Introduction

When procurement officers and mine operators have to decide on which service providers to use, a proper investigation into costing is vital. The tender process can feel tedious, but determines success and can save you large amounts of money. Calculating the true cost per ton is part of this process.

So how do we calculate the real cost per ton? What are the factors that contribute to this? It’s far more than simply looking at a service provider’s rates, because hidden factors also play a role. This article showcases basic concepts to calculate the true cost per ton and these important factors. SPH has been part of the mining environment for many years. The knowledge and experience garnered in this time make them experts in handling these challenges. Contractors and mines can benefit from this expertise.

The Problem

Contractors who charge lower rates but don’t perform in line with expectations, can result in losses for the client. An example of contractors quoting for a gold plant can aptly explain this. The expected monthly target is 260 000tons.

Contractor A

Contractor A charges a lower rate per ton (R18.50), but can only deliver the required 160 000 tons.

The result is:

Contractor B

Contractor B charges a slightly higher rate (R20.35) and delivers 260 000 tons in time.

Result

By using a contractor who charges more, but delivers the product, the client makes 59% more profit for that month.

Apart from better profits, you need to consider additional factors that can increase the cost per ton. If a contractor doesn’t perform up to standard it indirectly costs you money and increases the cost per ton. You may also be liable for expenses not previously quoted for. If time is lost on your project, you end up paying more per ton than originally planned.

Here are a few factors to keep in mind.

The Factors & Solutions

Non-performance can be the result of many factors. Procurement officers need to investigate these factors before settling on a service provider. SPH’s support team enables the company to keep abreast of these challenges, so it doesn’t impact clients.

Flexibility

Contractors who are unable to move equipment and people around from one area to another, can cost clients money. Not having additional “backup” equipment and people hampers production. This becomes a hidden cost to clients who don’t get the required service.

Example

Contractors want to offer a cheaper rate per ton. They do away with backup services so wages and maintenance costs are kept low. When additional work is sourced it can only be performed by stopping existing operations, or bringing in equipment and workers at an additional cost to the client.

Age

The age of the equipment plays a major role in the pricing. If the application is soft, work conditions easy and work hours short, a small scale contractor can be adequate & beneficial. However, when the application changes to medium or hard—with adverse conditions and high impact loads—older equipment break down. Targets can’t be met, which bring down profits.

An excellent example of ensuring flexibility and countering the effects of age, is the way in which SPH built up a support team and rebuild workshop. This ensures that this company can guarantee cost effective work & reliable equipment at all times.

Fleet size

Small scale contractors invariably carry the benefit of a cheaper rate per ton. However, when it comes to moving large quantities of material, the smaller contractor will have to hire in equipment that can put the mine—its profits and safety—at risk.

Due to the cheaper rates charged, it’s not always possible to hire quality equipment to perform the work. Hiring sub-standard equipment puts the operation at risk. A section 54 will be very likely to occur. These stoppages due to health and safety reasons result in revenue loss for the client.

This factor makes it necessary for any contractor to use quality equipment, such as SPH that manages the biggest CAT 950 Loaders fleet in the Southern hemisphere. This is tangible proof that that work can be done safely and in time. SPH’s many ASPASA awards strengthen this statement.

Conclusion

The real cost per ton is not only represented by a contractor’s rate, but by the time, product and effort lost (or gained) depending on the quality of the work. In depth vetting helps procurement departments pick the right candidate.

A company such as SPH is able to supply all necessary information to help make the vetting and production processes run smoothly. This is simply one of the factors why clients choose SPH and remain with SPH. 

Author: Graeme Campbell © 2017

Authored By: 

Graeme Campbell, Group Commercial Manager