Mining equipment suppliers seeing growth
July 17, 2017
After a few slow and stagnant years, exploration activity in the mining sector is heating up — and that's good news for companies that support mining and exploration activity in Nevada.
The turn started in the second half of 2016 and has continued throughout 2017, says Jeff Olson, chief executive officer and president of drilling services contractor Boart Longyear. Exploration activity spiked on the strength of modest increases and stability in the price of copper and gold.
The yellow metal last week was hovering around $1,200 an ounce, while copper was at $2.66 a pound. Gold is well off its high of $1,889 an ounce in 2011, but its current price reflects greater stability for the commodity — and signals mining companies that it's safe to ramp up exploration activity. Exploration stagnated the past few years as the commodity tumbled and eroded investor confidence.
That stability and slight increase in price from a low of $1,050 at the end of 2015 has mining companies once again engaging the services of drill rig operators.
"We continue to see positive signs in the market, including elevated prices for gold, copper and other key commodities," Boart Longyear's Olson said in a May market report. "Equity raisings for junior mining companies improved notably in the second half of 2016 and all of this is contributing to increasing levels of drilling."
And that's a good thing for Elko-area companies that service the mining industry. Ben Reeves, operations manager for Elko Wire Rope, says exploration activity in northern Nevada has come back around in full force — he's even added an employee to round out his staff of 12.
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"We are seeing quite a bit (of business) on the exploration side — we have lots of drilling-based customers," Reeves says. "It's been three to four years since we have seen this steady incline, that's for sure."
Elko Wire Rope, which supplies replacement wire used to anchor drill rigs and similar applications, is stocking more inventory this year to meet the increased demand. The company headquartered at Salt Lake City has four branch locations, and all are bustling.
"We are shipping a lot of stuff into Alaska and back East," Reeves says. "It's not just here in our little bubble."
The rebound is all based on stability throughout the commodities sector, says Todd Gilligan, general manager of sales and marketing for Cashman Equipment. Mining companies never really slowed down production when the price of gold fell, but they did delay allocating funding for large capital expenditures such as purchases of heavy mining equipment, one of three key segments of business for Cashman Equipment. The others are equipment parts sales, service and repair, and equipment leasing/rentals to contract mining companies.
All three legs of the tripod are seeing an uptick.
"Over the past couple of years we had a steep decline in machine sales related to capital expenditures," Gilligan says. "But all the way through, our product support business has been consistent for parts, service and repairs — nobody really ever stopped operating their fleets or producing gold.
"Currently, we are starting to see the release of some capital," Gilligan adds. "It's not coming in waves, but really just on an as-needed basis. Some mining companies needed to buy equipment and couldn't, and now they are starting to work on their priorities."
In addition to the modest increase in equipment sales to the state's hard-rock miners, the redeployment of drilling rigs for exploration in northern Nevada also has provided a boost to Cashman's machine sales business.
"We are starting to see mining companies really expanding capital for drilling and exploration," Gilligan says. "Drillers do have some equipment demand — its smaller equipment, but they do have demand and they are getting busy again."
Cashman Equipment plays a key role in providing heavy equipment to companies that are contracted by mining firms to provide crucial site work, such as infrastructure improvements, heap leach pad construction and haul road improvements and expansions. Increased demand in contract mining services has created additional demand for Cashman's equipment rental business — it's been the biggest area of growth for the company this year.
The mining sector found its legs in 2017 through general stability in the commodities sector (as well as in the country's political climate). The modest turnaround is expected to continue as mining companies began releasing more capital to expand existing operations.
"I see us having more opportunities in 2018 and beyond with the actual mines themselves," Gilligan says. "As the mines continue to get their balance sheets and business healed from the past few years, then they will start potentially leveraging some capital on their own activities."
Nevada gold miners produced 5.85 million ounces of gold and 10.4 million ounces of silver in 2015, the Nevada Mining Association reports. Mining employment in May of 2017 was at 14,000 employees, up 2.2 percent from the previous year. Miners reported total production of 5.46 million ounces of gold and 8.88 million ounces of silver in 2016.