Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY) has received approval of its revised “structural separation undertaking” (SSU) from the Australian Competition & Consumer Commission (ACCC), a step many are calling the last before the National Broadband Network (NBN) deal will finally close.

The SSU will result in Telstra relinquishing control of its fixed-line copper-wire network to the government-backed NBN for estimated compensation of AUD11 billion. The NBN will use Telstra’s old copper network–a vestige of Telstra’s time as a state-sanctioned monopoly and the only system that covers the whole country–as a bridge to its all-fiber national network.  Telstra’s emphasis will shift to its already dominant retail-focused wireless telecom service, though it will continue to offer fixed-line services as well.

Telstra’s most recent submission was based on ACCC “recommendations” made in response to complaints from competitors about treatment of wholesale and retail customers in previous filings. Telstra’s final SSU establishes terms of access and billing for other companies that one major news outlet described as “compliant.”

The government will use what was Telstra’s copper network during the transition to the all-fiber NBN. The overall cost of the NBN is estimated at AUD40 billion. Communications Minister Stephen Conroy gushed that the deal represents the “Holy Grail” of regulation, in that Australia had finally righted a wrong done 20 years ago when Telstra was privatized with its monopoly intact. Prime Minister Julia Gillard, feeling good after winning a challenge to her leadership of Australia’s Labor Party–and, by extension, her leadership of Australia–proclaimed, “There can be genuine competition in telecommunications from today on.”

That’s a lot. What’s less lofty is that Telstra will now move on to getting waivers from previously passed legislative requirements that it divest its cable network and its share in Foxtel, which were hammers Australian Parliament held over it to get it to play ball on the NBN.

Telstra, one of the eight original members of the Australian Edge Model Portfolio, has had a nice run since we launched the service in September 2011, though its 23.7 percent total return in US dollar terms through Feb. 28 pales just a bit in comparison to the 28.1 percent return generated by all eight of the original members of the AE Portfolio since inception. The S&P/Australian Securities Exchange 200 Index has produced a total return of 24.4 percent from Sept. 26, 2011, through Feb. 28, 2012, while the S&P 500 is 19.2 percent to the positive.

Australian stocks have benefitted from the rise in the Australian dollar, which was good for USD0.9833 on Sept. 26 but had run to USD1.0766 as of Feb. 28.

Telstra shareholders, perhaps stoked by a media intoxicated by the idea of AUD11 billion, hope the company spins out at least some of the AUD11 billion soon to be on its way in the form of a share buyback or a special dividend. Although management hasn’t ruled anything out as it weighs “capital management” ideas, an increase in the regular dividend seems unlikely. Even a one-time buyback or payout to shareholders doesn’t really square with management’s top stated priority of winning market share based on its leading technology and infrastructure position.

And, remember, Telstra isn’t going to get one of those gigantic lottery checks that it can deposit immediately to its account. It will receive infrastructure leasing payments beginning next year that should approach about AUD200 million. It will get paid “decommissioning” fees as its customers disconnect from its service and join the NBN, which could roughly double the annual payout.

But the AUD11 billion could come over decades, certainly not days, or even months or years.

What it does is strengthen Telstra’s already well-established leadership position in wireless connectivity and the provision of increasingly important data services. What separates Telstra from the Australian pack and puts it on the plane with US-based giants such as AT&T (NYSE: T) and Verizon Communications (NYSE: VZ) is its ability to invest in its network, add contract wireless customers and sustain a healthy dividend.

Telstra’s immense relative advantage Down Under will drive continuing contract wireless subscriber growth and keep revenue growing. Its deteriorating print directory business, Sensis, will continue to be a drag on top-line growth (revenue from the unit declined 39 percent half-over-half) over the medium term.

It spent AUD1.7 billion on its network in the first half of fiscal 2012, which is actually part of a tapering down from the AUD5.9 billion Telstra spent in fiscal 2007, which declined to AUD4.9 billion in fiscal 2008, AUD4.6 billion in fiscal 2009 and AUD3.5 billion in 2010. The bulk of major spending is done, though maintenance will help preserve its dominant position. The company’s focus now is on distinguishing itself with superior customer service, which will continue to require major investment. Management continues to point to a target figure of about 14 percent of sales for CAPEX guidance.

