December 18, 2017

Contract Mining

The contract mining industry has grown to a point where most ore production and mine development operations are done using contractors.

The main motivator for this has been the desire by mine owners to preserve their capital by using contractors instead of investing in equipment and personnel to carry out their mining operations.

Choosing the Best Contractor

Where a Mining Contractor has carried out the capex work on a particular project, the mine often retains that Contractor for the “working cost” mining work. In this case a negotiated contract would be set up either based on a cost reimbursable type arrangement or as a rates based contract depending upon the client’s appetite for risk. A cost reimbursable type arrangement would level the risk towards the employer whereas the rates based contracts would level the risk towards the contractor.

Where the mine owners wish to go out on competitive tender, decisions must be made on the form of contract, (NEC/FIDIC/Bespoke) and again, whether to use a cost reimbursable type arrangement or a rate based contract. The selection process would not only consider costs but track record, safety performance, resource capacity, management and supervision, BEE etc. A tender adjudication matrix would generally be drawn up where each of the factors would be weighted and scored, either individually by the selection team or collectively in order to identify the preferred contractor.

Factors to consider

The employer must consider which type of contract to use depending upon their appetite for risk. The allocation of responsibilities between the employer and the contractor must be considered. A schedule of responsibilities is usually drawn up and this would address issues such as which party is responsible for the supply and operation of equipment, materials such as explosives, and the responsibility for supervision, mine scheduling, surveying and the like.

Why most mining companies are going the contract mining route.

Efficiencies – Some contract mining companies could prove to be more efficient than owner operated mining given an appropriate bonus structure.

Motivation – Contract mining companies could prove to be more motivated in terms of meeting production targets.

Cost – Contract mining companies may not have the same huge overhead structures which the owner operated model has.

In contract mining, labour issues such as hostelling, feeding, transport are the contractors responsibility.

Optional termination clauses make it potentially easier, quicker and more cost effective for the employer to cancel the work if this becomes necessary.

Turner & Townsend

Mining and metals

Turner & Townsend has been providing specialist expertise to clients in the mining and metals sector for over 50 years. Working in Australia, Russia, Africa, the Americas and the Middle East, they are supporting local and multinational organisations across the mining, mineral processing and associated infrastructure industries. By sharing best practice and utilising the global footprint of their international consultancy, they offer stand alone or fully integrated services: project and programme management, cost management, project services and project controls as well as advisory management consultancy services to add tangible value for their clients.

Their knowledge and expertise in giving their clients the direction they need to implement effective investment programmes stems from their understanding of what is top of the industry agenda.

Turner & Townsend provides quality surveying and contract management services. They provide valued project service, expertise and resources in a prompt and efficient manner.

Leading organisations are staying ahead of the competition by being the first to address the issues being faced by the mining sector as a whole. Turner & Townsend sees the current concerns as project deferrals, estimating uncertainty, the preference for client-led programme management office services and changes associated with corporate governance strategies and policies.

Here are some of the ways in which Turner & Townsend gives their clients a competitive advantage in their investment programmes.

Total value management – working on obtaining maximum return on the asset investment, both tangible and intangible, Project deferral – capacity to pause and restart projects in time with the return of favourable market confidence and liquidity, this optimises investment returns. Estimating confidence – certainty at the budgeting stage avoids the need to revisit capital requests, which is distracting and costs time hence increasing the ability to forecast accurately.

Accurate escalation – so as to avoid revisiting capital motivation, Scope definition – avoidance of increasing additional third party costs, Effective programme management offices – the ability to integrate all services within a capital investment programme and Sustaining capital – yielding predicted business case returns.

Oil and gas

Turner & Townsend offers a wealth of experience in supporting oil and gas companies and are one of the leading providers of global consultancy support.

Their work in the energy sector dates back to the early 1990s and they have a deep understanding of the challenges and opportunities facing the industry. They are a client driven, professional services business and remain independent of any engineering or production discipline allowing them to provide high quality, impartial advice in the areas of project services, contract services and management consultancy.

Through their global footprint which crosses six continents, they support projects throughout the full lifecycle from pre-development, through concept selection, FEED, delivery of facilities, processing, distribution and cessation/ decommissioning.

As the focus of world energy production moves towards the development of alternative sources, they can help you to improve the delivery of your traditional energy developments and to meet these new challenges. They understand and can proactively support you in the delivery of your portfolio of projects, identifying potential risks and taking corrective action early to save cost and time.

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