If there's one thing major mining corporations like about falling commodity prices, it's the various opportunities it brings in terms of being able to buy assets on the cheap.
Indeed, commodity prices have fallen sharply in recent years and could fall even further in the future, making a number of projects around the world uneconomical for many corporations to pursue.
In order to free up cash and simplify their operations, the miners are often forced to sell these assets at a significant discount, which gives the bigger fish the opportunity to expand their empires.
According to a report from The Australian Financial Review, mining behemoth BHP Billiton Limited (ASX: BHP) is one such company that is on the prowl.
It could look to complete various transactions with companies like Rio Tinto Limited (ASX: RIO), Peabody Energy and Fortescue Metals Group Limited (ASX: FMG), with a particular focus on copper and conventional oil assets.
Glencore is another company that could provide assets that would appease BHP's appetite. With investors becoming increasingly concerned about its heavy debt load, Glencore may need to sell some of its assets which could include its 33.75% stake in the Antamina copper mine, of which BHP already owns the same amount (and hence, is already very knowledgeable on the asset).
What implications could this have?
Before BHP Billiton gets all trigger happy on mergers and acquisitions activity however, it also needs to consider the implications this could have for current shareholders.
While the best time to buy mining assets is when the markets get depressed, there's no reason commodity prices can't fall even further. While BHP might think it's getting a bargain now, it could be forced into huge write-downs if conditions do worsen (see BHP's US shale division, Nickel West and Olympic Dam projects).
On top of that, BHP Billiton also needs to consider how shareholders will react. In order to fund new acquisitions, the miner may need to take out more debt or scrap its progressive dividend policy, which is likely one of the only things keeping many shareholders invested in the first place.
Arguably, the company's priorities right now should be to continue reducing costs and improving efficiencies (admittedly, it is doing a good job of this), while paying down more debt and focusing on its capital management initiatives.
This could involve continuing its progressive dividend policy or buying back its own shares while they're sitting near a seven-year low price.
Should you buy? Personally, I don't think BHP Billiton is the best place for new money today. Although it offers a monstrous, fully franked dividend yield, I'm simply not confident enough that commodity prices will rebound, nor am I altogether confident in China's future growth prospects. While I may miss out on some opportunities as a result, for me, that is reason enough to avoid BHP and the resources sector altogether.
