UNITED STATES SECURITIES AND EXCHANGE COMMISSION

SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION

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Phelps Dodge Corporation

 

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	Sincerely,

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To the Shareholders of Phelps Dodge Corporation:

      The annual meeting of shareholders of Phelps Dodge Corporation will be held at the Heard Museum, 2301 North Central Avenue, Phoenix, Arizona, on Friday, May 27, 2005, at 9:00 a.m. (MST), to consider and take action on the following:

      Only holders of record of the Corporation’s common shares at the close of business on April 7, 2005 will be entitled to vote at the meeting. On April 7, 2005, we had 96,893,021 common shares outstanding.

      If you participate in the Mellon Investor Services LLC Investor Services Program for Phelps Dodge Corporation Shareholders, all common shares held for your account under that plan will be voted in accordance with your proxy.

      Proxies are solicited by the Board of Directors. You may revoke your proxy before it is voted at the annual meeting by delivering a signed revocation letter or a new proxy, dated later than your first proxy, to Catherine R. Hardwick, Assistant General Counsel and Secretary.

      Shareholders who do not expect to attend the meeting in person are asked to access electronic voting via the internet or telephone voting as described on the enclosed proxy card or date, sign and complete the proxy card and return it without delay in the enclosed envelope, which requires no postage stamp if mailed in the United States. If you are attending in person and have previously mailed your proxy card, you may revoke your proxy and vote in person at the meeting.

      This proxy statement and accompanying materials are being first sent to shareholders on April 15, 2005.

Phoenix, Arizona

April 15, 2005

ELECTION OF DIRECTORS

The Board of Directors recommends a vote FOR

all of the Class II nominees.

CORPORATE GOVERNANCE AND GENERAL INFORMATION

CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES

Directors and Officers Liability Insurance

      The Corporation maintains directors and officers (D&O) liability insurance policies issued by National Union Fire Insurance Company of Pittsburgh, PA, Federal Insurance Company, American Casualty Company of Reading, PA, Zurich American Insurance Company, XL Insurance (Bermuda) Ltd., and Allied World Assurance Company, Ltd. The policies insure (i) directors, officers, division presidents and vice presidents of the Corporation and its subsidiaries for certain liabilities they may incur in the performance of their duties that are not indemnifiable under the Bylaws, (ii) the Corporation for its obligations to indemnify such persons against such liabilities, and (iii) the Corporation for losses arising from a securities claim. These policies are placed on an annual basis from June 1, 2004 to June 1, 2005. The Corporation also purchases additional D&O liability insurance coverage from Corporate Officers and Directors Assurance Ltd. and Starr Excess Liability Insurance International Ltd. These policies also are placed on an annual basis from June 1, 2004 to June 1, 2005. The annual premium for the D&O liability insurance is $2,658,375. The Corporation also purchases pension trust liability insurance policies on an annual basis for the period June 1, 2004 to June 1, 2005. These policies insure directors, officers and employees who are fiduciaries of employee benefit plans of the Corporation and its subsidiaries and the sponsor organizations. The annual premium for the pension trust liability insurance is $201,250.

* * * * *

COMPENSATION COMMITTEE INTERLOCKS

AND INSIDER PARTICIPATION

       The following directors served on the Compensation and Management Development Committee during 2004: Messrs. Burt, Dunham (Chair), Franke, Johnson, (Mrs.) Knowles and Parker, effective March 1, 2004. None of these directors is or has been an officer or employee of the Corporation or any of its subsidiaries or has had any other relationship with the Corporation or any of its subsidiaries requiring disclosure under the applicable rules of the Securities and Exchange Commission.

SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

       The following table lists the common share ownership as of March 31, 2005 for our directors and executive officers. “Beneficial Ownership” includes shares a director or officer has the power to vote or transfer, and stock options that were exercisable on March 31, 2005 or within 60 days thereafter. On March 31, 2005, the directors and the five named executive officers of the Corporation owned, in the aggregate, 650,851 shares of the Corporation’s common stock (less than one percent of the shares outstanding). The Corporation’s non-employee directors also have interests in stock-based units under Corporation’s plans. While these units may not be voted or transferred, they are listed in the table below because they represent a component of the total economic interest of our directors in the Corporation’s stock.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

       Based on a review of reports filed by our directors, executive officers and beneficial holders of 10% or more of our outstanding shares, and upon representations from those persons, all reports required to be filed by our reporting persons during 2004 were filed on time, with the exceptions of the initial Form 3 filings for newly elected officers Denise R. Danner, Vice President and Controller, and David C. Naccarati, the President of Phelps Dodge Mining Company, a division of the Corporation.

      To the knowledge of the Corporation, the following entities beneficially owned in excess of five percent of the Corporation’s common shares as of December 31, 2004:

EQUITY COMPENSATION PLAN INFORMATION

EXECUTIVE COMPENSATION

       The following table summarizes the compensation we paid our five most highly compensated executive officers in 2004, 2003, and 2002.

Summary Compensation Table

Stock Options

      Each of the executives listed in the Summary Compensation Table was eligible to receive stock option grants during 2004. These grants are a compensatory award, normally made on an annual basis, intended to reward each named executive based on the Corporation’s future performance.

      The following table contains information with respect to the normal compensatory option grants made to each named executive during 2004 and the hypothetical value at the time of grant based on a variation of the Black-Scholes option pricing model (see footnote (3) below). The Corporation is not aware of any option pricing model that can provide a true assessment of the value of the options. During their lives, the options could have a greater or a lesser value than that shown in the table, and under some circumstances they could have zero value.

Option Grants in 2004

Aggregated Option Exercises in 2004 and December 31, 2004 Option Values

       The following table provides information concerning options exercised in 2004 by the named executives and the options held by them at December 31, 2004:

PENSION AND OTHER RETIREMENT BENEFITS

Retirement Plans

      The following pension table shows the estimated aggregate annual benefits payable in the form of a straight life annuity commencing at age 65 under the Phelps Dodge Retirement Plan (the “Retirement Plan”) as supplemented by the Phelps Dodge Corporation Supplemental Retirement Plan (the “Supplemental Retirement Plan”) that makes up amounts otherwise limited by the Internal Revenue Code (the “Code”).

