BHP Billiton Limited's (ASX: BHP) days of massive iron ore expansion are over.
As the commodity continues to plunge in value, BHP Billiton's CEO Andrew Mackenzie confirmed that no new iron ore projects had been approved by the miner's board since 2011. This will come as a slight relief for some of the nation's smaller miners which have been under enormous pressure from the production increases from the likes of BHP, Rio Tinto Limited (ASX: RIO), Fortescue Metals Group Limited (ASX: FMG) and Brazil's Vale.
Indeed, BHP Billiton and Rio Tinto have both been heavily criticised for their expansion strategies at a time when prices are plummeting. The iron ore price has already dropped 48% since January to be trading at just US$70.97 a tonne, whereby a number of miners around the world have been forced into administration. Other companies, such as Mount Gibson Iron Limited (ASX: MGX) and BC Iron Limited (ASX: BCI), will be operating at a loss should the price fall any further.
Unfortunately, that scenario is looking increasingly likely. While a number of analysts have forecast the commodity to drop to US$60 next year, others have suggested it will drop into the US$50s. Should that situation play out, you can expect many more scalps from the mining sector.
Of the miners, BHP Billiton is the best equipped to cope with the lower price environment thanks to its high level of diversification and low operating costs. As reported by Fairfax media, BHP Billiton, along with Rio Tinto, will still make an estimated US$20-25 per tonne at the current price. As their production rates increase, so too should their operating margins.
BHP Billiton is on track to produce 290 million tonnes per year by 2017, up from 225 million tonnes recorded in FY14.
NEW: The Motley Fool's #1 Stock Pick for 2015 – Yours FREE!
BHP Billiton is a great company, but with the iron ore price likely to tumble further, the stock might not be the greatest buy right now.
