Improving the Provider Base

For a country with a mining sector in its early stages, finding local service providers cannot always be taken for granted. Yet the situation has greatly improved over the last few years, due to the arrival of new players and a new mining orientation among Argentine companies that previously served other industries, mainly the oil and gas sector.

One way of measuring the mining sector’s multiplying effect over the economy of an area is counting the number of providers that it needs. In San Juan alone just two gold mines, namely Veladero and Gualcamayo have had a tremendous impact, said the Governor of the province, José Luis Gioja. “There are about 900 small and medium enterprises that have been created around the mining sector and perhaps we will need more. Some of these companies are already working outside San Juan and we also have local companies making joint ventures with foreign providers to become more competitive.”

At the national level, providers are grouped in two main associations: CASEMI and CEPSM.

While the requirements change during the life of a project, companies offering engineering and environmental services are always needed. Ausenco Vector (previously Vector Engineering) has been in Argentina for 14 years, and has several offices to serve the different mining jurisdictions, with a total of 50 employees in the country. Half of the company’s business in the mining sector is related to environmental work, which should remain a strong part of the company’s business.

Silverio Prota, general manager of Ausenco Vector in Argentina, said the integration of Vector within the Ausenco Group since 2008 (together with PSI and Sandwell) is creating interesting synergies, as the other group companies had limited experience in Argentina. “The next level in this process would be sustainable design, that is, to incorporate the environmental aspects since the very beginning of the design phase,” he said.

The growth of Argentina’s mining sector, both in exploration and production, has prompted SRK Consulting, another multinational, to open a permanent office in Buenos Aires via the acquisition of an Argentinean consultancy, which had worked with SRK Chile since 2002.

With 14 professionals, the firm is involved in a number of geotechnical and civil engineering works but is already targeting the mining sector aggressively (which already accounts for a third of their revenue), with the aim of forging a strong environmental team in-house and doubling the number of professionals by 2012.

SRK Argentina’s General Manager Alejo Sfriso explained on the importance of good environmental work in the design of mining operations. “Argentines hold some universal truths, two of which being that the Argentinean beef is the best in the world and that mining pollutes. People should look at Chile and see that after more than a century of mining, you do not see all of the pollution campaigners claim the industry produces. The positive aspect of working in such a challenging environment is that mining companies are forced to implement the highest standards possible.”

As well as large engineering companies with environmental divisions, there are also pure environmental consultancies, such as multinational company ERM (with offices in Buenos Aires) and Argentinean firm Estudios y Servicios Ambientales (EYSA), known in the market as Ambiental.

“Some people in Argentina speak of mining and environmental protection as if they were opposed terms. This does not happen to other industries,” said Fernando Valdovino, general manager of Ambiental. Yet, he points out Argentina has an advantageous position. “You do not have to deal with site remediation of past operations or modification of facilities and technology to meet present industry standards.”

The downside of being a new industry is that for some specialized areas, such as mineral processing, it is very hard to find experienced professionals. “Argentina is host to mega-projects for the first time experts in mineral processing, for instance. “Argentina is host to mega-projects for the first time, therefore it is good to hear from foreign experts. Yet Argentina needs to ensure its professionals have adequate training, said Marcelo Martínez, general manager of engineering company Golder Associates in Argentina. We find it difficult to hire skilled local people with the different engineering and geotechnical backgrounds applied to mining. Luckily the country has good environmental expertise.”

Some companies active in other engineering fields such as oil and gas, power and infrastructure, are increasingly looking for jobs in the mining sector. These include MWH, who expects mining will account for 50% of its revenue in the medium term, and Taging, an Argentinean firm that has set up a distinct mining division and counts Cerro Vanguardia as its main mining client.

“Many companies in Argentina lack the specific knowledge of the mining sector, said Lucinda Wood, head of the Mining Department of Taging. In oil and gas you can follow the same model all the time, but in mining gold processing is not the same as copper processing, for instance.”

Besides, there are other challenges for providers trying to get their first projects in the industry. “Designing a tailings dam can be simpler than designing a dam for a power project, yet the mining clients like to interact with engineers that speak their own language, that means people who are familiar with mining. This human factor can be a challenge.” said Sebastián Risso Patrón, country manager of MWH.

Growing Opportunities
The new wave of exploration activities is pushing the demand for services such as drilling and geochemical analysis. One of the main players in laboratory services for exploration is Alex Stewart, a company with more than 100 employees, most of which are in Mendoza. Mauricio Olmedo, Alex Stewart’s general manager, said his company is the only one offering the whole geochemical process in Argentina. “As the mining industry grows, we will need to set up laboratories in the north and in Patagonia, close to the mining operations. Moreover, we will target other services required by the mining sector, such as inspections, which will be a big area of focus for us in the future as a new business unit,” Olmedo said.

As the industry grows, mining companies are increasingly focusing on their core business, mineral production, while there is a trend to increasingly externalize other related services, which opens business opportunities for providers. Yet, it is a slow process. “We operate laboratories right at the mining operation, acting as an outsourcing partner. However mines in Argentina are very new and mine operators tend to be conservative: sometimes they see outsourcing as a loss of control over their own operation,” said Héctor Oporto, manager at SGS.

A company that has had tremendous success as an outsourcing partner is Segufer. The company, a supplier of safety equipment, hardware and electrical components among others, has experience in managing the storage facilities of mines at Alumbrera and Veladero, both during the construction and the operation.

