With the global mining industry on a continual upswing, orders for new mining equipment backlogged and profit margins in the remanufacturing business narrowing, the equipment resale business is on a roll.
The industry’s changing almost daily, it seems,” said Mark Allen, president of Sudbury-based Driftech Inc. “It’s changing so fast that I don’t believe it.
(Mines) can’t get new equipment, the deliveries are so long, everybody’s trying to buy new and they can’t. We hear stories of guys who are ordering two years ahead and the OEMs (original equipment manufacturers) are all busy.”
Allen launched Driftech in 1995 at a time when prices for remanufactured equipment averaged about 55 per cent of new equipment. The rising cost of materials and a shortage of skilled labour have since driven the price of remanufactured equipment up to the 70 to 75 per cent range, he said.
While he admits there is still profit to be made in remanufacturing, Driftec’s core business is increasingly shifting towards the sale of used equipment.
“With used equipment, if we buy a good used machine, it’s just in, out and gone and we’re making money, whereas with remanufacturing, you have huge liabilities, warranties, it’s labour intensive, it just takes too much time, and now even those costs are climbing to a point where a (mine operator) has to look and say, ‘Should I buy remanufactured because we’re in the 70 to 75 per cent range?’ If it’s beyond 75 per cent of new, then it’s pretty hard to justify.”
For Driftech, there’s “very little money to be made” in remanufacturing, he said.
“It takes two or three months to remanufacture and it takes anywhere from 30 to 90 days to get paid for it. It’s easier for us to go out and buy equipment, clean it up, repair it, and sell it because it takes less of my time,” Allen said. “We can run more of it through the shop and the profits are much greater.”
Driftech has diversified its product offerings over the past six years in response to industry demand. In 2000, when the use of shotcrete in mines began to peak, Driftech, in collaboration with a third-party engineering firm, developed the MSV 2100 shotcreter.
At around the same time, the company was contracted by Newmont Mining Corp.’s operation in Nevada to manufacture a dual-purpose service vehicle. The mining company was seeking a vehicle that could be used underground for washing the mine face and drifts, and aboveground for controlling brush fires. Driftech developed a water truck capable of carrying 1,500 gallons of water, with a dust-suppression system, a high-pressure pumping system capable of shooting 200 gallons of water a minute and a system with a remote control spray nozzle for fighting fires or washing drifts.
Since then, Driftech has been manufacturing its own dust suppression systems locally for both Inco and Falconbridge, and has developed portable, self-contained systems that can be hooked up to an underground forklift or load-haul-dump machine.
While there’s not a huge market for the systems – only about five manufactured annually – it is yet another way Driftech has responded to industry needs through innovative design, Allen said.
The company also specializes in equipment and systems modification for vehicle electrical system wiring and design, and modification of custom enclosed cabs, based on a client’s needs.
In the long-term, Allen would like to see the company move toward manufacturing of heavy equipment. The company has blueprints and designs in place to build its own utility vehicle and mining truck, he said.
“We just don’t have the time to build them right now. If I had 20 more guys and more money, we’d build them on spec.”
As a “new kid on the block” in 1995, Allen quickly realized that concentrating on the local market with its fierce competition would be a challenge. Using the international contacts he had accumulated over the course of 25 years working for Canadian Mine Services, he shifted his focus to the global market. Most recently, he secured an $8-million contract, partnering with two companies to fulfill a mining order in Chile. Although reluctant to disclose any information about the order, he notes the contract will keep his company of 21 employees busy until the fall.
Allen estimates less than one per cent of the company’s sales come from the Sudbury mining market. The majority of sales come from the U.S. and overseas.
Although the equipment business is being bolstered by the current mining boom, Allen admits he’s not sure what the future holds in store. Challenges relating to manpower shortages are compounding daily and are bound to have an impact.
He suspects OEMs may be scrambling to meet demand in the near future.
“We just secured a very large order and we’ll be busy until the fall. I’m sure everyone’s in the same boat.”
The OEMs that have traditionally depended on businesses like Driftech for backup may find themselves in a crunch, he warned.