The bottom line is Telstra’s priority right now remains balance-sheet flexibility. There’s about AUD3 billion in cash on the books right now, and that figure will look even better once the SSU is formally accepted, the NBN deal is inked and the precise terms of Telstra’s receipt of its compensation will be known.

Everything else–including some of Telstra stock’s impressive run during the summer (Southern Hemisphere)/winter (Northern Hemisphere) of 2011-12 and what management will do with its new bounty–is speculation.

We like Telstra because of its dominant position, its attention to weak spots such as customer service and proven ability to fix same, and the prudence management has shown in focusing on preserving that which makes it a compelling long-term wealth-building story: its scale advantage. A robust network will keep Telstra’s wireless subscriber rolls growing and its data revenue share expanding. But make sure you don’t overpay at a time when many investors may be over-enthralled by thoughts of AUD11 billion.

The Roundup

Earnings season for Australian Edge Portfolio Holdings is basically over, as those that report in the regular way things are done Down Under have revealed numbers, some whose fiscal year varies somewhat happen to also have turned in results and others with schedules more recognizable to North Americans have also provided updates.

Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY) provided first-half fiscal 2012 operating results and has also neared completion of its deal with the National Broadband Network (NBN), as detailed above. Its recent developments characterize what were strong results for the Conservative Holdings, which we’ll detail in next week’s AEW.

Below is an overview of where the AE Aggressive Holdings stand.

BHP Billiton Ltd (ASX: BHP, NYSE: BHP) reported fiscal 2012 first-half earnings on Feb. 8, 2012. The world’s largest miner posted underlying EBITDA growth of 8 percent to AUD18.7 billion, underlying EBIT growth of 6 percent to AUD15.7 billion, attributable profit AUD9.9 billion and operating cash flow of AUD12.3 billion, with Western Australian iron ore operations a particular bright spot.

Last week the company dotted the I’s on a five-tranche, USD5.25 billion (AUD4.9 billion) bond offering issued in order to refinance existing debt. The biggest tranche is a USD1.25 billion five-year issue that priced 77 basis points above comparable US Treasuries; the 1.625 percent bond is due in 2017. A two-year, USD1 billion floating-rate note was priced at 27 basis points above the three-month London interbank offered rate, while a USD1 billion three-year note was priced 62 basis points above Treasuries.

A 10-year, USD1 billion tranche fetched 92 basis points above benchmark, and a 30-year, USD1 billion bond was priced at 102 basis points, or 1.02 percentage points, above comparable US Treasuries. It’s the third-largest offering in dollar terms in 2012, behind deals for SABMiller and Petrobras, which each raised USD7 billion on single days earlier this year.

This latest capital-raising is more about rolling over debt than preparing for any large-scale projects or new acquisitions. The terms reflect the quality of BHP’s assets, which the market believes will generate solid cash flows for the long term. But it will allow BHP to trim interest costs, which can’t hurt as it pursues a plan to spend USD80 billion over the next half-decade to boost iron ore, coal and copper production. The USD5.25 billion package was slapped with an A1 rating and a “Stable” outlook by Moody’s Investor Service, while Standard & Poor’s labeled the offering A+.

BHP Billiton is a solid buy under USD40 on the Australian Securities Exchange (ASX). Its American Depositary Receipt (ADR), which represents two ordinary shares and is traded on the New York Stock Exchange (NYSE), is a buy under USD80.

GrainCorp Ltd’s (ASX: GNC, OTC: GRCLF) fiscal year begins Oct. 1 and ends Sept. 30. It will report results for the first half of its fiscal year, which ends Mar. 31, on May 22. It typically reports full-year results around the second or third week of November.

The company did hold its annual general meeting Feb. 16, during which management offerd a look back at fiscal 2011 results, a look at present operating conditions and a look forward via a fiscal 2012 forecast.

