Jan. 29 (Bloomberg) -- Phelps Dodge Corp., the mining company set to be acquired by Freeport-McMoRan Copper & Gold Inc., said fourth-quarter profit surged because of higher copper prices and a gain from its failed takeover of Inco Ltd.

Net income rose to $1.32 billion, or $6.50 a share, from $121.3 million, or 60 cents a share, a year earlier, Phoenix- based Phelps said today in a statement. Sales jumped 43 percent to $3.24 billion.

Phelps Dodge, the world's third-largest copper producer, benefited from a 64 percent surge in prices. The company also got a breakup fee of $231 million after Chief Executive Officer J. Steven Whisler's plan to acquire nickel producer Inco Ltd. failed. Phelps Dodge then agreed to a $25.5 billion takeover by Freeport, which owns the world's second-largest copper mine.

``The metal was up pretty dramatically,'' Charles Bradford, an analyst at Soleil Securities in New York, said before the results were announced. ``I expect their transaction with Freeport to be completed. There doesn't appear to be anybody else bidding.''

Excluding $364.1 million, or $1.79 a share, in one-time gains and 77 cents a share in gain from a revaluation of its copper hedges, profit was $3.94 a share. The company was expected to earn $4.29 a share, based on the estimates of 15 analysts surveyed by Bloomberg.

Shares of Phelps Dodge fell $2.82, or 2.3 percent, to $121.45 at 4:01 p.m. in New York Stock Exchange composite trading, as the price of copper dropped 3.6 percent, the most in three weeks. The value of the Freeport offer is $124.91 a share.

Hedging Gains

While the price of copper was up from the fourth quarter of 2005, the metal has slumped about 18 percent since Nov. 17, before Freeport announced its offer, and has plunged 37 percent from a record high in May.

Phelps Dodge, which began hedging programs in 2004 to protect against a slump in prices, said the market value of the hedges boosted profit by $156.7 million, or 77 cents a share. The contracts are revalued every quarter. The average price of the metal fell 8 percent to $3.21 a pound compared with the third quarter, when losses on the hedges totaled $110.5 million, or 54 cents a share.

Less Than Expected

Excluding the gain from copper hedging, ``the results are slightly below expectations,'' Victor Lazarovici, an analyst at BMO in New York said in a note today. They ``are likely to be of little concern to the market since this is probably the company's last earnings report before being acquired by Freeport,'' said Lazarovici, who had estimated $4.16 a share.

Production of copper during the quarter fell 0.7 percent to 609 million pounds, Phelps Dodge said. Total copper shipments, at 599.4 million pounds, were 4.6 percent lower than Lazarovici's forecast.

There was ``lower-than-planned production from the Cerro Verde sulfide start-up'' in Peru, Whisler said today on a conference call with analysts. ``The shortfall in the quarter was simply a matter of aggressive forecasting on our part.''

Copper production may reach 625 million to 655 million pounds in the first quarter with sales at 615 million to 645 million pounds, Whisler said. Output this year may reach 2.9 billion pounds, up from 2.44 billion pounds last year, he said.

`Worst Is Behind Us'

``We expect world copper consumption to increase 3.5 percent as a result of continued global economic growth,'' Stephen Higgins, president of Phelps Dodge Sales Co., said on the call. ``In the U.S., we anticipate that industrial production will grow between 2 percent and 3 percent for the year. While we do not expect a sharp turnaround in construction activities or automotive production, we agree with most analysts that the worst of the current correction is behind us.''

Copper consumption in China, the biggest user of the metal, may grow at least 7 percent this year, while demand in the U.S., Europe and Japan may grow 1 percent, Higgins said.

``We expect the market to move toward a modest surplus,'' Higgins said. ``However, if we continue to see disruptions at levels similar to the last two years, then the market will be closer to balance, likely putting upward pressure on prices.''

Operating income before special items from mining, Phelps Dodge's biggest business, more than doubled to $1.4 billion on higher prices for copper.

The company had $20.5 million of operating income from wire and cable sales to utilities and home builders, compared with a loss of $12.1 million a year ago, Phelps said.

Freeport Offer

Phelps Dodge management accepted an offer of $88 in cash and 0.67 of a Freeport share. The deal is subject to the approval of shareholders of both companies. Freeport expects the acquisition to be completed in the current quarter.

New Orleans-based Freeport on Jan. 12 won support for the acquisition from New York hedge fund Atticus Capital LP, Phelps Dodge's biggest investor with 20.2 million shares. Paulson & Co., a New York-based hedge fund that manages more than $7 billion and owns 4.5 million Phelps shares, also said it will support the deal.

SAC Capital Advisors LLC, the $10 billion hedge fund run by Steven Cohen, on Jan. 23 reiterated its opposition to the offer. SAC, which first publicly opposed the deal on Dec. 11, owns 4 million Phelps Dodge shares and 4.4 million options.

To contact the reporter on this story: Choy Leng Yeong in Seattle at clyeong@bloomberg.net

Last Updated: January 29, 2007 16:55 EST