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Exclusive: Atlas Copco nears buy of Shandong Rock - sources

By Charlie Zhu and Niklas Pollard

HONG KONG/STOCKHOLM (Reuters) - Swedish compressor and mining gear maker Atlas Copco is close to a deal to buy a 75 percent stake in Shandong Rock Drilling Tools Co Ltd from China's Shandong Sanshan Group, sources in China familiar with the matter told Reuters.

The sources did not disclose any purchase price.

The deal for the stake in the rock drilling gear maker, based in the eastern province of Shandong and which has about 400 staff, included a stake in a steel mill, a source said.

"An agreement is expected to be finalized soon," a Sanshan official said on Thursday, declining to be identified because they are not authorized to comment.

An Atlas Copco spokesman declined to comment.

Shandong Sanshan Group, of which Shandong Rock Drilling Tools is a major part, is a privately controlled Chinese firm with annual revenue of 400-500 million yuan ($65-$80 million), an official at the group said.

Several other sources with knowledge of the matter in China also confirmed Sanshan Group and Atlas Copco were in talks. One of the sources noted the two companies had a relationship after doing business for several years.

The acquisition would likely be one of Atlas Copco's biggest this year and strengthen its foothold in the fast-growing Chinese market. It would also create potential for using Shandong Rock Drilling Tools as a production base for exports.

Atlas Copco and Swedish rival Sandvik are major players in the global mine equipment market and supply half the gear used for underground mining globally.

Shandong Rock Drilling Tools' main products are Sanshan brand mining and drilling gear. The company said on its website these were sold across China and exported to markets such as Australia, Canada, Japan and the United States.

A global slowdown has weighed on parts of Atlas Copco's business in recent months but has done little to dent strong cash generation. That has left analysts expecting the group to hand out billions of crowns in extra dividends next year.

The agreement being finalized with Sanshan would underscore recent comments by Atlas Copco executives that its priority was to use its strong cash and capital base on acquisitions and investments to grow the business.

The company has, in recent years, focused on small to mid-size acquisitions. Its appetite for large-scale purchases has been tempered by a foray begun in the late 1990s into a vast U.S. machine rentals business which it later abandoned.

Sanshan Group Co Ltd is headquartered in Liaocheng city in Shandong province. With registered capital of 80 million yuan, the firm makes various drilling tools and parts used for mining.

(Writing by Niklas Pollard; Editing by Patrick Lannin and Dan Lalor)

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