Several economical analysts have indicated the potential advantages and disadvantages of contract miners in gold mining operations. Many considerations, both quantitative and qualitative will impact a decision to utilize contract mining. Basically, major quantitative aspects include operating and capital cost, monitoring costs, capital preservation, acquisition and disposal of equipment, direct payroll and administrative costs, recruiting and training costs, and employment and termination of staff and hourly personnel. Qualitative factors include corporate philosophy, risks associated with capital and operating costs, financing the project, operating control and flexibility, recruiting and training personnel, employment and termination, administrative concerns and the owner/contractor relationship.
The direct operating cost for an owner-operated gold mine will be less than the price charged by a contract miner due to the miner contract must cover the cost of the contractor’s capital plus a return on his investment. In comparing costs of an owner/operator system vs. a contract miner, the total cost of operating a gold mine must be incorporated in the financial analysis of the gold project, including the capital cost. Discounted cash flow analysis is needed to ensure that proper recognition is given to the time value of money.
Despite the fact that the contract miner is responsible for the mining operation and a contract mining agreement has been negotiated, the owner must have a representative on site during mining. The owner’s representative is needed to ensure that the work is performed in the right way, that production levels are met, and the gold ore control is done properly. Basically, the costs of monitoring must be included when considering the use of a contract miner. Contract mining reduces the initial capital investment required to bring a property into production, preserving the owner’s capital, especially in the early stages of development and operation. In this way, the owner may have invested considerable capital in gold exploration and /or acquisition, engineering, and permitting. Additional capital outlay for mining equipment may represent a substantial financial load on company resources and may restrict or prohibit project development. Essentially, by employing contract mining, the owner’s capital may be preserved for construction of other facilities, for equipment and for other projects or investments.
Contract mining reduced direct payroll and administrative costs. Aspects such as staff and hourly direct payroll, record keeping for labor, regulatory reports, administrative costs, and supervision of labor are performed by the contract miner. In addition, the responsibility of health care, benefits, insurance, equipment record keeping and all costs and planning required to maintain a qualified work force is the responsibility of the contract miner. Contract mining assures that direct payroll and administrative costs are the responsibility of others. The analysis may be supported by a simplified cash flow analysis of owner vs. contract mining for the gold operation. This analysis may indicate the positive effects of contract mining, but every gold project is an especial case. It means that contract mining will not always be the most cost-effective way to mine. Nevertheless, it is an alternative that should be considered by gold project managers as they evaluate alternatives for the development and operation of a gold mining project.