Cat scales back room and pillar business

Caterpillar (NYSE:CAT) is moving away from room and pillar mining, a business that services mostly coal companies in the US.

Tom Bluth, the company’s vice-president of surface mining and technology, noted the decision to put the unit up for sale was made in the context of determining where the company wanted to position itself in the coming years.

“We’ve been looking ahead and translating our actions in ways that will make us more relevant to the market,” Bluth noted. And while this has led to CAT’s exit from that business as well as track drill markets — along with the closure of some facilities — it has also enabled it to focus its resources on other aspects of its product portfolio and to boost its investment in research and development, he said.

“We wouldn’t have done that if we thought that could undermine our position in the market,” Bluth said in response to the question of whether CAT’s reach in the underground mining sector will weaken with the move at a time when Japanese giant Komatsu (TYO: 6301) is gaining market share through the acquisition of Joy Global (NYSE:JOY).

Bluth noted that most of the companies that still use room and pillar are located in the Appalachian Mountain, a region that has lost 15,000 mining jobs in the past five years due to the collapse of the coal miners based there.

CAT says room and pillar method is like landlines — its days are numberedThe overall US coal industry has not done any better. According to the latest Energy Information Administration data, year-to-date coal production totalled 421.6 million tons (short), 25.2% lower than the comparable period in 2015.

CAT says room and pillar method is like landlines — its days are numberedClean coal technology remains a subject of debate. But as the technology and policies necessary to bring it to market progress, natural gas is poised to unseat coal as the top source for electricity generation this year as the gap in prices between the two energy sources continues to narrow, the EIA projected in March.

Eyes on iron ore, copper

Bluth believes that iron ore and copper miners will be leading the way in terms of an increase in equipment demand in the next three to five years. In the short-term, those same sectors — alongside with the coal industry, which is experiencing an unpredicted bonanza thanks to high prices for both thermal and metallurgical coal — are expected to become top consumers of parts and pieces.

The room and pillar underground mining products CAT won’t produce any longer include continuous miners, feeder breakers, coal haulage systems, highwall miners, roof bolters, utility vehicles and diesel vehicles.

CAT said it remains committed to existing customers and that it would support the fleets currently in operation.