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Posts Tagged ‘Caterpillar’

Mining Week 4/’13: Caterpillar’s trouble & Bumi’s future

January 27, 2013 Comments off

Top Stories:

  • Caterpillar sees lower sales and fraud at Chinese acquisition
    • Caterpillar’s machinery sales declined 1% over the past 3 months, driven by poor results in AsiaPacific and North America.
    • The news of the mining slowdown hitting the top equipment manufacturer comes at the same time as the announcement of structural over reporting of profits at ERA Mining Machinery, the Chinese manufacturer bought for approx. $700m last year.
    • Sources: Caterpillar press release; Wall Street Journal; Financial Times
  • Bumi board favors Bakrie’s plans over Rothschild’s
    • The only two directors on Bumi’s board who Nathan Rothschild wanted to stay in function have sided with the rest of the board in the support for the plan to have the Bakrie family buy the Bumi Resources assets and separate from Bumi, which would be left with the Berau assets.
    • Rothschild and Bakrie have been in a dispute about the future of the London-listed miner with coal assets in Indonesia for several months. The company said this week that the decisions about the future structure of the group will not be impeded by the ongoing legal probe into financial practices at their assets.
    • Sources: Financial Times; Telegraph; Wall Street Journal

Trends & Implications:

  • The reduction of machinery sales at Caterpillar signals that the peak of new project development has passed. While miners raced to add capacity over the past years, many new projects are now put on hold or downsized. Although Caterpillar can expect to benefit from the forecasted rise increase of global resource requirements over the next decades, the fastest growth is over. Equipment manufacturers are a good indicator of overall growth outlook in the industry as their sales is directly linked to building of production capacity.
  • Bumi’s future appears to be that of an Asian-focused coal company without strong Indonesian shareholders. The tie-up of the Vallar cash shell with powerful Indonesian miners did create a significant player in the region, but the divergent views on corporate governance between the Indonesian and European-based owners has made it impossible to run the company effectively.

2013 | Wilfred Visser | thebusinessofmining.com

Mining Week 01/’12: New year – Same fear

January 7, 2012 Comments off

Top Stories of the Week:

  • Alcoa cuts aluminium production in fear of lower demand
    • Alcoa announced shutdown of 532,000 tonnes of smelting capacity at the top of the cost curve to lower production costs and improve competitiveness. The 12% reduction of capacity mainly hits operations in the USA.
    • Sources: Financial Times; Wall Street Journal; Alcoa news release
  • Potashcorp temporarily closes a third mine because of low demand
    • After recently temporarily closing down Lanigan and Rocanville mines, PotashCorp now decided to temporarily close Allan mine to because of lack of demand for fertilizer. The combined shutdown of the three mines results in approx. 1 million tonnes of potash, or some 10% of the company’s annual production.
    • Sources: Wall Street Journal; PotashCorp Q4 market analysis report; text
  • Unions in Canada and Zambia make their case for wage increases
    • A union representing copper mine workers in Zambia signaled the foreign miners will have to agree to higher salary increases than the average offer of 11% to prevent widespread strikes. At the same time Rio Tinto Alcan and Caterpillar are taking a strong position against unions in Canada by locking out union workers after expiry of the negotiation periods.
    • Sources: Wall Street Journal on Zambia; Wall Street Journal on Canada

Trends & Implications:

    The mining industry for the last 2 years has been and continues to be gripped by 2 paradoxical fears:

  • The fear for slowing demand due to the lack of recovery after the financial crisis – With the financial crisis over 4 years old already the typical macro-economic cycle of 6-9 years has clearly been disrupted. Governments and companies are still operating in ‘crisis fighting’-mode because demand does not pick up like after a regular economic downturn. Large investments are still undertaken because the belief in the long term demand driven by population growth and growth of average GDP/capita is unchanged, but at the same time companies are trying to manage short term lack of demand by scaling down or temporarily closing operations.
  • The fear for strikes and civil unrest resulting from struggling individuals facing mining companies that continue to realize high profits – Despite the financial volatility the commodity prices generally have remained high, making mining companies among the few companies in the world that continue to generate high profits. With people around the world facing the economic crisis and feeling its impact, friction develops between the rich companies and the less well off workers and neighbours.

