Pascual Veiga, president of Chile’s Association of Large Industrial Providers to Mining, discusses the industry’s enormous opportunities as well as its challenges—access to people being the key one for providers
By Alfonso Tejerina
Chile’s reign as the world’s largest copper producer is far from over. While Peru, No. 2 in the ranking, tries to close the gap with an interesting project pipeline (but with everlasting community issues), Chile is not standing still: it has double the copper reserves of its northern neighbor (27.5% of the world’s reserves against Peru’s 13%, according to the USGS); and, more importantly, these reserves continue crystallizing into large new projects and mine expansions, enlarging the industry portfolio of investments year after year.
The latest estimate of the Chilean Copper Commission (Cochilco) gave a figure of $104 billion worth of investments to be made in Chile’s mining industry by 2020. While this significant increase over last year’s estimate (+56%) can be partly explained by cost inflation, there are also new projects that have been added to the pipeline. Gold is increasingly important but copper makes most of the money: indeed, output of the red metal should increase from 5.3 million metric tons (mt) of fine copper last year to 8.4 million mt by 2020, according to Cochilco.
In this context, one can imagine the sheer size of the opportunities available for providers of all sorts, from capital goods to services, but it is impossible not to raise the question of where all the people needed to take these projects to fruition will come from. Pascual Veiga, president of Aprimin, offers some perspective on the challenges associated with human resources and the industry’s initiatives to ensure the sustainability of the sector.
Aprimin Strikes a Balance
The Association of Large Industrial Providers to Mining (Aprimin) was created in 2003, just a few years after Chile’s big mining companies established their own industry body, the Mining Council. There was, Veiga relates, a need to strike a balance between the large mining corporations and the industry’s goods and services providers. The mission was for Aprimin to become a strategic agent within the mining value chain.
Aprimin started with 23 companies, and today’s membership consists of 78 companies, employing 120,000 people directly and 30,000 people indirectly. These 78 companies are just a tiny proportion of Chile’s 3,600 mining providers, yet they account for 82% of the revenues coming from the sale of capital goods, spare parts and associated services. Revenues from Aprimin members were $10 billion last year, and the association expects them to reach $12 billion in 2012.
Veiga pointed out that the number of member companies has more than doubled in the last three years, even though entry requirements are strict. “To be an Aprimin member, a company must have sales of more than $12 million annually to the mining sector; in addition, it must have personnel working directly on mining sites; and obviously it has to comply with a number of ethical and commercial codes,” he said.
Outsourcing Gains More Traction
In Chile, unlike in other Latin American countries, the outsourcing of services is already seen as the norm, not the exception, and the industry has experienced phenomenal growth. “Twenty-five years ago, the market of service providers to the mining industry was virtually non-existent,” Veiga said. “The model was that mining companies were self-sufficient. Today in Chile, for every direct employee a mining company has, there are 2.85 subcontracted employees as an industry average.
“There has been a strong trend toward externalization, especially in those services directly linked to equipment and capital goods. Compared to other countries, we have experienced a great evolution. We are very close to Canada and Australia, and in Latin America we are by far the country with the highest figures of outsourcing. In some cases it reaches a ratio of five subcontractors per direct employee. [Antofagasta Minerals’] Minera Los Pelambres is a great example of this trend,” Veiga said.
This critical volume has allowed companies to gain the expertise to venture into other mining markets in the region, namely Peru, Argentina, Colombia and even Ecuador. In 2010, exports of goods and services from companies based in Chile were $350 million. While the association has yet to crunch more recent numbers, Veiga insists that today that figure is significantly higher and the aim is to treble it by 2015.
Competitiveness: World-class Providers
While some countries try to limit the arrival of foreign competitors they claim could endanger their national industries, Chile’s model of openness has not hindered the growth of the national mining services industry. Quite the opposite, it has promoted the creation of a mining cluster unrivalled in the region. Veiga assures that it is strong competition that has made Chile’s providers world-class.
“We are certainly the most open economy in Latin America and we strongly believe in our model. An open market means a huge contribution of value. It promotes competition and increases competitiveness, as well as prevents us, Chileans, from being indulgent. An open market does not affect the size of our margins. Instead, it enables us to be more attractive when we want to enter other markets.”
Indeed, Veiga invites new providers to bring their goods and services to the Chilean market. “The opportunities are enormous. No matter how much help we receive, the entire offer available in Chile will not be enough to match the demand, especially in the period of 2013-16.”
In a strategy designed to secure the suppliers that are going to be needed in the coming years, the Chilean Mining Ministry and companies like Codelco and BHP Billiton are working on a program to develop ‘world-class providers.’ It makes sense, considering that Codelco alone has an investment portfolio of $30.6 billion over the next eight years. Meanwhile, Aprimin is also working with companies that are providers to its own members in order to improve management processes and the quality of the services contracted.
