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Peru Final Report – July 2017

MINING EQUIPMENT,

TECHNOLOGY AND

SERVICES (METS) SECTOR

DEVELOPMENT PROJECT

(MTF 04 2016A)

METS Sector Development Project – Peru (MTF 04 2016A) July 2017 1

About this Report ............................................................................................................................................. 3 SECTION ONE: METS PROFILE Introduction .................................................................................................................................................. 5 Chapter 1 – Business Activities .................................................................................................................. 6 Business Activities .............................................................................................................................. 6 Specialization ...................................................................................................................................... 7 Commodity .......................................................................................................................................... 7 Mining Lifecycle .................................................................................................................................. 8 Chapter 2 – Revenue and Employee Numbers .......................................................................................... 9 Revenue .............................................................................................................................................. 9 Revenue from Minerals and Mining ............................................................................................... 9 Revenue from Mining by Business Activity ................................................................................. 10 Other Industries ................................................................................................................................ 11 Employee Numbers .......................................................................................................................... 11 Impacts of the Mining Downturn ....................................................................................................... 12 Chapter 3 – Age .......................................................................................................................................... 13 Years in Business ............................................................................................................................. 13 Chapter 4 – Gender Diversity .................................................................................................................... 14 Females Employed ........................................................................................................................... 14 Recruitment Strategies ................................................................................................................ 14 Major Barriers .............................................................................................................................. 15 Chapter 5 – International Activities .......................................................................................................... 16 Exporters ........................................................................................................................................... 16 Revenue Derived from Exports .................................................................................................... 16 Exporters by Business Activity ..................................................................................................... 17 Exporters by Employee Numbers ................................................................................................ 17 Impediments to Exporting ............................................................................................................ 18 SECTION TWO: THE SUPPLY CHAIN Chapter 6 – METS - Miners Interface ........................................................................................................ 20 Supply Chain - METS ....................................................................................................................... 20 Supply Chain - Miners....................................................................................................................... 21 Current Critical Challenges .......................................................................................................... 21 Basic Procurement Structure ....................................................................................................... 22 Supplier Selection ........................................................................................................................ 22 What Miners Want from their Suppliers ....................................................................................... 23 Future Needs ............................................................................................................................... 25 Chapter 7 – METS Capabilities and Competitive Advantage ................................................................. 26 Attributes ........................................................................................................................................... 26 Digital Capability .......................................................................................................................... 27 Marketing Tools ........................................................................................................................... 27 Competitive Advantage .................................................................................................................... 28 Maintaining Competitive Advantage ................................................................................................. 28 Chapter 8 – Innovation and Collaboration ............................................................................................... 30 Innovation ......................................................................................................................................... 30 R&D Spend .................................................................................................................................. 30 Main Drivers of Innovation ........................................................................................................... 30 New Products or Services ........................................................................................................... 31 Collaboration ..................................................................................................................................... 31 Maintaining Connections .................................................................................................................. 32 Industry Associations ................................................................................................................... 32 Staying Informed.......................................................................................................................... 32

CONTENTS


SECTION THREE: METS OUTLOOK Chapter 9 – Opportunities and Challenges .............................................................................................. 34 Current Opportunities........................................................................................................................ 34 Current Challenges ........................................................................................................................... 35 Training Priorities and Skills Development ....................................................................................... 35 Role of Government ......................................................................................................................... 36 Chapter 10 – Development Priorities ........................................................................................................ 38 Strengthen Business Fundamentals ................................................................................................. 38 Focus on Footprint Reduction ........................................................................................................... 39 Foster Innovation and Collaboration................................................................................................. 39 SECTION FOUR: APPENDICES Appendix 1 – Methodology ........................................................................................................................ 42


ABOUT THIS REPORT This is the final report for the Mining Equipment, Technology and Services (METS) Sector Development Project (APEC 04 2016A) for the economy of Peru. The report covers the findings of the primary research undertaken for this project, including a survey with 80 METS companies and interviews with 10 mining companies in Peru. The survey was conducted from February – April 2017 both on-line and via the telephone. The mining company interviews took place in February-April 2017. This project has been funded by the Asia Pacific Economic Cooperation (APEC) through the APEC Mining Task Force’s Mining Sub-fund. Austmine managed the project and worked closely with Australia’s Department of Industry, Innovation and Science which was the project overseer and coordinated a project steering committee made up of the economies of Peru, Chile, Papua New Guinea (PNG) and Canada. Argentina joined the project in January 2017, and became a member of the steering committee at that time. For more information on the primary research methodology, see Appendix 1.

ACKNOWLEDGEMENTS Austmine would like to thank the many METS companies who took part in the survey and the mining companies who participated in the interviews. Their contribution was vital to the completion and success of this project. Austmine would also like to thank APEC and the Mining Task Force for funding this project and the support provided to achieve the project’s objectives. Austmine would also like to acknowledge GlobalData for conducting the METS survey and the Fundacion CSIRO Chile Research for conducting the mining interviews.

ABOUT AUSTMINE Austmine is Australia’s leading association of the Australian Mining Equipment, Technology and Services Sector. It promotes the global advancement of technology and innovation in mining, and proactively works to raise the profile of the METS sector in Australia and abroad. Austmine’s vision is for Australia to be the METS global innovation hub. See www.austmine.com.au for more details

DISCLAIMER The information presented in this report is based on information received from the surveys and interviews conducted in February – April 2017. Comments and recommendations contained in this report represent the views of the authors and do not necessarily express the views of those surveyed or interviewed for the project.

http://www.austmine.com.au/


METS PROFILE Peruvian METS provide a range of products and services to the major mining houses throughout the country. The breadth of the METS sector reflects the importance of mining in Peru and represents the best elements of a modern economy.

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The purpose of this report is to help support the development of the Mining Equipment, Technology and Services (METS) sector in Peru. It provides the findings from a survey undertaken of 80 Peruvian METS companies, and incorporates the results of 10 mining company interviews. The report provides insights into what types of companies constitute the sector and how the supply chain works. It further explores key supplier attributes and how METS view their competitive advantages. It concludes with current opportunities and challenges, along with recommendations for key development priorities. Importantly, as well, it provides a miner’s perspective on its suppliers and identifies current and future METS sector and mining industry development needs. Peruvian METS provide a broad range of products and services to major mining houses throughout the country. This includes in such areas as construction, materials handling, processing plant and equipment, valves, water management, industrial fans, geotechnical drilling, technology development, security services and environmental management. The breadth of the METS sector reflects the importance of mining in Peru and represents the best elements of a modern economy. A typical Peruvian METS company is located in Lima, works throughout the country and may have an office in Arequipa. The company’s size is small, employing under 50 people. It works in the operational phase of the mining lifecycle, in both open-pit and underground, and specializes in copper and gold. Of the companies surveyed, 87% were Peruvian owned, with foreign invested firms having a parent in Chile, Australia, Spain, Canada, Germany, Switzerland, Sweden and the USA. A finding that stands out about the Peruvian mining industry is the focus on environmental management and Corporate Social Responsibility (CSR). This is more from a miner’s point-of-view, but is an important consideration when thinking about METS sector development. Miners in Peru also are focused on collaboration and creating better synergies with their suppliers. This bodes well for the continued growth of the Peruvian METS sector. Peruvian METS are very focused on quality and providing solutions to their customers’ needs. Indeed, these areas were rated by companies as their top attribute and how they define their competitive advantage. Both Peruvian METS and miners recognize that certain deficiencies exists and in many aspects are aligned with what the industry should focus on to develop further. It is recognized that only 80 METS companies participated in the survey, out of a pool of potentially many hundreds. It should be noted, therefore, that when the report refers to Peruvian METS, it is making reference to the aggregated findings from the surveyed respondents and does not assume to draw conclusions about the sector as a whole. However, based on the findings from the survey compared to similar work undertaken in other markets, the responses received are a valid data set that can be used to draw conclusions and provide recommendations into key development priorities.

INTRODUCTION

METS companies provide specialized support and solutions to global miners and have a specialist knowledge and core competency in the mining and minerals industry.

