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A truck is loaded with iron ore at a Rio Tinto mine in Western Australia. (RIO TINTO/REUTERS)
A truck is loaded with iron ore at a Rio Tinto mine in Western Australia. (RIO TINTO/REUTERS)

Eye on Equities

A happy new year seen for SNC-Lavalin Add to ...

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.

Related: Why engineering firms are buys as stimulus sprees end

Cline Mining Corp. has begun underground production from two coal seams at its New Elk mine in Colorado after receiving regulatory approval for the start up. A run rate of 3.0 million tonnes of coal annually is expected to be reached by the end of 2011, ahead of earlier guidance, noted Jennings Capital Inc. analyst Russell Stanley.

Upside: Mr. Stanley hiked his 12-month target by $1.50 to $5.50 and maintained a "speculative buy" recommendation.

Dollarama has just completed a secondary offering of 12.9 million shares and continues to post strong improvements in key operating metrics, including same-store sales growth, noted Raymond James Ltd. analyst Kenric Tyghe. The company is making good progress with its Western Canada expansion, but average ticket price increases will moderate going forward, he said.

Upside: Mr. Tyghe hiked his six- to 12-month target price by $2 to $32.

Related: Dollarama sales surge 13.7%

Mullen Group Ltd. has made three acquisitions for undisclosed terms that will expand its fluid handling and hauling businesses. Together, Mullen expects the new businesses will generate $42-million in annualized revenue to its Oilfield Services division, noted Raymond James analyst Andrew Bradford, who raised his 2011 earnings before interest, taxes, depreciation and amortization estimate to $227-million from $214-million.

Upside: Mr. Bradford hiked his six- to 12-month target price by $1.25 to $17.

Nunavut Iron Ore Acquisition Corp. has revised its offer to Baffinland Iron Mines Corp. shareholders to $1.40 in cash a share from $1.35, but for a 60 per cent stake instead of 50.1 per cent. The non-cash portion of the proposal has been modified to offer four-tenths of a warrant to each Baffinland shareholder instead of a revenue royalty on reserves.

Upside: Tom Meyer of Raymond James recommends shareholders tender to Arcelor Mittal's competing $1.25 all-cash bid for 100 per cent control, believing that the Nunavut bid will be subject to further share dilution and other risks.

Related: Nunavut improves its pitch for Baffinland

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