Countries outside the highly industrialized nations of the world have typically been stereotyped as less-competitive enterprises. In South America there has been a traditional dichotomy of world-class and mom-and-pop-type mines. This is changing, and rapidly, in one South American nation. From Calama and the Atacama Desert in the north, to the south and coastal city of Concepcion, to the top of the Andes, Chile's commercial enterprises are following in the footsteps of its well-known mining industry's leadership in South America. The entrepreneurial and competitive spirit is infusing lesser-known mining sectors of Chile. The managers of these organizations realize that they must be truly world-class to thrive, otherwise multinational giants will displace them.
A 9,000-year-old product with only two sources? Perhaps the most colorfully visible component of Chile's increasingly competitive industries is LapisChile SA. It produces lapis lazuli (Latin for blue stone), a semiprecious mineral treasured since before the time of the Egyptian pharaohs as a medicine and by those seeking luck, health, and wealth. The first known product, of pre-Columbian Age, from the deposit is a 312-lb block found 600 mi to the north, in an Inca grave in Peru. LapisChile controls one of the two principal lapis lazuli deposits in the world, the other being in Afghanistan. The company claims that its quality is higher than that of Afghanistan and believes the quantity to be sufficient for decades. Its turnover in 1996 amounted to $50M, and it projected 1997 sales of $400M when E&MJ visited the company. One expert in the field, Fred Ward, says that "The [lapis lazuli] market is about to experience the first major market change in 6,500 years."
Development. For over 60 years, and until recently, the LapisChile operation was scratching out and transporting mineral with manual and burro methods similar to those used in present-day Afghanistan, i.e., 20-30 lb pieces maximum. The deposit's locale, at an elevation of 4,000 m, is as inhospitable as can be imagined, currently allowing only summer exploitation of the deposit. (Year-round operation is planned in the next five years.) To modernize it, the operators employed Canadian hardrock as well as Spanish and Italian processing technologies.
The Aros family had acquired the deposit in the early 1970s, and working methods progressed from hand to pneumatic tool to drilling and, in 1997, to diamond-wire cutting machines that produce blocks. As much as the on-site methodology, transport is also a key. Moving beyond animals, helicopters were used initially, but proved to be very dangerous at that altitude. The company developed a road to the deposit that allows truck transport of the unfinished stone.
Market. Until now, lapis lazuli had been an item of personal adornment, jewelry, because blocks and sheets of lapis lazuli had never been available for architectural use like marble. Today, since the reserves - not well drilled to this point - are extensive, a quarry is planned that will furnish 1-2-m blocks. Moreover, there is a market for blue stone that only Azul Imperial, the rare Brazilian marble, can fulfill. Its price is likely to rise since the producer is moving to underground extraction. Europe is the prime market for LapisChile, with [TABULAR DATA OMITTED] Germany seen as the premier consumer, and the United States and Asia being secondary outlets. Sheet and tile are being sold in addition to the traditional jewelry applications. It is estimated that a square meter of lapis lazuli goes for more than $1,000.
The processing plant is situated in Chile due to the need to be close to the extraction process - to determine the highest and best use for each block as it is extracted from the deposit. For 1998 some 100 [m.sup.3] of production, net of a 30% processing (cutting fines etc.) "loss," is expected. And even the loss will be turned into a salable product: Lazurita, for cosmetics and paint pigmentation, etc. One of the most ostentatious uses of the mineral occurred when someone had a Porsche sports car painted with lapis lazuli pigment. Of the application, Jorge Muxi, LapisChile's managing director, said, "Don't ask the price."
Geology. The deposit is near Ovalle, some 350 km north of Santiago and only 30 km east of the historic Inca trail. The lapis lazuli deposit has a 3 km strike with a true width of 2-10 m at outcrop, extending to an unknown, but substantial, depth. Initial drilling was limited to 20-30 m depths where widths of up to 15 m were found. Lapis lazuli's consist, according to the Gemological Institute of America, is lazurite, pyrite, and calcite (lazurite itself is a natural sodium aluminum sulphosilicate).
Visitors to Expomin '98 held in May in Santiago will undoubtedly see many lapis lazuli objects from the mundane to the exquisite in the capital's stores and speciality outlets. Many will be tempted to buy gifts or souvenirs, and they will not be disappointed.
