Caterpillar banks on China growth with ERA deal

AP News
Posted: Nov 11, 2011 6:46 AM

Caterpillar Inc. said Friday its offer to buy a Chinese maker of mine safety machinery will help it expand in the world's biggest coal-producing country as it modernizes its mines.

The proposed deal to buy Hong Kong-based ERA Mining Machinery Ltd. for as much as $886 million would also help Caterpillar expand sales of mining equipment to other countries, said Steve Wunning, who oversees the company's mining equipment business.

ERA is China's third-biggest producer of hydraulic roof supports for coal mines.

U.S.-based Caterpillar, which announced the offer on Thursday, says expanding in the mining industry is one of its top priorities.

The deal would "help our Chinese mining customers to become more efficient and safer at the job site," Wunning said.

The deal is "all about growth, serving our customers in China, but also allows us to serve customers outside of China" by selling them mine equipment made in China by ERA, Wunning said.

The deal needs the approval of China's Ministry of Commerce and other regulators.

He said China consumes about 40 percent of the world's coal and accounts for 70 percent of underground coal mining.

China's coal mines are the deadliest in the world, although their safety record has improved in recent years as smaller, illegal mines have been closed. Annual fatalities are now about one-third of the high of nearly 7,000 in 2002.

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The proposed purchase of ERA is the latest step in Caterpillar's long-term strategy of expanding into the mining industry. Early this year, Caterpillar completed its $7.6 billion purchase of Bucyrus International Inc., which makes surfacing mining equipment.

Caterpillar is competing with U.S. mining equipment maker Joy Global Inc. to expand market share in China. Joy Global said this summer it wants to take majority control of China's International Mining Machinery Holdings Ltd. That deal still needs government approval.