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BHP Billiton Prospects Bright Despite Weak Q1 Production


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BHP Billiton Limited (BHP - Analyst Report) reported weak production results for first-quarter fiscal 2017 (ended September 30, 2016). Output volumes of major products like petroleum, copper, iron ore and energy coal were lower than the values recorded in the year-ago quarter. However, metallurgical coal registered growth.

In the quarter, the company's aggregate petroleum production was 55 million barrels of oil equivalent (MMboe), down 15% year over year. The deterioration was attributable to lower production of natural gas and condensate liquids as well as weaker crude oil production. However, the previously stated guidance range for aggregate petroleum production in fiscal 2017 is still unchanged at 200–210 MMboe.

Aggregate copper output was 355 million tonnes (Mt), down 6% year over year. The downside was witnessed due to lower grades.  

Gross production of iron ore in the quarter was 58 Mt, flat year over year. The fiscal 2017 guidance for iron ore production remained unchanged in the range of 228–237 Mt.

Total energy coal output was 7 Mt, down 4% year over year. The downside stemmed from factors like disinvestment of the San Juan mine, operational rescheduling in certain mines and unfavorable climatic conditions.

However, metallurgical coal production during the quarter was 11 Mt, up 1% year over year. The upside was driven by increased truck utilization and wash-plant activities across all the mines.

Share price of BHP Billiton was $34.49 per share as of Oct 18, 2016.

Existing Scenario

Financial fundamentals of mining companies are being hurt due to sluggish global economic growth. The sector is currently oversupplied due to softer demand for core metal products across the globe. Moreover, stiff competition within the industry is compelling companies to maximize their production, in order to curb costs and widen margins.

However, BHP Billiton remains bullish and is on track to boost its financials through greater operational efficiency, innovative productivity enhancing technologies and new manufacturing projects.

Other Stocks to Consider

BHP Billiton Limited currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Other well-ranked stocks in the Basic Materials sector include BASF SE (BASFY - Snapshot Report) , The Chemours Company (CC - Snapshot Report) and Teck Resources Limited (TCK - Snapshot Report) . Both Chemours Company and Teck Resources Limited presently sport the same Zacks Rank as BHP Billiton. BASF SE currently holds a Zacks Rank #2 (Buy).

 While Teck Resources Limited recorded average earnings surprise of +133.33% over the four trailing quarters, the average earnings surprise of Chemours Company is +144.74% over the same frame.

BASF SE has an average earnings surprise of +31.01% over the last four quarters.

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