Inco Ltd., the world's second-largest nickel producer, may ask Teck Cominco Ltd. to increase its C$19.4 billion ($17.4 billion) hostile takeover bid, threatening a friendly buyout agreement with Phelps Dodge Corp.

Teck Cominco's offer of C$87.24, including C$40 in cash, might result in a "superior proposal," Toronto-based Inco said today in a statement. Inco, the world's second-biggest nickel producer, still rejected the latest Teck Cominco bid and said it supports the Phelps Dodge offer at C$85.67, including C$20.25 in cash.

Inco wants "to get the best price," said David Kratochvil, an analyst at Rochdale Securities LLC in New York. "Both deals are below where Inco is currently trading. I think they are looking to get some kind of a bidding war going."

Record prices of industrial metals have triggered a spate of takeovers among mining companies seeking to increase production. Inco last month failed in an attempt to acquire Falconbridge Ltd., ruining the plan by Phelps Dodge, the world's third-largest copper producer, to acquire both companies in a C$42.5 billion deal, the industry's biggest.

Shares of Inco fell 63 cents to $78.75 in New York Stock Exchange composite trading. They have climbed 92 percent in the past year and reached a record $79.38 on Aug. 4. Kratochvil of Rochdale Securities rates the shares "hold" and doesn't own the stock.

Phelps Dodge, based in Phoenix, rose 58 cents to $86.95. They were up 59 percent from a year ago. Vancouver-based Teck Cominco, the world's biggest zinc producer, declined 48 cents to $71.30. The Toronto Stock Exchange was closed for a holiday.
'Engage in Discussion'

"As permitted by the combination agreement with Phelps Dodge, the board has authorized our senior management to engage in discussion with Teck to determine whether their offer could be amended to result in a superior proposal," Inco spokesman Steve Mitchell said. He declined to comment on the nature or the timing of discussions with Teck Cominco.

Inco said it will seek a court order to hold its shareholder meeting on Sept. 7. Phelps Dodge's offer is subject to winning support from Inco investors with more than half of the shares.

Teck Cominco Chief Executive Officer Donald Lindsay has said he will not be drawn into a bidding contest. The company already owns 8.9 million Inco shares.

The bid for Inco, open until Aug. 16, "is superior to the Phelps Dodge offer," Teck Cominco said today in a statement.

Inco said today in a filing today with the U.S. Securities and Exchange Commission that it will owe Phelps Dodge a termination fee of $475 million should Inco cancel the merger or recommend another bid.

Teck Cominco raised its offer, including 0.5821 of a Teck Cominco share, on July 31. Phelps Dodge increased its bid on July 16. It has 0.672 of a Phelps Dodge share.

"We appreciate the Inco board's reaffirmation of our agreed combination," Phelps Dodge spokesman Peter Faur said in an e-mail.

Russia's OAO GMK Norilsk Nickel is the world's biggest nickel producer by 2005 output. Chile's state-owned Codelco is the largest copper producer, followed by BHP Billiton Ltd.