As filed with the Securities and Exchange Commission on February 12, 2007

Registration No. 333-139252

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

AMENDMENT NO. 2

TO

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

Freeport-McMoRan Copper & Gold Inc.

(Exact name of Registrant as specified in its charter)

 

 

1615 Poydras Street

New Orleans, Louisiana 70112

(504) 582-4000

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

Dean T. Falgoust, Esq.

Vice President and General Counsel

1615 Poydras Street

New Orleans, Louisiana 70112

(504) 582-4000

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

 

 

with copies to:

 

 

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after the effective date of this registration statement and the completion of the merger described in the enclosed document.

 

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  o

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

 

 

 

CALCULATION OF REGISTRATION FEE

 

 

 

 

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

JOINT PROXY STATEMENT/PROSPECTUS

 

 

MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT

 

The boards of directors of Freeport-McMoRan and Phelps Dodge have approved a merger agreement pursuant to which Freeport-McMoRan will acquire Phelps Dodge. As we describe in greater detail in this document, we believe the transaction will result in significant benefits to each company’s shareholders and will create the world’s largest publicly traded copper company.

 

If the transaction is completed, Phelps Dodge shareholders will have the right to receive 0.67 of a share of Freeport-McMoRan Class B common stock (which we sometimes refer to in this document as Freeport-McMoRan common stock or common stock) and $88.00 in cash, without interest, for each Phelps Dodge common share they hold. Freeport-McMoRan shareholders will continue to own their existing shares of Freeport-McMoRan common stock. Based on the closing sale price of shares of Freeport-McMoRan common stock on November 17, 2006, the implied value of the merger consideration to be received by Phelps Dodge shareholders in the transaction is $126.46 per share. This value will fluctuate prior to the completion of the transaction as a result of changes in the value of Freeport-McMoRan common stock.

 

Approximately 137 million shares of Freeport-McMoRan common stock will be issued to Phelps Dodge shareholders in the transaction, based on the number of Phelps Dodge common shares, restricted stock and stock options outstanding on September 30, 2006, and assuming that all of the Phelps Dodge stock options are exercised prior to the completion of the transaction. These shares will represent approximately 41% of the outstanding common stock of the combined company immediately after the transaction (38% on a fully diluted basis). Shares of Freeport-McMoRan common stock held by Freeport-McMoRan shareholders before the transaction will represent approximately 59% of the outstanding common stock of the combined company immediately after the transaction (62% on a fully diluted basis).

 

Your vote is important. We cannot complete the transaction unless, among other things, the holders of Phelps Dodge common shares vote to approve and adopt the merger agreement and the holders of Freeport-McMoRan common stock vote to approve the amendment of the Freeport-McMoRan certificate of incorporation to increase the amount of authorized common stock and to approve the issuance of shares of Freeport-McMoRan common stock in connection with the transaction. Each of us will hold a special meeting of our shareholders at the date, time and location set forth below to vote on these proposals. Whether or not you plan to attend your company’s special meeting, please take the time to vote by completing and mailing the enclosed proxy card to us, or by submitting your proxy by telephone or the Internet, using the procedures in the voting instructions included with your proxy card.

 

 

This document describes the shareholder meetings, the transactions contemplated by the merger agreement (which we refer to generally in this document as the transaction), documents related to the transaction and other related matters. Please read this entire document carefully, including the section discussing risk factors beginning on page 22. You can also obtain information about our companies from documents that we have each filed with the Securities and Exchange Commission.

 

Freeport-McMoRan Class B common stock is listed on the New York Stock Exchange under the symbol “FCX”. Phelps Dodge common shares are listed on the New York Stock Exchange under the symbol “PD”.

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Freeport-McMoRan common stock to be issued in connection with the transaction or determined if this document is truthful and complete. Any representation to the contrary is a criminal offense.

 

The date of this document is February 12, 2007, and it is first being mailed or otherwise delivered to Freeport-McMoRan shareholders and Phelps Dodge shareholders on or about February 13, 2007.

 

REFERENCES TO ADDITIONAL INFORMATION

 

This document incorporates important business and financial information about Freeport-McMoRan and Phelps Dodge from documents that are not included in or delivered with this document. You can obtain documents incorporated by reference in this document by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

 

 

You will not be charged for any of these documents that you request. If you wish to request documents, the applicable company must receive your request by March 7, 2007 (which is five business days before the scheduled date of the special meetings) in order for you to receive them before the special meetings.

 

See “Where You Can Find More Information”, beginning on page 120.

 

Freeport-McMoRan Copper & Gold Inc.

1615 Poydras Street

New Orleans, Louisiana 70112

 

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held on March 14, 2007

 

 

To the Shareholders of Freeport-McMoRan:

 

NOTICE IS HEREBY GIVEN that the special meeting of the shareholders of Freeport-McMoRan Copper & Gold Inc., a Delaware corporation, will be held at Hotel du Pont, 11th and Market Streets, Wilmington, Delaware on March 14, 2007, at 11:00 a.m., Eastern Standard Time, to consider and vote upon the following:

 

1. a proposal to approve an amendment to the Freeport-McMoRan certificate of incorporation to increase the authorized number of shares of Freeport-McMoRan capital stock to 750,000,000, increase the authorized number of shares of Class B common stock to 700,000,000, rename the Class B common stock as common stock and delete the provisions governing and references to the previously designated classes and series of Freeport-McMoRan preferred stock of which no shares are outstanding (other than the Series A Participating Cumulative Preferred Stock and the 51/2% Convertible Perpetual Preferred Stock);

 

2. a proposal to issue shares of Freeport-McMoRan common stock in connection with the transaction contemplated by the Agreement and Plan of Merger (referred to in this document as the merger agreement), dated as of November 18, 2006, among Freeport-McMoRan Copper & Gold Inc., Phelps Dodge Corporation and Panther Acquisition Corporation, a direct wholly owned subsidiary of Freeport-McMoRan, as amended;

 

3. a proposal to approve an adjournment of the special meeting, if necessary, to permit solicitation of additional proxies in favor of the above proposals; and

 

4. any other business that may properly come before the special meeting.

 

The Freeport-McMoRan board of directors recommends that Freeport-McMoRan shareholders vote FOR the amendment to the Freeport-McMoRan certificate of incorporation, FOR the issuance of Freeport-McMoRan common stock in connection with the transaction and FOR the adjournment of the special meeting, if necessary, to permit solicitation of additional proxies in favor of the above proposals.

 

All Freeport-McMoRan shareholders are cordially invited to attend this special meeting, although only holders of record of our common stock at the close of business on February 12, 2007 will be entitled to receive notice of and to vote at the Freeport-McMoRan special meeting or any adjournment or postponement thereof. A list of shareholders entitled to receive notice of and vote at the special meeting will be available in our offices located at 1615 Poydras Street, New Orleans, Louisiana 70112, during ordinary business hours for the ten-day period preceding the date of the special meeting. A list will also be available at the special meeting.

 

The accompanying document describes the proposed transaction in more detail. We encourage you to read the entire document carefully, including the merger agreement, which is included as Appendix A to the document.

 

Whether or not you expect to attend the special meeting, to ensure that your shares are represented at the special meeting, please complete, date, sign and return the enclosed proxy card in the envelope that has been provided or vote your shares by using a touch-tone telephone or through the Internet, as explained in the proxy voting instructions attached to the proxy card. No postage is required for mailing in the United States. Voting by mail, by telephone or through the Internet will not prevent you from voting in person at the meeting. If you are able to attend the meeting, you may revoke your proxy and vote your shares in person even if you have previously completed and returned the enclosed proxy card or voted by telephone or through the Internet. Thank you for acting promptly.

 

Richard C. Adkerson

President and Chief Executive Officer

 

February 12, 2007

New Orleans, Louisiana

 

Phelps Dodge Corporation
One North Central Avenue
Phoenix, Arizona 85004-4414

 

 

 

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held On March 14, 2007

 

 

 

To the Shareholders of Phelps Dodge:

 

NOTICE IS HEREBY GIVEN that the special meeting of the shareholders of Phelps Dodge Corporation, a New York corporation, will be held at The Heard Museum, 2301 North Central Avenue, Phoenix, Arizona on March 14, 2007, at 10:00 a.m., Mountain Standard Time, to consider and vote upon the following:

 

1. a proposal to approve and adopt the Agreement and Plan of Merger (referred to in this document as the merger agreement), dated as of November 18, 2006, among Freeport-McMoRan Copper & Gold Inc., Phelps Dodge Corporation and Panther Acquisition Corporation, a direct wholly owned subsidiary of Freeport-McMoRan, as amended;

 

2. a proposal to approve an adjournment of the special meeting, if necessary, to permit solicitation of additional proxies in favor of the above proposal; and

 

3. any other business as may properly come before the special meeting or any adjournments or postponements of the special meeting.

 

The Phelps Dodge board of directors recommends that Phelps Dodge shareholders vote FOR the approval and adoption of the merger agreement and FOR an adjournment of the special meeting, if necessary, to permit solicitation of additional proxies in favor of the above proposal.

 

All Phelps Dodge shareholders are cordially invited to attend this special meeting, although only holders of record of our common shares at the close of business on February 12, 2007, will be entitled to receive notice of and to vote at the Phelps Dodge special meeting or any postponement or adjournment thereof. A list of shareholders entitled to receive notice of and vote at the special meeting will be available at our offices located at One North Central Avenue, Phoenix, Arizona 85004-4414, during ordinary business hours for the ten-day period preceding the date of the special meeting. This list also will be available at the special meeting.

 

The accompanying document describes the proposed transaction in more detail. We encourage you to read the entire document carefully, including the merger agreement, which is included as Appendix A to the document.

 

Whether or not you expect to attend the special meeting, to ensure that your shares are represented at the special meeting, please complete, date, sign and return the enclosed proxy card in the envelope that has been provided or vote your shares by using a touch-tone telephone or through the Internet, as explained in the proxy voting instructions attached to the proxy card. No postage is required for mailing in the United States. Voting by mail, by telephone or through the Internet will not prevent you from voting in person at the meeting. If you are able to attend the meeting, you may revoke your proxy and vote your shares in person even if you have previously completed and returned the enclosed proxy card or voted by telephone or through the Internet. Thank you for acting promptly.

 

 

J. Steven Whisler

Chairman and Chief Executive Officer

 

February 12, 2007

Phoenix, Arizona

TABLE OF CONTENTS

 

 

APPENDICES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUMMARY

	•	the assets and development projects of the combined company, including geographically diverse ore reserves totaling 75 billion pounds of copper, 41 million ounces of gold, and 1.9 billion pounds of molybdenum, and expansion and development projects in the United States, Chile, Peru, Indonesia and the Democratic Republic of the Congo will strengthen the industry position of the combined company;
	•	the assets and operations of the combined company will be well positioned to benefit from the strong market for copper resulting from a scarcity of development projects and a strong global demand for copper;
	•	the combined company will have exploration rights with significant potential in copper regions around the world, including Freeport-McMoRan’s prospective acreage in Papua, Indonesia, and Phelps Dodge’s opportunities at its Tenke Fungurume concessions in the Democratic Republic of the Congo, in the United States and in South America;
	•	the combination of the companies’ proven management and the application of best practices in open pit and underground mining and processing will facilitate the sharing of expertise to optimize operations across the asset base of the combined company; and
	•	the size and scale of the combined company will allow it to better compete for customers, development projects, human resources and suppliers.

	•	FOR the amendment to the Freeport-McMoRan certificate of incorporation;
	•	FOR the issuance of Freeport-McMoRan common stock in connection with the transaction; and
	•	FOR the adjournment of the special meeting, if necessary, to permit solicitation of additional proxies in favor of the above proposals.

	•	FOR the approval and adoption of the merger agreement; and
	•	FOR the adjournment of the special meeting, if necessary, to permit solicitation of additional proxies in favor of the above proposal.

		Freeport-								Implied Value of
		McMoRan				Phelps Dodge				Phelps Dodge
		Common Stock				Common Shares				Common Shares
November 17, 2006		$	57.40			$	95.02			$	126.46
February 9, 2007		$	53.65			$	121.95			$	123.95

	•	the transaction has not been completed prior to August 31, 2007;
	•	applicable law makes the consummation of the transaction illegal or a final non-appealable injunction prohibits Freeport-McMoRan or Phelps Dodge from consummating the transaction;
	•	either Freeport-McMoRan shareholders or Phelps Dodge shareholders fail to give the necessary approvals at their respective shareholder meetings;
	•	the other party’s board of directors changes its recommendation of the transaction;
	•	there has been an incurable breach by the other party of any representation or warranty or failure to perform any covenant or agreement that would result in the failure of that party to satisfy a condition to the closing;
	•	the other party has willfully and materially breached certain obligations in the merger agreement concerning the solicitation of alternative transactions, holding a shareholder meeting to obtain the required shareholder approvals or recommending the transaction to its shareholders; or
	•	that party’s board of directors authorizes that party to enter into a written agreement for a transaction that constitutes a superior proposal, subject to compliance with notice and other requirements of the merger agreement including payment of the applicable termination fee.

