Sept/Oct 2011

A metamorphosis for Caterpillar

Acquisition of Bucyrus one element of a larger aggressive growth strategy

By V. Heffernan

Growing demand for commodities has convinced Caterpillar to sink several billion dollars into the mining industry to secure its place as the supplier of choice to mines around the world. The company’s recently completed US$8.8 billion acquisition of Milwaukee-based Bucyrus International gives Caterpillar Global Mining the broadest product line in the industry; it will invest another $5 billion to upgrade plants and develop products to cover the gamut of underground and surface equipment, including drills, trucks, drag lines and haulers.

“We’ve been trying to get to this point for the past five years, but we were a big fish in a little pond,” vice-president of sales and support Chris Curfman told members of the global mining press gathered at Caterpillar’s new division headquarters in Milwaukee in August. Before the Bucyrus acquisition, Caterpillar products represented just 23 per cent of the mining equipment field. Now mining operations will become “a sea of yellow,” he said.

Initially, Caterpillar planned a slow integration of the Bucyrus brand with Caterpillar over a three-year period, but several customers requested an instant rebrand. So from now on, all Bucyrus equipment will sport Caterpillar’s distinctive yellow paint and Cat logo.

It is too early to judge how the Bucyrus acquisition will affect other mine suppliers such as Atlas Copco, Joy Global and Komatsu, but Caterpillar is aiming to at least double its market share over the next few years by providing a one-stop shop for all mining equipment, and leveraging its reputation for exceptional product support. “It was our mining customers that asked us to do this,” said Steven Wunning, president of the global mining division. “They want fewer larger suppliers to share in the business risk.”

The hardest nut to crack will be the underground mining market, where Joy Global and Sandvik dominate. In this sector, Caterpillar sees opportunity in  where the government is aiming to consolidate about 25,000 smaller mines into 4,000 much larger operations by 2013.

Currently, Caterpillar’s room-and-pillar mining systems are used by seven of the top 10 coal producers in the United States, but the company sees future growth in India, Russia and Australia. The same markets may also be receptive to Caterpillar’s highwall miners that have the ability to link surface and underground operations, but are currently used almost exclusively at operations in the U.S.

Perhaps the biggest challenge for Caterpillar will be to build market share in hard rock mining systems that require LHD vehicles and jumbo drills, not traditional strengths for a supplier dominant in the coal sector. “Hard rock is an area that both Cat and Bucyrus have played with but now, with all of our different products, our dealers and our financial strength, we will be investing in this area and we will be a much stronger player in the next few years,” said Luis de Leon, vice-president of the mining products division.

The company is already making improvements to the AD55 ore haul-out vehicle and the R1600 underground mining loader, and plans to launch a new underground loader in the fourth quarter of 2012. Another new underground product designed to provide automated continuous flow at block caving operations, resulting in lower costs and reduced need for diesel engines, will have its commercial debut at a copper mine in Chile in 2013.

An indication of Caterpillar’s strength in surface mining is its fleet of 10,000 mining trucks, a milestone reached just this year. And unless there is a major correction in the world economy, that number could reach 15,000 in the next few years as Caterpillar taps into unrealized potential outside of its traditional markets in North America and Australia and spends $600 million on plant expansions.

Executives from four separate Caterpillar dealers, including Finning Canada, were on hand in Milwaukee to comment on the Bucyrus acquisition and explain what it will mean for their businesses. “This is a huge win for us,” said Dave Parker, president of Finning Canada. “It instantly gives us a new line of products that we’ve been missing.” Finning is a major supplier to companies mining the oil sands in Alberta, where Bucyrus has facilities in Edmonton and Fort McMurray.

Carter Machinery CEO Jim Parker called the deal a “game changer” for his company, which supplies coal operations in Virginia. “A lot of our companies are moving underground because of permitting challenges and they are looking for product support,” he said. “The Cat system will provide it.”

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