North American Construction Group Ltd.
(NOA-T, NOA-N) C$33.45 | US$24.61
Announces MacKellar Contract Extension
Event
North American Construction Group (NACG) announced a five-year MacKellar
contract extension from a major metallurgical coal producer.
Impact: POSITIVE
Details: NACG announced that MacKellar has been awarded a five-year contract
extension through to June 30, 2030 (June 6, 2025 previously) by a major
metallurgical coal producer for a mine located in Queensland. The contract extension
rental scope adds $500 million ($100 million annually) to NACG's backlog. Under
the contract, two loading units and one service truck with an estimated cost of $20
million to $25 million will be purchased in Q4/24. It is unclear if this capital spending
is already contemplated within, or is incremental to, management's previously
disclosed $220.0 million to $240.0 million 2024 capital-spending guidance. Following
these investments, NACG will be utilizing ~70 heavy equipment units at this site.
TD View: Given that management characterized this as an extension, we do not
view the backlog additions as incremental to our forecasts, but rather de-risks
MacKellar's long-term viability and cash-flow-generating capabilities. In this context,
our 2024 EBITDAS estimate of $449.9 million remains unchanged at the midpoint of
management's guidance range of $430.0 million to $470.0 million. NACG is known
for being an excellent operator in its core oil sands region, and we believe that this
long-term extension is an endorsement of NACG and its acquisition of MacKellar by
a core customer, as well as the continued effort of the previous management team
as it works toward the earn-out. NACG will report Q4/23 results on March 13, 2024
after market close, and we will revisit our target, rating, and estimates at that time.