Bucyrus International has entered into a preliminary framework agreement with Huainan Mining Industry (Group) Co to establish the basis for the potential creation of a joint venture in the Huainan mining area of the Anhui Province in China. The preliminary agreement contemplates Bucyrus owning a controlling interest in a joint venture that would involve the building of a new state of the art manufacturing facility in the Huainan mining area that would initially manufacture belt systems and armoured face conveyors for resale on a preferential basis to Huainan Mining, as well as to other third parties in China and elsewhere. It is possible that the joint venture could manufacture and sell additional underground mining equipment as well. Both Bucyrus and Huainan Mining would contribute an undisclosed amount of cash, as well as other assets and personnel, to the joint venture. The parties believe that initial equipment manufacturing and sales by the joint venture could begin within approximately nine months of final completion of the proposed joint venture.
The preliminary agreement is subject to additional due diligence, final legal documentation, approval by the boards of directors of both Bucyrus and Huainan, Chinese governmental and regulatory approvals and various other customary consents, approvals and closing conditions and is anticipated to be completed later this year. Bucyrus does not intend to update the status of this process unless and until either a final joint venture agreement is completed, as to which there can be no assurance, or negotiations are definitely terminated.
Bucyrus’ President and CEO Tim Sullivan stated, “The joint venture which we hope will result from this preliminary framework agreement will benefit both Bucyrus and Huainan Mining. The first step in a resulting joint venture will extend our market coverage and provide us with a low cost manufacturing base in China. Huainan Mining will benefit from the higher technology of our products, and the region will gain through the development of a high technology manufacturing base in Anhui Province. There is also the future potential for exports using our international sales network.”
A business plan, to be developed by both parties, will include expansion phases linking additional future investment to direct successes in the targeted markets. “China is a large and very complex market,” 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. We recognize the value of localized relationships and wish to maintain and expand those links.”
“With Huainan Mining’s coal production at 42 Mt in 2007, there is an already existing base market for the products that will result from a joint venture between us and Huainan Mining,” said Sullivan. “We have built a special relationship with Huainan Mining where our engineers have an open forum to look at mining issues and develop common solutions. This moves us away from a buyer versus seller, ‘western style’ relationship that is typical in China to one that allows us to apply our technology to the benefit of both parties.”
In addition to the announcement regarding the Huainan framework agreement, Sullivan also emphasised, “This agreement is a first step. We are currently reviewing other, additional options that may provide us with an opportunity to achieve a market leading position in China with numerous product lines.”
Bucyrus is a world leader in the design and manufacture of high productivity mining equipment for surface and underground mining. Its surface mining equipment is used for mining coal, copper, iron ore, oil sands and other minerals and underground mining equipment primarily for mining coal. In addition to machine manufacturing, Bucyrus manufactures high quality OE parts and provides worldclass support services for its machines. Bucyrus’ corporate headquarters is located in South Milwaukee, Wisconsin, USA.
Huainan Mining is a state-owned mining group company in China with its primary business being coal mining and power generation. The Huainan mining area is one of the largest coalfields in the southeast area of China with coal reserves of approximately 21,400 Mt. The Huainan mining area has been listed as one of China’s top 13 large coal production bases and one of the top six coal-electricity bases.