Peripheral, yet essential mining services are booming alongside mining itself. Exploration is increasing alongside commodity prices – and if you are looking to expand your mining services business to take advantage of the rush, you need to finance your assets the right way.
Options to expand your operation is to buy your plant outright instead of hiring it ad hoc. You may need an entire fleet of vehicles or plant that are up to mine spec. What options are out there? One way is to seek fleet and equipment asset finance.
Chattel mortgages and hire purchases
Chattel mortgages and hire purchases are finance products oriented toward eventual or immediate ownership of a vehicle. A chattel mortgage is a type of secured loan with many tax deductions or reimbursements – some of which you can claim immediately. Businesses can claim GST, interest, and depreciation through activity statements. A hire purchase is much the same, except the asset is on the banks’ books instead, and they will pass on any deductions you cannot claim yourself.
The main benefit to these types of finance is that it’s cash flow neutral. You don’t need to have a deposit to buy any of your plant, though you may need to prove you’ve been in business for at least 6-12 months.
Your business can borrow more than the value of the equipment as well – this might cover insurance, training, ticketing, and transport, if you’re buying from overseas.
Operational Leases
Operating leases give businesses a way to gain access to plant and equipment without committing to a purchase. Your business gains use of plant or equipment in exchange for a monthly fee. The monthly fee will usually, but not always, include maintenance and servicing. You can deduct the payments as operating costs. At the end of the lease, you must return the equipment to the financier.
“Operational leases are ideal if you’re working on an exploration project and the development phase is a long while way,” says finance expert and Savvy Managing Director Bill Tsouvalas. “Air-core reconnaissance and diamond drilling support is time dependent in some cases – you may only drill during non-harvest times, for example. So, a lease might make more sense in this instance.”
Finance Lease
Finance leases are flexible leases that allow an option to buy the equipment at the end of the lease by paying out the residual value. Or you can return the equipment or start a new lease with new or alternative equipment.
“As for what’s best, this is dependent on your goals and strategy for growth. Is your business geared toward exploration, development, or production? Or are you looking to expand into a different area of mining? If a piece of plant becomes indispensable, owning is better. At the end of the day, it’s all about what your financial needs are. You should talk to your financial controller first to find out what’s best now and into the future.”
