Chilean debacle another ‘hit’ to SNC’S image

As it battles federal criminal charges in Canada, Snc-lavalin Group Inc. has found itself in a dispute with yet another government entity — the Chilean stateowned copper miner Codelco. On Monday, Codelco fired SNC from a $350 million contract to build two sulphuric acid plants, citing construction delays and quality issues.

It marks a third front on which the Montreal-based engineering and construction giant has gotten crosswise with a government entity, in addition to Canada and Saudi Arabia. The incident underscores how much of SNC’S expansive business — which includes work on nuclear facilities, construction and design for oil and gas facilities and also clean power projects — is connected to government-funded contracts.

“Having a contract terminated by the world’s largest copper miner is a clearly a hit to SNC’S reputation within the mining industry,” Yuri Lynk, an analyst with Cannacord Genuity Corp. wrote on Tuesday. “It is extremely rare for a project sponsor to cancel a contract … especially so close to completion.”

Derek Spronck, an analyst with RBC, wrote that the latest news suggests SNC’S relationship with Codelco has “further soured” and could make any recoveries of the money it already spent to build the project more difficult.

Still, both analysts described the impact of the incident as minimal, in part because mining accounted for less than five per cent of SNC’S revenue in 2018, and the company has already written off the entire Codelco project as a $350 million loss; but also because the company is shifting its business strategy away from such high-risk construction projects.

Snc-lavalin said it is leaving the door open to a lawsuit against Chile’s state-owned copper mining company, which has terminated its contract with the construction giant. “We have to see if legal actions will be taken,” spokesman Nicolas Ryan said Tuesday. “We’re looking at all the options.”