Despite impressive future growth potential, we reiterated our
Neutral recommendation on
BHP Billiton Limited
) on Feb 4, 2014, as we are worried about the reduction in prices
for most of its commodities.
Why the Retention at Neutral?
BHP Billiton reported improved year-over-year production
volumes in the first half of 2014. The company witnessed a rise
in production of copper, iron ore, metallurgical coal, alumina,
aluminium, manganese alloy and nickel. However, production of
petroleum products and energy coal declined.
We expect the company to benefit from the various projects it
has undertaken. While six projects have started producing in the
first half of 2014, the remaining 10 projects are expected to
start production before the end of fiscal 2015. Additionally, BHP
Billiton's Western Australia Iron Ore production is expected to
grow significantly in the coming quarters.
BHP Billiton also has a competitive advantage based on its
diversified portfolio of low-cost and high-quality assets. This
may help the company derive profits from industrial and
infrastructural transition worldwide. The company is also in the
process of trimming its product portfolio to focus more on the
However, BHP Billiton has been witnessing reduction in prices
for most of its commodities. Average selling prices of iron ore
and coking coal declined 17% and 34% year over year,
respectively, in fiscal 2013.
Also, operational risks including mining disruptions, due to
bad weather conditions, may prove detrimental to the company's
growth. Delays in government permits for project development and
civil engineering have increased the company's operating costs
over a considerable period of time.
Other Stocks to Consider
BHP Billiton currently carries a Zacks Rank #3 (Hold). Some
better-ranked stocks in the industry worth considering include
Stillwater Mining Co.
Augusta Resource Corp.
Denison Mines Corp.
). While Stillwater Mining sports a Zacks Rank #1 (Strong Buy),
Augusta Resource and Denison Mines hold a Zacks Rank #2
AUGUSTA RSRC CP (AZC): Get Free Report
BHP BILLITN LTD (BHP): Free Stock Analysis
DENISON MINES (DNN): Free Stock Analysis
STILLWATER MNG (SWC): Free Stock Analysis
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