Looking at GrainCorp by major operating segments, Country & Logistics revenue surged 53.8 percent to AUD523 million from AUD340 million on higher volumes. Carry-out–was a record 6 million metric tons, which provided a solid head-start for fiscal 2012, while additional rail capacity as well as a promising forecast for the fiscal 2013 winter crop-planting season also bode well for continuing growth.

Ports revenue more than doubled, to AUD220 million from AUD104 million a year ago, as GrainCorp handled 8.1 million metric tons of grain during fiscal 2011, up from 3.5 million in fiscal 2010 and 5.2 million in fiscal 2009. During the AGM update management noted that year-to-go” wheat, barley, canola and sorghum shipments of 7 million metric tons put the company well ahead of last year’s pace.

Marketing reported combined domestic and export sales of 5.5 million metric tons, up from 3.3 million in fiscal 2010 and 3.6 million in fiscal 2009. Export volume surged to 2.7 million tons from 1.1 million in fiscal 2010 and 1.5 million in fiscal 2009. Domestic and export sales programs are performing “in line with expectation” as of Feb. 16.

Malt revenue was up 9 percent to AUD868 million from AUD796 million, but cyclical margin pressures and the strength of both the Australian and the Canadian dollar hurt earnings. Management did add more than 300,000 metric tons of malt capacity during fiscal 2011 that will show in fiscal 2012 results. Volume was up a modest 1.9 percent to 1.09 million metric tons from the comparable prior 12 months.

This segment is suffering a bit because of softer demand and excess capacity in developed markets. Sales are within 95 percent of original fiscal 2012 estimates, however, and utilization is above 90 percent.

Management forecast fiscal 2012 earnings before interest, taxation, depreciation and amortization (EBITDA) of AUD350 million to AUD380 million and net profit after tax (NPAT) of AUD165 million to AUD185 million.

Dividend policy is to pay 40 percent to 60 percent of NPAT “through the business cycle.” Management provides a “target” dividend for each year and retains the option to top off a particularly good year, as was fiscal 2011, with a special dividend. GrainCorp enjoyed a significant rebound in cash flow during the 12 months ended Sept. 30, 2011, and the board recognized this by paying a special dividend of AUD0.25 along with its “final” distribution of AUD0.15 for the year.  These payments were declared Nov. 24, 2011, and paid on Dec. 21 to shareholders of record on Dec. 7.

The “interim” dividend of AUD0.15 per share, announced May 26, was also accompanied by a special dividend, of AUD0.05 per share. The fiscal-year payout was AUD0.55 per share, which is 64 percent of NPAT reported for the period.

Since fiscal 2007 GrainCorp’s share of the “receivals” market defined by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) wheat, barley, canola and sorghum production estimates for the eastern half of the country has grown from less than 35 percent to more than 60 percent. Strong cash flow has allowed the company to reduce debt and free it to aggressively pursue organic growth as well as acquisitions.

Well-placed for long-term business and dividend growth, GrainCorp is a buy under USD8.50.

Mineral Resources Ltd (ASX: MIN, OTC: MALRF), a services provider as well as a producer, posted record net profit of AUD80.5 million for the first half of fiscal 2012, which was 32.8 percent higher than the AUD60.6 million booked during the prior corresponding period. Revenue for the first half of fiscal 2012 (ended Dec. 31, 2011) climbed 18.7 percent to AUD408.8 million, up from AUD344.3 million.

Management reported a cash balance as of Dec. 31, 2011, of AUD145 million and a net cash position of AUD19 million, which means Mineral Resources can cover its outstanding liabilities with what it has on hand. Mineral Resources internally funded a company-record capital expenditure of AUD212 million, in line with management forecasts. Mineral Resources’ “lost time to injury” frequency continues to track well below the industry average, which translates directly into cost savings.

It may have to go outside to fund opportunities that may arise, but the company’s strong balance sheet as well as the foreseeability of its contract-based cash flow makes this a not-so-daunting prospect. Current interest is covered by earnings by 36.1 times.

