SNC Dealt Another Blow With Copper Mine Project Cancellation

(Bloomberg) -- SNC-Lavalin Group Inc., the embattled engineering firm at the heart of Canada’s biggest political crisis in years, has been dealt another blow in Chile.

Copper producer Codelco said Monday that it canceled a contract worth $260 million to build two new acid plants in the Chuquicamata mine. Montreal-based SNC has “seriously” and “repeatedly” breached aspects of its contracts, according to Codelco, which cited delays in construction and in payments to subcontractors, as well as quality issues.

“Codelco made several attempts to resolve the problems facing the project, with the last attempt in February,” according to the statement from the Santiago-based company.

SNC-Lavalin said in a statement that is “appalled” and “surprised” by the decision that puts the project’s completion and commissioning date further at risk. The company is demobilizing the job site and assessing the legal and financial impact of Codelco’s decision. It is also preparing dispute resolution actions to recover as much as possible of the previously announced losses that are due directly to the client and to poor sub-contractor performance.

Difficulties around the contract were initially flagged by SNC on Jan. 28, when it disclosed trouble at an unidentified mine in Latin America and took a writedown on its energy unit amid a diplomatic spat between Canada and Saudi Arabia. About two weeks later, it said it had failed to reach an agreement with the miner and that the parties would try to settle the dispute with an accelerated arbitration process. SNC cut its profit outlook for a second time and said the impasse would contribute up to a C$350 million ($260 million) negative drag on the mining and metallurgy unit’s fourth-quarter earnings before interest and taxes.

Trudeau Impact

SNC has been at the center of a controversy that has engulfed Justin Trudeau after his former attorney-general said the Canadian prime minister and some of his aides pressured her to intervene to help the construction firm avoid a trial.

SNC has been charged with paying bribes related to work in Libya more than a decade ago. Trudeau has said he supported a so-called deferred prosecution agreement for SNC because the company employs 9,000 people in Canada. The company has since indicated it was giving up on settling the fraud and corruption charges and was focusing on preparing for trial.

SNC’s stock has declined 29 percent since Jan. 25, the last trading day before the company disclosed a “serious problem” with a mining contract. The shares fell 0.6 percent to C$34.35 in Toronto Monday.

Smelter Expansion

Codelco, the world’s largest producer of copper, is investing $2.15 billion to upgrade its four smelters to comply with new regulations that require them to capture 95 percent of emissions.

Work at the smelters in the Chuquicamata and Salvador mines weren’t completed by Dec. 13, when the new rules kicked in, forcing Codelco to halt them. Operations were initially expected to resume at the end of January at Salvador and at the end of February at Chuquicamata.

Codelco on Monday said it now expects to partly resume operations at Chuquicamata during the second half of April. The smelter could be fully operational 15 to 20 days later, the company said.

To contact the reporters on this story: Sandrine Rastello in Montreal at srastello@bloomberg.net;Laura Millan Lombrana in Santiago at lmillan4@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net, Keith Gosman

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