Kerry Stokes’ Mining services company WesTrac is a believer in the coal industry, especially in China, judging by yesterday’s announcement of a significant expansion in China.
Seven Group Holdings (SVW) said Westrac has bought Caterpillar Global Mining’s distribution and support operations in north-eastern China for $US130 million ($142.7 million).
The deal will add an estimated $US210 million to $US250 million to Seven Group’s annual revenues. It won’t add to earnings this financial year, but is expected to do so in following years.
Westrac is already the Caterpillar dealer for north east China, and this deal means it will be able to broaden its offering to customers – and build up a more regular revenue stream from servicing and other services.
Westrac is also the major Caterpillar dealer in Australia – dominating the WA iron ore industry and the NSW coal sector.
"As underground mining accounts for more than 80 per cent of all coal production in China, the acquisition of this business will significantly increase the opportunities for WesTrac’s future growth in China,’’ said Seven Group Holdings chief executive Don Voelte in yesterday’s statement.
When the purchase is done, WesTrac said it would increase staff numbers by approximately 80 employees, including 37 Caterpillar employees and contractors in China.
"Because China produces almost half the world’s coal – with a forecast to grow – there is tremendous opportunity for both Caterpillar and WesTrac to partner and grow alongside our mining customers in the country,’’ said Caterpillar resources industries group president Steve Wunning.
The acquisition will be subject to Chinese regulatory approval and is expected to be completed on June 30, 2014.
Seven Group shareholdings rose 0.8% to $7.19 yesterday.
SVW YTD – Kerry Stokes bets more on China’s coal industry growing
Despite some reports suggesting that China is cutting coal production because of rising smog and other pollution especially this northern autumn), the truth is that the country will remain a major coal miner and consumer for years to come.
Chinese coal production is slowing – in the 10 months to October, the country’s coal association says output was down 0.3%, while sales in October rose 1.9% (because of the approaching cooler weather).
Production has now fallen in the past four months, according to the association.
China’s coal market has suffered prolonged price weakness and losses since the middle of 2012, thanks to weakening local demand, too much productive capacity and a high level of coal imports (from countries like Australia and Indonesia).
The Association forecasts that total coal production in 2013 might reach 3.7 billion tonnes and consumption is likely to grow 3%.
China’s coal consumption is expected to hit 4.8 billion metric tons by 2020, according to a November forecast from the association.
Seven Group and Westrac are banking on that forecast being accurate, judging by yesterday’s announcement and comments.