Pension Plan Table

SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS

Severance Agreements With Our Executives

      The Corporation has severance agreements (“Severance Agreements”) with each of its five named executive officers and other members of its senior management under which each such executive will receive a lump sum payment equal to his annual base salary in the event the Corporation terminates his employment, other than for cause or mandatory retirement, or the executive voluntarily terminates his employment because of material reductions in his salary or his position, duties and responsibilities. The terminated executive will also receive (i) outplacement services at a cost up to a maximum of 15% of his base salary and (ii) the cost of continued coverage for a limited period under the Corporation’s group health, life insurance and disability plans. All executive officers, as well as certain other key management personnel, have Severance Agreements with the Corporation.

Change of Control Agreements With Our Executives

      The Corporation also has agreements with the named executive officers and other members of its senior management team under which each executive will receive, in the event he ceases to be employed by the Corporation within two years following a change of control of the Corporation (for a reason other than death, disability, willful misconduct, or under certain circumstances a voluntary termination of employment by the executive), a lump sum equal to (i) three times the executive’s highest base salary during that year and the prior two years plus (ii) three times the executive’s target bonus under the Annual Incentive Compensation Plan in the year in which the change of control occurs, less (iii) any severance amounts payable under his Severance Agreement. These executives also have a 30-day window period beginning immediately after the first anniversary date of the change of control to voluntarily terminate their employment and still receive their change of control benefits. If the payments trigger an excise tax under the Internal Revenue Code, the Corporation will provide the executive with a tax gross-up payment to reimburse the executive for any excise taxes, as well as the presumed income taxes on the gross-up. The Corporation will pay the cost for the terminated executive to receive continued coverage for three years under certain of the Corporation’s insured group medical, dental, vision, life insurance and long-term disability plans, and for the cost of continuing executive physicals and financial counseling services for a similarly limited period. These executives are also eligible to receive outplacement services at a cost up to a maximum amount of 15% of their base salary.

      A second group of key management personnel receive similar change of control agreements that provide a lump sum benefit equal to two times the executive’s highest base salary during that year and the prior two years plus two times the executive’s target bonus under the Annual Incentive Compensation Plan in the year in which the change of control occurs, less any severance amounts payable under the Severance Agreement. These plans do not have the 30-day window period, nor are the executives eligible for a tax gross-up payment unless the benefits payable due to a change of control are at least 120% of the allowable cap. The Corporation will pay the cost of the group benefits outlined above for a period of two years. All of the other material terms and conditions are substantially the same. Except under certain circumstances, all change of control agreements currently expire on December 31, 2007.

Other Change of Control Provisions

      Although normal compensatory options granted by the Corporation become exercisable in three or four substantially equal annual installments beginning on the first anniversary of the date of grant, they also become exercisable in certain change of control situations. Specifically, such options are exercisable (but not earlier than six months from the date of grant) for a period of 30 days beginning on the date the Corporation’s common shares are purchased pursuant to a third party tender offer or the Corporation’s shareholders approve a merger or similar transaction in which the Corporation will not survive as a publicly held corporation or, in the case of the five named executive officers and certain other employees, the date the employee ceases to be employed if he/she ceases to be employed within two years following a change of control.

      The Phelps Dodge Corporation Supplemental Retirement Plan provides for the payment of unreduced benefits to employees who meet liberalized age and length of service requirements and whose employment is terminated by the Corporation or any of its subsidiaries within two years following a change of control of the Corporation. The Phelps Dodge Corporation Supplemental Retirement Plan also provides an additional 36 months of service credit to an executive who, due to his termination of employment within two years following a change of control of the Corporation, becomes entitled to receive payments under his change of control agreement with the Corporation. The Phelps Dodge Corporation Supplemental Savings Plan obligates the Corporation to transfer an amount equal to the deficiency in the assets of the Plan’s trust fund, if any, prior to the day on which a change of control occurs.

COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE

REPORT ON EXECUTIVE COMPENSATION

The Committee

      The Committee is composed solely of independent directors (currently six) who are not employees of the Corporation. It has periodically retained independent compensation consultants to advise it in connection with various compensation matters. The Committee currently retains Pearl Meyer & Partners, Inc., an independent executive compensation consulting firm, to advise the Committee and work with management regarding executive compensation.

Corporate Goals and Compensation Philosophy

      The Corporation’s goal is to be the leader in the domestic and international mining and manufacturing activities in which it competes while maximizing longer-term shareholder value.

      The Committee designs its executive compensation program to ensure the Corporation’s ability to attract, retain and motivate the best qualified and highest performing employees. The Committee believes it can align total compensation with shareholder interests and motivate senior managers participating in these programs by:

      The Corporation’s compensation philosophy emphasizes variable compensation in both short-term and long-term incentives. The Corporation targets base salaries at the median of the comparison group (as described below) and similarly-sized general manufacturing companies. Annual total cash (base salary plus annual incentive) is targeted near the 60th percentile of the comparison group and industry data. Total remuneration (total cash plus long-term incentives, including stock options and restricted stock) is targeted between the 50th and 75th percentiles of the comparison group and industry data. The Committee believes that superior performance should result in superior compensation.

Elements of Executive Compensation

      The executive officers are compensated by salaries, annual cash incentive awards and long-term incentive compensation in the form of stock options and restricted stock grants, with each element focusing on performance. Salaries focus on level of responsibility and individual performance. Annual cash incentives relate to corporate and, where appropriate, division, unit and individual performance. Long-term incentive awards, delivered in the form of stock options and restricted stock, create a long-term shared interest with shareholders based on the Corporation’s performance and related growth of shareholder value.

