Providers eagerly await the transition from the studies and the early works to the execution of multi-billion dollar projects.
IMAGE: Courtesy of EXSA
During the downcycle, engineering and construction firms had to downsize and alter their approach that had brought much reward during the boom years. In order to survive, firms created synergies between different offices across the Americas, focused more on operations, diversified into new sub-sectors and modified their cost approach to be competitive in the marketplace. As investment returns, engineering companies need to expand again, but the question that remains is by how much.
MINERS IN A RUSH TO ACT?
Paul Murphy, manager for South America at Mining Plus, an Australian consultancy, has seen the Peruvian market stabilise this year: “From 2013 through 2016, we observed many companies cutting back on greenfield and brownfield investment, rather electing to simply optimize their current operations. Throughout 2017, there was a distinct change with bigger greenfield and brownfield study scopes (Exploration, PEA, PFS and FS) returning to the market.”
As a result of these developments Mining Plus, which has built its office in Peru around a strong base of QPs in exploration, will undertake an aggressive expansion in 2018 with the aim of doubling their team. When discussing whether he believed companies would rush to drill this year, Murphy said: “The mining cycle is driven by fear and greed. Companies have been fearful and conservative for the past three or four years, and now the sentiment is changing very quickly to one where they are fearful, but in a completely different way. Fearful that if they do not act immediately, they will miss out on this coming cycle of higher commodity prices.”
Alfredo Remy, regional director for Advisory and Business Improvement at Hatch, believes that the cycle of commodity prices is moving in the right direction: “We have good expectations that it will help the industry become more dynamic.”
During the downcycle, certain consultancy firms transitioned from being a provider of EPCM or capex projects to become specialists in opex, due to the lack of new mining projects being developed worldwide. With tight budgets, mining players needed to debottleneck their operations and incorporate efficiency improvements to sustain their business models. Pierre Montauban, country manager at Hatch, believes that his company discovered a niche in operations, specifically operational readiness, and wants to continue expanding in this sector before competition increases. “For the expansion of Antamina, the ramp up only took three months, much faster than the average time. Las Bambas was more complicated but still only took five months, which is world-class for an operation of that size,” he related.
Having found their specialty in operations, and with 95% of the Peruvian business in mining, Hatch Peru has become well known across the wider organization for its work in operational readiness, specifically in the early phase between the conceptual, pre-feasibility and feasibility stages. While the new cycle may present good opportunities for project engineering, Montauban commented that Hatch will continue to develop its operational expertise moving forward.
PUBLIC WORKS ON HOLD
The Lava Jato corruption scandal has caused many public projects to be delayed in Peru, therefore the enhancement of mining activities has been welcomed by engineering firms that work both in the private and public sector. Stantec has finalized the merger with MWH and this has brought synergies between MWH’s water management expertise and Stantec’s underground mining capability. During 2017, Stantec was hopeful for certain government contracts, but projects like Agua para todos (Water for Everyone) did not proceed on the grounds of political instability.
During the downcycle, the former MWH put a strong emphasis on diversification. Looking forward, Alberto Coya, country manager at Stantec, is still interested in water, power and public sector projects in Peru. However, mining currently represents 85% of the company’s project portfolio, with a vast majority of those assignments being in brownfield operations.
SYNERGY AND M&A
Synergy became a key concept in the downturn as companies and offices brought together their diverse range of expertise in a bid to not only survive, but grow. Companies merged, and regional offices began to collaborate more. Hatch not only pushed for synergy between its Chile and Peru offices, but also acquired Indisa in Colombia. With each office having a specialty, they are working in collaboration to maximize their growth potential as efficiently as possible.
A company that has entered the South American market aggressively is WSP, with three important acquisitions: Schlumberger Water Services, Poch (Chile) and ConCol (Colombia). When discussing synergy, Andrés Fernández, country manager for WSP, said: “Schlumberger’s consultancy expertise on one side, and Poch and ConCol’s engineering background on the other, greatly complement each other.”
THE IMPORTANCE OF WATER
Water has been a constant topic of conversation in Peru due to its scarcity in certain mining areas and the country’s climatic variations. Moreover, there are now greater demands from the different stakeholders to improve water management. Fernández of WSP has seen a changing attitude: “There is now an increased awareness of the importance of water, not only in mining operations but also for the surrounding communities and the regional governments. Peru now has a new detailed accounting system, called the Water Balance, which calculates how much water mines receive, how much they use, how they use it, and how much is recirculated and recycled.”
The issue of water scarcity is likely to become more prevalent throughout the 21st century. Water management firms are constantly aiming to innovate their service line, not only to be more cost efficient and productive, but also to be environmentally friendly. WSP, that mainly works in water management services in hydrology and hydrogeology, recently patented a technological process called directional drilling for pit dewatering. “This process has reduced the amount of drilling needed as well the number of pumping stations required. By maintaining a drier pit, you reduce the number of explosives needed, you increase efficiency and you reduce maintenance costs,” assured Fernández.
