Recognizing that mining as one of the key areas with potential for growth, General Electric is rapidly looking at acquisitions in this sector to increase its presence across the mining value chain. It has recently decided to acquire two mining equipment manufacturers, Industrea Ltd and Fairchild International, with an intent of broadening its portfolio and accelerating technology development. These companies also have the advantage of being close to the mining growth regions of Australia, China and United States. Mining equipment is a $61 billion industry and is expected to grow at a rapid clip as the demand of emerging economies for natural resources magnifies. GE competes with other industrial conglomerates like United Technologies Corporation (NYSE:UTX) and 3M (NYSE:MMM) among others.
We currently have a price estimate of $20 for GE, which is slightly above the market price.
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Industrea operates in four segments of underground mining – Mining Equipment, Mining Technology, Gas Management and Mining Services. It has seven locations in Australia and a significant presence in China. GE is looking to leverage the geographical presence of Industrea in two big growth markets with its fuel efficient battery technologies to market a set of differentiated mining services. It will also help the company to expand its manufacturing footprint to Australia.
Fairchild International is a Virginia based company manufacturing a wide range of underground mining equipment, including diesel and battery-powered scoops, continuous miners, haulage systems, shield haulers, and maintenance vehicles. GE is looking to integrate its global reach, technology leadership in clean propulsion and energy storage systems, and world-class system integration capabilities with the technologically advanced products of Fairfax to serve mining markets around the world.
It will be interesting to see the impact which GE has on the mining equipment industry. With this acquisition, the company’s products will be covering 35% of the mining value chain industry and will be competing directly with that of mining majors like Caterpillar (NYSE:CAT) and Joy Global (NYSE:JOYG). Caterpillar has increased its focus on the mining industry with its acquisition of Bucyrus and looks set to gain major market share. With General Electric also clamoring for a portion of the pie, this can result in an interesting competition.