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Securing adequate cash flow

From exploration to planning to extraction, adequate cash flow is vital to the mining process. Sometimes, yields don’t come as quick as expected and funding for repairing plant or paying employee wages becomes an urgent and important issue.

When commodity prices correct unexpectedly, it can also put pressure on cash flow. Here are four opportunities to hold on to your cash or improve incoming cash flows.

  1. Lease, don’t buy; rebuild, don’t replace

Purchasing all new plant and machinery during a cash flow squeeze is unsustainable; however, you can opt to lease new equipment required for production or extraction.

Even so, leasing new equipment can still put a strain on your operational cash flow. That’s why rebuilding machinery and plant is a cost-effective option that can extend the life of your current equipment, so it does not require replacement in the short- to medium-term.

Many mining brokers and lenders offer special finance programs to help rebuild equipment, with some deferring payment until the rebuilds are well underway or complete.

  1. Cash flow lending

Lending products designed specifically for cash flow issues are available from lenders and brokers, tailored to easing pressure on cash flow for unexpected expenses such as wage blowouts or equipment replacement. Cash flow lending is unsecured and does not require a business transaction such as buying a new extractor to apply for. “Cash flow funding can tide over mining operations until extraction is complete and money from sales starts coming in,” says Savvy CEO Bill Tsouvalas. “It can be a lifeline to mines just approaching profitability, so it can push them into the black without any additional worries.”

If you are already overleveraged with capital funding or finance, you may want to discuss cash flow positive payment options to align with your current incomings. “Many lenders are prepared to take a hit now for better earnings tomorrow; relationships are important in this business, after all,” Tsouvalas says.

  1. Investing in new technology

It may sound counter-intuitive to invest during tight cash flow but buying more efficient equipment can save on costs now and boost profits into the future. For example, in the Oil and Gas mining industry, significant savings can be made by switching to sumpless drilling, which eliminates the need for pits or sumps. Likewise, sucker rod inspection systems eliminate the need to dispose of sucker rods, instead identifying rods for continued re-use. Other technological innovations can also increase safety, which in turn reduces insurance costs.

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AMSJ April 2022