EQUIPMENT FINANCE , RENTAL AND LEASING
The world of equipment finance retains its appeal in times of high commodity prices and relatively low interest rates , offering juniors , mid-tiers and majors , alike , the opportunity to scale up production quicker and with less upfront capital burdens than outright mobile machinery acquisitions .
At the same time , contractors ’ access to equipment through such financial agreements is helping them win and retain business throughout the cycles .
Tack on the introduction of new technology such as battery-electric equipment and automation-ready machines , and the business case for financing , renting or leasing equipment remains strong .
Profitability throughout the cycles
As commodity prices have risen and the industry ’ s cash flows have increased , the balance of Sandvik Mining and Rock Solutions equipment sold outright , financed , rented or leased has shifted , Björn van den Berg , Director , Sandvik Financial Services , says .
Noting that Sandvik Financial Services often grows its volumes on a counter-cyclical basis – when cash-strapped miners have less access to conventional finance – van den Berg said the
Cash or credit ?
With rising commodity prices , improved credit ratings and a more sustainable mindset , the mining sector ’ s options when it comes to equipment acquisitions have opened in recent years . Dan Gleeson looks at how equipment finance specialists are reacting to this increased competition
industry ’ s changing fortunes have had an impact
on the way his business unit is transacting .
“ Our penetration has gone down ,” he told IM . “ What we see is Sandvik sales volume has gone up by a certain percentage , but our volume has stayed pretty flat .”
The volume of business may have remained steady , but the change in customer base has had a positive impact on profitability .
“ In some of our more mature markets , the demand for supplier credit is lower given the current elevated commodity prices ,” van den Berg explained . “ Some of the mines and contractors are generating sufficient cash to either pay for the machines themselves or they have access to different sources of credit .”
This is particularly the case in the major contractor markets where recent consolidation has seen finance options for those bigger groups increase .
“ Yet , we see an increased demand coming from more developing economies ,” van den Berg said .
“ Shifting from mature markets – where the interest rates are reasonably low – to emerging markets – where the interest rates are a little higher – has allowed us to improve profitability .” van den Berg mentioned Africa and Southeast
Machines like the Sandvik DR410i rotary blasthole drill could soon be offered directly through Sandvik Rental Solutions in USA
Asia as two hotspots for equipment finance .
On the former , he said : “ In Africa , we see that a lot of countries have goals around local content . In the past , you would see large global contractors taking market share . Now , you are slowly seeing a steady pace of local contractors coming into the market , bidding for and winning business .
“ These can be companies that are short of cash to support their growth and may not have the equity levels that make them attractive from a conventional finance perspective .” van den Berg said Sandvik Financial Services has been playing a very active role in facilitating these companies ’ growth , considering not only their financial position but also their operational performance .
“ When a market opens up suddenly , it attracts many potential parties , so we try to select the ones that will be the future contractors ,” he said . “ If we have faith in their operational performance , then we are sometimes willing to issue credit outside of our normal lines based on an analysis that sees the whole Sandvik Group involved .”
Another ongoing evolution in the equipment finance space is the changing interest rates mining companies and contractors are having to pay for their finance packages .
“ In some instances , we are dealing with a generation of CFOs that are not accustomed to rising or volatile interest rates given , since around 2012 , rates have been flat or lower ,” van den Berg said . “ Over this period , they could ask for a quote , come back to it six months later and the rate would be the same , if not better .”
The company is now seeing two strains of related equipment finance demand : one for fixed rate business that comes with a premium and the other with a ‘ flexible ’ mechanism that tracks market interest rates until the date of delivery .
While it is still too early to say if there is an established market preference for fixed rates given the recent interest rate acceleration , van den Berg said contractors bidding for new work would likely want such security to ensure they retained profitability over the lifetime of the projects they were working on .
On the rental side of the market , van den Berg heralded the 2021 launch of Sandvik Rental Solutions in Europe , noting it had allowed the company to penetrate markets it had no previous business in .
Construction and tunnelling remain the main markets for this solution , but one or two rental units have gone to mining customers looking for short-term , project-related equipment , or
APRIL 2022 | International Mining 61