Definition of METS


BUSINESS ACTIVITY The METS sector is highly diverse, but companies can be grouped by the business activities they undertake which correspond to major inputs in the mining value chain. Ninety-eight (98%) percent of the companies surveyed identified with these classifications. The main business activities are:

Engineering, Procurement and Construction Management (EPCM) or Engineering, Procurement and Construction (EPC);

Contract mining;

Consulting or specialized mining services;

Information communications technology and services (ICTS);

Manufacturer of spare parts, consumables or chemicals;

Original equipment manufacturer (OEM) or equipment manufacturer;

Dealer / distributor or re-seller of equipment, spare parts or consumables;

Other professional services (such as legal, accounting, financial);

University, research institute, education or training provider;

Transport and logistics. Consulting and specialised mining services (i.e. environmental, safety, etc) are the most represented at 25% of respondents. They are closely followed by contract miners at 24%, whilst dealers and distributors (13%) and EPCMs (11%) also play a major role in Peru. Figure 1: Business Activities

25%

24%

13%

11%

8%

8%

6%

4%

1%

0%

0%

0% 10% 20% 30%

Consulting and specialised mining services i.e.finance, environmental, safety, etc

Contract Miner

Dealer/ distributor or re-seller of equipment, spareparts, consumables, chemicals

OEM or equipment manufacturer

EPCM/EPC/Engineering/Construction

Manufacturer of spare parts, consumables orchemicals

Information communications technology andservices

Transport and logistics

Other professional services (legal, accounting,financial, etc.)

University, research insitute education or trainingprovider

Other (Open text)

CHAPTER 1 BUSINESS ACTIVITIES

Question 17: Which of the following would you consider to be your company’s main business activity

within the mining industry? (80:80)


SPECIALIZATION To gain further insight about each company’s capabilities, the survey asked about areas of specialization. These areas were chosen based on current key mining operational needs and wider industry trends. A high percentage, or 36%, said they specialize in materials handling, 35% said they specialize in minerals processing, 33% specialize in productivity improvement, 32% in maintenance and 29% in innovation. Figure 2: Business Specialization

COMMODITY The companies surveyed work across a range of minerals and commodity types. It is not surprising, however, in Peru that copper, gold and industrial minerals make up the bulk of the responses, with 61% of METS working in copper, followed by 53% in gold and 51% in industrial minerals.

Figure 3: Minerals Base

Most Peruvian METS work in more than one commodity. Only 19% of companies work in only 1 minerals base, made up largely of those that supply into industrial minerals. Five (5%) percent of companies work in all commodity types, while 21% of companies work in 5 or more minerals.

61%

53% 51%

39%

31%28% 26%

13%8%

0%

10%

20%

30%

40%

50%

60%

70%

Copper Gold Industrialminerals

Iron ore Coal Otherpreciousmetals

Basemetals

Uraniumand other

energyminerals

Rare earths

36%

35%

33%

32%

29%

27%

23%

16%

12%

11%

8%

7%

5%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Materials handling

Mineral processing

Productivity improvement

Maintenance

Innovation

Safety

Energy management, including alternative energy

Environmental management

Automation

Water management or services

Workforce training

N/A

Community engagement

Question 18: Do you specialize in any of the following? (72:80)

Question 13: In which minerals base does your company work? (78:80)


Along with the commodity in which they work, 83% percent of companies reported they work in both open- pit and underground mining. Figure 4: Mining Style – open-pit and underground

MINING LIFECYCLE The companies surveyed work across all phases of the mining lifecycle, with the majority, 73%, working in operations. Over half, 56%, work in design & construction with a smaller percentage of METS working in each of the other 3 phases. Figure 5: Mining Lifecycle Table 1: No. of Phases

Sixty-one (61%) percent of companies work across more than one phase of the mining lifecycle, while just one company works across all phases. Working in more than one phase helps to mitigate risks during market downturns and allows companies to shift resources and focus as needed to accommodate cyclical fluctuations.

Phases No.

%

1 phase 31 39%

2 phases 38 48%

3 phases 9 11%

4 phases 1 1%

5 phases 1 1%

Total 80 100%

Both, 83%

Open-pit, 14%

Underground, 4%

Question 14: Do you work in open-pit, underground or both? (80:80)

Question 12: In which part of parts of the mining lifecycle does your company work? (select all that apply) (80:80)

Exploration

26%

Feasibility

16%

Design & Construction

56%

Operations

73%

Closure & Remediation

10%


REVENUE The Peruvian METS sector is overwhelmingly made up of small to medium sized companies. Companies were asked to report on their total annual revenue from their latest ended financial year. Results show that 98% of companies have revenue of less than US$100 million, with 68% of these companies reporting under US$10 million. There was only 1 business interviewed that had greater than US$100 million in annual revenue. Table 2: Annual Revenue (USD @ 31 December 2016 or latest financial year)

Annual Revenue No. of companies %

$0 to $1.99M 19 32%

$2M to $4.99M 9 15%

$5M to $9.99M 13 22%

$10M to $19.99M 3 5%

$20M to 49.99M 11 18%

$50M to $99.99M 4 7%

$100M to $249.99M 0 0%

$250M to $499.99M 0 0%

$500M to $749.99M 0 0%

$750M to $999.99M 1 2%

$1B+ 0 0%

Total company responses 60 100%

Don’t know 20

Total Companies 80

Note: 1) Responses were taken in local currency and then converted to USD. 2) As one-quarter of the companies could not answer this question, we have based our analysis on the 60 companies that were

able to respond.

Revenue from Minerals and Mining Companies were asked, “What percentage of your total annual revenue is derived from your mining and minerals division or activity,” so a more accurate picture could be gained specifically on the revenue generated from their mining related activities. The percentages reported find that 43% of firms derive over 50% of their revenue from sales to the mining industry. The average percentage reported as a total of overall revenue was 51%, with 23% of firms reporting they derive more than 90% of their revenue from mining. These figures are very interesting as they signal the importance of the mining business to the firms surveyed and show there is substantial room for growth for firms with lower mining revenue percentages.

CHAPTER 2 REVENUE AND EMPLOYEE NUMBERS

Question 6: What was your company’s total annual revenue for the financial year ended 31 December 2016 (or the latest financial year ended)? (60:80)


Table 3: Percentage of Revenue from Mining

Note: 1) Percentages based on 61 companies that were able to respond.

Revenue from Mining by Business Activity Companies who identified as contract mining derived the highest percentage of their revenue from mining, along with transport & logistics which had a very small sample size. This is not surprising given the highly specialized nature of the services provided by contract miners. Professional services, ICTS, consultants and dealers/distributors reported the lowest percentage of their revenue derived from mining.

Table 4: Percentage of Revenue from Mining by Business Activity (Mean)

Business Activity Mean

Transport and logistics 70%*

Contract mining 65%

OEM and equipment manufacturer

56%

Manufacturer of spare parts, etc. 55%

EPCM / Engineering / Construction

52%

ICTS 41%

Consulting 37%

Dealer/distributor 37%

Other professional services 20%*

University, research institute, training

n/a

*Note: Small sample size

% of revenue No. of businesses %

< 10% 1 2%

10-19% 4 7%

20-29% 11 18%

30-39% 13 21%

40-49% 6 10%

50-59% 2 3%

60-69% 3 5%

70-79% 3 5%

80-89% 4 7%

90-99% 5 8%

100% 9 15%

Total company responses 61 100%

Don’t know 19

Total companies 80

Question 7: What percentage of your company’s revenue in that same year was derived from its mining and minerals division or activity? (61:80)

On Average

51% of

revenue was derived from

mining


OTHER INDUSTRIES As noted previously, the results show that Peruvian METS companies have highly diversified business models and work across a range of industries. In fact, 85% of companies surveyed work in other industries. This is important for the sustainability of individual firms as it may allow resources to be shifted to take advantage of or lessen the impact of the boom/bust cycle of mining. Of those companies working in other industries, 53% work in construction, while 45% work in oil & gas and 38% work in renewables. Table 5: Other Industries in which METS Work

% of revenue No. of businesses

Construction 53%

Oil & Gas 45%

Renewables 38%

Agriculture 36%

Electricity, water and other utilities 36%

Building and property management 28%

Other 22%

Defence 13%

Consulting (other) 6%

These figures also bode well for companies looking to become mining suppliers by transferring their skills from other industries. The METS sector, will therefore, provide an important opportunity for diversification for those currently outside the industry.