      The Committee believes that the Corporation competes for its executive talent primarily with similarly-sized industrial companies based in the United States. Accordingly, the Committee compares the compensation for the Corporation’s top five executives, at least annually, to the compensation paid to executives holding similar positions at 13 publicly held industrial corporations of a median size, measured by revenues and market capitalization similar to that of the Corporation (referred to as the “comparison group”). This data is blended with a larger group of companies of similar size to determine an appropriate consensus of market pay values. For other executives, compensation awards are determined based upon market comparisons to similar positions within relevant and similarly-sized industrial companies. The Committee believes that the competitive data used is generally representative of the competitive level of compensation paid to executive officers in companies the size of the Corporation. Thus, the companies used for comparison purposes to establish the compensation paid to the Corporation’s executive officers is a larger group than the companies included in the peer group used in the performance graphs on pages 24 and 25 to compare shareholder returns.

      Beginning in 2004, the Committee determined salary increases, incentive compensation awards, and long-term equity grants at the same time, permitting a comprehensive total compensation review in light of the prior year’s performance both by the Corporation and by the executive. This total compensation review occurs during the first quarter of each calendar year.

Executive Salaries

      Individual salaries for executive officers are established by the Committee based upon the officer’s performance, existing general economic and industry conditions and the Corporation’s performance during the prior year. Generally, salary adjustments are targeted to advance salaries to competitive levels, over time, for sustained and excellent performance. The Committee believes current salaries for the executive officers were generally below appropriate levels when compared to employees in similar positions in the comparison group and other industrial companies of similar size. The Committee determined that the individual executives named in the Summary Compensation Table have sustained excellent individual performance, and given the significant progress made on the Quest for Zero enterprise performance initiative and the Corporation’s operating performance, salaries for the named executives have been increased in 2005.

Annual Incentives

      The Annual Incentive Compensation Plan (“AICP”) provides executive officers and certain other officers and managers with compensation based on success in achieving annual corporate, division and, where appropriate, unit goals. Corporate goals are set using measures of return on equity and net operating cash flow return on invested capital. Division and unit goals generally are set using an earnings or cost measure and a net operating cash flow return on invested capital measure. In late 2001, the Corporation publicly announced its Quest for Zero enterprise performance system, which has been a third measure of performance since 2002. In 2004 the Corporation’s return on equity performance and net operating cash flow return on invested capital performance each surpassed the maximum goal. Quest for Zero impact on production costs and operating income was between the established threshold and target goals. In 2004, certain division and unit performance ranged from below threshold to above target. Based on these results and an assessment of individual performance, the Committee approved AICP awards for 2004 above the targeted amounts for the listed executives.

      For the 2005 AICP plan year, the metrics will focus on cost containment and reduction, along with measures for net operating cash flow return on invested capital and return on equity.

Long-Term Incentive Compensation

      The Committee has historically used the granting of stock options and restricted stock as the principal method for providing long-term incentive compensation. To accommodate the annual total compensation review by the Committee, which occurs early in the calendar year, the normal 2003 grant cycle was shifted to early 2004. In 2004, a combination of restricted stock and stock options were granted to the AICP participants. The executive officers received a larger percentage of the intended long-term value via stock options, while for other designated executives, greater emphasis was placed on awards of restricted stock. These restricted stock awards vest incrementally over a period of three to five years from the award date. The stock options vest ratably over a period of one to three years from the grant date.

Stock Ownership Guidelines

      To emphasize the shared interests of management and shareholders, the Corporation established stock ownership guidelines for officers and management of the Corporation. The guidelines are expressed as a multiple of salary and are then divided by the average 10-year stock price. The ownership targets range from two times salary at the lower end of the organization up to five times salary for the CEO. All of the named executives currently meet their respective ownership guideline levels.

Tax Code Issues

      Section 162(m) of the Internal Revenue Code generally places a $1 million per person limit on the deduction a publicly held corporation may take for compensation paid to its chief executive officer and its four other highest compensated “covered employees,” excluding for this purpose deferred compensation and, in general, compensation constituting “performance-based” compensation. In 1998 and 2003, the Corporation obtained shareholder approval for the Phelps Dodge 1998 and 2003 Stock Option and Restricted Stock Plans, respectively, which continue to exclude the compensation from stock options from the $1 million deductibility limit. Other elements of the compensation payable to executive officers, such as salary, annual incentive compensation and restricted stock, are not excludable from such limit. For the year 2004, the total compensation subject to Section 162(m) that was awarded to Messrs. Whisler, Snider, and Peru exceeded one million dollars. This was due, in part, to the vesting of restricted stock shares issued to such individuals five years ago and the Corporation’s performance in achieving maximum financial results while strengthening the balance sheet. This resulted in the loss of a Federal income tax deduction with respect to approximately $3,289,358, $298,728 and $1,729,453, respectively, of their compensation for 2004.

      A new plan is presented in this proxy for shareholder consideration which, if approved, will allow the annual incentive payments and awards of restricted stock that are granted on the basis of performance to be exempt from Section 162(m) so that the Corporation will not risk losing the ability to claim a Federal income tax deduction with respect to the compensation payable under such an award to a person who is at the time of vesting a covered employee for purposes of Section 162(m).

CEO Compensation

      The Committee determines the chief executive officer’s compensation using the same philosophy and policies as for all executive officers.

      Mr. Whisler earned $891,667 in base salary in 2004. His salary increase was designed to bring his compensation closer to the median of the comparison group and to reflect his personal performance. The Corporation reported at year-end 2004 net cash provided by operating activities of $1.7 billion. In addition, the debt-to-equity ratio was reduced from 38.5% to 18.3% during 2004; net income of $1.046 billion was earned, translating to earnings per share of $10.58; and a 25 cents per share quarterly dividend was reinstated during the third quarter of 2004. Mr. Whisler’s commitment to the design, implementation, and execution of the Quest for Zero enterprise performance system and the continued focus on cost containment was critical to its success. The Committee awarded Mr. Whisler an incentive payment of $1,400,000 for 2004 performance in recognition of the significant overall improvement in the company’s financial performance. The combination of base salary and bonus places Mr. Whisler’s total cash compensation for 2004 between the median and the 75th percentile of the peer group of companies and industry data used for compensation purposes. In 2004, Mr. Whisler received an award of 27,725 shares of restricted stock which will vest incrementally over the third to fifth anniversaries of the award, and 27,600 stock options which vest incrementally over three years from date of grant. The primary basis for the Committee’s restricted stock and stock option grants was to provide a significant incentive for Mr. Whisler to enhance long-term shareholder value. The specific basis for the Committee’s determination regarding Mr. Whisler’s compensation in 2004 included his role in improving the Corporation’s financial results in the short-and long-term.

