Not very long ago, all of the engineering for a large processing plant would be done by one of the large engineering, procurement and construction management (EPCM) players based in the Chilean capital, Santiago, or else in North America.
Over the past couple of years, many large multinationals are ramping up their operational offices in Lima as the amount of projected work makes it sensible to have a strong local presence.
Canadian-based Hatch, for example, only had a representational office in Peru until 2009. In the last year and a half, however, the company has decided to boost its local presence. “Polymetallic ores are typically very complex and they are common in Peru,” said Doris Hiam-Gálvez, general manager, Hatch. “We have many experts in this area and we are trying to build our world center of excellence for polymetallic ores and precious metals here in Lima.”
Peru offers other challenges to engineers, such as seismic risk and very high altitudes. “Our technologies are very good for South America as we can provide great efficiency for complex ores at high altitudes while minimizing carbon emissions. We are also leaders in high pressure leaching, a technology we are implementing for Barrick in the Dominican Republic,” said Hiam-Gálvez, who believes her company is very well positioned to grow in Peru. “Peruvian engineers are technically very good.”
Aker Solutions and SNC Lavalin have also been enlarging their local team. Aker, whose process and construction division has been recently acquired by Jacobs, is busy with the expansion of Antamina and Chinalco’s Toromocho project, although the design for these projects has been undertaken in Chile and the U.S. While there is a strong focus to attract the best talent in Peru, having worldwide expertise is key to support local growth.
“The Lima office has experienced significant growth, and we are supported by our global expertise in processing plant design. In silver and gold we have great know-how in Toronto, in zinc it is Montreal, if it is iron ore we have our Brazilian office…We do the engineering from here but get support in particular areas if needed,” said Enrique Valdivia, general manager, SNC Lavalin.
One of the most recent arrivals to Peru’s EPCM market is TWP of South Africa (part of the Basil Read Group), who have chosen Lima as their opening gateway to the South American region. They believe Peru offers challenges that fit perfectly with the company’s long-standing expertise in the South African mining sector. “There is a lot of underground mining in Peru and we are one of the leading companies worldwide in underground infrastructure like vertical shafts, refrigeration facilities and others. There is a limit to open-pit mining, perhaps 400 to 900 m depth. We see many open-pits are going to move underground, both in Peru and Chile,” said Héctor Paredes Tarazona, managing director, TWP Sudamérica.
Ryan Illingworth, technical director, TWP, anticipates underground mining will change dramatically in Peru. “Peru has a lot of underground mines but they are not as deep as in South Africa, and the shafts are generally quite small in diameter or cross-section. In the future these shafts are going to be bigger; they are going to go from rectangular to round, which is easier to sink; they are going to go deeper and they are going to shift from wood to steel. With steel shafts you can move ore and people much faster: from the 6 m/s you currently see in Peru, conveyances could move at 15 m/s to 16 m/s.”
Engineering and Environmental Consultancies
Lima also offers a wide range of engineering and environmental consultancies that can take care of the design of the mining operation and of the vital environmental impact assessments. Ausenco Vector, Golder Associates and Knight Piésold have sizeable offices in Lima, and all are boasting significant growth rates as the demand from the mining sector in Peru continues to expand.
Scott Elfen, regional manager South America, Ausenco Vector, explains his company’s sales increased even in 2009 due to the major role of precious metals in Peru which were not impacted by the crisis. Formerly Vector Engineering, the company is now finalizing its integration into the Ausenco group who acquired it back in 2008, together with PSI (who specialize in tailings transport systems) and Sandwell (experts in materials transportation). “A big advantage for Vector is the depth of the Ausenco Group itself. Before, we were a boutique consulting company,” said Elfen.
Ausenco Vector is now becoming the environment and sustainability branch of the group. Peru offers very interesting challenges on this front due to the difficult geography. One of Ausenco Vector’s greatest achievements, Elfen said, was the design of the heap leach facilities for Barrick’s Pierina mine. “Some people said Pierina could not have been built because of the challenging location and terrain, yet it is an industry model for heap leach technology.”
Elfen believes environmental aspects need to be carefully evaluated from the design all the way to mine closure to prevent accidents. “Accidents do occur because of poor engineering, time-constraining pressures and poor management. Environmental factors need to be incorporated into the design, to ensure a sustainable future for the mine and the surrounding community.”
Rafael Dávila, managing director, Golder Associates, agrees. “Society will not accept any project that has not taken care of its waste,” Dávila said. “In a large gold or copper operation, more than 97% to 99% of the rock extracted becomes waste. We firmly believe we have helped our clients over the past decades to be more efficient in their mine waste management. We have worked in Antamina, which has one of the world’s largest tailings dams and one of the safest too.”
Employing 320 people, Golder Associates’ Peru office is the company’s largest in Latin America. According to Dávila, it is also Golder’s center of excellence for thickened tailings and it has a great record doing EIAs to very tight deadlines. “EIAs in Peru are not an easy business because they entail the proper participation of the communities, but we have been able to work with very aggressive schedules. Xstrata congratulated us for the EIAs of Las Bambas and Antapaccay; the latter one was approved within six months after submittal. We also did the EIA for the expansion of Lagunas Norte, and are now in charge of the EIA for the Chucapaca project.”
