ASARCO INC, PREC14A, 1999-08-27

ASARCO INC
PREC14A, 1999-08-27
PRIMARY SMELTING & REFINING OF NONFERROUS METALS

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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

Filed by the Registrant [ ]

Filed by a Party other than the Registrant [X]

Check the appropriate box:

<TABLE>
<S> <C>
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>

ASARCO INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

PHELPS DODGE CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)1 and 0-11.

(1) Title of each class of securities to which transaction applies:

------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:

------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

------------------------------------------------------------------------

(5) Total fee paid:

------------------------------------------------------------------------

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

------------------------------------------------------------------------

(2) Form, Schedule or Registration Statement No.:

------------------------------------------------------------------------

(3) Filing Party:

------------------------------------------------------------------------

(4) Date Filed:

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<PAGE> 2

PRELIMINARY COPY--SUBJECT TO COMPLETION, DATED AUGUST 27, 1999

[PHELPS DODGE CORPORATION LOGO]

[ ], 1999

Dear Asarco Shareholder:

As you probably know, Phelps Dodge Corporation has announced its intention
to make an exchange offer for the outstanding common stock of ASARCO
Incorporated ("Asarco") and Cyprus Amax Minerals Company ("Cyprus Amax"). Our
offer would provide significant premiums to the shareholders of Asarco and
Cyprus Amax, provide a substantial dividend increase and create a more
cost-effective global copper producer with the operating expertise, broad
resource base and financial strength to better serve the interests of all three
companies' employees, customers and communities. Despite the higher market value
of the Phelps Dodge offer, Asarco and Cyprus Amax have refused to meet with us
to discuss this proposed three-way combination. Asarco and Cyprus Amax are
instead soliciting proxies from their shareholders to approve the proposed
no-premium Asarco/Cyprus Amax merger at meetings scheduled to be held on
September 30, 1999.

TO PRESERVE YOUR OPPORTUNITY TO CONSIDER THE FINANCIALLY SUPERIOR PHELPS DODGE
OFFER,
DO NOT RETURN ANY ASARCO PROXY CARD. WE WILL SEND YOU A PROXY CARD
TO VOTE AGAINST THE PROPOSED ASARCO/CYPRUS AMAX MERGER SOON.

Under the Phelps Dodge offer, you would receive:

- A SIGNIFICANT PREMIUM FOR YOUR SHARES. Asarco shareholders would receive
0.4098 of a share of Phelps Dodge common stock for each share of Asarco
common stock. This represents a significant premium for Asarco
shareholders based on market prices of Phelps Dodge and Asarco common
stock before our proposal was first publicly announced. This sizeable
premium in effect represents an up-front payment to you for the
substantial cost savings we expect to achieve.

- A SUBSTANTIAL INCREASE IN DIVIDENDS. Phelps Dodge intends to continue
its current annual cash dividend of $2.00 per share. This would provide a
substantial dividend increase to shareholders of both Asarco and Cyprus
Amax -- equal to 4.1 times the dividend they would receive in the
proposed Asarco/Cyprus Amax merger.

- GREATER UPSIDE POTENTIAL. Asarco shareholders will enjoy an opportunity
to participate in the greater upside potential resulting from our
proposed combination through ownership of Phelps Dodge common stock,
which has generated substantially better shareholder returns than Asarco
and Cyprus Amax over the past 2, 3, 5, 10 and 15-year periods.

IF THE ASARCO/CYPRUS AMAX MERGER IS APPROVED, YOU WILL NOT HAVE THE
OPPORTUNITY TO ACCEPT THE FINANCIALLY SUPERIOR PHELPS DODGE OFFER.
<PAGE> 3

Phelps Dodge has conditioned its offer upon the rejection of the proposed
Asarco/ Cyprus Amax merger. Our offer -- and our premium price -- is based on
the benefits of integrating all three companies now, not on the chance of a
combination at some unknown future date. Accordingly, a vote by you and your
fellow shareholders AGAINST the proposed Asarco/Cyprus Amax merger is an
important step in ensuring the success of the Phelps Dodge offer. We urge you to
send a strong message to your directors that they should take all necessary
steps to remove all obstacles to the Phelps Dodge offer and give Asarco
shareholders an opportunity to decide for themselves whether the Phelps Dodge
offer is in their best interests.

THE PHELPS DODGE OFFER CREATES SUPERIOR VALUE

In addition to the substantial immediate financial benefits to Asarco
shareholders, our proposed combination of Phelps Dodge, Asarco and Cyprus Amax
presents a unique opportunity to create a large, resource-rich portfolio of
lower-cost global copper assets with enhanced flexibility to excel in all
business cycles. We believe that this three-way combination will provide
superior value creation opportunities, on an ongoing basis, for the shareholders
of all three companies.

We believe that your ability to participate in this value creation, through
your ownership of Phelps Dodge common stock, is an important element of our
offer. Over the past several years, Phelps Dodge's stock price has significantly
outperformed the stock prices of Asarco and Cyprus Amax. While we cannot make
promises about future returns, we believe that our performance record indicates
that we are best equipped to extract value out of the Asarco and Cyprus Amax
assets.

In an effort to provide you -- the owners of Asarco -- an opportunity to
maximize the value of your investment in Asarco, Phelps Dodge intends to
commence an exchange offer for each outstanding share of common stock of Asarco
in exchange for common stock of Phelps Dodge in a tax-free transaction. Enclosed
is a copy of the Phelps Dodge Preliminary Prospectus filed with the Securities
and Exchange Commission on August 27, 1999 which sets forth the terms and
conditions of the Phelps Dodge offer.

IF YOU WANT TO ACCEPT THE PHELPS DODGE OFFER, DO NOT RETURN ANY ASARCO
PROXY CARD. WE WILL SEND YOU A PROXY CARD TO VOTE AGAINST THE PROPOSED
ASARCO/CYPRUS AMAX MERGER SOON. YOUR VOTE AGAINST THE PROPOSED ASARCO/CYPRUS
AMAX MERGER WILL NOT OBLIGATE YOU TO ACCEPT, OR TO EXCHANGE YOUR ASARCO COMMON
SHARES PURSUANT TO, THE PHELPS DODGE OFFER.

IF YOU HAVE ALREADY VOTED FOR THE PROPOSED ASARCO/CYPRUS AMAX MERGER, IT'S
NOT TOO LATE TO CHANGE YOUR VOTE BY SIMPLY SIGNING, DATING AND RETURNING THE
[COLOR] PROXY CARD THAT WE WILL BE SENDING YOU SOON.

We will soon be mailing to you Phelps Dodge definitive proxy materials and
a proxy card as well as additional information as to why you should vote AGAINST
the proposed Asarco/Cyprus Amax merger.

Until you receive our information, we urge you not to return any [COLOR]
proxy card sent to you regarding the proposed Asarco/Cyprus Amax merger.
<PAGE> 4

Thank you for your consideration and support.

Sincerely,

/s/ Douglas C. Yearley
--------------------------------------
Douglas C. Yearley
Chairman and Chief Executive Officer

THE PHELPS DODGE PROXY STATEMENT RELATES SOLELY TO THE SOLICITATION OF
PROXIES WITH RESPECT TO THE PROPOSED ASARCO/CYPRUS AMAX MERGER AND IS NEITHER A
REQUEST FOR THE TENDER OF SHARES OF ASARCO COMMON STOCK NOR AN OFFER TO SELL
SHARES OF PHELPS DODGE STOCK. THE PHELPS DODGE OFFER WILL BE MADE ONLY BY MEANS
OF A FINAL PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL WHICH WILL BE MAILED
TO YOU SEPARATELY.
<PAGE> 5

IMPORTANT VOTING INFORMATION

Only Asarco Shareholders of record on August 25, 1999 are entitled to vote.

1. If your shares are held in your own name, please sign, date and
return the enclosed [COLOR] proxy card in the postage-paid envelope
provided with this letter. If your shares are held in the name of a
brokerage firm, bank or other institution, please sign, date and return the
[COLOR] proxy card to such brokerage firm, bank or other institution in the
envelope provided by that firm.

2. Please be sure your latest dated proxy is a [COLOR] card voting
AGAINST the approval and adoption of the Asarco/Cyprus Amax merger.

3. If you have already voted for the proposed Asarco/Cyprus Amax
transaction on Asarco's [WHITE] proxy card, it is not too late to change
your vote -- simply sign, date and return the [COLOR] proxy card. Only your
latest dated proxy will be counted.

If you have any questions or require any assistance in voting your shares,
please contact:

INNISFREE M&A INCORPORATED
501 Madison Avenue, 20th Floor
New York, New York 10022

CALL TOLL-FREE: 1-877-750-5838
Bankers and Brokers Call Collect: (212) 750-5833
<PAGE> 6

PRELIMINARY COPY -- SUBJECT TO COMPLETION, DATED AUGUST 27, 1999

SPECIAL MEETING OF SHAREHOLDERS
OF
ASARCO INCORPORATED

-------------------------

RELATING TO THE PROPOSED ASARCO/CYPRUS AMAX MERGER

-------------------------

PROXY STATEMENT
OF
PHELPS DODGE CORPORATION

This Proxy Statement is furnished by Phelps Dodge Corporation, a New York
corporation ("Phelps Dodge"), in connection with its solicitation of proxies to
be voted at the special meeting of shareholders of ASARCO Incorporated
("Asarco") to be held on September 30, 1999 at the New York Information
Technology Center, 55 Broad Street, 4th Floor, New York, New York, at 10:00 a.m.
local time, and at any adjournments, postponements or reschedulings thereof (the
"Special Meeting"). This Proxy Statement is first being mailed to Asarco
Shareholders (as defined below) on or about [ ], 1999.

On August 11, 1999, in a letter to Mr. Francis R. McAllister, Chairman of
the Board and Chief Executive Officer of Asarco, and Milton H. Ward, Chairman,
Chief Executive Officer and President of Cyprus Amax, Phelps Dodge proposed a
three-way combination of Phelps Dodge, Asarco and Cyprus Amax that it believed
to be financially superior to the proposed Asarco/Cyprus Amax Merger. Following
the immediate refusal by Messrs. McAllister and Ward to even discuss this
proposal, on August 12, 1999, Phelps Dodge sent a written proposal detailing the
three-way combination to the board of directors of each company and requesting a
response by the close of business on Friday, August 20, 1999. See "Background of
the Solicitation -- The August 12 Proposal and Related Communications" below.

On August 20, 1999, Asarco and Cyprus Amax filed a joint proxy statement/
prospectus in connection with the proposed Asarco/Cyprus Amax Merger, and for
the first time disclosed the terms of their merger agreement. In addition,
Asarco and Cyprus Amax issued a press release announcing that they had set
August 25, 1999 as the record date for determining shareholders entitled to vote
at the shareholder meetings, scheduled for September 30, 1999, to consider
approval of their proposed merger. Asarco and Cyprus Amax also disclosed Phelps
Dodge's August 12, 1999 proposal and announced that they were rejecting it.

During the afternoon of August 20, 1999, Phelps Dodge issued a press
release announcing its revised proposal to acquire Asarco and Cyprus Amax which
offered a higher premium to the Asarco and Cyprus Amax shareholders than the
August 12, 1999
<PAGE> 7

proposal. Phelps Dodge also delivered a letter to the Asarco and Cyprus Amax
boards of directors summarizing the higher premium proposal and asking to meet
with the management of Asarco and Cyprus Amax. On August 25, 1999, Asarco and
Cyprus Amax sent a letter to Phelps Dodge stating that they were prepared to
negotiate a three-way transaction if such transaction included exchange ratios
of 0.4055 shares of Phelps Dodge common stock for each Cyprus Amax share and
0.5300 shares of Phelps Dodge common stock for each Asarco share, and met a
number of other conditions.