	•	such party willfully and materially breached certain obligations in the merger agreement concerning the solicitation of alternative transactions, holding a shareholder meeting to obtain the required shareholders’ approvals or recommending the transaction to its shareholders;
	•	such party’s board of directors changed its recommendation of the transaction, unless (i) the other party suffered a material adverse effect prior to the shareholder meeting of the party whose board of directors changed its recommendation and (ii) such party’s board of directors subsequently changed its recommendation after determining in good faith (after receipt of advice from its legal and financial advisors) that the failure to change its recommendation would be inconsistent with its fiduciary duties; or
	•	such party proposes to enter into a superior transaction.

	•	the merger agreement is terminated because the transaction was not completed by August 31, 2007, or such party’s shareholders do not approve the transaction (except in circumstances in which one-half of the break-up fee was not payable as described above);
	•	a proposal for an alternative transaction has been made prior to August 31, 2007, or the shareholder meeting, as applicable; and
	•	within 12 months following the termination, that party completes or enters into an agreement providing for an alternative transaction.

 

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF FREEPORT-MCMORAN

		At or for the Nine Months								At or for the Years Ended
		Ended September 30,								December 31,
		2006				2005				2005				2004				2003				2002				2001
		(Financial Data in Dollars, Except Average Shares, and in Millions, Except Per Share Amounts)
CONSOLIDATED FINANCIAL DATA
Revenues		$	4,148.4			$	2,689.2			$	4,179.1			$	2,371.9			$	2,212.2			$	1,910.5			$	1,838.9
Operating income			2,006.5				1,247.6				2,177.3				703.6	(a)			823.3				640.1				542.9
Net income before cumulative effect of changes in accounting principles			969.6	(b)(c)			471.4	(b)			934.6	(d)			156.8	(e)			169.8	(f)			130.1				76.5
Cumulative effect of changes in accounting principles, net			—				—				—				—				(15.6	)(g)			(3.0	)(h)			—
Net income applicable to common stock			969.6	(b)(c)			471.4	(b)			934.6	(d)			156.8	(e)			154.2	(f)			127.1				76.5
Basic net income per common share			5.14				2.64				5.18				0.86				0.99				0.88				0.53
Diluted net income per common share			4.64	(b)(c)			2.48	(b)			4.67	(d)			0.85	(e)			0.97	(f)(g)			0.87				0.53
Dividends paid per common share			2.9375				1.75				2.50				1.10				0.27				—				—
Basic average shares outstanding			188.7				178.5				180.3				182.3				155.8				144.6				144.0
Diluted average shares outstanding			221.4				220.3				220.5				184.9				159.1				146.4				144.9
Cash, restricted cash and investments			698.9				392.8				763.6				552.0				498.6				115.8				149.5
Total assets			5,280.4				4,877.8				5,550.2				5,087.0				4,718.4				4,192.2				4,211.9
Long-term debt, including current portion and short-term borrowings			774.5				1,386.1				1,255.9				1,951.9				2,228.3	(g)			2,038.4				2,338.6
Redeemable preferred stock			—				—				—				—				—	(g)			450.0				462.5
Stockholders’ equity			2,392.2				1,448.0				1,843.0				1,163.6				776.0				266.8				104.4
Net cash provided by operating activities			1,068.5				883.0				1,552.5				341.4				572.1				512.7				509.0
Capital expenditures and investments in subsidiaries, net of cash acquired			(179.9	)			(95.6	)			(143.0	)			(142.9	)			(208.5	)			(188.0	)			(167.0	)
Net cash used in investing activities			(147.3	)			(93.6	)			(134.3	)			(64.0	)			(132.8	)			(148.3	)			(300.8	)
Net cash provided by (used in) financing activities			(985.9	)			(948.0	)			(1,206.1	)			(189.6	)			16.6				(364.2	)			(208.6	)

		At or for the Nine Months								At or for the Years Ended
		Ended September 30,								December 31,
		2006				2005				2005				2004				2003				2002				2001
PT FREEPORT INDONESIA OPERATING DATA, NET OF RIO TINTO’S INTEREST
Copper (recoverable)
Production (000s of pounds)			766,000				982,400				1,455,900				996,500				1,291,600				1,524,200				1,393,400
Production (metric tons)			347,500				445,600				660,400				452,000				585,900				691,400				632,000
Sales (000s of pounds)			768,900				988,100				1,456,500				991,600				1,295,600				1,522,300				1,399,100
Sales (metric tons)			348,800				448,200				660,700				449,800				587,700				690,500				634,600
Average realized price per pound		$	3.38			$	1.67			$	1.85			$	1.37			$	0.82			$	0.71			$	0.69
Gold (recoverable ounces)
Production			1,217,800				1,672,800				2,789,400				1,456,200				2,463,300				2,296,800				2,634,900
Sales			1,228,500				1,686,700				2,790,200				1,443,000				2,469,800				2,293,200				2,644,800
Average realized price per ounce		$	540.67	(i)		$	431.88			$	456.27			$	412.32			$	366.60	(j)		$	311.97			$	269.24
ATLANTIC COPPER OPERATING DATA
Concentrate and scrap treated (metric tons)			724,100				716,300				975,400				768,100				964,400				1,016,700				891,100
Anodes
Production (000s of pounds)			444,200				469,100				626,600				494,400				640,000				657,000				617,300
Production (metric tons)			201,500				212,800				284,200				224,300				290,300				298,000				280,000
Sales (000s of pounds)			57,700				64,100				85,100				36,700				97,000				101,200				87,500
Sales (metric tons)			26,200				29,100				38,600				16,600				44,000				45,900				39,700
Cathodes
Production (000s of pounds)			385,500				407,700				545,300				454,700				544,700				552,200				518,700
Production (metric tons)			174,900				184,900				247,300				206,200				247,100				250,500				235,300
Sales (including wire rod and wire) (000s of pounds)			392,900				411,900				548,600				479,200				546,800				556,500				549,800
(metric tons)			178,200				186,800				248,800				217,400				248,000				252,400				249,400
Gold sales in anodes and slimes (ounces)			569,200				422,600				542,800				316,700				929,700				813,900				831,300

(a)		Includes a $95.0 million gain on insurance settlement related to the fourth-quarter 2003 slippage and debris flow events at the Grasberg open pit and a $12.0 million charge related to Atlantic Copper’s workforce reduction plan.
(b)		Includes losses on early extinguishment and conversion of debt totaling $30.4 million ($0.14 per share) for the nine months ended September 30, 2006 and $30.3 million ($0.14 per share) for the nine months ended September 30, 2005, net of related reduction of interest expense.
(c)		Includes $29.7 million ($0.13 per share) of gains on sales of assets by Atlantic Copper.
(d)		Includes $40.2 million ($0.18 per share) of losses on early extinguishment and conversion of debt, net of related reduction of interest expense, and a $4.9 million ($0.02 per share) gain from the sale of a parcel of land in Arizona held by a Freeport-McMoRan joint venture.
(e)		Includes a $48.8 million ($0.26 per share) gain on insurance settlement related to the fourth-quarter 2003 slippage and debris flow events at the Grasberg open pit; a $20.4 million ($0.11 per share) gain from the sale of a parcel of land in Arizona held by a Freeport-McMoRan joint venture; a $7.5 million ($0.04 per share) gain from Atlantic Copper’s sale of its wire rod and wire assets; a $12.0 million ($0.06 per share) charge related to Atlantic Copper’s workforce reduction plan; $13.8 million ($0.07 per share) of losses on early extinguishment and conversion of debt; and a $6.3 million ($0.03 per share) reduction of interest expense for conversion of debt.

(f)		Includes losses on early extinguishment and conversion of debt totaling $31.9 million ($0.20 per share), net of related reduction of interest expense.
(g)		Effective January 1, 2003, Freeport-McMoRan adopted Statement of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations,” and recorded a $9.1 million ($0.06 per share) cumulative effect gain. Effective July 1, 2003, Freeport-McMoRan adopted SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” and recorded a $24.7 million ($0.16 per share) cumulative effect charge. Freeport-McMoRan’s mandatorily redeemable preferred stock was classified as debt effective July 1, 2003. SFAS No. 150 does not allow restatement of prior periods.
(h)		Effective January 1, 2002, Freeport-McMoRan changed the methodology used in the determination of depreciation associated with PT Freeport Indonesia’s mining and milling life-of-mine assets.
(i)		Amount was $597.07 before a loss resulting from redemption of Freeport-McMoRan’s Gold-Denominated Preferred Stock, Series II.
(j)		Amount was $357.61 before a gain resulting from redemption of Freeport-McMoRan’s Gold-Denominated Preferred Stock.

 

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF PHELPS DODGE

		At or for the Nine Months Ended September 30,								At or for the Years Ended December 31,*
		2006(a)				2005(b)				2005(c)				2004(d)				2003(e)				2002(f)				2001(g)
		(Financial Data in Dollars and in Millions, Except Per Share Amounts)
CONSOLIDATED FINANCIAL DATA
Sales and other operating revenues		$	8,675.1			$	6,031.5			$	8,287.1			$	6,415.2			$	3,498.5			$	3,173.2			$	3,420.4
Operating income (loss)			2,871.5				1,260.9				1,764.9				1,474.9				142.8				(257.4	)			(90.6	)
Income (loss) from continuing operations before extraordinary item and cumulative effect of accounting changes			1,711.2				1,412.6				1,583.9				1,023.6				(21.1	)			(356.5	)			(377.7	)
Income (loss) from discontinued operations, net of taxes**			(17.7	)			22.5				(17.4	)			22.7				39.2				41.3				48.2
Income (loss) before extraordinary item and cumulative effect of accounting changes			1,693.5				1,435.1				1,566.5				1,046.3				18.1				(315.2	)			(329.5	)
Net income (loss)			1,693.5				1,435.1				1,556.4				1,046.3				94.8				(338.1	)			(331.5	)
Basic earnings (loss) per common share from continuing operations***			8.46				7.26				8.06				5.41				(0.19	)			(2.17	)			(2.41	)
Diluted earnings (loss) per common share from continuing operations***			8.42				6.99				7.82				5.18				(0.19	)			(2.17	)			(2.41	)

		At or for the Nine Months Ended September 30,								At or for the Years Ended December 31,*
		2006(a)				2005(b)				2005(c)				2004(d)				2003(e)				2002(f)				2001(g)
		(Financial Data in Dollars and in Millions, Except Per Share Amounts)
Basic earnings (loss) per common share from discontinued operations, extraordinary item and cumulative effect of accounting changes***			(0.09	)			0.11				(0.14	)			0.12				0.65				0.11				0.30
Diluted earnings (loss) per common share from discontinued operations, extraordinary item and cumulative effect of accounting changes***			(0.09	)			0.11				(0.13	)			0.11				0.65				0.11				0.30
Basic earnings (loss) per common share***			8.37				7.37				7.92				5.53				0.46				(2.06	)			(2.11	)
Diluted earnings (loss) per common share***			8.33				7.10				7.69				5.29				0.46				(2.06	)			(2.11	)
Cash dividends declared per common share****			4.5875				0.4375				3.125				0.25				—				—				0.375
Cash (including restricted cash)			4,126.2				2,505.3				1,937.5				1,200.1				683.8				349.8				386.9
Current assets (including cash)			6,678.1				4,479.3				4,070.7				2,661.7				1,790.0				1,428.2				1,531.2
Total assets			13,449.1				10,242.0				10,358.0				8,594.1				7,272.9				7,029.0				7,584.3
Total debt			921.6				730.7				694.5				1,096.9				1,959.0				2,110.6				2,871.6
Long-term debt			796.4				656.6				677.7				972.2				1,703.9				1,948.4				2,538.3
Shareholders’ equity			6,483.9				5,824.3				5,601.6				4,343.1				3,063.8				2,813.6				2,730.1
Net cash provided by operating activities			3,326.2				1,299.1				1,769.7				1,700.1				461.6				359.1				310.7
Capital expenditures and investments in subsidiaries, net of cash received and acquired			(830.0	)			(403.7	)			(698.2	)			(317.3	)			(102.4	)			(133.2	)			(311.0	)
Net cash used in investing activities			(478.5	)			(47.2	)			(368.0	)			(291.0	)			(87.7	)			(140.3	)			(266.8	)
Net cash provided by (used in) financing activities			(687.7	)			(53.2	)			(685.8	)			(947.2	)			(48.8	)			(244.8	)			101.0

		At or for the Nine Months Ended September 30,								At or for the Years Ended December 31,*
		2006(a)				2005(b)				2005(c)				2004(d)				2003(e)				2002(f)				2001(g)
		(Financial Data in Dollars and in Millions, Except Per Share Amounts)
COPPER
Copper production (pro rata basis — thousand tons)			755.3				787.6				1,042.3				1,081.7				1,042.5				1,012.1				1,145.2
Copper production (pro rata basis — million pounds)			1,510.6				1,575.2				2,084.6				2,163.4				2,085.0				2,024.2				2,290.4
Copper sales from own mines (pro rata basis — thousand tons)			754.0				791.0				1,051.6				1,089.1				1,052.6				1,034.5				1,156.0
Copper sales from own mines (pro rata basis — million pounds)			1,508.0				1,582.0				2,103.2				2,178.2				2,105.2				2,069.0				2,312.0
COMEX copper price (per pound)(h)		$	3.06			$	1.57			$	1.68			$	1.29			$	0.81			$	0.72			$	0.73
LME copper price (per pound)(i)		$	3.00			$	1.58			$	1.67			$	1.30			$	0.81			$	0.71			$	0.72

*		2005 and 2004 reflected full consolidation of El Abra and Candelaria; prior to 2004, El Abra and Candelaria are reflected on a pro rata basis (51% and 80%, respectively).
**		As a result of Phelps Dodge’s sale of Columbian Chemicals Company, which is referred to in this document as Columbian, previously disclosed as its Specialty Chemicals segment, the operating results for Columbian have been reported separately from continuing operations and shown as discontinued operations for all periods presented in the consolidated statement of income data.
***		Basic and diluted earnings per common share have been adjusted to reflect the March 10, 2006, stock split for all periods presented.
****		All periods presented reflect post-split cash dividends per common share.

