Orica a stable choice in shaky mining market What's new Orica recently reported its interim result for fiscal 2013. While revenues were essentially flat year on year at $3.3 billion, earnings before interest and tax (EBIT) and reported net profit both grew by mid-single-digit percentages. Consequently, earnings per share (EPS) increased 8 per cent to $0.74. At the operating level, the subdued revenue showing of the key mining services division masked the relatively resilient performance of Orica's core explosives and cyanide businesses. Indeed, the division produced a respectable 5 per cent increase in EBIT to $435 million, despite the significant drag from the Minova ground support operation. Of course, the group's overall earnings were boosted to the tune $90 million by the absence of an impact from the Kooragang Island ammonia facility, shutdown in the prior period. Nevertheless, we consider the 6 per cent improvement in Orica's EBIT to be a respectable result, against the backdrop of a challenging mining industry. Orica's balance sheet remains solid, with both interest cover and leverage ratio at very comfortable levels. Outlook Given the volatile sentiment and erratic activity levels in the mining space, it was no surprise to hear a rather generic outlook commentary from management, expecting normalised net profit to be higher in fiscal 2013 than the previous year, "subject to global economic conditions." However, we believe the fundamentals within Orica's control are well-positioned to leverage off an eventual recovery in the resources sector. The company has an undisputed global leadership position in the provision of essential services to the mining sector (explosives and blasting systems, underground mining support and sodium cyanide for gold extraction). While Minova continues to hamper Orica, the earnings pressure on the division is well-baked into market's thinking, especially given the current slump in the underground coal volumes and the coal-to-gas substitution that is occurring in the US. With market expectations for this business so low, any tangible progress from current improvement initiatives is likely to be taken very positively. Then there is, of course, the potential capacity expansion planned for the Kooragang Island ammonia facility, as well as longer term benefits to flow from Orica's 45 per cent joint venture interest in the ammonium nitrate plant on the Burrup Peninsula in Western Australia. These expansions will cement Orica's market leadership position and, in the case of the Burrup plant, further increase the company's exposure to the robust long-term iron ore production outlook in the northwest region of Western Australia. Price Orica's stock has been a disappointing performer on the Australian bourse, down 6 per cent and 11 per cent over the past 6 and 12 months, respectively, significantly lagging the overall market. While internal issues (Minova, the Kooragang Island ammonia plant) have been factors, the poor stock showing has also been driven by the negative sentiment that has pervaded the resources space and negatively impacted mining services providers such as Orica. We remain attracted to Orica's resilient explosives business, strong global positioning, solid balance sheet and its substantial leverage to the mining sector, whose structural future we are still positive on. The stock is currently trading at merely 12 times fiscal 2013 consensus EPS estimates, and just eight times EBITDA estimates - multiples that are far from demanding. Unfortunately, negative sentiment towards the resource sector continues to weigh on the company's share price. As this is likely to remain the case in the near-term, we believe it is prudent for those without exposure to wait for the dust to settle before buying into the stock. Brian Han is senior research analyst at Fat Prophets sharemarket research. Interested in dividend stocks? Click here to receive a recent Fat Prophets Report.