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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1998

                           Commission file number 1-82

                            PHELPS DODGE CORPORATION

                            (a New York corporation)

                                   13-1808503
                      (I.R.S. Employer Identification No.)

                 2600 N. Central Avenue, Phoenix, AZ 85004-3089

                  Registrant's telephone number: (602) 234-8100

           Securities registered pursuant to Section 12(b) of the Act:

                                                          Name of each exchange
          Title of each class                              on which registered
          -------------------                              -------------------

Common Shares, $6.25 par value per share                 New York Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of Common Shares of the issuer held by nonaffiliates
at March 5, 1999, was approximately $2,820,613,000.

Number of Common Shares outstanding at March 5, 1999:  57,933,000 shares.

                      Documents Incorporated by Reference:

              Document                                          Location in 10-K
              --------                                          ----------------
Proxy Statement for 1999 Annual Meeting                             Part III

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                            PHELPS DODGE CORPORATION

                           Annual Report on Form 10-K
                      For the Year Ended December 31, 1998

                                TABLE OF CONTENTS
                                                                            Page
                                                                            ----
Part I.
   Items 1. and 2. Business and Properties
      Phelps Dodge Mining Company
         Properties, Facilities and Production
            Copper Operations
               Phelps Dodge Copper Production Data, by Source
               Phelps Dodge Metal Production and Sales
               Phelps Dodge Smelters and Refinery - Production
            Other Mining Operations and Investments
         Exploration & Development
         Ore Reserves
         Sales and Competition
         Prices, Supply and Consumption
         Costs
         Energy Supplies
         Environmental and Other Regulatory Matters
      Phelps Dodge Industries
         Specialty Chemicals Segment
         Wire and Cable Segment
         Environmental Matters
      Ownership of Real Property
      Labor Matters
      Research and Development
      Other Environmental Matters

   Item 3. Legal Proceedings

   Item 4. Submission of Matters to a Vote of Security Holders

   Executive Officers of Phelps Dodge Corporation

Part II.
   Item 5. Market for the Registrant's Common Equity and Related
      Stockholder Matters

   Item 6. Selected Financial Data

   Item 7. Management's Discussion and Analysis
      Management's Discussion and Analysis
         Results of Phelps Dodge Mining Company
         Results of Phelps Dodge Industries
         Other Matters Relating to the Statement of Consolidated Operations
         Changes in Financial Condition; Capitalization
         Capital Outlays
         Inflation
         Dividends and Market Price Ranges
         Quarterly Financial Data

   Item 8. Financial Statements and Supplementary Data
      Index to Consolidated Financial Statements
      Report of Independent Accountants on Financial Statement Schedule
      Report of Management
      Report of Independent Accountants
      Statement of Consolidated Income
      Consolidated Balance Sheet
      Consolidated Statement of Cash Flows
      Consolidated Statement of Common Shareholders' Equity
      Notes to Consolidated Financial Statements
      Financial Data by Geographic Area
      Financial Data by Business Segment

   Item 9. Disagreements on Accounting and Financial Disclosure

Part III.
   Item 10. Directors and Executive Officers of the Registrant
   Item 11. Executive Compensation
   Item 12. Security Ownership of Certain Beneficial Owners and Management
   Item 13. Certain Relationships and Related Transactions

Part IV.
   Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K

   Valuation and Qualifying Accounts and Reserves

   Signatures-

                            PHELPS DODGE CORPORATION

                         1998 ANNUAL REPORT ON FORM 10-K

                                     Part I

ITEMS 1. AND 2.  BUSINESS AND PROPERTIES

         Phelps Dodge Corporation (the Company, which may be also referred to as
Phelps Dodge, we, us or ours) 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. The Company comprises two divisions: (i) Phelps
Dodge Mining Company and (ii) Phelps Dodge Industries. These are more fully
described in Note 21 to the Consolidated Financial Statements which also sets
forth financial information about the divisions including the sales and
long-lived assets of our international operations.

          (i)  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.

          (ii) 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, Peru and South
Africa. These operations produce a variety of metals and minerals including
copper, gold, fluorspar, 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.

         Unless otherwise stated, all references to tons are to short tons, and
references to ounces are to troy ounces.

         Our company employed 13,924 people on December 31, 1998.

PHELPS DODGE MINING COMPANY

         Phelps Dodge Mining Company (PD Mining) is our international business
segment that comprises a group of companies involved in vertically integrated
copper operations including mining, concentrating, electrowinning, smelting and
refining, rod production, marketing and sales, and related activities. PD Mining
sells copper to others primarily as rod, cathode or concentrates, and as rod to
our wire and cable segment. In addition, PD Mining at times smelts and refines
copper and produces copper rod for customers on a toll basis. It also produces
gold, silver, molybdenum and copper chemicals as by-products, and sulfuric acid
from its air quality control facilities. This business segment also includes
other mining operations and investments (including fluorspar, silver, and zinc
operations) and worldwide mineral exploration and development programs.

PD MINING - PROPERTIES, FACILITIES AND PRODUCTION

         COPPER OPERATIONS

         We produce copper concentrates from open-pit mines and concentrators
located in Morenci, Arizona; Santa Rita, New Mexico; and near Copiapo, Chile. We
produce electrowon copper cathode at solution extraction/electrowinning (SX/EW)
operations in Tyrone and Santa Rita, New Mexico, and Morenci, Arizona.

         Our Morenci complex in southeastern Arizona comprises an open-pit mine,
two concentrators, four solution extraction facilities and two electrowinning
tankhouses. We operate Morenci and own an 85 percent undivided interest; the
remaining 15 percent interest is owned by Sumitomo Metal Mining Arizona, Inc.
(Sumitomo), a jointly owned subsidiary of Sumitomo Metal Mining Co., Ltd., and
Sumitomo Corporation. Sumitomo takes in kind its share of Morenci production.
Morenci is the largest copper producing operation in North America.

         Litigation concerning the allocation of available water supplies could
adversely affect the water supplies for the Morenci operation and our other
properties in Arizona. See Item 3, "Legal Proceedings" for information
concerning the status of these proceedings.

         We operate an open-pit copper mine, concentrator and SX/EW facility in
Santa Rita, New Mexico, and a smelter in Hurley, New Mexico, that are owned by
Chino Mines Company (Chino), a general partnership in which we hold a two-thirds
partnership interest. Heisei Minerals Corporation (Heisei), a subsidiary of
Mitsubishi Corporation and Mitsubishi Materials Corporation, owns the remaining
one-third interest in Chino. Each partner purchases its proportionate share of
Chino's copper production each month. On October 21, 1998, we announced that we
would curtail production at Chino. The production curtailment is occurring in
phases between October 31, 1998, and the first quarter of 1999. The curtailment
will result in a reduction of 35,000 tons of annual copper production.

         We also operate the Candelaria mine located near Copiapo in the Atacama
Desert of northern Chile. We completed construction and commenced operations at
Candelaria in October 1994, and completed an expansion of the facility in 1997.
The project presently consists of an open-pit copper mine, concentrator, port
and associated facilities. We own an 80 percent interest in Candelaria through
PD Candelaria, Inc., a wholly owned subsidiary. Sumitomo Metal Mining Co., Ltd.,
and Sumitomo Corporation own the remaining 20 percent interest.

         Until the fourth quarter of 1998, we produced copper concentrates from
two underground mines and a concentrator located near Copiapo, Chile, through
our wholly owned Chilean subsidiary, Compania Contractual Minera Ojos del Salado
(Ojos del Salado). We suspended operations indefinitely at Ojos del Salado on
October 21, 1998, resulting in a reduction of more than 20,000 tons of annual
copper production.

         Our Tyrone mine-for-leach, open-pit operation near Silver City, New
Mexico, is wholly owned. The SX/EW plant at Tyrone is owned and operated by
Burro Chief Copper Company (Burro Chief), our wholly owned subsidiary. Burro
Chief also operates our SX/EW plant at Santa Rita.

         We are the world's leading producer of copper using the SX/EW process.
In 1998, we produced a total of 430,800 tons of cathode copper at our SX/EW
facilities, compared with 418,000 tons in 1997 and 408,000 tons in 1996. SX/EW
is a cost-effective process of extracting copper from certain types of ores. In
conjunction with conventional concentrating, smelting and refining, SX/EW is a
major factor in our continuing efforts to maintain internationally competitive
costs. Total annual capacity of electrowon copper cathode production is
currently 290,000 tons at Morenci, 75,000 tons at the Santa Rita plant and
75,000 tons at the Burro Chief plant near Tyrone.

         On February 3, 1998, we acquired the stock of Cobre Mining Company Inc.
(Cobre) for $108.7 million including acquisition costs. We also assumed Cobre's
outstanding debt of $14.8 million. The acquisition was at a price of $3.85 per
common share for Cobre's 27 million common shares, including shares issuable
upon the exercise of outstanding warrants and options. The primary assets of
Cobre include the Continental Mine, which comprises an open-pit copper mine, two
underground copper mines, two mills, and the surrounding 11,000 acres of land,
including mineral rights, located in southwestern New Mexico adjacent to our
Chino operations. On October 21, 1998, we announced the indefinite suspension of
operations at Cobre. Operations will be suspended in a phased approach reducing
copper production by 35,000 tons per year.

         We own and operate a smelter in Hidalgo County, New Mexico, and,
through Chino Mines Company, a two-thirds interest in the Chino smelter in
Hurley, New Mexico. We smelt virtually all of our share of our U.S. concentrate
production and occasionally some concentrate production from Candelaria. Our
Hidalgo smelter also serves as a custom smelter for other mining companies. In
addition, we purchase concentrates to keep our smelters operating at efficient
levels. Such purchases are expected to continue whenever the smelting capacity
of the Hidalgo and Chino smelters exceeds our concentrate production level.

         We refine our share of anode copper production from our smelters at our
refinery in El Paso, Texas, which is one of the world's largest copper
refineries. During 1998, our refinery operated slightly below capacity producing
just under 430,000 tons of electrolytic copper. The refinery's capacity of
450,000 tons of electrolytic copper per year is sufficient to refine all the
anode copper we produce for our account at our two operating smelters as well as
anodes from other customers that we refine on a toll basis. Our refinery also
produces gold, silver and copper sulfate and recovers small amounts of selenium,
platinum and palladium as by-products of the copper refining process.

         We are the world's largest producer of continuous-cast copper rod, the
basic feed for the electrical wire and cable industry. Most of our refined
copper, and additional purchased copper, is converted into rod at our
continuous-cast copper rod facilities in El Paso, Texas, and Norwich,
Connecticut. Our two plants have a collective annual capacity to convert more
than 750,000 tons of refined copper into rod and other refined copper products.
During 1998, combined production of rod and other refined copper products from
our two plants was 764,400 tons.

         The following tables show our worldwide copper production by source for
the years 1994 through 1998; aggregate production and sales data for copper,
gold, silver, molybdenum and sulfuric acid from these sources for the same
years; annual average copper prices; and production from our smelters and
refinery. Major changes in operations during the five-year period included:

          +    curtailment of Chino operations beginning in the 1998 fourth
               quarter;
          +    acquisition of Cobre in February 1998 followed by indefinite
               suspension of underground mining in October 1998;
          +    indefinite suspension of operations at Ojos del Salado in October
               1998;
          +    completion of the Southwest solution extraction project at
               Morenci in the 1998 third quarter;
          +    commencement of operations at Candelaria in the 1994 fourth
               quarter followed by the expansion of concentrator operations in
               the 1997 fourth quarter;
          +    expansion of Chino's SX/EW plant at Santa Rita in 1997;
          +    increase in capacity at Morenci SX/EW facilities in 1995 and
               commencement of production at the Southside project; and
          +    sale of the Company's interest in the Santa Gertrudis gold mine
               in the 1994 second quarter.
<PAGE>
PHELPS DODGE COPPER PRODUCTION DATA, BY SOURCE
     (thousand tons)
<TABLE>
<CAPTION>
                              1998      1997      1996      1995      1994
                            --------  --------  --------  --------  --------
<S>                          <C>       <C>       <C>       <C>       <C>
MATERIAL MINED (a)
 Morenci .................   288,200   291,698   297,688   261,264   240,700
 Tyrone ..................   108,359   107,896   102,936    83,935    62,067
 Chino ...................   117,432   121,639   122,939   115,821   105,057
 Cobre ...................    15,763        --        --        --        --
 Candelaria ..............   131,155    90,045    83,962    72,068    17,842
 Ojos del Salado .........     1,336     1,713     1,628     1,855     1,712
                            --------  --------  --------  --------  --------

  Total material mined ...   662,245   612,991   609,153   534,943   427,378
 Less minority
  participants' shares ...   108,605   102,305   102,421    92,211    74,692
                            --------  --------  --------  --------  --------

  Net Phelps Dodge share .   553,640   510,686   506,732   442,732   352,686
                            ========  ========  ========  ========  ========
MILL ORE MINED
 Morenci .................    49,392    50,951    47,136    44,284    45,240
 Chino ...................    17,306    18,413    20,061    17,026    17,811
 Cobre ...................     4,898        --        --        --        --
 Candelaria ..............    24,433    13,055    11,603    11,439     2,685
 Ojos del Salado .........     1,179     1,551     1,506     1,596     1,536
                            --------  --------  --------  --------  --------

  Total mill ore mined ...    97,208    83,970    80,306    74,345    67,272
 Less minority
  participants' shares ...    18,064    16,392    16,078    14,606    13,260
                            --------  --------  --------  --------  --------

  Net Phelps Dodge share .    79,144    67,578    64,228    59,739    54,012
                            ========  ========  ========  ========  ========
GRADE OF ORE MINED -
 PERCENT COPPER
 Morenci .................      0.68      0.72      0.70      0.64      0.65
 Chino ...................      0.68      0.69      0.67      0.76      0.69
 Cobre ...................      0.93        --        --        --        --
 Candelaria ..............      1.07      1.45      1.40      1.88      1.27
 Ojos del Salado .........      1.61      1.54      1.57      1.40      1.38

RECOVERABLE COPPER (b)
 Morenci:
  Concentrate ............     247.2     269.9     247.1     211.6     217.3
  Electrowon .............     275.8     272.3     262.5     225.7     190.1
 Tyrone:
  Precipitate ............        --       2.6       3.7       4.3       4.2
  Electrowon .............      82.6      76.6      76.0      70.4      68.9
 Chino:
  Concentrate and
   precipitate ...........      85.5      99.9      99.0     100.6      92.7
  Electrowon .............      72.4      69.1      69.5      68.1      66.8
 Cobre:
  Concentrate ............      34.2        --        --        --        --
 Candelaria:
  Concentrate ............     236.9     171.7     150.8     165.7      31.0
 Ojos del Salado:
  Concentrate ............      17.9      21.1      21.3      19.6      18.6
 Bisbee precipitate and
  miscellaneous ..........       0.2       0.9       3.4       1.6       3.6
                            --------  --------  --------  --------  --------

  Total recoverable copper   1,052.7     984.1     933.3     867.6     693.2
 Less minority
  participants' shares ...     178.7     172.0     162.9     154.9     120.4
                            --------  --------  --------  --------  --------

  Net Phelps Dodge share .     874.0     812.1     770.4     712.7     572.8
                            ========  ========  ========  ========  ========
</TABLE>
<PAGE>
PHELPS DODGE METAL PRODUCTION AND SALES (b)
<TABLE>
<CAPTION>
                                  1998      1997      1996      1995      1994
                                --------  --------  --------  --------  --------
<S>                              <C>      <C>       <C>       <C>       <C>
COPPER (THOUSAND TONS)
 Total production ............   1,052.7     984.1     933.3     867.6     693.2
 Less minority
  participants' shares .......     178.7     172.0     162.9     154.9     120.4
                                --------  --------  --------  --------  --------
  Net Phelps Dodge share .....     874.0     812.1     770.4     712.7     572.8
                                ========  ========  ========  ========  ========

 Sales (c) ...................     876.3     812.8     771.6     696.6     560.6
                                ========  ========  ========  ========  ========
GOLD (THOUSAND OUNCES)
 Total production ............       185       139       129       151        93
 Less minority
  participants' shares .......        36        30        26        31        28
                                --------  --------  --------  --------  --------
  Net Phelps Dodge share .....       149       109       103       120        65
                                ========  ========  ========  ========  ========

  Sales (c) ..................       145       113       125       125        47
                                ========  ========  ========  ========  ========
SILVER (THOUSAND OUNCES)
 Total production ............     3,566     3,254     2,636     2,739     1,627
 Less minority
  participants' shares .......       713       677       564       545       360
                                --------  --------  --------  --------  --------
  Net Phelps Dodge share .....     2,853     2,577     2,072     2,194     1,267
                                ========  ========  ========  ========  ========

  Sales (c) ..................     3,095     2,637     2,359     1,985     1,039
                                ========  ========  ========  ========  ========
MOLYBDENUM (THOUSAND POUNDS)
 Total production ............     1,369     2,121     2,427     2,024       969
 Less minority
  participants' shares .......       355       472       501       507       226
                                --------  --------  --------  --------  --------
  Net Phelps Dodge share .....     1,014     1,649     1,926     1,517       743
                                ========  ========  ========  ========  ========

  Sales ......................     1,050     1,272     2,141     1,328       698
                                ========  ========  ========  ========  ========
SULFURIC ACID
 (THOUSAND TONS)(d)
 Total production ............   1,222.1   1,263.4   1,235.3   1,252.6   1,276.7
 Less minority
  participant's share ........     200.9     210.5     191.8     181.3     191.5
                                --------  --------  --------  --------  --------
  Net Phelps Dodge share .....   1,021.2   1,052.9   1,043.5   1,071.3   1,085.2
                                ========  ========  ========  ========  ========

  Sales ......................     196.1     383.5     464.0     554.3     685.2
                                ========  ========  ========  ========  ========

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

COMEX COPPER PRICE (e)             $0.75      1.04      1.06      1.35      1.07

--------------------------------------------------------------------------------
</TABLE>
<PAGE>
PHELPS DODGE SMELTERS, REFINERY AND ROD PRODUCTION
<TABLE>
<CAPTION>
                                 1998      1997      1996      1995      1994
                               --------  --------  --------  --------  --------
<S>                            <C>       <C>       <C>       <C>       <C>
Smelters (f)
 Total copper (thousand tons)     405.8     419.1     428.8     422.5     411.7
 Less minority
  participant's share .......      60.1      64.5      62.9      58.6      60.0
                               --------  --------  --------  --------  --------
  Net Phelps Dodge share ....     345.7     354.6     365.9     363.9     351.7
                               ========  ========  ========  ========  ========

Refinery (g)
 Copper (thousand tons) .....     429.3     455.3     450.1     453.0     453.8
 Gold (thousand ounces) .....      74.6     107.9     114.4     145.4     118.0
 Silver (thousand ounces) ...   2,523.8   2,843.0   3,142.5   3,441.5   2,672.3


Rod (h) (thousand tons) .....     764.4     747.0     711.4     654.2     683.5
</TABLE>
--------------------------------------------------------------------------------

Footnotes to tables:

     (a)  Includes material mined for leach operations.
     (b)  Includes smelter production from custom receipts and fluxes as well as
          tolling gains or losses.
     (c)  Excludes sales of purchased copper, silver and gold.
     (d)  Sulfuric acid production results from smelter air quality control
          operations; sales do not include internal usage.
     (e)  New York Commodity Exchange annual average spot price per pound -
          cathodes.
     (f)  Includes production from purchased concentrates and copper smelted for
          others on a toll basis.
     (g)  Includes production from purchased material and copper refined for
          others on a toll basis.
     (h)  Includes rod, wire and other shapes.

         OTHER MINING OPERATIONS AND INVESTMENTS

         Phelps Dodge Mining (Pty.) Limited, our wholly owned subsidiary,
operates the Witkop open-pit fluorspar mine and a mill in the western Transvaal,
South Africa. We produce acid-grade fluorspar concentrates at that operation for
customers in South Africa, the United States, Europe, Australia and Asia. We
produced a total of 101,800 metric tons of acid-grade fluorspar in 1998,
compared with 97,800 metric tons in 1997. Fluorspar is primarily used in the
production of glass products and refrigerants.

         We own a 13.9 percent interest in Southern Peru Copper Corporation
(SPCC), which operates two open-pit copper mines, two concentrators, an SX/EW
facility, a smelter and a refinery in Peru. SPCC's other principal shareholders
are ASARCO Incorporated with a 54.1 percent interest and the Cerro Trading
Company with a 17.8 percent interest. The common stock we hold as well as that
held by ASARCO and Cerro Trading Company is closely held and is not registered
for trading. The remaining 14.2 percent interest is publicly held. SPCC's
results are not included in our earnings because we account for our investment
in SPCC on the cost basis. During 1998, we received dividend payments of $5.7
million from SPCC, compared with $14.1 million in 1997 and $16.4 million in
1996.

         On May 6, 1997, we acquired an indirect 40 percent voting interest,
representing an indirect 26.67 percent economic interest, in a leading Peruvian
zinc mining company, Compania San Ignacio de Morococha S.A. (SIMSA) and its San
Vicente mine. SIMSA's other shareholder with voting shares is the Jesus Arias
family. The underground mine produces approximately 130 million pounds of zinc
annually. We account for our investment in SIMSA on the equity basis.

         In the fourth quarter of 1998, we sold our interest in Black Mountain
Mineral Development Company (Pty.) Limited in the Cape Province of South Africa
to Amcoal Colliery and Industrial Operations Limited (Amcoal) for $18.5 million.
We had owned 44.6 percent of Black Mountain and Gold Fields of South Africa
group, who managed the operation, owned 55.4 percent. Amcoal also purchased Gold
Fields share of Black Mountain. We received $1.1 million, $3.4 million and $6.0
million in dividend payments from Black Mountain in 1998, 1997 and 1996,
respectively.

PD MINING - EXPLORATION & DEVELOPMENT

         Our exploration group's primary objectives are to increase copper
reserves through discoveries, acquisitions and joint ventures and, where
appropriate, to diversify into other metals, minerals and geographic areas. This
group operates in more than 30 countries and maintains offices in Australia,
Austria, Brazil, Canada, Chile, Eritrea, India, Indonesia, Madagascar, Mexico,
Peru, the Philippines, South Africa, the United States and Zambia.

         The 1998 exploration program continued to place emphasis on the search
for and delineation of large scale copper, gold and other base metal deposits.
We expended $42.0 million on worldwide exploration during 1998, compared with
$74.1 million in 1997 and $70.7 million in 1996. Approximately 26 percent of the
1998 expenditures occurred in the United States with 19 percent being spent at
our mine sites. This compares with 33 percent in 1997 (23 percent at mine sites)
and 47 percent in 1996 (33 percent at mine sites). The balance of exploration
expenditures was spent principally in Australasia, Brazil, Canada, Chile,
Mexico, Peru and Madagascar.

         During 1998, exploration efforts continued at our existing copper
operations. In New Mexico, additional mine-for-leach resources were delineated
in the Tyrone area.

         On May 7, 1997, we announced plans to resume production at our Ajo
copper mine in southern Arizona where mining operations have been suspended
since 1984. Environmental permitting is continuing while the project is on hold
pending an improvement in market conditions.

         Environmental permitting is in progress to advance the development of
our Dos Pobres and San Juan deposits in the Safford District in eastern Arizona.
The Dos Pobres deposit contains a total of 286 million tons of leach material
with a grade of 0.39 percent copper. The San Juan deposit contains 272 million
tons of leach material with a grade of 0.28 percent copper. Additionally, the
Dos Pobres deposit contains 330 million tons of concentrator material with a
grade of 0.65 percent copper.

         Internationally, our exploration group completed a feasibility study on
the Ambatovy nickel/cobalt deposit in central Madagascar. Detailed drilling in
the district, which is located 80 kilometers east of the capital city of
Antananarivo, defined a resource of 210 million tons at 1.1 percent nickel and
0.1 percent cobalt. Acid consumption by the ore is low, and the ore is amenable
to high pressure acid leach extraction for nickel and cobalt. The feasibility
study indicated there was a need for the price of nickel to increase to make the
project economical.

         We completed a pre-feasibility study on our 70 percent-owned Piedras
Verdes property in Sonora, Mexico, in 1998. Results indicated a leachable
resource of 310 million tons at 0.37 percent copper. Metallurgical testwork is
continuing.

         In 1998, we formed a Brazilian joint venture company with Companhia
Vale do Rio Doce (CVRD) under the name Mineracao Serra do Sossego S.A.
(Sossego). The venture agreement required us to spend approximately $4.5 million
on exploration and related activities in order to earn a 50 percent share in the
venture. Having completed our earn-in, the mineral rights and all initial
investments were transferred into the new company in December 1998. The deposit
contains an estimated 200 million tons at 1.2 percent copper with 0.31 grams of
gold per ton. Sossego is starting the necessary work to develop a
pre-feasibility study to further define the resource and determine the viability
of the project.
<PAGE>
ORE RESERVES

       Ore reserves at each of our active copper operations and at Safford, Ajo,
Ojos del Salado and Cobre have been estimated as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                           Estimated at December 31, 1998                   Estimated at December 31, 1997
                   ----------------------------------------------   ----------------------------------------------
                       Milling            Leaching                      Milling            Leaching
                       Reserves           Reserves        Phelps        Reserves           Reserves        Phelps
                   ----------------   ----------------     Dodge    ----------------   ----------------     Dodge
                   Million      %     Million      %     Interest   Million      %     Million      %     Interest
                     Tons    Copper     Tons    Copper      (%)       Tons    Copper     Tons    Copper      (%)
                   -------   ------   -------   ------   --------   -------   ------   -------   ------   --------
<S>                  <C>       <C>    <C>         <C>       <C>       <C>       <C>    <C>       <C>       <C>
Morenci ........     475.8     0.63   2,076.9     0.22       85.0     543.3     0.68   1,628.1     0.26       85.0

Chino ..........     350.3     0.62     483.0     0.30       66.7     368.9     0.62     520.8     0.30       66.7

Tyrone .........        --       --     466.3     0.32      100.0        --       --     455.0     0.34      100.0

Cobre ..........     133.6     0.73      98.0     0.35      100.0       N/A      N/A       N/A      N/A         --

Candelaria* ....     456.1     0.85        --       --       80.0     475.8     0.88        --       --       80.0

Safford ** .....     330.0     0.65     558.2     0.34      100.0     330.0     0.65     285.0     0.39      100.0

Ajo ............     150.0     0.56        --       --      100.0     150.0     0.56        --       --      100.0

Ojos del Salado*      18.7     1.32        --       --      100.0      19.7     1.32        --       --      100.0
</TABLE>
----------

*   The Candelaria and Ojos del Salado deposits also contained, respectively,
    0.006 ounces and 0.008 ounces of gold per ton in 1998 and 1997.
**  Safford deposit includes Dos Pobres and San Juan reserves in 1998 and Dos
    Pobres reserves in 1997.
--------------------------------------------------------------------------------

       Our estimated share of aggregate ore reserves at the above named
properties at December 31 is as follows:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                            1998    1997    1996    1995    1994
                                            ----    ----    ----    ----    ----
<S>                                         <C>     <C>     <C>     <C>     <C>
Milling reserves (billion tons) ........     1.6     1.6     1.3     1.2     1.0

Leaching reserves (billion tons) .......     3.2     2.5     2.2     1.8     1.7

Commercially recoverable copper
 (million tons) ........................    14.5    13.7    12.1    12.3    10.6
</TABLE>
--------------------------------------------------------------------------------
<PAGE>
     Ore reserves are those estimated quantities of ore that may be profitably
mined and processed for extraction of their constituent values. Estimates of our
reserves are based upon our engineering evaluations of assay values derived from
samplings of drill holes and other openings. In our opinion, the sites for such
samplings are spaced sufficiently close and the geologic charateristics of the
deposits are sufficiently well defined to render the estimates reliable. Stated
tonnages and grades of ore do not reflect waste dilution in mining or losses in
processing. Leaching reserves include copper estimated to be recoverable from
leach reserves remaining to be mined at Morenci, Chino, Tyrone, Cobre and
Safford. Commercially recoverable copper includes copper estimated to be
recoverable from milling and leaching reserves and from existing stockpiles of
leach material at Morenci, Chino, Tyrone, Cobre and Safford.

     Ore reserves at each of our other mining operations and investments at
year-end 1998 are estimated as follows:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                        Ore                              Phelps
                                     Reserves                  %         Dodge
                                      Million         %     Calcium     Interest
                                       Tons        Copper   Fluoride       (%)
                                     --------      ------   --------    --------
<S>                                   <C>           <C>                   <C>
Southern Peru Copper Corporation *    1,695.9       0.67         --       13.9

Phelps Dodge Mining Limited ......       27.9         --      16.45      100.0
</TABLE>
----------
*    Southern Peru Copper Corporation deposits also contain approximately 790
     million tons of leach material at a grade of 0.22 percent copper.
--------------------------------------------------------------------------------
<PAGE>
     We hold various other properties containing mineral deposits that we
believe could be brought into production should market conditions warrant.
Permitting and significant capital expenditures would be required before
operations could commence at these properties. The deposits are estimated to
contain the following mineralization as of December 31, 1998:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------

                                               Sulfide Material          Leach Material         Phelps
                                               ----------------          --------------          Dodge
                                               Million      %      Million      %        %     Interest
                                  Location      Tons     Copper      Tons    Copper   Nickel      (%)
                                  --------     -------   ------    -------   ------   ------   --------
<S>                               <C>           <C>       <C>       <C>       <C>      <C>       <C>
American Mountain ..............   Arizona       --         --        140     0.25       --       85.0

Cochise ........................   Arizona       --         --        210     0.40       --      100.0

Copper Basin ...................   Arizona       70       0.53         --       --       --      100.0

Garfield .......................   Arizona       --         --      1,000     0.27       --       85.0

Lone Star ......................   Arizona       --         --      1,600     0.38       --      100.0

Sanchez ........................   Arizona       --         --        230     0.29       --      100.0

Western Copper .................   Arizona      530       0.55        500     0.31       --       85.0

Piedras Verdes .................    Mexico       --         --        310     0.37       --       70.0

Southern Peru Copper Corporation     Peru       370       0.62         --       --       --       13.9

Ambatovy * .....................  Madagascar     --         --        210       --     1.10      100.0

----------

*  Ambatovy deposit also contains 0.10 percent cobalt.
-------------------------------------------------------------------------------------------------------
</TABLE>

PD MINING - SALES AND COMPETITION

         The majority of our copper, produced or purchased, is cast into rod.
Rod sales to outside wire and cable manufacturers constituted approximately 55
percent of PD Mining's sales in 1998. We also sell copper as concentrate and
cathode. Sales of rod and cathode are made directly to wire and cable
fabricators and brass mills under contracts principally of a one-year duration.
Our rod also is used by our magnet wire, bare wire and specialty conductor
operations.

