5 million for our gold collars and a negligible net loss for our silver collars. All realized losses from these protection programs would be substantially offset by a similar amount of gain on the related concentrate sales.

Copper Quotational Period Swap Program. The copper content in Candelaria’s copper concentrate is sold at the monthly average LME copper price, generally from one to three months after the month of arrival at the customer’s facility. If copper shipments have a price settlement basis other than the month of shipment, copper swap transactions may be used to realign the shipment and pricing month in order that Phelps Dodge receives the month of shipment average LME copper price. Our copper quotational period swap program began in 2003. During 2005, 2004 and 2003, we settled copper swaps totaling approximately 448 million, 159 million and 14 million pounds, respectively, of copper sales with a pricing month other than the month of shipment. Gains and losses on these hedge transactions were substantially offset by a similar amount of loss or gain on the underlying concentrate sales. At December 31, 2005, we had outstanding copper swap contracts in place to hedge approximately 92 million pounds of copper sales maturing through March 2006. As of January 30, 2006, we had in place copper swap contracts for approximately 91 percent of Candelaria’s provisionally priced copper sales outstanding at December 31, 2005, at an average of $1.937 per pound. This program is expected to ameliorate the volatility that provisional priced copper sales could have on our revenues.

     At December 31, 2005, we prepared an analysis to determine the sensitivity of our copper quotational period swap contracts to changes in copper prices. If copper prices had increased a hypothetical 10 percent at the end of 2005, we would have had a net loss from our copper swap contracts of approximately $19 million. All realized losses would be substantially offset by a similar amount of gain on the copper sales contracts.

Diesel Fuel/Natural Gas Price Protection Program. We purchase significant quantities of diesel fuel and natural gas to operate our facilities and as inputs to the manufacturing process, electricity generation and copper refining.

     To reduce the Company’s exposure to price increases in these energy products, the Company enters into energy price protection programs for our North American and Chilean operations. Our diesel fuel and natural gas price protection programs consist of purchasing a combination of OTM diesel fuel and natural gas call option contracts and fixed-price swaps. The OTM call option contracts give the holder the right, but not the obligation, to purchase a specific commodity at a pre-determined price, or “strike price.” OTM call options are options that have a strike price above the commodity’s market price at the time of entering into the hedge transaction. Call options allow the Company to cap the commodity purchase cost at the strike price of the option while allowing the Company the ability to purchase the commodity at a lower cost when market prices are lower than the strike price. Fixed-price swaps allow us to establish a fixed commodity purchase price for delivery during a specific hedge period.

     During 2005, 2004 and 2003, we had 61 million, 56 million and 31 million gallons of diesel fuel purchases hedged, respectively. Gains on these hedge transactions were substantially offset by a similar amount of loss on the underlying diesel fuel purchases. At December 31, 2005, we had outstanding diesel fuel option contracts in place to hedge approximately 14 million gallons of diesel fuel consumption maturing through March 2006.

     At December 31, 2005, we prepared an analysis to determine the sensitivity of our diesel fuel option contracts to changes in diesel fuel prices. If diesel fuel prices had dropped a hypothetical 10 percent at the end of 2005, we would have recognized a reduction in net income of approximately $1 million from our diesel fuel option contracts.

     Our natural gas price protection program, which started in 2001, had approximately 7.3 million, 7.6 million and 6.0 million decatherms of natural gas purchases hedged with natural gas options in 2005, 2004 and 2003, respectively. Gains on these hedge transactions were substantially offset by a similar amount of loss on the underlying energy purchases. At December 31, 2005, we did not have any outstanding natural gas option contracts in place.

Feedstock Oil Price Protection Program. Columbian purchases significant quantities of feedstock oil (a by-product of the petroleum refining process) that is the primary raw material used in the manufacture of carbon black. Feedstock oil typically exceeds 50 percent of the total manufacturing costs for Columbian discontinued operations. The objective of the feedstock oil price protection program, which began in 2002, is to protect against a significant upward movement in feedstock oil prices while retaining the flexibility to participate in downward price movements. To reduce Columbian’s exposure to feedstock oil price risk, it purchases OTM call options that allow it to cap the commodity purchase cost at the strike price of the option while allowing it the ability to purchase the commodity at a lower cost when market prices are lower than the strike price. Upon the closing of the sale of Columbian, we do not expect any further participation in the feedstock oil price protection program.

     In 2005, we did not enter into any feedstock oil price protection program contracts. During 2004 and 2003, we had feedstock oil hedges in place for approximately 0.9 million and 0.9 million barrels of feedstock oil purchases, respectively. Gains on these hedge transactions were substantially offset by a similar amount of loss on the underlying feedstock purchases. At December 31, 2005, we did not have any outstanding feedstock oil option contracts in place.

Interest Rate Hedging. Our interest rate hedge programs consisted both of floating-to-fixed and fixed-to-floating interest rate swaps. The purpose of these hedges is both to reduce the variability in interest payments as well as protect against significant fluctuations in the fair value of our debt. In June 2004, as a result of the Company’s full prepayment of Candelaria’s senior debt, it also unwound associated floating-to-fixed interest rate swaps. At December 31, 2005, we did not have any interest rate swap programs in place.

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     In May 2003, the Company terminated $375 million of fixed-to-floating interest rate swaps associated with corporate debt. We received cash proceeds of $35.9 million from the terminated swaps; $34.6 million was reflected as a deferred gain on the balance sheet and will be amortized over the remaining life of the underlying debt using the effective interest method.

Foreign Currency Hedging. As a global company, we transact business in many countries and in many currencies. Foreign currency transactions of our international subsidiaries increase our risks because exchange rates can change between the time agreements are made and the time foreign currency transactions are settled. We may hedge or protect the functional currencies of our international subsidiaries’ transactions for which we have a firm legal obligation or when anticipated transactions are likely to occur by entering into currency swaps or forward exchange contracts to lock in or minimize the effects of fluctuations in exchange and interest rates. Our foreign currency protection programs consist of forward exchange contracts to protect the functional currencies of our international subsidiaries, which included exposures to the British pound, Euro and U.S. dollar. At December 31, 2005, we had a currency swap and forward exchange contracts outstanding for $81 million maturing through October 2006.

     At December 31, 2005, we prepared an analysis to determine the sensitivity of our forward foreign exchange contracts to changes in exchange rates. A hypothetical negative exchange rate movement of 10 percent would have resulted in a potential loss of approximately $9 million. The loss would have been virtually offset by a gain on the related underlying transactions.

Environmental Matters

     Phelps Dodge is subject to various stringent federal, state and local environmental laws and regulations that govern emissions of air pollutants; discharges of water pollutants; and generation, handling, storage and disposal of hazardous substances, hazardous wastes and other toxic materials. The Company also is subject to potential liabilities arising under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) or similar state laws that impose responsibility on persons who arranged for the disposal of hazardous substances, and on current and previous owners and operators of a facility for the cleanup of hazardous substances released from the facility into the environment, including injuries to natural resources. In addition, the Company is subject to potential liabilities under the Resource Conservation and Recovery Act (RCRA) and analogous state laws that require responsible parties to remediate releases of hazardous or solid waste constituents into the environment associated with past or present activities.

     Phelps Dodge or its subsidiaries have been advised by the U.S. Environmental Protection Agency (EPA), the U.S. Forest Service and several state agencies that they may be liable under CERCLA or similar state laws and regulations for costs of responding to environmental conditions at a number of sites that have been or are being investigated by EPA, the U.S. Forest Service or states to determine whether releases of hazardous substances have occurred and, if so, to develop and implement remedial actions to address environmental concerns. Phelps Dodge also has been advised by trustees for natural resources that the Company may be liable under CERCLA or similar state laws for injuries to natural resources caused by releases of hazardous substances.

     Phelps Dodge has established reserves for potential environmental obligations that management considers probable and for which reasonable estimates can be made. For closed facilities and closed portions of operating facilities with environmental obligations, an environmental liability is accrued when a decision to close a facility or a portion of a facility is made by management, and when the environmental liability is considered to be probable. Environmental liabilities attributed to CERCLA or analogous state programs are considered probable when a claim is asserted, or is probable of assertion, and we have been associated with the site. Other environmental remediation liabilities are considered probable based upon specific facts and circumstances. Liability estimates are based on an evaluation of, among other factors, currently available facts, existing technology, presently enacted laws and regulations, Phelps Dodge’s experience in remediation, other companies’ remediation experience, Phelps Dodge’s status as a potentially responsible party (PRP), and the ability of other PRPs to pay their allocated portions. Accordingly, total environmental reserves of $367.9 million and $303.6 million were recorded as of December 31, 2005 and 2004, respectively. The long-term portion of these reserves is included in other liabilities and deferred credits on the Consolidated Balance Sheet and amounted to $285.6 million and $239.5 million at December 31, 2005 and 2004, respectively.

     The following table summarizes environmental reserve activities for the years ended December 31:

($ in millions)

	2005			2004			2003
Balance, beginning of year	$	303.6			317.2			305.9
Additions to reserves		116.0			63.6			54.6
Reductions in reserve estimates		(2.6	)		(4.7	)		(12.7	)
Spending against reserves		(49.1	)		(72.5	)		(24.1	)
Reclassification to asset retirement obligations*		—			—			(6.5	)
Balance, end of year	$	367.9			303.6			317.2

* Upon adoption of SFAS No. 143, reserves for certain matters ($6.5 million) required by reclamation rules or laws were reclassified to asset retirement obligations (previously classified as environmental reserves).

     The site currently considered to be the most significant is the Pinal Creek site near Miami, Arizona, where approximately $108 million remained in the environmental reserve at December 31, 2005. Phelps Dodge Miami, Inc. and the other members of the Pinal Creek Group (PCG) settled their contribution claims against one defendant in April 2005, which resulted in cancellation of the Phase I trial. While the terms of the settlement are confidential, the proceeds of the settlement will be used to address remediation at the Pinal Creek site. The Phase II trial, which will allocate liability, is scheduled for October 30, 2006, subject to approval by the trial judge.

     The sites with the most significant reserve changes during 2005 were the Anniston Lead and PCB sites located in Anniston, Alabama, and the Laurel Hill site in Maspeth, New York. Phelps Dodge Industries, Inc. (PDII) has been identified by the EPA as a PRP at both sites. The Anniston Lead site consists of lead contamination originating from historical industrial operations in and about Anniston; the Anniston PCB site consists of PCB contamination originating

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primarily from historical PCB manufacturing operations in Anniston. Pursuant to an administrative order on consent/settlement agreement (Settlement Agreement), PDII, along with 10 other parties identified by EPA as PRPs, agreed to conduct a non-time-critical removal action at certain residential properties identified to have lead and PCB contamination above certain thresholds. While PDII and the other parties to the Settlement Agreement have some responsibility to address residential PCB contamination, that responsibility is limited, with EPA characterizing PDII and the parties to the Settlement Agreement as de minimus PRPs. The Settlement Agreement was subject to public comment, which ended on October 11, 2005. Upon EPA’s issuance of response to public comment, the Settlement Agreement became final on January 17, 2006. PDII and the other PRPs have entered into an interim cost-sharing agreement that assigns PDII approximately one-eighth of the costs to be incurred under the Settlement Agreement. During the 2005 third quarter, PDII increased its reserve by approximately $20 million to a total reserve of approximately $27 million at December 31, 2005, which covers remedial costs, PRP group settlement costs, and legal and consulting costs.

     Phelps Dodge Refining Corporation, a subsidiary of the Company, owns a portion of the Laurel Hill property in Maspeth, New York, that formerly was used for metal-related smelting, refining and manufacturing. All industrial operations at the Laurel Hill site ceased in 1984. In June 1999, the Company entered into an Order on Consent with New York State Department of Environmental Conservation (NYSDEC) that required the Company to perform, among other things, a remedial investigation and feasibility study relating to environmental conditions and remedial options at the Laurel Hill site. NYSDEC issued a final remedial decision in January 2003 in the form of a Record of Decision (ROD) regarding the property. The Company expects to complete the work under the ROD in 2006.

     In July 2002, Phelps Dodge entered into another Order on Consent with NYSDEC requiring the Company to conduct a remedial investigation and feasibility study relating to sediments in Newtown and Maspeth Creeks, which are located contiguous to the Laurel Hill site. The Company commenced the remedial investigation in 2004. The Company is currently scheduled to submit to the NYSDEC in 2006 its remedial investigation report and its remedial feasibility report. The Company is currently engaged in settlement discussions with the NYSDEC concerning the types of remedial actions in the feasibility study that would be acceptable to the agency. Based on the types of remedial actions being discussed and associated transactional costs, the environmental reserve was increased to approximately $20 million in December 2005. The amount encompasses ongoing consulting and legal costs to complete the required studies and assess contributions from other potential parties plus remedial action costs for impacted sediments associated with the Laurel Hill site.

     At December 31, 2005, the cost range for reasonably possible outcomes for all reservable environmental remediation sites (including Pinal Creek’s estimate of approximately $104 million to $211 million) was estimated from approximately $329 million to $642 million (of which $367.9 million has been reserved).

     Phelps Dodge has a number of sites that are not the subject of an environmental reserve because it is not probable that a successful claim will be made against the Company for those sites, but for which there is a reasonably possible likelihood of an environmental remediation liability. At December 31, 2005, the cost range for reasonably possible outcomes for all such sites, for which an estimate can be made, was estimated to be from approximately $2 million to approximately $14 million. The liabilities arising from potential environmental obligations that have not been reserved at this time may be material to the operating results of any single quarter or year in the future. Management, however, believes the liability arising from potential environmental obligations is not likely to have a material adverse effect on the Company’s liquidity or financial position as such obligations could be satisfied over a period of years. (Refer to Note 21, Contingencies, for additional information on significant environmental matters.)

Asset Retirement Obligations

     We recognize asset retirement obligations (AROs) as liabilities when incurred, with the initial measurement at fair value. In addition, with the adoption of FIN 47, we recognize conditional AROs as liabilities when sufficient information exists to reasonably estimate the fair value. These liabilities are accreted to full value over time through charges to income. In addition, asset retirement costs (ARCs) are capitalized as part of the related asset’s carrying value and are depreciated primarily on a units-of-production basis over the asset’s useful life. Reclamation costs for future disturbances are recognized as an ARO and as a related ARC in the period incurred. The Company’s cost estimates are reflected on a third-party cost basis and comply with the Company’s legal obligation to retire its tangible long-lived assets as defined by SFAS No. 143. These cost estimates may differ from financial assurance cost estimates due to a variety of factors, including obtaining updated cost estimates for reclamation activities, the timing of reclamation activities, changes in the scope of reclamation activities and the exclusion of certain costs not accounted for under SFAS No. 143.

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     The following tables summarize the ARO and ARC activities for the years ended December 31:

Asset Retirement Obligations
($ in millions)

	2005			2004			2003
Balance, beginning of year	$	275.2			225.3			138.6
Liability recorded upon adoption of SFAS No. 143*		—			—			10.4
Liability recorded upon adoption of FIN 47**		17.9			—			—
Additional liabilities from fully consolidating El Abra and Candelaria**		—			5.6			—
New liabilities during the period		1.5			1.8			16.8
Accretion expense		22.8			19.6			14.7
Payments		(39.2	)		(28.9	)		(1.8	)
Revisions in estimated cash flows		127.0			51.6			46.4
Foreign currency translation adjustments		(0.6	)		0.2			0.2
Transfer to long-term liabilities related to assets held for sale		(6.2	)		—			—
Balance, end of year	$	398.4			275.2			225.3

*	Amount includes $7.9 million of reclassifications from environmental reserves ($6.5 million) and other liabilities ($1.4 million). Refer to Note 1, Summary of Significant Accounting Policies, for further discussion.
**	Refer to Note 1, Summary of Significant Accounting Policies, for further discussion.

Asset Retirement Costs
($ in millions)

	2005			2004			2003
Gross balance, beginning of year	$	196.3			138.9			—
Asset recorded upon adoption of SFAS No. 143*		—			—			91.5
Asset recorded upon adoption of FIN 47*		8.4			—			—
Additional assets from fully consolidating El Abra and Candelaria*		—			3.8			—
New assets during the period		1.5			1.8			1.0
Revisions in estimated cash flows		127.0			51.6			46.4
Impairment of assets		(129.7	)		—			—
Foreign currency translation adjustments		(0.4	)		0.2			—
Transfer to long-term assets held for sale		(3.9	)		—			—
Gross balance, end of year		199.2			196.3			138.9
Less accumulated depreciation, depletion and amortization **		(86.4	)		(71.2	)		(60.7	)
Net balance, end of year	$	112.8			125.1			78.2

*	Refer to Note 1, Summary of Significant Accounting Policies, for further discussion.
**	In 2005, accumulated depreciation, depletion and amortization included adjustments for the adoption of FIN 47 ($4.0 million) and the transfer to long-term assets held for sale ($2.0 million); in 2004, adjustments included $1.4 million from fully consolidating El Abra and Candelaria.

     During 2005, we revised our cash flow estimates and timing by $127.0 million, which primarily comprised changes at our Tyrone and Chino mines ($107.0 million, discounted) based on the following: (i) in March 2005, Tyrone received a permit modification from the Mining and Minerals Division (MMD) of the New Mexico Energy, Minerals and Natural Resources Department to adjust the timing of reclamation activities for an inactive portion of the tailing operations. In addition, Tyrone obtained new cost estimates to perform the closure activities, (ii) Tyrone also accelerated timing of closure activities for stockpile and tailing work, and changed the scope of reclamation work for certain stockpiles to coincide with a change in life-of-mine plan assumptions, and (iii) Chino changed the timing of its cash flow estimates to coincide with a change in life-of-mine plan assumptions.

     Additionally, in 2005, we revised our cash flow estimates and timing at the El Abra and Candelaria mines ($7.7 million, discounted) as a result of completing our comprehensive review of the requirements and associated cost estimates to comply with the modified mining safety regulation published by the Chilean Ministry of Mining.

     In the 2005 second quarter, Tyrone and Cobre mines recorded impairments of ARCs of $124.5 million and $5.2 million, respectively. (Refer to Note 4, Special Items and Provisions, for additional discussion.)

     In December 2005, the Company’s board of directors approved establishing a trust dedicated to help fund our global environmental reclamation and remediation activities. The Company made an initial cash contribution of $100 million on December 22, 2005, and expects to contribute an additional $300 million in the 2006 first quarter. The Company also has trust assets that are legally restricted to fund a portion of its AROs for Chino, Tyrone and Cobre as required for New Mexico financial assurance. At December 31, 2005 and 2004, the fair value of the trust assets was approximately $191 million and $85 million, respectively, of which approximately $91 million and $85 million, respectively, were legally restricted.

     During 2004, we revised our cash flow estimates by $51.6 million, which primarily comprised changes at our Tyrone and Chino mines ($43.6 million, discounted) based on the following: (i) Tyrone’s permit revision issued on April 12, 2004, by MMD that provided conditions for approval of Tyrone’s closure plan and established the financial assurance amount, (ii) updating Tyrone’s estimates for actual closure expenses incurred in 2004, and (iii) ongoing discussions with the New Mexico Environmental Department (NMED) and MMD requiring us to now perform activities substantially different in scope to fulfill certain permit requirements for the tailing and stockpile studies and the acceleration of closure expenditures associated with our current life of mine plans at both Tyrone and Chino.

     During 2003, we revised our cash flow estimates by $46.4 million, which primarily comprised changes at our Chino and Tyrone mines ($43.9 million, discounted) based on an agreement reached in May 2003 with the NMED and MMD for the financial assurance requirements as part of the closure plans related to the operations at Chino, Cobre and Tyrone. In September 2003, this agreement was finalized with NMED and MMD. In December 2003, MMD approved Chino’s closeout plan and Phelps Dodge tentatively finalized the closure project listing and cash flow estimates for the accelerated reclamation as described in the September 2003 finalized agreement (refer to discussion below).

     Additionally, during 2003 we recognized new liabilities of $16.8 million, of which $15.8 million was associated with our acquisition of Heisei’s one-third interest in Chino Mines Company. (Refer to Note 2, Acquisitions and Divestitures, for further discussion.)

     We have estimated that our share of the total cost of AROs, including anticipated future disturbances, for the year ended December 31, 2005, aggregated approximately $1.4 billion (unescalated, undiscounted and on a third-party cost basis), leaving approximately $1.0 billion remaining to be accreted over time. These

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aggregate costs may increase or decrease materially in the future as a result of changes in regulations, technology, mine plans or other factors and as reclamation spending occurs. Asset retirement obligation activities and expenditures generally are made over an extended period of time commencing near the end of the mine life; however, certain reclamation activities could be accelerated if they are determined to be economically beneficial.

Significant Arizona Environmental and Reclamation Programs

     Arizona Department of Environmental Quality (ADEQ) has adopted regulations for its aquifer protection permit (APP) program that replaced the previous Arizona groundwater quality protection permit regulations. Several of our properties continue to operate pursuant to the transition provisions for existing facilities under the APP regulations. The APP regulations require permits for certain facilities, activities and structures for mining, concentrating and smelting. The APP requires compliance with aquifer water quality standards at an applicable point of compliance well or location. The APP also may require mitigation and discharge reduction or elimination of some discharges. Existing facilities operating under the APP transition provisions are not required to modify operations until requested by the state of Arizona, or unless a major modification at the facility alters the existing discharge characteristics.

     An application for an APP requires a description of a closure strategy to meet applicable groundwater protection requirements following cessation of operations and a cost estimate to implement the closure strategy. An APP may specify closure requirements, which may include post-closure monitoring and maintenance requirements. A more detailed closure plan must be submitted within 90 days after a permittee notifies ADEQ of its intent to cease operations. A permit applicant must demonstrate its financial capability to meet the closure costs required under the APP. In 2005, ADEQ amended the financial assurance requirements under the APP regulations. As a result of the amendments, facilities covered by APPs may have to provide additional financial assurance demonstrations or mechanisms for closure and post-closure costs.

     We have received an APP for our Morenci operations, for portions of our Bagdad and Miami mines, for the sewage treatment facility at Ajo, and for a closed tailing impoundment in Clarkdale, Arizona. We have conducted groundwater studies and submitted APP applications for several of our other properties and facilities, including the Bagdad, Sierrita and Miami mines, our Safford development property and Copper Queen and United Verde branches. Permits for most of these other properties and facilities likely will be issued by ADEQ during 2006. We will continue to submit all required APP applications for our remaining properties and facilities, as well as for any new properties or facilities. We do not know what the APP requirements are going to be for all existing and new facilities and, therefore, it is not possible for us to estimate costs associated with those requirements. For instance, at our Sierrita and Copper Queen properties, ADEQ has proposed detailed requirements to protect public drinking water sources with respect to non-hazardous substances, such as sulfate. We are likely to continue to have to make expenditures to comply with the APP program.

     Portions of the Company’s Arizona mining operations that operated after January 1, 1986, also are subject to the Arizona Mined Land Reclamation Act (AMLRA). AMLRA requires reclamation to achieve stability and safety consistent with post-mining land use objectives specified in a reclamation plan. Reclamation plans require approval by the State Mine Inspector and must include a cost estimate to perform the reclamation measures specified in the plan. Financial assurance must be provided under AMLRA covering the estimated cost of performing the reclamation plan.

     Both under APP regulations and AMLRA, a publicly traded company may satisfy the financial assurance requirements by showing that its unsecured debt rating is investment grade and that it meets certain requirements regarding assets in relation to estimated closure and post-closure cost and reclamation cost estimates. Phelps Dodge’s senior unsecured debt currently carries an investment-grade rating. Additionally, the Company currently meets another financial strength test under Arizona law that is not ratings dependent. Under the amended APP regulations, Phelps Dodge may provide guarantees for the financial assurance obligations of its subsidiaries.

     At December 31, 2005 and 2004, we had accrued closure costs of approximately $68 million and $48 million, respectively, for our Arizona operations. The amount of financial assurance currently demonstrated for closure and reclamation activities is approximately $104 million. If the Company’s bond ratings fall below investment grade, and if it could not meet the alternative financial strength test that is independent of debt ratings, the Arizona mining operations would be required to supply financial assurance in another form.

     Cyprus Tohono is subject to environmental compliance, closure and reclamation requirements under its leases with the Tohono O’odham Nation and Mine Plans of Operations. The closure and reclamation requirements under the leases require action to be taken upon termination of the leases, which currently expire between 2012 and 2017, unless terminated earlier in accordance with the terms of the lease. Cyprus Tohono is currently evaluating its closure and reclamation requirements in order to update its financial assurance in 2006.

     (Refer to Note 21, Contingencies, for additional information on significant Arizona Environmental and Reclamation Programs.)

Significant New Mexico Environmental and Reclamation Programs

     The Company’s New Mexico operations, Chino, Tyrone, Cobre and Hidalgo, each are subject to regulation under the New Mexico Water Quality Act and the Water Quality Control Commission (WQCC) regulations adopted under that Act. The New Mexico Environmental Department (NMED) has required each of these operations to submit closure plans for approval. The closure plans must describe the measures to be taken to prevent groundwater quality standards from being exceeded following closure of the discharging facilities and to abate any groundwater or surface water contamination.

     Chino, Tyrone and Cobre also are subject to regulation under the New Mexico Mining Act (the Mining Act), which was enacted in 1993, and the Mining Act Rules, which are administered by the MMD of the New Mexico Energy, Minerals and Natural Resources Department. Under the Mining Act, Chino, Tyrone and Cobre are required to submit and obtain approval of closeout plans describing the

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reclamation to be performed following closure of the mines or portions of the mines.

     Financial assurance is required to ensure that funding will be available to perform both the closure and the closeout plans if the operator is not able to perform the work required by the plans. The amount of the financial assurance is based upon the estimated cost for a third party to complete the work specified in the plans, including any long-term operation and maintenance, such as operation of water treatment systems. NMED and MMD calculate the required amount of financial assurance using a “net present value” (NPV) method, based upon approved discount and escalation rates, when the closure plan and/or closeout plan require performance over a long period of time.

     In April 2005, the governor of New Mexico signed Senate Bill 986, effective June 17, 2005, that removes the requirement to provide financial assurance for the gross receipts tax levied on closure work. Eliminating this requirement is expected to reduce our New Mexico financial assurance by approximately $27 million (NPV basis).

     The Company’s cost estimates to perform the work itself (internal costs basis) generally are lower than the cost estimates used for financial assurance due to the Company’s historical cost advantages, savings from the use of the Company’s own personnel and equipment as opposed to third-party contractor costs, and opportunities to prepare the site for more efficient reclamation as mining progresses.

     At December 31, 2005 and 2004, we had accrued closure costs of approximately $263 million and $162 million, respectively, for our New Mexico operations.

     (Refer to Note 21, Contingencies, for additional information on significant New Mexico Environmental and Reclamation Programs.)

Significant Colorado Reclamation Programs

     Our Climax and Henderson mines in Colorado are subject to permitting requirements under the Colorado Mined Land Reclamation Act, which requires approval of reclamation plans and provisions for financial assurance. These mines have had approved mined-land reclamation plans for several years and have provided the required financial assurance to the state of Colorado in the amount of $52.4 million and $28.5 million, respectively, for Climax and Henderson. The Climax financial assurance comprises a single surety bond in the amount of $52.4 million. The Henderson financial assurance comprises $18.2 million in collateralized Climax Molybdenum water rights, a $10.1 million surety bond and a letter of credit in the amount of $0.2 million. As a result of adjustments to the approved cost estimates for various reasons, the amount of financial assurance requirements can increase or decrease over time. In 2005, PD finalized Henderson’s reclamation plan and related financial assurance with the Colorado Division of Minerals and Geology, which resulted in a revision to our ARO estimates. At December 31, 2005 and 2004, we had accrued closure costs of approximately $24 million and $20 million, respectively, for our Colorado operations.

Significant Changes in International Closure and Reclamation Programs

     Sociedad Minera Cerro Verde S.A.A.

     On August 15, 2005, the Peruvian Ministry of Energy and Mines published the final regulation associated with the Mine Closure Law. The regulation requires companies to submit closure plans for existing projects within one year after August 15, 2005, and for new projects within one year after approval of the Environment Impact Statement. Additionally, the regulation sets forth the financial assurance requirements, including guidance for calculating the estimated cost and the types of financial assurance instruments that can be utilized.

     In accordance with the new regulation, Cerro Verde is required to submit a closure plan before August 15, 2006. Cerro Verde is currently in the process of reviewing the technical requirements and revising its cost estimates for both its existing operations and the sulfide expansion project to comply with the regulation. It is also in the process of determining its financial assurance obligations associated with the new regulation. At both December 31, 2005 and 2004, Cerro Verde had accrued closure costs of approximately $5 million, which were based on the requirements set forth in the environmental permits. Upon completion of its review, Cerro Verde’s ARO estimates will be updated.

     Other

     On February 7, 2004, the Chilean Ministry of Mining published and passed a modification to its mining safety regulations. The current published regulation requires a company to submit a reclamation plan within five years of the published regulation. In the 2005 fourth quarter, El Abra and Candelaria completed their comprehensive review of the revised cost estimates based on existing regulations, which resulted in a revision to the ARO estimates. (Refer to Note 21, Contingencies, for further discussion.) ARO estimates may require further revision if new interpretations or additional technical guidance is published to further clarify the regulation. Final closure plans and related financial assurance requirements will be filed with the Ministry before February 2009. At December 31, 2005 and 2004, we had accrued closure costs of approximately $20 million and $14 million, respectively, for our Chilean operations.

Other

     Some portions of our mining operations located on public lands are subject to mine plans of operation approved by the federal BLM. BLM’s regulations include financial assurance requirements for reclamation plans required as part of the approved plans of operation. As a result of recent changes to BLM’s regulations, including more stringent financial assurance requirements, increases in existing financial assurance amounts held by BLM could be required. Currently, financial assurance for the Company’s operations held by BLM totals $3.6 million.

     The Company is investigating available options to provide additional financial assurance and, in some instances, to replace existing financial assurance. The cost of surety bonds, the traditional source of financial assurance, has increased significantly during the past few years, and many surety companies now are requiring an increased level of collateral supporting the bonds such that they no longer are economically prudent. Some surety companies that issued surety

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bonds to the Company are seeking to exit the market for reclamation bonds. The terms and conditions presently available from one of our principal surety bond providers for reclamation and other types of long-lived surety bonds have made this type of financial assurance economically impracticable in certain instances. We are working with the impacted state and federal agencies to put in place acceptable alternative forms of financial assurance in a timely fashion.

     Portions of Title 30, Chapter 2, of the United States Code govern access to federal lands for exploration and mining purposes (the General Mining Law). In 2003 and again in late 2005, legislation was introduced in the U.S. House of Representatives to amend the General Mining Law. Similar legislation was introduced in Congress during the 1990s. None of these bills has been enacted into law. Concepts in the legislation over the years have included the payment of royalties on minerals extracted from federal lands, payment of fair market value for patenting federal lands and reversion of patented lands used for non-mining purposes to the federal government. Several of these same concepts and others likely will continue to be pursued legislatively in the future.

     The federal Endangered Species Act protects species listed by the U.S. Fish and Wildlife Service (FWS) as endangered or threatened, as well as designated critical habitat for those species. Some listed species and critical habitat may be found in the vicinity of our mining operations. When a federal permit is required for a mining operation, the agency issuing the permit must determine whether the activity to be permitted may affect a listed species or critical habitat. If the agency concludes that the activity may affect a listed species or critical habitat, the agency is required to consult with the FWS concerning the permit. The consultation process can result in delays in the permit process and the imposition of requirements with respect to the permitted activities as are deemed necessary to protect the listed species or critical habitat. The mine operators also may be required to take or avoid certain actions when necessary to avoid affecting a listed species.

     (Refer to discussion of Contractual Obligations, Commercial Commitments and Other Items that May Affect Liquidity for related financial assurance issues.)

     We also are subject to federal and state laws and regulations pertaining to plant and mine safety and health conditions. These laws include the Occupational Safety and Health Act of 1970 and the Mine Safety and Health Act of 1977. Present and proposed regulations govern worker exposure to a number of substances and conditions present in work environments. These include dust, mist, fumes, heat and noise. We are making, and will continue to make, expenditures to comply with health and safety laws and regulations.

     We estimate that our share of capital expenditures for programs to comply with applicable environmental laws and regulations that affect our operations will total approximately $86 million and $31 million in 2006 and 2007, respectively, including approximately $80 million and $30 million, respectively, associated with our mining operations. Approximately $52 million was spent on such programs in 2005, including approximately $42 million associated with our mining operations. The increase in environmental capital expenditures for 2006 is primarily due to higher spending associated with accelerated reclamation projects in Arizona and New Mexico, as well as for air and water quality projects. We also anticipate making significant capital and other expenditures beyond 2007 for continued compliance with such laws and regulations. In light of the frequent changes in the laws and regulations and the uncertainty inherent in this area, we are unable to reasonably estimate the total amount of such expenditures over the longer term, but it may be material.

     We do not expect that additional capital and operating costs associated with achieving compliance with the many environmental, health and safety laws and regulations will have a material adverse affect on our competitive position relative to other U.S. copper producers. These domestic copper producers are subject to comparable requirements. However, because copper is an internationally traded commodity, these costs could significantly affect us in our efforts to compete globally with those foreign producers not subject to such stringent requirements.

Other Matters

New Accounting Pronouncements

     In November 2005, FASB issued FASB Staff Position (FSP) FAS 115-1/FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (FSP 115-1/124-1). FSP 115-1/124-1 provides guidance on determining when investments in certain debt and equity securities are considered impaired, whether that impairment is other-than-temporary, and on measuring such impairment loss. FSP 115-1/124-1 also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. This FSP is required to be applied to reporting periods beginning after December 15, 2005. The Company does not expect this FSP to have a material impact on its financial reporting and disclosures.

     In September 2005, FASB ratified the consensus reached by the Emerging Issues Task Force (EITF) on Issue No. 04-13, “Accounting for Purchases and Sales of Inventory with the Same Counterparty.” The consensus concluded that two or more legally separate exchange transactions with the same counterparty should be combined and considered as a single arrangement for accounting purposes, if they are entered into “in contemplation” of one another. The EITF also reached a consensus that nonmonetary exchanges of inventory within the same business should be recognized at fair value. The consensus reached on EITF Issue No. 04-13 is effective for new arrangements entered into, or modifications or renewals of existing arrangements, in reporting periods beginning after March 15, 2006. The Company does not expect this Issue will have a material impact on its financial reporting and disclosures.

     In May 2005, FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This Statement applies to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 further requires a change in depreciation, amortization or depletion method for long-lived, non-financial assets to be accounted for as a change in accounting estimate effected by a change in accounting principle. Corrections of

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errors in the application of accounting principles will continue to be reported by retroactively restating the affected financial statements. The provisions of this Statement are effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005.

     In March 2005, FASB ratified the consensus reached by EITF on Issue No. 04-6, “Accounting for Stripping Costs Incurred During Production in the Mining Industry.” The consensus reached provides that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the cost of inventory produced during the period. The consensus reached on EITF Issue No. 04-6 is effective for the first reporting period in fiscal years beginning after December 15, 2005. We have evaluated EITF Issue No. 04-6 and determined that its adoption will not have a material impact on our financial reporting and disclosures.

     In December 2004, FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123-R), which amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to require companies to recognize in their financial statements the cost of employee services received in exchange for equity instruments issued, and liabilities incurred to employees in share-based payment transactions, such as employee stock options and similar awards. On April 14, 2005, the Securities and Exchange Commission delayed the effective date to annual periods, rather than for interim periods, beginning after June 15, 2005, and it is now effective for fiscal years ending after June 15, 2005. We have evaluated SFAS No. 123-R and determined that adoption of the Statement, effective January 1, 2006, will not have a material impact on our financial reporting and disclosures. Upon adoption of this Statement, the modified prospective application will be utilized to account for share-based payment transactions.

     In December 2004, FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for fiscal years beginning after June 15, 2005. The adoption of this Statement did not have a material impact on our financial reporting and disclosures.

     In December 2004, FASB issued FSP No. 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004,” and FSP No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provisions within the American Jobs Creation Act of 2004,” to address the accounting implications associated with the American Jobs Creation Act of 2004 (the Act), enacted in October 2004. FSP No. 109-1 clarifies how to apply SFAS No. 109 to the new law’s tax deduction for income attributable to qualified domestic production activities and requires that the deduction be accounted for as a special deduction in the period earned, not as a tax-rate reduction. FSP No. 109-2 provides guidance with respect to recording the potential impact of the repatriation provisions of the Act on a company’s income tax expense and deferred tax liability. FSP No. 109-2 states that an enterprise is permitted time beyond the financial reporting period of enactment to evaluate the effect of the Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109. (Refer to Note 7, Income Taxes, for further discussion of the impact of the Act.)

     In November 2004, FASB issued SFAS No. 151, “Inventory Costs, an Amendment of ARB No. 43, Chapter 4.” SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance in this Statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of this Statement will not have a material impact on our financial reporting and disclosures.

     (Refer to Note 1, Summary of Significant Accounting Policies, for further discussion of New Accounting Pronouncements.)

CAPITAL OUTLAYS

     Capital outlays in the following table exclude capitalized interest and investments in subsidiaries.

($ in millions)

	2005*		2004*		2003*
PDMC:
Copper — United States	$	231.4		168.7		58.8
Copper — South America		352.1		49.0		11.1
Primary Molybdenum		27.3		16.0		13.4
		610.8		233.7		83.3
PDI:
Specialty Chemicals — Discontinued Operations		40.4		31.0		23.9
Wire and Cable		19.5		25.2		17.1
		59.9		56.2		41.0
Corporate and Other		15.3		13.7		27.1
	$	686.0		303.6		151.4

* 2005 and 2004 reflected full consolidation of El Abra and Candelaria; 2003 reflected El Abra and Candelaria on a pro rata basis (51 percent and 80 percent, respectively).

INFLATION

     The principal impact of general inflation upon our financial results has been on cost of copper production, especially supply costs, at our mining and industrial operations, and medical costs. It is important to note, however, that there is generally no correlation between the selling price of our principal product, copper, and the rate of inflation or deflation.

DIVIDENDS AND MARKET PRICE RANGES

     The principal market for our common stock is the New York Stock Exchange. At February 17, 2006, there were 15,913 holders of record of our common shares. Due to economic conditions and continuing unsatisfactory copper prices, the Company eliminated the quarterly dividend on its common shares in 2001. Accordingly, there were no dividends declared or paid on common shares in 2003. On June 2, 2004, the Company reinstated quarterly dividend payments

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of 25 cents per common share, and on June 2, 2005, the quarterly dividend payments were increased to 37.5 cents per common share. In addition, as part of the Company’s program to return $1.5 billion in capital to shareholders by the end of 2006, a special cash dividend of $5.00 per common share was paid on December 2, 2005. Total common dividend payments were $630.7 million in 2005 and $47.5 million in 2004.

     On February 1, 2006, the Company declared a regular quarterly dividend of 37.5 cents per share on common shares, which is payable on March 3, 2006, to common shareholders of record at the close of business on February 14, 2006. In addition, as part of the Company’s program to return $1.5 billion to shareholders by the end of 2006, the Company’s board of directors declared a special cash dividend of $4.00 per common share, which is payable on March 3, 2006, to common shareholders of record at the close of business on February 14, 2006.

     On February 1, 2006, the Company’s board of directors approved a two-for-one split of the Company’s outstanding common stock. The split will be effected in the form of a 100 percent stock dividend and will increase the number of shares outstanding to approximately 203.2 million from approximately 101.6 million. Common shareholders of record at the close of business on February 17, 2006, will receive one additional share of common stock for every share they own as of that date. The additional shares will be distributed on March 10, 2006. The Company’s common stock will begin trading at its post-split price at the beginning of trading on March 13, 2006.

     In 2005, the Company paid dividends of $5.0625 per share of Series A Stock amounting to $10.1 million. On August 15, 2005, our Series A Stock automatically converted into 4.2 million shares of common stock. The Company paid dividends of $6.75 per share of Series A Stock amounting to $13.5 million in both 2004 and 2003. Additional information required for this item is provided in the Quarterly Financial Data table.

QUARTERLY FINANCIAL DATA

($ in millions except per common share amounts)

Quarter	First			Second			Third			Fourth
2005
Sales and other operating revenues	$	1,886.5			1,966.0			2,179.0			2,255.6
Operating income		535.8			164.8			560.3			504.0
Operating income before special items and provisions		534.9			602.0			605.3			545.8
Minority interests in consolidated subsidiaries		(26.6	)		(38.3	)		(51.6	)		(73.9	)
Income from continuing operations before cumulative effect of accounting change		377.4			675.1			360.1			171.3
Income (loss) from discontinued operations		9.3			7.2			6.0			(39.9	)
Net income		386.7			682.3			366.1			121.3
Income from continuing operations, excluding special items and provisions (after taxes)		377.3			449.3			435.9			322.8
Basic earnings per common share from continuing operations before cumulative effect of accounting change		3.91			6.98			3.65			1.70
Basic earnings (loss) per common share from discontinued operations		0.09			0.08			0.06			(0.40	)
Basic earnings per common share		4.00			7.06			3.71			1.20
Diluted earnings per common share from continuing operations before cumulative effect of accounting change		3.74			6.68			3.55			1.69
Diluted earnings (loss) per common share from discontinued operations		0.09			0.07			0.06			(0.40	)
Diluted earnings per common share		3.83			6.75			3.61			1.19
Stock prices*
High		109.12			103.44			132.45			149.25
Low		90.02			78.20			91.75			114.20
Close		101.73			92.50			129.93			143.87

* As reported in the Wall Street Journal.

     The 2005 first quarter income from continuing operations included after-tax, net special gains of $0.1 million, with no impact on per common share amounts, primarily due to historical legal matters and wire and cable’s restructuring programs. Net special gains were offset by net charges associated with environmental provisions and for U.S. taxes incurred with respect to dividends received from Cerro Verde.

     The 2005 second quarter income from continuing operations included after-tax, net special gains of $225.8 million, or $2.23 per common share, primarily associated with the gain on the sale of our SPCC cost-basis investment, a change in interest gain from Cerro Verde stock issuance and historical legal matters. Net special gains were offset by net charges due to asset impairment charges, environmental provisions, wire and cable’s restructuring programs and for U.S. taxes incurred with respect to dividends received from Cerro Verde.

     The 2005 third quarter income from continuing operations included after-tax, net special charges of $75.8 million, or 75 cents per common share, primarily due to early debt extinguishment costs, environmental provisions and asset impairment charges. Net special charges were offset by net gains associated with wire and cable’s restructuring programs and historical legal matters.

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     The 2005 fourth quarter income from continuing operations included after-tax, net special charges of $151.5 million, or $1.49 per common share, primarily due to taxes associated with foreign dividends, taxes on unremitted foreign earnings and taxes provided for our minimum pension liability, environmental provisions, a cumulative effect of accounting change, asset impairment charges and transaction and employee-related costs associated with the sale of our North American magnet wire assets. Net special charges were partially offset by net gains associated with a tax benefit associated with the reversal of PD Brazil and U.S. deferred tax asset valuation allowances, the sale of non-core real estate and the change in interest gain from Ojos del Salado stock issuance.

($ in millions except per common share amounts)

Quarter	First			Second			Third			Fourth
2004
Sales and other operating revenues	$	1,433.1			1,485.7			1,675.4			1,821.0
Operating income		303.6			338.8			400.1			432.4
Operating income before special items and provisions		310.4			327.3			411.2			487.6
Minority interests in consolidated subsidiaries		(63.5	)		(41.6	)		(43.4	)		(52.6	)
Income from continuing operations		176.7			213.8			288.6			344.5
Income (loss) from discontinued operations		9.0			12.8			4.3			(3.4	)
Net income		185.7			226.6			292.9			341.1
Income from continuing operations excluding special items and provisions (after taxes)		187.1			229.8			289.5			363.1
Basic earnings per common share from continuing operations		1.89			2.26			3.04			3.58
Basic earnings (loss) per common share from discontinued operations		0.10			0.14			0.05			(0.03	)
Basic earnings per common share		1.99			2.40			3.09			3.55
Diluted earnings per common share from continuing operations		1.81			2.17			2.90			3.43
Diluted earnings (loss) per common share from discontinued operations		0.09			0.13			0.05			(0.03	)
Diluted earnings per common share		1.90			2.30			2.95			3.40
Stock prices*
High		90.52			84.80			93.73			101.55
Low		70.86			59.80			69.80			80.52
Close		81.66			77.51			92.03			98.92

* As reported in the Wall Street Journal.

     The 2004 first quarter income from continuing operations included after-tax, net special charges of $10.4 million, or 11 cents per common share, primarily related to early debt extinguishment costs, environmental provisions, the write-down of a cost-basis investment, costs associated with wire and cable restructuring programs and interest expense related to the Texas franchise tax matter. Special charges were offset by a net gain associated with the reversal of the valuation allowance for deferred tax assets that are expected to be realized after 2004 at our 51 percent-owned El Abra copper mine.

     The 2004 second quarter income from continuing operations included after-tax, net special charges of $16.0 million, or 16 cents per common share, primarily related to early debt extinguishment costs, the recognition of a valuation allowance for deferred tax assets at our Brazilian wire and cable operation, the write-down of a cost-basis investment, environmental provisions and costs associated with wire and cable restructuring programs. Special charges were offset by a gain associated with historical legal matters.

     The 2004 third quarter income from continuing operations included after-tax, net special charges of $0.9 million, or 1 cent per common share, primarily related to environmental provisions, wire and cable restructuring programs and asset impairment charges. Special charges were offset by net gains associated with environmental insurance recoveries and historical legal matters.

     The 2004 fourth quarter income from continuing operations included after-tax, net special charges of $18.6 million, or 19 cents per common share, primarily related to environmental provisions, the settlement of historical legal matters, taxes on anticipated foreign dividends, wire and cable restructuring programs, early debt extinguishment costs and the write-down of a cost-basis investment. Special charges were offset by net gains associated with environmental insurance recoveries, the reversal of U.S. deferred tax asset valuation allowances and a gain on the sale of uranium royalty rights in Australia.

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PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     The consolidated balance sheet at December 31, 2005 and 2004, and the related consolidated statements of operations, of cash flows and of shareholders’ equity for each of the three years in the period ended December 31, 2005, and notes thereto, beginning on page 98, together with the report thereon of PricewaterhouseCoopers LLP dated February 24, 2006, appears on page 97 of this report. The financial statement schedule that appears on page 151 should be read in conjunction with these financial statements. Schedules not included have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Separate financial statements of subsidiaries not consolidated and investments accounted for by the equity method, other than those for which summarized financial information is provided in Note 5 to the Consolidated Financial Statements, have been omitted because, if considered in the aggregate, such subsidiaries and investments would not constitute a significant subsidiary.

ADDITIONAL FINANCIAL DATA

Financial statement schedule for the years ended December 31, 2005, 2004 and 2003.
II — Valuation and qualifying accounts and reserves on page 151.

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Management of Phelps Dodge Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Phelps Dodge’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Phelps Dodge’s internal control over financial reporting includes those policies and procedures that:

• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Phelps Dodge;

• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Phelps Dodge’s assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     Management assessed the effectiveness of Phelps Dodge’s internal control over financial reporting as of December 31, 2005. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Management reviewed the results of its assessment with the Audit Committee and the Board of Directors of Phelps Dodge Corporation.

     Based on our assessment and those criteria, management concluded that Phelps Dodge maintained effective internal control over financial reporting as of December 31, 2005.

     PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm, has audited management’s assessment of the effectiveness of Phelps Dodge Corporation’s internal control over financial reporting as stated in their report which appears on page 97.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Phelps Dodge Corporation

     We have completed integrated audits of Phelps Dodge Corporation’s 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005, and an audit of its 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

     In our opinion, the consolidated financial statements listed in the Index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Phelps Dodge Corporation and its subsidiaries (the “Company”) at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the Index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     As described in Note 1, the Company changed its method of accounting for conditional asset retirement obligations effective December 31, 2005, its method of accounting for variable interest entities effective January 1, 2004 and its method of accounting for asset retirement obligations effective January 1, 2003.

Internal control over financial reporting

     Also, in our opinion, management’s assessment, included in the accompanying Report of Management on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

     A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
Phoenix, Arizona
February 24, 2006

 98 

Phelps Dodge Corporation

Consolidated Statement of Income
(in millions except per share data)

	For the years ended December 31,
	2005				2004			2003
				(see Note 1)
Sales and other operating revenues	$	8,287.1				6,415.2			3,498.5
Operating costs and expenses
Cost of products sold (exclusive of items shown separately below)		5,281.8				4,226.7			2,766.1
Depreciation, depletion and amortization		441.8				455.5			376.7
Selling and general administrative expense		158.5				140.1			126.9
Exploration and research expense		117.0				56.4			44.3
Special items and provisions, net (see Note 4)		523.1				61.6			41.7
		6,522.2				4,940.3			3,355.7
Operating income		1,764.9				1,474.9			142.8
Interest expense		(78.6	)			(123.2	)		(141.8	)
Capitalized interest		16.3				0.3			—
Early debt extinguishment costs (see Note 14)		(54.0	)			(43.2	)		—
Gain on sale of cost-basis investment (see Note 4)		438.4				—			—
Change in interest gains (see Note 4)		168.3				—			—
Miscellaneous income and expense, net		93.3				45.3			10.0
Income from continuing operations before taxes, minority interests in consolidated subsidiaries, equity in net earnings (losses) of affiliated companies, extraordinary item and cumulative effect of accounting changes		2,348.6				1,354.1			11.0
Provision for taxes on income		(577.0	)			(131.3	)		(27.6	)
Minority interests in consolidated subsidiaries		(190.4	)			(201.1	)		(7.2	)
Equity in net earnings (losses) of affiliated companies		2.7				1.9			2.7
Income (loss) from continuing operations before extraordinary item and cumulative effect of accounting changes		1,583.9				1,023.6			(21.1	)
Discontinued operations:
Income (loss) from discontinued operations, net of taxes of $37.0, $(11.0) and $(20.7) (including loss on disposal of $5.0, net of taxes in 2005)		(17.4	)			22.7			39.2
Income before extraordinary item and cumulative effect of accounting changes		1,566.5				1,046.3			18.1
Extraordinary gain on acquisition of partner’s interest in Chino, net of taxes of $0 in 2003 (see Note 2)		—				—			68.3
Cumulative effect of accounting changes, net of taxes of $3.4 and $(1.3) in 2005 and 2003, respectively		(10.1	)			—			8.4
Net income		1,556.4				1,046.3			94.8
Preferred stock dividends		(6.8	)			(13.5	)		(13.5	)
Net income applicable to common shares	$	1,549.6				1,032.8			81.3
Weighted average number of common shares outstanding — basic		97.9				93.4			88.8
Basic earnings per common share:
Income (loss) from continuing operations	$	16.12				10.82			(0.39	)
Income (loss) from discontinued operations		(0.18	)			0.24			0.45
Extraordinary item		—				—			0.77
Cumulative effect of accounting changes		(0.10	)			—			0.09
Basic earnings per common share	$	15.84				11.06			0.92
Weighted average number of common shares outstanding — diluted *		101.3				98.9			88.8
Diluted earnings per common share:
Income (loss) from continuing operations	$	15.64				10.35			(0.39	)
Income (loss) from discontinued operations		(0.17	)			0.23			0.45
Extraordinary item		—				—			0.77
Cumulative effect of accounting changes		(0.10	)			—			0.09
Diluted earnings per common share	$	15.37				10.58			0.92

* Diluted earnings (loss) per common share from continuing operations would have been anti-dilutive for the year ended December 31, 2003, if based on fully diluted shares adjusted to reflect the conversion of mandatory convertible preferred shares to common shares, stock options exercised and restricted stock released.

Refer to Note 24 for discussion of the 2006 first quarter stock split.

See Notes to Consolidated Financial Statements

99

Phelps Dodge Corporation

Consolidated Balance Sheet

(in millions except per share prices)
	December 31,			December 31,
	2005			2004
Assets
Current assets:
Cash and cash equivalents	$	1,916.7			1,200.1
Restricted cash		20.8			—
Accounts receivable, less allowance for doubtful accounts (2005-$6.9; 2004-$17.4)		1,028.0			761.5
Mill and leach stockpiles		36.6			26.2
Inventories		329.5			392.1
Supplies		199.7			192.7
Prepaid expenses and other current assets		83.6			46.0
Deferred income taxes		82.0			43.1
Assets held for sale		373.8			—
Current assets		4,070.7			2,661.7
Investments and long-term receivables		142.6			120.7
Property, plant and equipment, net		4,830.9			5,318.9
Long-term mill and leach stockpiles		133.3			131.0
Deferred income taxes		99.6			61.8
Goodwill		22.3			103.5
Intangible assets, net		7.5			5.3
Long-term assets held for sale		431.4			—
Other assets and deferred charges		619.7			191.2
	$	10,358.0			8,594.1
Liabilities
Current liabilities:
Short-term debt	$	14.3			78.8
Current portion of long-term debt		2.5			45.9
Accounts payable and accrued expenses		1,445.7			972.1
Dividends payable		—			3.4
Accrued income taxes		23.6			67.8
Liabilities related to assets held for sale		123.2			—
Current liabilities		1,609.3			1,168.0
Long-term debt		677.7			972.2
Deferred income taxes		558.0			448.4
Long-term liabilities related to assets held for sale		61.3			—
Other liabilities and deferred credits		934.2			1,107.3
		3,840.5			3,695.9
Commitments and contingencies (see Notes 7, 19, 20 and 21)
Minority interests in consolidated subsidiaries		915.9			555.1
Shareholders’ equity
Common shares, par value $6.25; 300.0 shares authorized; 101.6 outstanding (2004 - 95.9) after deducting 8.4 shares (2004 - 9.9) held in treasury, at cost		635.1			599.5
Cumulative preferred shares, par value $1.00; 6.0 shares authorized; 2.0 outstanding in 2004		—			2.0
Capital in excess of par value		1,998.8			1,906.4
Retained earnings		3,158.8			2,239.9
Accumulated other comprehensive loss		(154.5	)		(384.2	)
Other		(36.6	)		(20.5	)
		5,601.6			4,343.1
	$	10,358.0			8,594.1

Refer to Note 24 for discussion of the 2006 first quarter stock split.

See Notes to Consolidated Financial Statements

100

Phelps Dodge Corporation

Consolidated Statement of Cash Flows

(in millions)
	For the years ended December 31,
	2005			2004			2003
				(see Note 1)
Operating activities
Net income	$	1,556.4			1,046.3			94.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		490.9			507.1			422.6
Deferred income tax provision (benefit)		16.4			(17.8	)		0.3
Equity in net earnings (losses) of affiliated companies, net of dividends received		(0.1	)		2.2			(0.2	)
Gain on sale of cost-basis investment		(438.4	)		—			—
Change in interest gains		(168.3	)		—			—
Special items and provisions		612.1			59.9			31.6
Early debt extinguishment costs		54.0			43.2			—
Minority interests in consolidated subsidiaries		190.6			201.8			7.7
Loss on disposition of discontinued operations		5.8			—			—
Extraordinary gain		—			—			(68.3	)
Cumulative effect of accounting changes		13.5			—			(9.7	)
Changes in current assets and liabilities:
Accounts receivable		(399.0	)		(276.2	)		(76.4	)
(Repayment of) proceeds from sale of accounts receivable		(85.0	)		—			16.9
Mill and leach stockpiles		(10.5	)		1.0			28.3
Inventories		(46.5	)		(0.4	)		29.5
Supplies		(33.8	)		(23.6	)		(0.9	)
Prepaid expenses and other current assets		(35.2	)		(6.7	)		(10.1	)
Interest payable		(3.8	)		(8.2	)		(0.2	)
Other accounts payable		159.6			212.1			25.7
Accrued income taxes		(0.9	)		17.5			37.1
Other accrued expenses		312.6			(42.8	)		(23.7	)
Pension plan contributions		(250.0	)		(85.4	)		—
VEBA trusts contributions		(200.0	)		—			—
Other operating, net		29.3			70.1			(43.4	)
Net cash provided by operating activities		1,769.7			1,700.1			461.6
Investing activities
Capital outlays		(686.0	)		(303.6	)		(151.4	)
Capitalized interest		(17.6	)		(1.0	)		(0.6	)
Investment in subsidiaries and other, net of cash received and acquired		(12.2	)		(13.7	)		49.0
Proceeds from asset dispositions		18.2			26.9			17.8
Proceeds from sale of cost-basis investment		451.6			—			—
Restricted cash		(20.8	)		—			—
Global environmental trust contribution		(100.0	)		—			—
Other investing, net		(1.2	)		0.4			(2.5	)
Net cash used in investing activities		(368.0	)		(291.0	)		(87.7	)
Financing activities
Proceeds from issuance of debt		21.6			150.0			10.3
Payment of debt		(416.0	)		(1,257.1	)		(157.6	)
Common dividends		(630.7	)		(47.5	)		—
Preferred dividends		(10.1	)		(13.5	)		(13.5	)
Minority interests dividends		(98.5	)		(10.5	)		(2.5	)
Issuance of shares, net		55.9			291.0			80.4
Debt issue costs		(18.8	)		(7.0	)		—
Proceeds from issuance of Cerro Verde and Ojos del Salado stock		466.6			—			—
Other financing, net		(55.8	)		(52.6	)		34.1
Net cash used in financing activities		(685.8	)		(947.2	)		(48.8	)
Cash included in assets held for sale		(11.0	)		—			—
Effect of exchange rate impact on cash and cash equivalents		11.7			26.1			8.9
Increase in cash and cash equivalents		716.6			488.0			334.0
Increase at beginning of 2004 from fully consolidating El Abra and Candelaria		—			28.3			—
Cash and cash equivalents at beginning of year		1,200.1			683.8			349.8
Cash and cash equivalents at end of year	$	1,916.7			1,200.1			683.8

See Notes to Consolidated Financial Statements

101

Phelps Dodge Corporation

Consolidated Statement of Shareholders’ Equity

(in millions)
																			Accumulated
	Common Shares						Preferred Shares						Capital in						Other
	Number			At Par			Number			At Par			Excess of			Retained			Comprehensive						Shareholders’
	of Shares			Value			of Shares			Value			Par Value			Earnings			Loss*			Other			Equity
Balance at January 1, 2003		88.9		$	555.6			2.0		$	2.0		$	1,552.1		$	1,173.3		$	(458.5	)	$	(10.9	)	$	2,813.6
Stock options exercised including tax benefit		2.0			12.2									87.6												99.8
Restricted shares issued/cancelled, net		0.1			0.7									3.2									0.6			4.5
Common shares purchased														(0.4	)											(0.4	)
Dividends on common shares																	(13.5	)								(13.5	)
Comprehensive income (loss):
Net income																	94.8									94.8
Other comprehensive income (loss), net of tax:
Translation adjustment																				63.0						63.0
Net gain on derivative instruments																				10.7						10.7
Other investment adjustments																				(0.1	)					(0.1	)
Unrealized loss on securities																				9.0						9.0
Minimum pension liability																				(17.6	)					(17.6	)
Other comprehensive income																				65.0						65.0
Comprehensive income																										159.8
Balance at December 31, 2003		91.0			568.5			2.0			2.0			1,642.5			1,254.6			(393.5	)		(10.3	)		3,063.8
Stock options exercised including tax benefit		4.7			29.6									248.8												278.4
Restricted shares issued/cancelled, net		0.2			1.5									16.8									(10.2	)		8.1
Directors’ stock compensation					0.1									1.1												1.2
Common shares purchased					(0.2	)								(2.8	)											(3.0	)
Dividends on preferred shares																	(13.5	)								(13.5	)
Dividends on common shares																	(47.5	)								(47.5	)
Comprehensive income (loss):
Net income																	1,046.3									1,046.3
Other comprehensive income (loss), net of tax:
Translation adjustment																				57.9						57.9
Net gain on derivative instruments																				9.9						9.9
Other investment adjustments																				0.1						0.1
Unrealized gain on securities																				7.1						7.1
Minimum pension liability																				(65.7	)					(65.7	)
Other comprehensive income																				9.3						9.3
Comprehensive income																										1,055.6
Balance at December 31, 2004		95.9			599.5			2.0			2.0			1,906.4			2,239.9			(384.2	)		(20.5	)		4,343.1
Stock options exercised including tax benefit		1.3			8.1									96.2												104.3
Restricted shares issued/cancelled, net		0.3			1.7									26.6									(16.1	)		12.2
Common shares purchased		(0.1	)		(0.2	)								(3.5	)											(3.7	)
Conversion of preferred shares		4.2			26.0			(2.0	)		(2.0	)		(24.0	)											—
Dividends on preferred shares																	(6.8	)								(6.8	)
Dividends on common shares																	(630.7	)								(630.7	)
Other														(2.9	)											(2.9	)
Comprehensive income (loss):
Net income																	1,556.4									1,556.4
Other comprehensive income (loss), net of tax:
Translation adjustment																				(0.1	)					(0.1	)
Net gain on derivative instruments																				21.2						21.2
Other investment adjustments																				0.5						0.5
Unrealized gain on securities																				4.7						4.7
Minimum pension liability																				203.4						203.4
Other comprehensive income																				229.7						229.7
Comprehensive income																										1,786.1
Balance at December 31, 2005		101.6		$	635.1			—		$	—		$	1,998.8		$	3,158.8		$	(154.5	)	$	(36.6	)	$	5,601.6

* As of December 31, 2005, this balance comprised $171.9 million of cumulative translation adjustments, $26.2 million of cumulative minimum pension liability adjustments and $0.2 million of cumulative other investment adjustments; partially offset by $38.0 million of cumulative unrealized gains on securities and $5.8 million of cumulative unrealized gains on derivative instruments.

Refer to Note 24 for discussion of the 2006 first quarter stock split.

See Notes to Consolidated Financial Statements

102

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

(Dollar amounts in tables stated in millions except as noted)

1. Summary of Significant Accounting Policies

Basis of Consolidation. The consolidated financial statements include the accounts of Phelps Dodge Corporation (the Company, which may be referred to as Phelps Dodge, PD, we, us or our), and its majority-owned subsidiaries. Our business consists of two divisions, Phelps Dodge Mining Company (PDMC) and Phelps Dodge Industries (PDI). Prior to 2005, our PDI manufacturing division included our Specialty Chemicals segment, which consisted of Columbian Chemicals Company and its subsidiaries (Columbian Chemicals or Columbian). On November 15, 2005, the Company entered into an agreement to sell Columbian Chemicals. As a result of this proposed transaction, the operating results of Columbian have been reported separately from continuing operations and shown as discontinued operations in the Consolidated Statement of Income for all periods presented. Also, at December 31, 2005, the related assets and liabilities of Columbian Chemicals have been presented separately in the Consolidated Balance Sheet as assets held for sale and liabilities related to assets held for sale. (Refer to Note 3, Discontinued Operations and Assets Held for Sale, for further discussion.)

     In accordance with the Financial Accounting Standards Board’s (FASB) Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,” (FIN 46) and the revised Interpretation (FIN 46-R), beginning January 1, 2004, we fully consolidated the results of operations for our El Abra and Candelaria mines in Chile, in which we hold 51 percent and 80 percent partnership interests, respectively, and report minority interests in our Consolidated Financial Statements. Historically, the Company had accounted for its partnership interests in these mines using the proportional consolidation method. (For further discussion, refer to this note under New Accounting Pronouncements — FASB Interpretation No. 46.)

     Other investments in undivided interests and unincorporated mining joint ventures that are limited to the extraction of minerals are accounted for using the proportional consolidation method, which include the Morenci mine, located in Arizona, in which we hold an 85 percent undivided interest. In addition, prior to 2004, the Chino mine, located in New Mexico, was accounted for using the proportional consolidation method. We held a two-thirds partnership interest in the Chino mine through December 18, 2003, and a 100 percent interest thereafter (refer to Note 2, Acquisitions and Divestitures, for further discussion). Interests in other majority-owned subsidiaries are reported using the full consolidation method. We include 100 percent of the assets and liabilities of these subsidiaries and report the minority interests in our Consolidated Financial Statements. All material intercompany balances and transactions are eliminated.

     Investments in unconsolidated companies owned 20 percent or more are recorded on an equity basis. Investments in companies less than 20-percent owned, and for which we do not exercise significant influence, are carried at cost.

Management’s Estimates and Assumptions. The preparation of financial statements in conformity with generally accepted accounting principles in the United States (GAAP) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to mineral reserves that are the basis for future cash flow estimates and units-of-production depreciation and amortization calculations; environmental, reclamation and closure obligations; estimates of recoverable copper and molybdenum in ore reserves and in mill and leach stockpiles; asset impairments (including estimates of future cash flows); pension, postemployment, postretirement and other employee benefit liabilities; bad debt reserves; realization of deferred tax assets; reserves for contingencies and litigation; and fair value of financial instruments. Management bases its estimates on the Company’s historical experience and its expectations of the future and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Foreign Currency Translation. Except as noted below, the assets and liabilities of foreign subsidiaries are translated at current exchange rates, while revenues and expenses are translated at average rates in effect for the period. The related translation gains and losses are included in accumulated other comprehensive income (loss) within shareholders’ equity. For the translation of the financial statements of certain foreign subsidiaries dealing predominantly in U.S. dollars, and for those affiliates operating in highly inflationary economies, assets and liabilities receivable or payable in cash are translated at current exchange rates, and inventories and other non-monetary assets and liabilities are translated at historical rates. Gains and losses resulting from translation of such financial statements are included in operating results, as are gains and losses incurred on foreign currency transactions.

Statement of Cash Flows. For the purpose of preparing the Consolidated Statement of Cash Flows, we consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Sale of Eligible Trade Accounts Receivable. In November 2001, the Company entered into an agreement (the Receivables Facility), which was extended for three one-year periods in December 2004, whereby it sold on a continuous basis an undivided interest in eligible trade accounts receivable. Pursuant to the Receivables Facility, the Company formed PD Receivables LLC (PD Receivables), a wholly owned, special-purpose, bankruptcy-remote subsidiary. PD Receivables was formed for the sole purpose of buying and selling receivables generated by the Company and is consolidated with the operations of the Company. Under the Receivables Facility, the Company transferred certain of its trade receivables to PD Receivables. PD Receivables, in turn, sold and, subject to certain conditions, from time to time sold an undivided interest in these receivables, and was permitted to receive advances of up to $90 million for the sale of such undivided interest.

103

     The transactions were accounted for as a sale of receivables under the provisions of Statement of Financial Accounting Standards (SFAS) No. 140, “Accounting for the Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a replacement of FASB Statement No. 125.” At December 31, 2004, there was $85 million advanced under the Receivables Facility. On January 20, 2005, the Company repaid $85 million previously received under the Receivables Facility, and there were no additional borrowings during 2005. On December 30, 2005, the Company terminated the Receivables Facility program. Costs associated with the sale of receivables, primarily related to funding and service costs charged by the finance group, were $0.3 million, $1.6 million and $1.1 million during 2005, 2004 and 2003, respectively, and are included in cost of products sold in the Consolidated Statement of Income.

Mill Stockpiles, Leach Stockpiles, Inventories and Supplies. Mill stockpiles, leach stockpiles, inventories and supplies are stated at the lower of cost or market. For PDMC mined copper ore and other metal inventories, cost is determined by the last-in, first-out (LIFO) method and includes all costs incurred to the applicable stage of processing. Costs include labor and benefits, supplies, energy, depreciation and amortization, and other necessary costs associated with the extraction and processing of ore, including, depending on the process, mining, haulage, milling, concentrating, smelting, leaching, solution extraction and refining. General and administrative costs for corporate offices are not included in inventory values.

     For molybdenum inventory, cost also is determined using the LIFO method. Costs include labor and benefits, supplies, energy, depreciation and amortization, and other necessary costs associated with the extraction and processing of ore, including, depending on the process, mining, haulage, milling, concentrating, roasting and chemical processing. General and administrative costs for corporate offices are not included in inventory values.

     For PDI, we use the LIFO method to value metal inventories. We use the first-in, first-out (FIFO) or moving average cost methods to determine costs for substantially all other PDI inventories. Costs include raw materials, direct and indirect production costs, and depreciation. General and administrative costs for division and corporate offices are not included in inventory values.

     Substantially all supplies are purchased for PDMC and PDI, and cost is determined using a moving average method.

     Major classifications for PDMC are described below.

Mill stockpiles

     Mill stockpiles contain low-grade ore that has been extracted from the mine and is available for processing to recover the contained copper by milling, concentrating, smelting and refining. Mill stockpiles that are expected to be processed in the future are valued based on mining and haulage costs incurred to deliver ore to the stockpiles, including associated depreciation, amortization and overhead costs.

     Because the determination of copper contained in mill stockpiles by physical count is impracticable, reasonable estimation methods are employed. The quantity of material delivered to the stockpiles is based on surveyed volumes of mined material and daily production records. Sampling and assaying of blast-hole cuttings determine the estimated amount of copper contained in the material delivered to the mill stockpiles.

     Expected copper recovery rates are determined by metallurgical testing. The recoverable copper in mill stockpiles can be extracted into copper concentrate almost immediately upon processing. Estimates of copper contained in mill stockpiles are reduced as material is removed and fed to the mill.

Leach stockpiles

     Leach stockpiles contain low-grade ore that has been extracted from the mine and is available for processing to recover the contained copper through a leaching process. Leach stockpiles are exposed to acidic solutions that dissolve contained copper into solution for subsequent extraction processing. Leach stockpiles that are expected to be processed in the future are valued based on mining and haulage costs incurred to deliver ore to the stockpiles, including associated depreciation, amortization and overhead costs.

     Because the determination of copper contained in leach stockpiles by physical count is impracticable, reasonable estimation methods are employed. The quantity of material is based on surveyed volumes of mined material and daily production records. Sampling and assaying of blast-hole cuttings determine the estimated amount of copper contained in material delivered to the leach stockpiles.

     Expected copper recovery rates are determined using small-scale laboratory tests, small- and large-scale column testing (which simulates the production-scale process), historical trends and other factors, including mineralogy of the ore and rock type.

     Ultimate recovery of copper contained in leach stockpiles can vary from a very low percentage to more than 90 percent depending on several variables, including type of processing, mineralogy and particle size of the rock. Although as much as 70 percent of the copper ultimately recoverable may be extracted during the first year of processing, recovery of the remaining copper may take many years.

     Our processes and recovery rates are monitored continuously. We adjust our recovery rate estimates periodically as we learn more about the long-term leaching process and as the related technology changes. Estimates of copper contained in leach stockpiles are reduced as copper is recovered from the stockpile.

Work-in-process

     Work-in-process inventories at PDMC represent materials that are in the process of being converted into a salable product. Conversion processes vary depending on the nature of the copper ore and the specific mining operation. For sulfide ores, processing includes milling and concentrating and results in the production of copper and molybdenum concentrates. For oxide ores and certain secondary sulfide ores, processing includes solution extraction and electrowinning and results in the production of copper cathodes. In-process material is measured based on assays of the material included in these processes and projected recoveries. In-process inventories are valued based on the cost of the source material plus in-process conversion costs incurred to various points in the process, including depreciation relating to the associated process facilities.

     Work-in-process inventories at PDI represent wire and cable that is in the process of being converted into a salable product. In-process inventories are valued based on the cost of raw materials (copper, aluminum, and coating and insulating materials) plus in-process conversion costs incurred to various points in the process, including

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depreciation and overhead costs relating to the associated process facilities.

Finished goods

     Finished goods at PDMC include salable products (e.g., copper and molybdenum concentrates, copper anodes, copper cathodes, copper rod, high-purity molybdenum chemicals and other metallurgical products). Finished goods are valued based on the cost of the source material plus applicable conversion costs, including depreciation and overhead costs relating to the associated process facilities.

     Finished goods at PDI include salable products, primarily copper and aluminum wire and cable and carbon black. Carbon black is produced instantaneously from feedstock oil (a raw material). Finished goods are valued based on the cost of the source material plus applicable conversion costs, including depreciation and overhead costs relating to the associated process facilities and packaging.

Raw materials

     Raw material at PDI includes purchased copper, aluminum, coating and insulating materials, feedstock oil, oxygen, oil additives and packaging supplies. PDMC generally supplies copper to our U.S. wire and cable business locations on a consignment basis.

Property, Plant and Equipment. Property, plant and equipment are carried at cost. Cost of significant assets includes capitalized interest incurred during the construction and development period. Expenditures for replacements and betterments are capitalized; maintenance and repair expenditures are charged to operations as incurred except for planned major maintenance activities at our copper smelters and molybdenum roasters as described below.

     The principal depreciation method used for mining, smelting and refining operations is the units-of-production method applied on a group basis.

     Depreciation rates for each mine’s production are based on the ratio of depreciable mine assets over the associated projected life-of-mine of proven and probable ore reserves. Depreciable mine assets exclude non-mining land (which is not depreciated or depleted), mining land (which is depleted separately), short-lived assets (which are depreciated on a straight-line basis over their estimated useful lives less estimated salvage value) and undeveloped ore body values.

     Depreciation rates for smelter and refinery production are based on the ratio of total facility depreciable assets over projected life-of-facility production. Depreciable facility assets exclude non-depreciable assets (such as land values) and short-lived assets (which are depreciated on a straight-line basis over their estimated useful lives less estimated salvage value).

     Buildings, machinery and equipment for our other operations are depreciated using the straight-line method over estimated lives of three to 40 years, or the estimated life of the operation if shorter.

     Values for mining properties represent mainly acquisition costs. Depletion of mines is computed on the basis of an overall unit rate applied to the pounds of principal products sold from mine production.

     Mine exploration costs and stripping costs to maintain production of operating mines are charged to operations as incurred. Mine development expenditures at new mines, and major development expenditures at operating mines outside existing pit limits that are expected to benefit future production beyond a minimum of one year, are capitalized and amortized on the units-of-production method. Major development expenditures at operating mines include the cost to remove overburden to prepare unique and identifiable areas outside the current mining area for such future production. Capitalized major development is amortized on a units-of-production method over associated proven and probable ore reserves. (For further discussion, refer to this note under New Accounting Pronouncements — the Emerging Issues Task Force (EITF) Issue No. 04-6.)

     Our policy for repair and maintenance costs incurred in connection with periodic, planned, major maintenance activities that benefit future periods greater than 12 months at our continuously operating copper smelters is to defer such costs when incurred and charge them to operations equally during the subsequent periods benefited. These operations require shutdowns of the entire facility to perform planned, major repair and maintenance activities on furnaces, acid plants, anode vessels, oxygen plants and other ancillary facilities. The frequency of such repair and maintenance activities is predictable and scheduled and typically ranges from 12 to 36 months, depending on the facility and area involved.

Environmental Expenditures. Environmental expenditures are expensed or capitalized, depending upon their future economic benefits. Liabilities for such expenditures are recorded when it is probable that obligations have been incurred and the costs can be reasonably estimated. For closed facilities and closed portions of operating facilities with environmental obligations, an environmental liability is accrued when a decision to close a facility or a portion of a facility is made by management, and when the environmental liability is considered to be probable. Environmental liabilities attributed to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) or analogous state programs are considered probable when a claim is asserted, or is probable of assertion, and we have been associated with the site. Other environmental remediation liabilities are considered probable based on the specific facts and circumstances. Our estimates of these costs are based upon available facts, existing technology and current laws and regulations, and are recorded on an undiscounted basis. Where the available information is sufficient to estimate the amount of liability, that estimate has been used. Where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other, the lower end of the range has been used. The possibility of recovery of some of these costs from insurance companies or other parties exists; however, we do not recognize these recoveries in our financial statements until they become probable. Legal costs associated with environmental remediation as defined in Statement of Position 96-1, “Environmental Remediation Liabilities,” are reserved as part of the environmental liability.

Asset Retirement Obligations. Effective January 1, 2003, we adopted SFAS No. 143, “Accounting for Asset Retirement Obligations,” which established a uniform methodology for accounting for estimated reclamation costs. We recognize asset retirement obligations (AROs) as liabilities when incurred, with the initial measurement at fair value. These liabilities are accreted to full value over time through charges

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to income. In addition, asset retirement costs (ARCs) are capitalized as part of the related asset’s carrying value and are depreciated primarily on a units-of-production basis over the asset’s respective useful life. Reclamation costs for future disturbances are recognized as an ARO and as a related ARC in the period incurred. Our AROs consist primarily of costs associated with mine reclamation and closure activities. These activities, which tend to be site specific, generally include costs for earthwork, revegetation, water treatment and demolition.

     Effective December 31, 2005, we adopted FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations — an Interpretation of FASB Statement No. 143” (FIN 47), which clarified the term conditional ARO and provided guidance for assessing whether sufficient information exists to reasonably estimate the fair value of the ARO. Any uncertainty about the amount and/or timing of future settlement of a conditional ARO is factored into the measurement of the liability. With the adoption of FIN 47, we have recognized conditional AROs associated with non-friable asbestos abatement and disposal activities and with the final removal of certain processed waste and chemical materials.

     We assess the cash flow estimates and timing associated with our AROs on an annual basis, and we revise these estimates when facts and circumstances change, as necessary. Any refinements to our AROs as a result of cash flow estimates and timing revisions are recorded in the period incurred.

     (For further discussion on the impact of the adoption of SFAS No. 143 and FIN 47, refer to this note under New Accounting Pronouncements — SFAS No. 143 and FIN 47.)

Goodwill. Goodwill has indefinite useful lives and is not amortized. The Company tests its goodwill for impairment annually as of December 31, unless events occur or circumstances change between annual tests that would more likely than not reduce the fair value of a related reporting unit below its carrying amount.

Intangible Assets. Intangible assets include water rights, land easements and trademarks primarily at our U.S. mining sites. The principal amortization method for such intangible assets is the computation of an overall unit rate that is applied to pounds of principal products sold from mine production.

Impairments. We evaluate our long-term assets held for use for impairment when events or changes in economic circumstances indicate the carrying amount of such assets may not be recoverable. Goodwill and our identifiable intangible assets are evaluated at least annually for impairment. We use an estimate of the future undiscounted net cash flows of the related asset or asset grouping over the remaining life to measure whether the assets are recoverable and measure any impairment by reference to fair value. Fair value is generally estimated using the Company’s expectation of discounted net cash flows. Long-term assets to be disposed of are carried at the lower of cost or fair value less the costs of disposal.

Revenue Recognition. The Company sells its products pursuant to sales contracts entered into with its customers. Revenue for all our products is recognized when title and risk of loss pass to the customer and when collectibility is reasonably assured. The passing of title and risk of loss to the customer is based on terms of the sales contract, generally upon shipment or delivery of product. Product pricing is based upon quoted commodity prices plus applicable premiums or prevailing market prices.

     Certain of our sales agreements provide for provisional pricing based on either the New York Commodity Exchange (COMEX) or London Metal Exchange (LME), as specified in the contract, when shipped. Final settlement is based on the average applicable price for a specified future period, generally from one to three months after arrival at the customer’s facility. The Company’s provisionally priced sales contain an embedded derivative that, because it is unrelated to the commodity sale, is required to be accounted for separately from the contract. The contract is the sale of the concentrates at the current spot LME price. The embedded derivative, which is the final settlement price based on a future price, does not qualify for hedge accounting and accordingly is marked to market through earnings each period with reference to the appropriate commodity and exchange forward curve. At December 31, 2005 and 2004, we had outstanding provisionally priced sales of approximately 240 million pounds and approximately 269 million pounds, respectively.

     Approximately 70 percent of our molybdenum sales are priced based on published prices (i.e., Platts Metals Week, Ryan’s Notes or Metal Bulletin), plus premiums. The majority of these sales use the average of the previous month (i.e., price quotation period is the month prior to shipment, or M-1). Our remaining sales generally have pricing that is either based on a fixed price or adjust within certain price ranges.

Shipping and Handling Fees and Costs. Amounts billed to customers for shipping and handling are classified as sales and other operating revenues. Amounts incurred for shipping and handling are included in costs of products sold.

Issuances of Subsidiary Stock. We have occasionally divested a portion of our ownership in a subsidiary primarily through the issuance of additional subsidiary stock to third parties. In connection with such transactions, we recognize the difference between the carrying amount of our interest in the subsidiary stock sold and the fair market value of the stock, upon issuance, as a change in interest gain or loss in income when we believe that realization is reasonably assured. (For further discussion regarding change of interest gains recorded, refer to Note 4, Special Items and Provisions.)

Hedging Programs. We do not purchase, hold or sell derivative financial instruments unless we have an existing asset or obligation or we anticipate a future activity that is likely to occur that will result in exposing us to market risk. We do not enter into any instruments for speculative purposes. We use various strategies to manage our market risk, including the use of derivative instruments to limit, offset or reduce our market exposure. Derivative financial instruments are used to manage well-defined commodity price, energy, foreign exchange and interest rate risks from our primary business activities. (For a discussion on why we use derivative financial instruments, our year-end derivative positions and related financial results, refer to Note 22, Derivative Financial Instruments and Fair Value of Financial Instruments.)

     We recognize all derivative financial instruments as assets and liabilities and measure them at fair value. For derivative instruments that are designated and qualify as cash flow hedges (specifically, metal swap contracts, floating-to-fixed interest rate swaps, diesel fuel

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swaps and call options, and natural gas and feedstock oil call options), the effective portions of changes in fair value of the derivative are recorded in other comprehensive income (loss), and are recognized in the Consolidated Statement of Income when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized currently in earnings. For derivative instruments that are designated and qualify as fair value hedges (specifically, fixed-price copper swap and futures contracts, currency forward exchange contracts, and fixed-to-floating interest rate swaps), gains or losses resulting from changes in their fair value are recognized currently in earnings. In addition, the gain or loss resulting from changes in the fair value of the hedged item attributable to the hedged risk is adjusted and recognized currently in earnings. Therefore, any ineffectiveness would be recognized currently in earnings.

     Effectiveness testing for qualified hedge programs (with the exception of interest rate swaps and certain option contracts) utilizes an intrinsic value methodology. This methodology excludes the time value component, which is recognized in earnings. Our interest rate swaps and certain option contracts meet the criteria to assume no hedge ineffectiveness.

     Changes in the fair value (both intrinsic and time-value components) of derivatives that do not qualify for hedge treatment (specifically, copper price protection, copper rod swap and futures contracts, copper COMEX-LME arbitrage, copper quotational period swap contracts, gold and silver collars, currency swaps and certain diesel fuel price protection programs) are recognized currently in earnings.

Stock Compensation. At December 31, 2005, the Company had five stock-based option plans, which are described more fully in Note 16, Stock Option Plans; Restricted Stock. We account for our stock option plans by measuring compensation cost using the intrinsic-value-based method presented by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No compensation cost is reflected in consolidated net income, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. The following table presents the effect on net income and earnings per share as if we had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” to compensation cost. (Refer to this note under New Accounting Pronouncements for discussion of SFAS No. 123 (revised 2004).)

	2005			2004			2003
Net income as reported	$	1,556.4			1,046.3			94.8
Deduct:
Total compensation cost determined under fair value based method for all awards, net of tax		(2.9	)		(5.2	)		(11.2	)
Pro forma net income	$	1,553.5			1,041.1			83.6
Earnings per share
Basic — as reported	$	15.84			11.06			0.92
Basic — pro forma	$	15.81			11.01			0.79
Earnings per share
Diluted — as reported	$	15.37			10.58			0.92
Diluted — pro forma	$	15.35			10.54			0.79

Income Taxes. In addition to charging income for taxes actually paid or payable, the provision for taxes reflects deferred income taxes resulting from changes in temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. A valuation allowance is provided for any deferred tax assets for which realization is unlikely. The effect on deferred income taxes of a change in tax rates and laws is recognized in income in the period that such changes are enacted.

     With the exception of amounts provided for undistributed earnings of Candelaria and El Abra, deferred income taxes have not been provided on our share (approximately $280 million) of undistributed earnings of foreign manufacturing and mining subsidiaries over which we have sufficient influence to control the distribution of such earnings and have determined that such earnings have been reinvested indefinitely.

Pension Plans. We have trusteed, non-contributory pension plans covering substantially all of our U.S. employees and some employees of international subsidiaries. The applicable plan design determines the manner in which the benefits are calculated for any particular group of employees. With respect to certain of these plans, the benefits are calculated based on final average monthly compensation and years of service. In the case of other plans, the benefits are calculated based on a fixed amount for each year of service. Our funding policy provides that contributions to the pension trusts shall be at least equal to the minimum funding requirements of the Employee Retirement Income Security Act of 1974, as amended, for U.S. plans or, in the case of international plans, the minimum legal requirements that may be applicable in the various countries. Additional contributions also may be made from time to time.

Postretirement Benefits Other Than Pensions. We have postretirement medical and life insurance benefit plans covering certain of our U.S. employees and, in some cases, employees of international subsidiaries. During 2005, the Company eliminated postretirement life insurance coverage, unless otherwise provided pursuant to the terms of a collective bargaining agreement, for all active employees who separate from service and retire on or after January 1, 2006. During 2005, the Company also eliminated postretirement medical coverage, unless otherwise provided pursuant to the terms of a collective bargaining agreement, for employees hired or rehired on or after February 1, 2005. Postretirement benefits vary among plans, and many plans require contributions from retirees. We account for these benefits on an accrual basis. Our funding policy provides that contributions shall be at least equal to our cash basis obligation, plus additional amounts that may be approved by us from time to time. In December 2005, the Company’s board of directors approved establishing and funding two trusts intended to constitute Voluntary Employees’ Beneficiary Association (VEBA) trusts, under Section 501(c)(9) of the Internal Revenue Code, one dedicated to funding postretirement medical obligations and the other dedicated to funding postretirement life insurance obligations, for eligible U.S. retirees.

Postemployment Benefits. We have certain postemployment benefit plans covering most of our U.S. employees and, in some cases, employees of international subsidiaries. The benefit plans may provide severance, long-term disability income, health-care, life insurance, continuation of health and life insurance coverage for disabled employees or other welfare benefits. We account for these benefits on an accrual basis. Our funding policy provides that contributions shall be at least equal to our cash basis obligation. Additional amounts may also be provided from time to time.

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Earnings Per Share. Basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share are computed similarly to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued, and the numerator excludes preferred stock dividends, unless anti-dilutive. Unvested restricted stock is included in the computation of diluted earnings per share as the issuance of such shares is contingent upon vesting.

	2005			2004			2003
Basic Earnings Per Share Computation
Numerator:
Income (loss) from continuing operations before extraordinary item and cumulative effect of accounting changes	$	1,583.9			1,023.6			(21.1	)
Income (loss) from discontinued operations		(17.4	)		22.7			39.2
Extraordinary item		—			—			68.3
Cumulative effect of accounting changes		(10.1	)		—			8.4
Net income		1,556.4			1,046.3			94.8
Preferred stock dividends		(6.8	)		(13.5	)		(13.5	)
Net income applicable to common shares	$	1,549.6			1,032.8			81.3
Denominator:
Weighted average common shares outstanding		97.9			93.4			88.8
Basic earnings per common share
Income (loss) from continuing operations	$	16.12			10.82			(0.39	)
Income (loss) from discontinued operations		(0.18	)		0.24			0.45
Extraordinary item		—			—			0.77
Cumulative effect of accounting changes		(0.10	)		—			0.09
Basic earnings per common share	$	15.84			11.06			0.92
Diluted Earnings Per Share Computation*
Numerator:
Income (loss) from continuing operations before extraordinary item and cumulative effect of accounting changes	$	1,583.9			1,023.6			(21.1	)
Income (loss) from discontinued operations		(17.4	)		22.7			39.2
Extraordinary item		—			—			68.3
Cumulative effect of accounting changes		(10.1	)		—			8.4
Net income		1,556.4			1,046.3			94.8
Preferred stock dividends		—			—			(13.5	)
Net income applicable to common shares	$	1,556.4			1,046.3			81.3
Denominator:
Weighted average common shares outstanding		97.9			93.4			88.8
Weighted average employee stock options**		0.4			0.9			—
Weighted average restricted stock issued to employees**		0.4			0.4			—
Weighted average mandatory convertible preferred shares***		2.6			4.2			—
Total weighted average common shares outstanding		101.3			98.9			88.8
Diluted earnings per common share
Income (loss) from continuing operations	$	15.64			10.35			(0.39	)
Income (loss) from discontinued operations		(0.17	)		0.23			0.45
Extraordinary item		—			—			0.77
Cumulative effect of accounting changes		(0.10	)		—			0.09
Diluted earnings per common share	$	15.37			10.58			0.92

*	As a result of the Company’s agreement to sell Columbian, diluted earnings per common share were computed based on income from continuing operations, which was anti-dilutive for the year ended December 31, 2003. Therefore, diluted earnings per common share were based on the basic average number of shares outstanding and preferred dividends were included in the numerator.
**	Additional common shares of 0.6 million in 2003 were anti-dilutive.
***	The conversion of mandatory convertible preferred shares to common shares of 4.7 million shares for the year ended December 31, 2003, was anti-dilutive.

     Stock options excluded from the computation of diluted earnings per share because option exercise prices exceeded the per share market value of our common stock were as follows:

	2005		2004		2003
Outstanding options		—		0.1		6.3
Average option exercise price	$	—		76.44		61.27

New Accounting Pronouncements. In January 2003, FASB issued FIN 46 and in December 2003, FASB issued a revised interpretation of FIN 46 (FIN 46-R), which superseded FIN 46 and clarified and expanded current accounting guidance for Variable Interest Entities (VIEs.) FIN 46-R clarifies when a company should consolidate in its financial statements the assets, liabilities and activities of a VIE. FIN 46-R provides general guidance as to the definition of a variable interest entity and requires it to be consolidated if a party with an ownership, contractual or other financial interest absorbs the majority of the VIE’s expected losses, or is entitled to receive a majority of the residual returns, or both. A variable interest holder that consolidates the VIE is the primary beneficiary and is required to consolidate the VIE’s assets, liabilities and non-controlling interests at fair value at the date the interest holder first becomes the primary beneficiary of the VIE. FIN 46 and FIN 46-R were effective immediately for all VIEs created after January 31, 2003, and for VIEs created prior to February 1, 2003, no later than the end of the first reporting period after March 15, 2004. We performed a review of entities created subsequent to January 31, 2003, and determined the adoption of FIN 46 and FIN 46-R did not have a material impact on the Company’s financial reporting and disclosures. The impact of adopting FIN 46-R on VIE’s created prior to February 1, 2003 (El Abra and Candelaria), for the year ended December 31, 2004, on our Consolidated Statement of Income comprised increases (decreases) in sales and other operating revenues of $273.2 million, operating expenses of $80.9 million, operating income of $192.3 million, net interest expense of $7.0 million, pre-tax early debt extinguishment costs of $4.4 million, net miscellaneous income and expense of $(1.9) million, provision for taxes on income of $(1.9) million and minority interests in consolidated subsidiaries of $180.9 million. There was no impact on consolidated net income for the year ended December 31, 2004.

     In May 2004, FASB issued FASB Staff Position (FSP) No. FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” This FSP provides accounting and disclosure guidance for employers who sponsor postretirement health-care plans that provide drug benefits. The Company adopted this FSP for the year ended December 31, 2004. The impact of this FSP on our financial statements was immaterial.

     In November 2004, FASB issued SFAS No. 151, “Inventory Costs, an Amendment of ARB No. 43, Chapter 4.” SFAS No. 151 clarifies

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that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance in this Statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of this Statement will not have a material impact on our financial reporting and disclosures.

     In December 2004, FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The Company adopted this Statement in the 2005 third quarter. The adoption of SFAS No. 153 did not have a material impact on our financial reporting and disclosures.

     In December 2004, FASB issued FSP No. 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004,” and FSP No. FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004,” to address the accounting implications associated with the American Jobs Creation Act of 2004 (the Act), enacted in October 2004. FSP No. FAS 109-1 clarifies how to apply SFAS No. 109 to the new law’s tax deduction for income attributable to qualified domestic production activities and requires that the deduction be accounted for as a special deduction in the period earned, not as a tax-rate reduction. FSP No. FAS 109-2 provides guidance with respect to recording the potential impact of the repatriation provisions of the Act on a company’s income tax expense and deferred tax liabilities. FSP No. FAS 109-2 states that an enterprise is permitted time beyond the financial reporting period of enactment to evaluate the effect of the Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109. (Refer to Note 7, Income Taxes, for further discussion related to the impact of the Act.)

     In December 2004, FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123-R), which amends SFAS No. 123, to require companies to recognize, in their financial statements, the cost of employee services received in exchange for equity instruments issued, and liabilities incurred to employees in share-based payment transactions, such as employee stock options and similar awards. On April 14, 2005, the Securities and Exchange Commission delayed the effective date to annual periods, rather than interim periods, beginning after June 15, 2005, and it is now effective for fiscal years ending after June 15, 2005. We have evaluated SFAS No. 123-R and determined that adoption of this Statement, effective January 1, 2006, will not have a material impact on our financial reporting and disclosures. Upon adoption of this Statement, the modified prospective application will be utilized to account for share-based payment transactions.

     In March 2005, FASB ratified the consensus reached by EITF on Issue No. 04-6, “Accounting for Stripping Costs Incurred During Production in the Mining Industry.” The consensus reached provides that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the cost of inventory produced during the period. The consensus reached on EITF Issue No. 04-6 is effective for the first reporting period in fiscal years beginning after December 15, 2005. We have evaluated EITF Issue No. 04-6 and determined that its adoption will not have a material impact on our financial reporting and disclosures.

     In May 2005, FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This Statement applies to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 further requires a change in depreciation, amortization or depletion method for long-lived, non-financial assets to be accounted for as a change in accounting estimate effected by a change in accounting principle. Corrections of errors in the application of accounting principles will continue to be reported by retroactively restating the affected financial statements. The provisions of this Statement are effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005.

     In September 2005, FASB ratified the consensus reached by EITF on Issue No. 04-13, “Accounting for Purchases and Sales of Inventory with the Same Counterparty.” The consensus concluded that two or more legally separate exchange transactions with the same counterparty should be combined and considered as a single arrangement for accounting purposes, if they are entered into “in contemplation” of one another. The EITF also reached a consensus that nonmonetary exchanges of inventory within the same business should be recognized at fair value. The consensus reached on EITF Issue No. 04-13 is effective for new arrangements entered into, or modifications or renewals of existing arrangements, in reporting periods beginning after March 15, 2006. The Company does not expect this Issue will have a material impact on its financial reporting and disclosures.

     In November 2005, FASB issued FSP FAS 115-1/FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (FSP 115-1/124-1). FSP 115-1/124-1 provides guidance on determining when investments in certain debt and equity securities are considered impaired, whether that impairment is other-than-temporary, and on measuring such impairment loss. FSP 115-1/124-1 also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. This FSP is required to be applied to reporting periods beginning after December 15, 2005. The Company does not expect this FSP will have a material impact on its financial reporting and disclosures.

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     Effective January 1, 2003, the Company adopted SFAS No. 143, “Accounting for Asset Retirement Obligations.” With the adoption of this Statement, asset retirement obligations are recognized when incurred and displayed as liabilities, with the initial measurement at fair value. These liabilities are accreted to full value over time through charges to income. In addition, asset retirement costs are capitalized as part of the related asset’s carrying value and are depreciated primarily on a units-of-production basis over the asset’s useful life. Upon adoption, we recorded an increase to our closure and reclamation reserve of $2.5 million, net, an increase in our mining properties’ assets of $12.2 million and a cumulative effect gain of $8.4 million, net of deferred income taxes ($1.3 million). For the year ended December 31, 2003, the effect of adopting SFAS No. 143 decreased loss from continuing operations before extraordinary item and cumulative effect of accounting changes by $15.9 million, or 18 cents per basic and diluted common share.

     Effective December 31, 2005, the Company adopted FIN 47, “Accounting for Conditional Asset Retirement Obligations—an Interpretation of FASB Statement No. 143,” which clarifies the term conditional asset retirement obligation as used in SFAS No. 143. With the adoption of FIN 47, we recognize conditional asset retirement obligations as liabilities when sufficient information exists to reasonably estimate the fair value. Any uncertainty about the amount and/or timing of future settlement of a conditional asset retirement obligation is factored into the measurement of the liability. Upon adoption, we recorded an increase to our closure and reclamation reserve of $17.9 million, a net increase in our mining properties’ assets of $4.4 million and a cumulative effect loss of $10.1 million, net of deferred income taxes ($3.4 million).

Reclassification. For comparative purposes, certain prior year amounts have been reclassified to conform with the current year presentation.

2. Acquisitions and Divestitures

Chino Mines Company Acquisition. On December 19, 2003, we acquired, through a wholly owned subsidiary, the one-third partnership interest in Chino Mines Company held by Heisei Minerals Corporation (Heisei). Heisei informed the Company that it decided to exit the partnership because Chino was no longer a strategic fit for its business. Under the terms of the agreement, Heisei paid $114 million in cash, including approximately $64 million placed into a trust to fund one-third of Chino’s financial assurance obligations under New Mexico mining reclamation laws. Under the terms of the agreement, the Company assumed most ongoing liabilities; however, Heisei retained responsibility for its one-third share of any natural resource damage claims for matters occurring prior to the date of the agreement and, in certain circumstances, adverse changes in the laws and regulations relating to reclamation.

     This acquisition was accounted for as a purchase transaction and recorded in accordance with the guidance of SFAS No. 141, “Business Combinations.” Therefore, the purchase price was allocated to the assets acquired and liabilities assumed based on estimated fair values. The estimated fair value of the assets received (including $50 million of cash received, $0.9 million of cash acquired from Heisei, and $64 million placed into a trust) exceeded the fair value of liabilities assumed resulting in negative goodwill, which was allocated to the fair value of the long-lived assets. In accordance with SFAS No. 141, the remaining excess of $68.3 million was recognized as an extraordinary gain. The extraordinary gain principally resulted from negotiating the trust payment based on certain closure assumptions, such as timing of cash flow estimates, discount rates and escalation rates used by the state of New Mexico in early 2002, which differ from assumptions Phelps Dodge used on a viable mine basis utilizing cash flows negotiated with the state in December 2003, with the applicable discount rate and escalation rate used to fair value our then-current asset retirement obligations under SFAS No. 143. Additionally, the cash payment negotiated to cover Heisei’s one-third share of Chino’s other liabilities at the time of the agreement was negotiated on a shut-down basis and included liabilities that would only be incurred if the Chino operations were to cease. The results of operations for Chino Mines Company have been included in the consolidated financial results for the period beginning December 19, 2003, and for the full years 2005 and 2004. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed used to determine the extraordinary gain at December 19, 2003:

Cash and cash equivalents	$	50.9
Other current assets		7.8
Trust assets		64.0
Total assets acquired		122.7
Current liabilities		10.6
Other liabilities and deferred credits		43.8
Total liabilities assumed		54.4
Extraordinary gain	$	68.3

     The following pro forma information summarizes Phelps Dodge’s consolidated results of operations as if the acquisition had been completed as of the beginning of 2003:

	2003
Sales and other operating revenues	$	3,523.9
Loss from continuing operations before extraordinary item and cumulative effect of accounting changes	$	(25.4	)
Loss per common share:
Basic and diluted – as reported	$	(0.39	)
Basic and diluted – pro forma	$	(0.44	)
Net income*	$	20.7
Earnings per common share:
Basic and diluted – as reported	$	0.92
Basic and diluted – pro forma*	$	0.08

* The 2003 pro forma net income and earnings per common share amounts excluded the extraordinary gain of $68.3 million.

3. Discontinued Operations and Assets Held for Sale

Discontinued Operations

     On November 15, 2005, Phelps Dodge entered into an agreement to sell Columbian Chemicals to a company owned jointly by One Equity Partners, a private equity affiliate of JPMorgan Chase & Co., and South Korean-based DC Chemical Co. Ltd. Under the terms of the agreement, Phelps Dodge expects to receive cash proceeds of approximately $600 million, including approximately $100 million of Columbian’s foreign-held cash to be distributed to Phelps Dodge prior to the close of the transaction. This transaction is expected to be completed in the 2006 first quarter.

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     As a result of this proposed transaction, the operating results of Columbian have been reported separately from continuing operations and shown as discontinued operations in the Consolidated Statement of Income. The following table details selected financial information, which has been reported as discontinued operations:

	2005			2004			2003
Sales and other operating revenues	$	743.3			674.1			644.2
Operating income (loss)	$	(60.1	)		28.7			54.8
Operating income before special items and provisions, net	$	34.7			34.6			51.1
Benefit (provision) for taxes on income	$	37.0			(11.0	)		(20.7	)
Income (loss) from discontinued operations	$	(17.4	)		22.7			39.2

     In connection with the transaction, net special charges of $94.8 million ($42.6 million after-tax and net of minority interests) were recorded in discontinued operations in the 2005 fourth quarter, which consisted of a goodwill impairment charge of $89.0 million ($67.0 million after-tax and net of minority interests) to reduce the carrying value of Columbian to its estimated fair value less costs to sell, a loss on disposal of $5.8 million ($5.0 million after-tax) associated with transaction and employee-related costs, and taxes of $7.6 million associated with the sale and dividends paid in 2005; partially offset by a deferred income tax benefit of $37.0 million.

     The assets and liabilities of Columbian have been presented separately in the Consolidated Balance Sheet as assets held for sale and liabilities related to assets held for sale. The following table provides the major classes of these assets and liabilities at December 31, 2005:

Current assets:
Cash and cash equivalents	$	11.0
Accounts receivable, net		163.9
Inventories		70.9
Supplies		15.7
Prepaid expenses and other current assets		12.1
	$	273.6
Property, plant and equipment, net	$	367.2
Deferred income taxes		4.7
Goodwill		2.0
Other assets and deferred charges		2.9
	$	376.8
Current liabilities:
Short-term debt	$	4.3
Accounts payable and accrued expenses		96.9
Accrued income taxes		12.7
	$	113.9
Deferred income taxes	$	35.4
Other liabilities and deferred credits		25.7
	$	61.1

     We have not separately identified cash flows from discontinued operations, for the years 2005, 2004 and 2003, in the Company’s Consolidated Statement of Cash Flows.

Assets Held for Sale

     On November 15, 2005, Phelps Dodge entered into an agreement to sell substantially all its North American magnet wire assets to Rea Magnet Wire Company, Inc. (Rea). Under the terms of the agreement, Rea agreed to purchase the assets, including certain copper inventory, for approximately $125 million in cash, subject to a working capital adjustment at the time of closing. This transaction was completed on February 10, 2006, at which time the working capital adjustment was estimated at approximately $14 million, increasing the estimated sale proceeds to approximately $139 million.

     In connection with the transaction, special charges of $13.2 million ($10.7 million after-tax) were recognized in the 2005 fourth quarter. These charges consisted of an impairment charge of $5.4 million ($4.8 million after-tax) to reduce the carrying value of the assets to their estimated fair value less costs to sell, and transaction and employee-related costs of $7.8 million ($5.9 million after-tax).

     The North American magnet wire sale does not meet the criteria for classification as discontinued operations as the Company will continue to supply Rea with copper rod after the closing.

     The North American magnet wire assets and liabilities associated with the sale are presented separately in the Consolidated Balance Sheet as assets held for sale and liabilities related to assets held for sale. The following table provides the major classes of these assets and liabilities at December 31, 2005:

Current assets:
Accounts receivable, net	$	57.1
Inventories		36.4
Supplies		4.2
Prepaid expenses and other current assets		2.5
	$	100.2
Property, plant and equipment, net	$	54.6
Current liabilities:
Accounts payable and accrued expenses	$	7.9
Accrued income taxes		1.4
	$	9.3
Other liabilities and deferred credits	$	0.2

4. Special Items and Provisions

     Special items and provisions are unpredictable and atypical of the Company’s operations in a given period. This supplemental information is not a substitute for any U.S. GAAP measure and should be evaluated within the context of our U.S. GAAP results. The tax impacts of the special items were determined at the marginal effective tax rate of the appropriate taxing jurisdiction, including increases or decreases in deferred tax valuation allowances, if warranted. (All references to per share earnings or losses are based on diluted earnings per share.)

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Note: Supplemental Data

     The following table summarizes special items and provisions for the year ended December 31, 2005:

							$/Share
Consolidated Statement of Income Line Item	Pre-tax			After-tax			After-tax
Special items and provisions, net:*
PDMC —
Asset impairment charges	$	(424.6	)		(325.1	)		(3.21	)
Environmental provisions, net		(35.7	)		(27.1	)		(0.27	)
Environmental insurance recoveries, net		(1.5	)		(1.2	)		(0.01	)
Historical legal matters		14.5			11.0			0.11
		(447.3	)		(342.4	)		(3.38	)
PDI —
Environmental provisions, net		(2.2	)		(1.7	)		(0.01	)
Restructuring programs/closures		(0.7	)		0.1			—
Asset impairment charges		(7.9	)		(6.7	)		(0.07	)
Employee and transaction costs — sale of North American magnet wire assets		(7.8	)		(5.9	)		(0.06	)
		(18.6	)		(14.2	)		(0.14	)
Corporate and Other —
Environmental provisions, net		(75.4	)		(57.6	)		(0.57	)
Environmental insurance recoveries, net		2.1			1.6			0.02
Sale of non-core real estate		11.2			8.5			0.08
Historical legal matters		4.9			4.6			0.05
		(57.2	)		(42.9	)		(0.42	)
		(523.1	)		(399.5	)		(3.94	)
Early debt extinguishment costs		(54.0	)		(41.3	)		(0.41	)
Gain on sale of cost-basis investment		438.4			388.0			3.83
Change in interest gains:
Cerro Verde stock issuance		159.5			172.9			1.71
Ojos del Salado stock issuance		8.8			8.8			0.09
		168.3			181.7			1.80
Provision for taxes on income:
Foreign dividend taxes		—			(88.1	)		(0.87	)
Tax on unremitted foreign earnings		—			(43.1	)		(0.43	)
Tax charge associated with minimum pension liability reversal		—			(23.6	)		(0.23	)
Reversal of U.S. deferred tax asset valuation allowance		—			4.0			0.04
Reversal of PD Brazil deferred tax asset valuation allowance		—			11.9			0.12
		—			(138.9	)		(1.37	)
Minority interests in consolidated subsidiaries:
Tax on unremitted foreign earnings		—			8.6			0.08
Special items and provisions, net from continuing operations		29.6			(1.4	)		(0.01	)
Discontinued operations:
Loss on disposal of Columbian Chemicals		(5.8	)		(5.0	)		(0.05	)
Goodwill impairment charge		(89.0	)		(67.0	)		(0.66	)
Transaction and dividend taxes		—			(7.6	)		(0.08	)
Deferred income tax benefit		—			37.0			0.37
		(94.8	)		(42.6	)		(0.42	)
Cumulative effect of accounting change		(13.5	)		(10.1	)		(0.10	)
	$	(78.7	)		(54.1	)		(0.53	)

* Refer to Note 23, Business Segment Data, for special items and provisions by segment.

     In the 2005 second quarter, PDMC recorded special charges for asset impairments of $419.1 million ($320.9 million after-tax) at the Tyrone and Cobre mines, Chino smelter and Miami refinery. On June 1, 2005, the Company’s board of directors approved expenditures of $210 million to construct a concentrate-leach, direct-electrowinning facility at the Morenci copper mine, and to restart its concentrator, which has been idle since 2001. The concentrate-leach facility will utilize proprietary medium-temperature, pressure leaching and direct-electrowinning technology that has been demonstrated at our Bagdad, Arizona, copper mine. The concentrate-leach, direct-electrowinning facility is expected to be in operation by mid-2007, and copper production is projected to be approximately 150 million pounds per year. Concentrate-leach technology, in conjunction with a conventional milling and flotation concentrator, allows copper in sulfide ores to be transformed into copper cathode through efficient pressure leaching and electrowinning processes instead of smelting and refining. Historically, sulfide ores have been processed into copper anodes through a smelter. This decision had consequences for several of our other southwest U.S. copper operations, resulting in the impairment of certain assets.

     With future Morenci copper concentrate production being fed into the concentrate-leach facility, the operating smelter in Miami, Arizona, will be sufficient to treat virtually all remaining concentrate expected to be produced by Phelps Dodge at our operations in the southwestern United States. Accordingly, the Chino smelter located near Hurley, New Mexico, which has been on care-and-maintenance status since 2002, was permanently closed and demolition initiated. With the closing of the Chino smelter, we have unnecessary refining capacity in the region. Because of its superior capacity and operating flexibility, our refinery in El Paso, Texas, will continue to operate. The El Paso refinery is more than twice the size of our refinery in Miami, Arizona, and has sufficient capacity to refine all anodes expected to be produced from our operations in the southwestern United States given the changes brought by the above-mentioned Morenci project. Accordingly, the Miami refinery, which has been on care-and-maintenance status since 2002, was permanently closed. As a result of the decision to close the Chino smelter and the Miami refinery, we recorded asset impairment charges during the 2005 second quarter of $89.6 million ($68.6 million after-tax) and $59.1 million ($45.2 million after-tax), respectively, to reduce the related carrying values of these properties to their respective salvage values.

     The steps being taken at Morenci also will impact our Tyrone and Cobre mines in New Mexico. The Tyrone mine has been partially curtailed since 2003, while activities at the Cobre mine were suspended in 1999, with the exception of limited activities. Future economics of these mines will be affected by significantly higher acid costs resulting from their inability to obtain low-cost acid from the Chino smelter. These factors caused Phelps Dodge to reassess the recoverability of the long-lived assets at both the Tyrone and Cobre mines. This reassessment, which was based on an analysis of cash flows associated with the related assets, indicated that the assets were not recoverable and that asset impairment charges were required.

     Tyrone’s impairment of $210.5 million ($161.2 million after-tax) primarily resulted from fundamental changes to its life-of-mine cash flows. In addition to higher expected acid costs, we decided to accelerate reclamation of portions of stockpiles around the mine

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perimeter. At the same time, the estimated cost associated with reclaiming the perimeter stockpiles increased. These factors increased costs and also decreased Tyrone’s copper ore reserves by approximately 155 million pounds, or 14 percent.

     Cobre’s impairment of $59.9 million ($45.9 million after-tax) primarily resulted from projected higher acid, external smelting and freight costs. As a result of the Chino smelter being permanently closed, the charges also reflected estimated higher restart and operating costs of running the Cobre mill, reflecting our recent experience with restarting the Chino mill. Additionally, the cost for building a tailing pipeline from Cobre to the Chino mine has increased based upon a recent detailed engineering evaluation recommending (i) extending the pipeline an additional nine miles, (ii) adding a new thickener and booster pump station, and (iii) requiring larger pipe size.

     During the 2005 fourth quarter, PDMC recorded an asset impairment charge of $5.5 million ($4.2 million after-tax) at our El Paso, Texas, precious metals plant, which was temporarily closed in 2002. Due to the Company’s ability to find an economical alternative, the plant was permanently closed, which resulted in an impairment charge to write off the plant’s assets.

     A net charge for environmental provisions of $113.3 million ($86.4 million after-tax) was recognized for closed facilities and closed portions of operating facilities. (Refer to Note 21, Contingencies, for further discussion of environmental matters.)

     During 2005, a net charge of $0.7 million (gain of $0.1 million after-tax) was recognized for Phelps Dodge Magnet Wire’s restructuring programs and facility closures announced in 2004.

     On November 15, 2005, Phelps Dodge entered into an agreement to sell substantially all its North American magnet wire assets to Rea. As a result, the Company recognized charges of $13.2 million ($10.7 million after-tax) in the 2005 fourth quarter. These charges consist of an asset impairment charge of $5.4 million ($4.8 million after-tax) to reduce the carrying value of the assets to their fair value less costs to sell, and transaction and employee-related costs of $7.8 million ($5.9 million after-tax). The employee-related costs included $0.5 million ($0.4 million after-tax) for severance benefits and $6.5 million ($4.9 million after-tax) for early retirement benefits. (Refer to Note 3, Discontinued Operations and Assets Held for Sale, for further discussion.)

     During 2005, Phelps Dodge Magnet Wire recognized impairment charges of $2.1 million ($1.6 million after-tax) at our El Paso, Texas, magnet wire facility and $0.4 million ($0.3 million after-tax) at our Laurinburg, North Carolina, magnet wire facility. The amounts of the asset impairments were determined through an assessment of fair market value based on projected cash flows.

     Net insurance recoveries of $0.6 million ($0.4 million after-tax) were received in 2005 from settlements reached with several insurance carriers on historical environmental liability claims.

     During 2005, a net gain of $19.4 million ($15.6 million after-tax), was recognized for legal matters. These included $16.2 million ($12.3 million after-tax) of net settlements on historical legal matters, a $3.6 million (before and after taxes) adjustment related to an historical Cyprus Amax Minerals Company (Cyprus Amax) lawsuit, a net settlement of $1.2 million ($0.9 million after-tax) reached with one of our insurance carriers associated with potential future legal matters and a charge of $1.6 million ($1.2 million after-tax) for future legal matters.

     In the 2005 third quarter, a $54.0 million charge ($41.3 million after-tax) was recognized for early debt extinguishment costs. (Refer to Note 14, Debt and Other Financing, for further discussion.)

     In the 2005 second quarter, a pre-tax gain of $438.4 million ($388.0 million after-tax) was recognized from the sale of our common shares of Southern Peru Copper Corporation (SPCC). On June 9, 2005, the Company entered into an Underwriting Agreement with Citigroup Global Markets, Inc., UBS Securities LLC, SPCC, Cerro Trading Company, Inc. and SPC Investors, LLC, and on June 15, 2005, pursuant to the Underwriting Agreement, the Company sold all of its SPCC common shares to the underwriters for a net purchase price of $40.635 per share (based on a market purchase price of $42.00 per share less underwriting fees).

     In the 2005 second quarter, our Cerro Verde copper mine in Peru completed a general capital increase transaction. The transaction resulted in SMM Cerro Verde Netherlands B.V. acquiring an equity position in Cerro Verde totaling 21.0 percent. In addition, Compañía de Minas Buenaventura S.A.A. (Buenaventura) increased its ownership position in Cerro Verde to 18.2 percent. The remaining minority shareholders own 7.2 percent of Cerro Verde through shares publicly traded on the Lima Stock Exchange. As a result of the transaction, Phelps Dodge’s interest in Cerro Verde was reduced to 53.6 percent from 82.5 percent. In connection with the transaction, Cerro Verde issued 122.7 million of its common shares at $3.6074 per share to Sumitomo, Buenaventura and the remaining minority shareholders, and received $441.8 million in cash (net of $1.0 million of expenses). This stock issuance transaction resulted in a pre-tax gain of $159.5 million ($172.9 million after-tax) associated with our change of interest. The $13.4 million tax benefit related to this transaction included a reduction in deferred tax liabilities ($16.1 million) resulting from the recognition of certain book adjustments to reflect the dilution of our ownership interest, partially offset by taxes charged ($2.7 million) on the transfer of stock subscription rights to Buenaventura and Sumitomo. The inflow of capital from Buenaventura and Sumitomo will be used as partial financing for an approximate $850 million expansion project to mine a primary sulfide ore body beneath the leachable ore body currently in production.

     In the 2005 fourth quarter, our Ojos del Salado copper mine in Chile completed a general capital increase transaction. The transaction resulted in Sumitomo acquiring an equity position in Ojos del Salado totaling 20 percent and reducing Phelps Dodge’s interest to 80 percent from 100 percent. In connection with the transaction, Ojos del Salado issued 2,500 of its Series B Preferential Stock (Series B Common Shares) at $10,000 per share to SMMA Candelaria, Inc. and received $24.8 million in cash (net of $0.2 million in expenses). The stock issuance transaction resulted in a gain of $8.8 million (before and after taxes) associated with our change in interest.

     In the 2005 second quarter, tax expense of $2.4 million was recognized for U.S. taxes incurred with respect to dividends received from Cerro Verde in 2005. In the 2005 fourth quarter, tax expense of $85.7 million was recognized for U.S. and foreign taxes incurred with

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respect to dividends received from certain South American operations in 2005 and early January 2006. In the 2005 fourth quarter, tax expense of $43.1 million was recognized with respect to unremitted foreign earnings at our 80 percent-owned Candelaria copper mine. (Refer to Note 7, Income Taxes, for further discussion.)

     In 2005, tax expense of $23.6 million was recognized in connection with the funding of the minimum pension liability associated with our U.S. qualified pension plans. Also, a tax benefit of $4.0 million was recognized for the reversal of the valuation allowance associated with U.S. deferred tax assets that are expected to be realized after 2005. Additionally, a tax benefit of $11.9 million was recognized for the reversal of the valuation allowance associated with deferred tax assets at our Brazilian wire and cable operation that are expected to be realized after 2005. (Refer to Note 7, Income Taxes, for further discussion.)

     Minority interests in consolidated subsidiaries reflected a gain of $8.6 million associated with tax on unremitted foreign earnings at our 80 percent-owned Candelaria copper mine. (Refer to Note 7, Income Taxes, for further discussion.)

     In 2005, we recognized net charges of $94.8 million ($42.6 million after-tax and net of minority interests) in the 2005 fourth quarter at our Columbian discontinued operations in connection with the pending sale. The charges were comprised of a goodwill impairment charge of $89.0 million ($67.0 million, after-tax and net of minority interests) to reduce the carrying value of Columbian to its estimated fair value less costs to sell, a loss on disposal of $5.8 million ($5.0 million after-tax) associated with transaction and employee-related costs, and taxes of $7.6 million associated with the sale and dividends paid in 2005; partially offset by a deferred income tax benefit of $37.0 million. (Refer to Note 3, Discontinued Operations and Assets Held for Sale, for further discussion.)

     A $13.5 million charge ($10.1 million after-tax) was recorded for the cumulative effect of an accounting change due to the adoption of FIN 47. (Refer to Note 1, Summary of Significant Accounting Policies, under New Accounting Pronouncements for further discussion.)

     The following table summarizes special items and provisions for the year ended December 31, 2004:

							$/Share
Consolidated Statement of Income Line Item	Pre-tax			After-tax			After-tax
Special items and provisions, net:*
PDMC —
Environmental provisions, net	$	(16.8	)		(12.7	)		(0.13	)
Environmental insurance recoveries, net		9.1			7.3			0.07
Hidalgo asset impairment		(1.1	)		(0.9	)		(0.01	)
Historical legal matters		(2.5	)		(2.0	)		(0.02	)
		(11.3	)		(8.3	)		(0.09	)
PDI —
Environmental provisions, net		(0.3	)		(0.2	)		—
Restructuring programs		(10.5	)		(7.6	)		(0.08	)
Asset impairment charges		(0.6	)		(0.5	)		(0.01	)
		(11.4	)		(8.3	)		(0.09	)
Corporate and Other —
Environmental provisions, net		(41.8	)		(31.8	)		(0.32	)
Environmental insurance recoveries, net		0.2			0.1			—
Historical legal matters		2.7			(0.5	)		—
		(38.9	)		(32.2	)		(0.32	)
		(61.6	)		(48.8	)		(0.50	)
Interest expense:
Texas franchise tax matter		(0.9	)		(0.7	)		(0.01	)
Early debt extinguishment costs		(43.2	)		(34.3	)		(0.35	)
Miscellaneous income and expense, net:
Cost-basis investment write-downs		(11.1	)		(9.9	)		(0.10	)
Gain on sale of miscellaneous asset		10.1			10.1			0.10
Historical legal matter		9.5			7.2			0.07
		8.5			7.4			0.07
Provision for taxes on income:
Reversal of El Abra deferred tax asset valuation allowance		—			30.8			0.31
Reversal of U.S. deferred tax asset valuation allowance		—			30.0			0.31
PD Brazil deferred tax asset valuation allowance		—			(9.0	)		(0.09	)
Foreign dividend taxes		—			(9.6	)		(0.10	)
		—			42.2			0.43
Minority interests in consolidated subsidiaries:
Reversal of El Abra deferred tax asset valuation allowance		—			(15.1	)		(0.15	)
Candelaria early debt extinguishment costs		—			2.5			0.03
El Abra early debt extinguishment costs		—			0.9			0.01
		—			(11.7	)		(0.11	)
Special items and provisions, net from continuing operations		(97.2	)		(45.9	)		(0.47	)
Discontinued operations:
Asset impairment charge		(5.9	)		(4.5	)		(0.04	)
	$	(103.1	)		(50.4	)		(0.51	)

* Refer to Note 23, Business Segment Data, for special items and provisions by segment.

     A net charge for environmental provisions of $58.9 million ($44.7 million after-tax) was recognized for closed facilities and closed portions of operating facilities. (Refer to Note 21, Contingencies, for further discussion of environmental matters.)

     In January 2004, Phelps Dodge Magnet Wire announced plans to consolidate its North American manufacturing operations to reduce

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costs and strengthen its competitiveness in the global marketplace. This action resulted in charges of $7.2 million ($4.9 million after-tax) associated with the closure of the manufacturing plant in El Paso, Texas, which ceased operations during the 2004 fourth quarter.

     In the 2004 third quarter, Phelps Dodge Magnet Wire entered into a strategic partnership with Schwering und Hasse Elektrodaht Ltd. in Germany to produce its products at its Lugde, Germany, facility. This action resulted in charges of $3.3 million ($2.7 million after-tax) associated with the closure of the PD Austria facility, which included severance-related, plant removal and dismantling expenses, and take-or-pay contracts.

     Due to continued depressed market conditions, in the 2004 second quarter, $0.6 million ($0.5 million after-tax) was recognized for asset impairments at our Hopkinsville, Kentucky, magnet wire facility. The amount of the asset impairment was determined through an assessment of fair market value, as determined by an independent appraisal.

     In the 2004 third quarter, $1.1 million ($0.9 million after-tax) was recognized for asset impairment at our Hidalgo facility. This action resulted from the anticipated sale of the Hidalgo townsite. The amount of Hidalgo’s asset impairment was determined through the assessment of market value as determined by an independent appraisal.

     Net insurance recoveries of $9.3 million ($7.4 million after-tax) were received in 2004 from settlements reached with several insurance companies on historical environmental liability claims.

     Net gains of $9.7 million ($4.7 million after-tax) were recognized in connection with the settlement of historical legal matters.

     In the 2004 first quarter, we recognized a charge of $0.9 million ($0.7 million after-tax) associated with interest for a Texas franchise tax matter.

     A $43.2 million charge ($34.3 million after-tax) was recognized for early debt extinguishment costs. (Refer to Note 14, Debt and Other Financing, for further discussion.)

     An $11.1 million charge ($9.9 million after-tax) was recognized for the write-down of two cost-basis investments.

     A $10.1 million gain (before and after taxes) was recognized for the sale of a miscellaneous asset associated with uranium royalty rights in Australia.

     In 2004, a tax benefit of $30.8 million was recognized for the reversal of the valuation allowance associated with deferred tax assets that are expected to be realized after 2004 at our 51 percent-owned El Abra copper mine. Also, a tax benefit of $30.0 million was recognized for the reversal of the valuation allowance associated with U.S. deferred tax assets that are expected to be realized after 2004 in the United States. Additionally in 2004, tax expense of $9.0 million was recognized for a valuation allowance for deferred tax assets at our Brazilian wire and cable operation. (Refer to Note 7, Income Taxes, for further discussion.)

     The Company does not provide deferred income taxes on the undistributed earnings of certain foreign subsidiaries as such earnings are considered to be indefinitely reinvested. However, in the 2004 fourth quarter, a tax expense of $9.6 million was recognized for U.S. and foreign taxes expected to be incurred with respect to dividends anticipated to be received from certain South American operations in 2005.

     Minority interests in consolidated subsidiaries reflected a charge of $15.1 million associated with the reversal of the valuation allowance associated with deferred tax assets that are expected to be realized after 2004 at our 51 percent-owned El Abra copper mine and gains of $3.4 million associated with the early debt extinguishment costs at our 80 percent-owned Candelaria copper mine and our 51 percent-owned El Abra copper mine.

