AE Portfolio Aggressive Holding Mineral Resources Ltd (ASX: MIN, OTC: MALRF, ADR: MALRY) is Australia’s largest specialist contract crushing, materials handling and mining services provider, with a combined installed capacity of more than 110 million metric tons per annum for its roster of blue-chip external customers. It’s also a mid-tier iron ore and manganese producer and mine operator, with more than 4 million metric tons of output exported in fiscal 2012.

Mineral Resources produced a negative total return in US dollar terms of 6.03 percent in 2012 and is down 3.53 percent since our initial recommendation in December 2011. The 2012 performance makes it one of just five current Portfolio Holdings to post a negative annual total return.

The stock surged after our initial recommendation, closing as high as AUD13.33 on the Australian Securities Exchange (ASX) on Feb. 29, 2012. Concern about the global economy as the eurozone nearly came apart and China slowed from double-digit growth to around 8 percent reined in mining exploration and expansion plans as well as commodities prices, including iron ore, and by Sept. 5, 2012, Mineral Resources stock was closing at AUD6.19.

We’ve enjoyed a solid uptrend since then, however, as Europe has at least managed to stick together and make progress on forming a more perfect monetary and fiscal union and China has engineered a soft landing and a nascent turnaround. And iron ore posted the biggest quarterly gain on record during the final three months of 2012, rising 39 percent.

As of the Jan. 8, 2012, close on the ASX Mineral Resources stock was priced at AUD9.99, 61.4 percent above its 12-month low but still 33.4 percent below its 12-month high. At these levels the stock is yielding 4.6 percent and trades at a price-to-book value ratio of 2.05 and a price-to-earnings ratio of 7.5, which makes for a “Graham Factor,” or price-to-book multiplied by price-to-earnings, of 15.357.

That’s well within the “value” range described by Warren Buffett’s mentor Benjamin Graham, who look for stocks with price-to-book values of 1.5 and price-to-earnings multiples of 15, or a “Graham Factor” of 22.5.

Even more compelling from our perspective is Mineral Resources’ consistent dividend history. Management did trim its payout once, during the Great Financial Crisis, when it paid AUD0.1235 for its final dividend for fiscal 2009 after paying AUD0.1335 for its final dividend of fiscal 2008. The dividend has been on a solid upward trajectory since then, however, pushed by the addition of iron ore production assets and output.

For fiscal 2012 Mineral Resources paid AUD0.46 per share (AUD0.16 for the interim payment and AUD0.30 for the final), up from AUD0.42 for fiscal 2011 (AUD0.15 interim and AUD0.27 final). For fiscal 2010 the company paid AUD0.20 per share (AUD0.064 interim and AUD0.136 final).

The payout ratio for fiscal 2012 was a very manageable 35.1 percent.

In mid-November the company completed negotiations on a four-year, AUD558 million syndicated loan and guarantee facility to refinance existing bank facilities, fund recently awarded plant installations and provide resources for potential new work.

The arrangement includes term as well as revolving components, with no maturities until October 2016. As of June 30, 2012, the company had total debt outstanding of AUD187.08 million and cash on hand of AUD76.28 million. The debt-to-assets ratio as of its last annual report was 13 percent, also very manageable.

Contracts with strong companies such as Atlas Iron Ore Ltd (ASX: AGO, OTC: ATLGF), BHP Billiton Ltd (ASX: BHP, NYSE: BHP), Fortescue Metals Group Ltd (ASX: FMG, OTC: FSUMF, ADR: FSUGY), Newmont Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY), Rio Tinto Ltd (ASX: RIO, NYSE: RIO) and Kalgoorlie Consolidated Gold Mines Ltd, a 50-50 joint venture of Barrick Gold Corp (TSX: ABX, NYSE: ABX) and Newmont that owns the Super Pit, the largest open pit gold mine in Australia provide the bulk of Mineral Resources’ revenue.

Mineral Resources’ specialized capabilities, including its wet ore processing operations, provides a significant differentiator in an industry that presents significant barriers to entry, including financial burdens, operational complexity and basic know-how. Its commodity mining and exporting divisions complement the contract-revenue streams generated by its crushing, pipeline and mining services units. And Mineral Resources has established a solid growth component with the development of its own iron ore resource.

