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Contract Mining 

 
Author: Jack Caldwell

Summary

This review describes contract mining with a focus on the companies and procedures that are employed and active in providing services to mine and ore body owners ranging from ore extraction through milling to waste disposal. The review examines current practice in Australia, South Africa, USA, and Canada.

INTRODUCTION

This quote from the Australian Institute of Mining and Metallurgy’s Ninth Underground Operators Conferences justifies this review:

The Australian underground contract mining industry has grown from almost nothing 25 years ago to the point today where half the country’s underground mines are using contractors to produce their ore and do their development. This growth was driven by the need to change poor industrial relations and work practices in sectors of the industry, along with the needs of many small gold mine owners to preserve their capital by using contractors to do their mining.


To this end, the Institute for International Research is sponsoring the Contract Mining 2006 conference in Brisbane (See the Infomine Events calendar). Attendees will discover how to combat these issues associated with contact mining:

  • skills, shortages, and staffing
  • relationship management
  • performance and management systems
  • best practice cost efficiencies
  • equipment supply shortages
  • risk profiling
  • surviving beyond the boom
  • overcoming barriers to innovation

Contract Mining appears to be thriving in Australia, but how is it faring elsewhere? Let us review. We do this by surveying what is available free and freely on the internet. Sadly the upcoming conference in Australia will cost you thousands to attend; even the printed proceedings will cost you $550. So we will just have to wait for the memes from the conference to seep into the industry and general conscience before we can benefit from them.

Personal Perspectives

Fraser F. Alexander (FFA) was run by Old Man Daly—at least that was the honorific title all bestowed on him. He had skin cancer and traveled in a large car with heavily tinted windows to visit the many sites where his company ran the slimes dams under contract to the mines. Legend had it that the years of sun while working and walking the highveld had caused his problem. But legend or not, the company was a fixture on every mine where it charged pennies per ton to build and operate the slimes dams. This was contract mining in the beginning.

Envirogreen -neutralizing AMD
I consulted to the company and traveled the country and its mines with their engineers, designing and providing for construction of new tailings impoundments, as we deemed to call them in our youthful desire to change established terminology and practice and the social order. Alas, we succeeded beyond our wildest dreams!

My first trip to the United States and Canada was in the company of Old Man Daly’s daughter and her husband—they came to explore opportunities for contract mining for FFA in north America. A jolly trip it was through the hotels besides the now defunct Denver airport, the mines of Colorado, the strip joints along Colfax Avenue, and the other places they took mine visitors in the innocent days of the seventies.

In South Africa most gold mines are within a hour or two’s drive of Boksburg, FFA’s home town. In north America mines are spread from Quebec to California. FFA decided the distance between mines in north America was too great to make contract mining viable—your best engineers and managers would spend all their time on planes and not at mines. So we went home with momentos but no action plans.

Interestingly contract mining of waste management and disposal took off early, flourished, and is still a major player in South Africa. I am told there is almost no contract mining in the sense of taking the ore out of the ground in South Africa. Conversely in Australia most contract mining involves taking the rock out of the ground—I am told there is almost no contracting out of operation of the waste rock dump or the tailings impoundment. In north America there is little contract mining of either resource extraction or waste disposal; except for some coal mining operations, the Washington projects, and at Sudbury, Ontario (see later). I wonder if this difference is rooted in history, happenstance, personality, climate, national laws and regulations, or in some profound truth about the industry that currently escapes me.

Envirogreen - rehabilitating an open pit coal mine
In South Africa FFA was challenged by a start-up company founded by two of my friends and colleagues. Mike Smith and John Roberts broke away from SRK in 1991 and formed ECMP – Environmental Civil and Mining Projects. They design, construct and operate tails dams just like FFA. They managed to break into the FFA market by getting about four JCI dams around Randfontein so they had the economy of scale to be able to spread overhead and capital costs. They struggled for a while as a scenario written by Dan Brown or Scott Thurlow unfolded with phone-tapping, undercut bids, and guns drawn besides telephone poles. Things have settled down now with the passage of large share-blocks to the historically disposed African-African population (I am so American that I no longer even know the politically correct term!). That is if you discount tales of the European-African-South-African consultants now trying to retaliate because they design slimes dams at a lower cost than the traditional consultant—so much for laissez faire capitalism.

Thirty years later I found myself in a renovated bank building in the old part of a older city plotting a new mine with a North American client. The essence of the strategy was to engage a contract miner to work the open pit for the first three years while the mining company set about developing the long-term underground workings. This plotting took me to Google and in what follows is some of what I found.