On August 27, 1999, Phelps Dodge publicly announced its intention to
commence an offer (the "Offer") to exchange shares of common stock, par value
$6.25 per share, of Phelps Dodge (the "Phelps Dodge Common Stock") for each
issued and outstanding share of common stock, without par value, of Asarco
(each, a "Share"). Pursuant to the Offer, each Share will be exchanged for
0.4098 of a share of Phelps Dodge Common Stock. Phelps Dodge intends, as soon as
practicable after consummation of the Offer, to acquire the remaining Shares
pursuant to a merger with Asarco (the "Merger") in which each outstanding Share
not acquired by Phelps Dodge pursuant to the Offer would be converted into the
right to receive 0.4098 of a share of Phelps Dodge Common Stock. The Offer will
be made solely pursuant to a final prospectus filed with the Securities and
Exchange Commission (the "Commission") by Phelps Dodge (the "Phelps Dodge Final
Prospectus") and the related Letter of Transmittal which will be mailed
separately to Asarco Shareholders.

THIS PROXY STATEMENT IS NEITHER A REQUEST FOR THE TENDER OF SHARES NOR AN
OFFER WITH RESPECT THERETO. THE OFFER WILL BE MADE ONLY BY MEANS OF THE PHELPS
DODGE FINAL PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL WHICH WILL BE
SEPARATELY MAILED TO YOU.

Completion of the Offer and consummation of the Merger is subject to
various conditions, including a condition that the Asarco/Cyprus Amax Merger is
rejected. Asarco Shareholders should read the enclosed copy of the preliminary
prospectus of Phelps Dodge, dated August 27, 1999 (the "Phelps Dodge Preliminary
Prospectus"), which sets forth in detail the terms and conditions of the Offer
and the Merger.

With the cooperation of Asarco, Phelps Dodge believes that the Offer and
the Merger could be completed early in the fourth quarter of 1999. Phelps Dodge
believes that it will be able to obtain all necessary regulatory approvals for
the Offer on a timely basis. Consequently, the proposed Asarco/Cyprus Amax
Merger offers no significant timing advantage over the Offer and the Merger. For
a complete description of the conditions of the Offer and the Merger, see "The
Offer -- Conditions of the Offer" in the enclosed Phelps Dodge Preliminary
Prospectus.

At the Special Meeting, Asarco Shareholders of record at the close of
business on August 25, 1999 (the "Record Date") will be voting on whether to
approve and adopt, among other things, the Agreement and Plan of Merger, dated
as of July 15, 1999 (the "Asarco/Cyprus Amax Merger Agreement"), by and among
Asarco, Cyprus Amax, Asarco Cyprus Incorporated, a newly-formed Delaware
corporation ("Asarco Cyprus Incorporated"), and two subsidiaries of Asarco
Cyprus Incorporated, providing for the merger of those subsidiaries with and
into Asarco and Cyprus Amax, respectively, with Asarco and Cyprus Amax each
surviving (the "Asarco/Cyprus Amax Merger"). Under the terms of the
Asarco/Cyprus Amax Merger Agreement, (i) each share of common stock of Asarco
would be converted into one share of common stock of Asarco Cyprus

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Incorporated ("Asarco Cyprus Incorporated Common Stock"), (ii) each share of
common stock of Cyprus Amax (the "Cyprus Amax Shares") would be converted into
0.765 shares of Asarco Cyprus Incorporated Common Stock, and (iii) each
outstanding share of Cyprus Amax Series A convertible preferred stock would be
converted into one share of Series A convertible preferred stock of Asarco
Cyprus Incorporated (the "Asarco Cyprus Incorporated Preferred Stock").

PHELPS DODGE URGES YOU TO VOTE AGAINST THE PROPOSED ASARCO/CYPRUS AMAX
MERGER. THIS WILL PRESERVE YOUR OPPORTUNITY TO ACCEPT THE PHELPS DODGE OFFER,
WHICH PHELPS DODGE BELIEVES IS FINANCIALLY SUPERIOR TO THE PROPOSED
ASARCO/CYPRUS AMAX MERGER.

The Asarco directors have rejected our August 12 proposal and our higher
premium August 20 proposal, have refused to meet with us and accordingly have
prevented the Asarco Shareholders from realizing the benefits of our proposal.
Instead, the Asarco board of directors has remained intent on pursuing the
proposed Asarco/Cyprus Amax Merger even though such transaction offers Asarco
Shareholders significantly less value and far lower dividends. See "Comparison
of the Proposals" below.

Asarco Shareholders will lose the benefits of the Offer if they approve the
proposed Asarco/Cyprus Amax Merger. Thus, Phelps Dodge urges you to vote against
the approval and adoption of the Asarco/Cyprus Amax Merger. If you wish to
preserve your opportunity to accept the Offer, which Phelps Dodge believes is
financially superior to the proposed Asarco/Cyprus Amax Merger, we urge you to
vote AGAINST the proposed Asarco/Cyprus Amax Merger. If the Asarco Shareholders
do not adopt and approve the proposed Asarco/Cyprus Amax Merger, Phelps Dodge
believes the Asarco directors should respect your vote and take all necessary
action in accordance with their fiduciary duties to allow the Offer to proceed.

IF YOU WANT TO HAVE AN OPPORTUNITY TO CONSIDER AND ACCEPT THE PHELPS DODGE
OFFER, VOTE AGAINST THE APPROVAL AND ADOPTION OF THE PROPOSED ASARCO/CYPRUS AMAX
MERGER BY SIGNING, DATING AND RETURNING THE ENCLOSED [COLOR] PROXY CARD TODAY.

-------------------------

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IMPORTANT

REJECTION OF THE PROPOSED ASARCO/CYPRUS AMAX MERGER BY THE ASARCO
SHAREHOLDERS WILL SATISFY ONE OF THE CONDITIONS OF THE PHELPS DODGE OFFER. IF
YOU WANT TO ACCEPT THE PHELPS DODGE OFFER, WE URGE YOU TO PROMPTLY SIGN, DATE
AND MAIL THE ENCLOSED [COLOR] PROXY TO VOTE AGAINST THE APPROVAL AND ADOPTION OF
THE ASARCO/CYPRUS AMAX MERGER.

REJECTION OF THE PROPOSED ASARCO/CYPRUS AMAX MERGER WILL BE AN IMPORTANT
STEP IN SECURING THE SUCCESS OF THE PHELPS DODGE OFFER.

IF YOU HAVE ALREADY SENT A PROXY TO THE ASARCO BOARD OF DIRECTORS, IT IS
NOT TOO LATE TO CHANGE YOUR VOTE. YOU MAY REVOKE THAT PROXY AND VOTE AGAINST THE
APPROVAL AND ADOPTION OF THE ASARCO/CYPRUS AMAX MERGER BY SIGNING, DATING AND
MAILING THE ENCLOSED [COLOR] PROXY.

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<PAGE> 10

REASONS TO VOTE AGAINST THE PROPOSED ASARCO/CYPRUS AMAX MERGER

Here's why you should vote AGAINST the approval and adoption of the
proposed Asarco/Cyprus Amax Merger:

Phelps Dodge believes that the Offer is financially superior for the Asarco
Shareholders than either Asarco remaining independent or Asarco completing the
proposed Asarco/Cyprus Amax Merger. A summary description of certain terms of
the proposed Asarco/Cyprus Amax Merger appears under "Background of the
Solicitation -- The Asarco/Cyprus Amax Merger."

Advantages of the Offer and the Merger, as compared to the proposed
Asarco/Cyprus Amax Merger, include, among others:

- A SIGNIFICANT PREMIUM FOR YOUR SHARES. Asarco Shareholders would receive
0.4098 of a share of Phelps Dodge common stock for each share of Asarco
common stock. This represents a significant premium for Asarco
Shareholders based on market prices of Phelps Dodge and Asarco common
stock before our proposal was first publicly announced. This sizeable
premium in effect represents an up-front payment to you for the
substantial cost savings we expect to achieve.

- A SUBSTANTIAL INCREASE IN DIVIDENDS. Phelps Dodge intends to continue its
current annual cash dividend of $2.00 per share. This would provide a
substantial dividend increase to shareholders of both Asarco and Cyprus
Amax -- equal to 4.1 times the dividend Asarco Shareholders would receive
in the proposed Asarco/Cyprus Amax Merger.

- GREATER UPSIDE POTENTIAL. Asarco Shareholders will enjoy an opportunity
to participate in the greater upside potential resulting from our
proposed combination through ownership of Phelps Dodge common stock,
which has generated substantially better shareholder returns than Asarco
and Cyprus Amax over the past 2, 3, 5, 10 and 15-year periods.

A VOTE AGAINST THE ASARCO/CYPRUS AMAX MERGER AGREEMENT WILL SATISFY ONE OF
THE CONDITIONS OF THE PHELPS DODGE OFFER.

One condition of the Offer is that (i) the Asarco Shareholders have voted
not to approve the Asarco/Cyprus Amax Merger, (ii) that the Asarco Shareholders
have not voted on the Asarco/Cyprus Amax Merger and, if a record date for such a
vote is in effect, Phelps Dodge is satisfied, in its sole discretion, that it
will have full voting rights as of such record date with respect to all Shares
purchased by it pursuant to the Offer, or (iii) the Asarco/Cyprus Amax Merger
Agreement is otherwise terminated. If the Asarco/ Cyprus Amax Merger is rejected
by Asarco Shareholders at the Special Meeting this condition will be satisfied.
Thus, a vote against the approval and adoption of the Asarco/ Cyprus Amax Merger
moves all Asarco Shareholders closer to being able to benefit from the Offer.

A VOTE AGAINST THE ASARCO/CYPRUS AMAX MERGER AGREEMENT SENDS A STRONG
MESSAGE TO THE ASARCO DIRECTORS THAT YOU WANT TO PRESERVE YOUR OPPORTUNITY TO
ACCEPT THE OFFER, WHICH PHELPS DODGE BELIEVES IS FINANCIALLY SUPERIOR TO THE
PROPOSED ASARCO/CYPRUS AMAX MERGER.

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TO HELP OBTAIN THE MAXIMUM VALUE FOR YOUR SHARES, RETURN YOUR [COLOR] PROXY
AGAINST THE APPROVAL OF THE ASARCO/CYPRUS AMAX MERGER AGREEMENT.

WE URGE YOU TO SEND THE ASARCO DIRECTORS A CLEAR MESSAGE THAT THEY SHOULD
TAKE ALL NECESSARY STEPS TO REMOVE ALL OBSTACLES TO THE OFFER.

Failure to vote against the approval of the proposed Asarco/Cyprus Amax
Merger will not prevent you from tendering your Shares in the Offer, and a vote
against the approval of the proposed Asarco/Cyprus Amax Merger will not obligate
you to tender your Shares in the Offer. However, your vote against the proposed
Asarco/Cyprus Amax Merger Agreement will help preserve your opportunity to
accept the Offer.

BACKGROUND OF THE SOLICITATION

INITIAL CONTACT

In the autumn of 1996, Douglas C. Yearley, Chairman and CEO of Phelps
Dodge, had an informal conversation with Richard de J. Osborne, then Chairman,
Chief Executive Officer and President of Asarco, regarding a possible
combination of the two companies. Mr. Osborne declined to hold discussions on
this subject.

On July 15, 1999, Asarco and Cyprus Amax announced that they had agreed to
combine their companies into a new company to be called "Asarco Cyprus
Incorporated." According to the press release issued by Asarco and Cyprus Amax,
Cyprus Amax shareholders would receive 0.765 shares of the combined company for
each of their Cyprus Amax shares, while Asarco Shareholders would receive one
share of the combined company for each of their Asarco shares. The combined
company would also have an initial dividend rate of $0.05 per share per quarter,
or $0.20 annually. The transaction was approved by the Boards of Directors of
Asarco and Cyprus Amax, but remains subject to regulatory approvals and
shareholder approvals.

