It's been a painful few years of waiting for shareholders of BHP Billiton Limited (ASX: BHP).
After a decade of solid growth and enormous levels of excitement, the returns from an investment in the mining giant over the last three years have been far from satisfactory as concerns have continued to amass regarding the rate of growth in Asia as well as the outlook for key commodities. In addition, profits were deteriorating quickly thanks to poor cost-management and unnecessary spending which has seen the company's shares plunge roughly 27% since early 2011. In that time, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has risen nearly 11%.
But that could be about to change. Under the management of Andrew Mackenzie, who replaced Marius Kloppers as CEO early last year, the company is now heavily focused on reducing operating costs and divesting from non-core operations with an overall aim of returning to profit growth, increasing long-term sustainability and reducing its heavy debt levels.
And here's the good bit…
The company has said that once its net debt falls below US$25 billion, it will start looking at ways to return more to shareholders. Given that it managed to reduce its debt from US$29.1 billion to US$27 billion through cost-cutting initiatives and non-core asset sales in its first-half of operations, the company could certainly hit its target as early as August.
In fact, analysts are estimating a total of US$5 billion to be returned, given that the company is targeting a total of US$5.5 billion in cost-cutting by the end of 2014.
While there have been some suggestions of a special one-off dividend distribution, it seems much more likely that the returns will be delivered in the form of a share buyback. This would reduce the overall number of shares available for purchase on the open market, theoretically pushing the price upwards over the long-term.
Foolish takeaway
While Rio Tinto Limited (ASX: RIO) will also be exploring capital management action sometime this year or next, BHP is a far more attractive investment considering its greater operational diversification.
