The BHP Billiton Limited share price is getting smashed today

Credit: Lucas Walters

The BHP Billiton Limited (ASX: BHP) share price is tracking the volatile iron ore price lower today with the red metal falling out of bed over the last week. Iron ore is now reportedly selling for less than US$70 per tonne which means it has crashed more than 20 per cent over the past month to officially fall into bear market territory.

Still, at today’s iron ore price BHP and its mining peers Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) are still making healthy profit margins thanks to a round of steep cost cutting all of them undertook over the last 12 to 18 months.

The other factor sending the BHP share price sharply lower today is some heat coming out of its valuation after its management team appeared to ignore proposals from U.S. group Elliott Management that is led by Paul Singer a hedge fund manager well known for having a high regard of his own opinion.

Elliott Capital reportedly wants BHP to de-list from the London Stock Exchange and sell its U.S. petroleum assets by floating them on the New York Stock Exchange. The idea of spinning off its petroleum assets as soon as possible might make sense, with oil prospects like Texas’s Permian Basin now expanding their shale oil production at rates previously considered unthinkable thanks to new extraction technologies constantly evolving.

Oil prices then could be set to trek lower over the long term and the iron ore price may also struggle to stay at today’s elevated levels given its supply growth could also outpace demand growth.

If I owned BHP shares then I might consider selling up at today’s prices to look to invest in businesses that had a decent chance of producing consistent profit growth over the long term without adding to their debt pile or diluting existing shareholders.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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