EMPLOYEE NUMBERS Over half of the firms surveyed (53%) employ less than 100 people with 39% reporting that they employ less than 50. A large percentage (94%) employ less than 1,000 workers, with no companies having over 5000 employees. These employment figures correlate with the reported revenue figures and dominance of small companies in the sector.

Table 6: Employee Numbers (@ 31 December 2016 or latest financial year)

Employee Numbers No. of companies %

1-19 12 15%

20-49 19 24%

50-99 11 14%

100-249 18 23%

250-499 6 8%

500-749 9 11%

750-999 0 0%

1000-4999 5 6%

5000-9999 0 0%

10,000+ 0 0%

Total 80 100.0%

Question 22: What other industries/activities do you work in? (66:80)

Question 8: How many full time employees did your company have in Peru on 31 December 2016 (or the latest financial year ended)? (80:80)


When looking at employee numbers by business activity, there is a relatively even spread across all categories. Contract miners and EPCMs tend to be larger companies with around 50% reporting more than 250 employees. Of this, 33% of EPCMs and 37% of contract miners have more than 500 employees. Manufacturers of spare parts and ICTS companies were relatively small organizations in comparison.

Table 7: Business Activity by Employee Numbers (percentage)

Business Activity 1-19 20-49 50-99 100-249 250-499 500+ Total

EPCM / Engineering / Construction 17% 17% 17% 0% 17% 33% 100%

Contract mining 11% 21% 16% 5% 11% 37% 100%

Consulting 10% 20% 5% 30% 20% 15% 100%

ICTS 20% 60% 0% 0% 20% 0% 100%

Manufacturer of spare parts, etc. 33% 17% 0% 17% 0% 33% 100%

OEM and equipment manufacturer 0% 22% 33% 22% 11% 11% 100%

Dealer/distributor 30% 10% 0% 30% 10% 20% 100%

Other professional services* 0% 0% 0% 0% 0% 100% 100%

University, research institute, training 0% 0% 0% 0% 0% 0% 0%

Transport and logistics* 0% 66% 33% 0% 0% 0% 100%

*Small sample size

IMPACTS OF THE MINING DOWNTURN The survey asked about the impacts of the recent mining downturn. Only 39% of companies responded that the downturn had impacted them negatively. Seventy-four (74%) percent of those companies impacted reported that they experienced a decrease in revenue during the mining downturn. Based on the response of 65% of those companies, the average decrease in revenue was 21%. Companies during that period also experienced a decrease in profitability (55%), decrease in employee numbers (45%) and a loss of customers or projects (29%). While most of the impacts of the downturn have been negative, a small percentage of firms reported an increase in new projects (11%), employee numbers (11%), and exports (6%). It is unknown if companies are realizing a recovery in their revenue or profitability as the market beings to recover.

Table 8: Impacts of the Mining Downturn

Impacts - Negative % Impacts - Positive %

Decrease in revenue 74% New customers and projects 11%

Decrease in profitability 55% Increase in employee numbers 11%

Decrease in employee numbers 45% Increase in exports 6%

Loss of customers or projects 29% Increased expenditure on product development/ R&D

3%

Reduction in capital spend 10%

Reduction in R&D spend 6%

Question 29: What impacts has the mining downturn had on your company? (31:80)

Average decrease 21%


YEARS IN BUSINESS

The oldest company in the survey was established in 1852 and has been operational for 165 years, while the newest company was established in 2016. The oldest company identified itself as an OEM working in both open-pit and underground mining and servicing all surveyed commodities. It is an American owned company and has 100-249 employees. The newest company identified itself as a contract miner working in both open-pit and underground mining and servicing coal, iron ore, copper and gold. It is a Peruvian owned company with 50-99 employees. The median age of the companies surveyed is 26 years, with a mean of 38 years. Table 9: Age of Companies

Year Age

Oldest 1852 165

Median 1991 26

Mean 1979 38

Mode 1997 20

Newest 2016 1

The decades of the 1990s and 2000s showed the most growth in company numbers with 28% and 21% established respectively. Fifteen (15%) percent were established in the 1980s. Figure 6: Percentage of Companies Established Per Decade

0%

5%

10%

15%

20%

25%

30%

pre-1900s 1900-1939 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010s

CHAPTER 3 AGE

Question 4: In what year was your company established? (80:80)

6%

4%

3%

4%

5%

9%

15%

28%

21%

6%


FEMALES EMPLOYED

Gender diversity issues were explored in the survey and 3 specific questions were asked related to this topic.

Ninety-six (96%) percent of companies reported that they have females employed. When looking at specific roles:

88% of companies employ females as clerical staff;

90% of companies employ females in sales and marketing;

66% of companies employ females as technical professionals;

87% of companies employ females in management. While these high percentages look good, within the individual companies the percentage of females employed is actually relatively low, with the majority of respondents reporting they employ between 1-10% and 11-20% of females across the various roles. However, it is pleasing to see that females are filling roles other than those classified as clerical. Figure 7: Percentage of Female Employees by Role

Recruitment Strategies

Ninety–five (95%) percent of companies reported that they do not have specific recruitment strategies to attract females to their workforce. Of the 4 companies that do, they have higher percentages of female employees across most areas. One of the companies, in fact, has a workforce of 51-60% females employed across technical professional and sales and marketing roles.

CHAPTER 4 GENDER DIVERSITY

Question 9: What percentage of your workforce is female in clerical, sales and marketing, technical professional and management roles as at 31 December 2016? (80:80)

Question 10: Do you have any specific recruitment strategies to attract females to your workforce? (80:80)

0

10

20

30

40

50

60

70

80

90

100

0 1-10% 11-20% 21-30% 31-40% 41-50% 51-60% 61% +

Clerical Sales & Marketing Technical Professional Management

Question 10: Do you have any specific recruitment strategies to attract females to your workforce? (80:80)


Major Barriers

Thirty-three (33%) percent of those surveyed think there are no major barriers to career advancement for females in the mining industry. A further 43% either did not answer the question or said they did not know. The remainder of the respondents acknowledged that barriers exist. Key barriers identified are difficult working conditions, travel to remote locations, the machismo culture and that women do not have the appropriate qualifications.

Question 11: What do you think are the major barriers for women trying to advance their careers in

this sector? (80:80)


EXPORTERS

Forty-three (43%) percent of companies responded in the affirmative when they were asked, “Does your company export products, services or technologies to other countries?” The number one export region is South America with 76% reporting doing business in other South American countries. This is followed by North America with 68% of companies exporting there. Forty-one (41%) percent of companies reported they export to Central America and Oceanic and Antarctic (a region including Australia, New Zealand, PNG and the Pacific Islands), and 38% export to Eastern Europe.

Table 10: Export Regions, % of Companies

Region % Region %

South America 76% Central Africa 24%

North America 68% Southern Africa 24%

Central America 41% West Africa 21%

Oceanic and Antarctic 41% Middle East 21%

Eastern Europe 38% North Asia 18%

Southern Europe 35% Central Asia 15%

Western Europe 32% South Asia (India) 15%

Northern Europe 26% South East Asia 15%

East Africa 24%

Revenue Derived from Exports Companies were asked, “What percentage of your total annual revenue is derived from exports?” Companies reported on average that 31% of their total annual revenue was derived from exports. This was based on a response from 28 companies. Table 11: Percentage of Revenue Derived from Exports

% of export revenue No. of companies %

1-20% 9 32%

21-50% 17 61%

50%+ 2 7%

Not answered 6

CHAPTER 5 INTERNATIONAL ACTIVITIES

Question 35: To which of these regions does your company export or are you planning to export? (34:80)

43% export

Question 34: What percentage of your total annual revenue is derived from exports? (28:34)


Exporters by Business Activity The highest number of companies, by business activity, that export according to the survey are consulting and specialized mining services with 26%, followed by contract miners at 21% and OEMs with 18%. Table 12: Exporter by Business Activity (percentage)

Business Activity No. of companies %

Consulting 9 26%

Contract mining 7 21%

OEM and equipment manufacturer 6 18%

EPCM / Engineering / Construction 4 12%

Dealer/distributor 4 12%

Manufacturer of spare parts, etc. 3 9%

ICTS 1 3%

University, research institute, training

0 0%

Transport and logistics 0 0%

Other professional services 0 0%

Total 34 100%

Exporters by Employee Numbers A high percentage of exporters fall into the medium to large sized business category with 62% between 100-749 employees. Despite their size, small companies also make up a substantial proportion of Peruvian METS exporters.