On August 10, 1999, Mr. Yearley telephoned Milton H. Ward, Cyprus Amax's
Chairman, Chief Executive Officer and President, and Francis R. McAllister,
Asarco's Chairman and Chief Executive Officer, to propose a meeting to discuss
the possibility of a three-way combination involving Phelps Dodge, Asarco and
Cyprus Amax. Shortly thereafter, Messrs. Ward and McAllister sent the following
letter to Mr. Yearley:

August 10, 1999

Douglas C. Yearley
Chairman, President and
Chief Executive Officer
Phelps Dodge Corporation
2600 North Central Avenue -- 16th Floor
Phoenix, AZ 85004-3014

Dear Doug:

We have discussed your request to meet with us jointly. We would like to
advise you that Cyprus Amax and Asarco are pursuing a combination under a Merger

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Agreement dated July 15, 1999. Under the terms of that Agreement we are not at
liberty to have a discussion of the nature you were suggesting earlier today.

Best regards,

<TABLE>
<S> <C>
/s/ MILTON H. WARD /s/ FRANCIS R. MCALLISTER
- --------------------------------------- ---------------------------------------------
Milton H. Ward Francis R. McAllister
Chairman, Chief Executive Chairman and Chief Executive Officer
Officer and President ASARCO Incorporated
Cyprus Amax Minerals Company
</TABLE>

On August 11, 1999, during the late afternoon, Mr. Yearley and J. Steven
Whisler, Phelps Dodge's President and Chief Operating Officer, sent the
following letter to Messrs. McAllister and Ward:

[LETTERHEAD OF PHELPS DODGE CORPORATION]

August 11, 1999

Francis R. McAllister
Chairman and Chief Executive Officer
ASARCO Incorporated
180 Maiden Lane
New York, NY 10038

Milton H. Ward
Chairman, Chief Executive Officer and President
Cyprus Amax Minerals
9100 East Mineral Circle
Englewood, CO 80112

Dear Frank and Milt:

We are disappointed that you have declined to meet with us. As you know
from our telephone conversations, we have considered your pending business
combination and would like to discuss with you our proposal, described in more
detail below, to combine all three of our companies in a negotiated transaction.

We believe that a three-way combination of Phelps Dodge, Asarco and Cyprus
Amax would create superior shareholder value for the shareholders of Asarco and
Cyprus Amax. A three-way combination, by creating a lower-cost global
competitor, would also benefit the employees and customers of all three
companies. For these reasons, we are approaching you to discuss the concept of a
three-way combination.

We propose that all of the outstanding common stock of both Asarco and
Cyprus Amax be exchanged for Phelps Dodge common stock. The transaction would be
tax-free to your shareholders.

A combination of these businesses would result in cost savings well in
excess of the amounts you have indicated to be achievable through your pending
merger. Preliminarily we estimate that the annual cash cost savings reach at
least $150 million.

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<PAGE> 13

We propose to reward your shareholders for these substantial incremental
benefits by offering your shareholders an exchange ratio of 0.3756 Phelps Dodge
common shares for each Asarco common share and 0.2874 Phelps Dodge common shares
for each Cyprus Amax common share. These exchange ratios preserve the relative
economics of your proposed combination and imply premiums of approximately 25%
based on current market prices for Asarco and Cyprus Amax.

We believe this proposal creates superior value for your shareholders based
on:

- the sizeable premium we are offering which, in effect, represents
up-front payment to your shareholders for the substantial cost savings we
expect to achieve;

- their opportunity to participate in the ongoing value creation of the
combined company; and

- our planned continuation of the current $2.00 per share Phelps Dodge
common stock dividend resulting in substantial dividend increases for
both Asarco and Cyprus Amax shareholders to 3.76 times the level
contemplated in your pending merger.

Our preference is for a combination of all three companies, which would of
course involve the consent of both Asarco and Cyprus Amax to a modification of
your existing agreement.

Since your merger agreement has not been publicly filed, we have not had
the opportunity to review its terms. Based on your August 10, 1999 letter, it is
unclear to us whether discussions may proceed once you receive a written
proposal such as this letter. In any event, if necessary under your merger
agreement, we request that you grant one another waivers to allow meetings with
us on our proposal which, as discussed below, would be far more favorable to
your shareholders than your proposed merger.

We are confident that the market reaction to a three-way combination would
be positive. In particular we believe the market would recognize:

- the significantly stronger ability of the combined company, relative to
the Asarco/Cyprus Amax combination, to integrate southwest U.S. mining
operations, administrative functions in Chile and Peru and world-wide
exploration and development activities;

- the financial strength of the combined company and ability to create a
world class portfolio of cost competitive mining assets;

- a strong and deep management team, at both the operating and corporate
levels, with strong credibility in the marketplace;

- the ability to eliminate substantial overhead, exploration, purchasing
and other expenses through the consolidation;

- the tremendous operating leverage of the combined company, together with
enough diversity in other businesses to mitigate cyclical downturns;

- the ability of the combined company to reduce capital expenditures;

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<PAGE> 14

- a strong, liquid balance sheet, with excellent access to capital; and

- how all of these factors would build greater shareholder value, on an
ongoing basis, for the shareholders of all three companies.

This is intended to be a confidential proposal which is subject to the
execution of a definitive merger agreement and receipt of customary approvals,
including approval by our respective Boards of Directors and shareholders. We
have conducted in-depth analyses of the proposed three-way combination from a
regulatory perspective and have concluded that it will be possible to obtain the
necessary approvals on a timely basis.

We believe that our proposal is substantially more attractive to your
shareholders than your pending merger. In addition to the sizeable premium we
are offering, your shareholders would participate, through their ongoing Phelps
Dodge common stock ownership, in a larger enterprise with greater realizable
cost savings and synergies, a stronger portfolio of cost competitive assets and
a deep management team with a strong operating record. We have no doubt that
your shareholders will enthusiastically embrace our proposal once they learn of
it.

We have discussed this proposal with our Board, which fully supports it. We
are confident of our ability, with your cooperation, to complete this
transaction as quickly as your proposed two-party Asarco/Cyprus Amax merger.

We are firmly committed to moving forward quickly to consummate this
transaction. As we mentioned, we would be happy to meet with you in New York or
another mutually convenient location to amplify our proposal. In any event, we
would appreciate a response by 5:00 p.m., New York time, on Wednesday, August
18, 1999.

Sincerely,

<TABLE>
<S> <C>
/s/ DOUGLAS C. YEARLEY /s/ J. STEVEN WHISLER
- --------------------------------------------- ---------------------------------------------
Douglas C. Yearley J. Steven Whisler
Chairman and Chief Executive Officer President and Chief Operating Officer
</TABLE>

9
<PAGE> 15

THE AUGUST 12 PROPOSAL AND RELATED COMMUNICATIONS

On the morning of August 12, 1999, Messrs. McAllister and Ward telephoned
Mr. Yearley and once again refused to meet to discuss Phelps Dodge's proposal.
That afternoon, Phelps Dodge sent the following letter to the board of directors
of Asarco (and sent a substantially similar letter to the board of directors of
Cyprus Amax):

[LETTERHEAD OF PHELPS DODGE CORPORATION]

August 12, 1999

Board of Directors of ASARCO Incorporated
c/o Francis R. McAllister
Chairman and Chief Executive officer
ASARCO Incorporated
180 Maiden Lane
New York, NY 10038

Gentlemen:

We would like to engage in discussions on our proposal to combine Asarco,
Cyprus Amax and Phelps Dodge in a negotiated transaction. Our proposal,
described in more detail in the attached correspondence, is far better for the
shareholders of your company than your pending merger with Cyprus Amax because
of:

- the sizeable premium we are offering which, in effect, represents an
up-front payment to your shareholders for the substantial cost savings we
expect to achieve;

- our planned continuation of the current $2.00 per share Phelps Dodge
common stock dividend resulting in a substantial dividend increase for
Asarco shareholders to more than three times the level contemplated in
your pending merger; and

- their opportunity to participate in the ongoing value creation of the
combined company through the ownership of Phelps Dodge common stock.

In our attached letter of August 11, we proposed specific exchange ratios
of Phelps Dodge shares for Asarco and Cyprus Amax shares. Based on the August 11
closing price of Phelps Dodge, Asarco and Cyprus Amax shares, these ratios
implies premiums of approximately 25% for each of Asarco and Cyprus Amax and
preserved the relative economics of your proposed combination with Cyprus Amax.
We would reiterate our intention on the basis of the current levels of Phelps
Dodge, Asarco and Cyprus Amax share prices to pay premiums of approximately 25%
for Asarco and Cyprus Amax.

10
<PAGE> 16

Cyprus Amax, respectively. Similarly, over the past five years, Phelps Dodge's
total return has been 20% as compared to -27% for Asarco and -40% for Cyprus
Amax. We are very proud of this strong management and operational track record
over a difficult copper environment.

Thus far, however, your management has refused to listen to, or consider,
our proposal.

On Tuesday afternoon, August 10, 1999, following a meeting of our board of
directors, we spoke by telephone with Messrs. McAllister and Ward to request a
meeting to discuss our proposal. Just a few hours later, we received from them
the attached letter, dated August 10, 1999, advising that under the terms of a
non-public July 15, 1999 Merger Agreement they were "not at liberty" to have
such a discussion.

Since Messrs. McAllister and Ward refused to meet with us, late yesterday
we sent them the enclosed August 11 letter laying out the basic terms of our
proposal and again requesting a meeting.

This morning we received a telephone call from Messrs. McAllister and Ward
again refusing to discuss our proposal.

Although it would have been our preference to communicate through your CEO,
his adamant refusal to meet with us, or even to give our written proposal any
serious consideration, has required that we communicate with you directly. Since
you and Cyprus Amax are the only parties to your merger agreement, and may amend
it or waive its provisions at any time, for management of the two companies to
state that their own agreement prevents such discussions seems a particularly
weak basis for their refusal even to meet with us.

We are making a similar proposal to Cyprus Amax. Our willingness to enter
into discussions with each of you is not conditioned on the participation of the
other (assuming this is consistent with any applicable binding contracts).

We are resolute in our determination to complete this transaction with both
companies. We are confident that your shareholders will recognize the superior
benefits of our proposal, and will accept nothing less.

We still strongly prefer to consummate this transaction on a mutually
satisfactory, negotiated basis. Accordingly, we do not plan to disclose our
proposal publicly at this time. Because of the importance of this matter to your
shareholders, we request that you make a commitment, by 5:00 p.m. Friday, August
20, 1999, to meet with us promptly to commence serious negotiations.

Sincerely,

11
<PAGE> 17

THE AUGUST 20 REJECTION AND REVISED PROPOSAL

On August 20, 1999, Asarco and Cyprus Amax filed a joint proxy
statement/prospectus in connection with their proposed merger, and for the first
time publicly disclosed the terms of their merger agreement. In addition, Asarco
and Cyprus Amax issued a press release announcing that they had set August 25,
1999 as the record date for determining shareholders entitled to vote at the
shareholder meetings, scheduled for September 30, 1999, to consider approval of
their proposed merger. Asarco and Cyprus Amax also disclosed Phelps Dodge's
proposal for a three-way business combination and announced that they were
rejecting it. Asarco and Cyprus Amax also revised upward their estimates of
synergies resulting from their proposed two-party merger.

