WesTrac bolsters China business with $143m Caterpillar deal

WesTrac has acquired Caterpillar Global Mining's distribution and support business operations in north-eastern China for $US130 million ($143 million).

The mining services company, a wholly-owned subsidiary of Seven Group Holdings, estimates annual revenue from the new operations will be between $US210 million and $US250 million for 2014-15.

The deal is not expected to have an impact on WesTrac's earnings per share this financial year. The company said it would add to earnings from next year. The purchase of Caterpillar's former Bucyrus International assets is consistent with the group's move into underground mining services, as WesTrac seeks to cover both above-ground and underground mining services. Last year, Seven Group bought similar Bucyrus assets from Caterpillar in Australia for $US400 million.

Seven Group, which is owned by Kerry Stokes, has been in talks with Caterpillar over the Chinese assets since then.

Last month, the group sold down part of its stake in Agricultural Bank of China to free up capital for further acquisitions. The stake was last valued at $229.7 million.

In an announcement to the Australian Stock Exchange, Seven Group said the transaction would be financed through a new five-year debt facility. The deal applies to Chinese provinces WesTrac already operates in.

"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," Seven Group chief executive Don Voelte said.

Upon completion of the deal, WesTrac said it would increase staff numbers by about 80, 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," Caterpillar resources industries group president Steve Wunning said. The deal will be subject to Chinese regulatory approval and is expected to be completed on June 30.

"This acquisition will allow WesTrac China to sell and support CAT heavy mining gear, formerly branded Bucyrus, into the region, which includes a significant underground coalmining industry," Deutsche Bank analyst Dominic Rose said. "This product-mix shift should be positive for WesTrac China, which has been materially impacted by the downturn in the Chinese construction sector, with the excavator market particularly hard-hit."

Last month, WesTrac outlined plans to cut a further 630 jobs on top of the 350 it announced in June. It also said earnings were likely to be 30 per cent to 40 per cent lower than in the previous financial year.