Australian Mining takes a look at financing options in the resources sector.
Australia has continued to see significant investment into major infrastructure projects, particularly in the resources, green energy and critical minerals sectors.
These investments generate great opportunities for Australian mining and construction contractor participation and create thousands of new jobs. But there is also a need for finance to assist with working capital and contract security provisions.
Export Finance Australia supports small and medium-sized enterprises (SMEs) in Australia to win and deliver on these types of contracts.
Export Finance Australia mining and construction sector lead Aleks Henderson has shared her insights into how Australian SMEs are making the most of these opportunities and addressed what she feels are some of the misconceptions about the organisation.
Due to growing investment into critical minerals and ongoing gold and iron ore projects, there has been increasing demand for working capital and contract security by SMEs.
“In WA particularly, we’re seeing a lot of businesses that are growing rapidly being challenged with access to additional capital and bank guarantee requirements for new contacts,” Henderson said.
For many SMEs in the construction sector, cash cover for bank guarantee requirements ranges from 50–100 per cent. Export Finance Australia can provide contract security at a minimum 20 per cent cash cover, which can free up cash and potentially reduce the need for further finance.
“We’re also seeing contractors being able to negotiate advanced payments to support with mobilisation and upfront cost for materials to help get them on-site sooner,” Henderson said.
“To secure this deposit, however, they are being asked for an advance payment guarantee.”
Export Finance Australia’s advance payment bonds, like performance and warranty bonds, act exactly like a bank guarantee. These finance solutions can enable businesses to meet the advance payment conditions without having to tie up a large portion of their working capital.
An SME that provides goods and/or services to another business that exports its final product – for example, gold, iron ore or lithium – is considered to be part of an export supply chain.
Export Finance Australia can also support these businesses that are integral to the delivery of export activities.
In the mining and construction services sectors, many Australian SMEs are providing integral goods and/or services to mines and other large projects.
There are a number of recent success stories of businesses that Export Finance Australia has supported.
McNally Contracting Group
Providing full turn-key solutions for remote accommodation villages and non-process infrastructure to the mining, resources, and oil and gas sectors, McNally Contracting Group is a prime example of a business in an export supply chain.
As the number of projects the business was securing increased, it needed an alternative finance solution to cover larger bonding requirements.
Export Finance Australia provided a bond to support McNally Contracting Group’s contract security obligations, freeing up cash flow that would otherwise have been tied up in bank guarantee cash cover requirements.
“You’ve got performance guarantees, and then you’ve got your defects liability period,” McNally Group Contracting managing director Mark McNally said. “So while we have the capacity to take on more work, we needed the capacity to provide greater levels of security, and that’s when Export Finance Australia came to our assistance.”
DCI Electrical Services
DCI Electrical Services delivers electrical, civil and plant hire services to multinational corporations in the resources sector.
After winning two large mining projects, the business needed additional working capital and contract security to cover operating expenses and deliver on the contract conditions. With a loan and a bond from Export Finance Australia, DCI Electrical Services was able to cover its mobilisation and working capital for materials, and meet contractual requirements.
DCI Electrical Services’ managing director and owner John James Greene found that Export Finance Australia “really understood the business”.
“They understood that all our expenses would be at the front end, and they looked at our business rather than just the figures,” he said.
Grounded Construction Group
Grounded Construction Group is a business that designs and installs accommodation camps and site facilities on remote mining sites across Western Australia.
Grounded Construction Group founder and managing director Paul Natoli highlighted that one of the business’s biggest challenges was cash flow, particularly as so much of it ended up tied up in bank guarantees cash security.
To support new projects the business had in the pipeline, Natoli and the team were introduced to Export Finance Australia.
“Having bank guarantees with Export Finance Australia has allowed us to do a lot more within the business,” Natoli said. “It’s freed up a lot more cash flow.”
Furnace solutions
A family-owned and operated Australian business, Furnace Solutions provides demolition services to the minerals and metals processing industry.
After winning a contract at BHP’s Olympic Dam facility in South Australia, Furnace Solutions turned to Export Finance Australia to assist with contract bond funding requirements.
Export Finance Australia provided Furnace Solutions with three bonds to support the delivery of the Australian-based BHP contract.
“Having Export Finance Australia’s support as a local Australian-owned company is wonderful,” Furnace Solutions general manager Chad Loan said.
“The ability for us to utilise its financial support as a contractor for another organisation that is exporting its goods is a very valuable funding mechanism.”
Export Finance Australia assesses a business based on its capability and capacity to deliver. It considers cash flow, whether a business has enough employees, its policies and procedures, and whether it has delivered on a similar contract as part of its assessment. This due diligence can also be reassuring to miners issuing contracts.
The types of businesses that Export Finance Australia can support are broad, and it has worked with many SMEs across the mining and construction sectors.
Alongside banks, it can provide a range of flexible finance solutions, including loans, bonds and guarantees to assist businesses to grow.
“We’re always more than happy to have a conversation with businesses, bankers and advisors to explore what finance options are available,” Henderson said.
Whether a business is tendering for a large contract or awaiting a project award, the team at Export Finance Australia is available to help find the right finance solution.
This feature appeared in the September 2023 issue of Australian Mining.