         We sell our copper rod and cathode at a premium over New York Commodity
Exchange (COMEX) prices. We also sell copper concentrates based on COMEX or
London Metal Exchange (LME) prices. From time to time, we engage in hedging
programs designed to enable us to realize current average prices for metal
delivered or committed to be delivered. We also enter into price protection
arrangements from time to time, depending on market circumstances, to ensure a
minimum price for a portion of expected future mine production (see Management's
Discussion and Analysis and Notes 1 and 20 to the Consolidated Financial
Statements for a further discussion of such arrangements).

         Most of the refined copper we sell is incorporated into electrical wire
and cable products worldwide for use in the construction, electric utility,
communications and transportation industries. It is also used in industrial
machinery and equipment, consumer products and a variety of other electrical and
electronic applications.

         When we sell copper as rod, cathode and concentrates, we compete,
directly or indirectly, with many other sellers including at least four other
U.S. primary producers as well as numerous foreign producers, metal merchants,
custom refiners and scrap dealers. Some major producers outside the United
States have cost advantages resulting from richer ore grades, lower labor costs
and in some cases a lack of strict regulatory requirements. We believe that our
ongoing programs to contain costs and improve productivity have significantly
narrowed these cost advantages and have placed us in a favorable competitive
position with respect to a number of our international competitors.

         Other materials that compete with copper include aluminum, plastics,
stainless steel and fiber optics. Our principal methods of competing include
pricing, product quality, customer service and dependability of supply.

PD MINING - PRICES, SUPPLY AND CONSUMPTION

         Copper is an internationally traded commodity, and its prices are
effectively determined by the two major metals exchanges -- COMEX and LME. The
prices on these exchanges generally reflect the worldwide balance of copper
supply and demand, but are also influenced significantly from time to time by
speculative actions and by currency exchange values.

         In 1996, the COMEX copper price averaged $1.06 per pound of copper
cathode, 29 cents less than the 1995 average price. The decrease was
attributable primarily to the market's reaction to more than $2 billion in
losses from unauthorized transactions by a Japanese company's principal copper
trader.

         While the market anticipated a copper supply increase in 1996,
worldwide copper inventories remained at the four-week level consistent with
1995 levels. The stability was due to continued growth in copper consumption,
slightly reduced output of smelters and lack of available scrap, which forced
brass mills to purchase cathode as a substitute. Western world copper
consumption increased by more than 3 percent. The economic expansion in the
United States fueled strong demand in all copper consuming sectors. In Europe,
growth was flat compared with 1995. Strong fundamental growth continued in
Southeast Asia in 1996, and China imported large quantities of copper to
increase strategic inventories.

         In 1997, the COMEX copper price averaged $1.04 per pound of copper
cathode, 2 cents less than the 1996 average price. The bullish market of 1996
continued into early 1997 driven by a buoyant North American economy, excellent
growth in the copper rod and brass mill markets in the United States, and the
beginning of an economic recovery in Europe. Copper inventories increased
steadily during the third quarter of 1997, however, driving prices down. In late
1997, concern about excess future supply from expansions at existing copper
operations and the start-up of new mining projects, combined with market
volatility as a result of the collapse of several Southeast Asian economies,
caused dramatic decreases in the price of copper. Consumption in the region
dropped sharply and, at the same time, Asian copper users liquidated existing
inventories. By the close of the year, copper prices had plummeted to a
four-year low.

         In 1998, the price of copper averaged 75 cents per pound of copper
cathode, 29 cents less than the 1997 average price. The negative factors present
in the market at the end of 1997 continued into 1998. Asian economies continued
to weaken and the financial turmoil spread to other developing economies,
depressing the price of copper as well as other base metals and commodities. The
price also was pressured by announcements of increases in production by some
existing mines and the completion of new mines during the year. Although Asian
copper consumption remained weak, demand in both Europe and North America was
strong, especially in the first half of the year. After falling in the second
quarter of the year, copper inventories increased throughout the third and
fourth quarters with LME warehouse inventories ending the year at their highest
levels since early 1994. Spot copper ended 1998 at 66 cents per pound, the
lowest price seen since 1987 and the lowest price this century when adjusted for
inflation.

PD MINING - COSTS

         Our unit production cost of copper in 1998 was slightly lower than in
1997, principally as a result of increased production volumes at our SX/EW
plants whose effect was partially offset by slightly higher mining,
concentrating, smelting and depreciation costs.

PD MINING - ENERGY SUPPLIES

         The principal sources of energy for our copper operations are natural
gas, petroleum products, waste heat generated in the smelting process and
electricity purchased from public utilities. Each of our mine power plants and
smelters uses natural gas as its primary fuel, and each is capable of being
converted to oil. We have not experienced any difficulties in recent years in
obtaining adequate fuel to maintain production.

PD MINING - ENVIRONMENTAL AND OTHER REGULATORY MATTERS

         Our operations in the United States are subject to stringent federal,
state and local laws and regulations relating to improving or maintaining
environmental quality. Our global operations are also subject to many
environmental protection laws. The federal Clean Air Act, as amended (the Clean
Air Act), has had a significant impact, particularly on our smelters. Costs
associated with environmental compliance have increased over time, and we expect
these costs to continue to rise in the future. Improving environmental
performance is our goal. Good progress has been made to meet the challenge of
increasingly complex environmental regulations, particularly those environmental
regulations affecting the mining industry.

         The "solid wastes" of our copper operations are subject to regulation
under the federal Resource Conservation and Recovery Act (RCRA) and related
state laws. To the extent these wastes affect surface waters, our operations are
regulated under the federal Clean Water Act and similar state water quality
laws. Historically, mining wastes have been exempted from the federal "hazardous
waste" regulations under RCRA. As a result of policies made by the Environmental
Protection Agency (EPA), all "extraction" and "beneficiation" wastes and 20
mineral "processing" wastes retain the exemption, and are to be regulated as
"solid waste," rather than as "hazardous waste," under RCRA Subtitle C. Only
three of the 20 exempt "processing" wastes are copper "processing" wastes.
Because of this EPA regulation, the generation and management of any other
mineral smelting or refining waste could be subject to "hazardous waste"
regulation if the waste exhibits a hazardous waste characteristic or if EPA
specifically designates it as a "listed hazardous waste." We have taken steps to
address the potential regulation as "hazardous waste" of any of our wastes which
no longer meet the definition of exempt mineral "processing" wastes.

         RCRA Subtitle D rules regulating mineral "extraction" and
"beneficiation" wastes and "processing" wastes that are exempt from RCRA
Subtitle C have not yet been put into effect by EPA, Arizona or New Mexico. EPA
recently finalized its supplemental Land Disposal Restriction Phase IV (LDR)
rules which impose "hazardous waste" regulation on "processing" waste or
secondary material that is stored or treated before it is recycled. This final
LDR rule also subjects mineral processing materials that exhibit a hazardous
waste characteristic to stringent treatment standards if the materials are
disposed on land. We cannot now estimate the impact of any future "solid waste"
rules on our operations. In addition, while EPA's final LDR rule likely will
require us to continue to make expenditures, it is not possible to determine the
full impact on us of the new LDR requirements until the requirements are fully
adopted and implemented by Arizona, New Mexico and Texas.

         Our copper operations are also subject to federal and state laws and
regulations protecting both surface water and groundwater quality. We possess,
or have applied for, the necessary permits or governmental approvals presently
required under these rules and regulations.

         At the Hidalgo smelter at Playas, New Mexico, in accordance with the
discharge plan approved by the New Mexico Environment Department (NMED), we
continue to monitor and report to NMED on our progress associated with
groundwater quality near the smelter's compacted, clay-lined evaporation pond.
We are continuing our efforts to assess the effect on groundwater quality from
operation of the evaporation pond. If the results of this assessment indicate a
problem, we will implement appropriate technologies and contingency plans to
protect groundwater. We have also agreed during the term of an earlier discharge
plan to stop placing acidic fluids on the evaporation pond. In addition, we have
agreed to neutralize or remove the acidic solutions present in the evaporation
pond, and to commence a groundwater remediation program for any existing
contamination. To do this we have installed a neutralization facility, a series
of lined impoundments, and a series of pumpback wells that are being operated to
begin remediation of groundwater and to prevent future contamination.

         In 1989, Arizona adopted regulations for its aquifer protection permit
(APP) program, which replaced the then existing Arizona groundwater quality
protection permit regulations. Several of our properties continue to operate
pursuant to the transition provisions for existing facilities under the APP
regulations. The APP regulations require permits for new facilities, activities
and structures for mining, concentrating and smelting. The APP may require
mitigation and discharge reduction or elimination. APP applications for existing
facilities operating under the APP transition provisions are not required to do
this until requested by the State, or unless a major modification at the
facility alters the existing discharge characteristics. We have received an APP
for a closed tailing pile in Clarkdale, Arizona. We have also conducted
groundwater studies and submitted APP applications for several of our other
properties and facilities, including the Morenci mine and our Copper Queen
branch. We will continue to submit all required APP applications for our
remaining properties and facilities, as well as for any new properties or
facilities. We do not know what the APP requirements are going to be for all
existing and new facilities and, therefore, it is not possible for us to
estimate such costs. We are likely to continue to have to make expenditures to
comply with the APP program and regulations.

         In the United States, the Emergency Planning and Community
Right-to-know Act was recently expanded to cover mining operations. This law,
which has applied to other Phelps Dodge businesses for more than a decade,
requires companies to report to the U.S. EPA the amount of certain materials
managed in or released from their operations each year. By July 1, 1999, we will
report the volume of naturally occurring metals and other substances that we
managed during 1998 once the usable copper was extracted. These materials are
very high in volume and how they are managed is covered by existing regulations
and permit requirements.

         On December 23, 1994, Chino, located near Silver City, New Mexico,
entered into an Administrative Order on Consent (AOC) with the New Mexico
Environment Department. This AOC requires Chino to study the environmental
impacts and potential health risks associated with portions of the Chino
property affected by historical mining operations. We acquired Chino at the end
of 1986. The studies began in 1995 and, until the studies are completed, it is
not possible to determine the nature, extent, cost, and timing of remedial work
which could be required under the AOC. Remedial work is expected to be required
under the AOC.

         In 1993 and 1994, the New Mexico and Arizona legislatures,
respectively, passed laws requiring the reclamation of mined lands in those
states. The New Mexico Mining Commission adopted rules for the New Mexico
program during 1994, and our operations began submitting the required permit
applications in December 1994. The Arizona State Mine Inspector adopted rules
for the Arizona program in January 1997, and our operations began submitting the
required reclamation plans in 1997. Reclamation is an ongoing activity and we
recognize estimated reclamation costs using a units of production basis
calculation. These laws and regulations will likely increase our regulatory
obligations and compliance costs with respect to mine closure and reclamation.

         The 1990 Amendments to the federal Clean Air Act require EPA to develop
and implement many new requirements, and they allow states to establish new
programs to implement some of the new requirements, such as the requirements for
operating permits under Title V of the 1990 Amendments and hazardous air
pollutants under Title III of the 1990 Amendments. Because EPA has not yet
adopted or implemented all of the changes required by Congress, the air quality
laws will continue to expand and change in coming years as EPA develops new
requirements and then implements them or allows the states to implement them. In
response to these new laws, several of our subsidiaries have submitted
applications for Title V operating permits. These programs will likely increase
our regulatory obligations and compliance costs. These costs could include
implementation of maximum achievable control technology for any of our
facilities if any are determined to be a major source of federal hazardous air
pollutants. Until more of the implementing regulations are adopted, and more
experience with the new programs is gained, it is not possible to determine the
full impact of the new requirements.

         We estimate that our share of capital expenditures for programs to
comply with applicable environmental laws and regulations that affect our mining
operations will total approximately $30 million in 1999 and from $30 million to
$35 million in 2000; $22 million was spent on such programs in 1998. We also
anticipate making significant capital and other expenditures beyond 2000 for
continued compliance with such laws and regulations. In light of the frequent
changes in the laws and regulations and the uncertainty inherent in this area,
we are unable to estimate accurately the total amount of such expenditures over
the longer term, but it may be substantial. (See the discussion of "OTHER
ENVIRONMENTAL MATTERS.")

         In 1995, legislation was introduced in both the U.S. House of
Representatives and the U.S. Senate to amend the Mining Law of 1872. None of the
bills was enacted into law. Also, mining law amendments were added to the 1996
budget reconciliation bill, which was vetoed by the President. Among other
things, the amendments contained in the 1996 bill would have imposed a 5 percent
net proceeds royalty on minerals extracted from federal lands, required payment
of fair market value for patenting federal lands, and required that patented
lands used for non-mining purposes revert to the federal government. Several of
these same concepts likely will continue to be pursued legislatively in the
future. The Secretary of the Interior also ordered the Bureau of Land Management
(BLM) to form a task force to review BLM's hardrock mining surface management
regulations and propose revisions to expand environmental and reclamation
requirements, among other things. While the effect of such changes on our
current operations and other currently owned mineral resources on private lands
would be minimal, passage of mining law amendments or revisions to the hardrock
mining surface management regulations could result in additional expenses in the
development and operation of new mines on federal lands.

         We are also subject to federal and state laws and regulations
pertaining to plant and mine safety and health conditions. These laws include
the Occupational Safety and Health Act of 1970 and the Mine Safety and Health
Act of 1977. Present and proposed regulations govern worker exposure to a number
of substances and conditions present in work environments. These include dust,
mist, fumes, heat and noise. We are making and will continue to make
expenditures to comply with health and safety laws and regulations.

         We do not expect that the additional capital and operating costs
associated with achieving compliance with the many environmental, health and
safety laws and regulations will materially adversely affect our competitive
position relative to other U.S. copper producers. These domestic copper
producers are also subject to comparable requirements. However, because copper
is an internationally traded commodity, these costs could significantly affect
us in our efforts to compete globally with those foreign producers not subject
to such stringent requirements.

PHELPS DODGE INDUSTRIES

         Phelps Dodge Industries is our manufacturing division comprising two
business segments that produce engineered products principally for the global
energy, telecommunications, transportation and specialty chemicals sectors. Its
operations are characterized by products with significant market share,
internationally competitive costs and quality, and specialized engineering
capabilities. The two segments are specialty chemicals and wire and cable.

SPECIALTY CHEMICALS SEGMENT

         Columbian Chemicals Company and its subsidiaries (Columbian Chemicals),
our specialty chemicals segment headquartered in Atlanta, Georgia, is an
international producer and marketer of carbon blacks. At Columbian Chemicals, we
produce a full range of rubber and industrial carbon blacks in 13 plants
worldwide, with approximately 42 percent of our production in North America and
the remaining 58 percent at facilities in Europe, Asia and Latin America. Our
rubber carbon blacks improve the tread wear and durability of tires, and extend
the service life of many rubber products such as belts and hoses. Our industrial
carbon blacks are used in such diverse applications as pigmentation of coatings,
inks and plastics; ultraviolet stabilization of plastics; and as conductive
insulation for wire and cable.

         In October 1998, we acquired the Brazilian carbon black manufacturing
business of Copebras S.A., a subsidiary of Minorco, for $220 million. This
manufacturing facility has an annual production capacity of 170,000 metric tons
of carbon black. In January 1999, we acquired an 85 percent interest in the
Korean carbon black manufacturing business of Korea Kumho Petrochemical Co.,
Ltd., for $76.1 million. This business includes a 110,000 metric ton per year
manufacturing plant. Both of these new businesses will be managed by Columbian
Chemicals. We also maintain sales offices in 13 countries and make use of
distributors worldwide.

         Extensive research, development and engineering is performed at four of
our specialty chemical locations. Our main specialty chemicals technology
center, which was relocated from Swartz, Louisiana, to Atlanta, Georgia, in
1998, is responsible for studies specific to both industrial and rubber
applications of carbon black. Carbon black product and process development at
the technology center is supported by development work at the company's North
Bend, Louisiana, and Hamilton, Ontario, plants. The European Central Laboratory
at Avonmouth, United Kingdom, provides technical support for our European
specialty chemical operations.

         SPECIALTY CHEMICALS - COMPETITION AND MARKETS

         The principal competitive factors in the various markets in which our
specialty chemicals segment competes are price, product quality, customer
service, dependability of supply, delivery lead time, breadth of product line,
and research and development.

         Columbian Chemicals is among the world's largest producers of carbon
black. Approximately 90 percent of the carbon black produced is used in rubber
applications, a substantial portion of which is used in the tire industry. Major
tire manufacturers worldwide account for a substantial portion of our carbon
black sales. In addition, we maintain a strong competitive position in
mechanical rubber goods markets based on our commitment to quality and service.
We are not aware of any product that could be substituted for carbon black to a
significant extent in any of its principal applications. Including Columbian
Chemicals, there are a total of six carbon black producers in the United States,
two in Canada, three in Western Europe and two major producers in South America.
There are also many producers in Asia. The carbon black industry is highly
competitive, particularly in the rubber black market.

         SPECIALTY CHEMICALS - RAW MATERIALS AND ENERGY SUPPLIES

         Carbon black is produced primarily from heavy residual oil, a
by-product of the crude oil refining process. At Columbian Chemicals, we
purchase substantially all of our feedstock on a spot basis at prices that
fluctuate with world oil prices. Our residual oil feedstock and other raw
materials for our specialty chemicals business are purchased from various
suppliers. The cost of feedstock is a significant factor in the cost of carbon
black. To achieve satisfactory financial results during periods of increasing
oil prices, we must be able to pass through to customers any increase in
feedstock costs. We do not believe that the loss of any one supplier would have
a material adverse effect on our financial condition or on the results of our
operations.

         Our specialty chemical operations generally use purchased electricity
and natural gas as their principal sources of energy.

WIRE AND CABLE SEGMENT

         Our wire and cable segment comprises Phelps Dodge Magnet Wire Company
and its subsidiaries and Phelps Dodge International Corporation and its
affiliates.

         Phelps Dodge Magnet Wire Company, headquartered in Fort Wayne, Indiana,
is an international producer of magnet wire, the insulated conductor used in
most electrical motors. Our magnet wire products are manufactured in the United
States at plants in Fort Wayne, Indiana; Hopkinsville, Kentucky; Laurinburg,
North Carolina; and El Paso, Texas. We also manufacture products at plants in
Mureck, Austria, and Monterrey, Mexico. The Austrian operation, Phelps Dodge
Eldra, GmbH, was a joint venture with Eldra Elektrodraht-Erzeugung GmbH, a
European magnet wire manufacturer in which we owned a 51 percent interest. On
July 15, 1998, we purchased Eldra Elektrodraht-Erzeugung GmbH's 49 percent
interest in the operation resulting in the operation becoming a wholly owned
subsidiary under the name of Phelps Dodge Magnet Wire (Austria) GmbH. In March
1998, we began commercial operation at Phelps Dodge Magnet Wire de Mexico, S.A.
de C.V., our new magnet wire manufacturing plant in Monterrey, Mexico.

         Our plants draw, roll and insulate copper and aluminum wire which is
sold as magnet wire and bare conductors to original equipment manufacturers for
use in electric motors, generators, transformers, televisions, automobiles and a
variety of small electrical appliances. Magnet wire is also sold to electrical
equipment repair shops and smaller original equipment manufacturers through a
network of distributors.

         Phelps Dodge International Corporation (PDIC), headquartered in Coral
Gables, Florida, is primarily involved in the manufacture of telecommunication
and energy cables and specialty conductors for international markets through
U.S. operations and joint venture associations in 14 other countries. Through
PDIC, we also provide management, marketing assistance, technical support, and
engineering and purchasing services to these companies. Four of our
international wire and cable companies have continuous-cast copper rod
facilities and three of our international wire and cable companies have
continuous-cast aluminum rod facilities. We have majority interests in companies
operating in nine countries -- Brazil, Chile, Costa Rica, Ecuador, El Salvador,
Honduras, Thailand, Venezuela and Zambia. In December 1997, we acquired for $72
million a 60 percent interest in the copper and aluminum wire and cable
manufacturing business of Alcoa Aluminio, S.A., of Brazil. Additionally, we
inaugurated a copper and aluminum power cable manufacturing facility in November
1997, Phelps Dodge Yantai Cable Company (PDYCC), in the People's Republic of
China. We own 66.67 percent of a holding company that has a 60 percent interest
in PDYCC. PDYCC is accounted for on the equity basis. We also have minority
interests in companies located in Hong Kong, Thailand, China and the
Philippines, accounted for on the equity basis, and in companies located in
Greece and India, accounted for on the cost basis.

         Through PDIC, we also manage wholly owned U.S. operations that
manufacture and market specialty high-performance conductors for the aerospace,
automotive, biomedical, computer and consumer electronics markets. The principal
products are highly engineered conductors of copper and copper alloy wire
electroplated with silver, tin or nickel for sophisticated, specialty product
niches. These manufacturing operations consist of plants located in Inman, South
Carolina; Trenton, Georgia; and Elizabeth, Fairfield, Montville and West
Caldwell, New Jersey. The plants in Fairfield, Montville and West Caldwell, New
Jersey, were added in May 1996 when we acquired Nesor Alloy Corporation.

         WIRE AND CABLE - COMPETITION AND MARKETS

         With the new plant in Monterrey, Mexico, and our 1998 acquisition of
our partner's interest in the manufacturing facility in Austria, we believe that
Phelps Dodge Magnet Wire Company will continue its position as one of the
world's largest manufacturers of magnet wire. We principally compete with Essex,
Alcatel and Rea Magnet Wire Operations. Through PDIC, we also manufacture magnet
wire at affiliate companies in Venezuela and Zambia.

         Our international telecommunication and energy cable companies
primarily sell products to contractors, distributors, and public and private
utilities. Our products are used in lighting, power distribution,
telecommunications and other electrical applications. Our specialty
high-performance conductors are sold primarily to intermediaries (insulators,
assemblers, subcontractors and distributors). Approximately one-half of these
products are ultimately sold to commercial and military aerospace companies for
use in airframes, avionics, space electronics, radar systems and ground control
electronics. Specialty high-performance conductors are also used in appliances,
instrumentation, computers, telecommunications, military electronics, medical
equipment and other products. We have two primary U.S. competitors and compete
with three importers in the specialty conductor market; however, in those few
markets where we compete for high volume products, we face competition from
several U.S. fabricators.

         WIRE AND CABLE - RAW MATERIALS AND ENERGY SUPPLIES

         The principal raw materials used by our magnet wire manufacturing
operations are copper, aluminum and various chemicals and resins used in the
manufacture of electrical insulating materials. Most of the copper purchased for
our magnet wire operations is from our mining division.

         The principal raw materials used by our international telecommunication
and energy cable companies are copper, copper alloy, aluminum, copper-clad steel
and various electrical insulating materials. The specialty conductor product
line is usually plated with silver, nickel or tin. With the exception of copper
needed in specialty conductors, a majority of the materials used by these
companies is purchased from others. We do not believe that the loss of any one
supplier would have a material adverse effect on our financial condition or on
the results of our operations.

         Most of our wire and cable operations generally use purchased
electricity and natural gas as their principal sources of energy. Our magnet
wire company's principal manufacturing equipment uses natural gas, however; it
is also equipped to burn alternative fuels.

WHEEL AND RIM OPERATIONS

         Effective January 1, 1998, we sold 90 percent of Accuride Corporation
and its subsidiaries (Accuride), which manufacture steel and aluminum wheels and
rims for medium and heavy trucks, trailers and buses, to an affiliate of
Kohlberg Kravis Roberts and Co. (KKR) and the existing management of Accuride.
The remaining 10 percent interest in Accuride was sold to RSTW Partners III,
L.P., on September 30, 1998. (See Note 2 to the Consolidated Financial
Statements for a further discussion of this sale.)

PHELPS DODGE INDUSTRIES - ENVIRONMENTAL MATTERS

         Environmental laws and regulations affect many aspects of our
industrial operations. We estimate that capital expenditures for programs to
comply with applicable environmental laws and regulations within our Phelps
Dodge Industries division will total approximately $16 million in 1999 and from
$10 million to $12 million in 2000; $6 million was spent on these programs in
1998. We anticipate making significant capital and other expenditures after 2000
for continued compliance with environmental laws and regulations. Because of the
frequent changes in environmental laws and regulations and the uncertainty these
changes create for us, we are unable to estimate accurately the total amount of
such expenditures over the longer term, but it may be substantial. (See the
discussion of "OTHER ENVIRONMENTAL MATTERS.")

OWNERSHIP OF REAL PROPERTY

         Our world headquarters is located in Phoenix, Arizona. The Phoenix
office is a leased property. We own substantially all the land on which our
copper mines, concentrators, SX/EW facilities, smelters, refinery and rod mills
are located. Our Chino partnership leases insignificant amounts of real property
under a variety of terms. This leased real property is not critical to Chino
operations.

         We also own most of the plants and the land on which Phelps Dodge
Industries operations are located. The exceptions are the leased land and
buildings of Phelps Dodge Magnet Wire in Austria and PDIC plants in Fairfield
and Montville, New Jersey. Additionally, six international plants are located on
leased land. This land is not a material portion of our overall operations.

LABOR MATTERS

         Employees at PD Mining's Arizona operations, El Paso refinery and rod
mill, Tyrone, Hidalgo smelter, Burro Chief Copper Company and Norwich rod mill,
and some employees at Chino are not represented by any unions. The collective
bargaining agreements covering approximately 500 employees at our Chino
operations in New Mexico expired on June 30, 1996. New collective bargain
agreements were ratified on November 18, 1998, with effective dates of November
18, 1998, through November 15, 2002.

         In addition, we currently have labor agreements covering most of our
U.S. and international manufacturing division plants. The collective bargaining
agreement covering approximately 200 employees at our Hopkinsville, Kentucky,
magnet wire plant expired on October 11, 1996. New collective bargain agreements
were ratified on February 26, 1999, with effective dates of March 1, 1999,
through October 11, 2003. Additionally, our magnet wire plant in Ft. Wayne,
Indiana, has a four-year agreement covering approximately 270 employees that
expires on May 1, 1999. Our specialty chemicals plant in El Dorado, Arkansas,
has a three-year agreement covering approximately 50 employees that expires on
March 31, 1999.

RESEARCH AND DEVELOPMENT

         We conduct research and development programs relating to technology for
exploration for minerals, recovery of metals from ores, concentrates and
solutions, smelting and refining of copper, metal processing and product
development. We also conduct research and development programs related to our
carbon black products through Columbian Chemicals, our wire insulating processes
and materials through Phelps Dodge Magnet Wire Company, and conductor materials
and processes through PDIC. Expenditures for all of these research and
development programs, together with contributions to industry and
government-supported programs, totaled $18.0 million in 1998, compared with
$17.7 million in 1997 and $16.5 million in 1996.

OTHER ENVIRONMENTAL MATTERS

         We are subject to federal, state and local environmental laws, rules
and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA or Superfund), as amended by the
Superfund Amendments and Reauthorization Act of 1986. Under Superfund, the
Environmental Protection Agency (EPA) has identified approximately 35,000 sites
throughout the United States for review, ranking and possible inclusion on the
National Priorities List (NPL). The EPA has included 13 sites owned by us on the
NPL. We believe that most, if not all, of the sites identified do not qualify
for listing on the NPL.

         We may be required to remove hazardous waste or remediate the alleged
effects of hazardous substances on the environment. In many cases, this involves
past disposal practices at sites not owned by us. We have received notice that
we are a potentially responsible party from EPA or individual states under
CERCLA or a state equivalent state law. We are participating in environmental
assessment and remediation activity at 39 sites. For further information about
these proceedings, see Item 3. Legal Proceedings, Part III.

         At December 31, 1998, we had reserves of $106.0 million for remediation
of certain of the sites discussed above and other environmental costs. We record
liabilities for environmental expenditures when it is probable that obligations
have been incurred and the costs can be reasonably estimated. Our estimates of
these costs are based upon available facts, existing technology, and current
laws and regulations. Where the available information is sufficient to estimate
the amount of liability, that estimate has been used. Where the information is
only sufficient to establish a range of probable liability and no point within
the range is more likely than any other, the lower end of the range has been
used.

         The amounts of these liabilities are very difficult to estimate. This
is due to factors such as the unknown extent of the remedial actions that may be
required. In the case of sites not owned by us, the extent of our probable
liability in proportion to the probable liability of other parties is difficult
to estimate. We have other probable environmental liabilities that in our
judgment cannot be reasonably estimated. Losses attributable to remediation
costs are reasonably possible at other sites. We cannot currently estimate the
total additional loss we may incur for these environmental liabilities, but that
loss could be substantial.

         The possibility of recovery of some of the environmental remediation
costs from insurance companies or other parties exists. However, we do not
recognize these recoveries in our financial statements until they become
probable.

