SNC-Lavalin shares dive after it cuts profit forecast a second time over mining dispute in Latin America
Canadian construction and engineering firm SNC-Lavalin Group Inc on Monday cut its full-year profit forecast for the second time, citing dispute with a client related to a mining project in Latin America.
Shares dropped more than seven per cent to $33.97 in early afternoon trading Monday.
SNC did not name the customer, saying the matter was confidential, but analysts said the dispute was related to one of the company’s projects with Chile’s Codelco, which ran into environmental and labour union challenges last year.
SNC won a contract from Codelco to help upgrade the Chuquicamata copper mine in Chile in 2012, followed by a deal to build sulphuric acid plants at the mine in 2016. Last year, Chile’s state miner faced mass protests at the mine as the planned overhaul faced delays due to technical issues and rising costs.
The challenges on the project are mainly due to unexpected site conditions, environmental and safety measures, as well as underperformance from sub-contractors, SNC said in a statement.
Due to the negative impact from the project, the core earnings for the fourth quarter from its mining and metallurgy unit could record a loss of up to $350 million, the company said.
SNC-Lavalin said it aimed to complete the project in the second quarter of 2019 as it had agreed to settle the dispute with the help of an independent third party.
The company now expects its 2018 adjusted profit of $1.20 to $1.35 per share, down from its prior forecast of $2.15 to $2.30 per share.
SNC had earlier cut its profit forecast in January, citing troubles related to the project and ongoing trade challenges in Saudi Arabia.
“All told, the setback on the Mining & Metallurgy (M&M) project is disappointing but management provided important clarity on its 2019 outlook and financial standing,” said Canaccord Genuity analyst Yuri Lynk in a note.
Since there are no new mining projects in its segment and the project is scheduled to wrap up soon, SNC could recover a portion of these losses in the future, Lynk added.
SNC said it expects 2019 adjusted profit outlook to be in the range of $3.00 to $3.20.
The company is set to report its fourth-quarter results on Feb.22.
© Thomson Reuters 2019
Published at Mon, 11 Feb 2019 19:13:06 +0000