BHP Billiton: One for the Record Books

(page 2 of 2)

Others stress different concerns. "Should European Union and Australian regulators agree to the merger, there would be a major divestment of iron ore assets that might convince investors they're not getting a good deal," says Evolution Securities' Cooper.

With no takeover decision expected before yearend, analysts instead highlighted BHP's ability to generate capital throughout its core businesses. In particular, the miner racked up a 62% annual increase in revenues, to $9.5 billion, from its petroleum division on the back of rising fuel prices. That helped to make petroleum the second largest component of BHP's top line—a figure that will probably rise as the Anglo-Australian outfit expects a 10% annual increase in production in the next five years.

Baosteel Contract a Boon

Revenue from iron ore operations, which represent 15.9% of sales, similarly jumped 71%, to $9.4 billion, vs. the same period last year. The next 12 months should bring further gains after BHP negotiated a near-doubling of contract iron ore prices with Chinese industrial giant Baosteel. Base metals, constituting 24.8% of yearly revenue, rose 16.9%, to $14.7 billion.

By cashing in on rising commodity prices, BHP also helped offset its own costs, which have skyrocketed because of a global shortage of equipment and qualified personnel (BusinessWeek.com, 4/10/08). The company's operating expenses rose $1.18 billion in the year, or 4.3%, largely from inflation. Kloppers told investors on Aug. 18 that escalating costs remained "serious challenges" for the industry, adding that future investment could be at risk if these issues aren't resolved.

In this context, the next 12 months will be critical for BHP. Along with declining prices for some of its main commodities, the miner still must convince investors that the Rio Tinto takeover makes economic sense. That's where BHP's diversified business model might pay dividends. By investing in a variety of commodities, the company is less susceptible to market volatility. That, perhaps even more than higher profits, could help Kloppers & Co. keep demanding shareholders and customers happy.

Scott is a reporter in BusinessWeek's London bureau .