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U.S. copper miner Phelps Dodge Corp. said Monday it plans to buy Canada's Inco Ltd. and Falconbridge Ltd. for at least $48-billion (U.S.), promising no negative impact on Canada and creating the world's largest nickel producer and the largest publicly traded copper producer.

The combined company, to be called Phelps Dodge Inco, “will vault into super-major status within the global mining industry,” making it easier to raise capital and develop giant projects, Phelps Dodge chairman and CEO Steven Whisler told a conference call Monday, during which the top executives of the three companies congratulated each other on a friendly stock-and-cash deal.

Phelps Dodge Inco would have 40,000 employees in 40 countries — 13,500 from Phelps Dodge, 12,000 from Inco and 14,500 from Falconbridge. The new company would be based in Phoenix, Arizona and led by the U.S. company's chief executive. The head office of the global nickel business will be based in Toronto.

Canadians will occupy most management positions of the Canadian businesses at the new company, Phelps Dodge said. There will be some head-office job cuts, however. As well, the company will keep a major nickel research and development facility in Canada, and continue all existing Canadian exploration activities “for a period of at least three years.”

For Phelps Dodge, the deal is a major gamble that world metal prices will remain high.

“Our key driver in this transaction is the potential for significant synergies,” said Mr. Whisler, whose company has lined up $22-billion in financing for the deal and a share buyback to support its stock price.

If Monday's deal is successful, it would create the fifth-largest mining firm in the world, behind BHP Billiton, Rio Tinto, Anglo American and Brazil-base CVRD, with a market capitalization of $56-billion.

It's the latest move in a year of takeover talk in the industry, where Switzerland's Xstrata PLC is vying for Falconbridge, and Canada's Teck Cominco Ltd. is trying to buy Inco. The proposed deal would be world's largest mining takeover and comes as copper and nickel prices are sitting near record highs.

“If we have to have consolidation, I'd rather have it in North America than find a part of the Canadian industry is being controlled from offshore,” said David Cockfield, who helps manage the equivalent of $1.2-billion at Leon Frazer Associates Inc. and holds Inco and Falconbridge shares. He expects today's transaction to succeed.

The first step of the transaction would see the U.S. company buying as much as $3-billion in debt from Inco to help the Canadian nickel miner buy Falconbridge. Phelps Dodge would then pay about $40-billion for the combined Inco and Falconbridge. Finally, Phelps Dodge said it would buy back up to $5-billion of its stock once the deal is completed.

Phelps Dodge, the world's third-largest copper producer, pegged the total value of the three-way transaction at $56-billion.

Phelps Dodge is offering $80.13 (Canadian) a share for a combined Inco and Falconbridge. At the same time, Inco is boosting its offer for Falconbridge to $62.11 per share from an earlier offer worth, as of Friday, $46.80 a share.

Phelps Dodge shares tumbled 8.4 per cent to $75.99 (U.S.) in New York. Inco jumped 10.5 per cent to $72.09 (Canadian) while Falconbridge advanced 4.8 per cent to $58.17 in Toronto. Shares of Teck-Cominco also rose, gaining 4.3 per cent, as investors flocked to Canada's mining sector.

“We will create the pre-eminent North American-based metals and mining company and, more importantly, a true global leader,” said Steven Whisler, chairman and chief executive officer of Phelps Dodge, on a conference call.

Rob Coburn, a spokesman for Atticus Capital LP, the second-largest shareholder of Phelps Dodge, said his firm is still studying today's proposition. It would, however, be willing to assess other proposals — including a takeover for Phelps Dodge itself.

“This is a very fluid situation. There are a lot of companies not just in North America interested here, but possibly globally,” said Mr. Coburn. “While it wouldn't surprise if this is the last word and this transaction went forward, it also wouldn't surprise us if...another player put themselves into the fray here.”

Phelps Dodge doesn't see layoffs in Canada for “at least three years after the completion of the transaction,” unless those employees are part of an already-announced shutdown or work-force reduction.

To assist Inco in its proposed bid for Falconbridge, Phelps Dodge has agreed to buy as much as $3-billion (U.S.) of convertible subordinated notes issued by Inco. That, in turn, would give Inco needed cash to help it snap up Falconbridge common shares and “satisfy related dissent rights, as needed.”

The convertible subordinated notes will only be funded if the Inco-Falconbridge combination is completed.

The new company, which would also be a leading producer of molybdenum and cobalt, would be a titan in the mining industry. For the quarter ended March 31, the three companies had combined revenue of $6.3-billion and earnings before interest, taxes, depreciation and amortization of $1.9-billion.

The companies expect cost savings of $900-million a year by 2008, while includes $550-million from the Inco-Falconbridge combination alone.

The deal between Phelps Dodge and Inco is not conditional on the completion of Inco's purchase of Falconbridge. If the Inco-Falconbridge is not completed, Inco shareholders would still get 0.672 shares of Phelps Dodge and $17.50 (Canadian) per share in cash that they would have in the proposed three-way transaction.

“This combination...creates an opportunity for all three groups of shareholders to participate in an exciting, new, diversified industry leader,” said Scott Hand, chairman and chief executive officer of Inco, adding that the new Phelps Dodge Inco also will maintain “a very strong commitment to and presence in Canada.”

For his part, Derek Pannell, chief executive of Falconbridge, called today's deal “an industry-redefining transaction.”

Mr. Whisler, 51, would become chairman and chief executive the new company while Mr. Hand, 64, would be vice chairman. Mr. Pannell, 60, would be president of Inco Nickel, heading the new company's nickel, zinc and aluminum operations. Timothy Snider, president and chief operating officer of Phelps Dodge, will hold the same position in the new company while Ramiro Peru would be chief financial officer. Mr. Whisler, Mr. Snider and Mr. Peru would be based in Phoenix, while Mr. Hand and Mr. Pannell would remain in Toronto.

The board of directors of the new company will be composed of 15 members, 11 from the board of Phelps Dodge and four from the boards of Inco and Falconbridge.

The mining deal needs approval from competitions authorities in Europe, the United States and Canada, along with Phelps Dodge and Inco shareholder approval. The transaction is expected to close in September.

On the conference call, Phelps Dodge said it doesn't expect any regulatory problems.

“There is very little overlap between our copper business and their nickel operations and copper, being a very fragmented market. We do not anticipate anti-trust hurdles,” the company said.

Inco has agreed to pay a break fee to Phelps Dodge “under certain circumstances” of $475-million (U.S.) on a stand-alone basis and $925-million connected to its combination with Falconbridge. Inco has also given Phelps Dodge certain other rights, including a right to match competing offers.

Phelps Dodge has agreed to pay Inco a $500-million break-up fee under certain circumstances.

Phelps Dodge will also spend up to $5-billion in buying back stock once the deal is completed.

After completion of the transaction, current Phelps Dodge shareholders would own about 40 per cent of Phelps Dodge Inco, current Inco shareholders would own about 31 per cent, and current Falconbridge holders would own about 29 per cent.

With files from reporters Eric Reguly, Jacquie McNish and Derek DeCloet and wire services