Conclusion

      The Committee will continue to evaluate the Corporation’s compensation programs to best enable the Corporation to employ and motivate its employees. Such employees, properly motivated, are believed to be key to achieving the Corporation’s goal to be the international leader in the mining and manufacturing arenas in which it competes and the related enhancement of shareholder value over the long term.

AUDIT COMMITTEE REPORT

       The Committee has reviewed and discussed with management of the Corporation and PricewaterhouseCoopers LLP, the independent registered public accounting firm for the Corporation, the audited financial statements of the Corporation for the fiscal year ended December 31, 2004 (the “Audited Financial Statements”).

      The Committee has discussed with PricewaterhouseCoopers LLP the matters required to be discussed by Statement on Auditing Standards No. 61 (as amended by SAS 89 and SAS 90), as in effect on the date of this proxy statement.

      The Committee has: (i) considered whether non-audit services provided by PricewaterhouseCoopers LLP are compatible with its independence; (ii) received the written disclosures and the letter from PricewaterhouseCoopers LLP required by the Independence Standards Board Standard No. 1, as in effect on the date of this proxy statement; and (iii) discussed with PricewaterhouseCoopers LLP its independence.

      Based on the reviews and discussions described above, the Committee recommended to the Board of Directors of the Corporation that the audited financial statements be included in the Corporation’s Annual Report on Form  10-K for the fiscal year ended December 31, 2004 for filing with the Securities and Exchange Commission.

      The Board of Directors has adopted a Charter of the Audit Committee, a copy of which is published on the Corporation’s website at www.phelpsdodge.com. The Audit Committee Charter requires the Committee to pre-approve all audit engagement fees and terms, as well as all non-audit engagements with the independent accountants. The Committee may delegate to one or more members the authority to grant such pre-approvals, which then must be presented to the full Audit Committee at its next scheduled meeting. All audit and non-audit fees incurred in 2004 were pre-approved by the Committee.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES

      The Corporation’s fees for services performed by its principal accounting firm, PricewaterhouseCoopers LLP, during fiscal years 2004 and 2003 were:

CODE OF ETHICS OF PHELPS DODGE CORPORATION

      The Corporation requires all non-bargained domestic and international employees to certify that they have read and are in compliance with its Code of Business Ethics & Policies as a condition of continued employment with the Corporation. The code of ethics is published in nine different languages and is posted on the Corporation’s website in English and Spanish at www.phelpsdodge.com. All executive officers and financial officers attest annually to the ethical business practices and the financial reporting and financial management policies contained in the code of ethics and thereby satisfy the NYSE rule that requires a financial code of ethics for the principal executive officer, chief financial officer and principal accounting officer or controller. The Board of Directors has also adopted a code of ethics, which can be found on the Corporation’s website.

      In addition, the Corporation maintains a hotline service, 24 hours per day, 365 days per year, for the receipt of complaints and questions. Global Compliance Services, an external compliance services company, provides this hotline service for employees and third parties to submit complaints and questions. Callers may remain anonymous if they so desire.

      The Phelps Dodge Ethics and Compliance Hotline number is (800) 295-6783 (toll-free) and also appears on the Corporation’s website. The compliance services provider simultaneously issues reports of complaints directly to the Chairperson of the Audit Committee, to the Director of Corporate Audit and to the Assistant General Counsel and Secretary of the Corporation.

      Complaints are investigated and remedial action is taken as appropriate and to the satisfaction of the Audit Committee. Questions are referred to the appropriate management group for response. The Director of Corporate Audit follows up to ensure all complaints are properly addressed.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*

AMONG PHELPS DODGE CORPORATION, THE S&P 500 INDEX AND A PEER GROUP

      The Corporation’s peer group comprises selected companies within its industry to create an industry average. The group’s returns are weighted according to each member company’s market capitalization and include Inco Ltd., Falconbridge Ltd., Phelps Dodge Corporation, Noranda Inc., Freeport-McMoRan Copper & Gold Inc. and Teck Cominco Ltd.

		Cumulative Total
		12/99				12/00				12/01				12/02				12/03				12/04
PHELPS DODGE CORPORATION			100.00				86.28				50.95				49.77				119.65				156.48
S&P 500			100.00				90.89				80.09				62.39				80.29				86.09
PEER GROUP			100.00				72.88				64.09				69.20				145.82				163.35

COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN*

AMONG PHELPS DODGE CORPORATION, THE S&P 500 INDEX AND A PEER GROUP

      The Corporation’s peer group comprises selected companies within its industry to create an industry average. The group’s returns are weighted according to each member company’s market capitalization and include Inco Ltd., Falconbridge Ltd., Phelps Dodge Corporation, Noranda Inc., Freeport-McMoRan Copper & Gold Inc. and Teck Cominco Ltd.

		Cumulative Total Return
		12/94				12/95				12/96				12/97				12/98				12/99				12/00				12/01				12/02				12/03				12/04
PHELPS DODGE CORPORATION			100.00				103.66				115.85				109.66				92.70				127.29				109.82				64.85				63.35				152.30				199.18
S&P 500			100.00				137.58				169.17				225.60				290.08				351.12				319.15				281.22				219.07				281.91				302.30
PEER GROUP			100.00				112.50				119.53				80.77				59.75				99.38				72.43				63.69				68.77				144.92				162.34

APPROVAL OF THE PHELPS DODGE CORPORATION

2006 EXECUTIVE PERFORMANCE INCENTIVE PLAN

       The Board of Directors unanimously adopted the Phelps Dodge Corporation 2006 Executive Performance Incentive Plan (Incentive Plan) and recommends that shareholders approve the Incentive Plan at the Annual Meeting.

