The uptick in activity translates into more work across the board for engineering and specialist firms.
Image courtesy of Minsur
If 2018 had begun with a greater buzz for engineering firms than seen in previous years, 2019 has continued this trend and most consulting firms in Peru are reporting growth.
Carlos Santa Cruz, president of the board of BISA Ingeniería de Proyectos, a local engineering firm that was until recently part of Buenaventura, affirmed that the mining sector had a “great performance” in 2018, but he warned that firms must nevertheless maintain a healthy level of industry diversification: “After the last super-cycle, there was a lot of spare capacity in engineering, and companies had to adjust their teams. If you do not have a good balance between different sectors, you are at the mercy of the mining cycle.”
Paul Murphy, manager for South America at Mining Plus, an Australian consultancy firm, has also seen a boost in market dynamics over the last couple of years: “Studies such as scoping, pre-feasibility and feasibility studies came back strongly after the downturn. Over the past few years, the revenue breakdown was approximately 70% operational work and 30% studies. Now, the overall workload has doubled and the percentage of studies versus optimizations has reversed.”
The year started strongly for SNC-Lavalin as well. Its general manager in Peru, Alexandra Almenara, related: “Toward the end of last year we saw an explosion of requests from different clients and we were awarded some important projects, especially in engineering and construction supervision.”
Through M&A activity, several players have strengthened their presence in the country. The former MWH, for instance, has now become Stantec through the combination of both firms. Meanwhile, WSP has made a series of acquisitions in the last three years, namely Schlumberger Water Services, POCH, ConCol and most recently Louis Berger. Furthermore, in 2017, Amec Foster Wheeler was acquired by Wood Group in a US$2.7 billion transaction.
The new Wood combines Wood Group’s experience in oil and gas with Amec’s track record in mining and metals, environment and mine infrastructure. According to Franco Pedraz, Peru operations manager for Mining and Minerals at Wood, the company covers a comprehensive range of services from front-end geology to mine closure, including the latest tools to automatize operations: “Our automation and control business provides artificial intelligence services for the integration of complex systems with process and facilities automation through remote controls, virtual systems and robotics.”
The decline of commodity prices in previous years led mining operators to optimize ongoing projects and increase production through the implementation of new technologies, affirmed Pedraz. In this context, the latest projects for Wood’s Lima office in mining and minerals have been with Minsur’s San Rafael tin mine: first, the ore sorting project, with the application of an innovative technology in the country’s mining sector; and secondly, the B2 project. Pedraz elaborated on the latter: “The B2 project, which includes tailings reclamation, re-processing and obtaining tin recovery, has been developed 100% in our Lima office – from concept to execution. We have already reached 2 million man-hours without lost time incidents.”
Wood now has 60,000 employees worldwide, including 4,000 in the Mining & Minerals division, and WSP also has ambitious plans to grow from its current level of 48,000 employees to 65,000 people by 2021. Gonzalo Covarrubias, recently appointed Peru general manager at WSP, summarized the main areas of expertise absorbed by the company through M&A: “Schlumberger Water Services was a highly-reputable firm in water management; POCH had engineering experience in Chile and Peru; and Concol was a Latin American leader in power transmission projects. To all this we have now added Louis Berger’s great capacity in infrastructure projects.”
Covarrubias added that the strategy is to position WSP as a long-term strategic consultant to work with the clients throughout the whole project cycle. “We are not active or inactive depending on the projects; we want to help clients meet the challenges of the future, and that requires a multi-disciplinary approach,” he said. As an example, the company is already using its power transmission experience to design the transmission line for Quellaveco. “Mining clients are large consumers of energy, and we can do all the technical, environmental and economic analysis so they can select the best option, which could be to connect to the grid or to develop self-generation or hybrid solutions,” he explained.
Finally Alberto Coya, general manager of Stantec in Peru, also outlined the synergies created by the Stantec-MWH merger: “MWH had a wider geographical footprint, whereas Stantec had a deeper service portfolio. Under the new structure, in Peru we have incorporated new services such as underground mining, and we have consolidated the water treatment offering that MWH had in other countries but not in Peru.”
While the construction of new mines like Quellaveco and Mina Justa is controlled by the EPCM players (Fluor and Ausenco, respectively), ongoing operations continue to be a great source of work for engineering companies.
Denys Parra, general manager of Anddes, a local engineering firm with 300 people in Peru, explained: “Once the mine starts production, the opportunities are endless. For instance, we have 30 people in Cerro Verde giving support in electro-mechanical projects, and we are participating in many projects in areas such as piping, power and instrumentation, sometimes through master engineering contracts.”
Indeed, confronted by the various challenges of building greenfield projects, many operators have remained focused on extracting the maximum value from their existing sites. Buenaventura’s debottlenecking program is an example of this, but not the only one. Hatch, for instance, is advising Nexa on a debottlenecking program at the Cajamarquilla zinc refinery. Following this trend, a number of companies in the segment are finding their own niches and acting as external advisors; for example, Hatch actually has a transversal Advisory practice covering mining, energy and infrastructure.