Work on the project that made it a producer too of minerals and not just a contract servicer, the Carina iron ore mine, continued in the first half of the fiscal year. The mine produced its first ore for shipment last October. Ore grade and volumes have been in line with management expectations, and further build-out of the mine as well as supporting infrastructure such as an airstrip, a sealed road, a permanent crusher and a stockyard brought the project closer to completion.

Major construction on the Kwinana Berth 2 project is complete, with additional efficiency measures for the company’s port operation still to come. Mine-to-port logistics have been established, and the facility is now operating according to a regular shipping schedule.

All the critical elements–including long-lead-time equipment and logistics planning–are essentially in place to get Mineral’s Phils Creek iron ore mine in the Pilbara region of Western Australia.

Construction is also complete on the first processing facility at Fortescue Metals Group Ltd’s (ASX: FMG, OTC: FSUMF, ADR: FSUMY) Christmas Creek iron ore mine. This processor has more than 19 metric tons per annum of annual production capacity; Mineral Resources is in the process of boosting capacity to 25 metric tons, as the plant is already operating near its design limits.

The company’s Crushing Services International unit was awarded a 10-year, AUD1 billion contract by Fortescue in July 2011 to design, build and run a second processing facility at Christmas Creek, this one with 25 metric tons of annual capacity and a 7 kilometer feed conveyor.

First-half 2012 iron ore export volume was 1.515 million metric tons, up from 1.301 million during the prior corresponding period. Manganese exported during the six months ended Dec. 31, 2011, was 187,000 metric tons, down from 224,000 during the six months to Dec. 31, 2010.

Management forecast 4.2 million metric tons of combined export volume for the full fiscal year ending Jun. 30, 2012.

Mineral Resources declared a “fully franked” AUD0.16 per share “interim” dividend on Feb. 16; the stock will trade “ex dividend” as of Mar. 9, while the dividend will be payable to shareholders of record Mar. 16 on Apr. 5, 2012.

(We’ll have a fuller discussion of Australia’s system of tax imputation–or “franking”–in the March issue of Australian Edge, which will be published Friday, Mar. 16, 2012.)

The 6.6 percent sequential dividend increase comes after Mineral’s board approved a 98.5 percent boost from the AUD0.136 per share paid for fiscal 2010’s “final” dividend to the AUD0.27 paid to bring fiscal 2011’s total payout to AUD0.42 per share. Even after the significant increase for fiscal 2011 Mineral Resources beat management policy of “below 50 percent” with a payout ratio of 49.6 percent.

The recent dividend increase and the company’s on-the-ground success thus far in fiscal 2012 support a boost in Mineral Resources’ buy-under target to USD13.

Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY) reported fiscal 2012 first-half results that largely met expectations, though the board of directors of Australia’s largest gold-mining outfit did boost the “interim” distribution by 20 percent to AUD0.12 per share.

Since this fantastic news lifted the share price, however, management has announced that “production disruptions” at its key Lihir gold mine in Indonesia will limit output for the quarter ending Mar. 31 by 50,000 to 60,000 ounces.

Management is maintaining prior fiscal 2012 production guidance of 2.43 to 2.55 million ounces but concedes this forecast is “under pressure.” Current decision-makers pointed to capital-investment decisions made at Lihir before Newcrest assumed control of the asset and explained that they plan to spend upward of AUD200 million over the next three to four years to address what are becoming worryingly regular disruptions at this key mine. This represents a doubling of prior estimates and would inevitably result in higher costs per ounce of production.

The key now for Newcrest is proving that the people in charge now know how to get gold out of Lihir efficiently and according to how they say it will. Its longer-term growth prospects as well as its cost profile continue to compare well versus North American gold producers. It’s also attractively valued. But the market perception that Newcrest can’t do what it says will likely keep a lid on the share price.

