SNC-Lavalin considering all options after Codelco contract cancellation

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MONTREAL – SNC-Lavalin Group Inc. 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.”

On Monday, the Montreal-based engineering firm said it was “appalled and surprised” that state miner Codelco ended the US$260-million contract due to alleged quality issues and delays in subcontractor payments and project execution.

“We believe that this termination is unwarranted and in breach of good faith agreements reached by the parties,” SNC-Lavalin said in a statement.

The contract, awarded in November 2016, included engineering, supply and construction of two new acid plants for a smelter at the Chuquicamata mine in northern Chile.

SNC-Lavalin said it is now demobilizing the job site and preparing dispute-resolution actions to recover some of the roughly C$350 million in losses, which the company blames on Codelco and subcontractors.

The announcement from Codelco comes after SNC-Lavalin slashed its profit forecast twice in two weeks earlier this year, stemming largely from problems with the project and plunging SNC’s share price to 10-year lows of around $34.

It also arrives as the firestorm continues to rage around top government officials who allegedly pressured former attorney general Jody Wilson-Raybould to steer prosecutors toward a remediation agreement with SNC-Lavalin.

The would-be deal, also called a deferred prosecution agreement, would allow the company to avoid criminal proceedings on bribery and corruption charges linked to business dealings with Moammar Gadhafi’s regime in Libya between 2001 and 2011.

On Monday, the company walked back a statement by its CEO, who said last week he never cited the protection of 9,000 Canadian jobs as a reason the construction giant should be granted a remediation agreement.

Neil Bruce told The Canadian Press last Wednesday that if SNC-Lavalin is convicted of criminal charges and barred from bidding on federal contracts its workers would end up working for the Montreal-based company’s foreign rivals.

Analyst Yuri Lynk of Canaccord Genuity says investors should not expect any recovery on the mine project losses in 2019.

“Having a contract terminated by the world’s largest copper miner is clearly a hit to SNC’s reputation within the mining industry. It is extremely rare for a project sponsor to cancel a contract with an E&C company, especially so close to completion,” Lynk said in a research note Tuesday.

“All told, this is a minor setback for the company,” he added.