WesTrac boosts China operations with Caterpillar deal

Mining services company WesTrac has announced it has bought Caterpillar Global Mining's distribution and support businesses operations in north-eastern China for $US130 million ($142 million).

The wholly owned subsidiary of Seven Group Holdings estimates annual revenue from the deal will be $US210 million to $US250 million for financial 2015. It is not expected to have an impact on WesTrac's earnings a share this financial year.

The acquisition of Caterpillar's former Bucyrus assets is consistent with Seven Group's move into underground mining services, as WesTrac moves to cover both above ground and underground mining services. Last year Seven bought the equivalent Bucyrus assets from Caterpillar in Australia for $US400 million. It has been in discussions with Caterpillar over the Chinese assets since then.

The Kerry Stokes-owned Seven Group last month 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 ASX, Seven said the transaction would be financed through a new five-year debt arrangement. The deal applies to Chinese provinces in which WesTrac already operates.

"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 chief executive Don Voelte.

When completed, WesTrac said, the deal 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 growth forecast - 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 deal is 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 coal-mining industry," said Deutsche Bank analyst Dominic Rose. "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 hit particularly hard."

Last month, WesTrac outlined plans to cut a further 630 jobs on top of the 350 it announced in June. The company also issued a profit downgrade, with earnings expected to come in between 30 and 40 per cent lower than the last financial year.