What happens when two of the world’s largest mining machinery companies come together?
Late last year, the world looked on as Caterpillar – a company synonymous with mine site vehicles, and Bucyrus – a firm well known for having the largest equipment running at most sites, merged.
In terms of acquisitions, this $8.8 billion one is definitely one of the largest ever carried out.
But why did it happen, and what is the company doing as it moves forward are the questions that everyone is asking.
At Caterpillar’s recent global briefing in Milwaukee, the company explained all.
Where it began
Caterpillar had been on the lookout for an acquisition for some time. Speaking to Australian Mining, they explained that the timing was right to make a move.
"We had been aiming to dramatically expand our product range to become ‘the single source solution’, and had been looking at the ways in which we could do that, but these plans had been put on hold while we all suffered from the global downturn," Tony Johnson, Caterpillar’s Resources Division’s marketing manager, explained.
"As we came out of the global financial crisis, we were better placed than most as we had a recession plan in place, a ‘trough plan’. This allowed us to survive the recession in a fairly healthy position.
"Having looked at Bucyrus before, and not seen it as a viable option then, our new relatively strengthened position in the market allowed us to make the move."
Caterpillar’s Resources Group president Steve Wunning stated that "this acquisition was all about growth and new opportunities, broadening our range of surface and underground mining products. Our aim is that wherever there is mining, Caterpillar will be there".
Business as usual?
The two mining equipment companies’ products, while broad, did not often go head to head, Caterpillar chairman Doug Oberhelman saying the two firms had virtually no overlap.
Whereas Cat is known for its trucks and earthmoving equipment, Bucyrus draglines and underground coal mining machinery were a common sight on site.
However, "this was not business as usual, this is not just buying new products," Caterpillar vice president of mining products Luis de Leon explained.
Wunning added that "its about growth, as we can see that we can grow much faster together than we could by ourselves".
With the speed of the acquisition, from the announcement in November 2010 to finalisation in July 2011, it would not been unexpected to encounter resistance to the move from workers within Bucyrus.
However, the two blended surprisingly easily given the sheer size of the merger.
Bozeman explained that it has been a good marriage going forward, adding that the changeover to Cat had been welcomed from the staff.
During a recent trip to the Bucyrus manufacturing factory in South Milwaukee, Australian Mining noted a number of Bucyrus employees sporting Cat hats and shirts along with their aubergine Bucyrus wear.
"We made sure we spent a great deal of time meeting with Bucyrus employees to make sure this transition went smoothly," Caterpillar’s president of the Resources Group Steve Wunning stated.
While the original decision was to slowly integrate the Bucyrus brand under Cat, with Bucyrus products to remain branded so for the next three years, speaking to Bucyrus customers they welcomed the total rebranding.
"This wasn’t a Cat decision, it was a Bucyrus decision – we were to go yellow from day one," Johnson stated.
The company also provided different model numbers for some equipment, to allow for product alignment.
However, it is keeping the Unit Rig electric drive trucks due to their strong market presence and history in the industry.
But these rebranding moves have worried some, with concerns raised over whether it will damage the markets of which Bucyrus had controlled a strong share.
Johnson said that while there are a lot of transitional challenges going forward, its important to get our dealers and customers on the same page, "since announcing the deal we have lost market share in some areas, but it just means we are going to have to work harder".
Widening the scope
Expanding its product range has now opened some new doors for Cat, allowing it to enter new territory.
In particular, it is looking to strengthen its position in both underground coal and hardrock mining.
Chris Curfman, Caterpillar vice president for the Resources Group sales and marketing explained that "if you’re not in underground coal in the next ten years, then you won’t be in coal.
"There is a strategic imperative to grow and expand our mining products in this space.
"Caterpillar has also played in the hardrock mining area before but has not been a major player, we are now investing in this sector to become stronger."
He went on to say that there are some high growth opportunities in underground coal and hardrock mining it has not previously explored.
These opportunities and future strategies for the company were discussed in September.
However, moving forward there is already an outline for what Cat will be doing.
One of the major developments is the expanding of its service and distribution network.
Dealing with the issues
Caterpillar told Australian Mining that is has increased its focus on the distribution and dealer network.
One way in which it has done this is by expanding its set network regions, growing from five ‘super region’ up to 15 "to provide greater support for our dealers and to drill down on customers demand," Johnson explained.
The Australian question
So how will this move effect Australian operations and sites?
