It's been a dogged year for investors in BHP Billiton Limited (ASX: BHP), and for investors in the iron ore sector as a whole. With iron ore down 47% since the beginning of the year at just US$71 a tonne, BHP's shares have dropped 18.7% over the last 11 months.
With just over three weeks remaining in this calendar year however, it's time investors put 2014 behind them to focus on what's in store for the miner in 2015. Here's a guide to the Big Australian in the year ahead..
What you need to know
Some of the key things you need to be aware of which will impact BHP's overall performance include:
- Total group production growth of 16% over FY15
- Metallurgical coal production of 47 million tonnes (Mt), up 4%
- Energy coal production to hit 73Mt, down from 73.5Mt in FY14
- Western Australian Iron Ore (WAIO) production guidance of 245Mt
- Iron ore production tipped for 225Mt, up 10%
- Petroleum production guidance at 255 million barrels of oil equivalent, up 4%
- Total copper production to hit 1.8Mt, up 5%
As can be seen from the numbers mentioned above, BHP Billiton will continue to expand production in its "four pillar" commodities in an effort to improve efficiency and reduce operational costs. What the numbers do not reflect however, is the impact of falling prices across the iron ore, coal and petroleum industries.
BHP's increase in production may only partially offset the heavy fall in commodity prices. As an example, while iron ore production is set to increase by 10%, the price it recognises will fall substantially further. In fact, some analysts expect the commodity to drop below US$60 a tonne which could severely impact the miner's margins.
In addition, BHP's shares have fallen particularly heavily over the last five trading days as a result of the crumbling oil price. Oil has fallen around 40% in the last six months and is expected to fall even further in the year ahead. Given that petroleum products make up around a quarter of BHP's overall revenues, that could also have a major impact on BHP's earnings.
Shareholder returns
Investors who have been holding out for greater shareholder returns may also be in for more disappointment. While the miner has made its intentions clear on improving returns, the falling commodity prices may make it impossible to do so in FY15.
On the plus side, the miner is pushing ahead with its demerger plan which should help unlock shareholder value. Currently dubbed "NewCo", the spin-off would include most of the miner's non-core assets which would allow both entities to focus on maximising efficiency and overall value.
Should you buy?
At $30.68 per share, BHP Billiton certainly warrants a position on your watchlist but may not be the greatest stock to buy right now. Given the high level of volatility and uncertainty facing the sector – along with further falls expected in commodity prices – we could well see this ship sink further before it begins to resurface. Until then, there are plenty of other great ASX stocks to buy before 2015..
