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Should you buy BHP Billiton Limited?

BHP Billiton Limited (ASX: BHP) shares fell over 2.5% last week after the miner released its half-year production update, while key commodities also continued to fall in price. So does the fall in value open up an opportunity to buy the ‘big Aussie’ when trading reopens after Australia Day?

Production update

The production update confirmed that the mining giant is producing at record levels. It achieved a 6% increase in copper production to 843,000 tonnes, compared to the previous corresponding period. It also posted a 9% increase in petroleum liquids production to 50 million barrels of oil equivalent, which was underpinned by a 72% increase at Onshore US. Iron ore production was at 48.9 million tonnes for the December quarter – an increase of 16% year-on-year, although this figure was slightly below the 49.4 million tonnes the market had been expecting.

Nevertheless, investors were still somewhat disappointed. Unlike key rival Rio Tinto Limited (ASX: RIO), BHP failed to increase its full-year production guidance for iron ore which it put down to “the general uncertainty that exists as we enter the wet season” and also maintained guidance for its petroleum, copper and coal businesses.

However, there were positives to the report. The company confirmed that it continues to recognise improvements in production levels, while it is also heavily focused on reducing operating costs to increase long-term sustainability.

Shareholder returns

One of the ways in which the company is aiming to cut costs is by simplifying its balance sheet and divesting from non-core operations. Last year, the company recognised US$6.5 billion in proceeds from six transactions and more are likely to occur this year.

Shareholders have been pressuring the miners to start returning more to shareholders – particularly after the poor share performances in recent years. The cash generated from the sales should see BHP increase its dividend in 2014 and beyond, while it could also see its net debt level fall below the US$25 billion mark. The company has indicated that once debt falls below this level, it will look at capital management action which would likely involve a share buyback program.

Currently, BHP boasts a trailing 3.2% fully franked dividend yield.

Foolish takeaway

With key commodity prices falling, shares in mining behemoth BHP are going to be volatile for some time and could fall further from their current $37.02 price tag. Having said that, it is by far the most diversified miner, making it the safer alternative for investors wanting exposure to the miners.

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

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