Alberto Coya of Stantec also commented on the mining companies' efforts to prevent disasters related to tailings dams: "There have been a number of cross-examination studies by companies in the industry, especially related to tailings facilities. Policies and standards have not changed that much since the Samarco disaster, however companies are much more vigilant in monitoring these standards and ensuring that there are no mistakes during engineering, construction, operation and closing."
A number of contractors diversified their portfolio of services during the crisis, whilst also focusing on increasing their number of opex projects to provide a steady cash flow. OHL, which arrived in the mining sector in 2012, has expanded its range of action. “In the past, the market probably saw OHL as a company focused on earthmoving, but we can do much more than that. For example, we are currently executing three tailings dams’ contracts, none of which are for earthmoving,” said Martín Fernández, mining manager Latin America at OHL.
Ricardo Vega, president of OHL, highlighted that mining generated 77% of OHL’s construction revenue in Peru. As an example of OHL's capabilities in value-added services, the company recently completed an EPC project for the crushing, agglomeration and transportation facility for Tahoe Resources' Shahuindo project, in Cajamarca. “This is a state-of the art plant and, thanks to OHL’s procurement capabilities, we can adapt the crushing systems, the conveyor belts and the grasshoppers to the needs of the client. It is a tailor-made solution,” said Vega.
In 2018, OHL will continue working at the Shahuindo, Antamina and Las Bambas projects, whilst also undertaking early works at Quellaveco. One of the company's goals for 2018 is to enter the underground mining segment as well. "We have very strong expertise in tunnelling for civil works, but we have never applied that expertise to an underground mining operation," said Fernández.
The issue for large contractors looking to enter the underground space is that most mines in Peru so far are in the small to medium size range. The country's largest underground operation is Cerro Lindo, with a daily processing capacity of 20,000 mt/d. The expected large underground projects will probably come from ageing open pits, like Yanacocha, for instance.
Even so, contractors are already taking position because potential contracts in this space will be very significant due to the volumes involved. Byrnecut, for instance, has already set a foot in the country through its partnership with San Martín. The Australian company's business plan is to target underground mines that will require production faces of five meters by five meters.
Greg Jackson, managing director of Byrnecut Offshore, emphasized that the use of the latest technology is key when you are dealing with such large equipment underground: "Byrnecut invests heavily in innovation and developing practical solutions. Examples include real-time 3D scanning technology to measure shotcrete thickness and minimize wastage, mechanical fan hanging devices to improve safety, modern ejector trucks and R&D in alternative underground truck technology."
Peru has a rich history in underground mining, which has brought necessary technological innovations to an ever-changing underground mining landscape. Robocon, one of the key contractors offering rock support through shotcrete application, is currently focused on narrower tunnel development, as per its clients' demands. “Typically, our clients have faces of four by four meters, but now they want to advance in tunnels of three by three meters [...] Through Tecnomecánica, our technological arm, we are developing new machines in collaboration with other manufacturers in Peru and abroad that already have some technologies for narrow-vein operations,” said Enrique Sattler, managing director at Robocon.
Robocon has been working for Volcan (now Glencore) since 2005 and for Pan American Silver’s Huarón and Morococha mines since 2012. When discussing Robocon’s most recent activity, Sattler commented: “We started operations in Tambomayo and Uchucchacua for Buenaventura, and we began working in Yanacocha in 2017, in collaboration with AESA. Our most recent client is Sociedad Minera Austria Duvaz, where we are transitioning from a dry shotcrete operation to a mechanized, wet shotcrete operation in narrow tunnels.”
Sattler stated that further milestones for this year will include Robocon's development of its own scalers and the widening of its service portfolio to provide a more comprehensive ground support solution to clients.
Finally, Tumi Raise Boring has increased its involvement in production drilling thanks to the development of the SBM 400 SR machine. While raise boring has traditionally been used for ventilation needs, Marc Blattner explained the usage of the SR machine: "What we do is a burn hole: a hole in the center of the blast zone, which provides a cavity for the blast area to collapse into. The SR model is not only an upgrade of our traditional raise boring machine, but it is actually a new method of production which did not exist before."
In 2017, Tumi grew from 11 to 15 crews, three of which are dedicated to production activities, and is also expanding into Chile, where the company expects to grab boxhole contracts with Codelco at El Teniente. As a company that engineers and develops its own machines, increased mining activity worldwide may result in more revenues coming from the outright sale of equipment to miners. "We will see Tumi's growth coming not just from contracting, but also selling machines into the Peruvian market, which so far we have tried not to do. It seems that the mines are going back to the mentality of the 1970s and they want to buy their own equipment again. We are flexible enough to offer ourselves to run the equipment with a contract or provide all the maintenance, and also to train our clients' operators if required," said Blattner.