Emeco Holdings Limited (Emeco, the Group, ASX: EHL) was founded in 1972 and was floated on the ASX in July 2006 at an offer price of $1.90 per share. Emeco provides mining equipment rental solutions to mining companies and contractors. The Group conducts operations in all key mining regions of Australia and services mining companies and contractors across the coal, gold, copper, bauxite, iron ore and nickel sectors. Emeco’s rental fleet comprises around 1,000 pieces of equipment that is backed by a network of maintenance workshops across Australia.

Operating scale is a competitive advantage

Emeco’s operating scale is its competitive advantage because it can deliver mining services cheaper than mine owners using their own equipment. Economists refer to this situation as “Comparative Advantage” which is the ability of one party to produce services at a lower opportunity cost than another party. The opportunity cost in Emeco’s case is the saving by mine owners in using Emeco’s mining services to operate the mine site, as opposed to owning the capital-intensive mining equipment themselves.

Emeco’s fleet hire clients reduce the capital intensity of their business by minimising their capital expenditure on mining equipment. This improves their cash-backed returns on average capital employed in the business and increases sustainable free cash flow generation because less investment capital is required but returns remain about the same.

By not owning capital equipment used at mine sites, Emeco’s clients can retain more of their cash earnings and can apply the surplus cash to pay down corporate debt or distribute it to shareholders. This is because less of the cash from operations must be retained to invest in more plant and equipment as the business grows.

Another advantage of hiring Emeco’s mining services fleet is that productivity performance is enhanced at mining sites because mine production is not disrupted by equipment downtime. Emeco owns Australia’s largest fleet of mining equipment and a national footprint of workshops and onsite field service units. The onsite service capability, combined with the Group’s asset management and condition monitoring technologies, ensure that mining services remain uninterrupted by equipment downtime.

Labour force optimisation

In a move to optimise labour force costs, Emeco is reducing its reliance on subcontracted labour by converting subcontracted labour to full time employees. This shift drives higher operational performance and yields net cost savings and an improved employee culture. Emeco is now operating with approximately 80 percent full-time employees, up from 70 percent a year ago.

Emeco is also implementing a range of employee engagement programs and focusing on long-term retention and development strategies to further reduce reliance on subcontracted labour.

Steady continuation of FY24 performance trends into FY25

In a trading update and earnings guidance for the 30 June 2025 financial year, Management projected the Group’s Operating EBITDA to exceed $300m, reflecting a steady 6 to 8 percent increase on FY24’s $281 million Operating EBITDA result.

A similar first half / second half skew to FY24 is anticipated and an ongoing improvement in earnings throughout the course of the financial year is expected, reflecting improving utilisation rates. FY25 Return on Capital is expected to improve on FY24, with an annualised run rate in the second half of circa 18 percent trending favourably towards the Group’s ROC target of 20 percent.

Emeco’s Managing Director and CEO highlighted positive production forecasts for gold and bulk commodities, despite weaker conditions for nickel and lithium. In assessing Emeco’s prospects it should be noted that equipment utilisation and commodity production volume are the key drivers of Emeco’s earnings. This means that commodity price volatility risk is not directly borne by Emeco shareholders.

Australia is one of the world’s major commodity producers and with Emeco’s national footprint of equipment depots and workshops, shareholders can expect a steady continuation of recent performance trends.