Also on August 20, 1999, Asarco and Cyprus Amax sent the following letter
to Phelps Dodge:

August 20, 1999

Mr. Douglas C. Yearley
Chairman, President and
Chief Executive Officer
Phelps Dodge Corporation
2600 North Central Avenue
Phoenix, AZ 85004-3050

Dear Doug:

We have tried to reach you this morning to convey the response of our
respective Boards and to share with you the attached press release.

Each of our companies has convened its Boards and received thorough
presentations from financial and legal advisors. After full consideration of
your proposal, each Board unanimously decided that it was in the best interests
of its shareholders to pursue the Asarco Cyprus merger. That is what we intend
to do.

<TABLE>
<S> <C>
Sincerely,
/s/ Francis R. McAllister /s/ Milton H. Ward
- -------------------------------------- --------------------------------------
Francis R. McAllister Milton H. Ward
Chairman and Chief Chairman, Chief Executive
Executive Officer Officer and President
Asarco Incorporated Cyprus Amax Minerals
Company
</TABLE>

During the afternoon of August 20, 1999, Phelps Dodge issued a press
release announcing its revised proposal, describing the material benefits of the
three-way combination and expressing its disappointment that Asarco and Cyprus
Amax had rejected the August 12 proposal. Later that day, Phelps Dodge sent the
following letter to the

12
<PAGE> 18

board of directors of Asarco (and sent a substantially similar letter to the
board of directors of Cyprus Amax) setting forth its revised, higher premium
proposal:

[LETTERHEAD OF PHELPS DODGE CORPORATION]

August 20, 1999

Board of Directors of ASARCO Incorporated
c/o Mr. Francis R. McAllister
Chairman and Chief Executive Officer
ASARCO Incorporated
180 Maiden Lane
New York, NY 10038

Gentlemen:

We are disappointed in your response to our proposed three-way combination
of Asarco, Cyprus Amax and Phelps Dodge. As you know, we have on three recent
occasions requested the opportunity to discuss our proposal, which we believe
would be far superior to your shareholders than your proposed combination with
Cyprus Amax.

We are particularly disappointed that instead of accepting our previous
requests to meet to discuss our proposal to acquire Asarco for a substantial
premium, you chose today to announce unilaterally our interest in acquiring
Asarco and Cyprus Amax and to reject our proposal in favor of your no-premium
merger proposal with Cyprus Amax. This appears consistent with the manner in
which you have chosen to treat your own shareholders by announcing just today,
at the same time you first disclosed the terms of your July 15 merger agreement,
that the record date for your shareholder vote on the no-premium merger with
Cyprus Amax would be August 25. Since trades after today will settle after
August 25, this effectively precluded any significant trading in the market on
an informed basis before the determination of shareholders eligible to vote at
your meeting.

In light of your unilateral announcement, we have no other choice than to
publicly announce our proposal to enter into a business combination with Asarco
and Cyprus Amax, so that share owners of all three companies are fully informed.

Terms of our Proposal

We propose a business combination of Phelps Dodge and Asarco pursuant to
which all of the outstanding common stock of Asarco would be exchanged for
Phelps Dodge common stock at an exchange ratio of 0.4098 Phelps Dodge common
shares for each Asarco common share. We are also independently proposing to
Cyprus Amax a business combination of Phelps Dodge and Cyprus Amax pursuant to
which all of the outstanding common stock of Cyprus Amax would be exchanged for
Phelps Dodge common stock at an exchange ratio of 0.3135 Phelps Dodge common
shares for each Cyprus Amax common share. Based on share prices for the three
companies' common shares before trading was halted this morning, these ratios
imply a premium of approximately 30% for Asarco and a premium of approximately
29%

13
<PAGE> 19

for Cyprus Amax, while preserving the relative economics of the exchange ratio
under your proposed combination with Cyprus Amax.

Following the combination, we plan to continue the current $2.00 per share
Phelps Dodge common dividend. This would result in a substantial dividend
increase for Asarco shareholders to 4.1 times the dividend contemplated in your
proposed merger with Cyprus Amax.

Our proposed transaction would be tax-free for your shareholders. In
addition, through their ownership of Phelps Dodge common stock, your
shareholders would continue to participate in the ongoing value creation of the
combined company. Although we prefer a transaction involving all three
companies, we are prepared to enter into a negotiated business combination with
either Asarco or Cyprus Amax, regardless of whether the other company is willing
to proceed on a negotiated basis.

We believe that consideration in the form of Phelps Dodge common stock
should be particularly attractive to your shareholders. Over the past several
years Phelps Dodge's stock price has significantly outperformed the stock prices
of Asarco and Cyprus Amax. As a result of Phelps Dodge's higher dividend, the
level of outperformance is even greater when viewed on the basis of the total
return to shareholders assuming reinvestment of dividends. Over the past 10
years Phelps Dodge's total return has been 161% as compared to negative 20% and
negative 26% for Asarco and Cyprus Amax, respectively. Similarly, over the past
15 years, Phelps Dodge's total return has been 1024% as compared to 25% for
Asarco and 102% for Cyprus Amax. We are very proud of this strong management and
operational track record over a difficult copper environment.

The Combined Company

We believe that our proposal presents a unique opportunity to create a
large, resource-rich portfolio of lower-cost global copper assets with enhanced
flexibility to deliver superior results in all business cycles. Our proposal
would create a much stronger company than would your proposed merger with Cyprus
Amax through:

- the significantly stronger ability of the combined company, relative to
the Asarco/Cyprus Amax combination, to integrate southwestern U.S. mining
operations, administrative functions in the U.S., Chile and Peru, and
worldwide exploration and development activities;

- the financial strength of the combined company and ability to create a
world class portfolio of cost-competitive mining assets;

- a strong and deep management team, at both the operating and corporate
levels, with strong credibility in the marketplace;

- the ability to eliminate substantial overhead, exploration, purchasing
and other expenses through the consolidation;

- the tremendous operating leverage of the combined company, together with
enough diversity in other businesses to mitigate cyclical downturns;

- the immediate and substantial accretion to the cash flow of the combined
company resulting from the transaction;

14
<PAGE> 20

- the significant accretion to earnings per share of the combined company
beginning in the second year after closing, based on the current
portfolio of the combined companies and analysts' estimates of copper
prices of $0.80 to $0.85 per pound in 2001;

- the total current annual copper production of the combined Company of 3.8
billion pounds and the total attributable copper reserves of 80 billion
pounds;

- the increased ability of the combined company to compete for world-class
projects;

- the ability of the combined company to reduce capital expenditures;

- the strong, liquid balance sheet of the combined company, with excellent
access to capital; and

- the way all of these factors would build greater shareholder value, on an
ongoing basis, for the shareholders of all three companies.

Through the measures described above we estimate that in a three-way
combination we could achieve approximately $200 million in annual cash cost
savings, fully phased in by the end of the second year after closing of the
transaction. In addition, we expect lower depreciation of approximately $65
million annually, bringing total estimated annual savings to approximately $265
million. These cost savings are based on public information and our expectation
that we can deliver at least $75 million in incremental savings above the new
cash synergy figure of $125 million that you have projected in the proposed
Asarco/Cyprus Amax combination. This does not include any cost savings from the
rationalization of high-cost production during periods of low copper prices.

Following the combination, we would expect to operate all properties in
accordance with Phelps Dodge's disciplined management approach. This means that
each property would be run on a basis intended to earn in excess of the cost of
capital over a full copper price cycle. We believe that Phelps Dodge's
management team has the credibility to make the tough decisions necessary to
rapidly integrate all three businesses and to create value for shareholders.

A three-way combination, by creating a more efficient global competitor,
would also benefit the employees and customers of all three companies. We have
conducted an in-depth analysis of the three-way combination from a regulatory
perspective and have concluded that it will be possible to obtain the necessary
approvals on a timely basis.

Our Board of Directors has authorized this proposal and we are resolutely
committed to its consummation. We are confident that your shareholders will find
our proposal to be a unique and compelling opportunity. We continue to prefer to
proceed on a mutually satisfactory, negotiated basis but are prepared to pursue
all other

15
<PAGE> 21

avenues should that be necessary. We are ready to meet with you or your
management at any time.

Sincerely,

THE AUGUST 25, 1999 COMMUNICATIONS

On August 25, 1999, Asarco and Cyprus Amax issued a press release
announcing that they were including as part of their proposed merger, a special
payment of $5.00 per share to be paid to the stockholders of Asarco Cyprus
Incorporated and would pursue the sale of certain businesses after the proposed
Asarco/Cyprus Amax Merger. The press release also stated that, for 90 days
following the proposed Asarco/Cyprus Amax Merger, the stockholders of Asarco
Cyprus Incorporated will have the right to call a meeting to redeem the rights
plan.

In conjunction with this press release, Asarco and Cyprus Amax also sent
the following letter to Phelps Dodge:

August 25, 1999

Mr. Douglas C. Yearley
Chairman, President and
Chief Executive Officer
Phelps Dodge Corporation
2600 North Central Avenue
Phoenix, AZ 85004-3050

Dear Doug:

We and our respective boards have considered your revised proposal to
acquire our companies. We have the following issues with your proposal:

1. The exchange ratios proposed in your August 20 press release do not
allocate to Cyprus Amax and Asarco holders a fair share of the value
created by uniting their two companies. We are prepared to negotiate a
transaction with Phelps Dodge that would provide our holders with .4055
shares of Phelps Dodge common stock for each Cyprus Amax share, and
.5300 Phelps Dodge shares for each Asarco share.

2. In order for us to proceed with Phelps Dodge, you must make clear that
Phelps Dodge will undertake all actions necessary to secure regulatory
approval for your proposed transaction including any divestiture or
similar action required, and will provide credible assurances that such
regulatory approval will be forthcoming. The statements in your letters
concerning antitrust issues are not sufficient on this point.

16
<PAGE> 22

3. You have not proposed a form of contract for your transaction. We would
be prepared to proceed on the basis of representations, warranties and
covenants made by Cyprus Amax and Asarco to each other in their merger
agreement, with similar representations, warranties and covenants made
by Phelps Dodge.

4. Your letter did not indicate whether your proposal was subject to due
diligence. A due diligence requirement introduces substantial
uncertainty as to your proposal. We would expect, as part of our effort
to close our pending merger or any potential transaction with you as
quickly as possible, that you would not require any further due
diligence with respect to either Cyprus Amax or Asarco.

We strongly believe that the combination of Cyprus Amax and Asarco, without
the effect of combining further with Phelps Dodge, provides greater value to
Cyprus Amax and Asarco holders than your August 20 proposal, poses fewer
regulatory issues and can be completed more quickly. Accordingly, we will be
proceeding to present that transaction to our stockholders and to closing on
September 30, 1999. We are prepared, however, to negotiate a transaction that
involves all three companies that satisfies all the foregoing requirements. For
your information, we are attaching to this letter a copy of the press release
Asarco and Cyprus Amax issued today concerning our response to Phelps Dodge. We
also want to advise you that apart from this communication, neither party has
waived any of its legal or other rights, or rights or obligations under our
merger agreement.

Sincerely,

<TABLE>
<S> <C>
/s/ FRANCIS R. MCALLISTER /s/ MILTON H. WARD
- --------------------------------------------- ---------------------------------------------
Francis R. McAllister Milton H. Ward
Chairman and Chief Chairman, Chief Executive
Executive Officer Officer and President
ASARCO Incorporated Cyprus Amax Minerals
Company
</TABLE>

Later during that afternoon, Phelps Dodge issued a press release
acknowledging receipt of the August 25, 1999 letter from Asarco and Cyprus Amax
and reaffirming Phelps Dodge's commitment to complete its proposed three-way
combination, which benefits shareholders of all three companies. In the press
release, Phelps Dodge indicated that the economic aspects of the proposed
three-way merger outlined in Asarco and Cyprus Amax August 25 letter were
totally unreasonable and would deliver nearly all of the economic value of the
three-way combination to Asarco and Cyprus Amax shareholders. The press release
also noted that neither Asarco nor Cyprus Amax had attempted to meet with Phelps
Dodge.

