Mining heavyweight BHP Billiton Limited (ASX: BHP) posted a very impressive set of full-year production results last week which has set the stage for a much anticipated share buyback program.
The miner smashed production records across four commodities, including a mega 225 million tonnes of iron ore (compared to its full-year guidance of 217 million tonnes). The hopes of a buyback also improved after BHP provided a forecast of 245 million tonnes for financial year 2015, which is well above what analysts had been expecting at around 230 million tonnes.
While the weakening iron ore price could impact the size of the buyback, UBS analyst Glyn Lawcock believes the miner could announce a program worth $3 billion as soon as August which could span over one or two years. According to The Australian Financial Review, he believes this is likely even if the miner doesn't hit its target of trimming its net debt level below US$25 billion.
The increase in production guidance indicates that BHP is more comfortable with the direction it is heading. Indeed, management of Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) have also stressed that the tumbling iron ore price is nothing to be concerned about. This was highlighted when Andrew 'Twiggy' Forrest snapped up shares in his company during iron ore's price woes.
Even more pleasingly for BHP, the ramp up in production is not being limited to just iron ore, but also for copper, petroleum and metallurgical coal as well.
With shares now trading at $39, we could well see them climb above the $40 mark in the near future for the first time since 2011. At their current price, they are trading on a projected P/E ratio of 13.9 and offer a fully franked 3.3% dividend yield.
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BHP Billiton remains one of the more attractive picks from the mining sector thanks to its strong diversification and low cost base. A share buyback program would, theoretically, push the stock's price up in the long run by removing shares from the market.