©2012 | Wilfred Visser | thebusinessofmining.com

Mining Week 46/’11: Hard times for emerging market multinationals

November 13, 2011 Comments off

Top Stories of the Week:

  • Vedanta reports disappointing results
    • Earnings of the industrial metals miner with many operations in India dropped despite revenue increase of 43% for the half year. Reduced earnings were caused by losses in the aluminium group and by a weak rupee (with 45% of revenue in India).
    • Sources: Vedanta results presentation; Financial Times; Wall Street Journal
  • Anglo and Codelco battle over Sur
    • Only days after Anglo agreed to pay $5.1bln for a 40% stake of De Beers, it decided to sell a stake of its Chilean Sur copper project to Mitsubishi for $5.4bln. The sale has led to disagreement with Codelco, which claims to hold an option on 49% of the total project, not just on Anglo’s share.
    • Sources: Anglo American press release; Financial Times; Wall Street Journal
  • Caterpillar chooses to produce in USA and Indonesia, buys into China

    Trends & Implications:

    • Though the results for Vedanta were not met with enthusiasm on the markets, they were in line with the strategy set out by the management in May: growth, long term value, and sustainability. Vedanta currently chooses to increase its market share instead of generating high profits, in the awareness that the current development will for a large part determine which companies will be the emerging market multinationals of the future.
    • The fight between Anglo and Codelco over the ownership stakes in the Chilean copper assets is flanked by a fight by Japanese co-investors and traders. Codelco sided with Mitsui to build its 49% stake at a low valuation, but Anglo found a way to get a higher price by selling part of the asset to rivaling keiretsu Mitsubishi.

    M&A overview update

    The M&A overview of the Business of Mining has been updated with Anglo’s 40% acquisition of De Beers.

    ©2011 | Wilfred Visser | thebusinessofmining.com

Freeport confident of copper boom

July 25, 2011 Comments off

“Freeport McMoran, the world’s biggest publicly traded copper producer, has predicted strong markets that could push its cash flow as high as $9bn this year compared with $6.3bn in 2010. The financial strength of Freeport, which declared a special dividend last year to clear excess cash, reflected even higher demand for copper and gold this year than last.

Richard Adkerson, Freeport’s chief executive, said destocking of copper inventories in China was helping to support the copper price. He noted China’s efforts to cool the economy but said: ‘There is a tremendous amount of spending on infrastructure and housing. China has the financial resources to continue to invest in the face of global economic conditions.’”

Source: Financial Times, July 21 2011

Observations:

  • Freeport says it is spending money as aggressively as possible to expand (planning to spend $2.6bln on capex this year), but still this year’s gold production is forecasted to be lower than last year’s output while copper output is increasing marginally.
  • Mr. Adkerson mentions rising input costs, caused by high demand, as the key issue the industry will face over the coming years.

Implications:

  • The industry is facing rising input costs for fuel, power, labour & equipment while average grades of many flagship operations are falling. As a result both mining and processing costs per unit of product increase rapidly, supporting high commodity prices.
  • Mining contractors and equipment manufacturers are faring well as mining companies face resource shortages (Caterpillar announced a 44% increase in profits this week). Miners are forced to pay high prices and book equipment and contracted services months in advance because of global shortages.

©2011 | Wilfred Visser | thebusinessofmining.com

Joy Global in $1.1bln deal for LeTourneau

May 19, 2011 Comments off

“Joy Global, one of the biggest makers of mining equipment, has struck a $1.1bn deal to buy LeTourneau Technologies from Rowan Companies in a further sign of consolidation in the sector. The acquisition comes six months after Caterpillar, the biggest maker of earthmoving equipment by revenue, paid $7.6bn for Bucyrus International, a US maker of mining machinery which is Wisconsin-based Joy Global’s main rival.

By strengthening Caterpillar’s position as the top mining equipment maker, that deal put pressure on Joy Global to do a merger or acquisition in order to become a bigger player in a fast-growing global market that is estimated to be worth some $40bn annually. The two acquisitions demonstrate bullishness among heavy equipment makers about the long-term strength of commodities and extractive industries, particularly in emerging markets.”

Source: Financial Times, May 17 2011

Observations:

  • LeTourneau’s mining division mainly produces front-end loaders and dozers. However, most of the company’s revenues come from sales of onshore and offshore drilling equipment.
  • Joy Global is broken down over P&H (mainly drills, draglines, shovels) and Joy Mining Machinery (strong in continuous mining equipment and longwall equipment).