Envirogreen - rehabilitating gold tailings dams
But before we proceed let me note that after a long web search I found the telephone number of Fraser F Alexander Tailings, but no website. I found references to papers by their staff at another of those interminable conferences on sustainable mining, but not the papers themselves. On which, one must wonder when the passé meme of sustainable mining will give way to another mining meme, maybe responsible mining? If you know more about the current status of FFA please let me know.

Envirogreen - a member of Fraser Alexander Tailings

Companies

WASHINGTON GROUP INTERNATIONAL: Note that they have been involved in contract mining since the 1940 including over thirty-four years operating the Kemmer Coal Mine in Wyoming. Their history proceeds:

During the 1950s and 1960s, our mining operations were expanded and Washington Group ventured into the international market with the construction of mines and facilities in Chile, Peru, Brazil, and Papua, New Guinea. In the past decade we have been responsible for contract mining at more than 30 locations worldwide. Our experience in contract mining has involved nearly every type of commodity and production criteria. Metal and industrial mineral operations include the Tonopah Copper Mine in Nevada and the Rasmussen Ridge Phosphate Mine in Idaho.

The Washington Group website includes ten case histories of their contract mining; here are snippets that illustrate the scope of their operations:

  • Production of seven million tons of coal per year and prioritizing environmental stewardship are the company's roles at Absaloka Mine, MontanaAbsaloka Mine-MONTANA. A long-term contract since 1972, the company provides operations and management services at this surface coal mine. More than 80% of the mine’s workforce is from the Crow Indian Tribe. The company developed a program that teaches mining skills and sponsors supervisory training for tribal members.
  • Dry Valley Phosphate and Conda Mill-IDAHO. For more than 20 years Washington Group has conducted year-round, all-weather mining at Nu-West Industries’ Dry Valley Phosphate Mine in the mountains of southeast Idaho. The contract includes virtually all aspects of production, from exploratory drilling to mine reclamation. Major responsibilities include stripping overburden and excavating and hauling ore and waste.
  • Pipestone Ballast Quarry-MONTANA. Contract mining of aggregates for railroad ballast materials to Montana Rail link.
  • Tonopah Copper Project-NEVADA. Contract mining services using trucks and shovels at this open pit operation. The mine has an annual production capacity of 10 million tons of copper ore and 5 million tons of waste overburden.
  • Cerro San Pedro Gold/Silver Project-SAN LUIS POTOSI, MEXICO. Site development and contract mining for Metallica Resources. The San Pedro gold/silver operation will be a conventional open pit mine using shovel and truck methods expected to produce over 755,000 oz of gold and 17.3 million oz of silver over the mine’s 8 year life.
  • Kapuskasing phosphate mine - temperatures reach -51 CelsiusKapuskasing Phosphate Mine-ONTARIO, CANADA. A multi-year contract to operate the Kapuskasing phosphate mine in northern Ontario, Canada. The open pit mine produces over 16 million tons of ore, clay and waste annually. The mine life is anticipated to be 20 years.

DYNATEC: provides this history of their contract mining operations:

Early in the Companys history, contract work by the Mining Services Division, mainly involved the provision of specific services such as shaft sinking and raise boring. The Company eventually expanded its mining capabilities into full mine operation. An important development for the Division occurred in 1993 when the Company was hired to re-open and operate Inco Limiteds Shebandowan Mine. This contract involved the mining of remnants and extensions of previously mined areas. Dynatec performed all functions at the mine, the geology, engineering, mining and even ran the mill. Shebandowan was an important success story for Dynatec, one that paved the way for other operating contracts, including developing and operating Franco Nevadas Ken Snyder Mine and all the initial development of Barricks Meikle and Rodeo mines.

Contract mining can go way beyond functioning as a paid supplier of services to mine and ore body. This description from Dynatecs website illustrates the larger role a company can play in developing the ore body located by an enterprising geologist.

On October 6, 2005 Dynatec reached an agreement with FNX Mining Company to acquire 20.5 million FNX common shares in exchange for Dynatecs 25% interest in the Sudbury Basin Joint Venture (SBJV) and 50% interest in Aurora Platinum Corp. Under terms of the agreement, Dynatec and FNX will enter a mining services agreement through which Dynatec will continue to perform mine development and operating work on the SBJV properties until at least the end of 2007. Dynatec will perform this work on a cost-plus basis, and will also receive additional fees totaling $15 million to be paid in two installments on December 31 2006 and 2007.


HOCHTIEF: describes five case histories of its contract mining projects in Australia and Indonesia. This viginette tells all:

Leighton subsidiary Thiess has been responsible for the Mt Owen coal mine since its birth in 1996. It built and equipped the mine and set up the requisite infrastructure. Thiess has a life-of-mine contract to operate Mt Owen, expected to last until mid-2012.

