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Australia-based Industrea and Virginia-based Fairchild are the two mining equipment makers General Electric (NYSE: GE ) has plans of taking over. The megaconglomerate is certainly interested in pushing further into the mining market. What's pulling GE toward this market? And is it a wise move? It seems so, provided the company can take on the competition.
GE wants a bigger bite of the $61 billion global mining industry by targeting some of the top mining markets of the world. That makes sense, considering what a high-potential sector this is.
Take the case of some of the major equipment makers, whose recent numbers are probably the best hint of how the mining equipment market is doing lately. Caterpillar's (NYSE: CAT ) mining business reported a staggering 73% jump in first-quarter sales, while Joy Global's (NYSE: JOY ) first-quarter sales climbed 21% on higher shipments. So high is the demand for mining equipment globally that at current capacity, Cat is quoting delivery times extending up to 2014 for some products.
Mining giant Komatsu is also expecting demand for its equipment to hit a record high this year thanks to robust global demand. Small wonder, then, that GE is looking to bolster its position in this space.
Got to work hard
Industrea, in particular, which GE will buy for $700 million, has a strong foothold in one of the mining hot spots of the world -- China. The nation is the biggest producer and consumer of coal in the world. An upswing in the demand for commodities has encouraged China to peg its 2015 coal output at 3.9 billion tonnes. That's up more than 10% from 3.52 billion tonnes of coal produced last year.
But GE has some stiff competition to take care of. Both Joy and Caterpillar are working toward strengthening their hold in the Chinese market through acquisitions, having added China-based companies recently to their portfolios. Caterpillar in particular has been pretty aggressive in this area. It overtook Joy as the company with the broadest mining product range last year after acquiring mining-equipment maker Bucyrus International. Although not its largest division, the company is betting big on mining -- something that speaks volumes of the potential that lies in the mining sector.
Australia, where Industrea is based, is coming up as a big market for mining. Sample this: Australia's central bank feels the mining sector could soon be responsible for nearly half of the new jobs generated in the country!
The Foolish bottom line
While information on Fairchild isn't readily available, Industrea's financials prove it is growing at a rapid pace. Together, these acquisitions should prove to be good value additions to GE's transportation unit (within which the two businesses will be included). We now have to see if and how GE will try to push Cat off its perch. To stay updated on GE's moves, click here to add it to your personalized stock watchlist.
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