Fitch Places Phelps Dodge Corporation on Ratings Watch Negative

Fitch has placed the Issuer Default Rating (IDR) and debt ratings of Phelps Dodge on Rating Watch Negative following its announcement that it is purchasing Inco Limited (Inco) and Falconbridge Limited.

Ratings affected are:

-- Issuer Default Rating (IDR) 'BBB'

-- Senior Unsecured Notes and Debentures at 'BBB'

-- Bank Revolver at 'BBB'

Additionally, Fitch has left Inco on Rating Watch Evolving pending outcome of bids to acquire Inco as well Inco's bid to acquire Falconbridge.

Ratings affected are:

-- IDR 'BBB-'

-- Senior unsecured debt 'BBB-'

-- Bank Revolver 'BBB-'

-- Bank Term Loan 'BBB-'

-- Subordinated Convertible Debentures 'BB+'

On June 26, 2006, Phelps Dodge announced an agreement to acquire Inco Limited under terms which allow Inco to increase its offer for Falconbridge Limited. Phelps Dodge has entered into a definitive agreement under which it will purchase up to $3 billion of convertible subordinated notes issued by Inco to provide Inco additional liquidity in support of its enhanced bid for Falconbridge. Inco announced that the aggregate cash component of its bid for Falconbridge is C$7 billion. Phelps Dodge's offer for Inco is C$17.50 per share cash plus 0.672 Phelps Dodge shares and is not conditioned upon Inco's completing the acquisition of Falconbridge. Should Inco complete the merger with Falconbridge and thereby increase its outstanding shares by 216 million, the aggregate value of Phelps Dodge's cash component would be C$14 billion. The Phelps Dodge transaction is expected to close in September of 2006.

The amount of debt to be assumed by Phelps Dodge in the transaction depends upon whether the Inco/Falconbridge merger occurs and the cash generation of both companies over the elapsed period. Likewise, Phelps Dodge's financing needs will be influenced by its cash generation over the short term.

Results of the three companies continue to benefit from strong metals prices. Metals prices in 2006 have been stronger than expected and markets look to be resilient over the short to medium term.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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