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BHP Billiton's Q2 Operations Hurt by External Headwinds

Zacks Equity Research

Premium industrial metals & minerals company BHP Billiton Limited BHP reported weak operating results for second-quarter fiscal 2016. Barring iron ore, output volumes of petroleum, copper, iron ore, metallurgical coal and energy coal decreased year over year. According to management, unfavorable commodity pricing conditions had weighed on the entire resources sector, thus adversely affecting its quarterly operational results.

In second-quarter fiscal 2016, BHP Billiton’s aggregate petroleum production was 60.2 million barrels (MMboe), down 5% year over year. Deferral of developmental activities in onshore U.S., as a result of massive gas volumes and weak natural fields in the company’s traditional assets, triggered the year-over-year downfall.

Aggregate copper output was 0.4 million tons (mt), down 9% year over year. The year-over-year decline in productivity was witnessed due to lower grades accrued from the company’s Escondida plant.

Metallurgical coal productivity during the quarter was 10 mt, down 6% year over year. Planned closure of Crinum mine and a convergence event in Broadmeadow led the year-over-year fall.

During the quarter, BHP Billiton’s gross energy coal output was 10 mt, down 6% year over year. Productivity of energy coal also decreased due to dismal climatic conditions prevalent in Cerrejon and NSWEC mines.

On the other hand, aggregate output of iron ore in the quarter was 57 mt, up a marginal 1% year over year. Record productivity witnessed in the company’s Jimblebar mining hub drove the increase in aggregate iron ore output.

Outlook

In order to improve operational capability in the quarters ahead, BHP Billiton is undertaking strategic cost-cutting programs as well as enhancing safety standards of its manufacturing facilities. Moreover, in order to combat the headwinds prevalent in the mining industry, the company is attempting to strengthen its balance sheet for greater financial flexibility. At the same time, anticipated recovery in oil & copper prices is expected to boost the company’s operational performance, going ahead.

Stocks to Consider

BHP Billiton presently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the industry include Denison Mines Corp. DNN, Platinum Group Metals Ltd. PLG and Rare Element Resources Ltd. REE. All three stocks hold a Zacks Rank #2 (Buy).

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