Hugo Saidón, manager at Segufer, said being present at the mine sites since the construction phase has opened up new business opportunities for the company. “As a supplier we became more experienced. In aspects like fluids and electrical components, sometimes we had to deal with issues that had never come up in Argentina because the industry is very new. This is how we developed our engineering solutions department.”

Segufer also represents companies like 3M and due to its privileged relationship with several mines it does not lack offers to incorporate new brands into its portfolio, although Saidón states they remain very selective with the products they distribute.

Long-Standing Clients
What is clear is that mining clients require a significant amount of help from providers before and during the exploitation of a mine. They are therefore juicy accounts for providers, but getting the first contracts is a challenge. Hence the strategy of some contractors to work for mining companies from the exploration phase. A good example of this is Eco Minera, a construction company based in San Juan specialized in road works (it currently has a three-year contract with Veladero for road maintenance). The firm has managed to increase its customer base with its drilling business, with 14 operational rigs.

As in engineering, the Argentinean oil and gas business accounts for a significant proportion of many providers’ experience in operation and maintenance contracts. With hydrocarbons production in decline, mining appears as the best bet to forge long-standing relationships with clients. “The mining projects are very long-term investments. As long as the mining operations have reserves, it is highly likely they will be into operation because a large portion of their costs is fixed costs,” said Gustavo Burgwardt, president of Burgwardt Minera, a mining-oriented spinoff of construction company Burgwardt.

“We do not want to build a project and leave, which is the way it works in road construction for the public sector. We want to stay there like we have done for the oil industry. Mining projects are very big but there are just a handful of them, so the pressure to get at least one of the jobs is big,” said Burgwardt. He believes his company’s experience developing a quarry will play a role in winning projects as mining contractors. “We have expertise doing drilling services, transportation, blasting and crushing. We could perfectly become partners in mining exploitation. The trend in Chile is toward more outsourcing in this area. Besides, we are obvious partners in road construction and maintenance.”

Skanska is another player with a long trajectory working for the oil and gas sector in Argentina, in both engineering and construction and operations and maintenance. The mining sector, however, is not new for the Swedish-based multinational, as they have participated in projects like Alumbrera and Cerro Vanguardia in engineering and construction. “In mining, we are not specialized in the engineering of the process plant as some other contractors, but we can do any complementary engineering related to the project. This is a market that works a lot through EPCM, therefore we are always there positioned as a construction partner,” said Martín Cittadini, country manager of Skanska.

Technologies for Efficiency
Large suppliers of equipment such as Finning (Caterpillar distributor) and Atlas Copco play a key role in improving productivity in the exploitation of the mines. The broadness of their product portfolio, however, means they have to dedicate huge efforts to customer support. In Argentina, a vast country with difficult logistics and a shortage of specialists in certain fields, this can be a challenge. “Only in the mining and construction division we have 200,000 products,” said Guillermo Rodríguez, general manager of mining and construction, Atlas Copco. “To visit a remote mining operation, you need at least two days. Moreover workers need to adapt to the altitude. If you consider this and the fact that we have seven business lines, it is quite difficult to find all the qualified people we need.”

One of the company’s strengths is underground mining, as nearly half of Atlas Copco’s equipment active in Argentina is below the surface. Underground mining is a business Finning is also targeting aggressively. “Caterpillar is a relatively new player in underground mining, but we have some phenomenal equipment in this area and are growing very quickly. Underground is the future of mining. Companies using Caterpillar in both surface and underground operations will benefit from the synergies created,” said Andrés Duggan, commercial manager for mining at Finning.

Smooth system integration and automation is key in the highly complex environment of a mining operation. French-based multinational Schneider Electric, a company with a strong presence in Argentina, positions itself as a specialist in energy management. In the industrial field, the focus is on the transformation process of raw materials. “At the end of the process you have the final product and waste. Managing the energy one can optimize the amount and quality of the final product per unit of energy used, but also you can reduce the amount of waste. Optimizing energy usage saves costs and improves the quality while also reducing the environmental footprint of the industry,” said Diego Areces, cluster director of mining, minerals and metals of Schneider Electric. The company expects to grow its sales in the mining industry in Argentina by more than 20% annually in 2010 and 2011.

Tecnet, a large system integrator, only entered the mining sector seven years ago, but the industry already accounts for over 40% of its sales. The company has alliances with a number of technological companies in order to provide holistic solutions to the clients under turnkey projects schemes. “Our core business is the design and integration of systems. Mining projects are always big projects in terms of revenue and they are explosive in the timings. The deadlines are always tight,” said Carlos Koiffman, general manager for Latin America, Tecnet.

The company has completed projects in Chile, Argentina and Peru and is now looking to expand into Colombia and Mexico. Vale’s Bayóvar in Peru and Silver Standard’s Pirquitas in Argentina are two of the company’s most recent projects. Koiffman’s aim is to consolidate Tecnet as Latin America’s largest system integrator. “With vendors, the clients need to adapt to what the provider can offer. We take the best products from each vendor and prepare a tailored solution. We believe we have an edge in this respect.”

The development of mining in Argentina has created very interesting business opportunities for providers in the country. Many leaders believe the sector has only shown a tiny bit of its potential so far. Indeed, there are valid questions about how fast the industry can grow. Yet service companies are already taking positions to cover the market as it develops. As Chilean providers have done over the years, Argentinean companies have a golden opportunity to grow together with their country’s mining sector.

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