The company’s operations include build, own and operate crushing, screening, processing and materials handling, general mine infrastructure, bulk iron ore and manganese commodities production and export and polyethylene pipeline fabrication, pipe lining, pipe fittings manufacture and pipeline installation.

Mineral Resources operates through five divisions. Crushing Services International is a contract crushing, screening and processing and specialist mining services business operating in Australia and overseas. CSI provides tailored build-own-operate or build-operate crushing, screening and processing plants for major mining clients. This includes designing a job-specific plant, manufacturing the plant, ensuring commissioning and providing on-site operation and maintenance.

It also provides specialized mine services such as materials handling, plant and equipment hire, plant and equipment maintenance, tails recovery, aggregate crushing as well as design, engineering and construction expertise. CSI has experience with a range of minerals, including iron ore, gold, tantalum, manganese, copper, magnetite, vanadium, spodumene, or lithium, and civil aggregates.

PIHA focuses on the specialist area of pipeline engineering and construction. This unit works for some of the biggest names in the utilities and infrastructure, civil contracting, mining, oil and gas industries. PIHA provides extensive project management and execution for pipeline engineering and construction; installations of proprietary “tight fit” high-density polyethylene (HDPE) lined steel; polyethylene pipe fittings and components; rock trenching and terrain leveling; cable laying; and plant and equipment hire.

Process Minerals International is a minerals processor, producer and exporter with a pipeline of projects across Australia. It’s the third-largest exporter of manganese in Australia and also a growing exporter of iron ore and other base metals soon to be exported out of multiple berths at multiple locations. PMI specializes in bringing new mines into production on behalf of tenement owners. It also can manage the processing, production, logistics, ship loading, marketing and export of the resource.

Polaris Metals is a developing iron ore producer with a vast pipeline of high-quality development projects and exploration targets across Western Australia. Mineral Resources acquired Polaris in January 2010. Polaris’ portfolio of iron ore assets includes numerous known deposits and highly prospective targets across two of Western Australia’s premier iron ore provinces, the Yilgarn and the Pilbara.

One of Polaris’ most advanced projects, the Carina iron ore project, developed rapidly from approval and construction in February 2011 to mining in late September and the first export in November 2011. Carina can produce approximately 4 million metric tons per annum (MTPA) of iron ore. Mined ore is trucked 50 kilometers to Polaris’ 10 MTPA processing plant on the trans-Australia railway. The ore is then railed to the Port of Kwinana and exported.

The Yilgarn tenements are all in close proximity to an established rail link to both the Kwinana and Esperance Ports. This not only reduces initial capital costs required for mine to port infrastructure but also enables a relatively short development timetable.

Mineral Resources also has a 64 percent controlling interest in Mesa Minerals Ltd (ASX: MAS) a manganese producer and a leader in manganese technology solutions for the manganese mining industry. Mesa Minerals is well placed as an emerging manganese producer from its Sunday Hill and Ant Hill tenements within the Pilbara region. There is a proven resource of medium-grade ferruginous ores available for the establishment of a manganese ore export operation.

Mesa Minerals is also a world leader in hydrometallurgical process technology designed to facilitate the production of high value manganese products from low grade manganese dioxide ores and from wastes containing manganese. The company has developed a suite of proprietary technologies that can be used to produce a variety of high-value manganese products in an economically competitive and environmentally sound manner.

Examples of such manganese products, which are in demand by the agrichemical, industrial chemical, battery and metallurgical industries include high-tenor and purity manganese sulphate solutions; manganese sulphate granules and powers of all grades and sizings; tailored micronutrient fertilizer granules and powders; high-purity “alkaline battery-grade” electrolytic manganese dioxide, or EMD; high purity lithium-ion battery-grade EMD; and electrolytic manganese metal, or EMM.

Mineral Resources posted a 60.9 percent rise in net profit after tax (NPAT) for fiscal 2012 to AUD242.2 million on solid increases in  underlying sales for both its services segment as well as its increasingly important commodities production unit. Normalized NPAT grew 29.1 percent to AUD177.1 million, while operating cash flow more than doubled, to AUD242.9 million.

Overall revenue was AUD925.9 million, up 52 percent from AUD609.5 million in fiscal 2011.

