A New World Order for Mining OEMs
- Published: Saturday, 22 October 2011 18:13
Cat integrates Bucyrus and unveils its future intentions
By Steve Fiscor, Editor-in-Chief
Caterpillar’s $8.8 billion acquisition of Bucyrus is a big deal, even for the mining business. More than half of the world’s mined commodities are extracted by surface mining methods. When the largest mining-class haul truck builder buys a company that has some of the largest loading tools, a large portion of the mining business will be immediately affected. Prior to this deal, Bucyrus had acquired Terex Mining and Deutsche Bergbau Technik (DBT), so the company was already much more than draglines, shovels and drills.
For mining enthusiasts, seeing the Bucyrus name fade away will be difficult. Similar to the Bucyrus approach when it acquired companies, Cat will rebrand almost all of the equipment. That was not the original intention. As time passed after the initial announcement and miners worldwide began to grasp the reality of the situation, they impressed upon Bucyrus that they were expecting to see Cat product and services. Leaders at Bucyrus recognized this and submitted. With the exception of the Unit Rig line of haul trucks, all of the equipment will be branded Cat and painted yellow.
There are some things Bucyrus did well that Cat could not and vice versa. For this new collective, Cat Global Mining, to be successful, it will have to capitalize on both companies’ strengths. From the Cat side, that would be the mind-set of a leader, manufacturing excellence and superior service with an extensive dealer network. Bucyrus brings a wealth of mining experience and the master craftsmanship associated with large mining machines and massive hydraulics. It too has a global network and a vast knowledge of underground coal (or soft rock) mining.
On July 11, 2011, Day One, as Cat refers to it, it took control of Bucyrus and Cat Global Mining moved into a new corporate office that Bucyrus had recently purchased in Oak Creek, Wisconsin, USA (a southern suburb of Milwaukee). Cat retained key Bucyrus managers and, to prove it was serious about the integration, it appointed one to an executive role.
Steve Wunning, group president of resource industries, now oversees Cat Global Mining. He has been with Cat for 38 years and is one of five group presidents reporting to the CEO. Chris Curfman remains vice president of mining sales and support division, a position he has held for eight years. He relocated from Peoria to Milwaukee. A former Bucyrus executive, Luis de Leon, now serves as vice president of the mining products division, leading a diverse team of mining-related product managers. He relocated to Milwaukee when Bucyrus bought DBT.
The acquisition also created a beneficial internal dynamic for Cat. The Unit Rig truck line, the rotary blasthole drills and large hydraulic excavators, for example, will eventually be repowered with Cat diesel engines, Cat hydraulic hoses, Cat components, etc. Miners will be able to take advantage of emissions control, parts standardization and performance if they so choose.
A company’s performance, however, is based on its people and Cat believes it has assembled the best team in the business. While there may be a few redundant facilities worldwide, most everything will stay intact. Many of those facilities will be sold to dealerships and those dealers will in all likelihood retain those people and probably hire more. Even though Cat was onsite servicing a regiment of mining equipment, it will now need a full complement of technicians to service the shovels and excavators. In other instances, dealers that have only dealt with surface mining will now be working with underground mining equipment.
The stakes are high. Cat Global Mining has one major horizontal competitor—Joy Global, which owns P&H Mining Equipment, Joy Mining Machinery and Continental Conveyor, and is also headquartered in Milwaukee—and a large group of vertical competitors. Already these competitors are trying to capitalize on the situation. They know they have about a year or so before the Cat integration is complete worldwide. Losing market share to these companies would place Cat in unfamiliar territory—a No. 2 position or worse. On the other hand, many of these companies have never had to elevate their game to Cat’s level.