Innovation also plays a vital role in obtaining ‘world-class’ qualities. In Chile, 5% of all expenditures in research and development come from the mining sector, a figure Veiga thinks should be higher. In the particular case of service providers, some of Aprimin’s members are international companies that have dedicated R&D centers in other countries. However, until very recently it has been commonplace that innovations were not introduced in the Chilean market due to Chile’s weak patent protection provisions in the legislation. “The government is aware of this and some important changes have been introduced; this should help bring more innovation,” Veiga said.
Industry Standardization
The development of world-class providers is also related to an issue frequently overlooked by suppliers’ final clients, the big mining companies; and that is the vast number of approvals and certifications that all subcontractors need to obtain before they can start working in a particular site.
Together with Sernageomin, an industry regulator in charge of safety, Aprimin is trying to homologate the entry requirements so that all safety procedures are done in an efficient manner. The project for the new regulation is already in an advanced stage and a whole new framework could be approved before November this year, in agreement with the mining operators.
“Today, different companies and even different mines within the same mining corporation have different requirements to access their mine sites,” Veiga said. “We lose many man-hours in training courses and inductions, many of which are repetitive, and that accentuates our problem of shortage of people. The idea is to provide an ID that proves that a worker is certified to work in the mine. We estimate that this could save service providers industry-wide around $12 million.”
On top of the several initiatives to tackle the human resources challenge, Aprimin’s efforts to increase cooperation with the mining companies and optimize the industry’s processes should be praised, and are not easily replicated in other mining countries in the region. In less than 10 years, the association has become a key player in the value chain and one of the most important voices that both regulators and large mining corporations have to listen to. The creation of the so-called ‘mining cluster’ in Chile would have surely encountered many more obstacles were it not for Aprimin’s contribution.
Alfonso Tejerina covers Latin America for Global Business Reports. He can be reached at: alfonso@gbreports.com.
Chile’s Mining Industry Will Need 70,000 New Workers by 2015
What are the main challenges right now for the Chilean mining industry?
The main concern is power supply, but as Aprimin we do not have direct participation in that matter. Another issue is the availability of water for mineral processing, but in northern Chile it is accepted that future projects will have to use desalinated water or seawater directly. The other big challenge is human resources, and there we have a fundamental role to play as an association.
How does the lack of people affect service providers?
It is our biggest challenge. It affects us more than it does mining companies. We need to train more technicians and be more competent. At the level of professionals we can overcome the challenge, but what we lack is the technical personnel, the people who do the maintenance work and operate the equipment.
Industry-wide, how many new workers will be needed in the near future?
A study conducted by mining companies and the Chile Foundation anticipates that from now to 2015 there will be a need for 70,000 new jobs, mainly in technical trades within the Chilean mining industry.
Will women play an increasing role?
There is a government campaign nationwide to increase the participation of women in the industry, from the current 8% to 12%. Among providers, the percentage is higher, but most of the women are employed in back-office, administrative positions such as public relations or human resources. When it comes to work onsite, the percentage is much lower, below 4%.
What initiatives are being taken at the educational level?
Our educational system has distanced itself from the industry, both in the amount of people and in the quality of its technical programs in the last decades. Many of our companies have their own technical institutes, but it is not enough because we compete with the whole sector. Many of our technicians, trained by us, end up being hired by the industry. We need to create educational institutions for the whole sector so we do not poach people from each other.
With the high ratio of subcontracted workers to direct employees, the responsibility of providing personnel falls upon us. As new projects are developed, the amount of subcontracted people will increase. We have recently established Aprimin’s Educational Institution with several plans of action to close the gap between the needs of the market and the availability of people, with a focus on maintenance, drilling, blasting and other operators.
Could you give us more details about the joint program with the military?
We have started training people currently doing their voluntary military service to incorporate them later to the industry. This gives us access to young people that, on one hand, have the physical qualifications required to work in the mining industry (such as adaptability to work in altitude, fitness to get on and off the different machines) and on the other, are already familiar with the wrongly-called ‘soft skills’ such as sense of responsibility, discipline and teamwork.
This is part of an agreement between the Ministry of Mining, the Ministry of Defense and Aprimin. The pilot program, called Procomin, includes 100 soldiers that will receive training in electricity, mechanics, hydraulics, welding and basic handling of explosives. In the next year, we want to increase by threefold or fourfold both the number of participants as well as the number of hours of training provided.
How has Aprimin helped rebuild the technical school in Constitución?
In February 2010, there was a terrible earthquake and tsunami that destroyed the city of Constitución’s Politechnical School, an institution that plays a key role in training skilled workers for the region. Aprimin’s member companies decided to put nearly $1 million toward rebuilding the school. It has been an emblematic project for us as it shows our commitment to the education and training of new technicians.