We look forward to the quarterly production and sales update due Apr. 24 for confirmation of management’s position that it is equipped to address these legacy issues plaguing Lihir. Until then Newcrest Mining remains a buy below USD40 for dividend-generating gold exposure.

New Hope Corp Ltd’s (ASX: NHC, OTC: NHPEF) fiscal year begins Aug. 1 and ends Jul. 31; it guided for fiscal 2012 first-half results Feb. 28–for the six months ending Jan. 31, 2012–with the full audited report due and a conference call to discuss same scheduled for Mar. 20.

Speculation about a potential takeover of the company, which was fueled by management’s very public announcements about interest expressed through unofficial channels and a resulting desire to formalize the process, has abated since mid-October 2011, when the stock push past AUD6.50 on the Australian Securities Exchange (ASX). According to media reports, however, management is looking to close the auction by Mar. 6.

We’re content to hold the stock and recommend those who don’t already own it to pick up shares when it trades below USD6 because the underlying business is solid, with or without a deal. Preliminary fiscal 2012 first-half numbers support this proposition. Production during the period grew to 3.21 million metric tons from 2.77 million, while exports increased to 2.91 million metric tons from 2.74 million a year ago. Net profit after tax (NPAT), meanwhile, grew by 18 percent to 25 percent to AUD96 million to AUD101 million. Higher production and transportation costs and a stronger Australian dollar against the US dollar hampered results. New Hope remains a buy under USD6.

Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY), which is listed in Sydney on the Australian Securities Exchange (ASX) but operates in Papua New Guinea, is the rare company in the Southern Hemisphere-focused Australian Edge coverage universe that reports its fiscal results according to the calendar year.

In other words, its year begins on Jan. 1 and ends on Dec. 31. The company released unaudited fourth-quarter and full-year numbers in late January and audited results Feb. 20, when it also hosted a conference call to discuss same.

Managing Director Peter Botten described 2011 as a “a very solid year in operating performance” despite the fact that he observed “probably the most difficult and challenging year” in Papua New Guinea, home to the company’s critical liquefied natural gas (LNG) project, in his two decades working there. Net profit after tax (NPAT) climbed 9 percent to USD202.5 million, as realized selling prices rose 45 percent to USD116 per barrel from USD80.

Cash operating margin was USDD94 per barrel, while operating costs per barrel of oil equivalent were in line with guidance and just below USD20. Inflationary pressures in Papua New Guinea as well as currency movements were the biggest factors driving costs higher for the period. Operating cash flow, meanwhile, was USD386 million.

As of Dec. 31, 2011, Oil Search had USD1.05 billion in cash, excluding joint venture balances, compared to USD1.10 billion at the end of September. Oil Search’s revolving oil facility, which had a commitment limit of USD246.5 million at the end of December, remained undrawn, giving the company liquidity of about USD1.29 billion.

Oil Search has hedged none of its output, which means it will continue to benefit as commodity prices rise. Management reaffirmed 2012 production guidance of 6.2 million to 6.7 million barrels of oil equivalent. Oil Search will hold its annual general meeting May 8, 2012. Until then it remains a buy under USD8.

Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY) reported net profit after tax (NPAT) for the first six months of fiscal 2012 of AUD794 million, bettering a fiscal 2011 first-half net loss of AUD136 million, as electricity assets acquired in New South Wales and higher oil and gas prices contributed to solid operating results and there were no major asset impairments along the lines of last year’s geothermal-asset writedowns.

Underlying profit, which doesn’t include one-time items, was AUD489 million, up 61 percent from AUD304 million a year ago. Underlying earnings per share was AUD0.455, up from AUD0.335 a year ago.

Origin reiterated full-year guidance for a 30 percent increase in underlying profit from fiscal 2011’s AUD673 million, which would put the 2012 forecast at around AUD875 million. AUD489 million for the first half means the company is more than halfway there, but management noted during its conference call to discuss results that Origin’s energy costs are higher during what are winter months Down Under and that it expects interest, depreciation and amortization costs to rise in the second half as new projects are brought online.