Implications:

  • The acquisition of LeTourneau provides expansion of the portfolio, access to knowledge in the drilling business, and access to the strong supply chain to emerging countries. On top of this new potential Joy hopes to achieve a $40mln cost saving, which corresponds to approx. 1% of combined revenues.
  • Caterpillar/Bucyrus still is about 10x the size of Joy/LeTourneau. The lack of supply capacity and the blanks in the product portfolio will make it impossible for Joy to be a one-stop shop for all equipment as Caterpillar aims to be. By strategically picking niche markets in which the company is particularly strong (e.g. longwall mining, drilling) it can compete with Caterpillar and Komatsu.

©2011 | Wilfred Visser | thebusinessofmining.com

Caterpillar to Acquire Bucyrus

November 16, 2010 2 comments

“Caterpillar Inc. (NYSE: CAT) and Bucyrus International, Inc. (Nasdaq: BUCY) announced today they have entered into an agreement under which Caterpillar will acquire Bucyrus International in a transaction valued at approximately $8.6 billion (including net debt). The acquisition is based on Caterpillar’s key strategic imperative to expand its leadership in the mining equipment industry, and positions Caterpillar to capitalize on the robust long-term outlook for commodities driven by the trend of rapid growth in emerging markets which are improving infrastructure, rapidly developing urban areas and industrializing their economies.”

Source: Caterpillar Press Release, November 16 2010

Observations:

  • Bucyrus has a product portfolio including drills; draglines; shovels; excavators; mining trucks; highwall, longwall and room & pillar miners; and belt systems. This portfolio complements the position of Caterpillar, which is mainly strong in loaders and trucks in the mining industry. Sales are roughly equally divided over surface and underground mining equipment.
  • The offer worth $8.6bln is all cash, forcing Caterpillar to increase debt by approx. $5bln and equity by approx. $2bln. However, as Caterpillar is more highly leveraged than Bucyrus, the deal will actually help CAT to reduce leverage.

Implications:

  • The premium of 32% will have to be justified by synergies that are mainly to be found in consolidation of the supply chain, dealer and service network and in the potential for increased revenues as the Caterpillar gains a stronger position to be the sole-source supplier of mines
  • The closing of the deal is subject to regulatory approvals, which might force Caterpillar to divest some assets in order to prevent a dominant position in several markets. Especially in the area of mining trucks the new company becomes a dominant player, as Bucyrus bought the mining division of Terex early this year.

©2010 | Wilfred Visser | BlogCatalog | thebusinessofmining.com

Equipment manufacturer profits jump

July 22, 2010 Comments off

” Caterpillar Inc.’s profit soared 91% as machinery sales increased sharply from last year. The company lifted its full-year earnings outlook again, now projecting $3.15 to $3.85 a share, up from $2.50 to $3.25, as it lifted the low end of its sales prediction by $1 billion.

‘We continue to be positive about the longer-term prospects for many of the industries we serve–like mining, energy, infrastructure, electric power and rail,’ said Chairman and Chief Executive Jim Owen. “

Source: Wall Street Journal, July 22, 2010

Observations:

  • Volvo, Sandvik & Atlas Copco also reported increasing profits this week, mainly driven by growth of sales in BRIC countries.
  • Caterpillar announced a $700mln multi-year investment in a new line of mining shovels and capacity extension for mining trucks.
  • Caterpillar mentions a range of underlying growth figures driving the increased machinery sales: US non-metals mining growth of 6%; Canadian quarry growth of 2%; US coal production growth of 3%; Latin America mining output growth of 2%; 17% mining output growth in Brazil (44% for iron ore).

Implications:

  • Equipment manufacturers profits decreased mainly due to reduced inventory levels of dealers. As many mining firms are more clear about the continuation of development projects after the crisis, inventory levels are picking up again.
  • The established players in the equipment arena are preparing for increasing competition from emerging countries. Not only mining production is shifting to the new world, mining suppliers will face new challenges too. Sourcing of supplies and parts from across the world and gaining trust of Chinese and Russian investors will become increasingly important.

©2010 | Wilfred Visser | thebusinessofmining.com