Kinross Gold Corporation’s wholly-owned subsidiary, Kinross Brasil Mineraçao, has agreed to acquire two hydroelectric power plants in Brazil from a subsidiary of Gerdau SA for $257 million, with the plants expected to secure a long-term supply of power for Kinross’ Paracatu mine.
The 90MW Barra dos Coqueiros (BCQ) and 65MW Caçu hydro power plants are located on the Claro River in the neighbouring state of Goias, approximately 660km west of Paracatu. Additional infrastructure is not required for BCQ and Caçu to provide power to Paracatu due to Brazil’s well-developed infrastructure and existing market mechanisms for the transmission and utilization of power.
The acquisition is expected to allow Kinross to significantly lower operating costs at Paracatu by eliminating approximately 70% of future power purchases. In addition, Brazilian legislation provides reduced power tariffs to companies that generate their own power supply. Due to reduced tariffs, the Company expects savings of approximately $15 per ounce, which is included as part of the total expected savings of approximately $80 per ounce of production cost of sales over the life of mine. The plants are also expected to have relatively low operating and maintenance costs.
Both plants have been in operation since 2010 and are expected to supply approximately 70% of Paracatu’s future power needs. The remaining 30% of Paracatu’s power demand is expected to continue to be fulfilled by third party suppliers under fixed term power purchase agreements. The operating concessions for both plants expire in 2037, five years after Paracatu’s mine life is expected to end.
To help facilitate a transition of ownership and management, Kinross expects to assume the existing BCQ and Caçu operations and maintenance contract. Kinross also self-generates power at Tasiast, Kupol and Dvoinoye.
The acquisition is expected to close in approximately three to six months, subject to regulatory approvals and the satisfaction of other conditions precedent.
BofA Merrill Lynch is acting as financial advisor to Kinross, with Pinheiro Neto Advogados and Dechert LLP acting as legal advisors.
In a statement, Kinross said it expects to fund the acquisition by pursuing debt financing of approximately $200 million, with the balance from existing liquidity, which totalled approximately $2.6 billion at year-end 2017.