         Our operations are subject to many environmental laws and regulations
in jurisdictions both in the United States and in other countries in which we do
business. For further discussion of these laws and regulations, please see PD
Mining - Environmental and Other Regulatory Matters and Phelps Dodge Industries
- Environmental Matters. The estimates given in those discussions of the capital
expenditures to comply with environmental laws and regulations in 1999 and 2000,
and the expenditures in 1998, are separate from the reserves and estimates
described above.

         The Environmental, Health and Safety Committee of the Board of
Directors comprises four non-employee directors. The Committee met three times
in 1998 to review, among other things, the Company's policies with respect to
environmental, health and safety matters, and the adequacy of management's
programs for implementing those policies. The Committee reports on such reviews
and makes recommendations with respect to those policies to the Board of
Directors and to management.

ITEM 3.  LEGAL PROCEEDINGS

         I. We are a member of several trade associations. As a participating
member of these trade associations, we also are active in legal proceedings
challenging administrative regulations which are considered by the trade
association to be poor policy. In some instances, the legal challenges brought
by the trade associations request that the government consider the full impact
and results of the proposed regulation on business operations. For example, the
EPA is requiring air quality controls and air measurement obligations that
industry considers too burdensome.

         II. Reference is made to Part I, Items 1 and 2 of this report for
information regarding proceedings that pertain to water used by the
Corporation's Morenci, Arizona, operations.

          A. The following state water rights adjudication proceedings are
     pending in Arizona Superior Court:

               1. In re the General Adjudication of All Rights to Use Water in
          the Little Colorado River System and Source, No. 6417 (Superior Court
          of Arizona, Apache County).

                    (a) Petition was filed by us on or about February 17, 1978,
               and process has been served on all potential claimants. Virtually
               all statements of claimant have been filed.

                    (b) The principal parties, in addition to us, are the State
               of Arizona, the Navajo Nation, the Hopi Indian Tribe, the San
               Juan Southern Paiute Tribe and the United States on its own
               behalf and on behalf of those Indian tribes. In this adjudication
               and in the adjudications reported in items 2.(a), (b) and (c)
               below, the United States and the Indian tribes seek to have
               determined and quantified their rights to use water arising under
               federal law on the basis that, when the Indian reservations and
               other federal reservations were established by the United States,
               water was reserved from appropriation under state law for the use
               of those reservations.

                    (c) This proceeding could affect, among other things, our
               rights to impound water in Show Low Lake and Blue Ridge Reservoir
               and to transport this water into the Salt River and Verde River
               watersheds for exchange with the Salt River Valley Water Users'
               Association. We have filed statements of claimant for these and
               other water claims. This litigation is stayed pending the outcome
               of current settlement negotiations. The Court has not set a final
               schedule of cases to go to trial, should the litigation resume.


               2. In re the General Adjudication of All Rights to Use Water in
          the Gila River System and Source, Nos. W-1 (Salt River), W-2 (Verde
          River), W-3 (Gila River) and W-4 (San Pedro River) (Superior Court of
          Arizona, Maricopa County). As a result of consolidation proceedings,
          this action now includes general adjudication proceedings with respect
          to the following three principal river systems and sources:

                    (a) The Gila River System and Source Adjudication:

                         (i) Petition was filed by us on February 17, 1978.
                    Process has been served on water claimants in the upper and
                    lower reaches of the watershed and virtually all statements
                    of claimant have been filed.

                         (ii) The principal parties, in addition to us, are the
                    Gila Valley Irrigation District, the San Carlos Irrigation
                    and Drainage District, the State of Arizona, the San Carlos
                    Apache Tribe, the Gila River Indian Community and the United
                    States on its own behalf and on behalf of the tribe and the
                    community.

                         (iii) This proceeding could affect, among other things,
                    our claim to the approximately 3,000 acre-feet of water that
                    it diverts annually from Eagle Creek, Chase Creek or the San
                    Francisco River and its claims to percolating groundwater
                    that is pumped from wells located north of its Morenci
                    Branch operations in the Mud Springs and Bee Canyon areas
                    and in the vicinity of the New Cornelia Branch at Ajo. We
                    have filed statements of claimant with respect to waters
                    that it diverts from these sources.

                         (iv) In 1997, issues of dispute arose between Phelps
                    Dodge and the San Carlos Apache Tribe regarding our use and
                    occupancy of the Black River Pump Station which delivers
                    water to the Morenci operation. On May 12, 1997, the Tribe
                    filed suit against us in San Carlos Apache Court, seeking
                    our eviction from the Tribe's Reservation and claiming
                    substantial compensatory and punitive damages, among other
                    relief. In May 1997, we reached an agreement with the Tribe,
                    and subsequently federal legislation (Pub. L. No. 105-18,
                    5003, 111 stat. 158, 181-87) was adopted which mandated
                    dismissal of the tribal court suit. The legislation
                    prescribes arrangements intended to ensure a future supply
                    of water for the Morenci mining complex in exchange for
                    certain payments by us. The legislation does not address any
                    potential claims by the Tribe relating to our historical
                    occupancy and operation of our facilities on the Tribe's
                    Reservation, but does require that any such claims be
                    brought, if at all, exclusively in federal district court.
                    By order dated October 13, 1997, the tribal court dismissed
                    the lawsuit with prejudice, as contemplated by the
                    legislation.

                         The 1997 legislation required that the Company and the
                    Tribe enter a lease for the delivery of Central Arizona
                    Project water through the Black River Pump Station to
                    Morenci on or before December 31, 1998. In the event a lease
                    was not signed, the legislation expressly provided that the
                    legislation would become the lease. The legislation included
                    the principal terms for that eventuality. To date, we have
                    not entered into a lease with the Tribe, but are relying on
                    our rights under the legislation and are prepared to enforce
                    those rights if necessary. We are cooperating with the
                    United States, which operates the pump station, to reach an
                    agreement with the Tribe on the lease issue.

                         (v) On May 4, 1998, we executed a settlement agreement
                    with the Gila River Indian Community (the Community) that
                    resolves the issues between us and the Community pertinent
                    to this litigation. This settlement is subject to the
                    approval of the Secretary of the Interior and the passage of
                    federal legislation.

                    (b) The Salt River System and Source Adjudication:

                         (i) Petition was filed by the Salt River Valley Water
                    Users' Association on or about April 25, 1974. Process has
                    been served, and statements of claimant have been filed by
                    virtually all claimants.

                         (ii) Principal parties, in addition to us, include the
                    petitioner, the State of Arizona and the United States, on
                    its own behalf and on behalf of various Indian tribes and
                    communities including the White Mountain Apache Tribe, the
                    San Carlos Apache Tribe, the Fort McDowell Mohave-Apache
                    Indian Community, the Salt River Pima-Maricopa Indian
                    Community and the Gila River Indian Community.

                         (iii) We have filed a statement of claimant to assert
                    our interest in the water exchange agreement with the Salt
                    River Valley Water Users' Association by virtue of which it
                    diverts from the Black River water claimed by the
                    Association and repays the Association with water impounded
                    in Show Low Lake and Blue Ridge Reservoir on the Little
                    Colorado River Watershed, and to assert our interest in
                    "water credits" to which we are entitled as a result of our
                    construction of the Horseshoe Dam on the Verde River.

                         (iv) The Salt River Pima-Maricopa Indian Community,
                    Salt River Valley Water Users' Association, the principal
                    Salt River Valley Cities, the State of Arizona and others
                    have negotiated a settlement as among themselves for the
                    Verde and Salt River system. The settlement has been
                    approved by Congress, the President and the Arizona Superior
                    Court. Under the settlement, the Salt River Pima-Maricopa
                    Indian Community waived all water claims it has against all
                    other water claimants (including us) in Arizona.

                         (v) Active proceedings with respect to other claimants
                    have not yet commenced in this adjudication.

                    (c) The Verde River System and Source Adjudication:

                         (i) Petition was filed by the Salt River Valley Water
                    Users' Association on or about February 24, 1976, and
                    process has been served. Virtually all statements of
                    claimant have been filed.

                         (ii) The principal parties, in addition to us, are the
                    petitioner, the Fort McDowell Mohave-Apache Indian
                    Community, the Payson Community of Yavapai Apache Indians,
                    the Salt River Pima-Maricopa Indian Community, the Gila
                    River Indian Community, the United States on its own behalf
                    and on behalf of those Indian communities, and the State of
                    Arizona.

                         (iii) This proceeding could affect, among other things,
                    our Horseshoe Dam "water credits" with the Salt River Valley
                    Water Users' Association resulting from its construction of
                    the Horseshoe Dam on the Verde River. (See the Black River
                    water exchange referred to in Paragraph II.A. 2.(b)(iii)
                    above.) We have filed statements of claimant with respect to
                    Horseshoe Dam and water claims associated with the former
                    operations of the United Verde Branch.

                         (iv) The Fort McDowell Mohave-Apache Indian Community,
                    Salt River Valley Water Users' Association, the principal
                    Salt River Valley Cities, the State of Arizona and others
                    have negotiated a settlement as among themselves for the
                    Verde River system. This settlement has been approved by
                    Congress, the President and the Arizona Superior Court.
                    Under this settlement, the Fort McDowell Mohave-Apache
                    Indian Community waived all water claims it has against all
                    other water claimants (including us) in Arizona.

          B. The following proceedings involving water rights adjudication are
     pending in the U.S. District Court for the District of Arizona:

               1. On June 29, 1988, the Gila River Indian Community filed a
          complaint-in-intervention in United States v. Gila Valley Irrigation
          District, et al., Globe Equity No. 59 (D. Ariz.). The underlying
          action was initiated by the United States in October 1925 to determine
          conflicting claims to water rights in certain portions of the Gila
          River watershed. Although we were named and served as a defendant in
          that action, we were dismissed without prejudice as a defendant in
          March 1935. In June 1935, the Court entered a decree setting forth the
          water rights of numerous parties, but not ours. The Court retained,
          and still has, jurisdiction of the case. The complaint-in-intervention
          does not name us as a defendant; however, it does name the Gila Valley
          Irrigation District as a defendant. Therefore, the
          complaint-in-intervention could affect the approximately 3,000
          acre-feet of water that we diverted annually from Eagle Creek, Chase
          Creek or the San Francisco River pursuant to the agreement between us
          and the Gila Valley Irrigation District.

               During 1998, we purchased farmlands with associated water rights
          that are the subject of this litigation. As a result, we have been
          named and served as a party in this case. The lands and associated
          water rights are not currently used in connection with any mining
          operation of ours.

               2. Prior to January 1, 1983, various Indian tribes filed several
          suits in the U.S. District Court for the District of Arizona claiming
          prior and paramount rights to use waters which are presently being
          used by many water users, including us, and claiming damages for prior
          use in derogation of their allegedly paramount rights. These federal
          proceedings have been stayed pending state court adjudication.

         III. Claims under CERCLA and related state acts involving us have been
raised with respect to the remediation of 39 waste disposal and other sites.
Most are sites where we have received information requests or other indications
that we may be a Potentially Responsible Party (PRP) under CERCLA. CERCLA is
intended to expedite the remediation of hazardous substances without regard to
fault. Responsible parties for each site include present and former owners,
operators, transporters, and generators of the substances at the site. Liability
is strict, joint and several. Because of the ambiguity of the regulations, the
difficulty of identifying the responsible parties for any particular site, the
complexity of allocating the remediation costs among them, the uncertainty as to
the most desirable remediation techniques and amount of remediation costs, and
the time period during which such costs may be incurred, we are unable to
reasonably estimate the full cost of compliance with CERCLA or equivalent state
statutes.

         With respect to these 39 sites, and with the exception of the Laurel
Hill site in Maspeth, New York, where a reserve of $10.0 million has been
established, based on currently available information, which in many cases is
preliminary and incomplete, we have no reason to believe that our ultimate
responsibility for remediation costs will exceed $2.0 million at any site and
believe most will be substantially under $0.1 million. While additional costs to
us are reasonably possible, that cost, excepting Laurel Hill, is not expected to
exceed $10.0 million.

         IV. On September 15, 1998, the Southwest Research and Information
Center and the United Steelworkers of America Local 890 (Plaintiffs) filed a
complaint in United Steelworkers of America Local 890 and Southwest Research and
Information Center v. Chino Mines Company and Phelps Dodge Corporation, CIV
98-1123 LH (D. N.M.). The complaint alleges that Chino Mines Company (Chino)
(which is two-thirds owned by Phelps Dodge) and Phelps Dodge failed to submit to
the United States Environmental Protection Agency and the New Mexico Emergency
Response Commission toxic chemical release forms for some or all of the calendar
years 1987 through 1997 as required by Section 313 of the Emergency Planning and
Community Right-To-Know Act of 1986. This private litigant action asks for,
among other things, imposition of monetary penalties of $25,000 per day of
alleged violation up to and including December 31, 1996, and penalties of
$27,500 per day from January 1997 forward. The Plaintiffs also advised Phelps
Dodge through a Notice of Intent to Sue that they intend to assert similar
claims against our Hidalgo smelting operation near Playas, New Mexico. On
October 6, 1998, Chino and Phelps Dodge filed an answer to the complaint denying
all alleged violations of the Section 313 reporting requirements.

         The court allowed the Plaintiffs to file an amended complaint, to which
we filed our answer on February 16, 1999.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted during the fourth quarter of 1998 to a vote
of security holders, through the solicitation of proxies or otherwise.

EXECUTIVE OFFICERS OF PHELPS DODGE CORPORATION

         The executive officers of Phelps Dodge Corporation are elected to serve
at the pleasure of its Board of Directors. As of March 1, 1999, the executive
officers of Phelps Dodge Corporation were as follows:

<TABLE>
<CAPTION>
                    AGE AT                                OFFICER OF THE
       NAME         3/1/99         POSITION              CORPORATION SINCE
       ----         ------         --------              -----------------
<S>                   <C>  <C>                                   <C>
Douglas C. Yearley    63   Chairman of the Board and
                            Chief Executive Officer              1981

J. Steven Whisler     44   President and Chief
                            Operating Officer                    1987

Manuel J. Iraola      50   Senior Vice President;
                            President, Phelps Dodge
                            Industries                           1995

Ramiro G. Peru        43   Senior Vice President for
                            Organizational Development
                            and Information Technology           1995

Timothy R. Snider     48   Senior Vice President;
                            President, Phelps Dodge
                            Mining Company                       1997

Thomas M. St. Clair   63   Senior Vice President and
                            Chief Financial Officer              1989

S. David Colton       43   Vice President and General
                            Counsel                              1998
</TABLE>

         Except as stated below, all of the above have been officers of Phelps
Dodge Corporation for the past five years.

         Mr. Iraola was elected Senior Vice President in January 1995.  Prior to
his  election,   Mr.   Iraola  was  President  of  Phelps  Dodge   International
Corporation,  a position he held since 1992.  Prior to that time,  he was Senior
Vice  President  and Chief  Financial  Officer of Columbian  Chemicals  Company,
acquired by Phelps Dodge in 1986.

         Mr.  Peru  was  elected  Senior  Vice   President  for   Organizational
Development and Information  Technology in January 1997.  Prior to his election,
Mr.  Peru was Vice  President  and  Treasurer  of Phelps  Dodge  Corporation,  a
position he held since 1995. Prior to that time, he was Vice President of Phelps
Dodge Mining Company.

         Mr. Snider was elected Senior Vice President in October 1998.  Prior to
his election,  Mr. Snider was Vice President of the  Corporation,  a position he
held since 1997. Prior to that time, he was Vice President,  Arizona operations,
of Phelps Dodge Mining Company.

         Mr. Colton was elected Vice President and General Counsel in April
1998. Prior to his election, Mr. Colton was Vice President and counsel for
Phelps Dodge Exploration, a position he held since 1995. Prior to that time, he
was senior exploration counsel for the exploration and development group of
Phelps Dodge Mining Company.

                                     Part II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

         The information called for in Item 5 appears in Management's Discussion
and Analysis in this report.

ITEM 6. SELECTED FINANCIAL DATA
(In millions except per share amounts)
<TABLE>
<CAPTION>
                                        1998        1997        1996        1995        1994
                                        ----        ----        ----        ----        ----
<S>                                  <C>           <C>         <C>         <C>         <C>
Sales and other operating revenues   $ 3,063.4     3,914.3     3,786.6     4,185.4     3,289.2

Net Income (a) ...................   $   190.9       408.5       461.8       746.6       271.0
 Per common share - basic (b) ....   $    3.28        6.68        7.02       10.72        3.84
 Per common share - diluted (b) ..   $    3.26        6.63        6.98       10.66        3.82

Total assets .....................   $ 5,036.5     4,965.2     4,816.4     4,645.9     4,133.8

Long-term debt ...................   $   836.4       857.1       554.6       613.1       622.3

Dividends per common share .......   $    2.00        2.00        1.95        1.80        1.69
</TABLE>

(a)   For a further discussion of earnings, please see Management's Discussion
      and Analysis.
(b)   In 1997, we adopted Statement of Financial Accounting Standards (SFAS) No.
      128, "Earnings per Share." For comparative purposes, all prior period
      earnings per common share computations have been restated to reflect the
      effect of SFAS No. 128.

Note: See Management's Discussion and Analysis for a discussion of the effect on
      our results of  material  changes in the price we receive for copper or in
      unit production costs.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS

         The U.S. securities laws provide a "safe harbor" for certain
forward-looking statements. This annual report contains forward-looking
statements that involve risks and uncertainties that could cause actual results
to differ materially from those projected in such forward-looking statements.
Statements regarding the expected commencement dates of operations, projected
quantities of future production, capital costs, production rates and other
operating and financial data are based on expectations that the Company believes
are reasonable, but can give no assurance that such expectations will prove to
have been correct. Factors that could cause actual results to differ materially
include, among others: risks and uncertainties relating to general U.S. and
international economic and political conditions, the cyclical and volatile price
of copper, political and economic risks associated with foreign operations,
unanticipated ground and water conditions, unanticipated grade and geological
problems, metallurgical and other processing problems, availability of materials
and equipment, delays in the receipt of or failure to receive necessary
government permits, appeals of agency decisions or other litigation, changes in
laws or regulations or the interpretation and enforcement thereof, the
occurrence of unusual weather or operating conditions, force majeure events,
lower than expected ore grades, the failure of equipment or processes to operate
in accordance with specifications or expectations, labor relations, accidents,
delays in anticipated start-up dates, environmental risks and the results of
financing efforts and financial market conditions. These and other risk factors
are discussed in more detail herein. Many such factors are beyond our ability to
control or predict. Readers are cautioned not to put undue reliance on
forward-looking statements. We disclaim any intent or obligations to update
these forward-looking statements, whether as a result of new information, future
events or otherwise.

         EARNINGS

         In 1998, consolidated earnings were $91.8 million, or $1.57 per common
share, before non-recurring items. Non-recurring items included an after-tax
gain of $131.1 million, or $2.24 per common share, from the disposition of
Accuride Corporation (Accuride), and an after-tax loss of $32.0 million, or 55
cents per common share, in the fourth quarter. The fourth quarter non-recurring
loss included $26.4 million, or 45 cents per common share, from the sale of our
44.6 percent interest in a South African mining company, and $5.6 million, or 10
cents per common share, for costs associated with previously announced
curtailments and indefinite closures primarily in our mining division, Phelps
Dodge Mining Company (PD Mining). Net income including non-recurring items was
$190.9 million, or $3.26 per common share, for the year 1998. All references to
per share earnings or charges are based on diluted earnings per share as
discussed below.

         Earnings in 1997 were $440.1 million, or $7.14 per common share, before
non-recurring, after-tax charges of $31.6 million, or 51 cents per common share.
The non-recurring charges primarily reflected provisions for estimated future
costs associated with environmental matters and an early retirement program at
PD Mining. Net income including non-recurring charges was $408.5 million, or
$6.63 per common share.

         Earnings in 1996 were $472.5 million, or $7.14 per common share, before
a 1996 fourth quarter non-recurring, after-tax charge of approximately $10.7
million, or 16 cents per common share, resulting from a reclamation provision
and interest charges related to a Court-ordered rescission of a 1986 sale of
property. Net income including non-recurring charges was $461.8 million, or
$6.98 per common share.

         Notes 2 and 3 to the Consolidated Financial Statements contain further
information to which reference should be made for a fuller understanding of the
non-recurring items in 1998, 1997 and 1996.

         Consolidated Financial results (in millions except per common share
amounts):

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                  1998        1997        1996
                                                  ----        ----        ----
<S>                                            <C>           <C>         <C>
Sales and other operating revenues .........   $ 3,063.4     3,914.3     3,786.6
Operating income ...........................   $   422.7       611.0       712.9
Net income .................................   $   190.9       408.5       461.8
Net income per common share - basic ........   $    3.28        6.68        7.02
Net income per common share - diluted ......   $    3.26        6.63        6.98
</TABLE>
--------------------------------------------------------------------------------

         The outlook for earnings in 1999 is uncertain due to the variability of
copper prices and currency fluctuations such as the January 1999 major
devaluation of the Brazilian real. At copper prices ranging from 65 to 70 cents
per pound, and excluding foreign currency exchange fluctuations, we believe the
Company should operate near break-even.

         SALES

         Consolidated 1998 revenues were $3,063.4 million, compared with
$3,914.3 million in 1997. The 1998 decrease principally resulted from lower
average copper prices, the absence of Accuride, and lower wire and cable sales,
partially offset by higher sales volumes of copper and carbon black. The
increase in consolidated revenues from $3,786.6 million in 1996 to $3,914.3
million in 1997 resulted from higher sales volumes of copper, and increased
sales of steel wheels and wire and cable products. This increase was partially
offset by lower average copper prices and the effect of weaker European
currencies on our specialty chemicals segment.

         COPPER PRICES

         Copper is an internationally traded commodity, and its price is
effectively determined by the two major metals exchanges -- the New York
Commodity Exchange (COMEX) and the London Metal Exchange (LME). The prices on
these exchanges generally reflect the worldwide balance of copper supply and
demand, but are also influenced significantly from time to time by speculative
actions and by currency exchange rates.

         The price of copper, our principal product, was a significant factor
influencing our results over the three-year period ended December 31, 1998. We
base our selling price on the COMEX spot price per pound of copper cathode,
which averaged 75 cents in 1998, compared with $1.04 in 1997 and $1.06 in 1996.
The COMEX price averaged 65 cents per pound for the first two months of 1999,
and closed at 63 cents on March 5, 1999.

         Any material change in the price we receive for copper, or in our unit
production costs, has a significant effect on our results. Our share of current
annual production is approximately 1.7 billion pounds of copper. Accordingly,
each 1 cent per pound change in the average annual copper price, or in average
annual unit production costs, causes a variation in annual operating income
before taxes of approximately $17 million.

         Due to the market risk arising from the volatility of copper prices,
our objective is to sell copper cathode and rod at the COMEX average price in
the month of shipment and copper concentrates at the LME average price in the
month of settlement with our customers. We initially record copper concentrate
sales at a provisional price at the time of shipment, and adjust the pricing for
all outstanding shipments to reflect market conditions at the end of each
quarter. A final adjustment is made to the price of the shipments upon
settlement with our customers.

         COPPER HEDGING

         Some of our wire, cathode and rod customers request a fixed sales price
instead of the COMEX average price in the month of shipment. As a convenience to
these customers, we enter into copper swap and futures contracts to hedge the
sales in a manner that will allow us to receive the COMEX average price in the
month of shipment while our customers receive the fixed price they requested. We
accomplish this by liquidating the copper futures contracts and settling the
copper swap contracts during the month of shipment, which generally results in
the realization of the COMEX average price.

         Because of this strategy, the sum of the face values of our outstanding
futures contracts is not an accurate measure of our market risk from the use of
such hedge contracts. The contracts that may result in market risk to us are
those related to the customer sales transactions under which copper products
have not yet been shipped.

         At December 31, 1998, we had futures and swap contracts for
approximately 86 million pounds of copper with a net hedge value of $65 million
and a total face value of approximately $138 million. At that date, we had $7
million in losses on these contracts not yet recorded in our financial
statements because the copper products under the related customer transactions
had not yet been shipped. At year-end 1997, we had futures and swap contracts in
place for approximately 140 million pounds of copper at a net hedge value of
$130 million and a total face value of approximately $146 million. We had $18.7
million in deferred, unrealized losses at that time. At year-end 1996, we had
futures and swap contracts in place for approximately 149 million pounds of
copper at a net hedge value of $143 million and an approximate total face value
of $156 million. We had $2.3 million in deferred unrealized gains at that time.

         We do not acquire, hold or issue futures contracts for speculative
purposes. All of our copper futures and swap contracts have underlying customer
agreements or other related transactions. We have prepared an analysis to
determine how sensitive our net futures contracts are to copper price changes.
In our market risk analysis, if copper prices had dropped a hypothetical 10
percent at the end of 1998, we would have had an additional loss from our copper
futures contracts of approximately $5.8 million (in addition to the $7.0 million
deferred, unrealized loss previously discussed). That loss would have been
virtually offset by a similar amount of gain on the related customer contracts.

         From time to time, we may purchase or sell copper price protection
contracts for a portion of our expected future mine production. We do this to
limit the effects of potential decreases in copper selling prices. We did not
have any copper price protection contracts at the end of 1998 or 1997.
Currently, we do not have any copper price protection contracts in place for our
anticipated 1999 production. During the first quarter of 1997, we had hedge
contracts in place that provided for a minimum quarterly average price of 90
cents per pound for 85 million pounds of copper cathode that expired without
payment. For 1996 production, we had protection contracts that gave us minimum
and maximum quarterly average LME prices for 185 million pounds of third quarter
copper production. We received $3.1 million from these contracts. Similar 1996
production contracts that ensured a minimum price for 790 million pounds of
copper expired without our receiving any payment. In the 1996 third quarter, we
sold a portion of our copper price protection contracts for $15.6 million that
covered 94 million pounds of production in the 1996 fourth quarter and 85
million pounds of production in the 1997 first quarter. We recognized $8.8
million in income in the 1996 fourth quarter and $6.8 million in income in the
1997 first quarter.

         ALUMINUM HEDGING

         During 1998, our Brazilian wire and cable operation entered into
aluminum futures contracts with a financial institution to lock in the cost of
aluminum ingot needed in manufacturing aluminum cable contracted by customers.
At December 31, 1998, we had futures contracts for approximately 6 million
pounds of aluminum with a net hedge and total face value of approximately $3.7
million. At the end of the year, these contracts had a $0.4 million loss that
was not recorded in our financial statements because the aluminum products under
the related customer orders had not yet been shipped. Prior to 1998, we had not
entered into aluminum futures contracts. A sensitivity analysis of our aluminum
futures contracts indicates that a hypothetical 10 percent unfavorable change in
aluminum prices at the end of 1998 would have resulted in an additional loss of
approximately $0.3 million (in addition to the $0.4 million deferred, unrealized
loss discussed above). That loss would have been virtually offset by a similar
amount of gain on the related customer contracts.

         FOREIGN CURRENCY HEDGING

         We are a global company and transact business in many countries and in
many currencies. Foreign currency transactions increase our risks because
exchange rates can change between the time agreements are made and the time
foreign currencies are actually exchanged. One of the ways we manage these
exposures is by entering into forward exchange and currency option contracts in
the same currency as the transaction to lock in or minimize the effects of
changes in exchange rates. With regard to foreign currency transactions, we may
hedge or protect transactions for which we have a firm legal obligation or when
anticipated transactions are likely to occur. We do not enter into foreign
exchange contracts for speculative purposes. In the process of protecting our
transactions, we may use a number of offsetting currency contracts. As a result,
the sum of the face value of our outstanding contracts is not an accurate
measure of our market risk from the use of such contracts.

         At December 31, 1998, we had a net hedge and total face value of
approximately $44 million in forward exchange contracts to hedge intercompany
loans between our international subsidiaries. At year-end 1997, we had foreign
currency protection in place for $158 million, compared with $141 million at
year-end 1996, that represented both the net hedged amount and the total face
value of the forward contracts. We did not have any significant gains or losses
at year end that had not been recorded in our financial statements for each of
the three years in the period ended December 31, 1998.

         At year-end 1998, our foreign currency protection contracts included
the British pound, German mark, Italian lira and Spanish peseta. A sensitivity
analysis of our exposure to market risk with respect to our forward foreign
exchange contracts indicates that if exchange rates had moved against the rates
in our protection agreements by a hypothetical 10 percent, we would have
incurred a potential loss of approximately $4.4 million. This loss would have
been virtually offset by a gain on the related underlying transactions.

         INTEREST RATE HEDGING

         In some situations, we may enter into structured transactions using
currency swaps that result in lower overall interest rates on borrowings. We do
not enter into currency swap contracts for speculative purposes. At year-end
1998, we had currency swap contracts in place with an approximate net hedged
value of $31 million and a total face value of $36 million. These currency swaps
involved swapping fixed-rate Brazilian real loans into fixed-rate U.S. dollar
loans, and swapping floating-rate U.S. dollar loans into fixed-rate Thai baht
loans. At the end of 1998, we prepared an analysis to determine our sensitivity
to changes in interest and exchange rates. A hypothetical interest rate move
against our currency swap rates of 1 percent (or 100 basis points) would be
insignificant. A hypothetical 10 percent unfavorable change in exchange rates
would cause us to incur additional costs of approximately $4.4 million.

         In addition, we are vulnerable to increasing costs from interest rates
associated with floating-rate debt. We may enter into interest rate swap
contracts to manage or limit such interest expense costs. We do not enter into
interest rate swap contracts for speculative purposes. We caused our 80
percent-owned Compania Contractual Minera Candelaria (Candelaria) copper mine in
Chile to enter into interest rate swaps in 1997 to convert its floating-rate,
dollar-denominated debt into fixed-rate debt (through the year 2008). Under the
terms of the floating-rate debt agreement, the Candelaria borrowings are
scheduled to vary from period to period during the life of the debt. In order to
match the projected changes in debt balances, the face value of the interest
rate swaps approximate the amounts of the underlying debt. At the end of 1998,
we prepared an analysis to determine the sensitivity of our interest rate swap
contracts to changes in interest rates. A hypothetical interest rate move
against our interest rate swaps of 1 percent (or 100 basis points) would result
in a higher interest expense of approximately $11.6 million over the life of the
debt.

