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BHP Billiton Limited under pressure to undertake buyback

Companies in the mining sector have faced significant shareholder pressure in recent times to increase returns as shares have lagged the market. After having successfully divested a number of non-core assets and reduced operating costs in 2013, BHP Billiton Limited’s (ASX: BHP) chairman, Jacques Nasser, is again facing investor pressure to revisit its capital management initiatives.

Although its shares recovered strongly in the second-half of 2013, to finish at $37.99 from a low of $30.43 in June, BHP gained just 1% for the year compared to the broader market’s 15% return. While the company will likely boost its dividend distributions once again this year, in response to investor pressure, a buyback program would further boost the value of shares and could help restore investor confidence.

In order for the mining heavyweight to undertake a share buyback program, as it did in 2011, the miner has outlined that its net debt figure would need to fall below US$25 billion from its current $29 billion net debt. This could be achieved in 2014, with the company said to be looking to sell more of its non-core assets, which would include those from its aluminium, nickel, manganese and petroleum divisions.

However, BHP could struggle to find attractive prices for some of its assets, as a number of others in the industry also look to offload their own. BHP said: “There are a lot of companies selling assets and restructuring and finding value for these assets is proving difficult.”

Together with selling non-core assets, the company will also aim to improve shareholder returns by continuing to focus on reducing costs and improving productivity.

Foolish takeaway

BHP wasn’t the only miner whose shares rose strongly in the second-half of 2013. Fellow iron ore miners Rio Tinto Limited  (ASX: RIO) and Fortescue Metals Group Limited  (ASX: FMG) also recognised strong gains, with the steelmaking ingredient’s price remaining around US$130 per tonne.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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