     Due to continued excess capacity in the North American market, in the 2004 fourth quarter, we recognized an asset impairment charge of $5.9 million ($4.5 million after-tax) at our Columbian discontinued operations’ El Dorado, Arkansas, facility. The amount of the asset impairment was determined through an assessment of fair market value based on discounted projected cash flows.

     The following table summarizes special items and provisions for the year ended December 31, 2003:

							$/Share
Consolidated Statement of Income Line Item	Pre-tax			After-tax			After-tax
Special items and provisions, net:*
PDMC –
Environmental provisions, net	$	(5.5	)		(5.2	)		(0.06	)
PDI –
Environmental provisions, net		0.4			0.4			0.01
Goodwill impairment charge		(0.9	)		(0.9	)		(0.01	)
Asset impairment charges		(1.7	)		(1.7	)		(0.02	)
Reassessment of prior restructuring programs		0.2			0.2			–
		(2.0	)		(2.0	)		(0.02	)
Corporate and Other –
Environmental provisions, net		(23.8	)		(22.7	)		(0.26	)
Environmental insurance recoveries, net		0.5			0.5			0.01
Historical Cyprus Amax legal matters		(2.9	)		(2.9	)		(0.03	)
Potential Texas franchise tax matter		(8.0	)		(8.0	)		(0.09	)
		(34.2	)		(33.1	)		(0.37	)
		(41.7	)		(40.3	)		(0.45	)
Miscellaneous income and expense, net
Gain on sale of cost-basis investment		6.4			6.4			0.07
Provision for taxes on income:
Tax benefit for additional 2001 net operating loss carryback		–			1.0			0.01
Special items and provisions, net from continuing operations		(35.3	)		(32.9	)		(0.37	)
Discontinued operations:
Environmental provisions, net		0.5			0.5			0.01
Termination of foreign postretirement benefit plan		3.2			2.4			0.02
		3.7			2.9			0.03
Extraordinary gain on acquisition of partner’s one-third interest in Chino Mines Company		68.3			68.3			0.77
Cumulative effect of accounting change		9.7			8.4			0.09
	$	46.4			46.7			0.52

* Refer to Note 23, Business Segment Data, for special items and provisions by segment.

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     A net charge for environmental provisions of $28.4 million ($27.0 million after-tax), which included the amount recognized in discontinued operations, was recognized for closed facilities and closed portions of operating facilities. (Refer to Note 21, Contingencies, for further discussion of environmental matters.)

     In the 2003 fourth quarter, we determined that the Laurinburg, North Carolina, and West Caldwell, New Jersey, facilities, both temporarily closed in the 2002 fourth quarter, would not be re-opened. This action resulted in asset impairment charges of $1.3 million (before and after taxes), which were determined through an assessment of fair value based on independent appraisals of the existing assets at these two plants. Additionally, a write-down of $0.4 million (before and after taxes) was recognized to reduce the carrying value of the assets of our Hopkinsville, Kentucky, facility, which was closed in 2000. This adjustment reflected our current view of the fair value of these assets. In addition, as part of our annual assessment of goodwill, we recognized an impairment charge of $0.9 million (before and after taxes) to write off the remaining goodwill balance of Phelps Dodge Magnet Wire, which was based on a comparison of the carrying value to the respective fair value using an estimate of discounted cash flows. Also during the quarter, we recorded a $0.2 million gain (before and after taxes) for the reassessment of termination benefits associated with the September 2002 restructuring program.

     Net insurance recoveries of $0.5 million (before and after taxes) were received in 2003 from settlements reached with several insurance companies on historical environmental liability claims.

     A charge of $2.9 million (before and after taxes) was recognized for historical Cyprus Amax legal matters. The Company acquired Cyprus Amax in October 1999.

     In the 2003 fourth quarter, a charge of $8.0 million (before and after taxes) was recognized for a potential Texas franchise tax matter. (Refer to Note 21, Contingencies, for further discussion.)

     A $6.4 million gain (before and after taxes) was recognized for the sale of a wire and cable cost-basis investment.

     In the 2003 fourth quarter, we determined that an additional $1.0 million income tax benefit could be recognized for a net operating loss carryback for 2001, resulting from 2002 U.S. tax legislation. (Refer to Note 7, Income Taxes, for further discussion.)

     In 2003, we recognized a gain of $3.2 million ($2.4 million after-tax) at our Columbian discontinued operations associated with the termination of a foreign postretirement benefit plan.

     An extraordinary gain of $68.3 million (before and after taxes) was recognized for our acquisition of Heisei’s one-third share in Chino Mines Company, located in New Mexico. (Refer to Note 2, Acquisitions and Divestitures, for further discussion.)

     A $9.7 million gain ($8.4 million after-tax) was recorded for the cumulative effect of an accounting change due to the adoption of SFAS No. 143. (Refer to Note 1, Summary of Significant Accounting Policies, under New Accounting Pronouncements for further discussion.)

5. Investments and Long-Term Receivables

     Investments and long-term receivables at December 31 were as follows:

	2005		2004
Equity basis:
International wire and cable manufacturers	$	6.3		5.9
Port Carteret (50%)		19.0		19.7
Duke Energy Luna, LLC (33%)*		0.2		13.3
Other		6.4		5.8
Cost basis investments, available-for-sale securities and notes receivable:
Southern Peru Copper Corporation**		—		13.2
Dynatec Corporation		14.2		—
First Quantum Minerals Ltd.		44.8		21.8
Long-term bond investments***		17.9		25.0
Other investments		10.6		4.8
Notes receivable and other		23.2		11.2
	$	142.6		120.7

*	During 2005, $13.1 million of plant assets were distributed to PD from Duke Energy Luna, LLC (Luna). At December 31, 2005, our $0.2 million investment in Luna represented certain undistributed intangible assets.
**	On June 15, 2005, PD sold its 14.0 percent interest in Southern Peru Copper Corporation. Refer to Note 4, Special Items and Provisions, for further discussion.
***	Long-term bond investments included $0.8 million and $12.4 million to secure a letter of credit at December 31, 2005 and 2004, respectively. In addition, $8.0 million was secured by a trust at December 31, 2005.

     Equity earnings (losses) were as follows (in millions): 2005 — $2.7; 2004 — $1.9; 2003 — $2.7.

     Dividends from equity basis investments received were as follows (in millions): 2005 — $2.6; 2004 — $4.1; 2003 — $2.5.

     Condensed financial information for our equity basis investments at December 31 was as follows:

	2005			2004			2003
Sales	$	172.4			155.0			123.1
Net income	$	10.0			9.1			7.5
Net current assets	$	25.2			19.4			25.6
Property, plant and equipment, net		86.2			127.6			87.6
Long-term debt		(28.5	)		(28.4	)		(29.1	)
Other assets and liabilities, net		3.5			5.3			(1.4	)
Net assets	$	86.4			123.9			82.7

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6. Miscellaneous Income and Expense, Net

     Miscellaneous income and expense, net for the years ended December 31 was as follows:

	2005			2004			2003
Interest income	$	59.2			11.7			9.1
Southern Peru Copper Corporation dividend*		40.5			26.7			6.3
Trust assets mark-to-market:
Financial assurance assets		1.4			3.2			—
Non-qualified retirement benefit plan trust assets		2.2			2.8			4.6
Royalties and rental income		1.2			1.7			1.5
Foreign currency exchange gain (loss)		(0.1	)		2.8			(1.9	)
Miscellaneous non-operating expenses		(17.0	)		(13.5	)		(18.0	)
Deferred proceeds from sale of Kisault townsite		2.5			—			—
Gain on sale of Kansanshi investment		1.7			—			—
Cost-basis investment impairments		—			(11.1	)		—
Equatorial lawsuit settlement		—			9.5			—
Gain on sale of uranium royalty rights		—			10.1			—
Gain on sale of Viohalco investment		—			—			6.4
Other		1.7			1.4			2.0
	$	93.3			45.3			10.0

* On June 15, 2005, PD sold its 14.0 percent interest in Southern Peru Copper Corporation.

7. Income Taxes

     Geographic sources of income (loss) from continuing operations before taxes, minority interests, equity in net earnings (losses) of affiliated companies, extraordinary item and cumulative effect of accounting changes for the years ended December 31 were as follows:

	2005		2004		2003
United States	$	1,322.3		662.7		(146.5	)
Foreign		1,026.3		691.4		157.5
	$	2,348.6		1,354.1		11.0

     The (provision) benefit for income taxes from continuing operations for the years ended December 31 was as follows:

	2005			2004			2003
Current:
Federal	$	(288.2	)		(15.1	)		10.6
State		(7.8	)		(7.2	)		0.5
Foreign		(201.1	)		(124.2	)		(48.2	)
		(497.1	)		(146.5	)		(37.1	)
Deferred:
Federal		55.1			(43.5	)		(1.6	)
State		(13.0	)		34.0			—
Foreign		(122.0	)		24.7			11.1
		(79.9	)		15.2			9.5
	$	(577.0	)		(131.3	)		(27.6	)

     A reconciliation of the U.S. federal statutory tax rate to our effective income tax rate was as follows:

Expense (benefit)
	2005			2004			2003
U.S. federal statutory tax rate		35.0	%		35.0	%		35.0	%
Candelaria dividends and unremitted earnings		5.2			—			—
Percentage depletion		(9.5	)		(7.8	)		(177.4	)
Peruvian reinvestment deductions		(3.7	)		—			—
Change in interest gains		(3.1	)		—			—
International tax rate differential		(0.1	)		(1.7	)		(43.0	)
State and local income taxes		0.6			1.7			(38.5	)
Valuation allowance adjustments		0.3			(19.3	)		436.9
Other items, net		(0.1	)		1.8			37.9
		24.6	%		9.7	%		250.9	%

     The difference between our effective income tax rate for 2005 and the U.S. federal statutory rate of 35 percent was primarily due to (i) withholding taxes on Candelaria’s dividends and unremitted earnings, (ii) percentage depletion deductions for regular tax purposes in the United States, (iii) Peruvian reinvestment deductions associated with the Cerro Verde mine expansion and (iv) the lack of tax charges on the Cerro Verde and Ojos del Salado change in interest gains, as we expect to permanently reinvest our portion of the related proceeds in those entities. The difference between the statutory income tax rate and our effective rate for 2004 was primarily due to percentage depletion deductions and the release of valuation allowances associated with net operating loss carryforwards and other deferred tax assets that were determined to be realizable as a result of increased taxable income from improved commodity prices. The difference in 2003 was primarily due to increased valuation allowance adjustments recorded against U.S. net operating loss carryforwards and other deferred tax assets that could not be used to offset earnings at international operations, partially offset by percentage depletion deductions.

     We paid federal, state, local and foreign income taxes of approximately $528 million in 2005, compared with approximately $126 million in 2004 and approximately $28 million in 2003. We received refunds of federal, state, local and foreign income taxes of approximately $10 million in 2005, compared with approximately $3 million in 2004 and approximately $80 million in 2003.

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     Deferred income tax assets (liabilities) comprised the following at December 31:

	2005*			2004
Minimum tax credits	$	566.1			344.8
Peruvian reinvestment deductions		41.8			—
Employee benefit plans		—			188.7
Reserves		351.1			247.7
Mining costs		67.5			27.0
Net operating loss carryforwards		68.7			472.1
Stock basis differences		52.5			—
Capital loss carryforwards		8.0			—
Hedging losses		81.8			—
Other		11.4			14.7
Deferred tax assets		1,248.9			1,295.0
Valuation allowances		(363.5	)		(282.8	)
Net deferred tax assets		885.4			1,012.2
Goodwill		—			(12.9	)
Capitalized interest and financing costs		(36.0	)		(63.2	)
Depreciation		(800.7	)		(863.3	)
Mining properties		(264.6	)		(242.2	)
Intangible mining assets		(79.1	)		(174.1	)
Employee benefit plans		(81.4	)		—
Deferred tax liabilities		(1,261.8	)		(1,355.7	)
	$	(376.4	)		(343.5	)

* Excluded deferred tax assets (liabilities) associated with discontinued operations.

     At December 31, 2005, we had minimum tax credits from continuing operations of approximately $566 million available for carryforward for U.S. federal income tax purposes. These credits can be carried forward indefinitely, but may only be used to the extent that regular tax exceeds the alternative minimum tax in any given year. In addition, the Company has minimum tax credits of approximately $5 million available for carryforward that are associated with discontinued operations.

     At December 31, 2005, the Company had U.S. state net operating loss carryforwards from continuing operations of approximately $832 million and from discontinued operations of approximately $81 million. U.S. state net operating loss carryforwards from continuing operations will expire as follows:

	1-5		6-10		Over 10
	Years		Years		Years
Net operating loss carryforwards:
U.S. — state	$	134		40		658

     At December 31, 2005, the Company had Brazilian and Chilean net operating loss carryforwards from continuing operations of approximately $18 million and $6 million, respectively, which do not expire. The Brazilian net operating loss carryforwards can only be used to offset 30 percent of taxable income in any one year. The Company also had Peruvian net operating loss carryforwards from continuing operations of approximately $40 million that expire in 2009. The Company has Brazilian, United Kingdom and Italian net operating loss carryforwards associated with discontinued operations of approximately $40 million, $11 million and $4 million, respectively. The Brazilian and United Kingdom net operating loss carryforwards do not expire, while the Italian net operating loss carryforwards expire in 2010.

     On the basis of currently available information, we have provided valuation allowances for certain of our deferred tax assets where we believe it is likely that the related tax benefits will not be realized. At December 31, 2005, our valuation allowances totaled $363.5 million and covered a portion of our minimum tax credits, a portion of our stock basis differences, a portion of our state net operating loss carryforwards, all of our Peruvian net operating loss carryforwards and all of our U.S. capital loss carryforwards. At December 31, 2004, our valuation allowances totaled $282.8 million and covered a portion of our minimum tax credits, a portion of our state net operating loss carryforwards and the deferred tax assets of our Brazilian wire and cable manufacturing operation.

     The $80.7 million increase in our valuation allowance during 2005 was primarily due to the impact of the U.S. corporate alternative minimum tax and limitations on the utilization of net operating and capital loss carryforwards. This increase comprised valuation allowances attributable to minimum tax credits ($61.2 million), a portion of our stock basis differences ($15.6 million), U.S. capital loss carryforwards ($8.0 million) and Peruvian net operating loss carryforwards ($14.2 million); partially offset by decreases associated with U.S. state net operating loss carryforwards ($9.3 million) and Brazilian net operating loss carryforwards ($9.0 million). Our valuation allowances decreased by $178.5 million and $47.1 million in 2004 and 2003, respectively, primarily as a result of the utilization of federal, state and foreign net operating loss carryforwards due to increased taxable income resulting from improved commodity prices.

     The Company reduced income taxes payable and increased capital in excess of par by $45.2 million and $2.3 million in 2005 and 2004, respectively, as a result of employee stock option exercises.

     The Internal Revenue Service (IRS) has completed its audit of the pre-acquisition Cyprus Amax income tax returns for the years 1997 through October 15, 1999. Because of loss carrybacks to these years from 2000, 2001 and 2002 claiming refunds totaling $1.9 million, the audit reports must be reviewed and approved by the Congressional Joint Committee on Taxation before they can become final. We expect this process to take place by the end of 2006.

     Phelps Dodge’s federal income tax returns for the years 2000 through 2002 are currently under examination by the IRS. Management believes that resolution of any issues raised, including application of those determinations to subsequent open years, will not have a material adverse effect on our consolidated financial condition or results of operations.

     In December 2005, the Company repatriated cash from international operations of approximately $240 million (PD’s share). As a result, the Company recognized taxes on foreign dividends of $82.5 million. Concurrent with its decision to repatriate cash, the Company determined that Candelaria’s earnings would no longer be indefinitely reinvested outside the United States. Accordingly, we increased our 2005 income tax provision by approximately $47 million associated with Candelaria’s 2005 earnings and recognized a special item for taxes of $43.1 million ($34.5 million, net of minority interest) associated with Candelaria’s unremitted earnings. In early January 2006, additional cash of approximately $100 million was repatriated, net of withholding taxes of approximately $6 million.

118

     With the exception of amounts provided for undistributed earnings of Candelaria and El Abra, income taxes have not been provided on our share (approximately $280 million) of undistributed earnings of our foreign manufacturing and mining subsidiaries over which we have sufficient influence to control the distribution of such earnings and have determined that such earnings have been reinvested indefinitely. These earnings could become subject to additional tax if they were remitted as dividends, if foreign earnings were loaned to any of our U.S. entities, or if we sell our stock in the subsidiaries. It is estimated that repatriation of these earnings would generate additional foreign tax withholdings and domestic tax of approximately $24 million and $3 million, respectively.

     Cerro Verde’s Mining Stability Agreement, which was executed in 1998, contains a provision that allows it to exclude from taxable income qualifying profits that are reinvested in an investment program filed with and approved by the Ministry of Energy and Mines (the Mining Authority). On December 9, 2004, Cerro Verde received confirmation from the Mining Authority that its sulfide expansion project of approximately $800 million qualified for the taxable exclusion. The total reinvestment benefit is limited to 30 percent of the qualifying investment, up to $240 million. In order to obtain the tax benefit, Cerro Verde is required to reinvest its qualifying profits of up to $800 million during the four year period from 2004 through 2007, which could be extended, at the discretion of the Mining Authority, for up to three years through 2010. Qualifying profits for each year are limited to 80 percent of the lesser of after-tax book income or undistributed earnings. During 2005, Cerro Verde spent approximately $300 million on the sulfide expansion project, generating a total benefit of approximately $88 million. Based on Cerro Verde’s 2005 qualified earnings of approximately $153 million, a current benefit of approximately $46 million was recorded, with the remainder of approximately $42 million recorded as a deferred tax asset.

     The recent enactment of the American Jobs Creation Act of 2004 (the Act) caused us to reevaluate our current policy with respect to the repatriation of foreign earnings. The Act allows U.S. corporations to elect to deduct 85 percent of certain cash dividends received from qualifying foreign subsidiaries during a one-year period (2005 for PD), but also results in the loss of any foreign tax credits associated with these earnings. During the 2005 fourth quarter, we completed our evaluation of the repatriation provision and concluded that no election would be made. Our analysis determined that the 85 percent deduction did not result in a tax savings to Phelps Dodge as the U.S. tax liability associated with a repatriation of qualifying foreign earnings would be offset by available foreign tax credits.

8. Mill and Leach Stockpiles, Inventories and Supplies

     Mill and leach stockpiles, inventories and supplies at December 31, 2005, were as follows:

	PDMC		PDI		Total
Mill and Leach Stockpiles –
Current:
Mill stockpiles	$	9.6		—		9.6
Leach stockpiles		27.0		—		27.0
	$	36.6		—		36.6
Long-term:*
Mill stockpiles	$	45.3		—		45.3
Leach stockpiles		88.0		—		88.0
	$	133.3		—		133.3
Inventories —
Raw materials	$	1.4		47.0		48.4
Work-in-process		27.4		11.7		39.1
Finished goods		202.6		39.4		242.0
	$	231.4		98.1		329.5
Supplies	$	192.0		7.7		199.7

* Stockpiles not expected to be processed within the next 12 months are classified as long-term.

     Mill and leach stockpiles, inventories and supplies at December 31, 2004, were as follows:

	PDMC		PDI		Total
Mill and Leach Stockpiles –
Current:
Leach stockpiles	$	26.2		—		26.2
Long-term:*
Mill stockpiles	$	56.5		—		56.5
Leach stockpiles		74.5		—		74.5
	$	131.0		—		131.0
Inventories –
Raw materials	$	0.5		73.5		74.0
Work-in-process		24.4		12.3		36.7
Finished goods		206.0		75.4		281.4
	$	230.9		161.2		392.1
Supplies	$	165.0		27.7		192.7

* Stockpiles not expected to be processed within the next 12 months are classified as long-term.

     Mill and leach stockpiles valued by the last-in, first-out method would have been greater if valued at current costs by approximately $1,003 million and $681 million at December 31, 2005 and 2004, respectively. Current costs for mill and leach stockpiles for both 2005 and 2004 are significantly higher than their respective carrying costs primarily due to 0.7 million tons at December 31, 2005 and 2004, of copper contained in leach stockpiles that are carried at a zero value. That material was originally mined as waste, but, as a result of changes in our technological capabilities, now is expected to be processed. In addition, current costs in 2005 increased compared with 2004 due to higher mining costs.

     Inventories valued by the last-in, first-out method would have been greater if valued at current costs by approximately $537 million and $267 million at December 31, 2005 and 2004, respectively.

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     Supplies are stated net of a reserve for obsolescence of $29.0 million and $33.0 million at December 31, 2005 and 2004, respectively. We use valuation allowances for defective, unusable or obsolete inventories.

9. Property, Plant and Equipment

     Property, plant and equipment at December 31 comprised the following:

	2005		2004
Buildings, machinery and equipment	$	7,028.8		7,786.2
Mining properties		1,604.5		1,656.7
Capitalized mine development		221.2		216.2
Land and water rights		126.0		147.9
		8,980.5		9,807.0
Less accumulated depreciation, depletion and amortization		4,149.6		4,488.1
	$	4,830.9		5,318.9

Refer to Note 21, Contingencies, for discussion of asset retirement costs.

10. Goodwill

     Changes in the carrying amount of goodwill for the years ended December 31, 2005 and 2004, were as follows:

	Primary		Wire
	Molyb-		and
	denum		Cable		Colum-
	Segment		Segment		bian			Total
Balance as of December 31, 2003	$	—		20.7		77.7			98.4
Foreign currency translation adjustments		—		—		5.1			5.1
Balance as of December 31, 2004	$	—		20.7		82.8			103.5
Foreign currency translation adjustments		—		0.1		8.2			8.3
Additions		1.5		—		—			1.5
Impairment losses		—		—		(89.0	)		(89.0	)
Disposition of Columbian Chemicals*		—		—		(2.0	)		(2.0	)
Balance as of December 31, 2005	$	1.5		20.8		—			22.3

* Included in long-term assets held for sale in our Consolidated Balance Sheet.

     The Company completed its annual goodwill impairment testing as of December 31, 2005 and 2004. In connection with the agreement to sell Columbian, an impairment charge of $89.0 million was recorded in the 2005 fourth quarter to reduce the carrying value of Columbian to its estimated fair value less costs to sell.

11. Other Assets and Deferred Charges

Other assets and deferred charges at December 31 were as follows:

	2005		2004
Employee benefit plans*	$	316.9		36.3
Debt issue costs		28.1		12.7
Financial assurance trust assets**		90.9		85.3
Global environmental trust assets***		100.0		—
Non-qualified retirement benefits trust assets		67.3		48.6
Other		16.5		8.3
	$	619.7		191.2

*	Refer to Note 12, Accounts Payable and Accrued Expenses, for short-term liability; Note 13, Other Liabilities and Deferred Credits, for long-term liability; Note 17, Pension Plans; and Note 18, Postretirement and Other Employee Benefits Other Than Pensions, for further discussion.
**	Legally restricted funds for the use of asset retirement obligation activities at Chino, Tyrone and Cobre at December 31, 2005, and at Chino and Tyrone at December 31, 2004.
***	Trust assets designated for reclamation and remediation activities. Refer to Note 21, Contingencies, for further discussion.

12. Accounts Payable and Accrued Expenses

     Accounts payable and accrued expenses at December 31 were as follows:

	2005		2004
Accounts payable	$	602.5		513.7
Accrued copper hedges*		382.7		21.9
Salaries, wages and other compensation		63.2		69.6
Pension, postretirement, postemployment and other employee benefit plans**		66.5		88.3
Insurance claims reserves***		11.9		10.6
Environmental reserves***		82.3		64.1
Asset retirement obligations***		81.4		34.3
Smelting, refining and freight		8.7		9.3
Other accrued taxes		40.0		38.6
Accrued utilities		15.7		17.7
Interest****		11.3		15.1
Professional fees		13.9		11.9
Legal matters		1.5		16.2
Maintenance contracts/contractor accruals		31.7		30.0
Other		32.4		30.8
	$	1,445.7		972.1

*	Accrued copper hedges included realized pre-tax charges of $187.2 million associated with the 2005 copper price protection programs and unrealized pre-tax charges of $164.0 million associated with the 2006 copper price protection program at December 31, 2005.
**	Refer to Note 13, Other Liabilities and Deferred Credits, for long-term portion; Note 17, Pension Plans; and Note 18, Postretirement and Other Employee Benefits Other Than Pensions, for further discussion.
***	Short-term portion of these reserves. Refer to Note 13, Other Liabilities and Deferred Credits, for long-term portion of reserves and Note 21, Contingencies, for further discussion.
****	Third-party interest paid by the Company in 2005 was $88.0 million, compared with $134.6 million in 2004 and $154.2 million in 2003.

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13. Other Liabilities and Deferred Credits

      Other liabilities and deferred credits at December 31 were as follows:

	2005		2004
Pension, postretirement, postemployment and other employee benefit plans*	$	245.0	586.6
Environmental reserves**		285.6	239.5
Asset retirement obligations**		317.0	240.9
Insurance claims reserves**		47.1	32.8
Other***		39.5	7.5
	$	934.2	1,107.3

*	Refer to Note 12, Accounts Payable and Accrued Expenses, for short-term portion; Note 17, Pension Plans; and Note 18, Postretirement and Other Employee Benefits Other Than Pensions, for further discussion.
**	Refer to Note 12, Accounts Payable and Accrued Expenses, for short-term portion of reserves and Note 21, Contingencies, for further discussion.
***	Other included unrealized pre-tax charges of $34.6 million associated with the 2007 copper price protection program at December 31, 2005.

14. Debt and Other Financing

     Long-term debt at December 31 is summarized below:

	2005		2004
6.625% Notes due 2005	$	—	41.1
7.375% Notes due 2007		61.8	63.0
8.75% Notes due 2011		109.0	388.8
9.50% Notes due 2031		196.9	196.9
6.125% Notes due 2034		149.8	149.8
7.125% Debentures due 2027		115.0	115.0
Capital Lease Obligations		—	0.1
Columbian Chemicals Korea		—	2.0
Cerro Verde Project Financing		20.0	—
El Abra Subordinated Debt		—	34.3
Electroconductores de Honduras, S.A. de C.V.		1.5	—
Phelps Dodge Brazil, Ltda.		0.2	0.1
Various Pollution Control and Industrial Development Revenue Bonds due through 2009		26.0	27.0
Long-term debt and capital lease obligations, including current portion		680.2	1,018.1
Less current portion		2.5	45.9
Long-term debt and capital lease obligations, excluding current portion	$	677.7	972.2

     The amounts included above are shown net of unamortized discounts and purchase price adjustments of $1.5 million and $2.8 million at December 31, 2005 and 2004, respectively.

     The following is a table of future maturities of long-term debt at December 31, 2005:

			Project and
			Subsidiary
	Corporate		Debt Financing		Total
2006	$	2.4		0.1		2.5
2007		62.9		—		62.9
2008		0.2		2.6		2.8
2009		23.4		2.5		25.9
2010		0.3		4.0		4.3
Thereafter		569.3		12.5		581.8
	$	658.5		21.7		680.2

     In October 2005, we retired our remaining outstanding 6.625 percent Notes ($41.1 million), then due, in their entirety. In March 2004, we completed a tender offer for these notes, which resulted in the retirement of long-term debt with a book value of $182.3 million. During the 2004 first quarter, we recognized a pre-tax loss of $9.0 million, including purchase premiums.

     The 7.375 percent Notes, due May 15, 2007, bear interest payable semi-annually on May 15 and November 15. These notes are not redeemable by the Company prior to maturity and will not be entitled to any sinking fund. In March 2004, we completed a tender offer for these notes, which resulted in the retirement of long-term debt with a book value of $122.8 million. During the 2004 first quarter, we recognized a pre-tax loss of $9.5 million, including purchase premiums.

     The 8.75 percent Notes, due June 1, 2011, and the 9.5 percent Notes, due June 1, 2031, bear interest payable semi-annually on June 1 and December 1. These notes are redeemable in whole or in part, at the option of the Company, at a redemption price equal to any accrued and unpaid interest plus the greater of (i) 100 percent of the principal amount of the notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments discounted to the redemption date, on a semi-annual basis, at the yield of a U.S. Treasury security having a comparable maturity to the remaining term of the notes plus, in the case of the notes due 2011, 45 basis points and, in the case of the notes due 2031, 50 basis points. The notes are not entitled to any sinking fund. In July 2005, we completed a tender offer for the 8.75 percent Notes, which resulted in the retirement of long-term debt with a book value of $280.1 million. During the 2005 third quarter, we recognized a pre-tax loss of $54.0 million, including purchase premiums.

     In March 2004, the Company completed the issuance of $150 million in 30-year senior notes pursuant to its $750 million universal shelf registration statement. The notes were issued at a coupon of 6.125 percent and sold at a price of 99.874 for a yield of 6.134 percent. The proceeds from the offering were used to redeem the Company’s 8.375 percent Debentures due in 2023. The 6.125 percent Notes, due March 15, 2034, bear interest payable semi-annually on March 15 and September 15. These notes are redeemable in whole or in part, at the option of the Company, at a redemption price equal to any accrued and unpaid interest plus the greater of (i) 100 percent of the principal amount of the notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments discounted to the redemption date, on a semi-annual basis, at the yield of a U.S. Treasury security having a comparable maturity to the remaining term of the notes plus 25 basis points. The notes are not entitled to any sinking fund.

     The 7.125 percent Debentures, due in 2027, bear interest payable semi-annually on May 1 and November 1. The debentures are redeemable by the Company at any time prior to maturity at par plus a yield maintenance premium.

     On September 30, 2005, the Company entered into a number of agreements in connection with obtaining debt-financing facilities in an overall amount of $450 million, subject to certain conditions, for the expansion of the Cerro Verde copper mine. Export credit agencies and commercial banks supporting the debt-financing facility include the Japan Bank for International Cooperation (JBIC), KfW banking group

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of Germany (KfW), Calyon New York Branch, Mizuho Corporate Bank of Japan, Scotia Capital of Canada and the Royal Bank of Scotland. The JBIC facility also includes Sumitomo Mitsui Banking Corp. and Bank of Tokyo Mitsubishi. Phelps Dodge has guaranteed its adjusted pro rata share of the financing until completion of construction and has agreed to maintain a net worth of at least $1.5 billion. The security package associated with the debt-financing facilities includes mortgages and pledges of substantially all of the assets of Cerro Verde and requires the Company and the other minority interest partners to pledge their respective shares of Cerro Verde. The specific commitments are allocated as follows: (i) JBIC facility with two tranches totaling up to $247.5 million (Tranche A of $173.25 million and Tranche B of $74.25 million), (ii) KfW facility totaling up to $22.5 million and (iii) commercial bank loan facility up to $180.0 million, of which $90.0 million represents a stand-by facility intended to be replaced by the issuance of Peruvian bonds currently planned for 2006. The financing has a maximum 10-year term, and repayment consists of 16 semi-annual installments commencing on the earlier of the March 20 or the September 20 next occurring after the earlier of commencement of commercial operations or March 20, 2008. Under the JBIC and commercial bank loan facilities, interest is payable at a floating rate based on LIBOR, plus a fixed margin. Under the KfW facility, interest is payable at a variable or fixed rate, determined by Cerro Verde based on market rates at the time of drawdown. As of December 31, 2005, our Cerro Verde copper mine, in which we own a 53.6 percent equity interest, had outstanding project-financed debt of $20.0 million. This debt comprised (i) the JBIC facility with two tranches totaling $13.75 million (Tranche A: $9.625 million and Tranche B: $4.125 million), (ii) the KfW facility totaling $1.25 million and (iii) borrowings under the commercial bank loan facility totaling $5.0 million. The weighted average interest rate of this debt at December 31, 2005, was 5.42 percent.

     On December 14, 2005, Cerro Verde entered into a Peruvian bond indenture with an aggregate principal amount not to exceed $250 million. The indenture has been filed for review with, and is subject to the approval of, the National Supervisory Commission of Companies and Securities of Peru. We are planning to issue bonds of up to $90 million during 2006. As of February 23, 2006, no bonds have been issued under the indenture.

     In April 2005, our Columbian Chemicals Korea (South Korea) operation retired its bank loan of $2.0 million.

     In July 2005, El Abra fully repaid subordinated debt of $34.3 million to Corporación Nacional del Cobre de Chile, its minority owner.

     The various pollution control and industrial development revenue bonds are due through 2009. The interest on the bonds is paid either quarterly or semi-annually at various times of the year. The interest rates on the bonds at December 31, 2005, ranged from 2.6 percent to 6.125 percent. In February 2004, Phelps Dodge deposited with the Trustee an amount sufficient to redeem its 7.25 percent Industrial Revenue Bonds and Pollution Control Bonds (Amax Nickel Refining Company, Inc.) Series 1979, which were due in 2009. These bonds had an aggregate book value of $5.5 million and were purchased at 100 percent of their face value, plus accrued interest.

     The Company filed a $1 billion shelf registration statement on Form S-3 with the Securities and Exchange Commission, which was declared effective May 10, 2005, to combine the $400 million shelf registration filed April 15, 2005, and $600 million outstanding under a shelf registration statement that was declared effective on July 15, 2003. The shelf registration provides flexibility to efficiently access capital markets should financial circumstances warrant.

     On April 1, 2005, the Company amended the agreement for its $1.1 billion revolving credit facility, extending its maturity to April 20, 2010, and slightly modifying its fee structure. The facility is to be used for general corporate purposes. The agreement permits borrowings of up to $1.1 billion, with a $300 million sub-limit for letters of credit. This agreement provides for a facility fee (currently 12.5 basis points) ranging from 8 basis points to 20 basis points (depending on the Company’s public debt rating) on total commitments. Under the agreement, interest is payable at a variable rate based on the agent bank’s prime rate or at a fixed rate based on LIBOR or fixed rates offered independently by the several lenders, for maturities of up to 360 days. In addition, if utilization exceeds one-third of total commitments there is a utilization fee ranging from 10 basis points to 25 basis points (depending on the Company’s public debt rating). Fees for letters of credit (currently 50 basis points) range from 27 basis points to 80 basis points (depending on the Company’s public debt rating) on letters of credit issued, plus a 12.5 basis point issuance fee. The agreement requires the Company to maintain a minimum earnings before interest, taxes, depreciation and amortization (EBITDA — as defined in the agreement) to interest ratio of 2.25 on a rolling four-quarter basis, and limits consolidated indebtedness to 55 percent of total consolidated capitalization. At December 31, 2005, there was a total of $73.8 million of letters of credit issued under the new revolver. Total availability under the revolving credit facility at December 31, 2005, amounted to approximately $1,026 million, of which approximately $226 million could be used for additional letters of credit.

     In 2004, we terminated our commercial paper program, which was established on August 15, 1997, under a private placement agency agreement between the Company and two placement agents.

     In December 2005, our Columbian Chemicals Canada operation fully repaid its short-term debt outstanding ($2.8 million) against its revolving credit facility.

     Short-term debt was $14.3 million, all by our international operations, at December 31, 2005, compared with $78.8 million at December 31, 2004.

     The weighted average interest rate on total short-term borrowings at December 31, 2005 and 2004, was 7.79 percent and 3.04 percent, respectively.

15. Shareholders’ Equity

     As of December 31, 2005, there were 101.6 million shares of common stock outstanding and 1.7 million shares authorized for repurchase. On May 27, 2005, shareholders approved an amendment to the Company’s Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 200 million shares to 300 million shares.

     On February 1, 2006, the Company’s board of directors approved a two-for-one split of the Company’s outstanding common stock. The split will be effected in the form of a 100 percent stock dividend and will increase the number of shares outstanding to approximately

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203.2 million from approximately 101.6 million. Common shareholders of record at the close of business on February 17, 2006, will receive one additional share of common stock for every share they own as of that date. The additional shares will be distributed on March 10, 2006. The Company’s common stock will begin trading at its post-split price at the beginning of trading on March 13, 2006. (Refer to Note 24, Stock Split, for further discussion.)

     On August 15, 2005, our Series A Mandatory Convertible Preferred Stock (Series A Stock) automatically converted, at the rate of 2.083, into 4.2 million shares of common stock. The conversion rate was based on the average closing market price for the 20 consecutive trading days ending with the third trading day immediately preceding the conversion date. Each share of Series A Stock was non-voting and entitled to an annual dividend of $6.75, paid quarterly. At December 31, 2005, there were 6.0 million shares of preferred stock authorized under our restated certificate of incorporation with a par value of $1.00; none outstanding.

     We have in place a Preferred Share Purchase Rights Plan that contains provisions to protect stockholders in the event of unsolicited offers or attempts to acquire Phelps Dodge, including acquisitions in the open market of shares constituting control without offering fair value to all stockholders and other coercive or unfair takeover tactics that could impair the ability of the board of directors to represent the stockholders’ interests fully.

16. Stock Option Plans; Restricted Stock

     Executives and other key employees have been granted options to purchase common shares under stock option plans adopted in 1993, 1998 and 2003. The option price equals the fair market value of the common shares on the day of the grant, and an option’s maximum term is 10 years. Options granted vest ratably over a three-year period.

     The 2003 plan provides (and the 1993 and 1998 plan provided) for the award to executives and other key employees, without any payment by them, of common shares subject to certain restrictions (Restricted Stock). There were 774,367 shares of Restricted Stock outstanding and 1,690,556 shares available for award at December 31, 2005.

     At December 31, 2005, 3,823,602 shares were available for option grants (including 1,690,556 shares as Restricted Stock awards) under the 2003 plan. These amounts are subject to future adjustment as described in the plan document. No further options may be granted under the 1998 or 1993 plans.

     During 2005, 2004 and 2003, the Company awarded 290,700, 256,135 and 118,000 shares, respectively, of Restricted Stock under the 2003 and 1998 plans, with weighted-average fair values at the date of grant of $102.15, $74.55 and $34.95 per share, respectively. Compensation expense recorded in 2005, 2004 and 2003 for Restricted Stock was $12.2 million, $8.0 million and $4.5 million, respectively. Restricted Stock generally becomes fully vested in five years. Although the 2005 and 2004 awards become fully vested in five years, a majority of the shares included in those awards have graded-vesting features in which a portion of the shares will vest on the third and fourth anniversaries of the award.

     In connection with the 1999 acquisition, former Cyprus Amax stock options were converted into 1,870,804 Phelps Dodge options, which retain the terms by which they were originally granted under the Management Incentive Program of Cyprus Amax Minerals Company. These options carry a maximum term of 10 years and became fully vested upon the acquisition of Cyprus Amax in October 1999. Exercise periods ranged up to eight years at acquisition. No further options may be granted under this plan.

     The Phelps Dodge Corporation Directors Stock Unit Plan (effective January 1, 1997) provides to each non-employee director serving on the board since November 15 of the preceding year an annual award of stock units having a value of $75,000 as of the date of grant. This plan also replaced the Company’s 1989 Directors Stock Option Plan. On February 1, 2006, the plan was amended to provide pro rata awards for those directors elected after November 15, 2005, based on the number of days in 2006 on which the director is expected to serve on the board. The options granted under the 1989 Directors Stock Option Plan expire three years after the termination of service as a director. No further options may be granted under the 1989 plan.

     Stock option plans as of December 31, 2003, 2004 and 2005, and changes during the year for the combined plans were as follows:

				Average Option
	Shares			Price Per Share
Outstanding at December 31, 2002		8,934,601		$	55.36
Granted		15,500			43.23
Exercised		(1,958,523	)		50.82
Expired or terminated		(501,536	)		74.32
Outstanding at December 31, 2003		6,490,042			55.23
Granted		101,300			74.61
Exercised		(4,729,866	)		58.31
Expired or terminated		(133,150	)		73.72
Outstanding at December 31, 2004		1,728,326			46.52
Granted		133,900			96.19
Exercised		(1,293,320	)		45.73
Expired or terminated		(13,319	)		76.07
Outstanding at December 31, 2005		555,587			59.64
Exercisable at December 31, 2003		5,564,676			58.12
Exercisable at December 31, 2004		1,372,169			45.62
Exercisable at December 31, 2005		351,141			43.21

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     Options outstanding based on a range of exercise prices at December 31, 2005, were as follows:

				Weighted Average
Range of	Options		Weighted Average	Outstanding
Exercise Prices	Outstanding		Remaining Term	Option Price
$27-40		70,848	6 years	$	34.51
40-60		265,047	6 years		43.36
60-80		86,692	8 years		73.89
80-100		133,000	9 years		96.19
		555,587

     Exercisable options by plan at December 31, 2005, were as follows:

			Weighted Average
			Option Price
	Shares		Per Share
PD Plans
2003 Plan		11,265	$	74.61
1998 Plan		323,595		41.41
1993 Plan		8,000		66.94
1989 Directors Stock Option Plan		8,036		48.28
Cyprus Amax Plans		245		44.46
		351,141

     Exercisable options by range of exercise prices at December 31, 2005, were as follows:

	Options		Weighted Average
Range of	Exercisable		Outstanding
Exercise Prices	at 12/31/05		Option Price
$27-40		68,181	$	34.58
40-60		262,547		43.25
60-80		20,413		71.57
		351,141

    Equity compensation plans at December 31, 2005, were as follows:

	(a)		(b)		(c)
Plan Category	Number of		Weighted-		Number of securities
	securities to		average		remaining for future
	be issued upon		exercise price		issuance under
	exercise of		of outstanding		equity compensation
	outstanding		options,		plans (excluding
	options, warrants		warrants		securities reflected
	and rights		and rights		in column (a))
Equity compensation		555,587	$	59.64		3,823,602
plans approved by
security holders
Equity compensation		*		*		*
plans not approved
by security holders*
Total						3,823,602

* Two plans in which members of the board of directors may participate and that have not been approved by security holders include provisions that authorize, under certain circumstances, the issuance of equity shares. The Phelps Dodge Corporation Directors Stock Unit Plan, effective as of January 1, 1997, provided for an annual grant of 450 units in each of 1998, 1999, and 2000. Commencing in 2001 and continuing through 2004, the grants were equal in value to $50,000, increasing to $75,000 for awards on and after January 1, 2005, with pro rated awards permitted with respect to services to be performed in 2006. Commencing in 2001, these grants were based upon the fair market value of a share of PD stock on the day preceding the date of grant. Participants in this plan may elect to receive distributions from this plan in a lump sum or installments, in the form of PD common shares or cash following termination from service as a director. This plan terminates in accordance with its terms on December 31, 2006. Directors may elect, in accordance with the provisions of the Deferred Compensation Plan for the Directors of Phelps Dodge Corporation, effective as of January 1, 1999, to defer the payment of their directors’ fees, and if they so elected, to receive in the future the payment of those fees in PD common shares or cash. Participating directors may elect to receive a distribution from this plan, no later than the plan year in which the director reaches age 75, either in cash or in shares of PD common stock or in a specified combination thereof. Based on the nature of these plans, (1) column (b) is not applicable, as there is no exercise price related to the units, and (2) it is not possible to determine the exact number of equity securities that remain for future issuance under these plans, although the number of shares already issued under these plans since their inception is not material.

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     Changes during 2003, 2004 and 2005 in Restricted Stock were as follows:

	Shares
Outstanding at December 31, 2002		359,184
Granted		118,000
Terminated		(6,200	)
Released		(19,078	)
Outstanding at December 31, 2003		451,906
Granted		256,135
Terminated		(12,150	)
Released		(85,296	)
Outstanding at December 31, 2004		610,595
Granted		290,700
Terminated		(18,850	)
Released		(108,078	)
Outstanding at December 31, 2005		774,367

     The fair value of each option grant is estimated on the date of grant using a Black-Scholes option-pricing model with the following assumptions:

	2005			2004			2003
Expected dividend yield		1.04	%		0.00	%		0.00	%
Expected stock price volatility		39.8	%		41.3	%		43.4	%
Risk-free interest rate		3.8	%		3.3	%		2.9	%
Expected life of options	5 years			5 years			5 years

     The weighted-average fair value of options per share granted during 2005 was $35.54 per share, compared with $30.51 in 2004 and $18.06 in 2003.

17. Pension Plans

     We have trusteed, non-contributory pension plans covering substantially all our U.S. employees and some employees of international subsidiaries. The applicable plan design determines the manner in which the benefits are calculated for any particular group of employees. With respect to certain of these plans, the benefits are calculated based on final average monthly compensation and years of service. In the case of other plans, the benefits are calculated based on a fixed amount for each year of service. Participants generally vest in their accrued benefits after five years of service. We expect benefit payments, which reflect expected future service, from these plans to be approximately $77 million in 2006, $78 million in 2007, $79 million in 2008, $81 million in 2009, $83 million in 2010 and $459 million for 2011 through 2015.

     Our funding policy provides that contributions to pension trusts shall be at least equal to the minimum funding requirements of the Employee Retirement Income Security Act of 1974, as amended, for U.S. plans; or, in the case of international plans, the minimum legal requirements that may be applicable in the various countries. Additional contributions also may be made from time to time. In 2005 and 2004, the Company made additional cash contributions of $250 million and $85 million, respectively, to the Phelps Dodge Retirement Plan and U.S. pension plans for bargained employees. As a result of these contributions, the entire benefit obligation for these plans is funded at year-end 2005. The Company is not anticipating any further appreciable funding requirements for these plans through 2008. In addition, the Company made cash contributions of approximately $7 million for plans at international subsidiaries and a supplemental retirement plan. The Company expects to make approximately $4 million in cash contributions during 2006 for these plans.

     In some of our plans, the plan assets exceed the accumulated benefit obligations (overfunded plans), while in the remainder, the accumulated benefit obligations exceed the plan assets (underfunded plans). The following table presents the underfunded plans at December 31:

	2005		2004
Projected benefit obligation	$	133		1,343
Accumulated benefit obligation	$	123		1,235
Fair value of plan assets	$	51		1,007

     Our pension plans were valued between December 1, 2003, and January 1, 2004, and between December 1, 2004, and January 1, 2005. Obligations were projected to and assets were valued as of the end of 2004 and 2005. The majority of plan assets are invested in a diversified portfolio of stocks, bonds and cash or cash equivalents. A small portion of the plan assets is invested in pooled real estate and other private investment funds.

     The Phelps Dodge Corporation Defined Benefit Master Trust (Master Trust), which holds plan assets for the Phelps Dodge Retirement Plan and U.S. pension plans for bargained employees, constituted 96 percent of total plan assets as of year-end 2005. These plans accounted for approximately 90 percent of benefit obligations. The following table represents the asset mix of the investment portfolio for this trust at December 31:

	2005			2004
Asset category:
Equity securities		58	%		56	%
Fixed income		34			34
Real estate		5			6
Other		3			4
		100	%		100	%

     At December 31, 2005, the equity securities included 41 percent U.S. equities, 10 percent international equities and 7 percent emerging market equities; and the fixed income included 19 percent U.S. fixed income, 5 percent international fixed income, 3 percent emerging market fixed income, 4 percent U.S. high yield and 3 percent treasury inflation-protected securities. At December 31, 2004, the equity securities included 36 percent U.S. equities, 12 percent international equities and 8 percent emerging market equities; and the fixed income included 17 percent U.S. fixed income, 5 percent international fixed income, 3 percent emerging market fixed income, 5 percent U.S. high yield and 4 percent treasury inflation-protected securities.

     Our policy for determining asset-mix targets for the Master Trust includes the periodic development of asset/liability studies by a nationally recognized, third-party investment consultant (to determine our expected long-term rate of return and expected risk for various investment portfolios). Management considers these studies in the formal establishment of asset-mix targets that are reviewed by the finance committee of the board of directors.

     Our expected long-term rate of return on plan assets is updated at least annually, taking into consideration our asset allocation, historical returns on the types of assets held in the Master Trust, and the current economic environment. Based on these factors, we

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expect our pension assets will earn an average of 8.5 percent per annum during the 20 years beginning December 1, 2005, with a standard deviation of 10.6 percent. The 8.5 percent estimation was based on a passive return on a compound basis of 8.0 percent and a premium for active management of 0.5 percent reflecting the target asset allocation and current investment array. On an arithmetic average basis, the passive return would have been 8.5 percent with a premium for active management of 0.5 percent. Our rate of return and standard deviation estimates remain unchanged from December 1, 2004.

     For estimation purposes, we assume our long-term asset mix generally will be consistent with the current mix. Changes in our asset mix could impact the amount of recorded pension income or expense, the funded status of our plans and the need for future cash contributions. A lower-than-expected return on assets also would decrease plan assets and increase the amount of recorded pension expense (or decrease recorded pension income) in future years. When calculating the expected return on plan assets, the Company uses a market-related value of assets that spreads asset gains and losses over five years. As a result, changes in the fair value of assets prior to year-end 2005 will be reflected in the results of operations by January 1, 2011.

     The fair value of all plan assets ($1,316 million at year-end 2005 and $1,019 million at year-end 2004) is impacted by general market conditions. If actual returns on plan assets vary from the expected returns, actual results could differ.

     A third-party independent actuary determines our net pension asset or liability and associated income or expense. We recognize in our financial statements an accrued liability (or a prepaid pension expense) for the difference between pension cost and contributions to the plan. In addition, as required by SFAS No. 87, a minimum pension liability is recorded when a plan’s accumulated benefit obligation exceeds the plan’s assets by more than the amount of accrued liability recognized for that plan.

     Our benefit obligation totaled $1,351 million at year-end 2005 and 2004. At year-end 2005, our benefit obligation included approximately $143 million associated with the Columbian discontinued operations, of which approximately $72 million will be assumed by the buyer. Among the assumptions used to estimate the benefit obligation is a discount rate used to calculate the present value of expected future benefit payments for service to date. The discount rate assumption is designed to reflect yields on high-quality, fixed-income investments. For our U.S. plans, we utilized a nationally recognized, third-party actuary to assist in the determination of the discount rate based on expected future benefit payments for service to date together with the Citibank Pension Discount Curve. This approach generated a discount rate of approximately 5.63 percent for our U.S. pension plans. Changes in this assumption are reflected in our benefit obligation and, therefore, in the liabilities and income or expense we record.

     We periodically review our actual asset mix, discount rate, expected rate of return and other actuarial assumptions and adjust them as deemed necessary. Our assumption concerning the average rate of compensation increase was 4 percent for all periods.

     The following table presents the benefit obligation, changes in plan assets, the funded status of the pension plans and the assumptions used at December 31:

	2005			2004
Weighted-average assumptions:
Discount rate		5.63	%		5.75	%
Rate of increase in salary levels		4.00	%		4.00	%
Change in benefit obligation:
Benefit obligation at beginning of year	$	1,351			1,197
Service cost — benefits earned during the period		28			24
Interest cost on benefit obligation		74			72
Plan amendments		2			1
Actuarial (gain) loss		(15	)		126
Benefits paid		(84	)		(76	)
Special retirement benefits		4			1
Currency translation adjustments		(9	)		6
Benefit obligation at end of year	$	1,351			1,351
Change in plan assets:
Fair value of plan assets at beginning of year	$	1,019			893
Actual return on plan assets		129			106
Employer contributions		257			92
Currency translation adjustments		(5	)		4
Benefits paid		(84	)		(76	)
Fair value of plan assets at end of year	$	1,316			1,019
Funded status	$	(35	)		(332	)
Unrecognized actuarial loss		302			377
Unrecognized prior service cost		12			16
Net amount recognized	$	279			61
Amounts recognized in the balance sheet consist of:
Prepaid benefit cost	$	314			7
Accrued benefit liability		(72	)		(228	)
Intangible asset		1			18
Deferred tax benefit		10			34
Accumulated other comprehensive loss		26			230
Net amount recognized	$	279			61

     Assumptions used as of the beginning of the plan year to determine the listed components of net periodic benefit cost for the associated year consist of the following:

	2005			2004			2003
Weighted-average assumptions:
Discount rate		5.75	%		6.25	%		6.75	%
Expected long-term rate of return		8.50	%		8.50	%		8.75	%
Rate of increase in salary levels		4.00	%		4.00	%		4.00	%
Components of net periodic benefit cost:
Service cost — benefits earned during the period	$	28.1			23.6			20.9
Interest cost on benefit obligation		74.3			72.0			72.1
Expected return on plan assets		(86.1	)		(84.1	)		(86.4	)
Amortization of transition obligation		0.1			0.1			0.1
Amortization of prior service cost		3.6			3.4			3.5
Amortization of actuarial loss		14.0			3.2			2.8
Curtailments and special retirement benefits		5.3			0.8			2.0
Recognized prior service cost		—			—			0.2
Net periodic benefit cost	$	39.3			19.0			15.2

     We recognize a minimum liability in our financial statements for our underfunded pension plans. The accrued pension benefit cost was $72 million, which included an additional minimum liability of $37 million (included $22 million in other liabilities and deferred credits and $15 million in long-term liabilities related to assets held for sale) at December 31, 2005, compared with $228 million, which

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included an additional minimum liability of $282 million (included in other liabilities and deferred credits) at December 31, 2004. The additional minimum liability was offset by a $1 million intangible asset (included in other assets and deferred charges), a $26 million reduction in shareholders’ equity and a $10 million deferred tax benefit (included $5 million in long-term liabilities related to assets held for sale) at December 31, 2005, compared with a $18 million intangible asset (included in other assets and deferred charges), a $230 million reduction in shareholders’ equity and a $34 million deferred tax benefit at December 31, 2004.

18. Postretirement and Other Employee Benefits Other Than Pensions

     We record obligations for postretirement medical and life insurance benefits on the accrual basis. One of the principal requirements of this method is that the expected cost of providing such postretirement benefits be accrued during the years employees render the necessary service.

     Our postretirement plans provide medical coverage benefits for many employees retiring from active service. The coverage is provided on a non-contributory basis for certain groups of retirees and on a contributory basis for other groups. During 2005, the Company eliminated postretirement life insurance coverage, unless otherwise provided pursuant to the terms of a collective bargaining agreement, for all active employees who separate from service and retire on or after January 1, 2006. During 2005, the Company also eliminated postretirement medical coverage, unless otherwise provided pursuant to the terms of a collective bargaining agreement, for employees hired or rehired on or after February 1, 2005.

     During 2005, the majority of the premiums for life insurance benefits were paid out of a previously established life insurance funding arrangement (LIFA) maintained by an insurance company. In December 2005, the Company established and funded the VEBA trusts to pre-fund certain postretirement obligations. The trusts will help provide assurance to participants in these plans that the Company will continue to have funds available to meet its obligations under the covered retiree medical and life insurance programs. The trusts, however, will not reduce retiree contribution obligations that help fund these benefits and will not guarantee that retiree contribution obligations will not increase in the future. On December 21, 2005, the Company contributed a total of $200 million to these trusts, consisting of $175 million for postretirement medical obligations and $25 million for postretirement life insurance obligations. In the future, the majority of postretirement medical benefits and life insurance premiums will be paid from these VEBA trusts. We expect benefit payments for postretirement medical and life coverage, which reflect expected future service, from these plans to be approximately $26 million per year through 2010 and $110 million for the period from 2011 to 2015.

     Our funding policy provides that contributions to the VEBA trusts shall be at least sufficient to pay plan benefits as they come due. Additional contributions may be made from time to time. Contributions for our postretirement benefit plans were approximately $228 million in 2005 and $30 million in 2004. The large increase in 2005 is primarily due to the $200 million contribution, as discussed above.

     The following table represents the asset mix of the investment portfolio for our postretirement benefit plans at December 31:

	2005			2004
Asset category:
Core U.S. fixed income		98	%		60	%
Growth equity		2			40
		100	%		100	%

     The fair value of all plan assets in the LIFA and the VEBA trusts is impacted by general market conditions. If actual returns on plan assets vary from expected returns, actual results could differ.

     A third-party independent actuary determines our net postretirement liability and associated income or expense. We recognize in our financial statements an accrued liability for the difference between postretirement cost and contributions to the plans.

     The long-term expected rate of return on plan assets for our postretirement medical and life insurance benefit plans and the discount rate were determined on the same basis as our pension plan. Based on our asset allocation, historical returns on the types of assets held in the trust and the current economic environment, we expect our postretirement medical and life assets will earn an average of 3.50 and 5.00 percent per annum, respectively, over the long-term beginning January 1, 2006.

     Our benefit obligation totaled $281 million and $363 million at year end 2005 and 2004, respectively. Among the assumptions used to estimate the benefit obligation is a discount rate used to calculate the present value of expected future benefit payments for service to date. The discount rate assumption is designed to reflect yields on high-quality, fixed-income investments. For our U.S. plans, we utilized a nationally recognized, third-party actuary to assist in the determination of the discount rate based on expected future benefit payments for service to date from the postretirement medical and life insurance benefit plans together with the Citibank Pension Discount Curve. This approach generated a discount rate of 5.37 percent for the postretirement medical plan and 5.41 percent for the postretirement life insurance plan. Changes in this assumption are reflected in our benefit obligation and, therefore, in the liabilities and income or expense we record.

     We periodically review our actual asset mix, discount rate, expected rate of return and other actuarial assumptions and adjust them as deemed necessary.

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     The following table presents the change in benefit obligation, change in plan assets, the funded status of the postretirement benefit plans and the assumptions used at December 31:

	2005			2004
Weighted-average assumptions:
Discount rate — medical retiree		5.37	%		5.75	%
Discount rate — life retiree		5.41	%		6.00	%
Change in benefit obligation:
Benefit obligation at beginning of year	$	363			389
Service cost — benefits earned during the year		4			5
Interest cost on benefit obligation		20			23
Plan amendments		(30	)		—
Actuarial (gain) loss		(41	)		(22	)
Benefits paid, net of employee contributions		(30	)		(32	)
Curtailments		(6	)		—
Special retirement benefits		1			—
Benefit obligation at end of year	$	281			363
Change in plan assets:
Fair value of plan assets at beginning of year	$	3			5
Employer contributions		228			30
Benefits paid, net of employee contributions		(30	)		(32	)
Fair value of plan assets at end of year	$	201			3
Unfunded status	$	(80	)		(360	)
Unrecognized actuarial (gain) loss		(28	)		19
Unrecognized prior service (benefit) cost		(22	)		8
Net amount recognized — accrued liability	$	(130	)		(333	)

     Assumptions used as of the beginning of the plan year to determine the listed components of net periodic postretirement benefit cost were as follows:

	2005			2004			2003
Weighted-average assumptions:
Discount rate — medical retiree		5.75	%		6.25	%		6.75	%
Discount rate — life retiree		6.00	%		6.25	%		6.75	%
Expected long-term rate of return on plan assets		6.50	%		6.50	%		8.00	%
Components of net periodic benefit cost:
Service cost — benefits earned during the year	$	4.3			5.4			4.4
Interest cost on benefit obligation		19.6			23.3			23.4
Expected return on plan assets		(0.1	)		(0.3	)		(0.6	)
Amortization of prior service cost		0.3			1.3			1.3
Recognized net actuarial loss (gain)		0.5			0.4			(0.4	)
Curtailments and special retirement benefits		0.8			—			12.5
Net periodic benefit cost	$	25.4			30.1			40.6

     The assumed medical care trend rates at December 31 were:

	2005			2004
Medical care cost trend rate assumed for major medical plan for the next year		10	%		11	%
Medical care cost trend rate assumed for basic only plan for the next year		8	%		8	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		5	%		5	%
Year that the rate reaches the ultimate trend rate		2012			2011

     Assumed medical care cost trend rates have a significant effect on the amounts reported for the postretirement medical benefits. A 1-percentage-point change in the medical care cost trend rates assumed for postretirement medical benefits would have the following effects:

	1 Percentage-Point
	Increase		Decrease
Effect on total of service and interest cost components	$	0.8		(0.7	)
Effect on postretirement benefit obligation	$	13.5		(11.8	)

     In December 2003, The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 was enacted. This act introduced a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree healthcare benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Our measures of the accumulated postretirement benefit obligation and net periodic postretirement benefit cost as of December 31, 2004, and for periods thereafter reflect amounts associated with the subsidy.

     We have a number of postemployment plans covering severance, long-term disability income, health-care, life insurance, continuation of health and life insurance coverage for disabled employees or other welfare benefits. At December 31, 2005, the accumulated postemployment disability benefit consisted of a current portion of $9.7 million (included $8.8 million in accounts payable and accrued expenses and $0.9 million in liabilities related to assets held for sale) and a long-term portion of $39.6 million (included $34.2 million in other liabilities and deferred credits and $5.4 million in long-term liabilities related to assets held for sale). At December 31, 2004, the accumulated postemployment disability benefit consisted of a current portion of $9.1 million (included in accounts payable and accrued expenses) and a long-term portion of $33.2 million (included in other liabilities and deferred credits).

     We also sponsor savings plans for the majority of our employees. The plans allow employees to contribute a portion of their pre-tax and/or after-tax income in accordance with specified guidelines. The principal savings plan is a qualified 401(k) plan for all U.S. salaried and non-bargained hourly employees. In this plan, participants exercise control and direct the investment of their contributions and account balances among a broad range of investment options, including company stock. Participants also may direct their contributions into a brokerage option through which they can invest in stocks, bonds and mutual funds. Participants may change investment direction or transfer existing balances at any time without restriction, with some exceptions for certain officers and other insiders. We match a percentage of employee pre-tax deferral contributions up to certain limits. These matching contributions are made in cash, which is immediately invested according to each employee’s current investment direction. Our matching contributions amounted to $31.0 million in 2005, $17.1 million in 2004 and $11.4 million in 2003. Our principal savings plan includes a profit sharing feature for our salaried employees, which is based on the Company’s financial performance for the applicable year. Included in the matching contributions were profit sharing contributions of $17.8 million in 2005 and $5.2 million in 2004 based on the Company’s performance in the 2004 and 2003 plan years, respectively. There were no profit sharing contributions in 2003 (for the 2002 plan year). At December 31, 2005, we had

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accrued $19.7 million for the estimated 2005 plan year profit sharing contribution, which is payable in 2006.

19. Commitments

     Phelps Dodge leases various types of properties, including offices, equipment and mineral interests. Certain of the mineral leases require minimum annual royalty payments, and others provide for royalties based on production.

     Summarized below at December 31, 2005, are future minimum rentals and royalties under non-cancelable leases:

	Operating		Mineral
	Leases*		Royalties
2006	$	18.2		1.9
2007		17.3		1.9
2008		15.9		1.9
2009		12.3		1.9
2010		11.6		1.7
After 2010		19.7		10.7
Total payments	$	95.0		20.0

* Included $6.9 million of non-cancelable leases associated with discontinued operations.

     Summarized below at December 31, 2005, is future sub-lease income:

	Sub-lease
	Income
2006	$	0.5
2007		0.5
2008		0.5
2009		0.5
2010		0.5
After 2010		0.8
	$	3.3

     Rent and royalty expenses for the years ended December 31 were as follows:

	2005		2004		2003
Rental expense	$	32.7		33.8		23.0
Mineral royalty expense		1.3		1.3		1.3
	$	34.0		35.1		24.3

     Phelps Dodge has unconditional purchase obligations (take-or-pay contracts with terms in excess of one year) of $842.1 million, comprising the procurement of petroleum-based products (approximately 42 percent); transportation (approximately 16 percent); electricity (approximately 16 percent); other supplies and services (approximately 8 percent); copper anodes (approximately 7 percent); sulfuric acid (approximately 5 percent); port fee commitments (approximately 3 percent); natural gas (approximately 2 percent); and oxygen (approximately 1 percent) that are essential to our operations worldwide. Obligations for petroleum-based feedstock, which is converted into carbon black, are for specific quantities and will ultimately be purchased based upon prevailing market prices at the time. These petroleum-based products may be re-sold to others if circumstances warrant. Transportation obligations are primarily for Candelaria and Cerro Verde contracted ocean freight rates and El Abra sulfuric acid freight arrangements. Approximately 52 percent of our take-or-pay electricity obligations are through PD Energy Services, the legal entity used to manage power for PDMC, at generally fixed-price arrangements. PD Energy Services has the right and the ability to resell the electricity as circumstances warrant. Some of our unconditional purchase obligations are settled based on the prevailing market rate for the service or commodity purchased. In such cases, the amount of the actual obligation may change over time due to market conditions. Obligations for copper anode provide for deliveries of specified volumes, at market-based prices, to our El Paso refinery. Our sulfuric acid purchases provide for deliveries of specified volumes, based on negotiated rates, to El Abra and Cerro Verde. Columbian’s carbon black facility in the United Kingdom has port fee commitments over approximately 43 years, and our copper mine in Peru has port fee commitments over approximately 21 years. Obligations for natural gas provide for deliveries of specified volumes, at market-based prices, primarily to Columbian’s carbon black operation in Brazil. Our oxygen obligations provide for deliveries of specified volumes, at fixed prices, to Bagdad. In addition, we have unconditional purchase obligations of approximately $627 million primarily associated with our Cerro Verde mine expansion and certain copper cathode contracts with terms of less than one year.

     Our future commitments are $236.5 million, $152.2 million, $107.0 million, $67.8 million, $61.0 million and $217.6 million for 2006, 2007, 2008, 2009, 2010, and after 2010, respectively. Future commitments included $39.5 million, $40.4 million, $45.0 million, $43.2 million, $43.5 million and $180.3 million for 2006, 2007, 2008, 2009, 2010 and after 2010, respectively, associated with discontinued operations. During 2005, 2004 and 2003, we fulfilled our minimum contractual purchase obligations for those periods or negotiated settlements in those situations in which the Company terminated an agreement containing an unconditional obligation.

20. Guarantees

     Phelps Dodge as a guarantor is involved in financial guarantees (including option guarantees and indirect guarantees of the indebtedness of others) and indemnities.

     At our Morenci mine in Arizona, we have a venture agreement dated February 7, 1986, with our business partner, Sumitomo, that includes a put/call option guarantee clause. We hold an 85 percent undivided interest in the Morenci complex. Under certain conditions defined in the venture agreement, our partner has the right to sell its 15 percent share to the Company. Likewise, under certain conditions, the Company has the right to exercise its purchase option to acquire our business partner’s share of the venture. Based on calculations defined in the venture agreement, at December 31, 2005, the maximum potential payment the Company is obligated to make to our business partner upon exercise of the put option (or the Company’s exercise of its call option) totaled $97.7 million. As of December 31, 2005, the Company had not recorded any liability on its financial statements in connection with this guarantee as the Company does not believe, based on information available, that it is probable that any amounts will be paid under this guarantee as the fair value is well in excess of the exercise price.

     One of our subsidiaries has entered into an indirect guarantee to pledge certain of our land and improvements as collateral to a lender for a real estate development loan issued on behalf of our joint venture investment. The Company owns a 50 percent interest in the joint venture and has guaranteed payment of any amounts due on the loan in the event of the joint venture’s loan default. The loan

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value and maximum potential payment for this guarantee at December 31, 2005, was approximately $27.6 million. The estimated fair value of our collateralized land at year-end was approximately $4.7 million. As of December 31, 2005, the Company had not recorded any liability on its financial statements in connection with this guarantee as the Company does not believe, based on information available, that it is probable that any amounts will be paid under this guarantee.

     The Company and its subsidiaries have, as part of its merger, acquisition, divestiture and other transactions, entered into during the ordinary course of business (including transactions involving the purchase and sale of property), from time to time, indemnified certain sellers, buyers or other parties related to the transaction from and against certain liabilities associated with conditions in existence (or claims associated with actions taken) prior to the closing date of the transaction. As part of certain transactions, the Company indemnified the counterparty from and against certain excluded or retained liabilities existing at the time of sale that would otherwise have been transferred to the party at closing. These indemnity provisions generally require Phelps Dodge (or its subsidiaries) to indemnify the party against certain liabilities that may arise in the future from the pre-closing activities of the Company or assets sold or purchased. The indemnity classifications include environmental, tax and certain operating liabilities, claims or litigation existing at closing and various excluded liabilities or obligations. Most of these indemnity obligations arise from transactions that closed many years ago, and given the nature of these indemnity obligations, it is impossible to estimate the maximum potential exposure. Except as described in the following sentence, we do not consider any of such obligations as having a probable likelihood of payment that is reasonably estimable, and accordingly, we have not recorded any obligations associated with these indemnities. With respect to our environmental indemnity obligations, any expected costs from these guarantees are accrued when potential environmental obligations are considered by management to be probable and the costs can be reasonably estimated. (Refer to Note 21, Contingencies, for further discussions concerning our environmental reserve process.)

21. Contingencies

Letters of Credit and Surety Bonds

     Phelps Dodge had standby letters of credit totaling $75.3 million at December 31, 2005, primarily for reclamation, environmental obligations and workers’ compensation insurance programs. In addition, Phelps Dodge had surety bonds totaling $165.0 million at December 31, 2005, primarily associated with reclamation, closure and environmental obligations ($138.1 million or 83.7 percent — see discussion below), self-insurance bonds primarily for workers’ compensation ($24.6 million or 14.9 percent) and miscellaneous bonds ($2.3 million or 1.4 percent). Phelps Dodge also had performance guarantees of $39.4 million primarily associated with our Wire and Cable segment’s sales contracts.

     The terms and conditions presently available from one of our principal surety bond providers for reclamation and other types of long-lived surety bonds have made this type of financial assurance economically impracticable in many instances.

Insurance

     The Company purchases a variety of insurance products to mitigate insurable losses. The various insurance products typically have specified deductible amounts, or self-insured retentions, and policy limits. The Company purchases all-risk property insurance with varying site deductibles and an annual aggregate corporate deductible of $30 million. The Company generally is self-insured for workers’ compensation, but purchases excess insurance up to statutory limits. An actuarial study is performed twice a year by an independent, third-party actuary for the Company’s various casualty programs, including workers’ compensation, to estimate required insurance reserves. Insurance reserves totaled $59.0 million and $43.4 million at December 31, 2005 and 2004, respectively.

     The Company pays its portion of a variety of insurance claims and losses. The total amount paid pursuant to its major insurance programs, including property, general liability, workers’ compensation and auto liability was approximately $18 million, $19 million and $13 million in 2005, 2004 and 2003, respectively. Group medical and other insurance benefit costs and premiums paid by the Company for both active and retired participants totaled approximately $95 million, $101 million and $98 million in 2005, 2004 and 2003, respectively.

Environmental

     Phelps Dodge is subject to various stringent federal, state and local environmental laws and regulations that govern emissions of air pollutants; discharges of water pollutants; and generation, handling, storage and disposal of hazardous substances, hazardous wastes and other toxic materials. The Company also is subject to potential liabilities arising under CERCLA or similar state laws that impose responsibility on persons who arranged for the disposal of hazardous substances, and on current and previous owners and operators of a facility for the cleanup of hazardous substances released from the facility into the environment, including injuries to natural resources. In addition, the Company is subject to potential liabilities under the Resource Conservation and Recovery Act (RCRA) and analogous state laws that require responsible parties to remediate releases of hazardous or solid waste constituents into the environment associated with past or present activities.

     Phelps Dodge or its subsidiaries have been advised by EPA, the U.S. Forest Service and several state agencies that they may be liable under CERCLA or similar state laws and regulations for costs of responding to environmental conditions at a number of sites that have been or are being investigated by EPA, the U.S. Forest Service or states to determine whether releases of hazardous substances have occurred and, if so, to develop and implement remedial actions to address environmental concerns. Phelps Dodge also has been advised by trustees for natural resources that the Company may be liable under CERCLA or similar state laws for injuries to natural resources caused by releases of hazardous substances.

     Phelps Dodge has established reserves for potential environmental obligations that management considers probable and for which reasonable estimates can be made. For closed facilities and closed portions of operating facilities with environmental obligations, an environmental liability is accrued when a decision to close a facility or a portion of a facility is made by management, and when the environmental liability is considered to be probable. Environ-

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mental liabilities attributed to CERCLA or analogous state programs are considered probable when a claim is asserted, or is probable of assertion, and we have been associated with the site. Other environmental remediation liabilities are considered probable based upon specific facts and circumstances. Liability estimates are based on an evaluation of, among other factors, currently available facts, existing technology, presently enacted laws and regulations, Phelps Dodge’s experience in remediation, other companies’ remediation experience, Phelps Dodge’s status as a potentially responsible party (PRP), and the ability of other PRPs to pay their allocated portions. Accordingly, total environmental reserves of $367.9 million and $303.6 million were recorded as of December 31, 2005 and 2004, respectively. The long-term portion of these reserves is included in other liabilities and deferred credits on the Consolidated Balance Sheet and amounted to $285.6 million and $239.5 million at December 31, 2005 and 2004, respectively.

     The site currently considered to be the most significant is the Pinal Creek site near Miami, Arizona. The sites with the most significant reserve changes in 2005 were the Anniston Lead and PCB sites, and the Laurel Hill site, and in 2004, the Yonkers site.

     Pinal Creek Site

     The Pinal Creek site was listed under the Arizona Department of Environmental Quality (ADEQ) Water Quality Assurance Revolving Fund program in 1989 for contamination in the shallow alluvial aquifers within the Pinal Creek drainage near Miami, Arizona. Since that time, environmental remediation has been performed by the members of the Pinal Creek Group (PCG), comprising Phelps Dodge Miami, Inc. (a wholly owned subsidiary of the Company) and two other companies. In 1998, the District Court approved a Consent Decree between the PCG members and the state of Arizona resolving all matters related to an enforcement action contemplated by the state of Arizona against the PCG members with respect to the groundwater matter. The Consent Decree committed Phelps Dodge Miami, Inc. and the other PCG members to complete the remediation work outlined in the Consent Decree. That work continues at this time pursuant to the Consent Decree and consistent with state law and the National Contingency Plan prepared by EPA under CERCLA.

     Phelps Dodge Miami, Inc. and the other PCG members have been pursuing contribution litigation against three other parties involved with the site. Phelps Dodge Miami, Inc. dismissed its contribution claims against one defendant when another PCG member agreed to be responsible for any share attributable to that defendant. Phelps Dodge Miami, Inc. and the other members of the PCG settled their contribution claims against another defendant in April 2005, which resulted in cancellation of the Phase I trial. While the terms of the settlement are confidential, the proceeds of the settlement will be used to address remediation at the Pinal Creek site. The Phase II trial, which will allocate liability, is scheduled for October 30, 2006, subject to approval by the trial judge.

     While significant recoveries may be achieved in the contribution litigation, the Company cannot reasonably estimate the amount and, therefore, has not taken potential recoveries into consideration in the recorded reserve.

     Phelps Dodge Miami, Inc.’s share of the planned remediation work based on the interim agreements between the parties has a cost range for reasonably expected outcomes estimated to be from $104 million to $211 million. Approximately $108 million remained in the Company’s Pinal Creek remediation reserve at December 31, 2005.

     Anniston Lead and PCB Sites

     Phelps Dodge Industries, Inc. (PDII) formerly operated a brass foundry in Anniston, Alabama, and has been identified by EPA as a PRP at the Anniston Lead and PCB sites. The Anniston Lead site consists of lead contamination originating from historical industrial operations in and about Anniston; the Anniston PCB site consists of PCB contamination originating primarily from historical PCB manufacturing operations in Anniston. Pursuant to an administrative order on consent/settlement agreement (Settlement Agreement), PDII, along with 10 other parties identified by EPA as PRPs, agreed to conduct a non-time-critical removal action at certain residential properties identified to have lead and PCB contamination above certain thresholds. While PDII and the other parties to the Settlement Agreement have some responsibility to address residential PCB contamination, that responsibility is limited, with EPA characterizing PDII and the parties to the Settlement Agreement as de minimis PRPs. The Settlement Agreement was subject to public comment, which ended on October 11, 2005. Upon EPA issuance of its response to public comment, the Settlement Agreement became final on January 17, 2006. PDII and the other PRPs have entered into an interim cost-sharing agreement that assigns PDII approximately one-eighth of the costs to be incurred under the Settlement Agreement. During the 2005 third quarter, PDII increased its reserve by approximately $20 million to a total reserve of approximately $27 million at December 31, 2005, which covers remedial costs, PRP group settlement costs, and legal and consulting costs.

     Laurel Hill Site

     Phelps Dodge Refining Corporation, a subsidiary of the Company, owns a portion of the Laurel Hill property in Maspeth, New York, that formerly was used for metal-related smelting, refining and manufacturing. All industrial operations at the Laurel Hill site ceased in 1984. In June 1999, the Company entered into an Order on Consent with New York State Department of Environmental Conservation (NYSDEC) that required the Company to perform, among other things, a remedial investigation and feasibility study relating to environmental conditions and remedial options at the Laurel Hill site. NYSDEC issued a final remedial decision in January 2003 in the form of a Record of Decision (ROD) regarding the property. The Company expects to complete the work under the ROD in 2006.

     In July 2002, Phelps Dodge entered into another Order on Consent with NYSDEC requiring the Company to conduct a remedial investigation and feasibility study relating to sediments in Newtown and Maspeth Creeks, which are located contiguous to the Laurel Hill site. The Company commenced the remedial investigation in 2004. The Company is currently scheduled to submit to the NYSDEC in 2006 its remedial investigation report and its remedial feasibility report. The Company is currently engaged in settlement discussions with the NYSDEC concerning the types of remedial actions in the feasibility study that would be acceptable to the agency. Based on the types of remedial actions being discussed and associated transactional costs, the environmental reserve was increased to approximately $20 million in December 2005. The amount encompasses ongoing consulting and legal costs to complete the required studies and assess contributions

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from other potential parties plus remedial action costs for impacted sediments associated with the Laurel Hill site.

     Yonkers Site

     In 1984, the Company sold a cable manufacturing facility located in Yonkers, New York. Pursuant to the sales agreement, the Company agreed to indemnify the buyer for certain environmental liabilities at the facility. In 2000, the owner of the property entered into a consent order with the NYSDEC under which the owner committed to complete a remedial investigation and feasibility study. In December 2001, the Company entered into an Interim Agreement with the owner of the property regarding the owner’s claim for both contractual and statutory indemnification from the Company for certain environmental liabilities at the facility. The owner submitted its revised feasibility study to NYSDEC in September 2004. On November 30, 2004, NYSDEC issued a Proposed Remedial Action Plan (PRAP) for the Yonkers site. The PRAP accepted the remedy recommendation of the feasibility study, with certain modifications. On December 31, 2004, the Company and the Yonkers site owner finalized a settlement agreement that relieves the Company of financial responsibility for implementation of the NYSDEC’s remedy at the Yonkers site. Pursuant to this settlement agreement, the Company agreed to pay a portion of the future anticipated remedial costs, as well as portions of the premiums associated with cost cap and pollution legal liability insurance associated with future site remedial actions. In addition, the Company resolved the site owner’s claims of contractual and statutory indemnity for past remedial costs at the site. To address all aspects of the settlement agreement, the reserve was increased from approximately $20 million to $50 million during 2004. A partial payment of approximately $43 million was made on December 31, 2004; final payments of approximately $7 million were made in 2005.

     Other

     In 2005, the Company recognized net charges of $113.4 million for environmental remediation. As discussed above, the sites with significant charges were the Anniston Lead and PCB sites and Laurel Hill sediment site (an increase of $43.2 million). The remainder of environmental remediation charges was primarily at closed sites, none of which increased or decreased individually more than approximately $10 million.

     At December 31, 2005, the cost range for reasonably possible outcomes for all reservable environmental remediation sites (including Pinal Creek’s estimate of approximately $104 million to $211 million) was estimated from approximately $329 million to approximately $642 million, of which $367.9 million has been reserved. Significant work is expected to be completed in the next several years on the sites that constitute a majority of the reserve balance, subject to inherent delays involved in the remediation process.

     Phelps Dodge believes certain insurance policies partially cover the foregoing environmental liabilities; however, some of the insurance carriers have denied coverage. We presently are negotiating with the carriers over some of these disputes. Further, Phelps Dodge believes it has other potential claims for recovery from other third parties, including the United States Government and other PRPs. Neither insurance recoveries nor other claims or offsets are recognized unless such offsets are considered probable of realization. In 2005 and 2004, the Company recognized proceeds from settlements reached with several insurance companies on historical environmental liability claims of $0.6 million and $9.3 million, net of fees and expenses, respectively.

     Phelps Dodge has a number of sites that are not the subject of an environmental reserve because it is not probable that a successful claim will be made against the Company for those sites, but for which there is a reasonably possible likelihood of an environmental remediation liability. At December 31, 2005, the cost range for reasonably possible outcomes for all such sites, for which an estimate can be made, was estimated to be from approximately $2 million to approximately $14 million. The liabilities arising from potential environmental obligations that have not been reserved at this time may be material to the operating results of any single quarter or year in the future. Management, however, believes the liability arising from potential environmental obligations is not likely to have a material adverse effect on the Company’s liquidity or financial position as such obligations could be satisfied over a period of years.

     The following table summarizes environmental reserve activities for the years ended December 31:

	2005			2004			2003
Balance, beginning of year	$	303.6			317.2			305.9
Additions to reserves		116.0			63.6			54.6
Reductions in reserve estimates		(2.6	)		(4.7	)		(12.7	)
Spending against reserves		(49.1	)		(72.5	)		(24.1	)
Reclassification to asset retirement obligations*		—			—			(6.5	)
Balance, end of year	$	367.9			303.6			317.2

* Upon adoption of SFAS No. 143, reserves for certain matters ($6.5 million) required by reclamation rules or laws were reclassified to asset retirement obligations (previously classified as environmental reserves).

Asset Retirement Obligations

     We recognize asset retirement obligations (AROs) as liabilities when incurred, with initial measurement at fair value. In addition, with the adoption of FIN 47, we recognize conditional AROs as liabilities when sufficient information exists to reasonably estimate the fair value. These liabilities are accreted to full value over time through charges to income. In addition, asset retirement costs (ARCs) are capitalized as part of the related asset’s carrying value and are depreciated primarily on a units-of-production basis over the asset’s useful life. Reclamation costs for future disturbances are recognized as an ARO and as a related ARC in the period incurred. The Company’s cost estimates are reflected on a third-party cost basis and comply with the Company’s legal obligation to retire tangible long-lived assets as defined by SFAS No. 143. These cost estimates may differ from financial assurance cost estimates due to a variety of factors, including obtaining updated cost estimates for reclamation activities, the timing of reclamation activities, changes in the scope of reclamation activities and the exclusion of certain costs not accounted for under SFAS No. 143.

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     The following tables summarize the ARO and ARC activities for the years ended December 31:

Asset Retirement Obligations
	2005			2004			2003
Balance, beginning of year	$	275.2			225.3			138.6
Liability recorded upon adoption of SFAS No. 143*		—			—			10.4
Liability recorded upon adoption of FIN 47**		17.9			—			—
Additional liabilities from fully consolidating El Abra and Candelaria**		—			5.6			—
New liabilities during the period		1.5			1.8			16.8
Accretion expense		22.8			19.6			14.7
Payments		(39.2	)		(28.9	)		(1.8	)
Revisions in estimated cash flows		127.0			51.6			46.4
Foreign currency translation adjustments		(0.6	)		0.2			0.2
Transfer to long-term liabilities related to assets held for sale		(6.2	)		—			—
Balance, end of year	$	398.4			275.2			225.3

*	Amount includes $7.9 million of reclassifications from environmental reserves ($6.5 million) and other liabilities ($1.4 million). Refer to Note 1, Summary of Significant Accounting Policies, for further discussion.
**	Refer to Note 1, Summary of Significant Accounting Policies, for further discussion.

Asset Retirement Costs
	2005			2004			2003
Gross balance, beginning of year	$	196.3			138.9			—
Asset recorded upon adoption of SFAS No. 143*		—			—			91.5
Asset recorded upon adoption of FIN 47*		8.4			—			—
Additional assets from fully consolidating El Abra and Candelaria*		—			3.8			—
New assets during the period		1.5			1.8			1.0
Revisions in estimated cash flows		127.0			51.6			46.4
Impairment of assets		(129.7	)		—			—
Foreign currency translation adjustments		(0.4	)		0.2			—
Transfer to long-term assets held for sale		(3.9	)		—			—
Gross balance, end of year		199.2			196.3			138.9
Less accumulated depreciation, depletion and amortization**		(86.4	)		(71.2	)		(60.7	)
Net balance, end of year	$	112.8			125.1			78.2

*	Refer to Note 1, Summary of Significant Accounting Policies, for further discussion.
**	In 2005, accumulated depreciation, depletion and amortization included adjustments for the adoption of FIN 47 ($4.0 million) and the transfer to long-term assets held for sale ($2.0 million); in 2004, adjustments included $1.4 million from fully consolidating El Abra and Candelaria.

     During 2005, we revised our cash flow estimates and timing by $127.0 million, which primarily comprised changes at our Tyrone and Chino mines ($107.0 million, discounted) based on the following: (i) in March 2005, Tyrone received a permit modification from the Mining and Minerals Division (MMD) of the New Mexico Energy, Minerals and Natural Resources Department to adjust the timing of reclamation activities for an inactive portion of the tailing operations. In addition, Tyrone obtained new cost estimates to perform the closure activities, (ii) Tyrone also accelerated timing of closure activities for stockpile and tailing work, and changed the scope of reclamation work for certain stockpiles to coincide with a change in life-of-mine plan assumptions, and (iii) Chino changed the timing of its cash flow estimates to coincide with a change in life-of-mine plan assumptions.

     Additionally, in 2005, El Abra and Candelaria revised their cash flow estimates and timing ($7.7 million, discounted) as a result of completing their comprehensive review of the requirements and associated cost estimates to comply with the modified mining safety regulation published by the Chilean Ministry of Mining.

     In the 2005 second quarter, Tyrone and Cobre mines recorded impairments of ARCs of $124.5 million and $5.2 million, respectively. (Refer to Note 4, Special Items and Provisions, for additional discussion.)

     In December 2005, the Company’s board of directors approved establishing a trust dedicated to help fund the Company’s global environmental reclamation and remediation activities. The Company made an initial cash contribution of $100 million on December 22, 2005. The Company also has trust assets that are legally restricted to fund a portion of its AROs for Chino, Tyrone and Cobre as required for New Mexico financial assurance. At December 31, 2005 and 2004, the fair value of the trust assets was approximately $191 million and $85 million, respectively, of which $91 million and $85 million, respectively, were legally restricted.

     During 2004, we revised our cash flow estimates by $51.6 million, which primarily comprised changes at our Tyrone and Chino mines ($43.6 million, discounted) based on the following: (i) Tyrone’s permit revision issued on April 12, 2004, by MMD that provided conditions for approval of Tyrone’s closure plan and established the financial assurance amount, (ii) updating Tyrone’s estimates for actual closure expenses incurred in 2004, and (iii) ongoing discussions with the New Mexico Environmental Department (NMED) and MMD requiring us to now perform activities substantially different in scope to fulfill certain permit requirements for the tailing and stockpile studies and the acceleration of closure expenditures associated with our current life of mine plans at both Tyrone and Chino.

     During 2003, we revised our cash flow estimates by $46.4 million, which primarily comprised changes at our Chino and Tyrone mines ($43.9 million, discounted) based on an agreement reached in May 2003 with NMED and MMD for the financial assurance requirements as part of the closure plans related to the operations at Chino, Cobre and Tyrone. In September 2003, this agreement was finalized with NMED and MMD. In December 2003, MMD approved Chino’s closeout plan and Phelps Dodge tentatively finalized the closure project listing and cash flow estimates for the accelerated reclamation as described in the September 2003 finalized agreement (refer to discussion below).

     Additionally, during 2003 we recognized new liabilities of $16.8 million, of which $15.8 million was associated with our acquisition of Heisei’s one-third interest in Chino Mines Company. (Refer to Note 2, Acquisitions and Divestitures, for further discussion.)

     We have estimated that our share of the total cost of asset retirement obligations, including anticipated future disturbances, for the year ended December 31, 2005, aggregated approximately $1.4 billion (unescalated, undiscounted and on a third-party cost basis), leaving approximately $1.0 billion remaining to be accreted over time. These aggregate costs may increase or decrease materially in the future as a result of changes in regulations, technology, mine plans or other factors and as actual reclamation spending occurs. Asset retirement obligation activities and expenditures generally are made over an extended period of time commencing near the end of the

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mine life; however, certain reclamation activities could be accelerated if they are determined to be economically beneficial.

Significant Arizona Environmental and Reclamation Programs

     ADEQ has adopted regulations for its aquifer protection permit (APP) program that replaced the previous Arizona groundwater quality protection permit regulations. Several of our properties continue to operate pursuant to the transition provisions for existing facilities under the APP regulations. The APP regulations require permits for certain facilities, activities and structures for mining, concentrating and smelting. The APP requires compliance with aquifer water quality standards at an applicable point of compliance well or location. The APP also may require mitigation and discharge reduction or elimination of some discharges. Existing facilities operating under the APP transition provisions are not required to modify operations until requested by the state of Arizona, or unless a major modification at the facility alters the existing discharge characteristics.

     An application for an APP requires a description of a closure strategy to meet applicable groundwater protection requirements following cessation of operations and a cost estimate to implement the closure strategy. An APP may specify closure requirements, which may include post-closure monitoring and maintenance requirements. A more detailed closure plan must be submitted within 90 days after a permittee notifies ADEQ of its intent to cease operations. A permit applicant must demonstrate its financial capability to meet the closure costs required under the APP. In 2005, ADEQ amended the financial assurance requirements under the APP regulations. As a result of the amendments, facilities covered by APPs may have to provide additional financial assurance demonstrations or mechanisms for closure and post-closure costs.

     We have received an APP for our Morenci operations, for portions of our Bagdad and Miami mines, for the sewage treatment facility at Ajo, and for a closed tailing impoundment in Clarkdale, Arizona. We have conducted groundwater studies and submitted APP applications for several of our other properties and facilities, including the Bagdad, Sierrita and Miami mines, our Safford development property and Copper Queen and United Verde branches. Permits for most of these other properties and facilities likely will be issued by ADEQ during 2006. We will continue to submit all required APP applications for our remaining properties and facilities, as well as for any new properties or facilities. We do not know what the APP requirements are going to be for all existing and new facilities and, therefore, it is not possible for us to estimate costs associated with those requirements. For instance, at our Sierrita and Copper Queen properties, ADEQ has proposed detailed requirements to protect public drinking water sources with respect to non-hazardous substances, such as sulfate.

     Portions of the Company’s Arizona mining operations that operated after January 1, 1986, also are subject to the Arizona Mined Land Reclamation Act (AMLRA). AMLRA requires reclamation to achieve stability and safety consistent with post-mining land use objectives specified in a reclamation plan. Reclamation plans require approval by the State Mine Inspector and must include a cost estimate to perform the reclamation measures specified in the plan. Financial assurance must be provided under AMLRA covering the estimated cost of performing the reclamation plan.

     Both under APP regulations and AMLRA, a publicly traded company may satisfy the financial assurance requirements by showing that its unsecured debt rating is investment grade and that it meets certain requirements regarding assets in relation to estimated closure and post-closure cost and reclamation cost estimates. Phelps Dodge’s senior unsecured debt currently carries an investment-grade rating. Additionally, the Company currently meets another financial strength test under Arizona law that is not ratings dependent. Under the amended APP regulations, Phelps Dodge may provide guarantees for the financial assurance obligations of its subsidiaries.

     At December 31, 2005 and 2004, we had accrued closure costs of approximately $68 million and $48 million, respectively, for our Arizona operations. The amount of financial assurance currently demonstrated for closure and reclamation activities is approximately $104 million.

     Cyprus Tohono Corporation (Cyprus Tohono) leases lands on the Tohono O’odham Nation (the Nation). The leased lands include the site of a mining operation comprising an open pit, underground mine workings, leach and non-leach rock stockpiles, tailing and evaporation ponds, SX/EW operations and ancillary facilities. Ore mining at Tohono ceased in July 1997, but copper cathode production continued from existing leach stockpiles until early 1999 at which time the site was placed on care-and-maintenance status. As a result of higher copper prices, the facility restarted operations to recover copper from existing leach stockpiles in the 2004 fourth quarter, which allowed initial cathode production in January 2005. Many of these facilities are covered by Mine Plans of Operations (MPOs) that were issued by the federal Bureau of Land Management (BLM). The leases and MPOs impose certain environmental compliance, closure and reclamation requirements upon Cyprus Tohono. The closure and reclamation requirements under the leases require action to be taken upon termination of the leases, which currently expire between 2012 and 2017, unless terminated earlier in accordance with the terms of the leases. Previous studies indicate that closure and reclamation requirements, excluding any potential Superfund environmental response costs, are estimated to cost approximately $5 million; updated studies will be completed in 2006.

     The Nation, along with several federal agencies, has notified Cyprus Tohono of groundwater quality concerns and concerns with other environmental impacts of historical mining operations. In 2003, Cyprus Tohono expanded its groundwater-monitoring well network, and samples from a few of the new wells show contaminant values above primary and secondary drinking water standards. Tests of a neighboring Native American village’s water supply well indicate elevated concentrations of sulfate. Cyprus Tohono has installed new water wells and provided an alternative water supply to the village.

     EPA has completed a Preliminary Assessment and Site Investigation (PA/SI) of the Tohono mine under the federal Superfund program and has concluded that the site is eligible for listing on the National Priorities List. Cyprus Tohono initiated an Engineering Evaluation/Cost Analysis (EE/CA) study of potential remedial alternatives to address the former tailing impoundment and evaporation pond areas; this study has been conducted through the EPA Superfund program’s Removal Branch. Based on information in the October 2005 EE/CA, the Company increased its reserve for this Superfund matter from approximately $15 million to approximately $20 million. Cyprus

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Tohono is subject to financial assurance for mine reclamation. It has provided interim financial assurance in the amount of $5.1 million, of which $5.0 million is in the form of a Company performance guarantee. Cyprus Tohono is evaluating its closure obligations in order to update its closure plans in 2006.

     The Company’s historical United Verde mine has obtained an APP for closure of a tailing impoundment located near Clarkdale, Arizona, and is awaiting approval of an APP for existing mine water discharge containment facilities at the mine near Jerome, Arizona. The tailing impoundment has not received tailing discharges since the early 1950s, but has received discharges of municipal sewage effluent from the town of Clarkdale since the late 1970s. Closure work under the APP for the tailing impoundment has been partially completed, and the Company is seeking an amendment to alter the cap design for final closure. The Company plans on initiating cap construction on the tailing impoundment during 2006. Implementation of the plan under the proposed United Verde mine APP is required under the terms of a Consent Decree settling alleged Clean Water Act violations and entered by the U.S. District Court for the District of Arizona on November 23, 2003. A voluntary remediation project also has commenced under supervision of ADEQ at the nearby historic Iron King mine to manage potential discharges of acidic water from an adit. Additional work may be required at historical mine workings in the district that are owned by the Company to satisfy requirements under stormwater discharge permits. At the United Verde mine, APP and remedial costs are estimated to be approximately $14 million; at the Clarkdale tailing, APP costs are estimated to be approximately $12 million; and at the Iron King mine, voluntary remediation costs are estimated to be approximately $2 million. These amounts, totaling approximately $28 million, were included in environmental reserves at December 31, 2005.

Significant New Mexico Environmental and Reclamation Programs

     The Company’s New Mexico operations, Chino Mines Company (Chino), Phelps Dodge Tyrone, Inc. (Tyrone), Cobre Mining Company (Cobre) and Phelps Dodge Hidalgo, Inc. (Hidalgo), each are subject to regulation under the New Mexico Water Quality Act and the Water Quality Control Commission (WQCC) regulations adopted under that Act. NMED has required each of these operations to submit closure plans for NMED’s approval. The closure plans must describe the measures to be taken to prevent groundwater quality standards from being exceeded following closure of the discharging facilities and to abate any groundwater or surface water contamination.

     Chino, Tyrone and Cobre also are subject to regulation under the New Mexico Mining Act (the Mining Act), which was enacted in 1993, and the Mining Act Rules, which are administered by MMD. Under the Mining Act, Chino, Tyrone and Cobre are required to submit and obtain approval of closeout plans describing the reclamation to be performed following closure of the mines or portions of the mines.

     Financial assurance is required to ensure that funding will be available to perform both the closure and the closeout plans if the operator is not able to perform the work required by the plans. The amount of the financial assurance is based upon the estimated cost for a third party to complete the work specified in the plans, including any long-term operation and maintenance, such as operation of water treatment systems. NMED and MMD calculate the required amount of financial assurance using a “net present value” (NPV) method, based upon approved discount and escalation rates, when the closure plan and/or closeout plan require performance over a long period of time.

     In April 2005, the governor of New Mexico signed Senate Bill 986, effective June 17, 2005, that removes the requirement to provide financial assurance for the gross receipts tax levied on closure work. Eliminating this requirement is expected to reduce our New Mexico financial assurance by approximately $27 million (NPV basis).

     The Company’s cost estimates to perform the work itself (internal cost basis) generally are lower than the cost estimates used for financial assurance due to the Company’s historical cost advantages, savings from the use of the Company’s own personnel and equipment as opposed to third-party contractor costs, and opportunities to prepare the site for more efficient reclamation as mining progresses.

     Chino, Tyrone and Cobre each have NMED-issued closure permits and MMD-approved closeout plans. Chino’s closure permit was appealed to the WQCC by a third party. The appeal originally was dismissed by the WQCC on procedural grounds, but that decision was overturned by the New Mexico Court of Appeals. Consequently, there may be a hearing on that permit before the WQCC during 2006. Tyrone appealed certain conditions in its closure permit to the WQCC, which upheld the permit conditions. The WQCC’s decision is on appeal to the New Mexico Court of Appeals, which held oral argument on the appeal on January 19, 2006. Hidalgo has applied for renewal of its discharge permit, which includes a requirement for an updated closure plan. Hidalgo expects NMED to issue a new permit, including permit conditions regarding closure and financial assurance, within the next few months.

     The terms of the NMED closure permits and MMD-approved closeout plans for Chino, Tyrone and Cobre require the facilities to conduct supplemental studies concerning closure and closeout, including feasibility studies to evaluate additional closure and reclamation alternatives. The feasibility study is due, along with amended closure plans, before the end of the five-year permit terms, which end in 2008 for Chino and Tyrone and in 2009 for Cobre. The terms of the NMED closure permits also require the facilities to prepare and submit abatement plans to address groundwater that exceeds New Mexico groundwater quality standards as well as potential sources of future groundwater contamination. Changes to the existing closure plans and additional requirements arising from the abatement plans could increase or decrease the cost of closure and closeout. Cobre also has submitted an application to MMD and NMED for a standby permit to defer implementation of closure and reclamation requirements while Cobre continues on care-and-maintenance status.

     The terms of the permits also require Chino, Tyrone, Cobre and Hidalgo to provide and maintain financial assurance based upon the estimated cost to the state of New Mexico to implement the closure and closeout plans in the event of a default by the operators. The third-party cost estimates for financial assurance under the existing permits are $395 million for Chino, $439 million for Tyrone and $45 million for Cobre on an undiscounted and unescalated basis over the 100-year period of the closure and closeout plans. Hidalgo is updating its cost estimate as part of its pending closure permit

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renewal. These cost estimates are converted to a NPV basis to determine the amount of financial assurance required for each facility. The current financial assurance amounts are $196 million for Chino, $275 million for Tyrone and $30 million for Cobre. In addition, Hidalgo has provided financial assurance for approximately $11 million under the terms of its existing discharge permit.

     Up to 70 percent of the financial assurance for Chino, Tyrone and Cobre is in the form of third-party guarantees provided by Phelps Dodge. The terms of the guarantees require Phelps Dodge to meet certain financial tests that, in part, require Phelps Dodge to maintain an investment-grade rating on its senior unsecured debt. Phelps Dodge’s senior unsecured debt currently carries an investment-grade rating. In the event of a ratings downgrade below investment-grade, some additional portion of the financial assurance would have to be provided in a different form. The balance of the financial assurance (approximately 30 percent) is provided in the form of trust funds, real estate collateral, surety bonds and letters of credit.

     The Company estimates its total cost, on an internal cost basis, to perform the requirements of the approved closure and closeout permits to be approximately $287 million for Chino, $354 million for Tyrone and $41 million for Cobre (undiscounted and unescalated) over the 100-year period of the closure and closeout plans. That estimate is lower than the estimated costs used as the basis for financial assurance amounts due to the factors discussed above, and reflects our internal cost estimate. Our cost estimates, on a third-party cost basis used to determine the fair value of our closure and closeout accrual for SFAS No. 143, were approximately $395 million for Chino, $460 million for Tyrone and $47 million for Cobre (undiscounted and unescalated). Tyrone’s cost estimate includes approximately $21 million of net costs in addition to the financial assurance cost estimate that primarily relates to an increased scope of work for the tailing, stockpiles and other projects, and updated estimates for actual closure expenditures incurred. Cobre’s cost estimate includes approximately $2 million of costs in addition to the financial assurance cost estimate primarily for increased scope of work for stockpiles and characterization studies. At December 31, 2005, we had accrued approximately $65 million for Chino, $186 million for Tyrone, $8 million for Cobre and $4 million for Hidalgo. For comparison, at December 31, 2004, we had accrued approximately $52 million for Chino, $99 million for Tyrone, $7 million for Cobre and $4 million for Hidalgo.

     During 2005, Tyrone continued certain closure activities, including completion of a project to remove a portion of the 1C stockpile and initiating reclamation of the area, accelerated reclamation of tailing impoundments located in the Mangas Valley, including completion of reclamation of one tailing impoundment, and commencement of reclamation of a portion of the leach and waste stockpiles. Through December 31, 2005, approximately $39 million has been spent on these actions, including approximately $20 million on the 1C stockpile. In 2005, Tyrone submitted an application to reduce the required amount of financial assurance by $32 million to reflect the completion of the 1C stockpile removal project and 2005 legislation that eliminated a requirement to include New Mexico gross receipts tax in the cost estimates used for financial assurance. On December 12, 2005, the state concurred with the reduction.

     In December 1994, Chino entered into an Administrative Order on Consent (AOC) with NMED. The AOC requires Chino to perform a CERCLA quality investigation of environmental impacts and potential risks to human health and the environment associated with portions of the Chino property affected by historical mining operations. The remedial investigations began in 1995 and are still under way, although substantial portions of the remedial investigations are near completion. The Company expects that some remediation will be required and is considering interim remediation proposals, although no feasibility studies have yet been completed. Chino has begun remediating residential yards in the town of Hurley after agreement was reached with NMED on cleanup levels. NMED has not yet issued a record of decision regarding any additional remediation that may be required under the AOC. The Company’s estimated cost for all aspects of the AOC, as of December 31, 2005, is approximately $21 million. In addition to work under the AOC, Chino is continuing ongoing projects to control blowing dust from tailing impoundments at an estimated cost of approximately $5 million. Chino initiated work on excavating and removing copper-bearing material from an area known as “Lake One” for copper recovery in existing leach stockpiles at the mine. The Company’s estimated cost, as of December 31, 2005, for the remaining work at Lake One is approximately $2 million. The Company’s aggregate environmental reserve for liability under the Chino AOC, the interim work on the tailing impoundments and Lake One, as described above, is approximately $28 million at December 31, 2005.

Significant Colorado Reclamation Programs

     Our Climax and Henderson mines in Colorado are subject to permitting requirements under the Colorado Mined Land Reclamation Act, which requires approval of reclamation plans and provisions for financial assurance. These mines have had approved mined-land reclamation plans for several years and have provided the required financial assurance to the state of Colorado in the amount of $52.4 million and $28.5 million, respectively, for Climax and Henderson. The Climax financial assurance comprises a single surety bond in the amount of $52.4 million. The Henderson financial assurance comprises $18.2 million in collateralized Climax Molybdenum water rights, a $10.1 million surety bond and a letter of credit in the amount of $0.2 million. As a result of adjustments to the approved cost estimates for various reasons, the amount of financial assurance requirements can increase or decrease over time. In 2005, PD finalized Henderson’s reclamation plan and related financial assurance with the Colorado Division of Minerals and Geology, which resulted in a revision to our ARO estimates. At December 31, 2005 and 2004, we had accrued closure costs of approximately $24 million and $20 million, respectively, for our Colorado operations.

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Avian Mortalities and Natural Resources Damage Claims

     Since the fall of 2000, we have been sharing information and discussing various approaches with the U.S. Fish and Wildlife Service (FWS) in conjunction with the FWS investigations of avian mortalities at some of the Company’s mining operations, including Cyprus Tohono, Tyrone, Chino and Morenci. As a result of the FWS investigations, federal authorities have raised issues related to the avian mortalities under two federal laws, the Migratory Bird Treaty Act (MBTA) and the natural resource damages provision of CERCLA. As part of the discussions regarding the MBTA, the FWS has requested that the mining operations undertake various measures to reduce the potential for future avian mortalities, including measures to eliminate or reduce avian access to ponds that contain acidic water. The FWS interprets the MBTA as strictly prohibiting the unauthorized taking of any migratory bird, and there are no licensing or permitting provisions under the MBTA that would authorize the taking of migratory birds as a result of industrial operations such as mining.

     On August 9, 2004, a plea agreement was entered in the U.S. District Court for the District of Arizona to resolve MBTA charges at Morenci, under which Morenci pled guilty to one misdemeanor count. The plea agreement requires Morenci to implement a corrective action plan to address the avian concerns at that mine during a five-year probation period. The plea agreement also required payment of a $15,000 fine and expenditures totaling $90,000 toward identifying options to conduct mitigation projects and bird rehabilitation.

     On August 30, 2005, the United States Court for the District of New Mexico entered a plea agreement to resolve MBTA charges at Tyrone, under which Tyrone also pled guilty to one misdemeanor count. The Tyrone plea agreement is similar to the Morenci plea agreement and requires Tyrone to implement a corrective action plan to address the avian concerns at Tyrone during a five-year probation period. The corrective action plan includes implementation of the tailing closure project required under Tyrone’s approved closure and closeout permits. The plea agreement also requires payment of a $15,000 fine and a $15,000 contribution for avian habitat restoration and/or migratory bird studies, and acknowledged a previous $5,000 contribution by Tyrone toward bird rehabilitation.

     The Company received a letter, dated August 21, 2003, from the U.S. Department of Interior as trustee for certain natural resources, and on behalf of trustees from the states of New Mexico and Arizona, asserting claims for natural resource damages relating to the avian mortalities and other matters. The notice cited CERCLA and the Clean Water Act and identified alleged releases of hazardous substances at the Chino, Tyrone and Continental (Cobre Mining Company) mines in New Mexico and the Morenci mine in Arizona. In addition to allegations of natural resource damages relating to avian mortalities, the letter alleges injuries to other natural resources, including other wildlife, surface water and groundwater. The letter was accompanied by a Preassessment Screen report. On July 13, 2004, the Company entered into a Memorandum of Agreement (MOA) to conduct a cooperative assessment of the alleged injury. The Company has entered into tolling agreements with the trustees to toll the statute of limitations while the Company and the trustees engage in the cooperative assessment process.

     The Bureau of Indian Affairs (BIA) and the Nation have notified Cyprus Tohono of potential claims for natural resource damages resulting from groundwater contamination and avian mortalities. The Company has entered into a cooperative assessment process with federal and tribal trustees.

     On February 6, 2004, the Company received a Notice of Intent to Initiate Litigation for Natural Resource Damages from the New Jersey Department of Environmental Protection for the Company’s Port Carteret facility. The Company offered to settle New Jersey’s claim through restoration work. The state has not responded to the Company’s settlement offer.

     The Kansas Trustee Council has notified Cyprus Amax of the Council’s intent to perform a natural resource damage assessment in the Cherokee County Superfund site in Cherokee County, Kansas. The Council has initiated the assessment. Cyprus Amax is in settlement discussions with the Council to resolve its potential natural resource damage liabilities at the site.

Significant Changes in International Closure and Reclamation Programs

     Sociedad Minera Cerro Verde S.A.A.

     On August 15, 2005, the Peruvian Ministry of Energy and Mines published the final regulation associated with the Mine Closure Law. The regulation requires companies to submit closure plans for existing projects within one year after August 15, 2005, and for new projects within one year after approval of the Environment Impact Statement. Additionally, the regulation sets forth the financial assurance requirements, including guidance for calculating the estimated cost and the types of financial assurance instruments that can be utilized.

     In accordance with the new regulation, Cerro Verde is required to submit a closure plan before August 15, 2006. Cerro Verde is currently in the process of reviewing the technical requirements and revising its cost estimates for both its existing operations and the sulfide expansion project to comply with the regulation. It is also in the process of determining its financial assurance obligations associated with the new regulation. At both December 31, 2005 and 2004, Cerro Verde had accrued closure costs of approximately $5 million, which were based on the requirements set forth in the environmental permits. Upon completion of its review, Cerro Verde’s ARO estimates will be updated.

     Other

     On February 7, 2004, the Chilean Ministry of Mining published and passed a modification to its mining safety regulations. The current published regulation requires a company to submit a reclamation plan within five years of the published regulation. In the 2005 fourth quarter, El Abra and Candelaria completed their comprehensive review of the revised cost estimates based on existing regulations, which resulted in a revision to the ARO estimates (refer to page 132 for further discussion). ARO estimates may require further revision if new interpretations or additional technical guidance are published to further clarify the regulation. Final closure plans and related financial assurance requirements will be filed with the Ministry before February 2009. At December 31, 2005 and 2004, we had accrued closure costs of approximately $20 million and $14 million, respectively, for our Chilean operations.

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Other

     Some portions of our mining operations located on public lands are subject to mine plans of operation approved by the federal BLM. BLM’s regulations include financial assurance requirements for reclamation plans required as part of the approved plans of operation. As a result of recent changes to BLM’s regulations, including more stringent financial assurance requirements, increases in existing financial assurance amounts held by BLM could be required. Currently, financial assurance for the Company’s operations held by BLM totals $3.6 million.

     The Company is investigating available options to provide additional financial assurance and, in some instances, to replace existing financial assurance. The cost of surety bonds, the traditional source of financial assurance, has increased significantly during the past few years, and many surety companies now are requiring an increased level of collateral supporting the bonds such that they no longer are economically prudent. Some surety companies that issued surety bonds to the Company are seeking to exit the market for reclamation bonds. The terms and conditions presently available from one of our principal surety bond providers for reclamation and other types of long-lived surety bonds have made this type of financial assurance economically impracticable in certain instances. We are working with the impacted state and federal agencies to put in place acceptable alternative forms of financial assurance in a timely fashion.

     Portions of Title 30, Chapter 2, of the United States Code govern access to federal lands for exploration and mining purposes (the General Mining Law). In 2003 and again in late 2005, legislation was introduced in the U.S. House of Representatives to amend the General Mining Law. Similar legislation was introduced in Congress during the 1990s. None of these bills has been enacted into law. Concepts in the legislation over the years have included the payment of royalties on minerals extracted from federal lands, payment of fair market value for patenting federal lands and reversion of patented lands used for non-mining purposes to the federal government. Several of these same concepts and others likely will continue to be pursued legislatively in the future.

     The federal Endangered Species Act protects species listed by the FWS as endangered or threatened, as well as designated critical habitat for those species. Some listed species and critical habitat may be found in the vicinity of our mining operations. When a federal permit is required for a mining operation, the agency issuing the permit must determine whether the activity to be permitted may affect a listed species or critical habitat. If the agency concludes that the activity may affect a listed species or critical habitat, the agency is required to consult with the FWS concerning the permit. The consultation process can result in delays in the permit process and the imposition of requirements with respect to the permitted activities as are deemed necessary to protect the listed species or critical habitat. The mine operators also may be required to take or avoid certain actions when necessary to avoid affecting a listed species.

Legal

     The Company and Columbian Chemicals Company, together with several other companies, were named as defendants in an action entitled Technical Industries, Inc. v. Cabot Corporation, et al., No. CIV 03-10191 WGY, filed on January 30, 2003, in the U.S. District Court in Boston, Massachusetts, and 14 other actions filed in four U.S. district courts, on behalf of a purported class of all individuals or entities who purchased carbon black directly from the defendants since January 1999. The Judicial Panel on Multidistrict Litigation consolidated all of these actions in the U.S. District Court for the District of Massachusetts under the caption In Re Carbon Black Antitrust Litigation. The consolidated amended complaint filed in these actions does not name the Company as a defendant. The consolidated amended complaint, which alleges that the defendants fixed the prices of carbon black and engaged in other unlawful activities in violation of the U.S. antitrust laws, seeks treble damages in an unspecified amount and attorneys’ fees. The Court certified a class that includes all direct purchasers of carbon black in the United States from January 30, 1999, through January 18, 2005. Discovery is ongoing.

     A separate action entitled Carlisle Companies Incorporated, et al. v. Cabot Corporation, et al., was filed against Columbian and other defendants on behalf of a group of affiliated companies that opted out of the federal class action. This action, which asserts similar claims as the class action, was filed in the Northern District of New York on July 28, 2005, but was transferred to the District of Massachusetts, where the class action is pending, and has been consolidated with the class action for pretrial purposes.

     Actions are pending in state courts in California, Florida, Kansas, South Dakota and Tennessee on behalf of purported classes of indirect purchasers of carbon black in those and six other states, alleging violations of state antitrust and deceptive trade practices laws. Motions to dismiss are pending in the Florida, Kansas and South Dakota actions. A motion for class certification has been filed in the Tennessee action. Similar actions filed in state courts in New Jersey and North Carolina, and additional actions in Florida and Tennessee, have been dismissed. Columbian also has received a demand for relief on behalf of indirect purchasers in Massachusetts, but no lawsuit has been filed.

     The Company believes the claims are without merit and intends to defend the lawsuits vigorously.

     Since approximately 1990, Phelps Dodge or its subsidiaries have been named as a defendant in a number of product liability or premises lawsuits brought by electricians and other skilled tradesmen or contractors claiming injury from exposure to asbestos found in limited lines of electrical wire products produced or marketed many years ago, or from asbestos at certain Phelps Dodge properties. Phelps Dodge presently believes its liability, if any, in these matters will not have a material adverse effect, either individually or in the aggregate, upon its business, financial condition, liquidity, results of operations or cash flow. There can be no assurance; however, that future developments will not alter this conclusion.

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22. Derivative Financial Instruments and Fair Value of Financial Instruments

     The following is a summary of our price protection programs:

(Units in millions)
	12/31/05		12/31/04
Fair Value Hedges
Copper fixed-price (lbs.)		13		11
Foreign currency (USD)	$	6		37
Cash Flow Hedges
Metal purchase (lbs.)		38		30
Diesel fuel price protection (gallons)		9		11
Natural gas price protection (decatherms)		—		2
Other Price Protection Programs Not Qualifying for Hedge Accounting
Copper fixed-price rod sales (lbs.)		72		51
Copper price protection (lbs.)		2,344		650
Copper COMEX-LME arbitrage (lbs.)		36		76
Gold price protection (ounces)		0.1		0.1
Silver price protection (ounces)		1.2		0.7
Copper quotational period swaps (lbs.)		92		130
Other diesel fuel price protection (gallons)		5		6
Foreign currency (USD)		75		—

     We do not purchase, hold or sell derivative financial instruments unless we have an existing asset or obligation or we anticipate a future activity that is likely to occur and will result in exposing us to market risk. We do not enter into any instruments for speculative purposes. We will use various strategies to manage our market risk, including the use of derivative instruments to limit, offset or reduce our market exposure. Derivative financial instruments are used to manage well-defined commodity price, energy, foreign exchange and interest rate risks from our primary business activities. The fair values of our derivative instruments are based on valuations provided by third parties, purchased derivative pricing models or widely published market closing prices at year end. A summary of the derivative instruments we hold is discussed below.

Metals Hedging

     Fair Value Hedges

Copper Fixed-Price Hedging. Some of our copper wire customers request a fixed sales price instead of the COMEX average price in the month of shipment. As a convenience to these customers, we hedge our fixed-price sales exposure in a manner that will allow us to receive the COMEX average price in the month of shipment while our customers receive the fixed price they requested. We accomplish this by entering into copper swap and futures contracts and then liquidating the copper futures contracts and settling the copper swap contracts during the month of shipment, which generally results in the realization of the COMEX average price. Hedge gains or losses from these contracts are recognized in revenue.

     At December 31, 2005, our copper futures and swap contracts had maturities through December 2006. We did not have any significant gains or losses during the year resulting from ineffectiveness.

     Cash Flow Hedges

Metal Purchase Hedging. Our international wire and cable operations may enter into metal (aluminum, copper and lead) swap contracts to hedge our raw material purchase price exposure on fixed-price sales contracts to allow us to lock in the cost of raw material used in fixed-price cable sold to customers. These swap contracts are generally settled during the month of finished product shipment and result in a net raw material LME price consistent with that agreed to with our customers. Hedge gains or losses from the swap contracts are recognized in cost of products sold.

     At December 31, 2005, our outstanding metal swap contracts had maturities through August 2006. We did not have any significant gains or losses during the year resulting from ineffectiveness. At December 31, 2005, approximately $8 million of unrealized gains was recorded in other comprehensive income (loss) and is expected to be recognized as a reduction to cost of products sold during the next 12 months. At December 31, 2004 and 2003, we had $2 million and $1 million of unrealized gains, respectively, in other comprehensive income (loss) that were reclassified as a reduction to cost of products sold during 2004 and 2003, respectively.

Foreign Currency Hedging

     Fair Value Hedges

     As a global company, we transact business in many countries and in many currencies. Foreign currency transactions of our international subsidiaries increase our risks because exchange rates can change between the time agreements are made and the time foreign currency transactions are settled. We may hedge or protect the functional currencies of our international subsidiaries’ transactions for which we have a firm legal obligation by entering into forward exchange contracts to lock in or minimize the effects of fluctuations in exchange rates. Hedge gains or losses from these contracts are recognized in cost of products sold associated with the purchase of goods and in interest expense associated with the hedging of currency exposure from foreign currency loans between subsidiaries.

     Our foreign exchange contracts in place at December 31, 2005, had maturities through April 2006. We did not have any significant gains or losses during the year resulting from ineffectiveness.

Interest Rate Hedging

     Fair Value Hedges

Fixed-to-Floating Interest Rate Swaps. In some situations, we may enter into interest rate swap contracts to protect against changes in the fair value of the underlying fixed-rate debt that result from changes in the general level of market interest rates. In May 2003, we terminated $375 million of interest rate swaps associated with corporate debt maturing in 2005 and 2007. We received cash proceeds of $35.9 million; $34.6 million was reflected as a deferred gain on the balance sheet and will be amortized over the remaining life of the underlying debt using the effective interest method. Amortization of these gains reduced interest expense by $3.1 million, $5.0 million and $6.3 million in 2005, 2004 and 2003, respectively.

     During 2005, we did not enter into any interest rate swaps nor did we have any outstanding fixed-to-floating interest rate swaps during the year or at December 31, 2005.

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     Cash Flow Hedges

Floating-to-Fixed Interest Rate Swaps. In some situations, we are exposed to increasing costs from interest rates associated with floating-rate debt. We may enter into interest rate swap contracts to protect against our exposure to variability in future interest payments attributable to increases in interest rates of the designated floating-rate debt. In June 2004, as a result of the Company’s prepayment of Candelaria’s senior debt, we also unwound the associated floating-to-fixed interest rate swaps. During 2005, we did not enter into any interest rate swaps nor did we have any outstanding floating-to-fixed interest rate swaps during the year or at December 31, 2005.

Energy Price Protection Programs

     Cash Flow Hedges

Diesel Fuel Price Protection Program. We purchase significant quantities of diesel fuel to operate our mine sites and as an input to the manufacturing process. Diesel fuel price volatility impacts our cost of products sold. To reduce the Company’s exposure to price increases in diesel fuel purchases, the Company enters into diesel fuel protection programs for our North American and Chilean operations. The objective of the diesel fuel price protection program is to protect against a significant upward movement in diesel fuel prices while retaining the flexibility to participate in some downward price movement. To implement these objectives, we may purchase out-of-the-money (OTM) diesel fuel call options and/or fixed-price swaps. The OTM call option contracts give the holder the right, but not the obligation, to purchase diesel fuel at a pre-determined price, or “strike price.” OTM call options are options that have a strike price above the commodity’s market price at the time of entering into the hedge transaction. Call options allow the Company to cap the diesel fuel purchase cost at the strike price of the option while allowing the Company the ability to purchase diesel fuel at a lower cost when market prices are lower than the strike price. Fixed-price swaps allow us to establish a fixed diesel fuel purchase price for delivery during a specific hedge period.

     At December 31, 2005, our diesel fuel call option contracts had maturities through March 2006. Hedge gains or losses from these contracts are recognized in cost of products sold. The diesel fuel call option contracts met the criteria to assume no hedge ineffectiveness; therefore, any unrealized hedge gains, approximately $1 million at December 31, 2005, were included in other comprehensive income. We did not have any significant unrealized hedge gains at December 31, 2004 or 2003.

Natural Gas Price Protection Program. We purchase significant quantities of natural gas to supply our operations primarily as an input for electricity generation, copper refining and carbon black manufacturing. Price volatility of natural gas impacts our cost of products sold. To reduce the Company’s exposure to price increases in natural gas purchases, the Company enters into natural gas protection programs for our North American operations. The objective of the natural gas price protection program is to protect against a significant upward movement in natural gas prices while retaining the flexibility to participate in downward price movements. To implement these objectives, we may purchase OTM call options for natural gas. The OTM call option contracts give the holder the right, but not the obligation, to purchase natural gas at a pre-determined price, or strike price. OTM call options are options that have a strike price above the commodity’s market price at the time of entering into the hedge transaction. Call options allow the Company to cap the natural gas purchase cost at the strike price of the option while allowing the Company the ability to purchase natural gas at a lower cost when market prices are lower than the strike price.

     At December 31, 2005, we did not have any natural gas call option contracts to protect our domestic operations. Hedge gains or losses from these contracts are recognized in cost of products sold. The natural gas call option contracts met the criteria to assume no hedge ineffectiveness; therefore, any unrealized hedge gains were included in other comprehensive income. We did not have any significant unrealized hedge gains at December 31, 2005, 2004 or 2003.

Feedstock Oil Price Protection Program. Columbian purchases significant quantities of feedstock oil (a by-product of the petroleum refining process) that is the primary raw material used in the manufacture of carbon black. Feedstock oil typically exceeds 50 percent of the total manufacturing costs for Columbian discontinued operations. The objective of the feedstock oil price protection program is to protect against a significant upward movement in feedstock oil prices while retaining the flexibility to participate in downward price movements. To reduce Columbian’s exposure to feedstock oil price risk, it purchases OTM call options that allow it to cap the feedstock oil purchase cost at the strike price of the option while allowing it the ability to purchase feedstock oil at a lower cost when market prices are lower than the strike price. Upon the closing of the sale of Columbian, we do not expect any further participation in the feedstock oil price protection program.

     During 2005, we did not enter into any feedstock oil option contracts nor did we have any outstanding contracts to protect our North American operations. The feedstock oil option contracts met the criteria to assume no hedge ineffectiveness; therefore, any unrealized hedge gains were included in other comprehensive income. We did not have any significant unrealized hedge gains at December 31, 2005, 2004 or 2003.

Other Protection Programs

     Our copper fixed-price rod sales program, copper price protection program, copper COMEX-LME arbitrage program, gold and silver price protection programs, copper quotational period swap program, foreign currency swap and other diesel fuel price protection programs do not meet all of the criteria to qualify under SFAS Nos. 133, 137, 138 and 149 as hedge transactions. These derivative contracts and programs are discussed below.

Copper Fixed-Price Rod Sales Program. Some of our copper rod customers request a fixed sales price instead of the COMEX average price in the month of shipment. As a convenience to these customers, we enter into copper swap and futures contracts to protect the sales in a manner that will allow us to receive the COMEX average price in the month of shipment while our customers receive the fixed price they requested. We accomplish this by liquidating the copper futures contracts and settling the copper swap contracts during the month of shipment, which generally results in the realization of the COMEX average price.

