Since the last two decades, there has been a marked trend amongst Australasian open pit mining operations were carried out on a contract mining basis (Dunlop, 2004). Several reasons that contract mining may have appeal in certain mining situations are: waste movement profile which requires efficiency and productivity (usually are the setting standards to be reached by the contractor), perceived risk that the owner might not be able to obtain finance for own mining fleet, manpower management and job skill consideration, and relevant safety exposure factors.
In theory, almost any or all of mining activities (operations, maintenance, technical services, etc.) may be contracted out. However, one needs to determine what tasks to contract out. Dunn (1998) in Dunlop (2004), stated that the criterion should be those tasks which fall into both of following categories:
- not of strategic or core importance to the owners; and
- not likely to be carried out competitively if done by the owners.
Most project owners regard areas such as quality control, safety and management as core areas, which should not be contracted out.
Table 12 - Typical operating options for mining (modified from Dunlop, 2004)
|
Activity |
Component |
Contract operation |
Owner operation |
|
Fleet ownership |
✓ |
||
|
Maintenance |
✓ |
||
|
Mining Operation |
Drill and blast |
✓ |
✓ |
|
Load and haul |
✓ |
✓ |
|
|
Technical Services |
Geology, Mine Planning, Surveying, etc. |
✓ |
|
|
Quality Control, Safety and Management |
✓ |
||
In other hand, Rupprecht (2015) also emphasize several highlights areas where owners may elect to make use of contractors:
- Projects in which owners do not have the necessary skills or experience to carry out the work;
- Projects that require specialized skills, such as shaft sinking, decline development and major construction work;
- Operations with variable production or stripping rates where equipment requirements change on a regular basis;
- Short-term projects where the services of employees would be required only for the limited duration of the project;
- Projects where contractor can offer specialized equipment or techniques;
- Areas where full-time employment is not required, for example office cleaning; and
- Non-core business activities.
Using contractors can provide several advantages to mine owners as well as raising concerns / disadvantages. Table below shows the perceived advantage and perceived disadvantage of contract mining, sourced from Roche (1996) in Dunlop (2004), Hickson & Owen (2015), Rupprecht (2015) and curated expert interviews & TURA analysis.
Table 13 - Perceived advantages and disadvantages of contract mining
|
Aspect |
Perceived advantage of contract mining |
Perceived disadvantage of contract mining |
Remarks |
|
Risk management |
Operational risk (technical, safety, etc.) is being transferred / off-loaded to contractor |
Risk premium as compensation of risk transfer |
|
|
Top contractor has experience to better managing risk around workforce availability, occupational health and safety, and environmental incidents |
Mine owner does not have more direct role in establishing and controlling health & safety issues |
||
|
Capital expense |
Reduced capital expense for mine owner & reduce financial risk for mine owner |
True, but leasing (by owner) may be possible |
|
|
Financing |
Contractor has access to cheaper finance, since they regularly purchase fleet equipment (Economies of scale) |
Not true for larger mining companies |
|
|
Contractor has better purchasing power (Economies of scale) |
Not true for larger mining companies |
||
|
Operating cost |
10-20% higher operating cost than owner mining, since mine owners should pay contractor’s overhead & profit |
Competitive tendering process could bring optimal rate for the owner |
|
|
Equipment flexibility |
Increased flexibility to adapt production capacity (quicker operational readiness) |
If the production capacity is too erratic, then it is difficult for contractor to prepare equipment availability accordingly |
True, but it is expected for production capacity to be increased over time |
|
Manpower/workforce |
Smaller workforce for the owner, the manpower management handled by contractor (Possibility to lower the owner’s overhead cost) |
Mine owner does not directly control the workforce, there should be a perceived risk of industrial issues |
|
|
Skill / competence of the manpower |
Access to high skill manpower pool from their other mining sites with broad of experiences |
||
|
Community relations |
Reduced exposure for mine owners since majority of activities would be carried by contractor |
Need efforts and cooperation from contractor to manage perceived risk of industrial issues & community relations |
Community relations should align with company’s objectives & strategies |
|
Intellectual property |
Intellectual property (geological & mine planning) should be shared to contractor |
||
|
Corporate strategy |
Allows mine owner to focus on other business issues |
Depends on whether owner sees mining as ‘core’ |
|
|
Operational excellence |
Contractors are able to benchmark their operations across a range of mines to maximize efficiencies |
Difficulties to benchmark operations (especially for mine owners with limited mining sites) |
In metal mining, grade control is an area where owner mining tends to be more diligent than contractor |
|
Operational readiness |
Contractors can save the time and expense of sourcing and recruiting workers, including workforce management (project management capability to start/develop new mine operation) |
References:
Dunlop, J. S. (2004). Contract versus owner mining – an update on Australasian open pit mining practie. Institution of Mining and Metallurgy. Transactions. Section A: Mining Technology, A17-A29.
Freytag, P. V., Clarke, A. H., & Evald, M. R. (2012). Reconsidering outsourcing solutions. European Management Journal, 30, 99-110.
Hickson, R. J., & Owen, T. L. (2015). Project Management for Mining : Handbook for Delivering Project Success. Colorado: Society for Mining, Metallurgy & Exploration (SME).
Kirk, L. J. (2010). Owner versus contract mining. Mine Planning and Equipment Selection, 1, 437-442.
Rupprecht, S. (2015). Owner versus contract miner-a South African update. Journal of the Southern African Institute of Mining and Metallurgy, 1021-1025.
Suglo, R. (2009). Contract Mining versus Owner Mining – The Way Forward. Ghana Mining Journal, 61-68.
Zhang, Y. (2020). Factors Affecting the Decision-Making Process between Owner and Contractor Mining. Delft: Delft University of Technology.
