By Rod Nickel and Anthony Esposito
WINNIPEG/SANTIAGO, April 6 (Reuters) - Dealers of used
mining equipment, from the United States to Chile and Australia,
are making a risky bet that an end to the industry's four-year
slump may be in sight, stocking up on a glut of crushers and
conveyors.
Inventory is piling up as mines close or production slows.
Buyers are especially scarce for highly specialized
mineral-processing equipment, dealers say.
"We're being flooded with machinery," said Eduardo Bennett,
business manager for Chilean used equipment seller Copal.
The equipment glut is depressing prices as much as 20
percent, Bennett said.
A used 20-ton Komatsu Ltd 6301.T bulldozer that sold for
nearly $130,000 a few years back, now leaves the lot for
$100,000, for example.
Executives from across the global copper industry are
meeting in Chilean capital Santiago this week for the annual
Cesco/CRU conference, where concerns about China's slowing
growth and subdued global metal demand are prevalent.
But some veterans of the used equipment industry, who have
survived decades of commodity booms and busts, note that such
deep pessimism tends to mark the bottom of the cycle. They
expect the closing of high-cost mines and cuts to exploration
budgets to tighten supply and reverse falling metals prices.
Used mining machinery dealers tend to be small and privately
held, and some also deal equipment for construction and
agriculture. Much of the equipment goes straight to auction,
where it is sold to the highest bidder by companies including
Ritchie Bros Auctioneers Inc RBA.TO and Iron Planet.
At half a dozen abandoned mines and several warehouses,
California-based Machinery & Equipment Company Inc, established
in 1938, owns more mining equipment than at any time in the last
seven years.
While the company's results are private, the last such boom
generated record sales for the company in 2007-09, said
president Mike Ebert, who predicted another rebound may only be
a year away.
"I wish we had unlimited capital to invest in this
equipment - everything we did have in stock (those years) was
sold at full price," Ebert said. "It is starting to feel better
out there with an increase in inquiries."
Evans Equipment, a Missouri-based reseller of Caterpillar (NYSE:CAT)
Inc CAT.N equipment, is carrying twice its normal inventory.
Co-owner Bryce Evans, who is banking on a mining rebound in
2018, said the fact that many struggling miners have delayed
replacing equipment as commodity prices fell will also help.
"There is pent-up demand worldwide," he said.
BAD TIMING FOR MANUFACTURERS
For now though, the glut of used mining machinery, an
approximately $23 billion sector according to Ritchie Bros
Auctioneers, has made for bargain shopping.
While cheaply bought used equipment offers potential profit
for re-sellers, it limits future sales upside for manufacturers
like Joy Global Inc (NYSE:JOY) JOY.N and Caterpillar. They are part of a
$70 billion to $75 billion global new mining equipment industry,
according to S&P Global Market Intelligence.
"Their customers don't have nearly as much money as they
used to and so I think customers will be fairly cost-conscious
for the next several years," said Morningstar analyst Kwame Webb
of the new equipment makers, which have already cut staff and
curtailed operations.
Marcello Marchese, chief executive of Finning-CAT's FTT.TO
South America unit said Chile's mining industry used to buy 280
to 300 units of large-scale equipment each year.
"Last year there were 90 total sold," he said.
The soft used equipment market is also bad for miners hoping
to recover some costs from failed projects. Barrick Gold Corp
ABX.TO , which suspended its Pascua-Lama gold and silver
project in 2013, is trying to unload equipment originally
earmarked for the mine.
Supplies are likely to expand in coming months as some of
Australia's biggest projects reach completion, said Frank Lee,
general manager of Ross's Auctioneers and Valuers, in Western
Australia.
"Exploration and drilling has pretty much dried up, but the
big thing has been the wind-down in expansions," Lee said,
citing iron ore projects owned by Rio Tinto RIO.AX RIO.L ,
BHP Billiton BHP.AX BLT.L and Fortescue Metals Group
FMG.AX .
The longer the mining slump drags on, the more likely that
equipment available today will fail to meet future
specifications on mine sites, Lee warned.
"Some of this stuff will just be scrapped."