General Electric Company
) is pursuing acquisitions to expand its underground mining
equipment business. GE currently expects 8% annual growth for the
global mining equipment industry through 2020.
First, GE has signed an agreement to acquire 100% of
Australia-based Industrea Limited, a provider of safety and
productivity-enhancing mining equipment and services. The
transaction is valued at approximately A$700 million. The deal is
expected to close by the end of fiscal 2012.
Second, the company also signed a binding Letter of Intent to
acquire Fairchild International, an independently owned and
operated underground mining equipment manufacturer based in
Virginia. Terms of this deal were not disclosed; however, GE
expects to close the deal by the end of the third quarter of 2012.
GE Transportation's global mining business provides innovative
services and equipment in critical areas such as power, water and
productivity. The acquisitions will not only generate GE additional
revenues, but also grow its manufacturing base both in the U.S. and
Australia. They also further GE's objective of expanding into other
countries with high growth potential, such as China.
Further, the company can also expand and capture a major share
of the $61 billion mining equipment industry, as on completion of
these acquisitions GE's products will be able to cater to about 35%
of the requirements of the underground mining value chain.
During the latest reported quarter, GE Transportation's overall
segment revenue grew 41% year over year to $1.2 billion. The
segment reported a 67% growth in orders, which totaled $1.6 billion
and resulted in an equipment backlog worth $3.7 billion.
The major clients for GE for the mining equipment are mining
majors such as
BHP Billiton Ltd.
Rio Tinto plc.
According to an industry report on World Mining Equipment to
2015 by Freedonia, the global market for mining equipment is
projected to grow 8.5% annually through 2015 to $92 billion,
primarily driven by growth in the Asia Pacific markets.
Demand is expected to be driven by a major pickup in mining
output growth as global manufacturing activity and construction
expenditures accelerate in a generally favorable economic climate.
Further, commodity prices are also expected to remain high by
historical standards, contributing to a rise in resource
exploration and development activity and associated mining
A report published by mineweb.com expects something similar.
This report also mentions the Asia-Pacific region as the market
with the strongest growth potential through 2015, driven by robust
increases in mine production and related machinery sales in China,
India and Indonesia. According to the source, China alone will
account for 57% of all new mining equipment demand between 2010 and
2015, even though growth is expected to slow significantly.
Central and South America will post the second fastest gains,
supported by a pickup in manufacturing and construction activity,
leading to higher demand for mined materials.
Therefore, all the major mining equipment manufacturers are
acquiring companies that have a strong presence in Asia, primarily
The above-mentioned acquisitions will put GE in direct
), which manufactures power systems and purification equipment for
the mining industry. In 2010, Caterpillar, which already had a
significant share of the market, acquired Bucyrus International for
$7.6 billion, to become the world's leading supplier of large
In November last year, Caterpillar further solidified its
position with the acquisition of ERA Mining Machinery, a Chinese
manufacturer of underground coal-mining equipment for $886
Another major operation in the mining equipment industry is
Joy Global, Inc.
) which provides high-productivity mining solutions. The company
manufactures and markets original equipment and aftermarket parts
and services for both the underground and above-ground mining
industries and certain industrial applications.
Joy Global's products and related services are used extensively
for the mining of coal, copper, iron ore, oil sands, gold and other
mineral resources. Joy had also acquired a China-based mining
equipment manufacturer to further strengthen its presence in the
Therefore, the acquisitions of the above mentioned companies by
GE come at an opportune time as global demand for mining equipment
is expected to rise. With the growing resource activity, GE as a
whole is expected to benefit, given its varied presence in the
With the help of the expertise of Industrea and Fairchild, GE
intends to accelerate technology development and expand its product
and service offerings to bring efficient, highly productive and low
emission equipment to the mining industry.
GE currently holds a Zacks Rank of #3, which implies a short
term Hold rating on the stock.
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