Right now, nobody wants to spend any capital on anything, it’s that stage of the cycle. Diesel is cheap and skills are readily available, so why spend money? Well, now is the right time to spend up big.
When you invest capital, there is usually a trade off with operating margins, i.e. the capital can deliver a decrease in labour and energy usage. As examples, you can upgrade a process plant, put in a conveyor to offset trucking, buy some automated mining machines – all of these things should increase operating margins. The investment is effectively a hedge against the tide of the commodity cycle. Low diesel and labour costs won’t last forever, and when the tide starts to rise again, those operations that did not invest may get caught napping.
With interest rates at record lows, now is the time to do it.
Image Credit – http://galacticconnection.com/