         BUSINESS SEGMENTS

         Results for 1998, 1997 and 1996 can be meaningfully compared by
separate reference to our reporting divisions, Phelps Dodge Mining Company and
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. Through December 31, 1997, Phelps
Dodge Industries included our specialty chemicals segment, our wire and cable
segment, and our wheel and rim operations. Effective January 1, 1998, 90 percent
of Accuride Corporation and its subsidiaries, our wheel and rim business, was
sold to an affiliate of Kohlberg Kravis Roberts and Co. (KKR), and the existing
management of Accuride. The remaining 10 percent interest was sold to RSTW
Partners III, L.P., on September 30, 1998. (See Note 2 to the Consolidated
Financial Statements for a further discussion of this sale.)

         In 1998, we adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which requires financial information to be
reported on the basis that it is used by management to evaluate segment
performance and determine the allocation of resources between segments. All
prior year segment information presented in this report has been restated to
reflect the reporting requirements of this new standard. Significant events and
transactions have occurred within each segment which, as indicated in the
separate discussions presented below, are material to an understanding of the
particular year's results and to a comparison with results of the other periods.
(See Note 21 to the Consolidated Financial Statements for further segment
information.)

RESULTS OF PHELPS DODGE MINING COMPANY

Phelps Dodge Mining Company is an international business comprising a group of
companies involved in vertically integrated copper operations including mining,
concentrating, electrowinning, smelting and refining, rod production, marketing
and sales and related activities. Copper is sold primarily to others as rod,
cathode or concentrates and as rod to our wire and cable segment. We also, at
times, smelt and refine copper and produce copper rod for others on a toll basis
and produce gold, silver, molybdenum and copper chemicals as by-products, and
sulfuric acid from our air quality control facilities. This business segment
also includes our other mining operations and investments (including fluorspar,
silver and zinc operations) and our worldwide mineral exploration and
development programs.

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                   1998        1997        1996
                                                   ----        ----        ----
<S>                                            <C>           <C>         <C>
Copper (from own mines - thousand tons) *
 Production ................................       874.0       812.1       770.4

 Sales .....................................       876.3       812.8       771.6

COMEX average spot copper price
 per pound - cathodes ......................   $    0.75        1.04        1.06

                              (millions of dollars)
Sales and other operating revenues
 - unaffiliated customers ..................   $ 1,677.7     2,173.3     2,091.1

Operating income ** ........................   $   110.3       459.2       528.7
</TABLE>

----------
*    Worldwide copper production and sales exclude the amounts attributable to
     (i) the 15 percent undivided interest in the Morenci, Arizona, copper
     mining complex held by Sumitomo Metal Mining Arizona, Inc. (Sumitomo), (ii)
     the one-third partnership interest in Chino Mines Company in New Mexico
     held by Heisei Minerals Corporation (Heisei), and (iii) the 20 percent
     interest in Candelaria in Chile held by SMMA Candelaria, Inc., a jointly
     owned indirect subsidiary of Sumitomo Metal Mining Co., Ltd., and Sumitomo
     Corporation.

<TABLE>
<CAPTION>
                                               1998     1997     1996
                                               ----     ----     ----
<S>                                            <C>      <C>      <C>
    Excluded production (thousand tons):
       Morenci - for Sumitomo ..........       78.4     81.3     76.5
       Chino - for Heisei ..............       52.9     56.3     56.2
       Candelaria - for Sumitomo .......       47.4     34.4     30.2
</TABLE>
----------

**    Operating  income has been  presented  in  compliance  with SFAS No.  131,
      "Disclosures  about  Segments of an  Enterprise  and Related  Information"
      (with 1996 and 1997  restated).  1998  includes a  non-recurring,  pre-tax
      charge  of  $5.5  million  for  costs  associated  with  curtailments  and
      indefinite   closures.   (See  Note  3  to  the   Consolidated   Financial
      Statements.)

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

         PD MINING - OPERATING INCOME

         Our PD Mining segment reported operating income of $115.8 million in
1998, before $5.5 million of non-recurring, pre-tax charges in the fourth
quarter. These non-recurring charges were associated with a production
curtailment at Chino Mines Company (Chino) in New Mexico and the indefinite
suspension of operations at our Ojos del Salado operation in Chile and Cobre
Mining Company (Cobre) in New Mexico. A $27.0 million pre-tax loss on the sale
of PD Mining's 44.6 percent interest in the Black Mountain mine in South Africa
was charged to non-operating expense. This compares with 1997 operating income
of $499.7 million, before $40.5 million of non-recurring, pre-tax charges which
reflected an early retirement program and estimated future costs associated with
environmental matters. The 1998 decrease primarily reflected lower average
copper prices, partially offset by higher volumes of copper sold from mine
production.

         Operating income in 1996 was $538.7 million before $10.0 million of
non-recurring, pre-tax charges resulting from a fourth quarter reclamation
provision related to a Court-ordered rescission of a 1986 sale of property. The
decrease in 1997 operating income compared with 1996 reflected higher copper
production costs and lower copper prices, partially offset by higher volumes of
copper sold from mine production. Unit production costs of copper in 1997 and
1998 were impacted adversely by the failure of a section of the ore conveyor
system at the Morenci, Arizona, copper facility that occurred in late December,
reduced throughput at the Hidalgo Smelter resulting from 27 days of lost
production due to boiler leaks and 150 days of reduced capacity due to converter
problems, and increased exploration expense associated with advanced project
development work. The Morenci ore conveyor system was repaired and fully
operational in late January 1998.

         Copper unit production costs generally have been stable for the
three-year period ended December 31, 1998, primarily as a result of ongoing cost
containment programs and high levels of production of low-cost cathode copper at
solution extraction/electrowinning (SX/EW) plants in Morenci, Arizona; Tyrone,
New Mexico; and Santa Rita, New Mexico. In 1998, we produced a total of 430,800
tons of cathode copper at our SX/EW facilities, compared with 418,000 tons in
1997 and 408,000 tons in 1996. The SX/EW method is a cost-effective process of
extracting copper from certain types of ores. PD Mining uses SX/EW in
conjunction with its conventional concentrating, smelting and refining in a
continuing effort to maintain internationally competitive costs.

         In 1998, operations outside the United States provided 11 percent of PD
Mining's sales, compared with 9 percent in 1997 and 8 percent in 1996. During
the year, operations outside the United States reduced the segment's operating
income by 9 percent, compared with contributions of 9 percent in 1997 and 8
percent in 1996.

         PD MINING - OPERATIONS UPDATE

         On February 3, 1998, we acquired the stock of Cobre for $108.7 million
including acquisition costs. We also assumed Cobre's outstanding debt of $14.8
million. The acquisition was at a price of $3.85 per common share for Cobre's 27
million common shares, including shares issuable upon the exercise of
outstanding warrants and options. The primary assets of Cobre include the
Continental Mine, which comprises an open-pit copper mine, two underground
copper mines, two mills, and the surrounding 11,000 acres of land, including
mineral rights, located in southwestern New Mexico adjacent to our Chino
operations. On October 21, 1998, we announced the indefinite suspension of
operations at Cobre. Operations will be suspended in a phased approach reducing
copper production by 35,000 tons per year by mid-1999.

         On October 21, 1998, we announced that we also would curtail production
at Chino. The production curtailment is occurring in phases between October 31,
1998, and the first quarter of 1999. The curtailment will reduce copper
production by 35,000 annual tons. In addition, we announced the immediate
indefinite suspension of operations at our Ojos del Salado mine. This shutdown
will reduce copper production by more than 20,000 annual tons.

         On May 7, 1997, we announced plans to resume production at our Ajo
copper mining operation in southern Arizona, where mining operations have been
suspended since 1984. Environmental permitting is continuing, but the project is
on hold pending an improvement in copper prices.

         We have additional sources of copper that could be placed in production
should market circumstances warrant. Permitting and significant capital
expenditures would be required, however, to develop such additional production
capacity.

         Our exploration group has completed a feasibility study on the Ambatovy
nickel/cobalt deposit in central Madagascar. Detailed drilling in the district,
which is located approximately 80 kilometers east of the capital city of
Antananarivo, indicates an overall resource of approximately 190 million metric
tons of ore at a grade of 1.1 percent nickel and 0.1 percent cobalt. The
feasibility study indicated there was a need for the nickel price to increase to
make the project economical.

         PD MINING - OTHER MATTERS

         In December 1996, the United States District Court of the Eastern
District of New York ruled that our 1986 sale of property in Maspeth, New York,
to the United States Postal Service was to be rescinded. The Court ordered us to
return the $14.8 million originally paid by the Postal Service for the property
and to pay interest on the sales price for a portion of the time since that
sale. In August 1997, we returned $14.8 million to the Postal Service for the
Maspeth property and paid $6.6 million of interest to the Postal Service.

         In 1997, issues of dispute arose between Phelps Dodge and the San
Carlos Apache Tribe regarding our use and occupancy of the Black River Pump
Station which delivers water to the Morenci operation. On May 12, 1997, the
Tribe filed suit against us in San Carlos Apache Court, seeking our eviction
from the Tribe's Reservation and claiming substantial compensatory and punitive
damages, among other relief. In May 1997, we reached an agreement with the
Tribe, and subsequently federal legislation (Pub. L. No. 105-18, 5003, 111 stat.
158, 181-87) was adopted which mandated dismissal of the tribal court suit. The
legislation prescribes arrangements intended to ensure a future supply of water
for the Morenci mining complex in exchange for certain payments by us. The
legislation does not address any potential claims by the Tribe relating to our
historical occupancy and operation of our facilities on the Tribe's Reservation,
but does require that any such claims be brought, if at all, exclusively in
federal district court. By order dated October 13, 1997, the tribal court
dismissed the lawsuit with prejudice, as contemplated by the legislation.

         The 1997 legislation required that the Company and the Tribe enter a
lease for the delivery of Central Arizona Project water through the Black River
Pump Station to Morenci on or before December 31, 1998. In the event a lease was
not signed, the legislation expressly provided that the legislation would become
the lease. The legislation included the principal terms for that eventuality. To
date, we have not entered into a lease with the Tribe, but are relying on our
rights under the legislation and are prepared to enforce those rights if
necessary. We are cooperating with the United States, which operates the pump
station, to reach an agreement with the Tribe on the lease issue.


RESULTS OF PHELPS DODGE INDUSTRIES

Phelps Dodge Industries (PD Industries), our manufacturing division, produces
engineered products principally for the global energy, telecommunications,
transportation and specialty chemicals sectors. Its operations are characterized
by products with significant market share, internationally competitive cost and
quality, and specialized engineering capabilities. The manufacturing division
includes our specialty chemicals segment, our wire and cable segment and, until
they were sold in 1998, our wheel and rim operations (Accuride Corporation). Our
specialty chemicals segment includes Columbian Chemicals Company and its
subsidiaries (Columbian). Our wire and cable segment includes Phelps Dodge
Magnet Wire Company and its subsidiaries (PD Magnet Wire) and Phelps Dodge
International Corporation and its affiliates (PDIC).

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                       1998       1997       1996
                                       ----       ----       ----
                                           (millions of dollars)
<S>                                  <C>         <C>        <C>
Sales and other operating revenues
 - unaffiliated customers:
  Specialty chemicals ............   $  454.6      429.5      437.0
  Wire and cable .................      931.1      978.5      950.7
  Other * ........................         --      333.0      307.8
                                     --------   --------   --------

                                     $1,385.7    1,741.0    1,695.5
                                     ========   ========   ========
Operating income: **
  Specialty chemicals ............   $   87.6       74.9       80.3
  Wire and cable *** .............       67.3       83.1      105.8
  Other * ........................      198.7       49.8       41.8
                                     --------   --------   --------

                                     $  353.6      207.8      227.9
                                     ========   ========   ========
</TABLE>
----------
*     Other includes Accuride which was sold in 1998. Ninety percent of Accuride
      was sold to an affiliate of KKR and the existing management of Accuride
      effective January 1, 1998, and the remaining 10 percent interest was sold
      to RSTW Partners III, L.P., on September 30, 1998, resulting in a total
      pre-tax gain of $198.7 million. (See Note 2 to the Consolidated Financial
      Statements for a further discussion of this sale.)
**    Operating income has been presented in compliance with SFAS No. 131,
      "Disclosures about Segments of an Enterprise and Related Information"
      (with 1996 and 1997 restated).
***   Includes a pre-tax charge of $2.3 million in 1998 for an early  retirement
      program.
--------------------------------------------------------------------------------

         PD Industries reported operating income of $157.2 million in 1998,
before the effect of a $198.7 million pre-tax gain from the sale of Accuride and
$2.3 million of non-recurring, pre-tax charges primarily for an early retirement
program at PD Magnet Wire. This compares with 1997 operating income of $158.0
million before Accuride's $49.8 million contribution. 1998 earnings approximated
the corresponding prior year period, excluding Accuride, despite continuing
Asian economic difficulties. This reflected strong performances by our U.S. and
European carbon black businesses and the addition of the PD Alcoa wire and cable
operation in Brazil that was acquired in December 1997. Decreased operating
income in 1997 compared with 1996 reflected the economic difficulties in Asia,
generally weaker currencies in the European market and the effects of a first
quarter strike at our Canadian wheel and rim plant, that were partially offset
by continued strength in the U.S. wheel and rim market.

         In 1998, operations outside the United States provided 53 percent of PD
Industries' sales, compared with 49 percent in 1997 and 50 percent in 1996.
During the year, operations outside the United States contributed 54 percent of
PD Industries' operating income (excluding the effect of the gain on the sale of
Accuride), compared with 43 percent in 1997 and 57 percent in 1996.

         SPECIALTY CHEMICALS

         Columbian's 1998 earnings were higher than in 1997 as a result of
increased carbon black sales and production volumes and lower feedstock costs.
European demand was driven by strong vehicle production and North American
growth was driven by an increase in our production capacity which allowed us to
gain a greater market share. The 1998 earnings increase also reflected
Columbian's fourth quarter acquisition of a carbon black operation in Brazil.

         In October 1998, we acquired the Brazilian carbon black manufacturing
business of Copebras S.A., a subsidiary of Minorco, for $220 million. This
manufacturing facility has an annual production capacity of 170,000 metric tons
of carbon black. Columbian will manage and operate the new company.

         In addition, we acquired an 85 percent interest in the Korean carbon
black manufacturing business of Korea Kumho Petrochemical Co., Ltd., for $76.1
million in January 1999. Columbian will assume management and operating
responsibility of this business, including the 110,000 metric ton per year
manufacturing plant located in Yosu, South Korea.

         Columbian's 1997 earnings were lower than those in 1996 as a result of
lower sales volumes in Europe, partially offset by higher sales and production
volumes in North America. Exports from the United Kingdom were adversely
affected by its strong currency, while weaker currencies in continental Europe
raised the effective price of dollar-denominated feedstock. Also affecting
Europe were weak demand and competitive import pressures which deferred an
increase in selling prices until the end of the year. In North America, several
major expansion projects completed during 1997 allowed Columbian to meet the
strong demand for carbon black.

         WIRE AND CABLE

         Lower 1998 earnings in the wire and cable business resulted from lower
selling prices, continuing Asian economic difficulties that began in 1997, the
effect of declining oil prices and political uncertainty in Venezuela and a
significant drop in high performance conductor demand in the U.S. aerospace and
electronic components industries. These negative factors were partially offset
by our acquisition of PD Alcoa in Brazil and the start-up of our new magnet wire
facility in Mexico.

         Lower earnings in 1997 compared to 1996 in the wire and cable business
resulted from adverse economic conditions in Asia. The Asian currency crisis and
its associated economic slowdown resulted in 1997 operating income from the
region that was 55 percent lower than 1996. Partially offsetting the lower
operating income in Asia was a 44 percent increase in operating income from
Central America and a 21 percent increase in operating income from North
America. The increase in Central American operating income was the result of a
stronger market presence in the building wire and aluminum power cables market.
In North America, sales of specialty conductors to the commercial aerospace
market and magnet wire sales were boosted by a robust U.S. economy.

         In the 1998 fourth quarter, we restructured our Magnet Wire facilities
in Hopkinsville, Kentucky, and Fort Wayne, Indiana, reducing jobs to cut costs
and improve our competitive position. This resulted in a non-recurring charge of
$2.3 million principally reflecting provisions for early retirements.

         On July 15, 1998, we purchased Eldra Elektrodaht-Erzeugung GmbH's 49
percent interest in Phelps Dodge Eldra GmbH resulting in the operation becoming
our wholly owned subsidiary under the name of Phelps Dodge Magnet Wire (Austria)
GmbH. The production capacity of the facility has been expanded twice since 1992
nearly doubling the annual capacity to 11,000 metric tons of magnet wire, the
insulated conductor used in most electrical systems.

         In June 1998, our wire and cable segment and Sumitomo Electric
Industries, Ltd., dissolved joint venture partnerships at five wire and cable
manufacturing and support companies. The dissolution was achieved through the
exchange of cash and ownership shares in the companies. The transaction resulted
in a pre-tax gain of $10.6 million.

         In March 1998, we began commercial production at Phelps Dodge Magnet
Wire de Mexico, S.A. de C.V., a $42 million magnet wire manufacturing plant in
Monterrey, Mexico. The new facility uses state-of-the-art technology and
currently has installed capacity of 20,400 metric tons out of a planned capacity
of 38,000 metric tons of magnet wire. The new plant is operated by PD Magnet
Wire.

         In December 1997, we acquired for $72 million a 60 percent interest in
the copper and aluminum wire and cable manufacturing business of Alcoa Aluminio,
S.A., of Brazil. Its product line is focused on energy transmission and
distribution, with dominance in aluminum conductors and solid participation in
the copper wire and cable business. During the first quarter of 1998, PDIC began
managing and operating this joint venture.

         In November 1997, we announced the inauguration of Phelps Dodge Yantai
Cable Company's (PDYCC) manufacturing facility in China. PDYCC is a joint
venture consisting of several investors including Phelps Dodge Corporation. We
own 66.67 percent of a holding company that has a 60 percent interest in PDYCC.
The $18 million modern facility has the capacity to produce 7,000 metric tons of
copper and aluminum medium- and high-voltage insulated power cables annually.
The products are used mostly for underground installation, replacing traditional
overhead power lines in China's high-density cities. We account for our net
interest in PDYCC on the equity basis.

         In May 1996, we acquired Nesor Alloy Corporation for approximately $35
million. In addition, we increased our ownership interest in Metal Fabricators
of Zambia Limited (ZAMEFA) from 20 percent to 51 percent. Our interests in these
companies are also managed by PDIC.

         PD INDUSTRIES - OTHER OPERATIONS

         Accuride was sold in 1998. Ninety percent was sold to an affiliate of
KKR and the existing management of Accuride effective January 1, 1998, and the
remaining 10 percent interest was sold to RSTW Partners III, L.P., on September
30, 1998, resulting in a pre-tax gain of $198.7 million and an after-tax gain of
$131.1 million. (See Note 2 to the Consolidated Financial Statements.)

OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED OPERATIONS

         DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE

         Depreciation, depletion and amortization expense was $293.3 million in
1998, compared with $283.7 million in 1997 and $249.5 million in 1996. The 1998
increase primarily resulted from increased U.S. and international mine
production and an increase in U.S. depreciation rates, partially offset by the
effect of the sale of Accuride that had $20.7 million of depreciation, depletion
and amortization in 1997. The 14 percent increase in 1997 over 1996 resulted
from increased mine production and depreciation rates for both U.S. and
international mining operations, and the completion of several expansion
projects within Phelps Dodge Industries. (Please refer to Note 1 to the
Consolidated Financial Statements for a discussion of depreciation methods.)

         SELLING AND GENERAL ADMINISTRATIVE EXPENSE

         Selling and general administrative expense was $122.9 million in 1998,
compared with $141.8 million in 1997 and $125.9 million in 1996. The 13 percent
decrease in 1998 reflected the absence of Accuride and a decrease in Corporate
expense for legal and professional fees, incentive plans and other general
administrative expenses. The 13 percent increase in 1997 over 1996 reflected the
effect of acquisitions by the international wire and cable group and an increase
in Corporate expenses for information processing, training and development,
incentive plans and other general administrative expenses.

         EXPLORATION AND RESEARCH AND DEVELOPMENT EXPENSE

         Exploration and research and development expense was $55.0 million in
1998, compared with $87.8 million in 1997 and $83.9 million in 1996. The 37
percent decrease in 1998 primarily resulted from the closure of PD Mining's U.S.
exploration offices during the 1997 fourth quarter, but also reflected generally
lower exploration expenditures worldwide. The 1996 to 1997 increase primarily
resulted from increased exploration expenditures in Africa and Mexico.

         INTEREST EXPENSE

         Net interest expense was $94.5 million in 1998, compared with $62.5
million in 1997 and $66.1 million in 1996. The 51 percent increase in 1998
principally resulted from interest associated with corporate debt issued in the
1997 fourth quarter and decreases in capitalized interest resulting from the
completion of the Candelaria expansion in October 1997. The 1996 to 1997 net
interest expense decrease principally was a result of capitalization of interest
costs for the Candelaria expansion project in Chile. Included in the 1996 amount
were foreign currency exchange gains of $8.0 million reflecting the
remeasurement of Venezuelan local currency debt after a major devaluation of the
bolivar.

         MISCELLANEOUS INCOME AND EXPENSE, NET

         Miscellaneous income, net of miscellaneous expense, was $8.8 million in
1998, compared with $33.4 million in 1997 and $40.7 million in 1996. The 1998
decrease primarily resulted from a $27.0 million pre-tax loss on the sale of our
44.6 percent interest in the Black Mountain mine in South Africa, partially
offset by a pre-tax gain of $10.3 million from the dissolution of joint venture
partnerships between Phelps Dodge and Sumitomo Electric Industries, Ltd., at
five wire and cable manufacturing and support companies. In addition, dividend
income from our 13.9 percent interest in Southern Peru Copper Corporation (SPCC)
was $8.4 million lower than in 1997. The decrease from 1996 to 1997 primarily
resulted from decreased interest income and less dividend income from SPCC,
partially offset by a $6.0 million pre-tax gain from the exchange of shares from
a cost basis investment in a wire and cable business located in Greece.

         PROVISION FOR TAXES ON INCOME

         The effective tax rate increased from 31 percent in 1997 to 40 percent
in 1998. This increase was due to a decrease in the U.S. tax benefit for
percentage depletion resulting from lower copper prices, as well as increased
taxes on foreign earnings resulting from a change in the mix of those earnings.
The effective tax rate decreased from 32 percent in 1996 to 31 percent in 1997
primarily due to an increase in the U.S. tax benefit for percentage depletion.
Despite a slight decrease in average realized copper prices in 1997, the benefit
from our allowable deduction for percentage depletion in 1997 increased from
1996 due to a more favorable mix of income subject to percentage depletion. (See
Note 7 to the Consolidated Financial Statements for the reconciliation of the
Corporation's effective tax rates to statutory rates.)

         Our federal income tax returns for the years 1992 through 1997 are
currently under examination by the Internal Revenue Service (IRS). The IRS has
issued proposed assessments relating to our federal income tax liability for the
years 1990 and 1991, and we have reached a conditional settlement with the IRS
appeals division for those years on a number of issues. We are seeking a
settlement of the remaining issues and expect either to substantially settle
them or litigate the issues involved. We believe that we have made adequate
provision so that final resolution of the issues involved, including the
application of those determinations to subsequent open years, will not have an
adverse effect on our consolidated financial condition or results of operations.
However, settlement of these issues could involve material tax and interest
payments with respect to the open years, a substantial part of which would
involve timing differences.

         DISCOUNT RATE - PENSIONS AND OTHER POSTRETIREMENT BENEFITS

         Under current financial accounting standards, any significant
year-to-year movement in the rate of interest on long-term, high-quality
corporate bonds necessitates a change in the discount rate used to calculate the
actuarial present value of our accumulated pension and other postretirement
benefit obligations. The discount rate decreased to 6.75 percent at December 31,
1998, compared with 7.25 percent at December 31, 1997. (For a further discussion
of these issues, see Notes 16 and 17 to the Consolidated Financial Statements.)

         YEAR 2000

         We continue to review our "Year 2000" readiness. The Year 2000 issue
stems from the predominant use in computer applications of a two-digit field to
capture the year (e.g., "98" for 1998). Because the "19" is assumed in the date,
when computers turn their clocks to the year 2000, the two-digit field will read
"00" and some computer programs will assume the year is 1900. Programs that
calculate, compare or sort on a date field may cause erroneous results and
errors leading to the risk of business interruption or shutdown and other
potential problems. The Year 2000 issue is a global issue that is very complex
because of the many programs that may be impacted in any computer system. These
computer systems are used to support the activities of our businesses including
financial systems, process control technology and other computer-controlled
equipment.

         We have identified the scope of the Year 2000 issue as it relates to
our operations and all levels of management are providing leadership to affect
workable solutions. A program office team has been assembled to oversee all
facets of this project including information technology and process control
system conversions, contracts and agreements with vendors, suppliers and
customers, insurance policies and security systems. We are working with major
industry associations and agencies in North America, Europe, Latin America and
Asia Pacific to facilitate the sharing of strategies and solutions. We have
hired PKS Systems Integration LLC, a consulting firm, to assist us in the
assessment and implementation of our Year 2000 conversion.

         The conversion project has been structured into four phases:

          +    inventory phase (100 percent complete);
          +    assessment phase - the final cost estimation and action plan
               identification phase (100 percent complete);
          +    remediation and testing phase (expected to be complete by the end
               of the 1999 first quarter); and
          +    field implementation phase (expected to be complete by the end of
               the 1999 second quarter).

         The process of identifying and prioritizing critical suppliers and
customers has been completed. A formal program to communicate with and evaluate
these external organizations is in progress and will be ongoing throughout the
conversion process. We are devoting special attention to the utility and
transportation companies due to their importance to our operations. Similarly,
extra attention is being given to key customers. In addition, we are in the
process of developing contingency plans to offset potential problems related to
external organizations.

         Our investment in standardizing business system platforms over the past
several years has streamlined and facilitated our Year 2000 conversion
requirements by eliminating redundant technologies and allowing the sharing of
services. In addition, coordination of other initiatives (e.g., the replacement
of process control and business systems which had been previously identified for
retirement or upgrade without regard to the Year 2000 issue, with Year 2000
compliant systems) and concentrating resources on key systems are also expected
to allow us to achieve desired results.

         The total cost associated with our Year 2000 conversion is not expected
to be material to our financial position. The estimated total cost of the
conversion is approximately $10 million as previously reported in the 1997
Annual Report on Form 10-K. This estimate does not include our potential share
of Year 2000 costs that may be incurred at operations that we do not consolidate
or those expenditures for planned system and process control upgrades that are
undertaken for other reasons and also incorporate Year 2000 compliant
technology. Spending to date has been approximately $2 million.

         Failure to correct a material Year 2000 problem could result in a
potential disruption to one or more of our operations. Such failures could
materially and adversely affect our results of operations, liquidity and
financial condition. Due to the general uncertainty inherent in the Year 2000
issue, resulting in part from the uncertainty of the readiness of suppliers and
customers, we are unable to determine with any certainty the consequences of
Year 2000 failures and the materiality of these potential failures. Therefore,
we are in the process of developing contingency plans, to the extent possible,
in order to mitigate the extent of potential disruptions to the business
operations.

CHANGES IN FINANCIAL CONDITION; CAPITALIZATION

         CASH AND CASH EQUIVALENTS

         Cash and cash equivalents at the end of 1998 were $221.7 million,
compared with $157.9 million at the beginning of the year. Operating activities
provided $378.4 million of cash during the year which was used along with
proceeds from the sale of Accuride to fund investing activities, dividend
payments on common stock and purchases of common stock.

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                        1998        1997        1996
                                        ----        ----        ----
                                            (millions of dollars)
<S>                                   <C>           <C>         <C>
Cash provided by (used in):
  Operating activities ............   $  378.4       764.6       837.5
  Accuride divestiture ............      449.5          --          --
  Other investing activities ......     (633.5)     (793.8)     (557.3)
  Financing activities ............     (130.6)     (283.0)     (418.6)
                                      --------    --------    --------

Net increase (decrease) in cash and
  cash equivalents ................   $   63.8      (312.2)     (138.4)
                                      ========    ========    ========
</TABLE>
--------------------------------------------------------------------------------

         WORKING CAPITAL

         During 1998, net working capital (excluding cash and cash equivalents,
debt, adjustments for foreign currency exchange rate changes and the disposition
of Accuride) decreased by $11.4 million. This decrease resulted principally
from:

          +    a $53.3 million decrease in accounts receivable primarily due to
               the effect of lower copper prices and lower sales volumes in Asia
               and Venezuela;
          +    an $8.9 million decrease in inventories and supplies primarily
               due to reduced copper inventories and lower wire and cable
               business in Asia, Venezuela and the United States;
          +    a $13.8 million increase in accrued taxes primarily due to lower
               tax payments in 1998;
          +    a $42.1 million decrease in accounts payable due primarily to
               lower business activity at our Asian and Venezuelan wire and
               cable operations and reduced raw material costs at our carbon
               black operations; and
          +    a $23.6 million decrease in accrued expenses primarily due to a
               reduction in the current portion of environmental reserves.

         INVESTING ACTIVITIES

         Investing activities in 1998 included PD Mining capital expenditures of
$201.3 million and its investment of $108.7 million in Cobre Mining Company.
They also included PD Industries' $111.8 million of capital expenditures and its
investment of $219.9 million in Copebras. These expenditures were partially
offset by $449.5 million in proceeds from the sale of Accuride and $18.5 million
in proceeds from the sale of Black Mountain.