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     At December 31, 2005, 2004 and 2003, we had approximately $15 million, $7 million and $4 million, respectively, of unrealized gains associated with the copper fixed-price rod sales program, which were recognized as revenue. At December 31, 2005, our copper rod protection programs had maturities through December 2006.

Copper Price Protection Program. We may purchase copper put options or zero-premium copper collars to protect a portion of our expected future sales in order to limit the effects of potential decreases in copper selling prices. Our zero-premium copper collars consist of the simultaneous purchase of a monthly or annual put option and the sale of an annual call option (collar). The put option portion of our protection contracts effectively ensures a minimum price received per pound while the call option portion of our protection contracts establishes a maximum price received per pound of our expected future sales.

     At December 31, 2005, we had approximately $224 million of unrealized losses, including premium expense, associated with the copper price protection programs, which were recognized in revenue. We also recognized approximately $187 million of realized losses on these programs, net of premiums, during 2005. At December 31, 2004, we had approximately $1 million of unrealized losses. At December 31, 2005, our copper price protection program had maturities through December 2007.

Copper COMEX-LME Arbitrage Program. A portion of the copper cathode consumed by our North American rod mills to make copper products are purchased using the monthly average LME copper price. North American refined copper products are sold using the monthly average COMEX copper price. As a result, domestic rod mill purchases of LME priced copper are subject to COMEX-LME price differential risk. From time to time, we may transact copper swaps to hedge the COMEX-LME price differential for LME-priced copper cathodes purchased for sale in the North American market.

     At December 31, 2005, we had approximately $2 million of unrealized losses associated with the copper COMEX-LME arbitrage contracts recorded to cost of products sold. We did not have any significant unrealized hedge gains or losses at December 31, 2004. At December 31, 2005, our copper COMEX-LME arbitrage program had maturities through March 2006.

Gold and Silver Price Protection Programs. Our 80 percent partnership interest in Candelaria in Chile produces and sells a substantial amount of copper concentrate. The copper concentrate contains small amounts of precious metals, including gold and silver. To protect our exposure to reduced gold and silver selling prices while retaining the ability to participate in some price increases, we entered into zero-premium collars. The simultaneous purchase of a put option and sale of a call option (collar) provides downside price protection against substantial declines in selling prices while retaining the ability to participate in some price increases.

     At December 31, 2005 and 2003, we had approximately $4 million and $2 million, respectively, of unrealized losses associated with the options contracts. We did not have any significant unrealized hedge gains or losses at December 31, 2004. Hedge gains or losses from the protection contracts are recognized in revenue. At December 31, 2005, our gold and silver price protection programs had maturities through December 2006.

Copper Quotational Period Swap Program. The copper content in Candelaria’s copper concentrate is sold at the monthly average LME copper price, generally from one to three months after month of arrival at the customer’s facility. If copper shipments have a price settlement basis other than the month of shipment, copper swap transactions may be used to realign the shipment and pricing month in order that Phelps Dodge receives the month of shipment average LME copper price.

     At December 31, 2005 and 2004, we had approximately $14 million and $11 million, respectively, of unrealized losses associated with the copper swap contracts, which were recognized in revenue. At December 31, 2003, we had approximately $2 million of unrealized gains. At December 31, 2005, our copper quotational period swap program had maturities through March 2006.

Foreign Currency Swap. As a global company, we transact business in many countries and in many currencies. Foreign currency transactions of our international subsidiaries increase our risks because exchange rates can change between the time agreements are made and the time foreign currency transactions are settled. We may hedge or protect the functional currencies of our international subsidiaries’ transactions by entering into currency swaps to lock-in or minimize the effects of fluctuations in exchange and interest rates.

     During 2005, we entered into a currency swap to protect an intercompany loan. At December 31, 2005, we had an unrealized loss of approximately $1 million recorded in miscellaneous income and expense.

Other Diesel Fuel Price Protection Programs. We purchase significant quantities of diesel fuel to operate our mine sites as an input to the manufacturing process. Price volatility of diesel fuel impacts our cost of products sold. The objective of the diesel fuel price protection program is to protect against a significant upward movement in diesel fuel prices while retaining the flexibility to participate in some downward price movement. To implement these objectives, we may purchase OTM diesel fuel call options and/or fixed-price swaps. Purchase of diesel fuel call options protects us against significant upward movement in diesel fuel prices while allowing us full participation in downward movements. Fixed-price swaps allow us to establish a fixed diesel fuel purchase price for delivery during a specific hedge period.

     At December 31, 2005, 2004 and 2003, we did not have any significant unrealized gains or losses associated with these diesel fuel option contracts. At December 31, 2005, these diesel fuel option contracts had maturities through March 2006.

Credit Risk

     We are exposed to credit loss in cases where the financial institutions with which we have entered into derivative transactions (commodity, foreign exchange and currency/interest rate swaps) are unable to pay us when they owe us funds as a result of our agreements with them. To minimize the risk of such losses, we use highly rated financial institutions that meet certain requirements. We also periodically review the creditworthiness of these institutions to ensure that they are maintaining their ratings. We do not anticipate that any of the financial institutions that we deal with will default on their

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obligations. As of December 31, 2005, the maximum amount of credit exposure was approximately $28 million.

Other Financial Instruments

     The methods and assumptions we used to estimate the fair value of each group of financial instruments for which we can reasonably determine a value are as follows:

Cash and Cash Equivalents. The financial statement amount is a reasonable estimate of the fair value because of the short maturity of these instruments.

Investments and Long-Term Receivables. The fair values of some investments are estimated based on quoted market prices for those or similar investments. The fair values of other types of instruments are estimated by discounting the future cash flows using the current rates at which similar instruments would be made with similar credit ratings and maturities.

Trust Assets. The financial statement amount is a reasonable estimate of the fair value because the trust assets are marked to market each month with related adjustments recorded in miscellaneous income and expense.

Long-Term Debt. The fair value of substantially all of our long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current notes offered to us for debt with similar remaining maturities.

     A comparison of the carrying amount and the estimated fair values of our financial instruments at December 31, 2005, were as follows:

	Carrying		Fair
	Amount		Value
Cash and cash equivalents	$	1,916.7		1,916.7
Investments and long-term receivables (excluding $31.9 million of equity investments for which it is not practicable to estimate fair value)	$	110.8		93.7
Trust assets (including financial assurance of $90.9 million and global environmental of $100.0 million)	$	190.9		190.9
Long-term debt (including amounts due within one year)	$	680.2		773.9

23. Business Segment Data

     Our business consists of two major divisions, PDMC and PDI. The principal activities of each division are described below, and the accompanying tables present results of operations and other financial information by significant geographic area and by segment. In 2005, the Company reassessed its reportable segments considering the increase in copper and molybdenum prices. Based upon our assessment, we are no longer separately disclosing Miami/Bisbee as an individual reportable segment. In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” segment information for 2003 and 2004 has been revised to conform to the 2005 presentation.

     PDMC is our international business division comprising our vertically integrated copper operations from mining through rod production, molybdenum operations from mining through conversion to chemical and metallurgical products, marketing and sales; and worldwide mineral exploration, technology and project development programs. PDMC includes 11 reportable segments and other mining activities.

     PDMC has five reportable copper production segments in the United States (Morenci, Bagdad, Sierrita, Chino/Cobre and Tyrone) and three reportable copper production segments in South America (Candelaria/Ojos del Salado, Cerro Verde and El Abra). These segments include open-pit mining, underground mining, sulfide ore concentrating, leaching, solution extraction and electrowinning. In addition, the Candelaria/Ojos del Salado, Bagdad, Sierrita and Chino/Cobre segments also produce gold and silver, and the Bagdad, Sierrita and Chino mines produce molybdenum and rhenium as by-products.

     PDMC’s Manufacturing segment consists of conversion facilities, including our smelter, refinery and rod mills. The Manufacturing segment processes copper produced at our mining operations and copper purchased from others into copper anode, cathode and rod. In addition, at times it smelts and refines copper and produces copper rod for customers on a toll basis. Toll arrangements require the tolling customer to deliver appropriate copper-bearing material to our facilities, which we then process into a product that is returned to the customer. The customer pays PDMC for processing its material into the specified products.

     PDMC’s Sales segment functions as an agent to sell copper from our U.S. mines and Manufacturing segment. The Sales segment also purchases and sells any copper not sold by the South American mines to third parties. Copper is sold to others primarily as rod, cathode or concentrate, and as rod to PDI’s Wire and Cable segment.

     PDMC’s Primary Molybdenum segment consists of the Henderson and Climax mines, related conversion facilities and a technology center. This segment is an integrated producer of molybdenum, with mining, roasting and processing facilities that produce high-purity, molybdenum-based chemicals, molybdenum metal powder and metallurgical products, which are sold to customers around the world. In addition, at times it roasts and/or processes material on a toll basis. Toll arrangements require the tolling customer to deliver appropriate molybdenum-bearing material to our facilities, which we then process into a product that is returned to the customer. The customer pays PDMC for processing its material into the specified products. This segment also includes a technology center whose primary activity is developing, marketing and selling new engineered products and applications.

     PDMC’s Manufacturing and Sales segments are responsible for selling all copper produced at the U.S. mines. Intersegment revenues of the individual U.S. mines represent an internal allocation based on PDMC’s sales to unaffiliated customers. In 2005, the South American mines sold approximately 45 percent of their copper to the Sales segment, compared with approximately 41 percent in 2004 and 44 percent in 2003. Intersegment sales by the South American mines are based upon arms-length prices at the time of the sale. Intersegment sales of any individual mine may not be reflective of the actual prices PDMC ultimately realizes due to a variety of factors, including additional processing, timing of sales to unaffiliated customers and transportation premiums. The sales are reflected in the Manufacturing and Sales segments.

     PDMC Other and Eliminations include our worldwide mineral exploration and development programs, a process technology center whose primary activities are improving existing processes and

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developing new cost-competitive technologies, other ancillary operations, including our Miami/Bisbee operations, and eliminations within PDMC.

     In addition to the allocation of revenues, management allocates certain operating costs, expenses and capital of PDMC’s segments that may not be reflective of market conditions. We also do not allocate all costs and expenses applicable to a mine or operation from the division or corporate offices. All federal and state income taxes are recorded and managed at the corporate level with the exception of foreign income taxes, which are generally recorded and managed at the applicable segment level. Accordingly, the segment information reflects management determinations that may not be indicative of actual financial performance of each segment as if it was an independent entity.

     PDI, our manufacturing division, consists of our Wire and Cable segment, which produces engineered products principally for the global energy sector. Its operations are characterized by products with significant market share, internationally competitive costs and quality, and specialized engineering capabilities. Wire and Cable consists of three worldwide product-line businesses comprising magnet wire, energy cables and specialty conductors. On November 15, 2005, Phelps Dodge entered into an agreement to sell substantially all its North American magnet wire assets to Rea. This transaction was completed on February 10, 2006.

     On November 15, 2005, Phelps Dodge entered into an agreement to sell Columbian Chemicals, previously disclosed as our Specialty Chemicals segment, to a company owned jointly by One Equity Partners, a private equity affiliate of JPMorgan Chase & Co., and South Korean-based DC Chemical Co. Ltd. Accordingly, the operating results for Columbian have been excluded from the results of continuing operations for all periods presented and have been presented as discontinued operations. (Refer to Note 3, Discontinued Operations and Assets Held for Sale, for further discussion of these transactions.)

     Interdivision sales reflect the transfer of copper from PDMC to PDI at the same prices charged to outside customers.

     The Company is continuing to explore strategic alternatives for Phelps Dodge High Performance Conductors, a unit of PDI’s Wire and Cable segment.

FINANCIAL DATA BY GEOGRAPHIC AREA

     The following tables give a summary of financial data by geographic area and business segments for the years 2003 through 2005. (Refer to Note 2, Acquisitions and Divestitures; Note 3, Discontinued Operations and Assets Held for Sale; and Note 4, Special Items and Provisions, for a discussion of major unusual items during the three-year period.)

	2005		2004		2003
Sales and other operating revenues:
Unaffiliated customers
United States	$	5,769.8		4,243.5		2,414.6
Latin America*		2,234.1		1,952.5		932.8
Other		283.2		219.2		151.1
	$	8,287.1		6,415.2		3,498.5
Long-lived assets at December 31:
United States	$	3,868.3		3,556.2		3,654.9
Latin America**		2,052.1		1,910.4		1,538.7
Other		262.6		404.0		281.7
	$	6,183.0		5,870.6		5,475.3

*	Sales and other operating revenues in Chile	$	1,502.0	1,398.4	584.9
**	Long-lived assets in Chile	$	1,278.3	1,370.7	984.0
	Long-lived assets in Peru	$	646.0	370.5	387.7
	Revenue is attributed to countries based on the origin of the material sold.

143

Financial Data By Business Segment

	U.S. Mines															South American Mines
										Chino/						Candelaria/			Cerro						Primary
	Morenci			Bagdad			Sierrita			Cobre			Tyrone			Ojos del Salado*			Verde			El Abra*			Molybdenum
2005
Sales and other operating revenues:
Unaffiliated customers		—			—			15.6			15.5			—			543.1			71.2			362.8			1,938.1
Intersegment		1,012.7			665.6			858.6			321.0			120.7			191.4			292.7			330.7			—
Depreciation, depletion and amortization		61.6			29.1			15.0			21.1			8.8			37.6			27.3			122.1			39.9
Operating income (loss) before special items and provisions		400.1			377.7			567.6			49.2			6.6			306.8			209.8			274.7			325.1
Special items and provisions, net		(0.2	)		12.1			1.2			(64.5	)		(215.7	)		—			—			—			(0.8	)
Operating income (loss)		399.9			389.8			568.8			(15.3	)		(209.1	)		306.8			209.8			274.7			324.3
Interest income		0.1			—			—			2.1			—			7.4			7.1			2.7			0.6
Interest expense, net		—			—			—			—			—			(0.5	)		11.7			(4.7	)		—
Gain on sale of cost-basis investment		—			—			—			—			—			—			—			—			87.2
Change in interest gains from stock issuance		—			—			—			—			—			8.8			159.5			—			—
Early debt extinguishment costs		—			—			—			—			—			—			—			—			—
Benefit (provision) for taxes on income		—			—			—			—			—			(226.3	)		17.5			(123.0	)		—
Minority interests in consolidated subsidiaries		—			—			—			—			—			(20.9	)		(92.7	)		(71.4	)		—
Loss from discontinued operations		—			—			—			—			—			—			—			—			—
Equity in net earnings (losses) of affiliated companies		—			—			—			—			—			—			—			—			—
Cumulative effect of accounting changes		(3.1	)		(0.1	)		(0.1	)		(0.5	)		(0.4	)		—			—			—			(0.8	)
Equity basis investments at December 31		—			—			0.2			—			—			0.6			—			—			—
Assets at December 31		953.6			443.1			323.4			445.5			107.2			825.3			1,060.1			1,135.3			924.4
Expenditures for segment assets		66.7			36.2			18.6			17.9			13.3			14.7			309.6			23.2			38.3
2004
Sales and other operating revenues:
Unaffiliated customers		—			—			9.0			8.6			—			456.8			99.4			383.4			985.3
Intersegment		922.8			410.9			512.1			232.5			111.7			234.0			162.6			267.1			—
Depreciation, depletion and amortization		75.3			24.9			13.0			15.4			13.1			52.2			32.2			121.3			31.0
Operating income (loss) before special items and provisions		376.3			174.9			264.3			58.8			28.7			303.3			130.0			273.7			103.0
Special items and provisions, net		(0.6	)		—			—			(1.2	)		(5.8	)		—			—			—			0.3
Operating income (loss)		375.7			174.9			264.3			57.6			22.9			303.3			130.0			273.7			103.3
Interest income		—			—			—			1.1			—			1.0			1.1			1.0			0.3
Interest expense, net		—			—			—			—			—			(6.3	)		(2.0	)		(16.8	)		—
Early debt extinguishment costs		—			—			—			—			—			(15.2	)		—			(2.8	)		—
Benefit (provision) for taxes on income		—			—			—			—			—			(53.3	)		(45.2	)		22.8			—
Minority interests in consolidated subsidiaries		—			—			—			—			—			(46.0	)		(16.0	)		(134.8	)		—
Equity in net earnings (losses) of affiliated companies		—			—			(0.1	)		—			—			—			—			—			—
Income from discontinued operations		—			—			—			—			—			—			—			—			—
Equity basis investments at December 31		—			—			0.2			—			—			0.3			—			—			—
Assets at December 31		933.3			440.8			320.6			456.0			213.9			889.1			560.0			958.8			835.4
Expenditures for segment assets		28.2			24.1			32.5			18.6			16.1			17.5			16.4			12.9			16.0
2003
Sales and other operating revenues:
Unaffiliated customers		—			—			—			0.3			—			218.5			41.4			136.2			383.6
Intersegment		587.8			222.2			247.0			45.9			93.4			101.4			115.3			93.2			—
Depreciation, depletion and amortization		76.1			20.5			13.4			9.0			13.0			43.5			28.7			67.7			25.5
Operating income (loss) before special items and provisions		78.5			30.1			50.9			(4.1	)		(16.7	)		100.5			42.7			39.4			8.6
Special items and provisions, net		(1.1	)		—			—			(1.3	)		(0.5	)		—			—			—			—
Operating income (loss)		77.4			30.1			50.9			(5.4	)		(17.2	)		100.5			42.7			39.4			8.6
Interest income		—			—			—			—			—			1.0			0.2			—			0.3
Interest expense, net		—			—			—			—			—			(14.2	)		(1.8	)		(14.8	)		—
Benefit (provision) for taxes on income		—			—			—			—			—			(14.9	)		(15.6	)		1.1			—
Minority interests in consolidated subsidiaries		—			—			—			—			—			—			(5.1	)		—			—
Equity in net earnings (losses) of affiliated companies		—			—			—			—			—			—			—			—			—
Income from discontinued operations		—			—			—			—			—			—			—			—			—
Extraordinary gain		—			—			—			68.3			—			—			—			—			—
Cumulative effect of accounting changes		3.6			1.5			1.1			(4.3	)		2.7			—			0.9			(0.4	)		1.4
Equity basis investments at December 31		—			—			0.4			—			—			0.3			—			—			—
Assets at December 31		1,008.9			439.0			300.5			413.2			168.3			684.5			440.8			532.9			787.6
Expenditures for segment assets**		16.5			10.4			8.1			(46.7	)		2.0			4.6			5.1			1.0			13.4

*	2005 and 2004 reflected full consolidation of Candelaria and El Abra; 2003 reflected Candelaria and El Abra on a pro rata basis (80 percent and 51 percent, respectively).
**	2003 expenditures for segment assets included $50 million of cash received and $0.9 million of cash acquired from Heisei in connection with the acquisition of their one-third partnership interest in Chino Mines Company. (Refer to Note 2, Acquisitions and Divestitures, for further discussion.)

Note: Refer to Notes 2, 3 and 4 to the Consolidated Financial Statements for a discussion of major unusual items during the three-year period.

144

Financial Data By Business Segment (continued)

										PDMC						PDI -			Corporate,			Discon-
	Manufac-						PDMC			Other &			PDMC			Wire &			Other &			tinued
	turing			Sales			Segments			Eliminations			Subtotal			Cable			Eliminations			Operations			Total
2005
Sales and other operating revenues:
Unaffiliated customers		3,336.4			789.1			7,071.8			25.7			7,097.5			1,189.6			—			—			8,287.1
Intersegment		176.8			278.4			4,248.6			(3,964.0	)		284.6			0.9			(285.5	)		—			—
Depreciation, depletion and amortization		30.6			0.1			393.2			10.7			403.9			28.8			9.1			—			441.8
Operating income (loss) before special items and provisions		5.9			1.7			2,525.2			(148.0	)		2,377.2			33.2			(122.4	)		—			2,288.0
Special items and provisions, net		(154.0	)		—			(421.9	)		(25.4	)		(447.3	)		(18.6	)		(57.2	)		—			(523.1	)
Operating income (loss)		(148.1	)		1.7			2,103.3			(173.4	)		1,929.9			14.6			(179.6	)		—			1,764.9
Interest income		—			0.1			20.1			0.8			20.9			2.0			36.3			—			59.2
Interest expense, net		(3.1	)		(1.0	)		2.4			3.3			5.7			(7.9	)		(60.1	)		—			(62.3	)
Gain on sale of cost-basis investment		—			—			87.2			351.2			438.4			—			—			—			438.4
Change in interest gains from stock issuance		—			—			168.3			—			168.3			—			—			—			168.3
Early debt extinguishment costs		—			—			—			—			—			—			(54.0	)		—			(54.0	)
Benefit (provision) for taxes on income		—			—			(331.8	)		—			(331.8	)		—			(245.2	)		—			(577.0	)
Minority interests in consolidated subsidiaries		—			—			(185.0	)		0.1			(184.9	)		(5.5	)		—			—			(190.4	)
Equity in net earnings (losses) of affiliated companies		—			—			—			(0.6	)		(0.6	)		1.3			2.0			—			2.7
Loss from discontinued operations		—			—			—			—			—			—			—			(17.4	)		(17.4	)
Cumulative effect of accounting changes		(1.9	)		—			(6.9	)		(1.6	)		(8.5	)		(0.8	)		—			(0.8	)		(10.1	)
Equity basis investments at December 31		—			—			0.8			1.0			1.8			6.3			23.8			—			31.9
Assets at December 31		602.8			94.6			6,915.3			34.0			6,949.3			702.6			2,055.7			650.4			10,358.0
Expenditures for segment assets		22.4			—			560.9			61.4			622.3			19.5			15.8			40.6			698.2
2004
Sales and other operating revenues:
Unaffiliated customers		2,519.4			959.0			5,420.9			22.5			5,443.4			971.8			—			—			6,415.2
Intersegment		228.4			204.3			3,286.4			(3,071.1	)		215.3			0.5			(215.8	)		—			—
Depreciation, depletion and amortization		22.5			—			400.9			9.8			410.7			35.1			9.7			—			455.5
Operating income (loss) before special items and provisions		32.3			4.1			1,749.4			(131.4	)		1,618.0			30.2			(111.7	)		—			1,536.5
Special items and provisions, net		(3.2	)		—			(10.5	)		(0.8	)		(11.3	)		(11.4	)		(38.9	)		—			(61.6	)
Operating income (loss)		29.1			4.1			1,738.9			(132.2	)		1,606.7			18.8			(150.6	)		—			1,474.9
Interest income		—			—			4.5			0.5			5.0			0.7			6.0			—			11.7
Interest expense, net		(4.1	)		(0.5	)		(29.7	)		4.2			(25.5	)		(6.0	)		(91.4	)		—			(122.9	)
Early debt extinguishment costs		—			—			(18.0	)		—			(18.0	)		—			(25.2	)		—			(43.2	)
Benefit (provision) for taxes on income		—			—			(75.7	)		—			(75.7	)		—			(55.6	)		—			(131.3	)
Minority interests in consolidated subsidiaries		—			—			(196.8	)		—			(196.8	)		(4.3	)		—			—			(201.1	)
Equity in net earnings (losses) of affiliated companies		—			—			(0.1	)		(0.8	)		(0.9	)		0.5			2.3			—			1.9
Income from discontinued operations		—			—			—			—			—			—			—			22.7			22.7
Equity basis investments at December 31		—			—			0.5			14.4			14.9			5.9			23.9			—			44.7
Assets at December 31		466.9			37.5			6,112.3			(9.9	)		6,102.4			614.2			1,212.1			665.4			8,594.1
Expenditures for segment assets		24.1			0.1			206.5			40.7			247.2			25.2			13.9			31.0			317.3
2003
Sales and other operating revenues:
Unaffiliated customers		1,384.6			642.2			2,806.8			21.8			2,828.6			669.9			—			—			3,498.5
Intersegment		180.7			121.8			1,808.7			(1,681.5	)		127.2			0.3			(127.5	)		—			—
Depreciation, depletion and amortization		16.9			—			314.3			13.7			328.0			35.5			13.2			—			376.7
Operating income (loss) before special items and provisions		26.5			5.5			361.9			(91.2	)		270.7			15.7			(101.9	)		—			184.5
Special items and provisions, net		(0.1	)		—			(3.0	)		(2.5	)		(5.5	)		(2.0	)		(34.2	)		—			(41.7	)
Operating income (loss)		26.4			5.5			358.9			(93.7	)		265.2			13.7			(136.1	)		—			142.8
Interest income		—			—			1.5			0.5			2.0			0.9			6.2			—			9.1
Interest expense, net		(4.1	)		(0.2	)		(35.1	)		4.0			(31.1	)		(5.1	)		(105.6	)		—			(141.8	)
Benefit (provision) for taxes on income		—			—			(29.4	)		—			(29.4	)		—			1.8			—			(27.6	)
Minority interests in consolidated subsidiaries		—			—			(5.1	)		1.6			(3.5	)		(3.7	)		—			—			(7.2	)
Equity in net earnings (losses) of affiliated companies		—			—			—			(0.1	)		(0.1	)		0.7			2.1			—			2.7
Income from discontinued operations		—			—			—			—			—			—			—			39.2			39.2
Extraordinary gain		—			—			68.3			—			68.3			—			—			—			68.3
Cumulative effect of accounting changes		—			—			6.5			2.0			8.5			—			(0.6	)		0.5			8.4
Equity basis investments at December 31		—			—			0.7			0.9			1.6			5.9			25.5			—			33.0
Assets at December 31		465.2			2.4			5,243.3			(5.4	)		5,237.9			521.6			870.2			643.2			7,272.9
Expenditures for segment assets**		9.9			—			24.3			9.0			33.3			17.1			28.1			23.9			102.4

** 2003 expenditures for segment assets included $50 million of cash received and $0.9 million of cash acquired from Heisei in connection with the acquisition of their one-third partnership interest in Chino Mines Company. (Refer to Note 2, Acquisitions and Divestitures, for further discussion.)

Note: Refer to Notes 2, 3 and 4 to the Consolidated Financial Statements for a discussion of major unusual items during the three-year period.

145

24. Stock Split

     On February 1, 2006, the Company’s board of directors approved a two-for-one split of the Company’s outstanding common stock. The split will be effected in the form of a 100 percent stock dividend and will increase the number of shares outstanding to approximately 203.2 million from approximately 101.6 million. Common shareholders of record at the close of business on February 17, 2006, will receive one additional share of common stock for every share they own as of that date. The additional shares will be distributed on March 10, 2006. The Company’s common stock will begin trading at its post-split price at the beginning of trading on March 13, 2006.

     The pro forma effect on the December 31, 2005, balance sheet was an approximate $635 million reclassification from capital in excess of par value to common shares. Common shares outstanding, giving the retroactive effect to the stock split at December 31, 2005, 2004 and 2003, would have been 203.2 million, 191.8 million and 181.9 million shares, respectively.

     Pro forma earnings (loss) per common share, giving retroactive effect to the stock split, for the years ended December 31 were as follows:

				(Unaudited)
	2005			2004		2003
Basic earnings per common share — as reported (pre-stock split)
Income (loss) from continuing operations	$	16.12			10.82		(0.39	)
Income (loss) from discontinued operations		(0.18	)		0.24		0.45
Extraordinary item		—			—		0.77
Cumulative effect of accounting changes		(0.10	)		—		0.09
Basic earnings per common share	$	15.84			11.06		0.92
Basic earnings per common share — pro forma (post-stock split)
Income (loss) from continuing operations	$	8.06			5.41		(0.19	)
Income (loss) from discontinued operations		(0.09	)		0.12		0.22
Extraordinary item		—			—		0.38
Cumulative effect of accounting changes		(0.05	)		—		0.05
Basic earnings per common share	$	7.92			5.53		0.46
Diluted earnings per common share — as reported (pre-stock split)
Income (loss) from continuing operations	$	15.64			10.35		(0.39	)
Income (loss) from discontinued operations		(0.17	)		0.23		0.45
Extraordinary item		—			—		0.77
Cumulative effect of accounting changes		(0.10	)		—		0.09
Diluted earnings per common share	$	15.37			10.58		0.92
Diluted earnings per common share — pro forma (post-stock split)
Income (loss) from continuing operations	$	7.82			5.18		(0.19	)
Income (loss) from discontinued operations		(0.08	)		0.11		0.22
Extraordinary item		—			—		0.38
Cumulative effect of accounting changes		(0.05	)		—		0.05
Diluted earnings per common share	$	7.69			5.29		0.46

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PART III

Items 10, 11, 12, 13 and 14.

     The information called for by Part III (Items 10, 11, 12, 13 and 14) is incorporated herein by reference from the material included under the captions “Election of Directors,” “Beneficial Ownership of Securities,” “Equity Compensation Plan Information,” “Executive Compensation” and “Other Matters” in Phelps Dodge Corporation’s definitive proxy statement (to be filed pursuant to Regulation 14A) for its Annual Meeting of Shareholders to be held May 26, 2006 (the 2006 Proxy Statement), except that the information regarding executive officers called for by Item 401 of Regulation S-K is included in Part I of this report. The 2006 Proxy Statement is being prepared and will be filed with the Securities and Exchange Commission and furnished to shareholders on or about April 17, 2006.

     Additionally, the Company’s Code of Business Ethics and Policies, Corporate Governance Guidelines, and the charters of the Audit Committee, Committee on Directors and Corporate Governance, and Compensation and Management Development Committee are available and maintained on the Company’s Web site (http://www.phelpsdodge.com).

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)	1.	Financial Statements:
		Consolidated Statement of Income, page 98.
		Consolidated Balance Sheet, page 99.
		Consolidated Statement of Cash Flows, page 100.
		Consolidated Statement of Shareholders’ Equity, page 101.
	2.	Financial Statement Schedule:
		Valuation and Qualifying Accounts and Reserves, page 151.
	3.	Exhibits:

3.1	Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
3.2	Amendment to the Restated Certificate of Incorporation of Phelps Dodge Corporation (incorporated by reference to Exhibit 2.3 of the Company’s Registration Statement on Form 8-A, filed with the SEC on June 10, 2002 (SEC File No. 1-82)).
3.3	Amendment to the Restated Certificate of Incorporation of Phelps Dodge Corporation (incorporated by reference to Appendix B of the Company’s 2005 definitive Proxy Statement filed April 15, 2005 (SEC File No. 1-82)).
3.4	Complete composite copy of the Certificate of Incorporation of the Company as amended to date (incorporated by reference to Exhibit 3.2 of the Company’s Form 10-Q for the quarter ended June 30, 2005 (SEC File No. 1-82)).
3.5	Amended and Restated By-Laws of the Company, effective as of September 5, 2001 (incorporated by reference to Exhibit 3.2 of the Company’s Form 10-Q for the quarter ended September 30, 2001 (SEC File No. 1-82)).
4.1	Credit Agreement, effective April 20, 2004, among the Company, the Lenders parties thereto, the book manager and syndication agents named therein, and Citibank, N.A., as administrative agent for the Lenders (incorporated by reference to Exhibit 4.1 of the Company’s Form 10-Q for the quarter ended March 31, 2004 (SEC File No. 1-82)).
4.2	Amendment No. 1 to the Credit Agreements dated April 1, 2005 among the Company, the Lenders parties thereto, the book manager and syndication agents named therein, and Citibank, N.A., as administrative agent for the Lenders (incorporated by reference to Exhibit 4.1 of the Company’s Form 10-Q for the quarter ended March 31, 2005 (SEC File No. 1-82)).
4.3	Rights Agreement, dated as of February 5, 1998 between the Company and The Chase Manhattan Bank (which replaces the Rights Agreement dated as of July 29, 1988 as amended and restated as of December 6, 1989, the rights issued thereunder having been redeemed by the Company), which includes the form of Certificate of Amendment setting forth the terms of the Junior Participating Cumulative Preferred Shares, par value $1.00 per share, as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C (incorporated by reference to Exhibit 1 of the Company’s Current Report on Form 8-K and in the Company’s Form 8-A, both filed on February 6, 1998 (SEC File No. 1-82)).

Note: Certain instruments with respect to long-term debt of the Company have not been filed as Exhibits to this Report since the total amount of securities authorized under any such instrument does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish a copy of each such instrument upon request of the Securities and Exchange Commission.

4.4 Form of Indenture, dated as of September 22, 1997, between the Company and The Chase Manhattan Bank, as Trustee (incorporated by reference to the Company’s Registration Statement and Post-Effective

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	Amendment No. 1 on Form S-3 (Registration Nos. 333-36415 and 33-44380)) filed with the Securities and Exchange Commission on September 25, 1997 (incorporated by reference to Exhibit 4.3 of the Company’s Form 10-Q for the quarter ended September 30, 1997 (SEC File No. 1-82)).
4.5	Form of 7.125 percent Debenture, due November 1, 2027, of the Company issued on November 5, 1997, pursuant to the Indenture, dated as of September 22, 1997, between the Company and The Chase Manhattan Bank, as Trustee (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 3, 1997 and Exhibit 4.5 of the Company’s Form 10-Q for the quarter ended September 30, 1997 (SEC File No. 1-82)).
4.6	Tripartite/Conversion Agreement, dated as of August 8, 2000, among Chase Manhattan Bank and First Union National Bank, and acknowledged by the Company, pursuant to which First Union National Bank succeeded Chase Manhattan Bank as trustee under the Indenture, dated as of September 22, 1997 (incorporated by reference to the Company’s Registration Statement on Form S-3 (Reg. No. 333-43890) filed with the Securities and Exchange Commission on August 16, 2000).
4.7	Form of 8.75 percent Note due June 1, 2011, of the Company issued on May 30, 2001, pursuant to the Indenture dated September 22, 1997, between the Company and First Union National Bank, as successor Trustee (incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 30, 2001 (SEC File No. 1-82)).
4.8	Form of 9.5 percent Note due June 1, 2031, of the Company issued on May 30, 2001, pursuant to the Indenture, dated as of September 22, 1997, between the Company and First Union National Bank, as successor Trustee (incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission May 30, 2001 (SEC File No. 1-82)).
4.9	Form of Common Share Certificate of the Company (incorporated by reference to Exhibit 4.9 of the Company’s Form 10-Q for the quarter ended June 30, 2002 (SEC File No. 1-82)).
4.10	Form of 6.75 percent Series A Mandatory Convertible Preferred Share Certificate of the Company (incorporated by reference to Exhibit 4.10 of the Company’s Form 10-Q for the quarter ended June 30, 2002 (SEC File No. 1-82)).
4.11	Form of 6.125 percent Note due March 15, 2034, of the Company issued on March 4, 2004, pursuant to the Indenture, dated as of September 22, 1997, between the Company and First Union National Bank, as successor Trustee.
10	Management contracts and compensatory plans and agreements.
10.1	The Company’s 1989 Directors Stock Option Plan (the 1989 Directors Plan), as amended to and including June 3, 1992, suspended effective November 6, 1996 (incorporated by reference to Exhibit 10.3 of the Company’s Form 10-Q for the quarter ended June 30, 1992 (SEC File No. 1-82)). Form of Stock Option Agreement under the 1989 Directors Plan (incorporated by reference to the Company’s Registration Statement on Form S-8 (Reg. No. 33-34362)).
10.2	The Company’s 1993 Stock Option and Restricted Stock Plan (the 1993 Plan), as amended through December 1, 1993, and form of Restricted Stock letter under the 1993 Plan (incorporated by reference to Exhibit 10.4 of the Company’s 1993 Form 10-K (SEC File No. 1-82)). Amendment to 1993 Plan effective May 7, 1997 (incorporated by reference to Exhibit 10.15 of the Company’s Form 10-Q for the quarter ended June 30, 1997 (SEC File No. 1-82)). Amended and restated form of Stock Option Agreement, amended through February 5, 1997 (incorporated by reference to Exhibit 10.3 of the Company’s 1997 Form 10-K (SEC File No. 1-82)).

Note: Omitted from filing pursuant to the Instruction to Item 601(b) (10) are actual Stock Option Agreements between the Company and certain officers, under the 1993 Plan, and certain Directors, under the 1989 Directors Plan, which contain substantially similar provisions to Exhibits 10.1 and 10.2 above.

10.3	Description of the Company’s Annual Incentive Compensation Plan (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 6, 2006 (SEC File No. 1-82)).
10.4	Amended and restated Deferred Compensation Plan for the Directors of the Company, dated as of December 3, 1998, effective January 1, 1999 (incorporated by reference to Exhibit 10.5 of the Company’s 1998 Form 10-K (SEC File No. 1-82)).
10.5	Form of Change of Control Agreement between the Company and certain executives (incorporated by reference to Exhibit 10.5 of the Company’s 2002 Form 10-K (SEC File No. 1-82)).
10.6	Amended and restated form of Severance Agreement between the Company and certain executives (incorporated by reference to Exhibit 10.7 of the Company’s 1997 Form 10-K (SEC File No. 1-82)).
10.7	The Company’s Retirement Plan for Directors, effective January 1, 1988, terminated for active directors effective December 31, 1997 (incorporated by reference to Exhibit 10.13 of the Company’s 1987 Form 10-K (SEC File No. 1-82)).
10.8	The Company’s Supplemental Retirement Plan (which amends and restates the provisions of the Company’s

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	Supplemental Retirement Plan, which was effective (except as otherwise noted therein) as of January 1, 1997), effective (except as otherwise provided therein) as of January 1, 2001 (incorporated by reference to Exhibit 10.8 of the Company’s 2003 Form 10-K (SEC File No. 1-82)).
10.9	The Company’s Supplemental Savings Plan (which amends and restates the provisions of the Company’s Supplemental Savings Plan, which was effective (except as otherwise noted therein) as of January 1, 1997), effective (except as otherwise noted therein) as of January 1, 2003 (incorporated by reference to Exhibit 10.9 of the Company’s 2003 Form 10-K (SEC File No. 1-82)).
10.10	The Company’s Directors Stock Unit Plan effective January 1, 1997 (incorporated by reference to Exhibit 10.10 of the Company’s 1996 Form 10-K (SEC File No. 1-82)) as amended and restated, effective January 1, 1998 (incorporated by reference to Exhibit 10.11 of the Company’s 1997 Form 10-K (SEC File No. 1-82)). First Amendment to Plan, effective as of January 1, 2001 (incorporated by reference to Exhibit 10.11 of the Company’s Form 10-Q for the quarter ended June 30, 2000 (SEC File No. 1-82)). Second Amendment to Plan, effective for awards as of January 1, 2005 (incorporated by reference to Exhibit 10.10 of the Company’s 2004 Form 10-K (SEC File No. 1-82)). Third Amendment to Plan, dated February 1, 2006 (filed herewith).
10.11	The Company’s 1998 Stock Option and Restricted Stock Plan (the 1998 Plan) and forms Restricted Stock Agreement under the 1998 Plan, effective March 4, 1998 (incorporated by reference to Exhibit 10.12 of the Company’s Form 10-Q for the quarter ended June 30, 1998 (SEC File No. 1-82)), and amended form of Stock Option Agreement, effective June 22, 1999 (incorporated by reference to the Company’s Form 10-Q for the quarter ended June 30, 1999 (SEC File No. 1-82)) and amended Form of Restricted Stock Letter Agreement, effective as of July 8, 2002 (incorporated by reference to the Company’s Form 10-Q for the quarter ended September 30, 2002 (SEC File No. 1-82)). First Amendment to the 1998 Plan, effective as of May 4, 2000 (incorporated by reference to Exhibit 10.12 of the Company’s Form 10-Q for the quarter ended June 30, 2000 (SEC File No. 1-82)).

Note: Omitted from filing pursuant to the Instruction to Item 601(b) (10) are actual Stock Option Agreements between the Company and certain officers under the 1998 Plan, which contain substantially similar provisions to Exhibit 10.11 above.

10.12 The Company’s 2003 Stock Option and Restricted Stock Plan (the 2003 Plan), and forms of: (i) Stock Option Agreement; (ii) Supplement A to Stock Option Agreement; (iii) Supplement B to Stock Option Agreement; (iv) Restricted Stock Letter Agreement; (v) Restricted Stock Letter Agreement (cliff vesting), each effective May 23, 2003 (incorporated by reference to Exhibit 10.14 of the Company’s Form 10-Q for the quarter ended June 30, 2003 (SEC File No. 1-82)); form of Restricted Stock Letter (graduated vesting) (incorporated by reference to Exhibit 10.14 of the Company’s Form 10-Q for the quarter ended September 30, 2003 (SEC File No. 1-82)); and form of amended Restricted Stock letters (graduated and cliff vesting), effective February 3, 2004 (incorporated by reference to Exhibit 10.12 of the Company’s 2003 Form 10-K (SEC File No. 1-82)).

Note: Omitted from the filing pursuant to the Instruction to Item 601(b) (10) are any actual agreement between the Company and certain officers under the 2003 Plan, which contain substantially similar provisions to Exhibit 10.12 above.

10.13	Letter of employment by and between Phelps Dodge Corporation and James P. Berresse (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 22, 2005 (SEC File No. 1-82)). Amendment dated February 6, 2006 (filed herewith).
10.14	Amended and restated form of Change of Control Agreement adopted by the Company on February 1, 2005, for agreements entered into between the Company and its named executive officers and other members of its senior management team on or after this adoption date.
10.15	Amended and restated form of Change of Control Agreement adopted by the Company on February 1, 2005, for agreements entered into between the Company and a second group of the Company’s key management personnel on or after this adoption date.
10.16	Amended and restated form of Severance Agreement adopted by the Company on February 1, 2005, for agreements entered into between the Company and certain of its executives on or after this adoption date.
10.17	Phelps Dodge Corporation 2006 Executive Performance Incentive Plan (incorporated by reference to Appendix A of the Company’s 2005 definitive Proxy Statement filed April 15, 2005 (SEC File No. 1-82)).
10.18	Agreement and General Release dated as of December 31, 2005, between the Corporation and David L. Pulatie (filed herewith).
10.19	Participation Agreement, dated as of March 16, 2005, among Phelps Dodge Corporation, Cyprus Amax Minerals Company, a Delaware corporation, Cyprus Metals Company, a Delaware corporation, Cyprus Climax Metals Company, a Delaware corporation, Sumitomo Corporation, a Japanese corporation, Summit Global Management, B.V. a Dutch corporation, Sumitomo Metal Mining Co., Ltd., a Japanese corporation, Compañía de Minas Buenaventura S.A.A., a Peruvian sociedad anonima abierta, and Sociedad Minera Cerro

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	Verde S.A.A., a Peruvian sociedad anonima abierta (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed March 22, 2005 (SEC File No. 1-82)).
10.20	Guarantee, dated as of March 16, 2005, among the Company, Sumitomo Corporation, a Japanese corporation, and Sumitomo Metal Mining Co., Ltd., a Japanese corporation (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed March 22, 2005 (SEC File No. 1-82)).
10.21	Shareholders Agreement, dated as of June 1, 2005, among Phelps Dodge Corporation, Cyprus Climax Metals Company, a Delaware corporation, Sumitomo Corporation, a Japanese corporation, Sumitomo Metal Mining Co., Ltd., a Japanese corporation, Summit Global Management B.V., a Dutch corporation, SMM Cerro Verde Netherlands, B.V., a Dutch corporation, Compañía de Minas Buenaventura S.A.A., a Peruvian sociedad anonima abierta, and Sociedad Minera Cerro Verde S.A.A., a Peruvian sociedad anonima abierta (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed June 7, 2005 (SEC File No. 1-82)).
10.22	Master Participation Agreement, dated as of September 30, 2005, among Sociedad Minera Cerro Verde S.A.A., Japan Bank for International Cooperation, Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi, Ltd., KfW, Calyon New York Branch, The Royal Bank of Scotland plc, The Bank of Nova Scotia, Mizuho Corporate Bank, Ltd. and Calyon New York Branch (as Administrative Agent) (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q for the quarter ended September 30, 2005). First Amendment to Master Participation Agreement, dated as of December 16, 2005 (filed herewith).
10.23	Completion Guarantee, dated as of September 30, 2005, among Sumitomo Metal Mining Co., Ltd., Sumitomo Corporation, Compañía de Minas Buenaventura S.A.A., Phelps Dodge Corporation, Japan Bank for International Cooperation, Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi, Ltd., KfW, Calyon New York Branch, The Royal Bank of Scotland plc, The Bank of Nova Scotia, Mizuho Corporate Bank, Ltd. and Calyon New York Branch (as Administrative Agent) (incorporated by reference to Exhibit 10.2 of the Company’s Form 10-Q for the quarter ended September 30, 2005).
10.24	Master Security Agreement, dated as of September 30, 2005, among Sociedad Minera Cerro Verde S.A.A., Japan Bank for International Cooperation, Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi, Ltd., KfW, Calyon New York Branch, The Royal Bank of Scotland plc, The Bank of Nova Scotia, Mizuho Corporate Bank, Ltd., Calyon New York Branch (as Administrative Agent), Citibank, N.A. and Citibank del Peru S.A. (incorporated by reference to Exhibit 10.3 of the Company’s Form 10-Q for the quarter ended September 30, 2005).
10.25	Transfer Restrictions Agreement, dated as of September 30, 2005, among SMM Cerro Verde Netherlands, B.V., Compañía de Minas Buenaventura S.A.A., Cyprus Climax Metals Company, Sumitomo Metal Mining Co., Ltd., Sumitomo Corporation, Phelps Dodge Corporation, Japan Bank for International Cooperation, Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi, Ltd., KfW, Calyon New York Branch, The Royal Bank of Scotland plc, The Bank of Nova Scotia, Mizuho Corporate Bank, Ltd., and Calyon New York Branch (as Administrative Agent) (incorporated by reference to Exhibit 10.4 of the Company’s Form 10-Q for the quarter ended September 30, 2005).
10.26	JBIC Loan Agreement, dated as of September 30, 2005, among Sociedad Minera Cerro Verde S.A.A., Japan Bank of International Cooperation, and Sumitomo Mitsui Banking Corporation (as JBIC Agent) (incorporated by reference to Exhibit 10.5 of the Company’s Form 10-Q for the quarter ended September 30, 2005). First Amendment to JBIC Loan Agreement, dated as of December 19, 2005 (filed herewith).
10.27	KfW Loan Agreement, dated as of September 30, 2005, between Sociedad Minera Cerro Verde S.A.A. and KfW (incorporated by reference to Exhibit 10.6 of the Company’s Form 10-Q for the quarter ended September 30, 2005).
10.28	Loan Agreement, dated as of September 30, 2005, among Sociedad Minera Cerro Verde S.A.A., Calyon New York Branch (as Administrative Agent), Calyon New York Branch, Mizuho Corporate Bank, Ltd., The Bank of Nova Scotia, and The Royal Bank of Scotland plc (incorporated by reference to Exhibit 10.7 of the Company’s Form 10-Q for the quarter ended September 30, 2005).
10.29	Parent Company Guarantee, dated as of September 30, 2005, between Phelps Dodge Corporation and Sociedad Minera Cerro Verde S.A.A. (this guarantee is with respect to the Operator’s Agreement dated June 1, 2005, between Sociedad Minera Cerro Verde S.A.A. and Minera Phelps Dodge del Peru S.A.C.) (incorporated by reference to Exhibit 10.8 of the Company’s Form 10-Q for the quarter ended September 30, 2005).
10.30	Parent Company Guarantee, dated as of September 30, 2005, between Phelps Dodge Corporation and Sociedad Minera Cerro Verde S.A.A. (this guarantee is with respect to (i) the Concentrate Sales Agreement, dated as of September 30, 2005, between Sociedad Minera Cerro Verde S.A.A. and Phelps Dodge Sales Company Incorporated, and (ii) the Cathodes Sales Agreement, dated as of September 30, 2005, between Sociedad Minera Cerro Verde S.A.A. and Phelps Dodge Sales Company Incorporated) (incorporated by

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	reference to Exhibit 10.9 of the Company’s Form 10-Q for the quarter ended September 30, 2005).
10.31	Master Agreement and Plan of Merger between Columbian Chemicals Company, Columbian Chemicals Acquisition LLC and Columbian Chemicals Merger Sub, Inc. dated November 15, 2005 (filed herewith).
10.32	Asset and Stock Purchase Agreement between Phelps Dodge Corporation, Phelps Dodge Industries, Inc. and Rea Magnet Wire Company, Inc., dated November 15, 2005 (filed herewith).
10.33	Phelps Dodge Corporation Retiree Medical Plan Welfare Benefit Trust Agreement between Phelps Dodge Corporation and The Northern Trust Company dated December 15, 2005 (filed herewith).
10.34	Reclamation and Remediation Trust Agreement between Phelps Dodge Corporation and Wells Fargo Delaware Trust Company dated December 22, 2005 (filed herewith).
11	Computation of per share earnings.
12.1	Computation of ratios of earnings to fixed charges.
12.2	Computation of ratios of total debt to total capitalization.
21	List of Subsidiaries and Investments.
23	Consent of PricewaterhouseCoopers LLP.
24	Powers of Attorney executed by certain officers and directors who signed this Annual Report on Form 10-K.

Note: Shareholders may obtain copies of Exhibits by making written request to the Secretary of the Corporation and paying copying costs of 10 cents per page, plus postage.

31	Certifications of J. Steven Whisler, Chairman and Chief Executive Officer of the Company, and Ramiro G. Peru, Executive Vice President and Chief Financial Officer of the Company, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certifications of J. Steven Whisler, Chairman and Chief Executive Officer of the Company, and Ramiro G. Peru, Executive Vice President and Chief Financial Officer of the Company, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.

151

Schedule II

Phelps Dodge Corporation and Consolidated Subsidiaries

Valuation and Qualifying Accounts and Reserves
(In millions)

			Additions
	Balance at		Charged to								Balance
	beginning		costs and								at end
	of period		expenses			Other			Deductions		of period
Reserve deducted in balance sheet from the asset to which applicable:
Accounts Receivable:
December 31, 2005	$	17.4		0.2			(8.0	)(A)		2.7		6.9
December 31, 2004	$	10.1		6.4			2.2			1.3		17.4
December 31, 2003	$	14.1		0.9			(1.4	)		3.5		10.1
Supplies:
December 31, 2005	$	33.0		3.3			4.2	(B)		11.5		29.0
December 31, 2004	$	31.8		4.1			1.8			4.7		33.0
December 31, 2003	$	28.4		8.1			0.2			4.9		31.8
Deferred Tax Assets:
December 31, 2005	$	282.8		118.0			—			37.3		363.5
December 31, 2004	$	461.3		(232.8	)		54.3	(C)		—		282.8
December 31, 2003	$	508.4		47.0			—			94.1		461.3

(A)	Consists primarily of the transfer to current assets held for sale ($8.3 million).
(B)	Consists primarily of impairment charges ($6.2 million); net of the transfer to current assets held for sale ($1.8 million).
(C)	Valuation allowance relating to El Abra’s net deferred tax assets recorded in conjunction with the implementation of Financial Accounting Standards Board’s Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,” and the revised Interpretation.

152

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PHELPS DODGE CORPORATION
	(Registrant)
February 27, 2006	By:	/s/ Ramiro G. Peru
		Ramiro G. Peru
		Executive Vice President
		and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

	Chairman, Chief Executive Officer and Director
/s/ J. Steven Whisler	(Principal Executive Officer)	February 27, 2006
J. Steven Whisler
	Executive Vice President and Chief Financial Officer
/s/ Ramiro G. Peru	(Principal Financial Officer)	February 27, 2006
Ramiro G. Peru
	Vice President and Controller
/s/ Denise R. Danner	(Principal Accounting Officer)	February 27, 2006
Denise R. Danner
(Robert N. Burt, Archie W. Dunham, William A. Franke, Robert D. Johnson, Marie L. Knowles, Robert D. Krebs, Charles C. Krulak, Jon C. Madonna, Gordon R. Parker, William J. Post, Jack E. Thompson, Directors)		February 27, 2006

By:	/s/ Ramiro G. Peru
	Ramiro G. Peru
	Attorney-in-fact

Index to Exhibits

3.	Exhibits:
3.1	Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
3.2	Amendment to the Restated Certificate of Incorporation of Phelps Dodge Corporation (incorporated by reference to Exhibit 2.3 of the Company’s Registration Statement on Form 8-A, filed with the SEC on June 10, 2002 (SEC File No. 1-82)).
3.3	Amendment to the Restated Certificate of Incorporation of Phelps Dodge Corporation (incorporated by reference to Appendix B of the Company’s 2005 definitive Proxy Statement filed April 15, 2005 (SEC File No. 1-82)).
3.4	Complete composite copy of the Certificate of Incorporation of the Company as amended to date (incorporated by reference to Exhibit 3.2 of the Company’s Form 10-Q for the quarter ended June 30, 2005 (SEC File No. 1-82)).
3.5	Amended and Restated By-Laws of the Company, effective as of September 5, 2001 (incorporated by reference to Exhibit 3.2 of the Company’s Form 10-Q for the quarter ended September 30, 2001 (SEC File No. 1-82)).
4.1	Credit Agreement, effective April 20, 2004, among the Company, the Lenders parties thereto, the book manager and syndication agents named therein, and Citibank, N.A., as administrative agent for the Lenders (incorporated by reference to Exhibit 4.1 of the Company’s Form 10-Q for the quarter ended March 31, 2004 (SEC File No. 1-82)).
4.2	Amendment No. 1 to the Credit Agreements dated April 1, 2005 among the Company, the Lenders parties thereto, the book manager and syndication agents named therein, and Citibank, N.A., as administrative agent for the Lenders (incorporated by reference to Exhibit 4.1 of the Company’s Form 10-Q for the quarter ended March 31, 2005 (SEC File No. 1-82)).
4.3	Rights Agreement, dated as of February 5, 1998 between the Company and The Chase Manhattan Bank (which replaces the Rights Agreement dated as of July 29, 1988 as amended and restated as of December 6, 1989, the rights issued thereunder having been redeemed by the Company), which includes the form of Certificate of Amendment setting forth the terms of the Junior Participating Cumulative Preferred Shares, par value $1.00 per share, as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C (incorporated by reference to Exhibit 1 of the Company’s Current Report on Form 8-K and in the Company’s Form 8-A, both filed on February 6, 1998 (SEC File No. 1-82)).

Note: Certain instruments with respect to long-term debt of the Company have not been filed as Exhibits to this Report since the total amount of securities authorized under any such instrument does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish a copy of each such instrument upon request of the Securities and Exchange Commission.

4.4 Form of Indenture, dated as of September 22, 1997, between the Company and The Chase Manhattan Bank, as Trustee (incorporated by reference to the Company’s Registration Statement and Post-Effective

	Amendment No. 1 on Form S-3 (Registration Nos. 333-36415 and 33-44380)) filed with the Securities and Exchange Commission on September 25, 1997 (incorporated by reference to Exhibit 4.3 of the Company’s Form 10-Q for the quarter ended September 30, 1997 (SEC File No. 1-82)).
4.5	Form of 7.125 percent Debenture, due November 1, 2027, of the Company issued on November 5, 1997, pursuant to the Indenture, dated as of September 22, 1997, between the Company and The Chase Manhattan Bank, as Trustee (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 3, 1997 and Exhibit 4.5 of the Company’s Form 10-Q for the quarter ended September 30, 1997 (SEC File No. 1-82)).
4.6	Tripartite/Conversion Agreement, dated as of August 8, 2000, among Chase Manhattan Bank and First Union National Bank, and acknowledged by the Company, pursuant to which First Union National Bank succeeded Chase Manhattan Bank as trustee under the Indenture, dated as of September 22, 1997 (incorporated by reference to the Company’s Registration Statement on Form S-3 (Reg. No. 333-43890) filed with the Securities and Exchange Commission on August 16, 2000).
4.7	Form of 8.75 percent Note due June 1, 2011, of the Company issued on May 30, 2001, pursuant to the Indenture dated September 22, 1997, between the Company and First Union National Bank, as successor Trustee (incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 30, 2001 (SEC File No. 1-82)).
4.8	Form of 9.5 percent Note due June 1, 2031, of the Company issued on May 30, 2001, pursuant to the Indenture, dated as of September 22, 1997, between the Company and First Union National Bank, as successor Trustee (incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission May 30, 2001 (SEC File No. 1-82)).
4.9	Form of Common Share Certificate of the Company (incorporated by reference to Exhibit 4.9 of the Company’s Form 10-Q for the quarter ended June 30, 2002 (SEC File No. 1-82)).
4.10	Form of 6.75 percent Series A Mandatory Convertible Preferred Share Certificate of the Company (incorporated by reference to Exhibit 4.10 of the Company’s Form 10-Q for the quarter ended June 30, 2002 (SEC File No. 1-82)).
4.11	Form of 6.125 percent Note due March 15, 2034, of the Company issued on March 4, 2004, pursuant to the Indenture, dated as of September 22, 1997, between the Company and First Union National Bank, as successor Trustee.
10	Management contracts and compensatory plans and agreements.
10.1	The Company’s 1989 Directors Stock Option Plan (the 1989 Directors Plan), as amended to and including June 3, 1992, suspended effective November 6, 1996 (incorporated by reference to Exhibit 10.3 of the Company’s Form 10-Q for the quarter ended June 30, 1992 (SEC File No. 1-82)). Form of Stock Option Agreement under the 1989 Directors Plan (incorporated by reference to the Company’s Registration Statement on Form S-8 (Reg. No. 33-34362)).
10.2	The Company’s 1993 Stock Option and Restricted Stock Plan (the 1993 Plan), as amended through December 1, 1993, and form of Restricted Stock letter under the 1993 Plan (incorporated by reference to Exhibit 10.4 of the Company’s 1993 Form 10-K (SEC File No. 1-82)). Amendment to 1993 Plan effective May 7, 1997 (incorporated by reference to Exhibit 10.15 of the Company’s Form 10-Q for the quarter ended June 30, 1997 (SEC File No. 1-82)). Amended and restated form of Stock Option Agreement, amended through February 5, 1997 (incorporated by reference to Exhibit 10.3 of the Company’s 1997 Form 10-K (SEC File No. 1-82)).

Note: Omitted from filing pursuant to the Instruction to Item 601(b) (10) are actual Stock Option Agreements between the Company and certain officers, under the 1993 Plan, and certain Directors, under the 1989 Directors Plan, which contain substantially similar provisions to Exhibits 10.1 and 10.2 above.

10.3	Description of the Company’s Annual Incentive Compensation Plan (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 6, 2006 (SEC File No. 1-82)).
10.4	Amended and restated Deferred Compensation Plan for the Directors of the Company, dated as of December 3, 1998, effective January 1, 1999 (incorporated by reference to Exhibit 10.5 of the Company’s 1998 Form 10-K (SEC File No. 1-82)).
10.5	Form of Change of Control Agreement between the Company and certain executives (incorporated by reference to Exhibit 10.5 of the Company’s 2002 Form 10-K (SEC File No. 1-82)).
10.6	Amended and restated form of Severance Agreement between the Company and certain executives (incorporated by reference to Exhibit 10.7 of the Company’s 1997 Form 10-K (SEC File No. 1-82)).
10.7	The Company’s Retirement Plan for Directors, effective January 1, 1988, terminated for active directors effective December 31, 1997 (incorporated by reference to Exhibit 10.13 of the Company’s 1987 Form 10-K (SEC File No. 1-82)).
10.8	The Company’s Supplemental Retirement Plan (which amends and restates the provisions of the Company’s

	Supplemental Retirement Plan, which was effective (except as otherwise noted therein) as of January 1, 1997), effective (except as otherwise provided therein) as of January 1, 2001 (incorporated by reference to Exhibit 10.8 of the Company’s 2003 Form 10-K (SEC File No. 1-82)).
10.9	The Company’s Supplemental Savings Plan (which amends and restates the provisions of the Company’s Supplemental Savings Plan, which was effective (except as otherwise noted therein) as of January 1, 1997), effective (except as otherwise noted therein) as of January 1, 2003 (incorporated by reference to Exhibit 10.9 of the Company’s 2003 Form 10-K (SEC File No. 1-82)).
10.10	The Company’s Directors Stock Unit Plan effective January 1, 1997 (incorporated by reference to Exhibit 10.10 of the Company’s 1996 Form 10-K (SEC File No. 1-82)) as amended and restated, effective January 1, 1998 (incorporated by reference to Exhibit 10.11 of the Company’s 1997 Form 10-K (SEC File No. 1-82)). First Amendment to Plan, effective as of January 1, 2001 (incorporated by reference to Exhibit 10.11 of the Company’s Form 10-Q for the quarter ended June 30, 2000 (SEC File No. 1-82)). Second Amendment to Plan, effective for awards as of January 1, 2005 (incorporated by reference to Exhibit 10.10 of the Company’s 2004 Form 10-K (SEC File No. 1-82)). Third Amendment to Plan, dated February 1, 2006 (filed herewith).
10.11	The Company’s 1998 Stock Option and Restricted Stock Plan (the 1998 Plan) and forms Restricted Stock Agreement under the 1998 Plan, effective March 4, 1998 (incorporated by reference to Exhibit 10.12 of the Company’s Form 10-Q for the quarter ended June 30, 1998 (SEC File No. 1-82)), and amended form of Stock Option Agreement, effective June 22, 1999 (incorporated by reference to the Company’s Form 10-Q for the quarter ended June 30, 1999 (SEC File No. 1-82)) and amended Form of Restricted Stock Letter Agreement, effective as of July 8, 2002 (incorporated by reference to the Company’s Form 10-Q for the quarter ended September 30, 2002 (SEC File No. 1-82)). First Amendment to the 1998 Plan, effective as of May 4, 2000 (incorporated by reference to Exhibit 10.12 of the Company’s Form 10-Q for the quarter ended June 30, 2000 (SEC File No. 1-82)).

Note: Omitted from filing pursuant to the Instruction to Item 601(b) (10) are actual Stock Option Agreements between the Company and certain officers under the 1998 Plan, which contain substantially similar provisions to Exhibit 10.11 above.

10.12 The Company’s 2003 Stock Option and Restricted Stock Plan (the 2003 Plan), and forms of: (i) Stock Option Agreement; (ii) Supplement A to Stock Option Agreement; (iii) Supplement B to Stock Option Agreement; (iv) Restricted Stock Letter Agreement; (v) Restricted Stock Letter Agreement (cliff vesting), each effective May 23, 2003 (incorporated by reference to Exhibit 10.14 of the Company’s Form 10-Q for the quarter ended June 30, 2003 (SEC File No. 1-82)); form of Restricted Stock Letter (graduated vesting) (incorporated by reference to Exhibit 10.14 of the Company’s Form 10-Q for the quarter ended September 30, 2003 (SEC File No. 1-82)); and form of amended Restricted Stock letters (graduated and cliff vesting), effective February 3, 2004 (incorporated by reference to Exhibit 10.12 of the Company’s 2003 Form 10-K (SEC File No. 1-82)).

Note: Omitted from the filing pursuant to the Instruction to Item 601(b) (10) are any actual agreement between the Company and certain officers under the 2003 Plan, which contain substantially similar provisions to Exhibit 10.12 above.

10.13	Letter of employment by and between Phelps Dodge Corporation and James P. Berresse (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 22, 2005 (SEC File No. 1-82)). Amendment dated February 6, 2006 (filed herewith).
10.14	Amended and restated form of Change of Control Agreement adopted by the Company on February 1, 2005, for agreements entered into between the Company and its named executive officers and other members of its senior management team on or after this adoption date.
10.15	Amended and restated form of Change of Control Agreement adopted by the Company on February 1, 2005, for agreements entered into between the Company and a second group of the Company’s key management personnel on or after this adoption date.
10.16	Amended and restated form of Severance Agreement adopted by the Company on February 1, 2005, for agreements entered into between the Company and certain of its executives on or after this adoption date.
10.17	Phelps Dodge Corporation 2006 Executive Performance Incentive Plan (incorporated by reference to Appendix A of the Company’s 2005 definitive Proxy Statement filed April 15, 2005 (SEC File No. 1-82)).
10.18	Agreement and General Release dated as of December 31, 2005, between the Corporation and David L. Pulatie (filed herewith).
10.19	Participation Agreement, dated as of March 16, 2005, among Phelps Dodge Corporation, Cyprus Amax Minerals Company, a Delaware corporation, Cyprus Metals Company, a Delaware corporation, Cyprus Climax Metals Company, a Delaware corporation, Sumitomo Corporation, a Japanese corporation, Summit Global Management, B.V. a Dutch corporation, Sumitomo Metal Mining Co., Ltd., a Japanese corporation, Compañía de Minas Buenaventura S.A.A., a Peruvian sociedad anonima abierta, and Sociedad Minera Cerro

	Verde S.A.A., a Peruvian sociedad anonima abierta (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed March 22, 2005 (SEC File No. 1-82)).
10.20	Guarantee, dated as of March 16, 2005, among the Company, Sumitomo Corporation, a Japanese corporation, and Sumitomo Metal Mining Co., Ltd., a Japanese corporation (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed March 22, 2005 (SEC File No. 1-82)).
10.21	Shareholders Agreement, dated as of June 1, 2005, among Phelps Dodge Corporation, Cyprus Climax Metals Company, a Delaware corporation, Sumitomo Corporation, a Japanese corporation, Sumitomo Metal Mining Co., Ltd., a Japanese corporation, Summit Global Management B.V., a Dutch corporation, SMM Cerro Verde Netherlands, B.V., a Dutch corporation, Compañía de Minas Buenaventura S.A.A., a Peruvian sociedad anonima abierta, and Sociedad Minera Cerro Verde S.A.A., a Peruvian sociedad anonima abierta (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed June 7, 2005 (SEC File No. 1-82)).
10.22	Master Participation Agreement, dated as of September 30, 2005, among Sociedad Minera Cerro Verde S.A.A., Japan Bank for International Cooperation, Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi, Ltd., KfW, Calyon New York Branch, The Royal Bank of Scotland plc, The Bank of Nova Scotia, Mizuho Corporate Bank, Ltd. and Calyon New York Branch (as Administrative Agent) (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q for the quarter ended September 30, 2005). First Amendment to Master Participation Agreement, dated as of December 16, 2005 (filed herewith).
10.23	Completion Guarantee, dated as of September 30, 2005, among Sumitomo Metal Mining Co., Ltd., Sumitomo Corporation, Compañía de Minas Buenaventura S.A.A., Phelps Dodge Corporation, Japan Bank for International Cooperation, Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi, Ltd., KfW, Calyon New York Branch, The Royal Bank of Scotland plc The Bank of Nova Scotia, Mizuho Corporate Bank, Ltd. and Calyon New York Branch (as Administrative Agent) (incorporated by reference to Exhibit 10.2 of the Company’s Form 10-Q for the quarter ended September 30, 2005).
10.24	Master Security Agreement, dated as of September 30, 2005, among Sociedad Minera Cerro Verde S.A.A., Japan Bank for International Cooperation, Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi, Ltd., KfW, Calyon New York Branch, The Royal Bank of Scotland plc, The Bank of Nova Scotia, Mizuho Corporate Bank, Ltd., Calyon New York Branch (as Administrative Agent), Citibank, N.A. and Citibank del Peru S.A. (incorporated by reference to Exhibit 10.3 of the Company’s Form 10-Q for the quarter ended September 30, 2005).
10.25	Transfer Restrictions Agreement, dated as of September 30, 2005, among SMM Cerro Verde Netherlands, B.V., Compañía de Minas Buenaventura S.A.A., Cyprus Climax Metals Company, Sumitomo Metal Mining Co., Ltd., Sumitomo Corporation, Phelps Dodge Corporation, Japan Bank for International Cooperation, Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi, Ltd., KfW, Calyon New York Branch, The Royal Bank of Scotland plc, The Bank of Nova Scotia, Mizuho Corporate Bank, Ltd., and Calyon New York Branch (as Administrative Agent) (incorporated by reference to Exhibit 10.4 of the Company’s Form 10-Q for the quarter ended September 30, 2005).
10.26	JBIC Loan Agreement, dated as of September 30, 2005, among Sociedad Minera Cerro Verde S.A.A., Japan Bank of International Cooperation, and Sumitomo Mitsui Banking Corporation (as JBIC Agent) (incorporated by reference to Exhibit 10.5 of the Company’s Form 10-Q for the quarter ended September 30, 2005). First Amendment to JBIC Loan Agreement, dated as of December 19, 2005 (filed herewith).
10.27	KfW Loan Agreement, dated as of September 30, 2005, between Sociedad Minera Cerro Verde S.A.A. and KfW (incorporated by reference to Exhibit 10.6 of the Company’s Form 10-Q for the quarter ended September 30, 2005).
10.28	Loan Agreement, dated as of September 30, 2005, among Sociedad Minera Cerro Verde S.A.A., Calyon New York Branch (as Administrative Agent), Calyon New York Branch, Mizuho Corporate Bank, Ltd., The Bank of Nova Scotia, and The Royal Bank of Scotland plc (incorporated by reference to Exhibit 10.7 of the Company’s Form 10-Q for the quarter ended September 30, 2005).
10.29	Parent Company Guarantee, dated as of September 30, 2005, between Phelps Dodge Corporation and Sociedad Minera Cerro Verde S.A.A. (this guarantee is with respect to the Operator’s Agreement dated June 1, 2005, between Sociedad Minera Cerro Verde S.A.A. and Minera Phelps Dodge del Peru S.A.C.) (incorporated by reference to Exhibit 10.8 of the Company’s Form 10-Q for the quarter ended September 30, 2005).
10.30	Parent Company Guarantee, dated as of September 30, 2005, between Phelps Dodge Corporation and Sociedad Minera Cerro Verde S.A.A. (this guarantee is with respect to (i) the Concentrate Sales Agreement, dated as of September 30, 2005, between Sociedad Minera Cerro Verde S.A.A. and Phelps Dodge Sales Company Incorporated, and (ii) the Cathodes Sales Agreement, dated as of September 30, 2005, between Sociedad Minera Cerro Verde S.A.A. and Phelps Dodge Sales Company Incorporated) (incorporated by

	reference to Exhibit 10.9 of the Company’s Form 10-Q for the quarter ended September 30, 2005).
10.31	Master Agreement and Plan of Merger between Columbian Chemicals Company, Columbian Chemicals Acquisition LLC and Columbian Chemicals Merger Sub, Inc. dated November 15, 2005 (filed herewith).
10.32	Asset and Stock Purchase Agreement between Phelps Dodge Corporation, Phelps Dodge Industries, Inc. and Rea Magnet Wire Company, Inc., dated November 15, 2005 (filed herewith).
10.33	Phelps Dodge Corporation Retiree Medical Plan Welfare Benefit Trust Agreement between Phelps Dodge Corporation and The Northern Trust Company dated December 15, 2005 (filed herewith).
10.34	Reclamation and Remediation Trust Agreement between Phelps Dodge Corporation and Wells Fargo Delaware Trust Company dated December 22, 2005 (filed herewith).
11	Computation of per share earnings.
12.1	Computation of ratios of earnings to fixed charges.
12.2	Computation of ratios of total debt to total capitalization.
21	List of Subsidiaries and Investments.
23	Consent of PricewaterhouseCoopers LLP.
24	Powers of Attorney executed by certain officers and directors who signed this Annual Report on Form 10-K.

Note: Shareholders may obtain copies of Exhibits by making written request to the Secretary of the Corporation and paying copying costs of 10 cents per page, plus postage.

31	Certifications of J. Steven Whisler, Chairman and Chief Executive Officer of the Company, and Ramiro G. Peru, Executive Vice President and Chief Financial Officer of the Company, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certifications of J. Steven Whisler, Chairman and Chief Executive Officer of the Company, and Ramiro G. Peru, Executive Vice President and Chief Financial Officer of the Company, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.

EX-10.10

Exhibit 10.10

THIRD AMENDMENT TO THE
PHELPS DODGE CORPORATION
DIRECTORS STOCK UNIT PLAN

     Effective as of January 1, 1997, Phelps Dodge Corporation (“Corporation”) adopted the Phelps Dodge Corporation Directors Stock Unit Plan (the “Plan”) in order to attract, retain and motivate the best qualified directors for the benefit of the Corporation and its shareholders. Subsequently, the Plan was amended and restated, effective January 1, 1998, to reflect the replacement of the Retirement Plan for Directors of Phelps Dodge Corporation by the Plan and to change the name of the Plan. The First Amendment to the Plan was adopted effective as of January 1, 2001 and the Second Amendment was adopted effective as of July 1, 2004.

     By this Third Amendment, the Corporation intends to amend the Plan to permit the Board to award Units to any individual who became an Eligible Director after November 15, 2005 and on or prior to December 31, 2006.

     1. The provisions of this Third Amendment shall be effective as of the date this Third Amendment is adopted by the Board. This Third Amendment shall amend only the provisions of the Plan as set forth herein and those provisions not expressly amended hereby shall remain in full force and effect.

     2. The following is inserted as Section 3(b), with the existing Sections 3(b), 3(c) and 3(d) to be re-designated as Sections 3(c), 3(d) and 3(e), respectively:

     Awards to Newly-Appointed Directors. Notwithstanding the provisions of Section 3(a), an individual who becomes an Eligible Director after November 15, 2005 and on or before December 31, 2006 shall receive an award of Units, with the number of Units to be awarded to any such individual to equal the quotient of (i) the product of (A) $75,000 multiplied by (B) a fraction, the numerator of which shall equal the anticipated number of days during calendar year 2006 during which such individual is expected to serve as an Eligible Director and the denominator of which shall equal 365 and (ii) the Fair Market Value as of the day preceding the date of Grant; provided that such individual has been a Director continuously from the date he or she became an Eligible Director through the date of Grant. For purposes of the immediately preceding sentence, the date of Grant shall be the earlier to occur of (a) the 30-day anniversary of the later of (1) such individual’s commencement of service as an Eligible Director and (2) the date on which this Third Amendment is adopted by the Board and (b) December 31, 2006. Notwithstanding the provisions of Section 5(a), an initial Participation Agreement with respect to any such award must be executed and delivered to the Committee prior to the date specified in clause (a) of the immediately preceding sentence.

1

     3. Section 2. of the Plan is amended by deleting the definition of “Committee” and replacing it with the following:

     “Committee” shall mean the Committee on Directors and Corporate Governance of the Board.

     IN WITNESS WHEREOF, Phelps Dodge Corporation has caused this Third Amendment to be executed this 1^st day of February, 2006.

PHELPS DODGE CORPORATION
By:	/s/ Nancy F. Mailhot
	Its: Vice President – Human Resources

2

EX-10.13

Exhibit 10.13

February 2, 2006

James P. Berresse
President & Chief Executive Officer
Columbian Chemicals Company
1800 West Oak Commons Court
Marietta, Georgia

Dear Jim:

This letter amends and modifies that certain February 11, 2005 Employment Agreement signed by Phelps Dodge Corporation and you with an Initial Term commencing February 11, 2005 (“Agreement”) and which Initial Term ends on February 10, 2006. Unless defined otherwise for purposes of this letter, capitalized terms set forth herein will have the same meaning as set forth in the Agreement.

Although a definitive agreement has been entered into by Phelps Dodge to sell Columbian Chemicals Company, it has been determined by Phelps Dodge that it is appropriate to extend the term of the Agreement until June 30, 2006 (the “Renewal Term”). Section 2.(b) of the Agreement contemplates that such a Renewal Term may be agreed to by the parties to this Agreement. In addition, pursuant to Section 18.(e) the Agreement may be modified in a writing signed by you and an authorized officer of Phelps Dodge. This letter is intended to amend and modify the Agreement as set forth below and will be effective on the date agreed to by Phelps Dodge as indicated below.

1.

In accordance with Section 2.(b) of the Agreement, the term of the Agreement is extended until June 30, 2006 (the “Renewal Term”).

2.

The following sentence is added to the end of the last paragraph of Section 4 of the Agreement: “Notwithstanding any other provision of this Section 4 to the contrary, if you are eligible for a payment under Section 4 under circumstances that involve the termination of your employment for Good Reason and under such conditions that you should be deemed to be a “key employee” as defined in Section 416(i) of the Internal Revenue Code (and the regulations promulgated thereunder), then the payment of the Retention Bonus under Section 4 will be paid on the six month anniversary date of your separation of employment or otherwise in accordance with the provisions of Section 409A of the Internal Revenue Code, as may be amended from time to time.”

All of the other terms of the Agreement not specifically modified or amended by this letter will remain in effect as set forth in the Agreement.

If you are in agreement with the terms and conditions set forth in this letter, please indicate you acceptance by signing and dating this letter below and returning this original to me. Once this document has been returned with your signature, this amendment will be effective on the date of Phelps Dodge’s agreement as indicated below.

Sincerely,

Phelps Dodge Corporation

/s/ Nancy Mailhot Nancy Mailhot

Vice President-Human Resources

Agreed:

/s/ James Berresse       James P. Berresse

2/3/06      

Date

Agreed:

/s/ Nancy F. Mailhot       Phelps Dodge Corporation

2/6/06      

Date

EX-10.18

Exhibit 10.18

AGREEMENT AND GENERAL RELEASE

This Agreement and General Release (“Agreement”), dated as of December 31, 2005, is between Phelps Dodge Corporation (“Company”) and David L. Pulatie (“Pulatie”). This Agreement is entered into in order to (i) provide Pulatie with special benefits, (ii) resolve all matters relating to Pulatie’s employment with, and separation from, the Company, and (iii) provide the Company with protection against any claims.

The Company and Pulatie, therefore, agree as follows:

1. Pulatie’s last day of employment with the Company will be December 31, 2005. Pulatie will resign from all positions he holds with the Company and with each of the Company’s subsidiaries and affiliated entities on December 31, 2005. At the request of the Company, Pulatie agrees to execute any documents to effectuate or to facilitate his resignations.

2. Pulatie has 7,434 stock options (2,534 under Grant Number 004695 and 4,900 under Grant Number 004946, collectively the “Options”) granted under the Phelps Dodge 2003 Stock Option and Restricted Stock Plan (“Plan”) that otherwise are not exercisable in 2005. In accordance with the terms and conditions of the Plan, the Compensation Committee (“Committee”) of the Company’s Board of Directors has exercised its discretion and determined that these Options shall be exercisable by Pulatie as of December 31, 2005. Consistent with the applicable Plan provisions, Pulatie will have until December 31, 2006 to exercise these Options. If the Options are not exercised by that date they will terminate.

3. Pulatie has 8,740 shares of restricted stock (2,100 under Grant Number 004275; 3,740 under Grant Number 004740; and 2,900 under Grant Number 004998, collectively the “Restricted Shares”), that have been awarded to him with restricted periods that do not lapse in 2005. In accordance with the terms and conditions of the Plan, the Committee has exercised its discretion and determined that the restricted period on these Restricted Shares shall lapse as of December 31, 2005.

4. Pulatie shall deliver to the Company (a) any documents, materials, files, or computer files, or copies, reproductions, duplicates, transcriptions, or replicas thereof, relating to the Company’s business or affairs, which are in Pulatie’s possession or control, or of which Pulatie is aware, and (b) any documents, materials, files, computer files or copies, reproductions, duplicates, transcriptions or replicas thereof, which are in Pulatie’s possession or control, or of which Pulatie is aware, belonging to the Company or any other affiliated entities. Pulatie will make a diligent search for such documents, materials, files, computer files and other property. Pulatie will deliver these items to the Company by December 31, 2005.

5. Pulatie agrees that during the course of his employment with the Company, he had access to confidential and proprietary information concerning the Company including but not limited to such matters as the Company’s trade secrets, strategic plans, programs (including, without limitation, the Company’s computer software programs), procedures, manuals, confidential

Pulatie Agreement
Page 2 of 5

reports and communications, lists of customers, and sources of supply. That information was disclosed to Pulatie in confidence and solely for use by or on behalf of the Company. Pulatie has no ownership right or interest in that confidential and proprietary information. Pulatie agrees that he will keep that information confidential at all times after his employment, and that he will not, directly or indirectly, disclose, divulge, reveal, report, publish, transfer, or use, for any purpose whatsoever, that information on his own behalf or on behalf of any other person or entity.

6. Pulatie acknowledges that all of the following information and materials are “Protected Information” belonging to the Company and shall be subject to the provisions of Paragraph 5 of this Agreement and shall be kept strictly confidential, even if not physically marked as such:

a.	Production processes, strategic plans, marketing techniques and arrangements, mailing lists, purchasing information, pricing policies, quoting procedures, financial information, customer and prospect names and requirements, employee, customer, supplier and distributor data, and other materials and information relating to the Company’s business and activities and the manner in which the Company does business;
b.	Discoveries, concepts, and ideas including, without limitation, the nature and results of research and development activities, processes, formulas, inventions, equipment or technology, techniques, “know-how,” designs, drawings and specifications, and patent applications;
c.	Any other materials or information related to the Company’s business or activities which are not generally known to others engaged in similar businesses or activities and which are not in the public domain; and
d.	All ideas which are derived from or relate to Pulatie’s access to or knowledge of any of the above enumerated materials and information.

7. Pulatie understands that the special benefits he will receive by this Agreement are not required by the Company’s policies. Pulatie also understands that if he and the Company did not have this Agreement, he would not be getting these special benefits. Pulatie and the Company agree that the fact that they are making this Agreement does not mean that the Company had any obligation or liability to Pulatie.

8. Pulatie will keep this Agreement confidential. He will only talk about it with his immediate family, his attorney, and his accountant or tax and financial advisor, and they will not discuss it with anyone else.

9. This Agreement may not be changed orally, but only by a written agreement signed by Pulatie and the Company.

Pulatie Agreement
Page 3 of 5

10.	Pulatie agrees not to bring any suit or claim against the Company or any of its related entities or individuals with respect to any matter, including those related to his employment with the Company or his separation from that employment. Therefore, Pulatie, for himself and his heirs, executors, administrators, representatives, agents, and assigns, forever releases the Company and its parents, subsidiaries, successors, predecessors, and affiliated entities, and their officers, directors, agents, employees, shareholders, attorneys, and representatives, from any and all claims, demands, liabilities, obligations, suits, charges, actions, and causes of action, whether known or unknown, past or present, accrued or not accrued, as of the date Pulatie signs this Agreement. The items released include, but are not limited to, matters relating to or arising out of his employment or separation from employment. Some examples of items released are claims under federal, state, or local laws, such as the Age Discrimination in Employment Act (“ADEA”), Title VII of the Civil Rights Act of 1964, as amended, the Employee Retirement Income Security Act of 1974, the Americans with Disabilities Act, the Family and Medical Leave Act, the Arizona Civil Rights Act, any common law, tort, or contract claims, and any claims for attorneys’ fees and costs. This provision, of course, does not affect Pulatie’s rights, if any, to benefits under the Company’s benefit plans in accordance with the terms of those plans, or to make a complaint to any state or federal agency with respect to issues related to his employment with the Company.
11.	Pulatie understands and agrees that the Company will suffer irreparable harm in the event that he breaches any of his obligations under this Agreement and that monetary damages will be inadequate to compensate the Company for such breach. Accordingly, Pulatie agrees that, in the event of his breach or threatened breach of any of the provisions of this Agreement, the Company, in addition to and not in limitation of any other rights, remedies, or damages available to the Company at law or in equity, shall be entitled to a temporary restraining order, preliminary injunction, and permanent injunction in order to prevent or to restrain any such breach by Pulatie or by any or all of his partners, co-venturers, employers, employees, servants, agents, representatives, and any and all persons directly or indirectly acting for, or on behalf of, or with him. The Company may seek such relief pursuant to a court action notwithstanding the arbitration provision set forth in Paragraph 14 of this Agreement.
12.	The provisions of this Agreement are severable. This means that if any provision is invalid, it will not affect the validity of the other provisions. If the scope of any restrictions of this Agreement should ever be deemed to exceed that permitted by applicable law or be otherwise overbroad, Pulatie agrees that a court of competent jurisdiction shall enforce that restriction to the maximum scope permitted by law under the circumstances.
13.	The laws of the State of Arizona will apply to this Agreement.
14.	Any disputes arising in connection with this Agreement, other than disputes arising under Paragraphs 5, 6, 7, 14, and 15 shall be resolved by binding arbitration in accordance with the rules and procedures of the American Arbitration Association. Judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction of this matter.

Pulatie Agreement
Page 4 of 5

Costs of the arbitration shall be borne equally by the parties. Unless the arbitrator otherwise determines, the party that does not prevail in any such action shall reimburse the other party for his or its reasonable attorneys’ fees incurred with respect to such arbitration.

15. Pulatie agrees not to challenge this Agreement. If he attempts to do so, he must first return to the Company all of the pay and benefits he received as consideration for entering into this Agreement within 14 days’ of the Company’s written demand for payment. Notwithstanding any other provision of this Paragraph 15 to the contrary, the parties acknowledge and agree that Pulatie’s rights to challenge the validity of this Agreement under the ADEA, as amended by the Older Workers Benefit Protection Act, including any challenge of the knowing and voluntary nature of this Agreement, are not otherwise affected by the above provisions of this Paragraph 15 or any other provision of this Agreement. Company and Pulatie acknowledge and agree that Pulatie is not required to return or tender back any consideration received for this Agreement in the event he brings a claim challenging the validity of this Agreement under the ADEA, as amended. In the event Pulatie successfully challenges the validity of this Agreement and prevails on the merits of any ADEA claim, the Company is entitled to set-off, recoupment, or restitution against any consideration paid Pulatie under this Agreement to the extent of the consideration paid or the damages awarded, whichever is the lesser.

16. Pulatie has been advised by the Company to talk with an attorney of his choice before signing this Agreement. He has been given a period of at least 21 days to consider this Agreement, and he has had an opportunity to talk with an attorney about this Agreement.

17. Pulatie may revoke this Agreement. Pulatie may do so during the seven calendar days after the date he signs it. If Pulatie wishes to revoke the Agreement, he must do so in writing and his written notice of revocation must be sent to Ramiro G. Peru (“Peru”), Executive Vice President & Chief Financial Officer, Phelps Dodge Corporation, One North Central Avenue, Phoenix, AZ 85004. To be effective, Peru must receive the revocation of the Agreement during the seven calendar days after the day Pulatie signs it. If Pulatie revokes this Agreement in accordance with this Paragraph, (i) his exercise of any Options and (ii) the award of any shares of stock in exchange for Restricted Shares will be void and this Agreement shall not otherwise be enforceable. Prior to the eighth calendar day after Pulatie signs this Agreement, the Company has no obligation to deliver any shares of stock to Pulatie upon his exercise of any Options or in exchange for any Restricted Shares.

18. Pulatie has carefully considered his obligations as stated in this Agreement and agrees that the restrictions contained in this Agreement are fair and reasonable and are reasonably required for the Company’s protection. Pulatie has carefully read this Agreement, he has had an opportunity to ask questions about it, he understands it, and he agrees to all of its provisions. Pulatie understands that by signing this Agreement, he agrees not to sue or bring any claim against the Company or any other entity or person he has released from claims. Pulatie has made this Agreement voluntarily and without any duress.

Pulatie Agreement
Page 5 of 5

19. This agreement supercedes and replaces all prior discussions, understandings, and oral agreements between the parties and contains the entire agreement between them on the matters herein contained.

David L. Pulatie	Phelps Dodge Corporation
/s/ David L. Pulatie	/s/ R.G. Peru Ramiro G. Peru
	Executive Vice President & Chief Financial Officer
12/31/05	1/9/06
Date	Date

EX-10.22

Exhibit 10.22

EXECUTION COPY

FIRST AMENDMENT

TO

MASTER PARTICIPATION AGREEMENT

among

SOCIEDAD MINERA CERRO VERDE, S.A.A.,

as Borrower,

and

CALYON NEW YORK BRANCH,

as Administrative Agent

Dated as of December 16, 2005

FIRST AMENDMENT TO MASTER PARTICIPATION AGREEMENT

This FIRST AMENDMENT TO MASTER PARTICIPATION AGREEMENT (“First Amendment”), dated as of December 16, 2005, is made and entered between SOCIEDAD MINERA CERRO VERDE, S.A.A., a Peruvian sociedad anónima abierta listed on the Lima Stock Exchange and organized under the laws of Peru (the “Borrower”) and CALYON NEW YORK BRANCH, a licensed branch of a banking corporation organized and existing under the laws of the French Republic, in its capacity as Administrative Agent (the “Administrative Agent”, and collectively with the Borrower, the “Parties”).

RECITALS

     A. The Borrower, Japan Bank for International Cooperation, a Japanese government financial institution organized under the laws of Japan, Sumitomo Mitsui Banking Corporation, a stock corporation organized under the laws of Japan, The Bank of Tokyo-Mitsubishi, Ltd., a banking institution organized under the laws of Japan, KfW, a public corporation formed under the laws of the Federal Republic of Germany, CALYON New York Branch, a licensed branch of a banking corporation organized under the laws of the French Republic, The Royal Bank of Scotland plc, a public limited company incorporated under the laws of Scotland, The Bank of Nova Scotia, a Canadian chartered bank, organized under the laws of Canada, Mizuho Corporate Bank, Ltd., a banking institution organized under the laws of Japan, and the Administrative Agent have entered into a Master Participation Agreement (the “Master Participation Agreement”), dated as of September 30, 2005;

     B. Pursuant to Section 12.19(a) of the Master Participation Agreement, the Master Participation Agreement may be amended pursuant to a written instrument executed by the Borrower, the Administrative Agent acting in accordance with Section 10.01 thereof and, with respect to any amendment that modifies any provision of the Master Participation Agreement in a manner that adversely affects any rights of the Administrative Agent thereunder or enlarges its duties thereunder, the Administrative Agent;

     C. The Parties wish to amend certain provisions of the Master Participation Agreement in a manner that does not adversely affect the rights of the Administrative Agent thereunder or enlarge its duties thereunder; and

     D. The Administrative Agent has received all necessary authorizations from the Senior Facility Lenders to authorize the Administrative Agent to enter into this First Amendment.

     NOW THEREFORE, in consideration of the agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

     1. Schedule 6.04 to the Master Participation Agreement is hereby amended by adding the following paragraph at the end of such Schedule:

“• Ministry of Energy and Mines. On December 1, 2005, the Borrower received a notification from the Ministry of Energy and Mines of an administrative proceeding initiated at the request of FREDICON, a community association. The Ministry of Energy and Mines will conduct a special review of certain environmental aspects of the Borrower’s operations as described in such notification. The Borrower has currently no reason to expect that this proceeding will have any Material Adverse Project Effect.”

     2. Schedule 6.06 to the Master Participation Agreement is hereby amended by adding the following paragraph at the end of such Schedule:

“• The Borrower has been informed by Peruvian counsel that it is not in compliance with the provisions of Law No. 27252 (published in the official gazette El Peruano on January 7, 2000) and its implementing regulations relating to the early retirement of certain categories of mining workers. Pursuant to this legislation, the Borrower is required to withhold a portion of the salary payable to certain categories of employees and deposit the corresponding amounts together with matching contributions into certain private pension fund management companies. The Borrower will regularize its non compliance with respect to past periods before December 31, 2005 and intends to implement a system to comply with this legislation going forward. The Borrower currently estimates that the aggregate cost of regularizing past non-compliance will not exceed US$500,000.”

     3. Except as set forth above in this First Amendment, the Master Participation Agreement shall continue in effect in accordance with its terms.

     3. Section 12.07 and Section 12.16 of the Master Participation Agreement are incorporated herein by reference.

     4. This First Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which, when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument.

     IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed.

SOCIEDAD MINERA CERRO VERDE S.A.A.
By:	/s/ Christian Moran
	Name:	Christian Moran
	Title:	Attorney in Fact
CALYON NEW YORK BRANCH
By:	/s/ Robert G. Colvin
	Name:	Robert G. Colvin
	Title:	Director
By:	/s/ Ted Vandermel
	Name:	Ted Vandermel
	Title:	Director

EX-10.26

Exhibit 10.26

FIRST AMENDMENT

TO

JBIC LOAN AGREEMENT

among

SOCIEDAD MINERA CERRO VERDE, S.A.A.,

JAPAN BANK FOR INTERNATIONAL COOPERATION,

and

SUMITOMO MITSUI BANKING CORPORATION,

as JBIC Agent

Dated as of December 19, 2005

FIRST AMENDMENT TO JBIC LOAN AGREEMENT

This FIRST AMENDMENT TO JBIC LOAN AGREEMENT (“First Amendment”), dated as of December 19, 2005, is made and entered among SOCIEDAD MINERA CERRO VERDE, S.A.A., a Peruvian sociedad anónima abierta listed on the Lima Stock Exchange and organized under the laws of Peru (the “Borrower”), JAPAN BANK FOR INTERNATIONAL COOPERATION (“JBIC”), and SUMITOMO MITSUI BANKING CORPORATION, in its capacity as JBIC Agent (the “JBIC Agent”, and collectively with JBIC and the Borrower, the “Parties”).

RECITALS

     A. The Parties have previously entered into a JBIC Loan Agreement (the “JBIC Loan Agreement”), dated as of September 30, 2005; and

     B. The Parties wish to amend certain provisions of the JBIC Loan Agreement.

     NOW THEREFORE, in consideration of the agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

     1. Annex D to the JBIC Loan Agreement is hereby deleted in its entirety and replaced with the provisions attached hereto as Schedule 1.

     2. Except as set forth above in this First Amendment, the JBIC Loan Agreement shall continue in effect in accordance with its terms.

     3. Article XIII of the JBIC Loan Agreement is incorporated herein by reference.

     4. This First Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which, when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument.

     IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed.

SOCIEDAD MINERA CERRO VERDE S.A.A.
By:	/s/ Christian Moran Name: Christian Moran
	Title: Attorney in Fact
JAPAN BANK FOR INTERNATIONAL COOPERATION
By:	/s/ Akira Ogawa Name: Akira Ogawa
	Title: Director General
SUMITOMO MITSUI BANKING CORPORATION
By:	/s/ F. Kusakabe Name: F. Kusakabe
	Title: Senior Vice President, Head of Credit
	Control & Administration, Group Structured
	Finance Dept.

SCHEDULE 1

Annex D

Environmental Monitoring Form
(JBIC Loan to Cerro Verde)

Date :                     

To: Japan Bank for International Cooperation
4-1, Ohtemachi 1-chome
Chiyoda-ku, Tokyo 100-8144, Japan
Attn: Director General
Energy and Natural Resources Finance Department

Dear Sirs:
As required by Section 9.01(b) of the JBIC Loan Agreement dated September 30^th, 2005 between Japan Bank for International Cooperation, as Lender, Sociedad Minera Cerro Verde S.A.A., as Borrower, and Sumitomo Mitsui Banking Corporation, as JBIC Agent (JBIC Loan to Cerro Verde), please find enclosed the environmental monitoring form prepared by the Borrower for the year ended on December 31, [____].

In addition, except as disclosed below, we hereby certify that, as of the date hereof, the Borrower is not aware of any violation of the JBIC Environmental Guidelines.

Yours faithfully,

D-1

ENVIRONMENTAL MONITORING FORM

(Page 1 of 2)

1. Water Quality (Surface Water; Río Chili, Water Intake Point)

					Referred	Remarks
			Measured Value	Measured Value	Standards/Criteria	(Frequency,
ITEM	Unit		(Average)	(Maximum)	(if any)	Method, etc.)
pH		—
EC	µS/cm
Temperature		°C
Acidity	mg/L					(CaCO3)
Alkalinity	mg/L
TDS	mg/L
TSS	mg/L

2. Water Quality (Groundwater; Downstream of waste rock dump place)

					Referred	Remarks
			Measured Value	Measured Value	Standards/Criteria	(Frequency,
ITEM	Unit		(Average)	(Maximum)	(if any)	Method, etc.)
Water Level
pH		—
DO	mg/L
EC	µS/cm
Temperature		°C
Acidity	mg/L					(CaCO3)
Alkalinity	mg/L
TDS	mg/L
TSS	mg/L
Al	mg/L
As	mg/L
Co	mg/L
Cu	mg/L
Fe	mg/L
Mg	mg/L
Zn	mg/L
Pb	mg/L
Sulfates	mg/L

ENVIRONMENTAL MONITORING FORM

(page 2 of 2)

3. Water Quality (Groundwater; Downstream of tailings dam)

					Referred	Remarks
			Measured Value	Measured Value	Standards/Criteria	(Frequency,
ITEM	Unit		(Average)	(Maximum)	(if any)	Method, etc.)
Water Level
pH		—
DO	mg/L
EC	µS/cm
Temperature		°C
Acidity	mg/L					(CaCO3)
Alkalinity	mg/L
TDS	mg/L
TSS	mg/L
Al	mg/L
As	mg/L
Co	mg/L
Cu	mg/L
Fe	mg/L
Mg	mg/L
Zn	mg/L
Pb	mg/L
Sulfates	mg/L

EX-10.31

Exhibit 10.31

Execution Copy

MASTER AGREEMENT AND PLAN OF MERGER

Dated as of November 15, 2005

TABLE OF CONTENTS

	Page
1. The Share Purchases		1
1.1 Sale and Purchase of the Foreign Subsidiary Shares		1
1.2 Share Purchase Closing		1
1.3 Purchase Prices for Foreign Subsidiary Shares		2
2. The Merger		2
2.1 The Merger		2
2.2 Merger Closing		2
2.3 Merger Consideration		3
2.4 Effective Time		3
2.5 Certificate of Incorporation and Bylaws of the Surviving Corporation		3
2.6 Directors and Officers of the Surviving Corporation		3
2.7 Effects of the Merger		3
3. Conversion of Shares in the Merger		4
3.1 Conversion of Capital Stock		4
3.2 Waiver of Appraisal Rights		4
4. Adjustments to Foreign Subsidiary Purchase Prices and Merger Consideration		4
4.1 Procedure for Determining Adjustments to each Foreign Subsidiary Purchase Price and the Merger Consideration		4
4.2 Foreign Subsidiary Purchase Price and Merger Consideration Adjustment		6
5. Representations and Warranties of the Shareholder and the Company		6
5.1 Corporate Status and Authority		6
5.2 No Conflicts, Consents and Approvals		6
5.3 Corporate Status of the Company; Authority		7
5.4 The Shares		7
5.5 Subsidiaries		8
5.6 Financial Statements		8
5.7 Absence of Undisclosed Liabilities		8
5.8 Assets and Properties		8
5.9 Contracts		9
5.10 Employment Agreements and Benefits.		9
5.10.1 Employment Agreements and Plans		9
5.10.2 ERISA; Employee Benefit Matters		10
5.10.3 Tax Qualification		11
5.10.4 Labor Matters		11
5.11 Intellectual Property		11
5.12 Governmental Authorizations; Compliance with Law		12
5.13 Litigation		12
5.14 Taxes		12

i

	Page
5.15 Absence of Changes		13
5.16 Insurance		14
5.17 Environmental Matters		14
5.18 Accounts Receivable		15
5.19 Business Inventory; Customer List		15
5.20 Affiliate Transactions		15
5.21 Brokers		15
6. Representations and Warranties of the Parent and Merger Sub		16
6.1 Status and Authority		16
6.2 No Conflicts, Consents and Approvals		16
6.3 Financial Ability to Perform		17
6.4 Solvency		17
6.5 Litigation		17
6.6 Purchase for Investment		17
6.7 Brokers		18
6.8 Insurance		18
6.9 No Knowledge of Misrepresentations and Omissions		18
6.10 Sevalco		18
7. Certain Covenants		18
7.1 Consents; Obligations of the Parties		18
7.2 Obligations of the Shareholder and Company		19
7.2.1 Conduct of Business		19
7.2.2 Access and Information		21
7.2.3 Certain Resignations		22
7.2.4 Severance Agreements		22
7.2.5 Certain Real Property Matters		22
7.3 Obligations of the Parent and Merger Sub		23
7.4 Taxes		23
7.5 Publicity		28
7.6 Supplements to Disclosure Schedules		28
7.7 Contact with Customers and Suppliers		29
7.8 Credit Support Arrangements		29
7.9 Noncompetition		29
7.10 Appraisals		29
7.11 Certain Foreign Conversions		30
8. Employees and Employee Benefit Plans		30
8.1 Compensation and Benefits of Company Employees		30
8.1.1 Plan Funding Statements		31
8.1.2 Dispute Resolution Process		32
8.1.3 Certain Company Benefits		32
8.1.4 Filings and Records		32
8.1.5 Employee Savings Plan		33
8.1.6 Welfare Plans		33
8.1.7 Retiree Medical and Life		34

ii

	Page
8.1.8 WARN		34
8.1.9 Paid Time Off/Vacation		34
8.1.10 Collective Bargaining		34
8.1.11 Workers’ Compensation		35
8.1.12 U.S. Bargaining Pension Plan		35
8.1.13 Canadian Pension Plan		35
8.1.14 Sevalco Ltd Plan		35
9. Conditions Precedent to Share Purchases		39
9.1 General		39
9.2 Conditions to Obligations of the Parties		39
9.2.1 HSR Act		39
9.2.2 No Injunction		39
9.2.3 Consents		39
9.2.4 Transition Services Agreement		39
9.3 Conditions to Obligations of the Shareholder and the Company		40
9.3.1 Representations, Warranties and Covenants of the Parent		40
9.3.2 Officer’s Certificate		40
9.3.3 Credit Support Arrangements		40
9.4 Conditions to Obligations of the Parent		40
9.4.1 Representations, Warranties and Covenants of the Shareholder and the Company		40
9.4.2 Officer’s Certificate		40
9.4.3 Financing		41
10. Conditions Precedent to Merger		41
10.1 General		41
10.2 Conditions to Obligations of the Parties		41
10.2.1 HSR Act		41
10.2.2 No Injunction		41
10.2.3 Consents		41
10.2.4 Share Purchase Closing		41
10.2.5 Consummation of Foreign Conversions		41
10.3 Conditions to Obligations of the Shareholder and the Company		41
10.3.1 Representations, Warranties and Covenants of the Parent and Merger Sub		41
10.3.2 Officer’s Certificate		42
10.3.3 Credit Support Arrangements		42
10.4 Conditions to Obligations of the Parent and Merger Sub		42
10.4.1 Representations, Warranties and Covenants of the Shareholder and the Company		42
10.4.2 Officer’s Certificate		42
10.4.3 Financing		42
10.4.4 Certain Transfers		42
11. Indemnification		43
11.1 Survival of Representations and Warranties and Covenants		43

iii

	Page
11.2 Indemnification		43
11.2.1 By the Shareholder		43
11.2.2 By the Parent		45
11.2.3 Indemnification Procedures		46
11.2.4 Mitigation		49
11.2.5 Tax Treatment		49
11.2.6 Exclusive Remedy		49
11.2.7 Accounts Receivables Claims		50
12. Definitions		50
13. General Provisions		58
13.1 Modification; Waiver		58
13.2 Entire Agreement		59
13.3 Certain Limitations		59
13.4 Termination		59
13.5 Expenses		61
13.6 Further Actions		61
13.7 Post-Closing Access		61
13.8 Notices		61
13.9 Assignment of Agreement; Assignment of Non-Disclosure Agreements		62
13.10 No Third Party Beneficiaries		62
13.11 Counterparts		62
13.12 Interpretation		63
13.13 Severability		63
13.14 Governing Law		63
13.15 Consent to Jurisdiction		63
13.16 Waiver of Punitive and Other Damages and Jury Trial		64
13.17 Specific Performance; etc		64

EXHIBITS

Exhibit A	Form of Share Purchase Agreements for Columbian Tiszai Carbon Limited
Exhibit B	Form of Share Purchase Agreement for Columbian Carbon Europa SRL
Exhibit C	Form of Share Purchase Agreement for Columbian Chemicals Canada Ltd
Exhibit D	Form of Share Purchase Agreement for Columbian Chemicals Brasil, Ltda
Exhibit E	Form of Share Purchase Agreement for Columbian Chemicals Europa GmbH and Columbian Carbon Deutschland GmbH
Exhibit F	Form of Share Purchase Agreement for Columbian (U.K.) Limited
Exhibit G	Form of Transition Services Agreement

SCHEDULES

Schedule 1.3	Foreign Subsidiaries
Schedule 4.1	Form of Closing Balance Sheet

iv

Schedule 5.2(a)	Certain Conflicts
Schedule 5.2(b)	Certain Consents and Approvals (Shareholder or Joint Filings)
Schedule 5.3	Investments
Schedule 5.5	Subsidiaries
Schedule 5.6	Financial Statements
Schedule 5.8	Real Property; Certain Liens
Schedule 5.9	Contracts
Schedule 5.10.1	Employment Agreements, Collective Bargaining Agreements and Plans
Schedule 5.10.2(a)	ERISA Matters (Multiemployer Plans)
Schedule 5.10.2(b)	ERISA Matters (Unfunded Liabilities)
Schedule 5.10.2(c)	ERISA Matters (Non-Deductible Plans)
Schedule 5.10.2(d)	ERISA Matters (Contributions, Reserves and Plan Operations)
Schedule 5.10.2(e)	ERISA Matters (Termination of Post-Retirement Welfare Benefits)
Schedule 5.10.3	Tax Qualification of Plans
Schedule 5.10.4	Labor Matters
Schedule 5.11(a)	Company Intellectual Property
Schedule 5.11(b)	Exceptions to Company Intellectual Property
Schedule 5.11(c)	Intellectual Property Infringement
Schedule 5.12	Governmental Authorizations
Schedule 5.13	Litigation
Schedule 5.14	Taxes
Schedule 5.15	Absence of Changes
Schedule 5.16	Insurance
Schedule 5.17	Environmental Matters
Schedule 5.18	Certain Security Arrangements
Schedule 5.19(a)	Customer List
Schedule 5.19(b)	Certain Customer Actions
Schedule 5.20	Affiliate Transactions
Schedule 6.2(b)	Certain Consents and Approvals (Parent Filings)
Schedule 6.3	Commitment Letters
Schedule 7.2.1(a)(i)	Bahia Project Expenditures
Schedule 7.2.1(a)(ii)	North Bend Project Expenditures
Schedule 7.2.1(x)	Intercompany Liabilities
Schedule 7.2.1(y)	Intercompany Receivables
Schedule 7.7	Contact with Customers and Suppliers
Schedule 7.8	Credit Support Arrangements
Schedule 7.10	Appraisals
Schedule 8.1.1-A	Unfunded PBO of Pension Plans Retained by Parent
Schedule 8.1.1-B	Unfunded APBO of Post-Retirement Welfare Plans
Schedule 9.2.3(i)	Share Purchase Governmental Consents
Schedule 9.2.3(ii)	Share Purchase Third Party Consents
Schedule 10.2.3(i)	Merger Governmental Consents
Schedule 10.2.3(ii)	Merger Third Party Consents
Schedule 12	Shareholder Retained Litigation
Schedule 12.1	Capital Expenditures
Schedule 13.12	Knowledge Group

v

     MASTER AGREEMENT AND PLAN OF MERGER, dated as of the 15th day of November, 2005, by and among Columbian Chemicals Acquisition LLC, a Delaware limited liability company (the “Parent”), Columbian Chemicals Merger Sub, Inc., a Delaware corporation wholly-owned by Parent (the “Merger Sub”), Columbian Chemicals Company, a Delaware corporation (the “Company”), and Phelps Dodge Corporation, a New York corporation (the “Shareholder”). Undefined capitalized terms in this Agreement are defined in Section 12.

     WHEREAS, the Company and the Subsidiaries of the Company listed on Schedule 5.5 hereto conduct an international carbon black business;

     WHEREAS, the Shareholder owns all of the issued and outstanding capital stock of the Company, which consists of 1,000 shares of common stock, par value $1.00 per share (the “Shares”);

     WHEREAS, among other things, the Shareholder and the Company wish to sell, or cause the sale of, and the Parent wishes to cause certain of its Subsidiaries to purchase, the outstanding shares or quotas, as the case may be (collectively the “Foreign Subsidiary Shares”, and such transactions are the “Share Purchases”), of the foreign subsidiaries identified on Schedule 1.3 hereto (the “Foreign Subsidiaries”), each Share Purchase to be consummated on the terms and conditions set forth in this Agreement and the applicable form of Share Purchase Agreement, which forms are attached hereto as Exhibits A-F (the “Share Purchase Agreements”); and

     WHEREAS, the respective Boards of Directors of the Parent, Merger Sub and the Company have each determined that it is advisable and in the best interests of their respective companies and equity holders to consummate, and have approved, the business combination transaction provided for herein in which, following the consummation of the Share Purchases contemplated by the preceding WHEREAS clause, the Merger Sub would merge with and into the Company and the Company would be the surviving corporation (the “Merger”); and the Shareholder, as the sole shareholder of the Company, has approved the Merger.

     NOW, THEREFORE, in consideration of the mutual promises, covenants, representations and warranties made herein and of the mutual benefits to be derived herefrom, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

     1. The Share Purchases.

     1.1 Sale and Purchase of the Foreign Subsidiary Shares. Subject to the terms and conditions of this Agreement and the Share Purchase Agreements, the Shareholder and Company will sell or cause the sale of, and the Parent will purchase or cause the purchase of, the applicable Foreign Subsidiary Shares to the applicable Subsidiary of Parent as set forth on Schedule 1.3.

     1.2 Share Purchase Closing. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Section 13.4, and subject to the satisfaction or waiver (where applicable) of the conditions set forth in Section 9, the closing of the Share Purchases (the “Share Purchase Closing”) will take place at the offices of Debevoise & Plimpton LLP, 919 Third Avenue, New York, New York 10022 at 10:00 a.m., New York time, on December 15, 2005, or, if the conditions set forth in Section 9 have not been

satisfied or waived on such date, three Business Days after the satisfaction or waiver of such conditions (the “Share Purchase Closing Date”), provided that the Share Purchase Closings with respect to (i) the sale of Columbian Chemicals Brasil Ltda. shall take place at the offices of Pinheiro Neto Advogados, Rua Boa Vista, 254, 9° Andar, São Paolo, Brazil 01014-907 at the equivalent São Paolo, Brazil time, (ii) the sale of Columbian Carbon Europa S.R.L. shall take place at the offices of Norton Rose, Via di Parione 12, 00186 Rome, Italy, at the equivalent Rome, Italy time, (iii) the sale of Columbian Chemicals Europa GmbH and certain shares of Columbian Carbon Deutschland GmbH shall take place at the offices of Debevoise & Plimpton LLP, Taubenstrasse 7-9, 60313 Frankfurt am Main, Germany, at the equivalent Frankfurt, Germany time, and (iv) the sale of Columbian Tiszai Carbon, LLC shall take place at the offices of Szecskay Ugyvedi Iroda, Kossuth ter 16-17., H-1055, Budapest Hungary, at the equivalent Budapest, Hungary time. At the Share Purchase Closing, except as otherwise provided in the applicable Share Purchase Agreement:

     (a) the Company will deliver, or cause to be delivered, to the relevant acquisition entity of the Parent certificates representing the Foreign Subsidiary Shares, endorsed in blank or accompanied by stock powers in favor of the applicable Subsidiary of Parent, accompanied by all requisite stock transfer stamps;

     (b) the Parent will deliver, or cause to be delivered, the Foreign Subsidiary Purchase Prices for the Foreign Subsidiary Shares to the applicable Subsidiary of the Company by wire transfer of immediately available funds to a previously designated account of the Company or the relevant Subsidiary of the Company; and

     (c) each of the parties hereto will deliver all other instruments, agreements, certificates and documents required to be delivered by such party on or prior to the Share Purchase Closing Date pursuant to this Agreement and the relevant Share Purchase Agreement.

     1.3 Purchase Prices for Foreign Subsidiary Shares. The aggregate purchase price for the Foreign Subsidiary Shares shall be an amount equal to $358,340,000 in cash, which reflects the sum of the purchase prices for the Foreign Subsidiaries as set forth in Schedule 1.3 (the “Foreign Subsidiary Purchase Prices”), subject to adjustment pursuant to Section 4.

     2. The Merger.

     2.1 The Merger. Following the consummation of the Share Purchases, upon the terms and subject to the conditions of this Agreement, the Merger Sub shall be merged with and into the Company and the separate existence of the Merger Sub shall thereupon cease. The Company shall be the surviving corporation in the Merger (the “Surviving Corporation”). As a result of the Merger, the outstanding shares of capital stock of the Merger Sub and the Company shall be converted or cancelled in the manner provided in Section 3.

     2.2 Merger Closing. Following the consummation of the Share Purchases, and subject to the satisfaction or waiver (where applicable) of the conditions set forth in Section 10, the closing of the Merger (the “Merger Closing”) will take place at the offices of Debevoise & Plimpton LLP, 919 Third Avenue, New York, New York 10022 at 2:00 p.m., New York time, on

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the Share Purchase Closing Date or, if the parties shall have so agreed in writing, the first Business Day following the Share Purchase Closing Date (the “Merger Closing Date”). At the Merger Closing:

     (a) the Parent will deliver, or cause to be delivered, the Merger Consideration to the Shareholder by wire transfer of immediately available funds to a previously designated account of the Shareholder; and

     (b) each of the parties hereto will deliver all other instruments, agreements, certificates and documents required to be delivered by such party on or prior to the Merger Closing Date pursuant to this Agreement.

     2.3 Merger Consideration. The “Merger Consideration” for the Company and the Remaining Subsidiaries shall be an amount equal to $184,610,000 in cash, subject to adjustment pursuant to Section 4.

     2.4 Effective Time. At the Merger Closing, the Company and the Merger Sub shall file a certificate of merger as contemplated by the DGCL (the “Certificate of Merger”), together with any required related certificates, with the Secretary of State of the State of Delaware (the “Secretary of State”), in such form as required by, and executed in accordance with, Section 251(c) of the DGCL. The Merger shall become effective at such time as the Certificate of Merger is duly filed with such Secretary of State on the Merger Closing Date, or at such later time as Parent and the Company shall agree and specify in the Certificate of Merger. As used herein, the “Effective Time” shall mean the time on the Merger Closing Date at which the Merger shall become effective.

     2.5 Certificate of Incorporation and Bylaws of the Surviving Corporation. At the Effective Time, (i) the Certificate of Incorporation of the Company as in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by law and such Certificate of Incorporation, and (ii) the Bylaws of the Company as in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation until thereafter amended as provided by law, the Certificate of Incorporation of the Surviving Corporation or such Bylaws.

     2.6 Directors and Officers of the Surviving Corporation. The directors of the Merger Sub and the officers of the Company immediately prior to the Effective Time shall, from and after the Effective Time, be the directors and officers, respectively, of the Surviving Corporation until their successors shall have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Corporation’s Certificate of Incorporation and Bylaws.

     2.7 Effects of the Merger. At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Certificate of Merger and the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of the Company and the Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and the Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

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     3. Conversion of Shares in the Merger.

     3.1 Conversion of Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof:

     (a) Capital Stock of the Merger Sub. Each issued and outstanding share of the common stock, par value $0.01 per share, of the Merger Sub (the “Merger Sub Stock”) will be converted into and become one fully paid and nonassessable share of common stock, par value $1.00 per share, of the Surviving Corporation (the “Surviving Corporation Stock”). Each certificate representing outstanding shares of the Merger Sub Stock shall at the Effective Time represent an equal number of shares of Surviving Corporation Stock.

     (b) Cancellation of Certain Shares of Company Common Stock. All shares of common stock of the Company, par value $1.00 per share, that are owned by the Company as treasury stock shall be canceled and retired and shall cease to exist, and no cash or other consideration shall be delivered in exchange therefor.

     (c) Conversion of the Shares. Each of the Shares shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate that immediately prior to the Effective Time represented the Shares shall thereafter cease to have any rights with respect thereto, except for the right to receive the Merger Consideration with respect to the Shares formerly represented thereby.

     3.2 Waiver of Appraisal Rights. The Shareholder hereby acknowledges that it has voted the Shares in favor of the Merger and has irrevocably waived, and will not seek to assert, any right to an appraisal of the Shares under the DGCL.

     4. Adjustments to Foreign Subsidiary Purchase Prices and Merger Consideration.

     4.1 Procedure for Determining Adjustments to each Foreign Subsidiary Purchase Price and the Merger Consideration. For the purpose of determining adjustments, if any, to each Foreign Subsidiary Purchase Price and the Merger Consideration, within 90 days following, in the case of Foreign Subsidiary Purchase Price adjustments, the Share Purchase Closing, and in the case of Merger Consideration adjustments, the Merger Closing, the Parent will deliver to the Shareholder: (i) a balance sheet of each Foreign Subsidiary and a consolidated balance sheet of the Company and the Remaining Subsidiaries as of the close of business on the Share Purchase Closing Date or Merger Closing Date, as applicable (each, a “Closing Balance Sheet”), each of which shall present fairly, in all material respects, the consolidated financial condition of the Persons subject thereof and be prepared (x) in accordance with GAAP, as applied in the preparation of the 2004 Balance Sheet (including the adjustments for GAAP presentation set forth in Schedule 4.1), and (y) using the line items set forth in the form of Closing Balance Sheet set forth in Schedule 4.1, and (ii) in the case of each Foreign Subsidiary Purchase Price adjustment, a statement showing the calculation of final Working Capital for the applicable Foreign Subsidiary (each a “Foreign Subsidiary Final Working Capital”), and in the case of the

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Merger Consideration adjustment, a statement showing the calculation of final Working Capital for the Company and the Remaining Subsidiaries (the “Company Final Working Capital”) (each a “Closing Statement”) and (iii) customary Company management representation letters addressed to the Shareholder.

     (a) During the 30-day period following the Shareholder’s receipt of each Closing Balance Sheet and each Closing Statement, the Shareholder shall be given full access to the working papers of the Parent and the Company Group and their respective independent auditors as well as to the personnel, properties, books, records, schedules, analyses and working papers of the Company Group involved in or relating to the preparation of each Closing Balance Sheet and each Closing Statement. Each Closing Balance Sheet and each Closing Statement shall become final and binding upon the parties on the 31st day following the Shareholder’s receipt thereof unless the Shareholder gives written notice of its disagreement with any such Closing Balance Sheet and any such Closing Statement (the “Notice of Disagreement”) to the Parent prior to such date. The Notice of Disagreement shall specify in reasonable detail the nature of any such disagreement. If a Notice of Disagreement is received by the Parent in a timely manner, then each disputed Closing Balance Sheet and Closing Statement (each as revised in accordance with clause (x) or (y) below) shall become final and binding upon the parties upon the earlier of (x) the date on which the Shareholder and the Parent resolve in writing any applicable differences they have with respect to the matters specified in the Notice of Disagreement and (y) the date on which any applicable disputed matters are finally resolved in writing by the Accounting Firm.

     (b) During the 30-day period following the delivery of a Notice of Disagreement in compliance with clause (a) above, the Shareholder and the Parent shall seek in good faith to resolve any differences they may have with respect to the matters specified in the Notice of Disagreement. During such period, each of the Parent and its independent auditors and the Shareholder and its independent auditors shall have full access to the other’s working papers and to the personnel, properties, books, records, schedules, analyses and working papers of the Shareholder relating to the preparation of the Notice of Disagreement. If, at the end of such 30-day period, the Shareholder and the Parent shall not have resolved such differences, the Shareholder and the Parent shall submit to the national office of Deloitte & Touche LLP or, if such firm is unwilling or unable to serve, the national office of any other “big four” accounting firm selected by the Parent that has no material relationship with the Parent, the Shareholder or their respective Affiliates (the “Accounting Firm”) for review and resolution of any and all matters that remain in dispute and that were properly included in the Notice of Disagreement. The Shareholder and the Parent shall use their respective commercially reasonable efforts to cause the Accounting Firm to render a decision resolving the matters in dispute within 30 days following the submission of such matters to the Accounting Firm. The Shareholder and the Parent agree that judgment may be entered upon the determination of the Accounting Firm in any court having jurisdiction over the party against which such determination is to be enforced. The cost of any review and resolution (including the fees and expenses of the Accounting Firm and reasonable fees and expenses of legal counsel of the parties) pursuant to this Section 4.1(b) shall be borne by the Shareholder and the Parent in inverse proportion as they may prevail on matters

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resolved by the Accounting Firm, which inverse proportionate allocations shall also be determined by the Accounting Firm at the time the determination of the Accounting Firm is rendered on the merits of the matters submitted.

     4.2 Foreign Subsidiary Purchase Price and Merger Consideration Adjustment. As soon as practicable after each Foreign Subsidiary Final Working Capital and the Company Final Working Capital have been determined pursuant to Section 4.1 (but in any event within three Business Days after each such determination), the Parent, if any applicable Foreign Subsidiary Final Working Capital or the Company Final Working Capital, as the case may be, exceeds the applicable Foreign Subsidiary Target Working Capital or the Company Target Working Capital, respectively, or the Shareholder, if any applicable Foreign Subsidiary Final Working Capital or the Company Final Working Capital, as the case may be, is less than the applicable Foreign Subsidiary Target Working Capital or the Company Target Working Capital, respectively, shall deliver to such other party, by wire transfer of immediately available funds to the account specified by the recipient, an amount equal to the sum of (i) the amount of each such excess plus (ii) interest on the net amount of such excess from the applicable Closing Date through but excluding the date on which such net amount is paid at a rate per annum equal to the average over such period of the Federal funds discount rate as published in The Wall Street Journal. Notwithstanding the foregoing, with the consent of the parties, not to be unreasonably withheld, all such adjustments shall be aggregated such that one party shall make a single aggregated payment to the other party.

     5. Representations and Warranties of the Shareholder and the Company. Except as set forth in the Schedules hereto, the Shareholder and the Company, jointly and severally, represent and warrant to the Parent and Merger Sub as follows:

     5.1 Corporate Status and Authority. The Shareholder is a corporation duly incorporated, validly existing and in good standing under the laws of the State of New York and has the corporate power and authority to own the Shares and to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by the Board of Directors of the Shareholder, which approval constitutes all necessary corporate action on the part of the Shareholder for such authorization. This Agreement has been duly executed and delivered by the Shareholder and constitutes the valid and binding obligation of the Shareholder, enforceable against the Shareholder in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity).

     5.2 No Conflicts, Consents and Approvals.

     (a) Except as set forth in Schedule 5.2(a), neither the execution, delivery or performance of this Agreement by the Shareholder or the Company nor the consummation of the transactions contemplated hereby will result in (i) any conflict with the certificate of incorporation or by-laws of the Shareholder or any member of the Company Group, (ii) subject to obtaining the consents, approvals and authorizations and making the filings referred to in Section 5.2(b), any breach or violation of or default under any applicable statute, regulation,

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judgment, order or decree of any Governmental Authority or any mortgage, agreement, indenture or any other instrument to which the Shareholder or any member of the Company Group is a party or by which any of them or their respective properties or assets are bound, (iii) any Person being granted (with or without notice of lapse of time or both) any right of termination, cancellation, acceleration or modification in or with respect to, any Contract or other agreement to which the Shareholder or any member of the Company Group is a party or by which any of them or their respective properties or assets are bound, or (iv) the creation or imposition of any liens, security interests, adverse claims, charges or encumbrances (collectively, “Liens”) on the Shares or the assets of any member of the Company Group, except for Permitted Liens, except, in the case of clauses (ii) and (iii), as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

     (b) Except as set forth in Schedule 5.2(b) and for filings, consents or approvals that are required with respect to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not require the Shareholder or any member of the Company Group to obtain any material consent, approval or authorization of or make any filing with any Governmental Authority or any other Person.

     5.3 Corporate Status of the Company; Authority.

     (a) The Company has all requisite corporate power and authority to conduct its business and to own or lease its properties, as now conducted, owned or leased. The Company is duly qualified and, where such concept is recognized, is in good standing as a foreign corporation duly authorized to do business in all jurisdictions, in each case, in all material respects. The Company does not have any equity interest or investment in any Person other than as set forth in Schedule 5.3 or Schedule 5.5.

     (b) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by the Board of Directors of the Company, which approvals constitute all necessary corporate action on the part of the Company for such authorization. This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity).