Management declared a final dividend for fiscal 2012 of AUD0.30 per share, up from AUD0.27 per share for fiscal 2011. Mineral Resources paid a total of AUD0.46 per share for the full year, up 9.5 percent from the prior corresponding period.

It’s management’s policy to distribute approximately 50 percent of normalized NPAT to shareholders

The services segment still generates the largest share of revenue and grew by 23.9 percent during fiscal 2012.

Growth in the segment is focused on surpassing the 100 MTPA annual crushing capacity in fiscal 2013. On Jul. 4, 2012, the unit was awarded a AUD1 billion, 10-year build-own-operate contract by Fortescue for a 25 MTPA expansion of operations at the Christmas Creek iron ore mine.

Carina exported 1,875,240 metric tons of iron ore through Jun. 30, as the mining segment generated revenue of AUD191.6 million for fiscal 2012. Mineral Resources’ expansion plans in mining are currently focused on the Phil’s Creek mine in the Pilbara.

Managing Director Chris Ellison recently hinted that the company will likely spin out its iron ore assets “at some point.” In three years the company has built a substantial iron ore business and expects to export more than 3.7 million metric tons in fiscal 2013. That figure will rise to 6 million metric tons in fiscal 2014. But Mr. Ellison, speaking at Mineral Resources’ Nov. 22 annual general meeting, noted that mining services would always be the company’s primary business.

Mineral Resources exports iron ore from both Port Hedland and Kwinana. But port space at Kwinana is limited, and Mr. Ellison said the timing of the spin out of its iron ore business could depend on the proposed expansion of the Esperance port. Mr. Ellison added that he expects Mineral Resources’ production from the Pilbara to rise in January, when its Phil’s Creek mine begins to ship ore.

Against an otherwise gloomy backdrop painted by other mining services companies, Mineral Resources expects a “bumper” year because its build, own and operate model is more attractive to the bigger miners as they pulled back on capital expenditure. Mr. Ellison also noted that the company will expand its mining services offerings to engineering, procurement and construction management services.

Management expects earnings to skew to the second half of fiscal 2013 but has provided no numeric guidance for the year.

Mineral Resources trades on the ASX under the symbol ORG and on the US over-the-counter (OTC) market under the symbol MALRF.  As of Sept. 13, 2012, it also trades on the US OTC market as an American Depositary Receipt (ADR) under the symbol MALRY. The ADR is worth one ordinary, ASX-listed share.

Mineral Resources is a buy under USD13 on the ASX using the symbol MIN and on the US OTC market using the symbol MALRF. Buy Mineral Resources’ ADR under USD13.

As of Jan. 8, 2013, the company’s market capitalization is AUD1.855 billion.

Mineral Resources’ fiscal year runs from Jul. 1 to Jun. 30. Mineral Resources reports full financial and operating results twice a year; it typically posts first-half results in mid-February, with full fiscal year numbers out in mid-August. It will report results for the first six months of fiscal 2013 on or about Feb. 18, 2013.

Interim dividends are usually declared in February along with first-half results. Final dividends are usually declared in August along with full fiscal-year results. The most recent interim dividend of AUD0.16 per share was declared Feb. 16, 2012; it was paid April 5, 2012, to shareholders of record as of March 16, 2012. Shares traded “ex-dividend” on this declaration as of March 9, 2012.

The final dividend of AUD0.30 in respect of fiscal 2012 second-half results was declared Aug. 16, 2012. It was paid Oct. 26, 2012, to shareholders of record on Sept. 21, 2012. It traded “ex-dividend” as of Sept. 17, 2012.

Dividends paid by Mineral Resources are “qualified” for US tax purposes. Based on the “fiscal cliff” compromise reached in Washington, DC, in early January dividends will be taxed at Bush-era rates of 5 percent to 15 percent for investors’ first USD450,000 a year of income for couples and USD400,000 for single filers. Above that the maximum tax rate is 20 percent.

Six analysts who cover Mineral Resources currently rate it a “buy,” while one analyst rates it a “hold.” There are no “sell” ratings on Mineral Resources. The average 12-month price target from the five analysts who provide a figure is AUD11.32, with a high of AUD12.50 and a low of AUD10. Based on the Jan. 8, 2013, closing price on the ASX of AUD9.99, the implied upside, without including dividends, is 13.3 percent.