Arizona miner trumps Xstrata's Canadian bid

Phelps Dodge, an Arizona-based copper miner in the US, has unveiled an audacious plan to catapult it into the industry's big league, making a US$40bn "white knight" bid for two Canadian base metals firms.

In the latest twist to one of mining's most convoluted takeover battles, Phelps has agreed to take over both Inco and Falconbridge.

The two Toronto-based copper miners had been planning their own merger, until that deal was gatecrashed by separate bids for each company.

The London-listed Xstrata, which also wants to increase its presence in the booming nickel and copper industries, had made a US$18bn bid for Falconbridge, which has now been trumped.

The escalating fight over Falconbridge underscores the soaring value of base metals reserves, particularly - in Falconbridge's case - nickel, which has doubled in price since 2003.

While commodities prices have proved alarmingly volatile over the past few months, most industry executives still believe that demand from China and other developing economies will keep demand at record levels.

Phelps Dodge said its plan to combine with Inco and Falconbridge would create the world's largest nickel producer and largest publicly traded copper producer and quadruple its size.

Steven Whisler, chairman and chief executive of Phelps, said: "The combined company has one of the industry's most exciting portfolios of development projects, and the scale and management expertise to pursue their development successfully. The creation of this new company gives us the scale and diversification to manage cyclicality, stabilise earnings and increase shareholder returns."

Inco had been looking for ways to raise cash to boost its offer for Falconbridge, and talked to Phelps Dodge about selling it some South American assets.

Instead, Phelps will now fund an increased offer for Falconbridge by Inco, and then immediately purchase the merged company.

The new offer for Falconbridge, in cash and shares, is valued at about C$58 per Falconbridge share.

Xstrata is offering C$52.50 per share, but analysts at UBS said yesterday it could offer up to $70.

Its next move is keenly awaited.

Xstrata listed in London in 2002, promising a string of acquisitions that would turn it into a global mining giant but it has managed only one big deal.

Falconbridge would add nickel to Xstrata's portfolio of coal and copper, and boost its presence in North and South America, where it has few assets.

Twenty per cent of Falconbridge shares are already in Xstrata's hands.

Teck Cominco, a Canadian rival, said last month it was launching a hostile bid for Inco, to try to break up the Falconbridge deal.

- INDEPENDENT