Australian Miner Raises the Bar (BHP, RTP)

The largest mining company in the world, BHP Billiton (NYSE:BHP) today reported revenues of $59.47 billion and EPS of $2.75 for its full 2008 fiscal year ended June 30th. Analysts were expecting revenues of $52.02 billion and EPS of $3.70. BHP also declared an annual dividend of $0.70/share, up from $0.47/share in the previous fiscal year.

BHP’s costs rose by about 4.3% above FY2007 costs, with half thatincrease due to higher energy and raw materials costs. The weakerdollar also hit the bottom line hard, costing the company $1.133billion before taxes. Revenue from petroleum increased more than 82%over FY2007, and production grew by 13%. The company’s ADRs (whichrepresent 2 fully paid shares) are up about $1.50 in early trading onthe NYSE this morning.

The big recent news for BHP, though, has been it’s offer to acquireBritain’s Rio Tinto (NYSE:RTP) for about $147 billion. Rio Tinto hasrejected the offer twice, once in November 2007 and again in February.BHP has indicated that it will wait for a ruling, expected in December,from the European Commission on the regulatory aspects of the deal. Thecombined company would control more than one-third of the world’sstocks of iron ore. It’s not hard to imagine how hard Europeansteelmakers will try to scuttle this deal.

BHP stock has dropped more than 15% since its first offer for RioTinto. The spectre of that offer, and its ultimate success, willprobably limit the stock’s appreciation. This deal should probably bescrapped….. But the urge to merge in metals and mining stocks mightoutweigh common sense.

Paul Ausick
August 18, 2008