You certainly don’t need an MBA to recognize how lucrative the mining industry can be under the right conditions. Once you’ve done your due diligence with respect to prospecting and located a piece of land that’s rich in mineral deposits, you could literally find yourself sitting on a goldmine.
But first, let’s review the actual equipment you’ll need to start pulling those valuable deposits out of the ground and get them to market.
While some mining operations require more specialized machinery, almost every mine will need to lease or purchase the following.
By far the most common piece of equipment for any mining operation are mining drills. Drills are essential to access the various rocks and minerals located deep underground that need to be brought to the surface.
In addition to creating entry and exit points large enough for workers to safely access the raw material being extracted, drills also function to help liberate the desired resource from the mine’s waste material by creating areas to place explosive charges.
Blasting tools are another key component for any mining endeavour. These tools employ explosive charges to fracture rock and separate the desired resource from the surrounding waste material, while also enabling miners to better access the specific areas being mined underground.
Earth movers are primarily required by above-ground mines to carry loose soil and debris from one location to another. They’re typically used for digging, pushing and transporting waste material.
Crushing equipment is used to crush rock and stone down to manageable sizes for transportation or conveying. The types and sizes of crushing machinery vary based on the job at hand, but they all essentially function to separate the desired resource from waste material.
Screening machines are designed to further sort the desired resource from waste material. This is typically achieved by vibrating the extracted rock and earth so the usable material is collected in a catching area while the leftover debris is captured in a screen.
Feeding, conveying, and on-line elemental analysis equipment
Conveyers are used to control the volume of material being fed into the crusher, while feeders function to improve the efficiency of this operation. Both are crucial pieces of machinery -- without them, your crusher will wear down prematurely.
Finally, analysis equipment (such as a scale system) is also important as it regulates the material loads while monitoring production output. Most modern systems enable you to sample the material while it’s still on the conveyor belt, better ensuring a consistent product quality.
While there are enormous profits to be earned mining precious metals and minerals, a similarly enormous outlay of funds is required in order to extract and exploit those resources. As such, you’re likely going to need outside financing to attain the equipment crucial to any mining operation.
Given the scale of a mining operation, it should come as no surprise that purchasing the above equipment easily runs into the millions of dollars, so securing adequate financing to obtain the requisite tools of the mining trade is likely going to be crucial. Fortunately, there are viable financing options available to aspiring mining entrepreneurs.
While there are several, arguably more complicated options available -- bridge financing, off-take financing, export credit financing schemes and venture capital, namely -- the two most common options for financing mining equipment are conventional business loans and leasing. There are benefits to both of these options, typically specific to your needs.
Among the most pragmatic and popular asset finance solutions for mining operations is what’s known as an instalment sale. This type of financing is beneficial because at the end of the term you own the machinery outright, which you can then use to exploit other mines you may acquire in the future or sell off to recoup some of the money originally expended on your loan.
Another advantage to this financing scheme is that all your interest payment and capital allowances can be claimed as tax deductions. Once your term is completed and the loan completely paid off, you’ll be able to claim that money and put it back into your business.
Equipment leasing and financing
Equipment leasing is the other most common financing strategy for players in the mining industry. While it will ultimately cost you more to lease mining equipment than purchase it, there are still many advantages to this approach.
For starters, with a lease you shouldn’t need to cover any costly initial down payments, maintenance costs are reduced, and the monthly installments on a lease are typically lower than with equipment loans, leaving you with greater cash flow. Plus, leasing comes with its own tax advantages.
Further, depending on your lease agreement, you should be able to upgrade your equipment as needed. The technology behind mining equipment is constantly evolving, and purchasing new machinery is very expensive -- leasing enables you to keep up with the latest advances in mining technology without overextending your financial resources.
And remember, at the conclusion of many lease agreements you can arrange to ultimately own the asset you’ve leased, which can then be claimed as a tax deduction.
Securing financing to purchase mining equipment can be a challenging undertaking. In Canada, as with most other countries, conventional lenders such as the major chartered banks are often reticent to fund mining operations because they view them as high risk businesses.
As such, there are numerous advantages to seeking out alternative commercial lenders, which are typically easier to work with and offer much more flexible terms than conventional lending institutions.
Where a bank is apt to refuse funding your mining business for any number of reasons, with a sound business plan you can secure financing through an alternative lender. Unlike traditional financial institutions, lenders who specialize in natural resource industries are also more likely to understand the specific challenges you face and provide you with solutions that are tailored to your needs.
Whether for mining or oil and gas, Hitachi Capital Canada has the most cost-effective solutions. Contact us to find out more.