Kinross $256 Million Acquisition of power plants in Brazil


Pinheiro Neto, Dechert and Lino, Beraldi, Belluzzo e Caminati Advogados advised on the deal

Kinross Gold Corporation (TSX:K) (NYSE:KGC), through its wholly-owned subsidiary, Kinross Brasil Mineraçao, has agreed to acquire two hydroelectric power plants in Brazil from a subsidiary of Gerdau SA for $257 million1. The two plants are expected to secure a long-term supply of power for Kinross’ Paracatu mine, resulting in lower production costs over the life of mine.

Kinross 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.

Kinross has agreed to acquire the Barra dos Coqueiros (BCQ) and Caçu hydro power plants located on the Claro River in the neighbouring state of Goias, approximately 660 kms 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, as is typical with hydroelectric power plants.

Both plants have been in operation since 2010 and have a total installed capacity of 155 MW (BCQ – 90 MW; Caçu – 65 MW), 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.

Kinross is a Canadian-based senior gold mining company with mines and projects in the United States, Brazil, Russia, Mauritania, Chile and Ghana. Kinross’ focus is on delivering value based on the core principles of operational excellence, balance sheet strength, disciplined growth and responsible mining. Kinross maintains listings on the Toronto Stock Exchange (symbol:K) and the New York Stock Exchange (symbol:KGC).

Pinheiro Neto advised Kinross Brasil Mineração S.A. with Álvaro Uliani Martins dos Santos (Picture), Roberta Stettinger Bilotti Demange, Giovana R. de Sá Silva nad Eduardo Comparato F. de Sá.

Dechert LLP. advised Kinross Brasil Mineração S.A. with Bernardo L. Piereck, Laura Brank and Guilherme Smolarek de Barros.

Lino, Beraldi, Belluzzo e Caminati Advogados advised Gerdau Aços Longos S.A. with Roberto Lourenço Belluzzo, Marina Burin and Marcussuel Laurindo da Silva.

Involved fees earner: Roberto Lourenço Belluzzo – Lino, Beraldi, Belluzzo e Caminati; Marina Burin – Lino, Beraldi, Belluzzo e Caminati; Bernardo Piereck – Dechert; Laura Brank – Dechert; Alvaro Silas Uliani Martins dos Santos – Pinheiro Neto; Roberta Stettinger Rossi Bilotti Demange – Pinheiro Neto; Giovana R. de Sá Silva – Pinheiro Neto;

Law Firms: Lino, Beraldi, Belluzzo e Caminati; Dechert; Pinheiro Neto;

Clients: Kinross Gold Corporation; Gerdau Aços Longos S.A.;

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Author: Ambrogio Visconti.