No more iron ore expansion for BHP Billiton Limited: Here’s what you need to know

BHP Billiton Limited’s (ASX: BHP) days of massive iron ore expansion are over.

As the commodity continues to plunge in value, BHP Billiton’s CEO Andrew Mackenzie confirmed that no new iron ore projects had been approved by the miner’s board since 2011. This will come as a slight relief for some of the nation’s smaller miners which have been under enormous pressure from the production increases from the likes of BHP, Rio Tinto Limited (ASX: RIO), Fortescue Metals Group Limited (ASX: FMG) and Brazil’s Vale.

Indeed, BHP Billiton and Rio Tinto have both been heavily criticised for their expansion strategies at a time when prices are plummeting. The iron ore price has already dropped 48% since January to be trading at just US$70.97 a tonne, whereby a number of miners around the world have been forced into administration. Other companies, such as Mount Gibson Iron Limited (ASX: MGX) and BC Iron Limited (ASX: BCI), will be operating at a loss should the price fall any further.

Unfortunately, that scenario is looking increasingly likely. While a number of analysts have forecast the commodity to drop to US$60 next year, others have suggested it will drop into the US$50s. Should that situation play out, you can expect many more scalps from the mining sector.

Of the miners, BHP Billiton is the best equipped to cope with the lower price environment thanks to its high level of diversification and low operating costs. As reported by Fairfax media, BHP Billiton, along with Rio Tinto, will still make an estimated US$20-25 per tonne at the current price. As their production rates increase, so too should their operating margins.

BHP Billiton is on track to produce 290 million tonnes per year by 2017, up from 225 million tonnes recorded in FY14.

NEW: The Motley Fool’s #1 Stock Pick for 2015 – Yours FREE!

BHP Billiton is a great company, but with the iron ore price likely to tumble further, the stock might not be the greatest buy right now.

Instead, our top investment advisor, Scott Phillips, has just named his #1 stock pick for 2015 and I think the stock is a fantastic buy at today's prices. You can get his full report on this ultra-promising ASX stock absolutely FREE.

Simply click here, enter your email address, and we'll send you his report.

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

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.