Table 13: Employee Numbers (@ 31 December 2016 or latest financial year)

Employee Numbers No. of companies %

1-19 4 12%

20-49 4 12%

50-99 4 12%

100-249 12 35%

250-499 3 9%

500-749 6 18%

750-999 0 0%

1000-4999 1 3%

5000-9999 0 0%

10,000+ 0 0%

Total 34 100%

Of total companies surveyed, 26% said they intend to start exporting in the next 1-2

years.

41% 59%

Question 33: If you do not export, does your company plan to export in the next 1-2 years? (46:80)

Exporters Non-exporters


Impediments to Exporting Survey participants identified a number of impediments to commencing or expanding their export business. The most commonly identified impediments included being too small (20%), the cost of the product or service (19%), export regulations (15%) and limited export knowledge (14%). Figure 8: Impediments to Exporting

20%

19%

15%

14%

11%

11%

11%

11%

11%

9%

8%

6%

3%

0%

0% 5% 10% 15% 20% 25%

Product/service not suitable for export markets

Unable to find suitable partners/distributors

Too busy domestically

Lack of information on potential export opportunities

Lack of internal resources, including international…

Import tariffs

Other non-tariff barriers, including prohibitive local…

Cost of product or service

Too small

Export regulations

Lack of finance to fund or grow exports

Product not ready to export

Product not ready to export

Other

Question 36: What are your greatest impediments in commencing exporting and expanding your current export markets? (choice of 3) (79:80)


THE SUPPLY CHAIN Current Critical challenges for Peruvian miners revolve around reducing overall costs, leveraging innovation and technology integration. In all these areas, they are looking for suppliers to assist them.

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THE SUPPLY CHAIN - METS METS work with a range of customers and supply into global mining houses at many different levels. Surprisingly, 65% of METS work with mining companies directly, and 24% work with contract miners. METS also supply to other METS including Tier 1 contractors, sub-contractors, and OEMs. Figure 9: Supply Chain

Given the diversity of the customer interface, it is difficult to define a structure or primary channel into global mining houses for METS companies. Indeed the chain is a web of connections that interface when and where as needed. How and where METS companies work and interface with mining companies directly was asked in the survey. Seventy-five (75%) percent said they work with the mine site directly. Thirty-five (35%) percent said they work with a buying office located in Peru, and 16% work with corporate headquarters. Relatively few companies work via an e-market place or a buying office in a 3rd market.

Figure 10: Working with a Mining Company

CHAPTER 6 METS - MINER INTERFACE

Question 15: Where does your company operate in the mining supply chain? (80:80)

Question 16: When working with a mining company directly, do you work with (68:80)

75%

35%

16%

4% 4%0%

10%

20%

30%

40%

50%

60%

70%

80%

Work directly in themine site

Work with a buyingoffice in your

respective country

Work with theircorporate

headquarters

Work with a buyingoffice in a 3rd market

Work via an e-marketplace


THE SUPPLY CHAIN – MINERS To obtain a perspective on how the supply chain works and better understand what miners want from their suppliers, mining company representatives were interviewed as part of this project. Interviewees were mainly major producers with large-scale projects and substantial supply chains. Some of the same companies were interviewed several times, but with representatives from different mine sites or projects to obtain a more localized view of supply chain issues. Miner’s interviews included:

Barrick Gold, Libertad and Ancach Barrick Gold, Huaras Antamina, Corporate Antamina, Corporate Southern Peru Copper Corporation Anglo American, Corporate Anglo American, Corporate Anglo American, Quellaveco Glencore, Los Quenales Hochschild Mining, ARES

It is no surprise that miners in Peru work with a wide range of suppliers, generally with a list of suppliers in their hundreds. The majority of their suppliers (72%) were classified by miners as national, or companies with the capabilities to service miners throughout the country. Thirteen (13%) percent of their suppliers were classified as local and 15% are foreign-owned multinationals. Figure 11: Supplier Profile

Note: Many of the multi-nationals’ products are sourced through local distributors. Suppliers cover the breadth of business activities as outlined in previous chapters, and they are mainly medium to large companies vs. small companies and multi-nationals. While female employment issues were raised in relation to their suppliers, the miners could not answer questions related to this as they lacked knowledge in this specific area. Current Critical Challenges Current critical challenges for Peruvian miners are focused on cost reduction and control. Leveraging technology and innovation to assist with this is what miners want from their suppliers. Integration of technology is also a critical challenge.

72%

13%

15%

National Local Multinational


Basic Procurement Structure Most of the miners operate their own mines (versus using a contract miner), and there is a relatively even split between companies with a centralized and localized supply chain structure, with some companies combining elements of both. All companies have an overarching supply chain management division that oversees the majority of the procurement function. This division is further broken down into specialty areas including contracts management and/or logistics. Depending on the stage of the project, the responsible department handles the relationship with their suppliers. While companies do not have government-imposed local supplier and content requirements, they have their own corporate policies that prioritizes buying locally. Procurement is carried out in a number of ways including a pre-qualification process, sole source tenders, competitive tenders and ad hoc purchases to fulfill short term requirements. At a very basic level, most of the miners described their procurement cycle in the following way:

Contract terms vary depending on the product or service being procured. All miners use a variety of terms from less than 12 moths to longer term contracts of 4-5 years. The most common length of contract is from 12 months to 2 years.

Supplier Selection Miners use a range of sources to identify suppliers. This includes drawing on their own experience, historical data, past purchases, directories, internet searches and tradeshows. Experience and recommendations from other companies, however, is by far the most common means of sourcing potential suppliers.

In selecting suppliers from a more holistic point of view, the miners stressed the need for companies to demonstrate that they are financially stable and secure. Other important considerations are safety, experience, and legal and environmental compliance. Human rights policies were also mentioned as an important factor when selecting suppliers. Most miners do not provide formal training or education for their suppliers, but of those that do, it is mainly in safety or ethics.

Of course, the need for the supplier’s product or service is ultimately why the purchasing decision is made. Miners were asked, “How strong is the need to purchase products or services based on costs vs. quality or innovation? What are the major considerations in regards to choosing products or services? Quality is the main driver in a purchasing decision. However, this was mainly the case with specialized equipment, technical items and capital items that represent a significant expense to the business. For consumables and short-term purchasing decisions, cost was the driving factor. Innovation, in this case, was not an important consideration by miners.

Reducing costs

Leveraging technology

Innovation

Integration issues

Identify a need Establish

requirements Request quotes

Evaluate potential suppliers

Logistics of purchase

Critical Challenges

Question 27: What are the critical challenges NOW that your suppliers could better assist with

overcoming?


What Miners Want from METS Supplier Attributes and Value-Add Miners were asked to rate on a scale of 1-10 the importance of certain supplier attributes versus the attributes they believed their suppliers actually possessed. The most important attributes for miners related to responsiveness to needs, delivering a high quality product/service and having an environmental management system in place. A summary of the ratings is provided in the next table from the most important attribute to the least.