      A copy of the proposed Incentive Plan is attached to this Proxy Statement as Appendix A. A summary of the Incentive Plan is set forth below and is qualified in its entirety by reference to the full text of the Incentive Plan.

Purpose of the Incentive Plan

      The primary purpose of the Incentive Plan is to qualify restricted stock awards under the Phelps Dodge 2003 Stock Option and Restricted Stock Plan (2003 Plan) and awards under the Corporation’s annual incentive compensation plan, as performance based compensation under section 162(m) of the Internal Revenue Code (Section 162(m)). Qualifying these awards under Section 162(m) would exempt the incentive compensation from the one million dollar cap on deductibility of compensation expenses for federal income tax purposes.

      No awards will be made under the Incentive Plan until after it is approved by the Corporation’s shareholders, and it is currently anticipated that the first performance period will be the Corporation’s 2006 fiscal year. The Compensation Committee intends to continue its existing competitive pay philosophy, as discussed in the Compensation Committee Report beginning on page 19. The adoption of the Incentive Plan, including the availability of the Plan Funding Amount, is not expected to significantly change the number or size of incentive awards. It is simply a vehicle to fund performance-based compensation awards consistent with the requirements of Section 162(m).

Participation in and Administration of the Incentive Plan

      The members of the Corporation’s Senior Management Team (including all of the named executive officers) are eligible to participate in this plan as selected by the Compensation and Management Development Committee of the Board (Compensation Committee). The Compensation Committee will designate those individuals eligible for an award under this plan no later than the time when 25% of the applicable performance period has elapsed (and in no event will the designation take place later than 90 days after the performance period has commenced).

      The Incentive Plan is administered by the Compensation Committee, which has the power and full authority to interpret the plan and to grant awards thereunder. The Compensation Committee’s decisions on matters related to the plan are final, conclusive, and binding.

Performance Criteria

      Awards under the Incentive Plan are made from the Plan Funding Amount. For any performance period under the plan, the Plan Funding Amount will equal 2% of Net Cash Provided by Operating Activities for the applicable performance period, plus any amount from the Plan Funding Amount for the immediately preceding performance period that was not awarded with respect to that performance period. For any particular performance period, the Net Cash Provided by Operating Activities is the net cash provided by operating activities of the Corporation for the applicable performance period as reviewed by the Corporation’s independent auditors and released by the Corporation as part of its Consolidated Statement of Cash Flows.

Grant and Payment of Annual Awards

      No later than the date when 25% of the applicable performance period has elapsed (and in no event later than 90 days after the applicable performance period has commenced), the Compensation Committee will designate that portion of the Plan Funding Amount that will be allocated to each participant. No participant will be allocated more than 40% of the Plan Funding Amount for any performance period. The Compensation Committee cannot make awards that exceed 100% of the Plan Funding Amount. In accordance with the terms and conditions of the Incentive Plan, the Compensation Committee does not have the authority to increase an allocation to a participant once such allocation has been made. However, the Compensation Committee has full discretion to reduce or eliminate any portion of the allocation to a participant for any or no reason. The Compensation Committee must certify each award before it is paid.

      Incentive Plan awards may be made in cash and/or shares of restricted stock as determined by the Compensation Committee in its sole discretion and will be made no later than two and a half months after the end of the performance period for which the awards are made. The Corporation cannot determine at this time the number or size of specific awards. All awards are subject to applicable tax and other withholding requirements. Participants may elect to defer payment of all or a portion of any award payable in cash in accordance with the terms and conditions of the plan documents and applicable laws and regulations. If awards are made in shares of restricted stock, such shares shall be issued under the 2003 Plan. The Corporation is not asking shareholders to approve the issuance of additional shares under this Incentive Plan.

Miscellaneous Provisions

      The Board at any time may terminate the Incentive Plan, in whole or in part. The Corporation will bear the expenses of administering the Incentive Plan. Nothing in the Incentive Plan confers on any participant the right to continued employment by the Corporation or affect any right of the Corporation to terminate the employment of any participant. The Corporation may establish other bonus plans or programs and pay discretionary bonuses or other incentives to executive officers and members of the Senior Management Team outside of this Incentive Plan.

Federal Income Tax Consequences

      The following is a brief description of the material federal income tax consequences generally arising with respect to the Incentive Plan:

      Cash payments made under the Incentive Plan will be taxable to the recipients thereof when paid and the Corporation will generally be entitled to a federal income tax deduction in the calendar year for which the amount is paid. Any portion of an incentive award that is to be paid in shares of restricted stock will be taxable to the recipient in an amount equal to the fair market value of such shares on the date when such shares are no longer subject to any restrictions.

      Section 162(m) limits the ability of a public corporation to deduct compensation greater than $1,000,000 paid with respect to a particular year to an individual who is, on the last day of that year, the corporation’s chief executive officer or one of its four other most highly compensated executive officers, other than compensation that is performance related within the meaning of Section 162(m). Should any awards under the Incentive Plan not qualify as performance based compensation, such awards may not be deductible by the Corporation for federal income tax purposes because of the limitations imposed by Section 162(m).

Shareholder Approval

      Shareholder approval of the Incentive Plan is required to allow awards made under the Incentive Plan to qualify as performance-based compensation for purposes of Section 162(m). Shareholder approval of the Incentive Plan is important as the Incentive Plan will provide valuable benefits to the Corporation.

      The affirmative vote of a majority of the votes cast at the Annual Meeting on this proposal is required for the approval of the 2006 Executive Incentive Plan. Thus, a shareholder who does not vote at the Annual Meeting will not affect the outcome of the vote, while shareholders who vote to abstain will in effect be voting against approval of the Incentive Plan. Brokers who hold shares of Common Stock as nominees will not have discretionary authority to vote such shares if they have not received voting instructions from the beneficial owners.

The Board of Directors recommends a vote FOR approval

of the 2006 Executive Performance Incentive Plan.