         Investing activities in 1997 included capital expenditures of $661.6
million, compared with $513.0 million in 1996. Capital expenditures included
$156.1 million for the expansion of Candelaria in 1997 and $76.0 million in
1996. Investments in 1997 included the acquisition of a copper and aluminum wire
and cable manufacturing business in Brazil for $72.0 million, the acquisition of
an indirect 40 percent voting interest in a Peruvian zinc mining company,
Compania San Ignacio de Morococha S.A. (SIMSA) for $15.0 million, $22.6 million
for an investment in a joint venture formed by Accuride Corporation and Kaiser
Aluminum and Chemical Corporation to produce aluminum wheels for the commercial
transportation industry, and $14.8 million for the Laurel Hill property as a
result of the 1996 Court-ordered rescission of the 1986 sale of the property.
Investing activities in 1996 also included approximately $35 million for the
acquisition of Nesor.

         Capital expenditures and investments for 1999 are expected to be
approximately $130 million for PD Mining and approximately $200 million for PD
Industries (including $76 million for our investment in a Korean carbon black
business). These capital expenditures and investments will be funded from cash
reserves, operating cash flow and from borrowings.

         FINANCING ACTIVITIES AND LIQUIDITY

         A share purchase program announced on May 7, 1997, provided for the
purchase of up to an additional 6 million of our common shares, approximately 10
percent of our then outstanding shares. This authorization followed a 5 million
share purchase program that was initiated in 1995 and extended to 10 million
shares in 1996. We purchased 9.9 million of our shares under that program. We
purchased 6,554,000 of our common shares in 1997 at a total cost of $511.5
million, including 3,606,000 shares at a cost of $292.9 million, under the 1997
share authorization. During 1998, we purchased 731,500 of our common shares at a
total cost of $35.4 million under the 1997 program. There were 57.9 million
common shares outstanding on December 31, 1998. We may continue to make
purchases in the open market as circumstances warrant, and may also consider
purchasing shares in privately negotiated transactions.

         Dividend payments on our common shares decreased from $122.7 million in
1997 to $117.3 million in 1998, reflecting the decreased number of common shares
outstanding due to the share purchase program. The dividend was $2.00 per common
share in 1998 and 1997.

         Total debt was $1,021.0 million at December 31, 1998, compared with
$1,003.3 million at the end of 1997. Total debt increased primarily as a result
of non-recourse project financing for the expansion of the Candelaria mine, and
due to the issuance of commercial paper in Brazil ($46.0 million). The ratio of
total debt to total capitalization was 27.6 percent at the end of 1998, compared
with 27.7 percent at the end of 1997.

         As of December 31, 1998, our 80 percent-owned Candelaria mining
operation in Chile had outstanding borrowings of $302.8 million. This debt,
incurred to finance construction and the subsequent expansion of the operation,
comprises $264.9 million of floating-rate, dollar-denominated debt and $37.9
million of fixed-rate, dollar-denominated debt. The debt and repayments are
scheduled to vary from period to period with all debt maturing by the year 2008.
Candelaria borrowings during 1998 and 1997 totaled $62.4 million and $57.6
million, respectively, under the project financing agreement. All of the 1998
and 1997 facilities are based on floating rates tied to six-month London
Interbank Offered Rate (LIBOR). In 1997, we caused Candelaria to enter into
interest rate swaps with certain financial institutions to effectively convert
all of Candelaria's floating-rate debt, at that time, to 7.84 percent,
fixed-rate debt for the term of the debt. The debt obligations and the interest
rate swaps are non-recourse to us. Under the proportional consolidation method
the debt amounts listed above represent our 80 percent share.

         An existing revolving credit agreement between us and several lenders
was amended on June 25, 1997. The agreement, as amended and restated, allows us
to borrow up to $1 billion from time to time until its scheduled maturity on
June 25, 2002. The agreement allows for two, one-year renewals beyond the
scheduled maturity date if we request and receive approval from those lenders
representing at least two-thirds of the commitments provided by the facility. In
the event of such approval, total commitments under the facility would depend
upon the willingness of other lenders to assume the commitments of those lenders
electing not to participate in the renewal. Interest is payable at a fluctuating
rate based on the agent bank's prime rate, or a fixed rate, based on the LIBOR,
or at fixed rates offered independently by the several lenders, for maturities
of between seven and 360 days. This agreement provides for a facility fee of six
and one-half basis points (0.065 percent) on total commitments. The agreement
requires us to maintain a minimum consolidated tangible net worth of $1.1
billion and limits indebtedness to 50 percent of total consolidated
capitalization. There were no borrowings under this agreement at either December
31, 1998, or December 31, 1997.

         We established a commercial paper program on August 15, 1997, under a
private placement agency agreement with two placement agents. The agreement
permits us to issue up to $1 billion of short-term promissory notes (generally
known as commercial paper) at any one time. Commercial paper may bear interest
or be sold at a discount, as mutually agreed by the placement agents and us at
the time of each issuance. Our commercial paper rating requires that issuances
of commercial paper be backed by an undrawn line of credit and the revolving
credit agreement described above provides such support. There were no borrowings
under the commercial paper program at either December 31, 1998, or December 31,
1997.

         Short-term borrowings were $116.1 million, all by our international
operations, at December 31, 1998, compared with $91.4 million at December 31,
1997. The increase was primarily due to borrowings by our wholly owned
subsidiary in Brazil, Columbian Carbon Brasil. On December 18, 1998, Columbian
Carbon Brasil issued commercial paper under a $46 million private placement of
short-term 30.5 percent promissory notes. This debt is non-recourse to us. At
the time the commercial paper was issued, we caused Columbian Carbon Brasil to
enter into currency and interest rate swaps. A currency swap that effectively
converted $26 million into fixed-rate, dollar-denominated debt was entered into
with the intention of minimizing the Brazilian inflation component of the
currency exposure. An agreement to convert the fixed interest rate to floating
was made for the remaining $20 million in Brazilian reais. The obligations under
the currency and interest rate swaps are also non-recourse to us.

         On November 5, 1997, we issued $100 million of 6.375 percent notes
maturing on November 1, 2004, and $150 million of 7.125 percent debentures
maturing on November 1, 2027, under an Indenture dated as of September 22, 1997,
between The Chase Manhattan Bank, as Trustee, and us. Interest on these
securities is payable semi-annually on May 1 and November 1 of each year. The
notes are not redeemable prior to maturity and are not entitled to any sinking
fund. The debentures are redeemable, in whole or in part, at our option at a
redemption price equal to the greater of (i) 100 percent of their principal
amount or (ii) the sum of the present values of the remaining scheduled payments
of principal and interest thereon discounted to the date of redemption at a rate
equal to the sum of the yield of a United States Treasury security having a
comparable maturity to the remaining term of the debentures plus 10 basis
points. The debentures are not entitled to any sinking fund. We applied most of
the proceeds from the sale of the offered securities to repay outstanding
commercial paper, which had been issued for general corporate purposes.

         The current portion of our long-term debt, scheduled for payment in
1999, is $68.5 million including $12.9 million for our international
manufacturing operations, $35.6 million primarily for our international mining
operations and $20.0 million for Corporate debt repayments.

         ENVIRONMENTAL MATTERS

         We are subject to federal, state and local environmental laws, rules
and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA or Superfund), as amended by the
Superfund Amendments and Reauthorization Act of 1986. Under Superfund, the
Environmental Protection Agency (EPA) has identified approximately 35,000 sites
throughout the United States for review, ranking and possible inclusion on the
National Priorities List (NPL). The EPA has included 13 sites owned by us on the
NPL. We believe that most, if not all, of the sites identified do not qualify
for listing on the NPL.

         In addition, we may be required to remove hazardous waste or remediate
the alleged effects of hazardous substances on the environment associated with
past disposal practices at sites not owned by us. We have received notice that
we are a potentially responsible party (PRP) from EPA and/or from individual
states under CERCLA or a state equivalent and are participating in environmental
assessment and remediation activity at 39 sites. We do not consider the number
of CERCLA sites or comparable state sites at which we have been notified as
being involved to be a relevant measure of exposure. Although the liability of a
PRP, and in many cases its equivalent under state law, may be joint and several,
we are usually one of many companies cited as a PRP at these sites and have, to
date, been successful in sharing cleanup costs with other financially sound
companies. With respect to these 39 sites, and with the exception of the Laurel
Hill site in Maspeth, New York, where a reserve of $10.0 million has been
established, based on currently available information, which in many cases is
preliminary and incomplete, we have no reason to believe that our ultimate
responsibility for remediation costs will exceed $2.0 million at any site and
believe most will be substantially under $0.1 million. While additional costs to
us are reasonably possible, that cost, excepting Laurel Hill, is not expected to
exceed $10.0 million. For further information about these proceedings, see Item
3. Legal Proceedings, Part III.

         The 1990 Amendments to the federal Clean Air Act require EPA to develop
and implement many new requirements, and they allow states to establish new
programs to implement some of the new requirements, such as the requirements for
operating permits under Title V of the 1990 Amendments and hazardous air
pollutants under Title III of the 1990 Amendments. Because EPA has not yet
adopted or implemented all of the changes required by Congress, the air quality
laws will continue to expand and change in coming years as EPA develops new
requirements and then implements them or allows the states to implement them. In
response to these new laws, several of our subsidiaries have submitted
applications for Title V operating permits. These programs will likely increase
our regulatory obligations and compliance costs. These costs could include
implementation of maximum achievable control technology for any of our
facilities if they are determined to be a major source of federal hazardous air
pollutants (HAPs). For example, it is probable that some of our carbon black
plants and possibly one of our smelters will be regulated as a major source of
HAPs. Until more of the implementing regulations are adopted, and more
experience with the new programs is gained, it is not possible to determine the
full impact of the new requirements.

         At December 31, 1998, we had reserves of $106.0 million for remediation
of certain of the sites discussed above and other environmental costs in
accordance with our policy. We record liabilities for environmental expenditures
when it is probable that obligations have been incurred and the costs can be
reasonably estimated. Our estimates of these costs are based upon available
facts, existing technology, and current laws and regulations. Where the
available information is sufficient to estimate the amount of liability, that
estimate has been used. Where the information is only sufficient to establish a
range of probable liability and no point within the range is more likely than
any other, the lower end of the range has been used.

         The amounts of these liabilities are very difficult to estimate. This
is due to factors such as the unknown extent of the remedial actions that may be
required. In the case of sites not owned by us, the extent of our probable
liability in proportion to the probable liability of other parties is difficult
to estimate. We have other probable environmental liabilities that, in our
judgment, cannot be reasonably estimated. Losses attributable to remediation
costs are reasonably possible at other sites. We cannot currently estimate the
total additional loss we may incur for these environmental liabilities, but that
loss could be substantial.

         The possibility of recovery of some of the environmental remediation
costs from insurance companies or other parties exists. However, we do not
recognize these recoveries in our financial statements until they become
probable.

         Our operations are subject to many environmental laws and regulations
in jurisdictions both in the United States and in other countries in which we do
business. For further discussion of these laws and regulations, please see PD
Mining - Environmental and Other Regulatory Matters and Phelps Dodge Industries
- Environmental Matters. The estimates given in those discussions of the capital
expenditures to comply with environmental laws and regulations in 1999 and 2000,
and the expenditures in 1998, are separate from the reserves and estimates
described above.

         In the United States, the Emergency Planning and Community
Right-to-know Act was recently expanded to cover mining operations. This law,
which has applied to other Phelps Dodge businesses for more than a decade,
requires companies to report to the U.S. EPA the amount of certain materials
managed in or released from their operations each year. By July 1, 1999, Phelps
Dodge will report the volume of naturally occurring metals and other substances
that we managed during 1998 once the usable copper was extracted. These
materials are very high in volume and how they are managed is covered by
existing regulations and permit requirements.

         On December 23, 1994, Chino, located near Silver City, New Mexico,
entered into an Administrative Order on Consent (AOC) with the New Mexico
Environment Department. This AOC requires Chino to study the environmental
impacts and potential health risks associated with portions of the Chino
property affected by historical mining operations. We acquired Chino at the end
of 1986. The studies began in 1995 and, until the studies are completed, it is
not possible to determine the nature, extent, cost, and timing of remedial work
which could be required under the AOC. Remedial work is expected to be required
under the AOC.

         In 1993 and 1994, the New Mexico and Arizona legislatures,
respectively, passed laws requiring the reclamation of mined lands in those
states. The New Mexico Mining Commission adopted rules for the New Mexico
program during 1994, and our operations began submitting the required permit
applications in December 1994. The Arizona State Mine Inspector adopted rules
for the Arizona program in January 1997, and our operations began submitting the
required reclamation plans in 1997. Reclamation is an ongoing activity and we
recognize estimated reclamation costs using a units of production basis
calculation. These laws and regulations will likely increase our regulatory
obligations and compliance costs with respect to mine closure and reclamation.

         OTHER MATTERS

         In 1995, legislation was introduced in both the U.S. House of
Representatives and the U.S. Senate to amend the Mining Law of 1872. None of the
bills was enacted into law. Also, mining law amendments were added to the 1996
budget reconciliation bill, which was vetoed by the President. Among other
things, the amendments contained in the 1996 bill would have imposed a 5 percent
net proceeds royalty on minerals extracted from federal lands, required payment
of fair market value for patenting federal lands, and required that patented
lands used for non-mining purposes revert to the federal government. Several of
these same concepts likely will continue to be pursued legislatively in the
future. The Secretary of the Interior also ordered the Bureau of Land Management
(BLM) to form a task force to review BLM's hardrock mining surface management
regulations and propose revisions to expand environmental and reclamation
requirements, among other things. While the effect of such changes on our
current operations and other currently owned mineral resources on private lands
would be minimal, passage of mining law amendments or revisions to the hardrock
mining surface management regulations could result in additional expenses in the
development and operation of new mines on federal lands.

         In February 1998, the Financial Accounting Standards Board issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." This statement became effective for fiscal years beginning after
December 15, 1997. We adopted this statement in 1998.

         In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires recognition of all derivatives as either assets or
liabilities on the balance sheet and measurement of those instruments at fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income (loss). Proper accounting for
changes in fair value of derivatives held is dependent on whether the derivative
transaction qualifies as an accounting hedge and on the classification of the
hedge transaction. The statement is required to be adopted and we will adopt it
in the first quarter of 2000. We are evaluating the effect this statement will
have on our financial reporting and disclosures as well as on our derivative and
hedging activities.

CAPITAL OUTLAYS

Capital outlays in the following table exclude capitalized interest and the
minority interest portions of the expenditures at Morenci, Chino and Candelaria.

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                        1998       1997       1996
                                        ----       ----       ----
                                           (millions of dollars)
<S>                                   <C>        <C>        <C>
Phelps Dodge Mining Company:
  Candelaria ......................   $    8.0      161.7       89.5
  Other ...........................      193.3      293.6      240.7
                                      --------   --------   --------
                                         201.3      455.3      330.2
                                      --------   --------   --------
Phelps Dodge Industries:
  Specialty chemicals .............       41.7       75.7       72.2
  Wire and cable ..................       70.1      102.5       97.8
  Other (Accuride was sold in 1998)         --       24.0        9.6
                                      --------   --------   --------
                                         111.8      202.2      179.6
                                      --------   --------   --------
Corporate and other ...............        5.0        4.1        3.2
                                      --------   --------   --------
                                      $  318.1      661.6      513.0
                                      ========   ========   ========
</TABLE>
--------------------------------------------------------------------------------

INFLATION

The principal impact of general inflation upon our financial results has been on
unit production costs, especially supply costs, at our mining and industrial
operations. It is important to note, however, that the selling price of our
principal product, copper, does not necessarily parallel the rate of inflation
or deflation.

DIVIDENDS AND MARKET PRICE RANGES

The principal market for our common stock is the New York Stock Exchange. At
March 5, 1999, there were 10,281 holders of record of our common shares. We paid
a quarterly dividend of 45 cents on each common share for the first quarter of
1996. In the 1996 second quarter, the quarterly dividend was increased by 11
percent to 50 cents on each common share and continued at that rate throughout
1997 and 1998. Additional information required for this item is provided in the
Quarterly Financial Data table.

QUARTERLY FINANCIAL DATA
(In millions except per common share amounts)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                       First       Second      Third      Fourth
                                      Quarter      Quarter    Quarter    Quarter
                                      -------      -------    -------    -------
<S>                                  <C>          <C>          <C>        <C>
1998

Sales and other operating
 revenues ........................   $   798.3      794.4      764.0      706.7

Operating income .................       273.9       73.8       65.3        9.7

Net income (loss) ................       163.7       40.4       28.6      (41.8)

Net income (loss) per common share
 - basic .........................        2.80       0.69       0.49      (0.72)

Net income (loss) per common share
 - diluted .......................        2.79       0.69       0.49      (0.72)

Stock prices *
  High ...........................       69.25      71.75      62.56      61.75
  Low ............................       58.06      56.13      43.88      49.56
  Close ..........................       64.56      57.19      52.19      50.88

1997

Sales and other operating
 revenues ........................   $ 1,021.7    1,065.0      961.7      865.9

Operating income .................       206.0      190.7      150.0       64.3

Net income .......................       137.5      134.8      104.2       32.0

Net income per common share
 - basic .........................        2.14       2.18       1.74       0.55

Net income per common share
 - diluted .......................        2.13       2.16       1.72       0.54

Stock prices *
  High ...........................       79.00      89.63      87.94      79.81
  Low ............................       68.00      70.25      75.06      59.88
  Close ..........................       73.13      85.19      77.63      62.25
</TABLE>
----------

*  As reported in the Wall Street Journal.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

--------------------------------------------------------------------------------
PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

         The consolidated balance sheet at December 31, 1998 and 1997, and the
related consolidated statements of income, of cash flows and of common
shareholders' equity for each of the three years in the period ended December
31, 1998, and notes thereto, together with the report thereon of
PricewaterhouseCoopers LLP dated January 14, 1999, appear in this report. The
additional financial data referred to below should be read in conjunction with
these financial statements. Schedules not included with the additional financial
data have been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto. The
individual financial statements of the Company have been omitted because the
Company is primarily an operating company and all subsidiaries included in the
consolidated financial statements, in the aggregate, do not have minority equity
interests and/or indebtedness to any person other than the Company or its
consolidated subsidiaries in amounts which together exceed 5 percent of total
consolidated assets at December 31, 1998. Separate financial statements of
subsidiaries not consolidated and investments accounted for by the equity
method, other than those for which summarized financial information is provided
in Note 4 to the Consolidated Financial Statements, have been omitted because,
if considered in the aggregate, such subsidiaries and investments would not
constitute a significant subsidiary.

ADDITIONAL FINANCIAL DATA

Financial statement schedule for the years ended December 31, 1998, 1997 and
1996:

      II - Valuation and qualifying accounts and reserves.

REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of Phelps Dodge Corporation

Our audits of the consolidated financial statements referred to in our report
dated January 14, 1999, included an audit of the Financial Statement Schedule
listed in the foregoing index titled "Additional Financial Data." In our
opinion, this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.

PricewaterhouseCoopers LLP

Phoenix, Arizona
January 14, 1999

REPORT OF MANAGEMENT

Our management is responsible for the preparation, integrity and objectivity of
the consolidated financial statements presented in this annual report. The
statements have been prepared in accordance with generally accepted accounting
principles and include amounts that are based on management's best estimates and
judgments. Management also accepts responsibility for the preparation of other
financial information included in this document.

         Management maintains a system of internal controls to provide
reasonable assurance that assets are safeguarded and that transactions are
properly recorded and executed in accordance with management's authorization.
The system includes formal policies and procedures that are communicated to
employees with significant roles in the financial reporting process and updated
as necessary. The system also includes the careful selection and training of
qualified personnel, an organization that provides a segregation of
responsibilities and a program of internal audits that independently evaluates
the effectiveness of internal controls and recommends possible improvements.

         The Audit Committee, currently consisting of six non-employee
directors, meets at least three times a year to review, among other matters,
internal control conditions and internal and external audit plans and results.
It meets periodically with senior officers, internal auditors and independent
accountants to review the adequacy and reliability of our accounting, financial
reporting and internal controls.

         Our independent accountants, PricewaterhouseCoopers LLP, have audited
the annual financial statements in accordance with generally accepted auditing
standards. The independent accountants' report expresses an informed judgment as
to the fair presentation of our reported operating results, financial position
and cash flows. This judgment is based on the results of auditing procedures
performed and such other tests that they deemed necessary, including
consideration of our internal control structure.

         Our management also recognizes its responsibility for fostering a
strong ethical climate so that our affairs are conducted according to the
highest standards of personal and corporate conduct. This responsibility is
characterized and reflected in our code of business ethics and policies, which
is distributed throughout the Company. The code of conduct addresses:

          +    the necessity of ensuring open communication within the Company;
          +    potential conflicts of interest;
          +    compliance with all applicable laws (including financial
               disclosure); and
          +    the confidentiality of proprietary information.

         We maintain a systematic program to assess compliance with these
policies.

<AUDIT-REPORT>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Phelps Dodge Corporation

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of common shareholders'
equity present fairly, in all material respects, the financial position of
Phelps Dodge Corporation and its subsidiaries at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Corporation's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.


PricewaterhouseCoopers LLP

Phoenix, Arizona
January 14, 1999
</AUDIT-REPORT>
<PAGE>
STATEMENT OF CONSOLIDATED INCOME
--------------------------------------------------------------------------------
(In millions except per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                           For the years ended December 31,

                                           1998         1997         1996
                                        ---------    ---------    ---------
<S>                                     <C>          <C>          <C>
SALES AND OTHER OPERATING REVENUES ..   $ 3,063.4      3,914.3      3,786.6
                                        ---------    ---------    ---------

OPERATING COSTS AND EXPENSES
  Cost of products sold .............     2,360.4      2,744.1      2,604.4
  Depreciation, depletion and
   amortization .....................       293.3        283.7        249.5
  Selling and general administrative
   expense ..........................       122.9        141.8        125.9
  Exploration and research expense ..        55.0         87.8         83.9
  Provision for environmental costs,
   asset dispositions and other
   non-recurring charges ............      (190.9)        45.9         10.0
                                        ---------    ---------    ---------
                                          2,640.7      3,303.3      3,073.7
                                        ---------    ---------    ---------
OPERATING INCOME ....................       422.7        611.0        712.9
  Interest expense ..................       (96.4)       (74.2)       (68.0)
  Capitalized interest ..............         1.9         11.7          1.9
  Miscellaneous income and
   expense, net .....................         8.8         33.4         40.7
                                        ---------    ---------    ---------
INCOME BEFORE TAXES, MINORITY
 INTERESTS AND EQUITY IN NET EARNINGS
 OF AFFILIATED COMPANIES ............       337.0        581.9        687.5
  Provision for taxes on income .....      (134.0)      (180.4)      (220.0)
  Minority interests in consolidated
   subsidiaries .....................        (7.9)        (4.7)       (16.2)
  Equity in net earnings (losses)
   of affiliated companies ..........        (4.2)        11.7         10.5
                                        ---------    ---------    ---------
NET INCOME ..........................   $   190.9        408.5        461.8
                                        =========    =========    =========

BASIC EARNINGS PER SHARE ............   $    3.28         6.68         7.02

DILUTED EARNINGS PER SHARE ..........   $    3.26         6.63         6.98

AVERAGE NUMBER OF SHARES OUTSTANDING
 - BASIC ............................        58.2         61.1         65.8

AVERAGE NUMBER OF SHARES OUTSTANDING
 - DILUTED ..........................        58.5         61.6         66.2

See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
(In millions except per share values)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                     December 31,   December 31,
                                                         1998           1997
                                                     ------------   ------------
<S>                                                    <C>             <C>
ASSETS
 Current assets:
  Cash and cash equivalents ......................     $  221.7          157.9
  Accounts receivable, less allowance for doubtful
   accounts (1998 - $14.9; 1997 - $13.8) .........        321.1          420.5
  Inventories ....................................        266.0          297.8
  Supplies .......................................        110.9          115.1
  Prepaid expenses ...............................         16.5            7.8
  Deferred income taxes ..........................         43.8           52.0
                                                       --------       --------
   Current assets ................................        980.0        1,051.1
 Investments and long-term accounts receivable ...         85.6          131.8
 Property, plant and equipment, net ..............      3,587.2        3,445.1
 Other assets and deferred charges ...............        383.7          337.2
                                                       --------       --------
                                                       $5,036.5        4,965.2
                                                       ========       ========
LIABILITIES
 Current liabilities:
  Short-term debt ................................     $  116.1           91.4
  Current portion of long-term debt ..............         68.5           54.8
  Accounts payable and accrued expenses ..........        451.3          553.2
  Income taxes ...................................         15.2            1.7
                                                       --------       --------
   Current liabilities ...........................        651.1          701.1
 Long-term debt ..................................        836.4          857.1
 Deferred income taxes ...........................        508.6          439.2
 Other liabilities and deferred credits ..........        359.7          344.1
                                                       --------       --------
                                                        2,355.8        2,341.5
                                                       --------       --------
COMMITMENTS AND CONTINGENCIES
 (SEE NOTES 7, 18 AND 19)

MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES ..         93.3          113.3
                                                       --------       --------
COMMON SHAREHOLDERS' EQUITY
 Common shares, par value $6.25; 100.0 shares
  authorized; 57.9 outstanding (1997 - 58.6)
  after deducting 17.3 shares (1997 - 16.6)
  held in treasury ...............................        362.1          366.5
 Capital in excess of par value ..................          1.8             --
 Retained earnings ...............................      2,345.0        2,301.0
 Accumulated other comprehensive income (loss) ...       (113.9)        (146.9)
 Other ...........................................         (7.6)         (10.2)
                                                       --------       --------
                                                        2,587.4        2,510.4
                                                       --------       --------
                                                       $5,036.5        4,965.2
                                                       ========       ========

See Notes to Consolidated Financial Statements
</TABLE>

<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS

--------------------------------------------------------------------------------
(In millions)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                        For the years ended
                                                            December 31,
                                                      1998      1997      1996
                                                     ------    ------    ------
<S>                                                  <C>        <C>       <C>
OPERATING ACTIVITIES
 Net income ......................................   $190.9     408.5     461.8
 Adjustments to reconcile net income to net cash
  provided by operating activities:
   Depreciation, depletion and amortization ......    293.3     283.7     249.5
   Deferred income taxes .........................     43.9      40.7      61.9
   Equity earnings net of dividends received .....      5.8      (6.5)     (3.8)
   Changes in current assets and liabilities:
    (Increase) decrease in accounts receivable ...     53.3      36.5      (6.2)
    (Increase) decrease in inventories ...........      6.4      (6.2)      3.6
    (Increase) decrease in supplies ..............      2.5      (0.1)      3.8
    (Increase) decrease in prepaid expenses ......     (9.4)     (2.3)     10.7
    (Increase) decrease in deferred income taxes .      8.3      (5.8)     (1.8)
    Increase (decrease) in interest payable ......      2.2      (1.0)      5.9
    Increase (decrease) in other accounts payable     (42.1)     21.1      38.3
    Increase (decrease) in income taxes ..........     13.8     (13.4)     (0.3)
    Increase (decrease) in other accrued expenses     (23.6)    (12.0)     10.0
   Net gain on asset dispositions ................   (171.7)       --        --
   Non-recurring and other adjustments, net ......      4.8      21.4       4.1
                                                     ------    ------    ------
    Net cash provided by operating activities ....    378.4     764.6     837.5
                                                     ------    ------    ------
INVESTING ACTIVITIES
 Capital outlays .................................   (318.1)   (661.6)   (513.0)
 Capitalized interest ............................     (1.9)    (11.7)     (1.9)
 Investment in subsidiaries ......................   (350.2)   (127.6)    (47.4)
 Proceeds from asset dispositions and other ......    486.2       7.1       5.0
                                                     ------    ------    ------
    Net cash used in investing activities ........   (184.0)   (793.8)   (557.3)
                                                     ------    ------    ------
FINANCING ACTIVITIES
 Increase in debt ................................    108.0     418.4      16.1
 Payment of debt .................................    (85.6)    (66.9)    (54.1)
 Common dividends ................................   (117.3)   (122.7)   (128.6)
 Purchase of common shares .......................    (35.4)   (511.5)   (273.2)
 Other, net ......................................     (0.3)     (0.3)     21.2
                                                     ------    ------    ------
    Net cash used in financing activities ........   (130.6)   (283.0)   (418.6)
                                                     ------    ------    ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .     63.8    (312.2)   (138.4)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ...    157.9     470.1     608.5
                                                     ------    ------    ------
CASH AND CASH EQUIVALENTS AT END OF YEAR .........   $221.7     157.9     470.1
                                                     ======    ======    ======

See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
(In millions)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                               Common Shares                            Accumulated
                                               -------------    Capital in                 Other                 Common
                                             Number     At Par   Excess of   Retained  Comprehensive           Shareholders'
                                            of Shares   Value    Par Value   Earnings      Income       Other    Equity
                                            ---------  -------  ----------  ---------  -------------   ------- -------------
<S>                                           <C>      <C>        <C>       <C>          <C>          <C>        <C>
BALANCE AT DECEMBER 31, 1995 ...............  68.6     $ 428.7     $  -     $ 2,360.1     $ (98.4)    $ (12.7)   $ 2,677.7
 Stock options exercised ...................   0.4         2.6                   12.0                                 14.6
 Tax benefit from stock options ............                                      5.5                                  5.5
 Common shares purchased ...................  (4.3)      (26.9)                (246.3)                              (273.2)
 Restricted shares issued, net .............     -           -                    0.5                     1.2          1.7
 Dividends on common shares ................                                   (128.6)                              (128.6)
 Comprehensive income
  Net income ...............................                                    461.8                                461.8
  Other comprehensive income (loss),
   net of tax
   Translation adjustment ..................                                                 (4.9)                    (4.9)
   Additional pension liability ............                                                  1.0                      1.0
   Unrealized gains on  securities .........                                                  0.3                      0.3
                                                                                         --------                ---------
   Other comprehensive income ..............                                                 (3.6)                    (3.6)
                                                                                         --------                ---------
  Comprehensive income .....................                                                                         458.2
                                             -----     -------    -----     ---------    --------      ------    ---------
BALANCE AT DECEMBER 31, 1996 ...............  64.7       404.4        -       2,465.0      (102.0)     ( 11.5)     2,755.9
 Stock options exercised ...................   0.5         2.9                   11.4                                 14.3
 Tax benefit from stock options ............                                      8.4                                  8.4
 Common shares purchased ...................  (6.6)      (40.9)                (470.6)                              (511.5)
 Restricted shares issued, net .............     -         0.1                    1.0                     1.3          2.4
 Dividends on common shares ................                                   (122.7)                              (122.7)
 Comprehensive income
  Net income ...............................                                    408.5                                408.5
  Other comprehensive income (loss),
   net of tax
   Translation adjustment ..................                                                (45.2)                   (45.2)
   Additional pension liability ............                                                  1.0                      1.0
   Unrealized gains on  securities .........                                                 (0.7)                    (0.7)
                                                                                         --------                ---------
   Other comprehensive income ..............                                                (44.9)                   (44.9)
                                                                                         --------                ---------
  Comprehensive income .....................                                                                         363.6
                                             -----     -------    -----     ---------    --------      ------    ---------
BALANCE AT DECEMBER 31, 1997 ...............  58.6       366.5        -       2,301.0      (146.9)      (10.2)     2,510.4
 Stock options exercised ...................     -         0.3                    1.9                                  2.2
 Tax benefit from stock options ............                                      0.3                                  0.3
 Common shares purchased ...................  (0.7)       (4.6)                 (30.8)                               (35.4)
 Restricted shares issued, net .............     -        (0.1)                  (1.0)                    2.6          1.5
 Other investment adjustments ..............                        1.8                                                1.8
 Dividends on common shares ................                                   (117.3)                              (117.3)
 Comprehensive income
  Net income ...............................                                    190.9                                190.9
  Other comprehensive income (loss),
   net of tax
   Reclassification adjustment * ...........                                                 37.7                     37.7
   Translation adjustment ..................                                                 (1.7)                    (1.7)
                                                                                         --------                ---------
   Translation, net of reclass adjustments .                                                 36.0                     36.0
   Additional pension liability ............                                                 (3.0)                    (3.0)
                                                                                         --------                ---------
   Other comprehensive income ..............                                                 33.0                     33.0
                                                                                         --------                ---------
  Comprehensive income .....................                                                                         223.9
                                             -----     -------    -----     ---------    --------      ------    ---------
BALANCE AT DECEMBER 31, 1998 ...............  57.9     $ 362.1    $ 1.8     $ 2,345.0    $ (113.9)     $ (7.6)   $ 2,587.4
                                             =====     =======    =====     =========    ========      ======    =========

DISCLOSURE OF RECLASSIFICATION AMOUNT:

* The 1998 reclassification adjustment resulted from the sale of Black Mountain.

