The 2015 financial year (FY15) has drawn to a close and shareholders of mining behemoth BHP Billiton Limited (ASX: BHP) have been left to assess the damage.
Over the last 12 months, the miner's shares have retreated by 19%, heavily underperforming the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) and other blue-chip stocks such as Commonwealth Bank of Australia (ASX: CBA) and Telstra Corporation Ltd (ASX: TLS). That compares to a 16% rise recorded in FY14 and a loss of just 0.1% in FY13.
Source: CMC Markets
BHP Billiton acted as a heavy drag on the broader market through the year as commodities such as iron ore, oil and copper continued to decline in value. As a miner, BHP has no control over the price at which it sells the resources it produces and must accept whatever the buyer is willing to pay at the time. This has restricted BHP's earnings capabilities while many investors fear it could also threaten the miner's progressive dividend policy.
Investors had hoped that the spin-off of its non-core assets into South32 Ltd (ASX: S32) would unlock shareholder value, but that certainly hasn't come to fruition just yet. Shareholders received one share in the new entity for every share they owned in BHP, and since that time, the pair have plunged 11% and 16%, respectively.
As a sidenote, I believe South32 could still be a reasonable investment prospect for long-term investors due to its potential to improve efficiencies and reduce costs considerably. In the near-term however, I expect it could fall even further as a result of falling commodity prices (e.g. aluminium, manganese, etc.)
Should you own BHP Billiton in FY16?
At today's price of $27.05 per share, some investors would argue that BHP is a stand-out buy. Unfortunately, I would have to disagree.
Although BHP is far better equipped to manage a downturn in commodity prices than most of its rivals (thanks to its sheer size and low operating costs), its margins and overall earnings could still be hit hard.
As it stands, iron ore (BHP's most important commodity) is changing hands for roughly US$59 a tonne, although a number of economists believe it could trade for less than US$40 a tonne by the end of the year. At the same time, oil, copper and coal prices are also under enormous pressure and could inflict even more pain on BHP's earnings, and its share price.
Given its size and diversification, BHP would be one of the first mining stocks I'd add to my portfolio, although not at its current price. Investors should continue to remain on the sidelines for an even better opportunity to buy the Big Australian, and put their money to work elsewhere in the market in the meantime.