THE AUGUST 27, 1999 COMMUNICATIONS

On August 27, 1999, Phelps Dodge issued a press release announcing its
filing with the Commission of registration materials relating to the exchange
offers for the Asarco and Cyprus Amax common stock and of preliminary proxy
materials to be used to solicit proxies from Asarco and Cyprus Amax shareholders
to vote against the proposed Asarco/Cyprus Amax Merger. Phelps Dodge also
announced that it has commenced litigation against Asarco, Cyprus Amax and their
respective directors for breach of

17
<PAGE> 23

fiduciary duties. See "Certain Litigation." Phelps Dodge once again affirmed its
preference for a negotiated combination with Asarco and Cyprus Amax and stated
that it was ready to begin discussions immediately. In addition, Phelps Dodge
announced that it viewed the September 30 vote as a referendum and that if the
Asarco and Cyprus Amax shareholders approve the Asarco/Cyprus Amax merger,
Phelps Dodge will withdraw its substantial premium proposal and will not bid
further.

Also on August 27, 1999, Phelps Dodge sent the following letter to Asarco
and Cyprus Amax:

[LETTERHEAD OF PHELPS DODGE CORPORATION]

August 27, 1999

Mr. Francis R. McAllister
Chairman and Chief Executive Officer
ASARCO Incorporated
180 Maiden Lane
New York, NY 10038

Mr. Milton H. Ward
Chairman, Chief Executive Officer and President
Cyprus Amax Minerals Company
9100 East Mineral Circle
Englewood, CO 80112

Dear Frank and Milt:

We continue to believe that our proposed three-way combination is clearly
superior for your shareholders than your proposed no-premium, two-party
transaction. Our fully priced proposal provides a substantial premium, our $2.00
annual dividend and opportunity for participation in greater upside potential.

In your August 25 letter to us you identified four issues with our
proposal. We are prepared to accept three of your points. On the fourth point,
your demand on exchange ratios, we hope that you will reconsider your
unreasonable position and sit down at the table with us to complete our proposed
three-way combination.

Should you proceed to complete your two-way merger, you will proceed alone
because we will withdraw our substantial premium proposal and will not bid
further. Your September 30 vote will be a referendum on our proposal.

Your proposal on exchange ratios is so unreasonable that its sincerity is
questionable. It seems to be premised on the flawed assumption that since your
combined production would be comparable to Phelps Dodge's, you should be valued
at the same level as Phelps Dodge. Of course, this is clearly not what investors
believe since it is not reflected in the relative market valuations of the three
companies. The simplistic assumption you seem to be making fails to reflect
Phelps Dodge's long track record of making tough management decisions and
delivering significantly greater value to shareholders than either ASARCO or
Cyprus Amax. Over a fifteen year period we have delivered total returns to
shareholders of 1,024% in contrast to 25% for ASARCO and 102% for Cyprus Amax.

18
<PAGE> 24

Moreover, based on the information in your August 20 Form S-4 registration
statement, it appears that the conclusions arrived at by your own investment
bankers do not support your current exchange ratio demand. The exchange ratios
you have demanded would deliver nearly all of the incremental value to be
derived from a three way combination to your shareholders and very little to our
shareholders. This is, as you no doubt anticipated, completely unacceptable to
us.

In addition, we don't believe that your shareholders will be fooled by the
flawed measures you announced which purport to accommodate the possibility of a
third-party transaction during the 90 days following completion of your merger.
None of your public statements address in any meaningful way all of the many
steps that would be necessary to give your shareholders a realistic opportunity
to benefit from an attractive third party proposal. Among the additional matters
that would have to be addressed if you were serious about accommodating third
party transactions would be to eliminate your staggered Board and the highly
unusual management entrenchment arrangements built into your two-party merger
agreement.

Those unusual management-entrenchment provisions guarantee no change in the
roles of the proposed four senior executives of the ASARCO-Cyprus combined
company prior to the 2002 annual meeting except upon a vote of 75% of the Board.
Since management will hold 25% of the Board seats, this effectively requires a
unanimous vote of the non-management directors. Because your Board is divided
into three classes, this means that a buyer of 100% of the outstanding stock of
the ASARCO-Cyprus combined company would not be able to obtain management
control for nearly three years.

Indeed, even in the two aspects of your 90 day proposal for which you try
to take credit, there is confusion, contradiction and unnecessary complexity.
You propose an unspecified shareholder mechanism to redeem your poison pill
which is inevitably more cumbersome than simple Board action. Secondly, we noted
with interest the statement in your August 25 press release that "In addition,
change in control provisions in any employment contracts entered into by the
Company will be waived for that same 90 day period." We were therefore surprised
to read the contradictory statement in the Form 8-K you filed yesterday, that:

"The rights and benefits under the existing [change of control]
arrangements with the employees...of each of Cyprus Amax and
ASARCO, however, will remain in full force and effect and will be
unaffected during the 90 days following completion of the business
combination, as will any rights under arrangements entered into
with such employees in substitution for any existing
arrangements."

Frankly, we believe that all of your statements concerning the 90 day
period are no more than public relations gambit. There is no evidence in your
conduct to date that you have any willingness to pursue transactions that are in
the best interests of your shareholders.

With regard to the three points in your August 25 letter other than the
exchange ratio, we are pleased to confirm that:

- We are prepared to enter into a merger agreement with substantially the
same representations, warranties and covenants as those contained in your
July 15 merger agreement.

19
<PAGE> 25

- This proposal is not subject to due diligence.

- We have studied the regulatory issues carefully and are confident that
all necessary regulatory approvals for our three way combination will be
obtained on a timely basis. We would be pleased to give you strong
contractual assurances on this point.

If you take seriously your fiduciary duty and want to inform yourselves
about a compelling transaction that would be in the best interests of your
shareholders, let's sit down and negotiate. If not, your shareholders will
decide which alternative they prefer on September 30.

Sincerely,

<TABLE>
<S> <C>
/s/ DOUGLAS C. YEARLEY /s/ J. STEVEN WHISLER
- --------------------------------------------- ---------------------------------------------
Douglas C. Yearley J. Steven Whisler
Chairman and President and
Chief Executive Officer Chief Operating Officer
</TABLE>

THE PHELPS DODGE EXCHANGE OFFER

Phelps Dodge is offering to exchange 0.4098 shares of Phelps Dodge common
stock for each outstanding share of Asarco common stock. We are making the Offer
in order to acquire control of, and ultimately the entire common equity interest
in, Asarco. We intend, as soon as possible after consummation of the Offer, to
have a subsidiary of Phelps Dodge merge with Asarco, in which merger each
outstanding share of Asarco common stock (other than shares held by Asarco, us
or any of our subsidiaries) would be converted into the right to receive 0.4098
shares of Phelps Dodge common stock. We are also making a separate offer to
exchange 0.3135 shares of Phelps Dodge common stock for each outstanding share
of Cyprus Amax common stock. We expect our proposed transaction to be tax free
to you.

The Offer may only be made by Phelps Dodge after its registration statement
relating to the Phelps Dodge Common Stock to be exchanged in the Offer has been
declared effective by the Commission. Phelps Dodge plans to commence the Offer
as soon as practicable after such time. The Offer will be subject to the terms
and conditions set forth in the enclosed copy of the Phelps Dodge Preliminary
Prospectus.

20
<PAGE> 26

THE ASARCO/CYPRUS AMAX MERGER AGREEMENT

On July 15, 1999, Asarco and Cyprus Amax entered into the Asarco/Cyprus
Amax Merger Agreement that provides for two mergers in which each share of
Asarco common stock would be exchanged for a share of common stock of Asarco
Cyprus Incorporated and each share of Cyprus Amax common stock would be
exchanged for 0.765 shares of Asarco Cyprus Incorporated.

The Asarco/Cyprus Amax Merger Agreement must be approved by the
shareholders of both Asarco and Cyprus Amax and is subject to the satisfaction
or waiver of certain other conditions, including obtaining necessary regulatory
approvals. If the Asarco/Cyprus Amax Merger Agreement is not approved by the
requisite vote of the shareholders, the Asarco/Cyprus Amax Merger Agreement will
become terminable at the option of either Asarco or Cyprus Amax. The terms of
the Asarco/Cyprus Amax Merger Agreement include the payment of a termination fee
of $45 million in certain circumstances.

The Asarco/Cyprus Amax Merger Agreement purports to restrain both parties,
their directors, officers, employees and representatives from directly or
indirectly soliciting, initiating or encouraging (whether by furnishing
information or otherwise), or taking any other action designed to facilitate any
inquiries or the making of any proposal which constitutes or reasonably could be
expected to lead to any "takeover proposal." A takeover proposal is defined as
any inquiry, proposal or offer, or any improvement, restatement, amendment,
renewal or reiteration of any such inquiry, proposal or offer, from any person
relating to any direct or indirect acquisition of a business or equity
securities of a party or any of its subsidiaries. Asarco and Cyprus Amax have
further agreed that neither of them would participate in any discussions or
negotiations regarding any takeover proposal.

The Asarco/Cyprus Amax Merger Agreement further prohibits the boards of
directors of both companies from withdrawing or modifying their approval or
recommendation of the Asarco/Cyprus Amax Merger. The Asarco and Cyprus Amax
boards may only withdraw their recommendation to approve the Asarco/Cyprus Amax
Merger if they determine in good faith, based on the advice of outside counsel,
that a failure to do so would constitute a breach of fiduciary duties owed by
the board to the company's shareholders.

21
<PAGE> 27

ADVANTAGES OF THE PROPOSED COMBINATION

We believe the combination of Phelps Dodge, Asarco and Cyprus Amax
represents a unique opportunity to create a large, resource-rich portfolio of
lower-cost global copper assets with enhanced flexibility to excel through
business cycles.

Under the Phelps Dodge offer, you would receive:

- A SIGNIFICANT PREMIUM FOR YOUR SHARES. Asarco shareholders would receive
0.4098 of a share of Phelps Dodge common stock for each share of Asarco
common stock based on market prices of Phelps Dodge and Asarco common
stock before our proposal was first publicly announced. This sizeable
premium in effect represents an up-front payment to you for the
substantial cost savings we expect to achieve.

The analyses discussed below include forward looking statements that
involve judgments, assumptions and other uncertainties beyond the control of
Phelps Dodge. As such, there can be no assurance that the cost savings or other
benefits will be realized in the amounts referred to herein and actual cost
savings or other benefits may be more or less than those projected. Such
judgments, assumptions and uncertainties are discussed more fully below.

Phelps Dodge believes that the Asarco Shareholders, as well as Asarco's
customers, employees and the communities it serves, would realize benefits from
the Offer and the Merger that are greater than the benefits that would be
realized if Asarco either remains an independent entity or it completes the
proposed Asarco/Cyprus Amax Merger. Phelps Dodge believes such greater benefits
would be realized through the following operational and structural synergies:

- ABILITY TO INTEGRATE OPERATIONS. We expect the combined company to have
significantly greater ability to integrate southwest U.S. mining
operations, administrative functions in the U.S., Chile and Peru, and
worldwide exploration and development activities. Following the
combination, we would expect to operate all properties in accordance with
Phelps Dodge's disciplined management approach. This means that each
property would be run on a basis intended to earn in excess of the cost
of capital over the full copper price cycle.

- ACCRETION TO CASH FLOW. The combination would result in immediate and
substantial accretion to the cash flow of the combined company.