The opportunity to add value to the vast range of installed mining facilities in Peru has also attracted new players to this segment. Keypro of Chile, for instance, is opening an office in Lima. Jorge González Cohn, the firm’s general manager in Peru, gave more details: “We are known for our debottlenecking solutions for concentrators. We have a specialized unit in metallurgical optimization, and we already see a space in the market because many plants will require modernizations, expansions and low-cost optimizations.”
This, said González Cohn, would be a good entry door for the firm to then explore other areas where Keypro already has experience in Chile, such as fluid transportation, tailings management and disposal, and energy infrastructure. The firm would also like to capitalize on its Chilean experience in master engineering contracts: “We currently have five such contracts in Chile and, in the last five years, we have invoiced more than US$35 million following this model. This is a tool that is increasingly being used in Peru, so companies can avoid burdensome bidding processes,” he added.
Peru has a wide portfolio of underground mines, but so far all of them are medium or small-scale. Peru’s largest underground operation is Cerro Lindo, with a throughput rate of 20,000 mt/d. In Chile, for instance, Codelco’s El Teniente operation has a concentrating capacity of 135,000 mt/d. Yet, the situation is changing: Glencore is advancing the next phase of Antapaccay with the Coroccohuayco project, which has an underground component, while Yanacocha, Peru’s largest gold mine, is also entering an underground phase. Antamina’s deep pit could also become inefficient in the years to come.
Paul Murphy of Mining Plus affirmed that these large underground operations will become commonplace in Peru in the future: “We are seeing a lot more activity in the mass mining space for underground mining. Pits that are approaching the end of their life have very hungry processing plants that need to be fed. In this context, underground mining methods such as long-hole open stoping with large stopes and multiple mining areas, sublevel caving or block caving will be attractive for operators.”
Mining Plus is the consultancy arm of Byrnecut, a large Australian underground contractor that is already taking position in the Peruvian market. Murphy emphasized that large open pit operators need to plan the transition to underground before it is too late to optimize efficiency: “The pit that delivers the most value to the operation in an open cut/underground scenario may in fact be smaller than the ‘optimal’ open pit considering just the open cut scenario. As such, this study has to be done well in advance.”
Another consultancy firm looking at growth in Peru’s underground segment by leveraging its experience in North America is Stantec. Alberto Coya gave more details: “In Peru, underground mines are dominated by local companies and initially it was difficult for us to transfer our expertise from Canada and the United States. Today, we already have bilingual experts. Moreover, we are working with Yanacocha in one pre-feasibility and two feasibility studies for underground mining.”
Beyond engineering, consultancy firms also support clients throughout the whole process of environmental permitting and management. While the lack of greenfield projects in previous years translated into fewer new environmental impact assessments (EIAs), the situation is changing now. However, the lengthy approval process for these studies required by the authorities has remained stagnant.
SNC-Lavalin, for instance, was recently awarded three different EIAs, which the company is running in parallel. Alexandra Almenara said: “This is unusual but it is very positive, because we will be able to share the best practices in these studies to obtain approvals in the shortest time possible.”
Denys Parra of Anddes lamented that approving a mere modification of an existing EIA can take as long as processing a new one (this timeframe is currently two and half years). “Today, SENACE [a government body under the Ministry of Environment] is in charge of all the tools for environmental management. We would like to see an optimization of timeframes to be more competitive as a country,” he said.
In this respect, striking the right balance between the level of detail EIAs require and an optimized calendar that will not delay investment projects is necessary. Gonzalo Morante, general manager of Walsh, a consultancy firm specialized in the environmental and social segments, said: “Projects have a timeline that needs to be met for economic reasons. At Walsh we aim at producing EIAs that provide greater legal security to clients, while also meeting compliance with the policies of the World Bank, regional development banks or private banks. The EIA needs to satisfy all parties involved, including of course the communities.”
Almenara of SNC-Lavalin agreed, stating: “If your environmental management plan is not good, you will have problems during the operation.”
Here, another problem arises: since it started handling EIAs three years ago, SENACE has given its seal of approval to hundreds of consultancy firms, while the market only offers a handful of EIAs each year. “Many firms are not serious and that does not help the client because an EIA should be the tool that allows the client to plan and manage the whole operation from an environmental perspective,” lamented Almenara.
The terrible accident at the Brumadinho tailings dam in Brazil is another wake-up call for an industry that, so far, has only taken very modest steps to change the way tailings dams are designed and operated. Solutions for dry stacking are available nowadays, but the cost is still seen as too high for operations handling very large volumes in the context of uncertain commodity prices.
“Brumadinho was built using an upstream construction methodology, meaning that after the starter dam is built and the impoundment fills with tailings, subsequent raises are built upstream of the starter dam, on top of tailings,” explained Dan Etheredge, regional manager South America at Klohn Crippen Berger, a firm widely recognized for its tailings dams expertise. “Downstream construction presents less risk, but it is more costly as it requires significantly more rockfill,” he added.