Copper, the Color of Money
Despite the recent swoon in metals prices, copper's importance to the nation is undiminished. Over the last decade it has provided more than $1.1B in net profits to Chile. Some 30% of three ministries' budgets flow from copper. [TABULAR DATA OMITTED] [TABULAR DATA OMITTED] Similarly, 10% of Codelco's, the state-owned copper producer, revenue (15% of world production) is earmarked to national defense for 1998; the minimum is $240M to the armed forces. Since 1990 Codelco has contributed over 11% to the national treasury, exceeding all other corporate taxes paid by others combined. Over the past decade it has contributed about $20B in constant dollars. With that perspective it is not surprising that, since 1994, there has been a focus on shifting Codelco to a market orientation. Twin goals are reducing costs and modernizing. To some degree the effort is inevitable because most of the mines have been around for a long time; over 80 years in some cases. The company made a commitment in 1994 to reduce costs by 10[cents]/lb copper (constant dollar basis) by the turn of the century.
Toward that end, the company has been hammering out strategic alliances between workers and management. The prime example cited was that there was problem-free collective bargaining in 1997 with only one strike in May 1996 (under 10 days at Chuquicamata). In the process its work force shrank from 22K in 1994 to a current level of about 17K without strikes or unrest.
Its newest mine, Radomiro Tomic (near Calama and the Chuquicamata mine), is a prime example of the new approach. It will have under 400 employees with one union. (Its dedication occurred in March 1998, see the March issue of E&MJ for a separate article on the operation.) Codelco did consider developing the mine as an adjunct of Chuquicamata but opted instead to take a new path. A few notes on this follows:
* In the process arena, hydrometallurgical methods are growing in importance. While sulphuric acid supply vs. demand has been in imbalance, i.e., shortage, it is expected to be matched by 2000/2001.
* The major environmental law of three years ago restructured regulations. [TABULAR DATA OMITTED] Compliance is mandated for the mining, hydrolectric power, and timber industries.
* Laws protecting foreign investment are key to attracting foreign capital and development. Indeed, in a Rio Algom country-risk analysis of a few years ago, Chile was rated No. 1, with no number two - only three and lower.
* In a "down market," the government has a $1B fund to support the price for Codelco.
* High-level talks with Chinese government officials may lead to Chinese involvement in copper production in a couple of years. China is particularly looking for copper concentrates for its plants.
In the medium term, a dramatic shift is expected to occur. Codelco has historically produced some 90% of Chile's copper. That will diminish to about 40% by 2000, with the bulk of copper output coming from private-sector operations. Part of the plan is that, by a law passed three years ago, Codelco will sell or joint-venture any deposit with less than 70K mt/yr copper potential.
Of course, recent financial turmoil in the Far East has had its impact on Chile and other producers. Historically 52% of Codelco's output has been sold into the Far East.
Invisible Minerals? So overshadowed are they by copper that Chile's other production tends to be forgotten: 8M mt/yr iron; 60K mt/yr manganese; 30K mt/yr zinc; 17K mt/yr molybdenum; 1.2M mt/yr natural nitrates (reportedly the world's only producer); 11K mt/yr iodine, with Chile aiming to be the world's foremost source; and 32K mt/yr [Li.sub.2]C[O.sub.3], also aiming to be at the world's top spot.
Brains Not Brawn
The challenges of getting the assorted mineral products out of the ground and into a salable form are unchanged. Moreover, while there has been a major diminution of the large, in-house full-service engineering departments in mining companies, that void has been filled. Indeed, many major operations only have an engineering supervisor cum coordinator, contracting out even feasibility studies. In recent times, large international firms were Johnny-on-the-spot virtually everywhere in the world. Today Canadians are among the most aggressive, with over 100 firms exhibiting at Expomin in May 1998.
