Mining in WA has seen great increases in production and net profits as shown by half-year net profits doubling for BHP Billiton Limited (ASX: BHP) and the 259% profit increase for Fortescue Metals Group Limited (ASX: FMG). Mineral Resources Limited (ASX: MIN), a mining services and processing company, also had a great first half and continued its trend of growing earnings. I have three reasons why the company is making earnings strides, and why that trend should continue.
Involved in ore processing and shipment
While there has been concern that mining services companies will have less work from a mining slowdown, the company is more involved in ore processing, which miners are concentrating on now to boost their revenue while iron ore sales prices are still up. It also supplies road and rail transportation and management of iron ore at ports for customers, so it is involved in the services that miners need to get iron ore exported and make their revenue.
Iron ore producer
It itself produces iron ore, and achieved a record five million tonnes exported in H1 2014. Sale prices have been stable, and a weaker Aussie dollar helps earnings since iron ore is denominated in US$. Its Phil's Creek mine has raised production significantly to 1.7 million tonnes in the half-year after its infrastructure was completed. For future growth, it is undertaking the Iron Valley project with Iron Ore Holdings Ltd. (ASX: IOH), which should have first production in FY2015.
High returns, net profits
Over the last three years underlying net profits have steadily increased from about $100 million to $180.4 million in 2013. The H1 2014 half-year profits have more than doubled, rising from $63.5 million to $130.3 million. Net profit margins have improved to 14%, return on equity is a decent 11%, and net gearing is only 5.4%, so it's financially fit and performing well.
Share price movement and dividends
Since July 2013 its share price has gone from about $8 to $12.05. It has a PE of 12.3, a dividend yield of 3.98% and a history of raising its dividends, paying out about half of its earnings per share to shareholders.
Foolish takeaway
The company has a great combination of services that keep it at the forefront of mining processing and shipment, so its business is still in demand as other mining services are seeing cutbacks in work caused by miners' cost cutting.
It also has extra revenue streams from its own ore production to smooth out income ups and downs, allowing it to increase profits. That is why investors should follow the company and benefit from more growth in the future.