- ACCRETION TO EARNINGS. We expect the combination to result in
significant accretion to earnings per share of the combined company in
the second year, assuming copper prices of $0.80 -- $0.85 per pound.

22
<PAGE> 28

- SUPERIOR PRODUCTION CAPABILITY. The total annual worldwide copper
production of the combined company would be approximately 3.8 billion
pounds at current levels, with total attributable copper reserves of
approximately 80 billion recoverable pounds.

- SUBSTANTIAL COST SAVINGS. We expect the combined company to achieve
annual cash cost savings of at least $200 million by the end of the
second year after closing, as a result of reductions in overhead,
purchasing, exploration and other expenses. We also expect at least
another $65 million in annual savings from reduced depreciation expenses,
bringing the total annual savings to at least $265 million. These cost
savings are based on public information and our expectation that we can
deliver at least $75 million in incremental savings above the cash
synergy figure of $125 million projected in the proposed Asarco/Cyprus
Amax merger. This does not include any cost savings from the
rationalization of high-cost production during periods of low copper
prices.

- MANAGEMENT STRENGTH. The combined company would have a strong and deep
management team, at both the operating and corporate levels, with strong
credibility in the marketplace. Phelps Dodge's management team would have
the opportunity to implement value-based portfolio management. We believe
that Phelps Dodge's management team has the credibility to make the tough
decisions necessary to integrate all three businesses rapidly and to
build sustainable long-term shareholder value.

- PORTFOLIO OF WORLD-CLASS COPPER MINES. The combined company would have a
core portfolio of world-class copper mines, including Morenci, Southern
Peru Copper Corporation, El Abra, Cerro Verde and Candelaria. This core
portfolio would represent more than 50% of the combined company's current
annual production. At current levels, these properties would produce
approximately 2 billion pounds of copper annually, at an average cash
cost of less than $.50 per pound.

- OPERATING LEVERAGE. The combined company would have tremendous operating
leverage, together with enough diversity in other businesses to mitigate
cyclical downturns.

- INCREASED COMPETITIVENESS. The combined company would have increased
ability to compete for world-class projects.

- REDUCED CAPITAL EXPENDITURES. By combining their businesses, Phelps
Dodge, Asarco and Cyprus Amax would be able to reduce maintenance and
growth capital expenditures significantly.

- FINANCIAL STRENGTH. The combined company would have a strong, liquid
balance sheet, with excellent access to capital. The company's financial
strength would give it the ability to create a world-class portfolio of
cost-competitive mining assets.

We believe these factors will provide superior value creation
opportunities, on an ongoing basis, for the shareholders of all three companies.
We believe that your ability to participate in this value creation, through your
ownership of Phelps Dodge common stock, is an important element of our Offer.
Over the past several years, Phelps Dodge's stock price has significantly
outperformed the stock prices of Asarco and Cyprus Amax. As a

23
<PAGE> 29

result of Phelps Dodge's higher dividend, the level of outperformance is even
greater when viewed on the basis of the total return to shareholders assuming
reinvestment of dividends:

- Over the past 15 years, Phelps Dodge's total return has been 1,024% as
compared to 25% for Asarco and 102% for Cyprus Amax (Cyprus Amax total
return is measured from Cyprus Amax's May 1985 initial public offering).

- Over the past 10 years, Phelps Dodge's total return has been 161% as
compared to negative 20% for Asarco and negative 26% for Cyprus Amax.

- Over the past five years, Phelps Dodge's total return has been 20% as
compared to negative 27% for Asarco and negative 40% for Cyprus Amax.

While we cannot make promises about future returns, we believe that our
performance record indicates that we are best equipped to extract value out of
the Asarco and Cyprus Amax assets.

Because Phelps Dodge was unable to discuss the above analyses with Asarco
and Cyprus Amax and did not have access to substantial information concerning
Asarco's and Cyprus Amax's operations, these analyses were necessarily limited
in scope. In addition, such analyses involve judgments and contain
forward-looking statements with respect to, among other things, normal weather
conditions, future national and regional economic and competitive conditions,
inflation rates, regulatory treatment, future financial market conditions,
interest rates, future business decisions and other uncertainties, which, though
considered reasonable by Phelps Dodge, are beyond Phelps Dodge's control and
difficult to predict. Accordingly, there can be no assurance that these benefits
will be realized, and the actual benefits may vary materially from those set
forth above. In light of the uncertainties inherent in such analyses, the
inclusion of estimated operational and structural synergies and cost savings
herein should not be regarded as a representation by Phelps Dodge or any other
person that such operational and structural synergies and cost savings will be
achieved.

MATERIAL CONTRACTS BETWEEN ASARCO AND PHELPS DODGE

Except as set forth herein, neither we nor, to the best of our knowledge,
any of the persons listed in Annex A hereto has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of Asarco, including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any such
securities, joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss or the giving or withholding of
proxies. Except as described herein, there have been no contacts, negotiations
or transactions since January 1, 1996, between us or, to the best of our
knowledge, any of the persons listed in Annex A hereto, on the one hand, and
Asarco or its affiliates, on the other hand, concerning a merger, consolidation
or acquisition, or a tender offer or other acquisition of securities, an
election of directors, or a sale or other transfer of a material amount of
assets. Neither us, nor, to the best of our knowledge, any of the persons listed
in Annex A hereto, has since January 1, 1996 had any transaction with Asarco or
any of its executive officers, directors or affiliates that would require
disclosure under the rules and regulations of the Commission applicable to the
Offer.

A Phelps Dodge subsidiary and Asarco are parties to a stockholders'
agreement entered into in 1996 that relates to Phelps Dodge's and Asarco's
investments in Southern

24
<PAGE> 30

Peru Copper Corporation. The agreement governs, among other things, how the
Phelps Dodge subsidiary and Asarco may exercise their voting rights as
stockholders.

CERTAIN LITIGATION

On August 24, 1999, Phelps Dodge, through its directly owned subsidiary CAV
Corporation, sent a written demand to Cyprus Amax for records of its
shareholders, pursuant to Section 220 of the Delaware General Corporation Law.
On August 23, 1999, Phelps Dodge and its directly owned subsidiary AAV
Corporation commenced an action by order to show cause in the Superior Court of
the State of New Jersey, Chancery Division Mercer County pursuant to N.J.S.A.
14A:5-28 to seek shareholder records from Asarco. This action is captioned
Phelps Dodge Corp. and AAV Corp. v. ASARCO Inc., Docket No. MER-C-81-99. In
connection with this action, Phelps Dodge made an application for summary
injunctive relief. Asarco opposed the application and argument was heard before
Judge Judith Yaskin on August 26, 1999. At the hearing, the court ruled that
shareholder lists and related documents must be made available to Phelps Dodge
and AAV within forty-eight hours after the filing of their preliminary proxy
materials with the Commission.

In addition, Phelps Dodge has commenced to bring actions in the Superior
Court of the State of New Jersey and in the Court of Chancery of the State of
Delaware, against Asarco and Cyprus Amax, and their respective boards of
directors for their breach of fiduciary duties including their refusals to
consider, and to allow the shareholders of both companies to consider, the
Phelps Dodge proposal.

In particular, Phelps Dodge alleges that, Cyprus Amax and Asarco have
entered into an illegal merger agreement that purports to prohibit the companies
from taking any action or entering into any discussions relating to a takeover
proposal. In light of these provisions of the Asarco/Cyprus Amax Merger
Agreement, Asarco and Cyprus Amax are incapable of evaluating meaningfully the
Phelps Dodge proposal and cannot make informed recommendations to their
shareholders. Phelps Dodge has also challenged the termination or "break up" fee
payable by Asarco in certain circumstances as grossly excessive; that fee
amounts to more than 6% of Asarco's equity value as of July 15, 1999, the date
of the Asarco/Cyprus Amax Merger Agreement. Furthermore, the Asarco/Cyprus Amax
Merger Agreement includes corporate governance provisions that disenfranchise
shareholders by guaranteeing until 2002 the management positions of the chief
executive officers of Asarco and Cyprus Amax unless these provisions are changed
with the approval of 75% of the full board.

The complaints also allege that, in addition to their persistent refusals
to negotiate with Phelps Dodge, Asarco and Cyprus Amax have set their
shareholder meetings and record dates to favor their own merger and have
rewarded management with lavish compensation and benefit packages. These and
other efforts undertaken by the companies amount to an attempt to favor and
entrench management at the expense of shareholders.

Phelps Dodge is seeking injunctive relief to remedy these breaches of duty,
including court orders declaring that the boards of Asarco and Cyprus Amax have
failed to make good faith efforts to obtain information about and adequately
consider the Phelps Dodge proposal and compelling the boards of those two
companies to consider the proposal and remove impediments preventing
consideration of the proposal.

25
<PAGE> 31

PHELPS DODGE CORPORATION

Phelps Dodge Corporation is among the world's largest producers of copper,
carbon black and magnet wire, and is the world's largest producer of
continuous-cast copper rod. Phelps Dodge comprises two divisions: (i) Phelps
Dodge Mining Company and (ii) Phelps Dodge Industries.

- Phelps Dodge Mining Company is a business segment that includes our
worldwide copper operations from mining through rod production, marketing
and sales, other mining operations and investments, and worldwide mineral
exploration and development programs.

- Phelps Dodge Industries includes our specialty chemicals segment, our
wire and cable segment, and, until they were sold in 1998, our wheel and
rim operations.

In 1998, Phelps Dodge Mining Company produced 874,000 tons of copper for
our account from worldwide mining operations, and an additional 178,700 tons of
copper for the accounts of our minority interest partners. Gold, silver,
molybdenum, copper chemicals and sulfuric acid are by-products of our copper
operations. Production of copper for our own account from our U.S. operations
constituted approximately 33 percent of the copper mined in the United States in
1998. Much of our U.S. cathode copper production, together with additional
copper purchased from others, is used to produce continuous-cast copper rod, the
basic feed for the electrical wire and cable industry.

Our international mining interests include Candelaria, a major copper mine
in Chile, and other operations and investments in Chile and Peru. These
operations produce a variety of metals and minerals including copper, gold,
silver, and zinc. We also explore for metals and minerals throughout the world.

In addition to our mining interests, we produce engineered products
principally for the global energy, telecommunications, transportation and
specialty chemicals sectors through Phelps Dodge Industries. Specialty chemicals
are produced at Columbian Chemicals Company which is among the world's largest
producers of carbon black. Carbon black is a reinforcing agent in natural and
synthetic rubber that increases the service life of tires, hoses, belting and
other products for the rubber industry. We also produce specialty carbon black
for other industrial applications such as pigments for printing, coatings,
plastics and other non-rubber applications.

Our wire and cable segment comprises Phelps Dodge Magnet Wire Company and
its subsidiaries and Phelps Dodge International Corporation and its affiliates.
This segment produces wire and cable products and specialty conductors at U.S.
and international operations. Phelps Dodge Magnet Wire Company produces magnet
wire and other copper products for sale principally to original equipment
manufacturers for use in electrical motors, generators, transformers and other
products. Phelps Dodge International Corporation manufactures telecommunication
and energy cables and specialty conductors.

Our company employed approximately 13,200 people on June 30, 1999.

Phelps Dodge was incorporated under the laws of the State of New York in
1885. Phelps Dodge's corporate headquarters is located at 2600 North Central
Avenue, Phoenix, AZ 85004-3014 and its telephone number is (602) 234-8100.

Phelps Dodge is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission.

26
<PAGE> 32

Reports, proxy statements and other information filed by Phelps Dodge with the
Commission may be inspected at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the public reference facilities in the Commission's Regional
Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Phelps Dodge information may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Phelps Dodge Common Stock is listed and traded on the NYSE. Reports,
proxy statements and other information filed by Phelps Dodge and Asarco with the
Commission may be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.

