Caterpillar to acquire Bucyrus, expand its mining operations

As countries like China, India and Brazil continue to modernize at a fast clip, their demand for goods like precious metals and energy sources is rising just as quickly. In an effort to capitalize on that demand, Caterpillar Inc. agreed to buy Bucyrus International Inc. as a means to add shovels, draglines and drills to its product lineup.

Investors cheered the news as stocks in both companies rose. The planned merger would be the largest in the construction and mining industry in five years, according to Bloomberg. Caterpillar stands to gain mightily from the deal as commodity prices are forecast to rise. The move also comes on news that Caterpillar plans to invest around $700 million the development of trucks and shovels, crucial to mining.

Caterpillar hopes the move will drive cost reduction and promote greater efficiencies in its supply chain. Jefferies & Co. analyst, Stephen Volkmann, notes in a report that there is little overlap between the two company's products. Volkmann further asserts his bull outlook on the mining industry, affirming that "capital expenditure globally will increase by more than 15 percent in 2011 as commodity prices rise."

The deal helps Caterpillar hedge its holdings amidst an historic homebuilding contraction.