EQUIPMENT FINANCE , RENTAL AND LEASING
Equipped for everything
Sandvik ’ s Battery as a Service offering will see the company provide the battery system to clients on an operating expenditure basis , removing the increased upfront capital requirement that comes with these new machines
Should the recent commodity price run become more than a short-term trend , questions will continue to be asked about what mining companies will do with all the free cash flow they generate :
They could continue handing out generous dividends to shareholders on a quarterly basis , augmenting these with share buy-backs when the going is good .
M & A is always a staple option when commodity prices rise , with the idea that increased leverage to their chosen metal or mineral when prices are high will be appreciated by investors .
Funding organic projects , whether greenfield or brownfield , is another option for mining companies . These can potentially come with less risk – given the projects have resided and evolved within the company over a long period of time – but offer the same sort of leverage as M & A .
Optimisation projects are another potential avenue to go down . Refining existing mines with new technology , new equipment , new thinking , etc can result in higher output , lower costs and improved profitability .
Aside from the first cash outlet ( dividends / buy-backs ), all these options would likely require changes or additions to the mining equipment fleet to achieve the desired outcomes .
The Parker Bay Company ’ s most recent quarterly analysis of the surface mining equipment market indicates some mining companies are already pursuing these growth options by bringing more equipment into their fleets . The total number of machines delivered during the December quarter increased by 35 % compared with the September quarter , the company said .
“ This is a substantial break from the contraction that began in Q1 ( March quarter ) 2019 and which brought equipment markets down more than 40 % over the seven quarters
Dan Gleeson investigates an evolving sector that is benefitting from increased competition for cash and new technology developments
ending with Q3 ( September quarter ) 2020 ,” Parker Bay remarked .
Manufacturers produced and delivered 761 machines during that December 2020 quarter , up from 562 in the previous three-month period , with the value of equipment shipments totalling $ 1.4 billion , versus $ 1.1 billion .
These values do not paint the whole picture , as that $ 1.4 billion did not suddenly come off the collective mining company balance sheet in the December quarter .
Some purchases would have been discounted based on existing agreements between OEMs and miners , some equipment would have gone to contractors and , most important for this article , some equipment sales will have had a financing element to them .
Whether it is a straightforward finance arrangement , rental or lease solution , the number and diversity of companies acquiring equipment through these means is growing .
At one end of the scale is a junior miner with no current cash flow and a $ 785 million ( including 8 % contingency ) capex project to build .
The miner in question , Ioneer Ltd , recently announced a partnership with Caterpillar as its exclusive heavy equipment partner for the Rhyolite Ridge lithium-boron project in Nevada , USA . As part of this pact , Caterpillar agreed to supply haul trucks , hydraulic shovels , wheel loaders , and other mine site support machinery like crawler dozers , excavators and motor graders .
Included among this offering is an agreement that could see the Cat Command for hauling autonomous haulage system employed at the project , with the $ 100 million of equipment and services potentially being financed through Caterpillar Financial Services .
At the mid-tier level is the example of Equinox Gold , a gold miner that produced 477,200 oz of gold in 2020 , and recently agreed a $ 43 million
package with Caterpillar Financial Services that would allow it to lease 10 new Caterpillar 793 haul trucks to boost the mine life of its Mesquite mine in USA .
BHP , the biggest miner by market capitalisation in the world and a company that recently confirmed it had generated $ 5.2 billion of free cash flow in the six months to December 31 , 2020 , is also open to equipment finance solutions .
It recently engaged Emeco Holdings , an Australia-based heavy equipment rental company , to supply a Caterpillar D10T dozer on a rental basis to its Olympic Dam copper operation in South Australia .
Large-scale equipment leasing is also becoming common in some of the major Chinese mines to lower costs and , in some cases , provide tax benefits . The Zhungeer mining complex , which is part of CHN Energy ( China Energy ), includes the Heidaigou and Haerwusu coal mines in Inner Mongolia , two of the largest in the country . It has leased 11 363 t trucks from China Space Sanjiang Group ( CSSG ) for Heidaigou with the finance arranged by the supplier , IM understands . The two mines have also leased several 300 t class trucks .
What does this say about the equipment market today ?
First off , it says there is appetite for equipment finance across the mining industry , at all ends of the scale .
Executive teams and directors are all too aware they must do more to retain investor appeal . They are competing in the same league as the Googles , Amazons and Teslas of this world for investment attention , so a strong and consistent pay-out policy is required . The increased leverage to the commodity price that comes with developing external or internal projects helps this appeal too .
At the smaller end of town , companies sitting in sectors such as the battery minerals space are looking outside of the usual equity / debt providers to get their projects moving forward .
Against this backdrop , paying outright for equipment does not come high up the list of spending priorities .
Second , it says equipment manufactures and equipment finance specialists are willing to take on more risk when selling their products and solutions . If they want more of these capex-shy miners to use their new technology and replenish their fleets with new equipment , they must make it easier with relevant finance packages that can be paid back as an operating expense or when cash flow is available .
APRIL 2021 | International Mining 57