One of the main issues right now on the engineering side of the business is the shortage of specialized professionals to cope with the current demand. “Our own staff is at risk of being hired by mining companies because they are able to offer better salary packages. We try to instill the fact that we provide our workers with a more stable family environment and better career opportunities,” said Elfen of Ausenco Vector.
South American Players
Levels of demand are currently so high that new players in the business are increasingly welcome, especially as certain specialists are difficult to find. “Peru is going to see a large amount of very big projects, therefore the multinational engineering firms are not going to be able to cope with this demand and maintain good quality in all the areas. They have weaknesses in some fields in which we can be a great complement,” said Juan Rayo, founder, JRI, a large Chilean family-owned engineering firm, although he points out his company should increasingly compete with EPCM multinationals, rather than work for them in smaller assignments.
JRI had to resort to some of its 300 people based in Santiago to work on the new truck shop at Antamina, a project worth 60,000 man-hours of detailed engineering. “Initially we thought we could do it in Peru, but after a few weeks we realized we could not find enough specialized draftsmen to do the detailed design. We sent some people from Peru to work in Santiago, which was easier than the other way round,” said Rayo. In spite of this issue, Peru is set to become an important profit center for the company which already generates 20% of its sales from outside Chile.
Buenaventura Ingenieros (BISA) is an important local engineering outfit. The company, a subsidiary of the Buenaventura group, supports its mother company in engineering services and also serves third party clients including the large EPCM multinationals. With extensive experience locally and more than 400 people, BISA is in a great position to capitalize on the current boom. In 2009, the company’s sales grew by 25%, and in 2010, by a further 50%. The company is involved in projects including Tía María, Quellaveco and Conga.
José Vizquerra, general manager, BISA, emphasizes that in the current scenario, it is essential to continuously bring in new talent. “We are very proud of our professionals,” Vizquerra said. “It is very important to grow every day and to give opportunities to new students who want to have a good career in Peru.”
“Peru is living a unique period and the locals must be given the opportunity to participate in this party,” said BISA’s Commercial Manager Carlos Alarco.
Construction Firms
Peru’s largest engineering and construction player is Graña y Montero (GyM), a firm that has a long tradition in the mining sector going back to the Toquepala development in the 1940s. The group has more than 5,000 employees, including 1,700 engineers, and has participated in the construction of more than 10 large concentrators in Peru, as well as projects elsewhere in Latin America.
Hernando Graña, executive vice president, Graña y Montero, believes the country should capitalize on its extensive mining experience to create more value for the economy. “We still depend too much on mineral exports,” Graña said. “Instead, we should promote the creation of industrial clusters. The mining services industry is not recognized as a cluster internationally, but it is a cluster indeed. The best proof of this is that Peruvian service providers are increasingly exporting their services.”
After GyM, Peru’s most important construction player in the mining industry is COSAPI, with revenues of $250 million in 2010 (40% in mining). For 2011, the company expects to reach $350 million. “There are many projects on the table, and not that many companies that can develop them with the standards that mining companies require,” said Walter Piazza, managing director, COSAPI and president, Peruvian Chamber of Construction (Capeco). “We are involved in the startup of the mining projects, from the feasibility studies to the construction of the facilities and the infrastructure associated to it. We build roads, transmission lines, concentrator plants, smelters and all the industrial facilities.”
Piazza believes Peruvian contractors have developed world-class services. “Peruvian companies have an excellent record in complying with safety, environmental protection, costs and schedules in very large projects,” Piazza said. “Project management has been very successful thanks to the quality of the local contractors.”
In this context it is not surprising that big mining companies are asking Peruvian contractors to support them abroad. Both GyM and COSAPI, together with Haug, a Peruvian electro-mechanical company, are working for Barrick at the Pueblo Viejo project in the Dominican Republic. But how can companies expand in other countries when the demand at home cannot be met? The expected needs of the mining sector have indeed awakened the interest of major engineering and construction groups worldwide, such as TWP, SalfaCorp, Techint and Mota-Engil among others.
SalfaCorp, Chile’s main E&C group, acquired local construction firm HV Contratistas in 2008 and now operates under the Salfa Montajes name, while it also owns Revesol, a company dedicated to mill maintenance equipment and parts for material handling. Guillermo Vega, general manager, Salfa Montajes, explains that the firm wants to leverage on its experience in Chile to aggressively expand in the local mining industry. “SalfaCorp has sales of $1.3 billion in Chile, $550 million of which come from mining through Salfa Montajes,” Vega said. “In three years half of our revenues in Peru should come from the mining industry.”
Salfa Montajes’ main expertise is in civil construction and erection works, although in certain areas they can also include engineering for EPC jobs, as in Xstrata’s Antapaccay project. Guillermo Vega explains that his company is intensively training people. “Big mining projects are going to be built simultaneously in Peru and this is going to create a stress in the market; this is why we believe that our previous work in Chile’s mining sector is going to be key to win contracts. We have Peruvian staff currently being trained at our mining projects in Chile.”
