Bucyrus International Inc.: Looking Below the Surface

May 28, 2008
Mining equipment maker boosted by addition of underground segment, looks to partner with Chinese company to establish new manufacturing base.

When mining equipment manufacturer Bucyrus International Inc. acquired a German company called DBT GmbH last year, it effectively doubled its market by adding underground mining to a repertoire that had previously remained firmly planted on the surface. As a result the IW 50 Best Manufacturer's profits more than doubled for the first quarter 2008 compared to the same quarter in 2007, with gross profit jumping to $141.6 million from $52.1 million a year earlier.

In addition to the boost gained from the acquisition, South Milwaukee, Wis.-based Bucyrus also benefited from recent price spikes and higher demand for a number of mined commodities, which has fueled the market for Bucyrus machines and helped to increase profits for the quarter.

Underground mining sales for the first quarter actually decreased from the third and fourth quarters of 2007 primarily due to the timing of new orders, but surface mining equipment sales increased in all three of product lines compared to the first quarter 2007. Aftermarket parts and service sales increased in nearly all markets worldwide.

A recent project to expand the surface mining facilities at the company's headquarters was substantially complete as of March 31. The larger facility will allow for annual shovel production capacity of 24 machines and will almost double manufactured parts capacity from 2006 levels.

Bucyrus is also in talks with a state-owned Chinese mining company to further expand its manufacturing base. Just two days before earnings were announced, the company said it had entered into a "preliminary framework agreement" with Huainan Mining Industry (Group) Co. Ltd. to discuss the possibility of creating a joint venture in the Anhui province in China.

Preliminary information indicates that Bucyrus is exploring a potential controlling interest in the joint venture to build a new state-of-the-art facility in the Huainan mining area, which would initially manufacture belt systems and armored face conveyors for resale on a preferential basis to Huainan Mining, as well as to other third parties in China and elsewhere.

Bucyrus International Inc.
At A Glance

Bucyrus International Inc.
South Milwaukee, Wisconsin
Primary Industry: Machinery
Number of Employees: 6,050
2007 In Review
Revenue: $1.6 billion
Profit Margin: 8.99%
Sales Turnover: 0.97
Inventory Turnover: 4.71
Revenue Growth: 35.38%
Return On Assets: 17.56%
Return On Equity: 32.05%

Equipment manufacturing and sales by the joint venture could begin within approximately nine months of final completion of the agreement. According to Bucyrus president and CEO Tim Sullivan, this is the first step in creating a joint venture that will extend the company's market coverage and provide a low-cost manufacturing base in China.

"With Huainan Mining's coal production at 42 million tons in 2007, there is already an existing base market for the products that will result from a joint venture between us and Huainan Mining," said Sullivan. "Our underlying concept is to partner with strong industry players, such as Huainan Mining, who have market access, a manufacturing base and a service network through which we can rapidly extend our footprint in China."

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