     5.4 The Shares. The authorized, issued and outstanding capital stock of the Company consists solely of the Shares. The Shares are owned by the Shareholder, free and clear of all Liens other than Permitted Liens. The Shares have been duly authorized and validly issued and are fully paid and non-assessable. There are no outstanding options, warrants, conversion or preemptive or other rights or agreements of any kind (other than this Agreement) for the purchase or acquisition from, or the sale or issuance by, the Shareholder or the Company of any

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shares of capital stock, or any securities that are convertible into or exchangeable for shares of capital stock, of the Company, and no authorization therefor has been given.

     5.5 Subsidiaries. Schedule 5.5 sets forth a complete and correct list of the Subsidiaries of the Company. Where such concept is recognized, each Subsidiary of the Company is in good standing under the laws of the jurisdiction of its organization. Schedule 5.5 sets forth the number of issued and outstanding shares or quotas of each such Subsidiary and the Persons owning such issued and outstanding shares or quotas. Such issued and outstanding shares or quotas are owned, directly or indirectly, by the Company, free and clear of all Liens other than Permitted Liens. Except as set forth in Schedule 5.5, there are no outstanding options, warrants, conversion or preemptive or other rights or agreements of any kind for the purchase or acquisition from, or the sale or issuance by, any Subsidiary of the Company of any shares of capital stock or quotas of such Subsidiary, and no authorization therefor has been given.

     5.6 Financial Statements. The Company has delivered to the Parent: (i) (a) audited consolidated statements of operations, changes in shareholder’s equity and cash flows of the Company for the fiscal years ended December 31, 2002, 2003 and 2004 and (b) audited consolidated balance sheets of the Company as at such dates (collectively, the “Audited Financial Statements” and the audited consolidated balance sheet as at December 31, 2004, the “2004 Balance Sheet”) and (ii) (a) unaudited interim consolidated statements of operations, changes in shareholder’s equity and cash flows for the six months ended June 30, 2005 and (b) an unaudited interim consolidated balance sheet as at such date (collectively, the “Interim Financial Statements” and, together with the Audited Financial Statements, the “Financial Statements”). Except as set forth in Schedule 5.6, the Financial Statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods indicated and present fairly in all material respects the financial condition of the Company on a consolidated basis as at the respective dates indicated and the results of operations and cash flows of the Company on a consolidated basis for the respective periods indicated, except as otherwise noted therein and subject, in the case of the Interim Financial Statements, to the absence of certain footnotes.

     5.7 Absence of Undisclosed Liabilities. Except for Liabilities and obligations (i) reflected or reserved against in the Financial Statements, (ii) reflected in the Schedules hereto, or (iii) incurred in the ordinary course of business since December 31, 2004, the Company has no material undisclosed Liabilities.

     5.8 Assets and Properties. Schedule 5.8 lists all material items of real property owned by the members of the Company Group (the “Owned Real Property”) and all material items of real property leased by the members of the Company Group (the “Leased Real Property”), in each case, as of the date hereof. Except as set forth in Schedule 5.8, the applicable member of the Company Group has (a) legal and beneficial ownership of each item of Owned Real Property and (b) a valid leasehold estate in each item of Leased Real Property, in each case free and clear of all Liens other than Permitted Liens. Except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, the applicable member of the Company Group has legal and beneficial ownership of, or valid leasehold interests in, all of the tangible personal property and assets that are reasonably necessary for the continued conduct of the business of the Company Group, taken as a whole, as currently conducted, in each case free

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and clear of any Liens other than Permitted Liens. This Section 5.8 does not relate to contractual, intellectual property or insurance assets and properties, which are addressed solely in Sections 5.9, 5.11 and 5.16, respectively.

     5.9 Contracts. Schedule 5.9 lists all Contracts. For purposes of this Agreement, “Contracts” means all written agreements, contracts and commitments of the following types to which any member of the Company Group is a party as of the date hereof (other than real property leases, labor or employment-related agreements, intellectual property licenses, insurance policies and affiliate transactions, which are addressed solely in Sections 5.8, 5.10, 5.11, 5.16 and 5.20, respectively): (a) joint venture and limited partnership agreements, (b) mortgages, indentures, loan or credit agreements, security agreements and other agreements and instruments relating to the borrowing of money or extension of credit in any case in excess of $1,000,000 per calendar year, (c) distribution, marketing, purchasing, energy or supply agreements involving in excess of $1,000,000 of product, raw materials or other items per calendar year, (d) other agreements, contracts and commitments that are not cancelable by any member of the Company Group on less than 120 days’ notice and that require payment by any member of the Company Group after the date hereof of more than $1,000,000 per calendar year, and (e) contracts prohibiting or restricting in any material respect the ability of the Company to operate in any geographic area. Except as set forth in Schedule 5.9, to the knowledge of the Shareholder and the Company, (x) the applicable member of the Company Group is in compliance with its obligations under the Contracts and (y) each of the Contracts is in full force and effect, valid and binding and enforceable against the applicable member of the Company Group in accordance with their respective terms, except, in the case of clauses (x) and (y), as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. None of the Contracts require the Company to make any capital expenditure in excess of $1,000,000 per annum, other than in the ordinary course of business, consistent with past practice, after the Closings. Except as set forth in Schedule 5.9, there are no oral agreements or understandings that are material to the results of operation or financial condition of the Company.

     5.10 Employment Agreements and Benefits.

          5.10.1 Employment Agreements and Plans. Schedule 5.10.1 lists all (a) material employment and consulting agreements (including severance, retention and change of control agreements) to which any member of the Company Group is a party, other than agreements that by their terms may be terminated or canceled by any member of the Company Group with notice of not more than the greater of 60 days and the period of notice required under applicable law, in each case, without penalty or payment obligation, (b) collective bargaining agreements with any labor unions currently representing employees of any member of the Company Group, and (c) material “employee benefit plans,” as defined in section 3(3) of ERISA (whether or not subject to ERISA), profit sharing, pension, retirement, termination indemnity, early retirement bridge benefit or similar post-employment or post-retirement benefits, bonus, incentive compensation, stock option, restricted stock, equity-based, phantom equity, deferred compensation or other material fringe benefit plans, programs and arrangements under which (i) any Company Employee or Former Employee (in each case, including any beneficiaries and dependants thereof) is or may become eligible to participate or derive a benefit and that is or has been maintained, established or contributed to by the Shareholder, any member of the Company

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Group, or any trade or business, whether or not incorporated that, together with any member of the Company Group, is, or would have been at any date of determination occurring within the preceding six years, treated as a single employer under section 414 of the Code for the benefit of Company Employees and Former Employees, or (ii) any member of the Company Group may have any material liability (collectively, items described in this clause (c), the “Plans”). Schedule 5.10.1 shall indicate those Plans that are or, as of the Closing Date, will be sponsored or maintained by any member of the Company Group (each such Plan, a “Stand-Alone Plan”), and shall indicate those Plans that are or, as of the Closing Date, will be sponsored or maintained by any member of the Company Group the domicile of which is a non-U.S. jurisdiction. With respect to each Plan and each other arrangement included on Schedule 5.10.1, the Shareholder has heretofore made available to the Parent a complete and correct copy of the Plan or other operative document and any amendments thereto, and with respect to each Plan subject to ERISA, each of the following documents, as applicable: (i) a copy of the most recent Summary Plan Description and all material modifications and (ii) with respect to each Stand-Alone Plan, (A) a copy of the trust or other funding agreement and any amendments thereto, (B) a copy of the most recent annual report, (C) a copy of the most recent actuarial report, and (D) the most recent determination letter from the IRS with respect to each Plan that is intended to be qualified under section 401 of the Code and all notices of reportable events received following receipt of such letter.

          5.10.2 ERISA; Employee Benefit Matters. Except as set forth in Schedule 5.10.2(a), no Plan (other than a “multiemployer plan” as defined in section 3(37) of ERISA) that is subject to section 302 of ERISA or section 412 of the Code has incurred an “accumulated funding deficiency” within the meaning of section 302 of ERISA or section 412 of the Code that remains unsatisfied on the date hereof. None of the Plans is a “multiemployer plan” as defined in Section 3(37) of ERISA. There are no outstanding liabilities under Title IV of ERISA with respect to which any member of the Company Group would reasonably be expected to have any material liability, and no such liabilities would reasonably be expected to arise as a result or in connection with the transactions contemplated by this Agreement. Except as set forth on Schedule 5.10.2(b), none of the Stand-Alone Plans has any material unfunded liabilities that are not reflected on the books and records of a member of the Company Group. No material disputes or claims (other than routine claims for benefits in the ordinary course) are pending or, to the Shareholder’s knowledge, threatened with respect to any Plan. No material audits, inquiries, reviews, proceedings, claims or demands are pending with any Governmental Authority with respect to any Plan. Except as set forth on Schedule 5.10.2(c), no Plan or other arrangement, individually or collectively, provides for any payment by the Company Group to any employee thereof that is an “excess parachute payment” pursuant to Section 280G of the Code if paid as a result of or in connection with the transactions contemplated by this Agreement. No member of the Company Group has incurred any material liability for any tax or penalty imposed by section 4975 of the Code or section 502(i) of ERISA relating to any Plan. Except as set forth in Schedule 5.10.2(d), (i) all material contributions and other payments required under ERISA, the Code or other applicable law to have been made by the applicable member of the Company Group to each Plan have been timely made, (ii) all Plans are in compliance in all material respects with all applicable laws and have been administered in accordance with their terms, and (iii) with respect to each Plan that is subject to or governed by laws of any jurisdiction other than the United States, all material amounts required to be reserved on account of each such Plan have been so reserved in accordance with reasonable accounting

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practices prevailing in the country where such Plan is established. Except as set forth on Schedule 5.10.2(e), each Plan that provides post-retirement welfare coverage (other than any coverage required to be provided by applicable law or by any collective bargaining agreement or related document to which any member of the Company Group is party) may be amended, modified or terminated on and after the Share Purchase Closing Date or Merger Closing Date, as applicable, without material liability to any member of the Company Group (other than the payment of benefits incurred in the ordinary course prior to the date of such amendment, modification or termination).

          5.10.3 Tax Qualification. Except as set forth in Schedule 5.10.3, (i) each Plan intended to be qualified under section 401(a) of the Code has received a favorable determination letter from the IRS as to its qualification under the Code and to the effect that each such trust is exempt from taxation under section 501(a) of the Code, and, to the knowledge of the Shareholder and the Company, nothing has occurred since the date of such determination letter that will adversely affect such qualification or tax-exempt status, and (ii) each other Plan intended to qualify for favorable tax treatment under the laws of any other jurisdiction have received all approvals or determinations necessary to obtain such favorable tax treatment and, to the knowledge of the Shareholder and the Company, nothing has occurred that will adversely affect the tax status of any such Plan. To the knowledge of the Shareholder and the Company, the Plan established pursuant to Section 8.1.12 meets all requirements for qualification for favorable tax treatment under Section 401(a) of the Code.

          5.10.4 Labor Matters. Except as set forth in Schedule 5.10.4, since January 1, 2004, there have been no material strikes, work stoppages, slowdowns, lockouts or grievances or other labor disputes pending or, to the knowledge of the Shareholder and the Company, threatened against any member of the Company Group. Except as set forth in Schedule 5.10.4, each member of the Company Group is in compliance with all applicable labor, employment, occupational safety and other similar laws except where the failure to so comply would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

     5.11 Intellectual Property.

     (a) Schedule 5.11(a) lists, as of the date hereof: (i) all material patents and applications therefor, trademarks and service marks and registrations and applications therefor, registered copyrights and trade names (collectively, “Intellectual Property”) owned by any member of the Company Group (“Owned Intellectual Property”) and (ii) all agreements granting material rights in Intellectual Property (“Licenses”) to any member of the Company Group (other than from any other member of the Company Group) (“Company Licenses” and, together with Owned Intellectual Property, “Company Intellectual Property”).

     (b) Except as set forth in Schedule 5.11(b), (i) members of the Company Group are the owners of, or have the right under the Company Licenses to use, the Company Intellectual Property listed in Schedule 5.11(a), free and clear of all Liens other than Permitted Liens, and (ii) there are no Licenses by any member of the Company Group granting to any third party (other than any other member of the Company Group or their joint venture partners) exclusive rights in the Company Intellectual Property listed in Schedule 5.11(a).

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     (c) Except as set forth in Schedule 5.11(c), since October 15, 2003, no member of the Company Group has received any written notice or claim that it is infringing on or otherwise violating the rights of any Person in respect of the trademarks, registered copyrights, trade names, service marks or patents of such Person and, to the knowledge of the Shareholder and the Company, there has been no infringement by any Person of the Company Intellectual Property, in each case.

     5.12 Governmental Authorizations; Compliance with Law. Except as set forth in Schedule 5.12, the applicable members of the Company Group hold all material licenses, permits and other governmental authorizations necessary to conduct the business of the Company Group, taken as a whole, as currently conducted, and no member of the Company Group has received any written notice of any violation of any statute, rule, regulation, judgment, order, decree, permit, concession, franchise, or other governmental authorization or approval applicable to it or to any of its properties, except for violations that would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. This Section 5.12 does not relate to employee benefits, Tax or environmental matters, which are addressed solely in Sections 5.10, 5.14 and 5.17, respectively.

     5.13 Litigation. Except as set forth in Schedule 5.13, there are no Actions or Proceedings pending or, to the knowledge of the Shareholder and the Company, threatened, against any member of the Company Group that (i) would reasonably be expected to result in the issuance of an order restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement or (ii) would reasonably be expected to result in (a) any injunction or other equitable relief against any member of the Company Group that would interfere in any material respect with the business or operations of the Company Group, taken as a whole, as currently conducted or (b) any Damages that would be reasonably expected, individually or in the aggregate, to have a Material Adverse Effect.

     5.14 Taxes. Except as set forth in Schedule 5.14, (a) all Tax Returns required to be filed by or with respect to each member of the Company Group on or prior to the Share Purchase Closing Date with respect to the Foreign Subsidiaries and on or prior to the Merger Closing Date with respect to the Company and the Remaining Subsidiaries have been filed (or will have been filed prior to the Share Purchase Closing Date or the Merger Closing Date, as applicable), (b) no written claim for assessment or collection of Taxes with respect to the business or assets of any member of the Company Group is being asserted against the Shareholder or any member of the Company Group, other than such claims that have been reserved against in the Financial Statements or fully resolved or settled, and (c) there are no tax allocation or tax sharing agreements between any member of the Company Group, on the one hand, and the Shareholder or any of its Affiliates (other than any member of the Company Group), on the other hand, that will be binding on the Parent or any member of the Company Group after the Share Purchase Closing Date or the Merger Closing Date, as applicable. Except as set forth in Schedule 5.14 or as reflected or reserved against in the Financial Statements, and except for Taxes the payment of which, or failure thereof to be paid, would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, all Taxes shown as due on or before the Share Purchase Closing Date with respect to the Foreign Subsidiaries and on or prior to the Merger Closing Date with respect to the Company and the Remaining Subsidiaries on such Tax Returns

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have been paid (or will have been paid prior to the Share Purchase Closing Date or the Merger Closing Date, as applicable). Except as set forth in Schedule 5.14, no member of the Company Group is or since December 31, 1987 has been a “distributing corporation” or a “controlled corporation” within the meaning of Code section 355. Except as set forth in Schedule 5.14, no member of the Company Group is required to include in income any adjustment pursuant to Code section 481(a) by reason of a voluntary change in accounting method initiated by the Company (or any Subsidiary). Except as set forth in Schedule 5.14, no member of the Company Group has engaged in any reportable transactions that were required to be disclosed pursuant to Treasury Regulation section 1.6011-4. Except as set forth in Schedule 5.14, Schedule 5.14 also accurately and completely identifies the reversals of deferred tax accounts relating to depreciation or amortization of property of the members of the Company Group listed therein.

     5.15 Absence of Changes. Since June 30, 2005, except as otherwise contemplated by this Agreement or in Schedule 5.15, the business of the Company Group taken as a whole has been conducted in the ordinary course in substantially the same manner in which it has been previously conducted, there has been no Material Adverse Effect, and no member of the Company Group has:

     (a) issued, sold, granted, purchased or redeemed any shares of its capital stock or any securities convertible into or exchangeable for such shares of capital stock;

     (b) incurred any material liabilities or obligations, except liabilities and obligations incurred in the ordinary course of business and advances from the Shareholder or another member of the Company Group consistent with past practice;

     (c) mortgaged, pledged or subjected to any Lien any of its properties or assets, except for Permitted Liens;

     (d) increased the compensation of any officer or employee, other than (i) as required by any agreement in effect on the date hereof, (ii) to comply with applicable law or (iii) in the ordinary course of business;

     (e) established, entered into or amended any Plan or other contract or arrangement applicable to any Company Employee or Former Employee in a manner that increases actual or potential costs to any member of the Company Group;

     (f) disposed or agreed to dispose of any material properties or assets except in the ordinary course of business;

     (g) canceled or forgiven any material debts or claims except in the ordinary course of business; or

     (h) entered into any written agreement or arrangement to do any of the foregoing.

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     5.16 Insurance. Schedule 5.16 sets forth a complete and correct list, as of the date hereof, of the material insurance policies currently maintained by the Shareholder and the Company Group with respect to the business of the Company Group.

     5.17 Environmental Matters. Except as set forth in Schedule 5.17:

     (a) each member of the Company Group is in compliance and has at all times complied with all applicable Environmental Laws;

     (b) each member of the Company Group has obtained, and is in compliance with, all permits and authorizations required under applicable Environmental Laws and no Actions or Proceedings are pending, or to the knowledge of the Shareholder or the Company, threatened, to revoke, terminate, cancel, appeal, challenge, amend or modify any such permits or authorizations;

     (c) none of the members of the Company Group has received from any Governmental Authority any oral or written notice of violation, non-compliance, liability or potential liability arising under any applicable Environmental Laws, other than matters that have been fully corrected and resolved and that are no longer outstanding, including the payment of any fines or penalties with respect thereto;

     (d) no judicial proceeding or governmental or administrative action or other action of any other Person is pending, or to the knowledge of the Shareholder or the Company, threatened under any applicable Environmental Law pursuant to which any member of the Company Group has been named as a party;

     (e) no member of the Company Group has (i) entered into any agreement with any Governmental Authority or any other Person pursuant to which any member of the Company Group has agreed to remediate any condition resulting from the release or threatened release of Hazardous Substances or (ii) assumed or retained any environmental liability or investigatory, corrective or remedial obligation of any other Person arising under contract or by operation of any Environmental Law;

     (f) no member of the Company Group has any liability under Environmental Laws for releasing Hazardous Substances at any property previously owned or leased by the Company Group; and

     (g) no member of the Company Group has (i) treated, stored, disposed, arranged or permitted the disposal of, transported, handled or released any Hazardous Substance at or from any of their current properties or facilities in a manner that has given rise to any damages or any investigatory, corrective or remedial obligation under any applicable Environmental Law, or (ii) been identified as a “Potentially Responsible Party” under CERCLA or any similar state law due to any of the foregoing activities or its ownership or operation of any of the current properties or facilities.

     Notwithstanding any of the representations and warranties contained elsewhere in this Agreement, matters arising under Environmental Laws shall be governed exclusively by this Section 5.17.

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     5.18 Accounts Receivable. Each of the accounts and notes receivable of the Company Group to be reflected on the Closing Balance Sheet (i) shall have arisen from a bona fide sales transaction in the ordinary course of business and is payable on ordinary trade terms, (ii) to the knowledge of the Shareholder and the Company, will be the legal, valid and binding obligation of the respective debtor, enforceable against such debtor in accordance with its respective terms, (iii) will not be subject to any valid set-off or counterclaim, (iv) will not represent an obligation for goods sold on consignment, on approval or on a sale-or-return basis or subject to any other repurchase or return arrangement, (v) will be collectible within 180 days of its due date in the aggregate recorded amount thereof, net of any applicable reserve reflected in the Closing Balance Sheet, and (vi) will not be the subject of any pending Actions or Proceedings brought by or on behalf of any member of the Company Group. Except as set forth on Schedule 5.18, there are no security arrangements or collateral securing the repayment or other satisfaction of receivables of the Company or any member of the Company Group.

     5.19 Business Inventory; Customer List. As of the date hereof, (i) subject to reserves for quantities of obsolete, “off-spec”, and slow-moving inventory at levels customary with past practice, the inventories of the Company Group are of usable and salable quality in the ordinary course of business, and (ii) the Company Group has on hand such quantities of work in process and finished product as is reasonably required to timely fill current orders and to maintain the manufacture and shipment of products at their normal levels. Schedule 5.19(a) contains a list of the 10 largest customers of the Company Group in each of the tire, mechanical rubber goods and industrial blacks categories by revenue for the fiscal year ended December 31, 2004 and sets forth next to each such customer the approximate percentage of net sales represented by such customer for the fiscal year ended December 31, 2004. Except as otherwise set forth on Schedule 5.19(b), none of the customers listed on Schedule 5.19(a) have ceased doing business with the Company or any member of the Company Group, have materially diminished the amount of such business or have provided written or, to the knowledge of the Shareholder and the Company, oral notice of an intention to cease or materially decrease such business, since January 1, 2005.

     5.20 Affiliate Transactions. Except as disclosed in Schedule 5.20, (i) there are no written or material oral agreements, arrangements or understandings, between the Company or any member of the Company Group, on the one hand, and the Shareholder, any officer, director or Affiliate (other than any member of the Company Group) of the Shareholder, on the other hand, and (ii) no member of the Company Group provides or causes to be provided any assets, services or facilities to the Shareholder or any such officer, director or Affiliate. Except as disclosed in Schedule 5.20, each of the agreements, arrangements or understandings listed therein in accordance with clause (i) above was entered into on an arm’s-length basis.

     5.21 Brokers. All negotiations relating to this Agreement and the transactions contemplated hereby have been carried out without the intervention of any Person acting on behalf of the Shareholder or any member of the Company Group in such manner as to give rise to any valid claim against the Parent or any member of the Company Group for any brokerage or finder’s commission, fee or similar compensation, except for Citigroup Global Markets, Inc., the fees of which shall be paid by the Shareholder.

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     6. Representations and Warranties of the Parent and Merger Sub. The Parent and Merger Sub, jointly and severally, represent and warrant to the Shareholder and the Company as follows:

     6.1 Status and Authority.

     (a) The Parent is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has the power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by the managing member(s) of the Parent, which approval constitutes all necessary action on the part of the Parent for such authorization. This Agreement has been duly executed and delivered by the Parent and constitutes the valid and binding obligation of the Parent, enforceable against the Parent in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity).

     (b) The Merger Sub is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by the board of directors of the Merger Sub, which approval constitutes all necessary action on the part of the Merger Sub for such authorization. This Agreement has been duly executed and delivered by the Merger Sub and constitutes the valid and binding obligation of the Merger Sub, enforceable against the Merger Sub in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity). The Merger Sub was formed solely for the purpose of engaging in the transactions contemplated by this Agreement, has engaged in no other business activities and has conducted its operations only as contemplated hereby.

     6.2 No Conflicts, Consents and Approvals.

     (a) The execution, delivery and performance of this Agreement by the Parent and Merger Sub will not result in (i) any conflict with the limited liability company agreement, certificate of incorporation or by-laws of the Parent or Merger Sub, (ii) any breach or violation of or default under any applicable statute, regulation, judgment, order or decree of any Governmental Authority or any mortgage, agreement, indenture or any other instrument to which the Parent or Merger Sub is a party or by which the Parent, Merger Sub or any of their respective properties or assets are bound, or (iii) the creation or imposition of any Lien, except, in the case of clauses (ii) and (iii), where such breaches, violations or defaults and such Liens would not reasonably be expected, individually or in the aggregate, to materially impair the ability of the Parent or Merger Sub to perform their respective obligations under, or to consummate the transactions contemplated by, this Agreement.

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     (b) Except as set forth in Schedule 6.2(b), no consent, approval or authorization of or filing with any Governmental Authority or Person is required on the part of the Parent or Merger Sub in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except filings, consents or approvals (i) that are required with respect to the HSR Act or (ii) others that, if not made or obtained, would not reasonably be expected, individually or in the aggregate, to materially impair the ability of the Parent or Merger Sub to perform their respective obligations under, or to consummate the transactions contemplated by, this Agreement.

     6.3 Financial Ability to Perform. The Parent has received, and furnished to the Shareholder and Company a copy of, the commitment letters set forth on Schedule 6.3 (the “Commitment Letters”) with respect to an amount of financing (the “Financing Amount”) sufficient to pay the Foreign Subsidiary Purchase Prices and the Merger Consideration and all related fees and expenses. The Commitment Letters are valid and binding, in full force and effect and enforceable against the Parent and its Affiliates and, to the knowledge of the Parent, the financing sources party thereto, and the Parent knows of no facts or circumstances that are reasonably likely to result in any of the conditions set forth in the Commitment Letters not being satisfied. The Commitment Letters constitute, and upon execution of definitive financing agreements providing for the Financing Amount (the “Definitive Financing Agreements”), the Commitment Letters and the Definitive Financing Agreements will constitute, the entire and complete agreement between the parties thereto with respect to the financing contemplated thereby.

     6.4 Solvency. Immediately after giving effect to the transactions contemplated by this Agreement, the Parent, Merger Sub and each member of the Company Group shall (i) be able to pay its debts as they become due, (ii) own property that has a fair saleable value greater than the amounts required to pay their respective debts (including a reasonable estimate of the amount of all contingent liabilities) and (iii) have adequate capital to carry on its business. No transfer of property is being made and no obligation is being incurred in connection with the transactions contemplated by this Agreement with the intent to hinder, delay or defraud either present or future creditors of the Parent, Merger Sub or of any member of the Company Group.

     6.5 Litigation. There are no Actions or Proceedings pending or, to the knowledge of the Parent, threatened, against the Parent or Merger Sub that would reasonably be expected to result in the issuance of an order restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement.

     6.6 Purchase for Investment. The Parent and Merger Sub are acquiring the Shares and Foreign Subsidiary Shares for investment and not with a view toward any resale or distribution thereof except in compliance with the Securities Act of 1933, as amended (the “Securities Act”). The Parent and Merger Sub hereby acknowledge that the Shares and Foreign Subsidiary Shares have not been registered pursuant to the Securities Act and may not be transferred in the absence of such registration or an exemption therefrom under the Securities Act. The Parent and Merger Sub have sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Shares and Foreign Subsidiary Shares and is capable of bearing the economic risks of the transactions contemplated by this Agreement.

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     6.7 Brokers. All negotiations relating to this Agreement and the transactions contemplated hereby have been carried out without the intervention of any Person acting on behalf of the Parent or Merger Sub in such manner as to give rise to any valid claim against the Parent, Merger Sub, the Shareholder or any member of the Company Group for any brokerage or finder’s commission, fee or similar compensation.

     6.8 Insurance. The Parent and Merger Sub acknowledge that, as of the Closing Date, the members of the Company Group will cease to be entitled to the benefit of insurance arrangements that, prior to the Closing Date, were extended to them as Subsidiaries of the Shareholder.

     6.9 No Knowledge of Misrepresentations and Omissions. Other than as disclosed in the Phase I Environmental Site Assessments made available to Parent and its Affiliates in the online data room established by the Shareholder in connection with the transactions contemplated by this Agreement, the Parent and Merger Sub have no knowledge that any of the representations and warranties of the Shareholder and the Company is not true and correct in all material respects; provided that, neither the Parent nor the Merger Sub shall be deemed to have any knowledge of any misrepresentation or breach of any representation or warranty made by the Shareholder or the Company in this Agreement based upon any information contained in such Phase I Environmental Site Assessments.

     6.10 Sevalco. It is the present intention of the Parent to cause Sevalco Ltd to be operated in the ordinary course of business.

     7. Certain Covenants.

     7.1 Consents; Obligations of the Parties.

     (a) Subject to the terms and conditions of this Agreement, each party shall use its commercially reasonable efforts to cause each of the Closings to occur, including, without limitation, (i) taking such actions as are contemplated by Section 7.1(b), (ii) obtaining all consents, approvals or actions of, making all filings with and giving all notices to Governmental Authorities or any other Person required in connection with the consummation of the transactions contemplated hereby, and (iii) defending against any Actions or Proceedings challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any temporary restraining order, preliminary injunction or other legal restraint or prohibition entered or imposed by any court or other Governmental Authority and that is not yet final and non-appealable to be vacated or reversed; provided that neither the Shareholder, the Company nor any of their respective Affiliates shall be required to make any material monetary expenditure, commence or be a plaintiff in any litigation or other proceeding or offer or grant any material accommodation (financial or otherwise) to any Person.

     (b) Each of the Shareholder and Parent or the appropriate Affiliate(s) of the Parent shall file as promptly as practicable with the United States Federal Trade Commission (the “FTC”) and the United States Department of Justice (the “DOJ”), in each case pursuant to the HSR Act: (i) the notification and report form, if any, required for the transactions contemplated hereby, which form shall be filed not later than 10 Business Days following the execution and

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delivery of this Agreement, and (ii) any supplemental information requested in connection therewith, which information shall be filed as promptly as practicable and in no event later than five Business Days following the request therefor during the initial waiting period. Any such notification and report form and supplemental information shall be in substantial compliance with the requirements of the HSR Act. The Shareholder, Company, Parent and Merger Sub shall comply as promptly as practicable with any other laws of any country or the European Union that are applicable to any of the transactions contemplated hereby and pursuant to which any consent, approval or authorization of, or filing with, any Governmental Authority or any other Person in connection with such transactions is necessary.

     (c) Each of the Shareholder, Company, Parent and Merger Sub shall furnish to the other parties hereto such necessary information and reasonable assistance as the other party may request in connection with its preparation of any filing that is necessary under the HSR Act or any other law. The Shareholder, Company, Parent and Merger Sub shall keep each other apprised of the status of any communications with, and any inquiries or requests for additional information from, the FTC and the DOJ and any other Governmental Authority and shall comply promptly with any such inquiry or request. Each of the Shareholder, the Company, Parent and Merger Sub shall use its commercially reasonable efforts to obtain any clearance required under the HSR Act or any other consent, approval or authorization of any Governmental Authority necessary for the purchase and sale of the Foreign Subsidiary Shares and the Merger; provided that with respect to any consent, approval or authorization of any Governmental Authority in Korea, the Parent and Merger Sub shall take all actions necessary to obtain any such consent, approval or authorization, including without limitation holding separate or divesting any business or assets of any member of the Company Group or of the Parent or any of its Subsidiaries or Affiliates, including in response to a definitively required condition by the Korean Fair Trade Commission.

     (d) The Parent shall use commercially reasonable efforts to obtain the financing contemplated by Section 9.4.3, or alternative financing on substantially comparable or more favorable terms, as promptly as practicable. For purposes of this Section 7.1(d), the “commercially reasonable efforts” of the Parent shall include acceptance of any changes in the terms and conditions of such financing pursuant to any “market flex” provisions contained in the Commitment Letters or any other agreement or understanding entered into by the Parent in connection therewith. The Parent shall not, without the prior written consent of the Shareholder, such consent not to be unreasonably withheld or delayed, amend, modify or supplement any provision of the Commitment Letters (including, without limitation, the conditions precedent therein); provided, that except as otherwise set forth in this Agreement nothing contained herein shall restrict the Parent in its negotiations, execution or delivery of the Definitive Financing Agreements.

     7.2 Obligations of the Shareholder and Company.

          7.2.1 Conduct of Business. From the date hereof until (i) with respect to the Foreign Subsidiaries, the Share Purchase Closing, and (ii) with respect to the Company, the Merger Closing, except as set forth in the Schedules hereto, as contemplated by this Agreement or as otherwise consented to by the Parent in writing, such consent not to be unreasonably

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withheld or delayed, the Shareholder shall cause, and the Company shall and shall cause, each member of the Company Group to:

     (a) carry on its business in the ordinary course in substantially the same manner in which it previously has been conducted and, to the extent consistent with such business, use its commercially reasonable efforts to preserve intact its present business organization and to preserve its relationships with customers, suppliers and others having business dealings with it; provided, the Company may incur any (i) Bahia Project Expenditure, so long as such expenditure is consistent with the Company’s estimates of expenditures reflected in Schedule 7.2.1(a)(i) and (ii) North Bend Project Expenditure, so long as such expenditure is consistent with the Company’s estimates of expenditures reflected in Schedule 7.2.1(a)(ii), provided, further, that the Company may incur Bahia Project Expenditures not reflected in Schedule 7.2.1(a)(i) and North Bend Project Expenditures not reflected in Schedule 7.2.1(a)(ii), subject to the prior consent of the Parent, such consent not to be unreasonably withheld or delayed, and provided, further, that the Shareholder shall periodically update the Parent (upon Parent’s reasonable request) on the status of the Bahia Project and North Bend Project and the formation and implementation of plans associated with the Bahia Project and the North Bend Project;

     (b) not enter in any commitments or other agreements regarding the financing of the Bahia Project or the North Bend Project without the prior written consent of Parent, such consent not to be unreasonably withheld or delayed;

     (c) not amend its charter documents or by-laws;

     (d) not merge or consolidate with, purchase substantially all of the assets of, or otherwise acquire any business or any Person;

     (e) not take any action or omit to take any action, which action or omission would result in a material breach or inaccuracy of any of the representations and warranties set forth in Section 5.15 as of the Share Purchase Closing or Merger Closing, as the case may be;

     (f) maintain its books of account and records in its usual, regular and ordinary manner;

     (g) not sell any material assets outside the ordinary course of business consistent with past practices;

     (h) not settle any claims related to the KKPC Matter;

     (i) not agree or commit to do any of the foregoing referred to in clauses (a)-(h); and

     (j) promptly advise the Parent and Merger Sub of any fact, condition, occurrence or change known to the Shareholder or the Company that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect or cause a breach of this Section 7.2.1.

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     Notwithstanding the foregoing, immediately prior to (x) the Share Purchase Closing with respect to the Foreign Subsidiaries and (y) the Merger Closing with respect to the Company and the Remaining Subsidiaries: (i) all outstanding liabilities, including short-term and long-term liabilities, (A) due to the Shareholder and/or any of its Affiliates (other than any member of the Company Group) from any member of the Company Group (including liabilities owing by the Shareholder or any of its Affiliates to third parties that were incurred for the benefit of any member of the Company Group), or (B) due to any member of the Company Group from the Shareholder and/or any of its Affiliates (other than any member of the Company Group), shall each be capitalized or settled in accordance with Schedule 7.2.1(x), (ii) all outstanding accounts receivable and long-term receivables (A) due to the Shareholder and/or any of its Affiliates (other than any member of the Company Group) from any member of the Company Group, or (B) due to any member of the Company Group from the Shareholder and/or any of its Affiliates (other than any member of the Company Group), shall each be capitalized or settled in accordance with Schedule 7.2.1(y), (iii) the Company shall, and shall cause each member of the Company Group to, declare and pay a dividend or otherwise make a distribution of all available Cash and Cash Equivalents in such a manner as to cause the distribution to the Shareholder of all available Cash and Cash Equivalents of the Company Group in excess of the Target Cash Amount, and at the Merger Closing the Company shall have the Target Cash Amount, and (iv) the Shareholder shall transfer or cause to be transferred to the Company all accounts receivable of the Company Group purchased prior to the Share Purchase Closing Date or Merger Closing Date, as the case may be, by the Shareholder or any of its Affiliates in connection with the Shareholder’s accounts receivable securitization program that have not been collected in full as of the Share Purchase Closing Date. All outstanding liabilities (including short-term and long-term liabilities described in clause (i) above) and all outstanding accounts receivable and long-term receivables (described in clause (ii) above), that arise, are created or are discovered on or after the date hereof (and therefore are not listed on Schedule 7.2.1 (x) or Schedule 7.2.1 (y)), shall be capitalized or settled immediately prior to the Share Purchase Closing with respect to the Foreign Subsidiaries and the Merger Closing with respect to the Company and the Remaining Subsidiaries in the same manner as outstanding liabilities of a similar type are to be capitalized or settled as provided in the Schedules, provided, that all outstanding liabilities of a type not reflected in the Schedules shall be capitalized or settled in a manner mutually agreed upon by the Parent and the Shareholder. The last paragraph of this Section 7.2.1 shall not apply to employee benefits matters that are covered under Section 8.

          7.2.2 Access and Information.

     (a) From the date hereof until the Share Purchase Closing, upon reasonable notice, each of the Shareholder and the Company shall and shall cause each member of the Company Group to give to the Parent, Merger Sub and their respective representatives reasonable access at all reasonable times during normal business hours to the management, properties, books and records of the members of the Company Group and furnish for inspection such information and documents in its possession relating to the Company Group as the Parent or Merger Sub may reasonably request, provided that, in the exercise of the foregoing rights, each of the Parent and Merger Sub shall not, and shall use its best efforts to cause its representatives not to, interfere with the operation and conduct of the business of any member of the Company Group, and provided, further, that without the prior written consent of the Shareholder and the Company, the Parent, Merger Sub and their respective representatives shall not be entitled to any such access,

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information or documents (i) as to which the attorney-client privilege or attorney work-product doctrine may be available or apply or (ii) the disclosure of which is restricted by contract or applicable law except in strict compliance with such contract or law. All such information and documents obtained by the Parent shall be subject to the terms of the Non-Disclosure Agreement, dated February 24, 2005, as amended, between the Parent and the Shareholder and the Confidentiality Agreement dated July 26, 2005, between the Parent, the Shareholder and DC Chemicals Co., Ltd. (together, the “Non-Disclosure Agreements”).

     (b) From the Share Purchase Closing to the Merger Closing, upon reasonable notice, each of the Shareholder and the Company shall and shall cause each member of the Company Group (other than the Foreign Subsidiaries) to give to the Parent, Merger Sub and their respective representatives reasonable access at all reasonable times during normal business hours to the management, properties, books and records of such Company Group members and furnish for inspection such information and documents in its possession relating to such Company Group members as the Parent or Merger Sub may reasonably request, provided that, in the exercise of the foregoing rights, each of the Parent and Merger Sub shall not, and shall use its best efforts to cause its representatives not to, interfere with the operation and conduct of the business of any such member of the Company Group, and provided, further, that without the prior written consent of the Shareholder and the Company, the Parent, Merger Sub and their respective representatives shall not be entitled to any such access, information or documents (i) as to which the attorney-client privilege or attorney work-product doctrine may be available or apply or (ii) the disclosure of which is restricted by contract or applicable law except in strict compliance with such contract or law. All such information and documents obtained by the Parent shall be subject to the terms of the Non-Disclosure Agreements.

          7.2.3 Certain Resignations. The Shareholder shall cause each member of the Board of Directors and officer of any member of the Company Group that is also an employee or officer of the Shareholder to submit his or her resignation from such board of directors or as an officer of such member of the Company Group, respectively, effective as of the Share Purchase Closing Date or Merger Closing Date, as applicable.

          7.2.4 Severance Agreements. On the Share Purchase Closing Date or Merger Closing Date, as applicable, or as promptly as reasonably practicable following the Share Purchase Closing Date or Merger Closing Date, as applicable, the Shareholder shall pay or otherwise satisfy all liabilities and obligations arising under any severance, retention or change of control agreements between the Shareholder, any member of the Company Group or any of their Affiliates, on the one hand, and any officer, employee or consultant of any member of the Company Group, on the other hand.

          7.2.5 Certain Real Property Matters. On or prior to the Merger Closing, the Shareholder (i) shall cause the applicable member of the Company Group to sell, transfer, convey, assign and deliver to the Shareholder or one of its Affiliates (other than any member of the Company Group) good, valid and marketable fee simple title to each of the Closed Sites, free and clear of all Liens other than Permitted Liens, and (ii) in accordance with Section 11.2.1, shall assume and agree to pay, honor and discharge when due all liabilities and obligations to third parties relating exclusively to such Closed Sites that are incurred after the Merger Closing Date.

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     7.3 Obligations of the Parent and Merger Sub. From the Share Purchase Closing until the Merger Closing, except as set forth in the Schedules hereto, as contemplated by this Agreement or as otherwise consented to by the Shareholder in writing, such consent not to be unreasonably withheld or delayed, the Parent shall cause each Foreign Subsidiary to:

     (a) carry on its business in the ordinary course in substantially the same manner in which it previously has been conducted and, to the extent consistent with such business, use its commercially reasonable efforts to preserve intact its present business organization and to preserve its relationships with customers, suppliers and others having business dealings with it;

     (b) not take any action or omit to take any action, which action or omission would result in a material breach or inaccuracy of any of the representations and warranties set forth in Section 5.15 with respect to the Company and its Subsidiaries (excluding the Foreign Subsidiaries) (such Subsidiaries, the “Remaining Subsidiaries”) as of the Merger Closing;

     (c) maintain its books of account and records in its usual, regular and ordinary manner;

     (d) not agree or commit to do any of the foregoing referred to in clauses (a)-(c); and

     (e) promptly advise the Shareholder of any fact, condition, occurrence or change known to the Parent that would reasonably be expected to have a Material Adverse Effect or cause a breach of this Section 7.3.

     7.4 Taxes.

     (a) Except to the extent reflected or provided for in any Closing Balance Sheet, the Shareholder shall pay and be responsible for (without duplication of amounts otherwise payable) (i) federal, state, local and foreign Taxes of or payable by or attributable to any member of the Company Group attributable to all taxable periods (or portions thereof) ending on or prior to the Share Purchase Closing Date with respect to the Foreign Subsidiaries and on or prior to the Merger Closing Date with respect to the Company and the Remaining Subsidiaries, (ii) any liability for federal, state, local or foreign Taxes asserted against any member of the Company Group under the provisions of Treasury Regulation section 1.1502-6(a) that impose several liability on members of an affiliated group of companies that file consolidated returns, or similar provisions of any foreign, state or local law, in respect of Taxes of any other Person (other than the Company Group for which the Shareholder is liable under clause (i) above) attributable to all taxable years (or portions thereof) ending on or prior to the Share Purchase Closing Date with respect to the Foreign Subsidiaries and beginning on or prior to the Merger Closing Date with respect to the Company and the Remaining Subsidiaries, (iii) up to US$9,000,000 in capital gains Taxes arising in connection with the sale of the quotas of Columbian Chemicals Brasil, Ltda. to an Affiliate of the Parent, (iv) 50% of any transfer, registration, sales, use, stamp, ad valorem and similar Taxes resulting from the transactions contemplated by this Agreement, (v) subject to clause (iv) above, any U.S. Taxes arising in connection with the Share Purchase

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Closing and the Merger Closing, and (vi) any Taxes resulting from a breach of any representation or warranty in Section 5.14. Except with respect to those Taxes payable by the Shareholder as provided for in the previous sentence, Parent shall pay and be responsible for any Taxes resulting from the transactions contemplated by this Agreement and any foreign Taxes arising in connection with the Share Purchase Closing, including without limitation, any such Taxes arising as a result of an election by or on behalf of the Parent or the Surviving Corporation under section 338 of the Code or under any similar provision of applicable state or local tax law. The Parent shall pay and be responsible for, and shall indemnify and hold harmless the Shareholder and the Shareholder’s Affiliates (other than any member of the Company Group) from and against, all Taxes of or payable by or attributable to any member of the Company Group that are not described in this Section 7.4(a) as being the responsibility of the Shareholder. In the case of Taxes that are payable with respect to a taxable period that begins before the Share Purchase Closing Date with respect to the Foreign Subsidiaries or before the Merger Closing Date with respect to the Company and the Remaining Subsidiaries and ends after the Share Purchase Closing Date or Merger Closing Date, as applicable, the portion of any such Tax that is allocable to the portion of the period ending on the Share Purchase Closing Date or Merger Closing Date, as applicable, shall be deemed equal to the amount which would be payable if the taxable year ended at the time of the Share Purchase Closing or Merger Closing, as applicable, and the Parent and the Surviving Corporation shall prepare books and working papers (including a closing of the books) that will demonstrate the income and activities of the applicable members of the Company Group for the period ending at the time of the Share Purchase Closing or Merger Closing, as applicable, and such post-closing partial period. In the event that one party (the “Tax Indemnitor”) is obligated to indemnify the other party (the “Tax Indemnitee”) for any Tax under this Section 7.4(a), such indemnity amount shall be reduced by the present value of any future Tax benefits to be realized by the Tax Indemnitee resulting from such Tax (such present value to be determined by mutual agreement of the Tax Indemnitor and the Tax Indemnitee or, if they are unable to agree, by the Tax Dispute Accountants pursuant to Section 7.4(f)).

     (b) Tax Returns.

     (i) The Shareholder’s Responsibility. The Shareholder shall cause each member of the Company Group to join, for all taxable periods (or portions thereof) ending on or prior to the Share Purchase Closing Date with respect to the Foreign Subsidiaries and on or prior to the Merger Closing Date with respect to the Company and Remaining Subsidiaries, in (A) the consolidated federal income Tax Returns of the Shareholder and (B) the consolidated, combined or unitary state, local or foreign income Tax Returns of or including the Shareholder or any of its Affiliates (other than the relevant members of the Company Group) with respect to which any member of the Company Group (x) has joined in the most recent taxable year or (y) is required by law to join in filing, and shall prepare and file all such Tax Returns. The Shareholder shall prepare or cause to be prepared and file or cause to be filed all other Tax Returns that are required to be filed by or in respect of the relevant members of the Company Group on or prior to the Share Purchase Closing Date or Merger Closing Date, as the case may be.

     (ii) The Parent’s Responsibility. The Parent and the Surviving Corporation shall prepare or cause to be prepared and file or cause to be filed all Tax Returns required to be filed by or in respect of the Company Group other than those Tax Returns described as the Shareholder’s responsibility in Section 7.4(b)(i) above and shall report on such Tax Returns

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(including any consolidated federal income Tax Return filed by the Surviving Corporation) any transactions or events by or relating to any relevant member of the Company Group after the Share Purchase Closing with respect to the Foreign Subsidiaries and after the Merger Closing with respect to the Company and Remaining Subsidiaries. Any such Tax Returns with respect to which the Parent or the Surviving Corporation is responsible for preparing and filing pursuant to this Section 7.4(b)(ii) that include the taxable periods (or portions thereof) ending on or prior to the Share Purchase Closing Date with respect to the Foreign Subsidiaries and on or prior to the Merger Closing Date with respect to the Company and Remaining Subsidiaries shall, insofar as they relate to any member of the Company Group, (x) be on a basis consistent with the last previous such Tax Returns filed in respect of any such member of the Company Group and (y) be submitted to the Shareholder for its review and approval at least 30 Business Days prior to the filing date, such approval not to be unreasonably withheld.

     (iii) Cooperation. The Shareholder, Company, Parent and Merger Sub shall cooperate with each other, and after each of the Share Purchase Closing Date and Merger Closing Date, the Parent, Merger Sub and the Surviving Corporation shall cause any relevant member of the Company Group to cooperate with the Shareholder, with respect to the preparation and filing of any Tax Return for which the other is responsible pursuant to this Section 7.4(b). Without limiting the generality of the foregoing, with respect to all federal consolidated income Tax Returns and state and local consolidated, combined and unitary and foreign Tax Returns of the Shareholder or any of its Affiliates for all taxable years (or portions thereof) ending on or prior to the Share Purchase Closing Date with respect to the Foreign Subsidiaries and on or prior to the Merger Closing Date with respect to the Company and Remaining Subsidiaries, the Parent and the Surviving Corporation shall cause each member of the Company Group to prepare accurately and completely and submit to the Shareholder all “tax packages” and all other information reasonably requested by the Shareholder and necessary for the preparation and filing of such Tax Returns by the Shareholder not later than 120 days after the Share Purchase Closing Date or Merger Closing Date, as applicable, except that all “foreign reporting packages” shall be submitted to the Shareholder not later than March 31^st of the year following the year in which the Share Purchase Closing or Merger Closing, as applicable, occurred. In the event that, after having made inquiry of the Parent and the Surviving Corporation, the Shareholder shall have reason to believe that such tax packages, foreign reporting packages and other information will not be provided to the Shareholder on a timely basis, the Shareholder shall have the right, at the Parent’s expense, to retain PricewaterhouseCoopers LLP, or other accounting firm of its choice, to prepare such packages and information and submit the same to the Shareholder. In the event the Shareholder exercises its rights under the preceding sentence, the Parent and the Surviving Corporation shall cause the Company Group to fully cooperate with and provide all necessary information and access to PricewaterhouseCoopers LLP or such other accounting firm as may be necessary to enable it to accurately and completely prepare such packages and information for submission to the Shareholder.

     (iv) Amended Returns. For all taxable periods (or portions thereof) ending on or prior to the Share Purchase Closing Date with respect to the Foreign Subsidiaries and on or prior to the Merger Closing Date with respect to the Company and Remaining Subsidiaries, each of the Parent and the Surviving Corporation shall not, and shall cause each member of the Company Group not to, file (or consent to file) any amended Tax Returns or a claim for a refund of any Tax, unless the Shareholder shall have reviewed and consented in writing to the contents of any

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such amended Tax Return (or claim for a refund) prior to the filing thereof (which consent shall not be unreasonably withheld or delayed).

     (c) Refunds. The Shareholder shall be entitled to retain, or receive immediate payment from any member of the Company Group or the Parent or the Surviving Corporation of, (i) any Tax refund, excluding any Tax refunds that were taken into account in Current Assets for purposes of the adjustments in Section 4, but including, without limitation, refunds arising by reason of amended returns filed after the Share Purchase Closing Date or Merger Closing Date, as the case may be, and refunds or other distributions of any amounts deposited in connection with the tax litigation described in Schedule 5.14 under the heading “Tax Litigation”, or (ii) credit of any taxes (plus any interest thereon received with respect thereto from the applicable taxing authority or Governmental Authority) relating to any member of the Company Group for which the Shareholder is responsible under Section 7.4(a) or has otherwise paid or caused to be paid. In addition, any reduction of Taxes (“Reduced Taxes”) (i) due with respect to the assets or business of any member of the Company Group for any period or partial period ending after the Share Purchase Closing Date with respect to the Foreign Subsidiaries or the Merger Closing Date with respect to the Company and the Remaining Subsidiaries that is attributable to an adjustment on audit by a taxing authority requiring any member of the Company Group to capitalize expenses or otherwise defer deductions that were currently deducted on a Tax Return as originally filed for periods ending on or prior to the Share Purchase Closing Date or the Merger Closing Date, as the case may be, shall be credited to the Shareholder, and the Parent or any member of the Company Group shall pay over such Reduced Taxes to the Shareholder promptly after the receipt of any refund of Taxes attributable thereto or the payment of any Reduced Tax or the reporting of any Tax liability in an amount reflecting such Reduced Taxes, less the reasonable expenses incurred by the Parent or the Surviving Corporation, if any, to amend any Tax Returns in order to pursue such refund, or (ii) due with respect to the assets or business of the Company Group, for any period or partial period ending on or before the Share Purchase Closing Date with respect to the Foreign Subsidiaries or the Merger Closing Date with respect to the Company and the Remaining Subsidiaries that is attributable to an adjustment on audit by a taxing authority requiring any member of the Company Group to deduct expenses that were capitalized or accelerate anticipated deductions, in each case, on a Company Group Tax Return relating to periods or portions thereof ending on or prior to the Share Purchase Closing Date or the Merger Closing Date, as the case may be, shall be credited to the Parent and the Shareholder shall pay over such Reduced Taxes to the Parent promptly after the receipt of any refund of Taxes attributable thereto, less any reasonable expenses incurred by the Shareholder, if any, to amend any Tax Returns in order to pursue such refund. Any dispute with respect to Reduced Taxes shall be resolved by the Tax Dispute Accountants, and any such determination by the Tax Dispute Accountants shall be final. The Parent shall be entitled to the benefit of any other refund or credit of Taxes (plus any interest thereon received with respect thereto from the applicable taxing authority) relating to any member of the Company Group. The Parent, the Shareholder and the Surviving Corporation shall reasonably cooperate, and the Parent shall cause the Company Group and their other Affiliates to reasonably cooperate, with the Shareholder with respect to claiming of any refund or credit referred to in this Section 7.4(c), including discussing potentially available refunds or credits and preparing and filing any amended Tax Return or other claim for a refund except to the extent the Parent reasonably determines that the filing of such amended Tax Return or other claim for a refund would have a Material Adverse Effect on the Company Group, taken as a whole.

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     (d) Audits. Each of the Parent, Merger Sub, Company and Shareholder shall promptly notify the other parties in writing within 10 Business Days from its receipt of notice of (i) any pending or threatened federal, state, local or foreign Tax audits or assessments of any member of the Company Group, so long as any taxable periods (or portions thereof) ending on or prior to the Share Purchase Closing Date or Merger Closing Date, as applicable, remain open, and (ii) any pending or threatened federal, state, local or foreign Tax audits or assessments of the Parent, Merger Sub, Company or the Shareholder which may affect the Tax liabilities of any member of the Company Group, in each case for taxable periods (or portions thereof) ending on or prior to the Share Purchase Closing Date or Merger Closing Date, as applicable, provided that the failure of one party to timely notify the other parties of any such Tax audit or assessment pursuant to this sentence shall not increase, decrease or otherwise affect the indemnity right or obligation of either party, so long as such failure does not materially prejudice such other party. Notwithstanding the foregoing and provided the Shareholder acknowledges potential liability therefor, the Shareholder shall have the right to represent the interests of the applicable member of the Company Group and control the conduct and disposition of any Tax audit or administrative or court proceeding relating to Taxes for any taxable periods (or portions thereof) ending on or prior to the Share Purchase Closing Date or Merger Closing Date, as applicable, and for which the Shareholder may be responsible hereunder, and the Parent and the Surviving Corporation shall have the right to consult with the Shareholder during such proceedings at their own expense. With respect to any Tax audit or administrative or court proceeding relating to any Tax Return for a taxable period beginning before the Share Purchase Closing Date or Merger Closing Date, as applicable, and ending after the Share Purchase Closing Date or Merger Closing Date, as applicable, which shall be controlled by the Parent, the Parent shall (x) afford the Shareholder and its Tax advisors a reasonable opportunity to participate in the conduct of any administrative or judicial proceeding regarding or arising out of any audits or assessments, including, without limitation, the right to participate in conferences with taxing authorities and to submit pertinent material in support of the Shareholder’s position, and (y) not accept any proposed adjustment or enter into any settlement or agreement in compromise that would result in a claim for indemnification against the Shareholder pursuant to this Agreement without the prior written consent of the Shareholder, which consent shall not be unreasonably withheld. The Parent agrees that it shall, at its own expense, cooperate fully, and cause the Surviving Corporation and each member of the Company Group to cooperate fully, with the Shareholder and its representatives in connection with such audit or proceeding, including timely furnishing all work papers and other documents requested by any relevant taxing authority and making relevant employees and officers available in connection with such audit or proceeding.

     (e) Conduct of Business. After the Share Purchase Closing with respect to the Foreign Subsidiaries and after the Merger Closing with respect to the Company and Remaining Subsidiaries, as to matters that could affect the Tax Returns of the Shareholder or any member of the Company Group with respect to periods ending on or prior to the Share Purchase Closing Date or Merger Closing Date, as applicable, the Parent or the Surviving Corporation shall cause each applicable member of the Company Group to carry on its business only in the ordinary course in substantially the same manner as heretofore conducted.

     (f) Tax Dispute Resolution Mechanism. Any dispute among the parties involving Taxes arising under this Agreement shall be resolved as follows: (i) the parties will in good faith attempt to negotiate a prompt resolution of the dispute, (ii) if the parties are unable to negotiate a

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resolution of the dispute within 30 days, the dispute will be submitted to the national office of a firm of independent accountants of nationally recognized standing reasonably satisfactory to the Shareholder and the Parent (the “Tax Dispute Accountants”), (iii) the Tax Dispute Accountants shall resolve the dispute, in a fair and equitable manner and in accordance with applicable Tax law and the provisions of this Agreement, within 30 days after the parties have submitted the dispute to the Tax Dispute Accountants, whose decision shall be final, conclusive and binding on the parties, absent fraud or manifest error, (iv) any payment to be made as a result of the resolution of a dispute shall be made, and any other action taken as a result of the resolution of a dispute shall be taken, on or before the fifth Business Day following the date on which the dispute is resolved, and (v) the fees and expenses of the Tax Dispute Accountants in resolving a dispute will be borne by the Shareholder and the Parent in inverse proportion as they may prevail on the issues resolved by the Tax Dispute Accountants, which inverse proportionate allocation shall also be determined by the Tax Dispute Accountants at the time the determination of the Tax Dispute Accountants is rendered on the merits of the issues submitted.

     (g) The Shareholder shall report, or shall cause to be reported, the Share Purchases as transactions occurring prior to the Merger and shall include, or cause to be included, any income, gain or loss attributable to the Share Purchases on all federal, state, local or foreign Tax Returns (including any consolidated, combined, unitary or other similar returns) of the Shareholder and each Subsidiary that is a transferor of Foreign Subsidiary Shares for tax periods that include the Share Purchase Closing Date.

     (h) Election Under Section 301.7701-3 of the Treasury Regulations. The Shareholder shall have the right to make an election under Section 301.7701-3 of the Treasury Regulations, prior to the Share Purchase Closing, to treat any Subsidiary of the Company as a partnership or disregarded entity for U.S. federal income Tax purposes.

     7.5 Publicity. Prior to the Merger Closing, no press release, public announcement or disclosure to any third party related to this Agreement or the transactions contemplated hereby shall be issued or made without the joint written approval of the Shareholder or the Parent, unless required by law, stock listing requirements or applicable administrative regulation, in which case the Shareholder or the Parent, as the case may be, shall use its commercially reasonable efforts to allow the other party sufficient time, consistent with such obligations, to review the nature of such legal obligations and to comment upon such disclosure prior to publication.

     7.6 Supplements to Disclosure Schedules. From time to time prior to the Share Purchase Closing in the case of the Foreign Subsidiaries and the Merger Closing in the case of the Company and Remaining Subsidiaries, the Shareholder and Company may amend or supplement any Schedule hereto by delivery of a written amendment or supplement thereto to the Parent and Merger Sub. Any such amendment or supplement shall only be effective to modify such representations and warranties for the purpose of determining the fulfillment of the conditions precedent set forth in Sections 9.4.1 or 10.4.1, unless the Parent promptly objects to any such amendment or supplement. No such amendment or supplement shall be effective to modify the representations and warranties made by the Shareholder and the Company on the date hereof for purposes of the Shareholder’s indemnification obligations under this Agreement.

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     7.7 Contact with Customers and Suppliers. Except with respect to Persons listed on Schedule 7.7 hereto whom the Parent and its Affiliates, advisors, agents, employees, directors and officers may contact, prior to the Share Purchase Closing with respect to the Foreign Subsidiaries and prior to the Merger Closing with respect to the Merger so long as it provides the Shareholder with reasonable advance written notice and an opportunity to be present, the Parent shall not, and shall cause its Affiliates, advisors, agents, employees, directors or officers not to, contact or communicate with the employees, customers, creditors, suppliers and licensors of, or other Persons having commercial relationships with, any member of the Company Group in connection with the transactions contemplated hereby (and not with respect to ordinary commercial communications) without the prior written consent of the Shareholder, which consent shall not be unreasonably withheld but may be conditioned upon a representative of the Shareholder being present at any such meeting or conference.

     7.8 Credit Support Arrangements. The Parent acknowledges that the Shareholder and/or its Affiliates (other than members of the Company Group) have entered into the arrangements listed in Schedule 7.8, pursuant to which (a) guarantees (including of performance under contracts, leases or agreements), letter of credit or other credit arrangements, including surety and performance bonds, have been issued by or for the account of the Shareholder and/or its Affiliates (other than the members of the Company Group) or (b) the Shareholder and/or its Affiliates (other than the members of the Company Group) are the primary or secondary obligors on debt instruments or financing or other contracts or agreements, in any case to support or facilitate business transactions by members of the Company Group. Such arrangements are referred to herein as the “Credit Support Arrangements.” At or prior to the Share Purchase Closing in the case of the Foreign Subsidiaries and at or prior to the Merger Closing in the case of the Company and Remaining Subsidiaries, the Parent shall or shall cause the Merger Sub to (i) obtain replacement Credit Support Arrangements or (ii) repay, or cause the repayment of, all debt and other obligations to which such Credit Support Arrangements relate (and cause the cancellation of such Credit Support Arrangements) or arrange for the Parent or one of its Subsidiaries to be substituted as the obligor thereof.

     7.9 Noncompetition. The Shareholder will, for a period of three years from the Merger Closing Date, refrain from, either alone or in conjunction with any other Person, directly or indirectly through its current Affiliates, engaging in any business or activity that involves in any material respect the production and supply of carbon black as currently conducted by the Shareholder through the Company (such business or activity, a “Competing Business”). The Shareholder’s ownership of (i) any Person that derives less than 10% of its total annual revenues from a Competing Business or (ii) less than 1% of the outstanding voting shares of any publicly held company, which would otherwise be prohibited by this Section 7.9, shall not constitute a violation of this Section 7.9.

     7.10 Appraisals. Promptly, and in any event within 45 days from the date hereof, the Parent shall deliver to the Shareholder appraisals reasonably satisfactory to the Shareholder, which may be prepared by the Parent, supporting the purchase price set forth in Schedule 1.3 for each Foreign Subsidiary and the amount of the Merger Consideration allocated to the Company and each Remaining Subsidiary as set forth in Schedule 7.10.

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     7.11 Certain Foreign Conversions. As promptly as practicable, the Shareholder shall use its good faith efforts to cause (i) Columbian Carbon Spain, Ltd. to convert into a Sociedad de Responsabilidad Limitada under the laws of Spain, and (ii) Columbian Chemicals Canada, Ltd. to convert into an unlimited liability company under Canadian law (together, the “Foreign Conversions”)

     8. Employees and Employee Benefit Plans.

     8.1 Compensation and Benefits of Company Employees. The employees of the Company Group (including any employee who is on an approved paid or unpaid leave of absence or salary continuance or short-term disability leave (as the case may be) and any other employee who has the legal or contractual right to be employed by any member of the Company Group) shall be referred to as “Company Employees.” Effective as of the Share Purchase Closing with respect to the Foreign Subsidiaries and as of the Merger Closing with respect to the Company and Remaining Subsidiaries, the Parent shall, or shall cause the Surviving Corporation or a member of the Company Group to, employ or continue to employ all Company Employees represented by a union in accordance with the terms and conditions set forth in any applicable collective bargaining agreements, including without limitation those listed in Schedule 5.10.1, and all non-union-represented Company Employees in accordance with this Section 8. From and for one year after the Share Purchase Closing Date with respect to the Foreign Subsidiaries and from and for one year after the Merger Closing Date with respect to the Company and Remaining Subsidiaries, the Parent will, or will cause the Surviving Corporation or a member of the Company Group to, provide or continue to provide each Company Employee with employee compensation and benefits and other terms and conditions of employment that are in the good faith opinion of the Parent substantially comparable in the aggregate to the compensation and benefits and terms and conditions provided to each such Company Employee by the Shareholder or its Affiliates, as applicable, immediately prior to the Share Purchase Closing or Merger Closing, as the case may be. Notwithstanding the foregoing, this Section 8.1 shall not be construed as a guarantee of continued employment of the Company Employees for a specified period. Except to the extent provided in this Section 8 or as otherwise provided in this Agreement, from and after the Share Purchase Closing or Merger Closing, as the case may be, the Parent shall, or shall cause the Surviving Corporation or applicable member of the Company Group to, honor, pay, perform and satisfy any and all liabilities, obligations and responsibilities to or in respect of each Company Employee arising under the terms of or in connection with any applicable Plan, any applicable employment, consulting, severance, retention, change of control or similar agreement or arrangement, in each case as in effect immediately prior to the Share Purchase Closing or Merger Closing, as applicable, excluding (x) any Plans or applicable agreements or arrangements maintained by the Shareholder and/or its Affiliates (other than any member of the Company Group) after the Share Purchase Closing or Merger Closing, as applicable, and (y) any claims or liabilities arising under or incurred with respect to any Plan or applicable agreements or arrangements based on events occurring prior to the Share Purchase Closing or Merger Closing, as applicable. Except to the extent provided in this Section 8 or as otherwise provided in this Agreement, the Shareholder shall assume and indemnify and hold the Company Group harmless against liabilities, obligations and responsibilities described in clauses (x) or (y) of the preceding sentence. For all purposes under all compensation and benefit Plans applicable to Company Employees after the Share Purchase Closing or Merger Closing, as applicable, the Parent shall, or shall cause the Merger Sub or applicable member of the Company

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Group, as applicable, to continue to treat all service by Company Employees with the Shareholder, the Company and any and all Subsidiaries or Affiliates of the Shareholder or the Company before the Share Purchase Closing or Merger Closing, as the case may be, as service with the Parent, Merger Sub or the Company or their Affiliates to the same extent as recognized by the Shareholder, the Company and all Subsidiaries or Affiliates of the Shareholder or the Company prior to the Share Purchase Closing or Merger Closing, as the case may be; provided that the foregoing shall not apply to the extent that its application would result in a duplication of benefits.

     8.1.1 Plan Funding Statements.

     (a) Without duplication for purposes of determining any Foreign Subsidiary Purchase Prices and Merger Consideration, 100% of the Unfunded PBO with respect to any Plan listed on Schedule 8.1.1-A plus 100% of the Unfunded APBO with respect to any Plan listed on Schedule 8.1.1-B shall be treated as Indebtedness.

     (b) The Unfunded PBO and Unfunded APBO with respect to any Plan described in Schedules 8.1.1-A and 8.1.1-B will be set forth in a Plan Funding Statement delivered by the Shareholder to the Parent within 30 days following the Share Purchase Closing Date or Merger Closing Date, as applicable. Upon receipt of the relevant Plan Funding Statement, the Parent shall have the right to review and confirm the accuracy of the calculations. The Parent shall deliver a Plan Notice of Disagreement to the Shareholder within 45 calendar days after receiving the relevant Plan Funding Statement if the Parent disagrees with the Shareholder’s calculation of Unfunded PBO or Unfunded APBO, which Plan Notice of Disagreement will initiate the Dispute Resolution Process set forth in Section 8.1.2. If the resolution of any dispute regarding a Plan Funding Statement is resolved prior to the adjustment, if any, of the Foreign Subsidiary Purchase Prices and the Merger Consideration pursuant to Section 4.2, then the adjusted Unfunded PBO or Unfunded APBO will be used in calculating any such adjustment. If the resolution of any disputes regarding a Plan Funding Statement is delayed on account of the Dispute Resolution Process and thus cannot be finalized until after the applicable adjustment, if any, is determined pursuant to Section 4.2, then the amount of the applicable Unfunded PBO or Unfunded APBO shall be paid by the Shareholder to the Parent in immediately available funds by wire transfer to an account specified by the Parent within 15 days from the completion of the Dispute Resolution Process.

     (c) For purposes of Sections 8.1.1 and 8.1.2: (i) “Plan Funding Statement” shall mean a statement prepared by a nationally recognized actuarial firm selected by the Shareholder setting forth the amount of the Unfunded PBO and/or Unfunded APBO, if any, with respect to each Plan, as well as all the data (and supporting calculations) used to determine these amounts, (ii) “PBO” for each applicable Plan shall mean the projected benefit obligation, calculated in accordance with GAAP (Financial Accounting Statements 87, 106, 112 or other accounting statements, as applicable) and the assumptions and methodologies set forth on the relevant portion of Schedule 8.1.1-A, for each such Plan as of the Share Purchase Closing Date or Merger Closing Date, as applicable, (iii) “Unfunded PBO” shall mean the excess, if any, of the PBO for each Plan over the fair value, as of the last day of the month preceding the month in which the Share Purchase Closing or Merger Closing, as applicable, occurs, of the assets of such Plan and other assets identified on Schedule 8.1.1-A, as of the Share Purchase Closing Date or Merger

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Closing Date, as applicable, (iv) “APBO” for each applicable Plan shall mean the accumulated post-employment benefit obligation, calculated in accordance with GAAP (Financial Accounting Statements 106, 112 or other accounting statements, as applicable) and the assumptions and methodologies set forth on the relevant portion of Schedule 8.1.1-B, for each such Plan as of the Share Purchase Closing Date or Merger Closing Date, as applicable, (v) “Unfunded APBO” shall mean the excess, if any, of the APBO for each Plan over the fair value, as of the last day of the month preceding the month in which the Share Purchase Closing or Merger Closing, as applicable, occurs, of the assets of such Plan and other assets identified on Schedule 8.1.1-B, as of the Share Purchase Closing Date or Merger Closing Date, as applicable, and (vi) “Plan Notice of Disagreement” shall mean a written statement setting forth in reasonable detail the basis for a dispute. For the avoidance of doubt, Unfunded PBO and Unfunded APBO cannot be less than zero. Further, Unfunded PBO and Unfunded APBO will be determined on a plan by plan basis in accordance with the Plan Funding Statement.

          8.1.2 Dispute Resolution Process. During the 10 calendar day period immediately following the delivery of a Plan Notice of Disagreement, the Parent and the Shareholder shall seek in good faith to resolve any differences that they may have with respect to any matter specified in the Plan Notice of Disagreement. If at the end of such 10 calendar day period the Parent and the Shareholder have been unable to agree upon a Plan Funding Statement, then the Parent and the Shareholder shall submit to a nationally recognized, independent actuarial firm (selected by the parties) for review and resolution any and all matters that remain in dispute with respect to the Plan Notice of Disagreement. The Parent and the Shareholder shall use commercially reasonable efforts to cause the independent actuarial firm to deliver a final Plan Funding Statement within 20 calendar days from such submission (which determination shall be binding on the parties hereto), and the cost of such independent actuarial firm shall be split equally between and paid by the Parent and the Shareholder. During the 20 calendar day review by the independent actuarial firm, the Parent and the Shareholder will each make available to the independent actuarial firm such individuals and such information, books and records as may be reasonably required (including of the Company and Merger Sub) by the independent actuarial firm to make its final determination.

          8.1.3 Certain Company Benefits. Effective as of the Share Purchase Closing with respect to Foreign Subsidiaries and as of the Merger Closing with respect to the Company and Remaining Subsidiaries, the Shareholder or one of its Affiliates shall cause each Company Employee (other than Covered Employees as defined in Section 8.1.12) and Former Employee who participates in the Phelps Dodge Retirement Plan or the Phelps Dodge Corporation Supplemental Retirement Plan to cease to accrue any additional benefits thereunder. Effective as of the Share Purchase Closing or Merger Closing, as applicable, the Shareholder shall, or shall cause one of its Affiliates other than any member of the Company Group to, assume or maintain sponsorship of and be solely responsible for, all benefits accrued under the Phelps Dodge Retirement Plan and the Phelps Dodge Corporation Supplemental Retirement Plan.

          8.1.4 Filings and Records. The Shareholder, the Parent, the Merger Sub and the Company Group shall cooperate in making all appropriate filings required under the Code or ERISA and any applicable securities laws, implementing all appropriate communications with participants, maintaining and transferring appropriate records and taking all such other actions as may be necessary and appropriate to implement the provisions of this Section 8.

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          8.1.5 Employee Savings Plan. After the Share Purchase Closing Date with respect to the Foreign Subsidiaries and after the Merger Closing Date with respect to the Company and Remaining Subsidiaries, the Shareholder and its Affiliates shall permit each Company Employee who is a participant in the Phelps Dodge Employee Savings Plan to elect, in accordance with the terms and conditions of the Phelps Dodge Employee Savings Plan, to (i) receive a distribution of the value in his account less the amount of any outstanding loan to such participant under such plan (such participant’s “Account Balance”), (ii) roll over such participant’s Account Balance to an individual retirement account of such participant or (iii) roll over such participant’s Account Balance to a 401(k) plan maintained by the Parent, the Surviving Corporation or a member of the Company Group by wire transfer as soon as is administratively feasible following the Share Purchase Closing Date or Merger Closing Date, as the case may be, and notification that such 401(k) plan will accept such rollovers.

          8.1.6 Welfare Plans. Prior to the Share Purchase Closing in the case of Foreign Subsidiaries and prior to the Merger Closing in the case of the Company and Remaining Subsidiaries and effective no later than the Share Purchase Closing or Merger Closing, as applicable, the Parent and Merger Sub shall establish or identify welfare benefit plans, which may include plans of the Company Group (including plans providing medical, dental, COBRA coverage, vision care, legal services, educational assistance, adoption assistance, employee assistance, long-term disability, short-term disability, group term life and accidental death and dismemberment insurance, executive life insurance, dependent life insurance, business travel accident insurance, and a cafeteria plan under section 125 of the Code with a healthcare spending account and a dependent care spending account), that will, subject to Section 8.1, provide benefits to (and assume liabilities and account balances of the Shareholder’s cafeteria plan with respect to) Company Employees and their dependents. Without limiting the generality of the foregoing, effective as of the Share Purchase Closing or Merger Closing, as the case may be, the Company Group shall be responsible and liable for providing the appropriate COBRA notices to the relevant Company Employees and their beneficiaries who experience a “qualifying event” on or after the Share Purchase Closing or Merger Closing, as applicable, and for providing or continuing to provide coverage required under COBRA with respect to the relevant Company Employees and their beneficiaries who experience a “qualifying event” on or after the Share Purchase Closing or Merger Closing, as applicable, except with respect to any person participating in any Plans the Shareholder shall retain or assume on and after the Share Purchase Closing Date or Merger Closing Date, as applicable. The Shareholder shall retain liability and responsibility for all benefits requirements under COBRA with respect to Company Employees, Former Employees and their beneficiaries who experience a qualifying event prior to the Share Purchase Closing or Merger Closing, as applicable. If Company Employees participate in the welfare benefit plans of the Parent or its Affiliates after the Share Purchase Closing or Merger Closing, as the case may be, the Parent shall, or shall cause the Merger Sub or Company Group to, (i) cause any pre-existing conditions or limitations and eligibility waiting periods under any group health plans of the Parent or its Affiliates to be waived with respect to the Company Employees and their eligible dependents and (ii) give each Company Employee credit for the plan year in which the transition from the Shareholder’s or its Affiliates’ (other than the Company Group) plans to the Parent’s or its Affiliates’ plans occurs towards applicable deductibles and annual out-of-pocket limits for expenses incurred prior to the transition date; provided, that the foregoing shall not apply to the extent that its application would result in a

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duplication of benefits. From and after the Share Purchase Closing or Merger Closing, as applicable, the Shareholder shall remain responsible for all claims of Former Employees and their eligible dependents and for claims of Company Employees and their eligible dependents incurred prior to the Share Purchase Closing Date or Merger Closing Date, as applicable, under those Plans that are maintained and sponsored by the Shareholder (other than liabilities under a cafeteria plan in which account balances have been transferred as described in this Section) and the Parent, Merger Sub and the Company Group shall be responsible for all liabilities incurred by any Company Employee and his/her eligible dependents under those Plans that are maintained by the Parent or its Affiliates on or after the Share Purchase Closing Date or Merger Closing Date, as applicable.

          8.1.7 Retiree Medical and Life. Except as provided in any applicable collective bargaining agreement, the Parent or Merger Sub shall provide, or shall cause the Company Group to provide or continue to provide, for a minimum of two years after the Share Purchase Closing Date or Merger Closing Date, as applicable, retiree medical and retiree life plans for the Company Employees substantially similar to such plans maintained by the Shareholder and its Affiliates for such Company Employees immediately prior to the Share Purchase Closing or Merger Closing, as applicable. Prior to the Share Purchase Closing Date, the Shareholder shall assume, and shall indemnify and hold Parent, Merger Sub, the Company Group and their Affiliates harmless against, all liabilities, costs or expenses related to, or incurred as a consequence of, the provision of post-retirement welfare benefits (including without limitation post retirement medical and retiree life plans and other post-employment benefits) to any Person other than Company Employees.

          8.1.8 WARN. Without limiting the obligations of the Shareholder, Company, Parent or Merger Sub under this Agreement, the parties hereto agree that they shall take such actions necessary to retain the Company Employees so as not to require notice under the Workers Adjustment and Retraining Notification Act, as amended (“WARN Act”), and any similar statute prior to the expiration of the 60 day period following the Share Purchase Closing and Merger Closing. The Parent and Merger Sub shall assume all obligations and liabilities under, arising out of or related to the WARN Act or any similar statute unless such obligation and liability is incurred in its totality prior to the Share Purchase Closing Date or Merger Closing Date, as applicable.

          8.1.9 Paid Time Off/Vacation. As of the Share Purchase Closing with respect to the Foreign Subsidiaries and the Merger Closing with respect to the Company and Remaining Subsidiaries, the Parent, Merger Sub or the applicable member of the Company Group shall credit, or shall cause to be credited, each Company Employee with unused paid time off/vacation days and any personal days accrued in accordance with the vacation and personnel policies and labor agreements applicable to any such Company Employee only and to the same extent as accrued on the Closing Balance Sheet.

          8.1.10 Collective Bargaining. The Parent and Merger Sub shall cause the applicable members of the Company Group to recognize each union that, at the Share Purchase Closing or Merger Closing, as applicable, represents any of the Company Employees (and, to the extent applicable, any Former Employee) as the collective bargaining representatives of such employees.

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          8.1.11 Workers’ Compensation. The Company Group shall retain and, to the extent necessary, assume all obligations and liabilities for all workers’ compensation benefits and claims of any Company Employee and Former Employee only to the same extent as accrued on the Closing Balance Sheet.

          8.1.12 U.S. Bargaining Pension Plan.

     (a) Prior to the Merger Closing, the Shareholder shall establish and cause the Company Group to assume sponsorship of, or shall cause the Company Group to establish a qualified defined benefit pension plan for the benefit of the Company Employees covered by the Phelps Dodge Retirement Plan who are covered by collective bargaining agreements (the “Covered Employees”), which plan shall provide the Covered Employees with benefits substantially identical to the benefits provided to such Covered Employees under the Phelps Dodge Retirement Plan as of the date hereof (the “U.S. Bargaining Pension Plan”). The Shareholder shall take, or shall cause the Company Group to take, all necessary action to qualify the U.S. Bargaining Pension Plan under the applicable provisions of the Code and shall make any and all filings and submissions to the appropriate Governmental Authorities required to be made by it in connection with the transfer of the assets described below.

     (b) The Shareholder shall cause the trustee of the Phelps Dodge Retirement Plan to transfer to the U.S. Bargaining Pension Plan the minimum amount of assets of the Phelps Dodge Retirement Plan required to be transferred to fund the obligations in respect of the Covered Employees, calculated in accordance with the de minimis rule of Treasury Regulation § 1.414(l)-1(n) as determined by an independent actuary selected by the Shareholder.

     (c) Effective as of the date such assets are transferred, each Covered Employee who participates in the Phelps Dodge Retirement Plan shall cease to accrue any additional benefits thereunder and each such Covered Employee shall commence participation in and accrual of benefits under the U.S. Bargaining Pension Plan and the U.S. Bargaining Pension Plan shall assume all liability of the Phelps Dodge Retirement Plan with respect to such Covered Employees.

          8.1.13 Canadian Pension Plan. To the extent that employees of Shareholder and its Affiliates (other than Company Employees) participate in the Retirement Plan for Salaried Employees of Columbian Chemicals Canada Ltd. (Registration No. 0486928 (the “Canadian Pension Plan”), prior to the Share Purchase Closing, Shareholder and Phelps Dodge Corporation of Canada Limited (“Phelps Canada”) shall cooperate in effecting the transfer of such benefit liabilities and related plan assets as soon as practicable to a pension plan or plans sponsored by or established by Shareholder or any of its Affiliates (other than any member of the Company Group); provided that if such transfer is not completed prior to the Share Purchase Closing, Shareholder, Phelps Canada and Parent shall cooperate in effecting such transfer as soon as practicable thereafter.

          8.1.14 Sevalco Ltd Plan

     (a) Commencing as of the date hereof, the Shareholder shall use good faith efforts to obtain within 12 months of the Share Purchase Closing (i) a clearance statement from the U.K.

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Pensions Regulator (the “Pensions Regulator”) that neither the Shareholder, the Company Group nor any person connected or associated with them (as defined in sections 249 and 435 UK Insolvency Act 1986) as at the date hereof (each an “Applicant”) will be liable for the imposition of a contribution notice or financial support direction nor would it be reasonable for the Pensions Regulator to issue such a notice or direction, and (ii) the agreement of each of the trustees of the Sevalco Ltd Plan (the “Sevalco Trustees”) to the contents of such an application to the Pensions Regulator for a clearance statement.

     (b) In connection with the Shareholder’s efforts to obtain such clearance statement and the agreement of the Sevalco Trustees, from and after the date hereof, each of the Parent, Merger Sub and the Company Group shall (i) cooperate with the Shareholder and shall provide such information (including, but not limited to, the information relating to the Company, the Parent and Merger Sub described in clause (c) below) as the Shareholder, the Sevalco Trustees or the Pensions Regulator may request, (ii) upon the request of the Shareholder, appear at and participate in meetings with the Shareholder, the Sevalco Trustees, the Pensions Regulator, and/or any other Person the Shareholder may reasonably request, (iii) not, without the prior written consent of the Shareholder, communicate with the Pensions Regulator or any Sevalco Trustee regarding the clearance statement sought by any Applicant or any related matter, except to the extent required by law, (iv) cooperate and consult with one another, and with the Shareholder, with regard to any negotiations or communications with or actions to be taken at the request of the Pensions Regulator or the Sevalco Trustees concerning the Sevalco Ltd Plan, (v) keep all matters regarding the application for a clearance statement confidential, and (vi) except as set forth in clause (d)(vii), meet its own costs of complying with this provision.

     (c) The Parent, Merger Sub and the Company Group shall provide to the Shareholder and the Sevalco Trustees promptly, and in any event within five working days of a request thereof, or if not reasonably available, as soon as reasonably practicable thereafter, the following information:

     (i) Table showing comparison of the position of all creditors of Sevalco Ltd. and the Company Group before and after the Share Purchase Closing;

     (ii) Statutory accounts of the Parent and the Merger Sub;

     (iii) Financial forecasts, management accounts and business plans for Sevalco Ltd and the Company Group after the Share Purchase Closing;

     (iv) Details of the debt that will rank above the Sevalco Ltd Plan as an unsecured creditor of Sevalco Ltd. and the Company Group after the Share Purchase Closing;

     (v) Valuation of Sevalco Ltd’s and the Company Group’s significant assets at the date hereof; and

     (vi) Sevalco Ltd and the Company Group’s plans for funding the Sevalco Ltd Plan after the Share Purchase Closing.

     (d) The Shareholder shall make contributions to the Sevalco Ltd Plan as provided in paragraphs (i) through (vii) below.

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     (i) In the event that a clearance statement for the benefit of the Applicants is issued by the Pensions Regulator regarding the funding of the Sevalco Ltd Plan prior to the one year anniversary of the Share Purchase Closing (a “Clearance Statement”), as soon as practicable after such issuance, and subject to clauses (d)(v) through (d)(vii), the Shareholder shall transfer to the Sevalco Ltd Plan (i) cash or cash equivalents equal to the lesser of (A) an amount equal to (x) $10.4 million minus (y) the aggregate amount paid by any member of the Company Group to the Sevalco Ltd Plan during the period commencing on the date hereof and ending on the close of business on the Share Purchase Closing Date (the “Pre-Closing Payment”, and the amount equal to $10.4 million minus the Pre-Closing Payment shall be the “Benchmark Amount”), and (B) the amount of contributions (adjusted to include any Installment Amount) that, pursuant to the Clearance Statement, have been agreed or are required to be made to the Sevalco Ltd Plan (the amount in and (B) above shall be defined as the “Clearance Statement Funding Amount”), plus (ii) cash or cash equivalents equal to 50% of the amount, if any, by which the Clearance Statement Funding Amount exceeds the Benchmark Amount. If the Shareholder makes a contribution to the Sevalco Ltd Plan pursuant to this clause (d)(i), the Shareholder shall not have any obligation pursuant to clause (d)(ii) below.

     (ii) In the event that a contribution notice or a financial support direction, in each case regarding the funding of the Sevalco Ltd Plan (each, a “Support Direction”), is issued by the Pensions Regulator against one or more of the Applicants before the issuance of a Clearance Statement, as soon as practicable after such issuance and, subject to clauses (d)(v) and (d)(vii), the Shareholder shall transfer to the Sevalco Ltd Plan (i) cash or cash equivalents equal to the lesser of (A) the Benchmark Amount and (B) the amount of contributions (adjusted to include any Installment Amount) that, pursuant to the Support Direction, have been agreed or are required to be made to the Sevalco Ltd Plan (the amount in (B) above shall be defined as the “Support Direction Funding Amount”), plus (ii) cash or cash equivalents equal to 50% of the amount, if any, by which the Support Direction Funding Amount exceeds the Benchmark Amount. If the Shareholder makes a contribution to the Sevalco Ltd Plan pursuant to this clause (d)(ii), the Shareholder shall not have any obligation pursuant to clause (d)(i) above.

     (iii) In the event the Clearance Statement or Support Direction requires some or all of the contributions to be made to the Sevalco Ltd Plan by the Shareholder in installments extending beyond the first anniversary of the Share Purchase Closing (the “Installments”), then for the purposes of clause (d)(i) and (ii) above the Installments shall be attributed their net present value calculated using an 8% per annum discount rate (such aggregate net present value shall be defined as the “Installment Amount”).

     (iv) In the event that no Clearance Statement or Support Direction is issued prior to the one year anniversary of the Share Purchase Closing, or the Support Direction takes the form of or includes an arrangement whereby the Shareholder or any of its Affiliates is jointly and severally liable for or must guarantee the funding of the Sevalco Ltd Plan and no immediate or staggered payment of cash is required in the absence of default by Sevalco Ltd, on or as soon as practicable after the first anniversary of the Share Purchase Closing, the Shareholder shall transfer to the Sevalco Ltd Plan cash or cash equivalents equal to the Benchmark Amount.

     (v) Notwithstanding anything to the contrary in this Agreement, the Shareholder, any of its Affiliates and any Applicant other than in each case, after the Share Purchase Closing Date,

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the Company Group (the “Sevalco Plan Ltd. Indemnitees”) shall in no case be required to transfer cash or cash equivalents or make any payments to the Sevalco Ltd Plan pursuant to this Agreement, the Clearance Statement, the Support Direction or otherwise that have a value in excess of an aggregate amount equal to $20 million minus the Pre-Closing Payment.

     (vi) The Parent and the Merger Sub shall be solely responsible for all liabilities and obligations related to the Sevalco Ltd Plan in excess of the amounts for which Shareholder is responsible pursuant to paragraphs (i) through (v) of this Section 8.1.14(d) without taking into account any payment to the Shareholder pursuant to clause (d)(vii) (the “Shareholder Funding Obligation”), and the Parent and Merger Sub shall indemnify the Sevalco Ltd. Plan Indemnitees against all Damages (including without limitation any liability under a contribution notice and/or financial support direction imposed by the Pensions Regulator) incurred or suffered and payable by any Sevalco Ltd. Plan Indemnitees in connection with the Sevalco Ltd. Plan in excess of the Shareholder Funding Obligation.

     (vii) Where the Shareholder is subject to a liability described under clauses (d)(i) to (v) above, the Shareholder shall be entitled at its discretion to elect either:

     (1) to make a payment directly to the Sevalco Ltd Plan or other Person to which the liability relates; or

     (2) to make a payment to the Parent, Merger Sub, Company Group or Sevalco Ltd that shall be delivered to and/or used by Sevalco Ltd to pay an amount equal to such payment to the Sevalco Ltd Plan or other person to which the liability relates,

either of which shall discharge in full the Shareholder’s obligations under this Agreement in respect of the liability concerned.

If the Parent, Merger Sub, Company Group or Sevalco Ltd subsequently receives from Her Majesty’s Revenue & Customs (“HMRC”) a payment or Relief arising in respect of any liability or payment contemplated by this clause (d) then:

     (A) the Parent, Merger Sub, Company Group or Sevalco Ltd, as appropriate, shall notify the Shareholder of that fact as soon as reasonably practicable and in any event within 10 days, and if so required by the Shareholder shall take at the Shareholder’s expense (or shall procure that Sevalco Ltd shall take) reasonable endeavors as the Shareholder may request to obtain such payment or Relief (keeping the Shareholder fully informed of the progress of any action taken and providing the Shareholder with copies of all relevant correspondence and documentation); and

     (B) the Parent, Merger Sub, Company Group or Sevalco Ltd, as appropriate, shall pay to the Shareholder the amount received by the Parent, Merger Sub, Company Group or Sevalco or the amount that the Parent, Merger Sub, Company Group or Sevalco has saved by virtue of any Relief.

Any payment required to be made by the Parent, Merger Sub, Company Group or Sevalco Ltd under this clause (d)(vii) shall be made:

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     (x) in a case where the Parent, Merger Sub, Company Group or Sevalco Ltd receives a payment from HMRC, within 14 days of the receipt thereof; and

     (y) in a case where the Parent, Merger Sub, Company Group or Sevalco Ltd obtains Relief, within 14 days after the date on which corporation tax would have become payable to HMRC but for the use of such Relief.

The Shareholder shall indemnify the Parent, Merger Sub, the Company Group and Sevalco Ltd against all Damages incurred or suffered and payable by any of them in connection with any action taken pursuant to this clause (d)(vii)(2).

     9. Conditions Precedent to Share Purchases.

     9.1 General. The respective obligations set forth herein of the Shareholder, Company, the Parent and Merger Sub to consummate the Share Purchases at the Share Purchase Closing shall be subject to the fulfillment, on or before the Share Purchase Closing Date, in the case of the Shareholder, of the conditions set forth in Sections 9.2 and 9.3, and, in the case of the Parent, of the conditions set forth in Sections 9.2 and 9.4, in each case as related to the Share Purchases; provided that a party shall be precluded from asserting that a relevant condition hereinafter set forth in Section 9 has not been satisfied by reason of any matter, fact, failure or circumstance expressly contemplated by this Agreement or, subject to Section 7.6, disclosed in the Schedules hereto.

     9.2 Conditions to Obligations of the Parties.

          9.2.1 HSR Act. The waiting period under the HSR Act with respect to the transactions contemplated by this Agreement shall have expired or been terminated and the waiting periods under the antitrust or competition laws of any other applicable foreign jurisdictions (other than Brazil) in which the Company considers a notification to be necessary prior to the consummation of the transactions contemplated by this Agreement shall have expired or been terminated.

          9.2.2 No Injunction. The consummation of the transactions contemplated hereby in connection with the Share Purchases shall not have been restrained, enjoined or otherwise prohibited by any applicable law, including any order, injunction, decree or judgment of any court or other Governmental Authority of the United States.

          9.2.3 Consents. All consents of (i) Governmental Authorities listed in Schedule 9.2.3(i) and (ii) other Persons listed in Schedule 9.2.3(ii), shall have been made, obtained, given or the applicable waiting periods thereunder shall have expired or been terminated.

          9.2.4 Transition Services Agreement. The parties hereto shall have executed and delivered a Transition Services Agreement in substantially the form attached as Exhibit G hereto.

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     9.3 Conditions to Obligations of the Shareholder and the Company.

          9.3.1 Representations, Warranties and Covenants of the Parent. The representations and warranties of the Parent in Section 6 in connection with the Share Purchases shall be true and correct in all respects, if qualified by materiality, and shall be true and correct in all material respects, if not qualified by materiality, at and as of the Share Purchase Closing with the same effect as though made at and as of such time (except that those representations and warranties that are made as of a specific date shall be correct only as of such date). The Parent shall have duly performed and complied in all material respects with all covenants contained herein required to be performed or complied with in connection with the Share Purchases by it at or before the Share Purchase Closing.

          9.3.2 Officer’s Certificate. The Parent shall have delivered to the Shareholder and the Company a certificate, dated the Share Purchase Closing Date and signed by its President or a Senior Vice President, as to the fulfillment of the conditions set forth in Section 9.3.1, it being understood that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of the Parent (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

          9.3.3 Credit Support Arrangements. The Shareholder shall have received releases or other terminations, in form and substance reasonably satisfactory to the Shareholder, of all of the obligations of the Shareholder and its Affiliates under the Credit Support Arrangements with respect to the Foreign Subsidiaries.

     9.4 Conditions to Obligations of the Parent.

          9.4.1 Representations, Warranties and Covenants of the Shareholder and the Company. The representations and warranties in Section 5 as applicable to the Shareholder, the Company and the Foreign Subsidiaries in connection with the Share Purchases shall be true and correct in all respects, if qualified by materiality or Material Adverse Effect, and shall be true and correct in all material respects, if not qualified by materiality or Material Adverse Effect, at and as of the Share Purchase Closing with the same effect as though made at and as of such time (except that those representations and warranties that are made as of a specific date shall be correct only as of such date). The Shareholder and the Company shall have duly performed and complied in all material respects with all covenants contained herein required to be performed or complied with in connection with the Share Purchases by it at or before the Share Purchase Closing.

          9.4.2 Officer’s Certificate. Each of the Shareholder and the Company shall have delivered to the Parent a certificate, dated the Share Purchase Closing Date and signed by its President, Executive Vice President, a Senior Vice President or Vice President, as to the fulfillment of the conditions set forth in Section 9.4.1, it being understood that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of the Shareholder or the Company (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

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          9.4.3 Financing. Subject to compliance by the Parent with its obligations under Section 7.1(d), the Parent shall have obtained an amount of financing not less than the Financing Amount upon terms substantially as set forth in the Commitment Letters or pursuant to alternative financing as contemplated by Section 7.1(d).

     10. Conditions Precedent to Merger.

     10.1 General. The respective obligations set forth herein of the Shareholder, Company, Parent and Merger Sub to consummate the Merger at the Merger Closing shall be subject to the fulfillment, on or before the Merger Closing Date, in the case of the Shareholder, of the conditions set forth in Sections 10.2 and 10.3, and, in the case of the Parent, of the conditions set forth in Sections 10.2 and 10.4, in each case as related to the Merger Section 10.2; provided that a party shall be precluded from asserting that a relevant condition hereinafter set forth in Section 10 has not been satisfied by reason of any matter, fact, failure or circumstance expressly contemplated by this Agreement or, subject to Section 7.6, disclosed in the Schedules hereto.

     10.2 Conditions to Obligations of the Parties.

          10.2.1 HSR Act. The waiting period under the HSR Act with respect to the transactions contemplated by this Agreement shall have expired or been terminated and the waiting periods under antitrust or competition laws of any other applicable foreign jurisdictions in which the Company considers a notification to be necessary prior to the consummation of the transactions contemplated by this Agreement shall have expired or been terminated.

          10.2.2 No Injunction. The consummation of the transactions contemplated hereby in connection with the Merger shall not have been restrained, enjoined or otherwise prohibited by any applicable law, including any order, injunction, decree or judgment of any court or other Governmental Authority of the United States.

          10.2.3 Consents. All consents of (i) Governmental Authorities listed in Schedule 10.2.3(i) and (ii) other Persons listed in Schedule 10.2.3(ii), shall have been made, obtained, given or the applicable waiting periods thereunder shall have expired or been terminated.

          10.2.4 Share Purchase Closing. The Share Purchase Closing shall have occurred and each of the Share Purchases shall have been consummated.

     10.2.5 Consummation of Foreign Conversions. The Foreign Conversions shall have occurred.

     10.3 Conditions to Obligations of the Shareholder and the Company.

          10.3.1 Representations, Warranties and Covenants of the Parent and Merger Sub. The representations and warranties in Section 6 as applicable to the Parent and Merger Sub in connection with the Merger shall be true and correct in all respects, if qualified by materiality, and shall be true and correct in all material respects, if not qualified by materiality, at and as of the Merger Closing with the same effect as though made at and as of such time (except that those

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representations and warranties that are made as of a specific date shall be correct only as of such date). The Parent and Merger Sub shall have duly performed and complied in all material respects with all covenants contained herein required to be performed or complied with in connection with the Merger by it at or before the Merger Closing.

          10.3.2 Officer’s Certificate. Each of the Parent and Merger Sub shall have delivered to the Shareholder and the Company a certificate, dated the Merger Closing Date and signed by its President or a Senior Vice President, as to the fulfillment of the conditions set forth in Section 10.3.1, it being understood that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of the Parent or Merger Sub (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

          10.3.3 Credit Support Arrangements. The Shareholder shall have received releases or other terminations, in form and substance reasonably satisfactory to the Shareholder, of all of the obligations of the Shareholder and its Affiliates under the Credit Support Arrangements with respect to the Company and Remaining Subsidiaries.

     10.4 Conditions to Obligations of the Parent and Merger Sub.

          10.4.1 Representations, Warranties and Covenants of the Shareholder and the Company. The representations and warranties in Section 5 as applicable to the Shareholder, the Company and the Remaining Subsidiaries in connection with the Merger shall be true and correct in all respects, if qualified by materiality or Material Adverse Effect, and shall be true and correct in all material respects, if not qualified by materiality or Material Adverse Effect, at and as of the Merger Closing with the same effect as though made at and as of such time (except that those representations and warranties that are made as of a specific date shall be correct only as of such date). The Shareholder and the Company shall have duly performed and complied in all material respects with all covenants contained herein required to be performed or complied with by it in connection with the Merger at or before the Merger Closing.

          10.4.2 Officer’s Certificate. Each of the Shareholder and the Company shall have delivered to the Parent and Merger Sub a certificate, dated the Merger Closing Date and signed by its President, Executive Vice President or a Senior Vice President, as to the fulfillment of the conditions set forth in Section 10.4.1, it being understood that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of the Shareholder or the Company (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

          10.4.3 Financing. Subject to compliance by the Parent with its obligations under Section 7.1(d), the Parent shall have obtained an amount of financing not less than the Financing Amount upon terms substantially as set forth in the Commitment Letters or pursuant to alternative financing as contemplated by Section 7.1(d).

          10.4.4 Certain Transfers. Title to each of the Closed Sites shall have been transferred pursuant to and in accordance with Section 7.2.5; and the issued and outstanding

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shares of Capital Gestao de Negocios Ltda, a company existing under the laws of Brazil, shall have been transferred to Shareholder.

     11. Indemnification.

     11.1 Survival of Representations and Warranties and Covenants. The representations and warranties contained in Sections 5 and 6 and in the certificates delivered pursuant to Sections 9.3.2 and 9.4.2, and the covenants contained herein to be fully performed or complied with at or prior to the Share Purchase Closing Date or Merger Closing Date, as applicable, shall survive the Share Purchase Closing or Merger Closing, as applicable, and shall remain in full force and effect until the later of (x) March 15, 2007, and (y) the date that is one year and 45 days after the Share Purchase Closing Date or the Merger Closing Date, as applicable; provided that: (a) the representations and warranties set forth in Sections 5.1, 5.3, 5.4, 5.5, 5.10, 5.14 shall survive until sixty (60) days after the expiration of the applicable statute of limitations and (b) the representations and warranties set forth in Section 5.17 shall survive for a period of five years after the Share Purchase Closing Date with respect to the Foreign Subsidiaries and seven years after the Merger Closing Date with respect to the Company and Remaining Subsidiaries. No claim for indemnification under this Section 11 may be asserted with respect to such representations, warranties or covenants after the date indicated in the preceding sentence unless, prior to such date, the party seeking indemnification shall have suffered actual Damages and shall have notified in reasonable detail the party from whom indemnification is sought of a claim for indemnity hereunder.

     11.2 Indemnification.

          11.2.1 By the Shareholder. From and after the Share Purchase Closing with respect to the Share Purchases and from and after the Merger Closing with respect to the Merger, the Shareholder shall indemnify and hold the Parent harmless from and against any expenses, loss, liability or damage, including reasonable attorneys’ fees and other out-of-pocket costs and expenses (collectively, “Damages”), incurred or sustained by the Parent resulting from: (i) non-fulfillment of any covenant or the breach of any representation or warranty on the part of the Shareholder or Company contained in this Agreement, (ii) the Shareholder Retained Litigation, as applicable, or (iii) the Shareholder Retained Environmental Liabilities, as applicable, provided that there shall not be any duplicative payments or indemnities by the Shareholder, and provided, further, that any indemnification relating to Tax matters shall be governed solely by Section 7.4. The Shareholder acknowledges and agrees that in respect of its indemnification obligations under Section 11.2.1(i), it shall have no right to seek contribution from the Company from and after the Share Purchase Closing with respect to the Share Purchases and from and after the Merger Closing with respect to the Merger. Each of the Shareholder and the Company acknowledge and agree that the statement of present intention made by the Parent in Section 6.9 shall not give rise to liability to any Person as a result of any actions taken, or omitted to be taken by Parent or any of its Affiliates from and after the Share Purchase Closing Date or Merger Closing Date, as applicable.

     (a) The following limitations shall apply to the Shareholder’s indemnification obligations:

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     (1) The amount of any Damages incurred by the Parent shall be reduced by the net amount of the Tax benefits realized by the Parent, any member of the Company Group or any other Affiliate of the Parent by reason of such Damage.

     (2) The amount of any Damages incurred by the Parent shall be reduced by the net amount the Parent, or any member of the Company Group or any other Affiliate of the Parent recovers (after deducting all reasonable attorneys’ fees, out of pocket expenses and other costs of recovery) from any insurer or other party liable for such Damages, and the Parent shall use commercially reasonable efforts to effect any such recovery.

     (3) The Parent shall not be entitled to indemnification for those portions of any Damages (x) that have arisen as a result of any grossly negligent and willful act or omission by the Parent or any of its Affiliates on or after the Share Purchase Closing Date or Merger Closing Date, as applicable (including, without limitation, resulting from any change in their respective accounting principles, practices or methodologies, or (y) that were subject to an adjustment to any Foreign Subsidiary Purchase Price or the Merger Consideration, as applicable, pursuant to Section 4; provided, however, that for purposes of this Section 11.2.1(a)(3), acts or omissions related to the closure or sale of any Owned Real Property or Leased Real Property shall not be considered willful acts or omissions by the Parent or any of its Affiliates pursuant to clause (x) above.

     (4) The Parent shall not be entitled to indemnification for any Damages with respect to any individual breach (or breaches related to the same facts) of a representation or warranty in Section 5.17 if the amount of such Damages (reduced as provided in clauses (a)(1) and (a)(2) above) does not exceed $500,000.

     (5) The Parent shall be entitled to indemnification under Section 11.2.1(i) (with respect to breaches of representations and warranties only and not with respect to the non-fulfillment of any covenants) only with respect to that portion of the aggregate amount of its Damages (reduced as provided in clauses (a)(1) and (a)(2) above) that exceeds $6,000,000.

     (6) The aggregate amount of Damages payable to the Parent under Section 11.2.1(i) or (with respect to Asbestos Liabilities arising from cases first filed during the period from the second anniversary of the Share Purchase Closing Date or the Merger Closing Date, as applicable, to the seventh anniversary thereof) 11.2.1(iii) shall not exceed 20% of the amount equal to (x) the sum of each of the Foreign Subsidiary Purchase Prices and the Merger Consideration minus (y) the sum of the Target Cash Amount and the aggregate amount of Damages paid or otherwise incurred (without duplication) by the Shareholder or any of its Affiliates under the Share Purchase Agreement or in connection with a breach of Section 13.17(b).

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     (7) The Parent shall not be entitled to indemnification with respect to any claim arising out of or relating to Environmental Law to the extent such claims result from the closure or sale of Sevalco Ltd or any of Sevalco Ltd’s properties.

       (b) For the avoidance of doubt, the limitations on the Shareholder’s indemnification obligations set forth in clauses (a)(5) and (a)(6) above shall not apply to Damages incurred or sustained by the Parent arising out of:

     (1) the Shareholder Retained Environmental Liabilities, other than Asbestos Liabilities arising from cases filed during the period from the second anniversary of the Share Purchase Closing Date or the Merger Closing Date, as applicable, to the seventh anniversary thereof;

     (2) Asbestos Liabilities arising from cases filed prior to the second anniversary of the Share Purchase Closing Date or the Merger Closing Date, as applicable; and

     (3) the Shareholder Retained Litigation.

        11.2.2 By the Parent. From and after the Share Purchase Closing with respect to the Share Purchases and from and after the Merger Closing with respect to the Merger, the Parent shall, and shall cause the Company Group to, indemnify and hold the Shareholder harmless from and against any Damages incurred or sustained by the Shareholder as a result of (i) non-fulfillment of any covenant or the breach of any representation or warranty on the part of the Parent or Merger Sub contained in this Agreement, or (ii) the ownership of the Foreign Subsidiary Shares, the Merger or the business or operations of the Company Group, after the Share Purchase Closing in the case of the Share Purchases and after the Merger Closing in the case of the Merger, provided that there shall not be any duplicative payments or indemnities by the Parent, and provided, further, that any indemnification relating to Tax matters shall be governed solely by Section 7.4.

Notwithstanding anything in this Agreement to the contrary:

     (a) The amount of any Damages incurred by the Shareholder shall be reduced by the net amount of the Tax benefits realized by the Shareholder or any of its Affiliates (other than the Company Group) by reason of such Damage.

     (b) The amount of any Damages incurred by the Shareholder shall be reduced by the net amount the Shareholder or any of its Affiliates recovers (after deducting all reasonable attorneys’ fees, out-of-pocket expenses and other costs of recovery) from any insurer or other party liable for such Damages, and the Shareholder shall use reasonable efforts to effect any such recovery.

     (c) The Shareholder shall not be entitled to indemnification for those portions of any Damages that were subject to an adjustment to any Foreign Subsidiary Purchase Prices or the Merger Consideration pursuant to Section 4.

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     (d) The Shareholder shall be entitled to indemnification under Section 11.2.2(i) (with respect to breaches of representations and warranties only and not with respect to the non-fulfillment of any covenants only with respect to that portion of the aggregate amount of its Damages (reduced as provided in paragraph (a) and (b) above) that exceeds $6,000,000.

     (e) The aggregate amount of Damages payable to the Shareholder under Section 11.2.2(i) shall not exceed 20% of the sum of the Foreign Subsidiary Purchase Price and Merger Consideration.

     (f) The Parent shall not be liable for any Damages, as reduced pursuant to clauses (a) and (b) above, for any Shareholder Retained Litigation, as applicable, provided the Parent complies with, and permits the Shareholder and its Affiliates to exercise their respective rights under, Section 11.2.3(b).

          11.2.3 Indemnification Procedures. A party entitled to indemnification hereunder shall herein be referred to as an “Indemnitee.” A party obligated to indemnify an Indemnitee hereunder shall herein be referred to as an “Indemnitor.”

     (a) If an Indemnitee receives notice of any claim or the commencement of any action by any third party that such Indemnitee reasonably believes may give rise to a claim for indemnification from an Indemnitor hereunder, and such Indemnitee intends to seek indemnification from such Indemnitor with respect thereto under this Section 11, such Indemnitee shall promptly provide written notice thereof to such Indemnitor. Such notice shall (i) specify in reasonable detail the basis on which indemnification is being asserted, (ii) provide a reasonable estimate of the amount of the Damages asserted therein, (iii) specify the provision or provisions of this Agreement under which such Damages are asserted and (iv) include copies of all notices and documents (including court papers) served on or received by the Indemnitee from such third party. Upon receipt of such notice, the Indemnitor shall be entitled to participate in such claim or action, to assume the defense thereof, and to settle or compromise such claim or action; provided that the Indemnitor shall not enter into any settlement that provides for injunctive or other non-monetary relief affecting the Indemnitee without the prior written consent of the Indemnitee, which consent shall not be unreasonably withheld or delayed. After notice to the Indemnitee of the Indemnitor’s election to assume the defense of such claim or action, the Indemnitor shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with the defense thereof, provided that the Indemnitee shall have the right to employ counsel to represent it if either (x) such claim or action involves remedies other than monetary damages and such remedies, in the Indemnitee’s reasonable judgment, could have or reasonably be expected to have a Material Adverse Effect on such Indemnitee or (y) the Indemnitee has available to it one or more defenses or counterclaims that are inconsistent with one or more of the defenses or counterclaims alleged by the Indemnitor and which could be materially adverse to the Indemnitor, and in any such event the fees and expenses of such separate counsel shall be paid by the Indemnitee. If the Indemnitor does not elect to assume the defense of such claim or action within 45 days of the Indemnitee’s delivery of the notice and other documents that it is required to deliver to the Indemnitor in respect of such a

46

claim or action, the Indemnitee shall be entitled to assume the defense thereof. Unless it has been conclusively determined through a final non-appealable judicial determination (or settlement tantamount thereto) that the Indemnitor is not liable to the Indemnitee under this Section 11.2.3, the Indemnitee shall act reasonably and in accordance with its good faith business judgment with respect thereto, and shall not settle or compromise any such claim or action without the consent of the Indemnitor, which consent shall not be unreasonably withheld. The parties shall render to each other such assistance as may reasonably be requested in order to insure the proper and adequate defense of any such claim or action, including making employees available on a mutually convenient basis to provide additional information and explanation of any relevant materials or to testify at any proceedings relating to such claim or action.

     (b) Notwithstanding anything in Section 11.2.3(a) to the contrary, with respect to any Shareholder Retained Litigation, (i) counsel defending such litigation shall be selected by the Shareholder or one of its Affiliates in their sole discretion, and such counsel (x) shall have access to the employees and information of the Company Group in the same manner as has occurred in the defense of such litigation prior to the Share Purchase Closing or the Merger Closing, (y) shall not be deemed or claimed to have any attorney-client relationship with the Parent and its Affiliates other than the Company Group and (z) shall not be disqualified from representing the Shareholder and its Affiliates in any Action or Proceeding with the Parent and its Affiliates by virtue of such defense of the Shareholder Retained Litigation, and Parent and its Affiliates hereby consent to such representation and waive any claim that such counsel may be disqualified from representing Shareholder and its Affiliates in any Action or Proceeding by virtue of such defense of the Shareholder Retained Litigation, (ii) upon the reasonable request of the Parent, the Shareholder will provide the Parent with updates from time to time following the Share Purchase Closing or Merger Closing, as applicable, regarding any material developments in such matter but otherwise shall have no obligation to inform the Parent regarding the status of any such matter, (iii) all decisions regarding the conduct of such litigation, including, without limitation, any settlement decisions or appeal decisions, shall remain solely with the Shareholder and its Affiliates, and the Shareholder and its Affiliates shall have the right to pursue, settle or otherwise resolve any such litigation at any time without advance notice to or the consent of the Parent, on such terms as the Shareholder and its Affiliates deem appropriate in their sole discretion; provided the Shareholder shall have no right to bind the Parent and its Affiliates in the settlement of any such Shareholder Retained Litigation without the consent of the Parent and its Affiliates, which consent shall not be unreasonably withheld, (iv) the Parent and its Affiliates will provide the Shareholder with full access at all times to the Company Group’s properties, books, records and personnel, and documents, as the Shareholder may reasonably request in connection with the Shareholder Retained Litigation, and (v) the Parent and its Affiliates will make the Company Group’s personnel available as witnesses in the Shareholder Retained Litigation or in any other capacity requested by the Shareholder in connection with the Shareholder Retained Litigation.

     (c) Within 10 Business Days after an Indemnitee sustains or should have known that it has sustained any Damages not involving a third party claim or action that such Indemnitee reasonably believes may give rise to a claim for indemnification from an

47

Indemnitor hereunder, and such Indemnitee intends to seek indemnification from such Indemnitor with respect thereto under this Section 11, such Indemnitee shall, if a claim in respect thereof is to be made against an Indemnitor, deliver notice of such claim to the Indemnitor, which notice shall contain the information described in the second sentence of Section 11.2.3(a). Subject to Section 11.1, if the Indemnitee fails to provide such notice within such 10 Business Day period, the Indemnitor will not be obligated to indemnify the Indemnitee with respect to such claim to the extent that the Indemnitor’s ability to defend such claim has been actually prejudiced by such failure of the Indemnitee. If the Indemnitor does not notify the Indemnitee within 30 days following its receipt of such notice that the Indemnitor disputes its liability to the Indemnitee, such claim specified by the Indemnitee in such notice shall be conclusively deemed a liability of the Indemnitor and the Indemnitor shall pay the amount of such claim to the Indemnitee promptly after demand therefor or in the case of any notice in which the amount of the claim (or any portion thereof) is estimated, on such later date when the amount of such claim (or such portion thereof) is finally determined. If the Indemnitor has timely disputed its liability with respect to such claim as provided above, the Indemnitor and the Indemnitee shall proceed in good faith to negotiate a resolution of such dispute and, if not resolved through negotiations, such dispute shall be resolved by litigation in an appropriate court of competent jurisdiction in accordance with Sections 13.14, 13.15 and 13.16.

     (d) Without limiting the Shareholder’s rights under other provisions of this Agreement, the Shareholder shall have the right to assume primary control of the resolution of any matter arising under any Environmental Law for which it has an indemnification obligation, including the option to (i) commission any studies or tests reasonably necessary to define or delineate the extent of any contamination or non-compliance with Environmental Laws, (ii) contact Governmental Authorities, make any reports to Governmental Authorities, submit any investigation, remediation or compliance plans to such authorities, negotiate with such authorities and otherwise deal with such authorities, (iii) prepare the work plan for any investigation, remediation or correction of non-compliance with Environmental Laws, and (iv) conduct or direct any such investigation, remediation or correction of noncompliance with Environmental Laws. With respect to claims brought pursuant to Section 11.2.1(i) for breaches of representations or warranties contained in Section 5.17, the Shareholder shall provide the Parent with a right to participate in matters for which the Shareholder has primary control, including, (i) the right to receive and comment on copies of all environmental and engineering studies, work plans, data prepared by the Shareholder or its agents and correspondence or other submissions received from or sent to the Governmental Authority overseeing any investigation, remediation or correction of non-compliance with or liability under any Environmental Laws (and the Shareholder shall address in such documents the reasonable comments of the Parent), and (ii) the right to attend as an observer any meetings with Governmental Authorities overseeing any investigation, remediation or correction of non-compliance with or liability under any Environmental Laws.

     (e) With respect to claims brought pursuant to Section 11.2.1(i) for breaches of representations or warranties contained in Section 5.17, the Shareholder shall conduct

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any resolution of any matter arising under any Environmental Law for which it has an indemnification obligation and for which it accepts primary control in a manner that will not unreasonably interfere with or unreasonably interrupt the operations or business of the Parent or unreasonably compromise the safety of the property or the business or operations thereon. Promptly upon completion of any phase of investigatory, remedial or corrective actions, the Shareholder shall use commercially reasonable efforts to restore any adversely affected portion of the property to its pre-disturbed condition, such that the Parent can continue its operations in the manner in which such operations were conducted prior to the commencement of the investigatory, remedial or corrective action.

     (f) The Shareholder shall have satisfied its indemnification obligations under this Agreement with respect to any matter arising under any Environmental Law if the result meets or exceeds the least stringent standards (including any lesser standards resulting from any site-specific risk assessments and including any deed and land use restrictions and institutional controls to the extent such restrictions reasonably comport with the usage of the property as of the Share Purchase Closing Date or Merger Closing Date, as the case may be, and do not unreasonably interfere with Parent’s operation of property), based on the use of the property on the Share Purchase Closing Date or Merger Closing Date, as the case may be, and applicable Environmental Laws as in effect on the date that any remedial or investigative activities are concluded so long as such standards are or would be acceptable to the Governmental Authority directly overseeing such matter.

     (g) Notwithstanding anything in this Agreement to the contrary, the Parent shall not be entitled to indemnification with respect to any claim arising out of or relating to any Environmental Law to the extent that such claims are discovered or identified by environmental sampling or testing conducted by or on behalf of the Parent or its Affiliates, successors, assigns or transferees after the Share Purchase Closing Date or Merger Closing Date, as applicable, unless such sampling or testing (i) is requested by a Governmental Authority or is reasonably necessary to comply with an applicable Environmental Law, (ii) is reasonably necessary to respond to or correct an imminent and substantial threat of risk to human health or the environment or (iii) is reasonably necessary for maintenance or repair performed for a bona fide business purpose.

          11.2.4 Mitigation. The parties shall cooperate with each other with respect to resolving any claim or liability with respect to which one party is obligated to indemnify the other party hereunder, including by using commercially reasonable efforts to mitigate or resolve any such claim or liability.

          11.2.5 Tax Treatment. Each of the Shareholder and the Parent agrees to treat any indemnification payment made pursuant to this Section 11 as an adjustment to the Foreign Subsidiary Purchase Prices or Merger Consideration, as applicable, for all Tax purposes unless otherwise required by applicable law.

          11.2.6 Exclusive Remedy. Subject to Section 13.17 and except with respect to fraud, the indemnities provided for in this Agreement shall be the sole and exclusive remedy of the Parent and Merger Sub and their Affiliates after the Closings against the Shareholder, the

49

Company and their Affiliates for any inaccuracy of any representation or warranty or any failure or breach of covenant, obligation, condition or agreement to be performed or fulfilled by the Shareholder hereunder or any matters arising under any Environmental Law with respect to any member of the Company Group, including but not limited to any environmental conditions on, at, under or emanating from the facilities owned, leased or operated by any member of the Company Group or elsewhere.

          11.2.7 Accounts Receivables Claims. In the event that the Shareholder agrees to or is otherwise required to pay any Damages in connection with a breach of the representation set forth in Section 5.18(v), the Parent shall, or shall cause the applicable member of the Company Group to, promptly upon receipt of and in any event as a condition precedent to such payment, transfer to the Shareholder or its designee all right, title and interest to the uncollected receivables giving rise to such payment. The Parent acknowledges and agrees that the Shareholder may seek collection of such receivables by any reasonable means it deems appropriate, including litigation, and the Parent shall not, and shall cause each member of the Company Group not to, object to or otherwise seek to impair, any such collection.

     12. Definitions. As used herein, the following terms have the following meanings:

          2004 Balance Sheet: as defined in Section 5.6.

          Account Balance: as defined in Section 8.1.5.

          Accounting Firm: as defined in Section 4.1(b).

   Actions or Proceedings: any action, suit, arbitration, judicial or administrative actions, injunctions, judgments, orders, decrees, proceedings or governmental investigations or audit.

   Additional Funding Amount: as defined in Section 8.1.14(d).

   Affiliate: with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, the first Person.

   Agreement: this Master Agreement and Plan of Merger, including the Schedules and Exhibits hereto.

   Asbestos Liabilities: any liability arising from or relating to asbestos litigation cases or claims filed during the period commencing on or after the Share Purchase Closing Date with respect to the Foreign Subsidiaries or on or after the Merger Closing Date with respect to the Company and the Remaining Subsidiaries and ending on the seventh anniversary thereof that allege asbestosis or other personal injury or illness associated with exposure or alleged exposure to asbestos or otherwise based on the presence or alleged presence of asbestos or asbestos-containing materials (each, an “Asbestos Exposure”) at any current real property or facility owned, leased, occupied or operated by the Company Group or any of their respective predecessors or Affiliates or in any product manufactured, marketed, sold, installed or distributed by the Company Group or any of their respective predecessors or Affiliates, provided that (i) Asbestos

50

Liabilities shall not include any liability arising from an Asbestos Exposure in which the facts or events underlying such Asbestos Exposure first existed or first occurred after the Share Purchase Closing Date with respect to the Foreign Subsidiaries or after the Merger Closing Date with respect to the Company and the Remaining Subsidiaries, and (ii) with respect any liability arising from an Asbestos Exposure in which the facts or events underlying such Asbestos Exposure occurred or existed both prior to and after the Share Purchase Closing Date and the Merger Closing Date, Asbestos Liabilities shall not include any liability attributable to the Asbestos Exposure that occurred or existed after the Share Purchase Closing Date with respect to the Foreign Subsidiaries or after the Merger Closing Date with respect to the Company and the Remaining Subsidiaries.

     Asbestos Litigation: the asbestos litigation cases that are currently pending against the Company Group and marked with an asterisk on Schedule 5.13.

     Audited Financial Statements: as defined in Section 5.6.

     Bahia Project: a contemplated expansion of the operations and business of Columbian Chemicals Brasil, Ltda.

     Bahia Project Expenditures: all expenditures and costs relating to the Bahia Project, made on or after September 1, 2005, to and including the Share Purchase Closing Date or the Merger Closing Date, as applicable.

     Board of Directors: the board of directors of any specified Person.

     Business Day: any day that is not (i) a Saturday, (ii) a Sunday or (iii) any other day on which commercial banks are authorized or required by law to be closed in the City of New York.

     Canadian Pension Plan: as defined in Section 8.1.13.

     Capital Expenditures: capital expenditures from January 1, 2005 up to but not including the Share Purchase Closing Date or Merger Closing Date, as applicable, as recorded on the Closing Balance Sheet in accordance with GAAP, excluding any Bahia Project Expenditures and North Bend Project Expenditures.

     Cash and Cash Equivalents: all cash and all other checks, bank drafts, certificates of deposits, other bank deposits and other similar items that are customarily characterized as cash equivalents.

     CERCLA: the Comprehensive Environmental Response, Compensation and Liability of 1986, as amended.

     Certificate of Merger: as defined in Section 2.4.

     Closed Sites: the sites and properties currently owned by the Company Group that are located in Seminole, Texas, Swartz, Louisiana and Mojave, California.

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     Closing Balance Sheet: as defined in Section 4.1. For the avoidance of doubt, such Closing Balance Sheet shall reflect any transactions permitted in Section 7.2.1 taken following the date hereof to the Share Purchase Closing Date or the Merger Closing Date, as applicable, and shall exclude Shareholder Retained Environmental Liabilities and all events occurring after the Share Purchase Closing Date or the Merger Closing Date, as applicable.

     Closing Date: the Share Purchase Closing Date and the Merger Closing Date, as applicable.

     Closing Statement: as defined in Section 4.1.

     Closings: the Share Purchase Closing and the Merger Closing.

     COBRA: the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended.

     Code: the Internal Revenue Code of 1986, as amended.

     Commitment Letters: as defined in Section 6.3.

     Company: as defined in the recitals.

     Company Employees: as defined in Section 8.1.

     Company Final Working Capital: as defined in Section 4.1.

     Company Group: the Company and its Subsidiaries, and after the Share Purchase Closing and the Merger Closing, the Surviving Corporation and all Persons which immediately prior to the Share Purchase Closing were Subsidiaries of the Company.

     Company Intellectual Property: as defined in Section 5.11(a).

     Company Licenses: as defined in Section 5.11(a).

     Company Target Working Capital: $85,214,000.

     Competing Business: as defined in Section 7.9.

     Contracts: as defined in Section 5.9.

     Covered Employees: as defined in Section 8.1.12(a).

     Credit Support Arrangements: as defined in Section 7.8.

     Current Assets: the value of all current assets of the relevant Foreign Subsidiary or of the Company and the Remaining Subsidiaries, as applicable, reflected on a Closing Balance Sheet, including, without duplication, (a) all Bahia Project Expenditures and North Bend Project Expenditures, and (b) Cash and Cash Equivalents including the

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Target Cash Amount but excluding to the extent relevant (i) deferred tax assets, (ii) contra-assets or reserves for securitization of accounts receivable, (iii) intercompany accounts, (iv) income tax receivables, (v) reserves and receivables relating to the KKPC dispute, and (vi) reserves related to inventory accounted for on a last-in-first out basis.

     Current Liabilities: the value of all current liabilities of the relevant Foreign Subsidiary or of the Company and the Remaining Subsidiaries, as applicable, reflected on a Closing Balance Sheet, including, without duplication, the outstanding aggregate amount of Indebtedness, but excluding to the extent relevant (i) payables relating to the KKPC dispute, (ii) intercompany payables, (iii) deferred tax liabilities and (iv) income tax payables.

     Damages: as defined in Section 11.2.1.

     Definitive Financing Agreements: as defined in Section 6.3.

     DGCL: the General Corporation Law of the State of Delaware.