AUTHORIZATION OF INCREASED NUMBER OF COMMON SHARES

       The Board of Directors has authorized and recommends that shareholders approve an amendment to Article THIRD of the Corporation’s Restated Certificate of Incorporation (“Restated Certificate”) to increase to 300 million the authorized number of the Corporation’s Common Shares. The text of the proposed amendment is set forth in Appendix B to this Proxy Statement. Article THIRD of the Restated Certificate currently authorizes the issuance of 200 million Common Shares, par value $6.25 per share.

      As of April 7, 2005, 96,893,021 Common Shares were issued and outstanding, and 8,909,193 Common Shares were held in the treasury of the Corporation. The Corporation has reserved 4,166,000 Common Shares for issuance upon conversion of the 6.75% Series A Mandatory Convertible Preferred Shares, which will convert in August 2005, and 1,076,403 Common Shares for issuance upon exercise of outstanding employee stock options. A total of 3,886,752 Common Shares remain available for issuance under existing stock and option plans. As a result, as of April 7, 2005, a total of 106,022,176 Common Shares are issued or otherwise reserved for specific purposes.

      The Board of Directors recommends that shareholders approve the amendment to the Restated Certificate to increase the number of authorized shares of Common Stock from 200 million shares to 300 million shares. This increase will provide additional flexibility for the Corporation to acquire assets or companies, implement stock splits or stock dividends, raise capital, institute employee benefit plans, and pursue other corporate purposes.

      The additional shares would be available for issuance without further shareholder action unless required by the Restated Certificate, applicable law or the rules of any stock exchange upon which the Corporation’s securities may be listed. The New York Stock Exchange, on which the Common Shares are presently listed, currently requires shareholder approval as a prerequisite to listing additional shares in several instances, including certain acquisition transactions and equity compensation plans.

      The availability of the additional shares could discourage or frustrate an attempt to effect a change in control of the Corporation. The additional shares could be used to dilute the stock ownership of a person seeking to obtain control of the Corporation. At present, the Corporation has no agreements, plans or commitments with respect to the sale or issuance of the additional Common Shares which would be authorized by the proposed amendment. The Board of Directors is not aware of any person seeking to obtain control of the Corporation.

      Authorization of the proposed amendment will require the affirmative vote of the holders of a majority of the Common Shares outstanding on the record date for the Annual Meeting. Thus, a shareholder who does not vote at the Annual Meeting will not affect the outcome of the vote, while shareholders who vote to abstain will in effect be voting against approval of the additional shares. Brokers who hold shares of Common Stock as nominees will have discretionary authority to vote such shares if they have not received voting instructions from the beneficial owners by the tenth day before the Annual Meeting, provided that this Proxy Statement is transmitted to the beneficial owners at least fifteen (15) days prior to the Annual Meeting.

The Board of Directors recommends a vote FOR approval

of the amendment to increase the number of authorized Common Shares.

RATIFICATION OF APPOINTMENT OF ACCOUNTANTS

       The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP as its independent registered public accounting firm for the Corporation for the year 2005.

      PricewaterhouseCoopers LLP or a predecessor firm has been the independent accountants for the Corporation since 1915. A representative of PricewaterhouseCoopers LLP will be present at the annual meeting with the opportunity to make a statement if he so desires and to respond to appropriate questions.

The Board of Directors recommends a vote FOR ratification

of the appointment of PricewaterhouseCoopers LLP

as the independent registered public accounting firm for the Corporation in 2005.

OTHER BUSINESS

       The Board of Directors is not aware of any other matters to be presented at the annual meeting. If any other matter proper for action at the meeting should be presented, the holders of the accompanying proxy will vote the shares represented by the proxy on such matter in accordance with their best judgment. If any matter not proper for action at the meeting should be presented, the holders of the proxy will vote against consideration of the matter or the proposed action.

VOTING PROCEDURES

       All shares represented by the accompanying proxy, if the proxy is duly executed and received by the Corporation at or prior to the annual meeting, will be voted at the meeting in accordance with any instructions specified on such proxy. Where no instruction is specified, the shares may be voted according to the printed instructions on the proxy.

      It is the policy of the Corporation that, except under limited circumstances, each shareholder proxy card, ballot and voting tabulation that identifies any shareholder will be kept confidential and that the receipt and tabulation of such votes will be conducted by independent third parties, including the Corporation’s transfer agent and its proxy solicitation firm, and not by employees of the Corporation.

      The cost of soliciting proxies for the meeting will be borne by the Corporation. The Corporation has retained The Proxy Advisory Group of Strategic Stock Surveillance, LLC, 331 Madison Avenue, New York, NY 10017, to assist in soliciting proxies for a fee estimated at $8,500 plus reasonable expenses. Strategic Stock Surveillance and some officers and other employees of the Corporation may solicit proxies in person and by telephone or otherwise. The Corporation may also reimburse brokers and others who are record holders of the Corporation’s shares for their reasonable expenses incurred in obtaining voting instructions from beneficial owners of such shares.

PROPOSALS FOR 2006

       The Corporation will review for inclusion in next year’s proxy statement shareholder proposals received by December 15, 2005. Proposals should be sent to the Assistant General Counsel and Secretary at One North Central Avenue, Phoenix, Arizona 85004.

      Shareholder proposals not included in next year’s proxy statement may be brought before the May 26, 2006 annual meeting of shareholders by a shareholder of the Corporation who is entitled to vote at the meeting, who has given a written notice to the Assistant General Counsel and Secretary of the Corporation containing certain information specified in the By-Laws and who was a shareholder of record at the time such notice was given. Such notice must be delivered to or mailed and received at the One North Central Avenue address in the preceding paragraph no earlier than December 31, 2005 and no later than January 30, 2006, except that if the date of the 2006 annual meeting of shareholders is changed, and the meeting is held before March 31, 2006 or after June 29, 2006, such notice must be delivered or mailed and received at the One North Central Avenue address in the preceding paragraph no earlier than the close of business on the 120th day prior to the new date of such annual meeting and no later than the close of business on the later of (i) the 90th day prior to the new date of such meeting and (ii) the 10th day following the day on which a public announcement of the new date of such annual meeting is first made.

