On hire ground

Instead they can look to hire the equipment they need to maintain their production.Picking up equipment on a short-term hire can help smooth out the business and remove the need for lengthy, costly investments in a mining fleet.With demand cooling and the outlook for commodity prices not looking great, such savings could be a saviour for many miners.However, there is also the argument that the dire economic straits will hit the hire and rental players. Their business relies on the activity of mining contractors. With commodity prices falling, projects are being shelved and that activity may dry up.There is also an argument that the capital is there if a company can make its case stack up. Emeco senior business analyst Graham Borgeson said the company’s business model was ideally suited to the tough times the mining industry was facing.Indeed, it seems to be paying off.“Enquiry levels are increasing rather than decreasing,” Borgeson said. “That’s because people don’t want to make those big capital commitments.“Customers can come to us for short-term rental contracts. We can hire equipment for six months if necessary, although a lot of our customers are on longer-term hires.“This gives them the opportunity to continue operations or smooth out the peaks and troughs in their operations without having to make massive investments.”Borgeson said mining fleet purchases could be a 10-year investment for a company. In times when commodity prices were moving around that could be a tough decision to make.A short-term rental arrangement takes some of the uncertainty out of that decision. The company can hire the equipment as it needs it.“Mining companies that are leveraged to prices need that extra bit of flexibility,” Borgeson said.His views are shared by a number of hire and rental players. National Hire managing director Andrew Aitken said a tightening of the capital markets could be good news for hire and rental players.“When capital goes rental becomes an option,” he said.Pit N Portal partner Ian Barnard said business had not slowed for his company since the downturn. If anything, he said, things were starting to look more normal than they had during the excesses of the boom.ET Mining Hire and Sales chief executive Darren Hedley said with capital tight miners and mining contractors would look for alternatives to source equipment. His company deals in underground mobile and fixed plant. “In times like these it’s a good opportunity for companies to explore hiring or buying second-hand equipment as a real alternative,” Hedley said.Another benefit of hiring equipment, particularly for small miners, is they do not have to worry about the asset management side. In some cases the hirer takes care of that for them.“We handle the asset management side,” Borgeson said. “We have our own maintenance facilities dotted around key areas.”He said the slowdown in commodity prices would not affect Emeco’s business.“We are leveraged to volume [of earth moved] and not price,” Borgeson said.However, as Aitken points out, if contractor activity starts to slow that could become a concern because hire and rental players’ fortunes are linked to that activity.Borgeson agreed. “For us the amount of earth being moved is what impacts our business,” he said.Analysts have a mixed view of the sector. On one hand they agree with the premise that the capital slowdown will be good for business. On the other, they feel the fall in commodity prices could lead to a slowdown in activity that will hurt the sector.ABN Amro’s Chris Sleep said the hire and rental sector was a highly cyclical one.“A small change in utilisation can have a big impact on margins,” he said.Sleep argues that with the twin pressures of falling prices and tight capital markets the rental equipment might be the first gear to be cut from the site. “That’s not to mention the potential pressure on pricing,” he said.Austock analyst Craig Stranger said the hire sector of mining was “an okay sector to be in”.“Production values should hold firm without being too leveraged on the downside,” he said.“I think the hire and rental guys are better placed than the general mining services companies.”However, one risk Stranger sees for hirers is the rise in the amount of second-hand equipment on the market.“There is a bit of a concern that there will be a lot of good, used equipment coming onto the market,” he said. “A lot of it is virtually new gear.”Not to worry, say the hire and rental players. A number of them also sell second-hand equipment and they expect this area to thrive during the downturn too.Indeed, this could emerge as a cost-effective way for companies to top up their fleets. There is evidence of a lot of second-hand equipment, some of it in near new condition, coming onto the market. From Emeco’s point of view, the global exchange rates are expected to give its second-hand sales business a fillip. “We have a global procurement footprint,” Borgeson said. “With the exchange rates going the way they are, we can take the benefit of that global footprint.”ET’s Hedley said he had noticed an upswing in demand.“There has definitely been an increase in demand from six months ago,” Hedley said.The company bought up all of the plant from Teck Cominco’s defunct Pillara mine.Hedley said the equipment was in good condition because the water in the mine was fresh. In other mines the mine water can be saline or corrosive but up at Pillara the water was good.“We’ve had a lot of interest in the equipment,” Hedley said. “The gear’s all in good nick.”A version of this story was originally published in Australia’s Mining Monthly magazine.

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