Table 14: Supplier Attributes

Supplier Attributes Importance to

Miner1

Supplier Performance2 Difference

Delivers a high quality of product/service 9.7 9.8 0.1

Has an environmental management system in place 9.7 9.8 0.1

Is responsive in providing quality after-sales service 9.6 9.8 0.2

Has a safety management system in place 9.6 9.8 0.2

Is responsive to my needs 9.6 9.7 0.1

Delivers on-time 9.4 9.9 0.5

Understands my needs 9.4 9.7 0.3

Is proactive in providing solutions to my problems 9.4 9.8 0.4

Has a well-defined value proposition 9.3 10.0 0.7

Provides value for money 9.2 10.0 0.8

Provides innovative solutions 9.1 9.1 0

Has effective project management skills 8.9 9.5 0.6

Is focussed on continuous improvement 8.9 9.4 0.5

Is skilled at responding promptly and thoroughly to tenders 8.8 9.3 0.5

Uses and applies new technologies 8.8 9.4 0.6

Can provide for my future needs 8.8 9.2 0.4

Is an important partner in my business 8.6 9.4 0.8

Has a quality management system in place 8.5 9.2 0.7

Has digital capability 8.4 9.4 1.0

Has the cheapest price 7.4 7.2 -0.2

Question 201: On a scale of 1 to 10 how important is it for your suppliers to have the following attributes (1 being not at all important, 10 being extremely important) (80:80)

Question 222: On a scale of 1 to 10 how would you rate the following attributes of your key suppliers (1 being very low, 10 being exceptional) (66:80)

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It is pleasing to see that Peruvian suppliers meet and exceed the expectations of the miners surveyed on all attributes except the one relating to price. As noted previously, cost is very important to Peruvian miners and price takes prominence during the purchasing process, especially for consumables.

Miners were also asked, “Are there any other attributes which you would consider relevant?” Of those who responded the issues raised included flexibility, ethics and learning from previous failures.

Miners were asked, “In which way do your suppliers add the most value?” The responses to this question varied, but common themes were ensuring a consistent high quality, delivering on-time and fulfilling all the (contractual) requirements, complying with safety and environmental standards, and ensuring open dialogue and communication. Having a local presence was also noted as a way that suppliers add value. Specific comments included:

High standard in handling of safety, environmental, social responsibility;

On-time delivery & quick response time;

Fulfilling contractual terms and having open dialogue;

Product quality and cost/benefit;

Continuous improvement;

Local presence. Most of the miners surveyed believed that there were no significant supply constraints or issues. Of those who mentioned issues, they related to on-site disagreements and logistical issues and delays.

When asked, “In what areas do they (suppliers) need to improve,” the following areas were noted:

Internal organization and administration;

Leadership to reduce failures and accidents;

Improve delivery and logistics;

Safety & environment;

Long-term planning.

Question 21: Are there any other attributes that you would consider relevant?

Question 24: In which way do your suppliers add the most value?

Consistent high quality Environmental and Corporate

Social Responsibility

Good communication On-time delivery

How do your suppliers add value?

Question 25: In what areas do they (your suppliers) need to improve?

Delivery and logistics Leadership

Operational and

long-term planning

Safety & environmental impact

Supplier improvements needed

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Miners were also asked, “How can your suppliers be more relevant to you?” Responses were themed around becoming long-term partners, and proactively solving problems through collaboration and innovation. To achieve this, suppliers and miners must be aligned, including sharing similar internal policies and working on strategy together. Through the latter, trust will be built. Specific comments included:

Better quality and on-time delivery;

Collaborating to find synergies;

Providing proactive solutions;

Aligning internal policies;

Innovation;

Build trust through strategy.

Future Needs The majority of miners noted that suppliers need to develop their technological skills, particularly in relation to improving productivity and in specific areas like automation, systems integration and digital intensity. Innovation and creating new technologies was also mentioned. Other skills to be developed as highlighted by the miners, focused on developing management skills and leadership capabilities, innovating in the area of water management and building a greater understanding of the mining process from end-to-end. Closely linked to future skills was a question related to products and services required to meet future needs.

Responses to this question yet again greatly focused on new technologies and innovation, such as automation, real-time monitoring, communications and utilizing data. This was linked back by the miners to their need to find efficiencies and reduce costs, as well as exploring deep underground mining. The ability to develop long term partnerships was also mentioned, with some miners believing this would improve performance and assist in overcoming environmental concerns.

Specific comments included:

New technologies;

Embracing the Internet of Things (IoT);

Optimizing costs and better performance;

Collaborate with peers and greater after-sales service;

Innovate and collaborate to avoid projects being stopped due to environmental concerns;

Developing technologies that can combat the new era of mining – e.g. deep underground;

Automation and real-time monitoring.

Question 30: How can your suppliers be more relevant to you?

Being proactive

Innovation

Alignment

Collaboration

Question 28: Thinking 10 years out, what skills need to be developed to meet your future needs?

Question 29: Thinking 10 years out, what products or services need to be developed to meet your

future needs?


ATTRIBUTES To better understand the capabilities of companies, the survey explored key attributes by asking the METS companies to rate these on a scale of 1-10. This was then compared with the responses which the miners provided when asked about the attributes of their suppliers. Table 15: Supplier Attribute Ratings vs. Miners’ View about Attributes

Attribute METS response1,2

Miner’s reponse3 Difference

Understands my needs 9.0 9.7 0.7

Delivers a high quality of product/service 8.9 9.8 0.9

Is proactive in providing solutions to my problems 8.9 9.8 0.9

Is responsive to my needs 8.8 9.7 0.9

Is focussed on continuous improvement 8.8 9.4 0.6

Can provide for my future needs 8.8 9.2 0.4

Provides value for money 8.8 10.0 1.2

Delivers on-time 8.7 9.9 1.2

Provides innovative solutions 8.7 9.1 0.4

Uses and applies new technologies 8.6 9.4 0.8

Is an important partner in my business 8.6 9.4 0.8

Is responsive in providing quality after-sales service 8.5 9.8 1.3

Has a safety management system in place 8.5 9.8 1.3

Has effective project management skills 8.5 9.4 0.9

Has an environmental management system in place 8.4 9.8 1.4

Has a quality management system in place 8.4 9.2 0.9

Has a well-defined value proposition 8.1 10.0 1.9

Has digital capability 8.1 9.4 1.3

Is skilled at responding promptly and thoroughly to tenders 8.1

9.3 1.2

Has the cheapest price 8.0 7.2 -0.8

Question 231: On a scale of 1 to 10 how would you rate the following attributes of your company (1 being never, 10 being always) (80:80)

Question 242: On of scale of 1 to 10, how well-developed are the following attributes of your company (1 being not at all, 10 being exceptional) (80:80)

CHAPTER 7 CAPABILITIES AND COMPETITIVE ADVANTAGE

Question 223: On a scale of 1 to 10 how would you rate the following attributes of your key suppliers (1 being very low, 10 being exceptional)


These findings bode well for METS companies, as across almost all of the attributes they are actually rated higher by their customers. In comparing the ratings we can see the gaps between what the METS believe they are delivering in comparison to what the miners believe they are receiving. The only attribute which has a negative correlation is on price. Not having the cheapest price, however, may not be a negative attribute, as the miners believe their suppliers are delivering value for money. However, reducing cost is an area which miners’ have time-and-time again focused on as critical to their operations.

Digital Capability Given the current macro technology trends and the importance of digital capabilities as it relates to mining, METS companies were asked about their digital capabilities. The majority of respondents said they had a website for marketing (68%), with 43% indicating they have an IT strategy and 36% having a networked system. Percentages are much lower for more sophisticated on-line interactions, including a very low percentage at 8% of those who have an on-line financial system. Figure 12: Digital Capabilities

Marketing Tools The survey also asked about what marketing tools are the most effective. Overwhelming 80% noted a website. Listings in directories was the next most effective marketing tool with 48% responding to this and 34% noted social media, whilst 31% use industry trade magazines. Figure 13: Marketing Tools

68%

43%

36%

23%

14%

13%

8%

5%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Website for marketing

IT strategy

Networked system (i.e. local-area-network)

ERP system

Electronic sales or marketing (i.e. newsletters, alerts,etc)

Electronical interface with clients

On-line financial system

Website for on-line purchasing

80%

48%

34%

31%

26%

19%

19%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Website

Listing in directories

Social media

Industry trade magazines

Other internet and electronic marketing

Tradeshows and exhibitions nationally

Tradeshows and exhibitions internationally

Question 25: Regarding your digital capability, do you have? (80:80)

Question 26: What are your company’s most effective marketing tools? (80:80)


