With such high initial price tags, mining machinery requires heavy investment.
All aspects of the machine's use, such as role, time needed, and costs should be considered prior to purchase or rental.
Mining equipment often has price tags of millions of dollars and not all mining companies can afford to buy high priced equipment outright or straight away.
Most junior miners prefer to rent the equipment, in order to reduce their investments in fixed assets and to gain quicker access to it as the equipment shortage bites.
In addition to the junior miners, most global mining giants are relying entirely on rentals for their operations, or concentrating on equipment rental to support their existing fleet of equipment.
But there is always the question of whether it is better to buy or rent.
However equipment rentals do offer a number of benefits over straight out purchases.
Firstly there is no capital investment, as hiring equipment frees up capital which can be used profitably elsewhere.
Borrowing power also improves as rented equipment is not shown as a liability on the balance sheet.
By renting rather than purchase the latest equipment can be hired, without concerns over the depreciation of owned machines or the usage of worn-out equipment.
It also allows for the possibility of trials - a try before you do buy - so you can study how well the equipment works, before purchasing them later for larger projects.
Through rental a company can supplement the core fleet, with machines quickly added to the existing fleet to tackle one-off projects.
Additionally it wipes out storage costs as there is no requirement for storage yards.
On top of this are lowered maintenance costs as service shops, spare parts, tools, mechanics etc. can be eliminated at the customer's end as rental agreements, typically, cover complete maintenance during the rental period.
Some rental service providers of major manufacturers provide on-the-spot services, in a short duration of time.
The rent of the equipment depends on various factors like the size, condition, age and life of the equipment. While the rent per hour is higher for new and large sized equipment compared to smaller and older ones machine quality is higher.
Some contractors also request the hirer to submit the topography and weather conditions of the mines and, for excavators, request the type of ore, its abrasiveness and hardness, after which the rent is decided.
Rental contract periods may vary from one month to several years.
Rental contracts are usually not made for periods less than a month while the rents themselves are calculated on an hourly basis.
At the beginning of the contract, the user has to make an upfront payment, for about 200 hours or in some cases for one month, along with transportation costs.
The transportation cost has no fixed rates as it depends on the distance to the location, the remoteness of the location, the topography etc.
For mining equipment, the dry rate is usually considered for rent per hour without fuel.
The upfront payment, excluding the transportation cost, will be returned to the user, at the end of the contract.
It is usually adjusted towards the bill, which the user has to pay, at the end of the usage period. Hiring of machines is concluded based on an individual contract of hire/machine.
The hirer is responsible for clean fuel supply, for the plant, for the duration of the hire.
All Ground Engaging Tools supplied are applied to the hirer's account.
The hirer will be responsible for punctures, excessive tire/under carriage wear and insurance of the Plant.
A minimum rate will still be charged per day, even if the equipment is not used.
The rate will be equivalent to the rates for 9-9.5 hours, so if equipment is hired then hirer has to pay rent for around 300 hours/month, even if the equipment is not used.
Occasionally the equipment is rented along with an operator and the operator keeps an account of the operating (used) hours of the equipment although the operator's rates vary from region to region.
Most large equipment rental companies publish their rental rates on their websites and in some cases there are associations of the equipment rental contractors which publish the rental rates on websites with categorised regions and equipment.
Factors to be considered while hiring equipment
· Cost of the Equipment
· Condition of the Equipment
· Project Life
· Operating Cost
· Rent per hour.
· Services provided by the Contractor
Considering these factors, the total cost incurred if the equipment is bought/leased or rented, should be calculated for the project life.
Usually, the renting of equipment is justifiable for smaller periods and may prove expensive in the long term.
The break-even point can be achieved by taking into consideration all the factors mentioned, and for periods less than that, the equipment can be safely hired.
*Mohammed Abdul is a research analyst at Beroe.