Certain information concerning the directors and executive officers of
Phelps Dodge and other representatives of Phelps Dodge who may solicit proxies
from Asarco Shareholders is set forth in Annex A hereto. Certain information
concerning the Shares held by the persons described in the preceding sentence
and by Phelps Dodge, and certain transactions between any of them and Asarco, is
set forth in Annex B hereto.

REVOCATION OF PROXIES

An executed proxy may be revoked at any time prior to its exercise by
submitting another proxy with a later date, by appearing in person at the
Special Meeting and voting or by sending a written, signed, dated revocation
which clearly identifies the proxy being revoked to either (a) Phelps Dodge in
care of Innisfree M&A Incorporated, 501 Madison Avenue, 20th Floor, New York,
New York 10022, or (b) the principal executive offices of Asarco at 180 Maiden
Lane, New York, New York 10038. A revocation may be in any written form validly
signed by the record holder as long as it clearly states that the proxy
previously given is no longer effective. Phelps Dodge requests that a copy of
any revocation sent to Asarco also be sent to Phelps Dodge in care of Innisfree
M&A Incorporated at the above address so that Phelps Dodge may more accurately
determine if and when proxies have been received from the holders of record on
the Record Date of a majority of the Shares then outstanding.

IF YOU HAVE ALREADY SENT A PROXY CARD TO THE ASARCO DIRECTORS, YOU MAY
REVOKE THAT PROXY AND VOTE AGAINST THE APPROVAL OF THE ASARCO/CYPRUS AMAX MERGER
BY SIGNING, DATING AND RETURNING THE ENCLOSED [COLOR] PROXY CARD. THE LATEST
DATED PROXY IS THE ONLY ONE THAT COUNTS.

VOTING PROCEDURES

Only Asarco Shareholders of record on the Record Date are eligible to
submit a proxy. Therefore, any Asarco Shareholder owning Shares held in the name
of a brokerage firm, bank or other institution should sign, date and return the
[COLOR] proxy card to such brokerage firm, bank or other institution in the
envelope provided by that firm. The accompanying [COLOR] proxy card will be
voted in accordance with the Asarco Shareholder's instructions on such [COLOR]
proxy card.

Asarco Shareholders (i) may vote against the approval and adoption of the
Asarco/ Cyprus Amax Merger or (ii) may withhold their vote or (iii) may vote for
such approval and adoption by marking the proper box on the [COLOR] proxy and
signing, dating and returning it promptly in the enclosed postage-paid envelope.
If an Asarco Shareholder

27
<PAGE> 33

returns a [COLOR] proxy card that is signed, dated and not marked, that Asarco
Shareholder will be deemed to have voted against approval and adoption of the
Asarco/ Cyprus Amax Merger.

According to the joint proxy statement/prospectus of Asarco/Cyprus Amax
(the "Asarco/Cyprus Amax Joint Proxy Statement") contained in the Registration
Statement on Form S-4 filed by Asarco Cyprus Amax with the Commission on August
20, 1999 (the "Asarco Cyprus Amax Registration Statement"), under the New Jersey
Business Corporation Law (the "NJBCA"), the Restated Certificate of
Incorporation, the By-laws of Asarco and the rules of the NYSE, as applicable,
the approval and adoption of the Asarco/Cyprus Amax Merger require the
affirmative vote of at least a majority of all votes cast by Asarco Shareholders
at the Special Meeting.

IF YOU WANT TO BE IN A POSITION TO ACCEPT THE OFFER, VOTE AGAINST THE
ASARCO/CYPRUS AMAX MERGER BY SIGNING, DATING AND RETURNING THE ENCLOSED [COLOR]
PROXY CARD TODAY.

EXCEPT AS SET FORTH ABOVE, PHELPS DODGE IS NOT AWARE OF ANY PROPOSALS TO BE
BROUGHT BEFORE THE SPECIAL MEETING. SHOULD OTHER PROPOSALS BE BROUGHT BEFORE THE
SPECIAL MEETING, THE PERSONS NAMED ON THE [COLOR] PROXY CARD WILL ABSTAIN FROM
VOTING ON SUCH PROPOSALS UNLESS SUCH PROPOSALS ADVERSELY AFFECT THE INTERESTS OF
PHELPS DODGE AS DETERMINED BY PHELPS DODGE IN ITS SOLE DISCRETION, IN WHICH
EVENT SUCH PERSONS WILL VOTE ON SUCH PROPOSALS AT THEIR DISCRETION.

DISSENTERS' RIGHTS

According to the Asarco/Cyprus Amax Joint Proxy Statement, under the NJBCA,
neither Asarco Shareholders nor holders of Cyprus Amax Shares are entitled to
appraisal rights. According to the Asarco/Cyprus Amax Joint Proxy Statement,
under the DGCL, Cyprus Amax preferred stockholders will be entitled to demand
appraisal of their preferred shares and to receive, instead of what Phelps Dodge
offers pursuant to the Merger, an amount that the Delaware Court of Chancery
decides is the "fair value" of the preferred shares.

OWNERSHIP OF SHARES

According to the Asarco/Cyprus Amax Joint Proxy Statement, (i) each Share
is entitled to one vote on the Asarco/Cyprus Amax Merger, (ii) as of August 19,
1999, approximately 39.8 million Shares were outstanding and (iii) the
Asarco/Cyprus Amax Merger Agreement must be approved and adopted by at least a
majority of all votes cast by Asarco Shareholders at the Asarco Special Meeting.

For information relating to the ownership of Shares by the current
directors and executive officers of Asarco, see Annex C hereto. According to the
Asarco/Cyprus Amax Joint Proxy Statement, based on Shares outstanding as of July
30, 1999, management of Asarco has no knowledge of any person other than those
listed below who owns beneficially more than 5% of Asarco Common Stock.

28
<PAGE> 34

<TABLE>
<CAPTION>
SHARES OF
ASARCO'S COMMON STOCK PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OF SHARES HELD
- ------------------------------------ --------------------- --------------
<S> <C> <C>
Grupo Mexico, S.A. de C.V.................. 3,816,300(a) 9.6%
Baja California 200
06760 Mexico City, Mexico
Merrill Lynch & Co., Inc. ("ML&Co.")....... 2,764,493(b) 7.0%
(on behalf of Merrill Lynch Asset
Management Group ("AMG"))
World Financial Center, North Tower
250 Vesey Street
New York, NY 10381
Donald Smith & Co., Inc.................... 2,003,000(c) 5.0%
East 80 Route 4
Paramus, New Jersey 07652
</TABLE>

- -------------------------

(a) Information is provided as of December 31, 1998, in reliance upon
information provided to Asarco by Grupo Mexico, S.A. de C.V.

(b) Information is provided in reliance upon information included in Amendment
No. 4, dated February 14, 1999, to a Schedule 13G, filed with respect to
holdings by Merrill Lynch Asset Management, L.P., and Fund Asset Management,
L.P., each of which is an investment adviser registered under Section 203 of
the Investment Advisers Act of 1940, and acts as an investment adviser to
investment companies registered under Section 8 of the Investment Company
Act of 1940. The investment advisers are indirectly owned by ML&Co. through
AMG, one of its operating divisions. The investment advisers exercise voting
and investment powers over portfolio securities independently from the other
direct and indirect subsidiaries of ML&Co. ML&Co. disclaims beneficial
ownership of such shares.

(c) Information is provided in reliance upon information included in a Schedule
13G, dated February 4, 1999, filed by Donald Smith & Co., Inc.

The Asarco/Cyprus Amax Joint Proxy Statement contains additional
information concerning the Shares, beneficial ownership of the Shares by, and
other information concerning, Asarco's directors and officers, compensation paid
to executive officers, and the principal holders of Shares.

THE INFORMATION CONCERNING ASARCO, CYPRUS AMAX AND THE PROPOSED
ASARCO/CYPRUS AMAX MERGER CONTAINED IN THIS PROXY STATEMENT (INCLUDING ANNEX C
HERETO) HAS BEEN TAKEN FROM OR IS BASED UPON DOCUMENTS AND RECORDS ON FILE WITH
THE COMMISSION AND OTHER PUBLICLY AVAILABLE INFORMATION. PHELPS DODGE HAS NO
KNOWLEDGE THAT WOULD INDICATE THAT STATEMENTS RELATING TO ASARCO, CYPRUS AMAX
AND THE PROPOSED ASARCO/CYPRUS AMAX MERGER CONTAINED IN THIS PROXY STATEMENT IN
RELIANCE UPON PUBLICLY AVAILABLE INFORMATION ARE INACCURATE OR INCOMPLETE.
PHELPS DODGE, HOWEVER, HAS NOT BEEN GIVEN ACCESS TO THE BOOKS AND RECORDS OF
ASARCO, WAS NOT INVOLVED IN THE PREPARATION OF SUCH INFORMATION AND STATEMENTS,
AND IS NOT IN A POSITION TO VERIFY, OR MAKE ANY REPRESENTATION WITH RESPECT TO
THE ACCURACY OR COMPLETENESS OF, ANY SUCH INFORMATION OR STATEMENTS.

29
<PAGE> 35

SOLICITATION OF PROXIES

Proxies will be solicited by mail, telephone, telegraph, telex, telecopy
and advertisement and in person. Solicitation may be made by directors,
executive officers and other representatives of Phelps Dodge. See Annex A hereto
for a listing of such persons.

The entire expense of Phelps Dodge's solicitation of proxies for the
Special Meeting is being borne by Phelps Dodge. Phelps Dodge does not intend to
seek reimbursement of its expenses related to the proxy solicitation from Asarco
whether or not the proxy solicitation is successful. Phelps Dodge has retained
Innisfree M&A Incorporated to assist and to provide advisory services in
connection with this Proxy Statement for which Innisfree will be paid a fee of
$[ ] and will be reimbursed for reasonable out-of-pocket expenses.
Phelps Dodge will indemnify Innisfree M&A Incorporated against certain
liabilities and expenses in connection with the proxy solicitation, including
liabilities under the federal securities law.

Banks, brokerage houses and other custodians, nominees and fiduciaries will
be requested to forward the solicitation materials to the beneficial owners of
Shares for which they hold of record, and Phelps Dodge will reimburse them for
their reasonable out-of-pocket expenses.

If you have any questions concerning this Proxy Statement or the procedures
to be followed to execute and deliver a proxy, please contact Innisfree M&A
Incorporated at the address or phone number specified below.

WHETHER OR NOT YOU INTEND TO ATTEND THE SPECIAL MEETING, YOUR PROXY AND
PROMPT ACTION ARE IMPORTANT. MAKE YOUR VIEWS CLEAR TO YOUR BOARD OF DIRECTORS BY
SIGNING, DATING AND RETURNING THE ENCLOSED [COLOR] PROXY CARD TODAY.

PHELPS DODGE CORPORATION

August [ ], 1999

INNISFREE M&A INCORPORATED
501 Madison Avenue, 20th Floor
New York, New York 10022

CALL TOLL-FREE: 1-877-750-5838
Bankers and Brokers Call Collect: (212) 750-5833

30
<PAGE> 36

ANNEX A

INFORMATION CONCERNING THE DIRECTORS AND SENIOR
OFFICERS, AND CERTAIN REPRESENTATIVES, OF PHELPS DODGE

The following table sets forth the name and the present principal
occupation or employment, and the name, principal business and address of any
corporation or other organization in which such employment is carried on, of (a)
the Directors and executive officers of Phelps Dodge and (b) certain
representatives of Phelps Dodge who may assist Innisfree M&A Incorporated, the
Solicitation Agent, in soliciting proxies from Asarco Shareholders. Unless
otherwise indicated, the principal business address of each Director or
executive officer of Phelps Dodge, named below is 2600 North Central Avenue,
Phoenix, AZ 85004-3014.

