UNTANGLING THE NUMBERS TO RESOLVE A MINING CONTRACT DISPUTE
Steep price increase
Our client needed to dispute a contractor’s pricing estimates in the renegotiation of a life-of-mine contract on a major thermal coal reserve. During contract renegotiation in 2012, the contractor proposed a 40% price increase based on its operating cost projections over the next five years. However, the client’s own projections suggested the contractor’s pricing was very high by industry standards.
Bring in the experts
When the two companies couldn’t agree on a pricing structure, they took the dispute to arbitration. The client engaged PPB Advisory to analyse the contractor’s pricing report and identify any flaws, weaknesses or inconsistencies that could prove the contractor’s cost increase was too high. We also helped the client review its own pricing report for weaknesses so it could present the strongest possible case for its cost projections.
Needle in a haystack
The arbitration panel was only able to offer our client limited information about the contractor’s costs due to confidentiality agreements. Over two years, we used advanced analytic techniques to compare this limited information with vast amounts of industry data relating to every aspect of mine operation pricing. The resulting benchmarks allowed us to interrogate the contractor’s costing projections and uncover inconsistencies in the way it depreciated its equipment that did not support its projections.
An equitable outcome
PPB Advisory’s deep understanding of resource operations costing and analytic expertise allowed our client to present the arbitration panel with strong evidence against its contractor’s pricing estimates. Our work helped the client win on four of five key points of law in the dispute and establish a much lower pricing for the mine’s operation.