		All references below to earnings or losses per common share are based on diluted earnings or losses per common share and have been adjusted to reflect the March 10, 2006 stock split.

(a)		Reported amounts for the first nine months of 2006 included after-tax, net special charges of $38.8 million, or 19 cents per common share, for environmental provisions; $30.3 million, or 15 cents per common share, associated with discontinued operations in connection with the sale of Columbian; $7.7 million, or 4 cents per common share, for asset impairment charges; $5.1 million or 3 cents per common share, associated with the completion of the sale of substantially all of Phelps Dodge’s North American magnet wire assets; $4.7 million, or 2 cents per common share, associated with the sale of Phelps Dodge’s High Performance Conductors of SC & GA, Inc., which is referred to in this document as HPC; and $1.2 million, or 1 cent per common share, for the dissolution of an international wire and cable entity; partially offset by after-tax, net special gains of $62.5 million, or 31 cents per common share, associated with the termination of the combination agreement with Inco Ltd.; $5.0 million, or 3 cents per common share, for historical legal matters; and $0.4 million for the sale of non-core real estate.
(b)		Reported amounts for the first nine months of 2005 included after-tax, net special gains of $388.0 million, or $1.92 per common share, for the sale of a cost-basis investment; $172.9 million, or 86 cents per common share, for a change in interest gain at Cerro Verde; and $15.7 million, or 8 cents per common share, for legal matters; partially offset by after-tax, net special charges of $322.8 million, or $1.60 per common share, for asset impairment charges; $60.0 million, or 30 cents per common share, for environmental provisions; $41.3 million, or 21 cents per common share, for early debt extinguishment costs; and tax expense of $2.4 million, or 1 cent per common share, for foreign dividend taxes.
(c)		Reported amounts for 2005 included after-tax, net special charges of $331.8 million, or $1.64 per common share, for asset impairment charges; tax expense of $88.1 million, or 44 cents per common share,

		for foreign dividend taxes; $86.4 million, or 42 cents per common share, for environmental provisions; $42.6 million, or 21 cents per common share, associated with discontinued operations in connection with the sale of Columbian; $41.3 million, or 20 cents per common share, for early debt extinguishment costs; $34.5 million (net of minority interest), or 17 cents per common share, for tax on unremitted foreign earnings; $23.6 million, or 12 cents per common share, for a tax charge associated with minimum pension liability reversal; $10.1 million, or 5 cents per common share, for cumulative effect of accounting change; $5.9 million, or 3 cents per common share, for transaction and employee-related costs associated with the sale of substantially all of Phelps Dodge’s North American magnet wire assets; partially offset by after-tax, net special gains of $388.0 million, or $1.92 per common share, for the sale of a cost-basis investment; $181.7 million, or 89 cents per common share, for change in interest gains at Cerro Verde and Ojos del Salado; $15.6 million, or 8 cents per common share, for legal matters; $11.9 million, or 6 cents per common share, for the reversal of PD Brazil’s deferred tax asset valuation allowance; $8.5 million, or 4 cents per common share, for the sale of non-core real estate; $4.0 million, or 2 cents per common share, for the reversal of U.S. deferred tax asset valuation allowance; $0.4 million 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 33 cents per common share, for a goodwill impairment charge; taxes of $7.6 million, or 4 cents per common share, associated with the sale and dividends paid in 2005; and $5.0 million, or 2 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 effect of $37.0 million, or 18 cents per common share.
(d)		Reported amounts for 2004 included after-tax, net special charges of $44.7 million, or 23 cents per common share, for environmental provisions; $30.9 million (net of minority interests), or 15 cents per common share, for early debt extinguishment costs; $9.9 million, or 5 cents per common share, for the write-down of two cost-basis investments; $9.6 million, or 5 cents per common share, for taxes on anticipated foreign dividends; $9.0 million, or 5 cents per common share, for a deferred tax asset valuation allowance at Phelps Dodge’s Brazilian wire and cable operation; $7.6 million, or 4 cents per common share, for Magnet Wire restructuring activities; $5.9 million, or 3 cents per common share, for asset impairment charges (included $4.5 million, or 2 cents per common share, for discontinued operations); and $0.7 million for interest on a Texas franchise tax matter; partially offset by after-tax, net special gains of $30.0 million, or 15 cents per common share, for the reversal of a U.S. deferred tax asset valuation allowance; $15.7 million (net of minority interest), or 8 cents per common share, for the reversal of an El Abra deferred tax asset valuation allowance; $10.1 million, or 5 cents per common share, for the gain on the sale of uranium royalty rights; $7.4 million, or 4 cents per common share, for environmental insurance recoveries; and $4.7 million, or 3 cents per common share, for the settlement of historical legal matters.
(e)		Reported amounts for 2003 included after-tax, net special gains of $68.3 million, or 38 cents per common share, for an extraordinary gain associated with the acquisition of Phelps Dodge’s partner’s one-third interest in Chino Mines Company; $8.4 million, or 5 cents per common share, for the cumulative effect of an accounting change; $6.4 million, or 4 cents per common share, for the sale of a cost-basis investment; $2.4 million, or 1 cent per common share, for the termination of a foreign postretirement benefit plan associated with discontinued operations; a tax benefit of $1.0 million, or 1 cent per common share, related to additional 2001 net operating loss carryback; $0.5 million for environmental insurance recoveries; and $0.2 million for the reassessment of prior restructuring programs; partially offset by after-tax, net special charges of $27.0 million, or 16 cents per common share, for environmental provisions (included a gain of $0.5 million for discontinued operations); $8.0 million or 4 cents per common share, for a potential Texas franchise tax matter; $2.9 million, or 2 cents per common share, for the settlement of historical legal matters; and $2.6 million, or 1 cent per common share, for asset and goodwill impairment charges.
(f)		Reported amounts for 2002 included after-tax, net special charges of $153.5 million, or 91 cents per common share, for PDMC asset impairment charges and closure provisions; $53.0 million, or 31 cents per common share, for historical lawsuit settlements; $45.0 million, or 27 cents per common share, for a

		historical arbitration award; $26.6 million, or 16 cents per common share, for early debt extinguishment costs; $23.0 million, or 14 cents per common share, for restructuring activities; $22.9 million, or 13 cents per common share, for the cumulative effect of an accounting change; $14.0 million, or 8 cents per common share, for environmental provisions (included a gain of $0.6 million for discontinued operations); $1.2 million, or 1 cent per common share, for the write-off of two cost-basis investments; and $1.0 million, or 1 cent per common share, for the settlement of legal matters; partially offset by a tax benefit of $66.6 million, or 40 cents per common share, related to the net operating loss carryback prior to 2002 resulting from a change in U.S. tax legislation; after-tax, net special gains of $29.1 million, or 17 cents per common share, for environmental insurance recoveries; $22.6 million, or 13 cents per common share, for the gain on the sale of a non-core parcel of real estate; and $13.0 million, or 8 cents per common share, for the release of deferred taxes previously provided with regard to Plateau Mining Corporation.
(g)		Reported amounts for 2001 included after-tax, net special gains of $61.8 million, or 39 cents per common share, for environmental insurance recoveries; $39.9 million, or 25 cents per common share, for the gain on the sale of Sossego; and $9.0 million, or 6 cents per common share, for an insurance settlement for potential legal matters; offset by after-tax, net special charges of $57.9 million, or 37 cents per common share, for a deferred tax valuation allowance at El Abra; $31.1 million, or 20 cents per common share, for environmental provisions (including $1.4 million, or 1 cent per common share, for discontinued operations); $29.8 million, or 19 cents per common share, for restructuring activities; $12.9 million, or 8 cents per common share, for investment write-downs; $3.3 million, or 2 cents per common share, for asset impairment charges; $2.0 million, or 1 cent per common share, for the cumulative effect of an accounting change; and $0.1 million, net, for other items.
(h)		New York Commodity Exchange average spot price per pound — cathodes.
(i)		London Metal Exchange average spot price per pound — cathodes.

 

SUMMARY SELECTED UNAUDITED
PRO FORMA COMBINED FINANCIAL INFORMATION

		Nine Months Ended				Year Ended
		September 30, 2006				December 31, 2005
Revenues		$	12,823	(a)		$	12,466	(a)
Cost of products sold			8,021				8,730
Selling, general and administrative expenses			245				243
Other operating expenses			113				126
Operating income			4,444				3,367
Interest expense, net			1,049				1,493
Income from continuing operations before income taxes, minority interests and preferred dividends			3,617				2,515
Income from continuing operations applicable to common stock			1,500	(a)			940	(a)

		September 30, 2006
Cash and cash equivalents		$	2,313
Working capital			5,842
Total assets			40,674
Total debt			17,759

(a)		Amounts are net of charges for mark-to-market losses on Phelps Dodge’s copper price protection program totaling $1,215.1 million in revenues and $923.5 million in income from continuing operations applicable to common stock for the nine months ended September 30, 2006, and $411.0 million in revenues and $255.4 million in income from continuing operations applicable to common stock for the year ended December 31, 2005.

 

COMPARATIVE PER SHARE DATA

		Nine Months Ended September 30, 2006
		Freeport-McMoRan				Phelps Dodge				Pro Forma
		Historical				Historical				Combined
Basic earnings per share from continuing operations		$	5.14			$	8.46	(a)		$	4.61	(a)
Diluted earnings per share from continuing operations		$	4.64			$	8.42	(a)		$	4.35	(a)
Book value per share		$	12.15			$	31.79			$	30.49
Dividends per share		$	2.9375			$	4.5875			$	2.9375	(b)
Shares used in calculating per share information:
Basic (in millions)			188.7				202.3				325.7
Diluted (in millions)			221.4				203.4				358.5
Book value (in millions)			196.9				204.0				334.0

		Year Ended December 31, 2005
		Freeport-McMoRan				Phelps Dodge				Pro Forma
		Historical				Historical				Combined
Basic earnings per share from continuing operations		$	5.18			$	8.06	(a)		$	2.96	(a)
Diluted earnings per share from continuing operations		$	4.67			$	7.82	(a)		$	2.92	(a)
Dividends per share		$	2.50			$	3.13			$	2.50	(b)
Shares used in calculating per share information:
Basic (in millions)			180.3				195.7				317.3
Diluted (in millions)			220.5				202.5				357.5

(a)		Earnings per share as presented above are net of the following per share charges for mark-to-market losses from Phelps Dodge’s copper price protection program:

		Phelps Dodge Historical				Pro Forma Combined
Nine months ended September 30, 2006
Basic		$	4.57			$	2.84
Diluted		$	4.54			$	2.58
Year ended December 31, 2005
Basic		$	1.31			$	0.80
Diluted		$	1.26			$	0.71

(b)		Pro forma dividends per share are based solely on historical dividends for Freeport-McMoRan.

		Nine Months Ended				Year Ended
		September 30, 2006				December 31, 2005
Equivalent Phelps Dodge
Basic earnings per share from continuing operations		$	3.09			$	1.98
Diluted earnings per share from continuing operations		$	2.91			$	1.96
Book value per share		$	20.43				N/A
Dividends per share(a)		$	1.968			$	1.675

(a)		Pro forma dividends per share are based solely on historical dividends for Freeport-McMoRan.

