Here’s why BHP Billiton Limited shareholders are getting nervous

Shares in BHP Billiton Limited (ASX: BHP) have succumbed to the pressures of the mining industry over the last two weeks. They have dropped nearly 7% since trading at more than $38 in late May and are now flirting with their lowest levels since October last year at just $35.50 apiece.

And shareholders could well be getting nervous by what they’re seeing…

With the iron ore price now hovering just below US$91 a tonne, mining stocks appear to be falling from the sky! Last week alone, Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) dropped 3% and 10.2% respectively. And that wasn’t even the worst of it…

Higher cost producers like Atlas Iron Limited (ASX: AGO), Mount Gibson Iron Limited (ASX: MGX) and BC Iron Limited (ASX: BCI) all tumbled 11.3%, 8.1% and 14.8% respectively!

Investor confidence in the sector has obviously taken a huge hit. Iron ore is expected to continue falling in price – possibly as low as US$80 a tonne over the next 12 months – and while BHP’s shares have thus far remained relatively unscathed compared to other stocks in the sector, they could be next in line to be sold off.

While BHP is down just 5.7% for the year so far, look at how far each of the others have fallen:

  • Rio Tinto, down 14.6%
  • Fortescue, down 29.5%
  • Mount Gibson Iron, down 34.1%
  • BC Iron is down 39.9%; and
  • Atlas Iron is down an incredible 51.9%.

BHP’s sheer size and diversified operations have protected it from falling as heavily as these stocks thus far and while its low cost base and improving productivity levels should continue to support the shares, the stock could well be in for a rough patch over the coming weeks or months.

The next resources boom

Despite the heavily discounted prices, now is still not the time to be buying iron ore stocks. And why would you when there are so many better ways to make huge profits from the resources sector?

In the time these stocks have been freefalling, other stocks like Liquefied Natural Gas Limited (ASX: LNG) have been skyrocketing. In fact, the stock is up more than 580% since the beginning of 2014. Even more incredibly, it is up an astonishing 1,343% over the last 12 months!

Unfortunately, the enormous gains of Liquefied Natural Gas Limited cannot be sustained. However, The Motley Fool's top analysts have been hard at work to find other high-risk/high-reward investment ideas (and they're looking delicious)... Click here now for our brand-new report --  "3 Tiny Resources Companies That Could Win Big" - it's yours absolutely FREE!

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

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