Toronto is, together with London, the mining finance capital of the world. That exalted position may come to an end should these mining giants be taken over by a tier two player Phelps Dodge Corp. That sets up an interesting confrontation between the federal government in Ottawa and the Bay Street Boys of Toronto who pull the strings of Inco and Falco management.

In fact, while investment analysts and mining companies around the world will be frothing over the combined 22 pct global share of refined nickel by Inco-Falco, my eyes will be focused on others, such as Vancouver Canada's Teck-Cominco and Zug Switzerland's Xstrata. These are the players in the delivery room claiming dual foster parentship.

Yes, I don't think the Phelps Dodge deal is much more than a stalking horse, and can be dismissed.

The best I can say about the deal on the table today is that traders have a timely opportunity to buy PD shares at a discount. When this deal collapses, PD shares will rocket higher. In time, "Phelps Dodge will become dinner, not diner" as one wag suggested today.

Moreover, I'm interested to see how Teck-Cominco manages to maneuver into the catbird seat, to be favored as the grand acquisitor of both Inco and Falco. That is the scenario Ottawa will want to see, and I believe they will grease the wheels to ensure it. The new head office of Teck-Inco-Falco would be in the financial centre of Toronto.

Xstrata will still play a role, buying up the foreign assets, as I see it. The bottom line is that combining the Sudbury nickel operations of Inco-Falco is the key to this deal, so I can't see Swiss-based Xstrata walking off with a core asset here.

The bottom line then is that the Canadian government will help broker the final deal, and Phelps Dodge will be left to fight its own battles. Canada will emerge with a global mining giant similar to (but still smaller than) Australia's Billiton BHP (BHP), Rio Tinto (RTP) or Brazil's Companhia Vale do Rio Doce (CVRD).

Btw, today I have been referred to as an "investment advisor" by Dow Jones reporter. To be accurate, I am a trading blogger. In time I will make application to Bahamas to establish Cara Global Markets Limited as a broker; but that is just a plan at this point.

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Rob Curran (DOW JONES NEWSWIRES)

NEW YORK (Dow Jones)--Shares of Phelps Dodge Corp. (PD) fell more than 8%
Monday, their steepest drop in 20 months, after the copper miner agreed to buy
Canadian nickel mining concerns Inco Ltd. (N) and Falconbridge Ltd. (FAL) for
premiums that some say will be hard to justify.

Phelps Dodge, of Phoenix, agreed to acquire Inco and Falconbridge for about
$37 billion in cash and stock and will assume about $3 billion in net debt.
Under the deal, which carries a $925 million breakup fee, Phelps Dodge would
pay premiums of about 23% and 19%, respectively, to Inco and Falconbridge's
Friday closing prices.

"Phelps has chosen a 'defensive' tact in which it pays premiums to buy other
companies rather than harvesting a premium from selling out," said Prudential
Equity analyst John Tumazos, who reiterated his underperform rating on the
company's shares.

Shares of Phelps Dodge plunged at the open and ended trading down $6.72, or
8.1%, at $76.23, on volume of 29 million shares, more than four times the daily
average for the stock. The drop was the steepest since a 9.4% plunge Oct. 13,
2004, according to the Wall Street Journal market data group.

Prudential's Tumazos acknowledged the merger carried cost efficiencies, given
joint administration, exploration, purchasing and sharing mining know-how.

Investment advisor Bill Cara said the wisdom of the deal won't be clear
until 2008, when Phelps Dodge indicated it will begin adding to the bottom line.
In the meantime, Cara expects Phelps Dodge to lose 30% of its value.

Inco closed up $5.95, or 10.2%, at $64.21 on volume of 9.8 million shares,
about triple the daily average. Falconbridge recently traded at $51.80, up
$2.50, or 5.1%, on volume of 1.2 million shares, nearly four times the average.

Some months ago, Inco had agreed to buy Falconbridge in a deal worth about
C$50 a share in cash and stock. But other miners sought to intervene. First,
Teck Cominco Ltd. (TEK.A.T) made a roughly $15 billion cash-and-stock bid for
Inco; then Anglo-Swiss giant Xstrata PLC (XTA.LN) offered C$52.50 a share in
cash for Falconbridge. Cara said Xstrata and Teck Cominco may prove to be the
winners, because they haven't overpaid.

"The whole thing is a four-way fight," said Soleil Securities analyst Charles
Bradford. "Inco and Falconbridge had looked like they were going to lose the
fight: Teck Cominco Ltd. (TEK.A.T) was going to take Inco. Xstrata had made a
better bid for Falconbridge. Phelps Dodge trumped both of those. But Xstrata
has got deep pockets, and there's no way of knowing [what will come next.]"

The combined entity, Phelps Dodge Inco would unite Phelps Dodge's specialty
in copper with the Canadian companies operations in nickel, zinc and other
metals.

While commodities such as zinc and copper saw steady runups in price for more
than three years up until May 10, both the metals and the shares of their
producers sold off sharply amid concerns the U.S. Federal Reserve will have to
raise interest rates more aggressively to choke off inflation. Recoveries have
been modest in recent weeks.

Phelps Dodge officials said on a conference call Monday that they made
conservative assumptions about commodity pricing even though they believe
strong supply/demand fundamentals should persist for copper and nickel.

"While we are bullish on the long-term outlook for both nickel and copper, we
were careful not to bet the ranch that commodity prices would remain at current
levels," said Ramiro G. Peru, executive vice president and chief financial
officer of Phelps Dodge. "We have analyzed this transaction on what we feel are
reasonably conservative forward commodity pricing assumptions."

The Phelps Dodge deals, like the $21 billion energy-industry double
acquisition announced by Anadarko Petroleum Corp. (APC) on Friday, pits bears
who find it unwise to buy competitors at the top of the market against bulls
who argue global shifts in demand have strained supplies of resources, putting
prices on a permanently higher track.

"Prices will be stronger for longer," said Robin Bhar, a UBS analyst in
London, because "buoyant demand" from rapidly emerging economies like China and
India and continued growth in Europe, the U.S. and Japan will continue to run
up against the investment "famine" in supply over the last 10-15 years.

"Even if you think prices will correct, they won't correct back to prices we
saw at the beginning of the century," Bhar said.

-By Rob Curran, Dow Jones Newswires; 201-938-5176; robert.curran@dowjones.com

(END) Dow Jones Newswires 06-27-06 0733ET

Copyright (c) 2006 Dow Jones & Company, Inc. 07:33 062706

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