 

COMBINED HISTORICAL RESERVES

		As of December 31, 2005
		Freeport-
		McMoRan				Phelps Dodge				Total
Total Reserves by Company, net interest
Copper (billion lbs.)			36.5				38.4	(a)			75.0	(b)
Gold (million ozs.)			39.8				1.2				41.0
Molybdenum (billion lbs.)			—				1.9				1.9

		Copper				Gold				Molybdenum
		(billion lbs.)				(million ozs.)				(billion lbs.)
Total Reserves by Geographical Region, net interest
Indonesia(c)			36.5				39.8				0.0
United States(d)			25.2	(a)			0.0				1.7
Chile(d)			5.5	(a)			1.2				0.0
Peru(d)			7.7	(a)			0.0				0.2
Total			75.0	(b)			41.0				1.9

(a)		Includes recoverable pounds from mill and leach stockpiles.
(b)		Represents the sum of the numbers before rounding.
(c)		Freeport-McMoRan mine.
(d)		Phelps Dodge mines.

 

COMPARATIVE MARKET PRICE INFORMATION

		Freeport-								Implied Value
		McMoRan				Phelps Dodge				of Phelps Dodge
		Common Stock				Common Shares				Common Shares
November 17, 2006		$	57.40			$	95.02			$	126.46
February 9, 2007		$	53.65			$	121.95			$	123.95

 

In addition to the other information included in this document, including the matters addressed in “Cautionary Statement Regarding Forward-Looking Statements”, you should carefully consider the following risk factors in determining how to vote at the special meetings of Freeport-McMoRan and Phelps Dodge. In addition, you should read and consider the risk factors associated with each of the businesses of Freeport-McMoRan and Phelps Dodge because these risk factors may also affect the operations and financial results reported by the combined company. Descriptions of the risk factors specific to each of our respective businesses can be found in the documents that have been filed by each company with the Securities and Exchange Commission and are incorporated by reference into this document. See “Where You Can Find More Information” beginning on page 120.

 

Risk Factors Relating to the Transaction

 

Shareholders cannot be sure of the market value of the shares of Freeport-McMoRan common stock that will be issued in the transaction.

 

Upon the completion of the transaction, each Phelps Dodge common share outstanding immediately prior to the transaction will be converted into the right to receive a combination of 0.67 of a share of Freeport-McMoRan common stock and $88.00 in cash, without interest. Because the exchange ratio for the stock consideration is fixed in the merger agreement, the market value of the Freeport-McMoRan common stock issued in the transaction will depend upon the market price of a share of Freeport-McMoRan common stock upon the completion of the transaction. This market value of Freeport-McMoRan common stock will fluctuate prior to the completion of the transaction and therefore may be different at the time the transaction is completed from what it was at the time the merger agreement was signed, the date of this document or at the time of the shareholder meetings. Accordingly, shareholders cannot be sure of the market value of the Freeport-McMoRan common stock that will be issued in the transaction or the market value of Freeport-McMoRan common stock at any time after the transaction. Therefore, we recommend that you obtain current market quotations for Freeport-McMoRan common stock and Phelps Dodge common shares before voting at your company’s special meeting.

 

Freeport-McMoRan may not be able to obtain the financing needed for the transaction on favorable terms.

 

Freeport-McMoRan has received commitments from certain lenders to provide financing of up to $17.5 billion in the aggregate for the transaction. However, if the proceeds of this financing are unavailable for any reason, Freeport-McMoRan will be forced to obtain an alternate source of financing, which may be more expensive for Freeport-McMoRan, may have an adverse impact on the combined company’s capital structure or may be unavailable.

 

The combined company will be highly leveraged, and its high level of debt may limit its financial and operating flexibility.

 

Freeport-McMoRan is incurring significant debt to consummate the transaction and to refinance existing debt. It is expected that Freeport-McMoRan will utilize much of the financing to be made available pursuant to the financing commitments discussed above to fund a portion of the cash consideration payable to the Phelps Dodge shareholders in the transaction. The combined company, on a pro forma basis, will have approximately $10.0 billion of debt under its new senior secured term credit facilities, and either $6.0 billion in aggregate principal amount of new unsecured senior notes or a $6.0 billion bridge loan (or some combination of the two). In addition, approximately $1.6 billion of existing debt of the combined companies will remain outstanding following the transaction. The combined company is also expected to have a new $1.5 billion senior secured revolving credit facility with at least $1.0 billion of availability.

 

This debt could limit the combined company’s financial and operating flexibility, including by requiring the combined company to dedicate a substantial portion of its cash flows from operations and the proceeds of equity issuances to the repayment of its debt and the interest on its debt, making it more difficult for the combined company to obtain additional financing on favorable terms, limiting the combined company’s ability to capitalize on significant business opportunities and making the combined company more vulnerable to

economic downturns. Additionally, the combined company’s ability to satisfy financial tests or utilize third-party guarantees for financial assurance with respect to reclamation obligations may be adversely impacted if its credit ratings were downgraded below investment grade.

 

Upon consummation of the transaction, Freeport-McMoRan and all of its restricted subsidiaries must comply with various covenants contained in its credit agreement. These covenants will, among other things, limit the ability of the respective restricted entities to:

 

 

In addition, the combined companies will be subject to financial covenants requiring them to maintain a minimum ratio of consolidated EBITDA to consolidated interest expense and not to exceed a maximum ratio of total indebtedness to consolidated EBITDA.

 

Declines in the market prices of copper, gold and molybdenum could adversely affect the combined company’s earnings and cash flows, and therefore its ability to repay its debt.

 

The earnings and cash flows of the combined company will be affected significantly by the market prices of copper and, to a lesser extent, gold and molybdenum. The world market prices of these commodities have fluctuated historically and will be affected by numerous factors beyond the control of the combined company. Many financial analysts who follow the metals markets are predicting that copper prices will decline significantly from their current, historically high, levels over the next few years. A decline in the world market price of one or more of these commodities could adversely affect the combined company’s earnings and cash flows and therefore could adversely affect its ability to repay its debt and depress its stock price.

 

The combined company will operate on a broader geographical scope than either Freeport-McMoRan or Phelps Dodge has operated individually, and will be exposed to a broader range of political, social and geographic risks than either company has been exposed to on an individual basis.

 

Freeport-McMoRan’s primary operating assets are located in Indonesia. Accordingly, the business of the combined company may be adversely affected by Indonesian political, economic and social uncertainties, in addition to the usual risks associated with conducting business in a foreign country. Because Phelps Dodge does not have any significant operations in Indonesia, these risks are different from and in addition to those to which the business of Phelps Dodge has historically been exposed.

 

Phelps Dodge conducts mining operations in the United States, Chile and Peru and has a significant development project in the Democratic Republic of the Congo (which is expected to begin production by 2009). Accordingly, the business of the combined company may be adversely affected by political, economic and social uncertainties in these countries, in addition to the usual risks associated with conducting business in a foreign country. Because Freeport-McMoRan has no significant operations in any of these countries, these risks are different from and in addition to those to which the business of Freeport-McMoRan has historically been exposed.

 

In addition, all of the combined company’s revenues and a significant portion of its costs will be denominated in U.S. dollars; however, some of its costs, and certain of its asset and liability accounts, will be denominated in Indonesian rupiah, Chilean pesos, Peruvian nuevos soles and other foreign currencies. As a result, the combined company will be generally less profitable when the U.S. dollar weakens in relation to these foreign currencies. From time to time, the combined company may implement currency hedges intended to reduce its exposure to changes in foreign currency exchange rates. However, its hedging strategies may not be successful, and any of its unhedged foreign exchange payments will continue to be subject to market fluctuations.

 

For further discussion of certain factors to be considered in connection with the geographical scope of operations of Freeport-McMoRan and Phelps Dodge, see the documents incorporated by reference in this document and referred to under “Where You Can Find More Information” beginning on page 120.

 

The impact of purchase accounting could adversely affect the combined company’s earnings.

 

Purchase accounting will require the combined company to allocate the price being paid in the transaction to Phelps Dodge’s assets on the basis of their fair values at the time of the closing of the transaction. Those adjustments are expected to result in significant increases in the carrying values of certain acquired assets, including, based on preliminary estimates, increases of $4.0 billion in metal inventories and $11.9 billion in property, plant, equipment and development costs, as reflected in the unaudited pro forma condensed combined balance sheet contained elsewhere in this document. The increased value of property, plant, equipment and development costs will increase the combined company’s depreciation expense, which will reduce reported earnings but have no effect on cash flows.

 

A decline in the market price of commodities produced by the combined company could result in a write down of metal inventories to recoverable values and the recognition of impairment charges to property, plant, equipment and development costs. In addition, the increased value of metal inventories would cause the combined company’s cost of goods sold to increase in the year those inventories are recognized as sold. If the combined company changes the historical method of accounting for Phelps Dodge’s metal inventories from the current method of last-in, first-out, this increase in the combined company’s cost of goods would occur in the near term. These factors would have the effect of reducing reported earnings, although they would have no effect on cash flows.

 

In addition, the preliminary estimate of goodwill associated with the transaction is approximately $8.5 billion, as reflected in the unaudited pro forma condensed combined balance sheet contained elsewhere in this document. The combined company will annually assess this amount for impairment. If the combined company concludes that the goodwill associated with the transaction is impaired, the amount of the impairment would reduce the combined company’s reported earnings but would have no effect on cash flows.

 

Freeport-McMoRan and Phelps Dodge may experience difficulties in integrating their businesses, which could cause the combined company to fail to realize many of the anticipated potential benefits of the transaction.

 

We have entered into the merger agreement because we believe that the transaction will be beneficial to Freeport-McMoRan, Phelps Dodge and their respective shareholders. Achieving the anticipated benefits of the transaction will depend in part upon whether our two companies integrate our businesses in an efficient and effective manner. We may not be able to accomplish this integration process smoothly or successfully. The difficulties of combining the two companies’ businesses potentially will include, among other things:

 

 

An inability to realize the full extent of the anticipated benefits of the transaction, as well as any delays encountered in the transition process, could have an adverse effect upon the revenues, level of expenses and operating results of the combined company, which may affect the value of the Freeport-McMoRan common stock after the closing of the transaction.

 

The combined company will depend on its senior management team and other key employees, and the loss of any of these employees could adversely affect the combined company’s business.

 

The success of the combined company after the transaction will depend in part upon the ability of Freeport-McMoRan and Phelps Dodge to retain senior management and other key employees of both companies. Competition for qualified personnel can be very intense. In addition, senior management and key employees may depart because of issues relating to the uncertainty or difficulty associated with the integration of the companies or a desire not to remain with the combined company. Accordingly, no assurance can be given that Freeport-McMoRan or Phelps Dodge will be able to retain senior management and key employees to the same extent that they have been able to do so in the past.

 

Resales of shares of Freeport-McMoRan common stock following the transaction and future issuances of equity or equity-linked securities by Freeport-McMoRan may cause the market price of shares of Freeport-McMoRan common stock to fall.

 

As of November 10, 2006, Freeport-McMoRan had approximately 197 million shares of common stock outstanding, approximately 23 million shares authorized for issuance upon conversion of preferred stock and convertible notes, and approximately six million shares authorized for issuance upon the exercise of outstanding options or the vesting of restricted stock units. Freeport-McMoRan expects that it will issue approximately 137 million shares of common stock in connection with the transaction. The issuance of these new shares and the sale of additional shares that may become eligible for sale in the public market from time to time upon the exercise of options (including Freeport-McMoRan options that will replace existing Phelps Dodge options) could have the effect of depressing the market price for shares of Freeport-McMoRan common stock. Also, because many Phelps Dodge shareholders are also shareholders of Freeport-McMoRan, some may decide to sell rather than hold the additional shares of Freeport-McMoRan common stock they will receive in the transaction. The sale of those shares could also have the effect of depressing the market price for shares of Freeport-McMoRan common stock.

 

In addition, Freeport-McMoRan intends to consider opportunities following the transaction to reduce debt through issuances of equity and equity-linked securities. The issuance of those securities could also have the effect of depressing the market price for the shares of Freeport-McMoRan common stock.

 

The trading price of shares of Freeport-McMoRan common stock following the transaction may be affected by factors different from those affecting the trading price of Phelps Dodge common shares and shares of Freeport-McMoRan common stock prior to the transaction.

 

Following completion of the transaction, the results of operations of the combined company, as well as the trading price of its common stock, may be affected by factors different from those currently affecting Phelps Dodge’s results of operations and the trading price of Phelps Dodge common shares. Certain of the significant risks relating to Freeport-McMoRan’s business that the Phelps Dodge board of directors considered in connection with the proposed transaction are set forth under “The Transaction — Phelps Dodge Reasons for the Transaction; Recommendation of the Phelps Dodge Board of Directors” on page 44. For further discussion of the businesses of Freeport-McMoRan and Phelps Dodge and of certain factors to consider in connection with those businesses, see the documents incorporated by reference in this document and referred to under “Where You Can Find More Information” beginning on page 120.