COMPETITIVE ADVANTAGE Fifty-four (54%) percent of METS surveyed reported that the quality of their product, service or technology was their key competitive advantage. Thirty-four (34%) percent of respondents said that their highly skilled staff was a key competitive advantage, whilst relationship with customers (33%) and quality of after-sales support (30%) were also chosen as key competitive advantages. Figure 14: Competitive Advantage

MAINTAINING COMPETITIVE ADVANTAGE Fifty-one (51%) percent of companies reported that they maintain their competitive advantage by working closely with customers. Forty-three (43%) percent reported they focus on innovation, and 40% said they continually review and update their products and services. Figure 15: Maintaining Competitive Advantage

54%

34%

33%

30%

30%

24%

16%

13%

11%

11%

10%

10%

10%

5%

0% 10% 20% 30% 40% 50% 60%

Quality of product, service or technology

Highly skilled staff

Relationship with customers

Quality of after-sales support

On-time delivery

Problem solving ability

Price of product/service/technology

Strategy or business model

Long history with customers

Proximity to key customers or markets

Uniqueness of product/service/technology

Deployment of new technology

Internal systems and processes

Marketing and sales

51%

43%

40%

34%

31%

23%

19%

15%

15%

0% 10% 20% 30% 40% 50% 60%

Working closely with customers

Focus on innovation

Product/service review and update

Training & skills development

Continuous development/R&D

Re-investment into the business

Effective collection and use of market intelligence

Continual review of the competitive environment

Connections and networking

Question 19: What do you consider to be your company’s key competitive advantages? (select up to 3) (80:80)

Question 20: How does your company maintain competitive advantage? (80:80)


Importantly, as well, Peruvian METS companies invest in their future. They invest in their staff with training and skills development (34%), they re-invest into their business (23%), and 31% invest in research & development. These findings regarding maintaining competitive advantage are consistent with the responses received when the survey asked, “What strategies has your company adopted to combat or leverage the changes due to the mining downturn?” The highest ranked answer was that they re-focused on their customer relationships (29%), followed by investing more in R&D (26%), exploring or moving into other industries (26%), seeking new export markets (19%), increasing collaboration with others in the supply chain (19%) and moving into different minerals (19%). Figure 16: Strategies adopted due to the mining downturn

29%

26%

26%

19%

19%

19%

16%

16%

13%

13%

10%

0%

0% 5% 10% 15% 20% 25% 30% 35%

Re-focused on your customer relationships

Invested more in R&D

Explored or moved into other industries

Sought new export markets

Increased collaboration with others in the supply chain

Moved into different minerals

Sought external finance

Reduction in asset base or downsizing

Launched a new product or service

Pursued a merger, joint venture or partnership

Changed product or service mix

Moving manufacturing or operations offshore

Question 31: What strategies has your company adopted to combat or leverage the changes due to

the mining downturn?” (31:80)


INNOVATION As noted in Chapter 1, 29% of Peruvian METS said they specialize in innovation. In the same vein, 43% focus on innovation to maintain their competitive advantage. Miners have also rated their suppliers highly in the attribute “provides innovative solutions” at 9.1. This shows a focus on innovation amongst Peruvian METS.

R&D Spend Companies were asked about R&D spend. Seventy (70%) percent of the companies reported that they spent money on R&D in the past financial year, with 29% of those only spending between US$0-$50,000. Companies that employ between 20-49 employees were those most represented, with the majority of those spending between US$0-$50,000. Table 16: R&D Expenditure by Employee numbers (percentage)

R&D Expenditure USD 1-100 101-500 500+ Total

$0-$50,000 23% 2% 4% 29%

$50,000-$100,000 11% 5% 4% 20%

$100,000-$250,000 7% 9% 4% 20%

$250,000-$500,000 0% 7% 5% 12%

$500,000-$1,000,000 0% 4% 7% 11%

$1,000,000+ 0% 5% 4% 9%

Note: Percentages calculated on the 70% of companies that responded.

Main drivers of Innovation Thirty-nine (39%) percent of companies reported that internal operational improvements were their main drivers of innovation. Thirty-four (34%) percent said they were innovative due to external, customer-focused product solutions. A further 30% said they were innovative to stay ahead of competition, whilst 25% said it was core to their strategy. Figure 17: Main drivers of Innovation

39%

34%

30%

25%

19%

16%

16%

15%

11%

5%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Internal operational improvements

External, customer-focussed product solutions

Staying ahead of the competition

Core to our strategy

Market research to find the problems that companies…

Our customers ask us to solve their problems

Changing industry trends

Would not consider our company innovative

Our collaborators and partners drive us to innovate

Survival

CHAPTER 8 INNOVATION AND COLLABORATION

Question 40: How much did your company spend on R&D in the last financial year? (56:80)

Question 42: What are the main drivers of innovation in your company? (79:80)


New Products or Services Fifty (50%) percent of companies said they are bringing out products continuously, with 33% of respondents noting they bring out new products and services every few years. Figure 18: Frequency of New Products and Services

It is interesting to note that of the 50% bringing out products continuously, 55% of those are companies employing less than 100 people. Only 15% of companies who said they are continuously brining out new products and services employ over 500 people.

COLLABORATION When asked, “Do you have any formal alliances with your customers,” 28% of respondents said that they do have formal alliances. Similarly, when asked about collaboration, 40% said they collaborate with other companies. Forty-one (41%) percent of those collaborate with other suppliers to the mining industry, 38% collaborate with companies from other industries, and 38% collaborate with mining companies. Companies also collaborate with universities, private research institutions and government. Figure 19: Collaboration with other organization

Continuously, 50%

Every few years, 33%

Never, 5%

Rarely, 11%

Continuously Every few years Never Rarely

42%

39%

42%

16%

0%

16%

16%

Other suppliers to the mining/minerals industry

Companies in other industries

Mining companies

Universities

Public research organisations

Private research organisations

Government entities

Question 43: How frequently does your company bring out new products and services? (80:80)

Question 38: Do you collaborate with other companies to develop products/services or increase your offering? (48:80)


Miners too noted they collaborate with their suppliers in a number of ways. The main area that Peruvian miners collaborate with their suppliers is to solve specific problems at their operations that require unique solutions. Other areas of collaboration include development of new products or services; working together to come up with innovative ways in doing things; and planning for the future together.

MAINTAINING CONNECTIONS Industry Associations Fifty-six (56%) percent of those surveyed said they were a member of a chamber of commerce or business association. When asked specifically which organization, the majority responded that they were a member of a chamber of commerce. Other organizations that were noted in the survey included:

Sociedad Nacional de Industrias

Asociacion Peruana de Consultoria Companies also identified as a member with organizations such as EMIS and the certification companies such as ISO and Bureau Veritas.

Staying Informed When asked, “Which of the following resources do you, personally, use to keep up to date with industry and technology trends and developments,” 65% indicated social media (Twitter, LinkedIn, discussion forums, etc.), whilst 59% said face-to-face networking through the attendance at seminars, conferences and events. Fifty-five (55%) percent said they also use industry magazines to keep informed. Figure 20: Industry and Technology Trends and Development Resources

65%

59%

55%

33%

31%

24%

10%

2%

0% 10% 20% 30% 40% 50% 60% 70%

Social media (Twitter, LinkedIn, discussion forums,etc.)

Attending seminars, conferences and events

Industry magazines

General publications

Competitor or customer publications

Newsletters from industry and trade associations

Subscribe to project specific databases

International exhibitions and events

Question 41: Are you a member of any business associations, industry bodies or chamber of commerce? If yes, which ones? (80:80)

Question 27: Which of the following resources do you personally use to keep up to date with industry and technology trends and developments? (80:80)

Problem solving

Innovative ways of doing things

Planningfor the future


METS OUTLOOK

1.0

Those METS companies which will continue to thrive must be ahead of the technology curve, and need to be mobile and agile in order to adopt to the rapidly changing landscape. The convergence, as well, of supply chains means that METS firms need to internationalize to not only compete offshore, but domestically as well.