     DOJ: as defined in Section 7.1(b).

     Effective Time: as defined in Section 2.4.

     Environmental Law: any foreign, federal, state, or local law, statute, rule, regulation or order, including all common law, each as amended or in effect on or prior to the Share Purchase Closing Date in the case of the Share Purchases and the Merger Closing Date with respect to the Merger relating to (i) the manufacture, transport, use, treatment, storage, disposal, arrangement for disposal, release or threatened release of Hazardous Substances, or (ii) pollution or the protection of human health (as it relates to exposure to Hazardous Substances) and the environment (including, without limitation, natural resources, air, and surface or subsurface land or waters).

     Environmental Liabilities: any costs, liabilities or obligations arising under Environmental Laws (whether known or unknown, foreseen or unforeseen, contingent or otherwise, fixed or absolute or present or arising in the future), including without limitation costs, liabilities or obligations arising from any of the following conditions or events, regardless of when occurring or arising: (i) any adverse environmental conditions resulting from the presence, release, threatened release or disposal of Hazardous Substances, (ii) any exposure to or damage from any Hazardous Substances, (iii) the transportation, storage, treatment, recycling, disposal or arrangement for disposal of Hazardous Substances, or (iv) any violation of any Environmental Law.

     ERISA: the Employee Retirement Income Security Act of 1974, as amended.

     Financial Statements: as defined in Section 5.6.

     Financing Amount: as defined in Section 6.3.

     Foreign Conversions: as defined in Section 7.11.

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     Foreign Subsidiaries: as defined in the recitals.

     Foreign Subsidiary Final Working Capital: as defined in Section 4.1.

     Foreign Subsidiary Purchase Price: as defined in Section 1.3.

     Foreign Subsidiary Shares: as defined in the recitals.

     Foreign Subsidiary Target Working Capital: $19,923,000 for Columbian Carbon Europa SRL, $13,081,000 for Columbian Chemicals Brasil, Ltda., $12,920,000 for Columbian Chemicals Canada, Ltd., negative $98,000 for Columbian Chemicals Europa GmbH, $9,445,000 for Columbian Tiszai Carbon, LLC, $15,074,000 for Columbian (U.K.) Limited, and $6,941,000 for Columbian Carbon Deutschland GmbH.

     Former Employees: former employees of any member of the Company Group.

     FTC: as defined in Section 7.1(b).

     GAAP: as defined in Section 5.6.

     Governmental Authority: any national government, any state or province or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any government authority, agency, department, board, commission or instrumentality of the United States of America, any State of the United States of America or any political subdivision thereof.

     Hazardous Substance: any material, substance or waste that is: (i) listed, classified or regulated as a “hazardous waste,” “hazardous substance” or “toxic substance” pursuant to any applicable Environmental Law, (ii) any petroleum product or by-product, friable asbestos, radioactive materials, urea formaldehyde insulation or polychlorinated biphenyls, or (iii) with respect to which liability or standards of conduct are imposed under any Environmental Law.

     HSR Act: as defined in Section 5.2(b).

     Indebtedness: shall mean, without duplication, all obligations of a relevant member of the Company Group: (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for reimbursement under drawn letters of credit, bankers’ acceptance or surety bonds, (iv) for the deferred purchase price of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (v) under capital leases, (vi) arising under any conditional sale or title retention agreements, (vii) in connection with contra-assets or reserves for securitization of accounts receivable, (viii) for Unfunded PBO and Unfunded APBO, (ix) Unfunded Capital Expenditures, and (x) from any guarantees of the obligations described in clauses (i)-(ix) above.

     Indemnitee: as defined in Section 11.2.3.

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     Indemnitor: as defined in Section 11.2.3.

     Installment Clearance Statement: as defined in Section 8.1.14(d).

     Installment Funding Amount: as defined in Section 8.1.14(d).

     Intellectual Property: as defined in Section 5.11(a).

     Interim Financial Statements: as defined in Section 5.6.

     IRS: the Internal Revenue Service of the United States.

     KKPC: Korea Kumho Petrochemicals Co., Ltd.

     KKPC Matter: refers to a pending arbitration between Columbian Chemicals Korea Co., Ltd. and KKPC regarding certain invoices and purchasing policies.

     Leased Real Property: as defined in Section 5.8.

     Liability: means any liability or obligation, whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated and whether due or to become due, regardless of when asserted by or against the Company Group, as of the end of the business day on the Share Purchase Closing Date and the Merger Closing Date, as applicable.

     Licenses: as defined in Section 5.11(a).

     Liens: as defined in Section 5.2(a).

     Material Adverse Effect: a material adverse effect on (a) the business, operations, assets, liabilities, condition (financial or otherwise) or results of operations of the Company Group, taken as a whole, or (b) the ability of the Shareholder or the Company to perform its obligations hereunder or to consummate the transactions contemplated hereby, other than any change or effect that results from or relates to: (x) the announcement by the Shareholder of its intention to sell any member of the Company Group, including any announcement related to the execution and delivery of this Agreement, (y) the consummation of the transactions contemplated by this Agreement, or (z) changes in (i) financial, securities or other market conditions affecting the industries in which any member of the Company Group operates, and (ii) applicable law or regulations or accounting standards, principles or interpretations.

     Merger: as defined in the recitals.

     Merger Closing: as defined in Section 2.2.

     Merger Closing Date: as defined in Section 2.2.

     Merger Consideration: as defined in Section 2.3.

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     Merger Sub: as defined in the recitals.

     Merger Sub Stock: as defined in Section 3.1(a).

     Minimum Capital Expenditures: minimum monthly capital expenditures as set forth on Schedule 12.1.

     Non-Disclosure Agreements: as defined in Section 7.2.2.

     North Bend Project: a contemplated cogeneration project at the North Bend facility of the Company.

     North Bend Project Expenditures: all expenditures and costs relating to the North Bend Project, made on or after September 1, 2005, to and including the Share Purchase Closing Date or the Merger Closing Date, as applicable.

     Notice of Disagreement: as defined in Section 4.1(a).

     Owned Intellectual Property: as defined in Section 5.11(a).

     Owned Real Property: as defined in Section 5.8.

     Parent: as defined in the recitals.

     PBO: as defined in Section 8.1.1(c).

     Pensions Regulator: as defined in Section 8.1.14(a).

     Permitted Liens: (i) Liens reflected in the Financial Statements or in Schedule 5.8, (ii) Liens for Taxes not due and payable or that are being contested in good faith by appropriate proceedings, (iii) Liens of warehousemen, mechanics and materialmen and other similar Liens incurred in the ordinary course of business, and (iv) any other Liens that do not materially interfere with the current use of the properties affected thereby or would not be reasonably expected, individually or in the aggregate, to have a Material Adverse Effect.

     Person: any natural person, firm, limited liability company, general partnership, limited partnership, joint venture, association, corporation, trust, Governmental Authority or other entity.

     Plan Funding Statement: as defined in Section 8.1.1.

     Plan Notice of Disagreement: as defined in Section 8.1.1.

     Plans: as defined in Section 5.10.1.

     Reduced Taxes: as defined in Section 7.4(c).

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     Relief: any relief, loss, allowance, exemption, set-off, deduction or credit, in computing or against income, profits and gains or UK corporation tax or any right to repayment of UK corporation tax.

     Remaining Subsidiaries: as defined in Section 7.3(b).

     Secretary of State: as defined in Section 2.4.

     Securities Act: as defined in Section 6.6.

     Sevalco Ltd Plan Indemnities: as defined in Section 8.1.14(d).

     Sevalco Trustees: as defined in Section 8.1.14(a).

     Share Purchase Agreements: as defined in the recitals.

     Share Purchase Closing: as defined in Section 1.2.

     Share Purchase Closing Date: as defined in Section 1.2.

     Share Purchases: as defined in the recitals.

     Shareholder: as defined in the recitals.

     Shareholder Funding Obligation: as defined in Section 8.1.14(d).

     Shareholder Retained Environmental Liabilities: (A) all Environmental Liabilities arising from or relating to (i) the Closed Sites or (ii) the Superfund Sites; and (B) all Asbestos Liabilities.

     Shareholder Retained Litigation: the Asbestos Litigation and the litigation, claims, proceedings and related activities with respect to the matters specified in Schedule 12.

     Shares: as defined in the recitals.

     Stand-Alone Plan: as defined in Section 5.10.1.

     Subsidiary: with respect to any Person (the “Parent Entity”), any other Person (other than a natural person), whether incorporated or unincorporated, of which at least a majority of the securities or ownership interests having by their terms ordinary voting power to elect a majority of the board of directors or other persons performing similar functions is directly or indirectly owned or controlled by the Parent Entity or by one or more of its respective Subsidiaries or by the Parent Entity and any one or more of its respective Subsidiaries.

     Superfund Sites: the Casmalia Disposal Site located in Santa Barbara County, California and the JIS Industrial Service Landfill located in Jamesburg, New Jersey.

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     Surviving Corporation: as defined in Section 2.1.

     Surviving Corporation Stock: as defined in Section 3.1(a).

     Target Cash Amount: $10,000,000 of unrestricted cash in the accounts of the Company in the United States.

     Tax Dispute Accountants: as defined in Section 7.4(f).

     Tax Indemnitee: as defined in Section 7.4(a).

     Tax Indemnitor: as defined in Section 7.4(a).

     Tax Return: any report, return, statement or other written information required to be filed with a taxing authority in connection with Taxes.

     Taxes: means any federal, state, local, or foreign income, gross receipts, license, single business, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code §59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not and any expenses incurred in connection with the determination, settlement or litigation of any liability for Taxes.

     Transition Services Agreement: the Transition Services Agreement by and among the Shareholder, the Company and the Parent, substantially in the form of Exhibit G hereto.

     Unfunded APBO: as defined in Section 8.1.1.

     Unfunded Capital Expenditures: the amount by which Capital Expenditures is less than the Minimum Capital Expenditures as of the Share Purchase Closing Date or Merger Closing Date, as applicable, prorated for the month in which each Closing occurs.

     Unfunded PBO: as defined in Section 8.1.1.

     U.S. Bargaining Pension Plan: as defined in Section 8.1.12(a).

     WARN Act: as defined in Section 8.1.8.

     Working Capital: Current Assets less Current Liabilities.

     13. General Provisions.

     13.1 Modification; Waiver. This Agreement may be amended or modified only by a written instrument executed by each of the parties hereto. Any of the terms and conditions of this Agreement may be waived in writing at any time by the party entitled to the benefits thereof.

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     13.2 Entire Agreement. This Agreement, including the Schedules and Exhibits hereto (which are hereby incorporated by reference and made a part hereof), is the entire agreement of the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, oral or written, express or implied, between the parties hereto and their respective Affiliates, representatives and agents in respect of the subject matter hereof (including, without limitation, the Descriptive Offering Memorandum, dated February 2005, with respect to the Company Group and any supplements thereto), except that this Agreement does not supersede the Non-Disclosure Agreements, the terms and conditions of which the parties hereto expressly reaffirm.

     13.3 Certain Limitations. It is the explicit intent and understanding of each of the parties hereto that neither party nor any of its Affiliates, representatives or agents is making any representation or warranty whatsoever, oral or written, express or implied, other than those set forth in Sections 5 and 6 and in the certificates delivered pursuant to Sections 9.3.2 and 9.4.2 and neither party is relying on any statement, representation or warranty, oral or written, express or implied, made by the other party or such other party’s Affiliates, representatives or agents (including, without limitation, with respect to any estimates, projections, forecasts, budgets or other forward-looking information delivered or made available to the Parent or its representatives), except for the representations and warranties set forth in such Sections. EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE PARTIES EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION, MERCHANTABILITY OR SUITABILITY AS TO ANY OF THE ASSETS OF ANY MEMBER OF THE COMPANY GROUP AND, EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, IT IS UNDERSTOOD AND AGREED THAT THE PURCHASER TAKES THE ASSETS OF EACH MEMBER OF THE COMPANY GROUP AND ANY ENTITY LISTED IN SCHEDULE 5.3 OR 5.5 “AS IS” AND “WHERE IS”. The parties agree that this is an arm’s length transaction in which the parties’ undertakings and obligations are limited to the performance of their obligations under this Agreement. The documents that have been made available to each of the Parent and Merger Sub or their representatives by the Shareholder and the Company or their representatives shall be deemed disclosed and delivered pursuant to this Agreement. The parties have participated jointly in the negotiating and drafting of this Agreement.

     13.4 Termination.

     (a) This Agreement may be terminated:

     (i) at any time prior to the Share Purchase Closing by mutual written consent of the Parent and the Shareholder;

     (ii) at any time before the Share Purchase Closing, by the Shareholder or the Parent, (x) in the event of a material breach hereof by the non-terminating party, if such non-terminating party fails to cure such breach within five Business Days following notification thereof by the terminating party, or (y) upon notification of the non-terminating party by the terminating party that the satisfaction of any condition to the terminating party’s obligations under this Agreement becomes impossible or

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impracticable with the use of commercially reasonable efforts, if the failure of such condition to be satisfied is not caused by a breach hereof by the terminating party;

     (iii) by the Parent or the Shareholder, by written notice to the other party, if the Share Purchase Closing shall not have taken place on or before March 31, 2006, or such later date as the parties may have agreed to in writing, provided that the non-occurrence of the Share Purchase Closing is not attributable to a breach of any of the terms hereof by the party seeking termination;

     (iv) at any time before the Merger Closing, by the Shareholder or the Parent, (x) in the event of a material breach hereof by the non-terminating party, if such non-terminating party fails to cure such breach within five Business Days following notification thereof by the terminating party, or (y) upon notification of the non-terminating party by the terminating party that the satisfaction of any condition to the terminating party’s obligations under this Agreement becomes impossible or impracticable with the use of commercially reasonable efforts, if the failure of such condition to be satisfied is not caused by a breach hereof by the terminating party; or

     (v) by the Parent or the Shareholder, by written notice to the other party, if the Merger Closing shall not have taken place on or before March 31, 2006, or such later date as the parties may have agreed to in writing, provided that the non-occurrence of the Merger Closing is not attributable to a breach of any of the terms hereof by the party seeking termination.

     (b) If this Agreement is terminated as provided in Section 13.4(a), the transactions contemplated by this Agreement shall be terminated without further action by either party. If the transactions contemplated by this Agreement are terminated as provided herein:

     (i) the Parent shall return to the Shareholder all documents and other materials received from the Shareholder, its Affiliates, the Company Group or their respective agents (including all copies of or materials developed from any such documents or other materials) relating to the transactions contemplated hereby, whether obtained before or after the execution hereof; and

     (ii) all confidential information received by the Parent with respect to the Shareholder and its Affiliates shall be otherwise treated in accordance with the Non-Disclosure Agreements, which shall remain in full force and effect notwithstanding the termination of this Agreement.

     (c) If this Agreement is terminated as provided in Section 13.4(a), this Agreement shall become null and void and of no further force or effect, except for (i) Section 7.2.2 to the extent it makes information disclosed thereunder subject to the Non-Disclosure Agreements and (ii) this Section 13.4, Section 7.5 (relating to publicity), and Section 13.5 (relating to certain expenses). Nothing in this Section 13.4 shall be deemed to release either party from any liability for any breach by such party of the terms and provisions of this Agreement or to impair the right of either party to compel specific performance by the other party of its obligations under this Agreement pursuant to Section 13.17.

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     (d) Notwithstanding any other provision in this Agreement to the contrary, upon termination of this Agreement pursuant to Section 13.4(a), the Shareholder will remain liable to the Parent for any breach of this Agreement by the Shareholder existing at the time of such termination, and the Parent will remain liable to Shareholder for any breach of this Agreement by Parent existing at the time of such termination, and the Shareholder or the Parent may seek such remedies, including damages and fees of attorneys, against the other with respect to any such breach as are provided in this Agreement or as are otherwise available at law or in equity.

     13.5 Expenses. Except as expressly provided herein, whether or not the transactions contemplated herein shall be consummated, each party shall pay its own expenses, costs and fees incident to the preparation and performance of this Agreement; provided that the Parent shall be responsible for all filing fees in connection with (i) filings required by the HSR Act and (ii) any other filings with Governmental Authorities set forth on Schedules 9.2.3(i) and 10.2.3(i).

     13.6 Further Actions. Each party shall execute and deliver such certificates and other documents and take such other actions as may reasonably be requested by the other party in order to consummate or implement the transactions contemplated hereby, including in connection with obtaining the Financing Amount.

     13.7 Post-Closing Access. In connection with any matter relating to any period prior to, or any period ending on, the Share Purchase Closing Date or Merger Closing Date, as the case may be, the Parent shall, upon the request and at the expense of the Shareholder, provide the Shareholder and its representatives with full access at all reasonable times during normal business hours to the properties, books and records of the members of the Company Group and furnish for inspection such information and documents in its possession relating to the Company Group as the Shareholder may reasonably request. The Parent shall, and shall cause the members of the Company Group to, execute such documents as the Shareholder may reasonably request to enable the Shareholder to file any required reports or Tax Returns relating to any of the members of the Company Group. The Parent shall not dispose of such books and records during the ten-year period beginning with the Share Purchase Closing Date or Merger Closing Date, as applicable, without the Shareholder’s consent, which shall not be unreasonably withheld. Following the expiration of such ten-year period, the Parent may dispose of such books and records at any time upon giving 60 days’ prior written notice to the Shareholder, unless the Shareholder agrees to take possession of such books and records within 60 days at no expense to the Parent.

     13.8 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if: (a) delivered personally, (b) sent by registered or certified mail in the United States, return receipt requested, (c) sent by reputable overnight air courier (such as DHL or Federal Express) or (d) sent by fax, as follows:

if to the Shareholder or the Company, at:	if to the Parent or Merger Sub:
Phelps Dodge Corporation	Columbian Chemicals Acquisition LLC
One North Central Avenue	c/o One Equity Partners
Phoenix, Arizona 85004-2306	320 Park Avenue
Fax: (602) 366-7321	New York, New York 10022

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Attention: S. David Colton, Esq.	Fax: (212) 277-1533
	Attention: Mark Amrhein, Esq.
with a copy to:	with a copy to:
Debevoise & Plimpton LLP	Milbank, Tweed, Hadley & McCloy LLP
919 Third Avenue	1 Chase Manhattan Plaza
New York, New York 10022	New York, New York 10005
Fax: (212) 909-6836	Fax: (212) 822-5671
Attention: Michael W. Blair, Esq.	Attention: Charles J. Conroy, Esq.

or to such other address or to such other Person as either party hereto shall have last designated by notice to the other party.

     All such notices, requests, demands and other communications shall be deemed to have been received (w) if by personal delivery, on the next Business Day after such delivery, (x) if by registered or certified mail in the United States return receipt requested, on the seventh Business Day after the mailing thereof, (y) if by reputable overnight air courier, on the next Business Day after the mailing thereof or (z) if by fax, on the next Business Day following the day on which such fax was sent, provided that a copy is also sent by registered or certified mail, return receipt requested.

     13.9 Assignment of Agreement; Assignment of Non-Disclosure Agreements.

     (a) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but shall not be assignable, by operation of law or otherwise, by any party hereto without the prior written consent of the other parties and any purported assignment or other transfer without such consent shall be void and unenforceable; provided that the Parent and the Merger Sub may assign all of its rights or interests (but not its obligations) hereunder (including without limitation its rights under Section 7.4 and Section 11) to any financing sources.

     (b) The Shareholder shall, or shall cause any member of the Company Group to, assign to the Parent or its designee all confidentiality and non-disclosure agreements entered into by the Shareholder and/or any member of the Company Group with respect to the sale of the Company. In the event any such agreement is incapable of being assigned, Shareholder shall, at Parent’s reasonable request and sole expense enforce the confidentiality and other provisions thereof for the benefit of Parent and its Affiliates.

     13.10 No Third Party Beneficiaries. Nothing in this Agreement shall confer any rights upon any Person that is not a party or a successor or permitted assignee of a party to this Agreement.

     13.11 Counterparts. This Agreement may be executed in counterparts (including by facsimile), both of which shall constitute one and the same instrument.

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     13.12 Interpretation. The Section headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof. Any references to Sections or Schedules in this Agreement shall refer to Sections of and Schedules to this Agreement unless otherwise indicated. Any references to “the Shareholder’s or the Company’s knowledge” or “the knowledge of the Shareholder and the Company” shall mean the actual/constructive knowledge of the individuals set forth on Schedule 13.12, without any duty of investigation or inquiry. The disclosure of any matter in the Schedules hereto shall be deemed to be a disclosure for all purposes of this Agreement, but shall expressly not be deemed to constitute an admission by the Shareholder or the Parent, or to otherwise imply, that any such matter is material for the purposes of this Agreement.

     13.13 Severability. If any provision, including any phrase, sentence, clause, section or subsection, of this Agreement is invalid, inoperative or unenforceable for any reason, such circumstances shall not have the effect of rendering such provision invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision herein contained invalid, inoperative or unenforceable to any extent whatsoever.

     13.14 Governing Law. This Agreement shall be construed, performed and enforced in accordance with the laws of the State of New York without giving effect to its principles or rules of conflict of laws to the extent such principles or rules would require or permit the application of the laws of another jurisdiction.

     13.15 Consent to Jurisdiction.

     (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any Action or Proceeding arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of any judgment relating thereto, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such Action or Proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such Action or Proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

     (b) Each of the parties hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any Action or Proceeding arising out of or relating to this Agreement or the transactions contemplated hereby in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such Action or Proceeding in any such court.

     (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 13.8. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

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     13.16 Waiver of Punitive and Other Damages and Jury Trial.

     (a) THE PARTIES TO THIS AGREEMENT EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER PUNITIVE, EXEMPLARY, LOST PROFITS, CONSEQUENTIAL OR SIMILAR DAMAGES IN ANY ARBITRATION, LAWSUIT, LITIGATION OR PROCEEDING ARISING OUT OF OR RESULTING FROM ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY OR CLAIM WHICH MAY ARISE OUT OF OR RELATE TO THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     (c) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (iv) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 13.16.

     13.17 Specific Performance; etc(a) Each of the parties hereto acknowledges and agrees that, in the event of any breach of this Agreement, the non-breaching party would be irreparably and immediately harmed and could not be made whole by monetary damages. It is accordingly agreed that the parties hereto (a) shall be entitled, in addition to any other remedy to which they may be entitled at law or in equity, to obtain injunctive relief or to compel specific performance of this Agreement in accordance with any action instituted in accordance with Section 13.15 and (b) will waive, in any action for specific performance, the defense of the adequacy of a remedy at law.

     (b) Parent shall take, and after the Share Purchase Closings shall cause each member of the Company Group to take, all action necessary to cause each buyer under a Share Purchase Agreement not to seek any remedy thereto for any Damages incurred under such Agreement.

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

PHELPS DODGE CORPORATION
By	/s/ Ramiro G. Peru
	Name: Ramiro G. Peru
	Title: Executive Vice President & Chief
	Financial Officer
COLUMBIAN CHEMICALS COMPANY
By	/s/ James Berresse
	Name: James Berresse
	Title: President and Chief Executive Officer
COLUMBIAN CHEMICALS ACQUISITION LLC
By	/s/ Thomas F. Kichler
	Name: Thomas F. Kichler
	Title: Manager
COLUMBIAN CHEMICALS MERGER SUB, INC.
By	/s/ Woohyun Lee
	Name: Woohyun Lee
	Title: President

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Exhibits A-F

Form of Share Purchase Agreements

A-1

Exhibit G

Form of Transition Services Agreement

EXHIBIT A

     QUOTA PURCHASE AGREEMENT, dated as of [___], 2005 (this “Agreement”), among Columbian International Chemicals Corporation (Seat: US — Marietta, GA West Oak, Commons Court 1800, USA) (“CICC”), Columbian Chemicals Company (Seat: US — 300 62 Marietta, GA, West Oak Commons Court 1800, USA) (“Columbian”) (each, a “Seller” and collectively, the “Sellers”), and [Newco], a [foreign jurisdiction] [entity] (the “Purchaser”).

W I T N E S S E T H:

     WHEREAS, Phelps Dodge Corporation, a New York corporation (“Phelps Dodge”), Columbian, Columbian Chemicals Acquisition LLC, a Delaware limited liability company (the “Parent”), and Columbian Chemicals Merger Sub, Inc., a Delaware corporation, have entered into a Master Agreement and Plan of Merger dated November 15, 2005 (the “Master Agreement”), providing, inter alia, for the sale of Columbian Tiszai Koromgyártó Kft. (Registration No. 05-09-002252; Seat: 3581 Tiszaújváros hrsz. 2052.) (the “Company”), pursuant to Section 1.1 of the Master Agreement;

     WHEREAS, pursuant to this Agreement the Purchaser¹ herewith acquires the Quotas, including without limitation (i) the quota having a face value of HUF 999,000,000 representing 99.9 % of the Company’s registered capital (“Quota 1”), owned by CICC, and (ii) the quota having a face value of HUF 1,000,000 representing 0.1 % of the Company’s registered capital (“Quota 2”) owned by Columbian (Quota 1 and Quota 2 are collectively referred to herein as the “Quotas”); and

     WHEREAS, the Sellers wish to sell the Quotas to the Purchaser, and the Purchaser wishes to purchase the Quotas from the Sellers, on the terms and conditions and for the consideration set forth in this Agreement; and

     NOW, THEREFORE, in consideration of the mutual promises, covenants, representations and warranties made herein and of the mutual benefits to be derived therefrom, the parties hereto agree as follows:

¹ Please note that pursuant to Section 4 point (4) of Hungarian Act on Business Associations of CXLIV of 1997 (“Company Act”) a single-member business association may not be the sole member of a business association.

ARTICLE I

SALE AND PURCHASE OF QUOTAS

     1.1 Sale and Purchase of Quotas. Subject to the terms and conditions hereof, at the Closing, each Seller will sell to the Purchaser, and the Purchaser will purchase from each Seller, the Quotas set forth opposite such Seller’s name in the column entitled “Quotas” in Schedule 1.1, for a purchase price for each Seller equal to the amount set forth opposite such Seller’s name in the column entitled “Seller Purchase Price” (the “Per Seller Purchase Price”). The aggregate purchase price to be paid by the Purchaser for all Quotas is US$103,160,000, subject to pro rata adjustment pursuant to Section 4 of the Master Agreement (the “Purchase Price”).

     1.2 Assignment of Certain Payment Rights. Each Seller hereby assigns to Phelps Dodge all of its rights and obligations, if any, to receive and to pay, respectively, the amount of any adjustment to the Purchase Price, as determined in accordance with Section 4 of the Master Agreement.

     1.3 Closing. The closing of the sale and purchase of the Quotas (the “Closing”) will take place at the offices of Debevoise & Plimpton LLP, 919 Third Avenue, New York, New York 10022, on the Share Purchase Closing Date as defined in the Master Agreement (the “Closing Date”). At the Closing:

     (a) An Authorized Officer of each Seller, acting in person or by power of attorney, shall sign a modification of the Quotaholders’ List of the Company (the “Quotaholders’ List”) to indicate the Purchaser as the owner of such Seller’s Quota, and the Managing Director of the Company shall file that modification with the Metropolitan Court of Registration; and

     (b) the Purchaser will pay to each Seller or to such Seller’s designee, by wire transfer of immediately available funds to such account as shall be designated in writing by such Seller to the Purchaser at least two Business Days prior to the Closing Date, an amount equal to such Seller’s Per Seller Purchase Price.

     1.4 Post Closing formalities. Within thirty days of Closing, the Managing Director of the Company shall cause a notice of the modification of the Quotaholders’ List to be published in the Company Gazette.

2

ARTICLE II

DEFINITIONS

     2.1 Specific Definitions. As used in this Agreement and the Schedule hereto, the following terms have the following meanings:

     Affiliate: with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, the first Person.

     Authority: any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any government authority, agency, department, board, commission or instrumentality of Hungary or any political subdivision thereof.

     Authorized Officer: With respect to either Seller, any duly authorized President, Vice President or Secretary of such Seller.

     Business Day: any day that is not (i) a Saturday, (ii) a Sunday or (iii) any other day on which commercial banks are authorized or required by law to be closed in the City of New York.

     Lien: any lien, security interest, adverse claim, charge or encumbrance.

     Material Adverse Effect: a material adverse effect on (a) the business, operations, assets, liabilities, condition (financial or otherwise) or results of operations of the Company or (b) the ability of such Seller to perform its obligations hereunder or to consummate the transactions contemplated hereby, other than any change or effect that results from or relates to: (x) the announcement by such Seller of its intention to sell the Company, including any announcement related to the execution and delivery of this Agreement, (y) the consummation of the transactions contemplated by this Agreement or (z) changes in (i) economic, regulatory or political conditions (including, without limitation, acts of war, declared or undeclared, armed hostilities and terrorism), (ii) financial, securities or other market conditions affecting the industries in which the Company operates, and (iii) applicable law or regulations or accounting standards, principles or interpretations.

     Person: any natural person, firm, limited liability company, general partnership, limited partnership, joint venture, association, corporation, trust, Authority or other entity.

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ARTICLE III

REPRESENTATIONS AND WARRANTIES AS TO THE SELLERS

     Each Seller, severally and not jointly represents and warrants to the Purchaser as follows:

     3.1 Corporate Status and Authority. Such Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to own the Quotas and to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by the board of directors of such Seller, which approval constitutes all necessary corporate action on the part of the Seller for such authorization. This Agreement has been duly executed and delivered by such Seller and constitutes the valid and binding obligation of such Seller, enforceable against such Seller in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership.

     3.2 No Conflicts, Consents and Approvals.

     (a) Neither the execution, delivery or performance of this Agreement by such Seller nor the consummation of the transactions contemplated hereby will result in (i) any conflict with the certificate of incorporation or by-laws of the Seller, (ii) subject to obtaining the consents, approvals and authorizations and making the filings referred to in Section 3.2(b), any breach or violation of or default under any applicable regulation of any Authority or any mortgage, agreement, indenture or any other instrument to which such Seller is a party or by which it or its properties or assets are bound, (iii) any Person being granted (with or without notice of lapse of time or both) any right of termination, cancellation, acceleration or modification in or with respect to any material agreement to which such Seller is a party or by which it or its respective properties or assets are bound, or (iv) the creation or imposition of any Liens on the Quotas, except, in the case of clauses (ii) and (iii), as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

     (b) By executing this Agreement, the Sellers unconditionally and irrevocably approve the modification of the Quotaholders’ List by an Authorized Officer of each Seller in accordance with the transfer of Quotas contemplated herein and the registration of such transfer with the Metropolitan Court of Registration.

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     (c) Except as set forth in Schedule 3.2(b), no material consent, approval or authorization of or filing with any Authority or Person is required on the part of such Seller in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.

     3.3 Title to Quotas and Capitalization. The Quotas represent 100% of the registered capital of the Company. Each Seller owns beneficially and of record the Quotas set forth opposite such Seller’s name in the column entitled “Quotas” in Schedule 1.1 which are free and clear of all encumbrances. The Quotas have been duly authorized and are fully paid and non-assessable. The delivery in the manner provided in Section 1.3 will transfer to the Purchaser valid title to the Quotas, unencumbered, other than Liens created by the Purchaser of any of its Affiliates. There are no outstanding options, warrants, conversion or other rights or agreements of any kind (other than this Agreement) for the purchase or acquisition from, or the sale or issuance by, any Seller or the Company of any quotas of the registered capital, and no authorization therefore has been given.

     3.4 Waiver of Pre-emption Rights. Each Seller shall cause the Company to execute the declaration set forth in Schedule 3.4, pursuant to which the Company shall state that it does not wish to exercise its statutory pre-emption right and that it does not wish to appoint a third party to exercise its pre-emption right relating to the Quotas which are the subject of this Agreement.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

     The Purchaser represents and warrants to each Seller as follows:

     4.1 Corporate Status and Authority. The Purchaser is a [___] duly [___], validly existing and in good standing under the laws of [___] and has the [___] power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by [the board of directors of the Purchaser, which approval constitutes all necessary corporate action on the part of the Purchaser for such authorization]. This Agreement has been duly executed and delivered by the Purchaser and constitutes the valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership.

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     4.2 No Conflicts, Consents and Approvals.

     (a) The execution, delivery and performance of this Agreement by the Purchaser will not result in (i) any conflict with [the organizational documents] of the Purchaser, (ii) any breach or violation of or default under any applicable regulation, of any Authority or any mortgage, agreement, indenture or any other instrument to which the Purchaser is a party or by which the Purchaser or any of its properties or assets are bound, or (iii) the creation or imposition of any Lien, except, in the case of clauses (ii) and (iii), where such breaches, violations or defaults and such Liens would not reasonably be expected, individually or in the aggregate, to materially impair the ability of the Purchaser to perform its obligations under, or to consummate the transactions contemplated by, this Agreement.

     (b) No consent, approval or authorization of or filing with any Authority or Person is required on the part of the Purchaser in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except filings, consents or approvals that, if not made or obtained, would not reasonably be expected, individually or in the aggregate, to materially impair the ability of the Purchaser to perform its obligations under, or to consummate the transactions contemplated by, this Agreement.

ARTICLE V

CONDITIONS TO CLOSING

     5.1 Conditions to the Obligation of the Purchaser. The obligation of the Purchaser to consummate the transactions contemplated hereby shall be subject to the satisfaction or waiver by the Purchaser on or prior to the Closing Date of each of the following conditions:

     (a) Each of the representations and warranties of each Seller contained in Article III shall be true shall be true and correct in all respects, if qualified by materiality, and shall be true and correct in all material respects, if not qualified by materiality, at and as of the Closing Date with the same effect as though made at and as of such time. Each Seller shall have duly performed and complied in all material respects with all covenants contained herein required to be performed or complied with by it at or before the Closing Date.

     (b) All of the Conditions to Obligations of the Parties and Conditions to Obligations of the Parent set forth in Sections 9.2 and 9.4, respectively, of the Master Agreement shall have been satisfied or waived.

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     (c) CICC shall have delivered to the Purchaser a certificate, dated the Closing Date and signed by its President, Executive Vice President or a Senior Vice President, as to the fulfillment of the conditions set forth in Section 5.1(a), 5.1(b), it being understood that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of CICC (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

     5.2 Conditions to the Obligation of the Sellers. The obligation of the Sellers to consummate the transactions contemplated hereby shall be subject to the satisfaction or waiver by CICC (on behalf of the Sellers) on or prior to the Closing Date of each of the following conditions:

     (a) Each of the representations and warranties of the Purchaser contained in Article IV shall be true shall be true and correct in all respects, if qualified by materiality, and shall be true and correct in all material respects, if not qualified by materiality, at and as of the Closing Date with the same effect as though made at and as of such time. The Purchaser shall have duly performed and complied in all material respects with all covenants contained herein required to be performed or complied with by it at or before the Closing Date.

     (b) All of the Conditions to Obligations of the Parties and Conditions to Obligations of the Shareholder and Columbian set forth in Sections 9.2 and 9.3, respectively, of the Master Agreement shall have been satisfied or waived.

     (c) The Purchaser shall have delivered to CICC a certificate, dated the Closing Date and signed by its President or a Senior Vice President, as to the fulfillment of the conditions set forth in Section 5.2(a) and 5.2(b), it being understood that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of the Purchaser (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

ARTICLE VI

NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES

     6.1 No Survival of Representations and Warranties. The representations, warranties and covenants of the Sellers and the Purchaser contained in this Agreement or in any certificate delivered in connection with this Agreement shall not survive the Closing, and any and all breaches of such representations, warranties and covenants shall be deemed waived as of the Closing.

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ARTICLE VII

GENERAL PROVISIONS

     7.1 Master Agreement. All matters not provided for herein shall, if provided for in the Master Agreement, be governed by the terms and conditions set forth therein. In the event of conflict between this Agreement and the Master Agreement, the Master Agreement shall take precedence.

     7.2 Remedies. For the avoidance of doubt, the parties to this Agreement expressly agree that the sole remedy for any controversy or claim arising out of or relating to this Agreement or the transactions contemplated hereby shall be the recovery provided under the terms of the Master Agreement. Each party expressly waives and foregoes the right to any other remedy arising out of or relating to this Agreement or the transactions contemplated hereby.

     7.3 Further Actions. Each party shall execute and deliver such certificates and other documents and take such other actions as may reasonably be requested by the other party in order to consummate or implement the transactions contemplated hereby.

     7.4 Termination. This Agreement shall terminate on the earlier of the date determined by written agreement of the parties hereto and the date of termination of the Master Agreement.

     7.5 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if: (a) delivered personally, (b) sent by registered or certified mail in the United States, return receipt requested, (c) sent by reputable overnight air courier (such as DHL or Federal Express) or (d) sent by fax, as follows:

if to the Sellers, to:

[_____]

with a copy to:

Debevoise & Plimpton LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 909-6836
Attention: Michael W. Blair, Esq.

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if to the Purchaser:

[_____]

with a copy to:

[_____]

or to such other address or to such other Person as either party hereto shall have last designated by notice to the other party.

     All such notices, requests, demands and other communications shall be deemed to have been received (w) if by personal delivery, on the next Business Day after such delivery, (x) if by registered or certified mail in the United States return receipt requested, on the seventh Business Day after the mailing thereof, (y) if by reputable overnight air courier, on the next Business Day after the mailing thereof or (z) if by fax, on the next Business Day following the day on which such fax was sent, provided that a copy is also sent by registered or certified mail, return receipt requested.

     7.6 Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but shall not be assignable, by operation of law or otherwise, by either party hereto without the prior written consent of the other party and any purported assignment or other transfer without such consent shall be void and unenforceable.

     7.7 Modification; Waiver. This Agreement may be amended or modified only by a written instrument executed by each of the parties hereto. Any of the terms and conditions of this Agreement may be waived in writing at any time by the party entitled to the benefits thereof.

     7.8 Severability. If any provision, including any phrase, sentence, clause, section or subsection, of this Agreement is invalid, inoperative or unenforceable for any reason, such circumstances shall not have the effect of rendering such provision invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision herein contained invalid, inoperative or unenforceable to any extent whatsoever.

     7.9 Headings. The Section headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof. Any references to Sections or Schedules in this Agreement shall refer to Sections of and Schedules to this Agreement unless otherwise indicated.

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     7.10 Counterparts. This Agreement may be executed in counterparts (including by facsimile), both of which shall constitute one and the same instrument.

     7.11 Governing Law. This Agreement shall be construed, performed and enforced in accordance with the laws of the State of New York — with the exception of the mandatory rules of Hungarian law regarding the transfer of ownership over the Quotas — without giving effect to its principles or rules of conflict of laws to the extent such principles or rules would require or permit the application of the laws of another jurisdiction.

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     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.

COLUMBIAN INTERNATIONAL
CHEMICALS CORPORATION
By
	Name:
	Title:
COLUMBIAN CHEMICALS COMPANY
By
	Name:
	Title:
[PURCHASER]
By:
Name:
Title:

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EXHIBIT B

     PRELIMINARY QUOTAS SALE — PURCHASE AGREEMENT, dated as of [___], 2005 (this “Agreement”), between Columbian Holding Company, a Delaware company whose registered office is at 1800 West Oak Commons Court, Marietta, Georgia 30062 USA (“CHC”), Columbian Chemicals Company, a Delaware company whose registered office is at 1800 West Oak Commons Court, Marietta, Georgia 30062 USA (“CCC”), (each, a “Seller” and collectively, the “Sellers”), and [Newco], an Italian company with registered office in [address], registered with the Companies’ Registry of [relevant Company’s Register] under number [ • ] (the “Purchaser”).

W I T N E S S E T H:

     WHEREAS, Phelps Dodge Corporation, a New York corporation (“Phelps Dodge”), CCC, Columbian Chemicals Acquisition LLC, a Delaware limited liability company (the “Parent”), and Columbian Chemicals Merger Sub, Inc., a Delaware corporation, have entered into a Master Agreement and Plan of Merger dated November 15, 2005 (the “Master Agreement”), providing, inter alia, for the sale of Columbian Carbon Europa S.r.l., an Italian company with registered office in Trecate (NO), via San Cassiano 140 CAP 28069, frazione S. Martino, registered with the Companies’ Registry of Novara under number and Fiscal Code 00856740154 REA n. 80322 (the “Company”), and pursuant to Section 1.1 of the Master Agreement;

     WHEREAS, the Sellers own all of the issued and outstanding capital stock of the Company, consisting of two quotas (the “Quotas”) of common stock, with € 9,700,000 par value;

     WHEREAS, the Sellers wish to sell the Quotas to the Purchaser, and the Purchaser wishes to purchase the Quotas from the Sellers, on the terms and conditions and for the consideration set forth in this Agreement; and

     NOW, THEREFORE, in consideration of the mutual promises, covenants, representations and warranties made herein and of the mutual benefits to be derived therefrom, the parties hereto agree as follows:

ARTICLE I

SALE AND PURCHASE OF QUOTAS

     1.1 Sale and Purchase of Quotas. Subject to the terms and conditions hereof, at the Closing, each Seller will sell to the Purchaser, and the Purchaser will purchase from each Seller, its respective Quota, of the nominal value set forth opposite such Seller’s name in the column entitled “Nominal value of Quotas” in Schedule 1.1 for a purchase price for each Seller equal to the amount set forth opposite such Seller’s name in the column entitled “Seller Purchase Price”, subject to adjustment on a pro rata basis pursuant

to Section 4 of the Master Agreement (the “Per Seller Purchase Price). The aggregate purchase price to be paid by the Purchaser for the two Quotas is $20,090,000 (the “Purchase Price”).

     1.2 Assignment of Certain Payment Rights. Each Seller hereby assigns to Phelps Dodge all of its rights and obligations, if any, to receive and to pay, respectively, the amount of any adjustment to the Purchase Price, as determined in accordance with Section 4 of the Master Agreement.

     1.3 Closing. The closing of the sale and purchase of the Quotas (the “Closing”) will take place at the offices of [Local Counsel/Public Notary], [address], on the Share Purchase Closing Date as defined in the Master Agreement (the “Closing Date”). At the Closing:

     (a) The Parties will execute, before an Italian Notary Public selected by the Sellers (the “Notary Public”), a Deed of sale and purchase of the Quotas substantially on the same terms and conditions set forth in this Agreement, mutatis mutandis, in the Italian language (the “Deed”); and

     (b) the Purchaser will pay to each Seller or to such Seller’s designee, by wire transfer of immediately available funds to such account as shall be designated in writing by such Seller to the Purchaser at least two Business Days prior to the Closing Date, an amount equal to such Seller’s Per Seller Purchase Price.

     1.4 Post Closing formalities. The Parties acknowledge that, after the Closing, (i) the Deed will be filed with the competent Company’s Register by the Notary Public, and (ii) after filing of the Deed with the competent Company’s Register it will be the Purchaser’s duty to request the directors of the Company to file the Deed in the Company’s Quotaholders Book pursuant to article 2470 of the Italian Civil Code.

ARTICLE II

DEFINITIONS

     2.1 Specific Definitions. As used in this Agreement and the Schedule hereto, the following terms have the following meanings:

     Affiliate: with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, the first Person.

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     Business Day: any day that is not (i) a Saturday, (ii) a Sunday or (iii) any other day on which commercial banks are authorized or required by law to be closed in Italy.

     Governmental Authority: any national government, any region, province and local entity, or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any government authority, agency, department, board, commission or instrumentality of Italy or any political subdivision thereof.

     Lien: any lien, pledge, security interest, adverse claim, charge or encumbrance.

     Material Adverse Effect: a material adverse effect on (a) the business, operations, assets, liabilities, condition (financial or otherwise) or results of operations of the Company or (b) the ability of such Seller to perform its obligations hereunder or to consummate the transactions contemplated hereby, other than any change or effect that results from or relates to: (x) the announcement by such Seller of its intention to sell the Company, including any announcement related to the execution and delivery of this Agreement, (y) the consummation of the transactions contemplated by this Agreement or (z) changes in (i) economic, regulatory or political conditions (including, without limitation, acts of war, declared or undeclared, armed hostilities and terrorism), (ii) financial, securities or other market conditions affecting the industries in which the Company operates, and (iii) applicable law or regulations or accounting standards, principles or interpretations.

     Person: any natural person, firm, limited liability company, general partnership, limited partnership, joint venture, association, corporation, trust, Governmental Authority or other entity.

ARTICLE III

REPRESENTATIONS AND WARRANTIES AS TO THE SELLERS

     Each Seller, as to itself, severally and not jointly represents and warrants to the Purchaser as follows:

     3.1 Corporate Status and Authority. Such Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to own the Quotas and to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and

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performance of this Agreement have been duly authorized by the board of directors of such Seller, which approval constitutes all necessary corporate action on the part of the Seller for such authorization. This Agreement has been duly executed and delivered by such Seller and constitutes the valid and binding obligation of such Seller, enforceable against such Seller in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity).

     3.2 No Conflicts, Consents and Approvals.

     (a) Neither the execution, delivery or performance of this Agreement by such Seller nor the consummation of the transactions contemplated hereby will result in (i) any conflict with the certificate of incorporation or by-laws of the Seller, (ii) any breach or violation of or default under any applicable statute, regulation, judgment, order or decree of any Governmental Authority or any mortgage, agreement, indenture or any other instrument to which such Seller is a party or by which it or its properties or assets are bound, (iii) any Person being granted (with or without notice of lapse of time or both) any right of termination, cancellation, acceleration or modification in or with respect to any material agreement to which such Seller is a party or by which it or its respective properties or assets are bound, or (iv) the creation or imposition of any Liens on the Quotas, except, in the case of clauses (ii) and (iii), as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

     (b) Except as set forth in Article I, no material consent, approval or authorization of or filing with any Governmental Authority or Person is required on the part of such Seller in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.

     3.3 Title to Quotas and Capitalization. The Quotas are the only issued and outstanding quotas of capital stock of the Company. Each Seller owns beneficially and of record the Quota set forth opposite such Seller’s name in Schedule 1.1, free and clear of any Liens. The Quotas have been duly authorized and validly issued and are fully paid and non-assessable. The completion of the formalities listed in Section 1.3 will transfer to the Purchaser valid title to the Quotas, free and clear of any Liens, other than Liens created by the Purchaser or any of its Affiliates. There are no outstanding options, warrants, conversion or preemptive or other rights or agreements of any kind (other than this Agreement) for the purchase or acquisition from, or the sale or issuance by, each Seller or the Company of any quotas of capital stock, or any securities that are convertible into or exchangeable for quotas of capital stock, of the Company, and no authorization therefor has been given.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

     The Purchaser represents and warrants to each Seller as follows:

     4.1 Corporate Status and Authority. The Purchaser is a [___] duly [___], validly existing and in good standing under the laws of [___] and has the [___] power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by [the board of directors of the Purchaser, which approval constitutes all necessary corporate action on the part of the Purchaser for such authorization]. This Agreement has been duly executed and delivered by the Purchaser and constitutes the valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity).

     4.2 No Conflicts, Consents and Approvals.

     (a) The execution, delivery and performance of this Agreement by the Purchaser will not result in (i) any conflict with the organizational documents of the Purchaser, (ii) any breach or violation of or default under any applicable statute, regulation, judgment, order or decree of any Governmental Authority or any mortgage, agreement, indenture or any other instrument to which the Purchaser is a party or by which the Purchaser or any of its properties or assets are bound, or (iii) the creation or imposition of any Lien, except, in the case of clauses (ii) and (iii), where such breaches, violations or defaults and such Liens would not reasonably be expected, individually or in the aggregate, to materially impair the ability of the Purchaser to perform its obligations under, or to consummate the transactions contemplated by, this Agreement.

     (b) No consent, approval or authorization of or filing with any Governmental Authority or Person is required on the part of the Purchaser in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except filings, consents or approvals that, if not made or obtained, would not reasonably be expected, individually or in the aggregate, to materially impair the ability of the Purchaser to perform its obligations under, or to consummate the transactions contemplated by, this Agreement.

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ARTICLE V

CONDITIONS TO CLOSING

     5.1 Conditions to the Obligation of the Purchaser. The obligation of the Purchaser to consummate the transactions contemplated hereby shall be subject to the satisfaction or waiver by the Purchaser on or prior to the Closing Date of each of the following conditions:

     (a) Each of the representations and warranties of the Seller contained in Article III shall be true and correct in all respects, if qualified by materiality, and shall be true and correct in all material respects, if not qualified by materiality, at and as of the Closing Date with the same effect as though made at and as of such time. The Seller shall have duly performed and complied in all material respects with all covenants contained herein required to be performed or complied with by it at or before the Closing Date.

     (b) All of the Conditions to Obligations of the Parties and Conditions to Obligations of the Parent set forth in Sections 9.2 and 9.4, respectively, of the Master Agreement shall have been satisfied or waived.

     (c) CHC shall have delivered to the Purchaser a certificate, dated the Closing Date and signed by its President, Executive Vice President or a Senior Vice President, as to the fulfillment of the conditions set forth in Section 5.1(a), 5.1(b), it being understood that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of CHC (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

     5.2 Conditions to the Obligation of the Sellers. The obligation of the Sellers to consummate the transactions contemplated hereby shall be subject to the satisfaction or waiver by CHC (on behalf of the Sellers) on or prior to the Closing Date of each of the following conditions:

     (a) Each of the representations and warranties of the Purchaser contained in Article IV shall be true and correct in all respects, if qualified by materiality, and shall be true and correct in all material respects, if not qualified by materiality, at and as of the Closing Date with the same effect as though made at and as of such time. The Purchaser shall have duly performed and complied in all material respects with all covenants contained herein required to be performed or complied with by it at or before the Closing Date.

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     (b) All of the Conditions to Obligations of the Parties and Conditions to Obligations of the Shareholder and CCC set forth in Sections 9.2 and 9.3, respectively, of the Master Agreement shall have been satisfied or waived.

     (c) The Purchaser shall have delivered to CHC (on behalf of the Sellers) a certificate, dated the Closing Date and signed by its President or a Senior Vice President, as to the fulfillment of the conditions set forth in Section 5.2(a) and 5.2(b), it being understood that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of the Purchaser (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

ARTICLE VI

NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES

     6.1 No Survival of Representations and Warranties. The representations, warranties and covenants of the Sellers and the Purchaser contained in this Agreement or in any certificate delivered in connection with this Agreement shall not survive the Closing, and any and all breaches of such representations, warranties and covenants shall be deemed waived as of the Closing.

ARTICLE VII

GENERAL PROVISIONS

     7.1 Master Agreement. All matters not provided for herein shall, if provided for in the Master Agreement, be governed by the terms and conditions set forth therein. In the event of conflict between this Agreement and the Master Agreement, the Master Agreement shall take precedence.

     7.2 Remedies. For the avoidance of doubt, the parties to this Agreement expressly agree that, with the exception of the remedy provided by article 2932 of the Italian Civil Code, the sole remedy for any controversy or claim arising out of or relating to this Agreement or the transactions contemplated hereby shall be the recovery provided under the terms of the Master Agreement. Each party expressly waives and foregoes the right to any other remedy arising out of or relating to this Agreement or the transactions contemplated hereby.

     7.3 Further Actions. Each party shall execute and deliver such certificates and other documents and take such other actions as may reasonably be requested by the other party in order to consummate or implement the transactions contemplated hereby.

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     7.4 Termination. This Agreement shall terminate on the earlier of the date determined by written agreement of the parties hereto and the date of termination of the Master Agreement.

     7.5 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if: (a) delivered personally, (b) sent by registered or certified mail in the United States, return receipt requested, (c) sent by reputable overnight air courier (such as DHL or Federal Express) or (d) sent by fax, as follows:

     if to the Sellers, to:

     [___]

     with a copy to:

     Debevoise & Plimpton LLP

     919 Third Avenue

     New York, New York 10022

     Fax: (212) 909-6836

     Attention: Michael W. Blair, Esq.

     if to the Purchaser:

     [___]

     with a copy to:

     [___]

or to such other address or to such other Person as either party hereto shall have last designated by notice to the other party.

     All such notices, requests, demands and other communications shall be deemed to have been received (w) if by personal delivery, on the next Business Day after such delivery, (x) if by registered or certified mail in the United States return receipt requested, on the seventh Business Day after the mailing thereof, (y) if by reputable overnight air courier, on the next Business Day after the mailing thereof or (z) if by fax, on the next Business Day following the day on which such fax was sent, provided that a copy is also sent by registered or certified mail, return receipt requested.

     7.6 Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but shall not be assignable, by operation of law or otherwise, by either party hereto without the prior

8

written consent of the other party and any purported assignment or other transfer without such consent shall be void and unenforceable.

     7.7 Modification; Waiver. This Agreement may be amended or modified only by a written instrument executed by each of the parties hereto. Any of the terms and conditions of this Agreement may be waived in writing at any time by the party entitled to the benefits thereof.

     7.8 Severability. If any provision, including any phrase, sentence, clause, section or subsection, of this Agreement is invalid, inoperative or unenforceable for any reason, such circumstances shall not have the effect of rendering such provision invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision herein contained invalid, inoperative or unenforceable to any extent whatsoever.

     7.9 Headings. The Section headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof. Any references to Sections or Schedules in this Agreement shall refer to Sections of and Schedules to this Agreement unless otherwise indicated.

     7.10 Counterparts. This Agreement may be executed in counterparts (including by facsimile), both of which shall constitute one and the same instrument.

     7.11 Governing Law. This Agreement shall be construed and enforced in accordance with the laws of Italy.

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     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.

COLUMBIAN HOLDING COMPANY
By
	Name:
	Title:
COLUMBIAN CHEMICALS COMPANY
By
	Name:
	Title:
[PURCHASER]
By:
Name:
Title:

10

EXHIBIT C

     STOCK PURCHASE AGREEMENT, dated as of [___], 2006 (this “Agreement”), between Columbian International Chemicals Corporation, a Delaware corporation (the “Seller”), and [Newco], a [foreign jurisdiction] [entity] (the “Purchaser”).

W I T N E S S E T H:

     WHEREAS, Phelps Dodge Corporation, a New York corporation (“Phelps Dodge”), Columbian Chemicals Company, a Delaware corporation (“Columbian Chemicals”), Columbian Chemicals Acquisition LLC, a Delaware limited liability company (the “Parent”), and Columbian Chemicals Merger Sub, Inc., a Delaware corporation, have entered into a Master Agreement and Plan of Merger dated November 15, 2005 (the “Master Agreement”), providing, inter alia, for the sale of Columbian Chemicals Canada Ltd., a corporation continued under the laws of Ontario (the “Company”), pursuant to Section 1.1 of the Master Agreement;

     WHEREAS, the Seller owns all of the issued and outstanding capital stock of the Company, consisting of 17,525 common shares (the “Shares”);

     WHEREAS, the Seller wishes to sell the Shares to the Purchaser, and the Purchaser wishes to purchase the Shares from the Seller, on the terms and conditions and for the consideration set forth in this Agreement; and

     NOW, THEREFORE, in consideration of the mutual promises, covenants, representations and warranties made herein and of the mutual benefits to be derived therefrom, the parties hereto agree as follows:

ARTICLE I

SALE AND PURCHASE OF SHARES

     1.1 Sale and Purchase of Shares. Subject to the terms and conditions hereof, at the Closing, the Seller will sell to the Purchaser, and the Purchaser will purchase from the Seller, the Shares for a purchase price in the amount of US$68,410,000, subject to adjustment pursuant to Section 4 of the Master Agreement (the “Purchase Price”).

     1.2 Assignment of Certain Payment Rights. The Seller hereby assigns to Phelps Dodge all of its rights and obligations, if any, to receive and to pay, respectively, the amount of any adjustment to the Purchase Price, as determined in accordance with Section 4 of the Master Agreement.

     1.3 Closing. The closing of the sale and purchase of the Shares (the “Closing”) will take place at the offices of Debevoise & Plimpton LLP, 919 Third

Avenue, New York, New York 10022, on the Share Purchase Closing Date as defined in the Master Agreement (the “Closing Date”). At the Closing:

     (a) the Seller will deliver to the Purchaser, free and clear of all Liens other than Liens created by the Purchaser or any of its Affiliates, certificates representing all of the Shares, duly endorsed in blank or accompanied by stock powers or other appropriate instruments of transfer duly executed, and bearing or accompanied by all requisite stock transfer stamps; and

     (b) the Purchaser will pay to the Seller or to the Seller’s designee, by wire transfer of immediately available funds to such account as shall be designated in writing by the Seller to the Purchaser at least two Business Days prior to the Closing Date, an amount equal to the Purchase Price.

     1.4 Section 116 Certificate. The Seller covenants and agrees with the Purchaser as follows:

     (a) the Seller shall take all reasonable steps to obtain and deliver to the Purchaser on or before Closing a certificate issued by the Minister of National Revenue under subsection 116(2) of the Income Tax Act (Canada) (the “Tax Act”), having a certificate limit of no less than the Purchase Price;

     (b) if a certificate is not so delivered, the Purchaser shall be entitled to withhold from the Purchase Price payable at Closing an amount equal to twenty-five percent (25%) of the Purchase Price;

     (c) where the Purchaser has withheld any amount under paragraph (b) and the Seller delivers to the Purchaser, after Closing and on or before 27 days after the end of the month in which the Purchaser acquired the Shares (the “Remittance Deadline”), a certificate issued by the Minister of National Revenue under either subsection 116(2) or 116(4) of the Tax Act, the Purchaser shall pay forthwith to the Seller any amount that the Purchaser has so withheld;

     (d) where the Purchaser has withheld any amount under paragraph (b) and no certificate has been delivered to the Purchaser by the Seller on or before the Remittance Deadline in accordance with paragraph (c), subject to paragraph (f), such amount shall be remitted by the Purchaser to the Receiver General for Canada in accordance with section 116 of the Tax Act;

     (e) the Purchaser shall not remit the amount referred to in paragraph (d) before the day after the Remittance Deadline;

     (f) where the Purchaser has withheld any amount under paragraph (b) and no certificate has been delivered to the Purchaser by the Seller on or before

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the Remittance Deadline in accordance with paragraph (c), no amount shall be remitted by the Purchaser to the Receiver General for Canada if the Seller delivers to the Purchaser, on or before the Remittance Deadline, a comfort letter issued by the Canada Revenue Agency extending the time period under which the Purchaser is required to remit an amount in respect of the Purchase Price on behalf of the Seller without being subject to interest and penalties;

     (g) where the Purchaser has withheld any amount under this section (the “Withheld Amount”) and the Seller has delivered to the Purchaser a comfort letter as described in paragraph (f), the Purchaser shall continue to withhold such amount until either (i) paid to the Seller (together with any interest earned thereon), which shall occur upon delivery by the Seller to the Purchaser of a certificate issued by the Minister of National Revenue under either subsection 116(2) or 116(4) of the Tax Act, or (ii) remitted to the Receiver General for Canada for the account of the Seller if notified to do so by the Canada Revenue Agency (provided that any interest earned thereon shall be for the account of the Seller and shall be paid to the Seller);

     (h) any amount remitted by the Purchaser to the Receiver General for Canada under paragraphs (d) or (g) shall be credited to the Purchaser as a payment to the Seller on account of the Purchase Price; and

     (i) the Withheld Amount, if any, shall be paid to and held by [the Purchaser’s solicitors, • ], in trust, and invested by them for the benefit of the Seller in U.S. dollar-denominated interest bearing instruments, the interest on which is not subject to Canadian withholding tax under Part XIII of the Tax Act, in such manner as the Seller shall from time to time direct in writing until paid to the Seller (together with any interest earned thereon) or remitted to the Receiver General for Canada for the account of the Seller in accordance with this section.

ARTICLE II

DEFINITIONS

     2.1 Specific Definitions. As used in this Agreement and the Schedule hereto, the following terms have the following meanings:

     Affiliate: with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, the first Person.

     Business Day: any day except Saturday, Sunday or any day on which banks are generally not open for business in the City of New York.

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     Governmental Authority: any national government, province or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any government authority, agency, department, board, commission or instrumentality of Canada or any political subdivision thereof.

     Lien: any lien, security interest, adverse claim, charge or encumbrance.

     Material Adverse Effect: a material adverse effect on (a) the business, operations, assets, liabilities, condition (financial or otherwise) or results of operations of the Company or (b) the ability of the Seller to perform its obligations hereunder or to consummate the transactions contemplated hereby, other than any change or effect that results from or relates to: (x) the announcement by the Seller of its intention to sell the Company, including any announcement related to the execution and delivery of this Agreement, (y) the consummation of the transactions contemplated by this Agreement or (z) changes in (i) economic, regulatory or political conditions (including, without limitation, acts of war, declared or undeclared, armed hostilities and terrorism), (ii) financial, securities or other market conditions affecting the industries in which the Company operates, and (iii) applicable law or regulations or accounting standards, principles or interpretations.

     Person: any natural person, firm, limited liability company, general partnership, limited partnership, joint venture, association, corporation, trust, Governmental Authority or other entity.

     Personal Information: information about an identifiable individual.

     Purchaser’s Representatives: collectively, the directors, officers, shareholders (direct or indirect), employees, advisors and representatives of the Purchaser.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE SELLER

     The Seller represents and warrants to the Purchaser as follows:

     3.1 Corporate Status and Authority. The Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to own the Shares and to execute and deliver this Agreement and perform its obligations hereunder. The execution,

4

delivery and performance of this Agreement have been duly authorized by the board of directors of the Seller, which approval constitutes all necessary corporate action on the part of the Seller for such authorization. This Agreement has been duly executed and delivered by the Seller and constitutes the valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity).

     3.2 No Conflicts, Consents and Approvals.

     (a) Neither the execution, delivery or performance of this Agreement by the Seller nor the consummation of the transactions contemplated hereby will result in (i) any conflict with the certificate of incorporation or by-laws of the Seller, (ii) subject to obtaining the consents, approvals and authorizations and making the filings referred to in Section 3.2(b), any breach or violation of or default under any applicable statute, regulation, judgment, order or decree of any Governmental Authority or any mortgage, agreement, indenture or any other instrument to which the Seller is a party or by which it or its properties or assets are bound, (iii) any Person being granted (with or without notice of lapse of time or both) any right of termination, cancellation, acceleration or modification in or with respect to any material agreement to which the Seller is a party or by which it or its respective properties or assets are bound, or (iv) the creation or imposition of any Liens on the Shares, except, in the case of clauses (ii) and (iii), as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

     (b) Except as set forth in Schedule 3.2(b), no material consent, approval or authorization of or filing with any Governmental Authority or Person is required on the part of the Seller in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.

     3.3 Title to Shares and Capitalization. The Shares are the only issued and outstanding shares of capital stock of the Company. The Seller owns beneficially and of record the Shares free and clear of any Liens. The Shares have been duly authorized and validly issued and are fully paid and non-assessable. The delivery at the Closing of certificates representing the Shares in the manner provided in Section 1.3 will transfer to the Purchaser valid title to the Shares, free and clear of any Liens, other than Liens created by the Purchaser or any of its Affiliates. There are no outstanding options, warrants, conversion or preemptive or other rights or agreements of any kind (other than this Agreement) for the purchase or acquisition from, or the sale or issuance by, the Seller or the Company of any shares of capital stock, or any securities that are convertible into or exchangeable for shares of capital stock, of the Company, and no authorization therefor has been given.

5

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

     The Purchaser represents and warrants to the Seller as follows:

     4.1 Corporate Status and Authority. The Purchaser is a [                    ] duly [                    ], validly existing and in good standing under the laws of [                    ] and has the [                    ] power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by [the board of directors of the Purchaser, which approval constitutes all necessary corporate action on the part of the Purchaser for such authorization]. This Agreement has been duly executed and delivered by the Purchaser and constitutes the valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity).

     4.2 No Conflicts, Consents and Approvals.

     (a) The execution, delivery and performance of this Agreement by the Purchaser will not result in (i) any conflict with [the organizational documents] of the Purchaser, (ii) any breach or violation of or default under any applicable statute, regulation, judgment, order or decree of any Governmental Authority or any mortgage, agreement, indenture or any other instrument to which the Purchaser is a party or by which the Purchaser or any of its properties or assets are bound, or (iii) the creation or imposition of any Lien, except, in the case of clauses (ii) and (iii), where such breaches, violations or defaults and such Liens would not reasonably be expected, individually or in the aggregate, to materially impair the ability of the Purchaser to perform its obligations under, or to consummate the transactions contemplated by, this Agreement.

     (b) No consent, approval or authorization of or filing with any Governmental Authority or Person is required on the part of the Purchaser in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except filings, consents or approvals that, if not made or obtained, would not reasonably be expected, individually or in the aggregate, to materially impair the ability of the Purchaser to perform its obligations under, or to consummate the transactions contemplated by, this Agreement.

     4.3 Purchase for Investment. The Purchaser is acquiring the Shares for investment and not with a view toward any resale or distribution thereof except in compliance with applicable securities laws. The Purchaser hereby acknowledges that the

6

Shares are subject to restrictions on resale pursuant to the requirements of applicable securities laws, and the Purchaser agrees that the Purchaser is responsible for compliance with applicable resale restrictions and will comply with all relevant securities laws in connection with any resale of the Shares. The Purchaser hereby acknowledges that the Shares have not been registered pursuant to the U.S. Securities Act of 1933, as amended, or qualified for distribution by the filing of a prospectus under any Canadian provincial securities laws and may not be transferred in the absence of such registration or such filing of a prospectus or an exemption therefrom. The Purchaser has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Shares and is capable of bearing the economic risks of the transactions contemplated by this Agreement.

     4.4 Confidentiality of Personal Information. The Purchaser and the Purchaser’s Representatives have complied with all applicable legislation governing the protection of Personal Information relating to directors, officers, shareholders, employees, representatives, contractors, consultants, customers and suppliers of the Seller and the Company, have not used or disclosed such Personal Information except to determine whether to proceed with any transactions contemplated by this Agreement and have not disclosed any such Personal Information to any Person other than such of Purchaser’s Representatives as had a need to know such information in connection with the foregoing.

ARTICLE V

CONDITIONS TO CLOSING

     5.1 Conditions to the Obligation of the Purchaser. The obligation of the Purchaser to consummate the transactions contemplated hereby shall be subject to the satisfaction or waiver by the Purchaser on or prior to the Closing Date of each of the following conditions:

     (a) Each of the representations and warranties of the Seller contained in Article III shall be true and correct in all respects, if qualified by materiality, and shall be true and correct in all material respects, if not qualified by materiality, at and as of the Closing Date with the same effect as though made at and as of such time. The Seller shall have duly performed and complied in all material respects with all covenants contained herein required to be performed or complied with by it at or before the Closing Date.

     (b) All of the Conditions to Obligations of the Parties and Conditions to Obligations of the Parent set forth in Sections 9.2 and 9.4, respectively, of the Master Agreement shall have been satisfied or waived.

7

     (c) [The waiting period under the Competition Act (Canada) shall have expired or been terminated.]

     (d) The Seller shall have delivered to the Purchaser a certificate, dated the Closing Date and signed by its President, Executive Vice President or a Senior Vice President, as to the fulfillment of the conditions set forth in Section 5.1(a), 5.1(b) [and 5.1(c)], it being understood that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of the Seller (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

5.2 Conditions to the Obligation of the Seller. The obligation of the Seller to consummate the transactions contemplated hereby shall be subject to the satisfaction or waiver by the Seller on or prior to the Closing Date of each of the following conditions:

     (a) Each of the representations and warranties of the Purchaser contained in Article IV shall be true and correct in all respects, if qualified by materiality, and shall be true and correct in all material respects, if not qualified by materiality, at and as of the Closing Date with the same effect as though made at and as of such time. The Purchaser shall have duly performed and complied in all material respects with all covenants contained herein required to be performed or complied with by it at or before the Closing Date.

     (b) All of the Conditions to Obligations of the Parties and Conditions to Obligations of the Shareholder and Columbian Chemicals set forth in Sections 9.2 and 9.3, respectively, of the Master Agreement shall have been satisfied or waived.

     (c) The Purchaser shall have delivered to the Seller a certificate, dated the Closing Date and signed by its President or a Senior Vice President, as to the fulfillment of the conditions set forth in Section 5.2(a) and 5.2(b), it being understood that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of the Purchaser (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

ARTICLE VI

NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES

     6.1 No Survival of Representations and Warranties. The representations, warranties and covenants of the Sellers and the Purchaser contained in this Agreement or in any certificate delivered in connection with this Agreement shall not survive the

8

Closing, and any and all breaches of such representations, warranties and covenants shall be deemed waived as of the Closing.

ARTICLE VII

GENERAL PROVISIONS

     7.1 Master Agreement. All matters not provided for herein shall, if provided for in the Master Agreement, be governed by the terms and conditions set forth therein. In the event of conflict between this Agreement and the Master Agreement, the Master Agreement shall take precedence.

     7.2 Remedies. For the avoidance of doubt, the parties to this Agreement expressly agree that the sole remedy for any controversy or claim arising out of or relating to this Agreement or the transactions contemplated hereby shall be the recovery provided under the terms of the Master Agreement. Each party expressly waives and foregoes the right to any other remedy arising out of or relating to this Agreement or the transactions contemplated hereby.

     7.3 Further Actions. Each party shall execute and deliver such certificates and other documents and take such other actions as may reasonably be requested by the other party in order to consummate or implement the transactions contemplated hereby.

     7.4 Termination. This Agreement shall terminate on the earlier of the date determined by written agreement of the parties hereto and the date of termination of the Master Agreement.

     7.5 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if: (a) delivered personally, (b) sent by registered or certified mail in the United States, return receipt requested, (c) sent by reputable overnight air courier (such as DHL or Federal Express) or (d) sent by fax, as follows:

if to the Seller, to:

Columbian International Chemicals Corporation

9

with a copy to:

Debevoise & Plimpton LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 909-6836
Attention: Michael W. Blair, Esq.

if to the Purchaser:

[                    ]

with a copy to:

[                    ]

or to such other address or to such other Person as either party hereto shall have last designated by notice to the other party.

     All such notices, requests, demands and other communications shall be deemed to have been received (w) if by personal delivery, on the next Business Day after such delivery, (x) if by registered or certified mail in the United States return receipt requested, on the seventh Business Day after the mailing thereof, (y) if by reputable overnight air courier, on the next Business Day after the mailing thereof or (z) if by fax, on the next Business Day following the day on which such fax was sent, provided that a copy is also sent by registered or certified mail, return receipt requested.

     7.6 Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but shall not be assignable, by operation of law or otherwise, by either party hereto without the prior written consent of the other party and any purported assignment or other transfer without such consent shall be void and unenforceable.

     7.7 Modification; Waiver. This Agreement may be amended or modified only by a written instrument executed by each of the parties hereto. Any of the terms and conditions of this Agreement may be waived in writing at any time by the party entitled to the benefits thereof.

     7.8 Severability. If any provision, including any phrase, sentence, clause, section or subsection, of this Agreement is invalid, inoperative or unenforceable for any reason, such circumstances shall not have the effect of rendering such provision invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other

10

provision herein contained invalid, inoperative or unenforceable to any extent whatsoever.

     7.9 Headings. The Section headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof. Any references to Sections or Schedules in this Agreement shall refer to Sections of and Schedules to this Agreement unless otherwise indicated.

     7.10 Counterparts. This Agreement may be executed in counterparts (including by facsimile), both of which shall constitute one and the same instrument.

     7.11 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to its principles or rules of conflict of laws to the extent that such principles or rules would require or permit the application of the laws of another jurisdiction. Without prejudice to Section 7.2 hereof, any disputes, controversies or claims arising out of or relating to this Agreement, or the interpretation or breach hereof, shall be submitted to the exclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, as provided in Sections 13.15 and 13.16 of the Master Agreement.

11

     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.

COLUMBIAN INTERNATIONAL
CHEMICALS CORPORATION
By
	Name:
	Title:
[PURCHASER]
By:
Name:
Title:

12

EXHIBIT D

     QUOTA PURCHASE AGREEMENT, dated as of [                    ], 2005 (this “Agreement”), between Columbian International Chemicals Corporation, a Delaware company located at 1800 West Oak Commons Court, Marietta, Georgia, 30062 USA (“Seller”), and [Newco], a Brazilian [entity] located at [address] and enrolled with the Federal Taxpayers Registry — CNPJ under No.                                          (the “Purchaser”).

W I T N E S S E T H:

     WHEREAS Columbian Chemicals Brasil Ltda. (“Company”) is a Brazilian limited liability company, enrolled with the Federal Taxpayers Registry — CNPJ under No. 2.634.915/0001-84, with headquarters at Av. Francisco Matarazzo, 1400, in the City of São Paulo, State of São Paulo, and having capital of R$ 61,505,800.00, represented by 615,058,000 quotas, with par value of R$ 0,10 each;

     WHEREAS, Phelps Dodge Corporation, a New York corporation (“Phelps Dodge”), Columbian Chemicals Company, a Delaware corporation (“Columbian Chemicals”), Columbian Chemicals Acquisition LLC, a Delaware limited liability company (the “Parent”), and Columbian Chemicals Merger Sub, Inc., a Delaware corporation, have entered into a Master Agreement and Plan of Merger dated November 15, 2005 (the “Master Agreement”), providing, inter alia, for the sale of the Company, pursuant to Section 1.1 of the Master Agreement;

     WHEREAS, the Seller owns 615,057,990 quotas representing the capital stock of the Company (the “Quotas”), with par value of R$ 0,10 each, the remaining 10 quotas being owned by Roberto Cierro, Controller of the Company;

     WHEREAS, the Seller wishes to sell the Quotas to the Purchaser, and the Purchaser wishes to purchase the Quotas from the Seller, on the terms and conditions and for the consideration set forth in this Agreement; and

     NOW, THEREFORE, in consideration of the mutual promises, covenants, representations and warranties made herein and of the mutual benefits to be derived therefrom, the parties hereto agree as follows:

ARTICLE I

SALE AND PURCHASE OF QUOTAS

     1.1 Sale and Purchase of Quotas. Subject to the terms and conditions hereof, at the Closing, the Seller will sell to the Purchaser, and the Purchaser will purchase from the Seller, the Quotas, for the price of USD 146,600,000, subject to adjustment pursuant to Section 4 of the Master Agreement (the “Purchase Price”).

     1.2 Assignment of Certain Payment Rights. The Seller hereby assigns to Phelps Dodge all of its rights and obligations, if any, to receive and to pay, respectively, the amount of any adjustment to the Purchase Price, as determined in accordance with Section 4 of the Master Agreement.

     1.3 Closing. The closing of the sale and purchase of the Quotas (the “Closing”) will take place at the offices of Pinheiro Neto Advogados, Rua Boa Visa, 254, 9^o Andar, São Paolo, Brasil 01014-907, on the Share Purchase Closing Date as defined in the Master Agreement (the “Closing Date”). At the Closing:

     (a) Seller and Purchaser shall execute and deliver an amendment to the articles of association of the Company, upon which Seller will deliver to the Purchaser, free and clear of all Liens other than Liens created by the Purchaser or Bidder, the Quotas;

     (b) Seller will cause Roberto Cierro, owner of 10 quotas representing the capital stock of the Company, and Purchaser will cause an affiliated company of it, to also execute the amendment to the articles of association referred to in Section 1.3(a), so that title to such 10 quotas will be transferred, free and clear of all Liens other than Liens created by the Purchaser or any of its Affiliates, from Roberto Cierro to an affiliated company of Purchaser;

     (c) the Purchaser will pay to the Seller or to the Seller’s designee, by wire transfer of immediately available funds to such account as shall be designated in writing by the Seller to the Purchaser at least two Business Days prior to the Closing Date, an amount equal to the Purchase Price, net of the lesser of the withholding income tax (Imposto de Renda na Fonte — IRF) due in connection with the transaction, if any, and USD 9,000,000.00; and

     (d) Purchaser will retain and pay, on behalf of Seller, the withholding income tax (Imposto de Renda na Fonte — IRF) due in connection with the transaction, if any, and will deliver to Seller the respective payment receipt.

ARTICLE II

DEFINITIONS

     2.1 Specific Definitions. As used in this Agreement and the Schedule hereto, the following terms have the following meanings:

     Affiliate: with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, the first Person.

2

     Business Day: any day that is not (i) a Saturday, (ii) a Sunday or (iii) any other day on which commercial banks are authorized or required by law to be closed in Brazil.

     Governmental Authority: any national government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any government authority, agency, department, board, commission or instrumentality of Brazil or any political subdivision thereof.

     Lien: any lien, security interest, adverse claim, charge or encumbrance.

     Material Adverse Effect: a material adverse effect on (a) the business, operations, assets, liabilities, condition (financial or otherwise) or results of operations of the Company or (b) the ability of the Seller to perform its obligations hereunder or to consummate the transactions contemplated hereby, other than any change or effect that results from or relates to: (x) the announcement by the Seller of its intention to sell the Company, including any announcement related to the execution and delivery of this Agreement, (y) the consummation of the transactions contemplated by this Agreement or (z) changes in (i) economic, regulatory or political conditions (including, without limitation, acts of war, declared or undeclared, armed hostilities and terrorism), (ii) financial, securities or other market conditions affecting the industries in which the Company operates, and (iii) applicable law or regulations or accounting standards, principles or interpretations.

     Person: any natural person, firm, limited liability company, general partnership, limited partnership, joint venture, association, corporation, trust, Governmental Authority or other entity.

ARTICLE III

REPRESENTATIONS AND WARRANTIES AS TO THE SELLER

     The Seller represents and warrants to the Purchaser as follows:

     3.1 Corporate Status and Authority. The Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to own the Quotas and to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by the board of directors of the Seller, which approval constitutes all necessary corporate action on the

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part of the Seller for such authorization. This Agreement has been duly executed and delivered by the Seller and constitutes the valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity).

     3.2 No Conflicts, Consents and Approvals.

     (a) Neither the execution, delivery or performance of this Agreement by the Seller nor the consummation of the transactions contemplated hereby will result in (i) any conflict with the certificate of incorporation or by-laws of the Seller, (ii) subject to obtaining the consents, approvals and authorizations and making the filings referred to in Section 3.2(b), any breach or violation of or default under any applicable statute, regulation, judgment, order or decree of any Governmental Authority or any mortgage, agreement, indenture or any other instrument to which the Seller is a party or by which it or its properties or assets are bound, (iii) any Person being granted (with or without notice of lapse of time or both) any right of termination, cancellation, acceleration or modification in or with respect to any material agreement to which the Seller is a party or by which it or its respective properties or assets are bound, or (iv) the creation or imposition of any Liens on the Quotas, except, in the case of clauses (ii) and (iii), as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

     (b) Except as set forth in Schedule 3.2(b), no material consent, approval or authorization of or filing with any Governmental Authority or Person is required on the part of the Seller in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.

     3.3 Title to Quotas and Capitalization. The Quotas are the only quotas representing the capital stock of the Company, except for the 10 quotas held by Roberto Cierro. The Seller owns the Quotas free and clear of any Liens. The Quotas have been validly issued and are fully paid and non-assessable. The execution at the Closing of an amendment to the articles of association of the Company in the manner provided in Section 1.3 will transfer to the Purchaser valid title to the Quotas, free and clear of any Liens, other than Liens created by the Purchaser or any of its Affiliates. There are no outstanding options, warrants, conversion or preemptive or other rights or agreements of any kind (other than this Agreement) for the purchase or acquisition from, or the sale or issuance by, the Seller or the Company of any quotas representing capital stock, or any securities that are convertible into or exchangeable for quotas representing capital stock, of the Company, and no authorization therefor has been given.

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

     The Purchaser represents and warrants to the Seller as follows:

     4.1 Corporate Status and Authority. The Purchaser is a [___] duly [___], validly existing and in good standing under the laws of Brazil and has the [___] power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by [the board of directors of the Purchaser, which approval constitutes all necessary corporate action on the part of the Purchaser for such authorization]. This Agreement has been duly executed and delivered by the Purchaser and constitutes the valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity).

     4.2 No Conflicts, Consents and Approvals.

     (a) The execution, delivery and performance of this Agreement by the Purchaser will not result in (i) any conflict with [the organizational documents] of the Purchaser, (ii) any breach or violation of or default under any applicable statute, regulation, judgment, order or decree of any Governmental Authority or any mortgage, agreement, indenture or any other instrument to which the Purchaser is a party or by which the Purchaser or any of its properties or assets are bound, or (iii) the creation or imposition of any Lien, except, in the case of clauses (ii) and (iii), where such breaches, violations or defaults and such Liens would not reasonably be expected, individually or in the aggregate, to materially impair the ability of the Purchaser to perform its obligations under, or to consummate the transactions contemplated by, this Agreement.

     (b) No consent, approval or authorization of or filing with any Governmental Authority or Person is required on the part of the Purchaser in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except filings, consents or approvals that, if not made or obtained, would not reasonably be expected, individually or in the aggregate, to materially impair the ability of the Purchaser to perform its obligations under, or to consummate the transactions contemplated by, this Agreement.

     4.3 Purchase for Investment. The Purchaser is acquiring the Quotas for investment and not with a view toward any resale or distribution thereof except in compliance with the Securities Act of 1933, as amended (the “Securities Act”). The

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Purchaser hereby acknowledges that the Quotas have not been registered pursuant to the Securities Act and may not be transferred in the absence of such registration or an exemption therefrom under the Securities Act. The Purchaser has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Quotas and is capable of bearing the economic risks of the transactions contemplated by this Agreement.

ARTICLE V

CONDITIONS TO CLOSING

    5.1 Conditions to the Obligation of the Purchaser. The obligation of the Purchaser to consummate the transactions contemplated hereby shall be subject to the satisfaction or waiver by the Purchaser on or prior to the Closing Date of each of the following conditions:

(a)       Each of the representations and warranties of the Seller contained in Article III shall be true and correct in all respects, if qualified by materiality, and shall be true and correct in all material respects, if not qualified by materiality, at and as of the Closing Date with the same effect as though made at and as of such time. The Seller shall have duly performed and complied in all material respects with all covenants contained herein required to be performed or complied with by it at or before the Closing Date.

(b)       All of the Conditions to Obligations of the Parties and Conditions to Obligations of the Parent set forth in Sections 9.2 and 9.4, respectively, of the Master Agreement shall have been satisfied or waived.

(c)       The Seller shall have delivered to the Purchaser a certificate, dated the Closing Date and signed by its President, Executive Vice President or a Senior Vice President, as to the fulfillment of the conditions set forth in Section 5.1(a), 5.1(b), it being understood that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of the Seller (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

    5.2 Conditions to the Obligation of the Seller. The obligation of the Seller to consummate the transactions contemplated hereby shall be subject to the satisfaction or waiver by the Seller on or prior to the Closing Date of each of the following conditions:

(a)       Each of the representations and warranties of the Purchaser contained in Article IV shall be true and correct in all respects, if qualified by materiality, and shall be true and correct in all material respects, if not qualified

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by materiality, at and as of the Closing Date with the same effect as though made at and as of such time. The Purchaser shall have duly performed and complied in all material respects with all covenants contained herein required to be performed or complied with by it at or before the Closing Date.

(b)       All of the Conditions to Obligations of the Parties and Conditions to Obligations of the Shareholder and Columbian Chemicals set forth in Sections 9.2 and 9.3, respectively, of the Master Agreement shall have been satisfied or waived.

(c)       The Purchaser shall have delivered to the Seller a certificate, dated the Closing Date and signed by its President or a Senior Vice President, as to the fulfillment of the conditions set forth in Section 5.2(a) and 5.2(b), it being understood that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of the Purchaser (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

ARTICLE VI

NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES

     6.1 No Survival of Representations and Warranties. The representations, warranties and covenants of the Sellers and the Purchaser contained in this Agreement or in any certificate delivered in connection with this Agreement shall not survive the Closing, and any and all breaches of such representations, warranties and covenants shall be deemed waived as of the Closing.

ARTICLE VII

GENERAL PROVISIONS

     7.1 Master Agreement. All matters not provided for herein shall, if provided for in the Master Agreement, be governed by the terms and conditions set forth therein. In the event of conflict between this Agreement and the Master Agreement, the Master Agreement shall take precedence.

     7.2 Remedies. For the avoidance of doubt, the parties to this Agreement expressly agree that the sole remedy for any controversy or claim arising out of or relating to this Agreement or the transactions contemplated hereby shall be the recovery provided under the terms of the Master Agreement. Each party expressly waives and

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foregoes the right to any other remedy arising out of or relating to this Agreement or the transactions contemplated hereby.

     7.3 Further Actions. Each party shall execute and deliver such certificates and other documents and take such other actions as may reasonably be requested by the other party in order to consummate or implement the transactions contemplated hereby.

     7.4 Termination. This Agreement shall terminate on the earlier of the date determined by written agreement of the parties hereto and the date of termination of the Master Agreement.

     7.5 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if: (a) delivered personally, (b) sent by registered or certified mail in the United States, return receipt requested, (c) sent by reputable overnight air courier (such as DHL or Federal Express) or (d) sent by fax, as follows:

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if to the Seller, to:

[Columbian International Chemicals Corporation]

with a copy to:

Debevoise & Plimpton LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 909-6836
Attention: Michael W. Blair, Esq.

if to the Purchaser:

[___]

with a copy to:

[___]

or to such other address or to such other Person as either party hereto shall have last designated by notice to the other party.

     All such notices, requests, demands and other communications shall be deemed to have been received (w) if by personal delivery, on the next Business Day after such delivery, (x) if by registered or certified mail in the United States return receipt requested, on the seventh Business Day after the mailing thereof, (y) if by reputable overnight air courier, on the next Business Day after the mailing thereof or (z) if by fax, on the next Business Day following the day on which such fax was sent, provided that a copy is also sent by registered or certified mail, return receipt requested.

     7.6 Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but shall not be assignable, by operation of law or otherwise, by either party hereto without the prior written consent of the other party and any purported assignment or other transfer without such consent shall be void and unenforceable.

     7.7 Modification; Waiver. This Agreement may be amended or modified only by a written instrument executed by each of the parties hereto. Any of the terms and conditions of this Agreement may be waived in writing at any time by the party entitled to the benefits thereof.

     7.8 Severability. If any provision, including any phrase, sentence, clause, section or subsection, of this Agreement is invalid, inoperative or unenforceable for any

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reason, such circumstances shall not have the effect of rendering such provision invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision herein contained invalid, inoperative or unenforceable to any extent whatsoever.

     7.9 Headings. The Section headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof. Any references to Sections or Schedules in this Agreement shall refer to Sections of and Schedules to this Agreement unless otherwise indicated.

     7.10 Counterparts. This Agreement may be executed in counterparts (including by facsimile), both of which shall constitute one and the same instrument.

     7.10 English Language Version Controls. This Agreement is signed both English and Portuguese languages, and the English version shall prevail in the event of any inconsistency between the English version and the Portuguese version.

     7.11 Governing Law and Jurisdiction. This Agreement shall be construed, performed and enforced in accordance with the laws of the State of New York without giving effect to its principles or rules of conflict of laws to the extent such principles or rules would require or permit the application of the laws of another jurisdiction. Without prejudice to Section 7.2 hereof, any disputes, controversies or claims arising out of or relating to this Agreement, or the interpretation or breach hereof, shall be submitted to the exclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, as provided in Sections 13.15 and 13.16 of the Master Agreement.

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     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.

COLUMBIAN INTERNATIONAL CHEMICALS CORPORATION
By
	Name:
	Title:
[PURCHASER]
By:
Name:
Title:

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EXHIBIT E (Part I)

Notarial Deed

Transacted in [___] this _____day of __________ 200__.

Before me, the undersigned Notary Public

[___]

with his offices at [______],

appeared today:

1.	Rechtsanwalt [___], born on [___], citizen of [___], with his business address at [___], [___], identified to the notary’s satisfaction by his valid passport No. [___],
	according to his declarations in the following not acting in his own name, but without assuming any personal liability for and in the name of
	Columbian International Chemicals Corporation, a Delaware corporation, the with its registered office at 1800 West Oak Commons Court, Marietta, Georgia 30062 USA (the “Transferor”),
	based upon a power of attorney dated [___] a certified copy of which is attached hereto as Exhibit A, and based upon a notarized certificate dated                     , attached hereto as Exhibit B.
2.	Rechtsanwalt [___], born on [___], citizen of [___], with his business address at [___], [___], identified to the notary’s satisfaction by his valid German passport No.[___],

according to his declarations in the following not acting in his own name, but without assuming any personal liability for and in the name of

[NewCo], a German Gesellschaft mit beschränkter Haftung, with the principal place of business in                     , entered in the commercial register of the local court of                      under HRB                      (the “Transferee”),

based upon a power of attorney dated [___], a copy of which is attached hereto as Exhibit C and based upon a notarized certificate dated                                         , attached hereto as Exhibit D.

The Transferor and the Transferee are together referred to as the “Parties”.

The appearing persons requested that this Deed be recorded in the English language with portions in German and that they are in sufficient command of the English language for these purposes. The acting Notary who himself is in sufficient command of the English language for these purposes also verified that the appearing persons have such sufficient command. The appearing persons expressly declined to have a German translation made of this Deed and also declined, upon specific advice of the Notary, to have a translator present during the recording.

The Notary advised the appearing persons that a notary who or whose partners in the law firm have formerly acted as legal advisors to one of the parties involved in the matter to be notarized would not be entitled to take office as a notary (Vorbefassungsverbot) in the matter at hand pursuant to Sec. 3 para. 1 no. 7 of the German Act on Notarization (Beurkundungsgesetz). The Notary states that he himself and his firm have not been involved in the matter at hand in the meaning of said provisions. The Parties hereto confirm such statement of the Notary.

Upon request of the appearing persons and according to the declarations made before me by the Parties represented, I, the Acting Notary, officially record the following:

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Sale and Transfer of GmbH Shares

PREAMBLE

     WHEREAS, Phelps Dodge Corporation, a New York corporation (“Phelps Dodge”), Columbian Chemicals Company, a Delaware corporation (“Columbian Chemicals”), Columbian Chemicals Acquisition LLC, a Delaware limited liability company (the “Parent”), and Columbian Chemicals Merger Sub, Inc., a Delaware corporation, have entered into a Master Agreement and Plan of Merger dated November 15, 2005 (the “Master Agreement”) (a copy of which is attached hereto as Exhibit E), providing, inter alia, for the sale and obligation to transfer of all shares in Columbian Chemicals Europa GmbH, a German Gesellschaft mit beschränkter Haftung, registered in the commercial register at the local court (Amtsgericht) Hannover under HRB 51259 (the “Company”), by Transferor to Transferee pursuant to Section 1.1 of the Master Agreement;

     WHEREAS, the Transferor owns one single share comprising the total nominal share capital of the Company in the amount of EUR 25,600 (the “Share”) which is fully paid up; and

     WHEREAS, the Transferor wishes to sell and transfer the Share to the Transferee, and the Transferee wishes to purchase and to accept the transfer of the Share from the Transferor in consummation of the Master Agreement;

     NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE I

SALE AND TRANSFER OF SHARES

     1.1 Sale and Purchase of Shares. Subject to the condition precedent under Section 5.1 hereof, the Transferor hereby sells to the Transferee, and the Transferee hereby purchases from the Transferor, the Share, in any event all of the shares of the Company, for a purchase price of $4,340,000, subject to adjustment pursuant to Section 4 of the Master Agreement (the “Purchase Price”).

     1.2 Assignment of Certain Payment Rights. The Transferor hereby assigns to Phelps Dodge all of its rights and obligations, if any, to receive and to pay, respectively, the amount of any adjustment to the Purchase Price, as determined in accordance with Section 4 of the Master Agreement.

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     1.3 Transfer of Shares. The Transferor hereby transfers to the Transferee, and the Transferee accepts such transfer from the Transferor, the Share, in any event all of the shares of the Company.

     1.4 Payment of Purchase Price. The Transferee will pay, on the Share Purchase Closing Date as defined in the Master Agreement (“Share Purchase Closing Date”), to the Transferor or to the Transferor’s designee, by wire transfer of immediately available funds to such account as shall be designated in writing by the Transferor to the Transferee at least two Business Days prior to the Share Purchase Closing Date, an amount equal to the Purchase Price.

ARTICLE II

DEFINITIONS

     2.1 Specific Definitions. As used in this Agreement, the following terms have the following meanings:

     Affiliate: with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, the first Person.

     Business Day: any day that is not (i) a Saturday, (ii) a Sunday or (iii) any other day on which commercial banks are authorized or required by law to be closed in Germany.

     Governmental Authority: any national government or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any government authority, agency, department, board, commission or instrumentality of Germany or any political subdivision thereof.

     Lien: any lien, security interest, adverse claim, charge or encumbrance.

     Material Adverse Effect: a material adverse effect on (a) the business, operations, assets, liabilities, condition (financial or otherwise) or results of operations of the Company or (b) the ability of the Transferor to perform its obligations hereunder or to consummate the transactions contemplated hereby, other than any change or effect that results from or relates to: (x) the announcement by the Transferor of its intention to sell the Company, including any announcement related to the execution and delivery of this Agreement, (y) the consummation of the transactions contemplated by this Agreement or (z) changes in (i) economic, regulatory or political conditions (including, without limitation,

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acts of war, declared or undeclared, armed hostilities and terrorism), (ii) financial, securities or other market conditions affecting the industries in which the Company operates, and (iii) applicable law or regulations or accounting standards, principles or interpretations.

     Person: any natural person, firm, limited liability company, general partnership, limited partnership, joint venture, association, corporation, trust, Governmental Authority or other entity.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR

     The Transferor represents and warrants to the Transferee as follows:

     3.1 Corporate Status and Authority. The Transferor is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to own the Share and to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by the board of directors of the Transferor, which approval constitutes all necessary corporate action on the part of the Transferor for such authorization. This Agreement has been duly executed and delivered by the Transferor and constitutes the valid and binding obligation of the Transferor, enforceable against the Transferor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity).

     3.2 No Conflicts, Consents and Approvals.

     (a) Neither the execution, delivery or performance of this Agreement by the Transferor nor the consummation of the transactions contemplated hereby will result in (i) any conflict with the certificate of incorporation or by-laws of the Transferor, (ii) any breach or violation of or default under any applicable statute, regulation, judgment, order or decree of any Governmental Authority or any mortgage, agreement, indenture or any other instrument to which the Transferor is a party or by which it or its properties or assets are bound, (iii) any Person being granted (with or without notice of lapse of time or both) any right of termination, cancellation, acceleration or modification in or with respect to any material agreement to which the Transferor is a party or by which it or its respective properties or assets are bound, or (iv) the creation or imposition of any Liens on the Share, except, in the case of clauses (ii) and (iii), as would not

5

reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

     3.3 Title to the Share and Capitalization. The Share is the only issued and outstanding share of the Company. The Transferor owns beneficially and of record the Share, free and clear of any Liens. The Share has been duly authorized and validly issued and is fully paid and non-assessable. There are no outstanding options, warrants, conversion or preemptive or other rights or agreements of any kind (other than this Agreement) for the purchase or acquisition from, or the sale or issuance by, the Transferor or the Company of any shares of capital stock, or any securities that are convertible into or exchangeable for shares, of the Company, and no authorization therefor has been given.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE TRANSFEREE

     The Transferee represents and warrants to the Transferor as follows:

     4.1 Corporate Status and Authority. The Transferee is a limited liability company duly formed and validly existing under the laws of Germany and has the corporate power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement by the Transferee have been duly authorized. This Agreement has been duly executed and delivered by the Transferee and constitutes the valid and binding obligation of the Transferee, enforceable against the Transferee in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity).

     4.2 No Conflicts, Consents and Approvals.

     (a) The execution, delivery and performance of this Agreement by the Transferee will not result in (i) any conflict with [the organizational documents] of the Transferee, (ii) any breach or violation of or default under any applicable statute, regulation, judgment, order or decree of any Governmental Authority or any mortgage, agreement, indenture or any other instrument to which the Transferee is a party or by which the Transferee or any of its properties or assets are bound, or (iii) the creation or imposition of any Lien, except, in the case of clauses (ii) and (iii), where such breaches, violations or defaults and such Liens would not reasonably be expected, individually or in

6

the aggregate, to materially impair the ability of the Transferee to perform its obligations under, or to consummate the transactions contemplated by, this Agreement.

     (b) No consent, approval or authorization of or filing with any Governmental Authority or Person is required on the part of the Transferee in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except filings, consents or approvals that, if not made or obtained, would not reasonably be expected, individually or in the aggregate, to materially impair the ability of the Transferee to perform its obligations under, or to consummate the transactions contemplated by, this Agreement.

     4.3 Purchase for Investment. The Transferee is acquiring the Share for investment and not with a view toward any resale or distribution thereof except in compliance with the Securities Act of 1933, as amended (the “Securities Act”). The Transferee hereby acknowledges that the Share has not been registered pursuant to the Securities Act and may not be transferred in the absence of such registration or an exemption therefrom under the Securities Act. The Transferee has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Share and is capable of bearing the economic risks of the transactions contemplated by this Agreement.

ARTICLE V

CONDITION PRECEDENT

     5.1 The sale and transfer of the Share pursuant to Sections 1.1 and 1.2 shall become legally effective under the sole condition precedent (aufschiebende Bedingung) that, and when, both of the following occurs:

     (a) The acting notary has received a telefax copy of a certificate, signed by the Transferor’s President, Executive Vice President or a Senior Vice President, stating that all of the Conditions to Obligations of the Parties and Conditions to Obligations of the Parent set forth in Sections 9.2 and 9.4, respectively, of the Master Agreement shall have been satisfied or waived. The Parties understand and agree that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of the Transferor (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

     (b) The acting notary has received a telefax copy of a certificate, signed by the Transferee’s President, Executive Vice President or a Senior Vice President, stating that all of the Conditions to Obligations of the Parties and Conditions to Obligations of the Shareholder and Columbian Chemicals set forth in Sections 9.2 and 9.3, respectively, of

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the Master Agreement shall have been satisfied or waived. The Parties understand and agree that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of the Transferee (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

     5.2 Immediately upon receipt of the telefax copies of both such certificates, the acting notary shall confirm by telefax letter addressed to the Parties c/o Debevoise & Plimpton LLP, 919 Third Avenue, New York, New York 10022 [(telefax number in Closing room to be provided)] that the condition precedent pursuant to Article V, Section 5.1 of this Sale and Transfer Deed has been satisfied.

     5.3 After the sale and transfer of the Share has become legally effective pursuant to Section 5.1 above, (i) both Transferor and Transferee undertake to deliver a duplicate original copy of each of the certificates referred to in Section 5.1(a) and (b) above to the acting notary with the request to take it to his files, and (ii) the acting notary is hereby instructed to immediately notify in writing each Party hereto in accordance with Section 6.5, as well as the management of the Company of the transfer of the Share to the Transferee (§ 16 GmbH-Gesetz).

ARTICLE VI

GENERAL PROVISIONS

     6.1 Master Agreement. All matters not provided for herein shall, if provided for in the Master Agreement, be governed by the terms and conditions set forth therein.

     6.2 Remedies. For the avoidance of doubt and without limiting Section 3.1 hereto, the Parties expressly agree that the sole remedy for any controversy or claim arising out of or relating to this Sale and Transfer Deed or the transactions contemplated hereby shall be the recovery provided to them or their respective affiliates under the terms of the Master Agreement. Each Party expressly waives and foregoes the right to any other remedy arising out of or relating to this Sale and Transfer Deed or the transactions contemplated hereby.

     6.3 Further Actions. Each Party shall execute and deliver such certificates and other documents and take such other actions as may reasonably be requested by the other party in order to consummate or implement the transactions contemplated hereby.

     6.4 Termination. This Agreement shall terminate on the earlier of the date determined by written agreement of the parties hereto and the date of termination of the Master Agreement.

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     6.5 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if: (a) delivered personally, (b) sent by registered or certified mail in the United States, return receipt requested, (c) sent by reputable overnight air courier (such as DHL or Federal Express) or (d) sent by fax, as follows:

if to the Transferor, to:

[_____]

with a copy to:

Debevoise & Plimpton LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 909-6836
Attention: Michael W. Blair, Esq.

if to the Transferee, to:

[_____]

with a copy to:

[_____]

or to such other address or to such other Person as either party hereto shall have last designated by notice to the other party.

     All such notices, requests, demands and other communications shall be deemed to have been received (w) if by personal delivery, on the next Business Day after such delivery, (x) if by registered or certified mail in the United States return receipt requested, on the seventh Business Day after the mailing thereof, (y) if by reputable overnight air courier, on the next Business Day after the mailing thereof or (z) if by fax, on the next Business Day following the day on which such fax was sent, provided that a copy is also sent by registered or certified mail, return receipt requested.

     6.6 Severability. If any provision of this Sale and Transfer Deed is or becomes invalid or unenforceable, in whole or in part, or if it contains a gap, this shall not affect the validity of the remaining provisions hereof. The Parties are obligated to cooperate in replacing the invalid or unenforceable provision by a valid or enforceable provision which most nearly achieves the commercial result of what was originally intended. In the event that there is a gap, the Parties are obligated to fill such a gap by a

9

provision which, had the parties been aware of such a gap, the parties would have reasonably inserted when entering into this Sale and Transfer Deed.

     6.7 Headings. The Section headings in this Sale and Transfer Deed are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof. Any references to Sections or Schedules in this Sale and Transfer Deed shall refer to Sections of and Schedules to this Sale and Transfer Deed unless otherwise indicated.

     6.8 Certified Copies. A certified copy of this Sale and Transfer Deed shall be given to each of

• the Transferor,

• the Transferee,

• the Company and

• the German tax authorities.

     6.9 Governing Law. This Sale and Transfer Deed shall be governed by and construed in accordance with the substantive laws of Germany, without giving effect to its principles or rules of conflict of laws to the extent such principles or rules are not mandatory applicable by statute and would require the application of the laws of another jurisdiction.

ARTICLE VII

ADVICE BY THE NOTARY

The acting Notary has, in particular, advised the Parties on the following:

     7.1 All agreements must be officially recorded in a correct and complete manner; all agreements not so officially recorded may be null and void and can jeopardize the effectiveness of this Sale and Deed;

     7.2 A precondition to the acquisition of the share is that the Transferor is the lawful owners of the assigned Share; the law does not provide for an acquisition in good faith;

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     7.3 The Transferee shall be liable to the Company for any initial capital contribution which may not yet have been paid by any of the Transferors and/or any of the previous shareholders, and Transferors and Transferee are jointly and severally liable to the Company for any unpaid or unauthorizedly repaid share capital contributions.

     7.4 The Parties are apprised of the tax consequences and notification requirements.

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This Notarial Deed including all of the Exhibits hereto was read by the acting Notary to the appearing persons, approved by them, and signed by them and the Notary in their own hands as follows:

[Signatures]

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EXHIBIT E (Part II)

Notarial Deed

Transacted in [___] this  _____day of                      2005.

Before me, the undersigned Notary Public

[___]

with his offices at [ ______],

appeared today:

1.	Rechtsanwalt [___], born on [___], citizen of [___], with his business address at [___], [___], identified to the notary’s satisfaction by his valid passport No. [___],
	according to his declarations in the following not acting in his own name, but without assuming any personal liability for and in the name of
	Columbian Holding Company, a Delaware corporation with its registered office at 1800 West Oak Commons Court, Marietta, Georgia 30062 USA (the “Transferor”),
	based upon a power of attorney dated [___] a certified copy of which is attached hereto as Exhibit A, and based upon a notarized certificate dated                     , attached hereto as Exhibit B.
2.	Rechtsanwalt [___], born on [___], citizen of [___], with his business address at [___], [___], identified to the notary’s satisfaction by his valid German passport No.[___],

according to his declarations in the following not acting in his own name, but without assuming any personal liability for and in the name of

[NewCo], a [German Gesellschaft mit beschränkter Haftung, with the principal place of business in                      , entered in the commercial register of the local court of                      under HRB                     ] (the “Transferee”),

based upon a power of attorney dated [___], a copy of which is attached hereto as Exhibit C and based upon a notarized certificate dated                                         , attached hereto as Exhibit D.

The Transferor and the Transferee are together referred to as the “Parties”.

The appearing persons requested that this Deed be recorded in the English language with portions in German and that they are in sufficient command of the English language for these purposes. The acting Notary who himself is in sufficient command of the English language for these purposes also verified that the appearing persons have such sufficient command. The appearing persons expressly declined to have a German translation made of this Deed and also declined, upon specific advice of the Notary, to have a translator present during the recording.

The Notary advised the appearing persons that a notary who or whose partners in the law firm have formerly acted as legal advisors to one of the parties involved in the matter to be notarized would not be entitled to take office as a notary (Vorbefassungsverbot) in the matter at hand pursuant to Sec. 3 para. 1 no. 7 of the German Act on Notarization (Beurkundungsgesetz). The Notary states that he himself and his firm have not been involved in the matter at hand in the meaning of said provisions. The Parties hereto confirm such statement of the Notary.

Upon request of the appearing persons and according to the declarations made before me by the Parties represented, I, the Acting Notary, officially record the following:

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Sale and Transfer of GmbH Shares

PREAMBLE

     WHEREAS, Phelps Dodge Corporation, a New York corporation (“Phelps Dodge”), Columbian Chemicals Company, a Delaware corporation (“Columbian Chemicals”), Columbian Chemicals Acquisition LLC, a Delaware limited liability company (the “Parent”), and Columbian Chemicals Merger Sub, Inc., a Delaware corporation, have entered into a Master Agreement and Plan of Merger dated November 15, 2005 (the “Master Agreement”) (a copy of which is attached hereto as Exhibit E), providing, inter alia, for the sale and obligation to transfer of one share in Columbian Carbon Deutschland GmbH, a German Gesellschaft mit beschränkter Haftung, registered in the commercial register at the local court (Amtsgericht) Hannover under HRB 59870 (the “Company”), by Transferor to Transferee pursuant to Section 1.1 of the Master Agreement;

     WHEREAS, the Transferor owns one single share in the nominal amount of EUR 873,000 (the “Share”) representing approximately 10.005 % of the registered share capital of the Company in the total amount of EUR 8,725,500 which is fully paid up; and

     WHEREAS, the Transferor wishes to sell and transfer the Share to the Transferee, and the Transferee wishes to purchase and to accept the transfer of the Share from the Transferor in consummation of the Master Agreement;

     NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE I

SALE AND TRANSFER OF SHARES

     1.1 Sale and Purchase of Shares. Subject to the condition precedent under Section 5.1 hereof, the Transferor hereby sells to the Transferee, and the Transferee hereby purchases from the Transferor, the Share, in any event all of the shares of the Company, for a purchase price of US$4,890,000, subject to adjustment pursuant to Section 4 of the Master Agreement (the “Purchase Price”).

     1.2 Assignment of Certain Payment Rights. The Transferor hereby assigns to Phelps Dodge all of its rights and obligations, if any, to receive and to pay, respectively, the amount of any adjustment to the Purchase Price, as determined in accordance with Section 4 of the Master Agreement.

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     1.3 Transfer of Shares. The Transferor hereby transfers to the Transferee, and the Transferee accepts such transfer from the Transferor, the Share, in any event all of the shares of the Company.

     1.4 Payment of Purchase Price. The Transferee will pay, on the Share Purchase Closing Date as defined in the Master Agreement (“Share Purchase Closing Date”), to the Transferor or to the Transferor’s designee, by wire transfer of immediately available funds to such account as shall be designated in writing by the Transferor to the Transferee at least two Business Days prior to the Share Purchase Closing Date, an amount equal to the Purchase Price.

ARTICLE II

DEFINITIONS

     2.1 Specific Definitions. As used in this Agreement, the following terms have the following meanings:

     Affiliate: with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, the first Person.

     Business Day: any day that is not (i) a Saturday, (ii) a Sunday or (iii) any other day on which commercial banks are authorized or required by law to be closed in Germany.

     Governmental Authority: any national government or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any government authority, agency, department, board, commission or instrumentality of Germany or any political subdivision thereof.

     Lien: any lien, security interest, adverse claim, charge or encumbrance.

     Material Adverse Effect: a material adverse effect on (a) the business, operations, assets, liabilities, condition (financial or otherwise) or results of operations of the Company or (b) the ability of the Transferor to perform its obligations hereunder or to consummate the transactions contemplated hereby, other than any change or effect that results from or relates to: (x) the announcement by the Transferor of its intention to sell the Company, including any announcement related to the execution and delivery of this Agreement, (y) the consummation of the transactions contemplated by this Agreement or (z) changes in (i) economic, regulatory or political conditions (including, without limitation,

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acts of war, declared or undeclared, armed hostilities and terrorism), (ii) financial, securities or other market conditions affecting the industries in which the Company operates, and (iii) applicable law or regulations or accounting standards, principles or interpretations.

     Person: any natural person, firm, limited liability company, general partnership, limited partnership, joint venture, association, corporation, trust, Governmental Authority or other entity.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR

     The Transferor represents and warrants to the Transferee as follows:

     3.1 Corporate Status and Authority. The Transferor is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to own the Share and to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by the board of directors of the Transferor, which approval constitutes all necessary corporate action on the part of the Transferor for such authorization. This Agreement has been duly executed and delivered by the Transferor and constitutes the valid and binding obligation of the Transferor, enforceable against the Transferor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity).

     3.2 No Conflicts, Consents and Approvals.

     (a) Neither the execution, delivery or performance of this Agreement by the Transferor nor the consummation of the transactions contemplated hereby will result in (i) any conflict with the certificate of incorporation or by-laws of the Transferor, (ii) any breach or violation of or default under any applicable statute, regulation, judgment, order or decree of any Governmental Authority or any mortgage, agreement, indenture or any other instrument to which the Transferor is a party or by which it or its properties or assets are bound, (iii) any Person being granted (with or without notice of lapse of time or both) any right of termination, cancellation, acceleration or modification in or with respect to any material agreement to which the Transferor is a party or by which it or its respective properties or assets are bound, or (iv) the creation or imposition of any Liens on the Share, except, in the case of clauses (ii) and (iii), as would not

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reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

     3.3 Title to the Share and Capitalization. There are two issued and outstanding shares of the Company, one in the nominal amount of EUR 7,852,500 and one in the nominal amount of EUR 873,000, the latter being the Share as defined above. The Transferor owns beneficially and of record the Share, free and clear of any Liens. The Share has been duly authorized and validly issued and is fully paid and non-assessable. There are no outstanding options, warrants, conversion or preemptive or other rights or agreements of any kind (other than this Agreement) for the purchase or acquisition from, or the sale or issuance by, the Transferor or the Company of any shares of capital stock, or any securities that are convertible into or exchangeable for shares, of the Company, and no authorization therefor has been given.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE TRANSFEREE

     The Transferee represents and warrants to the Transferor as follows:

     4.1 Corporate Status and Authority. The Transferee is [a limited liability company duly formed and validly existing under the laws of Germany] and has the corporate power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement by the Transferee have been duly authorized. This Agreement has been duly executed and delivered by the Transferee and constitutes the valid and binding obligation of the Transferee, enforceable against the Transferee in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity).

     4.2 No Conflicts, Consents and Approvals.

     (a) The execution, delivery and performance of this Agreement by the Transferee will not result in (i) any conflict with [the organizational documents] of the Transferee, (ii) any breach or violation of or default under any applicable statute, regulation, judgment, order or decree of any Governmental Authority or any mortgage, agreement, indenture or any other instrument to which the Transferee is a party or by which the Transferee or any of its properties or assets are bound, or (iii) the creation or imposition of any Lien, except, in the case of clauses (ii) and (iii), where such breaches, violations or defaults and such Liens would not reasonably be expected, individually or in

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the aggregate, to materially impair the ability of the Transferee to perform its obligations under, or to consummate the transactions contemplated by, this Agreement.

     (b) No consent, approval or authorization of or filing with any Governmental Authority or Person is required on the part of the Transferee in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except filings, consents or approvals that, if not made or obtained, would not reasonably be expected, individually or in the aggregate, to materially impair the ability of the Transferee to perform its obligations under, or to consummate the transactions contemplated by, this Agreement.

     4.3 Purchase for Investment. The Transferee is acquiring the Share for investment and not with a view toward any resale or distribution thereof except in compliance with the Securities Act of 1933, as amended (the “Securities Act”). The Transferee hereby acknowledges that the Share has not been registered pursuant to the Securities Act and may not be transferred in the absence of such registration or an exemption therefrom under the Securities Act. The Transferee has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Share and is capable of bearing the economic risks of the transactions contemplated by this Agreement.

ARTICLE V

CONDITION PRECEDENT

     5.1 The sale and transfer of the Share pursuant to Sections 1.1 and 1.2 shall become legally effective under the sole condition precedent (aufschiebende Bedingung) that, and when, both of the following occurs:

     (a) The acting notary has received a telefax copy of a certificate, signed by the Transferor’s President, Executive Vice President or a Senior Vice President, stating that all of the Conditions to Obligations of the Parties and Conditions to Obligations of the Parent set forth in Sections 9.2 and 9.4, respectively, of the Master Agreement shall have been satisfied or waived. The Parties understand and agree that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of the Transferor (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

     (b) The acting notary has received a telefax copy of a certificate, signed by the Transferee’s President, Executive Vice President or a Senior Vice President, stating that all of the Conditions to Obligations of the Parties and Conditions to Obligations of the Shareholder and Columbian Chemicals set forth in Sections 9.2 and 9.3, respectively, of

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the Master Agreement shall have been satisfied or waived. The Parties understand and agree that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of the Transferee (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

     5.2 Immediately upon receipt of the telefax copies of both such certificates, the acting notary shall confirm by telefax letter addressed to the Parties c/o Debevoise & Plimpton LLP, 919 Third Avenue, New York, New York 10022 [(telefax number in Closing room to be provided)] that the condition precedent pursuant to Article V, Section 5.1 of this Sale and Transfer Deed has been satisfied.

     5.3 After the sale and transfer of the Share has become legally effective pursuant to Section 5.1 above, (i) both Transferor and Transferee undertake to deliver a duplicate original copy of each of the certificates referred to in Section 5.1(a) and (b) above to the acting notary with the request to take it to his files, and (ii) the acting notary is hereby instructed to immediately notify in writing each Party hereto in accordance with Section 6.5, as well as the management of the Company of the transfer of the Share to the Transferee (§ 16 GmbH-Gesetz).

ARTICLE VI

GENERAL PROVISIONS

     6.1 Master Agreement. All matters not provided for herein shall, if provided for in the Master Agreement, be governed by the terms and conditions set forth therein.

     6.2 Remedies. For the avoidance of doubt and without limiting Section 3.1 hereto, the Parties expressly agree that the sole remedy for any controversy or claim arising out of or relating to this Sale and Transfer Deed or the transactions contemplated hereby shall be the recovery provided to them or their respective affiliates under the terms of the Master Agreement. Each Party expressly waives and foregoes the right to any other remedy arising out of or relating to this Sale and Transfer Deed or the transactions contemplated hereby.

     6.3 Further Actions. Each Party shall execute and deliver such certificates and other documents and take such other actions as may reasonably be requested by the other party in order to consummate or implement the transactions contemplated hereby.

     6.4 Termination. This Agreement shall terminate on the earlier of the date determined by written agreement of the parties hereto and the date of termination of the Master Agreement.

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     6.5 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if: (a) delivered personally, (b) sent by registered or certified mail in the United States, return receipt requested, (c) sent by reputable overnight air courier (such as DHL or Federal Express) or (d) sent by fax, as follows:

if to the Transferor, to:

[_____]

with a copy to:

Debevoise & Plimpton LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 909-6836
Attention: Michael W. Blair, Esq.

if to the Transferee, to:

[_____]

with a copy to:

[_____]

or to such other address or to such other Person as either party hereto shall have last designated by notice to the other party.

     All such notices, requests, demands and other communications shall be deemed to have been received (w) if by personal delivery, on the next Business Day after such delivery, (x) if by registered or certified mail in the United States return receipt requested, on the seventh Business Day after the mailing thereof, (y) if by reputable overnight air courier, on the next Business Day after the mailing thereof or (z) if by fax, on the next Business Day following the day on which such fax was sent, provided that a copy is also sent by registered or certified mail, return receipt requested.

     6.6 Severability. If any provision of this Sale and Transfer Deed is or becomes invalid or unenforceable, in whole or in part, or if it contains a gap, this shall not affect the validity of the remaining provisions hereof. The Parties are obligated to cooperate in replacing the invalid or unenforceable provision by a valid or enforceable provision which most nearly achieves the commercial result of what was originally intended. In the event that there is a gap, the Parties are obligated to fill such a gap by a

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provision which, had the parties been aware of such a gap, the parties would have reasonably inserted when entering into this Sale and Transfer Deed.

     6.7 Headings. The Section headings in this Sale and Transfer Deed are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof. Any references to Sections or Schedules in this Sale and Transfer Deed shall refer to Sections of and Schedules to this Sale and Transfer Deed unless otherwise indicated.

     6.8 Certified Copies. A certified copy of this Sale and Transfer Deed shall be given to each of

• the Transferor,

• the Transferee,

• the Company and

• the German tax authorities.

     6.9 Governing Law. This Sale and Transfer Deed shall be governed by and construed in accordance with the substantive laws of Germany, without giving effect to its principles or rules of conflict of laws to the extent such principles or rules are not mandatory applicable by statute and would require the application of the laws of another jurisdiction.

ARTICLE VII

ADVICE BY THE NOTARY

The acting Notary has, in particular, advised the Parties on the following:

     7.1 All agreements must be officially recorded in a correct and complete manner; all agreements not so officially recorded may be null and void and can jeopardize the effectiveness of this Sale and Deed;

     7.2 A precondition to the acquisition of the share is that the Transferor is the lawful owners of the assigned Share; the law does not provide for an acquisition in good faith;

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     7.3 The Transferee shall be liable to the Company for any initial capital contribution which may not yet have been paid by any of the Transferors and/or any of the previous shareholders, and Transferors and Transferee are jointly and severally liable to the Company for any unpaid or unauthorizedly repaid share capital contributions.

     7.4 The Parties are apprised of the tax consequences and notification requirements.

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This Notarial Deed including all of the Exhibits hereto was read by the acting Notary to the appearing persons, approved by them, and signed by them and the Notary in their own hands as follows:

[Signatures]

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EXHIBIT F

     SHARE PURCHASE AGREEMENT, dated as of [                    ], 2005 (this “Agreement”), between COLUMBIAN INTERNATIONAL CHEMICALS CORPORATION, a company incorporated in Delaware whose registered office is at 1800 West Oak Commons Court, Marietta, Georgia 30062 USA (the “Seller”), and [ ], a company incorporated in [ ] whose registered office is at [ ] (the “Purchaser”).

W I T N E S S E T H:

     WHEREAS, Phelps Dodge Corporation, a New York corporation (“Phelps Dodge”), Columbian Chemicals Company, a Delaware corporation (“Columbian Chemicals”), Columbian Chemicals Acquisition LLC, a Delaware limited liability company (the “Parent”), and Columbian Chemicals Merger Sub, Inc., a Delaware corporation, have entered into a Master Agreement and Plan of Merger dated November 15, 2005 (the “Master Agreement”), providing, inter alia, for the sale of the entire issued share capital of Columbian (UK) Limited, a company incorporated in England (with company number 01418518) whose registered office is at Severn Road, Chittening, Bristol, BS11 0YU, United Kingdom (the “Company”), pursuant to Section 1.1 of the Master Agreement;

     WHEREAS, the Seller is the beneficial owner of all of the issued and outstanding share capital of the Company, consisting of 700,000 ordinary shares of £1 each (together the “Shares” and each a “Share”);

     WHEREAS, the Seller wishes to sell the Shares to the Purchaser, and the Purchaser wishes to purchase the Shares from the Sellers, on the terms and conditions and for the consideration set forth in this Agreement; and

     NOW, THEREFORE, in consideration of the mutual promises, covenants, representations and warranties made herein and of the mutual benefits to be derived therefrom, the parties hereto agree as follows:

ARTICLE I

SALE AND PURCHASE OF THE SHARES

     1.1 Sale and Purchase of the Shares. Subject to the terms and conditions hereof, at the Closing, the Seller will sell or procure the sale to the Purchaser, and the Purchaser will purchase from the Seller, all the Shares for a purchase price of $10,860,000, subject to adjustment pursuant to Section 4 of the Master Agreement (the “Purchase Price”).

     1.2 Assignment of Certain Payment Rights. The Seller hereby assigns to Phelps Dodge all of its rights and obligations, if any, to receive and to pay, respectively,

the amount of any adjustment to the Purchase Price, as determined in accordance with Section 4 of the Master Agreement.

     1.3 Closing. The closing of the sale and purchase of the Shares (the “Closing”) will take place at the offices of Debevoise & Plimpton LLP, 919 Third Avenue, New York, New York 10022 (or such other place as the parties may agree), on the Share Purchase Closing Date as defined in the Master Agreement (the “Closing Date”).

     1.4 On or before the Closing:

     (a) the Seller shall procure the transfer to, and registration by, the Company¹ of the single share in Sevalco Limited registered in the name of the Company and James P. Berresse;

     (b) the Seller will deliver to the Purchaser a duly executed transfer or transfers in respect of the Shares in favour of the Purchaser or such person as the Purchaser may nominate, together with the share certificate(s) in the name of the Seller (and, where applicable, James P. Berresse) relating to the same;

     (c) the Seller shall provide that the board of directors of the Company shall resolve by unanimous written consent that the transfer of the Shares shall be approved for registration and the Purchaser (or such person the Purchaser shall nominate) registered as the holder of the Shares in the Company’s register of members; and

     (d) the Purchaser will pay to the Seller or to the Seller’s designee, by wire transfer of immediately available funds to such account as shall be designated in writing by the Seller to the Purchaser at least two Business Days prior to the Closing Date, an amount equal to the Purchase Price.

ARTICLE II

DEFINITIONS

     2.1 Specific Definitions. As used in this Agreement, the following terms have the following meanings:

¹ Transferee to be confirmed by the Purchaser.

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     Affiliate: with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, the first Person.

     Business Day: any day that is not (i) a Saturday, (ii) a Sunday or (iii) any other day on which commercial banks are authorized or required by law to be closed in England.

     Governmental Authority: any national government or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any government authority, agency, department, board, commission or instrumentality of the United Kingdom or any political subdivision thereof.

     Lien: any lien, security interest, adverse claim, charge or encumbrance.

     Material Adverse Effect: a material adverse effect on (a) the business, operations, assets, liabilities, condition (financial or otherwise) or results of operations of the Company or (b) the ability of the Seller to perform its obligations hereunder or to consummate the transactions contemplated hereby, other than any change or effect that results from or relates to: (x) the announcement by the Seller of its intention to sell the Company, including any announcement related to the execution and delivery of this Agreement, (y) the consummation of the transactions contemplated by this Agreement or (z) changes in (i) economic, regulatory or political conditions (including, without limitation, acts of war, declared or undeclared, armed hostilities and terrorism), (ii) financial, securities or other market conditions affecting the industries in which the Company operates, and (iii) applicable law or regulations or accounting standards, principles or interpretations.

     Person: any natural person, firm, limited liability company, general partnership, limited partnership, joint venture, association, corporation, trust, Governmental Authority or other entity.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE SELLER

     The Seller represents and warrants to the Purchaser as follows:

     3.1 Corporate Status and Authority. The Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of

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Delaware and has the corporate power and authority to own the Shares and to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by the board of directors of the Seller, which approval constitutes all necessary corporate action on the part of the Seller for such authorization. This Agreement has been duly executed and delivered by the Seller and constitutes the valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity).

