Seeking Alpha

U.S. mining equipment makers clash with U.S. miners over Australia project

  • Caterpillar (CAT) says the U.S. mining equipment industry faces more than $500M in potential lost sales if U.S. miners succeed in opposing $650M in government-backed financing for the Roy Hill iron ore project in Australia, FT reports.
  • Equipment makers, including CAT, support the loan to the $10B mining project in Western Australia, because the resulting orders for trucks and bulldozers would help the struggling industry, but miners, led by Cliffs Natural Resources (CLF), believe the project would hurt U.S. mining interests.
  • CAT suffered a 10% Y/Y drop in global sales in the three months ended in August; rival Joy Global (JOY), another likely supplier to the Roy Hill project, saw a 36% drop in Q3 orders and has sharply cut its revenue forecast for the coming year.
  • The miners argue that the 55M metric tons of annual production from Roy Hill set to come online in late 2015 would contribute to a global oversupply, putting pressure on iron ore prices.
Comments (4)
  • CincinnatiRick
    , contributor
    Comments (356) | Send Message
     
    This is truly outrageous. Reading between the lines here, the implication is that it is the US Government, rather than the Australian government, that is actually supposed to be backing these loans for a mining project in Australia that would compete with US Miners!
    30 Sep 2013, 06:51 PM Reply Like
  • Bugle Boy
    , contributor
    Comments (82) | Send Message
     
    Hard to understand why this is current news. The Export-Import Bank gave public notice of its plans in May. 4 US Senators voiced concern to the Bank in a July 12th letter. The potential damage to CLF's export business was specifically mentioned. I will not presume to hazard an opinion as to whether the loan would violate the Bank's charter, its loans are for customers who are unable or unwilling to take credit risk.

     

    The loan is not for the project. Rather, the loan is to allow the developer to purchase the Caterpillar mining equipment. One could argue that a loan of this magnitude, (from the credit arm of the US government), could be risky in this time of depressed iron ore prices and over production. Not so much if the tonnage price rises.

     

    Hard to support a loan that may damage a basic US industry. Adequate thought given to balance of payments coupled with loss of jobs in US mining, rail, ports, and so forth?

     

    Long, thankfully only a bit, CLF
    30 Sep 2013, 07:53 PM Reply Like
  • FreeStateYank
    , contributor
    Comments (803) | Send Message
     
    On the other side, not using the Ex-Im bank, which other nations have something similar, iirc, would hurt the US mining manufacturing business...

     

    Gov'ts shouldn't be backing loans, but they do. We lose competitiveness if we don't.
    30 Sep 2013, 10:41 PM Reply Like
  • Bugle Boy
    , contributor
    Comments (82) | Send Message
     
    FSY, As the E-I Bank is designed to help where traditional banks will not loan, and it is also designed to be profitable, it has its uses. Why shouldn't it exist? It has been around since 1945 or so and I suspect that it has done some great things over the years, along with some loans that that turned sour. I think that it must weigh such concerns.

     

    My point, or one of them, is that in aiding one US corporation, CAT, the law of unintended consequences may come into play, causing damage to another US corporation, CLF, directly and to others indirectly. Of course, there may also be other unintended consequences of some benefit.
    1 Oct 2013, 01:41 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Tools
Find the right ETFs for your portfolio:
Seeking Alpha's new ETF Hub
ETF Investment Guide:
Table of Contents | One Page Summary
Read about different ETF Asset Classes:
ETF Selector

Next headline on your portfolio:

|