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BHP Billiton Limited is down 10%: Here are 3 reasons not to panic

Mining heavyweight BHP Billiton Limited (ASX: BHP) has continued its plunge today as iron ore fell a further 1.6% overnight to just US$84.30 – its lowest level in more than five years.

Now trading at $35.71, BHP has dropped more than 10% since the eve of its full-year results presentation which came just over a fortnight ago. In fact, the stock is now sitting just 4% higher than its 52-week low at $34.35, which was experienced in October last year.

Understandably, shareholders are increasingly concerned about the stock’s downwards momentum – especially considering BHP Billiton forms a major part of many investors’ portfolios. However, I believe investors should remain patient and hold onto their shares. Here are three big reasons why…

  1. Although BHP’s margins will be squeezed as the iron ore price falls, the miner is far better equipped to cope with the lower prices than other smaller miners, including Atlas Iron Limited (ASX: AGO), BC Iron Limited (ASX: BCI) and even Fortescue Metals Group Limited (ASX: FMG).
  2. Further to that point, these lower prices could actually force some of the higher cost producers out of the market, which would boost BHP’s market share. Already a number of Chinese miners have suspended their mining projects as they were operating at a loss, and I dare say we will see many more in the near future.
  3. It is also likely BHP’s shares have been punished after the miner decided not to announce a much anticipated share buyback program. While this was disappointing in a way, it seems the miner made the right call in not distributing additional capital in a time of heavy industry volatility. Investors who remain patient should be rewarded for their patience in the coming periods.

3 high-risk/high-reward resources plays

The iron ore industry remains extremely volatile and I expect conditions to worsen over the coming months. As such, investors wanting to profit from the resources sector ought to consider other alternative plays.

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

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