Darcy Keith

Globe and Mail Update

14:01 EST Thursday, December 30, 2010

With copper striking fresh record highs and other base metals on a firm footing, 2011 is being ushered in with optimism for not just the raw material producers themselves but also for the companies that provide some of the construction and engineering work.

Canada’s own SNC-Lavalin Group Inc. is one of the biggest such players, and Canaccord Genuity is out today with an upbeat report on the company after meeting with Feroz Ashraf, head of its mining and metallurgy division.

Much of Canaccord’s bullish view stems from a solid global mining outlook. Based on a recent survey of senior industry executives published in the Financial Times, global mining spending may hit a record $115-billion to $120-billion (U.S.) in 2011, above the peak of $110-billion in 2008. Meanwhile, capital expenditures by some of the largest producers, such as Vale and Rio Tinto, could double or triple based on recent spending plans, noted analysts Yuri Lynk and Catherine Siu.

Recent contract wins in the copper arena, including the Cobre Panama mine in Panama and the Jabal Sayid mine in Saudi Arabia, will drive growth in SNC-Lavalin’s mining and metallurgy division in 2011, the analysts said.

“In our opinion, SNC-Lavalin is perhaps the best positioned (engineering and construction firm) in our coverage universe heading into the new year,” said the two analysts, who also follow Fluor Corp. and Jacobs Engineering Group Inc. They “conservatively” see SNC-Lavalin’s backlog at $13.5-billion by year-end, up 26 per cent year over year, and that figure may continue to grow. “Recent large contract awards, such as the Lower Churchill Power Services contract that we estimate is worth $500-million, make it likely we will see continued strong earnings growth into 2012,” they said.

Upside: Canaccord Genuity reiterated its “buy” rating on SNC-Lavalin and $65 target price.