Mine the Gap: Overcoming Financial Barriers in Mining Services
The mining services industry is an essential pillar of the Australian economy but has unique financial challenges. In a recent seminar in Perth hosted by the Lunch Money Podcast, industry experts gathered to discuss strategies for overcoming these barriers, offering valuable insights for SMEs in the mining sector. Here’s a summary of the key points covered during the discussion.
Key Drivers and Trends in Mining Services
Ben Gibson, Head of Advisory at Pickles, highlighted the evolving landscape of mining equipment valuations. He noted a dramatic shift in secondary market pricing post-COVID as supply chains normalised. With big original equipment manufacturers (OEMs) now meeting demand, used equipment prices have dropped, and clearance rates have declined significantly.
Additionally, Gibson discussed how technological advancements, particularly around emissions reductions, have disrupted traditional equipment markets. Equipment compatibility, parts reuse, and emerging technologies like battery-electric and hydrogen-powered systems reshape market dynamics. These changes underscore the need for mining operators to carefully plan for the future lifecycle of their assets.
Navigating Financial Challenges in Mining Services
Richard Tucker, a Partner at KordaMentha, emphasised the challenges small-to-medium enterprises (SMEs) face when dealing with large mining corporations. Mining contractors often serve as de facto working capital providers, with extended payment terms of 60 to 90 days being the norm. This imbalance can lead to financial strain, mainly when contractors are slow to collect receivables or fail to leverage their position.
Dave Osmond of Acid Plant Maintenance Services (APMS) shared his company’s experience with client concentration risk. At one point, 60% of their revenue depended on a single mining corporation. Recognising the risk, the company diversified its client base geographically and by industry, significantly reducing its vulnerability. This proactive approach safeguarded the business and positioned it for sustainable growth.
Strategies for Financial Resilience
SMEs should negotiate for shorter payment terms whenever possible. Osmond revealed how his team successfully secured 14-day payment terms for high-stakes projects by emphasising the unique nature of their services and building strong client relationships.
Tucker highlighted the importance of maintaining robust financial records and cash flow management discipline. Mining contractors should ensure their financing and operational plans account for cyclical market swings, commodity price fluctuations, and operational interruptions.
A “Plan B” is critical for handling payment delays or unexpected financial shocks. Options like invoice financing or overdraft facilities can provide a financial safety net. Open communication with financiers and having up-to-date financial records can facilitate faster access to emergency funding.
Preparing for Future Industry Challenges
The push for net-zero emissions will radically impact the mining industry. Gibson cautioned that diesel-powered equipment, which dominates current operations, may become obsolete faster than anticipated. Contractors must stay informed about emerging technologies and plan their capital expenditures accordingly to remain competitive in the long term.
The Role of Early Engagement in Restructuring
Tucker and Osmond stressed the value of early engagement with experts for contractors facing financial distress. “Hope is not a strategy,” Tucker remarked, urging businesses to seek help before a crisis spirals out of control. Proactive decision-making, such as formal restructuring or putting non-core operations on care and maintenance, can save a business and enhance its long-term value.
Conclusion
The mining services industry is inherently cyclical and challenging. Success hinges on effective financial management, strategic diversification, and staying ahead of technological advancements. By leveraging these insights, SMEs can build resilient operations that thrive even in volatile markets.
Watch the full recording for a deep dive into these discussions.
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