      If a shareholder notifies the Corporation after January 30, 2006 of an intention to present a proposal at the Corporation’s May 27, 2006 annual meeting or, if the date of the 2006 annual meeting is changed and the meeting is held before March 31, 2006 or after June 29, 2006, if a shareholder notifies the Corporation of an intention to present a proposal at such meeting after the close of business on the later of (i) the 90th day prior to the new date of such meeting and (ii) the 10th day following the day on which a public announcement of the new date of such annual meeting is first made, and for any reason any such proposal is voted on at such meeting, the Corporation’s proxy holders will have the right to exercise discretionary voting authority with respect to such proposal.

ANNUAL REPORT FOR 2004

       The annual report of the Corporation for the year 2004, which includes the Corporation’s Annual Report on Form 10-K, is being furnished concurrently with this proxy statement to persons who were shareholders of record as of April 7, 2005, the record date for the annual meeting. These materials do not form part of the material for the solicitation of proxies.

Phoenix, Arizona

April 15, 2005

APPENDIX A

PHELPS DODGE CORPORATION

2006 EXECUTIVE PERFORMANCE INCENTIVE PLAN

ARTICLE I

Purpose of Plan

      Section 1.1.     The purpose of the Phelps Dodge Corporation 2006 Executive Performance Incentive Plan (the “Plan”) is to qualify certain restricted stock awards under the Phelps Dodge 2003 Stock Option and Restricted Stock Plan (the “2003 Plan”) and awards under the Corporation’s annual incentive compensation plan (collectively the “Awards”), as performance based compensation pursuant to section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

ARTICLE II

Administration of the Plan

      Section 2.1.     Subject to the authority and powers of the Board of Directors in relation to the Plan as hereinafter provided, the Plan shall be administered by a Committee designated by the Board of Directors. The Committee will consist of at least two directors, each of whom shall qualify as an “outside director” as defined by Code Section 162(m) and the New York Stock Exchange and a “non-employee director” as defined in Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934. The Committee shall have the power and full authority to interpret the Plan; from time to time to adopt, modify, and rescind such rules and regulations for carrying out the Plan as it may deem appropriate in its sole discretion; to select Participants to participate in the Plan; to grant Awards from the Plan Funding Amount; provided, however, that the Committee may not exercise any authority otherwise granted to it hereunder if such action would have the effect of increasing the amount of an Award to any Covered Officer. All determinations by the Committee shall be made by the affirmative vote of a majority of its members, but any determination reduced to writing and signed by a majority of the members shall be fully as effective as if it had been made by a majority vote at a meeting duly called and held. All decisions by the Committee pursuant to the provisions of the Plan and all orders or resolutions of the Board of Directors pursuant thereto shall be final, conclusive and binding on all persons, including the Participants, the Company and its subsidiaries and their respective equity holders.

ARTICLE III

Eligibility for and Payment of Awards

      Section 3.1.     Subject to the provisions of the Plan, in each Performance Period the Committee may select members of the Company’s Senior Management Team, including those who are deemed to be Covered Officers, to be Participants in the Plan for the applicable Performance Period. Those individuals eligible to participate in the Plan for any given Performance Period will be designated by the Committee no later than the time when 25% of the Performance Period has elapsed and in no event shall this designation take place later than 90 days after the Performance Period has commenced.

      Section 3.2.     After completion of each Performance Period under the Plan, the Committee will certify in writing the amount of the Plan Funding Amount and the amount of the Awards payable to each Participant. As soon as administratively feasible after such certification, each Participant will receive payment in either a cash lump sum or an equivalent equity interest with an award of restricted stock under the 2003 Plan, as determined in the sole discretion of the Committee. In no event shall the awards or payments under this section be made later than 2¹/2 months after the end of the Performance Period for which the Awards are made.

      Section 3.3.     Notwithstanding the provisions of Section 3.2, a Participant may elect to defer payment of all or any portion of an Award payable in cash (a “Cash Award”) as of (i) a date prior to the beginning of the Performance Period for which such Cash Award is to be made or (ii) such other date as may be prescribed by the Committee in compliance with Section 409A of the Code and the rules, regulations and interpretive guidance promulgated thereunder (collectively, “Section 409A”). Any such deferral election shall be made in accordance with procedures established by the Committee and shall be subject at all times to compliance with Section 409A.

      Section 3.4.

      (a) Awards to Participants will be calculated in accordance with this Section 3.4.

      (b) The Plan Funding Amount for each Performance Period will equal 2% of Net Cash Provided by Operating Activities for the applicable Performance Period. The Plan Funding Amount will also include any amount from the Plan Funding Amount for the immediately preceding Performance Period that was not awarded with respect to the immediately preceding Performance Period.

      (c) The Committee shall not make awards that exceed 100% of the amount included in the Plan Funding Amount.

      (d) No later than the date when 25% of the Performance Period has elapsed, and in no event later than 90 days after the Performance Period has commenced, the Committee will designate in writing that portion of the Plan Funding Amount that will be allocated to each Participant (subject to the limitations set forth in Section 3.4(c) above). No Participant shall be allocated more than 40% of the Plan Funding Amount for any Performance Period. The Committee shall have the full discretion to reduce or eliminate any portion of the Plan Funding Amount allocated to any Participant for any or no reason, but the Committee, once an allocation has been made, shall not have the authority to increase any such allocation for any Participant.

      (e) Any provision of the Plan to the contrary notwithstanding, no Covered Officer shall be entitled to any payment of an Award with respect to a Performance Period unless the members of the Committee shall have certified the following: (i) the Participant Share for each Covered Officer; and (ii) the Plan Funding Amount for such year.

