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BHP: Fiscal 2016 Mixed Production Results Raise Outlook Questions

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Production numbers were a mixed bag

On July 20, 2016, BHP Billiton (BHP) (BBL) reported mixed production numbers for fiscal 4Q16, which ended on June 30. According to its end-of-quarter report, BHP’s production exceeded its guidance for petroleum, copper, and metallurgical coal. The company, however, missed slightly on the iron ore and energy coal guidance for fiscal 2016.

The other significant takeaway from the production report was the downsizing of its capex further for the Petroleum division. This should lead to still lower production expectations in fiscal 2017.

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Stock price performance

The investors probably did not like the production miss by BHP, and the stock traded down by 3% after the production report was released. In comparison, Rio Tinto (RIO) was down by 2%.

Even on a YTD (year-to-date) basis, the miners have gained due to firmer commodity prices, especially for iron ore. On a relative basis, Cliffs Natural Resources (CLF) has outperformed its peers with a YTD rise of 335% on July 21. Vale (VALE) followed with a YTD rise of 71%.

Cliffs has other drivers behind its rally such as improving sentiment in the US steel market, its main customer focus. However, among seaborne-exposed names, Vale has risen the most. On the other hand, Rio Tinto (RIO) and BHP Billiton (BHP) (BBL) have risen by 9% each.

CLF forms 3.4% of the SPDR S&P Metals and Mining ETF (XME), whereas Rio Tinto forms 1.8% of the SPDR S&P Global Natural Resources ETF (GNR). Vale forms 2.9% of the iShares MSCI Brazil Capped ETF (EWZ).

In the next part of this series, we’ll discuss BHP’s production numbers for various commodities in greater detail and evaluate its outlook on the business.

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