 

In addition, the trading price of shares of Freeport-McMoRan common stock following the transaction may be affected by factors different from those affecting the trading price of shares of Freeport-McMoRan common stock prior to the transaction. Following the transaction, Freeport-McMoRan will have significantly greater indebtedness and will derive a significantly smaller proportion of its revenues from gold. Current shareholders of Freeport-McMoRan may decide to sell their shares as a result of those changes, which could have the effect of depressing the market price of shares of Freeport-McMoRan common stock.

 

Some of Freeport-McMoRan’s and Phelps Dodge’s officers and directors have interests in the transaction that may influence them to support or approve the transaction.

 

Some of the directors of Freeport-McMoRan and Phelps Dodge who recommend that you vote in favor of the proposals to be considered at the special meetings, and the officers of Freeport-McMoRan and Phelps

Dodge who provided information to their respective boards of directors relating to the transaction, have employment, indemnification and severance benefit arrangements, rights to acceleration of the vesting of stock options and rights to ongoing indemnification and insurance that provide them with interests in the transaction that may differ from yours. The receipt of compensation or other benefits in the transaction may have influenced these directors in making their recommendation that you vote in favor of the proposals to be considered at the special meetings, and these officers in making recommendations to their boards of directors relating to the transaction. For a more detailed discussion, see “Interests of Certain Persons in the Transaction”.

 

This document contains certain forward-looking information about Freeport-McMoRan, Phelps Dodge and the combined company after completion of the transaction that is intended to be covered by the safe harbor to “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. These statements may be made directly in this document or may be incorporated in this document by reference to other documents and may include statements for the period following the completion of this transaction. Representatives of Freeport-McMoRan and Phelps Dodge may also make forward-looking statements. When used in this document, the words “anticipates”, “may”, “can”, “plans”, “feels”, “believes”, “estimates”, “expects”, “projects”, “intends”, “likely”, “will”, “should”, “to be” and any similar expressions and any other statements that are not historical facts, in each case as they relate to Freeport-McMoRan or Phelps Dodge, the management of either such company or the transaction are intended to identify those assertions as forward-looking statements. In making any of those statements, the person making them believes that its expectations are based on reasonable assumptions. However, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected or anticipated. These forward-looking statements are subject to numerous risks and uncertainties, including the risks described in this document under “Risk Factors”, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements.

 

Some other risks and uncertainties include, but are not limited to:

 

 

The actual results or performance by Freeport-McMoRan or Phelps Dodge, and issues relating to the transaction, could differ materially from those expressed in, or implied by, any forward-looking statements relating to those matters. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what impact they will have on the results of operations or financial condition of Freeport-McMoRan or Phelps Dodge, the combined company or the transaction. Except as required by law, we are under no obligation, and expressly disclaim any obligation, to update, alter or otherwise revise any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise.

 

This section contains information from Freeport-McMoRan for Freeport-McMoRan shareholders about the special meeting of shareholders it has called to consider and approve amendments to the Freeport-McMoRan certificate of incorporation and the issuance of Freeport-McMoRan common stock in connection with the transaction. Together with this document, Freeport-McMoRan is also sending you a notice of the Freeport-McMoRan special meeting and a form of proxy that is being solicited by the Freeport-McMoRan board of directors for use at the Freeport-McMoRan special meeting. The information and instructions contained in this section are addressed to Freeport-McMoRan shareholders and all references to “you” in this section should be understood to be addressed to Freeport-McMoRan shareholders.

 

Date, Time and Place of the Special Meeting

 

The Freeport-McMoRan special meeting will take place on March 14, 2007, at 11:00 a.m., Eastern Standard Time, at Hotel du Pont, 11th and Market Streets, Wilmington, Delaware.

 

Purpose of the Special Meeting

 

The purpose of the Freeport-McMoRan special meeting is to consider and vote on the following:

 

1. a proposal to amend the Freeport-McMoRan certificate of incorporation to increase the authorized number of shares of Freeport-McMoRan capital stock to 750,000,000, to increase the authorized number of shares of Class B common stock to 700,000,000 and to rename the Class B common stock (the only class of common stock currently outstanding) as common stock and delete the provisions and references to the previously designated classes and series of Freeport-McMoRan preferred stock of which no shares are outstanding (other than the Series A Participating Cumulative Preferred Stock and 51/2% Convertible Perpetual Preferred Stock);

 

2. a proposal to issue shares of Freeport-McMoRan common stock in connection with the transaction;

 

3. a proposal to approve an adjournment of the special meeting, if necessary, to permit solicitation of additional proxies in favor of the above proposals; and

 

4. any other business as may properly come before the special meeting.

 

Record Date and Outstanding Shares

 

Freeport-McMoRan has fixed the close of business on February 12, 2007 as the record date for determining the Freeport-McMoRan shareholders entitled to receive notice of and to vote at the Freeport-McMoRan special meeting. As of that date, there were approximately 197,157,825 shares of Freeport-McMoRan common stock outstanding. Only holders of record of Freeport-McMoRan common stock on the record date are entitled to receive notice of and to vote at the Freeport-McMoRan special meeting, and any adjournment or postponement thereof. Each share of common stock is entitled to one vote.

 

Quorum Requirement

 

Under Delaware law and the Freeport-McMoRan bylaws, the presence in person or by proxy of a majority of the outstanding shares of Freeport-McMoRan common stock is necessary to constitute a quorum at the special meeting. Votes of shareholders of record who are present at the special meeting in person or by

proxy, abstentions and broker non-votes (as defined below) are counted as present or represented at the special meeting for purposes of determining whether a quorum exists.

 

If you hold your shares of Freeport-McMoRan common stock through a broker, bank or other representative, generally the broker or your representative may only vote the common stock that it holds for you in accordance with your instructions. However, if it has not timely received your instructions, the broker or your representative may vote on certain matters for which it has discretionary voting authority. If a broker or your representative cannot vote on a particular matter because it does not have discretionary voting authority, this is a “broker non-vote” on that matter.

 

Votes Required

 

The approval of the proposal to amend the Freeport-McMoRan certificate of incorporation requires the affirmative vote of the majority of the outstanding shares of the Freeport-McMoRan common stock. The approval of the proposal to issue shares of Freeport-McMoRan common stock in connection with the transaction requires the affirmative vote of a majority of the votes cast in person or by proxy at the Freeport-McMoRan special meeting. With respect to the proposal to amend the Freeport-McMoRan certificate of incorporation, a broker non-vote will be counted toward a quorum at the Freeport-McMoRan special meeting but will have the same effect as a vote against the proposal. With respect to the proposal to issue additional shares of Freeport-McMoRan common stock to Phelps Dodge shareholders in connection with the transaction, broker non-votes will not be considered a “vote cast” for purposes of satisfying the 50% “vote cast” requirement and will have the effect of reducing the aggregate number of shares voting and the number of affirmative votes required to approve this proposal.

 

The proposal to approve an adjournment of the Freeport-McMoRan special meeting to permit solicitation of additional proxies will be approved if a majority of the outstanding shares of common stock present in person or represented by proxy at the Freeport-McMoRan special meeting are voted in favor of the proposal, whether or not a quorum exists. Your failure to vote on this proposal, other than by abstention or broker non-vote, will have the effect of reducing the aggregate number of shares voting with respect to the proposal, and as a result, the number of affirmative votes required to approve the proposal. However, both abstentions and broker non-votes will have the same effect as a vote against the adjournment proposal.

 

Shares Beneficially Owned as of the Record Date

 

To our knowledge, no Freeport-McMoRan shareholders have entered into voting agreements with Phelps Dodge. Based on the number of shares of Freeport-McMoRan common stock outstanding as of February 12, 2007, the directors and executive officers of Freeport-McMoRan and their affiliates, as a group, beneficially owned or had the right to vote approximately 4.2 million shares of Freeport-McMoRan common stock, or less than 1.6% of the outstanding shares of Freeport-McMoRan common stock entitled to be voted at the special meeting. To Freeport-McMoRan’s knowledge, the directors and executive officers of Freeport-McMoRan and their affiliates intend to vote their Freeport-McMoRan common stock in favor of the amendment to the Freeport-McMoRan certificate of incorporation and the issuance of Freeport-McMoRan common stock in connection with the transaction.

 

Voting at the Freeport-McMoRan Special Meeting

 

Record holders may vote in person at the Freeport-McMoRan special meeting or by proxy. Freeport-McMoRan recommends that record holders vote by proxy even if they plan to attend the Freeport-McMoRan special meeting. Record holders can always revoke their proxy and change their votes at the Freeport-McMoRan special meeting.

 

Proxies

 

Voting instructions are attached to your proxy card. If you properly submit your proxy to Freeport-McMoRan in time to vote, one of the individuals named as your proxy will vote your shares as you have directed. You may vote for or against any or all of the proposals submitted at the Freeport-McMoRan special meeting or abstain from voting.

 

How to Vote by Proxy.  If your shares are registered in your name, there are three ways to vote your proxy: by telephone, by Internet or by mail. Your telephone vote or Internet vote authorizes James R. Moffett, Richard C. Adkerson or Kathleen L. Quirk, and each of them, as proxies, each with the power to appoint his or her substitute, to represent and vote your shares in the same manner as if you marked, signed and returned your proxy form by mail.

 

 

 

 

 

 

 

 

 

Only the latest dated proxy received from you, whether by mail, telephone or internet, will be voted at the Freeport-McMoRan special meeting. If you vote by telephone or Internet, please do not mail your proxy form.

 

If your shares are held in “street name” (through a broker, bank or other nominee), you may receive a separate voting instruction form, or you may need to contact your broker, bank or other nominee to determine whether you will be able to vote electronically using the telephone or Internet.

 

How Proxies Will Be Voted.  If you sign and submit a proxy but do not mark a box with respect to one or more of the Freeport-McMoRan proposals, your proxies will follow the Freeport-McMoRan board of directors’ recommendations and vote these shares:

 

 

Shares represented by a proxy that have been returned with instructions to vote against the proposal to amend the Freeport-McMoRan certificate of incorporation to increase the amount of authorized shares of common stock and issue shares of Freeport-McMoRan common stock in connection with the transaction but which does not include instructions with respect to the adjournment proposal will not be voted in favor of the adjournment proposal.

 

Revoking Your Proxy.  You may revoke your proxy before it is voted by:

 

 

If you have instructed your broker to vote your shares, you must follow directions you receive from your broker in order to change or revoke your vote.

 

Solicitation of Proxies

 

Freeport-McMoRan and Phelps Dodge will each pay their own expenses incurred in connection with the printing and mailing of this document. Freeport-McMoRan has retained Georgeson Inc. for a fee of $25,000, plus certain expenses, to assist in the solicitation of proxies and otherwise in connection with the Freeport-McMoRan special meeting. Freeport-McMoRan and its proxy solicitor will also request banks, brokers and other intermediaries holding shares of Freeport-McMoRan common stock beneficially owned by others to send this document to, and obtain proxies from, the beneficial owners and will reimburse holders for their reasonable expenses in so doing. Solicitation of proxies by mail may be supplemented by telephone, email and other electronic means, advertisements and personal solicitation by the directors, officers and employees of Freeport-McMoRan. No additional compensation will be paid to directors, officers or employees for such solicitation efforts.

 

The extent to which these proxy soliciting efforts will be necessary depends largely upon how promptly proxies are submitted. Please send in your proxy by mail, telephone or Internet without delay.

 

No Other Business; Adjournments

 

Under the Freeport-McMoRan bylaws, the business to be conducted at the Freeport-McMoRan special meeting will be limited to the purposes stated in the notice to Freeport-McMoRan shareholders provided with this document.

 

Adjournments may be made for the purpose of, among other things, soliciting additional proxies. Any adjournment may be made from time to time with the approval of a majority of the votes present in person or by proxy at the time of the vote, whether or not a quorum exists. Under Delaware law, Freeport-McMoRan is not required to notify shareholders of any adjournment of less than 30 days if the time and place of the adjourned meeting are announced at the meeting at which adjournment is taken, unless after the adjournment a new record date is fixed for the adjourned meeting.

 

References to the Freeport-McMoRan special meeting in this document are to such special meeting as adjourned or postponed.

 

Communications by Freeport-McMoRan Shareholders with Freeport-McMoRan

 

Any written revocation of a proxy or other communications in connection with this document and requests for additional copies of this document or the proxy card should be addressed to Georgeson Inc. If you have any questions or need further assistance in voting your shares, please call Georgeson Inc. toll-free at (866) 767-8979.

