UPDATE 4-Aecon sees C$56-C$59 mln hit from Suncor project

* Says losses limited to 2010, won't affect 2011

* Q4 results seen generally in line with expectations

* Says talks with Suncor not yet concluded

* Aecon shares tumble, touch two-year low (Adds analysts' comments, background, updates stock price)

By Susan Taylor and Bhaswati Mukhopadhyay

OTTAWA/BANGALORE, Feb 4 (Reuters) - Aecon Group Inc (ARE.TO) said on Friday it will take an operating loss of C$56 million to C$59 million on a major oil sands construction project, sending its stock to a two-year low.

Aecon, Canada's biggest publicly traded construction company, said the loss on the project for Suncor Energy Inc (SU.TO) will result in a fourth-quarter 2010 loss for its industrial unit, but will not affect 2011 financial results.

The company said it expects the hit from the project will be between C$40 million and C$42 million after tax.

Aecon shares slumped more than 19 percent to C$7.95 on Friday morning on the Toronto Stock Exchange before edging back up to C$8.77, for a loss of C$1.09, or 11 percent.

The company said fourth-quarter results will be "generally in line with management expectations". Analysts forecast, on average, earnings of 26 Canadian cents a share on revenue of C$717 million, according to Thomson Reuters I/B/E/S.

Aecon's industrial division, involved in in-plant construction and fabrication of specialty pipes, accounted for about one-third of the company's revenue in the third quarter.

The loss reflects change orders, or revisions to plans, to complete field construction at Suncor's Firebag 3 central plant facilities, near Fort McMurray, Alberta.

Aecon, which turned the project over to Suncor -- Canada's biggest energy company -- at the end of last year, said in a statement that change order talks were still on.

Aecon was not immediately available for further comment.

Reflecting tougher market conditions when the contract was signed in November 2009, the fixed-price deal essentially paid Aecon a set amount regardless of cost overruns.

In good financial times, Aecon typically works under cost-plus contracts, which pay expenses to a set limit plus an additional payment to allow for profit.

"In a nutshell, this is what can happen when you get a contractor that traditionally operates on a cost-plus basis now suddenly thrown into a fixed-cost environment," Canaccord Capital analyst Yuri Lynk said.

"The good news is that this project is behind Aecon, it has been a bit of an overhang. And you can definitely bet that they've learned a lot from it -- and their next project, they're unlikely to make the same mistakes."

Lynk cut his stock target on Aecon to C$12 from C$11.25 and maintained his "hold" rating.

CIBC World Markets analyst Paul Lechem said a number of issues likely contributed to the loss, including job complexity, the volume of change orders and tight deadlines.

Suncor said this week that Firebag 3 cost overruns were in the C$200 million to C$300 million range, said NCP Northland Capital Markets analyst Maxim Sytchev, suggesting fixed-price contracts are unsuitable for very large, complex projects.

There are indications that better times for the oil sands sector are starting to translate into tenders for work on a cost-plus contracts, he added.

"Given what we're seeing, and expecting over the next 12 to 24 months, the amount of work that will be coming into the oil sands is tremendous," Sytchev said.

Aecon said it remains "optimistic" about the oil sands sector and continues work on a number of Suncor sites, including the Firebag 4 cogeneration project and Millennium Naphtha unit.

Paradigm Capital analyst Corey Hammill said he believes that Aecon's work on Firebag 4, which began this week, is worth about C$100 million and is being done on a cost-plus basis.

Last August, Toronto-based Aecon bought privately owned Cow Harbour, an oil sands services company, to stake a deeper claim on a revival in Western Canada's oil sands industry. [ID:nSGE6780CS]

($1=$0.99 Canadian) (Reporting by Susan Taylor in Ottawa and Bhaswati Mukhopadhyay in Bangalore; editing by Rob Wilson)