With the increased focus on underground coal mining, operations at Caterpillar’s Burnie factory are set to quadruple, de Leon told Australian Mining.
It is set to grow to the degree that Cat is already looking to open another factory to fulfil demand.
But it is not just growing in underground mining equipment, with the company planning to dramatically expand its footprint for manufacturing, Bozeman said.
"This is part of our $5 billion investment in our mining division outside of the Bucyrus buy, particularly in R&D, in electric trucks, automation, new products, and increasing the capacity of our factories by 70 to 80%," he explained.
With a wide range of products to integrate, Cat found itself buying a lot of yellow paint.
In underground coal mining, the company has for the first time found itself a complete portfolio provider.
Underground product manager Keith O’Neil explained that the primary focus will be on China; however while Australia is still seen as the main driver from an innovation standpoint, in a joint venture between Cat and Shenhua of China it developed the SH680 for the Chinese market, which can carry smaller 80 tonne shields.
It is also looking at longwall technology such as automated longwall top coal caving, which is designed for extremely high seams.
Room and pillar mining is now a forte for the company, as it looks towards the development of continuous haulage solutions.
It has also branched out into highwall mining, to allow for the recovery of coal from room and pillar operations.
According to Cat, there is currently one highwall operation at work in Australia.
Within the hardrock mining space, Cat has made improvements to its articulate dump trucks, and is developing a new underground loader that will be ready for the market by the fourth quarter of next year.
It will also look towards expanding its presence in jumbo drills, with the company stating that it is "lagging behind in market share".
One of its most interesting developments in this space is ‘Rock Flow’ – a continuous haulage flow system from draw points, negating the need for underground loaders.
It will see first deployment in 2013.
Caterpillar will continue in its heavy focus on mining trucks, and keep the Unit Rig brand alive while integrating Cat products (such as hoses) into the machines.
Unit Rig technology will also find its way into Cat trucks as well, surface mining trucks manager Ed McCord stating: "the merger of these companies is a two way street, as we can capitalise on each other’s knowledge."
It will also look "to insource as many Cat components as possible into the new products, but we won’t simply jam a Cat engine into a Terex machine because it’s there," Bozeman said.
McCord explained that they are spending $800 million to improve truck capacity, not just utilisation, and expect to produce 35% more mining trucks this year than in 2008.
There will also be an increased focus on technology, especially turbo charging, truck automation (such as the planned autonomous truck network for Fortescue Metal Group’s Solomon Hub) and exploring the use of LNG as an alternative fuel source.
Cat’s 789D is set to begin production in January next year.
Materials handling has also risen in stature, with the company planning to introduce new hauling products over the next two years.
McCord added "while Bucyrus conveyors have mostly been underground, Cat is looking to expand the skills set into surface applications".
Cat has also recently announced the release of new dozers, the D11T and D11T CD.
The equipment manufacturer is also taking a step into the drill market.
In particular rotary blast hole drills and hydraulic track drills, which will all be Cat branded, Sri Srinath, Caterpillar’s materials handling division manager stated.
It also has a patent pending for carousel rod changers on its hydraulic drills.
Srinath went on to say that there are plans for regional manufacturing centres.
Automation and software
In line with leaps forward in technology such as Rio Tinto’s Mine of the Future in the Pilbara, Caterpillar’s "vision is to move to full site automation, from the pit to the port," Al Frese explained.
"It is not just about driverless trucks."
He said Cat’s Minestar system is assisting in integrating mining operations.
It consists of Fleet – an advanced vehicle assignment module; Terrain – which includes CAES and AQUILA; Detect – for vehicle proximity awareness and comes as standard for large trucks; Health – which proactively identifies problems that may cause downtimes; and finally Command – which provides controls for remote, semi-autonomous, and fully autonomous drilling, dozing, hauling, and loading.
The draglines, for which Bucyrus is known, were first shipped as Cat draglines in August.
Joe Helfrich, the general manager for surface extraction, said "I don’t think there is a surface mining solution we can’t provide now".
He explained that there will be greater standardisation across the manufacturing process to cut down lead times for draglines, rope shovels and hydraulic shovels, with a forecast dragline output of approximately one every eighteen months.
Cat is planning to integrate hydraulic shovels into the autonomous truck program to optimise shovel/truck oeprations, Helfrich adding that "there will soon be significant announcements on this front".
It is also accelerating the development of the HydraCrowd, Latchfree Dipper and new cab features for hydraulic shovels.