SNC-Lavalin Group Inc. is closing in on its goal of becoming a major player in China's thriving nuclear-energy industry with an agreement for the development in that country of the next generation of Candu reactors.

The Montreal-based global engineering giant said on Thursday it has an agreement in principle for a joint venture with state-owned atomic-power and weapons company China National Nuclear Corp. and manufacturing conglomerate Shanghai Electric Group Co. Ltd. to design, market and build the Advanced Fuel Candu Reactor (AFCR).

SNC signed an initial memorandum of understanding with CNNC to pursue power generation, mining and nuclear-related environmental projects around the world more than two years ago.

Story continues below advertisement

The joint venture to be created – the new company is expected to be registered in China by mid-2017 – is the first between a foreign company and the Chinese nuclear giant involving the development of new technology.

The announcement comes amid an official four-day visit to Canada by Chinese Premier Li Keqiang and efforts by the Liberal government of Prime Minister Justin Trudeau to strengthen Canada's ties with China after a decade of chillier relations between Beijing and the Conservative government of Stephen Harper.

China is the ideal market for the AFCR, given the country's "massive commitment to nuclear," said Sandy Taylor, president of the power division at SNC-Lavalin.

But AltaCorp Capital analyst Chris Murray cautioned that the agreement is only one more step in a drawn-out process.

"It is a very, very slow process," he said. "We don't expect there to be any near-term financial impact."

John Luxat, professor of nuclear safety analysis at McMaster University and a former board member of Atomic Energy of Canada Ltd., said the new reactor technology has a high potential for use in China because of the large number of existing light-water reactors whose spent fuel would be reused by the AFCRs.

Each new AFCR unit would have the ability to use recycled uranium from four light-water reactors to generate six million megawatt-hours of additional carbon-free electricity without needing any new natural uranium fuel, said SNC.

Story continues below advertisement

China currently has more than 33 light-water reactors in operation and 23 more such reactors under construction, according to SNC.

The joint venture is expected to establish two design centres – one in Canada and one in China – to complete the new technology. Completion of the technology "could lead to construction of the world's first two AFCR in China, and possibly subsequent builds in China and around the world," SNC said.

"The potential for this is very, very large" and the joint venture also offers the possibility of exporting the technology to other parts of the world, Mr. Taylor said. Already, CNNC is working on a Candu-based project in Argentina, with SNC's involvement, he said.

SNC bought the Candu unit from Ottawa for $15-million in 2011. But Candu has had a poor track record of selling its technology abroad and questions have also been raised over its cost-effectiveness.

China, however, appears to have endorsed the concept of building reactors that run on recycled uranium.

The agreement announced Thursday is "a great endorsement of our expertise and Candu nuclear technology from the largest nuclear market in the world," Mr. Taylor said in a news release.

Story continues below advertisement

The proposed joint venture follows the signing of a framework agreement in 2014 and is subject to government and regulatory approvals, SNC said.