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The stunning bid by Phelps Dodge (PD) to buy both Inco (NYSE:N) and Falconbridge (FAL) has been parried by Falconbridge’s other suitor and part owner, Xstrata of Switzerland. Bill Cara has said he considered the Phelps bid a stalking horse and ultimately sees Phelps as “dinner, not diner.”

Greg Newton thinks the whole affair suggests a top in metals prices.

The mining industry has a long, proud and dishonorable tradition of brilliantly timing its largest investments with the absolute top of the market.

We stick by our original assesment, which is that it shows the producers expect prices to remain high. Whatever your theory, here is the latest update from the NY Times:

Swiss Raise Bid for Nickel-Mining Company

In a move that intensifies the fight for Falconbridge, Canada’s second-largest nickel-mining company, a Swiss mining conglomerate, Xstrata, increased its cash offer on Tuesday to 59 Canadian dollars a share, 12 percent above its offer two months ago.

The bid also puts pressure on Inco, the leading Canadian nickel producer, which has agreed in principle to buy Falconbridge in a cash-and-stock offer worth 58.36 Canadian dollars a share. That was part of a proposed three-way merger under which Phelps Dodge, of Phoenix, would acquire the Canadian companies. It would value the combined Canadian operations at 45.25 billion Canadian dollars ($40 billion).

In contrast, this latest bid by Xstrata values the 80 percent of Falconbridge it does not already own at 18.5 billion Canadian dollars ($16.35 billion).

The three-way merger would be one of the largest ever in global mining and is being encouraged by high commodity prices, which have left companies like Xstrata, based in Zug, Switzerland, with large cash reserves. These companies are looking to acquire others to rapidly expand their revenue and assets, and to extract savings by consolidating operations.

PD 1-yr chart:

PD 1-yr chart

Source: Not So Fast, Phelps! Proposed 3-Way Mining Merger Runs Into Bidding War with Swiss (PD)