MONTREAL – SNC-Lavalin has taken the first step in its quest to build a business on refurbishing aging Candu nuclear reactors after Argentina agreed to upgrade its 27-year-old Embalse generating station.
Atomic Energy of Canada Ltd. signed formal agreements Thursday following more than five years of discussions.
The nuclear division of SNC-Lavalin Group (TSX:SNC) will provide direct support until it completes the acquisition of AECL’s Candu reactor division, expected this fall. Candu will then take full responsibility for the project.
The value of the work being carried out by SNC is about $440 million. The total refurbishment will cost more than US$1.3 billion and take some five years to complete.
The reactor is expected to be shut for about 20 months as of late 2013 to replace fuel channels and improve the reliability and safety of the plant.
The Embalse Candu 6 reactor began commercial operation in January 1984. The 648-megawatt unit provides power to nearly four million people in Argentina’s northeast.
The refurbishment will increase the output capacity by about 35MW, Argentina’s planning minister said at a news conference Wednesday in Buenos Aires.
Argentina’s other nuclear power plant, a 360MW unit built by Siemens AG, opened in 1974. A third nuclear plant is scheduled to open later this year, generating 750 MW of power and AECL is among five global contenders being considered by the government to build another plant.
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Patrick Lamarre, head of SNC-Lavalin’s power division, said the refurbishment contract is a good example of opportunities that lie ahead for Candu.
“As the first official contract signed by Candu, this announcement reinforces the positive reputation of Candu technology and in the ability of the company to negotiate and win business,” he said in an email.
The federal government agreed in June to sell the nuclear operation’s commercial division to SNC-Lavalin for $15 million plus future royalties.
SNC agreed to protect about 1,200 AECL jobs.
“It also demonstrates that international clients have faith that this new company has the right technical expertise, financial strength and that it can and will execute to the requirements of the contract.”
Lamarre said the Montreal-based engineering giant hopes to expand its involvement in Argentina’s nuclear industry on this and future projects.
South American countries, especially Argentina, will look at building new reactors as their economies continue to prosper and power demands grow, he added.
There are 34 Candu reactors around the world, including 17 that require refurbishment through 2028. Among them are reactors in Ontario.
“We continue to have good working relationships with all of our clients and maintain ongoing dialogue with each of them to understand their needs and those of their respective reactors.”
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AECL president Hugh MacDiarmid said the Embalse project will “provide several years of high-value work for employees of the Canadian nuclear industry.”
Lamarre said the Argentine contract will impact 350 jobs in Canada, with 90 per cent of the work being carried out in Ontario.
Construction of a new reactor in Ontario would create up to 50,000 person-years of employment, he added.
Refurbishment of the Argentine reactor will require remotely controlled tools and massive, highly shielded machines to work safely due to the radioactive environment.
The retubing and refurbishment of the nuclear station’s reactor will allow the power plant to operate another 25 to 30 years.
The Argentine operator will be the overall manager of the project and will directly carry out all reactor component procurement and oversee the on-site work.
AECL and Candu will provide key technologies and tools to support the retubing along with engineering for plant upgrades.
The client will assume all construction risk, says Frederic Bastien of Raymond James.
“This gives us reassurance the company will remain disciplined and not bet the farm when pursuing life extension and new build project opportunities for the Candu technology,” he wrote in a report.
He said the contract is another positive catalyst for SNC’s stock.
“Not only have the Power and Mining & Metallurgy operations recently won a number of large-scale contracts, but we also expect SNC-Lavalin to eventually return to Libya to finish the jobs it has outstanding in the country.”
On the Toronto Stock Exchange, SNC’s shares closed down 73 cents at C$50.57.
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