5. Mine Operators
Mine operators range from individuals, partnerships and small groups to multinational mining companies, carrying out activities from exploration to mine construction, operation and closure, trading of mining rights and many others. A table that can be accessed here provides a broad classification of types of mine operators. The nature and functions of these organisations vary widely.
Investors - a variety of interests
Mining companies of all sizes have owners who are effectively investors in mining. They may be individuals, partners, families, or private or public shareholders (see definitions under “Medium to large scale mining companies” in the previous tables).
Often mine developers do not have sufficient funds to develop a new mine or to finance other projects (for example, expansion, mine deepening, construction of additional processing facilities, introduce new technology). Investors include the owners and shareholders with a direct interest in mining ventures, as well as financial institutions which make decisions to provide funding in the form of loans and other instruments. Sometimes investors, including governments, acquire equity in mining ventures not only for purposes of financial reward but in order to gain influence on the conduct of operations, or to secure supplies of products from the mine.
Direct rewards come in the form of dividends paid from profits as well as increases in the value of shares if the company prospers. Indirectly, investors are rewarded with offers to participate in further offerings of shares.
Largely because of high-profile, failed mining investments in the past, the international community takes strong measures to protect investors in mining projects. These include mineral resource reporting standards requirements for bankable feasibility studies and other due diligence activities.
The employees of mines have an obvious interest in the success of the business as there are often no alternative employment opportunities available. They are also stakeholders in the sense that they rely on management of health and safety risks to protect them from injury at work.
Mine employees are often resident at mines in remote areas where the facilities are largely provided by the mine. There is a tendency for employees and their families to be very dependent on the mine for many things including accommodation, medical services, education for families and a variety of other services which are often supplied at subsidised rates. This is helpful to employees and dependents for as long as they are employed but can lead to problems when individuals leave the mine or the operation closes down for any reason.
Large resident populations of employees, contractors and their families living at a mine, make up very substantial communities for which the mine management is, to a large degree, responsible. Certain groups, particularly dependents, can become very aggressive when they perceive that this is not happening, regardless of the facts.
Legislation in some countries creates collective bargaining agreements which control remuneration and other benefits. Employees are often represented by a trade union which is nominally in place to protect the rights of employees.
Contractors - providing non-core functions
Contractors range from individuals performing specific tasks, up to companies with long-term contracts to perform significant services such as haulage, drilling and blasting, particularly in open-pits, and every other conceivable activity.
Some companies perceive outsourcing as a useful strategy in which certain functions are outsourced to contractors who are seen as being able to perform and manage those functions more efficiently than the mine itself. Examples might be “non-core business” such as catering, accommodation, vehicle fleet maintenance and security. However, companies also outsource “core business” activities such as drilling and blasting, U/G development, U/G support work, ore haulage and others.
The advantages of outsourcing such activities are that payment for services is based on performance ($/t, $/m3, $/m, % availability of equipment). And that specialist contractors can, in theory, perform these functions more efficiently. The disadvantages are that contractors are also businessmen and add a premium over their actual costs in order to make profits, and contractors can sometimes be difficult to manage, especially in regard to matters like health and safety. Many mines have alternated with some uncertainty between outsourcing and in-house work performance strategies.
Employees and contractors may contribute significant revenue to governments in the form of direct and indirect taxes, as discussed further below. Their earnings are likely to be largely spent within the economy of the host country, with multiple benefits.
Minerals laws and mining contracts issued by governments sometimes include provisions for employment of local staff, with restrictions on employment of expatriates.
Suppliers - substantial upstream impact
Large mines use a large variety of goods and services in their activities. Some of these may be provided by contractors.
Development of a significant mining industry or even one or a few major mines is inevitably accompanied by the growth of substantial upstream industries supplying goods and services. Goods might include spares and consumables, right up to bulk commodities and major items of equipment. Services might range from transport and catering, engineering services and IT provision, up to contract mining services. Typically, small businesses develop and prosper as suppliers to one major mine or to multiple mines, whilst major foreign companies may establish local branches marketing and servicing specialised equipment, where the industry consumer base justifies it.
South Africa is an example of a country with a huge mining industry supported by a very large base of suppliers, contractors, consultants and other businesses, many of which have expanded their activities regionally or globally.
These businesses are all dependent on the prosperity of the customer mines and any contraction in or expansion of the industry tends to have similar effects on them. Downstream industries can become major employers hosting a significant percentage of the total workforce dependent on mining. Once again, taxes paid by all these entities can become a major component of government tax revenue and their total spend a substantial part of the national economy.
Minerals laws and contracts sometimes require mine operators to practise local procurement of goods and services as far as practically possible.
Customers - assets to the economy
Like any other business, mining produces products for sale. Mine products are generally specialised and may not require commercial marketing in the normal sense. However, mines have customers who depend on the mines to supply commodities that they need.
Minerals may be used partially or totally within the country in which they are produced. Downstream industries are usually manufacturing enterprises which purchase the output of a mine to use for manufacturing finished or more advanced products. A simple example would be industries which purchase iron or copper from a mine to manufacture products. Palabora Mine in South Africa produces cathode copper in the form of rods, for manufacture of copper wire within the country. Downstream industries are assets to the economy in much the same way as suppliers.
Many minerals are exported from the countries where they are produced to countries who require raw materials for production of manufactured goods. Governments strive to promote maximum processing and downstream use of minerals internally because of the many benefits which accrue in terms of value added, business infrastructure and employment creation and additional tax revenues.
Mines and companies often enter into contracts with customers designed to protect both parties against the effects of fluctuating prices Contracts can also guarantee markets for producers and volumes and timing of deliveries to customers. However, many minerals are also openly traded on public markets like the London Metal Exchange (LME).
Other mine operators – influenced by decisions
Other mine operators are considered stakeholders because the actions of a single large mine or mining group can influence the decisions of other potential investors to proceed or not. The existence of a substantial industry can give operators strength in lobbying with host governments and other organisations and provide economies of scale for such activities as skills development, and in attracting support industries or downstream users.
For a country with a very limited history or current scale of mining, the successful commissioning of a large mine can create confidence and trigger investor interest.
Media and NGOs – shining a spotlight
Modern industry is increasingly under a spotlight as media and NGOs seek to ensure transparency in all their activities and to influence both mine operators and governments to respect human rights and the natural environment.
There is global expectation today that mining operations will be conducted in a responsible manner, conforming to “best practice” and in a manner designed to minimise environmental impacts, negative social consequences and harm to the health and safety of people. “Watchdog” organisations and the public media apply considerable resources to scrutinising and reporting on every action by a mine operator and the host government, particularly with respect to large, high-profile mining projects. Individuals are increasingly using the social media for similar purposes.
As an example, the China Metallurgical Group Corporation (MCC)’s Ramu nickel-cobalt project in Papua New Guinea has been the subject of considerable attention by the media and NGOs who have published voluminous, largely negative reports on social and environmental practice in this project.
Modern practice allows almost any observer to make statements, often in ignorance of realities, which can have huge negative impacts on mining projects and can influence regulators to withhold approvals. Projects can be delayed for years by objections based on real or perceived areas of environmental or social concern, even where competent authorities have formally reviewed professional studies such as feasibility studies and ESIAs. The Adani Carmichael Coal Project in Queensland, Australia, is an example.