See Notes to Consolidated Financial Statements
</TABLE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in tables stated in
thousands except as noted)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION. The consolidated financial statements include the
accounts of Phelps Dodge Corporation (the Company, which may be referred to as
Phelps Dodge, we, us or ours), and its majority-owned subsidiaries. Interests in
mining joint ventures in which we own more than 50 percent are reported using
the proportional consolidation method. Interests in other majority-owned
subsidiaries are reported using the full consolidation method; the consolidated
financial statements include 100 percent of the assets and liabilities of these
subsidiaries and the ownership interests of minority participants are recorded
as "Minority interests in consolidated subsidiaries." All material intercompany
balances and transactions are eliminated.

         Investments in unconsolidated companies owned 20 percent or more are
recorded on an equity basis. Investments in companies less than 20 percent
owned, and for which we do not exercise significant control, are carried at
cost.

MANAGEMENT'S ESTIMATES AND ASSUMPTIONS. The preparation of financial statements
in conformity with generally accepted accounting principles requires our
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

FOREIGN CURRENCY TRANSLATION. Except as noted below, the assets and liabilities
of foreign subsidiaries are translated at current exchange rates while revenues
and expenses are translated at average rates in effect for the period. The
related translation gains and losses are included in accumulated other
comprehensive income (loss) within common shareholders' equity. For the
translation of the financial statements of certain foreign subsidiaries dealing
predominantly in U.S. dollars and for those affiliates operating in highly
inflationary economies, assets and liabilities receivable or payable in cash are
translated at current exchange rates, and inventories and other non-monetary
assets and liabilities are translated at historical rates. Gains and losses
resulting from translation of such financial statements are included in
operating results, as are gains and losses incurred on foreign currency
transactions.

STATEMENT OF CASH FLOWS. For the purpose of preparing the Consolidated Statement
of Cash Flows, we consider all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

INVENTORIES  AND SUPPLIES.  Inventories  and supplies are stated at the lower of
cost or market.  Cost for  substantially  all  inventories  is determined by the
last-in,  first-out  method  (LIFO).  Cost for  substantially  all  supplies  is
determined by a moving average method.

PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are carried at
cost. Cost of significant assets includes capitalized interest incurred during
the construction and development period. Expenditures for replacements and
betterments are capitalized; maintenance and repair expenditures are charged to
operations as incurred. We evaluate our long-term assets to be held and used and
our identifiable intangible assets for impairment when events or changes in
economic circumstances indicate the carrying amount of such assets may not be
recoverable. Long-term assets to be disposed of are carried at the lower of cost
or fair value less the costs of disposal.

         The principal depreciation method used for mining, smelting and
refining operations is the units of production method applied on a group basis.
Buildings, machinery and equipment for other operations are depreciated using
the straight-line method over estimated lives of five to 40 years, or the
estimated life of the operation if shorter. Upon disposal of assets depreciated
on a group basis, cost less salvage is charged to accumulated depreciation.

         Values for mining properties represent mainly acquisition costs or
pre-1932 engineering valuations. Depletion of mines is computed on the basis of
an overall unit rate applied to the pounds of principal products sold from mine
production.

         Mine exploration costs and development costs to maintain production of
operating mines are charged to operations as incurred. Mine development
expenditures at new mines and major development expenditures at operating mines
that are expected to benefit future production are capitalized and amortized on
the units of production method over the estimated commercially recoverable
minerals.

ENVIRONMENTAL EXPENDITURES. Environmental expenditures are expensed or
capitalized depending upon their future economic benefits. Liabilities for such
expenditures are recorded when it is probable that obligations have been
incurred and the costs reasonably can be estimated. Our estimates of these costs
are based upon available facts, existing technology and current laws and
regulations. Where the available information is sufficient to estimate the
amount of liability, that estimate has been used. Where the information is only
sufficient to establish a range of probable liability and no point within the
range is more likely than any other, the lower end of the range has been used.
The possibility of recovery of some of these costs from insurance companies or
other parties exists; however, we do not recognize these recoveries in our
financial statements until they become probable.

MINE  CLOSURE  COSTS.  Reclamation  is an  ongoing  activity  and  we  recognize
estimated reclamation costs on a units of production basis.

GOODWILL. Included in "Other assets and deferred charges" are costs in excess of
the net  assets  of  businesses  acquired.  These  amounts  are  amortized  on a
straight-line basis over periods of 15 to 30 years.

REVENUE RECOGNITION. Revenue is recorded when title passes to the customer.
Copper revenue is recognized based on the average of prevailing commodity prices
for the scheduled month of delivery or shipment according to the terms of the
contracts. Price estimates used for provisionally priced shipments are based on
management's judgment of expected price levels and are adjusted to actual prices
at settlement. We use futures contracts and other financial instruments as
hedges for our sales and cash management program. Gains and losses on such
transactions related to sales are matched to specific sales contracts and
charged or credited to sales revenue.

HEDGING PROGRAMS. We do not purchase, hold or sell derivative financial
contracts unless we have an existing asset, obligation or anticipate a future
activity that is likely to occur that will result in exposing us to market risk.
Derivative financial instruments are used to manage well-defined commodity
price, foreign exchange and interest rate risks from our primary business
activities. For a discussion on why we use derivative financial contracts, our
year-end derivative position and related financial results, please refer to Note
20.

         COMMODITY FUTURES CONTRACTS -- We recognize gains and losses on
commodity futures contracts in income when the underlying customer sale is
recognized. We also recognize gains and losses whenever a previous customer
contract is no longer expected to occur.

         COPPER OPTION CONTRACTS -- We initially record net premiums paid on
copper option contracts as prepaid assets and then amortize the premium on a
straight-line basis over the hedge protection period. We recognize hedging gains
and losses in income at the maturity of the option contract. We record any
premiums received on the sale of option contracts as accrued expenses until the
maturity of the option contract when the premium received is recorded as income.

         FOREIGN EXCHANGE CONTRACTS -- We initially record premiums paid on
currency option contracts and unrecognized gains and losses on forward exchange
contracts as prepaid assets. Hedge premiums on forward exchange contracts are
amortized on a straight-line basis over the hedge protection period. Gains and
losses on forward exchange contracts are credited or charged to miscellaneous
income or expense. Changes in market value of forward exchange contracts
protecting actual transactions are recognized in the period incurred. For
currency option contracts, we recognize unamortized premium and hedging gains
and losses in income when the underlying hedged transaction is recognized or
when a previously hedged transaction is no longer expected to occur.

         CURRENCY SWAP CONTRACTS -- For certain of our currency swap contracts,
which are in substance forward exchange contracts, we amortize hedge premiums on
a straight-line basis over the hedge protection period while gains and losses
are recognized in income in the period incurred. For other types of currency
swap contracts, we recognize costs associated with such agreements to interest
expense over the term of the agreement.

         INTEREST RATE SWAPS -- The costs associated with interest rate swap
agreements are amortized to interest expense over the term of the agreement.

STOCK COMPENSATION. In accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
we apply Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations to account for our stock
option plans. Note 15 to the Consolidated Financial Statements contains a
summary of the pro forma effects on reported net income and earnings per share
for 1998, 1997 and 1996 if we had elected to recognize compensation cost based
on the fair value of the options granted as prescribed by SFAS No. 123.

INCOME TAXES. In addition to charging income for taxes actually paid or payable,
the provision for taxes reflects deferred income taxes resulting from changes in
temporary differences between the tax bases of assets and liabilities and their
reported amounts in the financial statements. The effect on deferred income
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.

PENSION PLANS. We have trusteed, non-contributory pension plans covering
substantially all of our U.S. employees and some employees of international
subsidiaries. The benefits are based on, in the case of certain plans, final
average salary and years of service and, in the case of other plans, a fixed
amount for each year of service. Our funding policy provides that payments to
the pension trusts shall be at least equal to the minimum funding requirements
of the Employee Retirement Income Security Act of 1974 for U.S. plans or, in the
case of international subsidiaries, the minimum legal requirements in that
particular country. Additional payments may also be provided from time to time.

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. We have several postretirement
health care and life insurance benefit plans covering most of our U.S. employees
and in some cases employees of international subsidiaries. Postretirement
benefits vary among plans and many plans require contributions from employees.
We account for these benefits on an accrual basis. Our funding policy provides
that payments shall be at least equal to our cash basis obligation, plus
additional amounts that may be approved by us from time to time.

POSTEMPLOYMENT BENEFITS. We have certain postemployment benefit plans covering
most of our U.S. employees and in some cases employees of international
subsidiaries. The benefit plans may provide severance, disability, supplemental
health care, life insurance or other welfare benefits. We account for these
benefits on an accrual basis. Our funding policy provides that payments shall be
at least equal to our cash basis obligation. Additional amounts may also be
provided from time to time.

EARNINGS PER SHARE. In 1997, we adopted SFAS No. 128, "Earnings Per Share."
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share is similar to basic earnings per share except
that the denominator is increased to include the number of additional common
shares that would have been outstanding if the dilutive potential common shares
had been issued. For comparative purposes, all prior period earnings per share
computations have been restated to reflect the effect of SFAS No. 128.

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                    1998       1997       1996
                                                  --------   --------   --------
<S>                                               <C>         <C>        <C>
BASIC EARNINGS PER SHARE COMPUTATION
 Numerator:
  Net income ..................................   $190,900    408,500    461,800
                                                  --------   --------   --------
 Denominator:
  Average common shares
   outstanding ................................     58,200     61,100     65,800
                                                  --------   --------   --------

 Basic earnings per share .....................   $   3.28       6.68       7.02
                                                  ========   ========   ========
DILUTED EARNINGS PER SHARE COMPUTATION
 Numerator:
  Net income ..................................   $190,900    408,500    461,800
                                                  --------   --------   --------
 Denominator:
  Average common shares
   outstanding ................................     58,200     61,100     65,800
  Average employee stock options ..............        100        300        200
  Average restricted stock issued
   to employees ...............................        200        200        200
                                                  --------   --------   --------
  Total average common shares
   outstanding ................................     58,500     61,600     66,200
                                                  --------   --------   --------

 Diluted earnings per share ...................   $   3.26       6.63       6.98
                                                  ========   ========   ========
</TABLE>
----------
     Stock options excluded from the computation of diluted earnings per share
     because option prices exceeded fair market value were as follows:

<TABLE>
<CAPTION>
                                              1998         1997        1996
                                              ----         ----        ----
<S>                                        <C>             <C>         <C>
    Outstanding options ................       2,617         132         962
    Option price .......................   $   58.84       76.45       64.36
</TABLE>
--------------------------------------------------------------------------------

NEW ACCOUNTING STANDARDS. We adopted SFAS No. 130, "Reporting Comprehensive
Income" in the 1998 first quarter. The required information has been presented
in the Consolidated Financial Statement of Common Shareholders' Equity. We also
adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" in 1998. The required information has been presented in Note 21-
Business Segment Data. In February 1998, the Financial Accounting Standards
Board issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." This statement became effective for fiscal years
beginning after December 15, 1997. We have adopted these statements in 1998.
These statements have no effect on our results of operations, financial
position, capital resources or liquidity. Prior year disclosures have been
restated for comparative purposes.

         In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires recognition of all derivatives as either assets or
liabilities on the balance sheet and measurement of those instruments at fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income (loss). Proper accounting for
changes in fair value of derivatives held, is dependent on whether the
derivative transaction qualifies as an accounting hedge and on the
classification of the hedge transaction. The statement is required to be adopted
and we will adopt it in the first quarter of 2000. We are evaluating the effect
this statement will have on our financial reporting and disclosures as well as
on our derivative and hedging activities.

RECLASSIFICATION. For comparative purposes, certain prior year amounts have been
reclassified to conform with the current year presentation.

2. ASSET DISPOSITIONS AND ACQUISITIONS
Effective January 1, 1998, we sold a 90 percent interest in our wheel and rim
manufacturing business, Accuride Corporation and related subsidiaries
(Accuride), to an affiliate of Kohlberg Kravis Roberts and Co. (KKR) and the
existing management of Accuride. That sale resulted in a pre-tax gain of $186.1
million, ($122.8 million after taxes, or $2.10 per common share). The remaining
10 percent interest in Accuride was sold to RSTW Partners III, L.P., on
September 30, 1998, resulting in a pre-tax gain of $12.6 million ($8.3 million
after taxes, or $0.14 per common share). Under the terms of the sales
agreements, we received total proceeds of $465.9 million from the two
transactions, less $16.4 million in working capital adjustments and transaction
costs.

         On February 3, 1998, we acquired the stock of Cobre Mining Company Inc.
(Cobre) for $108.7 million including acquisition costs. We also assumed Cobre's
outstanding debt of $14.8 million. The acquisition was at a price of $3.85 per
common share for Cobre's 27 million common shares, including shares issuable
upon the exercise of outstanding warrants and options. The primary assets of
Cobre include the Continental Mine, which comprises an open-pit copper mine, two
underground copper mines, two mills, and the surrounding 11,000 acres of land,
including mineral rights, located in southwestern New Mexico adjacent to the
Corporation's Chino Mines Company (Chino) operations. On October 21, 1998, we
announced the indefinite suspension of operations at Cobre. Operations will be
suspended in a phased approach reducing copper production by 35,000 annual tons.

         In October 1998, we acquired the Brazilian carbon black manufacturing
business of Copebras S.A., a subsidiary of Minorco, for $220.0 million. This
manufacturing facility has an annual production capacity of 170,000 metric tons
of carbon black.

         Effective October 1, 1998, we sold our 44.6 percent interest in Black
Mountain Mineral Development Company to Amcoal Colliery and Industrial
Operations Limited, a public company incorporated in South Africa. The sale
resulted in a pre-tax loss of $27.0 million ($26.4 million after taxes, or $0.45
per common share) including the write-off of cumulative translation adjustments.
Under the terms of the sales agreement, we received total proceeds of $18.5
million from the transaction.

3. PROVISION FOR ENVIRONMENTAL COSTS AND OTHER NON-RECURRING CHARGES During
1998, we recorded non-recurring, pre-tax charges of $5.5 million at Phelps Dodge
Mining Company for costs associated with indefinite closures and curtailments of
certain mining operations and $2.3 million at Phelps Dodge Magnet Wire for an
early retirement program. These charges reduced net income by $5.6 million, or
10 cents per common share, after taxes.

         During 1997, we recorded non-recurring, pre-tax charges of $42.1
million primarily at Phelps Dodge Mining Company. These charges reflect
additional provisions of $23.0 million for estimated future costs associated
with environmental matters and $19.1 million for a voluntary early retirement
program. These charges reduced net income in 1997 by $29.0 million, or 47 cents
per common share, after taxes.

         In December 1996, the United States District Court of the Eastern
District of New York ruled that our 1986 sale of property in Maspeth, New York,
to the United States Postal Service was to be rescinded. The Court ordered us to
return the $14.8 million originally paid by the Postal Service for the property
and to pay interest on the sales price for a portion of the time since that
sale. In 1996, we recorded $10.0 million in reclamation reserves and $5.9
million in accrued interest related to this property. In August 1997, we
returned $14.8 million to the Postal Service for the Maspeth property and paid
$6.6 million of interest to the Postal Service.

4. INVESTMENTS AND LONG-TERM RECEIVABLES Investments and long-term receivables
were as follows:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                 1998         1997         1996
                                                 ----         ----         ----
<S>                                           <C>          <C>          <C>
Equity basis:
  International wire and cable
   manufacturers ........................     $ 22,300       18,600       20,300
  Black Mountain (see Note 2) ...........           --        8,800        9,000
  Accuride Kaiser Wheel Inc. ............
   (see Note 2) .........................           --       22,600           --
  SIMSA (Peruvian zinc mining
   company) .............................       13,800       14,500           --
  Other .................................        5,000       16,500       16,100
Cost basis:
  Southern Peru Copper Corporation ......       13,200       13,200       13,200
  Other .................................       31,300       37,600       27,800
                                              --------     --------     --------
                                              $ 85,600      131,800       86,400
                                              ========     ========     ========
</TABLE>
--------------------------------------------------------------------------------

         Equity earnings (losses) were as follows:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                              1998           1997          1996
                                              ----           ----          ----
<S>                                        <C>            <C>           <C>
International wire and cable
  manufacturers .....................      $ (5,900)         3,900         2,600
Black Mountain (see Note 2) .........         1,600          3,700         6,600
Other ...............................           100          4,100         1,300
                                           --------       --------      --------
                                           $ (4,200)        11,700        10,500
                                           ========       ========      ========
</TABLE>
--------------------------------------------------------------------------------

         Dividends from equity basis investments were received as follows:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                 1998         1997         1996
                                                 ----         ----         ----
<S>                                             <C>          <C>          <C>
International wire and cable
  manufacturers .........................       $  100          300          300
Black Mountain (see Note 2) .............        1,100        3,400        6,000
SIMSA ...................................          400          800           --
Other ...................................           --          600          500
                                                ------       ------       ------
                                                $1,600        5,100        6,800
                                                ======       ======       ======
</TABLE>
--------------------------------------------------------------------------------

         Our  retained  earnings  include   undistributed   earnings  of  equity
investments of (in millions): 1998 - $63.5; 1997 - $69.3; 1996 - $62.8.

         Condensed financial information for our equity basis investments as of
December 31, 1998, is as follows:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                             1998           1997          1996
                                             ----           ----          ----
<S>                                       <C>           <C>           <C>
Sales ...................                 $ 161,900       395,600       298,100
Net income ..............                   (12,500)       32,400        25,000

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

Net current assets ...................    $   7,300        49,300        18,300
Fixed assets, net ....................      101,200       151,700       120,500
Long-term debt .......................       (2,700)      (19,200)      (28,000)
Other assets and liabilities, net ....       (8,900)       (2,900)       (2,400)
                                          ---------     ---------     ---------

Net assets ...........................    $  96,900       178,900       108,400
                                          =========     =========     =========
</TABLE>
--------------------------------------------------------------------------------

5. INTEREST EXPENSE, NET OF AMOUNT CAPITALIZED

We reported net interest expense in 1998 of $94.5 million, compared with $62.5
million in 1997 and $66.1 million in 1996. Net interest expense increased in
1998 primarily due to the full year inclusion of $250.0 million of notes payable
issued in the fourth quarter of 1997, and the completion in 1997 of the
Candelaria expansion project resulting in a decrease of capitalized interest
costs. Net interest expense decreased in 1997 from 1996 despite a $344.0 million
increase in debt due to an increase in capitalized interest of $9.8 million
primarily attributable to the expansion of the Candelaria project in Chile. In
addition, there were $5.9 million in interest charges in 1996 relating to a
Court-ordered rescission of a 1986 property sale (see Note 3) as well as foreign
currency exchange gains of $8.0 million reflecting the remeasurement of
Venezuelan local currency debt after a major devaluation of the bolivar.

6. MISCELLANEOUS INCOME AND EXPENSE, NET

Miscellaneous income and expense, net for the years ended December 31 were as
follows:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                         1998     1997     1996
                                                         ----     ----     ----
<S>                                                     <C>       <C>      <C>
Interest income .....................................   $23.5     22.2     34.2
Loss on sale of Black Mountain ......................   (27.0)      --       --
Dissolution of Sumitomo joint venture* ..............    10.3       --       --
Greek cost basis investment share
     exchange** .....................................      --      6.0       --
Southern Peru Copper Corporation dividend
     (13.9% minority interest) ......................     5.7     14.1     16.4
Foreign currency exchange gain (loss) ...............    (5.7)    (9.6)   (11.7)
Other ...............................................     2.0      0.7      1.8
                                                        -----    -----    -----
                                                        $ 8.8     33.4     40.7
                                                        =====    =====    =====
</TABLE>
----------
*     Dissolution of joint ventures between Phelps Dodge and Sumitomo Electric
      Industries, Ltd., at five wire and cable manufacturing and support
      companies.
**    The exchange of shares of a cost-basis investment in a wire and cable
      business located in Greece.
--------------------------------------------------------------------------------

7. INCOME TAXES
We use the asset and liability approach for accounting and reporting of income
taxes. Changes in tax rates and laws are reflected in income from operations in
the period such changes are enacted. Balance sheet classification of deferred
income taxes is determined by the balance sheet classification of the related
asset or liability.

         Geographic sources of income before taxes, minority interests and
equity in net earnings of affiliated companies for the years ended December 31
were as follows:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                       1998              1997             1996
                                       ----              ----             ----
<S>                                 <C>               <C>              <C>
United States ..............        $ 344,200           468,600          536,100
Foreign ....................           (7,200)          113,300          151,400
                                    ---------         ---------        ---------
                                    $ 337,000           581,900          687,500
                                    =========         =========        =========
</TABLE>
--------------------------------------------------------------------------------

         The provision for income taxes for the years ended December 31 were as
follows:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                          1998            1997            1996
                                          ----            ----            ----
<S>                                     <C>             <C>             <C>
Currently payable:
 Federal .......................        $ 54,400          89,900          99,000
 State .........................           9,100          15,000          16,100
 Foreign .......................          26,600          34,800          43,000
                                        --------        --------        --------
                                          90,100         139,700         158,100
                                        --------        --------        --------
Deferred:
 Federal .......................          37,800          22,400          45,200
 State .........................           5,300           6,000           6,400
 Foreign .......................             800          12,300          10,300
                                        --------        --------        --------
                                          43,900          40,700          61,900
                                        --------        --------        --------
                                        $134,000         180,400         220,000
                                        ========        ========        ========
</TABLE>
--------------------------------------------------------------------------------

         A reconciliation of the U.S. statutory tax rate to our effective tax
rate is as follows:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                        1998      1997     1996
                                                        ----      ----     ----
<S>                                                     <C>       <C>      <C>
Statutory tax rate .................................    35.0%     35.0     35.0
Depletion ..........................................    (2.5)     (7.5)    (7.0)
State and local income taxes .......................     2.9       2.3      2.1
Effective international tax rate ...................     7.7       1.0      0.9
Other items, net ...................................    (3.1)      0.2      1.0
                                                        ----      ----     ----
Effective tax rate .................................    40.0%     31.0     32.0
                                                        ====      ====     ====
</TABLE>
--------------------------------------------------------------------------------

         We paid federal, state, local and foreign income taxes of approximately
$77 million in 1998, compared with approximately $173 million in 1997 and
approximately $160 million in 1996. As of December 31, 1998, we had alternative
minimum tax credits of approximately $65 million available for carryforward for
federal income tax purposes. These credits can be carried forward indefinitely,
but may only be used to the extent the regular tax exceeds the alternative
minimum tax. We also have alternative minimum foreign tax credit carryforwards
for federal income tax purposes of approximately $25 million which begin to
expire in 1999.

         Our federal income tax returns for the years 1992 through 1997 are
currently under examination by the Internal Revenue Service (IRS). The IRS has
issued proposed assessments relating to our federal income tax liability for the
years 1990 and 1991, and we have reached a conditional settlement with the IRS
appeals division for those years on a number of issues. We are seeking a
settlement of the remaining issues and expect either to substantially settle
them or litigate the issues involved. Our management believes that it has made
adequate provision so that final resolution of the issues involved, including
application of those determinations to subsequent open years, will not have an
adverse effect on our consolidated financial condition or results of operations.
However, settlement of these issues, a substantial part of which involve timing
differences, could involve material tax and interest payments with respect to
the open years.

         Deferred income tax assets (liabilities) comprised the following at
December 31:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                           1998           1997
                                                           ----           ----
<S>                                                    <C>            <C>
Minimum tax credits ..............................     $  65,000         85,200
Postretirement and postemployment benefits .......        60,200         60,000
Reserves .........................................        70,200         81,200
Mining costs .....................................        47,400         56,600
Inventories ......................................         3,800          4,700
Exploration and mine development costs ...........         2,000          2,900
Other ............................................         1,900          5,200
                                                       ---------      ---------
  Deferred tax assets ............................       250,500        295,800
                                                       ---------      ---------

Depreciation .....................................      (638,400)      (647,100)
Mining properties ................................       (53,000)        (6,000)
Pensions .........................................       (23,900)       (29,900)
                                                       ---------      ---------
  Deferred tax liabilities .......................      (715,300)      (683,000)
                                                       ---------      ---------
                                                       $(464,800)      (387,200)
                                                       =========      =========
</TABLE>
--------------------------------------------------------------------------------

         Income taxes have not been provided on our share ($469 million) of
undistributed earnings of international manufacturing and mining interests
abroad over which we have sufficient influence to control the distribution of
such earnings and have determined that such earnings have been reinvested
indefinitely. These earnings could become subject to additional tax if they were
remitted as dividends, if foreign earnings were lent to any of our U.S.
entities, or if we sell our stock in the subsidiaries. It is estimated that
repatriation of these foreign earnings would generate additional foreign tax
withholdings and U.S. tax, net of foreign tax credits, in the amounts of $78
million and $39 million, respectively.

8. INVENTORIES AND SUPPLIES
Inventories at December 31 were as follows (in millions):

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                1998       1997
                                                                ----       ----
<S>                                                            <C>        <C>
Metals and other raw materials ...........................     $183.0      191.8
Work in process ..........................................       16.0       24.7
Finished manufactured goods ..............................       63.9       77.3
Other ....................................................        3.1        4.0
                                                               ------     ------
                                                               $266.0      297.8
                                                               ======     ======
</TABLE>
--------------------------------------------------------------------------------

         Inventories valued by the last-in, first-out method would have been
greater if valued at current costs by approximately $110 million and $109
million at December 31, 1998 and 1997, respectively.

         Supplies in the amount of $110.9 million and $115.1 million at December
31, 1998 and 1997, respectively, are stated net of a reserve for obsolescence of
$6.7 million and $8.7 million, respectively.