The Integration Begins
In November 2010, Cat announced its intent to acquire Bucyrus. Both companies had worked side-by-side at surface mines for nearly 100 years. In a lot of ways, the combination was complementary. Both were headquartered in the U.S. Midwest with little equipment overlap. When Cat was originally considering the electric drive trucks, it pursued Unit Rig. Terex, which already owned the O&K line of mining-class hydraulic excavators, purchased Unit Rig, Reedrill and Superior Highwall Miners, and formed Terex Mining. Terex Mining was sold to Bucyrus. More recently, Cat announced its intentions to begin building mining-class hydraulic excavators again and to upsize the line to match the largest such machines available. Prior production of the Cat mining excavators, the largest of which handled a bucket size of about 22 yd3, was discontinued in 2004. With the Bucyrus acquisition, Caterpillar gains access to the mining expertise it had actively pursued and much more.
How will mining companies benefit from this transaction? “This deal ties in very closely with what our mining customers want: fewer, more strategic suppliers to help them be successful,” Wunning said.
“During, the last three to four years, our customers have been saying you [Cat] need to add drills, shovels and various products,” Curfman said. “They like buying from Caterpillar. They want more from us. We will be able to go to that customer with a menu of options, which should make life much easier for them. We have the best people from both companies with global experience. We now have a combined knowledge base that’s unmatched.”
“In the end, the people are going to be the critical component in this transaction,” de Leon said. “These people have been working for these companies for decades. They have a lot of experience when it comes to mining. These products are complicated. Our customers expect qualified people. We have done our best to retain those people. We need the resources in the field, especially former Bucyrus people, to make this work.” De Leon also senses huge potential for cross pollination within the group, especially when it comes to safety and systems performance.
De Leon acknowledged Cat’s competitors, essentially any company making a large piece of mining equipment. “They will be competing for market share on a product-line by product-line basis,” de Leon said. “We will have to match up with every one of them, otherwise we will be second best and that’s unacceptable. We will compete machine by machine. Simply being part of a large company is not enough.” The only two production tools it does not have in its arsenal are long-hole drills for hardrock operations and tethered shuttle cars for underground coal.
De Leon’s team of product managers includes: Harry Bussman, product manager-underground; Joe Helfrich, product manager-surface excavation; Ed McCord, product manager for large mining trucks and shovels; Sri Srinath, product manager-surface material handling; and Larry Tate, product manager-hauling products.
Cat placed the Bucyrus conveyor systems in its hauling products group, which includes small off-highway trucks (100-ton and less), articulated trucks, wheel tractor-scrapers and E-Ject Systems towed scrapers and ejector trailers. “For conveyors, we are looking at two approaches, the conveyor systems and engineering solutions for the mines,” Tate said. “Bucyrus has been very successful with underground conveyors and we’re eager to explore some opportunities for these systems on the surface as well.”
The surface drill and drilling tools have been grouped as material handling products with the dozers and large wheel loaders. “All of the drills are now manufactured in Denison, Texas,” Srinath said. “We are very excited about the drill match up with dealer network. The drill nomenclature for the track drill is based on hole diameter, while rotary drills use pull down force. Over time, the diesel engines on the drills, the hoses, etc., will be replaced with Cat product.” Based in the U.K., Halco Rock Tools builds DTH hammers for mining and they are also used in other drilling applications. The plan, Srinath explained, is to develop a global product support infrastructure for these tools and leverage the Cat dealer network.
Cat divides the world into five regions: North America (U.S. & Canada); Latin America; EAME (Europe, Africa and Middle East)/CIS/India; Asia-Pacific; and China. The company now has more than 175 independent dealers, 130,000 dealer employees and 3,500 places of business in more than 180 countries.
A Huge Transition for Cat’s Dealer Network
Cat Global Mining will employ 700 directly, which is twice the staff it had previously. The remaining Bucyrus people will transition to the Cat dealer network. “There will be thousands of people in the field facing mining customers during this interim period and many of them will be transitioning from Bucyrus shops to Cat dealerships,” Curfman said. He acknowledged the significant transition taking place in the dealer network.