Pablo Videla, general manager, Techint E&C, a multinational firm, is similarly optimistic about the market opportunities Peru offers. “Out of our expected revenues of $250 million annually, we would like to see 30% of it coming from mining services,” Videla said. “Currently there is not enough engineering and construction capacity to handle the investments that are coming. There is going to be room for everyone.”
The Mota-Engil group, a multinational headquartered in Portugal, has already had a presence in Peru through Translei, a subsidiary rebranded now as Mota-Engil Perú. In the last years the company has done mostly earth-moving and contract mining for many of Peru’s mining players, including Yanacocha; however the idea is to gain engineering and construction projects of a larger scope, such as the EPC of the port of Paita (northern Peru) developed by the company. Elsewhere, Mota-Engil also has built the facilities for a uranium operation in Malawi.
“We are 100%-owned by a European company with revenues of more than $2.8 billion in 2009. We have 25 years of experience working with the local communities in Peru. This is a great combination. The challenge we have is that most clients see us mainly as earthmovers and we can do much more than that,” said Rui Guimaraes, managing director, Mota-Engil Perú.
The sales of Mota-Engil Perú were $40 million in 2009 and $70 million in 2010, with a goal of reaching $150 million this year. To support this growth, the company is obtaining ISO 14001 certification (it already has ISO 9001 and OHSAS 18001) and is hiring 60 new engineers, half from universities and half from the market.
Other industrial construction players include SSK Montajes e Instalaciones, 50%-owned by Sigdo Koppers E&C of Chile, who have been working at Yanacocha for many years and are doing the EPC for the new truck shop at Antamina; and Corporación de Ingeniería Civil (CIC), a Peruvian company with strong experience in cement and gas plants and now looking to engage in projects in the mining sector.
Igor Aguirre, executive director, CIC, explains the 65-year old company has traditionally stayed away from the earthmoving business. “Earthmoving is highly capital intensive,” Aguirre said. “Today, there are leasing options and access to financing, but 20 years ago, you either had cash or you could do nothing.”
Instead, the company has focused on industrial construction and the development of civil works that require high precision. “We do difficult things, not everyday things. For Cementos Lima, for instance, we dug a 6-km tunnel for a conveyor belt in the middle of the city,” Aguirre said. “We were given a circle of 3 centimeters of diameter from which the center of the tunnel could not deviate. Getting that kind of precision in the middle of a trench inside the city was very difficult.”
In the current environment of high demand from mining, CIC expects the technical expertise gained in other industries will allow the company to win important jobs in the sector.
Mining Works
All Graña y Montero, COSAPI and Mota-Engil offer contract mining and earthmoving together with their E&C services, however there are other players that concentrate on this business, such as San Martín Contratistas, Stracon, Constructores y Mineros (CyM), Pevoex and Montali, the latter one specialized in underground development.
Stracon, a company active in Peru and New Zealand and looking to expand in Colombia, has made the most of the growing trend towards contract mining. The company has a joint venture with Graña y Montero invoicing $120 million annually, and has expanded at an average rate of 68% annually between 2008 and 2011, mocking the crisis. Peru currently accounts for 60% of Stracon’s sales.
Although Stracon undertakes significant earthmoving projects (it has the main earthmoving contract in Toromocho in a joint venture with Mota-Engil Perú), the company’s CEO Steve Dixon likes to position his company as an expert player in contract mining. “We want to focus on that because these are long-term contracts and it is the business that we understand the most,” Dixon said. “It allows for better planning with equipment and people.”
Civil works do require a partner in drilling and blasting. Pevoex Contratistas, a local company specialized in this field, regularly works with Graña y Montero and has been working with final clients such as Antamina, Cerro Verde, Milpo and Minas Conga. The founder and General Manager of the company is Rómulo Mucho Mamani, former president of Ingemmet, Peru’s governmental geological body, and former vice minister of Mines.
Mucho explains Pevoex is investing $3 million in new equipment with an aim of boosting revenue to $10 million annually, and prides his company for having an excellent safety record. “As Pevoex we have not suffered any incidents or accidents,” Mucho said. “We have good policies in safety. That way we are well sought for by the clients. For instance, we are Barrick’s preferred partner in blasting. You may work well for 20 years, but if you have one single accident, this will ruin everything. In explosives, the first error is also the last one. You don’t have a margin of error.”
As mentioned earlier, demand is also going to increase in underground works. Montali, a contractor specialized in underground development using the Alimak system, is currently working for precious metals producers Buenaventura and Poderosa. “The Alimak technology saves time and increases productivity but requires high standards and specialization,” said Yran Ludeña, general manager, Montali. “We can do much more than raises. We want to be seen as a specialized contractor in underground development.”
Ludeña affirms that although Peru has a great pool of talented engineers, Montali’s work is so specialized the company’s recruits need to undergo a six-month training program. Montali, also present in Canada’s mining sector with an office in Val-d’Or, Québec, expects Peru to become an increasingly important profit center. “Peru is a millenary country where the mining sector has always been present. We have always lived with mining,” Ludeña said. She explained Peru has world-class professionals and it can take advantage of its rich diversity to grow.
