At an estimated cost of $15-billion, Ontario's new nuclear power plants represent one of Canada's largest infrastructure projects. With this much money at stake, you knew the Street would have an angle.
On Friday, a provincial Crown corporation called Infrastructure Ontario announced three groups bid for the right to build two new reactors in the Toronto suburb of Darlington: Atomic Energy of Canada Ltd, the home team, France's Areva and a U.S. firm, Westinghouse. CIBC World Markets analyst Paul Lechem projects the 10-year construction contract will be worth $15-billion, and a winner will be announced in June.
There is enormous political and business intrigue surrounding this mandate, in part because AECL, a federally owned Crown corporation, is up for sale. The value of AECL hinges on winning the Darlington contract, which represents the first reactors built in Ontario in a generation. And in case you haven't noticed, there's no lost love between Ontario's Liberals and the federal Conservatives.
It's all quite delicious, and in handicapping the race, CIBC World Market's Mr. Lechem said Monday in a report: “Politically we believe that federally owned AECL, with 4,800 employees in Canada, is the favourite.”
But he went on to say: “We believe that Areva has the most advanced reactor design, with its next-generation reactor under construction in Finland (albeit with cost overruns).” As for the third horse in this race, Mr. Lechem said: “We view a Westinghouse win as less likely, with construction of its next-gen reactor not as far along, and less of a Canadian presence.”
Here's the angle for investors: A key member of the AECL consortium is publicly traded SNC-Lavalin Group, the construction and engineering conglomerate. And Mr. Lechem doesn't see the prospect of a win on the Ontario reactor contract reflected in SNC-Lavalin's share price.
“The potential structure of the contract (including the absorption of cost overruns) remains unclear,” said Mr. Lechem. But he has a $42 target price on SNC-Lavalin, which is changing hands Monday at $27.90 on the TSX, and said that he foresees “potential upside should AECL win the Darlington bid.”
