[miningmx.com] — BHP Billiton and Rio Tinto may be talking about throttling back capital expenditure amid a contraction in the growth of the Chinese economy, but one of the more sensitive companies to upstream tremors in the mining industry – Caterpillar – is staying pointedly optimistic.
In a recent visit to South Africa, Doug Oberhelman, chairman and CEO of Caterpillar, the yellow-machinery manufacturer and primary supplier to distributor, Barloworld, remarks that a desire for improved living standards in Asia and Africa will continue to drive growth in the mineral industries.
“I’m pleased China slowed growth rates as its economy was too hot,’ said Oberhelman, who added that 8% GDP growth was “healthy for everyone’.
Mining companies aren’t so sure. According to Citigroup, spending in the mining sector is expected to grow 13% in 2012 compared to previous estimates of 34%. Worse still, is that spending will fall year on year in 2013, said the group.
BHP Billiton and Rio Tinto believe cuts totalling billions of dollars could be made to corporate expenditure. The two companies account for a third of total capital investment in the mining sector according to a report by the Financial Times on 6 May.
Citing Citigroup, the paper said half of 40 mining companies polled said they were considering lowering their budgets whereas only 20% were doing so in February.
Ominous perhaps for Caterpillar, which has been on an exceedingly good run lately. First-quarter sales grew 25% in 2012 compared to the corresponding quarter of the previous year.
Similarly, share earnings came in at $2.37 versus $1.84 in the 2011 first quarter. What’s helpful to Caterpillar, however, is that it has a relatively long lead time.
Mining companies order mining equipment months, if not years, in advance of project commissioning. In fact, during the pre-2008 commodities boom, backlogs on mining machinery was only outstripped by the tyres on which it ran, with some miners complaining of a 12-month wait before getting moving, literally.
Any market stress is probably lessened for the likes of Barloworld. As Oberhelman reveals, GDP growth of more than 3% is an opportunity for good business.
SA’s economy is estimated to grow 4.7% in 2013. In any event, Africa is opening up rapidly:
“It won’t be long before lots of foreign direct investment comes to Africa,’ he says. “We’re very optimistic: there’s a huge population here that wants to live better.’
Yet headwinds do exist for Africa. Policy missteps by African nations, an inability to cooperate regionally, and the quest for cheap power are just a few problems on the long list of potential potholes.
This is barely to mention resource nationalism, although Oberhelman takes the interesting view that the market will price for increased tax take by governments as a structural increase production costs.
Oberhelman also identifies a deficit in the US that South African readers may recognise – access to appropriate skills.
Back in the day when Oberhelman was moving up the ranks of Caterpillar, during the Seventies, there were ranks of so-called “farm boys’ who spent afternoons profitably tinkering with machinery.
That generation has now been replaced by the spawn of the digital age with less apparent aptitude for fixing machinery, Oberhelman claims.
“Between now and 2020, we will have to hire and train 20,000 “leaders’ including accounting for natural attrition,’ he says.
“About 60% of applicants get turned down. The education system has failed us as we’re not turning out the technical skills.’
– Finweek