Hochtief - (Leighton) Burton Coal Mine, Queensland, Thiess Hochtief - (Leighton) Burton Coal Mine, Queensland, Thiess Hochtief - KPC Mine (Sangatta), Indonesia, Thiess


AUSTRALIAN CONTRACT MINING: tells us that they are a specialist underground mining contractor and provide their experience and significant underground expertise to the Australian underground mining industry.


ROCHE: claims to be the first, however. They tell this story:

Having commenced operations in 1922, Roche Mining's history and capability in open pit mining is well known, through its involvement in many large open pit mining operations throughout Australia. In the 1960s, Roche pioneered contract mining in Australia at the Ardlethan tin mine in New South Wales and the Burra copper mine in Western Australia. In the early 1980s, Roche invested heavily in even larger mining equipment and positioned itself to meet the increasing demand for large scale contract mining with the emerging gold industry in Western Australia. In the late 1990s, Roche substantially extended its capabilities to underground mining and highwall mining.


BHP BILLITON: announced the award of a large contract mining contract to Macmahon:

Macmahon's biggest-ever contract win will see the company undertake mining and crushing work at BHP Billiton's "Orebody 18" open cut iron ore mine in Newman, Western Australia, over a four-year period. Macmahon will undertake the full range of mining services including drilling, blasting, loading and hauling of iron ore and waste materials. The ore processing services will include crushing and train loading of iron ore, in addition to the maintenance of the BHP Billiton-owned ore processing infrastructure.


BGC AUSTRALIA: notes that they specialize in full contract services for open pit mining, haulage, crushing, quarrying, drill and blast, and concrete construction.

BGC - BGC provides tailings dam, impoundment design, deposition planning, water balance and operating plans. BGC provides waste dump design and operating. BGC provides liner design and construction monitoring services for heap leach operations. BGC provides airphoto interpretation, route selection and geotechnical design of mine access roads

Another Australian link to contract mining companies contains information about Boart Longyear, Byrnecut Mining, Leighton Asia, Sedgemen, and White Mining, all of whom provide one or other form of contract mining services.

BASUMI MINING (Pty) LTD: South Africas "leading contract mining company", has a website that operates intermittently. Try it.


KIER MINING: notes that since the 1950s they have evolved to become a "leading force in contract mining both in the UK and overseas". They claim to offer a complete mining service "embracing any size or form of contract." Here is a case history they provide:

Kier are 50% owners of COMEDAT, a major Jordanian surface mining company. COMEDAT has been contract mining in Jordan for over 30 years. Since 1997 it has been working at Al Abiad and Eshidiya mines for JPMC (Jordan Phosphate Mining Company) removing Limestone and Marl overburden and extracting the phosphate bearing ore. To date this operation has removed a total of 215,000,000 tonnes of overburden and produced 10,500,000 tonnes of phosphate.


Tech Agreements provide examples of contracts for all manner of industries so for $35 you could get a mining contract without much input from a lawyer.

PROCON GROUP: Another engineering contractor is the mid-tier Procon Group which is a 500+ employee operation across western Canada and the U.S., with job sites around the world. Procons three main areas of work include:

  • Mining and tunnelling. Procon was awarded a contract for pre-production development, test mining and contract mining by BHP for the Ekati diamond mine.
  • Equipment. Provision of surface and underground mining equipment including repair, modification, customizing to suit particular work conditions
  • Auxiliary mine construction from site works and access roads to underground structures and plant facilities.
Procon - Ekati mine Procon - Eskay Creek Procon - De Beers Snap Lake project Procon - Crew Developmental  Nalunaq gold project Greenland

Mine Closure


TRC describes their Exit Strategy® program. They list no application of this approach to a mine, but I know that they have long sought the opportunity.

Australian practice regarding mine closure as a “contract mining” activity is described thus (no case histories provided):

BGC Contracting is a member of the Mine Life Services Alliance, a strategic alliance that offers complete responsibility for closure and other mining related environmental services to major mining companies. Members of the Mine Life Services alliance include:

  • IT Environmental (Australia) Pty Ltd - environmental and mining consultants, part of The IT Group of companies
  • BGC Contracting Pty Ltd - Western Australia's leading civil, construction, and mining contractor
  • Baker McKenzie - a leading commercial law firm in Australia and worldwide
  • Marsh Inc. (operating as Marsh Pty Ltd in Australia) - world leader in risk management and insurance broking services

Here is an article on a recent contract awarded to Downer EDI Limited for mining magnetite in Western Australia. This piece gives us some of an idea of the larger sticking points that may be included in a contract worth over half a billion dollars.

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