9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 comprised the following (in
millions):

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                              1998        1997
                                                              ----        ----
<S>                                                         <C>         <C>
Buildings, machinery and equipment .....................    $5,366.1     5,265.9
Mining properties ......................................       299.7       166.4
Capitalized mine development ...........................       311.5       312.3
Land and water rights ..................................       103.9        91.5
                                                            --------    --------
                                                             6,081.2     5,836.1
Less accumulated depreciation, depletion
     and amortization ..................................     2,494.0     2,391.0
                                                            --------    --------
                                                            $3,587.2     3,445.1
                                                            ========    ========
</TABLE>

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

         The net increases in property, plant and equipment of $142.1 million in
1998 and $424.6 million in 1997 are summarized below (in millions):

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                             1998        1997
                                                             ----        ----
<S>                                                        <C>         <C>
Balance at beginning of year ...........................   $3,445.1     3,020.5
                                                           --------    --------

Capital expenditures ...................................      318.1       661.6
Depreciation, depletion and amortization ...............     (286.5)     (277.3)
Property, plant and equipment of acquired
     companies .........................................      263.8        57.2
Property, plant and equipment of disposed
     companies .........................................     (134.3)         --
Asset sales, currency translation adjustments
     and other .........................................      (19.0)      (16.9)
                                                           --------    --------
                                                              142.1       424.6
                                                           --------    --------
Balance at end of year .................................   $3,587.2     3,445.1
                                                           ========    ========
</TABLE>
--------------------------------------------------------------------------------

10. OTHER ASSETS AND DEFERRED CHARGES
Other assets and deferred charges at December 31 were as follows (in millions):

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                1998       1997
                                                                ----       ----
<S>                                                            <C>        <C>
Goodwill, less accumulated amortization
  (1998 - $23.2; 1997 - $45.2) ...........................     $226.2      178.0
Employee benefit plans ...................................      119.3      122.9
Debt issue costs .........................................       27.5       29.0
Other ....................................................       10.7        7.3
                                                               ------     ------
                                                               $383.7      337.2
                                                               ======     ======
</TABLE>
--------------------------------------------------------------------------------

11.   ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31 were as follows (in
millions):

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                1998       1997
                                                                ----       ----
<S>                                                            <C>        <C>
Accounts payable .........................................     $227.9      297.7
Salaries, wages and other compensation ...................       34.7       45.5
Employee benefit plans ...................................       27.5       27.9
Insurance reserves .......................................       14.7       13.8
Environmental reserves ...................................       21.6       38.2
Smelting, refining and freight ...........................       22.6       23.0
Other accrued taxes ......................................       16.4       15.7
Shutdown, relocation and restructuring ...................       16.8        7.7
Interest * ...............................................       18.5       16.3
Returnable containers ....................................        3.9        7.0
Other ....................................................       46.7       60.4
                                                               ------     ------
                                                               $451.3      553.2
                                                               ======     ======
</TABLE>
----------
*     Interest paid by the Corporation in 1998 was $94.9 million, compared with
      $72.6 million in 1997 and $67.2 million in 1996.

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

12. OTHER LIABILITIES AND DEFERRED CREDITS
Other liabilities and deferred credits at December 31 were as follows (in
millions):

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                  1998     1997
                                                                  ----     ----
<S>                                                              <C>      <C>
Postretirement and postemployment benefit plans ..............   $166.0    168.9
Other employee benefit plans .................................     69.8     56.9
Environmental reserves .......................................     84.4     84.2
Insurance reserves ...........................................     25.6     23.0
Shutdown, relocation and restructuring .......................      5.9      4.4
Other ........................................................      8.0      6.7
                                                                 ------   ------
                                                                 $359.7    344.1
                                                                 ======   ======
</TABLE>
--------------------------------------------------------------------------------

13. LONG-TERM DEBT AND OTHER FINANCING
Long-term debt at December 31 is summarized below (in millions):

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                1998      1997
<S>                                                            <C>       <C>
6.375% Notes due 2004 ......................................   $100.0     100.0
7.125% Debentures due 2027 .................................    150.0     150.0
7.75% Notes due 2002 .......................................    100.0     100.0
7.96% Notes due 1999-2000 ..................................     35.0      50.0
Air Quality Control Obligations:
  5.45% Notes due 2009 .....................................     81.1      81.1
  6.50% Installment sale obligations due 2013 ..............     90.0      90.0
Chilean Mining Operations ..................................    304.8     271.6
Columbian Tiszai Carbon Ltd. (Hungary) .....................      6.0      16.0
Columbian Carbon Spain, S.A ................................      6.0       7.6
Sevalco (United Kingdom) ...................................       --      11.2
Columbian Chemicals Canada .................................      6.5       7.0
Phelps Dodge International Corporation .....................     21.8      25.1
Other ......................................................      3.7       2.3
                                                               ------    ------
Long-term debt including current portion ...................    904.9     911.9
Less current portion .......................................    (68.5)    (54.8)
                                                               ------    ------
Long-term debt excluding current portion ...................   $836.4     857.1
                                                               ======    ======
</TABLE>
--------------------------------------------------------------------------------

Annual  maturities of debt  outstanding at December 31, 1998, are as follows (in
millions):  1999 - $68.5;  2000 - $58.2;  2001 - $40.3;  2002 -  $146.8;  2003 -
$36.8.

         An existing revolving credit agreement between the Company and several
lenders was amended on June 25, 1997. The agreement, as amended and restated,
permits borrowings of up to $1 billion from time to time until its scheduled
maturity on June 25, 2002. The agreement allows for two, one-year renewals
beyond the scheduled maturity date if we request and receive approval from those
lenders representing at least two-thirds of the commitments provided by the
facility. In the event of such approval, total commitments under the facility
would depend upon the willingness of other lenders to assume the commitments of
those lenders electing not to participate in the renewal. Interest is payable at
a fluctuating rate based on the agent bank's prime rate or at a fixed rate,
based on the London Interbank Offered Rate (LIBOR) or at fixed rates offered
independently by the several lenders, for maturities of between seven and 360
days. This agreement provides for a facility fee of six and one-half basis
points (0.065 percent) on total commitments. The agreement requires us to
maintain a minimum consolidated tangible net worth of $1.1 billion and limits
indebtedness to 50 percent of total consolidated capitalization. There were no
borrowings under this agreement at either December 31, 1998, or December 31,
1997.

         A commercial paper program was established on August 15, 1997, under a
private placement agency agreement between us and two placement agents. The
agreement permits us to issue up to $1 billion of short-term promissory notes
(generally known as commercial paper) at any one time. Commercial paper may bear
interest or be sold at a discount, as mutually agreed by us and the placement
agents at the time of each issuance. Our commercial paper rating requires that
issuances of commercial paper be backed by an undrawn line of credit; the
revolving credit agreement described above provides such support. There were no
borrowings under the commercial paper program at December 31, 1998, or December
31, 1997.

         Short-term borrowings were $116.1 million, all by our international
operations, at December 31, 1998, compared with $91.4 million at December 31,
1997. The increase in short-term borrowings principally was a result of the
issuance of commercial paper at Columbian's new Brazilian operations (Columbian
Carbon Brasil). The weighted average interest rate on total short-term
borrowings at December 31, 1998, and December 31, 1997, was 24.4 percent and
13.0 percent, respectively.

         On November 5, 1997, we issued $100 million of 6.375 percent notes
maturing on November 1, 2004, and $150 million of 7.125 percent debentures
maturing on November 1, 2027, under an Indenture dated as of September 22, 1997,
between The Chase Manhattan Bank, as Trustee and us. Interest on these
securities is payable semiannually on May 1 and November 1 of each year. The
notes are not redeemable prior to maturity and are not entitled to any sinking
fund. We can redeem the debentures, in whole or in part, at a redemption price
equal to the greater of (i) 100 percent of their principal amount or (ii) the
sum of the present values of the remaining scheduled payments of principal and
interest thereon discounted to the date of redemption at a rate equal to the sum
of the yield of a United States Treasury security having a comparable maturity
to the remaining term of the debentures plus 10 basis points. The debentures are
not entitled to any sinking fund. We applied most of the proceeds from the sale
of the offered securities to repay outstanding commercial paper, which had been
issued for general corporate purposes.

         As of December 31, 1998, our 80 percent-owned Candelaria mining
operation in Chile had outstanding borrowings of $302.8 million. This debt,
incurred to finance construction and the subsequent expansion of the operation,
comprises $264.9 million of floating-rate, dollar-denominated debt and $37.9
million of fixed-rate, dollar-denominated debt. The debt and repayments are
scheduled to vary from period to period with all debt maturing by the year 2008.
Candelaria borrowings during 1998 and 1997 totaled $62.4 million and $57.6
million, respectively, under the project financing agreement. All of the 1998
and 1997 facilities are based on floating rates tied to six-month LIBOR. In
1997, we caused Candelaria to enter into interest rate swaps with certain
financial institutions to effectively convert all of Candelaria's floating-rate
debt, at that time, to 7.84 percent, fixed-rate debt for the term of the debt.
The debt obligations and the interest rate swaps are non-recourse to us. Under
the proportional consolidation method the debt amounts listed above represent
our 80 percent share.

14. SHAREHOLDERS' EQUITY
On May 7, 1997, we announced that our board of directors had authorized the
purchase of up to 6 million of our common shares, approximately 10 percent of
our then outstanding shares. This authorization followed a 5 million share
purchase program that was initiated in 1995 and extended to 10 million shares in
1996. Under that program we purchased 9,920,800 shares. During 1997, we
purchased 6,554,000 of our common shares at a total cost of $511.5 million,
including 3,606,000 shares at a cost of $292.9 million under the 1997 share
authorization. During 1998, we purchased 731,500 common shares at a total cost
of $35.4 million, leaving 1.7 million shares authorized for purchase under the
1997 authorization. There were 57,934,000 shares outstanding on December 31,
1998.

         We have 6,000,000 authorized preferred shares with a par value of $1.00
each; no shares were outstanding at either December 31, 1998, or December 31,
1997.

         We have in place a Preferred Share Purchase Rights Plan that contains
provisions to protect stockholders in the event of unsolicited offers or
attempts to acquire Phelps Dodge, including acquisitions in the open market of
shares constituting control without offering fair value to all stockholders and
other coercive or unfair takeover tactics that could impair the board of
directors' ability to represent the stockholders' interests fully.

15. STOCK OPTION PLANS; RESTRICTED STOCK
Executives and other key employees have been granted options to purchase common
shares under stock option plans adopted in 1987, 1993 and 1998. The option price
equals the fair market value of the common shares on the day of the grant and an
option's maximum term is 10 years. Options granted vest ratably over a
three-year period.

         If an optionee exercises an option under the 1987, 1993 or 1998 plan
with already owned shares of the Company, the optionee receives a "reload"
option that restores the option opportunity on a number of common shares equal
to the number of shares used to exercise the original option. A reload option
has the same terms as the original option except that it has an exercise price
per share equal to the fair market value of a common share on the date the
reload option is granted and is exercisable six months after the date of grant.

         The 1998 plan provides (and the 1993 and 1987 plan provided) for the
issuance to executives and other key employees, without any payment by them, of
common shares subject to certain restrictions (Restricted Stock). There were
196,150 shares of Restricted Stock outstanding at December 31, 1998, and
1,133,558 shares available for grant.

         Under the 1989 Directors Stock Option Plan (the 1989 plan), options to
purchase common shares have been granted to directors who have not been
employees of the Company or its subsidiaries for one year or are not eligible to
participate in any plan of the Company or its subsidiaries entitling
participants to acquire stock, stock options or stock appreciation rights. In
1996, we suspended the plan, thereby eliminating the annual grant of options to
directors. The 1989 plan was replaced with the 1997 Directors Stock Unit Plan
which provides to each non-employee director an annual grant of stock units
having a value equivalent to our common shares.

         At December 31, 1998, 4,375,553 shares were available for option grants
(including 1,133,558 shares as Restricted Stock awards) under the 1998 plan.
These amounts are subject to future adjustment as described in the plan
agreement. No further options may be granted under the 1993, 1989 or 1987 plans.

         Changes  during  1996,  1997 and 1998 in  options  outstanding  for the
combined plans were as follows:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                 Average option
                                                       Shares    price per share
                                                       ------    ---------------
<S>                                                  <C>             <C>
Outstanding at December 31, 1995 ...............     3,039,798       $55.13
  Granted ......................................       810,551        71.49
  Exercised ....................................      (552,973)       45.19
  Expired or terminated ........................       (98,182)       62.71
                                                     ---------

Outstanding at December 31, 1996 ...............     3,199,194        60.76
  Granted ......................................     1,110,431        69.33
  Exercised ....................................      (827,243)       52.30
  Expired or terminated ........................       (47,891)       69.63
                                                     ---------

Outstanding at December 31, 1997 ...............     3,434,491        65.44
  Granted ......................................     1,075,784        55.45
  Exercised ....................................       (64,332)       50.25
  Expired or terminated ........................      (174,423)       66.85
                                                     ---------

Outstanding at December 31, 1998 * .............     4,271,520        63.10
                                                     =========
</TABLE>
----------

*     Exercise prices for options outstanding at December 31, 1998, range from a
      minimum of approximately $27 per share to a maximum of approximately $89
      per share. The average remaining maximum term of options outstanding is
      approximately eight years. The following table summarizes information
      concerning options outstanding based on a range of exercise prices.

<TABLE>
<CAPTION>
           Range           Options          Average         Average
        of Exercise      Outstanding       Remaining         Option
           Prices        at 12/31/98         Term            Price
           ------        -----------         ----            -----
<S>       <C>             <C>               <C>           <C>
          $  20-40           35,924         6 years       $    31.11
             40-60        1,671,016         8 years            54.46
             60-80        2,364,154         8 years            68.03
            80-100          200,426         4 years            82.68
                           --------                         --------
                          4,271,520                       $    63.10
                           ========                         ========
</TABLE>
--------------------------------------------------------------------------------

         Exercisable options at December 31, 1998:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                 Average option
                                                       Shares    price per share
                                                       ------    ---------------
<S>                                                  <C>             <C>
1993 Plan ....................................       2,405,434       $66.58
1989 Plan ....................................          54,339        47.49
1987 Plan ....................................         106,666        44.50
</TABLE>
--------------------------------------------------------------------------------

         Changes during 1996, 1997 and 1998 in Restricted Stock were as follows:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                         Shares
                                                                         ------
<S>                                                                    <C>
Outstanding at December 31, 1995 ..........................             225,925
  Granted .................................................              17,000
  Terminated ..............................................              (4,500)
  Released ................................................             (10,725)
                                                                       --------

Outstanding at December 31, 1996 ..........................             227,700
  Granted .................................................              15,250
  Terminated ..............................................                (800)
                                                                       --------

Outstanding at December 31, 1997 ..........................             242,150
  Granted .................................................              10,500
  Terminated ..............................................              (9,750)
  Released ................................................             (46,750)
                                                                       --------

Outstanding at December 31, 1998 ..........................             196,150
                                                                       ========
</TABLE>
--------------------------------------------------------------------------------

         In accordance with the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," we apply APB Opinion 25 and related interpretations
in accounting for our stock option plans and, accordingly, do not recognize
compensation cost. If we had elected to recognize compensation cost based on the
fair value of the options granted at grant date as prescribed by SFAS No. 123,
net income and earnings per share would have been reduced to the pro forma
amounts indicated in the table below (in millions except per share amounts):

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                       1998      1997      1996
                                                       ----      ----      ----
<S>                                                  <C>         <C>       <C>
Net income - as reported .........................   $ 190.9     408.5     461.8
Net income - pro forma ...........................     184.7     402.4     456.2

Earnings per share - as reported (basic) .........      3.28      6.68      7.02
Earnings per share - pro forma (basic) ...........      3.17      6.56      6.91
Earnings per share - as reported (diluted) .......      3.26      6.63      6.98
Earnings per share - pro forma (diluted) .........      3.16      6.54      6.89
</TABLE>
--------------------------------------------------------------------------------

         The fair value of each option grant is estimated on the date of grant
using a Black-Scholes option-pricing model with the following assumptions:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                       1998      1997      1996
                                                       ----      ----      ----
<S>                                                  <C>       <C>       <C>
Expected dividend yield ..........................     2.98%     3.02%     3.32%
Expected stock price volatility ..................     29.0%     23.0%     24.0%
Risk-free interest rate ..........................      4.4%      5.8%      5.7%
Expected life of options .........................   3 years   3 years   3 years
</TABLE>
--------------------------------------------------------------------------------

The weighted average fair value of options granted during 1998 was $10.84 per
share, compared with $10.62 in 1997 and $12.68 in 1996.

16. PENSION PLANS
Our pension plans cover substantially all of our U.S. employees and certain
employees of our international subsidiaries. Benefits are based on years of
service and depending on the plan either final average salary or a fixed amount
for each year of service. Participants generally vest in their benefits after
five years of service. In a number of these plans, the plan assets exceed the
accumulated benefit obligations (overfunded plans) and in the remainder of the
plans, the accumulated benefit obligations exceed the plan assets (underfunded
plans). For the underfunded plans, the aggregate benefit obligation is $73
million and the aggregate fair value of plan assets is $31 million.

         The following table presents the benefit obligation, changes in plan
assets, the funded status of the pension plans and the assumptions used:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                1998       1997
                                                                ----       ----
<S>                                                            <C>        <C>
Assumptions:
     Discount rate .......................................      6.75       7.25
     Rate of increase in salary levels ...................       4.0        4.0

Change in benefit obligation:                                     (in millions)
     Benefit obligation at beginning of year .............     $ 699        637
     Service cost - benefits earned during the
       period ............................................        17         17
     Interest cost on benefit obligation .................        49         47
     Employee contributions ..............................         1         --
     Plan amendments .....................................         1         26
     Actuarial loss ......................................       102         12
     Benefits paid .......................................       (49)       (47)
     Curtailments and settlements ........................         6         --
     Special termination benefits ........................         2         11
     Divestitures ........................................       (30)        --
     Currency translation adjustments ....................        (5)        (4)
                                                               -----      -----
     Benefit obligation at end of year ...................     $ 793        699
                                                               =====      =====
Change in plan assets:
     Fair value of plan assets at beginning of year ......     $ 778        703
     Actual return on plan assets ........................        90        117
     Divestitures ........................................       (30)        --
     Employer contributions ..............................         2          7
     Employee contributions ..............................         1         --
     Currency translation adjustments ....................        --         (2)
     Benefits paid .......................................       (49)       (47)
                                                               -----      -----
     Fair value of plan assets at end of year ............     $ 792        778
                                                               =====      =====
Fund status ..............................................     $  (1)        79
     Unrecognized initial net liability (asset) ..........        (1)        (2)
     Unrecognized actuarial loss (gain) ..................         9        (59)
     Unrecognized prior service cost .....................        42         44
                                                               -----      -----
     Net amount recognized ...............................     $  49         62
                                                               =====      =====
Amounts recognized in the balance sheet consist of:
        Prepaid benefit cost .............................     $  72         82
        Accrued benefit liability ........................       (36)       (27)
        Intangible asset .................................         4          2
        Deferred tax benefit .............................         3          2
        Accumulated other comprehensive income ...........         6          3
                                                               -----      -----
     Net amount recognized ...............................     $  49         62
                                                               =====      =====
</TABLE>
--------------------------------------------------------------------------------

         Our pension plans were valued between December 1, 1996, and January 1,
1997, and between December 1, 1997, and January 1, 1998. The obligations were
projected to and the assets were valued as of the end of 1997 and 1998.
Effective January 21, 1998, one bargained hourly pension plan was transferred to
another sponsor in conjunction with the sale of Accuride. The majority of plan
assets are invested in a diversified portfolio of stocks, bonds and cash or cash
equivalents. A small portion of the plan assets is invested in pooled real
estate and other private corporate investment funds.

         The assumptions used and the annual cost related to these plans consist
of the following:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                       1998      1997      1996
                                                       ----      ----      ----
<S>                                                  <C>       <C>       <C>
Assumptions:
     Discount rate ...............................     7.25      7.25      7.25
     Expected long-term rate of return ...........      9.5       9.5       9.5
     Rate of increase in salary levels ...........      4.0       4.0       4.0

Components of net periodic benefit cost (in millions):
     Service cost - benefits earned
        during the period ........................   $ 16.6      17.5      14.2
     Interest cost on benefit obligation .........     48.4      46.8      43.4
     Expected return on plan assets ..............    (62.9)    (61.0)    (56.6)
     Amortization of transition
        obligation (asset) .......................     (1.8)     (1.8)     (1.7)
     Amortization of prior service cost ..........      4.2       4.3       2.7
     Recognized actuarial loss ...................      0.5       0.5       0.5
                                                     ------    ------    ------
     Net periodic benefit cost ...................   $  5.0       6.3       2.5
                                                     ======    ======    ======
</TABLE>
--------------------------------------------------------------------------------

         We recognize a minimum liability in our financial statements for our
underfunded pension plans. The accrued pension benefit cost for the underfunded
plans is $23 million while the minimum liability is $36 million. "Other
liabilities and deferred credits" at December 31, 1998, included $13 million
relating to this minimum liability, compared with $7 million at December 31,
1997. This amount was offset by a $4 million intangible asset, a $6 million
reduction in "Common Shareholders' Equity" and a $3 million deferred tax benefit
at December 31, 1998, compared with a $2 million intangible asset, a $3 million
reduction in "Common Shareholders' Equity" and a $2 million deferred tax benefit
at December 31, 1997.

17. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
We record obligations for postretirement medical and life insurance benefits on
the accrual basis. One of the principal requirements of the method is that the
expected cost of providing such postretirement benefits be accrued during the
years employees render the necessary service.

         Our postretirement plans provide medical insurance benefits for many
employees retiring from active service. The coverage is provided on a
noncontributory basis for certain groups of employees and on a contributory
basis for other groups. The majority of these benefits are paid by the Company.
We also provide life insurance benefits to our U.S. employees who retire from
active service on or after normal retirement age of 65 and to some of our
international employees. Life insurance benefits also are available under
certain early retirement programs or pursuant to the terms of certain collective
bargaining agreements. The majority of the costs of such benefits were paid out
of a previously established fund maintained by an insurance company.

         The following table presents the change in benefit obligation, change
in plan assets and the funded status of the other postretirement benefit plans
and the assumptions used:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                1998       1997
                                                                ----       ----
<S>                                                            <C>        <C>
Assumptions:
     Expected long-term rate of return on
       plan assets .......................................       6.5        8.0
     Weighted average discount rate ......................      6.75       7.25

(In millions) Change in benefit obligation:
     Benefit obligation at beginning of year .............     $ 162        152
     Service cost - benefits earned during the year ......         4          4
     Interest cost on benefit obligation .................        11         10
     Actuarial loss (gain) ...............................        12         (3)
     Benefits paid .......................................        (6)        (5)
     Early retirement windows ............................        --          4
     Divestitures ........................................        (8)        --
                                                               -----      -----
     Benefit obligation at end of year ...................     $ 175        162
                                                               =====      =====
Change in plan assets:
     Fair value of plan assets at beginning of year ......     $  10         10
     Actual return on plan assets ........................         1          1
     Employer contribution ...............................        --         --
     Benefits paid .......................................        (1)        (1)
                                                               -----      -----
     Fair value of plan assets at end of year ............     $  10         10
                                                               =====      =====

     Funded status .......................................     $(165)      (152)
     Unrecognized actuarial loss (gain) ..................         9         (3)
     Unrecognized prior service cost .....................        (1)        (5)
                                                               -----      -----
     Net amount recognized (accrued
       benefit (liability)) ..............................     $(157)      (160)
                                                               =====      =====
</TABLE>
--------------------------------------------------------------------------------

         The components of net periodic postretirement benefit cost were as
follows:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                     1998       1997       1996
                                                     ----       ----       ----
<S>                                                  <C>        <C>        <C>
Assumptions:
     Expected long-term rate of return
        on plan assets ........................       6.5        8.0        8.0
     Discount rate ............................      7.25       7.25       7.25

Components of net periodic benefit cost (in millions):
     Service cost - benefits earned
        during the year .......................      $  4          4          4
     Interest cost ............................        11         11         10
     Expected return on plan assets ...........        (1)        (1)        (1)
                                                     ----       ----       ----
     Net periodic benefit cost ................      $ 14         14         13
                                                     ====       ====       ====
</TABLE>
--------------------------------------------------------------------------------

         For 1998 measurement purposes, the annual rate of increase in the cost
of covered health care benefits was assumed to average 6.9 percent for 1999 and
is projected to decrease to 5.0 percent by 2008 and remain at that level. For
1997 measurement purposes, the annual rate of increase in the cost of covered
health care benefits was assumed to average 7.6 percent for 1998 and was
projected to decrease to 5.3 percent by 2008 and remain at that level.

         Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A 1 percentage-point change in
assumed health care cost trend rates assumed for postretirement benefits would
have the following effects (in millions):

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                             1 Percentage-Point
                                                             ------------------
                                                             Increase   Decrease
                                                             --------   --------
<S>                                                           <C>         <C>
Effect on total of service and interest
     cost components ....................................     $ 1.1       (1.0)
Effect on postretirement benefit obligation .............      13.0      (10.7)
</TABLE>
--------------------------------------------------------------------------------

18. COMMITMENTS
Rent expense for the years 1998, 1997 and 1996 was (in millions): $13.7, $18.6
and $15.6, respectively. Future minimum lease payments for all noncancelable
operating leases having a remaining term in excess of one year totaled $38.3
million at December 31, 1998. These commitments for future periods are as
follows (in millions): 1999 - $10.9; 2000 - $7.7; 2001 - $6.6; 2002 - $1.2; 2003
- $0.8; 2004 and thereafter - $11.1.

19. CONTINGENCIES
We are from time to time involved in various legal proceedings of a character
normally incident to our past and present businesses. Our management does not
believe that the outcome of these proceedings will have a material adverse
effect on our financial condition or results of operations on a consolidated
basis.

         We are subject to federal, state and local environmental laws, rules
and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA or Superfund), as amended by the
Superfund Amendments and Reauthorization Act of 1986. Under Superfund, the
Environmental Protection Agency (EPA) has identified approximately 35,000 sites
throughout the United States for review, ranking and possible inclusion on the
National Priorities List (NPL). The EPA has included 13 sites owned by us on the
NPL. We believe that most, if not all, of the sites identified do not qualify
for listing on the NPL.

         We may be required to remove hazardous waste or remediate the alleged
effects of hazardous substances on the environment. In many cases, this involves
past disposal practices at sites not owned by us. We have received notice that
we are a potentially responsible party from EPA or individual states under
CERCLA or an equivalent state law. We are participating in environmental
assessment and remediation activity at 39 sites.

         The amounts of our liabilities for remedial activities are very
difficult to estimate. This is due to factors such as the unknown extent of the
remedial actions that may be required. In the case of sites not owned by us, the
extent of our probable liability in proportion to the probable liability of
other parties is difficult to estimate. We have other probable environmental
liabilities that in our judgment cannot reasonably be estimated. Losses
attributable to remediation costs are reasonably possible at other sites. We
cannot currently estimate the total additional loss we may incur for these
environmental liabilities, but that loss could be substantial. (See Notes 1 and
3 to the Consolidated Financial Statements for further information concerning
the Corporation's environmental obligations.)

         In 1993 and 1994, the New Mexico and Arizona legislatures,
respectively, passed laws requiring the reclamation of mined lands in those
states. The New Mexico Mining Commission adopted rules for the New Mexico
program during 1994, and our operations began submitting the required permit
applications in December 1994. The Arizona State Mine Inspector adopted rules
for the Arizona program in January 1997, and our operations began submitting the
required reclamation plans in 1997. Reclamation is an ongoing activity and we
recognize estimated reclamation costs using a units of production basis
calculation. These laws and regulations will likely increase our regulatory
obligations and compliance costs with respect to mine closure and reclamation.

         In 1997, issues of dispute arose between Phelps Dodge and the San
Carlos Apache Tribe regarding our use and occupancy of the Black River Pump
Station which delivers water to the Morenci operation. On May 12, 1997, the
Tribe filed suit against us in San Carlos Apache Court, seeking our eviction
from the Tribe's Reservation and claiming substantial compensatory and punitive
damages, among other relief. In May 1997, we reached an agreement with the
Tribe, and subsequently federal legislation (Pub. L. No. 105-18, 5003, 111 stat.
158, 181-87) was adopted which mandated dismissal of the tribal court suit. The
legislation prescribes arrangements intended to ensure a future supply of water
for the Morenci mining complex in exchange for certain payments by us. The
legislation does not address any potential claims by the Tribe relating to our
historical occupancy and operation of our facilities on the Tribe's Reservation,
but does require that any such claims be brought, if at all, exclusively in
federal district court. By order dated October 13, 1997, the tribal court
dismissed the lawsuit with prejudice, as contemplated by the legislation.

         The 1997 legislation required that the Company and the Tribe enter a
lease for the delivery of Central Arizona Project water through the Black River
Pump Station to Morenci on or before December 31, 1998. In the event a lease was
not signed, the legislation expressly provided that the legislation would become
the lease. The legislation included the principal terms for that eventuality. To
date, we have not entered into a lease with the Tribe, but are relying on our
rights under the legislation and are prepared to enforce those rights if
necessary. We are cooperating with the United States, which operates the pump
station, to reach an agreement with the Tribe on the lease issue.

20. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING AND
    FAIR VALUE OF FINANCIAL INSTRUMENTS

We do not purchase, hold or sell derivative contracts unless we have an existing
asset, obligation or anticipate a future activity that is likely to occur and
will result in exposing us to market risk. We will utilize various strategies to
manage our market risk, including the use of derivative contracts to limit,
offset or reduce our market exposure. Derivative instruments are used to manage
well-defined commodity price, foreign exchange and interest rate risks from our
primary business activities. The fair values of our derivative instruments are
based on quoted market prices for similar instruments and on market closing
prices at year end. A summary of the derivative instruments we hold is listed as
follows:

         COPPER HEDGING

         Copper is an internationally traded commodity, and its prices are
effectively determined by the two major metals exchanges -- the New York
Commodity Exchange (COMEX) and the London Metal Exchange (LME). The prices on
these exchanges generally reflect the worldwide balance of copper supply and
demand, but are also influenced significantly from time to time by speculative
actions and by currency exchange rates.

         Some of our wire, cathode and rod customers request a fixed sales price
instead of the COMEX average price in the month of shipment. As a convenience to
these customers, we enter into copper swap and futures contracts to hedge the
sales in a manner that will allow us to receive the COMEX average price in the
month of shipment while our customers receive the fixed price they requested. We
accomplish this by liquidating the copper futures contracts and settling the
copper swap contracts during the month of shipment, which generally results in
the realization of the COMEX average price.

         Because of this strategy, the sum of the face values of our outstanding
futures contracts is not an accurate measure of our market risk from the use of
such hedge contracts. The contracts that may result in market risk to us are
those related to the customer sales transactions under which copper products
have not yet been shipped.

