Is there ever a stable year for commodity prices? No, but when government sources in mining states are talking about a rollercoaster ride… there is a definite opportunity for the many businesses who supply the mining sector!
The Government of Western Australia noted in its recent statistical bulletin that “ccommodity markets were on a rollercoaster for much of 2018–19 with the US-China trade tensions entering its third year.”
It added: “Locally, the Australian dollar was down almost eight per cent from an average of 77 US cents in 2017–18 to 72 US cents in 2018–19. Generally, global commodity prices held up well with the financial year average price of most commodities increasing on the gains made in 2017–18.
Both the volatility, and the fact that right now the balance is largely favourable to miners, make this a great time for mining services companies to expand their offer. What they need is the right business funding, because they need to move fast and they need to know that mining companies in general do not pay quickly and in fact the larger the mining company the longer they take to pay. If the mining services company is not cash up this will have major issues for the business as staff wages need to be paid weekly or bi-weekly but the mining company may only pay every 45-60 days.
How Big is the Mining Services Opportunity?
In Western Australia alone, the mineral and petroleum industry reported record sales of $145 billion in the 2018-19 financial year. “The bulk of the $30 billion increase on 2017–18 was the result of improved iron ore prices and increasing LNG volumes as projects continue to move towards capacity,” according to the government.
The companies that own those projects do not want to stop when they reach ”capacity”. They want to expand their capacity by bringing in more equipment, transport and – above all – manpower, many of which are outsourced.
However, they also know that they can’t rely on commodity prices staying high and demand always growing. You don’t have to have been in mining for long to have seen a few cycles come and go – so managers are reluctant to hire staff directly or over-invest, hence why mining companies like to always have a component of the operations outsourced to 3rd party mining services companies to do some of the work so that they can be flexible, based on supply and demand of their product.
How Mining Services SMEs Can Manage Their Cash Flow And Continue To Grow
There are many services that companies supply to mining companies, on an outsourced basis. Let’s imagine a staffing agency that wants to double the number of workers it supplies to its customers over the next few months.
Like its clients in the mining industry, this company’s mining supplier will have to remain nimble and not commit itself, because the cycle will turn against miners at some point. It has the expertise to do this in terms of hiring people, because that’s where the owner‘s and manager’s experience lies. However, they also worry about financing.
The workers supplied to mining companies need to be paid weekly, whilst the miner pays the company providing these resources in 30, 60 or even 90 days. The supplier could look to a bank for a business loan, but this often requires property as security and also locks the supplier into paying fixed monthly instalment of principal and interest until the loan is repaid, even if the contract with the mining firm comes to an end before the loan is repaid.
Instead, we suggest Invoice Finance. The Labour Hire agency supplies staff and issues its invoice to the mining company, as usual. With flexible invoice finance, the agency can then access up to 90% of the face value of the invoice/s within 24 hours of the invoice has been issued and approved (instead of waiting 30 to 90 days for payment) – having the money in the bank in time to pay the workers. Most of the final 20% – likely to be a big portion of the profits, will arrive when the customer settles the bill. The Invoice Finance company takes a very small percentage of the 20% owing to cover their fees (for giving you upfront funds) – think of it as getting an early settlement discount. Because it is not a loan there are no going repayments – you are simply getting your money upfront instead of waiting for it from your customer.
Invoice Financing is a well-known cashflow funding solution amongst large corporates, but still relatively unknown amongst SME’s, so having such a funding solution in place is never frowned upon by the large corporates – in fact it gives them peace of mind that you won’t be going out of business anytime soon and will continue to provide the services you say you will, because you have a funding partner to assist with your cash flow
Invoice finance is an ideal funding solution for growing businesses who supply large companies such as Australia’s miners. The funding is always tailored to your needs, so it can grow or shrink to match the fortunes of your industry – and the ambitions of your business.