 

 

This section contains information from Phelps Dodge for Phelps Dodge shareholders about the special meeting of shareholders it has called to adopt the merger agreement and approve the transaction. Together with this document, Phelps Dodge is also sending you a notice of the Phelps Dodge special meeting and a form of proxy that is being solicited by the Phelps Dodge board of directors for use at the Phelps Dodge special meeting. The information and instructions contained in this section are addressed to Phelps Dodge shareholders and all references to “you” in this section should be understood to be addressed to Phelps Dodge shareholders.

 

Date, Time and Place of the Special Meeting

 

This document is being furnished by the Phelps Dodge board of directors in connection with the solicitation of proxies from holders of Phelps Dodge common shares for use at Phelps Dodge’s special meeting of shareholders to be held at The Heard Museum, 2301 North Central Avenue, Phoenix, Arizona on March 14, 2007, beginning at 10:00 a.m., Mountain Standard Time, and at any adjournment or postponement of the meeting.

 

Purpose of the Special Meeting

 

The Phelps Dodge special meeting will be held to consider and vote upon:

 

1. a proposal to approve and adopt the merger agreement;

 

2. a proposal to approve an adjournment of the special meeting, if necessary, to permit solicitation of additional proxies in favor of the above proposal; and

 

3. any other business that may properly come before the special meeting or any adjournments or postponements of the special meeting.

 

Record Date and Outstanding Shares

 

The Phelps Dodge board of directors has fixed the close of business on February 12, 2007, as the record date. Only holders of record of Phelps Dodge common shares on the books of Phelps Dodge as of the close of business on the record date will be entitled to notice of, and to vote at, the special meeting and any postponements or adjournments of the special meeting. As of that date, there were approximately 204,118,665 Phelps Dodge common shares issued and outstanding held by approximately 15,500 holders of record. The number of record holders does not include persons whose stock is held in nominee or “street name” accounts through brokers.

 

Quorum and Requirement

 

Under the Phelps Dodge bylaws, a majority of all Phelps Dodge common shares outstanding on the record date, represented in person or by proxy, constitutes a quorum for the transaction of business at the special meeting. Votes of shareholders of record who are present at the special meeting in person or by proxy, abstentions and broker non-votes (as defined below) are counted as present or represented at the special meeting for purposes of determining whether a quorum exists.

 

If a quorum is not obtained, or if fewer Phelps Dodge common shares are voted in favor of the proposal for the approval and adoption of the merger agreement at the special meeting than the number of shares necessary to approve the proposal, Phelps Dodge may seek to adjourn the special meeting to allow additional time for obtaining additional proxies or votes. At any subsequent reconvening of the special meeting, all proxies will be voted in the same manner as those proxies would have been voted at the original convening of the special meeting, except for any proxies that have been effectively revoked or withdrawn before the reconvened special meeting.

 

References to the Phelps Dodge special meeting in this document are to that special meeting as adjourned or postponed.

 

Votes Required

 

Each holder of Phelps Dodge common shares will be entitled to one vote, in person or by proxy, for each Phelps Dodge common share registered in the holder’s name on the books of Phelps Dodge as of the record date on any matter submitted for the vote of Phelps Dodge shareholders. The proposal for the approval and adoption of the merger agreement will be approved if 662/3% of the outstanding Phelps Dodge common shares entitled to vote at the special meeting are voted in favor of the proposal. If the proposal to approve an adjournment of the special meeting to permit the solicitation of additional proxies is presented for a vote, it will be approved, whether or not there is a quorum, if a majority of the Phelps Dodge common shares present in person or represented by proxy and entitled to vote at the Phelps Dodge special meeting are voted in favor of the adjournment proposal.

 

With respect to both the proposal to approve and adopt the merger agreement and the proposal to approve an adjournment of the special meeting to permit the solicitation of additional proxies, abstentions and broker non-votes will have the same effect as a vote against the proposal. If a Phelps Dodge shareholder fails to vote on the adjournment proposal, other than by abstention or broker non-vote, this will reduce the total number of shares voting with respect to the proposal and, as a result, the number of affirmative votes required to approve the proposal.

 

A “broker non-vote” may occur on a proposal when a broker is not permitted to vote on that proposal without instruction from the beneficial owner of the shares and no instruction is given by the beneficial owner.

A broker is not permitted to vote on the proposal to approve and adopt the merger agreement or on the proposal to approve an adjournment of the special meeting without instruction from the beneficial owner of the Phelps Dodge shares held by the broker.

 

Shares Beneficially Owned as of the Record Date

 

To our knowledge, no Phelps Dodge shareholders have entered into voting agreements with Freeport-McMoRan. Based on the number of Phelps Dodge common shares outstanding as of February 12, 2007, the directors and executive officers of Phelps Dodge and their affiliates, as a group, beneficially owned or had the right to vote approximately 884,391 Phelps Dodge common shares, or less than 1% of the outstanding Phelps Dodge common shares entitled to be voted at the special meeting. To Phelps Dodge’s knowledge, the directors and executive officers of Phelps Dodge and their affiliates intend to vote their Phelps Dodge common shares in favor of the approval and adoption of the merger agreement.

 

Voting at the Phelps Dodge Special Meeting

 

If you are a Phelps Dodge shareholder of record on the record date and you attend the special meeting, you may vote in person by completing a ballot at the special meeting even if you already have signed, dated and returned a proxy card. If your shares are held in the name of a broker or nominee, you may not vote your shares in person at the special meeting unless you obtain a signed proxy from the record holder giving you the right to vote the shares.

 

Proxies

 

Voting instructions are attached to your proxy card. If you properly submit your proxy to Phelps Dodge in time to vote, one of the individuals named as your proxy will vote your shares as you have directed. You may vote for or against any or all of the proposals submitted at the Phelps Dodge special meeting or abstain from voting.

 

How to Vote by Proxy.  If your shares are registered in your name, there are three ways to vote your proxy: by telephone, by Internet or by mail. Your telephone vote or Internet vote authorizes Timothy R. Snider, Ramiro G. Peru and S. David Colton, and each of them, as proxies, each with the power to appoint his substitute, to represent and vote your shares in the same manner as if you marked, signed and returned your proxy form by mail.

 

 

 

 

 

 

 

 

 

Only the latest dated proxy received from you, whether by mail, telephone or Internet, will be voted at the Phelps Dodge Corporation special meeting. If you vote by telephone or Internet, please do not mail your proxy form.

 

If your shares are held in “street name” (through a broker, bank or other nominee), you may receive a separate voting instruction form with voting instructions, or you may need to contact your broker, bank or other nominee to determine whether you will be able to vote electronically using the telephone or Internet.

 

A Phelps Dodge shareholder whose shares are held in the name of a broker or nominee should follow the instructions provided by that broker or nominee on how to direct the voting of the shareholder’s shares.

 

How Proxies will be Voted.  All Phelps Dodge common shares represented by proxies properly executed and received by Phelps Dodge before or at Phelps Dodge’s special meeting will be voted in accordance with the instructions indicated on the proxies. If the proxy is properly completed, signed and returned but no instructions are indicated, the shares will be voted:

 

 

Phelps Dodge shares represented by a proxy that has been returned with instructions to vote against the proposal to approve and adopt the merger agreement but which does not include instructions with respect to the adjournment proposal will not be voted in favor of the adjournment proposal.

 

Revoking Your Proxy.  You may revoke your proxy before it is voted by:

 

 

If you have instructed your broker to vote your shares, you must follow directions you receive from your broker in order to change or revoke your vote.

 

Solicitation of Proxies

 

Freeport-McMoRan and Phelps Dodge will each pay their own expenses incurred in connection with the printing and mailing of this document. Phelps Dodge has retained D.F. King & Co., Inc. for a fee estimated to be $300,000, plus certain expenses, including out-of-pocket expenses, to assist in the solicitation of proxies and otherwise in connection with the Phelps Dodge special meeting. Phelps Dodge and its proxy solicitor will also request banks, brokers and other intermediaries holding Phelps Dodge common shares beneficially owned by others to send this document to, and obtain proxies from, the beneficial owners and will reimburse holders for their reasonable expenses in so doing. Solicitation of proxies by mail may be supplemented by telephone, email and other electronic means, advertisements and personal solicitation by the directors, officers and employees of Phelps Dodge. No additional compensation will be paid to directors, officers or employees for such solicitation efforts.

 

Other Business

 

The Phelps Dodge board of directors currently is not aware of any business to be acted upon at the special meeting other than as described in this document. If, however, other matters are properly brought before the special meeting or any adjournments or postponements of the meeting, in the absence of instructions to the contrary, persons appointed as proxies will have discretion to vote or act on those matters in their best judgment.

 

Communications by Phelps Dodge Shareholders with Phelps Dodge

 

Any written revocation of a proxy or other communications in connection with this document and requests for additional copies of this document or the proxy card should be addressed to D.F. King & Co., Inc. If you have any questions or need further assistance in voting your shares, please call D.F. King & Co., Inc. toll-free at (800) 769-4414 or collect at (212) 269-5550. Non-U.S. holders may call D.F. King & Co. at +44 20 7920 9700.

 

Freeport-McMoRan

 

Freeport-McMoRan Copper & Gold Inc.

1615 Poydras Street

New Orleans, Louisiana 70112

Telephone: (504) 582-4000

http://www.fcx.com

 

Freeport-McMoRan Copper & Gold Inc. is one of the world’s largest producers of copper and gold. Freeport-McMoRan’s operations are conducted through its principal operating subsidiaries, PT Freeport Indonesia, PT Irja Eastern Minerals and Atlantic Copper, S.A.

 

PT Freeport Indonesia’s operations in Papua, Indonesia, involve mineral exploration and development, mining and milling of ore containing copper, gold and silver and the worldwide marketing of concentrates containing those metals. PT Freeport Indonesia is also a 25% owner of PT Smelting, which operates a copper smelter and refinery in Gresik, Indonesia.

 

PT Irja Eastern Minerals conducts mineral exploration activities (currently suspended) on land adjacent to that held by PT Freeport Indonesia. Freeport-McMoRan also conducts mineral exploration activities (currently suspended) in Papua pursuant to a joint venture through PT Nabire Bakti Mining. All these companies operate through Contracts of Work with the Government of Indonesia which, at the end of 2005, covered approximately 2.2 million acres. Atlantic Copper operates a copper smelter and refinery in Huelva, Spain.

 

Phelps Dodge

 

Phelps Dodge Corporation

One North Central Avenue

Phoenix, AZ 85004-4414

Telephone: (602) 366-8100

http://www.phelpsdodge.com

 

Phelps Dodge is one of the world’s leading producers of copper. Phelps Dodge is a world leader in the production of molybdenum, and the largest producer of molybdenum-based chemicals and continuous-cast copper rod. Phelps Dodge employs 15,000 people worldwide, primarily through its two divisions, Phelps Dodge Mining Company, which is referred to in this document as PDMC, and Phelps Dodge Industries, which is referred to in this document as PDI.

 

PDMC is an industry leader in the safe, efficient and environmentally responsible production of high-quality metals and minerals. PDMC is a fully integrated producer of copper and molybdenum, with mines and processing facilities in North and South America and Europe, and processing capabilities for other minerals as by-products, such as gold, silver and rhenium. Phelps Dodge Exploration Corp., a subsidiary of Phelps Dodge, and the Process Technology Center, a division of PDMC, focus on continued discovery and development of economically viable mineral reserves and the refinement and creation of production and process technologies.

 

PDI consists of Phelps Dodge Wire and Cable, which manufactures engineered products principally for the global energy sector. Phelps Dodge Wire and Cable manufactures products for power distribution, heavy industry, and medical and electronic devices and products, with operations in the United States, Latin America, Asia and Africa.

 

HSR Act.  As a condition to the transaction, the HSR Act requires Freeport-McMoRan and Phelps Dodge to observe the HSR Act’s notification and waiting period. The HSR Act provides for an initial 30-calendar-day waiting period following the necessary filings by the parties to the merger. If the 30th calendar day of the initial waiting period is not a business day, the initial waiting period is extended until 11:59 p.m. of the next business day. Each of Freeport-McMoRan and Phelps Dodge filed a notification and report form for the transaction with the FTC and the Antitrust Division on December 4, 2006. Early termination of the waiting

period was granted on December 22, 2006. Thus, as far as the HSR Act is concerned, the parties are free to consummate the transaction.

 

European Union.  Both Freeport-McMoRan and Phelps Dodge sell products to customers based in the European Union. The EC Merger Regulation (Regulation 139 of 2004) requires notification of and approval by the European Commission of mergers or acquisitions involving parties with worldwide sales and European Union sales exceeding given thresholds. Freeport-McMoRan and Phelps Dodge filed a formal notification of the merger with the European Commission on January 16, 2007. The European Commission will have until February 20, 2007, which is 25 business days after receipt of such formal notification, to issue its decision regarding the merger. This 25-business day period is extendable for an additional ten-business day period in certain circumstances. After that period, if the European Commission has “serious doubts” as to the compatibility of the merger with the common market, it will enter into a “Phase II” investigation. The standard timetable for a “Phase II” investigation is 90 working days. This timetable may be extended in certain circumstances by either the parties or the European Commission. There are also procedures for the European Commission to “Stop the Clock” if the parties have not supplied information required by the European Commission.