Dams are often looked at as an operational aspect, but looking at the earlier-stage studies, selecting the location of the facility is the first headache that needs to be addressed. According to Heiner Bueno, chief of operations at Arcadis, a Dutch multinational firm: “The main issue is the dam location, and it requires a holistic analysis that considers the economic, technical and social aspects to realize a solution that is sustainable over time.”
Etheredge of Klohn Crippen Berger elaborated on this: “A typical tailing site selection study will investigate several alternative locations, rank them, conduct a fatal flaw analysis to eliminate some alternatives and then determine not only the best location option, but also the preferred tailings technology to be employed.”
The issue of when mining companies will move toward filtered or dry stack tailings resurfaced in the aftermath of the tailings disaster. Alberto Coya, of Stantec, described how the technology is evolving: “The industry is increasingly evaluating dry stacking as an alternative to the traditional wet tailings storage facility (TSF). More often than not, the conventional TSF appears as the most efficient solution. Each method has its own advantages and disadvantages, depending on the location and the rainfall levels in the area.”
Denys Parra of Anddes agreed that the industry has made only tentative moves toward dry stacking and that in Peru, handling filtered tailings becomes difficult during the rainy season. Anddes is focusing on consolidating its tailing practice, considering the whole life cycle of the facility – from the design of the TSF and the engineering of the different elements, such as the thickeners, to construction supervision, monitoring and closure. The company has organized a number of tailings safety workshops with the idea of sharing best practices: “Today, more projects have an engineer of record (EOR), as well as an independent geotechnical review board (IGTRB). This means giving the responsibility of assuring the dam’s behavior to a particular company or individual,” noted Parra.
The problem is that these high-level experts are scarce worldwide, and proper tailings safety reviews are a lengthy process. Antonio Samaniego, director of SRK Consulting, affirmed: “Tailings management is a complex issue because the industry does not have a critical mass of professionals to monitor the existing facilities.”
Beyond initiatives coming from within the industry, the mining sector should also expect changes in regulation in the coming years. Etheredge of Klohn Crippen Berger highlighted the risks of upstream dams such as the one that collapsed in Brumadinho: “In Chile, which is a highly seismic country, upstream construction is not permitted. In Peru, seismicity is also a concern, although upstream facilities are not illegal. A few of them have been constructed, yet they are not as common as in Brazil. I personally believe that upstream dams should be decommissioned in the next few years.”
And one should not forget the cost of mine closure: if Peru has seen hardly any proper mine closure (meaning the mining company returns the concession to the state), this is because the authorities do not give the final closure certification due to problems related to acid water, related Samaniego of SRK. Samaniego added that, after you stop mining, the next 30 years can be spent carrying out maintenance activities related to tailings.
Pierre Montauban del Solar, general manager of Hatch, commented: “Mine closure when you have conventional tailings is highly problematic. While wet tailings means lower costs of operation than dry stack tailings, the mine closure is much more costly, and also the exposure to risk is higher.”
The Water Cycle
Tailings are a key aspect of water management, but by no means the only one. Amphos 21, for instance, a specialized firm that originated in Spain and focuses on overseeing the whole water cycle, sees 90% of its business in Peru coming from mining. The company saw 30% growth in Peru in 2018, and its current local team of 80 people covers areas such as hydrology, hydro-geology and geochemistry, among others.
Eduardo Ruiz, general manager of Amphos 21, affirmed the demand in this business will continue to grow: “These services are necessary and they also add value to mining clients. The market will continue to evolve in terms of water and effluent quality, especially in water management and the optimization of water treatment, which is very costly and ends up impacting the mining companies’ cash-flow.”
Returning to the Brumadinho issue, Ruiz affirmed that filtered tailings would rely on weather conditions. “In areas where filtered tailings are not possible, you can control the destabilizing elements, one of the main ones being the associated water. In this respect, we have worked to better control the phreatic level within tailings dams.” In this context, said Ruiz, the company has been incorporating instrumentation and control tools to its projects to be able to take better decisions.
Beyond managing the risks of wet tailings facilities, the mining industry is also trying to reduce its water usage to avoid confrontations with the local communities. Tetra Tech, an engineering and consultancy firm from California, wants to grow its share of water-related projects in Peru. The company has hired as an advisor Fernando Cillóniz, the former governor of the Ica region. Cillóniz developed a number of water reservoir projects in that region and advocated for more such initiatives in the country: “Peru collects a lot of water in the rainy season, but from May until November, both the coastal and mountain regions are left without water. The message is clear: it is necessary to retain as much rainwater as possible by means of water consolidation with reservoirs,” he said.
Tetra Tech’s main offices in the region are in Brazil and Chile, from where it also covers other mining areas such as exploration and mining infrastructure. In water, the company’s expertise includes wastewater treatment, subsurface aquifer management and desalination.
For Cillóniz, mining can be instrumental to solve the seasonality issue of water in Peru, yet he feels mining is being targeted as a problem under the proposed headwater basin legislation: “There is the ridiculous notion that water is generated in the headwaters of the basin when in reality, the basin captures the water wherever it rains, not only in the upper part. Now the legislation wants to prevent mining activity in the upper part of the basin, where the mining deposits are usually located. This is an absurd and very dangerous misconception,” he added.•