Mining Stocks Surge on Consolidation
Shares of mining equipment makers rose Monday after a leading manufacturer of above-ground equipment bought a German company for $731 million and another turned in results that easily beat Wall Street expectations.
Bucyrus International Inc.’s shares jumped $5.75, or 13.5 percent, to close at $48.48 on the Nasdaq, one day after the South Milwaukee-based company announced it would acquire DBT GmbH, a subsidiary of RAG Coal Intl., in a cash and stock deal.
Joy Global Inc. said Monday rising demand for underground mining equipment overseas pushed its fourth-quarter profit up 52 percent to $85.2 million. Analysts has predicted $77.28 million according to Thomson Financial. Its shares rose $3.65, or 8.3 percent, to $47.88 on the Nasdaq.
Rising demand overseas for copper, iron ore and surface coal are softening the slumps seen in the U.S. coal market, said Mike Sutherlin, who will take over as president and chief executive officer of Joy Global after the first of the year. Orders for U.S. coal customers dropped by one-third as mild weather created less demand for power this winter, he said.
“Those conditions will undoubtedly change. When they change, they will change rapidly, and it is just really uncertain when that is going to happen,” Sutherlin told investors on a conference call Monday.
Both companies are looking to expand growth overseas, especially in China, which has a healthy coal mining industry, along with other commodities. Bucyrus’ acquisition of DBT, based in Lunen, Germany, will help the company grow not only in China but also in other developing countries like Russia and India, said Tim Sullivan, president and chief executive officer of Bucyrus.
DBT, which makes underground mining equipment, plows and conveyers, has eight facilities around the world, about 3,200 employees and $1 billion in annual revenue.
Bucyrus, which makes drills for surface mining and large shovels, has abouts 2,000 employees and had more than $575 million in sales last year.
The transaction — which does not require shareholder approval — is expected to be completed within the first three months of the year.
Analysts like Charles Brady, with BMO Capital Markets, said in a research note the deal will bolster Bucyrus’ business because it “adds a robust underground mining segment.”
Joy Global Inc., which does business both as Joy Mining Machinery and P&H Mining Equipment, sees the company’s greatest opportunities for growth in China, especially from the increase in steel production there, Sutherlin said.
The company is expanding capacity at its main headquarters in Milwaukee and in Tianjin, China and has lately seen a surge in Europe as well, he said.
Joy Global reported a 20 percent increase in new orders in the period, despite the drop in U.S. coal orders. Revenues rose 21 percent to $689 million, above analysts’ estimates of $655 million. The company finished the year with $2.4 billion in sales, up from about $1.9 billion last year, and expected next year’s revenue to be within $2.75 billion and $3 billion.
Prices for mined commodities on the whole have grown, especially as China’s market expands, said Robert McCarthy, an analyst with Robert W. Baird & Co.
“With apparently good support under higher commodity prices, miners are striving to expand production and new machinery orders are up sharply,” McCarthy said in a research note.
