Falling commodity prices and a slowdown in China have created a very challenging environment for mining and energy companies like BHP. However, the latest troubles for the company are emanating from a deadly dam spill in an iron ore mine jointly owned by them with Vale.
 
About the Company
 
Headquartered in Melbourne, Australia, BHP Billiton (BHP – Analyst Report) is one of the world’s largest producers of major commodities, including iron ore, metallurgical coal, copper and uranium, and has substantial interests in conventional and unconventional oil and gas and energy coal. 
 
Commodity Prices Continue to Fall
 
Iron ore prices recently fell to their lowest level since July on account of fresh worries regarding declining demand from China.  The company also expects the pricing picture for coal to continue to be weak for some time to come. BHP is one of the world’s largest exporters of metallurgical coal.
 
Brazil Dam Spill
 
Last week, it was reported that a pair of dams burst in an iron ore mine in Brazil, submerging the surrounding area in water and mineral waste. According to BHP, Samarco, a 50-50 joint venture between BHP Billiton and Vale, was responsible for operations of the mine.
 
Analysts estimated Samarco to account for about 3.5% of BHP’s revenue.  The mine is expected to remain shut at least until 2019 fiscal year and cost of cleaning is estimated to exceed $1 billion. The spill has already claimed at least three lives.
 
Falling Estimates
 
Due to weak outlook, analysts have revised their estimates for the company sharply downwards. Zacks Consensus Estimates for the current and the next fiscal year $0.89 per share and $1.46 per share, respectively, down from $1.53 per share and $2.10 per share 60 days ago.

The Bottom Line
 
Mining-Misc industry is currently ranked 222 out of 265 (Bottom 16%) Zacks industries. Further, uncertainty related to financial implications of the Brazil dam spill will continue to weigh on the shares. It is safer to avoid investing in this stock for the time being.