      (f) Upon a termination of a Participant’s employment due to death, Disability or Retirement (as such terms are defined in the 2003 Plan), and subject to the Committee’s final award of any such amount, the Participant shall become entitled to payment of an Award in an amount equal to (i) the total value of such Award as of the termination of the Performance Period in which the date of termination occurs multiplied by (ii) a fraction, the numerator of which shall equal the number of days during such Performance Period that the Participant was an employee of the Company or any of its subsidiaries and the denominator of which shall equal 365. Any such payment shall be made in a cash lump sum on the date on which payment would otherwise have been made in accordance with Section 3.2 hereunder. Following such payment, the Participant shall have no further rights, and the Company shall have no further liabilities, in respect of such Award.

      Upon a termination of a Participant’s employment for any reason other than death, Disability or Retirement that occurs prior to the date on which payment would otherwise have been made with respect to any given Performance Period, the Participant shall not be entitled to any payments under the Plan with respect to such Performance Period, unless the Committee determines otherwise in its sole discretion.

ARTICLE IV

General Provisions

      Section 4.1.     A Participant may designate in writing a beneficiary (including the trustee or trustees of a trust) who shall upon the death of such Participant be entitled to receive all amounts which would have been payable hereunder to such Participant. A Participant may rescind or change any such designation at any time. Except as provided in this Section 4.1, none of the amounts which may be payable under the Plan may be assigned or transferred otherwise than by will or by the laws of descent and distribution.

      Section 4.2.     All payments made pursuant to the Plan shall be subject to withholding in respect of income and other taxes required by law to be withheld, in accordance with procedures to be established by the Committee.

      Section 4.3.     The selection of an individual for participation in the Plan shall not give such Participant any right to be retained in the employ of the Company or any of its subsidiaries, and the right of the Company or any such subsidiary to dismiss or discharge any such Participant, or to terminate any arrangement pursuant to which any such Participant provides services to the Company, is specifically reserved. The benefits provided for Participants under the Plan shall be in addition to, and shall in no way preclude, other forms of compensation to or in respect of such Participants.

      Section 4.4.     The Board of Directors and the Committee shall be entitled to rely on the advice of counsel and other experts, including the independent public accountants for the Company. No member of the Board of Directors or of the Committee or any officers of the Company or its subsidiaries shall be liable for any act or failure to act under the Plan, except in circumstances involving bad faith on the part of such member or officer.

      Section 4.5.     Nothing contained in the Plan shall prevent the Company or any subsidiary or affiliate of the Company from adopting or continuing in effect other compensation arrangements, which arrangements may be either generally applicable or applicable only in specific cases.

      Section 4.6.     The Plan shall be construed in accordance with and governed by the applicable laws of the United States of America and, as applicable, the State of New York.

      Section 4.7.     This Plan shall become effective as of the date it is approved by a vote of the Company’s shareholders, and no payments shall be made pursuant to this Plan prior to such date.

      Section 4.8.     Notwithstanding anything contained in this Plan to the contrary, any and all Awards, payments, distributions, deferral elections, transactions and any other actions or arrangements made or entered into pursuant to this Plan shall remain subject at all times to compliance with Section 409A. If the Committee determines in its sole discretion that an Award, payment, distribution, deferral election, transaction or any other action or arrangement contemplated by the provisions of the Plan would, if undertaken, cause a Participant to become subject to Section 409A, such Award, payment, distribution, deferral election, transaction or other action or arrangement shall not be undertaken and the related provisions of the Plan will be deemed modified or, if necessary, rescinded in order to comply with Section 409A.

ARTICLE V

Amendment or Termination of the Plan

      Section 5.1.     The Board of Directors may at any time terminate, in whole or in part, or from time to time amend the Plan, provided that, except as otherwise provided in the Plan, no such amendment or termination shall adversely affect any Awards previously made to a Participant and deferred by such Participant pursuant to Section 3.3. The Board may at any time and from time to time delegate to the Committee any or all of its authority under this Section 5.1.

ARTICLE VI

Definitions

      Section 6.1.     For the purposes of the Plan, the following terms shall have the meanings indicated:

APPENDIX B

AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION

PHELPS DODGE CORPORATION

       Article THIRD of the Restated Certificate of Incorporation of Phelps Dodge Corporation, as in force and effect on the date hereof, will be amended as follows:

Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week

Internet and telephone voting are available through 11:59 PM EST
the day prior to annual meeting day.

Your telephone or Internet vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.

If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.

You can view the Annual Report and Proxy Statement
on the internet at: http://www.phelpsdodge.com

 

PROXY

PHELPS DODGE CORPORATION

Solicited on Behalf of the Board of Directors of Phelps Dodge Corporation

     The undersigned shareholder of PHELPS DODGE CORPORATION hereby appoints Timothy R. Snider and S. David Colton, or any one of them, proxies of the undersigned, each with power of substitution, at the annual meeting of shareholders of the Corporation to be held at the Heard Museum, 2301 North Central Avenue, Phoenix, Arizona, on Friday, May 27, 2005 at 9:00 a.m., MST and at any adjournments thereof, to vote all Common Shares of the Corporation held or owned by the undersigned, including any which may be held for the undersigned’s account under the Phelps Dodge Corporation Common Stock Investor Services Program administered by Mellon Investor Services LLC.

     For those participants who hold accounts with Common Shares through the Phelps Dodge Employee Savings Plan and/or The Phelps Dodge Corporation Supplemental Savings Plan: the undersigned instructs J.P. Morgan Chase Bank as Trustee for the Plans, to vote all shares or fractions of shares credited to the account as of the latest available processing date on or before May 27, 2005, as directed on the reverse side of this proxy. Those shares for which no directions are received will be voted by the Trustee in its sole discretion.

THIS PROXY IS CONTINUED ON THE REVERSE SIDE
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY

You can now access your Phelps Dodge account online.

Access your Phelps Dodge Corporation shareholder/stockholder account online via Investor ServiceDirect ® (ISD).

Mellon Investor Services LLC, Transfer Agent for Phelps Dodge Corporation, now makes it easy and convenient to get current information on your shareholder account.

Visit us on the web at http://www.melloninvestor.com

For Technical Assistance Call 1-877-978-7778 between 9am-7pm
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