The process started in mid-September and is expected to be completed during the next 18 months. “The timeframe depends on the size of the territories and the Bucyrus and Cat products. In underground coal, we have zero experience and will be relying on Bucyrus people to educate us and vice versa as far as Cat people teaching the Bucyrus people about our equipment.”
The underground coal segment will certainly add a new twist. Previously, Cat’s involvement with underground coal was limited to the diesel engines employed in scoops and LHDs. When Bucyrus bought DBT, it not only acquired underground coal mining equipment, such as longwalls, continuous miners, rubber-tired haulage, roofbolters, etc., it also acquired underground haulage systems, including conveyor drives and accessories and continuous haulage for low-coal applications. Similar to draglines and shovels, longwalls are major capital items for mining companies that cost $50 million or more. All of this equipment is subject to more stringent laws and guidelines that vary by country. While underground coal production has reached a plateau in the U.S., Cat sees demand surging in China and a very brisk market in Australia.
Wheeler Machinery, a key Cat mining equipment dealer, covers Utah, southwest Wyoming, central and eastern Nevada, and northwest Arizona. Mining represented one-third of Wheeler’s total revenue and it’s now expected to climb to 50%. “Previously, our territory covered Bingham Canyon, surface coal, open-pit and underground gold, and some iron ore,” said Rob Campbell, president, Wheeler Machinery. “We have already started initial planning and there are three things we have to get right: expanded coverage, we will now become experts in shovels, longwalls, etc.; parts availability, mining is 24:7 and parts are crucial; and technical expertise, making sure we can provide field support and rebuild support. As we have learned more about underground coal mining, we have realized it’s a huge opportunity for us due to the frequency of the rebuilds.”
Finning Canada covers Alberta, B.C., Yukon Territories and part of the Northwest Territories. The dealer employs more than 4,000. “The oil sands operations are the biggest part of our business and most of the mining activity was surface mining,” said Dave Parker, president, Finning Canada. “The Bucyrus acquisition represents a big opportunity for us primarily with draglines, shovels and drills.”
Carter Machinery covers Virginia and nine counties in southeast West Virginia. The region has about 300 coal mining operations and many of those are underground operations. “We knew this was going to be big, but we didn’t realize just how big,” said Jim Parker, president, Carter Machinery. “We will have responsibility for underground coal and this is going to be a game changer. We couldn’t be more excited and our customers are excited, too. They were enthused about Bucyrus and now they are looking for significantly better product support. We are going to give it to them.”
Within the five regions, Cat Global Mining has five general managers. “Going forward we will have 15 smaller regions headed by a full field force team with a regional manager,” Curfman said. “We are going to be spending a great amount of time with dealers to determine how we can improve product support. We will have mine site managers at the top 50 mines in the world, where we have seven or eight today.” Cat is putting a lot more focus on field people.
Two Lines of Trucks?
When Ed McCord talks trucks, miners listen. Cat haul trucks have been popular since their inception and he has played an integral role in building the company’s current share of market to more than 80%. “Cat had a full range of trucks before this acquisition,” McCord said. “Now, we have two full ranges of mining trucks. We have six Cat mining trucks from the 150-ton Cat 785 to the 400-ton 797. We also have the Unit Rig range of trucks, a full line of electric-drive trucks from 150 to 400 tons.”
The No. 1 position held by Cat has now been combined with Unit Rig, which has traditionally been No. 3. “We have the broadest range of both the electrically- and mechanically-driven trucks,” McCord said. “So…what are we going to do with it? We [Cat] have had a lot of time to think about the answer to that question. We have had eight years to think about it. On July 1, 2003, we announced we were acquiring Unit Rig and we expected to complete the acquisition by the end of the year. It didn’t take six months; it took eight years.” Tongue in cheek, McCord said Cat should get an A for perseverance.
