How leading mining companies make most of shadow bids.

What is a shadow bid?

A shadow bid is a zero profit margin priced BOQ with a detailed breakdown of unit rates, overhead, fixed and time-related items that can be compiled for any project. In the case of open-pit contract mining, shadow bids can be compiled for the same enquiry that goes out to tender, or in the absence thereof, the BOQ can be compiled and priced.

A shadow-bid is compiled from first principles and based upon market-related industry prices which are formally obtained from suppliers and or else a combination of the aforesaid and cost-to-company of certain items such as salaries, wages, fuel, explosives, etc, provided by the Client.

Why are shadow bids sought after?

Shrinking margins, globalization and increased competition have all increased pressure on mining companies to execute better. Often we tend to overlook the level of improvement that exists post procurement and following assignment of the contract miner. A detailed breakdown of the contractors' unit rates with resource analysis will quickly highlight where the room for improvement exists, which invariably gives cause to the optimisation of existing contract mining applications.

Amongst several others, one of the examples we encountered on a drag-line operation where part of the dozing and load and haul operations were outsourced, implied that the value of the billed item for dozing by a single dozer could justify the purchase of eight D9 Caterpillar dozers. Needless to say that dozing is a relatively straight-forward operation which can easily be carried out by owner mining methods.

When to make use of shadow bids.

In our experience, of which most shadow bids were compiled for major mining companies, the application of shadow bids varied from Client to Client, some of which the most popular applications are listed below.

●  renegotiation of a matured mining contract, where the costs of establishing a new contractor cannot be justified.

●  the investigation into owner mining applications i.e. typical owner vs contractor trade-off investigations.

●  pretender planning cost estimations and benchmarking during tender evaluations.

●  a benchmark for negotiations during converting from unit rate to open-book contracts.

●  optimisation and expansions of existing contract mining applications.

●  operations improvement and turnaround assignments for contract mining applications.

●  contract price renegotiations where changes to designs and production have given cause to tendered rates no longer being applicable.

●  contract price renegotiations where contractors' escalation has given cause to the price no longer being market-related.

Essential inputs for shadow bids.

Mine engineering such as pit, ramp, road and dump designs inclusive of a geological model and geotechnical design recommendation for the period under consideration form the basis of input that can be developed into the essentials required for shadow bids.

In the case of shadow bids compiled for our Clients, whilst the vast majority of the aforesaid essential input requirements were supplied, re-engineering and optimisation of the Clients data formed an important part of the shadow bids process.

Tacmin specializes in the provision of technical and management solutions for mining, engineering, equipment and contracting in open-pit mining applications.

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