March 19, 2007 / 9:02 PM / in 13 years

UPDATE 1-Phelps Dodge name dies as Freeport takes over

(Recasts, updates with another analyst upgrade, stock close)

By Steve James

NEW YORK, March 19 (Reuters) - Phelps Dodge Corp. (PD.N), one of the most famous names in U.S. mining, moved from ledger books into history books on Monday as Freeport-McMoRan Copper & Gold Inc. (FCX.N) completed a $25.9 billion acquisition to form the world’s largest publicly traded copper company.

Bear Stearns immediately raised its investment rating of the new Freeport, saying the acquisition of Phelps Dodge will increase Freeport shareholders’ earnings immediately.

And BMO Capital Markets raised its share target price for the mining company and revised its estimates, forecasting increased earnings and copper and gold deliveries.

Announcing completion of the deal, Freeport Chief Executive Officer Richard Adkerson said the combined company — to be called Freeport-McMoRan Copper & Gold — will have large, long-lived, geographically diverse assets and significant proven and probable reserves of copper, gold and molybdenum.

Freeport, whose only major project up to now has been the vast Grasberg gold mine in Indonesia, acquires Phelps’ mines in South America and the U.S. Southwest, as well as the rich Tenke Fungurume copper and cobalt project in Democratic Congo.

“These assets will deliver significant copper volumes to an attractive market place, providing substantial cash flows that will enable us to invest in growth projects and reduce debt rapidly,” Adkerson said.

Freeport is moving its corporate headquarters from New Orleans to Phoenix, Arizona, closer to Phelps’ U.S. copper mines. With the acquisition, it marks the end of a name that had done business in America since before the Civil War.

Phelps Dodge began life in 1834 as a New York City-based mercantile company, trading American products to England in exchange for copper, iron, tin and other metals. The name came from founding partners Anson Phelps, a one-time saddle maker, and his son-in-law, William Dodge, a merchant in dry goods.

Their company entered mining in 1881 when it invested in the Detroit Copper Mining Co. in Morenci, Arizona, quitting the import-export business altogether in 1906.

With Monday’s acquisition by Freeport McMoRan, Phelps CEO and Chairman Steven Whisler will retire after more than 30 years with the company, as will CFO Ramiro Peru.

James Moffett will continue as chairman of Freeport with Adkerson as CEO. Timothy Snider, president and chief operating officer at Phelps Dodge, has been named to the same positions at Freeport and Freeport Chief Financial Officer Kathleen Quirk continues as CFO and treasurer of the combined company.

In a research note, Bear Stearns raised Freeport’s investment rating to “outperform” from “peer perform,” noting Phelps’ shareholders get a 32 percent premium on their shares from prior to the announcement of the deal last November.

The brokerage, which has a price target of $80 on the stock, said the company’s shares represent a compelling value given the diverse asset base, strong management team and attractive growth prospects.

Bear Stearns also increased its 2007 copper price forecast to $2.60 per pound COMEX spot from $2.40. It also raised its 2008 copper price forecast to $2.20 per pound from $2.00.

BMO analyst Victor Lazarovici raised his share target price to $80 from $68. “The acquisition of Phelps Dodge is accretive to our estimates of Freeport McMoRan’s earnings,” he wrote.

“We forecast 2007 deliveries of 3.3 billion pounds of copper and 1.9 million ounces of gold, representing increases of 177.6 percent and of 8.9 percent from 2006 levels, respectively,” Lazarovici wrote in a note.

Freeport shares closed up $1.73, or 2.85 percent, at $62.44 on the New York Stock Exchange on Monday. Phelps’ stock, on its last day of trading, finished 97 cents ahead at $129.47.

Freeport also announced a public offering of about 35 million common shares and an offering of 10 million shares of mandatory convertible preferred stock for $100.00 per share.

The company said it plans to use the net proceeds from these offerings to repay debt incurred in connection with the acquisition of Phelps Dodge.

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