According to a report in the Wall Street Journal, Caterpillar has reached an agreement to buy Chinese coal equipment company, ERA Mining Machinery, for $887 million, giving it greater exposure to the potential opportunities in the modernisation of China’s coal mines. Caterpillar’s offer represents a 33% premium to ERA’s stock price in Hong Kong before trading was halted in expectation of a takeover announcement. ERA primarily makes hydraulic roof supports for underground mines and is the third-largest maker of roof supports in China based on sales. For the six months ended June 30 2011, ERA recorded sales of $101.3 million, up 86% from the previous year. The supports are made by ERA subsidiary Zhengzhou Siwei Mechanical and Electrical Equipment Manufacturing.

The purchase would build on Caterpillar’s recent acquisition of Bucyrus. Although Bucyrus makes roof supports, these are very much premium ”first tier” products, which have difficulty competing with China’s own domestic second and third brands and product lines. China’s coal mines in some cases also have significant loyalty to domestic machinery brands. Joy mining recently made a similar move to gain a greater presence in China, with its takeover of International Mining Machinery. Demand for coal in China has been growing quickly as rapid development drives expansion of coal-fired power stations.