North American Construction Group Ltd. (NYSE:NOA) Q3 2023 Earnings Call Transcript

Joe Lambert: To me, the three big drivers are our low cost provider status. Also, mining equipment, I guess a lot of people may not know the mining equipment world. But these aren’t like automotive. They don’t make hundreds of thousands of vehicles. They literally make dozens. When you look at these big trucks, they make dozens a year for a worldwide mining market. So it’s just supply and demand. Like I said, these are first principles basis. We don’t — I’m sure there’s some anxiety about contract timing and things like that. This isn’t an emotional base forecast. This is supply and demand. Every new truck, every new piece of equipment that comes into Fort McMurray, we know because there’s only one road in and one road out and we see every piece of equipment that comes in there.

We know what manufacturers capabilities are as far as putting out fleet, because we asked for that fleet too and we know the timing. I’ll give you an example of some of the largest shovels, hydraulic shovels in the world. You’d be two years out on some of them. Some of them aren’t even tier four compliant yet, so they can’t even sell them in Canada. So I think just understanding the market and the demand. We know what the volumes that are supposedly going to be required, because our clients have told us how much contractor volumes there are in the haul distances. So really, this isn’t pie in the sky thinking. This is just straight supply and demand calculations off of equipment and availability and how fast it could come in or not. And then the fact that we think as a safe low cost provider, we’re going to be the last one standing anyways, even if this market did cut back, which we don’t think is going to happen.

And we also see a lot of opportunity outside of oil sands in some of the other commodities.

Tim Monachello: Okay. I appreciate all that. If in a worst case scenario, you did start to see declining demand, how early do you think you would start to see signals in the market, customers buying equipment or contractors being laid off? Like, is that something that you would see with relatively good lead time that you could move equipment to better opportunities? Do you think that could be a sudden shift?

Joe Lambert: No, I think we’d see it. I think our customers would announce it, frankly, especially with the strength of the relationship with the Mikisew, who have significant investment in our capital assets. They’re also partners with our producers on things like the tank farm. So I think there’s a longstanding relationship there. No one’s going to — we’re not going to pull out of oil sands overnight and leave our customers hanging, and I don’t think they’d do that to us either. So in my opinion, Tim, I think we’d have years of forewarning.

Tim Monachello: Okay, that’s helpful. Second, one question here. Just to follow up on the bid pipeline question. You not only did expand, but you have some pretty large blue circles probably 3 billion or so worth that have come into that preferred opportunities and extensions category. Wondering if you can speak to those and what makes those preferred.

Joe Lambert: What makes them preferred is that we have existing relationships with the client. And the two biggest ones are the regional tender and working Baffinland, which we’d look at with Nuna, if you’re looking at the preferred opportunities.

Tim Monachello: Yes, but there’s like three sort of larger blue circles in 2025 area.

Joe Lambert: Yes, there’s a major mining reclamation for a diamond mine with the relationship that we’ve had in the past through Nuna. There’s Baffinland iron stuff for Nuna and then there’s the regional health tender.

Tim Monachello: Okay. And then as it relates to the Northern Ontario gold mine, the contract just ended for Nuna, do you think you’re going to be able to find work for that out east or is that being immobilized back to the oil sands now?

Joe Lambert: I think we will be moving some of this stuff back to oil sands. I think the excavators and then the trucks I think we’re sitting on right now we’re evaluating the tenders that are in Ontario and Quebec. We also — one of the things Barry is doing in Australia is we’re looking at some of the opportunities, whether we should be shipping some of those over to Australia and addressing some of the demand in the Western Australian marketplace, which fits those smaller trucks more.

Tim Monachello: Okay, that’s really helpful. I’ll turn it back. Look forward for an exciting 2024.

Joe Lambert: Thanks, Tim.

Operator: Your next question comes from Sean Jack of Raymond James. Your line is already open.

Sean Jack: Hi. Good morning, guys. Just really quickly wanted to look back at Slide 16 and just ask, how sensitive is the guidance for 2024 to some of the key steps shown here? And would there be a critical step that you would highlight as kind of the most influential to your guidance success in kind of hitting the midpoint?

Joe Lambert: I’d share in this integration I think the key for us would be in the ERP implementation. But I don’t think that prevents anything from happening. As Jason said, they’re on this burn rate right now in Q4. And obviously, we haven’t done anything yet. So we see most of this as being upside opportunities and sharing best practices. And that’s really where we see the synergy of the deal. It’s really not shown in it right now.

Sean Jack: Okay, perfect. And just quickly, I know that you’ve spoke a lot about transmission metals and the market there in Australia when the deal was originally announced. Just for context, when you guys are now kind of looking a bit more closely at the bid pipeline down in Australia, are you seeing many immediate options in that space right now?