Cat intends to continue to offer both product lines. “We believe there is a place for the traditional Cat truck and the Unit Rig trucks,” McCord said. “All customers want safety, quality and the lowest costs per ton. Some do not necessarily need the best productivity, best component life, best fuel efficiency, etc. Some people are looking for emissions control; others are looking for fuel efficiency.” He did not say it, but Cat dealers can now provide electric drive trucks manufactured in Mexico without Tier 4 emission controls to customers without placing further stress on the Cat truck factories in Decatur, Ill.
McCord holds the Unit Rig line of trucks in high regard. “Unit Rig was the first company to build a mining-class haul truck,” McCord said. “They were building electric-drive trucks in 1969. They had a 200-ton truck back then. We [Cat] did not build our first 200-ton truck until 1989. They were pioneers in electric drive trucks and pioneers in big trucks.” Unit Rig built the first 240-ton haul truck in 1986; Cat introduced its first 240-ton truck in 1991.
The Unit Rig Lectra Haul automatic truck control system was available in 1972. “They were pioneers in automation,” McCord said. “We did not build our first autonomous truck until 1996. Our first fully-autonomous units started running only recently. These things take time and it always takes a pioneer to get things started and that was Unit Rig.”
What kept this pioneer from achieving greatness? According to McCord, Unit Rig lacked in a couple of areas. “They lacked in investment,” he said. “The predecessor [Terex] was not in a good position to invest in the mining truck product line. To be successful with mining trucks, a company has to make significant investments.”
The company struggled with product development and distribution. “Although several new models had been developed, the amount of technical resources was limited,” McCord said. “They did a great job with a small group of people, but to keep up with the industry leaders, more investment and development was needed.” The trucks moved to the market through factory branches. The trucks were either sold directly, by independent dealers or P&H MinePro Services.
All of these weaknesses are Cat strengths. “With Cat type product support, investment, distribution and development, we will be able to do some remarkable things with these Unit Rig trucks,” McCord said.
In January 2011, Cat celebrated its 10,000th mining truck, a milestone no other truck maker has reached. “It took us 20 years to make the first 5,000 [1984-2004],” McCord said. “Then 6.5 years later [January 2010], we produced another 5,000. We are building them at record levels today. It’s anybody’s guess when Cat will hit 15,000. Barring a major world meltdown, we should reach 15,000 much more quickly than the timeframe to go from 5,000 to 10,000.” As far as product distribution, Cat trucks are spread evenly among mining regions: U.S. & Canada (33%), Latin America (21%); and Asia Pacific (31%).
Unit Rig has sold more than 2,200 mining trucks (150 tons and above) mostly to Asia (41%). The company placed 22% in North America and only 6% in South America. “Where Unit Rig has done well, Cat has not and vice versa,” McCord said. “The lines are complementary. Even though they are the same models, there is significant market compatibility.”
Cat kept the Bucyrus/Terex nomenclature for trucks. The MT6300, which was introduced at MINExpo 2008, would be equivalent to the 797F. “Yes, they are both 400-ton trucks but they are configured quite differently,” McCord said. “The 797 is a mechanical drive. The 6300 is an electric drive. The 797F has a robust cast frame vs. a fabricated frame on the MT6300. The 797F has oil-cooled wet-disc brakes; the MT6300 has dry disc brakes. Cat trucks have 4-corner retarding; Unit Rig trucks have rear-axle retarding.” McCord believes the two can cohabitate peacefully.
Cat has moved from the pilot stage to the production stage with the 795F, Cat’s first commercial electric drive truck. “By the end of the year, we intend to have 60 795Fs in 14 different mine sites around the world,” McCord said. “This truck has expanded globally much faster than we anticipated and we have adjusted our introduction plans accordingly. We have more than 11,000 hours on the oldest truck. We are averaging more than 550 hours per month per truck. We have one exceeding 630 hour per month. It’s likely that truck will exceed 7,500 hours in its first year of operation—rather unheard of for a pilot line.”