<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRESENT OFFICE OR OTHER
BUSINESS ADDRESS PRINCIPAL OCCUPATION OR EMPLOYMENT
- ------------------ ----------------------------------
<S> <C>
Douglas C. Yearley................... Chairman of the Board and Chief Executive
Officer; Chairman of the Executive Committee;
Member of Finance Committee
J. Steven Whisler.................... President and Chief Operating Officer; Director
Manuel J. Iraola..................... Senior Vice President, President, Phelps Dodge
Industries; Director
Timothy R. Snider.................... Senior Vice President, President, Phelps Dodge
Mining Company
Ramiro G. Peru....................... Senior Vice President and Chief Financial Officer
David L. Pulatie..................... Senior Vice President, Human Resources
S. David Colton...................... Vice President and General Counsel
Paul Hazen........................... Chairman of the Audit Committee and Member of the
Compensation and Management Development and
Finance Committees
Marie L. Knowles..................... Member of the Audit, Environmental, Health and
Safety Committees
Gordon R. Parker..................... Member of the Committee on Directors and the
Finance Committee
Archie W. Dunham..................... Member of the Audit, Compensation and Management
Development Committees
William A. Franke.................... Chairman of the Finance Committee; Member of the
Executive Committee and the Committee on
Directors
Southwood J. Morcott................. Chairman of the Compensation and Management
Development Committee; Member of the Committee on
Directors and the Environmental, Health and
Safety Committee
Robert N. Burt....................... Chairman of the Environmental, Health and Safety
Committee; Member of the Compensation and
Management Development Committee
Robert D. Krebs...................... Chairman of the Committee on Directors; Member of
the Executive Committee and the Audit Committee
</TABLE>

A-1
<PAGE> 37

ANNEX B

SHARES HELD BY PHELPS DODGE OR CERTAIN OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES AND OTHER REPRESENTATIVES AND CERTAIN
TRANSACTIONS BETWEEN ANY OF THEM AND ASARCO

As of August 27, 1999, Phelps Dodge was the beneficial owner of an
aggregate of 100 Shares, representing less than 1% of the Shares reported by the
Company to be outstanding. The date of the Shares purchased and the average
price paid is set forth below.

<TABLE>
<CAPTION>
DATE OF PURCHASE NO. OF SHARES PRICE PER SHARE
- ---------------- ------------- ---------------
<S> <C> <C>
August 12, 1999 100 $18.875
</TABLE>

Except as disclosed in this Proxy Statement, none of Phelps Dodge, or to
the best knowledge of Phelps Dodge, any of the persons named in Annex A owns any
securities of Asarco or any subsidiary of Asarco, beneficially or of record, has
purchased or sold any of such securities within the past two years or is or was
within the past year a party to any contract, arrangement or understanding with
any person with respect to any such securities. Except as disclosed in this
Proxy Statement, to the best knowledge of Phelps Dodge, such directors,
officers, employees and other representatives, none of their associates
beneficially owns, directly or indirectly, any securities of Asarco.

In the ordinary course of its business, Morgan Stanley & Co. Incorporated
("Morgan Stanley") engages in securities trading and brokerage activities and
may trade or otherwise effect transactions in debt or equity securities or
senior loans of Asarco for its own account and the accounts of its customers
and, accordingly, may at any time hold a long or short position in such
securities or senior loans. As of August 25, 1999, Morgan Stanley held a net
long position of 42,618 Shares.

Except as disclosed in this Proxy Statement, none of Phelps Dodge, its
directors, officers, employees or other representatives named in Annex A or, to
the best of Phelps Dodge's knowledge, its associates has any arrangement or
understanding with any person (1) with respect to any future employment by
Asarco or its affiliates or (2) with respect to future transactions to which
Asarco or any of its affiliates will or may be a party, other than sales of
products and services in the ordinary course of business.

B-1
<PAGE> 38

ANNEX C

SHARES HELD BY DIRECTORS AND EXECUTIVE OFFICERS OF ASARCO

The following table sets forth the beneficial ownership of the Shares as of
June 30, 1999, by (a) each current director, (b) the five most highly
compensated executive officers of Asarco, and (c) all directors and officers as
a group. Unless otherwise specified, the directors and officers have sole voting
and investment power with respect to these securities. The information contained
in the table is copied from information contained in the Asarco/Cyprus Amax
Joint Proxy Statement.

<TABLE>
<CAPTION>
ADDITIONAL
SHARES SHARES DEEMED
BENEFICIALLY BENEFICIALLY PERCENT
NAME OWNED(1) OWNED(2) TOTAL OF CLASS
- ---- ------------ ------------- --------- --------
<S> <C> <C> <C> <C>
Vincent A. Calarco(3)......... 600 -- 600 (4)
James C. Cotting(3)........... 2,200 -- 2,200 (4)
William Dowd(6)............... 10,228 42,300 52,528 (4)
David C. Garfield(3)(5)....... 18,300 -- 18,300 (4)
E. Gordon Gee(3).............. 1,800 -- 1,800 (4)
James W. Kinnear(3)........... 2,000 -- 2,000 (4)
Francis R. McAllister(6)...... 65,724 202,340 268,064 0.7%
Kevin R. Morano(6)............ 32,468 124,500 156,968 (4)
Michael T. Nelligan(3)........ 2,215 -- 2,215 (4)
John D. Ong(3)................ 1,600 -- 1,600 (4)
Richard de J. Osborne(3)(7)... 112,730 377,450 490,180 1.2%
Manuel T. Pacheco(3).......... 615 -- 615 (4)
William L. Paul(6)............ 8,184 41,400 49,584 (4)
James Wood(3)................. 28,800 -- 28,800 (4)
Augustus B. Kinsolving(6)..... 18,351 83,300 101,651 (4)
All directors and officers as
a group (23
individuals)(6)............. 340,835 939,554 1,280,389 3.2%
</TABLE>

- -------------------------

(1) Information with respect to beneficial ownership is based upon information
furnished by each director or officer. Except as noted below, all directors
and officers have sole voting and investment power over the shares
beneficially owned by them.

(2) Consists of shares deemed beneficially owned under regulations of the
Securities and Exchange Commission because such shares may be acquired
within 60 days after June 30, 1999, through the exercise of options granted
under Asarco's 1996 Stock Incentive Plan or the previous Stock Incentive
Plan.

(3) See also the information below on Common Stock Equivalents.

(4) Less than 0.5%.

(5) Does not include 2,000 shares owned by Mr. Garfield's wife. Mr. Garfield
disclaims beneficial ownership of these shares.

C-1
<PAGE> 39

(6) Includes restricted shares of Asarco common stock awarded under Asarco's
1996 Stock Incentive Plan or the previous Stock Incentive Plan to certain of
Asarco's executive officers, and still subject to restrictions, as follows:
31,820 to Mr. McAllister; 17,520 to Mr. Morano; 6,440 to Mr. Dowd; 8,340 to
Mr. Kinsolving; 5,460 to Mr. Paul; and 19,270 to other executive officers.
All restricted shares will vest upon the occurrence of a change of control.

(7) Includes 5,027 shares of Asarco Common Stock over which Mr. Osborne and his
wife share voting and investment power.

COMMON STOCK EQUIVALENTS

The following table sets forth the per share number of Common Stock
Equivalents credited as of June 30, 1999 to the accounts of Asarco's
non-employee directors under the Asarco's Deferred Fee Plan for Directors and
under its Directors' Deferred Payment Plan. Under both plans, payments are made
in cash following retirement based on the market value of the Common Stock at
that time.

<TABLE>
<CAPTION>
COMMON STOCK
NAME EQUIVALENTS(1)
- ---- --------------
<S> <C>
Vincent A. Calarco.......................................... 3,996
James C. Cotting............................................ 3,461
David C. Garfield........................................... 4,029
E. Gordon Gee............................................... 2,499
James W. Kinnear............................................ 23,419
Michael T. Nelligan......................................... 4,934
John D. Ong................................................. 5,830
Richard de J. Osborne....................................... 87
Manuel T. Pacheco........................................... 3,862
James Wood.................................................. 11,502
------
Total.................................................. 63,619
</TABLE>

- -------------------------

(1) Amounts shown reflect the number of share equivalents credited to the
Deferred Fee Plan and the Directors' Deferred Payment Plan plus share
equivalents of dividends credited.

C-2
<PAGE> 40
FORM OF PROXY CARD

PROXY SOLICITED BY PHELPS DODGE CORPORATION IN OPPOSITION TO THE PROXY
SOLICITED BY THE DIRECTORS OF ASARCO INCORPORATED

The undersigned, a holder of record of shares of common stock, without
par value (the "Shares"), of ASARCO Incorporated, a New Jersey corporation
("Asarco"), at the close of business on August 25, 1999 (the "Record Date"),
hereby appoints [ ], or any of them, the proxy or proxies of
the undersigned, each with full power of substitution, to attend the Special
Meeting of Asarco Shareholders to be held on September 30, 1999 (and any
adjournments, postponements, continuations or reschedulings thereof), at which
holders of Shares will be voting on, among other things, approval and adoption
of the Agreement and Plan of Merger, dated as of July 15, 1999, by and among
Asarco, Cyprus Amax Minerals Company, a Delaware corporation ("Cyprus Amax"),
Asarco Cyprus Incorporated, a Delaware corporation ("Asarco Cyprus
Incorporated"), and two wholly owned subsidiaries of Asarco Cyprus Incorporated
(the "Asarco/Cyprus Amax Merger Agreement"), providing for the merger of the two
wholly owned subsidiaries with and into Asarco and Cyprus Amax, respectively,
with Asarco and Cyprus Amax each surviving, and to vote as specified in this
Proxy all the Shares which the undersigned would otherwise be entitled to vote
if personally present. The undersigned hereby revokes any previous proxies with
respect to the matters covered in this Proxy.

THE BOARD OF DIRECTORS OF PHELPS DODGE CORPORATION RECOMMENDS A VOTE
AGAINST APPROVAL AND ADOPTION OF THE ASARCO/CYPRUS AMAX MERGER AGREEMENT AND THE
PROPOSED ASARCO/CYPRUS AMAX TRANSACTION. IF RETURNED CARDS ARE SIGNED BUT NOT
MARKED, THE UNDERSIGNED WILL BE DEEMED TO HAVE VOTED AGAINST APPROVAL AND
ADOPTION OF THE ASARCO/CYPRUS AMAX MERGER AGREEMENT AND THE PROPOSED
ASARCO/CYPRUS AMAX TRANSACTION.

PLEASE SIGN AND DATE ON REVERSE SIDE
<PAGE> 41
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE

THE BOARD OF DIRECTORS OF PHELPS DODGE CORPORATION RECOMMENDS A VOTE
AGAINST THE PROPOSAL.

PROPOSAL: APPROVAL AND ADOPTION OF THE ASARCO/CYPRUS AMAX MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY

Against For Abstain

/ / / / / /

In its discretion, this Proxy is authorized to vote upon such other
business as may properly come before the meeting or any adjournments,
postponements, continuations or reschedulings thereof.

IF YOU HAVE ANY QUESTIONS OR NEED ASSISTANCE, PLEASE CONTACT INNISFREE M&A
INCORPORATED AT 1-877-750-5838.

Date:
----------------------------------

---------------------------------------
Signature

---------------------------------------
Title(s)

Please sign your name exactly as it appears hereon.
When shares are held of record by joint tenants, both
should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or authorized officer. If
a partnership name, please sign in partnership name
by authorized person.