Grange Resources Ltd (ASX: GRR, OTC: GRRLF), an aggressive play on China’s long-term urbanization story, is replacing Iluka Resources Ltd (ASX: ILU, OTC: ILKAF, ADR: ILKAY), also an aggressive play on China’s long-term urbanization story, in the AE Portfolio.

Grange produces magnetite iron ore from its Savage River mine in Tasmania and is in the late-stage development phase of the relatively prodigious Southdown project in Western Australia. It’s the largest producer of magnetite, an oxide of iron and a key input for steelmaking, in the world. Grange’s processed magnetite pellet output commands premium prices because of its higher iron content and lower rate of impurities versus other forms of hematite iron ore such as fines and lumps.

Iluka also occupies a rather unique niche vis-à-vis the Middle Kingdom and the rapid transformation taking shape there, as its mineral sands are in high demand for use in pigments and dyes and particularly as the main input for ceramic tiles. Tile is pervasive in China and throughout Asia, the flooring of choice for literally centuries. Iluka had what it called a transformational year in fiscal 2011, realizing higher prices on larger volumes than it had yet experienced during Emerging Asia’s rapid expansion during the last decade.

We were seduced by an enormous dividend increase as well as management forecasts for similar if not quite as robust results for fiscal 2012 and beyond. Management, however, has now revised downward its guidance for full-year sales for fiscal 2012 twice in a matter of three months and made what appears to us to be a significant error in judgment by opting for short-term pricing schemes rather than long-term contracts for its output.

The former is cause enough to question management’s credibility; the latter, though it may help the company realize outsized returns during boom periods, is no way to establish revenue visibility so crucial to sustaining a consistent dividend.