Caterpillar gives Barloworld chance

caterpillar’s decision to acquire bucyrus international, which manufactures and sells a range of mining equipment, is a dream come true for jse-listed barloworld.

barloworld is the distributor for caterpillar earthmoving equipment and power systems for southern africa, iberia and russia, and the deal gives it access and an opportunity to distribute bucyrus products in these regions.

“we have been asking caterpillar to do this for the past 20 years in underground [mining] and past 10 years on surface [mining],” peter bulterman, the chief executive of barloworld equipment, said last week.

bulterman’s comments followed caterpillar’s announcement last week of the $8.6 billion (r59.8bn) acquisition of 100 percent of bucyrus international, the largest acquisition in caterpillar’s history.

clive thomson, barloworld’s chief executive, said the transaction represented a strong strategic and complementary fit with caterpillar’s existing mining product range, and a significant growth opportunity for caterpillar dealers with mining opportunities in their territories.

he said the transaction was important to barloworld because in southern africa and russia, mining represented the major part of its equipment distribution opportunity.

thomson said there was virtually no overlap in the product range except for mining trucks, where bucyrus had an electric drive option and, therefore, he did not anticipate any competition issues in south africa.

he said the transaction also opened up a significant after-market opportunity to barloworld.

“whether it’s in rope shovels, hydraulic shovels or underground equipment there is a massively increased product portfolio, which we will have the opportunity to distribute into the mining sector.

“but even more importantly, we will have the after-market opportunity not only on new product sales into the mining sector but also on the installed population base.”

thomson said barloworld was still digesting the ramifications of this to understand the size of the opportunity but stressed the equipment division was able to maintain a healthy operating margin of 8.7 percent in the year to september because of the 12 percent growth, in us dollar terms, of its parts revenue.

“the gross profit margin on parts and service is substantially higher than new machines and acts as a significant buffer for us during the downturn in new equipment sales,” he said.

thomson said big mining trucks and heavy mining equipment worked 24 hours a day, seven days a week and the intensity of mining operations caused heavy wear and tear and meant a massive parts and service opportunity.

he provided some insight into the opportunity presented to barloworld by the bucyrus transaction, stressing that 51 percent of the coal mining equipment opportunity in south africa was for underground mining. “we hardly touch that space. that represents a massive longer-term growth opportunity.”

thomson said after the bucyrus acquisition, caterpillar would have a complete line-up of surface and underground mining equipment.

barloworld competitor joy global played in some of that space but komatsu, hitachi and liebherr were largely confined to caterpillar’s historic product line-up, he said.

“with the broadest product line-up in the industry, barloworld as a dealer will essentially be a one-stop shop for global mining companies in terms of their full mining equipment needs.”

thomson said the timing of the transaction was subject to regulatory approval and caterpillar’s best estimate was that the transaction would not be finalised before mid-2011.

he said the market trend and outlook from barloworld’s latest updated five-year strategic plan forecast a strong uptick in mining activity with its equipment revenue from mining growing from 38 percent of total revenue to 56 percent in 2011.

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