Implementation of Russian Mining Projects An Engineers Viewpoint

Introduction During the past 15 years, we have seen great change in Russia. During the same period, our company, Hatch has grown from less than 1000 to more than 7000 employees, with more than $20 billion of capital projects under our management in all continents. In Russia, Hatch provides consulting services to the ferrous and non-ferrous producers in the following fields. (cont’d)

Consulting Services Strategic Planning Market studies Merger & acquisition in Russia and offshore Operational assessments Technical studies

Main areas of expertise Mining and metals Energy Infrastructure

Current Challenges in the Russian Engineering Industry Russian Former Design Institutes (FDIs) not well equipped to provide EPC/EPCM Services across a range of mineral products. Offshore equipment suppliers have exploited this weakness and resulted in offers of lump-sum equipment supply and install contracts with reduced engineering and control support by Owner and FDIs. The end result has in some cases resulted in high costs and suspect equipment quality.

Remedies by Mine Owners Recognition by some major Russian mining companies in the shortfall in experience of FDIs A resulting purchase of a selected FDI by a mining company as an in-house engineer. Examples include RUSAL (VAMI),Norilsk (Gipronickel) and, more recently, Peter Hambro (Irgiredmet). Typically, FDIs have shown little enthusiasm for purchase by foreign resource companies

Comment on Owner’s Engineer Strategy This strategy was common in other regions in the mid-20 th Century when major EPC/EPCM Contractors were not offering services to the mining industry. The emergence of major independent engineering contractors such as Fluor, Bechtel, SNC Lavalin and, more recently Hatch, has resulted in many of the world’s major mining companies selling their in-house engineering groups to companies such as Hatch. It had emerged that in-house engineers represented huge overhead costs when new projects were not being developed in house.

A Likely Future Russian Scenario International EPC/EPCM Contractors emphasize management of safety, quality, cost control and schedule. These targets do not always meet expectations but success or failure is measurable. Whereas these targets also exist within the Russian mining resource industry, they are not normally under the control of one entity. There are barriers to be dismantled before the true value of a combined Russian/foreign project management culture can be established. This will require trust and good faith on the part of all parties involved.

Conclusion The evolutionary process suggested in this presentation has been successfully implemented in the past half- century in many parts of the world, resulting in significant rewards for all participants. There is no apparent reason why the Russian resource industries should not adopt the concept.