     3.2 No Conflicts, Consents and Approvals.

     (a) Neither the execution, delivery or performance of this Agreement by the Seller nor the consummation of the transactions contemplated hereby will result in (i) any conflict with the certificate of incorporation or by-laws of the Seller, (ii) any breach or violation of or default under any applicable statute, regulation, judgment, order or decree of any Governmental Authority or any mortgage, agreement, indenture or any other instrument to which the Seller is a party or by which it or its properties or assets are bound, (iii) any Person being granted (with or without notice of lapse of time or both) any right of termination, cancellation, acceleration or modification in or with respect to any material agreement to which the Seller is a party or by which it or its respective properties or assets are bound, or (iv) the creation or imposition of any Liens on the Shares, except, in the case of clauses (ii) and (iii), as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.

     (b) [No material consent, approval or authorization of or filing with any Governmental Authority or Person is required on the part of the Seller in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.]²

     3.3 Title to the Shares and Capitalization. The Shares are the only issued and outstanding shares of the Company. The Seller owns beneficially and of record the Shares, free and clear of any Liens. The Shares have been duly authorized and validly issued and are fully paid and non-assessable. There are no outstanding options, warrants, conversion or preemptive or other rights or agreements of any kind (other than this Agreement) for the purchase or acquisition from, or the sale or issuance by, the Seller or the Company of any shares of capital stock, or any securities that are convertible into or exchangeable for shares, of the Company, and no authorization therefor has been given.

² TBC

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

     The Purchaser represents and warrants to the Seller as follows:

     4.1 Corporate Status and Authority. The Purchaser is a [                    ] duly [                    ], validly existing and in good standing under the laws of [                    ] and has the [                    ] power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by [the board of directors of the Purchaser, which approval constitutes all necessary corporate action on the part of the Purchaser for such authorization]. This Agreement has been duly executed and delivered by the Purchaser and constitutes the valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity).

     4.2 No Conflicts, Consents and Approvals.

     (a) The execution, delivery and performance of this Agreement by the Purchaser will not result in (i) any conflict with [the organizational documents] of the Purchaser, (ii) any breach or violation of or default under any applicable statute, regulation, judgment, order or decree of any Governmental Authority or any mortgage, agreement, indenture or any other instrument to which the Purchaser is a party or by which the Purchaser or any of its properties or assets are bound, or (iii) the creation or imposition of any Lien, except, in the case of clauses (ii) and (iii), where such breaches, violations or defaults and such Liens would not reasonably be expected, individually or in the aggregate, to materially impair the ability of the Purchaser to perform its obligations under, or to consummate the transactions contemplated by, this Agreement.

     (b) No consent, approval or authorization of or filing with any Governmental Authority or Person is required on the part of the Purchaser in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except filings, consents or approvals that, if not made or obtained, would not reasonably be expected, individually or in the aggregate, to materially impair the ability of the Purchaser to perform its obligations under, or to consummate the transactions contemplated by, this Agreement.

     4.3 Purchase for Investment. The Purchaser is acquiring the Shares for investment and not with a view toward any resale or distribution thereof except in compliance with the Securities Act of 1933, as amended (the “Securities Act”). The

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Purchaser hereby acknowledges that the Shares have not been registered pursuant to the Securities Act and may not be transferred in the absence of such registration or an exemption therefrom under the Securities Act. The Purchaser has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Shares and is capable of bearing the economic risks of the transactions contemplated by this Agreement.

ARTICLE V

CONDITIONS TO CLOSING

     5.1 Conditions to the Obligation of the Purchaser. The obligation of the Purchaser to consummate the transactions contemplated hereby shall be subject to the satisfaction or waiver by the Purchaser on or prior to the Closing Date of each of the following conditions:

     (a) Each of the representations and warranties of the Seller contained in Article III shall be true and correct in all respects, if qualified by materiality, and shall be true and correct in all material respects, if not qualified by materiality, at and as of the Closing Date with the same effect as though made at and as of such time. The Seller shall have duly performed and complied in all material respects with all covenants contained herein required to be performed or complied with by it at or before the Closing Date.

     (b) All of the Conditions to Obligations of the Parties and Conditions to Obligations of the Parent set forth in Sections 9.2 and 9.4, respectively, of the Master Agreement shall have been satisfied or waived.

     (c) The Seller shall have delivered to the Purchaser a certificate, dated the Closing Date and signed by its President, Executive Vice President or a Senior Vice President, as to the fulfillment of the conditions set forth in Section 5.1(a) and 5.1(b), it being understood that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of the Seller (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

     5.2 Conditions to the Obligation of the Seller. The obligation of the Seller to consummate the transactions contemplated hereby shall be subject to the satisfaction or waiver by the Seller on or prior to the Closing Date of each of the following conditions:

     (a) Each of the representations and warranties of the Purchaser contained in Article IV shall be true and correct in all respects, if qualified by materiality, and shall be true and correct in all material respects, if not qualified

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by materiality, at and as of the Closing Date with the same effect as though made at and as of such time. The Purchaser shall have duly performed and complied in all material respects with all covenants contained herein required to be performed or complied with by it at or before the Closing Date.

     (b) All of the Conditions to Obligations of the Parties and Conditions to Obligations of the Shareholder and Columbian Chemicals set forth in Sections 9.2 and 9.3, respectively, of the Master Agreement shall have been satisfied or waived.

     (c) The Purchaser shall have delivered to the Seller a certificate, dated the Closing Date and signed by its President or a Senior Vice President, as to the fulfillment of the conditions set forth in Section 5.2(a) and 5.2(b), it being understood that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of the Purchaser (and not in his or her individual capacity) and shall not entitle any party to assert a claim against such officer in his or her individual capacity.

ARTICLE VI

NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES

     6.1 No Survival of Representations and Warranties. The representations, warranties and covenants of the Seller and the Purchaser contained in this Agreement or in any certificate delivered in connection with this Agreement shall not survive the Closing, and any and all breaches of such representations, warranties and covenants shall be deemed waived as of the Closing.

ARTICLE VII

GENERAL PROVISIONS

     7.1 Master Agreement. All matters not provided for herein shall, if provided for in the Master Agreement, be governed by the terms and conditions set forth therein. In the event of conflict between this Agreement and the Master Agreement, the Master Agreement shall take precedence.

     7.2 Remedies. For the avoidance of doubt, the parties to this Agreement expressly agree that the sole remedy for any controversy or claim arising out of or relating to this Agreement or the transactions contemplated hereby shall be the recovery provided under the terms of the Master Agreement. Each party expressly waives and

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foregoes the right to any other remedy arising out of or relating to this Agreement or the transactions contemplated hereby.

     7.3 Further Actions. Each party shall execute and deliver such certificates and other documents and take such other actions as may reasonably be requested by the other party in order to consummate or implement the transactions contemplated hereby.

     7.4 Termination. This Agreement shall terminate on the earlier of the date determined by written agreement of the parties hereto and the date of termination of the Master Agreement.

     7.5 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if: (a) delivered personally, (b) sent by registered or certified mail in the United States, return receipt requested, (c) sent by reputable overnight air courier (such as DHL or Federal Express) or (d) sent by fax, as follows:

if to the Seller, to:

[                    ]

with a copy to:

Debevoise & Plimpton LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 909-6836
Attention: Michael W. Blair, Esq.

if to the Purchaser:

[                    ]

with a copy to:

[                    ]

or to such other address or to such other Person as either party hereto shall have last designated by notice to the other party.

     All such notices, requests, demands and other communications shall be deemed to have been received (w) if by personal delivery, on the next Business Day after such delivery, (x) if by registered or certified mail in the United States return receipt requested, on the seventh Business Day after the mailing thereof, (y) if by reputable overnight air

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courier, on the next Business Day after the mailing thereof or (z) if by fax, on the next Business Day following the day on which such fax was sent, provided that a copy is also sent by registered or certified mail, return receipt requested.

     7.6 Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but shall not be assignable, by operation of law or otherwise, by either party hereto without the prior written consent of the other party and any purported assignment or other transfer without such consent shall be void and unenforceable.

     7.7 Modification; Waiver. This Agreement may be amended or modified only by a written instrument executed by each of the parties hereto. Any of the terms and conditions of this Agreement may be waived in writing at any time by the party entitled to the benefits thereof.

     7.8 Severability. If any provision, including any phrase, sentence, clause, section or subsection, of this Agreement is invalid, inoperative or unenforceable for any reason, such circumstances shall not have the effect of rendering such provision invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision herein contained invalid, inoperative or unenforceable to any extent whatsoever.

     7.9 Headings. The Section headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof. Any references to Sections in this Agreement shall refer to Sections of this Agreement unless otherwise indicated.

     7.10 Counterparts. This Agreement may be executed in any number of counterparts (including by facsimile), and by the parties on separate counterparts, but shall not be effective until both parties have executed at least one counterpart. Each counterpart shall constitute an original of the Agreement, but all the counterparts shall together constitute one and the same instrument.

     7.11 Governing Law. This Agreement is governed by, and shall be construed in accordance with, the laws of England and Wales.

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     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.

COLUMBIAN INTERNATIONAL CHEMICALS CORPORATION
By
	Name:
	Title:
[PURCHASER]
By:
Name:
Title:

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EXHIBIT G

TRANSITION SERVICES AGREEMENT

     This TRANSITION SERVICES AGREEMENT (the “Agreement”), dated as of [___], 2005, is entered into by Columbian Chemicals Company, a Delaware corporation (the “Company”), and Phelps Dodge Corporation, a New York corporation (the “Provider”). The Company and the Provider are referred to herein collectively as “Parties” and each individually as a “Party.”

RECITALS

     A. The Company was a wholly-owned subsidiary of the Provider prior to the date of the closing (the “Closing Date”) under the Master Agreement and Plan of Merger, dated as of November 15, 2005, between the Provider, the Company, Columbian Chemicals Acquisition LLC, and Columbian Chemicals Merger Sub, Inc. (the “Purchase Agreement”) (capitalized terms used herein and not defined shall have the meanings set forth in the Purchase Agreement);

     B. The Provider or one or more of its Affiliates has historically provided certain human resources, information technology and finance services to the Company Group;

     C. For a period of time following the Closing Date, the Company will require the Provider or one or more of its Affiliates to continue providing certain services to the Company Group, during which period the Company Group will undertake such measures as are required to become fully independent of the Provider and its Affiliates; and

     D. The Provider has agreed to perform and to cause its Affiliates to perform such services for the Company Group following the Closing Date on the terms and conditions set forth herein.

     NOW, THEREFORE, in consideration of the premises and agreements set forth in this Agreement and the Purchase Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound hereby, agree as follows:

ARTICLE I

SERVICES

     Section 1.1 Services.

     (a) During the Term (as defined below), the Provider shall, or shall cause one or more of its Affiliates to, provide or cause to be provided to the Company Group the human resources services, information technology services and finance related services specified on Exhibit A hereto (the “Services”), in each case for the respective periods set forth opposite such Services on Exhibit A hereto (each a “Service Term”).

     (b) The Provider shall perform the Services hereunder in accordance with applicable law. The Provider shall use commercially reasonable efforts to obtain, and the Company agrees

to provide commercially reasonable assistance at the request of the Provider in obtaining, any waivers, permits, consents or sublicenses (collectively, “Consents”) that may be required with respect to agreements with third-party vendors in order to provide any of the Services hereunder; provided that (i) the Company shall pay, or reimburse the Provider for, all costs relating to obtaining such Consents (including, without limitation, any license fees to third party vendors) and (ii) the Provider shall be under no obligation to provide any Service hereunder if it is unable, after using commercially reasonable efforts, to obtain a Consent necessary for the Provider to provide such Service.

     Section 1.2 Discontinuation or Extension of Services. The Company may discontinue receiving any or all of the Services by giving the Provider at least thirty (30) days’ prior written notice, which notice shall specify the date as of which any such Services shall be discontinued, provided, that the Company shall not, without the written consent of the Provider, be permitted to discontinue use of one or more Services without discontinuing use of all related Services for which a single Service Fee is provided in Exhibit A. Exhibit A hereto shall be deemed automatically amended to delete such Services as of such date, and this Agreement shall be of no further force and effect with respect to such Services, except as to obligations that accrued prior to the date of discontinuation of such Services and obligations that survive a termination as set forth in Section 6.4; provided that, upon the request of the Provider, the Company shall promptly reimburse the Provider for (i) the Provider’s reasonable out-of-pocket fees and expenses payable to third party service providers, licensors or vendors and (ii) any other reasonable out-of-pocket expenses incurred by the Provider or its Affiliates in providing or discontinuing such Services. The Company may request the extension of a Service Term for any Service upon thirty (30) days’ prior written notice, which notice shall specify the date until which the applicable Services will be provided, provided that no Service Term shall extend beyond the Term of this Agreement.

     Section 1.3 Change in Services. The Parties acknowledge the transitional nature of the Services and agree that the Provider may make changes from time to time in the manner of performing the Services, including, without limitation, that the Provider may modify or change the specifications of any Services involving systems and associated computer programs, products, equipment and services from time to time for operational and other reasons. The Provider shall use its commercially reasonable efforts to (i) inform the Company five (5) Business Days in advance of any such modifications and changes, (ii) mitigate any adverse effects on the Company’s operations due to such modifications and changes, and (iii) perform, where reasonably practicable, testing of any such modifications or changes consistent with current practices in advance of making any such modifications or changes. The Provider may in its reasonable discretion suspend the provision of Services (or any part thereof) for reasons of modification or preventative or emergency maintenance. The Provider shall use its commercially reasonable efforts to inform the Company five (5) Business Days in advance of any such suspension and shall cooperate with the Company to mitigate any adverse effects on the Company’s operations due to such suspension. In the event the Company requests the provision of services not set forth in Exhibit A, the parties shall use good faith efforts to accommodate such request and enter into a mutually agreeable amendment to this Agreement to include such requested services, to the extent such requested services are consistent with services customarily provided by the Provider to the Company prior to the execution of this Agreement as part of the Phelps Dodge Program Management Office.

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     Section 1.4 Standard of Performance. In performing the Services, the Provider shall use at least the same degree of care, skill and diligence with which the Provider performs, or causes to be performed, such Services for itself and its Affiliates, consistent with past practices.

     Section 1.5 Independent Contractor. For all purposes hereof, the Provider shall at all times act as an independent contractor and shall have no authority to represent the Company Group in any way or otherwise be deemed an agent, employee, representative, joint venturer or fiduciary of the Company. The Company Group shall not declare or represent to any third party that the Provider shall have any power or authority to negotiate or conclude any agreement, or to make any representation or to give any undertaking, on behalf of the Company Group in any way whatsoever.

ARTICLE II

COMPENSATION

     Section 2.1 Costs and Expenses. During the Term, the Company shall pay the fees for each Service received by it during a calendar month as set forth for each Service on Exhibit A hereto, provided, that in the event any such Service is provided by an entity other than the Provider or one of its Affiliates the fee for such Service received during such calendar month shall be the costs paid by the Provider to such entity for such services (the “Service Fees”), and provided further that, in the event the Term is extended pursuant to Section 6.2 hereof, the Company shall pay an additional 10% over the applicable Service Fee for each monthly period of such extension, on a compounded basis. In addition, the Company shall pay certain one-time fees in the amounts set forth in Exhibit A for certain transition services provided to the Company. Provider acknowledges that the Service Fees include all of Provider’s costs and expenses in providing the Services; provided, that Company shall reimburse the Provider for any reasonable out-of-pocket fees and expenses incurred by the Provider or its Affiliates in providing any Services including incremental Consent and license fees paid to third-party licensors and vendors in connection with resources provided to the Company to the extent not otherwise included in the Service Fees (the “Reimbursable Costs”). The Company shall be solely responsible for the payment of all insurance premiums, taxes and associated fees related to insurance coverage placed on its behalf.

     Section 2.2 Taxes. The Company shall reimburse the Provider for any sales tax, use tax, value-added tax, goods and services tax or similar tax (but excluding any Tax based upon the net income of the Provider and any Taxes otherwise incorporated into the Services Fees paid by the Company, which shall be paid by the Provider) (“Taxes”) payable with respect to the provision of Services, which shall be separately stated on the relevant invoice. The Provider shall be responsible for paying any such Taxes to the appropriate taxing authority.

ARTICLE III

PAYMENT

     Section 3.1 Payment. The Provider shall submit invoices to the Company for the Service Fees, Reimbursable Costs and applicable Taxes, together with appropriate supporting

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documentation, monthly in advance, except for (i) certain one-time fees for certain transition services as set forth in Exhibit A to be invoiced by the Provider upon completion of such services, and (ii) all fees for Services charged at an hourly rate, to be invoiced by the Provider monthly in arrears. The Company shall remit payment for Services so invoiced by wire transfer of immediately available funds to the account specified in the invoice within fifteen (15) days after receipt of the invoice. Each invoice shall set forth separately for the period covered by such invoice: (a) the Services rendered by the Provider, (b) the applicable Service Fees and Reimbursable Costs, and (c) copies of invoices for out of pocket expenses for services provided by third parties. If all or any portion of such payment is not made when due, the overdue amount shall bear interest from the date such amount is due until it is paid in full, at an interest rate equal to 18% per annum.

ARTICLE IV

TRANSITION

     Section 4.1 System Transition. The Company agrees to use its commercially reasonable efforts to end its use of each of the Services prior to the expiration of the period applicable to such Service on Exhibit A hereto. Without limiting the foregoing, the Provider agrees to use its commercially reasonable efforts to assist the Company to exit from the Provider’s systems, as applicable, provided that the Company pays the Provider for such support at the Provider’s then-current rates or, if the Provider does not have established rates for such support, the Company shall reimburse the Provider for its actual costs incurred in providing such support.

ARTICLE V

INTELLECTUAL PROPERTY

     Section 5.1 Title to Intellectual Property. The Parties agree that all intellectual property and data of the Company made available to the Provider in connection with the Services, all derivative works, additions, modifications or enhancements thereof created by the Provider pursuant to this Agreement, and all intellectual property and data developed or produced by the Provider or its Affiliates in connection with this Agreement is and shall remain the sole property of the Company. To the extent that the Provider uses its own or third-party intellectual property in connection with providing the Services, such intellectual property, and any derivative works, additions, modifications or enhancements thereof created during the term hereof shall remain the sole property of Provider or the third party.

ARTICLE VI

TERM AND TERMINATION

     Section 6.1 Term. The term of this Agreement shall commence on the Closing Date and end nine (9) months thereafter, unless extended pursuant to Section 6.2 (the original period or the extended period, as applicable, the “Term”). Notwithstanding the foregoing, if all

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Services to be provided hereunder are discontinued pursuant to Section 1.2 prior to the end of the Term, the Term shall end on the date the last such Service is discontinued.

     Section 6.2 Extension. Absent the written agreement of the Provider to provide any Services after (i) the expiration of the Term or (ii) the date of discontinuation of such services pursuant to Section 1.2, the Provider shall have no further obligation to provide such services after such dates. Not less than sixty (60) days prior to the expiration of the initial Term (or thirty (30)) days prior to the expiration of any extension thereof), the Company may request in writing an extension of the Term with respect to all or any portion of the Services for an additional one (1) month period, provided that such extensions shall not exceed three (3) months in the aggregate. In the event that the Provider agrees in writing to such an extension of the Term with respect to all or any portion of such Services, the amount of the fees payable pursuant to Section 2.1 for the provision of any Services to be provided hereunder during such agreed-upon extension shall be increased by 10% for each monthly period of such extension, on a compounded basis, and the Company, in addition to its other obligations under this Agreement, shall be solely responsible for any actual and reasonable additional employee retention costs of the Provider or its Affiliates necessitated by such extension and all costs incurred in obtaining any Consents (including license fees) required for such extended provision of such Services to the Company.

     Section 6.3 Termination for Cause. Either party (the “Terminating Party”) may terminate this Agreement with immediate effect by written notice to the other Party (the “Other Party”) on or at any time after the occurrence of any of the following events:

     (a) the Other Party is in default of any of its material obligations under this Agreement and (if the breach is capable of remedy) has failed to remedy the breach within thirty (30) days after receipt of a written notice from the Terminating Party with respect thereto;

     (b) the Other Party shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; and

     (c) an involuntary case or other proceeding shall be commenced against the Other Party seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days; or an order for relief shall be entered against the Other Party.

     Section 6.4 Survival. Section 1.1(a) (Services) (to the extent of amounts accrued prior to termination or expiration), Article II (Compensation) (to the extent of amounts accrued prior to

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termination or expiration), Section 3.1 (Payment) (to the extent of amounts accrued prior to termination or expiration), Section 5.1 (Intellectual Property), this Section 6.4 (Survival), Article VII (Confidentiality; Systems Security), Article VIII (Indemnity; Limitation of Liability; Certain Waivers), and Article IX (Miscellaneous) shall survive the termination or expiration of this Agreement.

ARTICLE VII

CONFIDENTIALITY; SYSTEMS SECURITY

     Section 7.1 Confidentiality.

     (a) Except as otherwise provided in this Agreement, (a) the Provider shall, and shall cause its Affiliates (and their respective accountants, counsel, consultants and agents to whom they disclose such information), to keep confidential all information provided by the Company to the Provider in order to perform the Services, and (b) the Company shall, and shall cause its Affiliates (and their respective accountants, counsel, consultants and agents to whom they disclose such information), to keep confidential all information relating to the Provider or its Affiliates that it receives in connection with the performance of the Services that relates to the Provider or its Affiliates, other than any information solely related to the members of the Company Group or their respective assets.

     (b) The provisions of this Section 7.1 shall not apply to the disclosure by either Party or their respective Affiliates of any information, documents or materials (i) that are or become publicly available, other than by reason of a breach of this Section 7.1 by such Party or any of its Affiliates, (ii) received from a third party not bound by any confidentiality agreement with the non-disclosing Party, (iii) required by applicable law to be disclosed by such Party, or (iv) necessary to establish such Party’s rights under this Agreement or the Purchase Agreement, provided that in the case of clauses (iii) and (iv), the person intending to make disclosure of confidential information shall promptly notify the Party to whom it is obligated to keep such information confidential and, to the extent practicable, provide such Party a reasonable opportunity to prevent public disclosure of such information.

     (c) With regard to confidential information concerning the software of third parties with which the Provider conducts business that is included in or related to the Services, the Company agrees to execute and deliver any other documents or take any actions that are reasonably required by any vendor or licensor of such software in order to access and use such vendor’s software in connection with such vendor’s contracts with the Provider, including abiding by the terms and conditions of any such software license agreements.

     Section 7.2 Systems Security. If the Company shall receive access to any of the Provider’s computer facilities, system(s), networks (voice or data) or software (“Systems”) in connection with performance of the Services, the Company shall comply with all system security policies, procedures and requirements that may be provided by the Provider to the Company in writing from time to time (the “Security Regulations”) and shall not tamper with, compromise or circumvent any security or audit measures employed by the Provider. Any employees of the Company that are expected to be given access to the Provider’s Systems may be required to

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execute a separate system access agreement. The Company shall ensure that only such Company employees who are specifically authorized to gain access to the Provider’s Systems will gain such access and shall prevent unauthorized destruction, alteration or loss of information contained therein by any Company employee. If at any time the Provider determines that any personnel of the Company has sought to circumvent or has circumvented the Provider’s Security Regulations or that an unauthorized person has accessed or may access the Provider’s Systems or a person has engaged in activities that may lead to the unauthorized access, destruction or alteration or loss of data, information or software, the Provider shall immediately terminate any such person’s access to the Systems and immediately notify the Company. In addition, a material failure to comply with the Provider’s Security Regulations shall be a breach of this Agreement, in which case, the Provider shall notify the Company and both Parties shall work together to rectify said breach. If the Parties do not rectify the breach within thirty (30) days from its occurrence, the Provider shall be entitled to immediately terminate the Services to which the breach relates.

ARTICLE VIII

INDEMNITY; LIMITATION OF LIABILITY

     Section 8.1 Indemnity.

     (a) The Company shall indemnify, hold harmless and, at the Provider’s option, defend, the Provider and its Affiliates, against all claims, liabilities, damages, losses or expenses (“Losses”) to the extent incurred in connection with a claim by a third party arising out of the performance by the Provider or any Affiliate of any Service.

     (b) The Provider shall indemnify and hold harmless and, at the Company’s option, defend the Company, against all Losses to the extent arising out of a claim by a third party arising out of the gross negligence or willful misconduct of the Provider or its Affiliates in their performance of the Services.

     (c) The rights of either Party to indemnification under this Section 8.1 shall be limited by the amount of any Losses incurred by a Party and shall be reduced by the net amount such Party recovers (after deducting all attorneys’ fees, expenses and other costs of recovery) from any insurer or other party liable for such Losses. Each Party shall use reasonable efforts to effect any such recovery.

     Section 8.2 Limitation of Liability; Certain Waivers.

     (a) THE LIABILITY OF THE PROVIDER OR ITS AFFILIATES TO THE COMPANY OR ANY THIRD PARTIES IN CONNECTION WITH THE PERFORMANCE, DELIVERY OR PROVISION OF ANY SERVICES HEREUNDER SHALL BE LIMITED TO THE LOSSES OF THE COMPANY ARISING FROM THE PROVIDER’S OR ITS AFFILIATES’ GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, BUT IN NO EVENT SHALL SUCH LIABILITY OR ANY LIABILITY OF THE PROVIDER HEREUNDER BE GREATER THAN THE TOTAL FEES PAID HEREUNDER. IN NO EVENT SHALL

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EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL, LOST PROFITS, PUNITIVE OR SIMILAR DAMAGES IN ANY ARBITRATION, LAWSUIT, LITIGATION OR PROCEEDING ARISING OUT OF, OR RESULTING FROM, ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THE SERVICES, WHETHER SUCH CLAIM IS BASED ON WARRANTY, CONTRACT, TORT (INCLUDING NEGLIGENCE, GROSS NEGLIGENCE, CONTRIBUTION OR STRICT LIABILITY), OR OTHERWISE, EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OR LIKELIHOOD OF SUCH DAMAGES, PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATION SHALL NOT APPLY WHERE SUCH DAMAGES ARE RECOVERED FROM AN INDEMNIFIED PARTY BY A THIRD PARTY.

     (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THE SERVICES OR THIS AGREEMENT.

     (c) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF THE FOREGOING WAIVERS, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (iv) IT HAS BEEN INDUCED TO ENTER INTO ANY OF THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.2.

     Section 8.3 Disclaimer of Warranties. NO WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, ARE MADE OR CREATED BETWEEN THE PARTIES, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY, NON-INFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE.

ARTICLE IX

MISCELLANEOUS

     Section 9.1 Modification; Waiver. This Agreement may be modified only by a written instrument executed by the Parties. Any of the terms and conditions of this Agreement may be waived in writing at any time by the Party entitled to its benefits.

     Section 9.2 Entire Agreement. This Agreement, including the Exhibits hereto, contains the entire agreement of the Parties with respect to the subject matter of this Agreement, and supersedes all other prior agreements, understandings, statements, representations and

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warranties, oral or written, express or implied, between the Parties and their respective Affiliates, representatives and agents in respect of the subject matter of this Agreement.

     Section 9.3 Notices. All notices, requests, demands and other communications made in connection with this Agreement shall be in writing and shall be deemed to have been duly given if delivered in accordance with Section 13.8 of the Purchase Agreement.

     Section 9.4 Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns, but shall not be assignable, by operation of law or otherwise, by either Party without the prior written consent of the other Party and any purported assignment or other transfer without such consent shall be void and unenforceable, except that either Party may assign this Agreement to any of its Affiliates without the consent of the other Party; provided that no such assignment shall in any way affect the obligations or liabilities of the assigning Party under this Agreement which shall remain in effect notwithstanding such assignment. Except as otherwise provided herein, nothing in this Agreement shall confer any rights upon any Person that is not a party or a successor or permitted assignee of a Party.

     Section 9.5 Headings; Counterparts. The headings in this Agreement are for convenience of reference only and will not affect the construction of any provisions hereof. This Agreement may be executed in counterparts, both of which shall constitute one and the same instrument. All of such counterparts shall be considered originals and shall become effective when one or more of such counterparts have been signed by each Party and delivered to the other Party by facsimile or otherwise.

     Section 9.6 Governing Law. This Agreement shall be construed, performed and enforced in accordance with the laws of the State of New York without giving effect to its principles or rules of conflict of laws to the extent such principles or rules would require or permit the application of the laws of another jurisdiction.

     Section 9.7 Consent to Jurisdiction.

     (a) Each of the Parties hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated by this Agreement or for recognition or enforcement of any judgment relating to this Agreement, and each of the Parties hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. Each of the Parties agrees that a final judgment in any such action or proceeding will be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

     (b) Each of the Parties hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated by this Agreement in any New York State or Federal court.

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Each of the Parties hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

     (c) Each Party irrevocably consents to service of process in the manner provided for notices in Section 9.3. Nothing in this Agreement will affect the right of any Party to serve process in any other manner permitted by law.

     Section 9.8 Force Majeure. If either Party is prevented from complying, either totally or in part, with any of the terms or provisions of this Agreement by reason of fire, flood, storm, or other acts of God, strike, lockout or other labor trouble, any law, order, proclamation, regulation, ordinance, demand or requirement of any governmental authority, riot, war, terrorist act, rebellion, or other causes beyond the reasonable control of such Party (each, a “Force Majeure”), such inability to comply shall not be deemed a breach of this Agreement but such compliance shall be resumed as soon as legally and practically possible after termination of the Force Majeure.

     Section 9.9 Severability. If any provision of this Agreement, including any phrase, sentence, clause, Section or subsection is inoperative or unenforceable for any reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any extent whatsoever.

     Section 9.10 Interpretation. This Agreement shall be fairly interpreted in accordance with its terms and without strict construction in favor of or against either Party based on the identity of the drafter of this Agreement or any term or provision of it.

[End of Text; Signature Page Follows]

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     IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first written above.

COLUMBIAN CHEMICALS COMPANY

By:

Title:

PHELPS DODGE CORPORATION

By:

Title:

11

EX-10.32

Exhibit 10.32

EXCUTION COPY

ASSET AND STOCK PURCHASE AGREEMENT

Dated as of November 15, 2005

Table of Contents

		Page
	ARTICLE I
	SALE, PURCHASE AND ASSUMPTION
1.1	Sale and Purchase of Business		2
1.2	Excluded Assets		3
1.3	Assumption of Liabilities		4
1.4	Excluded Liabilities		5
1.5	Consent of Third Parties		5
	ARTICLE II
	CLOSING; PURCHASE PRICE
2.1	Closing		6
2.2	Purchase Price		7
2.3	Purchase Price Adjustment		10
2.4	Allocation of Purchase Price		10
2.5	Withholding		10
	ARTICLE III
	SELLERS’ REPRESENTATIONS AND WARRANTIES
3.1	Corporate Status and Authority		10
3.2	No Conflicts, Consents and Approvals		11
3.3	The Shares		12
3.4	Assets and Properties		12
3.5	Contracts		13
3.6	Intellectual Property		13
3.7	Governmental Authorizations; Compliance with Law		14
3.8	Environmental Matters		14
3.9	Employment Agreements and Benefits		15
	3.9.1 Employment Agreements and Benefit Plans		15
	3.9.2 Benefit Plan Compliance		16
	3.9.3 Tax Qualification		16
	3.9.4 Labor Matters		17
3.10	Taxes		17
3.11	Brokers		17
3.12	Books and Records		17
3.13	Inventories		17
3.14	Absence of Certain Changes and Events		18
3.15	Condition of Assets; Title		18
3.16	Financial Statements		19
	ARTICLE IV
	PURCHASER’S REPRESENTATIONS AND WARRANTIES
4.1	Corporate Status and Authority		19
4.2	No Conflicts, Consents and Approvals		19

i

Table of Contents
(continued)

		Page
4.3	Financial Ability to Perform		20
4.4	Solvency		20
4.5	Litigation		21
4.6	Purchase for Investment		21
4.7	Brokers		21
4.8	Insurance		21
4.9	Inspections; No Other Representations		21
	ARTICLE V
	CERTAIN COVENANTS
5.1	Consents; Obligations of the Parties		22
5.2	Obligations of the Sellers		23
	5.2.1 Conduct of Business		23
	5.2.2 Access and Information		24
	5.2.3 PD Mexico Group Resolutions		25
	5.2.4 No Solicitation		25
5.3	Taxes		25
5.4	Non-Competition		29
5.5	Publicity		30
5.6	Contact with Customers and Suppliers		30
5.7	Use of Business Name		30
5.8	Bulk Sales Laws		30
5.9	Surveys and Survey Access		31
	5.9.1 Owned Real Property Surveys		31
	5.9.2 OTC Transferred Real Property Survey		31
5.10	Unpaid Accounts Receivable		31
5.11	Excluded Marks		31
5.12	OTC Personal Property		31
5.13	OTC Lease and Utility Easement		32
5.14	Satisfaction of Financing Conditions		32
5.15	Suzhou Supply Agreement		32
5.16	Underwriters’ Laboratories Certifications		32
	ARTICLE VI
	EMPLOYEES AND EMPLOYEE BENEFIT PLANS
6.1	Treatment of Company Employees		33
	6.1.1 U.S. Company Employees		33
	6.1.2 Monterrey Company Employees		33
	6.1.3 General		33
6.2	Filings and Records		34
6.3	Employee Savings Plan		34
6.4	Welfare Plans		34
6.5	WARN		35

ii

Table of Contents
(continued)

		Page
6.6	Paid Time Off; Vacation		35
	ARTICLE VII
	CONDITIONS PRECEDENT
7.1	General		35
7.2	Conditions to Obligations of the Parties		35
	7.2.1 Competition Act Approvals		35
	7.2.2 No Injunction		35
	7.2.3 Governmental Consents		36
7.3	Conditions to Obligations of the Sellers		36
	7.3.1 Representations, Warranties and Covenants of the Purchaser		36
	7.3.2 Officer’s Certificate		36
	7.3.3 Ancillary Agreements		36
7.4	Conditions to Obligations of the Purchaser		37
	7.4.1 Representations, Warranties and Covenants of the Sellers		37
	7.4.2 Officer’s Certificate		37
	7.4.3 Financing Condition		37
	7.4.4 Ancillary Agreements		37
	7.4.5 Shares		38
	ARTICLE VIII
	INDEMNIFICATION
8.1	Survival of Representations and Warranties and Covenants		38
8.2	Indemnification		38
	8.2.1 By the Sellers		38
	8.2.2 By the Purchaser		41
	8.2.3 Indemnification Procedures		42
	8.2.4 Mitigation		44
	8.2.5 Tax Treatment		44
	8.2.6 Exclusive Remedy		44
	ARTICLE IX
	DEFINITIONS
	ARTICLE X
	GENERAL PROVISIONS
10.1	Modification; Waiver		53
10.2	Entire Agreement		53
10.3	Certain Limitations		54
10.4	Termination		54
10.5	Expenses		55
10.6	Further Actions		56
10.7	Post-Closing Access		56
10.8	Notices		56

iii

Table of Contents
(continued)

		Page
10.9	Assignment		57
10.10	No Third Party Beneficiaries		57
10.11	Counterparts		57
10.12	Facsimile		58
10.13	Interpretation		58
10.14	Severability		58
10.15	Governing Law		58
10.16	Consent to Jurisdiction		58
10.17	Waiver of Punitive and Other Damages and Jury Trial		59
10.18	Specific Performance		60

 iv 

Table of Contents

LIST OF EXHIBITS AND SCHEDULES

EXHIBITS

Exhibit A—OTC Lease
Exhibit B—Transition Services Agreement
Exhibit C-1—Copper Rod Supply Agreement (30-day invoice period)
Exhibit C-2—Copper Rod Supply Agreement (60-day invoice period)
Exhibit D—Non-Competition Agreement
Exhibit E—Intellectual Property License Agreement
Exhibit F—Assumption Agreement
Exhibit G—Ft. Wayne Facility
Exhibit H—Monterrey Facility

SCHEDULES

Schedule 1.1(a)	Machinery, Equipment, etc.
Schedule 1.1(b)	Real Property
Schedule 1.1(c)	Leases
Schedule 1.1(i)	Permits, Licenses, Approvals, Franchises
Schedule 1.1(j)	Intellectual Property of Facilities
Schedule 1.1(m)	Licenses, Computer Software, Existing Program Documentation
Schedule 1.2(b)	One Technology Center (“OTC”)
Schedule 1.2(j)	Warehouse Assets
Schedule 2.2(d)	Accounting Principles
Schedule 3.2	Conflicts, Consents and Approvals
Schedule 3.4	Assets and Properties
Schedule 3.5	Contracts
Schedule 3.6	Intellectual Property
Schedule 3.7	Governmental Authorization, Compliance with Law
Schedule 3.8	Environmental Matters
Schedule 3.9.1	Employment Agreements and Benefit Plans
Schedule 3.9.4	Labor Matters
Schedule 3.10	Taxes
Schedule 3.14	Absence of Certain Changes and Events
Schedule 3.15	Condition of Assets; Title
Schedule 7.2.3	Governmental Consents
Schedule 10.13	Interpretation/ Knowledge of the Sellers

 v 

Exhibit 10.32

ASSET AND STOCK PURCHASE AGREEMENT

     ASSET AND STOCK PURCHASE AGREEMENT (including the Exhibits and Schedules hereto, this “Agreement”), dated as of the 15^th day of November, 2005, by and among Phelps Dodge Corporation, a New York corporation (“PDC”), Phelps Dodge Industries, Inc., a Delaware corporation (“PDI” and together with PDC, the “Sellers,” and each a “Seller”) and Rea Magnet Wire Company, Inc., a Delaware corporation (the “Purchaser”).

     WHEREAS, PDI owns the Ft. Wayne Facility and leases the Bentonville Facility pursuant to the Bentonville Lease (capitalized terms not otherwise defined have the meanings indicated in Article IX herein);

     WHEREAS, PDC owns 99.99% and PDI owns 0.01% of the capital stock (the “Shares”) of Phelps Dodge Wire and Cable Holdings de Mexico, S.A. de C.V., a company registered under the laws of the United States of Mexico (“PD Mexico”);

     WHEREAS, other than two (2) shares of the capital stock of each of the PD Mexico Subsidiaries owned by PDI (the “PDI Mexico Subsidiary Shares”), all of the capital stock of the PD Mexico Subsidiaries is owned by PD Mexico;

     WHEREAS, PD Mexico, through the PD Mexico Subsidiaries, owns the Monterrey Facility (together with the U.S. Facilities, the “Facilities”) and PDI owns certain assets that it provides to PD Mexico and the PD Mexico Subsidiaries, which assets are the “Monterrey PDI Assets” and are set forth in Schedule 1.1(a);

     WHEREAS, PDI owns certain other Assets primarily related to or used in the Business as more fully described herein;

     WHEREAS, the Purchaser desires to purchase from the Sellers and the Sellers desire to sell, assign and transfer to the Purchaser the Assets, the Shares and the PDI Mexico Subsidiary Shares, and the Purchaser has agreed to assume the Assumed Liabilities; and

     WHEREAS, the Purchaser and the Sellers have agreed to enter into the Ancillary Agreements.

     NOW, THEREFORE, in consideration of the mutual promises, covenants, representations and warranties made herein and of the mutual benefits to be derived herefrom, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

SALE, PURCHASE AND ASSUMPTION

     1.1 Sale and Purchase of Business. Subject to and upon the terms and conditions set forth in this Agreement, at the Closing, the Sellers will sell, assign and transfer to the Purchaser, and the Purchaser will purchase and acquire from the Sellers, free and clear of all Liabilities (other than Assumed Liabilities) and Liens (other than Permitted Liens), all of the Sellers’ right, title and interest in the assets and property, tangible or intangible, set forth in clauses (a)-(m) of this Section 1.1 and in Schedule 1.2(b) (collectively, the “Assets”):

     (a) machinery, equipment, tools, dies, blueprints, office equipment, computer hardware, furniture, furnishings and similar property primarily related to or used in the Business (including the Monterrey PDI Assets), as set forth in Schedule 1.1(a) hereto;

     (b) real property, including the Ft. Wayne Facility, as set forth in Schedule 1.1(b) hereto, together with the buildings, improvements, fixtures, easements and other attachments or appurtenances thereto;

     (c) rights (as lessor or lessee) under leases of real and personal property primarily related to or used in the Business (including the Bentonville Lease), as set forth in Schedule 1.1(c) hereto;

     (d) spare parts, operating and other supplies primarily related to or used in the Business (the “Supplies”), including Supplies purchased prior to or on the Closing Date and in transit to the Facilities;

     (e) inventories of raw materials, work in process and finished products primarily related to or used in the Business (the “Inventories”), including Inventories purchased prior to or on the Closing Date and in transit to the Facilities;

     (f) all accounts and notes receivable, deferred charges, chattel paper and other rights to receive payments that are primarily related to or used in the Business (other than any inter-company receivables or payables with the Sellers or any of their Affiliates, whether or not related to or used in the Business);

     (g) rights of the Sellers under all Contracts primarily related to or used in the Business, including Contracts with existing customers and any other Contracts set forth in Schedule 3.5;

     (h) all existing records, invoices, customer lists, supplier lists, mailing lists and other data owned by the Sellers and primarily related to or used in the

2

Business that were created within five years of the date hereof, including production reports, service and warranty records, equipment and inventory logs, operating guides and manuals, financial and accounting records, sales records, purchasing records, manufacturing records, safety records, environmental records and correspondence files (collectively, the “Business Records”);

     (i) all federal, state or local governmental or regulatory permits, licenses, approvals and franchises primarily related to or used in the Business as set forth in Schedule 1.1(i);

     (j) all Intellectual Property owned by the Sellers and used or held for use exclusively by the Facilities, as set forth in Schedule 1.1(j) hereto;

     (k) all prepaid expenses of the Sellers to the extent primarily related to the Business;

     (l) all right, title and interest in and to all operating telephone and facsimile numbers exclusively related to the Business that under existing agreements, regulations and Law may be transferred to the Purchaser on the Closing Date; and

     (m) the Licenses and copies of the computer software and existing program documentation covered by such Licenses and in Sellers’ possession on the date hereof, as set forth in Schedule 1.1(m) hereto.

     1.2 Excluded Assets. Except as set forth in Section 1.1, the Sellers will retain and not transfer, and the Purchaser will not purchase or acquire, any right, title or interest in any assets or property, tangible or intangible, of any Seller or any Seller Affiliate (collectively, the “Excluded Assets”), including without limitation:

     (a) Intellectual Property owned by the Sellers and not exclusively used or held for use by the Facilities, including, without limitation, (i) the name and mark “Phelps Dodge” or “PD” or any name or mark similar thereto or derived therefrom and (ii) each of the Excluded Marks;

     (b) the One Technology Center (“OTC”) and any assets or property related to OTC, except for such assets or property of OTC as are set forth in Schedule 1.2(b) hereto;

     (c) all real property, buildings, improvements, fixtures, easements, rights of way, other attachments or appurtenances, leaseholds, machinery, equipment, tools, dies, blueprints, spare parts, operating supplies, office equipment, computer hardware, furniture, furnishings and similar property and any and all other right, title and interest in or to any and all real and personal

3

property of the Sellers that are not primarily related to or used in the Business, including, without limitation, assets and properties related to or used in any of the Phelps Dodge Magnet Wire (Suzhou) Facility, the Plant Road, Laurinburg, North Carolina facility or the Pan American Center, 9541 Plaza Circle, El Paso, Texas facility;

     (d) all accounts and notes receivable, deferred charges, chattel paper and other rights to receive payments that are not primarily related to or used in the Business and all inter-company receivables and payables with Sellers or any of their Affiliates, whether or not related to or used in the Business;

     (e) all bank accounts and Cash of the Sellers;

     (f) all records prepared in connection with the sale of the Business, including, without limitation, bids received from third Persons and analyses relating to the Business;

     (g) subject to Section 1.5, all Licenses, leases and other Contracts not assignable by the Sellers to the Purchaser without expense to the Sellers;

     (h) all rights to any refund, credit or related deposit of Taxes, including any prepaid Taxes in respect of the PD Mexico Group and deferred taxes relating to Pre-Closing Tax Periods;

     (i) all personnel records and any Business Record that includes information relating to any business not conducted at the Facilities;

     (j) assets located at the warehouse controlled by Don R. Fruchey Inc. as set forth on Schedule 1.2(j); and

     (k) all assets or rights of any kind relating to an Excluded Liability.

     1.3 Assumption of Liabilities. Subject to the terms and conditions set forth herein, at the Closing the Purchaser shall assume and agree to pay, honor and discharge when due all of the following Liabilities (collectively, the “Assumed Liabilities”):

     (a) any and all (i) Taxes arising out of, relating to or in respect of the Business for all taxable periods other than the Pre-Closing Tax Periods and (ii) Transfer Taxes;

     (b) any and all Liabilities, obligations and commitments arising out of or relating to the Assets or the Business prior to the Closing, including the Trade Accounts Payable and Accrued Expenses and any other Liabilities included in the

4

Closing Balance Sheet, with the exception of the deferred U.S. Income Tax liabilities;

     (c) any and all Liabilities, obligations or commitments arising out of or relating to the Assets or the Business at and following the Closing;

     (d) any and all Liabilities, obligations or commitments arising out of or relating to the PD Mexico Group; and

     (e) any and all Liabilities, obligations or expenses allocated to the Purchaser under Article VI hereof.

     1.4 Excluded Liabilities. Except as set forth in Section 1.3, the Purchaser shall not assume any Liabilities, obligations or commitments that are not Liabilities, obligations or commitments arising out of or relating to the Assets or the Business, except to the extent included in the Closing Balance Sheet (other than deferred U.S. Income Tax Liabilities) (the “Excluded Liabilities”), including:

     (a) any and all Taxes arising out of, relating to or in respect of the U.S. Facilities imposed on the Sellers for any Pre-Closing Tax Period;

     (b) any and all Liabilities resulting from any judicial or administrative proceeding pending as of the date hereof relating to the Business or the Assets;

     (c) any and all Liabilities resulting from any collective bargaining agreements and Benefit Plans applicable to the U.S. Company Employees; and

     (d) any and all Liabilities allocated to the Sellers under Article VI hereof.

     1.5 Consent of Third Parties. Notwithstanding anything to the contrary in this Agreement, this Agreement shall not constitute an agreement to assign or transfer any approval of any Governmental Authority, instrument, contract, lease, license, permit or other agreement or arrangement or any claim, right or benefit arising thereunder or resulting therefrom if an assignment or transfer or an attempt to make such an assignment or transfer without the consent of a third party would constitute a breach or violation thereof or affect adversely the rights of the Purchaser or the Sellers thereunder or would require payment of any amount by the Sellers to obtain such consent, unless the Purchaser makes any such payment or (other than with respect to approvals of any Governmental Authority) assumes in writing all liabilities relating to, and indemnifies and holds harmless Sellers in respect of, any such breach, violation or adverse effect; and any transfer or assignment to the Purchaser by the Sellers of any interest under any such instrument, contract, lease, license, permit or other agreement or arrangement that requires the consent of a third party shall be made subject to such consent or approval

5

being obtained and payment by the Purchaser of any amount related to obtaining such consent or approval. Prior to the Closing, Sellers will use all reasonable efforts to obtain the consent of all such third parties, provided that any payment required to be made to obtain such consent shall be made by Purchaser. In the event any such consent or approval is not obtained on or prior to the Closing Date, except with respect to any license, lease or other contract requiring payment, the Purchaser and Sellers shall continue to use all reasonable efforts to obtain any such approval or consent after the Closing Date until such time as such consent or approval has been obtained, and, except with respect to licenses for which there is any amount to be paid, the Sellers will cooperate with the Purchaser in any lawful and economically feasible arrangement to provide that the Purchaser shall receive the interest of the Sellers in the benefits under any such instrument, contract, lease, license or permit or other agreement or arrangement, including performance by the Sellers as agent, if economically feasible and legally permitted, provided, that the Purchaser shall pay or satisfy the corresponding liabilities and satisfy the other obligations for the enjoyment of such benefit to the extent the Purchaser would have been responsible therefor hereunder if such consent or approval had been obtained.

ARTICLE II
CLOSING; PURCHASE PRICE

     2.1 Closing. The closing of the purchase of the Assets, Shares and PDI Mexico Subsidiary Shares (the “Closing”) will take place at the offices of Debevoise & Plimpton LLP, 919 Third Avenue, New York, New York 10022 at 10:00 a.m., New York time, on December 30, 2005 or at such other date and time as the parties shall have mutually agreed to in writing (the “Closing Date”). At the Closing:

     (a) the Sellers will deliver, or cause to be delivered, to the Purchaser certificates representing the Shares and the PDI Mexico Subsidiary Shares, duly endorsed in ownership in favor of the Purchaser (or its designated Subsidiary), together with the stock registry books of the PD Mexico Group;

     (b) the Purchaser will deliver, or cause to be delivered, the Estimated Purchase Price to the Sellers by wire transfer of immediately available funds to a previously designated account of the Sellers;

     (c) each of the Sellers and the Purchaser will deliver all other instruments, agreements, certificates and documents required to be delivered by such party on or prior to the Closing Date pursuant to this Agreement, including, without limitation, such appropriately executed bill(s) of sale, endorsements, assignments and other good and sufficient instruments of sale, conveyance, transfer and assignment as shall effectively vest in the Purchaser good and valid title to the Assets, with full substitution and subrogation to all rights and actions

6

of warranty if and to the extent assignable, free and clear of all Liens except for Permitted Liens; and

     (d) in connection with the assumption of the Assumed Liabilities, the Purchaser shall deliver to the Sellers such duly executed assumption agreement(s) as shall effectively evidence the assumption of the Assumed Liabilities by the Purchaser, including without limitation, the Assumption Agreement.

     2.2 Purchase Price.

     (a) Estimated Purchase Price. In addition to the assumption of the Assumed Liabilities, the Purchaser shall pay to the Sellers the estimated purchase price (the “Estimated Purchase Price”) for the Shares, the PDI Mexico Subsidiary Shares and the Assets in an aggregate amount equal to $124,600,000 (One Hundred Twenty-Four Million Six Hundred Thousand U.S. Dollars) (the “Base Purchase Price”) in cash, (i) minus the amount, if any, by which Estimated Working Capital is less than Target Working Capital, or (ii) plus the amount, if any, by which Estimated Working Capital exceeds Target Working Capital. The procedure for determining the Estimated Purchase Price is set forth in Section 2.2(c). The Estimated Purchase Price shall be paid by the Purchaser to the Sellers at Closing by wire transfer of immediately available funds to accounts designated by the Sellers’ written instructions to the Purchaser. The Sellers shall provide such account information to the Purchaser at least one Business Day prior to the Closing.

     (b) Final Purchase Price. The “Final Purchase Price” shall be an amount, in cash, equal to the Base Purchase Price in cash, (i) minus the amount, if any, by which Final Working Capital is less than Target Working Capital, or (ii) plus the amount, if any, by which Final Working Capital exceeds Target Working Capital. The procedure for determining the Final Purchase Price is set forth in Section 2.2(d).

     (c) Procedure for Determining the Estimated Purchase Price. For the purpose of determining the Estimated Purchase Price, at least five Business Days prior to the anticipated Closing Date, the Sellers shall prepare and deliver to the Purchaser: (i) their determination of the Estimated Purchase Price, (ii) a statement of their calculation of estimated Working Capital as of the close of business on the Closing Date (as adjusted pursuant to this Section 2.2(c), the “Estimated Working Capital”) and (iii) the estimated Closing Balance Sheet, prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), as modified by the accounting principles set forth in Schedule 2.2(d) (the “Estimated Closing Balance Sheet”). Within two Business Days after such delivery, if the Purchaser has any objections to such determination, the Purchaser will deliver to the Sellers a detailed statement describing its objections. The Purchaser and the Sellers will use their respective good faith efforts to resolve any dispute regarding the determination of the Estimated Purchase Price. The

7

Sellers will prepare and deliver to the Purchaser, no later than one Business Day prior to the anticipated Closing Date, the Sellers’ final calculation of Estimated Working Capital and the Estimated Purchase Price, each of which shall be conclusive for purposes of Section 2.1(b) and Section 2.3.

     (d) Procedure for Determining the Final Purchase Price. For the purpose of determining the Final Purchase Price, within 90 days following the Closing, the Sellers will deliver to the Purchaser: (i) an unaudited balance sheet of the Business as of the close of business on the Closing Date, which shall include, without limitation, separate accounts in respect of Cash of the PD Mexico Group, Supplies, Inventories, Trade Accounts Receivable, Other Receivables, Prepaid Expenses, Trade Accounts Payable and Accrued Expenses and which shall be prepared in accordance with GAAP, as modified by the accounting principles set forth in Schedule 2.2(d) (the “Closing Balance Sheet”) and (ii) a statement setting forth the calculation of Final Working Capital (the “Closing Statement”).

     (1) The Purchaser shall, and shall cause its employees to, assist the Sellers in the preparation of each of the Closing Balance Sheet and the Closing Statement, including, without limitation, providing customary certifications and management representation letters to the Sellers’ accountants, and shall provide the Sellers and their accountants, counsel or financial advisers with reasonable access to the personnel, properties, books, contracts, records, schedules, analyses and working papers of the Business for such purpose until the Final Purchase Price is finally determined.

     (2) During the 30-day period following the Purchaser’s receipt of the Closing Statement, the Purchaser shall, at its sole expense, be permitted to review the working papers of the Sellers and their independent accountants relating to the Closing Statement. The Closing Statement shall become final and binding upon the parties on the 30^th day following the Purchaser’s receipt thereof unless the Purchaser gives written notice of its disagreement with the Closing Statement (the “Notice of Disagreement”) to the Sellers prior to such date. The Notice of Disagreement shall (i) specify in reasonable detail the nature of any such disagreement and include all supporting schedules, analyses, working papers and other documentation and (ii) include only such disagreements that are based on the presence of mathematical errors or on the failure of Final Working Capital to be calculated in accordance with the methodology specified in the first sentence of Section 2.2(d), it being agreed that the Notice of Disagreement shall not specify any other basis for disagreement with the Closing Statement. If a Notice of Disagreement complying with the preceding sentence is received by the Sellers in a timely manner, then the Closing Statement (each as revised in accordance with clause (x) or (y) below) shall become final and binding upon the parties upon the earlier of (x) the date on which the Sellers and the Purchaser resolve in writing

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any differences they have with respect to the matters specified in the Notice of Disagreement or (y) the date on which any disputed matters are finally resolved in writing by the Accounting Firm.

     (3) During the 30-day period following the delivery of a Notice of Disagreement in compliance with clause (2) above, the Sellers and the Purchaser shall seek in good faith to resolve any differences they may have with respect to the matters specified in the Notice of Disagreement. During such period, the Purchaser and its independent accountants shall have reasonable access to the personnel, properties, books, records, schedules, analyses and working papers of Sellers related to the Closing Statement and Sellers and their independent accounts shall have reasonable access to the personnel, properties, books, records, schedules, analyses and working papers of the Purchaser and its independent accountants relating to the preparation of the Notice of Disagreement. If, at the end of such 30-day period, the Sellers and the Purchaser shall not have resolved such differences, the Sellers and the Purchaser shall submit to the national office of Ernst & Young LLP or, if such firm is unwilling or unable to serve, the national office of any other “big four” accounting firm selected by the Sellers that has no material relationship with the Purchaser, the Sellers or any of their respective Affiliates (the “Accounting Firm”) for review and resolution of any and all matters that remain in dispute and that were properly included in the Notice of Disagreement. The Accounting Firm shall consider only those items or amounts in the Closing Statement as to which the Purchaser has disagreed and which remain in dispute following the 30-day period referred to above and shall base its determination solely on oral and written presentations by Sellers and Purchaser, and not by independent review. The Accounting Firm shall not assign a value to any disputed item greater than the greatest value for such item nor less than the smallest value for such item claimed by Sellers or Purchaser. The Sellers and the Purchaser shall use their respective commercially reasonable efforts to cause the Accounting Firm to render a decision resolving all items in dispute within 30 days following the submission of such items to the Accounting Firm. The Accounting Firm shall deliver to Sellers and Purchaser, contemporaneously with its decision, a written report setting forth such decision, together with a written explanation of such decision in reasonable detail, which report shall be final and binding upon the Purchaser and the Sellers. The Sellers and the Purchaser agree that judgment may be entered upon the determination of the Accounting Firm in any court having jurisdiction over the party against which such determination is to be enforced. The cost of any review and resolution (including the fees and expenses of the Accounting Firm and reasonable fees and expenses of legal counsel of the parties) pursuant to this Section 2.2(d)(3) shall be borne by the Sellers and the Purchaser in inverse proportion as they may prevail on items resolved by the Accounting Firm, taking into account any written agreements with respect to any disputed item between Sellers and Purchaser

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between the time of the appointment of the Accounting Firm and the issuance of such firm’s decision, which inverse proportionate allocations shall also be determined by the Accounting Firm at the time the determination of the Accounting Firm is rendered on the merits of the items submitted and included in the written report delivered by the Accounting Firm to Sellers and Purchaser.

     2.3 Purchase Price Adjustment. As soon as practicable after the Final Purchase Price has been determined pursuant to Section 2.2 (but in any event within three Business Days after such determination), the Purchaser, if the Final Purchase Price exceeds the Estimated Purchase Price, or the Sellers, if the Estimated Purchase Price exceeds the Final Purchase Price, shall deliver to such other party or parties, by wire transfer of immediately available funds to the account specified in writing by the recipient, an amount equal to the sum of (i) the amount of such excess, plus (ii) interest on the amount of such excess from the Closing Date through but excluding the date on which such amount is paid at a rate per annum equal to the average over such period of the Federal funds discount rate as published in The Wall Street Journal.

     2.4 Allocation of Purchase Price. Pursuant to Section 1060 of the Code and the Regulations thereunder (and, to the extent applicable, pursuant to Mexican Tax laws), the Purchaser and the Sellers shall use commercially reasonable efforts to agree upon an allocation of the Final Purchase Price to the Shares, the PDI Mexico Subsidiary Shares and the Assets and shall report such allocation on IRS Form 8594 and, as applicable, to Mexican Governmental Authorities.

     2.5 Withholding. Purchaser shall withhold no amount due under this Article II for purposes of Mexican income Tax.

ARTICLE III
SELLERS’ REPRESENTATIONS AND WARRANTIES

     Except as set forth in the Schedules hereto, the Sellers represent and warrant, jointly and severally, to the Purchaser as of the date hereof and as of the Closing as follows:

     3.1 Corporate Status and Authority.

     (a) PDC is a corporation duly incorporated, validly existing and in good standing under the laws of the State of New York. PDI is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Each member of the PD Mexico Group is duly organized and validly existing under the laws of Mexico. Each Seller and member of the PD Mexico Group has corporate and legal power and authority to own, lease and operate its properties, and to conduct its business as presently conducted. Each of the Sellers is duly qualified to do

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business as foreign corporation and is in good standing under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification, except where the failure to be so qualified or in good standing in such jurisdiction would not reasonably be expected to have a Material Adverse Effect.

     (b) Sellers have the corporate power and authority to execute and deliver this Agreement and perform their obligations hereunder. The execution and delivery of this Agreement, the performance of the Sellers’ obligations hereunder, and the consummation of transactions contemplated hereby have been duly authorized by all necessary corporate action. This Agreement has been duly executed and delivered by the Sellers and constitutes the legal, valid and binding obligation of the Sellers, enforceable against the Sellers in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity).

     3.2 No Conflicts, Consents and Approvals.

     (a) Except as set forth in Schedule 3.2(a), or with respect to the Licenses, and subject to obtaining the consents, approvals and authorizations and making the filings referred to in Section 3.2(b), neither the execution, delivery or performance of this Agreement by the Sellers nor the consummation of the transactions contemplated hereby will (i) conflict with, or result in a breach of any provision of, the certificate of incorporation or by-laws of either Seller, (ii) conflict with or violate any law, statute, ordinance, rule, regulation, order, judgment or decree applicable to Sellers, in respect of the Business, or any member of the PD Mexico Group or by or to which any of their respective properties or assets is bound or subject or (iii) result in the creation of any material lien, encumbrance, security interest, mortgage, pledge, claim, option or similar restriction (collectively “Liens”) on any of the Shares, PDI Mexico Subsidiary Shares or Assets, other than Permitted Liens, or result in any breach of, or constitute a default (or an event that with notice or lapse of time or both would constitute a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or require payment in respect of any material agreement, lease, license, contract, note, mortgage, indenture, arrangement or other obligation to which Sellers, in respect of the Business, or any member of the PD Mexico Group is a party or by which any of the Assets or the Business is bound, except, in the case of each of clauses (ii) and (iii), for any such conflict, violation, Lien, breach, default, right or payment that would not reasonably be expected to have a Material Adverse Effect.

     (b) Except as set forth in Schedule 3.2(b), no consent, approval or authorization of or filing with any Governmental Authority is required on the part of the Sellers or any member of the PD Mexico Group in connection with the execution and

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delivery of this Agreement or the consummation of the transactions contemplated hereby, except for any such filing, consent, approval or authorization (i) that is required with respect to (a) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) and (b) the Mexican Federal Competition Commission (the “Competition Commission”), (ii) that has been or will be made or obtained and will be in full force and effect as of the Closing Date or (iii) that, if not made or obtained, would reasonably be expected to have a Material Adverse Effect.

     3.3 The Shares. The paid-in capital of PD Mexico amounts to $50,801,500 Mexican pesos and is represented by 101,603 Series B shares of common stock with no par value, of which 100 shares are from the fixed capital and 101,503 shares are from variable capital. The Shares are the only issued and outstanding shares of capital stock of PD Mexico. The PDI Mexico Subsidiary Shares and the other shares of capital stock of the PD Mexico Subsidiaries owned by PD Mexico (collectively, the “Mexico Subsidiary Shares”) are the only issued and outstanding shares of capital stock of the PD Mexico Subsidiaries. The Shares and the Mexico Subsidiary Shares have been duly authorized and validly issued and are fully paid and non-assessable. The Shares and the Mexico Subsidiary Shares are owned by the Sellers and PD Mexico, as the case may be, free and clear of all Liens other than Permitted Liens. The delivery at the Closing of certificates representing the Shares in the manner provided in Section 2.1(a) will transfer to the Purchaser (or designated Subsidiary) valid title to the Shares and the PDI Mexico Subsidiary Shares, free and clear of any Liens, other than Liens created by the Purchaser. There are no outstanding options, warrants, conversion or preemptive or other rights or agreements of any kind (other than this Agreement and the transactions contemplated hereby) for the purchase or acquisition from, or the sale or issuance by, the Sellers or PD Mexico Group of any shares of capital stock, or any securities that are convertible into or exchangeable for shares of capital stock of any of the PD Mexico Group, and no authorization therefor has been given.

     3.4 Assets and Properties. Schedule 3.4 sets forth (i) a description of all real property other than Excluded Assets owned by Sellers with respect to the Business or by any member of the PD Mexico Group (the “Owned Real Property”) and (ii) a list of all leases pursuant to which Sellers or any member of the PD Mexico Group lease real property with respect to the Business (the “Leased Real Property”), in each case, as of the date hereof. Except as set forth in Schedule 3.4, Sellers or a member of the PD Mexico Group, as the case may be, have (a) good and valid title to each Owned Real Property and (b) a good and valid leasehold estate in each item of Leased Real Property, in each case free and clear of all Liens other than Permitted Liens. A Seller or member of the PD Mexico Group, as the case may be, owns good and transferable title to or valid transferable leasehold interests in, each of the Assets free and clear of any Liens other than Permitted Liens, except as set forth in Schedule 3.2(a). None of the Sellers or any member of the PD Mexico Group has received any written notice alleging any default under such leases that has not been cured, and all such leases are in full force and effect.

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The Sellers have made available to the Purchaser copies of all lease agreements. This Section 3.4 does not relate to contractual or Intellectual Property, which are addressed solely in Sections 3.5 and 3.6, respectively.

     3.5 Contracts. Schedule 3.5 lists all Contracts and Sellers have made available to Purchaser copies thereof. For purposes of this Agreement, “Contracts” means all material agreements, contracts and commitments of the following types relating primarily to the Business to which PDC, PDI or a member of the PD Mexico Group is a party as of the date hereof (other than real property leases, agreements with respect to Intellectual Property and labor or employment-related agreements, which are provided for in Sections 3.4, 3.6 and 3.9, respectively): (a) (a) joint venture, limited partnership agreements and like agreements, (b) mortgages, indentures, loan or credit agreements, security agreements, guarantees and other agreements and instruments relating to the borrowing of money or extension of credit, in any case in excess of $500,000 in any one calendar year, (c) distribution and marketing agreements involving in excess of $3,000,000 of product per calendar year, (d) other agreements, contracts and commitments that are not cancelable by PDC, PDI or the applicable member of the PD Mexico Group on less than ninety (90) days’ notice and that require payment by PDC, PDI or a member of the PD Mexico Group or any counterparty, as the case may be, after the date hereof, of more than $500,000 in any one calendar year, (e) any other agreement, contract or commitment (including with customers, suppliers or counterparties to commodity hedging arrangements) set forth in Schedule 3.5 , (f) material agreements of any member(s) of the PD Mexico Group with or for the benefit of PDI or PDC or any of their respective Affiliates, (g) agreements prohibiting or restricting in any material respect the ability of the Business to operate in any geographic area or to compete with any Person, (h) agreements with Governmental Authorities to investigate or remediate Hazardous Substances; and (i) contracts not entered into in the ordinary course of the Business other than those that are not material to the Business. To the knowledge of the Sellers, each Contract is in full force and effect and is valid and enforceable in accordance with its terms. Except as set forth in Schedule 3.5, (y) PDC, PDI and the PD Mexico Group are in material compliance with their obligations under each of the contracts and (z) to the knowledge of the Sellers and other than entry into this Agreement and the consummation of the transactions contemplated hereby, no event has occurred that, with the passage of time or giving or notice or both, would constitute a material default under, or permit the early termination of, any such Contract, except where the failure to be in such compliance, default or termination, as the case may be, would not reasonably be expected to materially affect the Business.

     3.6 Intellectual Property.

     (a) Schedule 3.6(a) lists, as of the date hereof: (i) all applications and registrations for material trademarks, copyrights, trade names, service marks, domain names, patents and patent applications, U.S. and foreign, owned by either Seller and used

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primarily in relation to the Business and (ii) all material written agreements to which either Seller is a party pursuant to which (x) such Seller licenses any Person to use any of the Owned Intellectual Property or (y) any Person licenses either Seller to use any Intellectual Property that is not Owned Intellectual Property for use primarily in the Business (licenses identified in the preceding clauses (x) and (y), collectively, the “Licenses”).

     (b) Except as set forth in Schedule 3.6(a), the Sellers are the owners of, or have the right under the Licenses to use, the Company Intellectual Property, free and clear of all Liens other than Permitted Liens. Except as set forth in Schedule 3.6(b), to the knowledge of the Sellers, the Sellers are in material compliance with their obligations under each License.

     (c) Except as set forth in Schedule 3.6(c), the Sellers have not received any written notice or claim that the conduct of the Business infringes on or otherwise violates the rights of any Person in respect of the trademarks, registered copyrights, trade names, service marks, patents or published patent applications, U.S. or foreign, of such Person and, to the knowledge of the Sellers, there have been no infringements by any Person of the Owned Intellectual Property, in each case except for any infringement that would not reasonably be expected to be material to the Business.

     3.7 Governmental Authorizations; Compliance with Law. Except as set forth in Schedule 3.7, Sellers and the PD Mexico Group hold and are in material compliance with all licenses, permits and other governmental authorizations necessary or required to conduct the Business taken as a whole as currently conducted, except for any such license, permit or authorization the absence of which would not reasonably be expected to adversely affect in any material respect the present operations or activities at the Facilities. Sellers have not received any written notice from any Governmental Authority with competent jurisdiction of any material violation of any statute, rule, regulation, judgment, order, decree, permit, concession, franchise, or other governmental authorization or approval applicable to it or to any of its properties, except as set forth on Schedule 3.7 or as would not reasonably be expected to be material to the Business. This Section 3.7 does not relate to environmental matters, employee benefits or tax matters, which are addressed solely in Sections 3.8, 3.9 and 3.10, respectively.

     3.8 Environmental Matters. In respect of the Business, the Assets and the Facilities and except as set forth in Schedule 3.8 or as would not reasonably be expected to have a Material Adverse Effect:

     (a) Sellers and the PD Mexico Group are and have been in compliance with all applicable Environmental Laws other than with respect to matters that are resolved or are no longer outstanding;

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     (b) Sellers and the PD Mexico Group have obtained, and are in compliance with, all permits and authorizations required under applicable Environmental Laws to conduct the Business as currently conducted;

     (c) Sellers and the PD Mexico Group have not received from any Governmental Authority any written notice of violation, non-compliance, liability or potential liability regarding compliance with applicable Environmental Laws, other than matters that have been resolved or that are no longer outstanding, including those relating to liability for off-site disposal of Hazardous Substances;

     (d) no judicial proceeding or governmental or administrative action is pending, or to the knowledge of Sellers and the PD Mexico Group, threatened under any applicable Environmental Law pursuant to which the Sellers or the PD Mexico Group have been named as a party;

     (e) neither the Sellers nor any member of the PD Mexico Group have entered into any written agreement with any Governmental Authority pursuant to which any such Person has assumed responsibility for the remediation of any condition resulting from the release or threatened release of Hazardous Substances at the Facilities or at any location where Hazardous Substances from the Facilities may have been treated, stored, disposed or transported;

     (f) to the knowledge of the Sellers and the PD Mexico Group, no Hazardous Substances have been released by Sellers into the environment at any of the Owned Real Property that have resulted in a remedial action under any Environmental Law; and

     (g) Sellers have made available to Purchaser copies of material environmental site assessments possessed by Sellers or that, to the knowledge of Sellers, have been prepared pertaining to Hazardous Substances on or under the Owned Real Property, other than any such assessments that are protected by the attorney-client privilege or the attorney work product doctrine.

     Notwithstanding any of the representations and warranties contained elsewhere in this Agreement, matters arising under Environmental Laws shall be governed exclusively by this Section 3.8.

     3.9 Employment Agreements and Benefits.

     3.9.1 Employment Agreements and Benefit Plans. Schedule 3.9.1 lists all (a) employment and consulting agreements (including severance, retention and change of control agreements) relating primarily to the Business and to which PDC, PDI or any member of the PD Mexico Group, as the case may be, is a party, other than (i)

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agreements that by their terms may be terminated or canceled by PDC, PDI or a member of the PD Mexico Group, as the case may be, with notice of not more than 60 days, without penalty and (ii) agreements relating to employment or severance that require payments or base salary amounts of less than $50,000 in any one case; (b) collective bargaining agreements relating primarily to the Business with any labor unions currently representing employees of PDC, PDI or any member of the PD Mexico Group, as the case may be, and (c) material “employee benefit plans,” as defined in Section 3(3) of ERISA (whether or not subject to ERISA), profit sharing, pension, retirement, bonus, incentive compensation, stock option, restricted stock, deferred compensation or other material fringe benefit plans, programs and arrangements under which (i) any Company Employee (including any beneficiaries and dependants thereof) is or may become eligible to participate or derive a benefit and that is or has been maintained, established or contributed to by PDC, PDI or any member of the PD Mexico Group, or any trade or business, whether or not incorporated that, together with PDC, PDI or the PD Mexico Group, is, or would have been at any date of determination occurring within the preceding six years, treated as a single employer under Section 414 of the Code solely for the benefit of Company Employees, or (ii) the PD Mexico Group may have any material outstanding liability or obligation (collectively, items described in this clause (c), the “Benefit Plans”). Schedule 3.9.1 lists those Benefit Plans that (i) are sponsored or maintained by PDC or PDI, as the case may be, solely with respect to the Business at the U.S. Facilities (each such Benefit Plan, a “U.S. Stand-Alone Plan”) or (ii) that are sponsored or maintained by the PD Mexico Group with respect to the Business at the Monterrey Facility (each such Benefit Plan, a “Monterrey Stand-Alone Plan” and, together with the U.S. Stand-Alone Plan, the “Stand-Alone Plans”). With respect to each Benefit Plan, the Sellers have heretofore made available to the Purchaser a complete and correct copy of the Benefit Plan and any amendments thereto.

     3.9.2 Benefit Plan Compliance. Except as would not reasonably be expected to have a Material Adverse Effect, (i) each contribution and other payment required under ERISA, the Code or other applicable law to have been made by PDI, PDC or the PD Mexico Group, as the case may be, to each Stand-Alone Plan has been timely made, (ii) each Stand-Alone Plans is in compliance with all applicable laws and has been administered in accordance with its terms, and (iii) with respect to each Stand-Alone Plan that is subject to or governed by laws of any jurisdiction other than the United States of America, all amounts required to be reserved on account of each such Stand-Alone Plan have been so reserved in accordance with reasonable accounting practices prevailing in the country where such Stand-Alone Plan is established.

     3.9.3 Tax Qualification. The Phelps Dodge Pension Plan for Day’s Pay Employees — Ft. Wayne Plant (the “Ft. Wayne Pension Plan”) has received a favorable determination letter from the IRS as to its qualification under the Code and to the effect that each such trust is exempt from taxation under section 501(a) of the Code, and, to the

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knowledge of the Sellers, nothing has occurred since the date of such determination letter that has adversely affected such qualification or tax-exempt status.

     3.9.4 Labor Matters. Except as set forth in Schedule 3.9.4, since January 1, 2004, in relation to the Business, there has been no strike, work stoppage, slowdown, lockout or grievance or other labor dispute pending or, to the knowledge of the Sellers, threatened against PDC, PDI or any member of the PD Mexico Group, as the case may be, except as would not reasonably be expected to have a Material Adverse Effect.

     3.10 Taxes. Except as set forth in Schedule 3.10, (a) all material Tax Returns required to be filed by each member of the PD Mexico Group on or prior to the Closing Date have been filed (or will have been filed prior to the Closing Date) and (b) no written claim for assessment or collection of Taxes with respect to the business or assets of the PD Mexico Group is being asserted against any member of the PD Mexico Group, other than such claims that have been reserved against in the Closing Balance Sheet or fully resolved or settled. Except as set forth in Schedule 3.10 or as reflected or reserved against in the Closing Balance Sheet, and except for any Tax the payment of which, or failure thereof to be paid, would not reasonably be expected to have a Material Adverse Effect, all Taxes shown as due on or before the Closing Date on such Tax Returns have been paid (or will have been paid prior to the Closing Date). Except as set forth on Schedule 3.10, no Tax Return of any member of the PD Mexico Group has been audited or examined.

     3.11 Brokers. All negotiations relating to this Agreement and the transactions contemplated hereby have been carried out without the intervention of any Person acting on behalf of the Sellers or Seller Affiliates in such manner as to give rise to any valid claim against the Purchaser, PDI or the PD Mexico Group for any brokerage or finder’s commission, fee or similar compensation.

     3.12 Books and Records. The books of account and other financial records of the Business and the PD Mexico Group are complete and correct in all material respects and represent actual, bona fide transactions. The minute books of the PD Mexico Group contain records accurate and complete in all material respects of all meetings held of, and corporate action taken by, the shareholders and the boards of directors, except for minutes of shareholder meetings that were formalized before a Mexican notary public pursuant to the last paragraph of section 194 of the Mexican General Law of Commercial Companies, copies of which will be made available to Purchaser prior to Closing.

     3.13 Inventories. Except for Inventory reserves reflected on the Estimated Closing Balance Sheet, the Inventories are valued on the books of the Business in accordance with Sellers’ standard accounting practices, consistently applied, as modified by the accounting principles set forth in Schedule 2.2(d).

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     3.14 Absence of Certain Changes and Events. Except as set forth in Schedule 3.14, since September 1, 2005, the Business has been conducted in the ordinary course and, other than in such ordinary course, there has not been any:

     (a) amendment to the organizational documents of any member of the PD Mexico Group;

     (b) payment or increase by the PD Mexico Group of any bonuses, salaries or other compensation to any Monterrey Company Employees, or entry into any material employment, severance or similar Contract with any such employees;

     (c) adoption of, amendment to or material increase in the payments to or benefits under, any Benefit Plan applicable to the PD Mexico Group;

     (d) material damage to or destruction or loss of any Asset not covered by insurance that would reasonably be expected to materially adversely affect the present operations or activities at the Facilities;

     (e) entry into, termination of or receipt of notice of termination of any Contract with annual aggregate payments thereunder in excess of $500,000;

     (f) sale (other than sales of Inventories in the ordinary course of the Business), lease or other disposition of any Asset of the PD Mexico Group for an amount in excess of $500,000, or the creation of any material Lien on any Asset, other than Permitted Liens;

     (g) cancellation or waiver of any claims or rights by Sellers with respect to the Business, the Assets or the Shares with a value in excess of $500,000;

     (h) Contract entered into by Sellers to do any of the foregoing; or

     (i) written notice by any customer or supplier of the Business to which the Business paid or from which it received in excess of $500,000 in revenue in the last full fiscal year prior to the date hereof, of an intention to discontinue or change the terms of its relationship.

     3.15 Condition of Assets; Title. Except as set forth on Schedule 3.15, all tangible personal property Assets are, taken as a whole, in reasonably good operating condition and repair, taking into account age, length of use, and ordinary wear and tear. The Assets, together with the Excluded Assets set forth in Section 1.2, include all assets necessary to operate the Business as currently conducted. The Sellers have valid title to all the personal property Assets or a valid leasehold interest therein, in each case free and clear of all Liens other than Permitted Liens.

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     3.16 Financial Statements. The unaudited trial balance sheet with respect to the Business at August 31, 2005, and the related unaudited statement of income for the eight months then ended, have been delivered by Sellers to Purchaser and, to the knowledge of Sellers, fairly present in all material respects the financial condition and results of operations of the Business as of the date thereof or for the period presented therein, as the case may be.

ARTICLE IV
PURCHASER’S REPRESENTATIONS AND WARRANTIES

     The Purchaser represents and warrants to the Sellers as of the date hereof and as of the Closing as follows:

     4.1 Corporate Status and Authority. The Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware and has the power and authority to execute and deliver this Agreement and perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by the board of directors of the Purchaser, which approval constitutes all necessary corporate action on the part of the Purchaser for such authorization. This Agreement has been duly executed and delivered by the Purchaser and constitutes the valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium, receivership or similar laws affecting creditors’ rights generally and by general principles of equity (whether considered at law or in equity).

     4.2 No Conflicts, Consents and Approvals.

     (a) The execution, delivery and performance of this Agreement by the Purchaser will not (i) conflict with, or result in a breach of any provision of, the charter documents or by-laws of the Purchaser, (ii) conflict with or violate any law, statute, ordinance, rule, regulation, order, judgment or decree applicable to Purchaser or by or to which any of its properties or assets are bound or (iii) result in any breach of, or constitute a default (or an event that with notice or lapse of time or both would constitute a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of any Lien in respect of any material agreement, lease, license, contract, note, mortgage, indenture, arrangement or other obligation to which Purchaser is a party or by which Purchaser or any of its properties or assets are bound, except, in the case of each of clauses (ii) and (iii), for any such conflict, violation, breach, default, right, payment or Lien that would not reasonably be expected to materially impair the ability of the Purchaser to perform its obligations under, or to consummate the transactions contemplated by, this Agreement or any of the Ancillary Agreements.

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     (b) No consent, approval or authorization of or filing with any Governmental Authority is required on the part of the Purchaser in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except filings, consents, approvals or authorizations (i) that are required with respect to the HSR Act and the Competition Commission or (ii) that, if not made or obtained, would not reasonably be expected to materially impair the ability of the Purchaser to perform its obligations under, or to consummate the transactions contemplated by, this Agreement or any of the Ancillary Agreements.

     4.3 Financial Ability to Perform. The Purchaser has delivered to the Sellers true, correct and complete copies of the Purchaser’s commitment letters, related fee letters, engagement letters and all related agreements (collectively, the “Debt Financing Commitments”), pursuant to which certain lenders who are parties to such Debt Financing Commitments (the “Lenders”) have committed to provide up to an aggregate of not less than $200 million of debt financing to the Purchaser and its Affiliates in order to finance the transactions contemplated by this Agreement. As of the Closing Date, assuming the consummations of the financing transactions contemplated by the Debt Financing Commitments, the Purchaser and its Affiliates will have sufficient funds available (as a result of debt financing set forth in the Debt Financing Commitments and otherwise) to enable the Purchaser and its Affiliates to consummate the transactions contemplated by this Agreement. As of the date hereof, the Debt Financing Commitments delivered to the Sellers are in full force and effect. There are no other agreements, contracts, documents or other instruments in effect relating to the Debt Financing Commitments that subject the commitments undertaken therein to any condition not expressly provided for therein. The aggregate proceeds of the financings to be provided pursuant to the Debt Financing Commitments together with other funds available to the Purchaser will be sufficient to pay the Final Purchase Price and all fees and expenses required to be paid as a condition to the consummation of such financings. The Purchaser has no reason to believe, as of the date hereof, that such aggregate proceeds shall not be available or that the Debt Financing Commitments shall not be funded, and the Purchaser has not made any material misrepresentation with respect to the Purchaser in connection with obtaining the Debt Financing Commitments.

     4.4 Solvency. Immediately after giving effect to the transactions contemplated by this Agreement, the Purchaser shall (i) be able to pay its debts as they become due, (ii) own property that has a fair saleable value greater than the amounts required to pay their respective debts (including a reasonable estimate of the amount of all contingent liabilities) and (iii) have adequate capital to carry on its business. No transfer of property is being made and no obligation is being incurred in connection with the transactions contemplated by this Agreement with the intent to hinder, delay or defraud either present or future creditors of the Purchaser.

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     4.5 Litigation. There are no judicial or administrative actions, proceedings or investigations pending or, to the knowledge of the Purchaser, threatened, that question the validity of this Agreement or any action taken or to be taken by the Purchaser in connection herewith, or that would reasonably be expected to materially impair the ability of the Purchaser to perform its obligations under, or to consummate the transactions contemplated by, this Agreement or any of the Ancillary Agreements.

     4.6 Purchase for Investment. The Purchaser is acquiring the Shares for investment and not with a view toward any resale or distribution thereof except in compliance with the Securities Act of 1933, as amended (the “Securities Act”). The Purchaser hereby acknowledges that the Shares have not been registered pursuant to the Securities Act and may not be transferred in the absence of such registration or an exemption therefrom under the Securities Act. The Purchaser has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Shares and is capable of bearing the economic risks of the transactions contemplated by this Agreement.

     4.7 Brokers. All negotiations relating to this Agreement and the transactions contemplated hereby have been carried out without the intervention of any Person acting on behalf of the Purchaser or its Affiliates in such manner as to give rise to any valid claim against the Purchaser, the Sellers or the PD Mexico Group for any brokerage or finder’s commission, fee or similar compensation.

     4.8 Insurance. The Purchaser acknowledges that, as of the Closing Date, the Business will cease to be entitled to the benefit of insurance arrangements extended to it (including, without limitation, with respect to the Facilities and the PD Mexico Group) prior to the Closing Date.

     4.9 Inspections; No Other Representations. Purchaser is an informed and sophisticated purchaser, and has engaged expert advisors, experienced in the evaluation and purchase of businesses such as the Business. Purchaser has undertaken such investigation and has been provided with and has evaluated such documents and information as it has deemed necessary to enable it to make an informed and intelligent decision with respect to the execution, delivery and performance of this Agreement and each of the Ancillary Agreements. Purchaser will undertake prior to Closing such further investigation and request such additional documents and information as it deems necessary. Purchaser hereby acknowledges and affirms that in making its decision to enter into this Agreement and each of the Ancillary Agreements, and to consummate the transactions contemplated hereby and thereby it has relied solely on (A) its own investigation of the Business, including its investigation of the information and documents made available to Purchaser or its counsel, advisors, accountants or other representatives by Sellers and (B) the representations, warranties and covenants of the Sellers contained in this Agreement. Purchaser further acknowledges and affirms that

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none of Sellers or any of their Affiliates, counsel, advisors, accountants or other representatives makes any representation or warranty with respect to (1) any forward-looking information, including, without limitation, any projections, estimates or budgets delivered to or made available to Purchaser of future revenues, future results of operations (or any component thereof), future cash flows or future financial condition (or any component thereof) of the Business or the future business and operations of the Business or (2) any other information or documents made available to Purchaser or its counsel, advisors, accountants or other representatives with respect to the Business, except as expressly set forth in this Agreement. The Purchaser has no knowledge that any of the representations and warranties of the Sellers in this Agreement is not true and correct, and Purchaser has no knowledge of any material errors in, or material omissions from, the Schedules to this Agreement.

ARTICLE V
CERTAIN COVENANTS

     5.1 Consents; Obligations of the Parties.

     (a) Subject to the terms and conditions of this Agreement, each party shall use its commercially reasonable efforts to cause the Closing to occur, including, without limitation, (i) preparing and filing as promptly as practicable all documentation to effect all necessary applications, notices, petitions, filings, tax ruling requests and other documents and to obtain as promptly as practicable all consents, waivers, licenses, orders, registrations, approvals, permits, tax rulings and authorizations necessary or advisable to be obtained from any third party and/or any Governmental Authority in order to consummate the transactions contemplated by this Agreement or any of the Ancillary Agreements, including without limitation issuance by the Competition Commission of a communication containing its resolution not to oppose or approving the transactions contemplated hereby and (ii) taking all commercially reasonable steps necessary to obtain all such material consents, waivers, licenses, registrations, permits, authorizations, tax rulings, orders and approvals. In furtherance and not in limitation of the foregoing, each party hereto agrees to make an appropriate filing of a Notification and Report Form pursuant to the HSR Act and any other applicable Law with respect to the transactions contemplated hereby as promptly as practicable after the date hereof and to supply as promptly as practicable any additional information and documentary material that may be requested pursuant to the HSR Act and any other applicable Law and to take all other commercially reasonable actions necessary to cause the expiration or termination of the applicable waiting periods under the HSR Act as soon as practicable.

     (b) Each of the Sellers and the Purchaser shall, in connection with the efforts referenced in Section 5.1(a) to obtain all requisite material approvals and authorizations for the transactions contemplated by this Agreement and any Ancillary Agreement under the HSR Act or any other applicable Law, (i) cooperate in all respects with each other in

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connection with any filing or submission and in connection with any investigation or other inquiry, including any proceeding initiated by a private party, (ii) promptly inform the other party of any communication received by such party from or given by such party to, the Antitrust Division of the Department of Justice (the “DOJ”), the Federal Trade Commission (the “FTC”) or any other Governmental Authority and of any material communication received or given in connection with any proceeding by a private party, in each case regarding any of the transactions contemplated hereby, and (iii) to the extent permissible under applicable Law, permit the other party to review any communication given by it to, and consult with each other in advance of any meeting or conference with, the DOJ, the FTC or any such other Governmental Authority or, in connection with any proceeding by a private party, with any other Person.

     (c) If necessary to obtain any regulatory approval pursuant to any applicable Law, or if any administrative or judicial action or proceeding, including any proceeding by a private party, is instituted (or threatened to be instituted by a Governmental Authority), challenging any transaction contemplated by this Agreement or any of the Ancillary Agreements as violative of any Law, each of Sellers and the Purchaser shall cooperate with each other to (i) obtain any regulatory approval, (ii) contest, resist or resolve any such action or proceeding, or (iii) have vacated, lifted, reversed or overturned any decree, judgment, injunction, or other order (whether temporary, preliminary or permanent), so as to permit the occurrence of the Closing.

     (d) The Purchaser shall use commercially reasonable efforts to cause the conditions which are set forth in the Debt Financing Commitments, and which the Purchaser is capable of causing to be satisfied, to be satisfied in accordance with their terms as soon as reasonably practicable. Such efforts shall include, among other things, delivering all documents, instruments and information within the Purchaser’s control that are reasonably necessary to satisfy such conditions and assisting with the syndication or marketing of such financing.

     5.2 Obligations of the Sellers.

     5.2.1 Conduct of Business. From the date hereof until the Closing, except as set forth in the Schedules hereto, as contemplated by this Agreement or any of the Ancillary Agreements or as otherwise consented to by the Purchaser in writing, such consent not to be unreasonably withheld or delayed, the Sellers shall and shall cause the PD Mexico Group, in relation to the Business, to:

     (i) carry on the Business in the ordinary course in substantially the manner in which it previously has been conducted and, to the extent consistent with such business, use commercially reasonable efforts to preserve intact its present business organization and to preserve its relationships with customers, suppliers and others having business dealings with it;

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     (ii) not amend the organizational documents of any member of the PD Mexico Group, except as reasonably necessary to take any of the actions set forth in Section 5.2.3;

     (iii) not sell substantially all of the assets of the PD Mexico Group to any Person, merge or consolidate any member of the PD Mexico Group with, allow it to purchase substantially all of the assets of, or otherwise allow it to acquire any business or any Person;

     (iv) not sell any material Assets outside the ordinary course of business;

     (v) not agree or commit to do any of the foregoing referred to in clauses (i)-(iv); and

     (vi) promptly advise the Purchaser of any fact, condition, occurrence or change known to either Seller that has had or would reasonably be expected to have a Material Adverse Effect or cause a breach of this Section 5.2.1.

     Notwithstanding the foregoing, prior to the Closing, (i) any inter-company liabilities, including short-term and long-term liabilities, due to the Sellers and/or any Seller Affiliate (other than any member of the PD Mexico Group) from any member of the PD Mexico Group shall be capitalized or settled, (ii) (A) any inter-company liabilities, including short-term and long-term liabilities, due to any member of the PD Mexico Group from the Sellers and/or any Seller Affiliate (other than any member of the PD Mexico Group), (B) any inter-company accounts receivable and long-term inter-company receivables due to the Sellers and/or any Seller Affiliate (other than any member of the PD Mexico Group) from any member of the PD Mexico Group and (C) any inter-company accounts receivable and long-term inter-company receivables due to any member of the PD Mexico Group from the Sellers and/or any Seller Affiliate (other than any member of the PD Mexico Group), shall each be settled and (iii) PD Mexico shall declare and pay a dividend or otherwise make a distribution to the Sellers of all available Cash. The last paragraph of this Section 5.2.1 shall not apply to employee benefits matters, which are covered under Article VI.

     5.2.2 Access and Information. From the date hereof until the Closing, upon reasonable notice, the Sellers shall give to the Purchaser and its representatives reasonable access at all reasonable times during normal business hours to the properties, books and records of the Business and furnish for inspection such information and documents in their possession relating to the Business as the Purchaser may reasonably request, provided, that in the exercise of the foregoing rights, the Purchaser shall not, and shall use its best efforts to cause its representatives not to, unduly interfere with the operation and conduct of the Business and of PDI, and provided, further, that without the

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prior written consent of the Sellers, the Purchaser and its representatives shall not be entitled to any such access, information or documents (i) as to which the attorney-client privilege or attorney work-product doctrine may be available or apply, or (ii) the disclosure of which is restricted by contract or applicable law except in strict compliance with such contract or law. All such information and documents obtained by the Purchaser shall be subject to the terms of the Non-Disclosure Agreement, dated June 9, 2005 (the “Non-Disclosure Agreement”), by and between the Purchaser and PDC. Sellers shall be entitled to make copies of all Business Records and to retain such copies after Closing.

     5.2.3 PD Mexico Group Resolutions. Sellers shall cause each member of the PD Mexico Group to adopt resolutions that, effective as of the Closing Date, (i) accept the resignations of each of the members of the Board of Directors, Secretary and Examiners and release each such person, to the fullest extent permitted by applicable law, from any liability incurred in connection with any action based in or arising out of, in each case in whole or in part, such person’s position with such member of the PD Mexico Group, (ii) appoint new members of the Board of Directors, Secretary and Examiners in accordance with Purchaser’s written instructions to Sellers, which shall be delivered by Purchaser to Sellers not less than ten (10) Business Days prior to the anticipated Closing Date, (iii) revoke powers of attorney granted to Sellers’ members of the Board of Directors, (iv) change the name of each such member of the PD Mexico Group in accordance with Purchaser’s written instructions to Sellers delivered by Purchaser to Sellers not less than ten (10) Business Days prior to the anticipated Closing Date and (v) appoint delegates to formalize such resolutions on behalf of such member of the PD Mexico Group board of directors of each member of the PD Mexico.

     5.2.4 No Solicitation. Except as otherwise provided under this Agreement or until such time as this Agreement shall be terminated pursuant to Section 10.4, Sellers shall not directly or indirectly solicit or initiate inquiries or proposals from, or negotiate with, any Person (other than Purchaser) with respect to any acquisition of the Business or the Assets or any sale of the Shares or the PDI Mexico Subsidiary Shares.

     5.3 Taxes.

     (a) Except to the extent reflected or provided for in the Closing Balance Sheet, the Sellers shall pay, be responsible for (without duplication of amounts otherwise payable) and indemnify and hold harmless Purchaser and its Affiliates from and against federal, state, local and foreign income Taxes of or payable by or attributable to any member of the PD Mexico Group for all Pre-Closing Tax Periods other than any such Taxes arising from any act or omission by the Purchaser or, after the Closing, any member of the PD Mexico Group, including, without limitation, an election by or on behalf of the Purchaser under any provision of applicable foreign tax law similar to Section 338 of the Code. The Purchaser shall pay and be responsible for and shall

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indemnify and hold harmless the Sellers and all Seller Affiliates from and against all Taxes of or payable by or attributable to any member of the PD Mexico Group that are not described as being the responsibility of the Sellers in the first sentence of this Section 5.3(a). In the case of Taxes that are payable with respect to a taxable period that begins before the Closing Date and ends after the Closing Date, the portion of any such Tax that is allocable to the portion of the period ending on the Closing Date shall be deemed equal to the amount which would be payable if the taxable year ended at the time of the Closing and the Purchaser shall prepare books and working papers (including, without limitation, a closing of the books) that will demonstrate the income and activities of the applicable members of the PD Mexico Group for the period ending at the time of the Closing and such post-closing partial period. In the event that one party (the “Tax Indemnitor”) is obligated to indemnify the other party (the “Tax Indemnitee”) for any Tax under this Section 5.3(a), such indemnity amount shall be reduced by the present value of any future Tax benefits to be realized by the Tax Indemnitee resulting from such Tax (such present value to be determined by mutual agreement of the Tax Indemnitor and the Tax Indemnitee or, if they are unable to agree, by the Tax Dispute Accountants pursuant to Section 5.3(h)).

     (b) Tax Returns.

     (i) The Sellers’ Responsibility. The Sellers shall prepare or cause to be prepared and file or cause to be filed all Tax Returns that are required to be filed by each member of the PD Mexico Group on or prior to the Closing Date.

     (ii) The Purchaser’s Responsibility. The Purchaser shall prepare or cause to be prepared and file or cause to be filed all Tax Returns required to be filed by or in respect of the PD Mexico Group other than those Tax Returns described as the Sellers’ responsibility in Section 5.3(b)(i) above and shall report on such Tax Returns any transactions or events by or relating to any member of the PD Mexico Group after the Closing. Any such Tax Returns with respect to which the Purchaser is responsible for preparing and filing pursuant to this Section 5.3(b)(ii) that include Pre-Closing Tax Periods shall, insofar as they relate to any member of the PD Mexico Group, (x) be on a basis consistent with the last previous such Tax Returns filed in respect of such member of the PD Mexico Group and (y) be submitted to the Sellers for their review and approval at least 15 Business Days prior to the filing date, such approval not to be unreasonably withheld.

     (iii) Cooperation. The Sellers and the Purchaser shall cooperate with each other, and after the Closing Date the Purchaser shall cause each member of the PD Mexico Group to cooperate with the Sellers, with respect to the preparation and filing of any Tax Return for which the other is responsible pursuant to this Section 5.3(b). Without limiting the generality of the foregoing,

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with respect to all Tax Returns of the Sellers or any Seller Affiliate for all Pre-Closing Tax Periods, the Purchaser shall cause each member of the PD Mexico Group to prepare accurately and completely and submit to the Sellers all “tax packages” and all other information reasonably requested by the Sellers and necessary for the preparation and filing of such Tax Returns by the Sellers not later than March 31^st of the year following the year in which the Closing occurred. In the event that, after having made inquiry of the Purchaser, the Sellers shall have reason to believe that such tax packages and other information will not be provided to the Sellers on a timely basis, the Sellers shall have the right, at the Purchaser’s expense, to retain PricewaterhouseCoopers LLP, or other accounting firm of its choice, to prepare such packages and information and submit the same to the Sellers. In the event the Sellers exercise their rights under the preceding sentence, the Purchaser shall cause the PD Mexico Group to fully cooperate with and provide all necessary information and access to PricewaterhouseCoopers LLP or such other accounting firm as may be necessary to enable it to accurately and completely prepare such packages and information for submission to the Sellers.

     (iv) Amended Returns. For all taxable periods (or portions thereof) ending on or prior to the Closing Date, the Purchaser shall not, and shall cause each member of the PD Mexico Group not to, file (or consent to file) any amended Tax Returns or a claim for a refund of any Tax, unless the Sellers shall have reviewed and consented in writing to the contents of any such amended Tax Return (or claim for a refund) prior to the filing thereof (which consent shall not be unreasonably withheld or delayed).

     (c) Refunds. The Sellers shall be entitled to retain, or receive immediate payment from any member of the PD Mexico Group or the Purchaser (upon such Person’s receipt thereof) of, any Tax refund (including, without limitation, refunds arising by reason of amended returns filed after the Closing Date) or credit of any Taxes (plus any interest and inflation adjustments thereon received with respect thereto from the applicable taxing authority) relating to any member of the PD Mexico Group for which the Sellers are responsible under Section 5.3(a) or have otherwise paid or caused to be paid. In addition, any reduction of Taxes (“Reduced Taxes”) due with respect to the assets or business of any member of the PD Mexico Group for any period or partial period ending after the Closing Date that is attributable to an adjustment on audit by a taxing authority requiring any member of the PD Mexico Group to capitalize expenses or otherwise defer deductions that were currently deducted on a Tax Return as originally filed for periods ending on or prior to the Closing Date shall be credited to the Sellers, and the Purchaser shall pay over such Reduced Taxes to the Sellers promptly after the receipt of any refund of Taxes attributable thereto or the payment of any Reduced Tax or the reporting of any Tax liability in an amount reflecting such Reduced Taxes, less the reasonable expenses incurred by the Purchaser, if any, to amend any Tax Returns in order to pursue such refund. Any dispute with respect to Reduced Taxes shall be resolved by

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the Tax Dispute Accountants, and any such determination by the Tax Dispute Accountants shall be final. The Purchaser shall be entitled to the benefit of any other refund or credit of Taxes (plus any interest thereon received with respect thereto from the applicable taxing authority) relating to any member of the PD Mexico Group. The Purchaser and the Sellers shall cooperate and the Purchaser shall cause the PD Mexico Group and its other Affiliates to cooperate, with the Sellers with respect to claiming of any refund or credit referred to in this Section 5.3(c), including, without limitation, discussing potentially available refunds or credits and preparing and filing any amended Tax Return or other claim for a refund.

     (d) Audits. Each of the Purchaser and the Sellers shall promptly notify the other in writing within ten Business Days from its receipt of notice of (i) any pending or threatened federal, state, local or foreign Tax audits or assessments of any member of the PD Mexico Group, so long as any Pre-Closing Tax Periods remain open, and (ii) any pending or threatened federal, state, local or foreign Tax audits or assessments of the Purchaser or the Sellers which may affect the Tax liabilities of any member of the PD Mexico Group, in each case for Pre-Closing Tax Periods, provided, that the failure of one party to timely notify the other party of any such Tax audit or assessment pursuant to this sentence shall not increase, decrease or otherwise affect the indemnity right or obligation of any party, so long as such failure does not materially prejudice such other party. The Sellers shall have the right to represent the interests of the applicable member of the PD Mexico Group and control the conduct and disposition of any Tax audit or administrative or court proceeding relating to Taxes for any taxable periods (or portions thereof) ending on or prior to the Closing Date and for which the Sellers may be responsible hereunder, and the Purchaser shall have the right to consult with the Sellers during such proceedings at its own expense. With respect to any Tax audit or administrative or court proceeding relating to any Tax Return for a taxable period beginning before the Closing Date and ending after the Closing Date, which shall be controlled by the Purchaser subject to the immediately preceding sentence, the Purchaser shall (x) afford the Sellers and their Tax advisors, at Sellers’ expense, a reasonable opportunity to participate in the conduct of any administrative or judicial proceeding regarding or arising out of any audits or assessments, including, without limitation, the right to participate in conferences with taxing authorities and to submit pertinent material in support of the Sellers’ position, and (y) shall not accept any proposed adjustment or enter into any settlement or agreement in compromise which would result in a claim for indemnification against the Sellers pursuant to this Agreement without the prior written consent of the Sellers, which consent shall not be unreasonably withheld. The Purchaser agrees that it shall, at its own expense, cooperate fully, and cause each member of the PD Mexico Group to cooperate fully, with the Sellers and their representatives in connection with such audit or proceeding, including, without limitation, timely furnishing all work papers and other documents requested by any relevant taxing authority and making relevant employees and officers available in connection with such audit or proceeding.

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     (e) Conduct of Business. After the Closing, as to matters that could affect the Tax Returns of the Sellers or any member of the PD Mexico Group with respect to periods ending on or prior to the Closing Date, the Purchaser shall cause each applicable member of the PD Mexico Group to carry on its business only in the ordinary course in substantially the same manner as heretofore conducted.

     (f) Payment of Transaction-Related Taxes. All Transfer Taxes arising out of the sale of the Shares pursuant to this Agreement shall be paid (or caused to be paid) by the Purchaser.

     (g) Election Under Section 338(g) of the Code. The Purchaser shall not make an election under Section 338(g) of the Code with respect to any member of the PD Mexico Group without the prior written consent of the Sellers, which consent shall not be unreasonably withheld or delayed.

     (h) Tax Dispute Resolution Mechanism. Any dispute among the parties involving Taxes arising under this Agreement shall be resolved as follows: (i) the parties will in good faith attempt to negotiate a prompt resolution of the dispute; (ii) if the parties are unable to negotiate a resolution of the dispute within 30 days, the dispute will be submitted to the national office of a firm of independent accountants of nationally recognized standing reasonably satisfactory to the Sellers and the Purchaser (the “Tax Dispute Accountants”); (iii) the Tax Dispute Accountants shall resolve the dispute, in a fair and equitable manner and in accordance with applicable Tax law and the provisions of this Agreement, within 30 days after the parties have submitted the dispute to the Tax Dispute Accountants, whose decision shall be final, conclusive and binding on the parties, absent fraud or manifest error; (iv) any payment to be made as a result of the resolution of a dispute shall be made, and any other action taken as a result of the resolution of a dispute shall be taken, on or before the fifth Business Day following the date on which the dispute is resolved; and (v) the fees and expenses of the Tax Dispute Accountants in resolving a dispute will be borne by the Sellers and the Purchaser in inverse proportion as they may prevail on the issues resolved by the Tax Dispute Accountants, which inverse proportionate allocation shall also be determined by the Tax Dispute Accountants at the time the determination of the Tax Dispute Accountants is rendered on the merits of the issues submitted.

     5.4 Non-Competition. For a period of two years from and after the Closing, the Sellers, their Affiliates and their successors and assigns will not, directly or indirectly, contact or solicit that certain Precision Wire Corporation (“Precision Wire”), located in the Republic of India, in order to engage in an acquisition of Precision Wire, or its business, through a business combination transaction or otherwise. The foregoing shall not restrict any ordinary course business contacts between the Sellers or their Affiliates, on the one hand, and Precision Wire, on the other hand.

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     5.5 Publicity. No press release, public announcement or disclosure to any third party related to this Agreement or to any of the Ancillary Agreements or the transactions contemplated hereby or thereby shall be issued or made (i) prior to Closing, which concerns the transactions contemplated by this Agreement or any of the Ancillary Agreements or (ii) after the Closing, which discloses the terms of the transaction, in either case, without the joint written approval of the Sellers and the Purchaser, unless required by law, stock listing requirements or applicable administrative regulation, in which case the Sellers or the Purchaser, as the case may be, shall use their commercially reasonable efforts to allow the other party sufficient time, consistent with such obligations, to review the nature of such legal obligations and to comment upon such disclosure prior to publication. Sellers and Purchaser shall use their reasonable efforts to prepare and agree on a joint press release regarding the transactions contemplated hereby to be issued immediately following the Closing.

     5.6 Contact with Customers and Suppliers. Prior to the Closing, the Purchaser shall not, and shall cause its Affiliates, advisors, agents, employees, directors or officers not to, contact or communicate with the employees, customers, creditors, suppliers and licensors of, or other Persons having commercial relationships with, the Business in connection with the transactions contemplated hereby or by any Ancillary Agreement without the prior written consent of the Sellers, which consent may be withheld or may be conditioned upon a representative of the Sellers being present at any such meeting or conference.

     5.7 Use of Business Name. It is expressly agreed that the Purchaser is not purchasing or acquiring any right, title or interest in any trademarks, logos, service marks, brand names, domain names or trade, corporate or business names employing the name “Phelps Dodge”, “PD” or any part or variation thereof, or any trademarks, logos, service marks, brand names, domain names or trade, corporate or business names confusingly or misleadingly similar thereto (collectively, the “Sellers’ Marks”). To the extent that any of the Sellers’ Marks are used in the Business on any materials constituting the properties and assets of the Business, including, without limitation, any stationery, signage, invoices, receipts, forms, packaging, advertising and promotional materials, product, training and service literature and materials, software or like materials or appear on the inventory (including, without limitation, work-in-process and inventory on order) of the Business at the Closing Date, as promptly as commercially reasonable, but in no event later than the date that is 90 days after the Closing Date, the Purchaser shall, and shall cause the Facilities to, cease to use, remove, strike over or otherwise obliterate all the Sellers’ Marks from all such materials.

     5.8 Bulk Sales Laws. The Purchaser hereby waives compliance by Sellers with the requirements, if any, of Article 6 of the Uniform Commercial Code as in force in any state in which Transferred Assets are located and all other similar Laws applicable to bulk sales and transfers.

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     5.9 Surveys and Survey Access.

     5.9.1 Owned Real Property Surveys. Prior to the Closing, Purchaser and its surveyor shall have access to the Owned Real Property at reasonable times for purposes of preparing an ALTA survey (or its equivalent) of the Owned Real Property (other than the OTC Transferred Real Property, the survey for which shall be provided by Sellers). Purchaser shall give Sellers not less than three (3) Business Days’ prior written notice of any proposed visit by Purchaser or its surveyor, which notice shall identify the proposed visitors, and Sellers shall have the right to have a representative present during any such visit to which Sellers consent. Purchaser shall provide Sellers with evidence of $1,000,000 of liability insurance naming Sellers as additional insureds prior to entering the Owned Real Property, and Purchaser shall indemnify and hold Sellers harmless from any and all Damages in respect of the Owned Real Property arising out of actions taken by Purchaser, its surveyor or any of their respective representatives in connection with any such visit.

     5.9.2 OTC Transferred Real Property Survey. Prior to the Closing, Sellers shall, at Sellers’ expense, provide Purchaser with an ALTA survey of the OTC Transferred Real Property for the purpose of defining the legal description of such OTC Transferred Real Property.

     5.10 Unpaid Accounts Receivable. To the extent any account receivable reflected on the Closing Balance Sheet is not collected in full within the 120-day period after it first becomes due and payable, Purchaser may require Sellers to, and promptly after receipt of such request a Seller shall, repurchase the unpaid amount of any such account receivable, provided that Purchaser shall promptly, and in any event as a condition precedent to any such repurchase, transfer to PDC or its designee all right, title and interest to the uncollected receivables giving rise to such breach. Purchaser acknowledges and agrees that PDC or its designee may seek collection of all such receivables by any means deemed appropriate by PDC or such designee, including without limitation, litigation, and Purchaser shall not, and shall cause each of its Affiliates not to, object to or otherwise seek to impair, any such collection.

     5.11 Excluded Marks. Purchaser shall not, and shall cause each of its Affiliates not to, (i) apply to register or register any of the Excluded Marks, (ii) file an opposition against any Seller’s or Seller Affiliates’ application to register such marks or (iii) file a petition to cancel the registration of such marks as registered by any Seller or any of its Affiliates.

     5.12 OTC Personal Property. As soon as practicable following the Closing, and in any event for a period not to exceed sixty (60) days following the Closing, Purchaser shall take possession of the property set forth on Schedule 1.1(a) and located on properties owned by Sellers after Closing, and Sellers shall for such period give to

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Purchaser and its representatives, solely for the purpose of taking possession of such property, reasonable access at reasonable times during normal business hours to the properties owned by Sellers after Closing on which any such property set forth on Schedule 1.1(a) is located, provided, that in the exercise of the foregoing rights, the Purchaser shall not, and shall use its best efforts to cause its representatives not to, unduly interfere with the business, operation or conduct of Sellers.

     5.13 OTC Lease and Utility Easement. On or before the Closing Date, Purchaser and PDI shall have (i) entered into a lease agreement substantially in the form attached as Exhibit A and (ii) granted to each other such easements as are reasonably necessary in scope and duration as to permit the continued use in the ordinary course of business as currently conducted of those utility facilities that are shared by OTC and the Ft. Wayne Facility.

     5.14 Satisfaction of Financing Conditions. Not more than fifteen (15) Business Days after the date hereof, Purchaser will provide to Sellers evidence reasonably satisfactory to Sellers of the full satisfaction, or waiver by the Lenders, of certain conditions set forth in Section VI, “Certain Conditions” of the Term Sheet, dated October 27, 2005 and included in the Commitment Letter, dated October 28, 2005, consisting of the conditions set forth in the last sentence of paragraph (d), and the conditions set forth in each of paragraphs (f), (g), (h), (j), (l) and (o).

     5.15 Suzhou Supply Agreement. Prior to Closing, Sellers shall use good faith efforts to enter into an agreement with The P. D. George Company providing for the sale by The P.D. George Company to Sellers of products currently purchased by Sellers under the Supply Agreement for use at the Phelps Dodge Magnet Wire Suzhou Facility. In the event that such agreement is not entered into by such parties prior to the Closing, then for a period ending on the fifth anniversary of the Closing Date, subject to the terms and conditions of the Supply Agreement, Purchaser shall sell to Seller Seller’s requirement of products currently purchased by Sellers under the Supply Agreement for such use and on terms and conditions no less favorable to Sellers than the terms and conditions set forth in the Supply Agreement and Sellers or a Seller Affiliate shall be responsible for all freight and other expenses associated with delivery of such products to Sellers or Seller Affiliates.

     5.16 Underwriters’ Laboratories Certifications. Upon the request of Purchaser, Sellers shall provide reasonable cooperation to Purchaser with respect to Purchaser’s obtaining file transfers or certifications from Underwriters’ Laboratories for products for which Sellers currently hold such certifications and which will be manufactured by Purchaser and not Sellers after Closing.

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ARTICLE VI
EMPLOYEES AND EMPLOYEE BENEFIT PLANS

     6.1 Treatment of Company Employees.

     6.1.1 U.S. Company Employees. No later than ten (10) Business Days prior to the Closing, the Purchaser shall offer employment in writing to those U.S. Company Employees selected by the Purchaser, such offers to be effective as of the Closing Date. Notwithstanding the foregoing, for the U.S. Company Employees selected by Purchaser who are currently covered by a collective bargaining agreement with Seller, Purchaser shall bargain in good faith with such employees and their representatives toward terms and conditions of employment, including compensation and benefits, that are substantially comparable on a current cost basis to Purchaser’s understanding of the terms and conditions of the collective bargaining agreement covering such employees of Phelps Dodge Magnet Wire Company, a division of PDI, it being understood that the components of such terms and conditions, including compensation and benefits, will differ from the terms and conditions provided by such collective bargaining agreement. The U.S. Company Employees who become employed by the Purchaser in connection with the transactions contemplated by this Agreement shall be referred to as the “U.S. Transferred Employees.” The Purchaser shall be responsible for, and shall indemnify, reimburse and hold the Sellers harmless from and against all Damages (i) relating to any violation of any Law (or any allegation or charge of such a violation) in connection with the Purchaser’s selection process or failure to offer employment to, or hire, any U.S. Company Employee and (ii) relating to the employment or termination of employment after the Closing Date of any U.S. Transferred Employee. Except as otherwise expressly provided for in this Article VI, Sellers shall be responsible for, and shall indemnify, reimburse and hold the Purchaser harmless from and against (i) all Damages relating the employment of any current or former U.S. Company Employee prior to the Closing Date and (ii) severance and similar termination benefits due to U.S. Company Employees who do not become U.S. Transferred Employees.

     6.1.2 Monterrey Company Employees. Effective as of the Closing, the Monterrey Company Employees will remain in the employ of the PD Mexico Group on the same terms and conditions as in effect immediately before the Closing Date. The Purchaser shall be responsible for, and shall indemnify, reimburse and hold the Sellers harmless from and against all Damages relating to the employment or termination of employment of any current or former Monterrey Company Employee before, on or after the Closing Date.

     6.1.3 General. Effective as of the Closing, the Purchaser shall, or shall cause its Affiliates, as applicable, to provide all U.S. Transferred Employees and Monterrey Company Employees with medical benefits and other welfare benefits under welfare plans maintained by the Purchaser or any of its Affiliates, without regard to whether such

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employees are eligible to receive coverage under any retiree welfare plans sponsored by Seller or any of its Affiliates. For all purposes of compensation and benefit plans applicable to the U.S. Transferred Employees and the Monterrey Company Employees after the Closing (other than for purposes of the accrual of benefits), the Purchaser shall, or shall cause its Affiliates, as applicable, to (i) treat all service with any of the Sellers, any Subsidiaries of the Sellers and any Seller Affiliate, before the Closing as service with the Purchaser or its Affiliates and (ii) cause any pre-existing conditions or limitations and eligibility waiting periods under any group health plans of the Purchaser or its Affiliates to be waived with respect to such employee and his or her eligible dependents and (iii) give such employee credit towards applicable deductibles and annual out-of-pocket limits for expenses incurred prior to the transition date. Nothing contained in this Agreement shall be construed to grant any person any right to continued employment after the Closing Date.

     6.2 Filings and Records. The Sellers, the Purchaser and their Affiliates shall cooperate in making all appropriate filings required under the Code or ERISA and any applicable securities laws, implementing all appropriate communications with participants, maintaining and transferring appropriate records and taking all such other actions as may be necessary and appropriate to implement the provisions of this Article VI.

     6.3 Employee Savings Plan. After the Closing Date, the Sellers and Seller Affiliates shall permit each U.S. Transferred Employee who is a participant in the Phelps Dodge Employee Savings Plan to elect, in accordance with the terms and conditions of the Phelps Dodge Employee Savings Plan, (i) to receive a distribution of the value in his or her account less the amount of any outstanding loan to such participant under such plan (such participant’s “Account Balance”), (ii) to roll over such participant’s Account Balance to an individual retirement account of such participant, (iii) to roll over such participant’s Account Balance to a 401(k) plan maintained by the Purchaser or one of its Affiliates by wire transfer as soon as administratively feasible following the Closing Date and notification that such 401(k) plan will accept such rollovers or (iv) to leave such participant’s Account Balance in the Phelps Dodge Savings Plan to the extent permissible under the terms of the Plan and applicable Law.

     6.4 Welfare Plans. From and after the Closing, the Sellers shall remain responsible for claims of U.S. Transferred Employees and Monterrey Company Employees and their eligible dependents incurred prior to the Closing Date under those plans that are health, disability, accident or life insurance plans and are maintained and sponsored by the Sellers, and the Purchaser shall be responsible for all such liabilities incurred by any U.S. Transferred Employee and Monterrey Company Employee and his or her eligible dependents on or after the Closing Date under those plans that are health, disability, accident or life insurance plans and maintained and sponsored by Purchaser.

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     6.5 WARN. The Purchaser shall be responsible for, and shall indemnify, reimburse and hold the Sellers harmless from and against all Damages that arise under the WARN Act or any other similar law (other than severance payable to any U.S. Company Employee who is not a U.S. Transferred Employee and whose employment terminates as a result of the transactions contemplated by this Agreement, for which Sellers shall be responsible) as a result of Purchaser’s failure to hire any U.S. Company Employee employed at the Ft. Wayne Facility. Without limiting the Sellers’ or the Purchaser’s obligations under this Agreement, the Purchaser agrees that it shall take such actions necessary to retain the Company Employees employed at the Ft. Wayne facility so as not to require notice under the Workers Adjustment and Retraining Notification Act, as amended (the “WARN Act”), and any similar statute prior to the expiration of the 60 day period following the Closing.

     6.6 Paid Time Off; Vacation. As of the Closing, the Purchaser shall credit, or shall cause to be credited, each U.S. Transferred Employee and Monterrey Company Employee with unused paid time off/vacation days and any personal days accrued in accordance with the vacation and personnel policies and labor agreements applicable to any such U.S. Transferred Employee or Monterrey Company Employee.

ARTICLE VII
CONDITIONS PRECEDENT

     7.1 General. The respective obligations set forth herein of the Sellers and the Purchaser to consummate the sale and purchase of the Shares and the Assets at the Closing shall be subject to the fulfillment, on or before the Closing Date, in the case of the Sellers, of the conditions set forth in Sections 7.2 and 7.3, and, in the case of the Purchaser, of the conditions set forth in Sections 7.2 and 7.4; provided, that a party shall be precluded from asserting that a condition hereinafter set forth in Article VII has not been satisfied by reason of any matter, fact, failure or circumstance expressly contemplated by this Agreement or disclosed in the Schedules hereto.

     7.2 Conditions to Obligations of the Parties.

     7.2.1 Competition Act Approvals. The waiting period under the HSR Act shall have expired or been terminated and the Competition Commission shall have issued an official communication approving or not opposing the Purchaser’s purchase of the Shares.

     7.2.2 No Injunction. The consummation of the transactions contemplated hereby shall not have been restrained, enjoined or otherwise prohibited by any applicable law, including, without limitation, any final order, injunction, decree or judgment of any court or other Governmental Authority of the United States of America or Mexico.

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     7.2.3 Governmental Consents. All consents of Governmental Authorities listed in Schedule 7.2.3 shall have been made, obtained or the applicable waiting period shall have expired or terminated.

     7.3 Conditions to Obligations of the Sellers.

     7.3.1 Representations, Warranties and Covenants of the Purchaser. The representations and warranties of Purchaser contained in this Agreement shall be true and correct in all respects (disregarding all qualifications and exceptions therein relating to materiality) as of the Closing Date, except to the extent that any representation and warranty relates to an earlier date, in which case such representation and warranty shall be true and correct in all respects (disregarding all qualifications and exceptions therein relating to materiality) as of such earlier date, except for such failure to be true and correct as would not reasonably be expected to materially impair the ability of the Purchaser to perform its obligations under, or to consummate the transactions contemplated by, this Agreement or any of the Ancillary Agreements. The Purchaser shall have duly performed and complied in all material respects with all covenants contained herein required to be performed or complied with by it at or before the Closing.

     7.3.2 Officer’s Certificate. The Purchaser shall have delivered to the Sellers a certificate, dated the Closing Date and signed by its President or a Senior Vice President, as to the fulfillment of the conditions set forth in Section 7.3.1, it being understood that such certificate shall be deemed to have been delivered only in such officer’s capacity as an officer of the Purchaser (and not in his or her individual capacity) and shall not entitle any Person to assert a claim against such officer in his or her individual capacity.

     7.3.3 Ancillary Agreements.

     (a) The Purchaser shall have entered into and delivered the Assumption Agreement.

     (b) The Purchaser shall have entered into and delivered a transition services agreement substantially in the form attached as Exhibit B (the “Transition Services Agreement”);

     (c) The Purchaser shall have entered into and delivered each of the copper rod supply agreements, substantially in the form attached hereto as Exhibits C-1 and C-2, respectively (the “Copper Rod Supply Agreements”);

     (d) The Purchaser shall have entered into and delivered a non-competition agreement substantially in the form attached hereto as Exhibit D (the “Non-Competition Agreement”).

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     (e) The Purchaser shall have entered into and delivered an Intellectual Property license agreement substantially in the form attached hereto as Exhibit E (the “Intellectual Property License Agreement”).

     7.4 Conditions to Obligations of the Purchaser.

     7.4.1 Representations, Warranties and Covenants of the Sellers. The representations and warranties of Sellers contained in this Agreement shall be true and correct in all respects (disregarding all qualifications and exceptions therein relating to materiality or Material Adverse Effect) as of the Closing Date, except to the extent that any representation and warranty relates to an earlier date, in which case such representation and warranty shall be true and correct in all respects (disregarding all qualifications and exceptions therein relating to materiality or Material Adverse Effect) as of such earlier date, except for such failure to be true and correct as would not reasonably be expected to have a Material Adverse Effect. The Sellers shall have duly performed and complied in all material respects with all covenants contained herein required to be performed or complied with by it at or before the Closing.

     7.4.2 Officer’s Certificate. The Sellers shall have delivered to the Purchaser a certificate, dated the Closing Date and signed by the President, an Executive Vice President, a Senior Vice President or a Vice President of each Seller, as to the fulfillment of the conditions set forth in Section 7.4.1, it being understood that such certificate shall be deemed to have been delivered only in any such officer’s capacity as an officer of such Seller (and not in his or her individual capacity) and shall not entitle any Person to assert a claim against such officer in his or her individual capacity.

     7.4.3 Financing Condition. The closing of the debt financing contemplated by the Debt Financing Commitments shall have occurred or Purchaser shall have obtained alternative financing either in the same amount or otherwise in an amount sufficient to consummate the transactions contemplated hereby on such terms and conditions as are reasonably comparable to, and at least as favorable to the Purchaser as, those contained in the Debt Financing Commitments.

     7.4.4 Ancillary Agreements.

     (a) The Sellers shall have entered into and delivered the Transition Services Agreement;

     (b) Phelps Dodge Sales Company, Incorporated shall have entered into and delivered each of the Copper Rod Supply Agreements;

     (c) The Sellers shall have entered into and delivered the Non-Competition Agreement.

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     (d) The Sellers shall have entered into and delivered the Intellectual Property License Agreement.

     7.4.5 Shares. Certificates representing the Shares and the PDI Mexico Subsidiary Shares shall have been delivered to Purchaser, duly endorsed in ownership in favor of the Purchaser (or its designated Subsidiary);

ARTICLE VIII
INDEMNIFICATION

     8.1 Survival of Representations and Warranties and Covenants. The representations and warranties contained in Articles III and IV and in the certificates delivered pursuant to Sections 7.3.2 and 7.4.2, and the covenants contained herein to be fully performed or complied with at or prior to the Closing Date, shall survive until the first anniversary of the Closing Date, whereupon they shall expire, except that the representations and warranties contained in Section 3.8 shall not survive beyond the Closing. No claim for indemnification under this Section 8.1 may be asserted with respect to such representations, warranties or covenants after the applicable date indicated in the preceding sentence unless, prior to the date such representations, warranties or covenants expire, the party seeking indemnification shall have suffered actual Damages or received written notice of a claim with respect to which indemnification may be sought and shall have notified the party from whom indemnification is sought of a claim for indemnity hereunder in accordance with the first two sentences of Section 8.2.3(a).

