Austin license purchase continues to reap dividends

By: Troy Bilsborough

Austin Engineering Limited (ASX: ANG) has announced that its US subsidiary Western Technology Services (Westech) will receive royalties worth a

Austin Engineering Limited (ASX: ANG) has announced that its US subsidiary Western Technology Services (Westech) will receive royalties worth a minimum $US3.7 million over the next four years from the first part of a new deal by a Westech licensee Cainsa to supply replacement truck bodies to a major South American mining house.

Under the initial instalment of a four-year contract Cainsa will supply the customer with replacement truck bodies built to Westech’s world-leading lightweight design.

Stage one of the contract, for which deliveries will commence from July 1 2008 and will have a total worth around $US33.5 million.

Westech is expected to receive at least $US3.7 million in royalties over the next 4 years from the deal, with orders already being made under the new licensee.

Negotiations between Cainsa and the customer for stage two of the contract, for the manufacture of new capital Westech bodies, are expected to be completed within the next month.

It is anticipated that this second stage of the contract will be worth approximately $US55 million to Cainsa and run in parallel with part one of the contract. Austin will make an announcement on the royalties due to Westech when negotiations are complete.

Austin Chairman Peter Fitch said the new contract highlights the rationale behind the $US19 million purchase of Westech in November last year, which gave Austin the opportunity to acquire the intellectual property behind the company’s market-leading lightweight off-highway dump truck bodies.

The design, which Westech manufactures itself and provides to other companies under license, allows trucks to carry more pay load and increase productivity - a strong attraction for major mine operators.

"The purchase of Westech and its lightweight truck body design provides Austin with the dual benefits of a recurring income stream from royalties and a sound base of manufacturing work for our North American and Australian operations," says Fitch.

Fitch says Austin had commenced discussions aimed at increasing its presence in South America, where Cainsa currently has $US10 million worth of work in hand for the supply of Westech truck bodies.

In Australia, the Westech design is gathering momentum, reflected by good orders along the eastern seaboard.

In Western Australia the company has received a $A7 million order for 16 Westech truck bodies from the Pilbara region’s largest iron ore producer and orders for a further 12 bodies are expected shortly.

In addition, the company’s WA operation has secured an order worth $A2.5 million for the manufacture of specialised tipper-bin assemblies used to carry materials for a major iron ore project in the Pilbara region.

This important order introduces a new product line to Austin’s existing product range and enables the company to promote additional and expanded capabilities to its key customers and markets.

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