 

Other Filings.  Other than the merger filings described above, notifications of the transaction have been filed in the following jurisdictions: Brazil, Bulgaria, China, South Korea and Mexico. We will endeavor to obtain required merger control clearances with the relevant competition authorities in these, and any other required jurisdictions, as soon as practicable.

 

General.  The FTC, the Antitrust Division or any other regulatory authority could take action under the applicable antitrust laws with respect to the transaction, including seeking to enjoin the completion of the transaction or seeking the divestiture by either party of shares or assets, or seeking to subject Freeport-McMoRan or Phelps Dodge to operating conditions, before or after we complete the transaction. We cannot assure you that an antitrust challenge to the transaction will not be made and, if such a challenge is made, we cannot predict the result. We have agreed to use our reasonable best efforts to obtain and maintain from governmental entities and any necessary third party any approvals, consents, registrations, permits, authorizations and other confirmations required in connection with the transaction and to make all necessary filings, notices, petitions, statements, registrations, submissions of information, applications and other documents necessary under applicable law with respect to the transaction.

 

The following discussion contains material information pertaining to the transaction. This discussion is subject and qualified in its entirety by reference to the merger agreement attached as Appendix A to this document. We urge you to read and review the entire merger agreement as well as the discussion in this document.

 

General

 

This section provides material information about the transaction involving Freeport-McMoRan and Phelps Dodge and the circumstances surrounding the transaction. You can find a more detailed description of the terms of the merger agreement, including information about the conditions to completion of the transaction and the provisions for terminating the merger agreement, below under “The Merger Agreement”.

 

We are furnishing this document to Freeport-McMoRan and Phelps Dodge shareholders in connection with the solicitation of proxies by the board of directors of each of Freeport-McMoRan and Phelps Dodge for use at their respective special meetings of shareholders and any adjournment or postponement of the meetings.

 

 

 

Approval by Freeport-McMoRan shareholders of the proposal to amend the Freeport-McMoRan certificate of incorporation and the proposal to issue Freeport-McMoRan common stock in connection with the transaction, and approval by Phelps Dodge shareholders of the proposal to approve and adopt the merger agreement, are each conditions to the completion of the transaction.

 

Structure of the Transaction

 

Under the terms of the proposed merger, Panther Acquisition Corporation, a wholly owned subsidiary of Freeport-McMoRan, will merge into Phelps Dodge. As a result, Phelps Dodge will continue as a surviving corporation and will become a wholly owned subsidiary of Freeport-McMoRan. Accordingly, Phelps Dodge shares will no longer be publicly traded after the completion of the transaction.

 

At the completion of the merger, sometimes referred to in this document as the effective time, each issued and outstanding Phelps Dodge common share will be converted into the right to receive a combination of 0.67 of a share of Freeport-McMoRan common stock and $88.00 in cash, without interest. Phelps Dodge shareholders will receive cash in lieu of any fractional shares of Freeport-McMoRan common stock that would have otherwise been issued at the completion of the transaction. The 0.67 of a share of Freeport-McMoRan common stock that will be issued for each Phelps Dodge common share is sometimes referred to in this document as the exchange ratio, the $88.00 in cash, without interest, that will be issued for each Phelps Dodge common share is sometimes referred to in this document as the cash consideration, and the exchange ratio and the cash consideration are together sometimes referred to in this document as the merger consideration.

 

If, during the period between the date of the merger agreement and the effective time of the merger, any change in the outstanding shares of capital stock of Phelps Dodge or Freeport-McMoRan occurs, including by reason of any reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, or any stock dividend thereon with a record date during such period (not including any change that results from any exercise of options outstanding as of the date of the merger agreement to purchase Phelps Dodge common shares under Phelps Dodge’s stock option or compensation plans or arrangements), the exchange ratio and the cash consideration will be adjusted accordingly to provide to the holders of Phelps Dodge common shares the same economic effect as contemplated by the merger agreement prior to such event.

 

We expect that, upon completion of the transaction, the Freeport-McMoRan shareholders immediately prior to the transaction will own approximately 59% of the outstanding common stock of the combined company immediately after the transaction (62% on a fully diluted basis), and the Phelps Dodge shareholders immediately prior to the transaction will own approximately 41% of the outstanding common stock of the combined company immediately after the transaction (38% on a fully diluted basis). These figures are calculated assuming the number of shares of Freeport-McMoRan common stock outstanding as of September 30, 2006, and the number of Phelps Dodge common shares, restricted stock and stock options outstanding as of September 30, 2006 and assuming that all of the Phelps Dodge stock options are exercised prior to the completion of the transaction.

 

The corporate headquarters of the combined company will be located in Phoenix, Arizona and Freeport-McMoRan will maintain its New Orleans, Louisiana office to service the accounting and administrative needs of its Indonesian operations.

 

Background of the Transaction

 

Each of the managements of Freeport-McMoRan and Phelps Dodge separately have periodically evaluated the opportunity to achieve their respective companies’ long-term strategic goals and objectives and to enhance shareholder value with a strategic transaction. Freeport-McMoRan and Phelps Dodge have been familiar with each other’s businesses for many years.

 

Freeport-McMoRan and Phelps Dodge each regularly reviews the possibility of selected strategic acquisitions, divestitures and business combinations with others.

 

In 1996, Freeport-McMoRan and Phelps Dodge entered into a confidentiality and standstill agreement and discussed a potential business combination. No agreement was reached and those discussions terminated. Since that time, representatives of senior management of Freeport-McMoRan and Phelps Dodge have from time to time discussed the strategic benefits of a business combination between Freeport-McMoRan and Phelps Dodge.

 

In June 2006, Phelps Dodge entered into a combination agreement with Inco Limited pursuant to which Phelps Dodge agreed to acquire Inco.

 

In July 2006, representatives of JPMorgan and representatives of Merrill Lynch separately met with Mr. Richard C. Adkerson, president and chief executive officer of Freeport-McMoRan and Ms. Kathleen L. Quirk, senior vice president, chief financial officer and treasurer of Freeport-McMoRan, to suggest that Freeport-McMoRan consider a potential acquisition of Phelps Dodge.

 

On August 1, 2006, at a meeting of the board of directors of Freeport-McMoRan, Mr. Adkerson reported on the recent merger and acquisition activity in the mining industry and reported that Freeport-McMoRan had been contacted separately by JPMorgan and Merrill Lynch regarding a potential acquisition of Phelps Dodge. Mr. Adkerson reported that management would gather pertinent information and continue its analysis of such an acquisition.

 

In August 2006, Mr. Adkerson telephoned Mr. J. Steven Whisler, chairman and chief executive officer of Phelps Dodge. Mr. Adkerson and Mr. Whisler had a general discussion about the consolidation occurring in the mining industry. Mr. Adkerson commented on the attractiveness of combining the assets of Phelps Dodge and Freeport-McMoRan, consistent with previous discussions between him and Mr. Whisler, while recognizing that Phelps Dodge had entered into a definitive agreement to acquire Inco. Mr. Whisler informed Mr. Adkerson that Phelps Dodge was focused on the combination agreement with Inco. That agreement was subsequently terminated on September 5, 2006.

 

In mid-September 2006, representatives of Merrill Lynch informed representatives of Citigroup, a financial advisor to Phelps Dodge, that Merrill Lynch and JPMorgan were discussing with senior management of Freeport-McMoRan various structures for Freeport-McMoRan to acquire Phelps Dodge.

 

On September 20, 2006, Mr. Adkerson and Ms. Quirk met with representatives of JPMorgan and Merrill Lynch to discuss possible acquisition structures, valuations and financing alternatives.

 

On September 28, 2006, the Freeport-McMoRan board of directors held a special meeting to discuss with senior management the potential acquisition of Phelps Dodge, including the benefits and risks associated with the combination of their businesses. Freeport-McMoRan’s senior management suggested preliminarily a structure that, subject to due diligence, would include (1) a control premium being paid to Phelps Dodge shareholders, (2) up to 33% of the consideration being paid in cash and the remainder in Freeport-McMoRan common stock and (3) Freeport-McMoRan directors constituting a majority of the board of directors of the combined company and Mr. Adkerson retaining the chief executive officer position. At this meeting, the board of directors authorized Mr. Adkerson to proceed with discussions about a possible acquisition of Phelps Dodge on that basis.

 

After Freeport-McMoRan’s board meeting, Mr. Adkerson telephoned Mr. Whisler and indicated that Freeport-McMoRan was prepared, subject to due diligence, to acquire Phelps Dodge for a combination of cash and Freeport-McMoRan common stock in a transaction in which Phelps Dodge shareholders would receive a control premium. Mr. Adkerson said that Freeport-McMoRan would be willing to pay between 25% and 33% of the consideration offered to Phelps Dodge shareholders in cash. Mr. Adkerson also proposed that he would continue as the chief executive officer of the combined company, and that the current Freeport-McMoRan directors would comprise the majority of the board of directors of the combined company.

 

On October 3 and 4, 2006, in connection with a regularly scheduled board meeting, the Phelps Dodge board of directors discussed with management and Phelps Dodge’s financial and legal advisors the possibility of a transaction involving Freeport-McMoRan as well as potential alternative transactions. At this meeting, the board of directors directed Mr. Whisler to advise Freeport-McMoRan that a more detailed proposal would be required for the Phelps Dodge board of directors to give the matter in-depth consideration.

 

On October 5, 2006, Mr. Whisler telephoned Mr. Adkerson to advise him of the views of the Phelps Dodge board of directors. Mr. Whisler specified that any further proposal from Freeport-McMoRan must be specific as to the size of the premium and the percentage of cash and stock that would be offered to Phelps Dodge shareholders, and he emphasized to Mr. Adkerson that these were the two central issues. Mr. Whisler also said the Phelps Dodge board of directors had indicated a preference for the cash component to be substantially larger than the amount that Mr. Adkerson previously proposed.

 

On October 6, 2006, Mr. Adkerson telephoned Mr. Whisler and told him that, subject to due diligence, Freeport-McMoRan was prepared to offer to acquire Phelps Dodge at a price that represented a premium of between 20-25% and a mix of consideration that included up to 50% in cash. In a further telephone call later that same day, Mr. Whisler told Mr. Adkerson that Mr. Whisler believed the Phelps Dodge board of directors would be unlikely to find such an offer attractive and suggested that Mr. Adkerson consider improving Freeport-McMoRan’s offer before it was presented to the Phelps Dodge board of directors.

 

On October 10, 2006, while in London in connection with an industry conference Mr. Adkerson and Mr. Whisler met to discuss Freeport-McMoRan’s proposal.

 

On October 11, 2006, Mr. Adkerson telephoned Mr. Whisler to inform him that Freeport-McMoRan, subject to due diligence, would be willing to pay a premium of 30% to Phelps Dodge shareholders in a combination of the two companies.

 

The Phelps Dodge board of directors met on October 16, 2006. At this meeting, Mr. Whisler briefed the board of directors on his discussions with Mr. Adkerson. Representatives of Citigroup and Morgan Stanley discussed with the Phelps Dodge board of directors their preliminary perspectives on Freeport-McMoRan’s revised proposal. After consideration of these matters, the board of directors authorized Mr. Whisler to continue his discussions with Mr. Adkerson concerning a possible transaction in order to further clarify the terms of Freeport-McMoRan’s proposal.

 

Mr. Whisler telephoned Mr. Adkerson on October 17, 2006, and explained that the Phelps Dodge board of directors was open to considering a possible transaction with Freeport-McMoRan, but would need to understand better the terms of Freeport-McMoRan’s proposal, including the calculation of the 30% premium, the percentage of cash and stock consideration and other issues, before deciding whether to move forward. With respect to the percentage of cash and stock consideration, Mr. Whisler indicated that the Phelps Dodge board of directors would consider supporting the transaction only if the cash portion of the consideration was materially greater than the 50% level previously suggested by Mr. Adkerson.

 

On October 23, 2006, Mr. Adkerson sent to Mr. Whisler a letter and preliminary, non-binding term sheet setting forth the terms on which Freeport-McMoRan would be willing to acquire Phelps Dodge. The term sheet proposed that Freeport-McMoRan would acquire Phelps Dodge for a price per share of $86 in cash and 0.50 shares of Freeport-McMoRan common stock. Based on the closing prices of Freeport-McMoRan and Phelps Dodge shares on October 20, 2006, this offer implied a total price of $114.25 per Phelps Dodge share, representing a premium of approximately 16% based on Phelps Dodge’s closing share price on October 20, 2006, 27% based on the average closing share price over the 20-day period ending on October 20, 2006, and 30% based on the closing share price on October 10, 2006, the date of the meeting between Mr. Whisler and Mr. Adkerson in London. The term sheet specified that the exchange ratio for the stock portion of the consideration would be fixed and would not be adjusted for movements in the price of shares of Freeport-McMoRan common stock.