E&MJ met with the officers of the Asociacion de Ingenieros Consultores de Chile AG (AIC). It has 72 company members, comprising over 4,000 engineers and technicians. Of its several committees perhaps the most important is the mining committee. Not surprisingly, mining, with 8% of the GDP in 1994, has been the driver for much of Chile's business activity in recent years. And of the 14M engineering man-hours expended annually in Chile, AIC members garner about 10M man-hours (70.6%) of that business. A further 1.8M man-hours (12.9%) go to non-AIC Chilean firms and the balance of 2.2M man-hours (16.5%) flow to foreign companies. AIC estimates that 1,000-3,000 man-hours of engineering are required for each $1M invested in development. It further projects a cost of $18/engineering man-hour - about 25-33% of a foreign engineer's cost. So it says that design engineering done locally costs from 3-3.5% of the overall investment. Its figures indicate that total investment (all sectors), as a percentage of GDP, has grown from 17.5% in 1985 to 25.1% in 1992, reaching 27.4% in 1993. During 1994 foreign investment rose from $378.4M to almost $6B. For 1997 AIC estimated a growth rate for engineering services of over 10%/yr, with many Chilean firms running at over 100% of capacity.
Before 1970 most engineering was done in the United States (Anaconda and Kennecott) and through Chilean offices of Parsons, Bechtel, Fluor, and McKee. That too is changing, though with no fanfare; the years 1975-1980 were the watershed period. While basic feasibility work continued to be done in North America, McKee and Fluor recognized the talent of Chilean engineers. The offices subsequently grew without major support from their home offices as had been the case before. Indeed, Fluor's Chilean office has 600 engineers with fewer than 5% being expatriates.
In the 1980s local engineering companies began to spring up, and Codelco employed them. By the 1990s the same local firms were competing with offshore companies. Even today North American-based firms, given their traditional ties to financiers, tend to do the early work. The main EPC companies remain Fluor, Bechtel, and Davy. This situation is largely due to the lack of protectionism in Chile, in contrast to some other Latin American nations' policies. What is the attraction of local offices? Fluor reportedly likes the "international pricing and local wage scales." And the international firms offer guarantees that are difficult for local companies to match. Of course some foreign firms also have strengths in specialized processes, e.g., metallurgy. An example of a successful joint venture was that of Bechtel and ARA on Codelco's Radomiro Tomic SX/EW. However the local firms have some specialized expertise of their own, e.g., seismic aspects of tailings disposal design, Exxon's Disputada slurry-pipeline (dropping from 3,400 to 700 m elevation), and Exxon's use of 98% Chilean engineering talent on feasibility work. Codelco is trimming its engineering staff and concurrently selling technology abroad, e.g., converters to Mexico and Thailand.
Chilean firms are not content with their own borders. They have been exporting engineering services of late. One example is the engineering-design-construction work on the concentrator expansion at La Caridad in Mexico.
The Brawn to Hold Things Up
Engineering is the first step in building a new mine. In the second, actual construction takes the brawn, steel to be exact. The next company E&MJ visited, Edyce, is an example of the local expertise cited by AIC. Design to cope with seismic events is a specialty. In 1960, Chile, with its deep-seated earthquake epicenters, suffered the most massive earthquake known to modern man, registering 9.8 on the Richter scale. This 40-year-old, privately held company marries its seismic knowledge to its South American projects as appropriate, e.g., heavy seismicity in Chile and very little in Argentina. And, as the AIC indicated on the engineering side, this company is operating at over 75% capacity on a three-shift, seven-day basis.
Steel fabrication, a seemingly mundane enterprise, has become as high tech as any other aspect of construction. Last November privately held Edyce in Concepcion won the Fondesa Award for Chilean technical excellence. It is a $50M/yr firm that fabricates on the order of 25M kg/yr steel, based on an average cost of $2/kg steel. Edyce's principal market is mining. Management indicated that its next largest competitor inside Chile is one-third Edyce's size. Edyce has a new plant in Lima, Peru, as well.
The company adopted a high-tech approach out of necessity; its "wake-up call" occurred when it came in second in bidding for an Argentinean project. It also realized that if there was a Nafta/Mercosur trade accord, it would likely be uncompetitive in the marketplace.
Remarkably, its painless transmutation to the high-tech world occurred in a single year - 1996. In that year, the company claims that it was the world's single-largest purchaser of CNC machine-tools. Edyce spent $10M that year and has $1-2M yet to spend in the process. Much of the metal forming equipment is German-made, and the company sent staff to Germany to learn the ropes. In the process it tripled its output from 1,000 mt/mo steel to 3,000 mt/mo. Correlatively, its employment rose less than 50%, from 500 to 700 people, with an obvious net boost to productivity.
