Caterpillar Inc. ( CAT - Analyst Report ) has decided to shelve its earlier announced plan of producing a full range of mining shovels at its Aurora, Illinois facility. The decision is a an outcome of Caterpillar’s pending purchase of Bucyrus International Inc. ( ) , a South Milwaukee-based manufacturer of mining equipment and mining shovels, in a transaction worth $8.6 billion.

The increasing demand for mining trucks has spurred the corresponding demand for loading tools such as mining shovels. Caterpillar, with the intent to position itself as the leading manufacturer of products and solutions for the global mining industry, had announced in June 2010 that it will produce a full range of mining shovels, ranging from a 125-ton model to an 800-ton model, at its Aurora, Illinois facility. The company had then provided early 2011 as the timeframe for the facility to start production of the new 125-ton class shovel.

In November, 2010, Caterpillar announced that it will buy Bucyrus, touted to be the biggest deal ever in the company’s history. The deal capitalizes on the rising demand for coal and minerals triggered by growth in the emerging nations.

The acquisition, subject to regulatory and Bucyrus shareholder approvals, is slated to close in mid-2011. Caterpillar expects the deal to be accretive to its profit in the first full year, i.e. 2012, excluding 50 cents per share of one-time charges.

The combined portfolio will broaden Caterpillar's mining equipment product line resulting in the most expansive product offering in the mining equipment industry. Further, Caterpillar can leverage Bucyrus’ strong presence in the emerging markets, its successful aftermarket parts business and support services for its equipment.

In order to conserve resources and eliminate business risks associated with internal development, Caterpillar will suspend the Illinois mining shovel plan. Caterpillar intends to evaluate the Bucyrus shovel program in order to assess the proper allocation of its resources for additional or different products.

The mining shovel line at the Aurora plant would have created about 200 assembly worker jobs and 100 support and management jobs. This might have offset some of the job losses when Caterpillar shifts its excavator line to Texas in 2013. Aurora has been exclusively producing excavators since 1972.

The Aurora factory will continue to focus on the production of wheel loaders and excavators for the time being. The company, however, added that if the Bucyrus deal falls through, it would remobilize the shovel program and resume its development at the Aurora plant as originally planned.

The Bucyrus acquisition will position Caterpillar as the leading global mining original equipment manufacturer and the combined product portfolio will dwarf Joy Global Inc. ( ) , the only U.S based manufacturer of surface and underground mining equipment. We believe Caterpillar’s strong brand name, pricing power and global dealer network place it in an advantageous position to exploit the growing need for infrastructure development worldwide.

On the flip side, the company’s severely under-funded pension plans could necessitate increased mandatory funding in 2010, affecting its capital expenditure figures. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.

Peoria, Illinois-based Caterpillar Inc. is the manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company is one of the few leading U.S. companies in an industry that competes globally from a principally domestic manufacturing base. Caterpillar operates three divisions – Machines, Engines and Financial Products. Caterpillar competes with the likes of CNH Global NV ( CNH - Snapshot Report ) , Komatsu Ltd., ( KMTUY ) and Volvo AB ( VOLVY ) .