Show captionHide caption

Australia’s FMR Investments chose financing from Sandvik when it purchased a new fleet of trucks for its Eloise site.

Flexible financing

Today’s consumers have creative options other than owning a product for a particular application. The question remains, what offers best value for customers: to buy, lease, co-use or share? Sandvik Mining and Rock Technology offers flexible and competitive customer finance solutions in a changing business climate.

Text: Turkka KulmalaPhoto: Sandvik Published: 9 April 2019

For most customers, procuring mining and construction equipment means a major capex decision that inevitably raises hard questions: Is it necessary? Do we have any options to reduce the cost? Against this backdrop, it is hardly surprising that financing has long been an essential component in Sandvik’s service offering.

Björn van den Berg, global customer finance director at Sandvik, says the company currently arranges in-house financing for 25 percent of all equipment sales.

“Customers find great value in financing their investment through the equipment supplier,” van den Berg says. “For one thing, we really know our machines, and this is something that third-party financers can’t bring to the table. We also understand our customers’ businesses.

For example, we are mindful of the fact that a mine cannot generate any substantial cash flow before the extraction phase and we can offer matching solutions, especially for the development stage.”

To wit, when Australia’s FMR Investments purchased a fleet of Sandvik equipment to modernize its Eloise operations, the company chose financing from Sandvik.

“Once upon a time we were an underground mining contractor,” says Charles Watson, FMR finance director. “When we picked up the first five Sandvik trucks for Eloise we found ourselves in a novel situation. That was the first debt we had incurred since selling the contracting business, and we’d lost touch with our previous lenders. Financing underground equipment is quite novel for some people, so when I could get a competitive rate from Sandvik it was a bit of a no-brainer.”

For FMR, there were clear benefits for going with Sandvik rather than a traditional lender for financing.

“Sandvik knows its equipment,” he says. “That automatically gives them knowledge of our business and how we operate so that is distinct from a bank, which may or may not understand us. Sandvik really does bring a lot of value for us so it’s a win-win situation. The rate was competitive, and it was quite a seamless process. You bring a lot of value to the table offering that to a client.”

The vision of Sandvik’s customer finance solution is to help mines, contractors and construction companies to improve their financial performance by offering flexible solutions ranging from conventional ownership to paying for use. The organization has also been streamlined for better interaction with the markets. While customer financing was previously handled by the Sandvik Group, it has been a part of Sandvik Mining and Rock Technology since 2017

– in other words, closer to front-line sales.

To create flexibility to meet customer needs, Sandvik offers three customer finance products – essentially three different ways to divide the ownership and the associated risks and

rewards. With asset-based lending, the financed equipment serves as collateral and the customer has ownership of the machine in all senses. Finance lease is a form of finance in which the ownership of the equipment remains with Sandvik while the customer leases

the equipment, and the customer then takes over ownership at the end of the lease term. In an operational lease, the equipment remains in the ownership of Sandvik both legally and financially, and the customer pays only for its use; at the end of the lease term, the equipment returns to Sandvik.

The appropriate financing solutions vary according to the type of equipment, the customer’s industry and the geographical area. In areas where none of the above options are viable, Sandvik Group can still offer export credit services.

“Furthermore, we can bundle financing with other types of services that the customer might need, such as maintenance contracts,” van den Berg says. “Also, financing arranged by us allows customers to use their existing credit lines for other purposes.”

”Financing underground equipment Is quite novel for some people, so when I could get a competitive rate from Sandvik it was a bit of a no-brainer

Sandvik has a simple and efficient decision-making process. An indicative quote can usually be provided within 24 hours of the request, starting from limited initial data on the equipment, duration of financing and down payment. A somewhat lengthier process is of course necessary for the final binding offer, including a review of the customer’s audited financial statements.

The overall credit risk has three main components: country risk, customer risk and equipment risk. Assessing these is not a rigid, replicative process.

It is necessary to estimate any cross-over effects that may change the outcome on a case-by-case basis.

Higher country risk or equipment risk, for example, may be acceptable for a financially strong customer. This enables Sandvik to follow A-level customers in geographies where credit is difficult to obtain.

“If financing the acquisition of new or reconditioned Sandvik equipment is in any way a challenge for a customer, we can tailor a solution to their specific needs and deliver added value for their operation,” van den Berg says.