Education is a key element of the company's effort. Besides increasing the computer literacy of its work force - from the engineering office to the plant floor - other basics are attended to. There are seven classes in English alone as all plant staff are studying the language; managers spend two hours a day learning English.
Its sources? Steel comes from worldwide sources, e.g. Brazil, the Ukraine, etc. But it does not buy on price alone, the company visits the vendors' plants to assure quality. To allow for the four- to five-month shipping lead times, it maintains an $8M inventory in its own warehouse.
Edyce also focuses on client satisfaction. After the ink is on the contract it considers the customer a partner, so it places an engineer in its customer's ECPM office to assure that there is no delay in the design or change-order process. Edyce's success is allowing itself to expand into Argentina, where it currently has a commercial office, and then into Bolivia (it built facilities for Kori Kollo operations).
The company's 260 computers generate an average of 1,500 drawings monthly. AutoCad and 3-D software are employed; for communications, both Internet and other networks are accessed. The X-Steel design program enables rapid and accurate generation of all steel fabrication drawings, including fasteners and interference correlation. Virtually all parts are one of a kind, so quality control is extensive, employing ultrasonic, X-ray, and magnaflux methodologies. Before the material is loaded on the trucks for shipment, a new paint shop applies multiple layers of protective coatings to the pieces. Its modernization has dropped the drying time between coats from 24 hours to two hours.
The volume? The Collahuasi project alone generated about 50K components to handle the logistics. Edyce employs a Windows-based tracking program - the second generation beyond a program in Basic. Each component has a bar-coded label for this purpose, which also eases assembly.
A Non-Construction Hammer
Once the mine is built and its ancillary facilities are fabricated, the time comes for production. One privately held 30-year-old Chilean company, Drillco Tool, is known by the catchphrase "hammers from the Andes," as it has enjoyed considerable success in the field of drilling. Unlike other firms sketched in this article, excepting Codelco, its technical and service excellence has allowed it to branch overseas. And, rather than a hardware provider, the company sees itself as a solutions marketer with particular expertise in the field of drilling, especially when employing high-precision, ultra-reliable down-the-hole hammers. Another strength is in the seemingly unrelated fields of heap leaching and ground stability/reinforcement.
Drillco Tool's management has seen that, over the past 10 years, the business environment has changed. The company decided that being successful and surviving expansion were necessary. This was occasioned by a "second wave of foreigners" in the goods and services sectors. Initial efforts were in the western United States, in the states of Colorado and Nevada, where Chilean mining expertise was known. One observation was, "People in the United States give you an honest chance [for business] - there is no discrimination against Chileans. That is not the case everywhere. America is pragmatic and open, unlike [some countries in South America]. When you listen, you learn." Not surprisingly, in exporting, about 65% of its product goes to the United States. It also has a presence in Italy, Peru, Uruguay, and Venezeula.
The company is very technically oriented, conducting its own maintenance training programs. And it has a research arrangement with Catholic University. Its practice is to field-test a unit with only its engineers involved. It then follows a product "clinically" after sales have commenced so it gets firsthand, unfiltered field reports of performance.
Its prior product line was oriented to percussion bits for small diameter drilling. Drillco said that in testing done then by Sandvik the latter claimed Drillco products were second only to its own. Drillco claimed 70% of the Chilean market in 1989 when it sold that side of the business to Secoroc (then Atlas Copco). Interestingly, part of its heritage for designing robust equipment was developed then - as Chileans typically put a lot of effort into the repair of equipment, e.g., resharpening button-type bits, etc.
Bottom of the heap. Drillco has also entered another field: heap leaching. It has developed electronic instrumentation (patent pending) to monitor moisture. The apparatus is unique; it is low cost and disposable, i.e., there is a new setup for each lift. Moreover the signals are multiplexed to minimize the complexities of signal transmission.
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|Title Annotation:||Chile's mining sectors|
|Publication:||E&MJ - Engineering & Mining Journal|
|Article Type:||Cover Story|
|Date:||Apr 1, 1998|
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