The Oaky Creek Coal Complex in central Queensland currently consists of two underground operations, the opencut and the coal preparation plant.

The opencut functions as a high cost operation working in high strip ratio areas. It is used to top up any shortfalls in production from the longwalls and to maximise the complex’s CPP facilities and port allocations.

Production from the opencut over the past six years peaked at 3 million tonnes per annum, but has begun to fall with underground operations delivering more consistent tonnages and also the introduction of a second longwall panel into the Oaky No. 1 mine.

Opencut manager Richard Gibson told delegates at the recent IIR Contract Mining conference that opencut production must be flexible and also have the ability to close quickly should it become necessary. Consequently, the mine has operated as a contract operation since reopening in July 2001.

Gibson said Oaky Creek’s decision to use contract labour was primarily based on lead time, lack of skilled labour and the flexibility to close operations when it could no longer add value to the complex.

Oaky Creek chose Thiess as its contractor, taking into account the contractor’s size, equipment and skilled labour availability, and the expertise to run an entire mine.

Xstrata placed the contractor on a simple cost-plus basis contract, which Gibson said in this case was a “very effective and efficient contract for us”. A cost-plus contract gives the contractor certainty of income but no certainty over contract length.

The sharing of risk was another factor that weighed on Xstrata when deciding whether to make the mine a contract operation.

“The sharing of risk is certainly one of the key factors in deciding not only if a contract operation is warranted, but how a contract is drafted. An important fact to remember is risk costs. The more risk a contractor has to take on, the higher the cost will be,” Gibson said.

“The devolution of risk is often an area that is poorly defined during contract negotiations. This invariably leads to conflict and/or contract variations later down the track. It was important at Oaky Creek to keep risk for both the complex and the contractor as low as reasonably possible.”

The Oaky Creek opencut has been slated for closure later this year, with increased production of 2Mtpa expected from the second longwall at Oaky No. 1.