The tumbling iron ore price could impact BHP Billiton Limited's (ASX: BHP) ability to ramp up returns to shareholders when the miner reports its first-half results in February next year. Such an outcome would only add to the disappointment already being felt by shareholders after they missed out on a much anticipated capital return last month.
Although the miner has expressed its belief that the tumbling iron ore price is nothing to worry about, it must surely be getting a little uneasy now with the commodity's price tumbling a further 1.2% overnight to just US$82.20 a tonne. Its lowest price in more than five years. It's clear that the market is losing confidence – BHP's shares have fallen more than 10% in the last three weeks or so, while Rio Tinto Limited (ASX: RIO) and Atlas Iron Limited (ASX: AGO) have fallen 7.6% and 19.5% in the same time, respectively.
The fact is, even though BHP Billiton maintains a high level of diversification between operations, iron ore still generates its largest portion of earnings. While the miner is cutting costs and ramping up its production rates, the commodity's falling price could still impact the miner's cash flow. This could certainly influence BHP's ability to return more cash to shareholders.
BHP's shares are currently trading 0.6% lower and are acting as a drag on the overall S&P/ASX 200 (INDEXASX: XJO) which is down 0.2% for the day. Investors hoping to buy shares in the iron ore miners while the prices are down may want to think again – some analysts have tipped the commodity to fall to just US$75 a tonne which would imply the shares could have further to fall.
