The first quarter in 2017 has, to some extent, upheld the rebirth of the resources sector we experienced late last year. A sense of cautious optimism remains among mining investors; however, capital expenditure remains relatively low and financial institutions continue to err on the side of caution when it comes to lending into the sector. In Australia’s current market, hinged on the relationship between global demand and the supply of resource and minerals found underground, when it comes to long-term investment strategies – proactivity is paramount.
Particularly for financiers, engaging an external asset expert who can provide an independent and unbiased asset valuation or asset disposal service, is critical to ensure confidence in making smart investment decisions and mitigating risk in a fickle market environment. Your asset expert should have a thorough understanding of the three key, yet simple elements outlined below.
- Understand the asset
Resources equipment specialists should have an intricate yet clear grasp of a wide range of assets and how their value is translatable across industries, whether its valuing a fleet of heavy earthmoving equipment or determining how best to disperse workshop gear from a retired mine site. Valuations are not always a good news story, but when honesty is not conveyed through the valuation process the results can be disappointing. It’s imperative that valuers present the good, the bad and the ugly; if not, their credibility and potential bias towards a certain outcome should be questioned. Before valuation transparency can be considered, an asset expert must possess a strong knowledge of maintenance practice and outcomes, industry standards, asset and major component utilisations, competitor circumstance and regional influencers to be able to discern positive and negative outcome paths for the asset.
- Understand the client
To provide advice complimentary to smart investment decisions, asset experts should have a clear understanding of their client and be able to identify key motivations behind the desire to sell. Often a seller won’t disclose financial stress which can have a substantial sway on their asset disposal preferences. An exceptional asset expert can identify signs such as maintenance shortcuts, staffing movements and service price reductions to uncover motivations to sell, which allow the right dispersal strategy to be executed. For example, while typically effective, auctions are not always the best option for asset dispersal. Equipment class, the state of the market and a myriad of other factors could warrant a fixed price or tender process to achieve the best price for a given asset. Regardless of the motivation, whether its surplus and time to move assets on, fleet replacement or the company is under increasing financial stress, an asset expert should own the relationship with the client. This means having an in-depth understanding of all aspects of their business and assets that could influence results, all the way from the initial valuation through to the end of term asset realisation.
- Understand the industry
Asset experts should be aware of current market conditions and how they will impact the value of any given asset throughout its operational life. This knowledge lends itself to financiers, helping them to make better informed decisions in regards to identifying the best conditions to disperse any given asset/s. Once a commitment to sell has been reached, understanding market conditions can make a huge difference to the financial outcomes of a dispersal. Can the asset/s be absorbed locally, nationwide or offshore? What emerging markets could absorb the assets? What is the current supply/demand circumstance for specific asset classes? Questions such as these should always be asked by an asset expert to unlock the true value of an asset within a certain industry or to certain clients. Also, financiers often have blind spots in the asset dispersal process, such as the fact that bank facilities can be a set-and-forget transaction, which is all well and good if the client is paying but this is not always the case. Knowing your customer is critical and regular asset audit and inspections are preventative measures that should take place. Knowing about potholes sooner rather than later can prove beneficial in assisting the client and helping them navigate through challenging times.
Although the resources sector has learnt from many of the mistakes it made post-boom, external asset advice is often overlooked and is valuable now more than ever as we approach the end of the fiscal year. Investors should never put all their eggs in one basket, so proactively engaging a resources equipment specialist to strategise long term is more than worth its while.