Contract mining : An attractive and economical alternative to owner operations

Introduction Contract miners have long played an important role in the minerals industry. Historically, these were individuals who worked as underground miners and were paid by the ton or the day. These hardy types still ply their trade in the industry. However, today the term "contract miner" generally refers to an independent contractor who supplies the people and equipment needed to conduct surface mining operations for an owner or lease holder. At one time or another, contract miners have probably handled virtually every mineral commodity from sand, gravel, and stone quarrying to mining uranium and precious metal ores. In today's market, though, contract mining appears to be concentrated in just a few areas. These include precious metal mines, various types of solid fuel operations, and reclamation of abandoned mines. This article covers market areas, contract mining organizations and services, and their advantages and disadvantages. Gold and silver mines Although exact figures are not available, contract mining represents a significant element in the precious metals segment of US mining. For gold and silver, the growth in contract mining appears to be paralleling the overall growth in mining activity itself. Nevada is the largest gold producer in the US. The latest available data (1985) on open pit gold/ silver mines is summarized in Table 1 (Nevada Division of Mine Inspection, 1986). These figures show that contractors mined nearly half of the ore in 1985. Total tonnage mined, of course, was much higher for both owners and contractors. Assuming an average stripping ratio of 2.5 to 1, the total daily mining rate for the contractors was more than 145 kt (160,000 st). This translates into a contract mining rate of about 36 Mt/a (40 million stpy) based on 250 operating days a year. This approximate 50-50 split between owner and contractor also appears to hold for the future. Metals Economics Group (1987) published a survey of 51 short-range and 54 long-range precious metal projects being considered throughout the US. Contacts with owners, requests for proposals, and past corporate philosophies all suggest that about 55% of the open pit operations scheduled for the near-term will be contract mined. This represents an estimated 26 kt/d (28.5 stpd) of ore. A similar assessment of the long-term projects indicates that about 12 kt/d (13,000 stpd), or just under 50% of the open pit tonnage will be contract mined. There are several reasons why gold and silver represent such an attractive opportunity for contract miners. One is that many properties are owned or leased by individuals or partnerships that are essentially entrepreneurial. Many of these owners or lease holders have minimal mining experience. They must therefore either rely on contract mining organizations, sell an interest in the project to another mining company that will become the operator, or hire an experienced management team. For about the same reason, junior mining companies also represent good prospects for contracting. This is because most junior companies focus on exploration. They would prefer to spend their generally limited funds on drilling programs. Thus, they tend to minimize additional capital requirements by using contract miners or farming out the property to another mining company. Another good reason for using contract miners is the size of the deposit. Many properties are so small that their reserves will not support the capital expenditures