02/04/2014 04:32 EST | Updated 04/06/2014 05:59 EDT

SNC-Lavalin consortium wins US$764-million sulphuric acid project in Saudi

MONTREAL - SNC-Lavalin and a consortium partner have signed a US$754-million contract to build a large sulphuric acid plant and power station in Saudi Arabia, a development analysts expect to go over well with investors after a recent lull in big deals.

The Montreal-based engineering company said Tuesday that its share of the contract is estimated at US$500 million, representing about 5.5 per cent of its $9-billion backlog as of the third quarter.

SNC-Lavalin (TSX:SNC) and consortium partner Sinopec Engineering Group (SEG) will provide engineering, procurement, construction, commissioning and start-up services for a three-line, 15,150-tonne per day plant. The agreement also includes two, 75-megawatt power plants that will recover heat generated by the acid plant operations.

The project is part of Ma'aden's Waad Al Shamal Phosphate project that involves the conversion of phosphate ore from a mine into various end products, primarily for the agricultural sector.

The sulphuric acid plant is scheduled to open in the fourth quarter of 2016 and will be one of the largest complexes of its kind, SNC-Lavalin said in a news release.

Maxim Sytchev of Dundee Capital Markets said the contract from a long-term SNC-Lavalin customer is a welcome sign after a lull in large contracts of late and fits in with its work in the fertilizer industry.

"It's definitely strategically aligned with where the company is going," he said in an interview.

SNC has a strong relationship with BHP Billiton to conduct potash work in Canada and globally.

Sytchev also said the contract, which will be added to SNC's backlog in the first quarter, further shows that customers are continuing to have faith in the company and management's efforts to overcome past problems.

Analyst Pierre Lacroix of Desjardins Capital Markets said the contract was awarded in December but will be well-received by investors because it helps to build SNC-Lavalin's backlog.

"We suggest that investors take this opportunity to reconsider the stock after the approximate 10 per cent pullback over the last couple of weeks," he wrote in a report.

Lacroix said a number of events over the next three to six months will boost its share price, including a settlement with the Quebec government over bidding practices on engineering and construction contracts.

Also upcoming is the sale of AltaLink and large transportation contracts such as the $800-million light rail project in Waterloo, Ont., and a $3-billion rail link in Sydney, Australia.

SNC-Lavalin is one of the world's leading engineering and construction companies with activities in some 100 countries. It also describes itself as a leader in the sulphuric acid industry, having installed more than 60 plants around the world over the last 25 years.

Ma'aden is a leading Saudi mining and metals company that explores, develops and produces gold, phosphate, aluminium, magnesia, low-grade bauxite and industrial minerals.

SNC-Lavalin is expected to report its fourth quarter and full-year results on March 6. Adjusted profits in the quarter are expected to be unchanged at 63 cents per share on at 13 per cent drop in revenues to $2.1 billion, according to analysts polled by Thomson Reuters.

The company is expected to earn just 27 cents per share on $7.89 billion of revenues for the full year, down from $2.04 per share on $8.09 billion of revenues in 2012.

On the Toronto Stock Exchange, SNC shares closed up one cent at $45.70 on Tuesday.