Often during certain stages of a contract, it becomes apparent that mining costs can be reduced considerably if production is reduced for a given period. More often than not, this comes with a significant increase in unit rate—mainly because unit rates are based upon optimal equipment utilisation.
Suppose the mine owner wishes to have more control over the mining operation and would like to apply an owner-mining approach with the contractor's resources. In that case, the conventional unit rate contract is not ideal.
During the due diligence stage of an EPC model for open-pit mining contract renewals, when we simulate and benchmark the project life cycle, we compile a shadow bid using similar mining equipment as employed by the contractor. This exercise enables us to generate a complete cost breakdown of the tendered amount without requesting information from the contractor. (shadow bids are especially popular for contract renegotiations when a contract has reached maturity on isolated mining operations)
From the experience we have gained during contract renegotiations, without exception, contract miners are accommodating and give their full support during collaboration. During this process, the methodology applied during the due diligence stage becomes a significant factor since it is transparent and both parties recognise the benefits. This arrangement, often structured on an open-book cost plus gain-share pain-share basis, improves the contractor-client relationship due to enhanced stakeholder ownership. The project objectives become a common goal.
These contract types are generally associated with increased mine owner involvement and require an effective cost management and project control structure; it offers a lot of flexibility in a mining application, improves mining cost-to-client, and gives the client considerably more control than a unit rate contract.
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