Exploring Alternative Equiptment Financing for the Mining Industry: The Potential of JOL and JOLCO

Feb 2024

Mining is a key sector of the economy, but it requires significant investment. To address this challenge, alternative financing arrangements such as Japanese Operating Lease (JOL) and Japanese Operating Lease with Call Option (JOLCO) are gaining traction in the mining industry.

Understanding JOL and JOLCO

Japanese Operating Lease (JOL):

In a JOL arrangement, the lessor owns the asset and leases it to the lessee for a specified period. The lessee makes lease payments that typically include an interest component and principal repayment. At the end of the lease term, the lessee has two options: purchase the asset at a pre-agreed price or return it to the lessor. (See What is a JOL?)

Japanese Operating Lease with Call Option (JOLCO):

A JOLCO structure is similar to JOL but includes an option for the lessee to purchase the asset at a pre-agreed price at the end of the lease term. (See What is a JOLCO?)

Benefits of JOL/JOLCO Financing

Access to Funding:

JOL/JOLCO financing provides mining companies with necessary funding without tying up large amounts of capital or burdening their balance sheets. This is particularly beneficial for companies that require upfront investment for exploration and development.

Flexibility:

Lease payments can be structured to align with a project’s cash flows, reducing financial risk. Lessors often offer attractive leasing rates due to potential tax benefits, making JOL/JOLCO financing more appealing than traditional debt financing.

Proven Success:

JOL and JOLCO financing structures are well-established, particularly in the aviation and shipping sectors. In aviation, these structures have been instrumental for nearly two decades, providing airlines with 100% financing at attractive rates. Major airlines such as Japan Airlines and All Nippon Airways have utilized JOLCO for fleet renewal and expansion, benefiting from financial flexibility and tax advantages. Similarly, in the shipping sector, JOLCOs have gained significant traction over the past decade. These structures offer cost-effective financing solutions to shipowners and favorable tax treatment for Japanese investors, despite recent regulatory changes affecting depreciation benefits.

Challenges of JOL/JOLCO Financing

Despite the benefits, JOL/JOLCO financing can be complex to structure and negotiate. Lessors may require extensive due diligence before providing financing, adding to the complexity of these arrangements. Mining companies must carefully consider the risks and challenges associated with JOL/JOLCO financing and ensure that all parties involved have the necessary expertise to manage them.

For those interested in exploring JOL/JOLCO financing , GASS offers expert guidance. Contact GASS for more information or to explore financing options.