     8.2 Indemnification.

     8.2.1 By the Sellers. From and after the Closing, the Sellers shall indemnify and hold the Purchaser harmless from and against any actual loss, liability or damage, including reasonable attorneys’ fees and other out-of-pocket costs and expenses (collectively, the “Damages”), incurred or sustained by the Purchaser as a result of:

     (i) any judicial or administrative proceeding pending as of the date hereof relating to the Business, the Assets or the PD Mexico Group,

     (ii) the non-fulfillment of any covenant or the breach of any representation or warranty on the part of the Sellers contained in this Agreement (other than with respect to matters covered under Section 3.8, Tax matters and matters covered under Article VI),

     (iii) matters in respect of (y) Off-Site Superfund Liabilities and (z) On-Site Environmental Liabilities, in each case with respect to which matters Purchaser or either of the Sellers has received written notice of a third-party claim on or prior to the fifth anniversary of the Closing Date, which notice, if received by Purchaser, shall promptly have been provided to Sellers by Purchaser, and

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     (iv) all liabilities arising under Environmental Laws from operations conducted or conditions existing prior to the Closing Date at the Former Magnavox Landfill, with respect to which matters Purchaser or either of the Sellers has received written notice of a third-party claim, which notice, if received by Purchaser, shall promptly have been provided to Sellers by Purchaser, provided, that (u) in the event that Purchaser makes any claim for indemnification hereunder, each Seller (or a designated subsidiary of either Seller) shall have, until the 90^th anniversary of the Closing Date, the option to purchase the OTC Transferred Real Property for the aggregate amount of $1.00 (the “OTC Option”), and each party shall bear all of its own costs, fees and expenses in connection with any such purchase, (v) the OTC Option shall be recorded in the public records of Allen County, Indiana or elsewhere as required by law to so record the OTC Option, the expense of such recordation to be borne by Sellers, (w) to facilitate Sellers’ determination of whether to exercise the OTC Option, upon notice of any claim for indemnification hereunder, Purchaser shall grant Sellers reasonable access during reasonable business hours to the OTC Transferred Real Property and shall permit Sellers to take reasonable actions, including without limitation actions permitted under Section 8.2.3(c), to inspect such property during such access, (x) in the event that either Seller (or a designated subsidiary) exercises the OTC Option, Purchaser shall transfer the OTC Transferred Real Property pursuant to the OTC Option free and clear of all Liens, (y) the rights and obligations of the parties under this Section 8.2.1(iv) shall not be assignable (other than by a Seller to a designated subsidiary thereof), by operation of law or otherwise, by a party hereto without the prior written consent of the other parties and any purported assignment or other transfer without such consent shall be void and unenforceable and (z) in the event that Purchaser sells or otherwise transfers the OTC Transferred Real Property to any other Person, with or without the consent of Sellers, the indemnity set forth in this Section 8.2.1(iv) shall not be transferred with the property or otherwise to such Person,

provided, that there shall not be any duplicative payments or indemnities by the Sellers, and provided, further, that any indemnification relating to Tax matters shall be governed solely by Section 5.3 and any indemnification relating to employee benefit matters contemplated by Article VI shall be governed solely by Article VI.

Notwithstanding anything in this Agreement to the contrary:

     (a) The amount of any Damages incurred by the Purchaser shall be reduced by the net amount of the Tax benefits realized by the Purchaser, any member of the PD Mexico Group or any other Affiliate of the Purchaser by reason of such Damage.

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     (b) The amount of any Damages incurred by the Purchaser shall be reduced by the net amount the Purchaser, any member of the PD Mexico Group or any other Affiliates of the Purchaser recovers (after deducting all reasonable attorneys’ fees, out-of-pocket expenses and other costs of recovery) from any insurer or other party liable for such Damages, and the Purchaser shall use commercially reasonable efforts to effect any such recovery.

     (c) The Purchaser shall not be entitled to indemnification for those portions of any Damages (i) reserved, accrued or provided for on the Closing Balance Sheet or otherwise paid or provided for by the Sellers or any Seller Affiliate, (ii) that have arisen as a result of any act or omission by the Purchaser or any of its Affiliates on or after the Closing Date (including, without limitation, resulting from any change in their respective accounting principles, practices or methodologies and Damages arising from any breach of its obligations under this Agreement), or (iii) that were subject to an adjustment to the Final Purchase Price pursuant to Sections 2.2 and 2.3.

     (d) The Purchaser shall not be entitled to indemnification for any Damages with respect to any individual breach or event under Section 8.2.1(ii) or Section 8.2.1(iii)(z) or any series of related breaches or events arising out of the same facts and circumstances if the amount of such Damages (reduced as provided in paragraphs (a) and (b) above) does not exceed $50,000, it being understood that, subject to the other provisions of this Section 8.2, any such Damages in excess of $50,000 shall be deemed Damages in the full amount thereof (subject to reduction as provided in paragraphs (a) and (b) above) and not solely in such amount in excess of $50,000.

     (e) The Purchaser shall be entitled to indemnification under Section 8.2.1(ii) only with respect to that portion of the aggregate amount of its Damages resulting from matters covered thereunder (reduced as provided in paragraphs (a), (b) and (d) above) that exceeds $1,000,000.

     (f) The Purchaser shall be entitled to indemnification under Section 8.2.1(iii)(z) only with respect to that portion of the aggregate amount of its Damages resulting from matters covered thereunder (reduced as provided in paragraphs (a), (b) and (d) above) that exceeds $1,000,000.

     (g) The aggregate amount of Damages payable to the Purchaser under Section 8.2.1(ii) and Section 8.2.1(iii)(z), taken together, shall not exceed $10,000,000.

     (h) The Purchaser shall not be entitled to indemnification with respect to any claim arising out of or relating to any Environmental Law, to the extent

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that such claim (i) is discovered or identified as a result of any environmental investigation or sampling conducted by or on behalf of the Purchaser or any of its Affiliates, successors, assigns or transferees after the Closing Date, unless the Purchaser or such Affiliates, successors, assigns or transferees were required to conduct such investigation or sampling by a Governmental Authority, or unless such investigation or sampling was agreed to in writing by the Sellers, (ii) results from the closure or sale of any business, property or asset or (iii) results from conditions occurring or activities conducted after the Closing.

     8.2.2 By the Purchaser. From and after the Closing, the Purchaser shall, and shall cause its Affiliates to, indemnify and hold the Sellers harmless from and against any Damages incurred or sustained by the Sellers as a result of (i) the non-fulfillment of any covenant or the breach of any representation or warranty on the part of the Purchaser contained in this Agreement, and (ii) the ownership of the Shares, or the operations of the Business, after the Closing, provided, that there shall not be any duplicative payments or indemnities by the Purchaser, and provided, further, that any indemnification relating to Tax matters shall be governed solely by Section 5.3 and any indemnification relating to employee benefits matters contemplated in Article VI shall be governed solely by Article VI.

     Notwithstanding anything in this Agreement to the contrary:

     (a) The amount of any Damages incurred by the Sellers shall be reduced by the net amount of the Tax benefits realized by the Sellers or any of their Affiliates (other than any member of the PD Mexico Group) by reason of such Damage.

     (b) The amount of any Damages incurred by the Sellers shall be reduced by the net amount the Sellers or any of their Affiliates (other than any member of the PD Mexico Group) recovers (after deducting all reasonable attorneys’ fees, out-of-pocket expenses and other costs of recovery) from any insurer or other party liable for such Damages, and the Sellers shall use commercially reasonable efforts to effect any such recovery.

     (c) The Sellers shall not be entitled to indemnification for those portions of any Damages (i) that have arisen as a result of an act or omission by Sellers or Seller Affiliates on or after the Closing Date (including, without limitation, Damages arising from any breach of Sellers’ obligations under this Agreement) or (ii) that were subject to an adjustment to the Final Purchase Price pursuant to Sections 2.2 and 2.3.

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     (d) The Sellers shall be entitled to indemnification only with respect to that portion of the aggregate amount of their Damages (reduced as provided in paragraphs (a) and (b) above) that exceeds $1,000,000.

     (e) The aggregate amount of Damages payable to the Sellers under this Section 8.2.2 shall not exceed $10,000,000.

     8.2.3 Indemnification Procedures. A party entitled to indemnification hereunder shall herein be referred to as an “Indemnitee.” A party obligated to indemnify an Indemnitee hereunder shall herein be referred to as an “Indemnitor.”

     (a) If an Indemnitee receives notice of any claim or the commencement of any action by any third party that such Indemnitee reasonably believes may give rise to a claim for indemnification from an Indemnitor hereunder, and such Indemnitee intends to seek indemnification from such Indemnitor with respect thereto under this Section VIII, such Indemnitee shall, promptly provide written notice thereof to such Indemnitor. Such notice shall (i) specify in reasonable detail the basis on which indemnification is being asserted, (ii) provide a reasonable estimate of the amount of the Damages asserted therein, (iii) specify the provision or provisions of this Agreement under which such Damages are asserted, including a reasonably detailed description of the relation between the Damages asserted and each such provision and (iv) include copies of all notices and documents (including court papers) served on or received by the Indemnitee from such third party. During the 45 days following the receipt of such notice by the Indemnitor, the Indemnitee shall not take any action or incur any expenses with respect to such claim except to the extent that such action is (a) required under applicable law, (b) reasonably necessary in the operation of the Business or (c) approved in writing by the Indemnitor, which approval shall not be unreasonably withheld or delayed. Upon receipt of such notice, the Indemnitor shall be entitled to participate in such claim or action, and shall have 45 days to assume conduct and control, at its expense, through counsel of its own choosing the defense thereof, and to settle or compromise such claim or action; provided, that the Indemnitor shall not enter into any settlement (1) that provides for injunctive or other non-monetary relief affecting the Indemnitee without the prior written consent of the Indemnitee, which consent shall not be unreasonably withheld or delayed or (2) unless such settlement includes as an unconditional term thereof the giving by each claimant or plaintiff to such Indemnitee of a release from all liability with respect to such claim or action. After notice to the Indemnitee of the Indemnitor’s election to assume the defense of such claim or action, the Indemnitor shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with the defense thereof, provided, that the Indemnitee shall have the right to employ counsel to represent it if either (x) such claim or action involves remedies other than monetary damages and such remedies, in the Indemnitee’s reasonable judgment, could have a material adverse effect on such Indemnitee or (y) the Indemnitee has available to it one or more defenses or counterclaims that are inconsistent with one or more of the defenses or

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counterclaims alleged by the Indemnitor and which could be materially adverse to the Indemnitor, and in any such event the fees and expenses of such separate counsel shall be paid by the Indemnitee and shall not constitute Damages. If the Indemnitor does not elect to assume the defense of such claim or action within 45 days of the Indemnitee’s delivery of the notice and other documents that it is required to deliver to the Indemnitor in respect of such a claim or action, the Indemnitee shall be entitled to assume the defense thereof. Unless it has been conclusively determined through a final non-appealable judicial determination (or settlement tantamount thereto) that the Indemnitor is not liable to the Indemnitee under this Section 8.2.3, the Indemnitee shall act reasonably and in accordance with its good faith business judgment with respect thereto, and shall not settle or compromise any such claim or action without the prior written consent of the Indemnitor (which consent shall not be unreasonably withheld) unless such settlement or compromise includes as an unconditional term thereof the giving by each claimant or plaintiff to such Indemnitor of a release from all liability with respect to such claim or action. The parties shall render to each other such assistance as may reasonably be requested in order to ensure the proper and adequate defense of any such claim or action, including, without limitation, making employees available on a mutually convenient basis to provide additional information and explanation of any relevant materials or to testify at any proceedings relating to such claim or action.

     (b) Within 10 Business Days after an Indemnitee sustains any Damages not involving a third party claim or action that such Indemnitee reasonably believes may give rise to a claim for indemnification from an Indemnitor hereunder, and such Indemnitee intends to seek indemnification from such Indemnitor with respect thereto under this Section VIII, such Indemnitee shall, if a claim in respect thereof is to be made against an Indemnitor, deliver written notice of such claim to the Indemnitor, which notice shall contain the information described in the second sentence of Section 8.2.3(a). If the Indemnitor does not notify the Indemnitee within 30 days following its receipt of such notice that the Indemnitor disputes its liability to the Indemnitee, such claim specified by the Indemnitee in such notice shall be conclusively deemed a liability of the Indemnitor and the Indemnitor shall pay the amount of such claim to the Indemnitee promptly after demand therefor or in the case of any notice in which the amount of the claim (or any portion thereof) is estimated, on such later date when the amount of such claim (or such portion thereof) is finally determined. If the Indemnitor has timely disputed its liability with respect to such claim as provided above, the Indemnitor and the Indemnitee shall proceed in good faith to negotiate a resolution of such dispute and, if not resolved through negotiations, such dispute shall be resolved by litigation in an appropriate court of competent jurisdiction in accordance with Sections 10.15, 10.16 and 10.17.

     (c) Without limiting the Sellers’ rights under other provisions of this Agreement, the Sellers shall have the option to assume exclusive control of the resolution of any matter arising under any Environmental Law for which Purchaser asserts that Sellers have an indemnification obligation, including, without limitation, the option to

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(i) commission any studies or tests reasonably necessary to define or delineate the extent of any contamination or non-compliance with Environmental Laws, (ii) contact Governmental Authorities, make any reports to Governmental Authorities, submit any investigation, remediation or compliance plans to such authorities, negotiate with such authorities and otherwise deal with such authorities, (iii) prepare the work plan for any investigation, remediation or correction of non-compliance with Environmental Laws, and (iv) conduct or direct any such investigation, remediation or correction of noncompliance with Environmental Laws. The Sellers shall provide the Purchaser with (y) the right to receive and comment on copies of all environmental and engineering studies and data prepared by the Sellers or their agents (and Sellers shall address in such documents the reasonable comments of Purchaser), and (z) copies of all correspondence received from the Governmental Authority overseeing any investigation, remediation or correction of non-compliance with Environmental Laws. Sellers shall consult in good faith with Purchaser with respect to any remediation that has a material impact on Purchaser’s operations.

     (d) The Sellers shall have satisfied their indemnification obligations under this Agreement with respect to any matter arising under any Environmental Law if the result meets or exceeds the least stringent standards (including, without limitation, any lesser standards resulting from any site-specific risk assessments and including, without limitation, any deed and land use restrictions and institutional controls to the extent such restrictions reasonably comport with the usage of the property as of the Closing Date), based on the use of the property on the Closing Date and applicable Environmental Laws as in effect on the Closing Date (or, at the Sellers’ option, as in effect on the date that any remedial or investigative activities are concluded) so long as such standards are or would be acceptable to the Governmental Authority directly overseeing such matter.

     8.2.4 Mitigation. The parties shall cooperate with each other with respect to resolving any claim or liability with respect to which one party is obligated to indemnify the other party hereunder, including, without limitation, by making commercially reasonable efforts to mitigate or resolve any such claim or liability.

     8.2.5 Tax Treatment. Each of the Sellers and the Purchaser agrees to treat any indemnification payment made pursuant to this Section VIII as an adjustment to the Final Purchase Price for all Tax purposes unless otherwise required by applicable law.

     8.2.6 Exclusive Remedy. Except for fraud, the indemnities provided for in this Agreement shall be the sole and exclusive remedy of the Purchaser and its Affiliates after the Closing against the Sellers and their Affiliates for any inaccuracy of any representation or warranty of the Sellers or any failure or breach of any covenant, obligation, condition or agreement to be performed or fulfilled by the Sellers hereunder or any matters arising under any Environmental Law respecting the Business, including

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but not limited to any environmental conditions on, at, under or emanating from the facilities owned, leased or operated by the Business or elsewhere.

ARTICLE IX
DEFINITIONS

     As used herein, the following terms have the following meanings:

     Account Balance: as defined in Section 6.3.

     Accounting Firm: as defined in Section 2.2.

     Accrued Expenses: accrued salaries and vacations, utilities, property taxes, freight, income Taxes, other accrued Taxes, provisions for sales allowances, truck lease costs and miscellaneous accruals, in each case primarily related to the Business.

     Affiliate: of a Person means any other Person that directly or indirectly controls, is controlled by, or is under common control with, the first Person.

     Agreement: as defined in the preamble.

     Ancillary Agreements: the Transition Services Agreement, Copper Rod Supply Agreement, Non-Competition Agreement, Assumption Agreement and Intellectual Property License Agreement.

     Assets: as defined in Section 1.1.

     Assumed Liabilities: as defined in Section 3.1.

     Assumption Agreement: an assumption agreement substantially in the form attached hereto as Exhibit F.

     Base Purchase Price: as defined in Section 2.2(a).

     Benefit Plans: as defined in Section 3.9.1.

     Bentonville Facility: that certain warehouse facility located at 1201 S.E. 28^th Street, Bentonville, Arkansas.

     Bentonville Lease: that certain lease in respect of the Bentonville Facility, dated January 22, 2001, by and between Anders Family Limited Partnership and Phelps Dodge Wire & Cable, as amended.

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     Business: the manufacture, distribution and sale of magnet wire and bare wire at the Facilities by PDI and the PD Mexico Group.

     Business Day: any day that is not (i) a Saturday, (ii) a Sunday, or (iii) any other day on which commercial banks are authorized or required by law to be closed in the City of New York.

     Business Records: as defined in Section 1.1(h).

     Cash: all cash, cash in transit, cash equivalents and marketable securities.

     Closing: as defined in Section 2.1.

     Closing Balance Sheet: as defined in Section 2.2(d).

     Closing Date: as defined in Section 2.1.

     Closing Statement: as defined in Section 2.2.

     Code: the Internal Revenue Code of 1986, as amended.

     Company Employees: U.S. Company Employees and Monterrey Company Employees.

     Company Intellectual Property: Owned Intellectual Property and third-party Intellectual Property used pursuant to the Licenses.

     Competition Commission: as defined in Section 3.2(b).

     Contracts: as defined in Section 3.5.

     Copper Rod Supply Agreements: as defined in Section 7.3.3.

     Current Assets: the combined current assets (other than amounts attributable to deferred income tax assets) of the Business, as set forth on the Closing Balance Sheet.

     Current Liabilities: the combined current liabilities (other than amounts attributable to deferred income tax liabilities, short term debt, short-term borrowings, and the current portion of long-term debt and long-term borrowings) of the Business, as set forth on the Closing Balance Sheet.

     Damages: as defined in Section 8.2.1.

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     Debt Financing Commitments: as defined in Section 4.3.

     DOJ: as defined in Section 5.1.

     Environmental Law: any foreign, federal, state, or local law, statute, rule, regulation or order in effect on the Closing Date relating to (i) the manufacture, transport, use, treatment, storage, disposal, release or threatened release of Hazardous Substances, or (ii) the protection of the environment (including, without limitation, natural resources, air, and surface or subsurface land or waters).

     ERISA: the Employee Retirement Income Security Act of 1974, as amended.

     Estimated Closing Balance Sheet: as defined in Section 2.2.

     Estimated Purchase Price: as defined in Section 2.2.

     Estimated Working Capital: as defined in Section 2.2.

     Excluded Assets: as defined in Section 1.2.

     Excluded Marks: ARMORED POLYTHERMALEZE, BONDEZE, FORMVAR, IMIDEZE, NYLEZE, POLY-THERMALEZE, THERMALEZE, and TOUGHWIRE.

     Facilities: as defined in the recitals.

     Final Purchase Price: as defined in Section 2.2.

     Final Working Capital: the amount of the Working Capital of the Business on the Closing Date, as reflected in the Closing Statement.

     Ft. Wayne Facility: the portion of that certain manufacturing facility located at 4300 New Haven Avenue, Fort Wayne, Indiana, as more specifically described in Exhibit G.

     Former Magnavox Landfill: the landfill formerly used by Magnavox Corporation, to the extent it lies directly beneath the OTC Transferred Real Property.

     Ft. Wayne Pension Plan: as defined in Section 3.9.3.

     FTC: as defined in Section 5.1.

     GAAP: as defined in Section 2.2.

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     Governmental Authority: any national government, any state or province or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any government authority, agency, department, board, commission or instrumentality of the United States of America or Mexico and any State or political subdivision of either of the foregoing.

     Hazardous Substance: any material or substance that is: (i) listed, classified or regulated as a “hazardous waste,” “hazardous substance” or “toxic substance” pursuant to any applicable Environmental Law, or (ii) any petroleum product or by-product, friable asbestos, radioactive materials, urea formaldehyde insulation or polychlorinated biphenyls.

     HSR Act: as defined in Section 3.2.

     Indemnitee: as defined in Section 8.2.3.

     Indemnitor: as defined in Section 8.2.3.

     Intellectual Property: all United States of America trademarks, service marks, trade names, domain names, copyrights, and registrations and applications of any of the foregoing, patents and patent applications, trade secrets, scientific and technical information and manufacturing know-how.

     Intellectual Property License Agreement: as defined in Section 7.3.3.

     Inventories: as defined in Section 1.1.

     IRS: the Internal Revenue Service of the United States of America.

     Law: with respect to a particular Person, any foreign, federal, state or local statute, law, ordinance, regulation, rule, order, writ, injunction, judgment or decree applicable to such Person, or any of its Affiliates, properties or assets, as the case may be, in each case, as the same is in effect on or at any time prior to the Closing Date, subject, in all cases, to any interpretation or reinterpretation thereof by a Governmental Authority at any time from and after the Closing Date.

     Leased Real Property: as defined in Section 3.4.

     Lenders: as defined in Section 4.3.

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     Liabilities: all liabilities or obligations (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, whether classified as such under GAAP, and whether due or to become due), including any liability for Taxes.

     Licenses: as defined in Section 3.6.

     Liens: as defined in Section 3.2.

     Material Adverse Effect: a material adverse effect on the assets, liabilities, financial condition or results of operations of the Business, taken as a whole, other than any change or effect that results from, arises out of or relates to: (x) the announcement by the Sellers of their intention to sell the Business, including, without limitation, any announcement related to the execution and delivery of this Agreement or any of the Ancillary Agreements, (y) the consummation of the transactions contemplated by this Agreement or any of the Ancillary Agreements or (z) changes in (i) economic, regulatory or political conditions (including acts of war, declared or undeclared, armed hostilities and terrorism), financial, securities, commodities or other market conditions or prevailing interest rates, including, without limitation, changes affecting the industries in which the Business operates, or changes generally affecting any industry in which the Business operates, or (ii) applicable law or regulations or accounting standards, principles or interpretations.

     Mexico Subsidiary Shares: as defined in Section 3.3.

     Monterrey Company Employees: the employees of the PD Mexico Group who provide services primarily to the Business at the Monterrey Facility.

     Monterrey Facility: that certain manufacturing facility located at Ave. Mexico 101 esq. Autopista, Monterrey — Nvo. Laredo Km. 25, Col. Los Encinitos, Cienega de Flores, N.L., Mexico, as more specifically described in Exhibit H.

     Monterrey PDI Assets: as defined in the recitals.

     Monterrey Stand-Alone Plan: as defined in Section 3.9.1.

     Non-Competition Agreement: as defined in Section 7.3.3.

     Non-Disclosure Agreement: as defined in Section 5.2.2.

     Notice of Disagreement: as defined in Section 2.2.

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     Off-Site Superfund Liabilities: all liabilities arising under Environmental Laws arising from the off-site disposal of Hazardous Substances by Sellers prior to the Closing Date.

     On-Site Environmental Liabilities: all on-site liabilities, whether known or unknown, including those identified on Schedule 3.8, at the Facilities and the OTC Transferred Real Property arising under Environmental Laws from Sellers’ operations conducted prior to the Closing Date.

     OTC: as defined in Section 1.2(b).

     OTC Option: as defined in Section 8.2.1(iv).

     OTC Transferred Real Property: the land and improvements including the tank farm building and retention pond, but excluding the man hole, on the diagram set forth in Schedule 1.2(b), provided, that upon completion of the survey referred to in Section 5.9.2, the OTC Transferred Real Property shall be defined by reference to the legal description set forth on such survey.

     Other Receivables: amounts owed to the Business other than Trade Accounts Receivable, including, without limitation, Tax refunds and deductions and rental payments.

     Owned Intellectual Property: Intellectual Property owned by Sellers that is primarily used in and material to the Business.

     Owned Real Property: as defined in Section 3.4.

     PD Mexico: as defined in the recitals.

     PD Mexico Group: PD Mexico and the PD Mexico Subsidiaries.

     PD Mexico Subsidiaries: Phelps Dodge Wire & Cable Trading Company de Mexico S.A. de C.V. and Phelps Dodge Magnet Wire de Mexico S.A. de C.V.

     PDC: as defined in the preamble.

     PDI: as defined in the preamble.

     PDI Mexico Subsidiary Shares: as defined in the recitals.

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     Permitted Liens: (i) Liens reflected in Schedule 3.4, (ii) Liens for Taxes not due and payable or that are being contested in good faith by appropriate proceedings, (iii) Liens of warehousemen, mechanics and materialmen and other similar Liens incurred in the ordinary course of business, (iv) Liens disclosed as securing specified liabilities on the Closing Balance Sheet with respect to which no default exists that has not been cured and (v) other imperfections of title or encumbrances that do not, individually or in the aggregate, materially impair the use or value of the assets, properties or rights affected thereby.

     Person: any natural person, firm, limited liability company, general partnership, limited partnership, joint venture, association, corporation, trust, Governmental Authority or other entity.

     Phelps Dodge Magnet Wire Suzhou Facility: that certain facility located at No. 18, Long Pu Road, Suzhou Industrial Park, Suzhou, Jiangsu Province, China 215126.

     Precision Wire: as defined in Section 5.4.

     Pre-Closing Tax Period: any taxable year or period ending on or before the Closing Date and the portion through the Closing Date for any taxable year or period that includes (but does not end on) the Closing Date.

     Prepaid Expenses: all prepaid expenses, including without limitation, cash advances for employee travel, fees paid, prepaid Taxes and advances to contractors to the extent primarily related to the Business.

     Purchaser: as defined in the preamble.

     Reduced Taxes: as defined in Section 5.3.

     Schedules: the disclosure schedules delivered to the Purchaser on the date hereof and constituting an integral part of this Agreement.

     Securities Act: as defined in Section 4.6.

     Seller Affiliate: any Affiliate of any Seller.

     Sellers: as defined in the recitals.

     Sellers’ Marks: as defined in Section 5.7.

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     Shares: as defined in the recitals.

     Stand-Alone Plans: as defined in Section 3.9.1.

     Subsidiary: with respect to any Person (the “Parent”), any other Person (other than a natural person), whether incorporated or unincorporated, of which at least a majority of the securities or ownership interests having by their terms ordinary voting power to elect a majority of the board of directors or other persons performing similar functions is directly or indirectly owned or controlled by the Parent or by one or more of its respective Subsidiaries or by the Parent and any one or more of its respective Subsidiaries.

     Supplies: as defined in Section 1.1(d).

     Supply Agreement: the Supply Agreement, dated as of July 1, 2005, by and among The P.D. George Company, Phelps Dodge Magnet Wire Company and Purchaser, together with the Addendum, dated September 23, 2005, by and among The P.D. George Company, Phelps Dodge Magnet Wire Company and Purchaser, as together in effect on the date hereof.

     Target Working Capital: $104,600,000.

     Tax Dispute Accountants: as defined in Section 5.3.

     Tax Indemnitee: as defined in Section 5.3.

     Tax Indemnitor: as defined in Section 5.3.

     Tax Return: any report, return, statement or other written information required to be filed with a taxing authority in connection with Taxes.

     Taxes: all taxes, levies, imposts, duties, assessments, charges or fees imposed by any government or other taxing authority, including, without limitation, interest and penalties thereon and additions thereto.

     Termination Date: as defined in Section 10.4(a).

     Trade Accounts Receivable: receivables owed to the Business from its customers, excluding inter-company receivables.

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     Trade Accounts Payable: amounts owed to third parties for the purchase of supplies, raw materials, spare parts, contractor and other services, and similar items, in each case primarily related to the Business.

     Transfer Taxes: means any sales (including, without limitation, bulk sales), use, value added, real property, personal property, intangible, documentary, stamp, gross receipts, mortgage, excise, transfer, conveyance, registration, recording, license or similar Taxes or fees incurred as a result of the sale and purchase of the Assets, it being understood that Transfer Taxes do not include Mexican income Tax related to the transfer of the Shares and the PDI Mexico Subsidiary Shares.

     Transition Services Agreement: as defined in Section 7.3.3.

     U.S. Company Employees: any employee of either Seller or any Affiliate of either Seller who provides services primarily to the Business, including any employee who is on an approved paid or unpaid leave of absence or salary continuance or short-term disability leave, and any other individual who has the legal or contractual right to be employed by any such Person in relation to the Business.

     U.S. Facilities: the Ft. Wayne Facility and the Bentonville Facility.

     U.S. Stand-Alone Plan: as defined in Section 3.9.1.

     WARN Act: as defined in Section 6.5.

     Working Capital: Current Assets minus Current Liabilities.

ARTICLE X
GENERAL PROVISIONS

     10.1 Modification; Waiver. This Agreement may be amended or modified only by a written instrument executed by each of the parties hereto. Any of the terms and conditions of this Agreement may be waived in writing at any time by the party entitled to the benefits thereof.

     10.2 Entire Agreement. This Agreement and, when executed and delivered, the Ancillary Agreements, constitute the entire agreement of the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, oral or written, express or implied, between the parties hereto and their respective Affiliates, representatives and agents in respect of the subject matter hereof and thereof, except that this Agreement and the Ancillary Agreements do not supersede the Non-Disclosure Agreement, the terms and conditions of which the parties hereto hereby expressly reaffirm.

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     10.3 Certain Limitations. EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE PARTIES EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION, MERCHANTABILITY OR SUITABILITY AS TO ANY OF THE ASSETS, THE SHARES OR THE PDI MEXICO SUBSIDIARY SHARES, AND, EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, IT IS UNDERSTOOD AND AGREED THAT THE PURCHASER TAKES THE ASSETS, THE SHARES AND THE PDI MEXICO SUBSIDIARY SHARES “AS IS” AND “WHERE IS”. The parties agree that this is an arm’s length transaction in which the parties’ undertakings and obligations are limited to the performance of their obligations under this Agreement and, at the Closing Date, the Ancillary Agreements. The Purchaser acknowledges that it is an informed and sophisticated investor, that it has undertaken a full investigation of the Businesses, and that it has only a contractual relationship with the Sellers, based solely on the terms of this Agreement and the Non-Disclosure Agreement and, at the Closing Date, the Ancillary Agreements, and that there is no special relationship of trust or reliance between the Purchaser and the Sellers. The parties have participated jointly in the negotiating and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation shall arise, this Agreement shall be construed as if drafted jointly and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

     10.4 Termination.

     (a) This Agreement may be terminated:

     (i) at any time prior to the Closing Date by mutual written consent of the Purchaser and the Sellers;

     (ii) by the Purchaser or the Sellers, by written notice to the other party, if the Closing shall not have taken place on or before December 31, 2005 (the “Termination Date”), provided, that if all conditions that are possible to be satisfied prior to Closing have been satisfied except for any condition set forth in Section 7.2.1, the Termination Date shall be extended automatically to a date ten (10) Business Days following the satisfaction of the last such condition set forth in Section 7.2.1 to be satisfied, unless this Agreement is earlier terminated pursuant to either of clauses (i) or (iii) of this Section 10.4(a), provided, further, that in the event that the condition set forth in Section 7.4.3 has not been fulfilled, the Termination Date may be extended by Sellers in their sole discretion and upon such extension Purchaser shall continue to use its commercially reasonable efforts to effect the closing of the debt financing contemplated by the Debt Financing Commitments or to obtain alternative financing either in the same amount or otherwise in an amount sufficient to consummate the transactions contemplated hereby on such terms and conditions as are reasonably comparable to, and at least

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as favorable to Purchaser as, those contained in the Debt Financing Commitments and, provided, further, that the non-occurrence of the Closing is not attributable to a breach of any of the terms hereof by the party seeking termination; or

     (iii) by Purchaser or Sellers if there shall be any Law or regulation that makes consummation of the transactions contemplated hereby illegal or otherwise prohibited or if such consummation would violate any nonappealable final order, decree or judgment of any Governmental Authority with competent jurisdiction.

     (b) If this Agreement is terminated as provided in Section 10.4(a), the transactions contemplated by this Agreement shall be terminated without further action by any party. If the transactions contemplated by this Agreement are terminated as provided herein:

     (i) the Purchaser shall return to the Sellers all documents and other materials received from the Sellers or their Affiliates or their respective agents (including, without limitation, all copies of or materials developed from any such documents or other materials, in each case in any medium) relating to the transactions contemplated hereby, whether obtained before or after the execution hereof; and

     (ii) all confidential information received by the Purchaser with respect to the Sellers and their Affiliates shall be otherwise treated in accordance with the Non-Disclosure Agreement, which shall remain in full force and effect notwithstanding the termination of this Agreement.

     (c) If this Agreement is terminated as provided in Section 10.4(a), this Agreement shall become null and void and of no further force or effect, except the following shall remain in full force and effect: (i) the Non-Disclosure Agreement and (ii) this Section 10.4, Section 5.5 (relating to publicity), and Section 10.5 (relating to certain expenses). Nothing in this Section 10.4 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement pursuant to Section 10.17.

     10.5 Expenses. Except as expressly provided herein or as otherwise agreed in writing by the parties, whether or not the transactions contemplated herein shall be consummated, each party shall pay its own expenses, costs and fees incident to the preparation and performance of this Agreement; provided, that the Purchaser shall be responsible for all filing fees in connection with (i) filings required by the HSR Act and (ii) any other filings with Governmental Authorities required to consummate the transactions contemplated by this Agreement.

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     10.6 Further Actions. Each party shall execute and deliver such certificates and other documents and take such other actions as may reasonably be requested by the other party in order to consummate or implement the transactions contemplated hereby.

     10.7 Post-Closing Access. In connection with any matter relating to any period prior to, or any period ending on, the Closing, the Purchaser shall, upon the request and at the expense of the Sellers, provide the Sellers and their representatives with reasonable access to the properties, books and records of the Business and furnish for inspection such information and documents in its possession relating to the Business as the Sellers may reasonably request. The Purchaser shall, and shall cause the Business to, execute such documents as the Sellers may reasonably request to enable the Sellers to file any required reports or Tax Returns relating to the Business. The Purchaser shall not dispose of such books and records during the ten-year period beginning with the Closing Date without the Sellers’ consent, which shall not be unreasonably withheld. Following the expiration of such ten-year period, the Purchaser may dispose of such books and records at any time upon giving 60 days’ prior written notice to the Sellers, unless the Sellers agrees to take possession of such books and records within 60 days at no expense to the Purchaser.

     10.8 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if: (a) delivered personally, (b) sent by registered or certified mail in the United States of America, return receipt requested, (c) sent by reputable overnight air courier (such as DHL or Federal Express) or (d) sent by fax, as follows:

     if to the Sellers, to it at:

Phelps Dodge Corporation
One North Central Avenue
Phoenix, Arizona 85004-2306
Fax: (602) 366-7321
Attention: General Counsel

     with a copy to:

Debevoise & Plimpton LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 909-6836
Attention: Michael W. Blair, Esq.

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     if to the Purchaser:

REA Magnet Wire Company, Inc.
3600 East Pontiac Street
Fort Wayne, Indiana 46803
Fax: (260) 424-2174
Attention: President

     with a copy to:

Baker & Daniels LLP
300 N. Meridian Street
Indianapolis, Indiana 46204
Fax: (317) 237-1000
Attention: Tibor Klopfer, Esq.

or to such other address or to such other Person as a party hereto shall have last designated by notice to the other parties.

     All such notices, requests, demands and other communications shall be deemed to have been received (w) if by personal delivery, on the next Business Day after such delivery, (x) if by registered or certified mail in the United States of America, return receipt requested, on the seventh Business Day after the mailing thereof, (y) if by reputable overnight air courier, on the next Business Day after the mailing thereof or (z) if by fax, on the next Business Day following the day on which such fax was sent, provided, that a copy is also sent on the same day by a reputable overnight air courier.

     10.9 Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but shall not be assignable, by operation of law or otherwise, by a party hereto without the prior written consent of the other parties and any purported assignment or other transfer without such consent shall be void and unenforceable.

     10.10 No Third Party Beneficiaries. Nothing in this Agreement shall confer any rights upon any Person that is not a party or a successor or permitted assignee of a party to this Agreement.

     10.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute one and the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by each other party hereto.

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     10.12 Facsimile. This Agreement, to the extent signed and delivered by means of facsimile transmission, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding effect as if it were the original signed version thereof delivered in person. No party hereto shall claim that this Agreement is invalid, not binding or unenforceable based upon the use of facsimile transmission to deliver a signature, or the fact that any signature or agreement or instrument was transmitted or communicated through the use of facsimile transmission, and each such party forever waives any such claim or defense.

     10.13 Interpretation. The Section headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof. Any references to Sections or Schedules in this Agreement shall refer to Sections of and Schedules to this Agreement unless otherwise indicated. Any references to “the Sellers’ knowledge” or “the knowledge of the Sellers” shall mean the actual knowledge of the individuals set forth in Schedule 10.13, without any duty of investigation or inquiry. The definitions given for terms in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.

     10.14 Severability. If any provision, including any phrase, sentence, clause, section or subsection, of this Agreement is invalid, inoperative or unenforceable for any reason, such circumstances shall not have the effect of rendering such provision invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision herein contained invalid, inoperative or unenforceable to any extent whatsoever and a suitable and equitable provision shall be substituted for any such invalid, inoperative or unenforceable provision in order to carry out, so far as may be valid or enforceable, such provision.

     10.15 Governing Law. This Agreement shall be governed, construed, performed and enforced in accordance with the laws of the State of New York without giving effect to its principles or rules of conflict of laws to the extent such principles or rules are not mandatorily applicable by statute and would require or permit the application of the laws of another jurisdiction.

     10.16 Consent to Jurisdiction.

     (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any court thereof, in any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of any judgment relating thereto, and each of the parties hereto hereby irrevocably and

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unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

     (b) Each of the parties hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

     (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.8. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

     10.17 Waiver of Punitive and Other Damages and Jury Trial.

     (a) THE PARTIES TO THIS AGREEMENT EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER PUNITIVE, EXEMPLARY, LOST PROFITS, CONSEQUENTIAL, SPECIAL, INDIRECT OR SIMILAR DAMAGES IN ANY ARBITRATION, LAWSUIT, LITIGATION OR PROCEEDING ARISING OUT OF OR RESULTING FROM ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, EVEN IF ADVISED OF THE LIKELIHOOD OR POSSIBILITY OF THE SAME.

     (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY OR CLAIM WHICH MAY ARISE OUT OF OR RELATE TO THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OF THE ANCILLARY AGREEMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

     (c) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY

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WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (iv) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.17.

     (d) FOR THE AVOIDANCE OF DOUBT, NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS SECTION 10.17 OR ELSEWHERE IN THIS AGREEMENT, THE PARTIES ACKNOWLEDGE THAT NOTHING IN THIS AGREEMENT SHALL, OR IS INTENDED TO, WAIVE OR OTHERWISE LIMIT THE RIGHTS OF SELLERS OR PURCHASER OR ANY OF THEIR RESPECTIVE AFFILIATES UNDER THE COPPER ROD SUPPLY AGREEMENTS.

     10.18 Specific Performance. Each of the parties hereto acknowledges and agrees that, in the event of any breach of this Agreement, the non-breaching party would be irreparably and immediately harmed and could not be made whole by monetary damages. It is accordingly agreed that the parties hereto (i) shall be entitled, in addition to any other remedy to which they may be entitled at law or in equity, to compel specific performance of this Agreement in accordance with any action instituted in accordance with Section 10.16 and (ii) will waive, in any action for specific performance, the defense of the adequacy of a remedy at law.

[Remainder of page intentionally left blank.]

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

PHELPS DODGE CORPORATION
By	/s/ Kalidas Madhavpeddi
	Name:	Kalidas Madhavpeddi
	Title:	Senior Vice President, Asia
PHELPS DODGE INDUSTRIES, INC.
By	/s/ Kalidas Madhavpeddi
	Name:	Kalidas Madhavpeddi
	Title:	Senior Vice President
REA MAGNET WIRE COMPANY, INC.
By	/s/ Larry E. Bagwell
	Name:	Larry E. Bagwell
	Title:	Chairman/CEO

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EXHIBIT A

[FORM OF PROPERTY LEASE]

     This LEASE AGREEMENT (the “Agreement”) is made and entered into as of this ___day of ___, 2005, by and between PHELPS DODGE INDUSTRIES, INC., a Delaware corporation (“Landlord”), and REA MAGNET WIRE COMPANY, INC., a Delaware corporation (“Tenant”) (collectively, the “Parties”).

RECITALS

     A. Landlord is the fee owner of certain property located in Ft. Wayne, Indiana and depicted on the map attached as Exhibit “A” attached hereto (the “OTC Property”).

     B. Situated on a portion of the OTC Property are the land, fixtures and improvements identified on Exhibit “A” as the “Truck Scales”, the “Roadway” and the “Trailer Parking” (together with other land depicted on the cross-hatched portion of Exhibit “A”, the “Premises”) (The Truck Scales and Roadway are identified on Exhibit “A” by diagonal cross-hatching and the Trailer Parking is identified on Exhibit “A” by vertical and horizontal lines.)

     C. Tenant desires to enter into this Agreement to lease the Premises from the Landlord subject to the terms and conditions set forth in this Agreement and Landlord desires to enter into this Agreement to lease the Premises to Tenant subject to the terms and conditions set forth in this Agreement.

AGREEMENT

     NOW THEREFORE, in consideration of the foregoing and the mutual promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant agree as follows:

     1. Lease; Use of Premises.

     (a) Landlord hereby leases the Premises to Tenant on the terms and conditions hereinafter set forth. Tenant may occupy and use the Premises during the Lease Term (as hereinafter defined) in connection with its operation of the facility located at 4300 New Haven Avenue, Ft. Wayne, Indiana. In furtherance of the foregoing, each of the Truck Scales, the Roadway and the Trailer Parking shall be used only for its intended purpose and only in substantially the same manner each has been used prior to the date hereof.

     (b) Notwithstanding anything to the contrary herein, Landlord shall retain the non-exclusive right (i) to use the Roadway for ingress and egress from the OTC Property and the improvements thereon to New Haven Avenue, (ii) to use the Truck Scales, and

(iii) to use the Trailer Parking for access to the loading docks and trailers to the west and north of the Trailer Parking, which uses shall be for the benefit of Landlord, its employees and other invitees and any other tenant of Landlord (collectively, “Landlord Invitees”). So that Tenant does not interfere with Landlord’s right to use the Roadway and the Truck Scales, Tenant shall not park or store trucks or other vehicles, equipment or materials on the Roadway or the Truck Scales. Tenant shall have the exclusive right to park vehicles and trailers in the Trailer Parking, subject to Landlord’s right of access across the Trailer Parking as set forth above and provided that such parking by Tenant shall not block Landlord’s access to any portion of the loading docks or the trailers to the west of the Trailer Parking.

     2. Rent. The Tenant shall pay to Landlord an annual rent of One Dollar ($1.00), payable on or before the date hereof.

     3. Term. The term of this Agreement shall be for one (1) year, commencing on the date hereof and expiring on the first anniversary of the date hereof, unless sooner terminated by the Tenant upon 30 days’ prior written notice to the Landlord or otherwise in accordance with this Agreement (the “Lease Term”). Notwithstanding anything to the contrary herein, upon ten (10) days notice by Landlord to Tenant given at any time after the first six (6) months of the Lease Term, Landlord shall have the right to terminate this Lease as it applies to the Trailer Parking only, in which event the end of the Lease Term, as applied to the Trailer Parking only, shall be the effective date of such termination notice.

     4. Maintenance, Permits.

     (a) The Tenant shall, at its own expense, maintain the Premises and all improvements and fixtures thereon in good working condition, clean and safe, and shall remove from the Premises on a regular basis all trash, debris and other materials, whether deposited by the Tenant, its agents, employees, representatives, or third parties. At the end of the Lease Term, Tenant shall deliver possession of the Premises to Landlord in its condition at the commencement of the Lease Term, reasonable wear and tear excepted. Landlord shall have no responsibility whatsoever for repairs and maintenance of the Premises, including repairs necessitated by casualty or condemnation. In furtherance of Tenant’s maintenance obligations, Tenant shall remove snow and ice from the Roadway, Truck Scales and Trailer Parking and apply sand to the Roadway, Truck Scales and Trailer Parking so that they remain in a safe driving condition at all times, and Tenant shall repair any damage to the Roadway and the Trailer Parking arising during the Lease Term, including by repairing any “potholes” arising after the date hereof. Tenant shall also promptly repair any damage to the balance of the OTC Property not constituting the Premises arising from use of the Premises by Tenant or any agent, employee, representative or third parties of Tenant.

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     (b) Tenant shall obtain all permits, registrations and licenses necessary to conduct its activities on the Premises as required under applicable federal, state and local laws, statutes, ordinances, codes and regulations. Landlord shall have no responsibility to obtain any such permits, registrations or licenses.

     5. Access.

     (a) Tenant acknowledges and agrees that the Premises are located within a larger facility owned and operated by Landlord, and that Landlord has the right to maintain security procedures for entry to and from its facility and to adopt rules for the flow of traffic on the OTC Property, including the Premises. Tenant and Tenant’s employees within the Premises shall be required to adhere to the security procedures and traffic rules established and amended from time to time by Landlord for access to and from the Premises and for the flow of traffic on the OTC Property, including the Premises. Landlord covenants that such procedures or rules shall not unreasonably hinder Tenant’s operations in the Premises at any time.

     (b) Access to the balance of the OTC Property not constituting the Premises by Tenant or Tenant’s employees, agents or invitees is prohibited.

     (c) Tenant shall permit Landlord, and its agents and employees, access to the Premises at all times, on reasonable prior notice, to examine the same. Such access shall include, without limitation, the right to periodically conduct any internal environmental audit of the Premises desired by Landlord. Landlord agrees to exercise its rights hereunder so as not to unreasonably hinder Tenant’s operations on the Premises.

     6. Improvements and Alterations. Tenant shall make no alterations, additions or improvements in or to the Premises without Landlord’s prior written consent, which consent may be withheld in Landlord’s sole and absolute discretion.

     7. Utilities. Tenant shall be solely responsible for arranging and paying for any necessary water, gas, heat, electricity, power, telephone service, trash removal or other services or utilities for the Premises. If any such utility is not separately metered, Tenant shall reimburse Landlord within ten (10) days after demand for the cost thereof as reasonably determined by Landlord. Any security deposit or connection charges required to furnish service to Tenant shall be paid by Tenant. Landlord shall not be liable for loss or damage incurred in connection with or incidental to the interruption or impairment of utility service to the Premises, unless arising directly from Landlord’s or any Landlord Invitee’s use of the Roadway, the Truck Scales or the Trailer Parking during the Lease Term.

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     8. Health, Safety and Compliance with Laws. Tenant shall use the Premises in compliance with all applicable federal, state, or local laws, regulations or ordinances, including, but not limited to, those relating to public health, safety, and the environment.

     9. Default. Tenant’s failure to observe or perform any of Tenant’s obligations under this Agreement, where such failure continues for a period of five (5) days after notice from Landlord, shall constitute a material default and breach of this Agreement by Tenant. In the event of a default by Tenant, this Agreement shall be deemed automatically terminated.

     10. Risk. Tenant represents that it has inspected the Premises and accepts the Premises in its present condition. All activities on the Premises shall be conducted at the Tenant’s own risk, and Tenant shall be liable for the injury to any person or damage to any property occurring in connection with the Tenant’s use of the Premises, except to the extent arising directly from Landlord’s or any Landlord Invitee’s use of the Roadway, the Truck Scales or the Trailer Parking during the Lease Term. Landlord shall have no duty or obligation to the Tenant, its employees, representatives, agents, contractors, invitees or any third party to provide security services with respect to the Premises, and Landlord shall have no liability or responsibility for any loss, including property damage, or injury occurring to any Tenant, its employees, representatives, agents, contractors, or invitees for any reason, unless arising directly from Landlord’s or any Landlord Invitee’s use of the Roadway, the Truck Scales or the Trailer Parking during the Lease Term.

     11. Compliance with Environmental Laws. Tenant shall comply, and shall cause all of its employees, agents, contractors and invitees to comply, with all federal, state and local laws, statutes, rules, ordinances, codes and regulations relating to environmental protection, public health and safety, nuisance or menace, including without limitation, the Resource Conservation and Recovery Act, 42 U.S.C. § 6901, et seq.; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9600, et seq.; the Toxic Substances Control Act, 15 U.S.C. § 2601, et seq.; the Clean Air Act, 42 U.S.C. § 7401, et seq.; the Emergency Planning and Community Right to Know Act (“EPCRA”) 42 U.S.C. § 11000, et seq. and the Clean Water Act, 33 U.S.C. § 1251, et seq.; and each of their state and local counterparts presently in effect or amended or promulgated in the future (collectively, “Environmental Laws”). In addition, Tenant agrees that it shall comply with all relevant reporting obligations under EPCRA or any other Environmental Laws resulting from Tenant’s use of, or the presence of, Hazardous Substances (as herein defined) on the Premises.

     Tenant expressly warrants, represents and agrees that no Hazardous Substances (as hereinafter defined) will be released or disposed of on, under, or about the Premises, either by Tenant or any of its employees, agents, representatives, contractors, or invitees. “Hazardous Substances” shall mean any substance, material, pollutant, contaminant, or

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waste, whether solid, gaseous or liquid, that is infectious, toxic, hazardous, explosive, corrosive, flammable or radioactive, and that is regulated, defined, listed or included in any Environmental Law, including, but not limited to, asbestos, petroleum, or petroleum additive substances, polychlorinated biphenyls, urea formaldehyde, or waste tires. Other than Hazardous Substances used or produced in the manufacturing of magnet wire, Tenant shall not, and shall cause all of its employees, agents, contractors and invitees to agree not to bring onto the Premises any Hazardous Substances without the express prior written consent of Landlord. Further, Tenant, on behalf of itself, its agents, employees, representatives, contractors and invitees agrees not to generate, handle, use, store or treat any Hazardous Substances on the Premises, in violation of any Environmental Laws.

     12. Environmental Indemnity. Tenant shall indemnify, defend, protect and hold Landlord, its past, present and future corporate parents, subsidiaries and affiliates, and each of their past, current and future officers, directors, shareholders, employees and agents, and each of their respective successors and assigns (collectively, “Indemnitees”), harmless from any and all losses, damages, liabilities, claims, lawsuits, orders, attorneys’ fees, costs, expenses, fines, penalties or response costs asserted against any Indemnitee by any entity or individual, arising out of or in connection with (1) the use of the Premises by Tenant, its agents, employees, representatives, contractors or invitees; (2) a violation of any Environmental Law by Tenant, its agents, employees, representatives, contractors or invitees; or (3) a violation or breach of any provision of this Agreement by Tenant, its agents, employees, representatives, contractors or invitees. If in the judgment of the Landlord, the Tenant is incapable of defending, or unwilling to defend, the relevant Indemnitee(s) against such claims or fail to defend the relevant Indemnitee(s) against such claims in a manner Landlord deems appropriate, Landlord shall be entitled to appear in any action or proceeding to defend the relevant Indemnitee(s) against such claims, and Tenant shall reimburse Landlord for all costs incurred by Landlord in connection therewith, including reasonable attorneys’ fees, costs and expenses, within ten (10) days after demand therefor. Landlord, at its sole option, shall be entitled to settle or compromise any claim asserted against it, and such settlement shall be binding upon Tenant for purposes of the foregoing indemnification; provided, however, that Tenant may settle or compromise any such claim, or decide not to settle or compromise any such claim, as long as all Indemnitees are fully released from any and all liability thereon. The provisions contained in this Section shall survive the expiration or termination of any portion of this Agreement.

     13. Environmental Notification.

     (a) Tenant and its employees, agents, contractors and invitees at any level shall promptly notify Landlord: (i) upon becoming aware of any release or threatened release of a Hazardous Substance under, on, from or about the Premises; (ii) of any proceeding, inquiry or notice from any federal, state or local body, commission, council,

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board or authority (“Governmental Authority”) or others with respect to the use or presence of any Hazardous Substances on the Premises, or the migration thereof to or from other property; (iii) of all claims made or threatened by any third party against the Premises relating to loss or injury from any Hazardous Substance; and (iv) upon obtaining knowledge of any incurrence of expense by a Governmental Authority or others in connection with the assessment, containment or removal of any Hazardous Substances located on, under, from or about the Premises.

     (b) If a Governmental Authority initiates an action, order, claim, cause of action, investigation or request for information in connection with any Hazardous Substance with respect to the Agreement, Tenant will cooperate fully in good faith with Landlord and such Governmental Authority in responding to any such action, order, claim, cause of action, investigation or request for information. If, during the Lease Term, Hazardous Substances are discovered on the Premises that resulted from the acts or omissions of Tenant or any of its employees, agents, contractors, invitees, or other third parties at any level, in violation of any Environmental Laws, Tenant shall at its sole expense, remove, or cause to be removed, such Hazardous Substances from the Premises and underlying groundwater in accordance with the requirements of the appropriate Governmental Authority. If the Hazardous Substances are not removed within ninety (90) days of discovery, or such time as required by a Governmental Authority, then Landlord shall have the right, but not the obligation, to do so and seek reimbursement of all costs and expenses therefor from Tenant or to declare a default under this Agreement, or both.

     14. Liability and Indemnification. To the fullest extent permitted by law, Tenant will defend, protect, indemnify and hold harmless Landlord, and its parents, subsidiaries, directors, officers, employees, members, licensees, invitees, contractors or agents, as applicable, from and against any and all liability, claims, demands, damages, losses and expenses of every kind and description, including, without limitation, attorneys’ fees, caused by, arising out of, resulting from, or in any way incidental to the breach by the Tenant of its obligations under this Agreement or to the use of the Premises by the Tenant or its directors, officers, employees, contractors or invitees, including, without limitation, damage to the Premises or to the balance of the OTC Property. To the extent not expressly prohibited by any applicable non-indemnity statutes, Tenant’s foregoing obligation of full indemnity will arise regardless of Landlord’s fault or negligence concerning the claimed injury, except to the extent such fault or negligence arises directly from Landlord’s or any Landlord Invitee’s use of the Roadway, the Truck Scales or the Trailer Parking during the Lease Term. The provisions contained in this Section shall survive the expiration or termination of any portion of this Agreement.

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     15. Insurance. Tenant will provide proof of insurance for liability purposes naming Landlord as an additional insured. Tenant shall continuously maintain the following minimum insurance coverages during the term of this Agreement:

     (a) Commercial general liability insurance coverage, with a broad form comprehensive general liability endorsement of single limits of no less than $5,000,000.00 per occurrence, and aggregate limits of no less than $5,000,000.00, for bodily injury, death, personal liability and property damage liability on an occurrence and not claims-made basis.

     (b) Automobile and liability insurance covering owned, non-owned, leased and hired vehicles with combined single limits of no less than $1,000,000.00 per occurrence for bodily injury, death, and property damage liability on an occurrence and not claims-made basis.

     (c) Environmental impairment liability insurance covering damages or injuries resulting from Tenant’s operation of owned or leased equipment and from spillage or release of Hazardous Substances, or hazardous or dangerous explosives, with a limit of liability of not less than $5,000,000.00 per occurrence.

     (d) The insurance policies shall contain no exclusion or limitation with regard to explosion, collapse or underground hazard coverage. The insurance policies shall name Landlord as additional insured. The policies shall state Tenant’s coverage is primary and that the inclusion of more than one insured shall not operate or impair the right of one insured against another insured and the coverage afforded shall apply as though separate policies had been issued to each insured. All the insurance policies shall contain an endorsement providing that written notice by certified mail, return receipt requested, shall be given by the insurer to Landlord at least thirty days prior to termination, cancellation, non-renewal or modification or reduction of coverage of any policy. The insurance policies shall be issued by an insurance company approved by Landlord. The insurance policies shall contain cross-liability endorsement permitting recovery by one insured as against the other for negligence of the other. All insurance policies shall contain a contractual liability endorsement covering Tenant’s liability under this Agreement and all contracts entered by Tenant to ensure the Tenant’s indemnity obligations and other insurable provisions. Tenant shall require its insurance carrier to waive its right of subrogation as to Landlord.

     (e) Such other insurance as Landlord shall reasonably require to cover the property or liability arising from the use of the Premises under this Agreement.

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     Tenant shall likewise require subcontractors or other third parties using the Premises, if any, to maintain all such insurance as set forth above, and to provide such certificates of insurance to Landlord as set forth above. The failure of Tenant to comply with the requirements of this Section prior to the commencement of using the Premises shall be grounds for termination of the Agreement by Landlord without notice at any time during such failure of compliance.

     16. Personal Property Taxes. All personal property, inventory, or other taxes attributable to property held, owned or used by Tenant on the Premises shall be paid directly by Tenant to the taxing authority.

     17. Mechanic’s Liens. Tenant shall not allow or permit the filing of any mechanic’s or other lien against the Premises or any portion thereof. Should any such lien be filed on account of any labor or services performed for or furnished to Tenant, or its agents or employees, or any subtenant, Tenant shall cause the same to be removed and discharged or bonded against within thirty (30) days of the date on which Tenant first has notice of the filing of such lien.

     18. Condemnation. Landlord shall have the sole and exclusive right to collect any claim or settlement in any condemnation proceeding for the Premises and Tenant shall not be entitled to any share thereof.

     19. Governing Law. This Agreement shall be governed by and construed in accordance with the Laws of the State of Indiana, the courts of which, state and federal, shall have sole and exclusive jurisdiction of all litigation arising hereunder. The Parties hereby consent to the jurisdiction of said courts.

     20. Amendment. This Agreement may not be amended except by an instrument in writing signed by both Parties hereto.

     21. Assignment and Successors. Tenant may not assign or delegate performance of all or any portion of its obligations hereunder without the prior written consent of Landlord, which may be withheld in Landlord’s sole and absolute discretion. Except as provided in the previous sentence, this Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto.

     22. Remedies. All rights and remedies provided Landlord herein are cumulative in addition to all of Landlord’s other rights and remedies available at law or in equity.

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     23. Subleasing. Tenant expressly agrees that it shall not sublease the Premises or enter into any other agreements regarding the Premises without the express written consent of Landlord, which may be withheld in Landlord’s sole and absolute discretion.

     24. Notices. Any notice, request, demand or other communication (hereinafter collectively called “Communications”) permitted or required to be given by the terms and provisions of this Agreement or by any law or governmental regulation, either by Landlord to Tenant or by Tenant to Landlord, shall be in writing. Unless otherwise required by such law or regulation, all Communications shall be given and shall be deemed to have been served and given when either personally delivered, transmitted by facsimile (fax) machine or electronic mail, by nationally recognized overnight courier, or three (3) days after deposited in the United States mail, certified return requested, or registered, with postage thereon fully paid, to the addresses set forth below:

     If to Landlord: Phelps Dodge Industries, Inc.

Attn:

Fax:

     With a copy to:

Phelps Dodge Corporation

One North Central Avenue, 17th Floor

Phoenix, Arizona 85004

Attn: Don Stillwell

Fax:

     If to Tenant:

REA Magnet Wire Company, Inc.

3600 East Pontiac Street

Fort Wayne, Indiana 46803

Attn: President

Fax:

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     With a copy to:

Attention:

Fax:

     25. Waiver. No waiver by Landlord of any breach by the Tenant, or any failure by Landlord to insist on strict performance by the Tenant of this Agreement, shall be construed to be a waiver of any future breach by the Tenant or bar the right of Landlord to insist on strict performance by the Tenant in the future.

     26. Authority. Tenant represents and warrants to Landlord that Tenant has the statutory power and authority to bind itself to the terms of this Agreement and that all such power has been properly delegated to the controlling individual Agreement signing on behalf of the Tenant.

     27. Severability. If any provision hereof is held invalid, the remainder of this Agreement shall remain in full force and effect.

     28. Attorneys’ Fees. In the event of any litigation between the parties with respect to this Agreement, the prevailing party shall be entitled to recover its reasonable attorney’s fees from the other party.

     29. Recording. Tenant expressly agrees that it shall not record nor cause the recording of this Agreement or any memorandum regarding this Agreement. Any such recording shall automatically constitute a breach this Agreement.

     30. Entire Agreement. This Agreement contains the entire agreement of the parties relating to the Tenant’s use of the Premises and supersedes all prior written or oral understandings or agreements relating hereto.

[Remainder of page intentionally left blank.]

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     IN WITNESS WHEREOF, this Agreement has been executed as of the date first set forth above.

Approved as to form:                    

PHELPS DODGE INDUSTRIES, INC.,
a Delaware corporation
By:
	Title:
		“Landlord”
REA MAGNET WIRE COMPANY, INC.,
a Delaware corporation
By:
	Title:
		“Tenant”

A-1

EXHIBIT B

[FORM OF TRANSITION SERVICES AGREEMENT]

     This TRANSITION SERVICES AGREEMENT (this “Agreement”), dated as of ___, 2005, by and among Phelps Dodge Corporation, a New York corporation (“PDC”), Phelps Dodge Industries, Inc., a Delaware corporation (“PDI,” each of PDC and PDI, a “Provider” and together, the “Providers”), and Rea Magnet Wire Company, Inc., a Delaware corporation (the “Company”). The Company and the Providers are referred to herein collectively as the “Parties” and each, a “Party.”

RECITALS

     WHEREAS, the Providers and the Company have entered into the Asset and Stock Purchase Agreement, dated as of November 15, 2005 (the “Purchase Agreement”), pursuant to which, among other things, the Business (as defined in the Purchase Agreement; capitalized terms used herein and not defined shall have the meanings set forth in the Purchase Agreement), including (i) all of the capital stock of Phelps Dodge Wire and Cable Holdings de Mexico S.A. de C.V., a company registered under the laws of the United States of Mexico and (ii) certain Assets, will be transferred at the Closing to the Company or a designated Subsidiary thereof (the Business subsequent to such transfer, the “Transferred Business”);

     WHEREAS, in connection with the Purchase Agreement, and as a condition to Closing, the Parties are required to enter into this Agreement;

     WHEREAS, for a period of time following the Closing Date, the Company desires that the Providers, or one or more of their Affiliates, continue to provide certain services to the Transferred Business, during which period the Company will undertake all such measures as are necessary to become fully independent of the Providers and their Affiliates; and

     WHEREAS, the Providers have agreed to perform and to cause one or more of their Affiliates to perform certain services for the Transferred Business following the Closing Date on the terms and conditions set forth herein.

     NOW, THEREFORE, in consideration of the mutual promises contained herein and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE I

SERVICES

     Section 1.1 Services.

     (a) The Providers shall, or shall cause one or more of their Affiliates to provide or cause to be provided to the Company, solely in respect of the Transferred Business and to the extent such Services were previously provided to the Business by a Provider, the services set forth on Exhibit A hereto (the “Services”) until the expiration of the Term (as defined below). At all times during the Term, all persons performing the Services hereunder shall be construed as independent contractors with respect to the Company and shall not be construed as employees of the Company or any Subsidiary or Affiliate thereof by virtue of performing such Services.

     (b) The Providers shall not be required to perform Services hereunder in a way that the Providers believe violates any applicable law. The Providers shall use reasonable efforts to obtain, and the Company agrees to provide reasonable assistance at the request of either Provider in obtaining, any waivers, permits, consents or sublicenses (including, without limitation, any license fees to third-party vendors) (each, a “Consent”) that a Provider determines, in its sole discretion, may be required with respect to any existing agreement with any third party in order to provide any of the Services hereunder; provided, that (i) the Company shall, at the exclusive option of the Providers, pay, or reimburse the applicable Provider for, any and all costs related to obtaining any such Consent, and (ii) no Provider shall be under any obligation to provide any Service hereunder if it is unable, after using reasonable efforts, to obtain such Consent necessary to provide such Service or if such Provider would incur any cost to obtain such Consent.

     Section 1.2 Discontinuation of Services. The Company may discontinue receiving any or all Services by giving the Providers at least sixty (60) days’ prior written notice (or shorter notice period at Providers’ sole discretion), which notice shall specify the date as of which any such Services indicated in such notice shall be discontinued. Exhibit A hereto shall be deemed amended to delete such Services as of such date, and this Agreement shall be of no further force and effect with respect to such Services, except as to obligations accrued prior to the date of discontinuation of such Services; provided, that upon the request of the Providers, the Company shall promptly reimburse the Providers for (i) the Providers’ and their Affiliates’ fees and expenses payable to third party service providers, licensors or vendors and (ii) any other expenses incurred by the Providers or their Affiliates, in each case as incurred in connection with the discontinuation of such Services.

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     Section 1.3 Change in Services. The Parties acknowledge the transitional nature of the Services and agree that the Providers may make changes from time to time in the manner of performing the Services, including, without limitation, that the Providers may modify or change the specifications of any Services involving systems and associated computer programs, products, equipment and services from for operational and other reasons. The Providers shall use reasonable efforts to inform the Company in advance of any such modifications and changes. The Providers may in their reasonable discretion suspend the provision of Services (or any part thereof) for reasons of modification or preventative or emergency maintenance. The Providers shall use their reasonable efforts to inform the Company in advance of any such suspension.

     Section 1.4 Standard of Performance. The Providers shall use reasonable diligence and care in performing the Services for the Transferred Business, it being understood and agreed that the Providers shall have satisfied their obligations under this Section 1.4 if they use that degree of effort, diligence and care customarily exercised by them for their own operations as those operations exist at the date hereof.

     Section 1.5 Independent Contractor. For all purposes hereof, each Provider shall at all times act as an independent contractor and shall have no authority to represent the Company or any of its Subsidiaries or Affiliates in any way or otherwise be deemed an agent, employee, representative, joint venturer or fiduciary of the Company or any of its Subsidiaries or Affiliates. None of the Company or any of its Subsidiaries or Affiliates shall declare or represent to any third party that a Provider shall have any power or authority to negotiate or conclude any agreement, or to make any representation or to give any undertaking, on behalf of the Company or any of its Subsidiaries or Affiliates in any way whatsoever.

     Section 1.6 Sufficient Access. The Company shall give the Providers and their representatives reasonable access during normal business hours (or, in the event that a Provider determines that emergency maintenance is necessary, at any time) to the properties, systems, computer programs, products and equipment of the Transferred Business as necessary from time to time for reasons of modification or preventative or emergency maintenance, whether or not such modification or preventative or emergency maintenance relates to the provision of Services.

ARTICLE II

SERVICE CHARGES

     Section 2.1 Fees and Expenses During the Term. In accordance with Section 1.0 hereof, the Company shall pay in advance the fee for each Service to be received during a calendar month at the monthly rate or one-time fee specified on Exhibit A hereto

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during the Term. The Company shall reimburse the Providers for any fees and expenses incurred by the Providers or any of their Subsidiaries or Affiliates in providing such Services, including without limitation, any non-ordinary course Services related to emergency conditions, system failure and similar events. Fees for Services rendered for a period of less than a whole calendar month shall be determined by multiplying the monthly rate for the relevant Service set forth on Exhibit A by the ratio of the number of days in the calendar month such Service was provided over the actual number of days in such month.

     Section 2.2 Taxes. In accordance with Section 3.1 hereof, the Company shall reimburse the Providers for any sales tax, use tax, value-added tax, goods and services tax or similar tax (“Taxes”) (but excluding any Tax based upon the net income of the Providers, which shall be paid by the Providers) payable with respect to the provision of Services, which shall be separately stated on the relevant invoice. The Providers shall be responsible for paying any such Taxes to the appropriate taxing authority.

ARTICLE III

PAYMENT

     Section 3.1 Payment. For Services provided in the ordinary course, the Providers may invoice the Company for Services one month in advance of the performance of such Services. The Company shall remit payment for such and all Services invoiced by wire transfer of immediately available funds in U.S. Dollars, to the account specified in such invoice within five (5) calendar days after receipt of the invoice. Each invoice shall set forth for the period covered by such invoice: (i) the Services to be rendered by each Provider in the coming month; (ii) the payment due; and (iii) any out-of-pocket expenses to be reimbursed relating to past Services performed, including without limitation, any non-ordinary course Services related to emergency conditions, system failure and similar events. If all or any portion of such payment is not made by the Company when due, the overdue amount shall bear interest from the date such amount is due until it is paid in full, at an interest rate equal to 18% per annum.

ARTICLE IV

TRANSITION

     Section 4.1 System Migration. The Company agrees to use its reasonable efforts to end its use of the Services as soon as reasonably possible before the expiration of the Term. Without limiting the foregoing, the Providers agree to provide only two data transfers to the Company and reasonable information and service support directly related thereto (the “Service Support”); provided, that the Providers will not transfer nor

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provide information or service support with respect to any design, configuration, system start-up or hardware or software set-up in relation to the Transferred Business or otherwise; provided, further, the Company, in accordance with Section 3.1 hereof, shall pay to the Providers for such Service Support the amount specified under “Service Support” in Exhibit A hereto.

ARTICLE V

INTELLECTUAL PROPERTY

     Section 5.1 Title to Intellectual Property. The Parties agree that any Intellectual Property of the Company made available to the Providers in connection with the Services, and any derivative works, additions, modifications or enhancements thereof created by the Providers pursuant to this Agreement, are and shall remain the sole property of the Company. To the extent that a Provider uses its own or third-party Intellectual Property in connection with providing the Services, such Intellectual Property, and any derivative works, additions, modifications or enhancements thereof created during the term hereof shall remain the sole property of such Provider or the third party, as the case may be.

ARTICLE VI

TERM AND TERMINATION

     Section 6.1 Term. The term of this Agreement shall commence on the Closing Date and end six (6) months thereafter, unless extended pursuant to Section 6.2 hereof (the original period or the extended period, as applicable, the “Term”). Notwithstanding the foregoing, if all Services to be provided hereunder are discontinued pursuant to Section 1.2 hereof prior to the end of the Term, the Term shall end on that date on which the last such Service is discontinued.

     Section 6.2 Extension. Absent the written agreement of the Providers to provide any Services after (i) the expiration of the Term or (ii) the date of discontinuation of any such Service pursuant to Section 1.2 hereof, the Providers shall have no further obligation to provide such Services after such dates, except, in the case of clause (i), in the event that not less than sixty (60) days prior to the expiration of the initial Term, the Company requests in writing an extension of the Term, with respect to all or any portion of the Services, for an additional six- (6-) month period (the “Extension”), in which case the initial Term will automatically be extended for such period without any written agreement of the Providers. In the event that the Providers agree in writing to the Extension, the amount of the fees payable pursuant to Section 2.1 hereof for the provision of any Services under the Extension shall be increased by 25% over the applicable fee,

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and the Company, in addition to its other obligations under this Agreement, shall be solely responsible for any actual additional employee retention costs of the Providers or their Affiliates necessitated by the Extension, all costs incurred in obtaining any Consents required for the provision of Services during the Extension and all other costs incurred by any Provider arising or resulting from the Extension.

     Section 6.3 Termination for Cause. Either Party (the “Terminating Party”) may terminate this Agreement with immediate effect by written notice to the other Party (the “Other Party”) on or at any time after the occurrence of any of the following events:

     (a) the Other Party is in default of any of its material obligations under this Agreement and (if the breach is capable of remedy) has failed to remedy the breach within thirty (30) days after receipt of a written notice from the Terminating Party with respect thereto;

     (b) the Other Party shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; and

     (c) an involuntary case or other proceeding shall be commenced against the Other Party seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days; or an order for relief shall be entered against the Other Party.

     Section 6.4 Survival. The following sections shall survive any termination of this Agreement: Section 1.1(a) (Services) (to the extent of amounts accrued prior to termination or expiration of the Term); Article II (Service Charges) (to the extent of amounts accrued prior to termination or expiration of the Term); Section 3.1 (Payment) (to the extent of amounts accrued prior to termination or expiration of the Term); Section 5.1 (Intellectual Property); this Section 6.4 (Survival); Article VII (Confidentiality; Systems Security); Article VIII (Indemnity; Limitation of Liability); and Article IX (Miscellaneous).

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ARTICLE VII

CONFIDENTIALITY; SYSTEMS SECURITY

     Section 7.1 Confidentiality.

     (a) Except as otherwise provided in this Agreement, (i) the Providers shall, and shall cause their Affiliates (and their respective accountants, counsel, consultants and agents to whom they disclose such information) to, keep confidential all information marked by the Company as “confidential” and provided by the Company to the Providers in order to perform the Services, and (ii) the Company shall, and shall cause its Affiliates (and each of their respective accountants, counsel, consultants and agents to whom they disclose such information), to keep confidential all information relating to either Provider or any Affiliate thereof that the Company or any Subsidiary or Affiliate thereof receives in connection with the performance of the Services, other than any information solely related to the Company or its respective assets.

     (b) The provisions of this Section 7.1 shall not apply to the disclosure by either Party or their respective Affiliates of any information, documents or materials (i) that are or become publicly available, other than by reason of a breach of this Section 7.1 by such Party or any of its Affiliates, (ii) received from a third party not bound by any confidentiality agreement with the non-disclosing Party, (iii) required by applicable law to be disclosed by such Party, or (iv) necessary to establish such Party’s rights under this Agreement or the Purchase Agreement; provided, that in the case of clauses (iii) and (iv), the person intending to make disclosure of confidential information shall promptly notify the Party to whom it is obligated to keep such information confidential and, to the extent practicable, provide such Party a reasonable opportunity to prevent public disclosure of such information.

     (c) With regard to confidential information concerning the software of third parties with which the Providers conduct business that is included in or related to the Services, the Company agrees to execute and deliver any other documents or take any actions that are reasonably required by any vendor or licensor of such software in order to access and use such vendor’s software in connection with such vendor’s contracts with the applicable Provider, including abiding by the terms and conditions of any such software license agreements.

     Section 7.2 Systems Security. If the Company shall receive access to any of the Providers’ computer facilities, system(s), networks (voice or data) or software (“Systems”) in connection with performance of the Services, the Company shall comply with all system security policies, procedures and requirements that may be provided by either Provider to the Company in writing from time to time (the “Security Regulations”)

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and shall not tamper with, compromise or circumvent any security or audit measures employed by the Providers. Any employee of the Company or any of its Subsidiaries or Affiliates that is expected to have access to the Providers’ Systems may be required to execute a separate system access agreement. The Company shall ensure that only such users who are specifically authorized to gain access to the Providers’ Systems will gain such access and shall prevent unauthorized destruction, alteration or loss of information contained therein. If at any time either Provider determines that any personnel of the Company of any of its Subsidiaries or Affiliates has sought to circumvent or has circumvented the Providers’ Security Regulations or that an unauthorized person has accessed or may access the Providers’ Systems or a person has engaged in activities that led or may lead to the unauthorized access, destruction or alteration or loss of data, information or software, such Provider may immediately terminate any such person’s access to the Systems and shall promptly notify the Company. In addition, a material failure to comply with the Providers’ Security Regulations shall be a breach of this Agreement, in which case, the Providers shall notify the Company and such Parties shall work together to rectify said breach. If the Parties do not rectify the breach within thirty (30) days from its occurrence, the Providers shall be entitled to immediately terminate the Services to which the breach relates.

ARTICLE VIII

INDEMNITY; LIMITATION OF LIABILITY

     Section 8.1 Indemnity.

     (a) The Company shall indemnify, hold harmless and, at the Providers’ option, defend the Providers and their Affiliates, against all claims, liabilities, damages, losses or expenses (“Losses”) to the extent arising out of the performance by either Provider or any Affiliate thereof of any Service.

     (b) The Providers shall indemnify and hold harmless and, at the Company’s option, defend the Company, against all claims, liabilities, damages, losses or expenses to the extent arising out of the gross negligence or willful misconduct of either Provider or any Affiliate thereof in their performance of the Services.

     (c) The rights of any Party to indemnification under this Section 8.1 for any Losses incurred by such Party shall be reduced by the net amount such Party recovers (after deducting all reasonable attorneys’ fees, expenses and other costs of recovery) from any insurer or other party liable for such Losses, and such Party shall use reasonable efforts to effect any such recovery.

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     Section 8.2 Limitation of Liability; Certain Waivers.

     (a) TO THE EXTENT PERMITTED UNDER APPLICABLE LAW AND EXCEPT AS PROVIDED IN SECTION 8.1(b) HEREOF, THE PROVIDERS AND THEIR AFFILIATES SHALL HAVE NO LIABILITY TO THE COMPANY OR ANY THIRD PARTIES IN CONNECTION WITH THE PERFORMANCE, DELIVERY OR PROVISION OF ANY SERVICES HEREUNDER. THE PARTIES TO THIS AGREEMENT EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER PUNITIVE, EXEMPLARY OR SIMILAR DAMAGES IN ANY ARBITRATION, LAWSUIT, LITIGATION OR PROCEEDING ARISING OUT OF OR RESULTING FROM ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER SUCH CLAIM IS BASED ON WARRANTY, CONTRACT, TORT (INCLUDING NEGLIGENCE, GROSS NEGLIGENCE, CONTRIBUTION OR STRICT LIABILITY) OR OTHERWISE, EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OR LIKELIHOOD OF THE SAME.

     (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY OR CLAIM WHICH MAY ARISE OUT OF OR RELATE TO THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     (c) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF THE FOREGOING WAIVERS, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (iv) IT HAS BEEN INDUCED TO ENTER INTO ANY OF THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.2.

     Section 8.3 Disclaimer of Warranties. NO WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, ARE MADE OR CREATED BETWEEN THE PARTIES, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY, NON-INFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE.

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ARTICLE IX

MISCELLANEOUS

     Section 9.1 Modification; Waiver. This Agreement may be amended or modified only by a written instrument executed by each of the Parties. Any of the terms and conditions of this Agreement may be waived in writing at any time by the Party entitled to the benefits thereof.

     Section 9.2 Entire Agreement. This Agreement, including Exhibit A (which constitutes an integral part of this Agreement), together with the Purchase Agreement and the other Ancillary Agreements, constitute the entire agreement of the Parties with respect to the subject matter hereof, and supersede all other prior agreements and understandings, oral or written, express or implied, between the Parties and their respective Affiliates, representatives and agents in respect of the subject matter hereof, except that this Agreement does not supersede the Non-Disclosure Agreement, the terms and conditions of which the Parties hereby expressly reaffirm.

     Section 9.3 Further Actions. Each Party shall execute and deliver such certificates and other documents and take such other actions as may reasonably be requested by the other Party in order to consummate or implement the transactions contemplated hereby.

     Section 9.4 Notices. All notices, requests, demands and other communications made in connection with this Agreement shall be in writing and shall be deemed to have been duly given if delivered in accordance with Section 10.8 of the Purchase Agreement.

     Section 9.5 Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns, but shall not be assignable, by operation of law or otherwise, by any Party without the prior written consent of each other Party and any purported assignment or other transfer without such consent shall be void and unenforceable, except that any Provider may assign this Agreement to any of its Affiliates without the consent of the Company; provided, that no such assignment shall in any way affect the obligations or liabilities of such Provider under this Agreement, which obligations and liabilities shall remain in effect notwithstanding such assignment. Except as otherwise provided herein, nothing in this Agreement shall confer any rights upon any Person that is not a Party or a successor or permitted assignee of a Party.

     Section 9.6 Headings; Counterparts. The section headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect the

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meaning or interpretation of any provision hereof. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument. This Agreement shall become effective when each Party shall have received a counterpart hereof signed by each other Party.

     Section 9.7 Facsimile. This Agreement, to the extent signed and delivered by means of facsimile transmission, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding effect as if it were the original signed version thereof delivered in person. No Party shall claim that this Agreement is invalid, not binding or unenforceable based upon the use of facsimile transmission to deliver a signature, or the fact that any signature or agreement or instrument was transmitted or communicated through the use of facsimile transmission, and each Party forever waives any such claim or defense.

     Section 9.8 Governing Law; Consent to Jurisdiction. This Agreement shall be construed, performed and enforced in accordance with the laws of the State of New York without giving effect to its principles or rules of conflict of laws to the extent such principles or rules are not mandatorily applicable by statute and would require or permit the application of the laws of another jurisdiction. Each of the Parties hereby irrevocably and unconditionally submits, for itself and for its property, to the exclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City and any appellate court from any court thereof, in any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of any judgment relating thereto, and each Party hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. Each Party agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby in any New York State or Federal court. Each Party hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. Each Party irrevocably consents to service of process in the manner provided for notices in Section 10.8 of the Purchase Agreement. Nothing in this Agreement will affect the right of any Party to serve process in any other manner permitted by law.

     Section 9.9 Force Majeure. If any Party is prevented from complying, either totally or in part, with any of the terms or provisions of this Agreement by reason of fire, flood, storm, or other acts of God, strike, lockout or other labor trouble, any law, order,

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proclamation, regulation, ordinance, demand or requirement of any Governmental Authority, riot, war, terrorist act, rebellion, or other causes beyond the control of such Party (each, a “Force Majeure”), such inability to comply shall not be deemed a breach of this Agreement, but such compliance shall be resumed as soon as legally and practically possible after termination of the Force Majeure.

     Section 9.10 Severability. If any provision, including any phrase, sentence, clause, section or subsection, of this Agreement is invalid, inoperative or unenforceable for any reason, such circumstances shall not have the effect of rendering such provision invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision herein contained invalid, inoperative or unenforceable to any extent whatsoever and a suitable and equitable provision shall be substituted for any such invalid, inoperative or unenforceable provision in order to carry out, so far as may be valid or enforceable, such provision.

     Section 9.11 No Third Party Beneficiaries. Nothing in this Agreement shall confer any rights upon any Person that is not a Party or a successor or permitted assignee of a Party.

     Section 9.12 Interpretation. The Parties have participated jointly in the negotiating and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation shall arise, this Agreement shall be construed as if drafted jointly and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement.

[Remainder of page intentionally left blank.]

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     IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first written above.

PHELPS DODGE CORPORATION
By
	Name:
	Title:
PHELPS DODGE INDUSTRIES, INC.
By
	Name:
	Title:
REA MAGNET WIRE COMPANY, INC.
By
	Name:
	Title:

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EXHIBIT C-1

[FORM OF COPPER ROD SUPPLY AGREEMENT]

Buyer:	Rea Magnet Wire Company, Inc. (“Buyer”).
Seller:	Phelps Dodge Sales Company, Incorporated (“Seller”), a subsidiary of, and general sales agent for, Phelps Dodge Corporation and its subsidiaries and affiliates (“Phelps Dodge”).

Seller agrees to sell to Buyer, and Buyer agrees to buy from Seller, copper rod as provided in (a) this supply agreement (the “Supply Agreement”, which consists of (i) the sales contract (the “Sales Contract”) and (ii) other terms and conditions (the “Terms and Conditions”), each as set forth below, and (b) each related invoice (each, an “Invoice”), provided that the terms of the Sales Contract will govern in the event of any inconsistency with the Terms and Conditions and/or Invoice.

SALES CONTRACT

Product:

Copper Rod, conforming to the most updated version of ASTM Standard Specification B49 in effect at the time of manufacture (the “Product”).

Quantity:

Approximately 135,000,000 pounds, delivered according to the Delivery and Shipment Schedule set forth below.

Delivery and Shipment Schedule:

11,250,000 pounds per month January 1 – December 31, 2006¹; F.O.B.

Buyer is to provide Seller with Buyer’s requested shipping schedule by the 20^th of each month prior to shipment.

Price:

The Product price per pound will be the sum of the applicable Seller premium for the month of shipment (the “Premium”), plus the COMEX HG copper price per pound using the pricing option selected by Buyer below (the “Base Price”). Seller will notify Buyer of any change in the Premium prior to the month of shipment. Subject to the Terms and Conditions herein, the following Base Price options are available to Buyer:

Standard Pricing: The Base Price will be the daily first position COMEX HG settlement price (closing price), averaged over the month of shipment. If no other pricing option is selected, Standard Pricing will govern. Any selection or change in pricing option by Buyer shall be effected by written notice to Seller as set forth below.

Alternative – Firm Pricing: During the month prior to the month of shipment, Buyer may fix the Base Price for any or all of the following month’s shipments at the COMEX HG contract price (for such month of shipment) for the day (or days) selected by Buyer (the “Firm Pricing Date”), provided that: (i) all Firm Pricing Dates must be a COMEX trading day during such prior month; (ii) each Firm Pricing Date must be on or after the date Buyer notified Seller of its intent to make that selection; (iii) no more than 50% of a monthly delivery amount may be fixed on any single Firm Pricing Date; and (iv) any remaining quantity of the following month’s shipments not priced firm will be priced in accordance with Standard Pricing (unless Buyer properly opts for “Off-Average” pricing on such remaining amount).

Alternative – Off Average: During the month of shipment, Buyer may fix the Base Price of the Eligible Portion (defined below) of such month’s shipments to the first position COMEX HG price at any point during the trading day for the day (or days) selected by Buyer (the “Off-Average Pricing Date”); provided that: (i) all Off-Average Pricing Dates must be a COMEX trading day during the month of shipment; (ii) each Off-Average Pricing Date must be on or after the date Buyer notified Seller of its intent to make that

¹ Agreement to terminate on December 31, 2007, it being understood that quantities supplied and delivery schedule for 2007 are to be determined.

selection; and (iii) no more than 50% of a monthly delivery amount may be fixed on any single Off-Average Pricing Date. If Buyer declares its intention to go “Off-Average” prior to the month of shipment, the Eligible Portion shall be its entire monthly shipment amount. If such declaration is made during the month of shipment, the Eligible Portion shall be that part of the total monthly shipment amount proportional to the number of trading days remaining in the month [ ] days after receipt of written notice of such dealer declaration (i.e., the remaining trading days divided by total trading days) and the shipment amount ineligible for Off-Average pricing shall be priced according to the month to-date average of the COMEX HG contract at the time Off-Average pricing is declared by Buyer.

Provisions Applicable to All Pricing Elections: (1) Alternative pricing elections will be binding on Seller only if Seller, in its sole discretion, hedges the transaction; (2) if Buyer has elected Off-Average pricing and has not fixed the Base Price of the entire Eligible Portion prior to the close of the last trading day of the COMEX HG contract for the month of shipment, the price of the unpriced Eligible Portion shall be fixed at the closing price on the last trading day of such relevant month’s COMEX HG contract; (3) Buyer may not seek Firm or Off-Average pricing during the last 15 minutes of trading on a trading day; (4) all Base Prices shall be established, at Seller’s sole discretion, based on the COMEX HG trading month of shipment or the next actively traded COMEX HG contract, adjusted to the month of shipment; and (5) if at any time, in Seller’s sole judgment, the COMEX HG contract is no longer representative of the price of copper for any reason, Seller will determine and notify Buyer of a new reference price. In such event and in Seller’s sole discretion, some or all of the alternative pricing options may not be available.

Payment Terms:

Invoices are due and payable within 30 days after the date of the invoice. Seller will issue provisional invoices for “Standard” and “Off-Average” Base Pricing, with pricing based on the COMEX HG settlement price for the last trading day of the month prior to delivery. Seller will issue a final adjusted invoice following the end of the calculation period for such Base Price elections, and: (i) any additional amounts due Seller shall be due and payable upon receipt of the final invoice; and (ii) any amounts due to Buyer will be credited against the following month’s invoice (or returned to Buyer in the absence of any future deliveries). Seller’s weights shall govern provisional and final settlement.

Termination:

Seller may declare a default by Buyer if Buyer fails to make any payment when due or fails to perform any other obligation of Buyer hereunder. Seller may also declare a default: (i) if Buyer becomes insolvent, admits in writing its inability to pay its debts, or bankruptcy (or similar) proceedings are instituted by or against it; (ii) if any representation, warranty or statement made by Buyer in, or in connection with, this Supply Agreement is or becomes untrue; (iii) in the event of any change in control of Buyer; or (iv) if, in Seller’s sole judgment, there has been a change in Buyer’s financial condition that adversely impacts Buyer’s ability to perform, or Seller’s rights and remedies, hereunder. In such event, Seller may, at its election, postpone or refuse to make any further pricing or deliveries, accelerate all unpaid amounts owed by Buyer, or terminate this Supply Agreement or any part thereof, without prejudice to any other remedies Seller has under applicable law.

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Notices:

Notices shall be in writing and will be directed to the parties at their respective fax numbers set forth below.

This Supply Agreement is entered into as of:

Rea Magnet Wire Company, Inc.		Phelps Dodge Sales Company, Incorporated
By:		By:
	Name:		Name: Stephen T. Higgins
	Title:		Title: Senior Vice President
Fax:		Fax: (602) 366-7305

TERMS AND CONDITIONS

     The Terms and Conditions to which the foregoing sale, as set forth on this Supply Agreement, is subject, are set forth below. Defined terms shall have the meaning set forth in the Sales Contract, unless otherwise defined below. Seller expressly conditions the sale upon Buyer assenting to these Terms and Conditions. By accepting delivery of the Products described in the Sales Contract of this Supply Agreement or in any related Invoice, Buyer expressly assents to the Terms and Conditions contained herein. SELLER OBJECTS TO, AND SHALL NOT BE BOUND BY BUYER’S PURCHASE ORDER, CONFIRMATION FORMS OR OTHER DOCUMENTS THAT ATTEMPT TO IMPOSE UPON SELLER ANY TERMS OR CONDITIONS AT VARIANCE WITH, OR IN ADDITION TO, SELLER’S TERMS AND CONDITIONS SET FORTH HEREIN. For administrative convenience, instructions, information and similar communications (“Instructions”) regarding shipments placed by Buyer or Seller shall have no effect to the extent that they are inconsistent with or supplement any of the terms, conditions or provisions of this Supply Agreement.

PRICE.

     Prices Subject to Change. Seller’s Premium is subject to change at any time at Seller’s sole discretion. All shipments to Buyer will be billed using Seller’s Premium in effect on the dates on which shipments are made.

     Other Changes Prohibited. Buyer shall have no option to change any quantity, size or specification, etc., of any Products subject to this Supply Agreement without prior written agreement of Seller.

     No Discounts. No price reduction or discount will be allowed for any cause other than as herein provided.

     Taxes. All federal, state and local sales, use, transaction privilege, occupation, processing, other excise and similar taxes imposed or levied upon this Supply Agreement or any Products delivered hereunder shall be the sole obligation of Buyer. To the extent not paid directly by Buyer, such taxes shall be added to the Invoices or separately invoiced to Buyer.

     Buyer’s Credit. Seller reserves the right to do any one or more of the following, whenever warranted based on the financial condition of Buyer, at Seller’s sole discretion: alter or suspend credit; modify any credit terms provided to Buyer; require cash payments or satisfactory security from Buyer before shipment; or accelerate the due date of payment by Buyer under any contract or order with Seller. Seller further reserves the right to retain possession of the Products and the right to stop Products in transit. At Seller’s option, any failure by Buyer to pay any Invoice when due shall cause all subsequent Invoices to be immediately due and payable in full, irrespective of their terms. Acceptance by Seller of any partial payment shall not waive any rights of Seller. Interest will be charged on the unpaid balance of past due accounts at the rate of two percent (2%) per month, or at the highest rate legally permitted if less than two percent per month. Nothing in this paragraph shall operate to limit or otherwise restrict Seller’s rights and remedies in the event of a default hereof by Buyer.

SHIPPING AND DELIVERY.

     Shipping Date. Buyer agrees that the delivery and shipment schedule on the front page of this Supply Agreement and any future schedules, or charges thereto, represent Seller’s best estimate of the date shipment will be made. Seller will use commercially reasonable efforts to make shipments and deliveries by those dates; however, Seller will not be in breach of this Supply Agreement if such shipments or deliveries are delayed notwithstanding Seller’s efforts.

     Seller’s Obligations. Seller’s obligations hereunder are subject to Phelps Dodge’s mill schedule, government priorities and government regulations that may be issued from time to time.

     Risk of Loss; Title. Shipment shall be F.O.B. Buyer’s place of business, as indicated on the front page of this Supply Agreement and the risk of loss with respect to the Products, together with title to the Products, shall pass from Seller to Buyer at such time as the Products arrive at Buyer’s place of business; provided, however, if any Products are delivered by any person other than Seller or a common carrier under direct contract with Seller, Seller shall be obligated only to deliver the Products to Buyer or Buyer’s carrier at Seller’s plant, and the risk of loss shall pass to Buyer upon Buyer (or Buyer’s carrier) taking possession of the Products.

     Method of Shipment. Seller reserves the right to control the routing on all shipments. When other than Seller’s regular method of handling and shipments is used at Buyer’s request, any excess cost shall be charged to Buyer.

PRODUCTS; INSPECTION.

     Tolerances. Unless otherwise stated, the Products furnished shall be subject to Seller’s standard tolerances and variations in accordance with the most updated version of ASTM B49 in effect at the time of manufacture.

     Inspection. Inspection, if any, and final acceptance by Buyer, shall be made immediately upon receipt at Buyer’s designated receiving location. Any failure of Buyer to inspect the Products immediately upon receipt shall relieve Seller of any liability for any and all defects that should have been discoverable upon a reasonably thorough inspection.

NO WARRANTY. SELLER MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY PRODUCTS SOLD HEREUNDER. However, should any Product not conform to the most updated version of ASTM B 49 Standard Specification in effect at the time of manufacture set forth in the Supply Agreement and provided that Buyer gives Seller notice thereof within 30 days after date of shipments, Seller will either replace it F.O.B. the original point of delivery, or refund the purchase price, at Seller’s option. Seller shall have the right to require Buyer to return the defective Product to the appropriate mill, at Seller’s expense, unless such return is impracticable; the decision to accept non-conforming Product and the responsibility for arranging return, lies solely with Seller. The remedies provided herein are Buyer’s sole and exclusive remedies. Further, the parties expressly agree that Seller SHALL NOT BE SUBJECT TO ANY OTHER OBLIGATIONS OR LIABILITIES ARISING OUT OF BREACH OF CONTRACT, OR ANY WARRANTY, TORT OR OTHER CLAIM, OR ARISING UNDER THEORIES OF LAW WITH RESPECT TO PRODUCTS SOLD OR SERVICES RENDERED BY SELLER, AND SELLER SHALL NOT BE LIABLE FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR CONTINGENT DAMAGES WHATSOEVER. Without limiting the generality of the foregoing, Seller specifically disclaims any liability for penalties, special or punitive damages, damages for lost profits or revenues, loss of use of products or equipment, cost of capital, facilities or services, down time, shut-down or slow-down costs or for any other kinds or types of economic loss.

FORCE MAJEURE.

Seller. The occurrence of a contingency, the non-occurrence of which is a basic assumption upon which this Supply Agreement is made (including, without limitation, any act of God or of a belligerent power, war, riot, strike, slow-down, lockout, explosion, fire, flood, storm, accident to or breakdown or failure or other outage of plant equipment or machinery, shortage of labor, fuel, power, equipment, materials, or supplies, delay in scheduled start-up of a facility, insufficient transportation facilities or delay in transportation of product, equipment, material or supplies, irrespective of whether it is foreseen, foreseeable or anticipated), or compliance in good faith with any applicable foreign or domestic governmental request or regulation or order whether or not it later proves to be invalid (including, without limitation, any governmental request or regulation or order limiting production or relating to the environment, health or safety, or any governmental allocation, interference with, embargo or take-over of product or facilities, whether or not any of such matters are now in effect or foreseen, foreseeable or anticipated), that affects any of the mines, concentrators, smelters, refineries, rod mills or other facilities of Phelps Dodge or of any other copper producing company from which Phelps Dodge received copper, or that otherwise affects Seller’s ability to perform under this Supply Agreement as contemplated, by rendering Seller’s performance either impracticable or materially more burdensome, shall excuse a delay in the promised delivery and any non-delivery, in whole or in part, and shall give to Seller and Buyer the rights and obligations set forth in Sections 2-615 and 2-616 of the Uniform Commercial Code as in effect at the time in the State of Arizona (currently A.R.S. §§ 47-2615 and 47-2616). In addition, if good faith compliance with any applicable foreign or domestic governmental request or regulation or order, whether or not it later proves to be invalid, restricts Seller’s ability to modify at its discretion and its price in effect on the date of shipment for refined copper, Seller shall not be obligated to make shipments hereunder during the period in which its ability to is so restricted. Seller shall give Buyer reasonable notice of any election not to make shipments for this reason.

PATENT INDEMNIFICATION OF SELLER. Buyer shall indemnify Seller for any costs, expenses (including attorneys’ fees) and liability as a result of any patent infringement claims arising out of Buyer’s use, consumption or resale of the Products.

GENERAL PROVISIONS.

     No Assignment. This Supply Agreement shall not be assignable by Buyer, nor shall it inure to the benefit of any successor in interest of Buyer.

     Entire Agreement. This Supply Agreement and the Invoices constitute the entire agreement of the parties with respect to the sale of Products noted in this herein and therein, and supersede all prior oral or written agreements between the parties with respect to the subject matter hereof and thereof. No amendment or modification of this Supply Agreement shall be binding on either party unless it is in writing and signed by both parties.

     Arbitration. Any dispute or claim arising out of or in connection with this Supply Agreement or any Invoice, or any breach thereof, shall be resolved by arbitration in Phoenix, Arizona in accordance with the Rules of the American Arbitration Association. The award rendered by the arbitrator shall be binding on the parties and enforceable in any court of competent jurisdiction in the State of Arizona.

     Due Authority. Buyer warrants that it has full right, power and authority to enter into this Supply Agreement, and the representative signing it has been duly authorized to execute it on Buyer’s behalf.

     Governing Law. This Supply Agreement and the Invoices shall be governed by and construed in accordance with the laws of the State of Arizona, without regard to conflict of laws provisions.

     Heading. The headings used herein are for convenience only and are not intended to define, limit or describe the scope or intent of any provision herein.

     Severability. If any provision contained herein for any reason is held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof.

     Waiver. No waiver of any provision, or default under, this Sales Agreement, nor failure to insist in strict performance thereof will affect the right of Seller to thereafter enforce such provision or to exercise any right or remedy in the event of a default, whether or not similar.

EXHIBIT C-2

[FORM OF COPPER ROD SUPPLY AGREEMENT]

Buyer:	Rea Magnet Wire Company, Inc. (“Buyer”).
Seller:	Phelps Dodge Sales Company, Incorporated (“Seller”), a subsidiary of, and general sales agent for, Phelps Dodge Corporation and its subsidiaries and affiliates (“Phelps Dodge”).

Seller agrees to sell to Buyer, and Buyer agrees to buy from Seller, copper rod as provided in (a) this supply agreement (the “Supply Agreement”, which consists of (i) the sales contract (the “Sales Contract”) and (ii) other terms and conditions (the “Terms and Conditions”), each as set forth below, and (b) each related invoice (each, an “Invoice”), provided that the terms of the Sales Contract will govern in the event of any inconsistency with the Terms and Conditions and/or Invoice.

SALES CONTRACT

Product:

Copper Rod, conforming to the most updated version of ASTM Standard Specification B49 in effect at the time of manufacture (the “Product”).

Quantity:

Approximately 180,000,000 pounds, delivered according to the Delivery and Shipment Schedule set forth below and including the amounts (in pounds) set forth on Schedule A attached hereto.

Delivery and Shipment Schedule¹:

15,000,000 pounds per month January 1 – December 31, 2006²; F.O.B.

Buyer is to provide Seller with Buyer’s requested shipping schedule by the 20^th of each month prior to shipment.

Price (other than with respect to Schedule A):

Except with respect to any transaction set forth on Schedule A, the Product price per pound will be the sum of the applicable Seller premium for the month of shipment (the “Premium”), plus the COMEX HG copper price per pound using the pricing option selected by Buyer below (the “Base Price”). Seller will notify Buyer of any change in the Premium prior to the month of shipment. Subject to the Terms and Conditions herein, the following Base Price options are available to Buyer:

Standard Pricing: The Base Price will be the daily first position COMEX HG settlement price (closing price), averaged over the month of shipment. If no other pricing option is selected, Standard Pricing will govern. Any selection or change in pricing option by Buyer shall be effected by written notice to Seller as set forth below.

Alternative – Firm Pricing: During the month prior to the month of shipment, Buyer may fix the Base Price for any or all of the following month’s shipments at the COMEX HG contract price (for such month of shipment) for the day (or days) selected by Buyer (the “Firm Pricing Date”), provided that: (i) all Firm Pricing Dates must be a COMEX trading day during such prior month; (ii) each Firm Pricing Date must be on or after the date Buyer notified Seller of its intent to make that selection; (iii) no more than 50% of a monthly delivery amount may be fixed on any single Firm Pricing Date; and (iv) any remaining quantity of the following month’s shipments not priced firm will be priced in accordance with Standard Pricing (unless Buyer properly opts for “Off-Average” pricing on such remaining amount).

1	Agreement applies only to Product purchased in respect of and delivered to the Ft. Wayne Facility and the Monterrey Facility, each as defined by the Asset and Stock Purchase Agreement, dated as of November 15, 2005, by and among Phelps Dodge, Phelps Dodge Industries, Inc. and Buyer.
2	Agreement to terminate on December 31, 2007, it being understood that quantities supplied and delivery schedule for 2007 are to be determined.

Alternative – Off Average: During the month of shipment, Buyer may fix the Base Price of the Eligible Portion (defined below) of such month’s shipments to the first position COMEX HG price at any point during the trading day for the day (or days) selected by Buyer (the “Off-Average Pricing Date”); provided that: (i) all Off-Average Pricing Dates must be a COMEX trading day during the month of shipment; (ii) each Off-Average Pricing Date must be on or after the date Buyer notified Seller of its intent to make that selection; and (iii) no more than 50% of a monthly delivery amount may be fixed on any single Off-Average Pricing Date. If Buyer declares its intention to go “Off-Average” prior to the month of shipment, the Eligible Portion shall be its entire monthly shipment amount. If such declaration is made during the month of shipment, the Eligible Portion shall be that part of the total monthly shipment amount proportional to the number of trading days remaining in the month [ ] days after receipt of written notice of such dealer declaration (i.e., the remaining trading days divided by total trading days) and the shipment amount ineligible for Off-Average pricing shall be priced according to the month to-date average of the COMEX HG contract at the time Off-Average pricing is declared by Buyer.

Provisions Applicable to All Pricing Elections: (1) Alternative pricing elections will be binding on Seller only if Seller, in its sole discretion, hedges the transaction; (2) if Buyer has elected Off-Average pricing and has not fixed the Base Price of the entire Eligible Portion prior to the close of the last trading day of the COMEX HG contract for the month of shipment, the price of the unpriced Eligible Portion shall be fixed at the closing price on the last trading day of such relevant month’s COMEX HG contract; (3) Buyer may not seek Firm or Off-Average pricing during the last 15 minutes of trading on a trading day; (4) all Base Prices shall be established, at Seller’s sole discretion, based on the COMEX HG trading month of shipment or the next actively traded COMEX HG contract, adjusted to the month of shipment; and (5) if at any time, in Seller’s sole judgment, the COMEX HG contract is no longer representative of the price of copper for any reason, Seller will determine and notify Buyer of a new reference price. In such event and in Seller’s sole discretion, some or all of the alternative pricing options may not be available.

Schedule A Pricing:

In respect of each of the transactions set forth on Schedule A, Buyer agrees to buy from Seller the quantity of copper (in pounds) at such times and at such prices as set forth opposite each transaction identified on Schedule A by customer name.³

Payment Terms:

Invoices are due and payable within 60 days after the date of the invoice. Seller will issue provisional invoices for “Standard” and “Off-Average” Base Pricing, with pricing based on the COMEX HG settlement price for the last trading day of the month prior to delivery. Seller will issue a final adjusted invoice following the end of the calculation period for such Base Price elections, and: (i) any additional amounts due Seller shall be due and payable upon receipt of the final invoice; and (ii) any amounts due to Buyer will be credited against the following month’s invoice (or returned to Buyer in the absence of any future deliveries). Seller’s weights shall govern provisional and final settlement.

Termination:

Seller may declare a default by Buyer if Buyer fails to make any payment when due or fails to perform any other obligation of Buyer hereunder. Seller may also declare a default: (i) if Buyer becomes insolvent, admits in writing its inability to pay its debts, or bankruptcy (or similar) proceedings are instituted by or against it; (ii) if any representation, warranty or statement made by Buyer in, or in connection with, this Supply Agreement is or becomes untrue; (iii) in the event of any change in control of Buyer; or (iv) if, in Seller’s sole judgment, there has been a change in Buyer’s financial condition that adversely impacts Buyer’s ability to perform, or Seller’s rights and remedies, hereunder. In such event, Seller may, at its election, postpone or refuse to make any further pricing or deliveries, accelerate all unpaid amounts owed by Buyer, or

³ Each fixed price/quantity transaction between Buyer and Seller is linked to a back-to-back hedge agreement. The customers’ names for each transaction identified on Schedule A will be provided at Closing.

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terminate this Supply Agreement or any part thereof, without prejudice to any other remedies Seller has under applicable law.

Notices:

Notices shall be in writing and will be directed to the parties at their respective fax numbers set forth below.

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This Supply Agreement is entered into as of:

Rea Magnet Wire Company, Inc.		Phelps Dodge Sales Company, Incorporated
By:		By:
	Name:		Name: Stephen T. Higgins
	Title:		Title: Senior Vice President
Fax:		Fax: (602) 366-7305

TERMS AND CONDITIONS

     The Terms and Conditions to which the foregoing sale, as set forth on this Supply Agreement, is subject, are set forth below. Defined terms shall have the meaning set forth in the Sales Contract, unless otherwise defined below. Seller expressly conditions the sale upon Buyer assenting to these Terms and Conditions. By accepting delivery of the Products described in the Sales Contract of this Supply Agreement or in any related Invoice, Buyer expressly assents to the Terms and Conditions contained herein. SELLER OBJECTS TO, AND SHALL NOT BE BOUND BY BUYER’S PURCHASE ORDER, CONFIRMATION FORMS OR OTHER DOCUMENTS THAT ATTEMPT TO IMPOSE UPON SELLER ANY TERMS OR CONDITIONS AT VARIANCE WITH, OR IN ADDITION TO, SELLER’S TERMS AND CONDITIONS SET FORTH HEREIN. For administrative convenience, instructions, information and similar communications (“Instructions”) regarding shipments placed by Buyer or Seller shall have no effect to the extent that they are inconsistent with or supplement any of the terms, conditions or provisions of this Supply Agreement.

PRICE.

     Prices Subject to Change. Seller’s Premium is subject to change at any time at Seller’s sole discretion. All shipments to Buyer will be billed using Seller’s Premium in effect on the dates on which shipments are made.

     Other Changes Prohibited. Buyer shall have no option to change any quantity, size or specification, etc., of any Products subject to this Supply Agreement without prior written agreement of Seller.

     No Discounts. No price reduction or discount will be allowed for any cause other than as herein provided.

     Taxes. All federal, state and local sales, use, transaction privilege, occupation, processing, other excise and similar taxes imposed or levied upon this Supply Agreement or any Products delivered hereunder shall be the sole obligation of Buyer. To the extent not paid directly by Buyer, such taxes shall be added to the Invoices or separately invoiced to Buyer.

     Buyer’s Credit. Seller reserves the right to do any one or more of the following, whenever warranted based on the financial condition of Buyer, at Seller’s sole discretion: alter or suspend credit; modify any credit terms provided to Buyer; require cash payments or satisfactory security from Buyer before shipment; or accelerate the due date of payment by Buyer under any contract or order with Seller. Seller further reserves the right to retain possession of the Products and the right to stop Products in transit. At Seller’s option, any failure by Buyer to pay any Invoice when due shall cause all subsequent Invoices to be immediately due and payable in full, irrespective of their terms. Acceptance by Seller of any partial payment shall not waive any rights of Seller. Interest will be charged on the unpaid balance of past due accounts at the rate of two percent (2%) per month, or at the highest rate legally permitted if less than two percent per month. Nothing in this paragraph shall operate to limit or otherwise restrict Seller’s rights and remedies in the event of a default hereof by Buyer.

SHIPPING AND DELIVERY.

     Shipping Date. Buyer agrees that the delivery and shipment schedule on the front page of this Supply Agreement and any future schedules, or charges thereto, represent Seller’s best estimate of the date shipment will be made. Seller will use commercially reasonable efforts to make shipments and deliveries by those dates; however, Seller will not be in breach of this Supply Agreement if such shipments or deliveries are delayed notwithstanding Seller’s efforts.

     Seller’s Obligations. Seller’s obligations hereunder are subject to Phelps Dodge’s mill schedule, government priorities and government regulations that may be issued from time to time.

     Risk of Loss; Title. Shipment shall be F.O.B. Buyer’s place of business, as indicated on the front page of this Supply Agreement and the risk of loss with respect to the Products, together with title to the Products, shall pass from Seller to Buyer at such time as the Products arrive at Buyer’s place of business; provided, however, if any Products are delivered by any person other than Seller or a common carrier under direct contract with Seller, Seller shall be obligated only to deliver the Products to Buyer or Buyer’s carrier at Seller’s plant, and the risk of loss shall pass to Buyer upon Buyer (or Buyer’s carrier) taking possession of the Products.

     Method of Shipment. Seller reserves the right to control the routing on all shipments. When other than Seller’s regular method of handling and shipments is used at Buyer’s request, any excess cost shall be charged to Buyer.

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PRODUCTS; INSPECTION.

     Tolerances. Unless otherwise stated, the Products furnished shall be subject to Seller’s standard tolerances and variations in accordance with the most updated version of ASTM B49 in effect at the time of manufacture.

     Inspection. Inspection, if any, and final acceptance by Buyer, shall be made immediately upon receipt at Buyer’s designated receiving location. Any failure of Buyer to inspect the Products immediately upon receipt shall relieve Seller of any liability for any and all defects that should have been discoverable upon a reasonably thorough inspection.

NO WARRANTY. SELLER MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY PRODUCTS SOLD HEREUNDER. However, should any Product not conform to the most updated version of ASTM B 49 Standard Specification in effect at the time of manufacture set forth in the Supply Agreement and provided that Buyer gives Seller notice thereof within 30 days after date of shipments, Seller will either replace it F.O.B. the original point of delivery, or refund the purchase price, at Seller’s option. Seller shall have the right to require Buyer to return the defective Product to the appropriate mill, at Seller’s expense, unless such return is impracticable; the decision to accept non-conforming Product and the responsibility for arranging return, lies solely with Seller. The remedies provided herein are Buyer’s sole and exclusive remedies. Further, the parties expressly agree that Seller SHALL NOT BE SUBJECT TO ANY OTHER OBLIGATIONS OR LIABILITIES ARISING OUT OF BREACH OF CONTRACT, OR ANY WARRANTY, TORT OR OTHER CLAIM, OR ARISING UNDER THEORIES OF LAW WITH RESPECT TO PRODUCTS SOLD OR SERVICES RENDERED BY SELLER, AND SELLER SHALL NOT BE LIABLE FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR CONTINGENT DAMAGES WHATSOEVER. Without limiting the generality of the foregoing, Seller specifically disclaims any liability for penalties, special or punitive damages, damages for lost profits or revenues, loss of use of products or equipment, cost of capital, facilities or services, down time, shut-down or slow-down costs or for any other kinds or types of economic loss.

FORCE MAJEURE.

Seller. The occurrence of a contingency, the non-occurrence of which is a basic assumption upon which this Supply Agreement is made (including, without limitation, any act of God or of a belligerent power, war, riot, strike, slow-down, lockout, explosion, fire, flood, storm, accident to or breakdown or failure or other outage of plant equipment or machinery, shortage of labor, fuel, power, equipment, materials, or supplies, delay in scheduled start-up of a facility, insufficient transportation facilities or delay in transportation of product, equipment, material or supplies, irrespective of whether it is foreseen, foreseeable or anticipated), or compliance in good faith with any applicable foreign or domestic governmental request or regulation or order whether or not it later proves to be invalid (including, without limitation, any governmental request or regulation or order limiting production or relating to the environment, health or safety, or any governmental allocation, interference with, embargo or take-over of product or facilities, whether or not any of such matters are now in effect or foreseen, foreseeable or anticipated), that affects any of the mines, concentrators, smelters, refineries, rod mills or other facilities of Phelps Dodge or of any other copper producing company from which Phelps Dodge received copper, or that otherwise affects Seller’s ability to perform under this Supply Agreement as contemplated, by rendering Seller’s performance either impracticable or materially more burdensome, shall excuse a delay in the promised delivery and any non-delivery, in whole or in part, and shall give to Seller and Buyer the rights and obligations set forth in Sections 2-615 and 2-616 of the Uniform Commercial Code as in effect at the time in the State of Arizona (currently A.R.S. §§ 47-2615 and 47-2616). In addition, if good faith compliance with any applicable foreign or domestic governmental request or regulation or order, whether or not it later proves to be invalid, restricts Seller’s ability to modify at its discretion and its price in effect on the date of shipment for refined copper, Seller shall not be obligated to make shipments hereunder during the period in which its ability to is so restricted. Seller shall give Buyer reasonable notice of any election not to make shipments for this reason.

PATENT INDEMNIFICATION OF SELLER. Buyer shall indemnify Seller for any costs, expenses (including attorneys’ fees) and liability as a result of any patent infringement claims arising out of Buyer’s use, consumption or resale of the Products.

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GENERAL PROVISIONS.

     No Assignment. This Supply Agreement shall not be assignable by Buyer, nor shall it inure to the benefit of any successor in interest of Buyer.

     Entire Agreement. This Supply Agreement and the Invoices constitute the entire agreement of the parties with respect to the sale of Products noted in this herein and therein, and supersede all prior oral or written agreements between the parties with respect to the subject matter hereof and thereof. No amendment or modification of this Supply Agreement shall be binding on either party unless it is in writing and signed by both parties.

     Arbitration. Any dispute or claim arising out of or in connection with this Supply Agreement or any Invoice, or any breach thereof, shall be resolved by arbitration in Phoenix, Arizona in accordance with the Rules of the American Arbitration Association. The award rendered by the arbitrator shall be binding on the parties and enforceable in any court of competent jurisdiction in the State of Arizona.

     Due Authority. Buyer warrants that it has full right, power and authority to enter into this Supply Agreement, and the representative signing it has been duly authorized to execute it on Buyer’s behalf.

     Governing Law. This Supply Agreement and the Invoices shall be governed by and construed in accordance with the laws of the State of Arizona, without regard to conflict of laws provisions.

     Heading. The headings used herein are for convenience only and are not intended to define, limit or describe the scope or intent of any provision herein.

     Severability. If any provision contained herein for any reason is held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof.

     Waiver. No waiver of any provision, or default under, this Sales Agreement, nor failure to insist in strict performance thereof will affect the right of Seller to thereafter enforce such provision or to exercise any right or remedy in the event of a default, whether or not similar.

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EXHIBIT D

[FORM OF NON-COMPETITION AGREEMENT]

     This NON-COMPETITION AGREEMENT (this “Agreement”), dated as of                                          , 2005, by and among Phelps Dodge Corporation, a New York corporation (“PDC”), Phelps Dodge Industries, Inc., a Delaware corporation (“PDI” and together with PDC, the “Sellers” and each a “Seller”), and Rea Magnet Wire Company, Inc., a Delaware corporation (the “Purchaser”).

RECITALS

     WHEREAS, the Sellers and the Purchaser have entered into the Asset and Stock Purchase Agreement, dated as of November 15, 2005 (the “Purchase Agreement”), pursuant to which, among other things, the Business (as defined in the Purchase Agreement; capitalized terms used herein and not defined shall have the meanings set forth in the Purchase Agreement), including (i) all of the capital stock of Phelps Dodge Wire and Cable Holdings de Mexico S.A. de C.V., a company registered under the laws of the United States of Mexico and (ii) certain Assets, will be transferred at the Closing to the Purchaser or a designated Subsidiary thereof; and

     WHEREAS, in connection with the Purchase Agreement, and as a condition to Closing, the parties hereto are required to enter into this Agreement.

AGREEMENT

     NOW, THEREFORE, in consideration of the mutual promises contained herein and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

     1. Agreement Not to Compete.

     (a) Except as otherwise provided herein, during the Term (as defined below), Sellers shall not, and shall cause each of their respective Subsidiaries after the Closing not to, directly manage, control, participate in or conduct a Competing Business (as defined below). Effective immediately, each Seller shall, and shall cause its Subsidiaries to, cease providing any service or conducting any business that would constitute a Competing Business.

     (b) For purposes of this Non-Competition Agreement, “Competing Business” shall mean the manufacture, distribution or sale of magnet wire in North America. For avoidance of doubt, a Competing Business shall not include any of (i) any business operating solely outside North America, including, without

limitation, the People’s Republic of China and the Bolivarian Republic of Venezuela, which does not manufacture, distribute or sell magnet wire in North America, (ii) any services provided by the Sellers to the Purchaser or otherwise pursuant to any of the Ancillary Agreements, (iii) the operation of the business, as currently conducted, of the OTC, (iv) the manufacture for or distribution or sale of magnet wire for or to, Persons who are not Seller Affiliates outside North America, irrespective of whether such Persons may re-sell, re-distribute or otherwise transfer magnet wire or products of which magnet wire is a component into North America, (v) actions taken in respect of the Sellers’ facilities located in Laurinburg, North Carolina and El Paso, Texas, provided that the Sellers do not commence production of magnet wire at either facility during the Term, (vi) the manufacture, distribution and sale of bare wire, and (vii) direct or indirect beneficial ownership of any equity interest in or securities of, or any interest or securities convertible into any equity interest in or securities of, any Person (other than a Seller Affiliate, except as provided in Section 1(c)) that participates in or conducts a Competing Business. For the avoidance of doubt, this Section 1 shall not restrict the ordinary course conduct of the business of either Seller or any Subsidiary or Affiliate thereof to the extent such conduct or business does not constitute or include any Competing Business.

     (c) The purchase, merger or other acquisition by either Seller or any Subsidiary or Affiliate thereof (whether by asset or stock purchase, merger, other form of business combination or otherwise) with or of another Person or business (the “Acquired Entity”) that has or constitutes a Competing Business shall not be deemed a violation of Section 1(a) above; provided, that the Competing Business is divested or discontinued within 12 months of any such transaction.

     2. Term. For purposes of this Agreement, “Term” shall mean the period beginning on the date hereof and ending on the fifth anniversary of the Closing Date.

     3. Consideration. The Sellers acknowledge that (i) the covenants made by the Sellers pursuant to this Agreement are a material inducement for the Purchaser to enter into the Purchase Agreement and to consummate the transactions contemplated thereby, (ii) the Purchaser has bargained for the benefit of such covenants in connection with the negotiation of the Purchase Agreement and (iii) the Purchaser would not have agreed to enter into the Purchase Agreement and pay the Final Purchase Price (or to any other consideration or covenants) set forth therein without the Sellers’ agreement to enter into this Agreement and to provide the Purchaser the benefits conveyed hereby.

     4. Scope and Duration of Restrictions. The parties hereto hereby expressly agree that the duration, scope and geographic area of restrictions set forth in this Agreement are reasonable. In the event that any court of competent jurisdiction or

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arbitral panel shall hold that the duration, scope or area of restriction set forth herein is unreasonable under circumstances now or hereafter existing, the maximum duration, scope or area of restriction reasonable under such circumstances shall be substituted.

     5. Injunctive Relief. The Sellers acknowledge and agree that the covenants and obligations of the Sellers with respect to non-competition relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Purchaser irreparable injury for which adequate remedies are not available at law. Therefore, the Sellers agree that the Purchaser will be entitled to an injunction, restraining order or such other equitable relief as a court of competent jurisdiction may deem necessary or appropriate to restrain the Sellers from committing any violation of the covenants and obligations referred to in this Agreement. Any such injunction may be obtained without the necessity of posting a bond. These injunctive remedies are cumulative and in addition to any other rights and remedies the Purchaser may have at law or in equity.

     6. Miscellaneous.

     (a) Modification; Waiver. This Agreement may be amended or modified only by a written instrument executed by each of the parties hereto. Any of the terms and conditions of this Agreement may be waived in writing at any time by the party entitled to the benefits thereof.

     (b) Entire Agreement. This Agreement, together with the Purchase Agreement and the other Ancillary Agreements, constitute the entire agreement of the parties hereto with respect to the subject matter hereof, and supersede all other prior agreements and understandings, oral or written, express or implied, between the parties hereto and their respective Affiliates, representatives and agents in respect of the subject matter hereof and thereof, except that this Agreement does not supersede the Non-Disclosure Agreement, the terms and conditions of which the parties hereto hereby expressly reaffirm.

     (c) Notices. All notices, requests, demands and other communications made in connection with this Agreement shall be in writing and shall be deemed to have been duly given if delivered in accordance with Section 10.8 of the Purchase Agreement.

     (d) Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but shall not be assignable, by operation of law or otherwise, by a party hereto without the prior written consent of the other parties and any purported assignment or other transfer without such consent shall be void and unenforceable, except that the Purchaser may assign this Agreement to any of its

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Affiliates without the consent of the Sellers; provided, that no such assignment shall in any way affect the obligations or liabilities of the Purchaser under this Agreement, which obligations and liabilities shall remain in effect notwithstanding such assignment. Except as otherwise provided herein, nothing in this Agreement shall confer any rights upon any Person that is not a party hereto or a successor or permitted assignee of a party hereto.

     (e) Headings; Counterparts. The section headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument. This Agreement shall become effective when each party hereto has received a counterpart hereof signed by each other party hereto.

     (f) Facsimile. This Agreement, to the extent signed and delivered by means of facsimile transmission, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding effect as if it were the original signed version thereof delivered in person. No party hereto shall claim that this Agreement is invalid, not binding or unenforceable based upon the use of facsimile transmission to deliver a signature, or the fact that any signature or agreement or instrument was transmitted or communicated through the use of facsimile transmission, and each party hereto forever waives any such claim or defense.

     (g) Governing Law; Consent to Jurisdiction. This Agreement shall be governed, construed, performed and enforced in accordance with the laws of the State of New York without giving effect to its principles or rules of conflict of laws to the extent such principles or rules are not mandatorily applicable by statute and would require or permit the application of the laws of another jurisdiction. Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and for its property, to the exclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any court thereof, in any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of any judgment relating thereto, and each party hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. Each party hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each party hereto hereby irrevocably and unconditionally waives, to the fullest

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extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby in any New York State or Federal court. Each party hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. Each party hereto irrevocably consents to service of process in the manner provided for notices in Section 10.8 of the Purchase Agreement. Nothing in this Agreement will affect the right of any party to serve process in any other manner permitted by law.

     (h) Severability. If any provision, including any phrase, sentence, clause, section or subsection, of this Agreement is invalid, inoperative or unenforceable for any reason, such circumstances shall not have the effect of rendering such provision invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision herein contained invalid, inoperative or unenforceable to any extent whatsoever and a suitable and equitable provision shall be substituted for any such invalid, inoperative or unenforceable provision in order to carry out, so far as may be valid or enforceable, such provision.

     (i) No Third Party Beneficiaries. Nothing in this Agreement shall confer any rights upon any Person that is not a party hereto or a successor or permitted assignee of a party hereto.

     (j) Interpretation. The parties hereto have participated jointly in the negotiating and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation shall arise, this Agreement shall be construed as if drafted jointly and no presumption or burden of proof shall arise favoring or disfavoring any party hereto by virtue of the authorship of any provisions of this Agreement.

     7. Certain Waivers.

     (a) THE PARTIES TO THIS AGREEMENT EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER PUNITIVE, EXEMPLARY, LOST PROFITS, CONSEQUENTIAL, SPECIAL, INDIRECT OR SIMILAR DAMAGES IN ANY ARBITRATION, LAWSUIT, LITIGATION OR PROCEEDING ARISING OUT OF OR RESULTING FROM ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, EVEN IF ADVISED OF THE POSSIBILITY OR LIKELIHOOD OF THE SAME.

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     (b) EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY OR CLAIM WHICH MAY ARISE OUT OF OR RELATE TO THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     (c) EACH PARTY HERETO CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF THE FOREGOING WAIVERS, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (iv) IT HAS BEEN INDUCED TO ENTER INTO ANY OF THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.

[Remainder of page intentionally left blank.]

