Despite recent volatility in key commodity prices, BHP Billiton Limited (ASX: BHP) has reaffirmed its intention to return billions of dollars to investors within the coming months as it continues to focus on cutting costs and improving productivity.
In an interview with London's The Sunday Times, the mining giant's CEO Andrew Mackenzie said BHP was still targeting a net debt level of US$25 billion or lower before it will consider greater shareholder returns, while it will also aim to cut costs by US$5.5 billion by the end of the year. This comes as great news for shareholders after it was speculated the miner might be unable to meet those targets as soon as it had hoped, due to the crumbling prices of iron ore and copper which will eat into profit margins.
Iron ore, for instance, has fallen from around US$130 a tonne at the beginning of the year to just US$110 a tonne today (although it fell to around US$104 last week). Copper's price has also plunged more than 10% since the beginning of the year, falling 5.3% last week alone.
The returns are likely to be delivered in the form of share buybacks as opposed to a special one-off dividend. While a number of Australia's largest corporations have recently opted for special one-off distributions as investors have sought out the highest yielding stocks, share buybacks are considered a better method for rewarding long-term shareholders, who have for years endured below-par returns as the mining boom has slowed down.
Rio Tinto Limited (ASX: RIO) is also exploring ways to boost returns to shareholders, although it is not expected to happen as soon as BHP's.
Foolish takeaway
A share buyback program would be a great way for the miners to reward patient shareholders who have watched their shares heavily underperform the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) for a number of years. After reducing its net debt from US$29 billion to US$27.1 billion in its first-half operations, it could hit its US$25 billion target as soon as August.
