Contract versus owner mining – an update on Australasian open pit mining practice

Abstract

With the advent of the resources' boom in the late 1960s, most of the larger scale resources projects in Australasia were commissioned on an 'owner-mining' basis, where the mine owners owned and operated the primary mining equipment. Then, in the 1980s with the arrival of the gold mining boom in Western Australia and elsewhere, a change occurred – most of the mining activities were carried out on a contract mining basis. Over recent years, however, there has been a marked trend amongst larger Australasian open pit mining operations back towards owner-controlled and operated mining operations. The reasons for this are many and are addressed in the paper, but centre on the concept of the owner being prepared to assume more of the mining risk in exchange for the advantage of not having to pay a contractor's profit margin. Where mining contracts are entered into, the older 'schedule of rates' format is being replaced with less adversarial and more entrepreneurial contract alternatives involving operating cost and risk sharing in a spirit of 'fair dealing'. Leasing and maintenance issues have also been influenced in recent years by the advent of more flexible contract arrangements with equipment suppliers. Group purchasing has also had some influence for project operators. For many mine owners, the optimal risk management profile involves a practical off-setting of the assumption of mining risk on the one hand, against the removal of litigation risk and potentially reduced operating costs on the other. Potential pitfalls may arise where equipment size and type requirements vary with time or where manpower management, mining flexibility, job skills or safety exposure factors are relevant. These issues are commented on in the context of some well-known examples, and an update is provided on contract mining versus owner operation in large scale Australasian open pit mining generally.