BHP Billiton (BHP) stock got a lift Monday after outlining plans to greatly increase its iron ore production despite tumbling prices for the raw material — but that’s a strategy that could take a long time to play out.

BHP sock has been in a tailspin for two months, or even since the world’s largest mining company by market value said it will split into two and put the kibosh on an expected share repurchase program.

Spin offs usually get an enthusiastic reaction from Wall Street, but not when they come at the expense of returning cash to shareholders. BHP intends to break off its alumina/aluminum, manganese, energy coal and nickel business into a second company.

These are the sorts of dramatic moves materials companies have been forced to take now that the commodity supercylce is at an end. Given the macroeconomic backdrop, no mining company is immune, from Rio Tinto (RIO) to Vale (VALE).

The problem afflicting miners is that they all ramped up production in order to take advantage of economies of scale, creating a glut of iron ore.

The need to lower costs as a portion of sales comes from China. The country has purposefully reigned in its breakneck growth rate. Gross national product is running at about 7.5% per year vs. 12% as little as four years ago.

That slowdown has pulled the plug on demand for all manner of commodities, and iron ore has been no exception. Indeed, prices for the main input of steel production are down more than 40% this year because of the glut, and nearly 60% from their peak because of China.

BHP Ramps Up Production

And yet BHP is going all-in on producing even more iron ore. It sounds kind of crazy at first, but there’s a method to this madness. By ramping up production — and not starting new projects — BHP Billiton can lower the cost of producing iron ore by about 25%. That’s to say BHP is dealing with the falling price of iron ore by expanding margins.

Of course, dumping more iron ore into the marketplace will pressure prices further, but that can work in BHP’s favor too.

BHP will still be profitable at even lower prices for iron ore — but smaller competitors may not be. BHP’s giant competitors like RIO and VALE don’t have to worry, but tumbling prices for iron ore should shake out higher-cost producers in China.

Remaking the supply-demand landscape will take time. High-cost miners aren’t going to shutter production overnight. However, it seems BHP has little choice. Even if the iron glut were to get sopped up, prices will never go back to their 2011 peak.

Wall Street and investors love cost cuts, but those alone aren’t sufficient to make BHP Billiton a buy because it’s still too pricey even after falling 15% for the year-to-date. BHP stock goes for about 16 times forward earnings when the long-term growth rate is only 5.6%. Indeed, BHP stock is rising three times faster than the S&P 500, despite have a much lower growth forecast.

BHP is making sound moves to boost the bottom line as iron ore prices fall, but the stock needs to drop even more before it looks like a bargain. BHP stock carved out a death cross a couple sessions ago, so a slump in share price could come soon enough.

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As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.