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We recently downgraded our recommendation on the mining company, BHP Billiton Limited (BHP - Analyst Report), 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 $5.21.

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 industry are Hi-Crush Partners LP (HCLP - Snapshot Report), Impala Platinum Holdings Ltd. (IMPUY) and Alliance Resource Partners LP (ARLP - Snapshot Report); each carrying a Zacks Rank #2 (Buy).

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