North American Construction Group Ltd. Announces Five-Year Contract in Queensland, Australia

Rhea-AI Summary

North American Construction Group (TSX:NOA.TO/NYSE:NOA) has announced that its subsidiary, MacKellar Group, has secured a five-year contract with a leading metallurgical coal producer in Queensland, Australia. The contract, valued at approximately $375 million, involves transitioning hired fleet from dry rental to a fully maintained fleet. Set to expire on September 30, 2029, the agreement includes minimum hour commitments and is expected to be fully operational by mid-2025.

To fulfill the expanded scope, MacKellar will invest $50-$55 million in growth capital, primarily in Q4 2024, for an on-site maintenance facility and twenty additional units. This contract significantly boosts NACG's total contractual backlog to over $3.0 billion, marking the second major long-term mining contract awarded in Australia in 2024.

Positive

• Secured a five-year contract worth approximately $375 million
• Increased total contractual backlog to over $3.0 billion
• Expansion of operations in Australia with fully maintained fleet services
• Strengthened long-term client relationship in the metallurgical coal sector

Negative

• Required capital investment of $50-$55 million for new equipment and facilities

Insights

Financial Analyst

This contract award is a significant development for NACG, showcasing the company's expanding presence in the Australian market. The $375 million contract value over five years provides substantial revenue visibility and strengthens NACG's backlog, now exceeding $3 billion. This long-term commitment from a major client underscores the company's competitive position and operational capabilities.

The transition from dry rental to a fully maintained fleet suggests potential for improved margins and deeper client engagement. However, investors should note the $50-55 million capital expenditure required, which may impact short-term cash flows but should drive long-term returns. The gradual ramp-up to mid-2025 indicates a measured approach to growth, potentially mitigating operational risks.

Overall, this contract strengthens NACG's market position and financial outlook, particularly in the growing Australian market. It's a positive indicator for the company's global expansion strategy and ability to secure long-term, high-value contracts.

Mining Industry Expert

This contract highlights the robust demand for mining services in Queensland's metallurgical coal sector. The transition to a fully maintained fleet model indicates a trend towards integrated service offerings in the mining industry, potentially driven by operators seeking to optimize their operations and reduce management complexities.

The five-year term and minimum hour commitments suggest a stable outlook for metallurgical coal production in the region. This could be seen as a positive indicator for the broader mining equipment and services sector, particularly in Australia.

The collaboration between NACG's Canadian and Australian operations to fulfill this contract demonstrates the potential synergies from the company's international expansion. This cross-border cooperation could become a competitive advantage, allowing NACG to leverage its global fleet and expertise to win and execute contracts more effectively.

ACHESON, Alberta, Aug. 28, 2024 (GLOBE NEWSWIRE) -- North American Construction Group Ltd. (“NACG” or “the Company”) (TSX:NOA.TO/NYSE:NOA) today announced that the MacKellar Group (“MacKellar”) has been awarded a five-year contract by an existing client, a leading metallurgical coal producer in the state of Queensland, Australia. The contract leverages an existing agreement to transition hired fleet currently under contract as dry rental to a fully maintained fleet.

The five-year contract has an expiry date of September 30, 2029 and qualifies as contractual backlog given minimum hour commitments in the agreement. Scopes awarded for fully maintained equipment and related services are estimated to result in a total value of approximately $375 million. Contract scopes are expected to be fully ramped up by mid-2025. To achieve the increased scope, the agreement requires an on-site maintenance facility and twenty additional units, for total growth capital of between $50 and $55 million, which will be purchased and constructed by MacKellar primarily in the fourth quarter of 2024.

“We thank this long-term client for their trust and confidence in us and are committed to being their preferred, safe, low-cost contractor for decades to come,” stated Joe Lambert, President and CEO of NACG. “Approximately one-third of the incremental fleet will be provided from Canada and I’m proud of our teams working together to provide solutions for our customer. This is now the second significant award of a long-term mining contract in 2024 in Australia which demonstrates high equipment demand in the region, MacKellar’s strong client relationships and the value proposition that our Australian team and fleet offer. This long-term agreement brings our total contractual backlog well above $3.0 billion and provides the consistency needed by operations personnel to function efficiently.”

About the MacKellar Group 
Operating since 1966, and as a wholly owned subsidiary of NACG since 2023, MacKellar has an enviable reputation in Australia for performance and reliability. MacKellar specializes in heavy earthmoving equipment solutions and has a proud history of working on major mining and civil earthwork projects.

About NACG
NACG is one of Canada and Australia’s largest providers of heavy construction and mining services. For over 70 years, NACG has provided services to mining, resource, and infrastructure construction markets.  

Jason Veenstra, CPA, CA
Chief Financial Officer
P: 780.960.7171
E: ir@nacg.ca

The information provided in this release contains forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “expected”, “estimated” or similar expressions, including the anticipated revenues and backlog to be generated by the contract. The material factors or assumptions used to develop the above forward-looking statements and the risks and uncertainties to which such forward-looking statements are subject are highlighted in the Company’s MD&A for the year ended December 31, 2022 and quarter ending September 30, 2023. Actual results could differ materially from those contemplated by such forward-looking statements because of any number of factors and uncertainties, many of which are beyond NACG’s control. Undue reliance should not be placed upon forward-looking statements and NACG undertakes no obligation, other than those required by applicable law, to update or revise those statements. For more complete information about NACG, please read our disclosure documents filed with the SEC and the CSA. These free documents can be obtained by visiting EDGAR on the SEC website at www.sec.gov or on the CSA website at www.sedar.com.

FAQ

What is the value of the new contract awarded to North American Construction Group (NOA) in Australia?

The five-year contract awarded to North American Construction Group's subsidiary, MacKellar Group, in Queensland, Australia, is estimated to have a total value of approximately $375 million.

When will the new contract for North American Construction Group (NOA) in Australia be fully operational?

The contract scopes are expected to be fully ramped up by mid-2025.

How much will North American Construction Group (NOA) invest in growth capital for this new contract?

North American Construction Group will invest between $50 and $55 million in growth capital, primarily in the fourth quarter of 2024, for an on-site maintenance facility and twenty additional units.

What is North American Construction Group's (NOA) total contractual backlog after this new contract?

With this new contract, North American Construction Group's total contractual backlog now exceeds $3.0 billion.