Caterpillar Places Mining Bet With New Buy 卡特彼勒收购中资矿山机械企业押注中国矿业未来

By newsdoug on November 11, 2011

Caterpillar (NYSE: CAT), the US maker of heavy construction equipment used to build everything from office towers to roads, is no dummy when it comes to knowing where the future growth is, as reflected by its latest plan to buy a Chinese mining equipment company. (English article) The company announced it wants to buy ERA Mining Machinery (HKEx: 8043) for HK$0.88 per share, or a 33 percent premium over its last closing price. From my perspective, this looks like a very smart move by Caterpillar to boost its presence in an area that China has clearly earmarked for development, namely the mining sector as Beijing aims to reduce its reliance on imported iron ore and coal to feed its hungry economy. As it seeks to achieve that goal, the country’s miners, such as Shenhua (HKEx: 1088) and Yanzhou Coal (Shanghai: 600188; HKEx: 1171), as well as iron ore producers, are likely to need new equipment to develop resources not only at home, but also abroad. The move is also a smart hedge against the more traditional users of heavy construction equipment, namely the infrastructure and real estate industries, which are both overheated and look set for major slowdowns in the next 2 years. Despite the real estate industry’s cloudy outlook, Soufun (NYSE: SFUN), a leading provider of online real estate services, has just surprised the market with very strong earnings, with revenue nearly doubling in the third quarter and profit growing by an even stronger amount. (company announcement) Soufun shares plunged nearly 9 percent on Thursday before the results came out, and only bounced back slightly in after hours trading after the upbeat announcement. I expect we may see some bigger gains on Friday on this upbeat report. Still, this positive result is probably more a sign that a long-awaited correction in China’s real estate market is finally beginning rather than any improvement in the market. That’s because Soufun makes its money on transaction volumes that are finally starting to grow after months of stagnation, as many cash-needy real estate owners waiting for the market to improve finally start selling their properties at reduced prices.

Bottom line: Caterpillar’s purchase of a mining equipment maker looks like a smart move, drawing on China’s goal of boosting its self-reliance in the important energy and steel sectors.

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