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BHP in the spotlight

Global mining giant BHP Billiton (ASX: BHP) was coping it from all sides on Monday.

Firstly, there were reports from a Senate inquiry into the Mineral Resource Rent Tax (MRRT), which suggested mining companies were avoiding paying their fair share of the MRRT. The MRRT has so far failed to raise anywhere near the $2 billion estimate, with only around $125 million collected to date. BHP representatives fronted the inquiry to explain why the company had only paid about $75 million in MRRT since the tax was implemented. Other majors including Rio Tinto (ASX: RIO) and Xstrata made representations as well.

Secondly, on Monday BHP announced the sale of its Pinto Valley copper mining operation in Arizona, USA. As stated in the announcement, “it takes the transaction value of divestments announced over the last 12 months to US$5.0 billion.” The divestments are another sign that the BHP board sees the boom times as over and is now turning its attention and focus to the very best and lowest cost assets within the company.

Thirdly, economic forecaster BIS Shrapnel released a report that added to negative sentiment towards the mining sector. BIS Shrapnel’s analysis suggested that the peak in mining construction was very near and the subsequent fall in civil construction would mean that by 2018 civil construction spending would be down 20% on current levels.

Falling commodity prices, a slowing China and asset sales haven’t been helping the investment merits of mining companies lately. As the chart below shows, BHP, Rio and Fortescue Metals (ASX: FMG) have all underperformed the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) over the past 12 months.

tmchartbhp

Source: Google Finance

Foolish takeaway

The very best investors are good at knowing what they can and can’t understand. Warren Buffett calls this having a “circle of competence”. That means that if you can’t work out whether now is the right time or not to invest in resource stocks, that’s OK — you don’t have to invest in resource stocks.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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