SE

CT

IO

N T

HR

EE


CURRENT OPPORTUNITIES Survey participants were asked via an open ended question to name the top 3 current opportunities for their business. These responses were grouped by analyzing common themes and issues. Improved business conditions and demand for mineral commodities was the key opportunity as seen by 49% of those surveyed. This included increased exploration, new investments in mining, improved infrastructure and a rise in the price of commodities. Improving or expanding the current product range or services was the second greatest opportunity identified by 29% of respondents. Opportunities identified included offering supporting services to products, development of new products, new product lines and customizing existing offerings. The third biggest opportunity identified by 23% of respondents was innovation and technology. There was a particular focus on the increased role of IT in the mining sector, applications of new technologies for mining and integrating new technologies into production processes.

3 BIGGEST OPPORTUNITIES

Table 17: Other Opportunities

Challenges %

New markets, export 20%

Improving relationships with clients 12%

Diversification 9%

Collaboration 6%

Corporate Social Responsibility 5%

Marketing & promotion 3%

Many of the opportunities identified have also been recognized as challenges, and concentrating on these commonalities could have a strong impact and more immediate outcomes. It should be noted that 19% of those surveyed did not answer this question.

• Improved business conditions and demand for mineral commodities

49%

• Improving or expanding current product range or services

29%

• Innovation and technology

23%

CHAPTER 9 OPPORTUNITIES AND CHALLENGES

Question 44: What are currently the 3 biggest opportunities for your company? (65:80)


CURRENT CHALLENGES Survey participants were asked via an open ended question to name the top 3 current challenges for their business. These responses were grouped by analyzing common themes and issues. The number one challenge as identified by 40% of the companies was increased competition. This was linked to maintaining low costs to compete in a global environment, retaining market share and increased market entrants. The macro-economic environment and reduced minerals demand was identified as the second greatest challenge, as stated by 31% of the companies. Here companies cited the global recession, a volatile mineral market, low metal prices, a lack of projects and insufficient infrastructure as major challenges. The third challenge identified was financial stability and growth, with 25% responding that this was a key challenge. Comments linked to this included high fixed costs, high debt and recovering from losses during the mining downturn.

3 BIGGEST CHALLENGES

Table 18: Other Challenges

Challenges %

Sales & marketing 10%

Insufficient resources 10%

Corporate social responsibility 9%

Innovation & technology 9%

Maintaining customer relationships and understanding customer needs 7%

Hiring skilled employees 7%

Internal improvements 7%

It should be noted that 16% of those surveyed did not answer this question, and 51% of those who responded only noted one challenge.

TRAINING PRIORITIES AND SKILLS DEVELOPMENT Linked closely to opportunities and challenges is training and skills development which companies want to undertake. Survey participants were asked via an open-ended question to list their current training and skills development priorities. These responses were grouped by analyzing common themes and issues. It should be noted that 45% of participants responded to this question. By far the top priority was in the area of operational improvements with 47% of respondents nominating this as their key skills development need. This includes areas such as operational management, quality management, supply chain, and financial management.

Question 45: What are currently the 3 biggest challenges for your company? (67:80)

•Increased competition

40%

•Macro-environment and reduced minerals demand

31%

•Financial stability and growth

25%


Technical training was another key area identified by 33% of respondents. This included general products and services training and product development and management, as well as safety and the operation of specific equipment. Marketing and sales was also a training need identified by 28% of respondents. This included marketing in general, training to better identify customer needs, lead generation skills and sales negotiation. Innovation and technology was also a top training need by 19% of the companies. This included robotics, building awareness of industry trends and changes, innovation in general and new battery technologies. Customer service and account management was also identified as a training priority by 14% of respondents. These training priorities correspond to those identified by the miners when asked, “what skills do you feel your suppliers should be developing now, and what skills should be developed to meet your needs in the future?” Miners responded that companies now should be working on business management and leadership skills. There was also a strong emphasis on skills related to innovation, new technology development and continuous improvement. Responses when asked what capabilities suppliers need to develop 10 years out from now were related to technology, including a focus on automation, technical skills and project management.

Figure 21: METS response Figure 22: Miners’ responses

•Quality management, supply chain, financial management, operations

Operational

•Product and service training, product management, safety, other equipment

Technical

•Marketing strategy, sales development, lead generationMarketing and

sales

•Information technology, data analytics, automation, innovation trends

Innovation

Question 47: Please list your current training

and skills development priorities. (Top 5) (36:80)

Question 26: What skills do you feel your suppliers should be developing now & Question 28: Thinking 10 years out, what skills need to be developed to meet your future needs? development priorities (71:100)

•Understand needs, quality, adaption to conditions, business management

Operational

•Systems integration, service future requirements, automation, digitalisation

Innovation

•Long-term planning, strategic partnering, leadership

Management

•Safety, continuous improvement, environmental, logistics

Technical


ROLE OF GOVERNMENT METS businesses were asked about the role of government in helping their business.

There were 3 clear areas here where government could help more. This includes improving the general business environment, supporting R&D and innovation and improving the tax structure.

Other areas of assistance mentioned include access to more projects (8%), including roads, ports and hospitals, and export assistance (3%).

Improve business environment (45%)

Improve national industry policy

Cut bureaucracy

Remove corruption

More support for small business

Ease regulations

Improve tax structure (23%)

Reduce tax percentage

Tax rebates

Offer more tax benefits / incentives

Support R&D, innovation and growth (22%)

Grants for implementing new technology

Funding for start-ups

An easy loan policy

Create an entrepreneurial environment

Question 46: What could government do to help your business grow and be more successful? (57:80)


Considering the strengths and weaknesses of the METS sector in Peru, the opportunities and challenges identified and taking into account current and future mining needs, there are a number of development priorities to address for the sector to grow and be competitive into the future. Development priorities are at both an individual firm and sector level and must take into account an increasingly complex mining environment. This includes challenges related to mineral depths and ore grades, financial constraints, increasing regulations and community pressures which all demand a focus on new technologies and innovative solutions if the mining industry, and the METS sector, is to be sustainable over the longer term. METS companies that will continue to thrive must be ahead of the technology curve, and need to be mobile and agile in order to adapt to the rapidly changing business landscape. With the convergence of global supply chains, METS companies must also be internationalized to not only compete overseas, but domestically as well. Development priorities which have been identified include:

Strengthen Business Fundamentals As noted by both METS and miners, there are a number of issues from an internal business improvement perspective which METS companies must improve. This includes areas such as quality management, business planning, on-time delivery and general operations management. A focus on these areas can lead to more efficient operations and increased productivity to bring down overall costs.

Marketing and sales is an area which needs to be strengthened. Enabling a company’s ability to grow at the front end will help with scale issues and can incorporate customer engagement and relationship management improvements. Customer engagement must be an important consideration for Peruvian METS, with miners wanting their suppliers to be more proactive in anticipating and solving problems. Companies have a reliance on their website as a prime promotional channel, and while valid, a multi-pronged approach to marketing must be ensured.

Having digital capability is another development area for Peruvian METS. According to the survey, most companies position digital capability in relation to their website, while small percentages of companies employ digital technologies in other areas. Important areas to be developed include financial systems and direct e-communications and electronic purchasing links to customers. With the trend towards digital mining, this is even more of a priority if METS companies are to continue servicing their customer on their terms. Skills development in this area was also noted by the miners.

Strengthen Business Fundamentals

Focus on Footprint Reduction

Foster Innovation & Collaboration

CHAPTER 10 DEVELOPMENT PRIORITIES

Focus on quality

Export

Customer-centric

Mineral processing

Lack of scale

Leadership

Digital capabilities

Marketing & Sales

Strengths

Weaknesses


Strong management and leadership skills must also be developed. This is important from a customer interface point-of-view as miners are focused on building strategic partnerships and driving towards aligned goals. Strong leadership is also paramount as changes in the industry will require visionary, proactive leaders who can guide a firm through a rapidly changing business environment. Actions for consideration:

Develop business improvement courses specifically for METS and incorporate LEAN and Kaizen Blitz training;

Support skills development in marketing and promotions to focus on articulating holistic solutions versus selling a product or service;

Focus on increasing digital capabilities including new methods of on-line communication;

Consider mentoring programs for up-and-coming leaders.