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

PHELPS DODGE CORPORATION
By
	Name:
	Title:
PHELPS DODGE INDUSTRIES, INC.
By
	Name:
	Title:
REA MAGNET WIRE COMPANY, INC.
By
	Name:
	Title:

EXHIBIT E

[FORM OF INTELLECTUAL PROPERTY LICENSE AGREEMENT]

     This INTELLECTUAL PROPERTY LICENSE AGREEMENT (“Agreement”), dated as of                                          , 2005 (“Effective Date”), by and between Phelps Dodge Industries, Inc., a Delaware corporation ( “Seller”), and Rea Magnet Wire Company, Inc., a Delaware corporation (“Purchaser”). Seller and Purchaser are referred to herein individually as a “Party,” and jointly as “Parties.”

     WHEREAS, Seller, Phelps Dodge Corporation and Purchaser are parties to an Asset and Stock Purchase Agreement, dated as of November 15, 2005 (“Purchase Agreement”), providing for the execution and delivery of this Agreement by Seller and Purchaser (capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Purchase Agreement); and

     WHEREAS, in connection with the Purchase Agreement, Seller has agreed to license the Licensed Intellectual Property (defined below) to Purchaser, and Purchaser desires to obtain such license pursuant to the terms of this Agreement.

     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser agree as follows:

     1. Definitions.

     Business: the manufacture, distribution and sale of magnet wire and bare wire by Purchaser at any facility of Purchaser in North America, including the Facilities.

     Goods: magnet wire and bare wire manufactured, distributed and sold by Purchaser in the Business.

     Licensed Intellectual Property: the intellectual-property items identified on Schedule A hereto.

     Trademarks: the trademarks identified on Schedule A hereto.

     Trademark Term: two years from the Effective Date.

     2. License Grant.

     (a) Subject to the terms and conditions hereof, Seller hereby grants to Purchaser a non-exclusive, perpetual (but as to patents, only so long as each such patent is valid and enforceable), irrevocable, royalty-free and transferable (subject to Section 10(e)) license to use, including the right to modify, reproduce, display, perform, distribute, improve, and create derivative works from (as applicable) the Licensed Intellectual Property (other than Trademarks), and to make, have made, sell and offer to sell the Goods using or incorporating the Licensed Intellectual Property (other than the Trademarks) in the Business as conducted now or in the future, with the right to sublicense its rights subject to Section 3.

     (b) Seller hereby grants to Purchaser a non-exclusive, royalty-free license to use the Trademarks on or in connection with the Goods during the Trademark Term, with the right to sublicense subject to Section 3, it being understood that such license shall not include the right to use the name and mark “Phelps Dodge,” “PD” or any name or mark similar thereto or derived therefrom.

     (c) If Purchaser creates derivative works from and/or makes improvements to any Licensed Intellectual Property (collectively, the “Improvements”), as between Seller and Purchaser, Purchaser shall have sole and exclusive title and ownership to the Improvements; provided, however, Purchaser shall use any Improvement only in the same manner as it is permitted to use the Licensed Intellectual Property under this Agreement. Purchaser shall promptly inform Seller in writing of any Improvement it creates.

     (d) Notwithstanding the foregoing, Purchaser may sell the Goods using or incorporating the Licensed Intellectual Property to customers for use outside of North America so long as the Goods are manufactured exclusively by Purchaser at its facilities in North America; provided, however, Purchaser may manufacture enamels incorporating the applicable Licensed Intellectual Property (“Enamels”) for use in connection with the Goods only at its facilities in the United States. Purchaser may manufacture the Enamels at any of its non-U.S. North-American facilities only upon the prior written consent of Seller.

     (e) Purchaser agrees for itself and any permitted sublicensee that it shall not, and shall cause its sublicensees not to, use any of the Licensed Intellectual Property except as expressly permitted herein.

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     3. Sublicense. Purchaser may sublicense any of the rights granted to it hereunder only upon the prior written consent of Seller; provided, however, Purchaser’s sublicensee shall execute a sublicense agreement consistent with the applicable terms of this Agreement under which Seller shall be a third-party beneficiary; provided, further, Purchaser shall remain liable for any breach or default of such applicable terms by any of its sublicensees. Upon the effective date of any such sublicense, the definitions of Goods and Business contained herein shall be deemed to include the Goods and Business of any such permitted sublicensee.

     4. Access to Employees. For one (1) year from the Effective Date, to the extent that Seller needs to consult any U.S. Transferred Employee or Monterrey Company Employee, as the case may be, with respect to his or her knowledge of the Licensed Intellectual Property, Purchaser shall, upon Seller’s prior notice, provide Seller access to such employee.

     5. Quality Control.

     (a) Purchaser agrees to use the Trademarks only on or in connection with the Goods meeting commercially reasonable standards of quality (“Quality Standards”) that equal or exceed the quality of similar Goods heretofore manufactured, distributed and sold by Seller or its Affiliates, the quality of which is known to Purchaser. From time to time, upon request of Seller and at Seller’s expense, Purchaser shall make available to Seller for Seller’s inspection representative samples of the Goods showing Purchaser’s use of the Trademarks.

     (b) If Seller notifies Purchaser that any use by Purchaser of a Trademark does not meet the Quality Standards, Purchaser shall use best efforts to cure such defect, or if Purchaser is unable to do so, discontinue such non-conforming use.

     6. Trademark Use.

     (a) Purchaser shall not (i) change or modify the Trademarks, (ii) create any design variation of the Trademarks, and (iii) join any name, mark or logo with the Trademarks forming a composite trade name or mark. Purchaser shall not use the Trademarks in any manner that would reasonably be expected to dilute, tarnish or disparage Seller or its Affiliates or the Trademarks.

     (b) Purchaser shall affix to the Goods bearing a Trademark the following legend: “The [Trademark] is a [registered] mark owned by Phelps Dodge Industries, Inc. and is used under license.”

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     7. Disclaimers.

     (a) Purchaser acknowledges that Seller shall not assume any liability for any loss, liability, damage, or cost incurred by Purchaser in connection with Purchaser’s (i) practice of any processes utilizing, or sale of products using or incorporating, the applicable Licensed Intellectual Property, or (ii) exercise of its rights under this Agreement, including modifications of the Licensed Intellectual Property.

     (b) EXCEPT AS SPECIFIED IN THIS AGREEMENT, ALL EXPRESS OR IMPLIED REPRESENTATIONS AND WARRANTIES, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE, ARE HEREBY DISCLAIMED BY THE PARTIES.

     8. Indemnity. From and after the Closing, Purchaser shall, and shall cause its Affiliates to, indemnify and hold Seller harmless from and against any Damages (whether or not resulting from third-party claims) incurred or sustained by Seller as a result of (i) the non-fulfillment of any covenant contained in this Agreement on the part of Purchaser, (ii) alleged or actual infringement or misappropriation by Purchaser of a third party’s rights in any Intellectual Property, and (iii) Purchaser’s failure to comply with laws and regulations applicable to the Licensed Intellectual Property.

     9. Confidentiality.

     (a) In connection with the license granted herein, Seller may provide Purchaser certain information deemed to be confidential and/or proprietary to Seller (“Confidential Information”). Purchaser shall, and shall cause each of its officers, directors and employees to, keep such Confidential Information confidential.

     (b) The confidentiality obligations of Purchaser shall not apply to information that (i) is in the public domain at the time of the Closing, (ii) is rightfully communicated to Purchaser by persons not bound by confidentiality obligations with respect thereto, (iii) is already in Purchaser’s possession free of any confidentiality obligation, (iv) enters the public domain not as a result of a breach of this Agreement by Purchaser, or (v) is independently developed after the Closing without the aid, application or use of any information that it is obligated to maintain as confidential under this Section 9, as evidenced by a written record proving such independent development.

     (c) In the event Purchaser shall be required by law or government order to disclose any Confidential Information, Purchaser shall, promptly after learning of such requirement, notify Seller of any such requirement pursuant to Section 10(d) hereof. At Seller’s expense, Purchaser shall (i) take all necessary steps requested by Seller to defend against the enforcement of such order, and (ii) permit Seller to intervene and participate with counsel of their choice in any proceeding relating to the enforcement of such order.

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     10. General Provisions.

     (a) Modification; Waiver. This Agreement may be amended or modified only by a written instrument executed by each of the Parties. Any of the terms and conditions of this Agreement may be waived in writing at any time by the Party entitled to the benefits thereof.

     (b) Entire Agreement. This Agreement, including Schedule A (which constitutes an integral part of this Agreement), together with the Purchase Agreement and the other Ancillary Agreements, constitute the entire agreement of the Parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, oral or written, express or implied, between the Parties and their respective Affiliates, representatives and agents in respect of the subject matter hereof.

     (c) Further Actions. Each Party shall execute and deliver such certificates and other documents and take such other actions as may reasonably be requested by the other Party in order to consummate or implement the transactions contemplated hereby.

     (d) Notices. All notices, requests, demands and other communications made in connection with this Agreement shall be in writing and shall be deemed to have been duly given if delivered in accordance with Section 10.8 of the Purchase Agreement.

     (e) Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns, but shall not be assignable, by operation of law or otherwise, by Purchaser without the prior written consent of Seller and any purported assignment or other transfer without such consent shall be void and unenforceable.

     (f) No Third-Party Beneficiaries. Nothing in this Agreement shall confer any rights upon any Person that is not a party or a successor or permitted assignee of a Party.

     (g) Headings; Counterparts. The section headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof. This Agreement may be executed in any number of counterparts, each of which shall constitute one and the same instrument. This Agreement shall become effective when each Party shall have received a counterpart hereof signed by each other Party.

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     (h) Facsimile. This Agreement, to the extent signed and delivered by means of facsimile transmission, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding effect as if it were the original signed version thereof delivered in person. No Party shall claim that this Agreement is invalid, not binding or unenforceable based upon the use of facsimile transmission to deliver a signature, or the fact that any signature or agreement or instrument was transmitted or communicated through the use of facsimile transmission, and each Party forever waives any such claim or defense.

     (i) Severability. If any provision, including any phrase, sentence, clause, section or subsection, of this Agreement is invalid, inoperative or unenforceable for any reason, such circumstances shall not have the effect of rendering such provision invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision herein contained invalid, inoperative or unenforceable to any extent whatsoever and a suitable and equitable provision shall be substituted for any such invalid, inoperative or unenforceable provision in order to carry out, so far as may be valid or enforceable, such provision.

     (j) Governing Law. This Agreement shall be governed, construed, performed and enforced in accordance with the laws of the State of New York without giving effect to its principles or rules of conflict of laws to the extent such principles or rules are not mandatorily applicable by statute and would require or permit the application of the laws of another jurisdiction.

     (k) Consent to Jurisdiction.

     (i) Each of the Parties hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any court thereof, in any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of any judgment relating thereto, and each Party hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. Each Party agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

     (ii) Each Party hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby in any New York State or Federal court. Each Party hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

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     (iii) Each Party irrevocably consents to service of process in the manner provided for notices in Section 10(d). Nothing in this Agreement will affect the right of any Party to serve process in any other manner permitted by law.

     (l) Waiver of Punitive and Other Damages and Jury Trial.

     (i) THE PARTIES TO THIS AGREEMENT EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER PUNITIVE, EXEMPLARY, LOST PROFITS, CONSEQUENTIAL, SPECIAL, INDIRECT OR SIMILAR DAMAGES IN ANY ARBITRATION, LAWSUIT, LITIGATION OR PROCEEDING ARISING OUT OF OR RESULTING FROM ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, EVEN IF ADVISED OF THE POSSIBILITY OR LIKELIHOOD OF THE SAME.

     (ii) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY OR CLAIM WHICH MAY ARISE OUT OF OR RELATE TO THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     (iii) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF THE FOREGOING WAIVERS, (B) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (C) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10(l).

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     (m) Specific Performance. Each of the Parties acknowledges and agrees that, in the event of any breach of this Agreement, the non-breaching Party would be irreparably and immediately harmed and remedy could not be made whole by monetary damages. It is accordingly agreed that the Parties (i) shall be entitled, in addition to any other remedy to which they may be entitled at law or in equity, to compel specific performance of this Agreement in accordance with any action instituted in accordance with Section 10(k) and (ii) shall waive, in any action for specific performance, the defense of the adequacy of a remedy at law.

     (n) Interpretation. The Parties have participated jointly in the negotiating and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation shall arise, this Agreement shall be construed as if drafted jointly and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement.

     IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first above written.

PHELPS DODGE INDUSTRIES, INC.
By
	Name:
	Title:
REA MAGNET WIRE COMPANY, INC.
By
	Name:
	Title:

8

EXHIBIT F

[FORM OF BILL OF SALE, ASSIGNMENT AND ASSUMPTION]

     This BILL OF SALE, ASSIGNMENT AND ASSUMPTION (this “Bill of Sale”) is made and entered into as of                                          , 2005, by and among Phelps Dodge Corporation, a New York corporation (“PDC”), Phelps Dodge Industries, Inc., a Delaware corporation (together with PDC, the “Sellers” and each a “Seller”) and Rea Magnet Wire Company, Inc., a Delaware corporation (the “Purchaser”), under the Asset and Stock Purchase Agreement, dated as of November 15, 2005 (the “Purchase Agreement”), among the Sellers and Rea. Capitalized terms used herein and not defined shall have the meanings set forth in the Purchase Agreement.

     WHEREAS, the Purchase Agreement provides, upon the terms and conditions set forth therein, for the sale, assignment and transfer by the Sellers of the Assets (as defined below) to the Purchaser.

     NOW, THEREFORE, in consideration of the payment by the Purchaser of the Final Purchase Price pursuant to the Purchase Agreement and in further consideration of the mutual covenants and agreements contained in the Purchase Agreement, the receipt and sufficiency of which are hereby acknowledged, the Sellers hereby covenant and agree as follows:

     1. The Sellers hereby sell, assign and transfer to the Purchaser, and the Purchaser hereby purchases and acquires from the Sellers, free and clear of all Liabilities (other than Assumed Liabilities) and Liens (other than Permitted Liens), all of the Sellers’ right, title and interest in the assets and property, tangible or intangible, set forth in clauses (a)-(m) of this clause 1 and in Schedule 1.2(b) to the Purchase Agreement (collectively, the “Assets”):

     (a) machinery, equipment, tools, dies, blueprints, office equipment, computer hardware, furniture, furnishings and similar property primarily related to or used in the Business (including the Monterrey PDI Assets), as set forth in Schedule 1.1(a) to the Purchase Agreement;

     (b) real property, including the Ft. Wayne Facility, as set forth in Schedule 1.1(b) to the Purchase Agreement, together with the buildings, improvements, fixtures, easements and other attachments or appurtenances thereto;

     (c) rights (as lessor or lessee) under leases of real and personal property primarily related to or used in the Business (including the Bentonville Lease), as set forth in Schedule 1.1(c) to the Purchase Agreement;

     (d) spare parts, operating and other supplies primarily related to or used in the Business (the “Supplies”), including Supplies purchased prior to or on the Closing Date and in transit to the Facilities;

     (e) inventories of raw materials, work in process and finished products primarily related to or used in the Business (the “Inventories”), including Inventories purchased prior to or on the Closing Date and in transit to the Facilities;

     (f) all accounts and notes receivable, deferred charges, chattel paper and other rights to receive payments that are primarily related to or used in the Business (other than any inter-company receivables or payables with the Sellers or any of their Affiliates, whether or not related to or used in the Business);

     (g) rights of the Sellers under all Contracts primarily related to or used in the Business, including Contracts with existing customers and any other Contracts set forth in Schedule 3.5 to the Purchase Agreement;

     (h) all existing records, invoices, customer lists, supplier lists, mailing lists and other data owned by the Sellers and primarily related to or used in the Business that were created within five years of the date hereof, including production reports, service and warranty records, equipment and inventory logs, operating guides and manuals, financial and accounting records, sales records, purchasing records, manufacturing records, safety records, environmental records and correspondence files (collectively, the “Business Records”);

     (i) all federal, state or local governmental or regulatory permits, licenses, approvals and franchises primarily related to or used in the Business as set forth in Schedule 1.1(i) to the Purchase Agreement;

     (j) all Intellectual Property owned by the Sellers and used or held for use exclusively by the Facilities, as set forth in Schedule 1.1(j) to the Purchase Agreement;

     (k) all prepaid expenses of the Sellers to the extent primarily related to the Business;

     (l) all right, title and interest in and to all operating telephone and facsimile numbers exclusively related to the Business that under existing agreements, regulations and Law may be transferred to the Purchaser on the Closing Date; and

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     (m) the Licenses and copies of the computer software and existing program documentation covered by such Licenses and in Sellers’ possession on the date hereof, as set forth in Schedule 1.1(m) to the Purchase Agreement.

     TO HAVE AND TO HOLD, all and singular, for its own use and behoof forever, the Assets hereby sold, assigned and transferred, or intended so to be, unto the Purchaser, its successors and assigns forever.

     2. Notwithstanding anything to the contrary in this Bill of Sale, and except as set forth in clause 1 above, the Sellers will retain and not transfer, and the Purchaser will not purchase or acquire, any right, title or interest in any assets or property, tangible or intangible, of any Seller or any Seller Affiliate (collectively, the “Excluded Assets”), including without limitation:

     (a) Intellectual Property owned by the Sellers and not exclusively used or held for use by the Facilities, including, without limitation, (i) the name and mark “Phelps Dodge” or “PD” or any name or mark similar thereto or derived therefrom and (ii) each of the Excluded Marks;

     (b) the One Technology Center (“OTC”) and any assets or property related to OTC, except for such assets or property of OTC as are set forth in Schedule 1.2(b) to the Purchase Agreement;

     (c) all real property, buildings, improvements, fixtures, easements, rights of way, other attachments or appurtenances, leaseholds, machinery, equipment, tools, dies, blueprints, spare parts, operating supplies, office equipment, computer hardware, furniture, furnishings and similar property and any and all other right, title and interest in or to any and all real and personal property of the Sellers that are not primarily related to or used in the Business, including, without limitation, assets and properties related to or used in any of the Phelps Dodge Magnet Wire (Suzhou) Facility, the Plant Road, Laurinburg, North Carolina facility or the Pan American Center, 9541 Plaza Circle, El Paso, Texas facility;

     (d) all accounts and notes receivable, deferred charges, chattel paper and other rights to receive payments that are not primarily related to or used in the Business and all inter-company receivables and payables with Sellers or any of their Affiliates, whether or not related to or used in the Business;

     (e) all bank accounts and Cash of the Sellers;

     (f) all records prepared in connection with the sale of the Business, including, without limitation, bids received from third Persons and analyses relating to the Business;

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     (g) subject to Section 1.5 of the Purchase Agreement, all Licenses, leases and other Contracts not assignable by the Sellers to the Purchaser without expense to the Sellers;

     (h) all rights to any refund, credit or related deposit of Taxes, including any prepaid Taxes in respect of the PD Mexico Group and deferred taxes relating to Pre-Closing Tax Periods;

     (i) all personnel records and any Business Record that includes information relating to any business not conducted at the Facilities;

     (j) assets located at the warehouse controlled by Don R. Fruchey Inc. as set forth on Schedule 1.2(j) to the Purchase Agreement; and

     (k) all assets or rights of any kind relating to an Excluded Liability.

     3. Notwithstanding clauses 1 and 2 above, and subject to the terms and conditions set forth in the Purchase Agreement, the Purchaser hereby assumes and agrees to pay, honor and discharge when due all of the following Liabilities (collectively, the “Assumed Liabilities”):

     (a) any and all (i) Taxes arising out of, relating to or in respect of the Business for all taxable periods other than the Pre-Closing Tax Periods and (ii) Transfer Taxes;

     (b) any and all Liabilities, obligations and commitments arising out of or relating to the Assets or the Business prior to the Closing, including the Trade Accounts Payable and Accrued Expenses and any other Liabilities included in the Closing Balance Sheet, with the exception of the deferred U.S. Income Tax liabilities;

     (c) any and all Liabilities, obligations or commitments arising out of or relating to the Assets or the Business at and following the Closing;

     (d) any and all Liabilities, obligations or commitments arising out of or relating to the PD Mexico Group; and

     (e) any and all Liabilities, obligations or expenses allocated to the Purchaser under Article VI of the Purchase Agreement.

     4. Further, except as set forth in clause 3 above, the Purchaser shall not assume any Liabilities, obligations or commitments that are not Liabilities, obligations or commitments arising out of or relating to the Assets or the Business, except to the extent included in the Closing Balance Sheet (other than deferred U.S. Income Tax Liabilities) (the “Excluded Liabilities”), including:

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     (a) any and all Taxes arising out of, relating to or in respect of the U.S. Facilities imposed on the Sellers for any Pre-Closing Tax Period;

     (b) any and all Liabilities resulting from any judicial or administrative proceeding pending as of the date hereof relating to the Business or the Assets;

     (c) any and all Liabilities resulting from any collective bargaining agreements and Benefit Plans applicable to the U.S. Company Employees; and

     (d) any and all Liabilities allocated to the Sellers under Article VI hereof.

     5. Each Seller shall at any time, and from time to time after the Closing, execute and deliver to the Purchaser such further conveyances, assignments and other written assurances and take such other actions as the Purchaser may reasonably request in order to vest and confirm in the Purchaser (or its assignees) the right, title and interest to and in the Assets to be and intended to be sold, assigned and transferred hereunder.

     6. This Bill of Sale is intended to evidence the consummation of the transactions contemplated by the Purchase Agreement. This Bill of Sale is made without representation or warranty except as provided in and by the Purchase Agreement. This Bill of Sale is in all respects subject to the provisions of the Purchase Agreement and is not intended in any way to supersede, limit or qualify any provision of the Purchase Agreement.

[Remainder of page intentionally left blank.]

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     IN WITNESS WHEREOF, the Sellers have caused this Bill of Sale to be executed and delivered effective as of the date first written above.

PHELPS DODGE CORPORATION
By
	Name:
	Title:
PHELPS DODGE INDUSTRIES, INC.
By
	Name:
	Title:
REA MAGNET WIRE COMPANY, INC.
By
	Name:
	Title:

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EXHIBIT G

Ft. Wayne Facility¹

PARCEL V:

A parcel of real estate in Allen County, Indiana, described as follows, to-wit: A parcel of real estate lying in the Northwest Quarter of the Southeast Quarter and in the West Half of the East Half of the Southeast Quarter of Section 8, Township 30 North, Range 13 East, more fully described as follows:

BEGINNING at a point where the East and West Half Section line of Section 8, Township 30 North, Range 13 East intersects the East property line of the Fort Wayne Union Railroad extended North, said Point of Beginning being 646.4 feet East of the intersection of the original centerline of the Bueter Road and the centerline of New Haven Avenue; thence East along said Half Section line of centerline of New Haven Avenue 700 feet to a point; thence South along a line parallel to the original centerline of the Bueter Road 1177.5 feet, more or less, to an intersection with the East property line of the Fort Wayne Union Railroad; thence Northwesterly along the East right-of-way line of the Fort Wayne Union Railroad to the Place of Beginning, containing 11.43 acres, more or less.

PARCEL VI:

Part of the Northeast Quarter of Section 8, Township 30 North, Range 13 East, Allen County, Indiana, more particularly described as follows, to-wit: COMMENCING at the Southeast corner of said Northeast Quarter; thence South 89 degrees 10 minutes 20 seconds West (bearings in this description are based on the Indiana Department of Highways bearing for New Haven Avenue), on and along the South line of said Northeast Quarter, a distance of 1678.03 feet to the Southeast corner of the West 14.52 chains (958.32 feet) of said Northeast Quarter; thence North 00 degrees 56 minutes 30 seconds West, on and along the East line of said West 14.52 chains and parallel to the West line of said Northeast Quarter, a distance of 35.37 feet to a point on the North right-of-way line of New Haven Avenue, this being the True Point of Beginning; thence North 00 degrees 56 minutes 30 seconds West, continuing along the East line of said West 14.52 chains and parallel to the West line of said Northeast Quarter, a distance of 660.98 feet; thence North 89 degrees 22 minutes 50 seconds East, a distance of 135.58 feet; thence South 00 degrees 58 minutes East, a distance of 67.23 feet; thence North 89 degrees 21 minutes 30 seconds East, a distance of 91.76 feet; thence South 00 degrees 43 minutes

¹ The legal description of the Ft. Wayne Facility will be subject to verification by an ALTA survey of the Property by Purchaser as set forth in Section 5.9.1 of the Purchase Agreement.

East, a distance of 211.40 feet; thence North 89 degrees 01 minutes 30 seconds East, a distance of 21.82 feet; thence South 03 degrees 22 minutes East, a distance of 195.12 feet; thence North 88 degrees 42 minutes East, a distance of 9.42 feet; thence South 07 degrees 38 minutes East, a distance of 36.51 feet; thence South 00 degrees 39 minutes 30 seconds East, a distance of 150.4 feet to a point on the North right-of-way line of New Haven Avenue; thence South 89 degrees 09 minutes West, on and along said North right-of-way line being situated 44.0 feet normally distant Northerly of and parallel to the centerline of said New Haven Avenue as said centerline is defined by Line “E” on Indiana Department of Highways Plans for Project No. 365 dated 1953, a distance of 269.53 feet to the True Point of Beginning, containing 3.597 acres of land.

EXCEPT:

Part of the Northeast Quarter of Section 8, Township 30 North, Range 13 East, Allen County, Indiana, and lying South of and adjacent to the Northwesterly portion of a 29.576 acre tract as described in Document Number 91-32975 in the Office of the Recorder of said County, in particular described as follows, to-wit:

COMMENCE on the East line of the West 14.52 chains of the Northeast Quarter of said Section 8 at a point situated North 00 degrees 56 minutes 30 seconds West (bearing for this description as based upon the East line of the West 14.52 chains as contained in Document Number 91-32975 aforesaid), 696.35 feet North of the Southeast corner thereof as coincident with a Southwesterly corner of the 29.576 acre tract aforesaid; thence North 89 degrees 22 minutes 50 seconds East along a line of said 29.576 acres, a distance of 135.58 feet, more or less, to a P.K. nail found at a corner of said 29.576 acres; thence South 00 degrees 58 minutes East along a Westerly line of said 29.576 acres and the extension produced Southerly, a distance of 168.63 feet to the magnetic nail set; thence South 89 degrees 22 minutes 50 seconds West, a distance of 135.65 feet, more or less, to the East line of the West 14.52 chains of said Northeast Quarter; thence North 00 degrees 56 minutes 30 seconds West along said line, a distance of 168.63 feet to the Point of Beginning, containing 22868 square feet or 0.525 acres, more or less, of land.

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EXHIBIT H

Monterrey Facility¹

POLYGON number 3, located at Parque Industrial Nacional, Cienega de Flores, Nuevo Leon, with the following measurements and bordering: from point 9 to 11, heading SW75°32’56”, measures 270.00 meters adjacent to polygon number 1; from point 11 to 7, heading SE14°32’33”, measures 270.00 meters adjacent polygon number 2; from point 7 to 8, heading NE75°33’4”, measures 270.00 meters adjacent first stage of Parque Industrial Nacional, and from point 8 to 9, heading NW14°24’11” measures 270 meters and is adjacent to the Monterrey-Laredo Highway, with a total surface of 72,900.00 meters.

¹ The legal description of the Monterrey Facility will be subject to verification by a survey of the Property by Purchaser as set forth in Section 5.9.1 of the Purchase Agreement.

EX-10.33

Exhibit 10.33

PHELPS DODGE CORPORATION RETIREE MEDICAL PLAN
WELFARE BENEFIT TRUST

     THIS AGREEMENT, effective as of the 15th day of December, 2005, is made between PHELPS DODGE CORPORATION, a New York corporation with offices located in Phoenix, Arizona, herein referred to as the “Company”, and THE NORTHERN TRUST COMPANY, an Illinois corporation of Chicago, Illinois, herein referred to as the “Trustee”, and constitutes a trust agreement to be known as the PHELPS DODGE CORPORATION RETIREE MEDICAL PLAN WELFARE BENEFIT TRUST agreement under which the Trustee is accepting appointment as successor trustee.

     The Company intends that this trust qualifies as a tax exempt trust of a voluntary employees’ beneficiary association within the meaning of section 501(c)(9) of the Code and the regulations issued thereunder and complies with the requirements of ERISA. The income of the Trust may be subject to unrelated business income tax and the Investment Committee shall notify the Trustee if such tax applies. The exclusive purpose of the association is to provide benefits described by the Plan to those Participants and Beneficiaries entitled to such benefits under the Plan.

     With respect to each Plan for which this agreement is adopted by the Company or a Subsidiary as the funding medium, the Company or Subsidiary shall appoint the Trustee as trustee under this trust agreement, and the Company or Subsidiary shall direct the Trustee as trustee to add the assets transferred to the Trustee by the predecessor trustee to the assets of the Trust Fund and shall appoint the Administrative Committee as the fiduciary which has the responsibility for administering the Plan and the Investment Committee as the fiduciary which has the responsibility for Plan investments.

     The Trust Fund shall consist of all assets held by the Trustee as of the date of this agreement or thereafter acquired by the Trustee as trustee or successor trustee with respect to a Plan for which this agreement is adopted as the funding medium, all investments and reinvestments thereof and all additions thereto by way of contributions, earnings and increments, and shall be held upon the following terms.

ARTICLE ONE: DEFINITIONS

     For purposes of this agreement:

     1.1 “Administrative Committee” means the committee as constituted from time to time which has the responsibility for administering each Plan and shall be deemed for purposes of ERISA to be the Plan administrator and the named fiduciary for Plan administration, which committee as of the effective date of this Agreement shall be the Phelps Dodge Corporation Benefits Administration Committee;

     1.2 “Beneficiary” means a person designated to receive a benefit under a Plan after the death of a Participant;

     1.3 “Benefit Account” means the assets of the Trust Fund which are allocated to a checking account for payment of benefits in accordance with the terms and conditions of the Plan to be disbursed by the Administrative Committee or its Representative;

     1.4 “Code” means the Internal Revenue Code of 1986, as amended;

     1.5 “Company” means Phelps Dodge Corporation and any corporation which is the successor thereto;

     1.6 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and as in effect from time to time, and any regulations thereunder;

     1.7 “General Account” means the assets of the Trust Fund, excluding any assets in the Benefit Account, which may be held in one or more Separate Accounts and, with the Trustee’s written consent, a Trustee Investment Account;

     1.8 “Investment Adviser” means an Investment Manager to whom the Investment Committee has delegated investment responsibility for a Separate Account or the Investment Committee with respect to any assets of the Trust Fund for which the Investment Committee has investment responsibility;

     1.9 “Investment Committee” means the committee as constituted from time to time (which committee as of the adoption of this Agreement shall be the Phelps Dodge Corporation Trust Investment Committee) which has the responsibility for allocating the assets of the Trust Fund among the Separate Accounts and any Trustee Investment Account, for monitoring the diversification of the investments of the Trust Fund, for assuring that no Plan violates any provision of ERISA limiting the acquisition or holding of “employer securities” or other “employer real property” and for the appointment and removal of Investment Advisers and shall be deemed for purposes of ERISA to be the named fiduciary for Plan investments;

     1.10 “Investment Manager” means an investment manager as defined in Section 3(38) of ERISA, which is appointed by the Investment Committee to manage a Separate Investment Account, but the Trustee shall have no responsibility to determine whether a person or entity acting as an Investment Manager meets or continues to meet this definition;

     1.11 “Participant” means a former employee of the Company or of a Subsidiary who is participating in the Plan; is deemed to be a retiree for purposes of the Plan; and is not a “key employee” as defined in the Plan, all as determined by the Administrative Committee in accordance with the terms and conditions of the Plan;

     1.12 “Plan” means the Phelps Dodge Corporation Retiree Medical Plan;

     1.13 “Plan Account” means the interest of each Plan in the Trust Fund;

     1.14 “Representative” means the person or persons appointed by the Administrative Committee to determine and disburse benefits from the Benefit Account in accordance with the terms and conditions of the Plan;

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     1.15 “Separate Account” means a Separate Investment Account or a Separate Insurance Contract Account;

     1.16 “Separate Insurance Contract Account” means assets of the Trust Fund allocated by the Investment Committee to an account of the Trust for investment in insurance contracts directed by the Investment Committee;

     1.17 “Separate Investment Account” means assets of the Trust Fund allocated by the Investment Committee to an account of the Trust which is to be managed by an Investment Manager or the Investment Committee;

     1.18 “Subsidiary” means a subsidiary or affiliate of the Company;

     1.19 “Trust” means this instrument and the trust evidenced thereby, as amended from time to time;

     1.20 “Trust Fund” means all assets subject to this agreement;

     1.21 “Trustee” means THE NORTHERN TRUST COMPANY and any successor to it as trustee or trustees of the Trust Fund; and

     1.22 “Trustee Investment Account” means assets of the Trust Fund allocated by the Investment Committee to an account of the Trust to be managed by the Trustee with the written consent of the Trustee.

ARTICLE TWO: VALUATION AND ALLOCATION

     The Trustee shall hold the Trust Fund as a commingled fund or commingled funds in which each separate Plan shall be deemed to have a proportionate undivided interest in the fund or funds in which it participates, except that each fund or asset identified by the Administrative Committee as allocable to a particular Plan Account, herein referred to as an “identified fund” or “identified asset”, and income, appreciation or depreciation and expenses attributable to a particular Plan Account or to an identified asset thereof, shall be allocated or charged to that Plan Account. Contributions shall be designated by the Administrative Committee as allocable, and distributions shall be designated by the Administrative Committee as chargeable, to a particular Plan Account and shall be so allocated or charged. Upon the direction of the Administrative Committee the Trustee shall periodically determine the value of each Plan Account on such basis as the Trustee and the Administrative Committee shall from time to time agree (considering the fair market value of the assets initially received from the predecessor trustee or the Company with respect to the Plan and subsequent contributions and distributions, net income, net appreciation or depreciation and expenses attributable to the Plan) and shall render a statement thereof to the Administrative Committee within sixty (60) days after each valuation date.

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ARTICLE THREE: DISTRIBUTIONS

     3.1 The Administrative Committee or a Representative shall have the responsibility for making benefit payments under the Plan in accordance with the terms and conditions of the Plan. The Administrative Committee shall open a Benefit Account which shall be a commercial checking account in a federally insured banking institution (including the Trustee). The Administrative Committee shall have the responsibility to assure that any such commercial banking account is established and maintained in accordance with ERISA and is properly insured. The Trustee shall make transfers of funds from the General Account to the Benefit Account at such time and in such amounts as the Administrative Committee or a Representative may from time to time direct. The Administrative Committee shall authorize one or more of its members or a Representative to sign manually or by facsimile signature any and all checks, drafts, electronic funds transfers and orders against the Benefit Account, and the depository bank is authorized to honor any and all checks, drafts and orders so signed, regardless of by whom or by what the actual or purported facsimile signature or signatures may have been affixed thereto, if such signature or signatures resemble those duly filed.

     3.2 The Administrative Committee or Representative shall have full responsibility with respect to all matters relating to the Benefit Account, including the power to direct stop payment on any check, draft or order, and to reissue and deposit checks, except that if a Representative is authorized to act with respect to the Benefit Account, the Representative shall render an accounting to the Administrative Committee, at least annually, in the form of an account reconcilement.

     3.3 The Trustee shall have no duty to question the propriety of any direction of the Administrative Committee or a Representative to make transfers from the General Account to the Benefit Account, to account for funds retained in or disbursed from the Benefit Account, or to pay any tax arising by reason of any benefit payment made under the Plan.

ARTICLE FOUR: SEPARATE ACCOUNTS AND INVESTMENT ADVISERS

     The Trust Fund shall consist of one or more Separate Accounts and, with the Trustee’s written consent, one or more Trustee Investment Accounts. All Separate Accounts and any Trustee Investment Accounts shall be established by the Trustee at the direction of the Investment Committee. The Investment Committee shall designate assets of the Trust Fund to be allocated to each Separate Account and each Trustee Investment Account and shall direct the Trustee with respect to any transfer of assets between Separate Accounts or between a Separate Account and a Trustee Investment Account; provided that no asset shall be allocated or transferred to a Trustee Investment Account without the Trustee’s written consent. The Investment Committee shall have investment responsibility for any assets of the Trust Fund not otherwise allocated to a Separate Account or Trustee Investment Account, and such assets shall comprise a Separate Investment Account for which the Investment Committee serves as Investment Adviser. The following provisions shall apply to the Separate Accounts:

     4.1 With respect to each Separate Investment Account, the Investment Committee may appoint an Investment Manager who shall acknowledge by a writing delivered to the

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Investment Committee that it is a fiduciary with respect to the assets allocated thereto, or in the event the Investment Committee does not appoint an Investment Manager, the Investment Committee shall have investment responsibility with respect to such Separate Investment Account. The Trustee shall act with respect to assets allocated to a Separate Investment Account only as directed by the Investment Manager or, in the event that the Investment Committee does not appoint an Investment Manager, the Investment Committee.

     4.2 With respect to each Separate Insurance Contract Account, from assets allocated thereto, the Trustee shall purchase or continue in effect such insurance contracts, including annuity contracts and policies of life insurance, as the Investment Committee shall direct, the issuing insurance company may credit those assets to its general account or to one or more of its separate accounts, and the Trustee shall act with respect to those contracts only as directed by the Investment Committee.

     4.3 The Investment Committee shall have investment responsibility for assets held in any Separate Account for which an Investment Manager has not been retained, has been removed, or is for any reason unwilling or unable to act. With respect to assets or Separate Accounts for which the Investment Committee has investment responsibility, the Trustee, acting only as directed by the Investment Committee, shall enter into such agreements as are necessary to facilitate any investment, including agreements entering into a limited partnership or the participation in real estate funds. The Trustee shall not make any investment review of, or consider the propriety of holding or selling, or vote any assets for which the Investment Committee has investment responsibility.

     4.4 With respect to each Separate Account, the Investment Adviser thereof shall have the investment powers granted to the Trustee by ARTICLE FIVE, as limited by Section 6.1 through Section 6.3 of ARTICLE SIX, as if all references therein to the Trustee referred to the Investment Adviser.

     4.5 The Investment Committee may engage the Trustee, or any of its affiliates, as the Investment Committee’s agent, to provide transition or liquidation services in connection with the removal of an Investment Manager, the termination of a Plan, or for any other reason, pursuant to a separate written agreement between the Investment Committee and the Trustee or any of its affiliates. The Investment Committee may engage Northern Trust Securities, Inc., or any other affiliate of the Trustee, as a commission recapture service provider.

ARTICLE FIVE: POWERS OF TRUSTEE

     Except as otherwise provided in this Agreement, the Trustee shall hold, manage, care for and protect the assets of the General Account and shall have until actual distribution thereof the following powers and, except to the extent inconsistent herewith, those now or hereafter conferred by law:

     5.1 To retain any asset originally included in the General Account or subsequently added thereto;

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     5.2 To invest and reinvest the assets of the General Account without distinction between income and principal in bonds, stocks, mortgages, notes, options, futures contracts, options on futures contracts, limited partnership interests, any common trust fund, group trust, pooled fund or other commingled investment fund maintained by the Trustee or any other bank for trust investment purposes, participations in regulated investment companies (including those for which the Trustee or its affiliate is adviser), or other property of any kind, real or personal, foreign or domestic, and to enter into insurance contracts. To the extent that assets of the General Account are invested in common funds maintained by the Trustee or its affiliates, (i) the terms of the declaration of trust under which such funds are maintained shall be incorporated into this agreement and (ii) in the event that any such common fund is a stock index fund, the components of which include the common stock of Northern Trust Corporation, the parent company of the Trustee, the trustee of the common fund is authorized to purchase, sell and retain investments in such stock consistent with the investment objectives of the fund;

     5.3 To deposit cash in any depository, including the banking department of the Trustee or its affiliate and any organization acting as the fiduciary with respect to the General Account;

     5.4 To hold any part of the assets of the General Account in cash without liability for interest, pending investment thereof or the payment of expenses or making distributions therewith, notwithstanding the Trustee’s receipt of “float” from such uninvested cash;

     5.5 To cause any asset of the General Account, real or personal, to be held in a corporate depository or federal book entry account system or registered in the Trustee’s name or in the name of a nominee or in such other form as the Trustee deems best without disclosing the trust relationship;

     5.6 To vote, either in person or by general or limited proxy, or refrain from voting, any corporate securities for any purpose, except that any security as to which the Trustee’s possession of voting discretion would subject the issuing company or the Trustee to any law, rule or regulation adversely affecting either the company or the Trustee’s ability to retain or vote company securities, shall be voted as directed by the Investment Committee; to exercise or sell any subscription or conversion rights; to consent to and join in or oppose any voting trusts, reorganizations, consolidations, mergers, foreclosures and liquidations and in connection therewith to deposit securities and to accept and hold other property received therefor;

     5.7 To sell at public or private sale, contract to sell, convey, exchange, transfer and otherwise deal with assets of the General Account in accordance with industry practice, and to sell put and covered call options from time to time for such price and upon such terms as the Trustee sees fit; the Company acknowledges that the Trustee may reverse any credits made to the Trust Fund by the Trustee prior to receipt of payment in the event that payment is not received;

     5.8 To employ agents, attorneys and proxies and to delegate to any one or more of them any power, discretionary or otherwise, granted to the Trustee;

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     5.9 To compromise, contest, prosecute or abandon claims in favor of or against the General Account;

     5.10 To pay any tax, charge or assessment and to defer making payment of any such tax, charge or assessment until the Trust Fund is indemnified to the Trustee’s satisfaction with respect thereto; and

     5.11 To perform other acts necessary or appropriate for the proper administration of the General Account, execute and deliver necessary instruments and give full receipts and discharges.

ARTICLE SIX: LIMITATIONS ON POWERS

     For purposes of this agreement, the powers and responsibilities allocated to the Trustee shall be limited as follows:

     6.1 The powers of the Trustee shall be exercisable for the exclusive purpose of providing benefits to those Participants and Beneficiaries who are eligible to receive such benefits in accordance with the terms and conditions of the Plan and in accordance with the standards of a prudent man under ERISA;

     6.2 Subject to Section 6.1 and Section 6.3, the Trustee shall diversify the investments of that portion of the Trust Fund for which it has investment responsibility so as to minimize the risk of large losses;

     6.3 Subject to Section 6.1, the Trustee shall, with respect to that portion of the Trust Fund for which it has investment responsibility, follow the investment guidelines established by the Investment Committee given in exercise of that committee’s responsibility;

     6.4 The Trustee shall not make any investment review of, consider the propriety of holding or selling, or vote, any assets of the Trust Fund allocated to a Separate Account in accordance with ARTICLE FOUR, except as directed by the Investment Adviser thereof. Further, if the Trustee shall not have received contrary instructions from the Investment Adviser of a Separate Account, the Trustee, in its discretion, shall invest for short term purposes any cash of such Separate Account, in its custody, in participations in common funds maintained by The Northern Trust Company or any of its affiliates; and

     6.5 The Investment Committee shall have the sole investment responsibility with respect to the retention, sale, purchase or voting of any employer stock which has not been allocated to a Separate Account. The Trustee shall have custody of such employer stock and shall act with respect thereto only as directed by the Investment Committee. The Trustee shall not make any investment review of, consider the propriety of holding or selling, or vote any such employer stock. With respect to such employer stock, the Investment Committee shall have the investment powers granted to the Trustee by ARTICLE FIVE as limited by Section 6.1 and Section 6.2 of this ARTICLE SIX, as if all references therein to the Trustee referred to the Investment Committee. No provision of this Section 6.5 shall prevent the Trustee from taking any action with respect to the voting or tender of such employer stock if the Trustee

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determines in its sole discretion that such action is necessary in order for the Trustee to fulfill its fiduciary responsibilities under ERISA.

ARTICLE SEVEN: ACCOUNTS

     7.1 With respect to the General Account, the Trustee shall maintain accounts of all investments, receipts and disbursements, including contributions, distributions, purchases, sales and other transactions thereunder. The accounts and the books and records relating thereto, shall be open to inspection and audit at all reasonable times, and upon reasonable notice, by any person or persons designated by the Administrative Committee or entitled thereto under ERISA, provided that the Trustee shall be entitled to the reimbursement of any reasonable expenses it incurs in connection with such inspection or audit.

     7.2 Within sixty (60) days after the close of each fiscal year of the Trust Fund and of any other period agreed upon by the Trustee and the Investment Committee, the Trustee shall render, with respect to the General Account, to the Investment Committee a statement of account for the period commencing with the close of the last preceding period and a list showing each asset of the General Account as of the close of the current period and its cost and fair market value. In preparing the Trustee’s written account, the Trustee shall be fully protected in relying, without duty of inquiry: (i) upon the determination of the issuing insurance company or other entity with respect to the value of each insurance or investment contract included in such written account, (ii) upon information provided by the general partner or other investment entity with respect to the value of each limited partnership or other investment interest included in such written account, and (iii) with respect to any assets of the General Account managed by an Investment Adviser for which the Trustee deems not to have a readily ascertainable value, upon the fair market value of such assets as determined by the applicable Investment Adviser.

     7.3 An account of the Trustee may be approved by the Investment Committee by written notice delivered to the Trustee or by failure to object to the account by written notice delivered to the Trustee within 6 months of the date upon which the account was delivered to the Investment Committee. The approval of an account shall constitute a full and complete discharge to the Trustee as to all matters set forth in that account as if the account had been settled by a court of competent jurisdiction in an action or proceeding to which the Trustee, the Company and the Investment Committee were parties. In no event shall the Trustee be precluded from having its accounts settled by a judicial proceeding. Nothing in this article shall relieve the Trustee of any responsibility, or liability for any responsibility, under ERISA.

ARTICLE EIGHT: TRUSTEE SUCCESSION

     8.1 The Trustee may resign at any time by written notice to the Investment Committee, or the Investment Committee may remove the Trustee by written notice to the Trustee. The resignation or removal shall be effective one hundred twenty (120) days after the date of the Trustee’s resignation or receipt of the notice of removal, or at such earlier date as the Trustee and the Investment Committee may agree.

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     8.2 In case of the resignation or removal of the Trustee, the Investment Committee shall appoint a successor trustee by delivery to the Trustee of a written instrument executed by the Investment Committee appointing the successor Trustee and a written instrument executed by the successor trustee accepting the appointment, whereupon the Trustee shall deliver the assets of the Trust Fund to the successor trustee but may reserve such reasonable amount as the Trustee may deem necessary for outstanding and accrued charges against the Trust Fund.

     8.3 The successor Trustee, and any successor to the trust business of the Trustee by merger, consolidation or otherwise, shall have all the powers given the originally named Trustee. No successor trustee shall be personally liable for any act or omission of any predecessor. Except as otherwise provided in ERISA, the receipt of the successor trustee and the approval of the Trustee’s final account by the Investment Committee in the manner provided in ARTICLE SEVEN shall constitute a full and complete discharge to the Trustee.

ARTICLE NINE: AMENDMENT AND TERMINATION

     9.1 The Company may at any time or times with the consent of the Trustee amend this agreement in whole or in part by instrument in writing delivered to the Trustee and effective upon the date therein provided.

     9.2 This agreement shall terminate with respect to a Plan by action of the Company or Subsidiary responsible for making contributions to the Plan Account. Upon termination with respect to a Plan, the Trustee shall distribute the Plan Account in the manner directed by the Investment Committee, in kind to the extent of identified assets and the balance in cash or in kind or partly in each as the Trustee and the Investment Committee shall agree, except that in no event shall any part of the Trust Fund attributable to a Plan revert to the Company, and except, further, that the Trustee may reserve such reasonable amount as the Trustee may deem necessary for outstanding and accrued charges against the Plan or the Trust Fund. If after the satisfaction of liabilities with respect to a Plan, any assets remain in the Trust Fund, such assets shall be applied in a manner permitted by the regulations issued under Section 501(c)(9) of the Code.

     9.3 This agreement shall terminate in its entirety when there is no asset included in the Trust Fund.

ARTICLE TEN: MISCELLANEOUS

     10.1 Any action required to be taken by the Company or by a Subsidiary shall be by resolution of its board of directors or by the written direction of one or more of its president, any vice president or treasurer or assistant treasurer, or by such other person or persons as shall be authorized by such officers or by resolution of its board of directors, which resolution shall be filed with the Trustee. The Trustee may take or omit to take any action in accordance with written direction purporting to be signed by such an officer of the Company or Subsidiary or other authorized person, or in reliance upon a certified copy of a resolution of the board of directors which the Trustee believes to be genuine. The Trustee shall have no

9

responsibility for any action taken by the Trustee in accordance with any such resolution or direction.

     10.2 The Company shall certify to the Trustee in writing the names of the members of the Administrative Committee and the Investment Committee acting from time to time, and the Trustee shall not be charged with knowledge of a change in the membership of either such committee until so notified in writing by the Company. Any action required or permitted to be taken by the Administrative Committee or the Investment Committee hereunder shall be by direction of (i) one or more of the members of the committee authorized to take such action hereunder, (ii) such committee’s secretary or (iii) such other designee as shall be designated in writing by the Administrative Committee or the Investment Committee to act for such committee. The Trustee may rely upon an instrument of designation received from the Administrative Committee or the Investment Committee appointing a designee to act for such committee which it believes has been signed by a majority of the members (or by the secretary or chairman) of the appropriate committee and filed with the Trustee. The Trustee shall have no responsibility for any action taken by it in accordance with any direction it believes to have been given as provided above.

     10.3 Notwithstanding any other provision of this agreement, instructions, directions and other communications provided under this agreement may be given to the Trustee by letter, telex, SWIFT or other electronic or electro-mechanical means deemed acceptable by the Trustee, including the use of the Trustee’s Northern Trust Passport^® applications, subject to such additional terms and conditions as the Trustee may require. In its sole discretion, the Trustee may, but shall not be required to, accept instructions, directions or other communications given to the Trustee by telephone. Any instructions, directions or other communications given to the Trustee by telephone shall promptly thereafter be confirmed in writing, but the Trustee will incur no liability for the Company’s or the Administrative Committee’s or the Investment Committee’s failure, or the failure of an Investment Manager, to send such written confirmation or for the failure of any such written confirmation to conform to the telephonic instruction received by the Trustee.

     10.4 The Trustee may consult with legal counsel, who may be counsel for the Company, with respect to its responsibilities under this agreement and shall be fully protected in acting or refraining from acting in reliance upon the written advice of legal counsel.

     10.5 In no event shall the terms of the Plan, either expressly or by implication, be deemed to impose upon the Trustee any power or responsibility other than those set forth in this agreement. The Trustee may assume until advised to the contrary that this Trust is entitled to tax exemption under section 501(c)(9) and related sections of the Code, or under any comparable section or sections of any future legislation which amends, supplements or supersedes those sections of the Code. The Trustee shall hold and safekeep all cash (or other property acceptable to the Trustee) transferred or contributed to the General Account with respect to the Plan, but the Trustee shall not have the right and shall not be subject to any duty to demand or collect contributions from the Company or a Subsidiary, which, in its discretion, may deposit contributions to the General Account or the Benefit Account, nor shall the Trustee be subject to any duty to determine whether a contribution complies with the

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provisions of the applicable Plan or of ERISA nor to determine whether contributions are adequate to meet or discharge any liabilities under the Plan.

     10.6 In any judicial proceeding to settle the accounts of the Trustee, the Trustee, the Company and the Investment Committee shall be the only necessary parties; in any other judicial proceeding with respect to the Trustee or the Trust Fund, the Trustee, the Company and each affected Subsidiary shall be the only necessary parties; and no Participant or Beneficiary shall be entitled to any notice of process. A final judgment in any such proceeding shall be binding upon the parties to the proceeding and all Participants and Beneficiaries.

     10.7 The Trustee shall receive such reasonable compensation for its services as the Trustee and the Company shall from time to time determine. In addition, the Trustee shall be reimbursed for any expenses (including accounting and legal fees) that the Trustee reasonably incurs in connection with the Trust Fund. Those items of expense and compensation shall be paid from the General Account to the extent that they are not paid by the Company; provided that the Company shall be required to pay for any items that it determines are not chargeable to the General Account under applicable law or the applicable Plan document. This paragraph shall survive the termination of this agreement.

     10.8 Without limiting the rights of the Trustee as otherwise provided in this Agreement, pursuant to direction by the Administrative Committee, the Trustee shall pay from the Trust Fund expenses of a Plan or compensation to parties providing services to a Plan including but not by way of limitation, expenses or compensation related to actuarial, legal, accounting, office space, printing, computer, recordkeeping, investment, performance evaluation or any other material or service provided to the Plan; and, further, pursuant to direction by the Administrative Committee, the Trustee may reimburse the Company from the Trust Fund for expenses of the Plan to the extent permitted by the Plan and ERISA. It shall be the responsibility of the Administrative Committee to determine that any such expenses for which the Company is reimbursed pursuant to this paragraph are expenses of a Plan permitted by the Plan and ERISA.

     10.9 (a) In the event that THE NORTHERN TRUST COMPANY incurs any liability, loss, claim, suit or expense (including attorneys fees) in connection with or arising out of its provision of services under this agreement, or its status as Trustee hereunder, under circumstances where THE NORTHERN TRUST COMPANY cannot obtain or would be precluded by law from obtaining payment or reimbursement of such liability, loss, claim, suit or expense (including attorneys fees) from the Trust Fund, then the Company (which has the authority to do so under the laws of the state of its incorporation) shall indemnify and hold THE NORTHERN TRUST COMPANY harmless from and against such liability, loss, claim, suit or expense, except to the extent such liability, loss, claim, suit or expense arises directly from a breach by the Trustee of responsibilities specifically allocated to it by the terms of this agreement or the negligence, fraud, or willful misconduct of the Trustee in the performance of its duties allocated herein. This paragraph shall survive the termination of this agreement.

            (b) Notwithstanding the foregoing, the Trustee shall not be indemnified for any loss, liability, claim, suit or expense to the extent the Trustee participated knowingly in, or

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knowingly undertook to conceal, an act or omission of any other person or entity constituting a breach of such person’s or entity’s fiduciary responsibility hereunder, knowing such act or omission was a breach; provided however, that the Trustee shall not be deemed to have “participated” in a breach for purposes of this undertaking solely as a result of the performance by the Trustee or its officers, employees, or agents of any custodial, reporting, recording and bookkeeping functions with respect to any assets of the Trust Fund managed by an Investment Manager, Investment Trustee or the Investment Committee or solely as a result of settling purchase and sale transactions entered into or directed by an Investment Manager, Investment Trustee or the Investment Committee or to have “knowledge” of any breach solely as a result of the normal information received by the Trustee or its officers, employees, or agents in the normal course of performing such functions or settling such transactions.

     10.10 Neither the Company, the Administrative Committee nor the Investment Committee shall direct the Trustee to cause any part of the Trust Fund to be diverted to any purpose other than the exclusive benefit of the Participants and Beneficiaries and the payment of such fees and expenses, including taxes (as the case may be), as are provided for in the Plan and this agreement, or as otherwise permitted under the affected Plan and under applicable law (including ERISA).

     10.11 Any person dealing with the Trustee need not see to the application of any money paid or property delivered to the Trustee or inquire into the provisions of this agreement or of any Plan or the Trustee’s authority thereunder or compliance therewith, and may rely upon the statement of the Trustee that the Trustee is acting in accordance with this Agreement.

     10.12 Any interest of a Participant in the Trust Fund or a Plan in any distribution therefrom shall not be subject to the claims of any creditor, any spouse for alimony or support, or others, or to legal process, and may not be voluntarily or involuntarily alienated or encumbered.

     10.13 Neither party shall be responsible for any delay in performance, or non-performance, of any obligation hereunder to the extent that the same is due to forces beyond its reasonable control, including but not limited to delays, errors or interruptions caused by third parties, any industrial, juridical, governmental, civil or military action, acts of terrorism, insurrection or revolution, nuclear fusion, fission or radiation, failure or fluctuation in electrical power, heat, light, telecommunications equipment, or acts of God.

     10.14 In case any provision of this agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of this agreement, but shall be fully severable, and the agreement shall be construed and enforced as if said illegal or invalid provisions had never been inserted herein. This agreement supersedes and replaces any prior agreements with respect to the subject matter hereof.

     10.15 This agreement may be executed in any number of counterparts, each of which shall be deemed an original, and the counterparts shall constitute one and the same instrument.

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     10.16 Title to the Trust Fund shall be vested in and remain exclusively in the Trustee and neither the Company, the Administrative or Investment Committee, a Participant or dependent, or a representative of a Participant or dependent shall have any right, title or interest in or to any of the asset of the Trust Fund or in or to any contributions made thereto.

     10.17 Except to the extent agreed otherwise in writing between the Company/ Investment Committee and the Trustee, the Investment Committee shall (i) determine the taxability of Trust income, (ii) calculate the amount of any taxes owed by the Trust, (iii) direct the Trustee regarding the payment of such taxes, and (iv) be responsible for the preparation and filing of any required tax forms relating to the Trust or distributions from the Benefit Account, including (as applicable) Forms 990, 990-T, W-2, or any other information or tax returns. The Trustee agrees to cooperate in providing the Investment Committee or its designee with such information as is contained within its ordinary business records and is needed in order to timely complete any such form. For purposes of any annual information return, the books of the voluntary employees’ beneficiary association shall be maintained in the care of the Company.

ARTICLE ELEVEN: GOVERNING LAW

     The provisions of federal law, including ERISA and Code Section 501(c)(9), and the internal laws of Illinois shall govern the validity, interpretation and enforcement of this agreement, and in case of conflict, the provisions of federal law shall prevail.

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     IN WITNESS WHEREOF, the Company and the Trustee, respectively, have caused this agreement to be signed by their duly authorized officers and have caused their respective corporate seals to be hereunto affixed as of the day and year first above written.

	PHELPS DODGE CORPORATION
ATTEST:	By:	/s/ S. K. Rideout
/s/ Catherine R. Hardwick                      Secretary	Its:	Vice President & Treasurer
(CORPORATE SEAL)

          The undersigned, Catherine R. Hardwick, does hereby certify that he/she is the duly elected, qualified and acting Assistant General Counsel and Secretary of Phelps Dodge Corporation (the “Company”) and further certifies that the person whose signature appears above is a duly elected, qualified and acting officer of the Company with full power and authority to execute this Trust Agreement on behalf of the Company and to take such other actions and execute such other documents as may be necessary to effectuate this Agreement.

/s/ Catherine R. Hardwick                      Secretary

           Phelps Dodge Corporation

	THE NORTHERN TRUST COMPANY
ATTEST:	By:	/s/ Karen Guggis
/s/ Robert F. Deathers Jr.	Its:	Vice President
Assistant Secretary
(CORPORATE SEAL)

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EX-10.34

Exhibit 10.34

Execution Copy

RECLAMATION AND REMEDIATION TRUST AGREEMENT

          AGREEMENT made as of December 22, 2005 (the “Agreement”), by and between Phelps Dodge Corporation (the “Corporation”), a New York corporation, as grantor, and Wells Fargo Delaware Trust Company, a Delaware limited purpose trust company (the “Trustee”), as trustee.

WITNESSETH:

          WHEREAS, the Corporation has mining and manufacturing facilities in the United States and other regions of the world, which include open-pit mining, underground mining, sulfide ore concentrating, leaching, solution extraction, electrowinning, smelting and refining;

          WHEREAS, the Corporation’s operations are subject to stringent laws and regulations relating to improving or maintaining environmental quality;

          WHEREAS, under such environmental laws and regulations, the Corporation is required, among other things, to perform certain reclamation and remediation activities, to make sure that its operations do not pose a current or future hazard to public health and safety, that its mining locations will be stabilized to minimize future impact to the environment and that air and water resources will be protected (collectively, the “R&R Activities”) and in connection therewith to guarantee or otherwise provide financial assurance that funds will be available when needed for such R&R Activities;

          WHEREAS, the Corporation wishes to dedicate and segregate funds for such R&R Activities to ensure that the Corporation will have the necessary funds to support these activities;

          WHEREAS, the Corporation is hereby establishing a trust (the “Trust”) for the purpose of accumulating assets to assist it in financing or otherwise performing its R&R Activities and related matters, to which Trust the Corporation is transferring, and will in the future transfer, cash and/or other property, and any such contributions together with earnings (including income and appreciation) and losses (including depreciation and loss of principal) thereon (hereinafter called the “Trust Fund”) shall be held in trust; and

          WHEREAS, the Corporation desires that the Trustee hold and administer all assets transferred to the Trust Fund by the Corporation and the Trustee is willing to hold, administer and dispose of such assets pursuant to the terms of this Agreement.

          NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the Corporation and the Trustee hereby agree as follows:

ARTICLE I.

Establishment of Trust

          1.1 The Trust is intended to be a grantor trust, of which the Corporation is the grantor, within the meaning of subpart E, part I, subchapter J, Chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended from time to time (the “Code”), and shall be construed accordingly.

          1.2 The principal of the Trust, and any earnings thereon, shall be held separate and apart from other funds of the Corporation by the Trustee in trust for the benefit of the Corporation and its subsidiaries listed on Schedule A (the “Beneficiaries”). The Corporation may amend Schedule A to add or remove subsidiaries by delivery of written notice to the Trustee. Such instrument shall be identified as a successor Schedule A to this Agreement that supersedes the preceding Schedule A, and shall be effective upon delivery to the Trustee in accordance with Section 13.1.

          1.3 The purposes of the Trust are to engage in the following activities (the “Permitted Purposes”): (i) provide a source of funds for R&R Activities or otherwise support or facilitate any R&R Activity, (ii) guarantee, or provide any other form of financial assurance with respect to, R&R Activities, (iii) provide a source of funds for research and development related to R&R Activities, (iv) activities that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto or connected therewith and (v) such other activities as may be required in connection with conservation of the Trust Fund and distributions to the Beneficiaries.

          1.4 The Trust hereby established is revocable by the Corporation.

ARTICLE II.

Funding of Trust

          2.1 The Corporation hereby deposits with the Trustee in trust the sum of One Hundred Million Dollars ($100,000,000), which becomes the initial principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Agreement. The Corporation may at any time, or from time to time, make additional deposits of cash or other property to the Trustee in trust, to augment the principal to be held, administered and disposed of by the Trustee as provided in this Agreement. Neither the Trustee nor any Beneficiary shall have any right to compel such additional deposits.

          2.2 Notwithstanding anything else to the contrary contained herein, the Trustee shall be responsible only for contributions actually received by it hereunder.

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ARTICLE III.

Disposition of Income

          3.1 During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested, pursuant to Section 6.2, to the extent that it is not used by the Trustee to make payments or distributions required by this Agreement.

ARTICLE IV.

Distribution from the Trust

          4.1 After the Trust Fund is funded pursuant to Section 2.1 hereof, the Trustee shall from time to time, make distributions or payments out of the Trust Fund, in cash or in property, to such Beneficiaries, in such manner and in such amounts as requested by a Beneficiary and the Corporation, but only to the extent that there are sufficient assets in the Trust Fund to make such distributions or payments and solely for the Permitted Purposes. Disbursements shall be made from the Trust Fund to the designated Beneficiary upon presentation to the Trustee of an executed Certificate in the form of Exhibit 1.

          4.2 Disbursements shall be made from the Trust Fund to the Corporation, whether or not for Permitted Purposes, in such amounts as the Corporation may direct from time to time upon presentation to the Trustee of an executed Certificate in the form of Exhibit 2.

          4.3 Disbursements shall be made from the Trust Fund to defray reasonable expenses incurred by the Trustee in connection with the administration of the Trust, including without limitation, the agreed upon compensation of the Trustee and reasonable expenses of the Trustee, and reasonable fees and expenses of independent legal counsel and any other independent consultants retained by the Trustee to assist the Trustee in carrying out its duties and responsibilities under this Agreement.

          4.4 Disbursements shall also be made from the Trust Fund to pay all taxes levied against the Trust itself and, in addition, so long as the Internal Revenue Service and/or any state or local taxing authority does not dispute that the Trust established by this Agreement is a grantor trust under Section 671 et seq. of the Internal Revenue Code of 1986, as amended (or any successor provision), of which the Corporation is the grantor and the Trust itself has no obligation to pay any income taxes, then disbursements shall be made from the Trust on an annual basis to the Corporation upon presentation to the Trustee of an executed Certificate in the form of Exhibit 3 hereto in an amount equal to twenty-five percent (25%) of the Trust’s Deemed Taxable Income (as defined below) for the immediately preceding calendar year. The Corporation and the Trustee agree that it is proper, in all tax reporting by the Trust, to treat the Trust as a grantor trust of which the Corporation is the grantor and that they will so treat the Trust.

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For purposes of the foregoing, the term “Deemed Taxable Income” means, for any calendar year, the taxable investment income, including capital gains, of the Trust less the Trust’s expenses and losses (as shown in the Form 1041 Information Statement provided to the Corporation by the Trustee for that calendar year adjusted if necessary pursuant to the following sentence), except that investment income shall be included in Deemed Taxable Income only to the extent that such income would be includable in determining taxable income for federal income tax purposes if the Trust were a separate corporate entity, and expenses and losses shall be taken into account in determining Deemed Taxable Income only if they would be deductible in determining taxable income for federal income tax purposes if the Trust were a separate corporate entity. For purposes of computing Deemed Taxable Income, the Trust’s losses, if any, shall be carried over and deducted against subsequent years’ Deemed Taxable Income, or carried back and deducted against prior years’ Deemed Taxable Income, until fully utilized to the extent such losses would be deductible in determining the taxable income for federal income tax purposes if the Trust were a separate corporate entity.

          4.5 Upon presentation to the Trustee of an executed Certificate in the form of Exhibit 4 hereto, all monies and assets remaining in the Trust, including earnings and profits, less the final administration expenses of the Trust, shall be paid to the Corporation, and the Trust shall be terminated.

ARTICLE V.

Financial Assurance

          5.1 Upon presentation to the Trustee by the Corporation and the applicable Beneficiary of an executed Certificate in the form of Exhibit 5, the Trustee shall segregate the funds specified in such Certificate in the manner described in such Certificate for the purpose of providing financial assurance on behalf of the applicable Beneficiary upon the terms and conditions set forth in such Certificate and any descriptive documentation accompanying it.

ARTICLE VI.

Powers, Duties and Responsibility of Trustee

          6.1 The Trustee acknowledges and agrees that it is under a duty to exercise reasonable care with respect to the custody of the Trust Fund; provided, however, that the Trustee’s sole duty with respect to the custody of the Trust Fund shall be to deal with such property in a similar manner as the Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Trustee under this Agreement. The Trustee further acknowledges that, in performing its duties under this Agreement, it is a fiduciary to the Trust and shall at all times act in a fiduciary capacity to the Trust in the exercise of its duties and responsibilities under this Trust Agreement. To the extent that, at law or in equity, the Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Trust,

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to the Corporation or to the Beneficiaries, the Trustee shall not be liable to the Trust, to the Corporation or to any Beneficiary for such Trustee’s good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of the Trustee otherwise existing at law or in equity, are agreed by the Trust, the Corporation and the Beneficiaries to replace such other duties and liabilities of the Trustee.

          6.2 Notwithstanding any other provision hereof, the Trust Fund shall be held, invested and reinvested by the Trustee in accordance with this Section 6.2 under the written directions of the Corporation to be provided to the Trustee by any of the individuals listed on Schedule B (the “Authorized Persons”). The Corporation may, by delivery of written notice to the Trustee, add or replace any of the Authorized Persons. Such instrument shall be identified as a successor Schedule B to this Agreement that supersedes the preceding Schedule B, and shall be effective upon delivery to the Trustee in accordance with Section 13.1. The Trustee shall not be liable for any failure to maximize the income earned on that portion of the Trust Fund as is from time to time invested or reinvested as set forth above. Furthermore, the Trustee shall have no liability for loss on an investment made in accordance with this Section 6.2. The Trustee shall not be liable for interest on uninvested funds.

          6.3 The Trustee shall, if so instructed by the Corporation, enter into investment management agreements concerning the investment of the funds in the Trust with one or more independent investment managers. All investments shall be held by the Trustee as custodian of the Trust Fund.

          6.4 Whenever the Trustee is required in accordance with the terms hereof to make a disbursement of funds from the Trust, if, after application of all available cash and cash equivalents that can be liquidated without an interest cost or penalty, liquidation of another investment is necessary to make any such disbursement, the Trustee shall seek directions from any of the individuals listed on Schedule B. The Trustee shall have no liability with respect to any interest cost or penalty on the liquidation of any Permitted Trust Investment pursuant to this Section 6.4.

          6.5 The Trustee shall act in good faith; provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Corporation which is in conformity with the terms of this Agreement and is given in writing by the Corporation. In the event of a dispute, the Trustee may apply to a court of competent jurisdiction to resolve the dispute.

          6.6 If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Corporation agrees to indemnify the Trustee against the Trustee’s costs, expenses and liabilities (including, without limitation, reasonable attorneys’ fees and expenses) relating thereto and to be primarily liable for such payments unless the Trustee is determined, in a final adjudication, to have been guilty of willful misconduct or gross negligence in the performance (or non-performance) of its duties under the Trust. If the Corporation does not pay such costs, expenses and liabilities in a

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reasonably timely manner, the Trustee may pay such costs, expenses and liabilities with assets of the Trust. The Corporation shall remain liable for such costs, expenses and liabilities to the extent the Trust has insufficient funds.

          6.7 The Trustee may consult with legal counsel (who may also be counsel for the Corporation generally) with respect to any of its duties or obligations hereunder, and the reasonable fees and expenses of such legal counsel will be paid by the Corporation, provided that if the Corporation does not pay such fees and expenses within a reasonable time, the Trustee may pay such fees and expenses with assets of the Trust.

          6.8 The Trustee may act directly or through its agents, accountants, actuaries, investment advisors, financial consultants, attorneys or other professionals (collectively, “Professionals”) to assist it in performing any of its duties or obligations hereunder, and the reasonable fees and expenses of such Professionals shall be paid by the Corporation, provided that if such fees and expenses are not promptly paid by the Corporation, the Trustee may pay such fees and expenses with assets of the Trust. The Corporation shall remain liable for such costs, expenses and liabilities to the extent the Trust has insufficient funds. The Trustee shall not be liable for the conduct or misconduct of such Professionals if such Professionals shall have been selected by the Trustee in good faith.

          6.9 Subject to Sections 6.1 and 6.2 hereof, the Trustee shall have, without exclusion, all powers conferred on Trustees by applicable law, unless expressly provided otherwise herein.

          6.10 Subject to Sections 6.1 and 6.2 hereof, but in amplification of (and not in limitation of) the powers given in Article VI hereof, the Trustee shall have the following powers and authority in the administration of the Trust Fund at the direction of the Corporation:

     (a) To invest all contributions, investments, and reinvestments thereof and all additions thereto by way of contributions, earnings and increments.

     (b) To sell for cash or on credit, to grant options, convert, redeem, exchange for other securities or other property, or otherwise to dispose of any securities or other property at any time held.

     (c) To settle, compromise or submit to arbitration, any claims, debts or damages, due or owing to or from the Trust, to commence or defend suits or legal proceedings and to represent the Trust in all suits or legal proceedings.

     (d) To exercise any conversion privilege and/or subscription right available in connection with any securities or other property at any time held; to oppose or to consent to the reorganization, consolidation, merger, or readjustment of the finances of any corporation, company or association or to the sale, mortgage, pledge or lease of the property of any corporation, company or

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association any of the securities of which may at any time be held and to do any act with reference thereto, including the exercise of options, the making of agreements or subscriptions, which may be deemed necessary or advisable in connection therewith, and to hold and retain any securities or other property so acquired.

     (e) To exercise, personally or by general or by limited power of attorney, any right, including the right to vote, appurtenant to any securities or other property held at any time.

     (f) To borrow money from any lender in such amounts and upon such terms and conditions as shall be deemed advisable or proper to carry out the purposes of the Trust and to pledge any securities or other property for the repayment of any such loan at the direction, or with the approval, of an Authorized Person.

     (g) To hold cash uninvested for a reasonable period of time under the circumstances without liability for interest, pending investment thereof or the payment of expenses or making distributions therewith.

     (h) To register any securities held hereunder in the name of the Trustee or in the name of a nominee with or without the addition of words indicating that such securities are held in a fiduciary capacity and to hold any securities in bearer form.

     (i) To make, execute and deliver, as Trustee, any and all conveyances, contracts, waivers, releases or other instruments in writing necessary or proper for the accomplishment of any of the foregoing powers.

     (j) Subject to the express provisions of this Agreement, to invest and reinvest all or any portion of the Trust Fund.

          6.11 The Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement) or any filing under tax or securities laws or any rerecording, refiling, or reregistration thereof.

ARTICLE VII.

Trustee Compensation

          7.1 The Trustee shall be paid such reasonable compensation as shall from time to time be agreed upon by the Trustee and the Corporation. The Trustee’s compensation shall not be limited by any law on compensation of a trustee of an express trust. The Corporation shall reimburse the Trustee for all reasonable and documented out-of-pocket disbursements, fees and expenses incurred by the Trustee in connection

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with the performance of its duties under this Agreement. Such expenses may include the reasonable compensation and out-of-pocket expenses of the Trustee’s agents and counsel.

ARTICLE VIII.

Reporting and Quarterly Valuation

          8.1 The Trustee shall, so long as any monies or other assets remain in the Trust, prepare and distribute to the Corporation reports on a quarterly basis.

ARTICLE IX.

Trustee Protection

          9.1 The Corporation shall indemnify and hold harmless the Trustee for any action, or failure to take action, in reliance in good faith upon any certification, instruction, direction or approval of the Corporation.

          9.2 The Corporation shall indemnify and hold harmless the Trustee for acting upon any instrument, certificate, or paper believed by it to be genuine and to be signed or presented by the proper person or persons, and the Trustee shall be under no duty to make any investigation or inquiry as to any statement contained in any such writing but may accept the same as conclusive evidence of the truth and accuracy of the statements therein contained. The Trustee (in its individual and trust capacities) and its officers, directors, affiliates, successors, assigns and agents (collectively, the “Indemnified Parties”) shall be indemnified and held harmless by the Corporation from and against, any and all liabilities, obligations, losses, damages, taxes, claims, actions and suits, and any and all reasonable costs, expenses and disbursements (including reasonable legal fees and expenses) of any kind and nature whatsoever (collectively, “Expenses”) which may at any time be imposed on, incurred by, or asserted against any Indemnified Party in any way relating to or arising out of this Agreement, the Trust assets, the administration of the Trust assets or the action or inaction of the Trustee hereunder, except only that the Indemnified Parties shall not be entitled to indemnification from and against Expenses arising or resulting from its own willful misconduct or gross negligence. The indemnities contained in this Section shall survive the resignation or removal of the Trustee or the termination of this Agreement.

          9.3 The Trustee shall not be liable for the proper application of any part of the Trust Fund if distributions are made in accordance with written instructions furnished to the Trustee by the Corporation in accordance with this Agreement. All persons dealing with the Trustee are released from inquiry into the decision or authority of the Trustee and from seeing to the application of any moneys, securities or other property paid or delivered to the Trustee.

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          9.4 The Trustee shall not be liable hereunder for any loss or diminution of the Trust Fund resulting from any action taken or omitted unless caused by Trustee’s gross negligence or willful misconduct.

          9.5 The duties and obligations of the Trustee acting as Trustee hereunder shall be strictly limited to those expressly imposed upon the Trustee by this Agreement and the Trustee shall have no implied duties or obligations.

          9.6 The Trustee shall not be liable for default or failure of any other party to carry out their obligations under this Agreement. The Trustee shall have no liability for following the direction or instruction of the Corporation.

          9.7 The Trustee shall not be required to act if it reasonably determines or is advised by counsel that action will likely create personal liability, is contrary to law or conflicts with other obligations unless it receives indemnity or other security satisfactory to it. Furthermore, the Trustee may request instructions from the Corporation whenever it is unable to decide between alternative courses of action or there exists an ambiguous provision. Where, after request to the Corporation for instruction, no instruction has been received, the Trustee may but is not obligated to, take no action.

          9.8 The Trustee shall have no duty to manage, register, record, sell or otherwise deal with Trust assets, or otherwise take any action in connection with any document contemplated hereby, except as expressly provided in this Agreement or pursuant to instruction.

          9.9 The Trustee acts under this Agreement solely in its capacity as Trustee and not in its individual capacity.

          9.10 The Trustee shall not be responsible to the Corporation, the Beneficiaries or any other person for any recitals or other statements contained in this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the Trust Fund or this Agreement nor shall the Trustee be held accountable for the Corporation’s use of the proceeds of the Trust Fund.

          9.11 No provision of this Agreement shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

          9.12 The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer of the Trustee, unless it is proven that the Trustee was grossly negligent, or committed willful misconduct or acted in bad faith, in ascertaining the pertinent facts or otherwise.

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          9.13 The Trustee shall not be required to give any bond or surety in respect of the execution of its trusts and powers or in respect of this Agreement.

          9.14 In no event shall the Trustee be liable for any damages in the nature of special, indirect or consequential damages, however styled, including, without limitation, lost profits, or for any losses due to forces beyond the control of the Trustee, including, without limitation, strikes, work stoppages, acts of war or terrorism, insurrection, revolution, nuclear or natural catastrophes or acts of God and interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services provided to the Trustee by third parties.

ARTICLE X.

Resignation or Removal of Trustee; Appointment of Successor Trustee

          10.1 At any time the Trustee may be removed by the Corporation on thirty (30) days notice or upon shorter notice accepted by the Trustee. A Trustee may resign at any time by written notice to the Corporation, which resignation shall be effective ninety (90) days after receipt of such notice by the Corporation unless the Corporation agrees otherwise. Notwithstanding the foregoing provisions of this Article X, any Trustee which is removed or resigns shall continue to serve until its successor Trustee accepts the appointment and receives delivery of the Trust Fund.

          10.2 If notice is given that the Trustee is being removed or is resigning, the Corporation shall appoint a successor Trustee hereof prior to the effective date of the Trustee’s resignation or removal. The appointment of a successor Trustee shall be by a written instrument delivered to the Trustee then acting hereunder and the successor Trustee being appointed.

          10.3 The appointment of a successor Trustee shall be effective when accepted in writing by the new Trustee. The new Trustee shall have all the rights, powers and duties of the prior Trustee, including ownership rights in Trust Fund assets.

          10.4 A successor Trustee need not examine the records and acts of any prior Trustee. The successor Trustee shall not be responsible for, and the Corporation shall indemnify and defend the successor Trustee from any claim or liability resulting from, any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee.

          10.5 If the Trustee ceases to act as Trustee and appointment of a successor Trustee is made, all Trust Fund assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within thirty (30) days after the appointment of the successor Trustee becomes effective, unless the Corporation extends the time limit.

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          10.6 The appointment or succession of a person as successor Trustee in accordance with this Agreement shall be effective without any court proceeding or decree.

          10.7 Any person into which the Trustee may be merged or with which it may be consolidated, or any Person resulting from any merger or consolidation to which the Trustee shall be a party, or any person which succeeds to all or substantially all of the corporate trust business of the Trustee, shall be the successor Trustee under this Agreement without the execution, delivery or filing of any paper or instrument or further act to be done on the part of the parties hereto, except as may be required by applicable law.

ARTICLE XI.

Instructions to the Trustee

          11.1 A Certificate submitted in support of a disbursement request or financing assurance shall be substantially in the written form described herein and such Certificate shall be signed by an authorized official of the Corporation. All other orders, instructions, or approvals required by this Agreement to be given to the Trustee by the Corporation, shall be in writing, signed by an authorized official thereof. The Trustee shall have the right to assume, in the absence of written notice to the contrary, that no event constituting a change or a termination of the authority to act of any authorized official has occurred. The Trustee shall have no duty to act in the absence of such written Certificates and directions.

          11.2 The Trustee is authorized to communicate with and take direction with respect to ministerial matters from the contact Person of the Corporation. The contact Person for the Corporation is Stanton K. Rideout, Phelps Dodge Tower, One North Central Avenue, Phoenix, Arizona 85004, (602-366-8589). The corporation may change its contact Person by written notice to the Trustee.

ARTICLE XII.

Amendment or Termination

          12.1 The Corporation may amend this Agreement (including making an amendment which terminates the Trust), without the consent of the Trustee, by written instrument executed by the Corporation effective upon delivery of the instrument to the Trustee in accordance with Section 13.1; provided, however, that the written approval of the Trustee shall be required for amendments of Sections 2.2, 6.1, 6.2, 6.4, 6.5, 6.6, 6.7, 6.8, 7.1, Article IX, Article X, Article XI and Article XII to the extent that such amendments adversely affect the rights, indemnities, immunities and obligations of the Trustee.

11

ARTICLE XIII.

Notices

          13.1 Any notice or communication which the Corporation or the Trustee may be required or may desire to give to another entity or individual under any provision of this Agreement shall be given in writing and personally delivered to, or mailed or delivered by overnight courier service or sent by telex, telecopier or email to the address (or addresses) given below.

If to the Corporation:	Stanton K. Rideout, Treasurer
	Phelps Dodge Corporation
	One North Central Avenue
	Phoenix, AZ 85004
	Phone: (602) 366-8589
	Fax: (602) 366-7132
	Email: srideout@phelpsdodge.com
If to Trustee:	Ann Roberts Dukart
	Vice President
	Wells Fargo Delaware Trust Company
	919 North Market Street
	Suite 700
	Wilmington, DE 19801
	Tel: 302-575-2004
	Fax: 302-575-2006
	E-mail: ann.roberts.dukart@wellsfargo.com

Any notice which is personally delivered shall be deemed to have been given on the date it is personally delivered. Any notice which is mailed shall be deemed to have been given on the third business day after deposit in the mail, registered or certified mail, postage prepaid and return receipt requested. Any notice which is delivered by overnight courier service shall be deemed to have been given on the business day after deposit with such courier service. Any notice which is transmitted by telex, telecopy or email shall be deemed to have been given on the day that such notice is transmitted.

          The Corporation or the Trustee may change the address to which notices, requests and other communications are to be sent to it, by giving written notice of such address change to the party in conformity with this Article, but such change shall not be effective until notice of such change has been received by the other party.

12

ARTICLE XIV.

Miscellaneous

          14.1 If any one or more of the covenants, agreements, provisions or terms of this Agreement (including any amendment or supplement hereto) shall be for any reason whatsoever held invalid or unenforceable, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions and terms of this Agreement, as the same may be amended or supplemented, and shall in no way affect the validity or enforceability of the other covenants, agreements, provisions or terms of this Agreement or any amendment or supplement hereto.

          14.2 This Agreement and the Trust created herein shall in all respects be governed by, and construed in accordance with, the laws of the State of Delaware (excluding conflict of law rules), including all matters of construction, validity and performance, unless such laws are pre-empted by the federal laws of the United States. Sections 3540 and 3561 of Title 12 of the Delaware Code shall not apply to the Trust.

          14.3 All covenants and agreements contained herein shall be binding upon, and inure to the benefit of, the Trustee and its successors and assigns and the Corporation and its successors and assigns, all as herein provided. Any request, notice, direction, consent, waiver or other instrument or action by the Trustee or the Corporation shall bind the successors and assigns of such Person..

          14.4 This Agreement may be executed in two or more counterparts, each of which shall be an original, but all such counterparts shall together constitute one and the same agreement.

          14.5 This Agreement represents the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings between the parties, whether written or oral.

          14.6 Nothing in this Agreement, whether express or implied, shall be construed to give to any Person other than the Trustee, the Beneficiaries and the Corporation any legal or equitable right, remedy or claim in the Trust Fund or under or in respect of this Agreement or any covenants, conditions or provisions contained herein.

13

          IN WITNESS WHEREOF, this instrument has been executed as of the day and year first above written.

PHELPS DODGE CORPORATION
By:	/s/ S.K. Rideout Name: Stanton K. Rideout
	Title: Vice President and Treasurer
WELLS FARGO DELAWARE TRUST COMPANY
Name:	/s/ A.R. Dukart	,	as Trustee
Title:	Vice President

14

Schedule A

BENEFICIARIES

AAV Corporation
Ajo Improvement Company
Alambres y Cables de Panama, S.A. (ALCAP)
Alambres y Cables Venezolanos, C.A. (ALCAVE)
ALCAP Commercial, S.A. (ALCOMER)
Alcave Trading
Amax Arizona, Inc.
Amax de Chile, Inc.
Amax Energy Inc.
Amax Exploration (Ireland), Inc.
Amax Exploration, Inc.
Amax Metals Recovery, Inc.
Amax Nickel Overseas Ventures, Inc.
Amax Realty Development, Inc.
Amax Research & Development, Inc.
Amax Specialty Coppers Corporation
Amax Specialty Metals (Driver), Inc.
Amax Zinc (Newfoundland) Limited
American Metal Climax, Inc.
Ametalco, Inc.
Ametalco Limited
Amur Minerals LLC
Annavas Development Co., Ltd.
Arizona Community Investment Corporation
Ashfork Mines Limited
Balkan Metals and Minerals EOOD
Bisbee Queen Mining Company
Blackwell Zinc Company, Inc.
Byner Cattle Company
Cables Electricos Ecuatorianos, C.A. (CABLEC)
Cahosa, S.A.
Cates Douglas Corporation
Caucasus Metal and Minerals LLC
Chino Acquisition Inc.
Chino Mines Company
Chui Ltd.
CIS Venture Kazakstan, L.L.C.
Climax Canada Ltd.

A-1

Schedule A (cont’d)

Climax Engineered Materials, LLC
Climax Molybdenum Asia Corporation
Climax Molybdenum B.V.
Climax Molybdenum Company
Climax Molybdenum GmbH
Climax Molybdenum Marketing Corporation
Climax Molybdenum U.K. Limited
Cobre Cerrillos S.A. (COCESA)
Cobre Mining Company
Cocesa Ingenieria y Construccion, S.A. (COCETEL)
Cocetel Ingenieria y Construccion, C.A. (Venezuela)
Compania Contractual Minera Candelaria
Compania Contractual Minera Ojos del Salado
Conducen Phelps Dodge Centro America El Salvador, S.A. de C.V.
CONDUCEN, S.A.
Conductores Electricos de Centro America, S.A. (CONELCA)
Copper Market, Inc.
Copreco, L.L.C.
Cyprus Amax Australia Corporation
Cyprus Amax Chile Holdings, Inc.
Cyprus Amax Indonesia Corporation
Cyprus Amax Leasing Corporation
Cyprus Amax Minerals Company
Cyprus Canada Inc.
Cyprus Climax Metals Company
Cyprus Copper Marketing Corporation
Cyprus Copperstone Gold Corporation
Cyprus El Abra Corporation
Cyprus Exploration and Development Corporation
Cyprus Gold Company
Cyprus Gold Exploration Corporation
Cyprus Metals Company
Cyprus Metals Exploration Corporation
Cyprus Mexico Corporation
Cyprus Minera de Chile, Inc.
Cyprus Mines Corporation
Cyprus Pima Mining Company
Cyprus Pinos Altos Corporation
Cyprus Speciality Metals Company
Cyprus Tohono Corporation
Cyprus Zinc Corporation

A-2

Schedule A (cont’d)

Dodge & James Insurance Company, Ltd.
Electroconductores de Honduras, S.A. de C.V. (ECOHSA)
Fabrica de Conductores Electricos, S.A. (FACELEC)
Faru Ltd.
Geomining L.L.P.
Habirshaw Cable and Wire Corporation
Hidalgo Mining, LLC
Inversiones de Cobre Chile Co., S.A.
James Douglas Insurance Company, Ltd.
Kamchatka Minerals LLC
Kinetics Climax, Inc.
Kumakata Mining Company, Inc.
Lambunao Mining Company, Inc.
Las Quintas Serenas Water Co.
Lundin Holdings Ltd.
Macote Mining Company, Inc.
Makilala Mining Company, Inc.
Malampay Mining Company, Inc.
Malibato Mining Company, Inc.
Mambusao Mining Company, Inc.
Mboko Ltd.
Metal Fabricators of Zambia Limited (ZAMEFA)
Metallic Ventures, Inc.
Minera Aurex (Chile) Limitada
Mineracao Floresta Doeste Ltda.
Minera Cobre Chile Co., S.A.
Minera Cobre Chile Limitada
Minera Cuicuilco S.A. de C.V.
Minera Cyprus Amax Chile Limitada
Minera Cyprus Antacori Corporation
Minera Cyprus Chile Limitada
Minera Las Clauditas, S.A.
Minera Phelps Dodge del Peru S.A.C.
Minera Phelps Dodge Mexico, S de RL de CV
Mining Development Investments Ltd.
Missouri Lead Smelting Company
Mofia Ltd.
Mt. Emmons Mining Company
Pacific Western Land Company
PD Candelaria, Inc.

A-3

Schedule A (cont’d)

PD Cayman Corporation
PD Cobre, Inc.
PD Colombia S.A.
PDEP Inc.
PD Las Bambas Corporation
PDM Energy, L.L.C.
PD Ojos del Salado, Inc.
PD Peru, Inc.
PD Receivables LLC
PDSMM Holding Ltd.
PD Wire & Cable Sales Corporation
Phelps Dodge Africa Cable Corporation
Phelps Dodge Ajo, Inc.
Phelps Dodge Australasia, Inc.
Phelps Dodge Bagdad, Inc.
Phelps Dodge Brasil Ltda.
Phelps Dodge Centro America Honduras, S.A. de C.V.
Phelps Dodge Centro America, S.A. Nicaragua
Phelps Dodge Chicago Rod, Inc.
Phelps Dodge China Corporation
Phelps Dodge Chino, Inc.
Phelps Dodge Chita, LLC
Phelps Dodge Congo S.P.R.L.
Phelps Dodge Corporation of Canada, Limited
Phelps Dodge Development Corporation
Phelps Dodge do Brasil Mineracao Ltda
Phelps Dodge Dublin
Phelps Dodge Energy Services, LLC
Phelps Dodge Enfield Corporation
Phelps Dodge Exploracion Mexico, S.A. de C.V.
Phelps Dodge Exploration Corporation
Phelps Dodge Exploration Moscow, LLC
Phelps Dodge Exploration Sweden AB
Phelps Dodge Hidalgo, Inc.
Phelps Dodge High Performance Conductors of NJ, Inc.
Phelps Dodge Holdings Mexico, S.A. de C.V.
Phelps Dodge Industries, Inc.
Phelps Dodge International Corporation
Phelps Dodge Kamchatka, LLC
Phelps Dodge Katanga Corporation

A-4

Schedule A (cont’d)

Phelps Dodge Khabarovsk, LLC
Phelps Dodge Magadan, LLC
Phelps Dodge Magnet Wire (Austria) GmbH
Phelps Dodge Mercantile Company
Phelps Dodge-Metdist Mining India Pvt. Ltd.
Phelps Dodge Miami, Inc.
Phelps Dodge Mining Services, Inc.
Phelps Dodge Mining (Zambia) Limited
Phelps Dodge Molybdenum Corporation
Phelps Dodge Morenci, Inc.
Phelps Dodge of Africa, Ltd.
Phelps Dodge Overseas Capital Corporation
Phelps Dodge Power Marketing, LLC
Phelps Dodge Refining Corporation
Phelps Dodge Safford, Inc.
Phelps Dodge Sales Company, Incorporated
Phelps Dodge Sierrita, Inc.
Phelps Dodge Suzhou Holdings, Inc.
Phelps Dodge (Suzhou) Magnet Wire Company Ltd.
Phelps Dodge Thailand Limited
Phelps Dodge Tyrone, Inc.
Phelps Dodge Yantai Cable Company
Phelps Dodge Yantai China Holdings Inc.
Proveedora de Cables y Alambres PDCA Guatemala, S.A.
Pt Cyprus Amax Indonesia
PT Kutaraja Tembaga Raya
Servicios Especiales Nacionales, S.A. de C.V.
Servicios Phelps Dodge Mexico, S.A. de C.V.
Shilka Minerals
Silver Springs Ranch, Inc.
Sociedad Contractual Minera El Abra
Sociedad Minera Cerro Verde S.A.A.
Somin Ltd. (partnership)
Soner, Inc.
South Danube Metals, D.O.O., Beograd
Tambuli Mining Co., Inc.
Tembo Ltd.
Tenke Fungurume Mining S.A.R.L.
The Morenci Water & Electric Company
Tucson, Cornelia and Gila Bend Railroad Co.

A-5

Schedule A (cont’d)

Tyrone Mining, LLC
United States Metals Refining Company
Warren Company
Western Nuclear Australia Limited
Western Nuclear, Inc.

A-6

Schedule B

AUTHORIZED PERSONS

Name	Phone Number	Fax Number	Address	Email	Signature
			Phelps Dodge Corporation
Stanton K. Rideout	(602) 366-8589	(602) 366-7132	One North Central Avenue	srideout@phelpsdodge.com
			Phoenix, AZ 85004
			Phelps Dodge Corporation
Carol L. Lindsay	(602) 366-7810	(602) 453-1674	One North Central Avenue	cmlindsay@phelpsdodge.com
			Phoenix, AZ 85004
			Phelps Dodge Corporation
Scott Barker	(602) 366-8016	(602) 366-7323	One North Central Avenue	sbarker@phelpsdodge.com
			Phoenix, AZ 85004

B-1

Exhibit 1

BENEFICIARY DISBURSEMENT CERTIFICATE

Reference is made to the RECLAMATION AND REMEDIATION TRUST AGREEMENT, entered into as of                     , 2006 (the “Trust Agreement”), by and among Wells Fargo Delaware Trust Company, as trustee (the “Trustee”), and Phelps Dodge Corporation, a New York corporation, as grantor (the “Grantor,” or the “Corporation”).

Pursuant to Section 4.1, and in accordance with Section 1.4, of the Trust Agreement the Corporation and [NAME OF BENEFICIARY] direct the Trustee to disburse to [NAME OF BENEFICIARY] $                    .

IN WITNESS WHEREOF, the undersigned has caused this Certificate to be executed by its authorized officers as of this ___day of                     ,                     .

PHELPS DODGE CORPORATION

By:

Name:

Title:

[NAME OF BENEFICIARY]

By:

Name:

Title:

Exhibit 2

CORPORATION DISBURSEMENT CERTIFICATE

Reference is made to the RECLAMATION AND REMEDIATION TRUST AGREEMENT, entered into as of                     , 2006 (the “Trust Agreement”), by and among Wells Fargo Delaware Trust Company, as trustee (the “Trustee”), and Phelps Dodge Corporation, a New York corporation, as grantor (the “Grantor,” or the “Corporation”).

Pursuant to Section 4.2 of the Trust Agreement the Corporation directs the Trustee to disburse to the Corporation $                    .

IN WITNESS WHEREOF, the undersigned has caused this Certificate to be executed by its authorized officers as of this ___day of                     ,                     .

PHELPS DODGE CORPORATION

By:

Name:

Title:

Exhibit 3

TAX DISBURSEMENT CERTIFICATE

Reference is made to the RECLAMATION AND REMEDIATION TRUST AGREEMENT, entered into as of                     , 2006 (the “Trust Agreement”), by and among Wells Fargo Delaware Trust Company, as trustee (the “Trustee”), and Phelps Dodge Corporation, a New York corporation, as grantor (the “Grantor” or the “Corporation”). Capitalized terms not otherwise defined herein shall have the meanings granted to them by the Trust Agreement.

Pursuant to Section 4.4 of the Trust Agreement, the undersigned directs the Trustee to transfer to the Grantor the sum of $                    , which represents 25% of the Fund’s Deemed Taxable Income for the immediately preceding calendar year.

IN WITNESS WHEREOF, the undersigned has caused this Certificate to be executed by its authorized officers as of this ___day of                     ,                     .

PHELPS	DODGE CORPORATION
By:
Name:
Title:

Exhibit 4

TERMINATION DISBURSEMENT CERTIFICATE

Reference is made to the RECLAMATION AND REMEDIATION TRUST AGREEMENT, entered into as of                     , 2006 (the “Trust Agreement”), by and among Wells Fargo Delaware Trust Company, as trustee (the “Trustee”), and Phelps Dodge Corporation, a New York corporation, as grantor (the “Grantor”).

Pursuant to Section 4.5 of the Trust Agreement, the undersigned directs the Trustee to disburse to the Grantor the balance of Trust Fund less final Trust administration expenses.

IN WITNESS WHEREOF, the undersigned has caused this Certificate to be executed by its authorized officers as of this ___day of                     ,                     .

PHELPS DODGE CORPORATION

By:

Name:

Title:

Exhibit 5

FINANCIAL ASSURANCE REQUEST

Reference is made to the RECLAMATION AND REMEDIATION TRUST AGREEMENT, entered into as of                     , 2006 (the “Trust Agreement”), by and among Wells Fargo Delaware Trust Company, as trustee (the “Trustee”), and Phelps Dodge Corporation, a New York corporation, as grantor (the “Grantor”). Capitalized terms not otherwise defined herein shall have the meanings granted to them by the Trust Agreement.

Pursuant to Section 5.1, and in accordance with Section 1.4, of the Trust Agreement, the Corporation and [NAME OF BENEFICIARY] direct the Trustee to deposit $[___] in a separate account segregated from the other assets of the Trust Fund for the purpose of providing financial assurance on behalf of [NAME OF BENEFICIARY] pursuant to the terms of the documents attached to this certificate as Schedule A. As compensation for providing such financial assurance, the Trust shall be entitled to the amounts set forth in the Agreement in accordance with the terms and conditions of the Agreement.

IN WITNESS WHEREOF, the undersigned has caused this Certificate to be executed by its authorized officers as of this ___day of                     ,                     .

PHELPS DODGE CORPORATION

By:

Name:

Title:

[NAME OF BENEFICIARY]

By:

Name:

Title:

Schedule A

Financial Assurance Documents

EX-11

PHELPS DODGE CORPORATION AND SUBSIDIARIES
Exhibit 11

COMPUTATION OF PER SHARE EARNINGS
(in millions except per share data)

	For the years ended
	December 31,
	2005			2004			2003
Income (loss) from continuing operations before extraordinary item and cumulative effective of accounting changes	$	1,583.9			1,023.6			(21.1	)
Income (loss) from discontinued operations		(17.4	)		22.7			39.2
Extraordinary item		—			—			68.3
Cumulative effect of accounting changes (1)		(10.1	)		—			8.4
Net income	$	1,556.4			1,046.3			94.8
Preferred stock dividends		(6.8	)		(13.5	)		(13.5	)
Net income applicable to common shares	$	1,549.6			1,032.8			81.3
Basic:
Weighted average number of common shares outstanding		97.9			93.4			88.8
Diluted:
Weighted average number of common shares outstanding		97.9			93.4			88.8
Weighted average common stock equivalents — stock options		0.4			0.9			0.4
Weighted average common stock equivalents — restricted stock		0.4			0.4			0.2
Weighted average conversion of mandatory convertible preferred stock		2.6			4.2			4.7
Diluted weighted average number of common shares outstanding (2)		101.3			98.9			94.1
Basic earnings per common share:
Income (loss) from continuing operations	$	16.12			10.82			(0.39	)
Income (loss) from discontinued operations		(0.18	)		0.24			0.45
Extraordinary item		—			—			0.77
Cumulative effect of accounting changes (1)		(0.10	)		—			0.09
Basic earnings per common share	$	15.84			11.06			0.92
Diluted earnings per common share:
Income (loss) from continuing operations	$	15.64			10.35			(0.39	)
Income (loss) from discontinued operations		(0.17	)		0.23			0.45
Extraordinary item		—			—			0.77
Cumulative effect of accounting changes (1)		(0.10	)		—			0.09
Diluted earnings per common share (2)	$	15.37			10.58			0.92

(1)	The year ended December 31, 2005, included adoption of FIN 47, “Accounting for Conditional Asset Retirement Obligations — an Interpretation of FASB Statement No. 143;” the year ended December 31, 2003, included adoption of SFAS No. 143, “Accounting for Asset Retirement Obligations.”
(2)	For the year ended December 31, 2003, diluted earnings per common share from continuing operations was anti-dilutive; therefore, diluted earnings per common share was based on basic average number of shares outstanding.

EX-12.1

PHELPS DODGE CORPORATION AND SUBSIDIARIES
Exhibit 12.1

COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(in millions except ratios)

	For the years ended December 31,
	2005*			2004*			2003*		2002*			2001*
Income (loss) from continuing operations before taxes, minority interests in consolidated subsidiaries, equity in net earnings (losses) of affiliated companies, extraordinary item and cumulative effect of accounting changes	$	2,348.6			1,354.1			11.0		(471.4	)		(306.0	)
Amortization of previously capitalized interest expense		2.4			4.4			6.0		6.8			7.4
Less: capitalized interest		(16.3	)		(0.3	)		—		—			(1.6	)
Earnings (losses) before fixed charges	$	2,334.7			1,358.2			17.0		(464.6	)		(300.2	)
Fixed charges:
Interest expensed and capitalized	$	94.2			119.6			130.6		155.7			214.7
Amortization of debt expenses, premiums and discounts		0.7			3.9			11.2		25.2			10.2
Interest portion of rental expense		9.8			10.1			6.7		6.2			6.0
Total fixed charges	$	104.7			133.6			148.5		187.1			230.9
Adjusted earnings (losses)	$	2,439.4			1,491.8			165.5		(277.5	)		(69.3	)
Ratio of earnings to fixed charges (a)		23.3			11.2			1.1		—	(b)		—	(d)
Preferred dividend requirements:
Total fixed charges	$	104.7			133.6			148.5		187.1			230.9
Preferred stock dividends		6.8			13.5			13.5		9.1			N/A
Combined fixed charges and preferred stock dividends	$	111.5			147.1			162.0		196.2			230.9
Ratio of earnings to combined fixed charges and preferred stock dividends (a)		21.9			10.1			1.0		—	(c)		N/A

*	2005 and 2004 reflected full consolidation of El Abra and Candelaria; 2003 through 2001 reflected El Abra and Candelaria on a pro-rata basis (51 percent and 80 percent, respectively).
(a)	As a result of Phelps Dodge’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. For purposes of computing the consolidated ratio of earnings to fixed charges, earnings consist of income from continuing operations before taxes, minority interests and equity in net earnings (losses) of affiliated companies, extraordinary items and cumulative effect of accounting changes. Minority interests in majority-owned subsidiaries were not deducted from earnings as all such subsidiaries had fixed charges. Fixed charges from continuing operations consist of interest (including capitalized interest) of all indebtedness, amoritization of debt discount and expense, and that portion of rental expense which we believe to be representative of interest. For purposes of calculating the ratio of earnings to combined fixed charges and preferred stock dividends, the preferred stock dividend requirements were assumed to be equal to the pre-tax earnings which would be required to cover such dividend requirements. The amount of pre-tax earnings required to cover such preferred stock dividends was computed using the tax rate for each applicable year.
(b)	Due to the loss recorded in 2002, the ratio coverage was less than 1:1. Phelps Dodge would have needed to generate additional earnings of $464.6 million to achieve coverage of 1:1 in 2002.
(c)	Due to the loss recorded in 2002, the ratio coverage was less than 1:1. Phelps Dodge would have needed to generate additional earnings of $473.7 million to achieve coverage of 1:1 in 2002.
(d)	Due to the loss recorded in 2001, the ratio coverage was less than 1:1. Phelps Dodge would have needed to generate additional earnings of $300.2 million to achieve coverage of 1:1 in 2001.

EX-12.2

PHELPS DODGE CORPORATION AND SUBSIDIARIES
Exhibit 12.2

COMPUTATION OF RATIOS OF TOTAL DEBT TO TOTAL CAPITALIZATION
(in millions)

	December 31,
	2005			2004			2003
Short-term debt	$	14.3			78.8			50.5
Current portion of long-term debt		2.5			45.9			204.6
Long-term debt		677.7			972.2			1,703.9
Total debt		694.5			1,096.9			1,959.0
Minority interests in consolidated subsidiaries		915.9			555.1			70.2
Common shareholders’ equity		5,601.6			4,343.1			3,063.8
Total capitalization	$	7,212.0			5,995.1			5,093.0
Ratio of total debt to total capitalization		9.6	%		18.3	%		38.5	%

EX-21

PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES

EXHIBIT 21

LIST OF SUBSIDIARIES AND INVESTMENTS AS OF DECEMBER 31, 2005

		Registrant's
		percent of
	State/Country of	voting
	Incorporation	power
Phelps Dodge Corporation	NY, USA		100.0
Ajo Improvement Company	AZ, USA		100.0
Alambres y Cables de Panama, S.A.	Panama		78.1
Alambres y Cables Venezolanos, C.A.	Venezuela		100.0
Annavas Development Co., Ltd.	DE, USA		100.0
Arizona Community Investment Corporation	AZ, USA		100.0
Cables Electricos Ecuatorianos, C.A.	Ecuador		67.1
Cahosa, S.A.	Panama		78.1
Chino Acquisition Inc.	DE, USA		100.0
Cobre Cerrillos S.A. (a)	Chile		100.0
Columbian Chemicals Company	DE, USA		100.0
Capital Gestao de Negocios Ltda.	Brazil		100.0
Columbian International Chemicals Corporation	DE, USA		100.0
Columbian Carbon International (France) S.A.	France		100.0
Columbian Carbon Spain, S.A.	Spain		100.0
Columbian Chemicals Brasil, S.A.	Brazil		100.0
Columbian Chemicals Canada, Ltd.	Canada		100.0
Columbian Carbon Deutschland GmbH (b)	Germany		90.0
Columbian Chemicals Europa, GmbH	Germany		100.0
Columbian Chemicals Korea Co., Ltd.	Korea		85.0
Columbian Chemicals Philippines Distribution Co., Inc.	Philippines		100.0
Columbian Holding Company (c)	DE, USA		98.0
Columbian Carbon Europa S.R.L.	Italy		100.0
Columbian Tiszai Carbon Ltd. (d)	Hungary		99.9
Columbian (U.K.) Limited	United Kingdom		100.0
Sevalco Limited	United Kingdom		100.0
Columbian Carbon Japan Ltd.	Japan		68.0
Columbian International Trading Company	DE, USA		100.0
Columbian Technology Company	DE, USA		100.0
North Bend Cogen, L.L.C.	LA, USA		100.0
CONDUCEN, S.A.	Costa Rica		73.4
Cyprus Amax Minerals Company	DE, USA		100.0
Amax Arizona, Inc.	NV, USA		100.0
Amax de Chile, Inc.	DE, USA		100.0
Amax Energy Inc.	DE, USA		100.0
Amax Zinc (Newfoundland) Limited	DE, USA		100.0
Amax Exploration (Ireland), Inc.	DE, USA		100.0
Amax Exploration, Inc.	DE, USA		100.0
Amax Nickel Overseas Ventures, Inc.	DE, USA		100.0
Amax Realty Development, Inc.	DE, USA		100.0
Amax Research & Development, Inc.	DE, USA		100.0
Amax Specialty Coppers Corporation	DE, USA		100.0
Amax Specialty Metals (Driver), Inc.	DE, USA		100.0
American Metal Climax, Inc.	DE, USA		100.0
Ametalco, Inc.	NY, USA		100.0
Ametalco Limited	England		100.0
Climax Molybdenum U.K. Limited	England		100.0

PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES

EXHIBIT 21

LIST OF SUBSIDIARIES AND INVESTMENTS AS OF DECEMBER 31, 2005

		Registrant's
		percent of
	State/Country of	voting
	Incorporation	power
Climax Canada Ltd.	DE, USA		100.0
Climax Engineered Materials, LLC	CO, USA		100.0
Kinetics Climax, Inc.	DE, USA		100.0
Cyprus Amax Chile Holdings, Inc.	DE, USA		100.0
Minera Cyprus Amax Chile Limitada (e)	Chile		67.0
Minera Cyprus Chile Limitada (f)	Chile		90.3
Cyprus Metals Company	DE, USA		100.0
Cyprus Climax Metals Company	DE, USA		100.0
Amax Metals Recovery, Inc.	DE, USA		100.0
Climax Molybdenum Company	DE, USA		100.0
Climax Molybdenum GmbH	Germany		100.0
Copper Market, Inc.	AZ, USA		100.0
Cyprus El Abra Corporation	DE, USA		100.0
Sociedad Contractual Minera El Abra	Chile		51.0
Cyprus Tohono Corporation	DE, USA		100.0
Mt. Emmons Mining Company	DE, USA		100.0
Silver Springs Ranch, Inc.	CO, USA		100.0
Phelps Dodge Bagdad, Inc.	DE, USA		100.0
Phelps Dodge Chicago Rod, Inc.	DE, USA		100.0
Phelps Dodge Miami, Inc.	DE, USA		100.0
Phelps Dodge Sierrita, Inc.	DE, USA		100.0
Sociedad Minera Cerro Verde S.A.A.	Peru		53.6
Cyprus Exploration and Development Corporation	DE, USA		100.0
Cyprus Minera de Chile, Inc.	DE, USA		100.0
Cyprus Specialty Metals Company	DE, USA		100.0
Cyprus Mines Corporation	DE, USA		100.0
Climax Molybdenum Asia Corporation	DE, USA		100.0
Cyprus Amax Leasing Corporation	DE, USA		100.0
Dodge & James Insurance Company, Ltd.	Bermuda		100.0
Electroconductores de Honduras, S.A. de C.V.	Honduras		59.4
Habirshaw Cable and Wire Corporation	NY, USA		100.0
Hidalgo Mining, LLC	NM, USA		100.0
James Douglas Insurance Company, Ltd.	Bermuda		100.0
PD Candelaria, Inc.	DE, USA		100.0
Compañía Contractual Minera Candelaria	Chile		80.0
PD Cayman Corporation	Cayman Islands		100.0
PD Cobre, Inc.	DE, USA		100.0
Cobre Mining Company (g)	NM, USA		50.0
Metallic Ventures, Inc.	NV, USA		100.0
PD Ojos del Salado, Inc.	DE, USA		80.0
Phelps Dodge Africa Cable Corporation	DE, USA		100.0
Metal Fabricators of Zambia Limited	Zambia		53.0
Phelps Dodge China Corporation	DE, USA		100.0
Phelps Dodge Chino, Inc.	DE, USA		100.0
Chino Mines Company (h)	NM, USA		66.7
Phelps Dodge Corporation of Canada, Limited	DE, USA		100.0
Phelps Dodge Development Corporation	DE, USA		100.0

PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES

EXHIBIT 21

LIST OF SUBSIDIARIES AND INVESTMENTS AS OF DECEMBER 31, 2005

		Registrant's
		percent of
	State/Country of	voting
	Incorporation	power
Phelps Dodge Dublin	Ireland		100.0
Phelps Dodge Energy Services, LLC	DE, USA		100.0
Phelps Dodge Exploration Corporation	DE, USA		100.0
Caucasus Metal and Minerals LLC (i)	Armenia		99.0
PDSMM Holding Ltd.	British Virgin Islands		55.0
PDSMM Sichuan L.P. (j)	Cayman Islands		54.5
Phelps Dodge Exploration Sweden AB	Sweden		100.0
Phelps Dodge Kamchatka, LLC (k)	DE, USA		99.0
Kamchatka Minerals LLC	Russia		100.0
Phelps Dodge Katanga Corporation	DE, USA		100.0
Lundin Holdings Ltd.	Bermuda		70.0
Chui Ltd.	Bermuda		100.0
Faru Ltd.	Bermuda		100.0
Mboko Ltd.	Bermuda		100.0
Mofia Ltd.	Bermuda		100.0
Tembo Ltd.	Bermuda		100.0
Tenke Fungurume Mining S.A.R.L. (l)	Congo		80.0
Phelps Dodge Khabarovsk, LLC (k)	DE, USA		99.0
Amur Minerals LLC	Russia		100.0
Phelps Dodge Magadan (k)	DE, USA		99.0
Kolymageo LLC	Russia		100.0
South Danube Metals, D.O.O., Beograd	Serbia		100.0
Svetloye Gold Corporation, fka PD Russia, Inc.	DE, USA		49.0
PD Rus LLC	Russia		100.0
Phelps Dodge Hidalgo, Inc.	DE, USA		100.0
Phelps Dodge High Performance Conductors of SC & GA, Inc.	NY, USA		100.0
Phelps Dodge High Performance Conductors Japan Co., Ltd.	Japan		100.0
Phelps Dodge Industries, Inc.	DE, USA		100.0
PD Receivables LLC	DE, USA		100.0
Phelps Dodge International Corporation	DE, USA		100.0
PD Wire & Cable Sales Corporation	DE, USA		100.0
Phelps Dodge Magnet Wire (Austria) GmbH	Austria		100.0
Phelps Dodge Mercantile Company	NY, USA		100.0
Phelps Dodge Mining Services, Inc.	DE, USA		100.0
Phelps Dodge Molybdenum Corporation	DE, USA		100.0
Phelps Dodge Morenci, Inc.	DE, USA		100.0
Phelps Dodge Overseas Capital Corporation	DE, USA		100.0
Phelps Dodge Power Marketing, LLC	DE, USA		100.0
Phelps Dodge Refining Corporation	NY, USA		100.0
Phelps Dodge Safford, Inc.	DE, USA		100.0
Phelps Dodge Sales Company, Incorporated	DE, USA		100.0
Phelps Dodge Suzhou Holdings, Inc.	Cayman Islands		100.0
Phelps Dodge (Suzhou) Magnet Wire Company Ltd.	China		100.0
Phelps Dodge Thailand Limited	Thailand		75.5
Phelps Dodge Wire and Cable Holding de Mexico SA de CV (m)	Mexico		99.0
Soner, Inc.	NJ, USA		100.0
Phelps Dodge High Performance Conductors of NJ, Inc.	NJ, USA		100.0

PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES

EXHIBIT 21

LIST OF SUBSIDIARIES AND INVESTMENTS AS OF DECEMBER 31, 2005

		Registrant's
		percent of
	State/Country of	voting
	Incorporation	power
The Morenci Water & Electric Company	AZ, USA		100.0
PDM Energy, L.L.C.	AZ, USA		100.0
Tyrone Mining, LLC	NM, USA		100.0
Phelps Dodge Tyrone, Inc.	DE, USA		100.0
Investments carried on an equity basis:
Apache Nitrogen Products, Inc.	NJ, USA		49.2
Copreco, L.L.C.	AZ, USA		50.0
Colada Continua Chilena, S.A.	Chile		41.0
Keystone Electric Wire and Cable Company Limited	Hong Kong		20.0
PDTL Trading Company Limited	Thailand		49.0
Phelps Dodge Philippines, Inc.	Philippines		40.0

Summarized financial information is provided for these and other companies (refer to Note 5 to the Consolidated Financial Statements of the Corporation contained in this Form 10-K) pursuant to Article 3 — General Instructions as to Financial Statements.

Omitted from this listing are subsidiaries that, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.

(a)	24.2 percent owned by Habirshaw Cable and Wire Corporation
(b)	10.0 percent owned by Columbian Holding Company
(c)	2.0 percent owned by Columbian Chemicals Canada, Ltd.
(d)	0.1 percent owned by Columbian Chemicals Company
(e)	33.0 percent owned by Cyprus Specialty Metals Company
(f)	9.7 percent owned by Cyprus Exploration and Development Corporation
(g)	50.0 percent owned by Metallic Ventures, Inc.
(h)	33.3 percent owned by Chino Acquisition, Inc.
(i)	1.0 percent owned by Phelps Dodge Africa Cable Corporation
(j)	1.0 percent owned by PDSMM Holding Ltd.
(k)	1.0 percent owned by Phelps Dodge Corporation
(l)	0.5 percent owned by each of the following entities: Chui Ltd., Faru Ltd., Mboko Ltd., Mofia Ltd., and Tembo Ltd.
(m)	1.0 percent owned by Phelps Dodge Industries, Inc.

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-124094), the Registration Statements on Form S-8 (Nos. 33-26442, 33-6141, 33-26443, 33-34362, 33-62648, 333-117382, 333-42231 and 333-52175), and the Post-Effective Amendment No. 4 on Form S-8 to the Registration Statement on Form S-4 (No. 333-86061) of Phelps Dodge Corporation of our report dated February 24, 2006 relating to the consolidated financial statements, financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Phoenix, Arizona
February 27, 2006

EX-24

Exhibit 24

POWER OF ATTORNEY

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints J. Steven Whisler, Ramiro G. Peru and S. David Colton and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities:

Annual Report For the Year Ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K

     (1) to sign the Annual Report for the fiscal year ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K (“2005 Form 10-K”) to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 2005 Form 10-K;

     (2) to file such 2005 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and

     (3) to take such other action as may be deemed necessary or appropriate in connection with such 2005 Form 10-K;

as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

          IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 1^st day of February, 2006.

/s/ Archie W. Dunham  

Archie W. Dunham 

POWER OF ATTORNEY

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints J. Steven Whisler, Ramiro G. Peru and S. David Colton and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities:

Annual Report For the Year Ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K

     (1) to sign the Annual Report for the fiscal year ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K (“2005 Form 10-K”) to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 2005 Form 10-K;

     (2) to file such 2005 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and

     (3) to take such other action as may be deemed necessary or appropriate in connection with such 2005 Form 10-K;

as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

          IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 1^st day of February, 2006.

/s/ Robert N. Burt  

Robert N. Burt 

POWER OF ATTORNEY

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints J. Steven Whisler, Ramiro G. Peru and S. David Colton and each of them her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for her and in her name, place and stead, in any and all capacities:

Annual Report For the Year Ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K

     (1) to sign the Annual Report for the fiscal year ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K (“2005 Form 10-K”) to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 2005 Form 10-K;

     (2) to file such 2005 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and

     (3) to take such other action as may be deemed necessary or appropriate in connection with such 2005 Form 10-K;

as fully to all intents and purposes as she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

          IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 2^nd day of February, 2006.

/s/ Marie L. Knowles  

Marie L. Knowles 

POWER OF ATTORNEY

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints J. Steven Whisler, Ramiro G. Peru and S. David Colton and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities:

Annual Report For the Year Ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K

     (1) to sign the Annual Report for the fiscal year ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K (“2005 Form 10-K”) to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 2005 Form 10-K;

     (2) to file such 2005 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and

     (3) to take such other action as may be deemed necessary or appropriate in connection with such 2005 Form 10-K;

as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

          IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 26^th day of January, 2006.

/s/ William A. Franke  

William A. Franke 

POWER OF ATTORNEY

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints J. Steven Whisler, Ramiro G. Peru and S. David Colton and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities:

Annual Report For the Year Ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K

     (1) to sign the Annual Report for the fiscal year ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K (“2005 Form 10-K”) to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 2005 Form 10-K;

     (2) to file such 2005 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and

     (3) to take such other action as may be deemed necessary or appropriate in connection with such 2005 Form 10-K;

as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

          IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 31^st day of January, 2006.

/s/ Robert D. Johnson  

Robert D. Johnson 

POWER OF ATTORNEY

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints J. Steven Whisler, Ramiro G. Peru and S. David Colton and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities:

Annual Report For the Year Ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K

     (1) to sign the Annual Report for the fiscal year ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K (“2005 Form 10-K”) to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 2005 Form 10-K;

     (2) to file such 2005 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and

     (3) to take such other action as may be deemed necessary or appropriate in connection with such 2005 Form 10-K;

as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

          IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 23^rd day of January, 2006.

/s/ Robert D. Krebs  

Robert D. Krebs 

POWER OF ATTORNEY

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints J. Steven Whisler, Ramiro G. Peru and S. David Colton and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities:

Annual Report For the Year Ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K

     (1) to sign the Annual Report for the fiscal year ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K (“2005 Form 10-K”) to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 2005 Form 10-K;

     (2) to file such 2005 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and

     (3) to take such other action as may be deemed necessary or appropriate in connection with such 2005 Form 10-K;

as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

          IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 1^st day of February, 2006.

/s/ Gordon R. Parker  

Gordon R. Parker 

POWER OF ATTORNEY

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints J. Steven Whisler, Ramiro G. Peru and S. David Colton and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities:

Annual Report For the Year Ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K

     (1) to sign the Annual Report for the fiscal year ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K (“2005 Form 10-K”) to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 2005 Form 10-K;

     (2) to file such 2005 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and

     (3) to take such other action as may be deemed necessary or appropriate in connection with such 2005 Form 10-K;

as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

          IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 27^th day of January, 2006.

/s/ William J. Post  

William J. Post 

POWER OF ATTORNEY

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints J. Steven Whisler, Ramiro G. Peru and S. David Colton and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities:

Annual Report For the Year Ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K

     (1) to sign the Annual Report for the fiscal year ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K (“2005 Form 10-K”) to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 2005 Form 10-K;

     (2) to file such 2005 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and

     (3) to take such other action as may be deemed necessary or appropriate in connection with such 2005 Form 10-K;

as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

          IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 27^th day of January, 2006.

/s/ Jon C. Madonna  

Jon C. Madonna 

POWER OF ATTORNEY

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints J. Steven Whisler, Ramiro G. Peru and S. David Colton and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities:

Annual Report For the Year Ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K

     (1) to sign the Annual Report for the fiscal year ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K (“2005 Form 10-K”) to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 2005 Form 10-K;

     (2) to file such 2005 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and

     (3) to take such other action as may be deemed necessary or appropriate in connection with such 2005 Form 10-K;

as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

          IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 26^th day of January, 2006.

/s/ Jack E. Thompson  

Jack E. Thompson 

POWER OF ATTORNEY

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Ramiro G. Peru and S. David Colton and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities:

Annual Report For the Year Ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K

     (1) to sign the Annual Report for the fiscal year ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K (“2005 Form 10-K”) to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 2005 Form 10-K;

     (2) to file such 2005 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and

     (3) to take such other action as may be deemed necessary or appropriate in connection with such 2005 Form 10-K;

as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

          IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 8^th day of February, 2006.

/s/ J. Steven Whisler  

J. Steven Whisler 

POWER OF ATTORNEY

          KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints J. Steven Whisler, Ramiro G. Peru and S. David Colton and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities:

Annual Report For the Year Ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K

     (1) to sign the Annual Report for the fiscal year ended December 31, 2005 of Phelps Dodge Corporation on Form 10-K (“2005 Form 10-K”) to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 2005 Form 10-K;

     (2) to file such 2005 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and

     (3) to take such other action as may be deemed necessary or appropriate in connection with such 2005 Form 10-K;

as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

          IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 30^th day of January, 2006.

/s/ Charles C. Krulak  

Charles C. Krulak 

EX-31

Exhibit 31

CERTIFICATION
Pursuant to Rule 13a-14(a) of the Exchange Act

I, J. Steven Whisler, Chairman and Chief Executive Officer, certify that:

1.	I have reviewed this annual report on Form 10-K of Phelps Dodge Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably

	likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 27, 2006

/s/ J. Steven Whisler  

J. Steven Whisler 

Chairman and Chief Executive Officer 

I, Ramiro G. Peru, Executive Vice President and Chief Financial Officer, certify that:

1.	I have reviewed this annual report on Form 10-K of Phelps Dodge Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 27, 2006

/s/ Ramiro G. Peru  

Ramiro G. Peru 

Executive Vice President and Chief Financial Officer 

EX-32

Exhibit 32

CERTIFICATION
Pursuant to 18 United States Code § 1350

     The undersigned hereby certifies that, to his knowledge, the Annual Report on Form 10-K for the year ended December 31, 2005 of Phelps Dodge Corporation (the “Company”) filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ J. Steven Whisler
Name:	J. Steven Whisler
Title:	Chairman and Chief Executive Officer
Date:	February 27, 2006

     The undersigned hereby certifies that, to his knowledge, the Annual Report on Form 10-K for the year ended December 31, 2005 of Phelps Dodge Corporation (the “Company”) filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Ramiro G. Peru
Name:	Ramiro G. Peru
Title:	Executive Vice President and Chief Financial Officer
Date:	February 27, 2006