The Unit Rig 5500 would compete with the 795F. It was introduced in 2000 and these trucks are accumulating hours in the field. Some of these trucks have 60,000 hours vs. 11,000 hours on the 795F. “We believe there is a place for this truck in our product line,” McCord said. “We’re monitoring this truck carefully to determine how it will fit with the 795F.”
The 240-ton Cat 793 is the cornerstone for Cat’s large mining truck range. “We have 793s all over the world,” McCord said. “2011 will be a record year again for 793 production. We have more than 3,400 trucks in the field. We have mechanical- and an electric-drive version. We have resumed our electric-drive program for the 793F despite the fact that we have purchased the Unit Rig product line.”
Likewise, the MT4400 is the most popular Unit Rig truck, and it likely will be the first of the Unit Rig line to get a Cat power train. “This truck started as a DC drive,” McCord said. “It was the industry’s first 240-ton AC drive product. In fact, Unit Rig is the only electric-drive manufacturer with a complete line of AC drive trucks. We believe there is a place for the MT4400.”
The MT 3700 fills the need for a 200-ton AC drive truck. “Five years ago, when Cat announced its electric drive program, we said we could not justify an electric drive under 240 tons,” McCord. “Now we have a 200-ton AC drive truck and we intend to make something of it.” As far as the MT 3300, McCord explained finding and developing components that would be cost effective in the 150-ton class is very difficult. He is “unsure” of the future of this product.
All of these trucks have a diesel engine. The Cat trucks have Cat engines. The Unit Rig trucks have either a Cummins or a MTU engine. “We have two Cat mining truck engines: the C175, which powers the 793F and above, and the 3500,” McCord said. “You can count on seeing those engines in the Unit Rig trucks.”
Cat first entered the underground hard rock business when it acquired the Elphinstone line of equipment, which was based in Tasmania, and rebranded it Cat Underground. The company had a line of LHDs and supporting rubber-tired haulage. With the Bucyrus acquisition, Cat will now become immersed in underground coal mining. In fact, the company now has all of the equipment necessary to fully equip a longwall mine, including the room-and-pillar equipment needed to develop the gates and the conveyors to haul the coal to the surface. In addition to the coal (soft rock) mining equipment, Bucyrus offered a line of jumbo drills and Caterpillar is continuing to offer those drills. Bucyrus has also been developing a system to automate haulage at the draw points for caving operations.
Cat’s new underground segment now consists of longwall mining, room-and-pillar, highwall mining and hard rock mining. On a pro forma basis, longwall mining represented 55% of 2010 sales, hard rock mining (25%), room-and-pillar mining (15%) and highwall mining (4%).
All of the longwall mining equipment is produced in Lunen, Germany. Jumbo drills are made in Sudbury, Canada. The highwall miners are built in Beckley, W.Va. A facility in Houston, Pa., handles continuous miners. A factory in Pulaski, Va., makes continuous haulage and utility vehicles. Another factory in Australia builds large diesel products for room-and-pillar mining and for hauling longwall roof supports.
As far as integration, one of the biggest transitions for Cat Global Mining will be servicing the underground coal market. The company is already training the entire dealer network on underground mining products. In the U.S., nearly 75% of room-and-pillar coal mining takes place in Appalachia and it will be serviced by Cat dealers which have not worked with underground coal until now.
Cat sees big opportunities for underground coal, especially in China. In 2004, China had 25,000 mines. It plans to consolidate the mines to 4,000 by 2013, yet it needs to grow production by an extraordinary amount. This will require a technological leap in productivity. The Chinese embrace western coal mining technologies and Cat plans to capitalize on that need.
As far as longwall mining systems, Bucyrus has 125 sets of roof supports, 148 armored faced conveyors (AFCs), 31 automated plow systems and 41 shearers. In addition to a coal-rock interface detection system, Bucyrus had also developed a personnel proximity detection system. In 2010, Bucyrus introduced the 965-hp CM 235 continuous miner for coal. In 2009, the company launched the CM 445, which is designed for high reach cutting applications in South African coal and potash markets. Cat now has 68 highwall miners operating in U.S. coal.
