September 21, 2017

What is your real cost per tonne?

SPH Kundalila group commercial and operations manager, Graeme Campbell

When mines go out to tender on the goods and services they require, procurement officers should be looking beyond the service provider’s rates to the contribution they make to the mine’s cost per ton of minerals produced; not an easy task when there are so many hidden factors at play.

In fact, says SPH Kundalila group commercial and operations manager, Graeme Campbell, a proper investigation into costing is vital before the correct buying decision can be made.

“One of the central problems that mines face with procurement is when contractors charge lower rates but then don’t perform in line with expectations. This can result in losses for the mine,” says Campbell. “Under-performance basically increases the cost per ton, and may also make the mine liable for expenses not previously anticipated.”

He emphasises that contractors need to have the flexibility to move equipment and people around from one area to another.

“If the contractor does not have additional equipment and people that can be brought in as ‘backup’ when additional work is sourced, this hampers production levels,” he says. “Many contractors create this problem for themselves when they do away with backup services in order to keep wages and maintenance costs low. In the end this becomes a hidden cost to customers as they don’t get the required level of service.”

He also highlights the effect on pricing that is exerted by the age of a contractor’s equipment. If the application is ‘soft’, the work conditions easy and the working hours short, then a small scale contractor can generally provide an adequate service.

“However, when the application changes to medium or hard conditions which have higher impact loads, this could lead to older equipment starting to break down,” says Campbell. “This immediately affects targets, which are not met and which therefore bring down profits.”

He points to the significance of fleet size in the lowest-cost-per-ton equation. While small scale contractors can often offer a cheaper rate per ton on a limited quantity of material, they usually have to hire in equipment for dealing with larger quantities. This could affect the mine’s profits and safety levels.

“Due to the cheaper rates charged, it is not always possible for them to hire the right quality of equipment to perform the work, and this sub-standard equipment can put the profitability and safety of the operation at risk,” he says. “A health and safety incident, for example, can trigger a section 54 stoppage, which invariably results in revenue loss for the customer.”

Mines need in-depth vetting to ensure that their service providers have the necessary capacity for any conditions that they may encounter, and a record of past success.

“At SPH Kundalila, for instance, we manage the biggest Caterpillar 950 loader fleet in the southern hemisphere,” he says, “and our safety performance is reflected in the number of safety awards we have been awarded by the Aggregate and Sand Producers Association of South Africa (ASPASA).”

Campbell concludes that the real cost per ton is not only represented by a contractor’s rate, but by the value that the contractor will add to the mine’s profitability in terms of time saved and productivity.

“A low rate charged by the contractor is never a saving if it costs the mine millions in lost production,” he says. “Customers choose SPH Kundalila because we ensure that production runs efficiently and smoothly, so that targets are met and profits are made.”

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