We recently downgraded our recommendation on the mining
BHP Billiton Limited
), from Neutral to Underperform, based on lower year-over-year
production of many of its products including crude oil, natural
gas, lead and gold.
Why the downgrade?
BHP Billiton released its production status for the quarter
ended Mar 31, 2013, on Apr 17. On the one hand, production of
aluminium, nickel, copper, zinc, iron, manganese alloyand
metallurgical coal improved, while, on the other hand, products
like petroleum, lead, gold, silver, diamonds and energy coal
declined on a year over year basis.
Moreover, the company experienced a major blow owing to
falling prices of its metals, mainly iron ore. This decrease in
prices counteracted the increase in production volume for the
third quarter of fiscal 2013. This was mostly the result of a
decline in the prices of iron ore, led by a reduction in demand
in China, the world's largest consumer of iron ore and steel.
It is also known that future prospects of BHP Billiton depend
on its successful exploration and production efforts. However,
operational risks including mining disruptions due to bad weather
conditions may prove detrimental to the company's growth.
Moreover, delays in government permits toward project development
and civil engineering have resulted in higher operating cost for
the company over a considerable period.
Following the production status update, over the last sixty
days, the Zacks Consensus Estimate for fiscal 2013 has gone down
by 9.3% to $4.67 per ADR, while falling 10.5% for fiscal 2014 to
Other Stocks to Consider
BHP Billiton currently carries a Zacks Rank #3 (Hold). Other
stocks to watch out for in the industrial metals and minerals
Hi-Crush Partners LP
Impala Platinum Holdings Ltd.
Alliance Resource Partners LP
); each carrying a Zacks Rank #2 (Buy).
ALLIANCE RES (ARLP): Free Stock Analysis
BHP BILLITN LTD (BHP): Free Stock Analysis
HI-CRUSH PTNRS (HCLP): Free Stock Analysis
IMPALA ADR (IMPUY): Get Free Report
To read this article on Zacks.com click here.