Economies of scale are often the focus when discussing smaller type products and how many of them a company can turn out in any given time period. If the same concept is scaled up exponentially, you get the mining industry and how far, economically and physically, you can move in any given period of time. When the mining equipment industry gets rolling with economies of scale, you can bet more equipment means bigger numbers, both in terms of how much can be moved and how much can be made.
Bucyrus International Inc., a heavy mining equipment manufacturer, offers design and manufacturing services of original equipment and aftermarket products to the surface and subsurface mining industry. Until the fourth quarter 2007, the company was only involved in surface mining equipment, but it has since bought into the subsurface mining equipment segment of the mining industry with the acquisition of DBT GmbH.
The acquisition of DBT is reported in the first quarter of the company’s results as a net revenue gain to the company. There are some indications that integration of DBT may have some accounting expenses and other issues to complete the sale but, from a general perspective, appears as a net gain to the company’s overall position (share and dollar) in the marketplace. As with other heavy equipment manufacturers operating in the mining sector, international sales are proving beneficial to the company. New orders appear to be setting the company up for a string of profitable years to come. In the first quarter of 2008, the company has booked original equipment and aftermarket sales orders totaling over $610 million for the surface mining side of the operation. The subsurface operation has likewise been busy booking new orders in the first quarter of 2008 totaling $477.5 million.
While other original equipment manufacturers tend to concentrate on the surface side of mining operations in the form of taking away overburden, Bucyrus International provides equipment and aftermarket products/services that do the actual mining. New sites and operations are increasingly being permitted as commodity prices move higher and developing countries search for domestic supplies of raw materials. Until the U.S. dollar decides to begin a move higher (and likely even after it does), the company appears to be in a good position to capitalize as the world continues to dig deep.
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