There's a bit of chicken and egg argument around the pricing of BHP Billiton (and of course Rio Tinto) shares at the moment.
What's the main driver: is it the lingering ambitions the company has to buy Rio, is it the improved operational performance in the December half, reported yesterday, or was it the general recovery in share prices caused by the Fed's rate cut and failure of the market to continue plunging?
It's probably the recovery in the market which in turn gives punters a chance to dream that the BHP offer is still 'live'. We will have a better idea next Wednesday after the BHP board meeting scheduled for that date.
BHP shares jumped $2.89 to $33.89 yesterday while Rio shares grabbed back $5.01 of this week's losses to close at $106.01. They then tumbled in London as the selling pressure returned to global markets.
That's still a long way under the valuation put on the original BHP indication, and still above the the 3 BHP shares for one Rio offer..
The company will only have a week to make its offer under the terms of the edict from the Takeovers Panel in London, although it has longer under Australian corporate law.
The focus on the future of the bid took attention away from what was another very solid production report from the company. Investment analysts won't be surprised: they will claim it's all in the price and has been well-anticipated, which it probably has with the company running extensive and detailed briefings for major analysts in recent months, as well as the media.
BHP was under pressure to report higher output after Rio produced a record amount of iron ore, bauxite, alumina, aluminum, gold and copper in the December quarter.
So the challenge has been issued to BHP to match that, which they have done.
BHP reported a significant increase in production for 13 commodities it produces in the six months to December 31 and record production of petroleum, alumina, copper, natural gas and iron ore.
The company said record production and sales for iron ore were achieved with production rising 8% to 53.613 million tonnes; petroleum production rose 5% to 60.54 million barrels of oil equivalent, copper production increased by 19% to a record 655,900 tonnes on the back of a continued ramp up of mines in Chile and the recently commissioned Pinto Valley mine in the US.
Alumina production rose 4% to 2.31 million tonnes but output of aluminium production was flat at 675,000 tonnes.
Natural gas production rose 9% to a record 186,890 billion cubic feet due to a strong performance at Bass Strait and the North West Shelf.
Lead, zinc, silver and uranium production were all significantly higher with lead up 19%, zinc up 49%, silver up 65% and uranium oxide up 32%.
But nickel production fell by 11% thanks to scheduled shutdowns at smelters in Australia and Columbia.
Coking coal output was up 6% to 19.215 million tonnes, but energy coal production fell 2% to 40.232 million tonnes, thanks mostly to the constraints in shipping through the port of Newcastle.
Diamond production rose 31% to 1.865 million carats.
BHP said record iron ore production and sales were achieved for the half and quarter to December 31.
"Western Australian Iron Ore and Samarco continued to perform strongly and set new half year and quarterly production records," BHP said.
"Successful delivery of ongoing expansion projects led to an eighth consecutive half year production record at our WA iron ore operations."
Second-quarter iron ore output rose 9% to 27.75 million tonnes in the three months ended December 31 from 25.4 million tonnes in 2006.
The WA iron ore businesses of the two companies and their outlook have become a focus of the hostile takeover proposal.
The company has until February 6 to formally bid for Rio, the world's third-largest mining company, or walk away for six months under the the UK Takeover Panel ruling.Its three-for-one all share offer made in November was rejected by Rio as undervaluing its mines and growth prospects.
BHP said in a statement to the ASX that demand outlook for iron ore remained "very strong''.
"Production was significantly up in 13 commodities, with record or equal record production achieved in seven major commodities during the half year ended December 2007.
"These records were delivered in 12 assets across six of our nine Customer Sector Groups. This performance reinforces our strong track record of project delivery. Our deep inventory of expansion projects underpins further growth.
"We have a broad exposure to the steel making sector through our iron ore, manganese and metallurgical coal operations and achieved record shipments in all of these commodities; delivering an eighth consecutive half year production record at Western Australia Iron Ore.
"This was achieved at a time when current demand and the outlook remain very strong and prices for these commodities reached record levels.
"The newly commissioned petroleum projects contributed to a record performance. Continuing ramp up of production from these projects and future expansions will enhance our net long energy position at a time of historically high energy prices.
"We continued to focus on developing and delivering world class projects. First product was delivered from seven major projects across five commodities during the quarter. This, along with four major projects scheduled to commission in the next six months will significantly increase our production.
"A further four major projects were sanctioned recently, including the third port in Newcastle, which will underpin our Australian East Coast expansion plans in Energy Coal."
The interim results are due February 6.
