Mining Consultancies
Navigating social and regulatory complexities in a dynamic environment
There is value to be gained from consulting local expertise, particularly in dynamic, unpredictable environments such as a country which has had five president in less than two years. Furthermore, the potential changes to legislation that could be brought in by the newly elected Castillo government will require careful consideration and navigation. In the mining business, this value has been illustrated by recent M&A, as the growth of the consulting arms of engineering and EPCM houses has been directed at specialized consultancies, particularly in the ESG sphere.
One of the leading global mining consultancy firms, SRK, has been hiring Peruvian talent specialized in data handling, according to Antonio Samaniego, director of SRK Consulting Peru. This includes data surrounding satellite images, water levels and seismic information, to help meet an increased demand for technical proposals.
On the subject of what companies should be aware of when looking to invest in Peru, Samaniego reflected: “Peru offers several advantages for the mining industry, starting with a great geological context, highly qualified mining professionals and adequate logistic and supply facilities, besides the long mining tradition in the country.”
On the regulatory side, he noted that Peru has comprehensive environmental regulations, but permitting and law enforcement are not effective, because the related bodies do not have enough qualified personnel. “Hence an EIA can take up to two years to be approved by the authorities,” he observed, warning that companies active in Peru need to treat the social aspect very carefully.
“Our clients have raised two main concerns regarding social management and community relations. The first is related to the controls around the procedures regarding giving funds to local communities, as there have been fraudulent activities during these kind of transactions. The second concern is related to tax implications with regard to community relations, as some community expenses can be deducted for tax purposes and some cannot.”
Pablo Saravia Magne, Partner & Mining Leader, PwC Peru
Steve Botts, president of Santa Barbara Consultants (SBC), has over thirty years’ experience in the mining industry, holding positions such as VP and managing director of Tahoe Resources Peru, general manager of Marcobre, and VP sustainability for AngloGold Ashanti Americas. In 2011, Botts created SBC to provide mining clients with consulting expertise in the areas of corporate strategy, mining life-cycle and safety, all incorporating ESG considerations, a theme that has grown exponentially in the decade since.
Elaborating on how the topic of ESG has evolved in recent years, Botts spoke of how the management of environmental, health, safety, social and technical aspects within the mining industry are growing beyond just compliance and economics. “Issues such as carbon footprint reduction, climate change and renewable energy sources must be evaluated and factored into the life of mine plans, as well as integrating the mine with the needs of local communities.”
On the topic of social bottlenecks that have slowed down project development in Peru, Botts listed the number one priority as effective communication: “Mining companies should engage with local communities as early as possible and promote dialogue regarding the community’s long term vision and how a mining project could support this vision; in other words, involve the stakeholders in project planning instead of trying to impose the project.” A sense of buy-in and support from local stakeholders will come if communities can see the economic benefits of the project, and if it is clear that the project will not negatively impact the environment, he added.
Pablo Saravia Magne, partner and mining leader at PwC Peru, revealed that over the last four years, the company’s portfolio of services has expanded as the industry was presented with new challenges and risks. One of PwC’s main service demands in Peru has been social management and community relations, which is focused on controls and risks. Magne outlined the two main social concerns of PwC’s clients: “The first is related to the controls around the procedures regarding giving funds to local communities, as there have been fraudulent activities during these kind of transactions The second concern is related to tax implications with regard to community relations, as some community expenses can be deducted for tax purposes and some cannot.” He added that PwC provides services which identify and then evaluate the effectiveness of these controls.
Orlando Marchesi, country senior partner at PwC Peru, expanded on the issue: “There is a link between risk controls and tax, because in order to deduct social responsibility expenses you have to be able to show beyond reasonable doubt that the expenses are incurred in the communities where the mine is located.”
Why does the complexity surrounding social licensing for mining projects in Peru exist, and what could be done by the private sector to improve the process? Marcial García, partner and mining lead at EY Peru, observed that many of the companies in Peru that struggle with social licensing have been around for decades, and sometimes have a bad reputation due to legacy issues or because they are located in a region where there has been historical conflict between mining and communities. “On the other hand, companies which have entered the Peruvian market recently have been successful in obtaining their social license to operate,” he noted, affirming that establishing good relationships with the community from the start is key to accelerate the process. “Peru has all the conditions to be a very attractive destination for mining investment,” reflected García, listing rich geology, untapped exploration potential, low cost of production, low power costs and a well-trained workforce as its advantages, “but addressing the social and permitting issues is paramount for the country to fulfil its potential.”
Paul Murphy, manager of the South America region for Australian mining technical services provider, Mining Plus, opined that the geological potential of a region is number one when looking for projects, but it should be closely followed by the ease of doing business and the ability to move a project forward in a country. “In a general sense, Peru ticks most of the boxes for investors. It is extremely well endowed with mineral wealth and a good place to do business, but even so, I expect some investors are put off by the permitting challenges, especially for early-stage projects.”
Another Australian-headquartered mining consultancy, AMC Consultants, has worked in Peru for the likes of Gold Fields, Las Bambas, Hudbay, Marcobre and Glencore, according to Francis McCann, general manager of AMC’s Toronto office. Acknowledging that Peru presents some challenges due to political instability over the past couple of years, McCann believes the country is attractive for service companies due to its geological endowment and wide range of mining companies producing a breadth of work.
In 2020, AMC formed an advisory division to provide specialized services in areas such as performance diagnostics, strategy optimization, geometallurgy, and value engineering, which the company has been experiencing high demand for since their launch. Discussing the optimistic outlook for metals, McCann suggested the industry should be cautious to not repeat the mistakes of the previous upcycle when a number of companies chased metal prices. “Mines need to really understand the cycle and develop a thorough strategy optimization process instead of a scenario optimization process. Complete strategy optimization helps reduce risks by positioning oneself to be relatively stable across the price cycle so as not to be reliant on one scenario,” he explained, concluding that strategizing in such a way means that one can take advantage of the peaks, while protecting oneself from the lows, which will inevitably come in a cyclical business.
Image courtesy of Anglo American