(Financial Times, December 19) – Caterpillar said US mining equipment manufacturers are set for more than $500m in fresh sales after the approval of nearly $700m in government-backed financing for an Australian iron ore mine.
On Thursday, the Export-Import Bank, whose mission is to create export-related US jobs, approved the loan to the A$10bn Roy Hill mining project in Western Australia.
After a comprehensive review, the bank determined that this transaction represents a significant opportunity for American exporters to create and sustain American jobs,” said Fred Hochberg, chairman of the bank.
The bank said the financing would support around 3,400 US jobs and is “contingent upon the purchase of US mining and rail equipment” from Caterpillar, General Electric and Atlas Copco. The bank increased the original $650m loan it had been considering to $694.4m.
The decision marks a victory for the struggling mining equipment makers, whose sales have plummeted, forcing thousands of jobs cuts over the past year. But it marks a defeat for US miners, which had argued the loan would hurt their interests.
In a statement included in the bank’s announcement, Steve Wunning, head of the resources group at Caterpillar, said the company “applauds” the bank for “bolstering US manufacturing competitiveness”.
The Illinois-based company in October slashed its full-year forecasts and enacted “general austerity measures” to cope with the global slowdown in mining activity, including $700m in costs and a $400m reduction in capital expenditure.
Doug Oberhelman, chief executive, said at the time that 75 per cent of the company’s projected $11bn drop in sales this year will come from the division which primarily sells mining equipment.
Caterpillar is not alone. Joy Global, another likely supplier to the Roy Hill project, earlier this month cuts its 2014 earnings forecast while reporting an 87 per cent drop in profits during the quarter ended October 25.
US mining companies, including Cliffs Natural Resources, had opposed the loan. They have argued that the financing promotes competition against US companies, and that the 55m tonnes of annual production from Roy Hill set to come online in late 2015 would put pressure on iron ore prices.
Roy Hill, which is 70 per cent owned by Hancock Prospecting, the company controlled by Australia’s richest person Gina Rinehart, is expected to succeed in its goal of raising around A$7bn in debt.
It has held talks with commercial banks and export credit agencies from various countries, including Korea and Japan.