         At December 31, 1998, we had futures and swap contracts for
approximately 86 million pounds of copper with a net hedge value of $65 million
and a total face value of approximately $138 million. At that date, we had $7
million in losses on these contracts not yet recorded in our financial
statements because the copper products under the related customer transactions
had not yet been shipped. These futures contracts had maturities of 15 months or
less. At year-end 1997, we had futures and swap contracts in place for
approximately 140 million pounds of copper at a net hedge value of $130 million
and a total face value of approximately $146 million. We had $18.7 million in
deferred, unrealized losses at that time. At year-end 1996, we had futures and
swap contracts in place for approximately 149 million pounds of copper at a net
hedge value of $143 million and an approximate total face value of $156 million.
We had $2.3 million in deferred unrealized gains at that time.

         From time to time, we may purchase or sell copper price protection
contracts for a portion of our expected future mine production. We do this to
limit the effects of potential decreases in copper selling prices. We did not
have any copper price protection contracts at the end of 1998 or 1997. During
the first quarter of 1997, we had hedge contracts in place that provided for a
minimum quarterly average price of 90 cents per pound for 85 million pounds of
copper cathode that expired without payment. For 1996 production, we had
protection contracts that gave us minimum and maximum quarterly average LME
prices for 185 million pounds of third quarter copper production. We received
$3.1 million from these contracts. Similar 1996 production contracts that
ensured a minimum price for 790 million pounds of copper expired without our
receiving any payment. In the 1996 third quarter, we sold a portion of our
copper price protection contracts for $15.6 million that covered 94 million
pounds of production in the 1996 fourth quarter and 85 million pounds of
production in the 1997 first quarter. We recognized $8.8 million in income in
the 1996 fourth quarter and $6.8 million in income in the 1997 first quarter.

         ALUMINUM HEDGING

         During 1998, our Brazilian wire and cable operation entered into
aluminum futures contracts with a financial institution to lock in the cost of
aluminum ingot needed in manufacturing aluminum cable contracted by customers.
At December 31, 1998, we had futures contracts for approximately 6 million
pounds of aluminum with a net hedge and total face value of approximately $3.7
million. At the end of the year, these contracts had a $0.4 million loss that
was not recorded in our financial statements because the aluminum products under
the related customer orders had not yet been shipped. The maturities on these
aluminum futures contracts were less than one year. Prior to 1998, we had not
previously entered into aluminum futures contracts.

         FOREIGN CURRENCY HEDGING

         We are a global company and transact business in many countries and in
many currencies. Foreign currency transactions increase our risks because
exchange rates can change between the time agreements are made and the time
foreign currencies are actually exchanged. One of the ways we manage these
exposures is by entering into forward exchange and currency option contracts in
the same currency as the transaction to lock in or minimize the effects of
changes in exchange rates. With regard to foreign currency transactions, we may
hedge or protect transactions for which we have a firm legal obligation or when
anticipated transactions are likely to occur. We do not enter into foreign
exchange contracts for speculative purposes. In the process of protecting our
transactions, we may use a number of offsetting currency contracts. As a result,
the sum of the face value of our outstanding contracts is not an accurate
measure of our market risk from the use of such contracts.

         At December 31, 1998, we had a net hedge and total face value of
approximately $44 million in forward exchange contracts to hedge intercompany
loans between our international subsidiaries. The forward exchange contracts on
December 31, 1998, had maturities of less than one year. At year-end 1997, we
had foreign currency protection in place for $158 million, compared with $141
million at year-end 1996, that represented both the net hedged amount and the
total face value of the forward contracts. We did not have any significant gains
or losses at year end that had not been recorded in our financial statements for
each of the three years in the period ended December 31, 1998.

         At year-end 1998, our foreign currency protection contracts included
the British pound, German mark, Italian lira and Spanish peseta.

         INTEREST RATE HEDGING

         In some situations, we may enter into structured transactions using
currency swaps that result in lower overall interest rates on borrowings. We do
not enter into currency swap contracts for speculative purposes. At year-end
1998, we had currency swap contracts in place with an approximate net hedged
value of $31 million and a total face value of $36 million. These currency swaps
involved swapping fixed-rate Brazilian real loans into fixed-rate U.S. dollar
loans, and swapping floating-rate U.S. dollar loans into fixed-rate Thai baht
loans. The currency swap contracts on this date had maturities of less than a
year.

         In addition, we are vulnerable to increasing costs from interest rates
associated with floating-rate debt. We may enter into interest rate swap
contracts to manage or limit such interest expense costs. We do not enter into
interest rate swap contracts for speculative purposes. At year-end 1998, our
Candelaria copper mine had interest rate swaps to convert $264.9 million of
floating-rate, dollar-denominated debt into fixed-rate debt for the life of the
debt (through the year 2008). Under the terms of the floating-rate debt
agreement, the Candelaria borrowings are scheduled to vary from period to period
during the life of the debt. In order to match the projected changes in debt
balances, the face value of the interest rate swaps approximate the amounts of
the underlying debt.

         CREDIT RISK

         We are exposed to credit loss in cases when the financial institutions
in which we have entered into derivative transactions (commodity, foreign
exchange and interest rate swaps) are unable to pay us when they owe us funds as
a result of our protection agreements with them. To minimize the risk of such
losses, we only use highly rated financial institutions that meet certain
requirements. We also periodically review the credit worthiness of these
institutions to ensure that they are maintaining their ratings. We do not
anticipate that any of the financial institutions that we have dealt with will
default on their obligations.

         The methods and assumptions we used to estimate the fair value of each
group of financial instrument for which we can reasonably determine a value are
as follow:

CASH AND CASH EQUIVALENTS -- the financial statement amount is a reasonable
estimate of the fair value because of the short maturity of those instruments.

INVESTMENTS AND LONG-TERM RECEIVABLES -- the fair values of some investments are
estimated based on quoted market prices for those or similar investments. The
fair values of other types of instruments are estimated by discounting the
future cash flows using the current rates at which similar instruments would be
made with similar credit ratings and maturities.

LONG-TERM DEBT -- the fair value of substantially all of our long-term debt is
estimated based on the quoted market prices for the same or similar issues or on
the current notes offered to us for debt with similar remaining maturities.

DERIVATIVE HEDGE INSTRUMENTS -- the fair values of some derivative instruments
are estimated based on quoted market prices and on calculations using market
closing prices for those or similar instruments.

FINANCIAL GUARANTEES AND STANDBY LETTERS OF CREDIT -- the fair value of
guarantees and letters of credit are based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise settle our
obligations with the holders of the guarantees or letters of credit at year-end
1998. As a whole, we have various guarantees and letters of credit totaling
$59.8 million. There is no market for our guarantees or standby letters of
credit. Therefore, it is not practicable to establish their fair value.

         The estimated fair values of our financial instruments as of December
31, 1998, were as follows (in millions):

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                             Carrying      Fair
                                                              Amount      Value
                                                              ------      -----
<S>                                                          <C>          <C>
Cash and short-term investments ........................     $  221.7     221.7
Currency swap agreements - assets (liabilities) ........         --         1.5
Investments and long-term receivables (including
  amounts due within one year) for which it is
  practicable to estimate fair value * .................         43.9     153.4
Long-term debt (including amounts due within
  one year) ............................................        904.9     944.3
Interest rate swap agreements - assets (liabilities) ...         --       (18.5)
Foreign currency exchange contracts - assets
  (liabilities) ........................................          0.2      (0.1)
</TABLE>
----------

*     Our largest cost basis  investment  is our  minority  interest in Southern
      Peru Copper Corporation (SPCC),  which is carried at a book value of $13.2
      million.  Our  interest  in SPCC was  reduced  from 16.25  percent to 13.9
      percent  through an exchange  offering of SPCC common shares  completed in
      1996.  Based on the New York Stock Exchange  closing market price of those
      SPCC shares as of  December  31,  1998,  the  estimated  fair value of our
      investment in SPCC is approximately  $105 million.  Our ownership interest
      in SPCC is  represented  by our share of a class of SPCC common stock that
      is currently not registered for trading on any public exchange.
--------------------------------------------------------------------------------

21. BUSINESS SEGMENT DATA
Our business consists of two divisions, Phelps Dodge Mining Company and Phelps
Dodge Industries. The principal activities of each division are described below,
and the accompanying tables present results of operations and other financial
information by significant geographic area and by segment.

         Phelps Dodge Mining Company is our international business segment that
comprises a group of companies involved in vertically integrated copper
operations including mining, concentrating, electrowinning, smelting and
refining, rod production, marketing and sales and related activities. Copper is
sold primarily to others as rod, cathode or concentrates, and as rod to our wire
and cable segment. In addition, Phelps Dodge Mining Company at times smelts and
refines copper and produces copper rod for others on a toll basis and produces
gold, silver, molybdenum and copper chemicals as by-products, and sulfuric acid
from its air quality control facilities. This business segment also includes our
other mining operations and investments (including fluorspar, silver and zinc
operations) and its worldwide mineral exploration and development programs.

         Phelps Dodge Industries is our manufacturing division comprising two
business segments that produce engineered products principally for the global
energy, telecommunications, transportation and specialty chemicals sectors. Its
operations are characterized by products with significant market share,
internationally competitive cost and quality, and specialized engineering
capabilities. The two business segments are specialty chemicals which comprises
Columbian Chemicals Company and its subsidiaries, and wire and cable which
comprises Phelps Dodge International Corporation and its affiliates and Phelps
Dodge Magnet Wire Company and its subsidiaries. Phelps Dodge Industries also
included Accuride Corporation and its subsidiaries, our wheel and rim
operations, until Accuride was sold effective January 1, 1998.

         Intersegment sales reflect the transfer of copper from Phelps Dodge
Mining Company to Phelps Dodge Industries at the same prices charged to outside
customers.

         The following tables give a summary of financial data by geographic
area and business segment for the years 1996 through 1998. Major unusual items
during the three-year period included (i) a 1998 pre-tax provision of $5.5
million in Phelps Dodge Mining Company's operating income for costs associated
with indefinite mine shutdowns and curtailments, a $2.3 million pre-tax
provision in our wire and cable segment operating income primarily for an early
retirement program, and a $198.7 million pre-tax gain in other segments from the
disposition of Accuride, (ii) a 1997 pre-tax provision of $40.5 million included
in Phelps Dodge Mining Company's operating income for costs associated with a
voluntary early retirement program, environmental matters and other, and a 1997
pre-tax provision of $5.4 million included in Corporate and Other's operating
income for costs associated with environmental matters and a voluntary early
retirement program, and (iii) a 1996 pre-tax provision of $10.0 million included
in Phelps Dodge Mining Company's operating income resulting from a reclamation
provision related to the Court-ordered rescission of a 1986 sale of property.
(See Notes 2 and 3 to the Consolidated Financial Statements for a further
discussion of these issues.)

FINANCIAL DATA BY GEOGRAPHIC AREA
(In millions)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                    1998       1997       1996
                                                    ----       ----       ----
<S>                                               <C>         <C>        <C>
SALES AND OTHER OPERATING REVENUES:
  Unaffiliated customers
    United States .............................   $2,141.0    2,870.9    2,773.5
    Latin America .............................      579.9      464.8      414.6
    Other .....................................      342.5      578.6      598.5
                                                  --------   --------   --------
                                                  $3,063.4    3,914.3    3,786.6
                                                  ========   ========   ========
LONG-LIVED ASSETS AT DECEMBER 31:
    United States .............................   $2,687.9    2,631.8    2,400.1
    Latin America * ...........................    1,109.8      948.0      651.8
    Other .....................................      239.6      318.0      331.9
                                                  --------   --------   --------
                                                  $4,037.3    3,897.8    3,383.8
                                                  ========   ========   ========
----------
      *     Long-lived assets in Chile.           $  645.1      689.5      557.0
</TABLE>
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL DATA BY BUSINESS SEGMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
                                                           PD Industries
                                     Phelps    ------------------------------------
                                      Dodge    Specialty  Wire &    Other *           Segment   Corp.   Reconciling
                                     Mining    Chemicals   Cable   Segments   Total  Subtotal  & Other    Elims.    Totals
--------------------------------------------------------------------------------------------------------------------------
<S>                                <C>          <C>       <C>       <C>     <C>        <C>      <C>        <C>       <C>
1998
  Sales & other operating revenues:
    Unaffiliated customers ....... $1,677.7   454.6     931.1      --     1,385.7    3,063.4     --        --      3,063.4
    Intersegment .................    248.7    --         1.6      --         1.6      250.3     --      (250.3)      --
  Depr., depl. and amort .........    191.5    43.3      56.5      --        99.8      291.3      2.0      --        293.3
  Gain (loss) on asset disposition
    & other non-recurring charges.     (5.5)   --        (2.3)    198.7     196.4      190.9     --        --        190.9
  Operating income (loss) ........    110.3    87.6      67.3     198.7     353.6      463.9    (42.3)      1.1      422.7
  Interest income ................      7.3     1.5       4.3      --         5.8       13.1     21.1     (10.7)      23.5
  Interest expense ...............     27.0     8.5      21.0      --        29.5       56.5     50.5     (10.6)      96.4
  Equity earnings (losses) .......      1.7    --        (5.9)     --        (5.9)      (4.2)    --        --         (4.2)
  Income tax expense .............     38.8    26.5      26.7      67.6     120.8      159.6     --       (25.6)     134.0
  Equity basis investments .......     18.7     0.1      22.3      --        22.4       41.1     --        --         41.1
  Assets at December 31 ..........  3,218.2   729.5     879.2      --     1,608.7    4,826.9  1,027.3    (817.7)   5,036.5
  Expenditures for segment assets     309.3   261.6      97.4      --       359.0      668.3      6.1      (6.1)     668.3
--------------------------------------------------------------------------------------------------------------------------
1997
  Sales & other operating revenues:
    Unaffiliated customers ....... $2,173.3   429.5     978.5     333.0   1,741.0    3,914.3     --        --      3,914.3
    Intersegment .................    288.4    --         2.6      --         2.6      291.0     --      (291.0)      --
  Depr., depl. and amort .........    172.4    37.2      51.4      20.7     109.3      281.7      2.0      --        283.7
  (Provision) for environ. & other
    non-recurring charges ........    (40.5)   --        --        --        --        (40.5)    (5.4)     --        (45.9)
  Operating income (loss) ........    459.2    74.9      83.1      49.8     207.8      667.0    (56.1)      0.1      611.0
  Interest income ................     10.9     1.0       3.0       0.5       4.5       15.4      6.8      --         22.2
  Interest expense ...............     25.2     3.7      14.3       0.2      18.2       43.4     31.1      (0.3)      74.2
  Equity earnings (losses) .......      4.5    (0.1)      4.6       2.7       7.2       11.7     --        --         11.7
  Income tax expense .............    132.2    27.1      30.0      18.7      75.8      208.0     --       (27.6)     180.4
  Equity basis investments .......     27.7     0.2      28.3      24.8      53.3       81.0     --        --         81.0
  Assets at December 31 ..........  3,026.8   490.3     889.4     356.5   1,736.2    4,763.0    539.5    (337.3)   4,965.2
  Expenditures for segment assets     470.3    75.7     176.5      47.3     299.5      769.8     19.4      --        789.2
--------------------------------------------------------------------------------------------------------------------------
1996
  Sales & other operating revenues:
    Unaffiliated customers ....... $2,091.1   437.0     950.7     307.8   1,695.5    3,786.6     --        --      3,786.6
    Intersegment .................    265.8    --         0.5      --         0.5      266.3     --      (266.3)      --
  Depr., depl. and amort .........    150.7    34.3      42.8      20.1      97.2      247.9      1.6      --        249.5
  (Provision) for environ. & other
    non-recurring charges ........    (10.0)   --        --        --        --        (10.0)    --        --        (10.0)
  Operating income (loss) ........    528.7    80.3     105.8      41.8     227.9      756.6    (43.5)     (0.2)     712.9
  Interest income ................     13.8     1.2       2.3       0.4       3.9       17.7     16.5      --         34.2
  Interest expense ...............     23.9     4.1       9.5      --        13.6       37.5     30.6      (0.1)      68.0
  Equity earnings (losses) .......      6.9     0.1       3.4       0.1       3.6       10.5     --        --         10.5
  Income tax expense .............    154.5    26.3      32.6      16.8      75.7      230.2     --       (10.2)     220.0
  Equity basis investments .......     13.0     0.3      30.1       2.0      32.4       45.4     --        --         45.4
  Assets at December 31 ..........  2,879.8   473.2     788.0     283.5   1,544.7    4,424.5    713.5    (321.6)   4,816.4
  Expenditures for segment assets     330.2    72.2     139.3       9.6     221.1      551.3      9.1      --        560.4
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
*     Other segments include Accuride Corporation which was sold effective
      January 1, 1998. (See Note 2 to the Consolidated Financial Statements for
      a further discussion of this sale.)
<PAGE>
                                    PART III

ITEMS 10, 11, 12 AND 13.

         The information called for by Part III (Items 10, 11, 12 and 13) is
incorporated herein by reference from the material included under the captions
"Election of Directors," "Beneficial Ownership of Securities," "Executive
Compensation" and "Other Matters" in Phelps Dodge Corporation's definitive proxy
statement (to be filed pursuant to Regulation 14A) for its Annual Meeting of
Shareholders to be held May 5, 1999 (the 1999 Proxy Statement), except that the
information regarding executive officers called for by Item 401 of Regulation
S-K is included in Part I of this report. The 1999 Proxy Statement is being
prepared and will be filed with the Securities and Exchange Commission and
furnished to shareholders on or about April 1, 1999.

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedule, and Reports on Form 8-K.

(a)    1.     Financial Statements.

       2.     Financial Statement Schedule.

       3.     Exhibits:

       3.1    Complete composite copy of the Certificate of Incorporation of the
              Corporation as amended to date (incorporated by reference to
              Exhibit 3.1 to the Corporation's 1992 Form 10-K (SEC File No.
              1-82)) and Certificate of Amendment of such Restated Certificate
              of Incorporation, effective June 19, 1997 (incorporated by
              reference to Exhibit 3.1 to the Corporation's Form 10-Q for the
              quarter ended June 30, 1997 (SEC File No. 1-82)).

       3.2    By-Laws of the Corporation, as amended effective May 7, 1997
              (incorporated by reference to Exhibit 3.2 to the Corporation's
              Form 10-Q for the quarter ended June 30, 1997 (SEC File No.
              1-82)).

       4.1    Reference is made to Exhibits 3.1 and 3.2 above.

       4.2    Second Amended and Restated Credit Agreement, dated as of June 25,
              1997, among the Corporation, several banks and other lending
              institutions, and The Chase Manhattan Bank, as administrative
              agent (incorporated by reference to Exhibit 4.2 to the
              Corporation's Form 10-Q for the quarter ended June 30, 1997 (SEC
              File No. 1-82)).

       4.3    Rights Agreement, dated as of February 5, 1998 between the
              Corporation and The Chase Manhattan Bank (which replaces the
              Rights Agreement dated as of July 29, 1988 as amended and restated
              as of December 6, 1989, the rights issued thereunder having been
              redeemed by the Corporation), which includes the form of
              Certificate of Amendment setting forth the terms of the Junior
              Participating Cumulative Preferred Shares, par value $1.00 per
              share, as Exhibit A, the form of Right Certificate as Exhibit B
              and the Summary of Rights to Purchase Preferred Shares as Exhibit
              C (incorporated by reference to Exhibit 1 to the Corporation's
              Current Report on Form 8-K and in the Corporation's Form 8-A, both
              filed on February 6, 1998 (SEC File No. 1-82)).

              Note: Certain instruments with respect to long-term debt of the
              Corporation have not been filed as Exhibits to this Report since
              the total amount of securities authorized under any such
              instrument does not exceed 10 percent of the total assets of the
              Corporation and its subsidiaries on a consolidated basis. The
              Corporation agrees to furnish a copy of each such instrument upon
              request of the Securities and Exchange Commission.

       4.4    Form of Indenture, dated as of September 22, 1997, between the
              Corporation and The Chase Manhattan Bank, as Trustee (incorporated
              by reference to the Corporation's Registration Statement and
              Post-Effective Amendment No. 1 on Form S-3 (Registration Nos.
              333-36415 and 33-44380)) filed with the Securities and Exchange
              Commission on September 25, 1997 (incorporated by reference to
              Exhibit 4.3 to the Corporation's Form 10-Q for the quarter ended
              September 30, 1997 (SEC File No. 1-82)).

       4.5    Form of 6.375 percent Note, due November 1, 2004, of the
              Corporation issued on November 5, 1997, pursuant to the Indenture,
              dated as of September 22, 1997, between the Corporation and The
              Chase Manhattan Bank, as Trustee (incorporated by reference to the
              Corporation's Current Report on Form 8-K filed with the Securities
              and Exchange Commission on November 3, 1997 and Exhibit 4.4 of
              Form 10-Q for the quarter ended September 30, 1997 (SEC File No.
              1-82)).

       4.6    Form of 7.125 percent Debenture, due November 1, 2027, of the
              Corporation issued on November 5, 1997, pursuant to the Indenture,
              dated as of September 22, 1997, between the Corporation and The
              Chase Manhattan Bank, as Trustee (incorporated by reference to the
              Corporation's Current Report on Form 8-K filed with the Securities
              and Exchange Commission on November 3, 1997 and Exhibit 4.5 of the
              Corporation's Form 10-Q for the quarter ended September 30, 1997
              (SEC File No. 1-82)).

       10.    Management contracts and compensatory plans and agreements.

       10.1   The Corporation's 1987 Stock Option and Restricted Stock Plan (the
              1987 Plan), as amended to and including June 3, 1992, and form of
              Stock Option Agreement and form of Reload Option Agreement, both
              as modified through June 3, 1992 (incorporated by reference to
              Exhibit 10.2 of the Corporation's Form 10-Q for the quarter ended
              June 30, 1992 (SEC File No. 1-82)). Form of Restricted Stock
              letter under the 1987 Plan (incorporated by reference to Exhibit
              10.1 to the Corporation's 1990 10-K (SEC File No. 1-82)) and the
              amendment thereto dated June 25, 1992 (incorporated by reference
              to Exhibit 10.2 to the Corporation's 1992 Form 10-K (SEC File No.
              1-82)).

       10.2   The Corporation's 1989 Directors Stock Option Plan (the 1989
              Directors Plan), as amended to and including June 3, 1992,
              suspended effective November 6, 1996 (incorporated by reference to
              Exhibit 10.3 to the Corporation's Form 10-Q for the quarter ended
              June 30, 1992 (SEC File No. 1-82)). Form of Stock Option Agreement
              under the 1989 Directors Plan (incorporated by reference to the
              Corporation's Registration Statement on Form S-8 (Reg. No.
              33-34363)).

       10.3   The Corporation's 1993 Stock Option and Restricted Stock Plan (the
              1993 Plan), as amended through December 1, 1993, and form of
              Restricted Stock letter under the 1993 Plan (incorporated by
              reference to Exhibit 10.4 to the Corporation's 1993 Form 10-K (SEC
              File No. 1-82)). Amendment to 1993 Plan effective May 7, 1997
              (incorporated by reference to Exhibit 10.15 to the Corporation's
              Form 10-Q for the quarter ended June 30, 1997 (SEC File No.
              1-82)). Amended and restated form of Stock Option Agreement,
              amended through February 5, 1997 (incorporated by reference to
              Exhibit 10.3 of the Corporation's 1997 Form 10-K (SEC File No.
              1-82)). Form of Reload Option Agreement, amended through November
              2, 1994, under the 1993 Plan (incorporated by reference to Exhibit
              10.3 to the Corporation's 1994 Form 10-K (SEC File No. 1-82)).

              Note: Omitted from filing pursuant to the Instruction to Item
              601(b) (10) are actual Stock Option Agreements between the
              Corporation and certain officers, under the 1987 Plan and the 1993
              Plan, and certain Directors, under the 1989 Directors Plan, which
              contain substantially similar provisions to Exhibits 10.1, 10.2
              and 10.3 above.

       10.4   Description of the Corporation's Incentive Compensation Plan
              (incorporated by reference to Exhibit 10.5 to the Corporation's
              1993 Form 10-K (SEC File No. 1-82)).

       10.5   Amended and restated Deferred Compensation Plan for the Directors
              of the Corporation, dated as of December 3, 1998, effective
              January 1, 1999 (SEC File No. 1-82).

       10.6   Modified form of Change-of-Control Agreement between the
              Corporation and certain executives, including all of the current
              executive officers to be listed in the summary compensation table
              to the 1998 Proxy Statement (SEC File No. 1-82).

       10.7   Amended and restated form of Severance Agreement between the
              Corporation and certain executives, including all of the current
              executive officers to be listed in the summary compensation table
              to the 1998 Proxy Statement (incorporated by reference to Exhibit
              10.7 of the Corporation's 1997 Form 10-K (SEC File No. 1-82)).

       10.8   The Corporation's Retirement Plan for Directors, effective January
              1, 1988, terminated for active directors effective December 31,
              1997 (incorporated by reference to Exhibit 10.13 to the
              Corporation's 1987 Form 10-K (SEC File No. 1-82)).

       10.9   The Corporation's Supplemental Retirement Plan (which amends,
              restates and re-names the provisions of the Corporation's
              Comprehensive Executive Nonqualified Retirement and Savings Plan
              other than the supplemental savings provisions of such plan),
              effective (except as otherwise noted therein) as of January 1,
              1997 (incorporated by reference to Exhibit 10.9 to the
              Corporation's 1997 Form 10-K (SEC File No. 1-82)). First amendment
              to Plan, effective January 1, 1998 (SEC File No. 1-82).

       10.10  The Corporation's Supplemental Savings Plan (which amends,
              restates, and replaces the supplemental savings provisions of the
              Corporation's Comprehensive Executive Nonqualified Retirement and
              Savings Plan), effective (except as otherwise noted therein) as of
              January 1, 1997 (incorporated by reference to Exhibit 10.10 of the
              Corporation's 1997 Form 10-K (SEC File No. 1-82)).

       10.11  The Corporation's Directors Stock Unit Plan effective January 1,
              1997 (incorporated by reference to Exhibit 10.10 to the
              Corporation's 1996 Form 10-K (SEC File No. 1-82)) as amended and
              restated, effective January 1, 1998 (incorporated by reference to
              Exhibit 10.11 of the Corporation's 1997 Form 10-K (SEC File No.
              1-82)).

       10.12  The Corporation's 1998 Stock Option and Restricted Stock Plan (the
              1998 Plan) and forms of Stock Option Agreement and Reload Option
              Agreement under the 1998 Plan, and form of Restricted Stock
              Agreement under the 1998 Plan, all effective March 4, 1998
              (incorporated by reference to Exhibit 10.12 to the Corporation's
              Form 10-Q for the quarter ended June 30, 1998 (SEC File No.
              1-82)).

              Note: Omitted from filing pursuant to the Instruction to Item
              601(b) (10) are actual Stock Option Agreements between the
              Corporation and certain officers, under the 1987 Plan and the 1993
              Plan, and certain Directors, under the 1989 Directors Plan, which
              contain substantially similar provisions to Exhibits 10.1, 10.2
              and 10.3 above.

       12     Statement re computation of ratios of total debt to total
              capitalization.

       21     List of Subsidiaries and Investments.

       23     Consent of PricewaterhouseCoopers LLP.

       24     Powers of Attorney executed by certain officers and directors who
              signed this Annual Report on Form 10-K.

              Note: Shareholders may obtain copies of Exhibits by making written
              request to the Secretary of the Corporation and paying copying
              costs of 10 cents per page, plus postage.

(b)    Reports on Form 8-K:

       No current reports on Form 8-K were filed by us during the quarter ended
       December 31, 1998.
<PAGE>
Schedule II

PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands)
                                              Additions
                                         ------------------
                             Balance at  Charged to                     Balance
                              beginning   costs and            Deduc-   at end
                              of period   expenses    Other     tions  of period
                             ----------  ----------   -----    ------  ---------
<S>                           <C>          <C>       <C>       <C>      <C>
Reserve deducted in balance
 sheet from the asset to
 which applicable:

  Accounts Receivable:

    December 31, 1998         $13,800      3,500     (900)     1,500    14,900

    December 31, 1997          14,200      1,500     (600)     1,300    13,800

    December 31, 1996          12,000      4,300     (200)     1,900    14,200

Supplies:

    December 31, 1998         $ 8,700        900     (200)     2,700     6,700

    December 31, 1997           8,900        600      200      1,000     8,700

    December 31, 1996          10,500      1,300      100      3,000     8,900
</TABLE>
<PAGE>
                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        PHELPS DODGE CORPORATION
                                              (Registrant)

March 18, 1999                          By:    Thomas M. St. Clair
                                               ---------------------------
                                               Thomas M. St. Clair
                                               Senior Vice President
                                               and Chief Financial Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

                                Chairman of the Board,
                                Chief Executive Officer
                                and Director
Douglas C. Yearley              (Principal Executive Officer)     March 18, 1999
--------------------------
Douglas C. Yearley

                                Senior Vice President
                                and Chief Financial Officer
Thomas M. St. Clair             (Principal Financial Officer)     March 18, 1999
--------------------------
Thomas M. St. Clair

                                Vice President and Controller
Gregory W. Stevens              (Principal Accounting Officer)    March 18, 1999
--------------------------
Gregory W. Stevens

Robert N. Burt, Paul W. Douglas, Archie W. Dunham,      )
William A. Franke,  Paul Hazen,  Manuel J. Iraola,      )         March 18, 1999
Marie L.  Knowles,  Robert D. Krebs,  Southwood J.      )
Morcott,  Gordon R.  Parker,  J.  Steven  Whisler,      )
Directors

By:    Thomas M. St. Clair
       ------------------------
       Thomas M. St. Clair
       Attorney-in-fact