Do You Know Why BHP Billiton Limited Has Fallen?

As the reports from industry researchers revealed that iron ore shipments from the global leading producers have significantly fallen by 4.5 percent in the last quarter of 2018 as compared to the previous corresponding period, the stock of Australian iron ore giant BHP Billiton (ASX:BHP)  started bleeding on Australian Securities Exchange. As a result, BHP concluded its today’s trading session at lower level, recording a decline of 1.164% to last close at $33.110 on 5 November 2018. However, the competitor Rio Tinto (ASX:RIO) has managed to track the upward trajectory as the share price of Rio edged up 1.582% or $1.240 to last trade at $79.610 on 5 November 2018.Â

On the global front, Chinese company Mysteel has discovered that lower grade ore with around 58 percent iron content has witnessed a 12 percent rise in prices compared to the previous year. This translates a price of about $US64.80 a ton of lower grade ore. Whereas, the price of better-quality ore, i.e. 62 percent iron content, has not changed much priced at $US74 a ton. As per the recent reports of Australian government, China’s steel market is currently at the peak level which is expected to drop in 2019 due to headwinds for core ingredient iron ore.

Last week BHP Billiton has announced its decision to return US$10.4 billion to its shareholders through the buy-back and special dividend programs. It has been stated that BHP Billiton intends to pay US$5.2 billion to its shareholders through an off-market share buyback and remaining US$5.2 billion in the form of fully franked special dividend.

This comes after the iron ore producer completed the sale of Onshore US assets to BP America Production Company for the consideration of US$10.5 billion. The assets that have been sold includes Eagle Ford, Haynesville and Permian Onshore US oil and gas assets, covering approximately 512,000 net acres.

In the settlement of consideration, BP paid halt of the amount on completion of sale while the remaining half is said to be paid in six equal instalments over a six-month period. But instead of retaining the proceeds from sale, the company announced that it will return the entire net proceeds, i.e. US$10.4 million to its shareholders.

Under the shareholders return program, BHP intends to complete the $5.2 billion buy-back at up to a 14% discount of market price. The date for completion of off-market buy back is expected to be 17 December 2018. After completing the share buy-back as planned, the company intends to determine the special dividend on the reduced number of issued shares, the payment of which is expected to be made in January 2019.

Over the past one-year BHP Billiton’s share price has witnessed a positive performance change of 22.49%, however it is drifting lower since last three months as on 5 November 2018. BHP stock traded at a PE of 35.570 x with market capitalization of $107.59 billion as on 5 November 2018.

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