Caterpillar sees green shoots in mining, but sales far from picking up

Caterpillar, the world's No.1 heavy machinery maker, injected some much-needed optimism in the global mining industry this weekend by saying it is finally seeing growing signs of improvement.

The Peoria, Illinois-based company, which held a special press event before the upcoming MINExpo in Las Vegas, revealed it has had more discussions about potential sales in recent months than in the last two or three years. Those talks, however, have been quite “preliminary” and with no timeline set.

“Whether those conversations will materialize, that remains to be seen,” said Denise Johnson, CAT’s Group President, Resource Industries.

"We've had more discussions about potential sales in recent months than in the last two or three years. Whether those conversations will materialize in actual sale remains to be seen.” – Denise Johnson, CAT’s Group President, Resource Industries.

She added that while there have been clear signs of improvement, from a sales point of view CAT has not seen any significant movements just yet.

The company’s performance is often seen as a gauge of the health of the global economy, as its machines are huge, expensive, and used in different kinds of projects to which companies and governments are only likely to commit if they're confident in the economic outlook and their financial standing.

The fact that CAT has been approached much more in the last few months about potential deals is a positive sign for the industry. But challenging conditions persist, warned CAT, which in recent months has repeatedly axed its full-year sales and profits forecast, not to mention plants closures and massive lay-offs.

As part of those measures, the company recently announced its exit from the room and pillar business. And while CAT plans to keep servicing existing customers, it revealed the unit is currently up for sale.

Johnson, who was selected by the National Mining Association (NMA) to chair MINExpo 2016, said that if the company finds a buyer it will look for ways to not abandon completely its former room and pillar customers.

Demand to pick up

Caterpillar sees green shoots in mining, but sales far from picking up

Denise Johnson, CAT’s Group President, Resource Industries.

While CAT expects demand for mining equipment to pick up next year, it keeps investing in ways to improve current equipment performance.

It has also increased the presence of CAT representatives at the mine site, whose mission is to help operators make the most out of their acquisitions.

“CAT doesn’t measure the success of that representative by the amount of equipment he or she sells, but by the performing metrics of the mine itself, “ said Johnson. “Their success is measured in terms of their customers’ achievements and that is how they are rewarded.”

CAT considers this a key investment in terms of after sales support, which includes working with the dealers.

In the meantime, the company is going digital. The largest percentage of its research and development budget is currently being allocated to that area.

The goal, though seems counterintuitive, is to reduce the amount of mining equipment needed at operations. That means that during a downturn, such as the one that has wrecked the industry lately, CAT would continue to thrive in terms of sales beyond those related to equipment. The firm would sell the technology that supports and maximize returns and efficiency of mining operations.

Precious metal miners to boost sales

Caterpillar sees key opportunities in the precious metals sector, particularly gold, for the next 12 to 15 months, as miners restart projects that were placed in the back burner and expand current operations thanks to a continued price rally for the yellow metal.

Currently CAT makes the most sales to the coal, copper and iron ore sectors, in that order. Gold, while still a small sector for the equipment maker, has now taken the forth place, said Johnson.

“We believe in mining and it is an industry we will continue to serve,” said Tom Bluth, vice president, material handling and underground. “We know it is a cyclical business and it will come back.”

Evidence of CAT's commitment to mining is the newest equipment and technology the firm will present at MINExpo 2016, which begins this Monday Sep. 26 and runs until Sep. 28 at Las Vegas Convention Centre, in Nevada.