For hard rock miners, Cat is making improvements to the AD55 ore truck, which will be ready in the third quarter of 2012. In addition to making improvements to the R1600 LHD, the company is also developing a new LHD, which will be ready in the fourth quarter of 2012. The improvements for both the truck and the LHD cover serviceability, power train, engine and cooling, system integration, hydraulic system and structures.
During the acquisition process, Cat discovered a line of jumbo drills in the Terex line of equipment. The machines were originally geared toward tunneling operations. Cat is upgrading the drifters and is now looking to deploy these machines in mining operations.
Using its skills with AFCs, Bucyrus was working with an underground copper miner in Chile on an R&D project for caving operations. The concept, the Rock Flow Feeder and Rock Flow Mover, could improve production by generating a more continuous haulage system from the drawpoints as opposed to the cyclic LHD flow. The first industrial application is expected to be implemented in 2013.
The surface extraction group consists of draglines, electric shovels and hydraulic shovels.
“All of these tools compete with each other, but clearly draglines are the most effective means of moving overburden, and the largest shovel is more cost effective than the smaller excavator,” Helfrich said. “As a group, we try to develop an optimal solution that meets the needs for surface miners worldwide.” The first Cat-branded shovel, the 6030, was recently shipped to Finland.
Draglines, electric shovels, and the Cat 6090 (formerly the RH 400) are manufactured in South Milwaukee. All of the draglines are now AC-drive machines and more recently Bucyrus placed a gearless AC drive dragline at the Zhungeer coal mine in China—an industry first.
The production process for a dragline is lengthy. From customer inquiry to delivery is usually three years. “That lead time often skews the business model in favor of another method of moving overburden,” Helfrich. “The Cat supply chain will allow us to compress this timeframe, perhaps by as much as a year.” With standardized production, slotted scheduling, and dealer-managed field assembly, Cat could make draglines a more appealing choice. (No implied tonnage with the dragline nomenclature.)
The plan for hydraulic excavators is to leverage Cat’s footprint to meet capacity needs. “We [Bucyrus] moved production of the Cat 6090 from Dortmund, Germany, to South Milwaukee. Over the next six months to a year, more product shifts will take place. We will merge the Cat and Bucyrus new product introduction [NPI] programs. Two years ago, Cat announced a hydraulic shovel development program. With the Bucyrus acquisition that initiative was suspended in January. Cat is now rationalizing the two programs.” (The nomenclature, the digits after the 6 indicate a nominal payload. No distinction previously between backhoe and front shovel.)
The strategy for electric shovels is to accelerate the deployment of the HydraCrowd, the LatchFree Dipper and the new cab features. “It’s fair to say that we have had some launch problems with these products,” Helfrich said. “Customers retained the features and continue to purchase them because they provide measurable value.”
The next level of NPI for both excavators and shovels will optimize pass-matching with trucks. “These machines have strong data collection systems that will interface well with MineStar,” Helfrich said. “Eventually we will begin integrating them with the autonomous truck program. The technologies developed around the autonomous trucks will be readily adaptable to excavators and shovels. We will soon be able to introduce an integrated autonomous package.”
Clearly, the new Cat Global Mining organization has set some ambitious, yet attainable goals. “We’re obviously very bullish on mining, not just the next year or two, but the next 30 years,” Wunning said. “In addition to the Bucyrus purchase price, we will invest another $5 billion collectively between R&D and increasing capacity at the factories over the next few years. We are planning a 70% increase in capacity over what we are producing today.”
“This acquisition was about growth,” de Leon said. “We felt we could grow much faster together than either company could alone.” Success will depend on execution, de Leon explained, and Cat believes it has the inside track with the best people.