Looking ahead, Origin expects first-half operating trends to continue in the second half of the fiscal year. Energy Markets volumes should remain in line with first-half levels, though margins could be hurt over the balance of the year. Underlying earnings-to-sales margin for the segment should come in between 13 percent and 14 percent. Exploration & Production results should receive a lift as Kupe and Otway, which both had scheduled shutdowns, remain online for the second half, though BassGas will be offline for most of the second half for scheduled repairs.

The major question for Origin concerns financing of its key Australia Pacific LNG project. Binding agreements with Sinopec (NYSE: SNP), the informal name for China Petroleum & Chemical Corp, are expected to be completed during the second half of fiscal 2012. Origin’s share of the project will be diluted 37.5 percent, which will also reduce Origin’s share of earnings. Contact Energy, which reported a worrying level of customer losses during the first half of the year, should benefit from higher wholesale prices driven by current low hydro storage levels and price increases for customers.

Origin will pay an “interim” dividend of AUD0.25 per share on Mar. 30, 2012, to shareholders of record on Mar. 5, in line with the dividend paid in respect of first-half fiscal 2011 results. Origin shares are trading “ex dividend” as of Feb. 28. It’s the policy of Origin’s board of directors to pay an annual dividend of AUD0.50 per share or “an amount that is equal to 60 percent of full-year underlying EPS, whichever is the greater amount.” Origin’s interim dividend of AUD0.25 represents a payout ratio of 55 percent based on underlying EPS. Origin Energy is a buy under USD15.

Rio Tinto Ltd (ASX: RIO, NYSE: RIO) took an AUD8.9 billion one-time charge writing down its aluminum business in the first half of fiscal 2012, resulting in an overall loss of AUD1.76 billion.

Aluminum prices have dropped 12 percent over the last 12 months, severely reducing expected returns from the assets. The good news is Rio’s underlying earnings–i.e., excluding the writeoff–were up 11 percent to a record AUD15.5 billion for the full fiscal year, while second-half underlying earnings came in at an equally robust AUD7.8 billion.

The iron ore business performance was the star, offsetting lower prices and higher costs for aluminum sales. That enabled management to declare a dividend increase of 34 percent, far topping analyst expectations. The company did rule out a further stock buyback, after completing a huge AUD7 billion one last year. But with bosses refusing to take bonuses despite continuing to execute on expansion plans, Rio’s standing remains high among investors. Buy under USD75.

WorleyParsons Ltd (ASX: WOR, OTC: WPGPF, ADR: WPGPY), a new addition to the AE Portfolio as of the February issue, reported first-half fiscal 2012 revenue grew 17 percent to AUD3.3 billion, while statutory net profit after tax (NPAT) came in 18 percent higher at AUD152 million. Earnings grew across all operating sectors, with particular strength in Australia, Canada and the US geographically, though management noted in a statement that “productivity, cost increases and project delays are currently impacting margins.”

Operating cash flow for the half year was AUD63.8 million, down from AUD124.7 million in the prior corresponding period because of an increase to working capital to fund organic growth. Incentive payments, borrowing costs and taxes also increased for this period. According to management’s statement accompanying the earnings release WorleyParsons will place a particular emphasis on collecting outstanding debts for service “with the goal of delivering improved operating cash flow in the second half.”

Overall debt-to-assets rose to 25.5 percent from 21.5 percent, though “cash interest cover” remained healthy at 13.4 times. WorleyParsons has available committed debt facilities of UD1.341 billion, which have an average maturity of 4.1 years; 19 percent mature within one year, 42 percent between one and four years and 39 percent beyond four years. Facility utilization as of Dec. 31, 2011, was 60 percent, up from 53 percent as of Jun. 30, 2011. The company also has bank guarantees and letter of credit facilities totaling AUD683 million, with utilization of 73 percent.

Management declared and the board approved a AUD0.40 per share dividend based on these interim results, which is 11 percent higher than the AUD0.36 declared last year. WorleyParsons, which has won 18 more projects over the past six months to bring its total to more than 240, is a buy under USD30.