 

The term sheet further proposed that, following the transaction, three independent members of the Phelps Dodge board of directors would be added to the Freeport-McMoRan board of directors, that Freeport-McMoRan’s chief executive officer would continue to serve as the chief executive officer of the combined company, and that Freeport-McMoRan would offer senior management roles to certain of Phelps Dodge’s executive officers other than Mr. Whisler. Freeport-McMoRan’s term sheet stated that Freeport-McMoRan Copper & Gold Inc. would remain the name of the parent company and the Phelps Dodge name would be retained at the operating company level. The term sheet also provided that the combined company would maintain a major presence at Phelps Dodge’s Phoenix headquarters, with a presumption, subject to further analysis, that the headquarters would be located there.

 

After receipt of Freeport-McMoRan’s term sheet on October 23, 2006, Mr. Whisler telephoned Mr. Adkerson to discuss several elements of Freeport-McMoRan’s proposal. In that discussion, Mr. Whisler advised Mr. Adkerson that he did not expect the Phelps Dodge board of directors would consider the premium presented in the term sheet to be sufficient.

 

The Phelps Dodge board of directors met on October 28, 2006, to consider the Freeport-McMoRan proposal and related matters. At this meeting, Phelps Dodge’s financial advisors provided the board of directors with their perspective on the proposals in Freeport-McMoRan’s term sheet and presented a preliminary valuation analysis of Phelps Dodge, and members of Phelps Dodge’s senior management team also discussed their perspective on Freeport-McMoRan’s proposals as well as their views on the copper market. At the meeting, the board of directors instructed Phelps Dodge senior management to advise Freeport-McMoRan that the value offered to Phelps Dodge shareholders was insufficient, but authorized management to continue discussions with Freeport-McMoRan.

 

Following the board meeting, Mr. Whisler telephoned Mr. Adkerson and explained that as a result of the rise in Phelps Dodge’s share price, Freeport-McMoRan’s offer no longer represented a 30% premium. Mr. Whisler stated that the Phelps Dodge board of directors viewed the offer as providing insufficient value to Phelps Dodge shareholders.

 

On October 31, 2006, in connection with a regularly scheduled board meeting, the Freeport-McMoRan board of directors discussed with management the status of the discussions with Phelps Dodge. Mr. Adkerson reported that management had been working with JPMorgan and Merrill Lynch on various alternatives with respect to a proposal to acquire Phelps Dodge. Mr. Adkerson reviewed the potential accretion to cash flows and earnings under different scenarios and also reported on the availability of financing for the cash portion that would be paid to Phelps Dodge shareholders. During the meeting, Mr. Adkerson noted that any proposal to Phelps Dodge would be subject to due diligence. At this meeting, the board of directors authorized Mr. Adkerson to meet with Mr. Whisler to discuss Freeport-McMoRan’s proposed acquisition of Phelps Dodge based on a 30% control premium.

 

On the morning of November 2, 2006, Mr. Adkerson met with Mr. Whisler in Scottsdale, Arizona. At the meeting, Mr. Adkerson stated that, subject to due diligence, Freeport-McMoRan was willing to increase its offer to $86.00 cash and 0.65 shares of Freeport-McMoRan common stock for each Phelps Dodge common share. After further negotiation between Mr. Adkerson and Mr. Whisler, Mr. Adkerson expressed a willingness to consider improving the terms to $88.00 cash and 0.65 shares of Freeport-McMoRan common stock for each Phelps Dodge common share. Mr. Adkerson and Mr. Whisler also discussed other matters related to the transaction, including the headquarters location and the advisability that certain members of Phelps Dodge’s senior management, other than Mr. Whisler, be retained.

 

The Phelps Dodge board of directors met on November 2, 2006, following the meeting between Mr. Whisler and Mr. Adkerson. Mr. Whisler briefed the board of directors on his discussions with Mr. Adkerson, and Phelps Dodge’s financial advisors presented their analysis of Freeport-McMoRan’s offer. After discussion, the Phelps Dodge board of directors authorized Mr. Whisler to try to reach an agreement with Mr. Adkerson on the basis of $90.00 cash and 0.7 shares of Freeport-McMoRan common stock for each Phelps Dodge common share.

 

On November 3, 2006, Mr. Whisler telephoned Mr. Adkerson and informed him of the position of the Phelps Dodge board. Mr. Adkerson indicated he needed to review the request with his advisors. Mr. Adkerson telephoned Mr. Whisler later that day and stated that Freeport-McMoRan was prepared, subject to due diligence, to offer $88.00 in cash and 0.67 shares of Freeport-McMoRan common stock for each Phelps Dodge common share.

 

On November 6, 2006, the Phelps Dodge board of directors held a meeting to discuss Freeport-McMoRan’s most recent proposal. After discussion, the board of directors authorized Mr. Whisler to enter into a confidentiality and standstill agreement with Freeport-McMoRan and to proceed with due diligence. Freeport-McMoRan and Phelps Dodge executed a confidentiality and standstill agreement on November 6, 2006.

 

From November 6 through November 18, 2006, the date that definitive documents were signed, Freeport-McMoRan and Phelps Dodge and their respective advisors continued to conduct reciprocal due diligence and negotiated the terms of the merger agreement. Freeport-McMoRan also negotiated the terms of its financing commitment.

 

On November 7, 2006, representatives of Freeport-McMoRan and Phelps Dodge, with their respective legal advisors, spoke by telephone regarding the structure of the transaction, the documentation required, the diligence process, possible regulatory filings and preparation of a joint proxy statement/prospectus.

 

On November 9 and 10, 2006, representatives of Phelps Dodge and Freeport-McMoRan, together with their respective legal and financial advisors, met in Dallas, Texas. Members of the senior management of Phelps Dodge and Freeport-McMoRan gave presentations about the business, operations and financial projections of Phelps Dodge and Freeport-McMoRan, respectively.

 

On November 10, 2006, the Phelps Dodge board of directors met with two directors of Freeport-McMoRan to discuss the role of the Freeport-McMoRan board of directors, various governance matters, the risks of operating in Indonesia, Freeport-McMoRan’s environmental and human rights practices and other aspects of Freeport-McMoRan’s business and operations.

 

On November 13, 2006, Mr. Adkerson telephoned Mr. Whisler and informed him that Freeport-McMoRan proposed to revise the terms of its offer for Phelps Dodge to reduce the cash portion from $88.00 to $78.00, and to increase the stock portion to 0.84 shares of Freeport-McMoRan common stock for each Phelps Dodge common share. Mr. Adkerson emphasized that while Freeport-McMoRan’s proposal changed the mix of cash and stock consideration to be offered to Phelps Dodge shareholders, based on closing prices as of November 13, 2006, the implied values of Freeport-McMoRan’s November 3, 2006 proposal and his revised offer of that day were essentially identical in terms of value.

 

On November 14, 2006, the Phelps Dodge board of directors met telephonically to discuss Freeport-McMoRan’s revised offer. At this meeting, Mr. Whisler reported on his discussion with Mr. Adkerson. The board of directors instructed Mr. Whisler to inform Mr. Adkerson that Phelps Dodge was prepared to move forward on the terms of the November 3, 2006 offer but was not willing to consider any modification of those terms. Mr. Whisler conveyed this message to Mr. Adkerson by telephone following the meeting.

 

On November 14 and 15, 2006, representatives of Phelps Dodge visited Freeport-McMoRan’s mines in the Grasberg minerals district, its milling and production operations and its concentrate loading facilities in Papua, Indonesia.

 

On November 16, 2006, the Freeport-McMoRan board of directors held a meeting with senior management and representatives of its financial advisors, JPMorgan and Merrill Lynch, and legal advisors, Davis Polk & Wardwell and Jones, Walker, Waechter, Poitevent, Carrère & Denègre, L.L.P. participating. At this meeting, Freeport-McMoRan’s senior management reviewed the strategic rationale for the proposed transaction, informed the board of directors on the results of the due diligence investigation of Phelps Dodge and reported on the financial analysis of the combined company. Members of Freeport-McMoRan’s senior management responded to questions from members of the board of directors confirming and clarifying the bases for their presentations. Mr. Adkerson then updated the board of directors on the status of the discussions with Phelps Dodge and reviewed the terms of Freeport-McMoRan’s initial proposal and modified proposal following due diligence. He noted that the modified proposal reduced the total cash payable to Phelps Dodge shareholders but maintained essentially the same total value offered in the original proposal by increasing the portion of the price that would be paid in stock. Mr. Adkerson and representatives of JPMorgan and Merrill Lynch then reviewed capital structure considerations, including the alternatives to reduce the amount of debt following the acquisition. Members of Freeport-McMoRan’s senior management and representatives of JPMorgan and Merrill Lynch responded to questions from members of the board of directors with respect to capital structure considerations. Members of Freeport-McMoRan’s senior management and a representative of Davis Polk & Wardwell also responded to questions regarding the proposed terms of the merger agreement. Following discussion, the board of directors authorized Freeport-McMoRan’s senior management to proceed with the transaction based on the original terms of $88 in cash and 0.67 shares of Freeport-McMoRan common stock for each Phelps Dodge common share.

 

Following Freeport-McMoRan’s board meeting on November 16, 2006, Mr. Adkerson telephoned Mr. Whisler and informed him that Freeport-McMoRan was prepared to move forward on its offer of $88.00 in cash and 0.67 shares of Freeport-McMoRan common stock for each Phelps Dodge common share, as proposed on November 3, 2006. The parties and their advisors then proceeded to complete their respective due diligence investigations and finalize the merger agreement.

 

The board of directors of Freeport-McMoRan met on November 18, 2006. At this meeting, members of Freeport-McMoRan’s senior management updated the board of directors on the results of Freeport-McMoRan’s due diligence investigation of Phelps Dodge. Representatives of JPMorgan and Merrill Lynch discussed with the board of directors the financial terms of the proposed transaction and each firm delivered to the board of directors an oral opinion, subsequently confirmed in writing, that as of November 18, 2006, and based upon and subject to the assumptions, qualifications and limitations set forth in those opinions, the consideration of $88.00 in cash and 0.67 shares of Freeport-McMoRan common stock for each Phelps Dodge common share was fair, from a financial point of view, to Freeport-McMoRan. A representative of Davis Polk & Wardwell reviewed the principal terms of the merger agreement with the board of directors. Members of Freeport-McMoRan’s senior management then reviewed the terms of the proposed financing commitment for the acquisition of Phelps Dodge. Members of Freeport-McMoRan’s senior management and representatives of JPMorgan, Merrill Lynch and Davis Polk & Wardwell responded to questions from members of the board of directors confirming and clarifying the bases for their presentations and, in the case of JPMorgan and Merrill Lynch, their respective fairness opinions. After discussion, the board of directors unanimously approved the terms of the transaction and execution of the transaction documents.

 

The board of directors of Phelps Dodge met on November 18, 2006. At this meeting, members of Phelps Dodge’s senior management briefed the board of directors on the results of the company’s due diligence investigation of Freeport-McMoRan. A representative of Debevoise & Plimpton LLP discussed with the board of directors their fiduciary duties and briefed the board of directors on the terms of the transaction documents. Representatives of Citigroup and Morgan Stanley discussed with the board of directors the financial terms of the proposed transaction and each firm delivered to the board of directors an oral opinion, subsequently confirmed in writing, that as of November 18, 2006, and based upon and subject to the factors and qualifications set forth in these opinions, the consideration of $88 in cash and 0.67 shares of Freeport-McMoRan common stock for each Phelps Dodge common share to be received by Phelps Dodge shareholders pursuant to the merger agreement was fair to Phelps Dodge shareholders from a financial point of view. Members of Phelps Dodge’s senior management and representatives of Debevoise & Plimpton LLP, Citigroup and Morgan Stanley responded to questions from members of the board of directors confirming and clarifying the bases for their presentations and, in the case of Citigroup and Morgan Stanley, their respective fairness opinions. After discussion, the board of directors unanimously approved the terms of the transaction and execution of the transaction documents.

 

Freeport-McMoRan’s Reasons for the Transaction; Recommendation of the Freeport-McMoRan Board of Directors

 

The Freeport-McMoRan board of directors consulted with Freeport-McMoRan’s senior management and its financial and legal advisors in reaching its decision to enter into the transaction and recommend that Freeport-McMoRan shareholders vote FOR the proposals to amend the Freeport-McMoRan certificate of incorporation and to issue Freeport-McMoRan common stock in connection with the transaction.

 

In reaching this decision, the Freeport-McMoRan board of directors considered the following material factors: