The decision to contract or owner mine should be independent of, and should be made before, definitive estimated cost comparisons could be available. There is substantial potential risk of estimated cost comparisons being flawed due to difficulties in compiling comparable estimates for differing business objectives, errors and omissions or because of significant bias._x000D_
In the current economic environment, escalating cost pressures potentially lead to increased incidence of disputes in mining contracts. The apparent cost of contractor's profit and overheads has tended to become more significant to owners._x000D_
Economy-driven trends towards higher levels of performance and commercial risk for contractors, and the potential for more adversarial, difficult management; with attendant disputation between contractors and owners, have encouraged development of so-called relationship contracts' - partnering or project alliance contracts._x000D_
The paper discusses the issues, circumstances when owner mining or contract mining is favoured and perceived advantages and disadvantages of contract mining. The implications of owner-perceived core business and core skills and outsourcing are also discussed. Techniques of introducing objectivity into the decision to owner or contract mine using matrix analysis or benefit comparisons are described._x000D_
A disciplined procurement process should deliver a decision to owner or contract mine independent of, and prior to, any definitive comparison of estimated costs. A generic procurement process model is provided as a basis for discussion. Risk is discussed generally and as a significant factor in comparison of estimated operating costs. Consideration of risk and any prudent cost treatment are promoted as necessary pre-requisites to any comparison of estimated costs. The paper develops the concept that the decision to owner or contract mine should be based on real benefits that become obvious in the early stages of the development, particularly the procurement process; and before definitive estimated cost comparison can be available._x000D_
In the context of this concept estimated cost comparisons tend to be confirmatory. Problems with comparing estimated owner's operating costs with tendered contract prices are also discussed, particularly recovery of capital cost of equipment; and the owner miner's trade-off of operating risks for the residual contractor's margin attributed to overheads and profit._x000D_
The paper concludes that sole reliance on a comparison of estimated owner's operating costs with tendered contract prices in deciding to owner or contract mine is questionable and likely driven by a need to satisfy specific in-house customers.