Focus on Footprint Reduction For the global mining industry to remain sustainable, companies must work harder than ever to reduce the environmental impact of their operations. The importance of strong environmental management and social responsibility came out very strongly in the miner interviews. This includes the attributes which miners think are the most important, and the focus on training in such areas as ethics. This then impacts on where METS need to develop greater capabilities as many of the surveyed mining companies raised environmental services as an area that can add the most value to their operations. According to those surveyed, only 16% specialize in environmental management and 5% specialize in community engagement. Mine site remediation and closure is an area of particular concern, with only 10% of surveyed companies stating that they have a capability in this area. This is well below their South American neighbors in the survey and must be addressed in order to get community approval for future projects. Innovation and collaboration should be leveraged in order to overcome environmental concerns and create a sustainable industry in Peru. Energy efficiency and costs will continue to come to the fore as the global energy mix changes, whilst miners also encouraged suppliers to develop proficiency in renewable energy and battery technologies. Water management is an area requiring major focus in Peru, with innovative solutions set to be the main driver that can ensure adequate water supply for operations and local communities. Actions for consideration:

Build capabilities in environmental management and CSR;

Consider funding collaborative projects between METS, miners, universities and research institutes that address the pressing environmental issues in the Peruvian mining sector;

Create an opportunity for Peruvian suppliers to link with overseas providers to improve their mine site closure and remediation capabilities;

Focus on creating environmental solutions that also contribute to cost savings and productivity improvements.

Foster Innovation and Collaboration Peruvian METS already have a strong focus on innovation from both a customer and internal business point of view. In fact, 39% of respondents surveyed said that innovation within their business was driven by internal business improvements. Thirty-four (34%) percent cite external, customer-focused product solutions drove innovation. Miners too have a focus on innovation, with a particular emphasis of its importance over the longer term. It is interesting that innovation for the miners is focused on both technology advancements and new business models to encourage strategic partnering. The latter is very noteworthy given supplier perceptions about the difficulties in working with large mining companies and the challenges for developing relationships. From a technology point for view, miners are very focused on automation and the improvements it will make to productivity. Other technology areas mentioned include energy efficiency, water, environmental management, tailings and data analytics. According to the survey, only 12% of respondents specialize in automation, whilst 16% specialize in energy management and 11% in water.


This is a solid base from which to grow additional capabilities, but strong international partnerships may need to be considered to accelerate the development in some specialty areas. It is also noted the low level of R&D spend amongst the firms that were surveyed. While there seems to be good alignment, there also seems to be a lack of understanding of what miners need and what METS can deliver. A flow-on from this is a lack of strategic innovation from an industry point-of-view, and therefore a tendency to flow-on short-term solutions to solve what are really longer-term problems. This disconnect over the longer-term can be detrimental to the industry and constrain growth for METS and miners. Creating an opportunity, therefore, for METS and miners to connect to discuss the strategic issues facing the industry is important. While all miners cite collaboration with suppliers, most of it is focused on technical issues, and does not involve strategic discussions. Understanding miners’ needs is paramount and more training is needed in this regard. Collaboration is a focus for Peruvian miners, and METS firms are already engaged in a high level of collaboration mainly with other suppliers, firms outside the industry, and the miners themselves. There is, however, perhaps a lack of a formalized collaboration framework within which METS and miners can work. There is also a low level of collaboration with universities and other research institutions which may stifle innovation and lead to slow commercialization outcomes. While the majority of METS said they belong to an industry association, they did not readily identify with a specific association. Industry associations are a catalyst for building networks which lead to more collaboration. They are also important in building capability clusters and promoting the industry. Further, finance and supporting structures for new innovations and entrepreneurship is critical and the survey showed that METS would like more government support in the areas of incentives for R&D, grants for new technologies and funding support for start-ups. Actions for consideration:

Create a forum for METS and miners to have strategic discussions about the critical long-term issues facing the mining sector;

Consider government funding for new technologies and start-ups;

Better connect METS and researchers to encourage commercialization outcomes and development of new technologies;

Better connect small and large firms and build networks to focus on collaboration projects, sector promotion and overall industry development.


APPENDICES

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IO

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OU

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The primary research for this project was carried out in each participating economy through a survey of Mining Equipment, Technology and Services (METS) companies and interviews with miners. It should be noted that Argentina joined the project in January 2017. METS Survey The survey was developed by Austmine in October and November 2016. After feedback from the Steering Committee, the final survey was approved in December 2016. The survey consisted of a maximum of 46 multiple choice and open-ended questions. It took approximately 30-45 minutes to complete. After a selection process for market research firms, GlobalData was chosen to carry out the survey work given its experience in the mining industry, track record of working with the mining supply sector (including a number of published reports), and their ability to carry out the work in the stated timeframe and budget. The agreement with GlobalData was signed at the beginning of January 2017. GlobalData carried out the survey as follows:

Collated a database of companies for survey dissemination;

Transcribed the survey questions into an on-line and paper-based format;

Translated the survey questions into Spanish, as needed;

Researchers contacted each company to find out who the most knowledgeable person was to complete each survey;

Survey was sent out to the contact via e-mail;

Follow-up was done over the phone and most surveys were completed using CATI techniques. Austmine worked with GlobalData to test and edit the surveys, both in English and in Spanish. Table 19: METS Survey Respondents

Approximate companies targeted

Countries Declined to participate

(%)

Not Available/no

response (%)

Disqualified (%)

Completes (%)

320 - 350 Chile 20 40 10 30

300 - 325 Argentina 25 40 10 25

300 - 325 Peru 25 40 10 25

180 - 200 PNG 25 40 10 25

It should be noted that GlobalData developed the database of companies to which the survey was sent. The requirements specified that the companies must be in the METS sector, or for clarification of this, needed to be supplying products, services or technologies to the mining or minerals industry domestically or internationally. It was also specified that the companies to be surveyed could be both local and international, but the majority of respondents should be “domestic” (i.e. not large multi-nationals) given the focus of the project. Therefore, companies were chosen using a broad definition of METS. The first question of the survey was also used to further qualify each company to ensure they were part of the mining supply chain. This qualifying question was: “Does your company supply products, services or technology to the mining or minerals industry in Peru?” If they answered “no” to this question, they were immediately exited from the survey. Questions were not compulsory causing a variation in participant numbers, as well as survey routing and the fact that some participants didn’t complete the survey.

APPENDIX 1 METHODOLOGY


The survey was launched in February 2017. Final survey reporters were delivered in April 2017. Table 20: METS Survey Completions

Economy Completions

Argentina 80

Chile 100

Papua New Guinea 51

Peru 80

It should be noted that the number of companies surveyed was based on the original proposal to APEC which specified a minimum number of survey completions at 50 companies. This was subsequently endorsed by the APEC project Steering Committee through approval of the project plan. Given the survey methodology used, the only limiting factor to the number of surveys completed was time and budgetary constraints. After the initial 50 companies were surveyed, Austmine requested that additional surveys be undertaken. An additional 30 surveys were completed for Peru. Despite what could be said was a low number of companies participating compared to the total potential pool of respondents (this exact number is currently unknown), a valid data set has been achieved from which analysis has been undertaken and conclusions drawn. This is particularly evident when comparing results across all economies which are a very similar and gives further validity to the survey results. Miner Interviews The interview questions were developed by Austmine in October and November 2016. After feedback from the Steering Committee, the final interviews were approved in December 2016. The interviews consisted of a maximum of 30 multiple choice and open-ended questions. The interviews were conducted either face-to-face or over the telephone. Each interview took approximately 1 hour to complete. A list of companies and contacts to be interviewed were developed by Austmine. These were then shared with the organization sub-contracted to carry out the interviews. They in turn contacted the respective organizations to arrange an interview time and/or be introduced to the most appropriate contact. Table 21: Interview Providers

Economy Provider

Argentina Akrom Pty Ltd

Chile Fundacion CSIRO Peru Research

Papua New Guinea Austmine

Peru Fundacion CSIRO Peru Research

Interview results were transcribed and translated from Spanish to English, as necessary. They were then analyzed by Austmine. Interview results have not been analyzed numerically, given the small number of interviews involved.


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Submitted by: Austmine Limited Suite 206, 80 William Street Woolloomooloo NSW 2011 Australia Tel: +61 2 9357 4660 [email protected] www.austmine.com.au

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