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Into the Mines: How Businesses Can Grow Along with Australia’s Booming Mining Industry

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The mining industry has played a key role in the Australian economy for quite some time. It dates back to the gold rushes of the mid-19th century and accounts for around 7% of today’s GDP. “Australia is a global top five producer of gold, iron ore, lead, zinc and nickel and also has the world’s largest uranium and fourth largest black coal resources, respectively, says Export.gov.”

In 2018, the mining industry experienced record growth and is poised to be a top global contender for the foreseeable future. New mines are opening around the country and things are picking up. But which industries/businesses have an opportunity to grow with the mining industry, and what finance is available to them in this time of rapid growth?

 

A New Record for Exports

Leading coal news magazine, World Coal, reports that massive growth took place in 2018 where new records were set in the Australian mining industry. Resources exports including minerals, metals and petroleum reached $248 billion AUD in revenue and accounted for 72% of Australia’s goods exports. 

They also point out that coal was the #1 export earner last year and generated $66 billion AUD. On top of that, Australia’s gold industry reached $20 billion AUD, and new mines opened up throughout Western Australia. 

In terms of the total number of mines, 370 were known to be operating in 2016, with ⅓ in Western Australia, ¼ in Queensland and ⅕ in NSW. However, those numbers have likely increased over the past 3 years. Put all of that together, and it’s an all-time high, which is incredibly impressive considering the Australian mining industry is nearly 175 years old.

 

Resources to Support the Tech Movement

World Coal makes another interesting point regarding the country’s involvement in the ever expanding tech movement. “Australia has extensive resources of the rare earth elements, base metals, lithium and precious metals that make smartphones, electric vehicles, modern energy systems and industrial machinery.”

Australia currently produces the most lithium in the world and is one of only a handful of countries that produces rare earth elements, giving it an edge as we become increasingly tech-centric. 

The bottom line is that things have never looked better for Australia from a mining perspective, and the country is well positioned to thrive moving forward. There’s just one issue. A lot more needs to be done to support the booming mining industry.

 

Industries and Businesses with the Most to Gain

Obviously, the mining companies themselves will have a major interest in growth and expansion. Some of the country’s top companies like Evolution Mining, UGM Australia and Barrick Australia Pacific have a vested interest in the mining boom. But that’s just the tip of the iceberg, and there are several other industries/businesses that have plenty to gain as well. 

One of which are SMEs involved with automation technology. Given Australia’s high cost of labor — the average miner earned $133,801 in 2019 — interest is quickly growing in building driverless vehicles, drills and excavation equipment. Iron ore production could especially benefit from automated technology, with its large scale mining operations. 

Another are companies in the industrial and medical fields. Minister for Resources, Matt Canavan, explains there’s a strong potential to produce platinum group elements such as platinum, palladium, rhodium, iridium, ruthenium and osmium — all of which are critical for industrial and medical applications. 

There’s also the electric power industry. “Coal plays a vital role in electricity generation worldwide,” writes the World Coal Association. “Coal-fired power plants currently fuel 38% of global electricity and, in some countries, an even higher percentage.”

And as we mentioned earlier, Australia is one of only a few countries that’s capable of producing rare earth elements used in cutting-edge technologies. So a ton of major brands that manufacture products like smartphones, digital cameras and wireless devices will also be interested.

 

How Companies Can Obtain Financing

There are three main types of alternative financing businesses can use to get the money they need. Rather than relying on traditional banks, which often require secured property and may have limitations, these methods are more flexible and can meet the unique needs of those involved in the mining industry.

 

Production-Based Financing

This is where a company obtains funding by selling the rights to future production from their mines, a practice that’s especially common when mining involves lithium, nickel and cobalt. For example, NQ Materials made an agreement with Traxys Europe that they would receive a $14.8 million AUD secured prepayment in exchange for 100% of the zinc and lead production from the Hellyer project in Tasmania. 

Given Australia’s thriving mining industry in recent years, production-based financing options have become much more flexible and cater to a variety of different needs. However, it’s extremely important for companies to have a full grasp of pricing and think long-term to ensure they get a fair deal.

 

Private Equity Financing

Private equity financing is an arrangement where cash is given in exchange for a minority stake in a mining project and a say in how it’s ran. There are multiple investment companies that offer financing such as Resource Capital Funds, Orion Mine Finance and Taurus. 

A recent example involved a deal between StrongBow Exploration, a mineral exploration company and Orion Mine Finance where they purchased the South Crofty Tin mine in Cornwall, England for $4.4 million AUD with the intention of bringing it back into production. It was an offtake agreement where the two companies will receive a portion of the earnings for the first 10 years of production.

Going this route is beneficial because funding tends to move quickly, and mining companies don’t have to deal with many of the restrictions that they have to with banks.

 

Debtor Finance

This final method revolves around a simple, three-step process. A business owner sends an invoice to a lender the same time they send it to their client. They wait for approval, which typically happens within 24 hours, and they receive up to 85% of the value of the approved invoice, less any fees. Once the client pays the invoice in full, they receive the remaining 15% of the invoice. 

Debtor finance is an effective way for SMEs to gain access to funding and pump cash flow back into their business without having to wait for slow or late paying clients. Considering that invoices are used as collateral, there’s no real estate required, which is a huge plus for business owners. Funding grows along with business growth, so as the size of invoices increase, so does the amount of capital. 

And unlike the first two financing options that specifically apply to mining companies, debtor finance applies to a myriad of industries. This means the SMEs in other sectors we discussed earlier could potentially benefit from this strategy. 

Equipment and Asset Finance

Financing that is linked to your working assets allows businesses to not only fund the next vital purchase to progress their growth and prosperity, but can also be used for capital raising and security for funding even after the assets have been purchased. 

Some financiers, such as Scottish Pacific, will lend against a variety of specialised equipment, fund second-hand equipment purchases, and provide solutions to importing equipment from overseas.

 

Fueling Mining Growth

Record export numbers from mining is exciting news for many business owners. It shows the Australian economy is really taking off, and there are plenty of opportunities for companies across many industries. 

But in order to take full advantage, SMEs need to have a viable means of obtaining funding in this time of rapid growth. Understanding the different options and how they work should point business owners in the right direction. 

How are you planning to capitalise on the economic boom stemming from growth in the Australian mining industry?  Please share your thoughts and find out how we can help here, or call us on 1300 332 867

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