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Finning International rides Chile's resource boom

Vancouver-based Finning International Inc. is one of Canada's great growth stories in Latin America, and a key architect is Juan Carlos Villegas. The 57-year-old is the Chilean-based president of Finning South America, which he joined 14 years ago and has seen grow eight-fold to $2.15-billion in annual revenues and more than 6,300 people. As the world's largest Caterpillar dealer, Finning's sales of mining and other equipment make it the fourth largest business importer to Chile, in addition to its operations in Argentina, Uruguay and Bolivia.

How do you break down your business?

A significant proportion is in Chile and a significant proportion of that is mining. The mining part of our business is $1.5-billion in revenue and growing because now we are going to be adding Bucyrus Chile with its big shovels.

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It allows us to give the customers an overall portfolio of solutions – we have the [Caterpillar]bulldozers to the large trucks, and now we are adding more loading tools, and pretty soon we will add to our underground mining capabilities.

Have you been riding the Chilean resource boom?

Gold and copper, but copper mostly, and it has been incredible. It is because of China and world demand for sure, but also Chile is one of the lowest-cost producers in the world. There is a very solid group of mining professionals and there is a lot of mining tradition.

Is there a challenge in all this growth for Chilean mining?

In terms of projects ahead, there are $91-billion (U.S.) in declared investments in mining over the next five to six years.

At this point, 230,000 Chileans work in mining, but if all those $91-billion in projects become reality, the mining industry will need another 200,000 people. We will have to add the same number of jobs in five years that we accumulated in the 80 years of mining before.

Where will they come from?

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What we are doing at Finning is attracting younger people, who have not been involved in mining much, and women. We have launched a number of programs; for example, a training program for the last two years of high school, in which half of the time the students go to school and half the time they train and are working in our shops. And we try to make it attractive and comfortable for women working in this environment.

So finding workers is a major issue in Chile's future?

Chile has three main challenges to accomplishing all this investment and growth: energy, water and people.

The same as Canada faces?

Exactly. Canada had the real peak demand for people in 2005 to 2007 and, after the slowdown, it is starting to come back again.

In past years, we tried to export people to Canada, which was good for two things: It gave an added labour force to Canada and we could train people there to bring back to Chile. But it is not that easy for technicians, the people most in demand – mostly because the unions in Canada are not 100-per-cent open to bringing in a labour force from outside. So that didn't really pick up in a big way.

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And now it is a different world?

Now we are lacking people as well, so [sending people to Canada]is not going to happen. We need to bring people from outside, from Europe and Thailand and other places. And there is a language barrier. The problem is, we all tend to learn foreign languages very young and it is much harder after a certain age. When you need an experienced mechanic, you want all their expertise all the time and not having them learning a language.

The great fear is that by creating all this mining industry we will take people away from all other industries. We are thinking the low-paying jobs will be filled by people coming from other places.

Is Chile a good place for Canadian companies to invest?

The Canadian business culture is well-respected here. And if things stay on the same track, prospects are good for the next seven to 10 years. If we solve the energy and water problems, this country will be in good shape.

Isn't there strong opposition to proposed hydro projects in beautiful Patagonia in the south?

As with most things, there are people who are very happy and people who are not. Sometimes the people who are unhappy are the ones making the most noise. The Patagonian situation is confined to a small territory and it is not the dams but the transmission lines that are the issue.

But we have been lagging in energy investment for many years. I don't think we have that many other solutions inside the country. We have water that can be used in the south of Chile, but in the north we have none.

How do you deal with the economic cycles in commodities?

Managers in Latin America are used to managing ups and downs. That has been our story – we've been doing that forever. We are always alert for those signals.

In the 2008-2009 crisis, Finning South America saw it coming so we started cancelling orders way before the real issue came. We told customers in October [2008] "this is starting to look not that good, and you could cancel now with no charge. But if you cancel in December, you will pay a charge." A lot of customers cancelled. We restructured quickly and we only dropped 10 per cent in revenues and 7 per cent in profits.

But we made a commitment that we would not dismiss people, and we didn't. So when things started picking up, we were ready and we jumped straight up again.

Are you still being cautious?

We are cautious about Argentina, which is about 23 per cent of our business. It is a real concern and we are putting on the brakes there. I think they are going to be in trouble and there could be a devaluation in the not-too-distant future. They are in 2008 again. On their own.

We bought the Argentina business when it was $70-million or less in revenue, and last year, after nine years, it was $475-million. If we have a downturn there, it may go for a year or two and then it will come back. We need to be there and maintain our business.

Are the economies of Chile and Argentina closely linked?

Chile's exports to Argentina are minimal, and vice versa. It is like a neighbourhood where you keep your relationships but you don't invite each other to parties very often.

Don't you worry about a future dependent on commodities and the copper price, which has slipped from $4 to $3.60 or so a pound?

We are very dependent on China. If something happens to the United States, it may not affect us, but something happening in China really complicates things. We worry.

Having said that, Finning would find it better with a copper price closer to $3 than to $4. That's because at $2.50 to $3, customers moderate their investment and the economy is not running so hot. We can grow steadily and our bottom line doesn't suffer as much.

But a hot economy with $4 copper is crazy – you are running all the time, you are competing for people, the costs escalate. It is a good story, but not a great story.

If copper comes down to $1, you have a problem but everybody has a problem. But if copper stays above $2, the business is not fantastic, maybe, but we are in a territory that is the lowest-cost producer.

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