Kinross announces acquisition of power plants in Brazil to secure long-term, low-cost power for Paracatu mine
February 14 2018 - 5:00PM
(This news release contains forward-looking
information about expected future events and financial and
operating performance of the Company. All dollar amounts are
expressed in U.S. dollars, unless otherwise noted.)
Kinross Gold Corporation (TSX:K) (NYSE:KGC) (“Kinross”) is pleased
to announce that its wholly-owned subsidiary, Kinross Brasil
Mineraçao, has agreed to acquire two hydroelectric power plants in
Brazil from a subsidiary of Gerdau SA (NYSE:GGB) (“Gerdau”) 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.
Strategic rationale for
acquisition
- Lower production costs – expected to lower
production cost of sales by approximately $80 per ounce over the
life of mine.
- Attractive returns – expected to generate a
levered internal rate of return of approximately 15% - 30%,
depending on the final terms of a planned debt financing.
- De-risked supply chain – expected to secure
approximately 70% of Paracatu’s anticipated power needs for the
life of mine at a low, fixed cost and reduces market exposure for a
key input in an environment where the Company expects input costs
to rise.
- Strategic investment in core
asset – expected to further strengthen and enhance
Paracatu, a large, long-life operation that is a cornerstone asset
in Kinross’ portfolio.
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.
BofA Merrill Lynch is acting as financial
advisor to Kinross, with Pinheiro Neto Advogados and Dechert
LLP acting as legal advisors.
About Kinross Gold
Corporation
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).
Media Contact Louie
DiazDirector, Corporate Communicationsphone:
416-369-6469louie.diaz@kinross.com
Investor Relations ContactTom
Elliott
Senior Vice-President, Investor Relations and Corporate
Development
phone:
416-365-3390
tom.elliott@kinross.com
Cautionary statement on
forward-looking information
All statements, other than statements of
historical fact, contained in this news release, including any
information as to the future financial or operating performance of
Kinross, constitute “forward-looking information” or
“forward-looking statements” within the meaning of certain
securities laws, including the provisions of the Securities Act
(Ontario) and the “safe harbor” provisions under the United States
Private Securities Litigation Reform Act of 1995 and are based on
the expectations, estimates and projections of management as of the
date of this news release, unless otherwise stated.Forward-looking
statements contained in this news release include, but are not
limited to, those under the heading "Strategic rationale for
acquisition." Forward-looking statements are necessarily based upon
a number of estimates and assumptions that, while considered
reasonable by Kinross as of the date of such statements, are
inherently subject to significant business, economic and
competitive uncertainties and contingencies. The estimates and
assumptions of Kinross contained in this news release, which may
prove to be incorrect, include, but are not limited to: (i) that
Kinross will complete the acquisition in accordance with, and on
the timeline contemplated by, the terms and conditions of the
relevant agreements, on a basis consistent with our expectations;
(ii) the anticipated impact of the acquisition on reducing
production cost of sales; (iii) the internal rate of return
expected to be realized as a result of the acquisition; (iv) future
prices for electricity in Brazil being consistent with our
expectations; (v) there being no significant disruptions in the
operation of the power plants following completion of the
acquisition; (vi) that existing infrastructure and market
mechanisms are adequate for the power plants to provide power to
Paracatu; (vii) that existing tariffs in Brazil for companies that
generate their own power remain available and unchanged; (viii) the
operating and maintenance costs of the power plants being
consistent with our expectations; (ix) the life of mine estimate
for Paracatu; (x) that Kinross will be able to acquire sufficient
additional power from other suppliers; (xi) that the existing
operations and maintenance agreement for the power plants can be
assumed by Kinross and maintained on terms and conditions
consistent with our expectations; (xii) the future power needs of
Paracatu being consistent with our expectations; (xiii) output from
the power plants being consistent with our expectations; (xiv) the
ability of Kinross to complete a debt financing in the amount
contemplated with timing complementary to closing the acquisition;
and (xv) the regulatory and legislative regime regarding mining,
electricity production and transmission (including rules related to
power tariffs) in Brazil being consistent with our
expectations.
The forward-looking information set forth in
this news release is subject to various risks and other factors
which could cause actual results to differ materially from those
expressed or implied in the forward-looking information, including
the risk that the transaction will not be completed for any reason,
Kinross’ ability to successfully integrate the acquisition of the
power plants into existing operations, and operating or technical
difficulties in connection with mining, development or power
generation and transmission activities. Certain of these risks and
other factors are described in more detail in Kinross’ most
recently filed Annual Information Form in the section entitled
“Risk Factors” and the “Risk Analysis” section of our most recently
filed Management’s Discussion and Analysis, to which readers are
referred and which are incorporated by reference in this news
release. In addition, all forward-looking statements made in this
news release are qualified by the full “Cautionary Statement” in
such Annual Information Form and the “Cautionary Statement on
Forward-Looking Information” in such Management’s Discussion and
Analysis. These risks and other factors are not exhaustive. Kinross
disclaims any intention or obligation to update or revise any
forward-looking statements whether as a result of new information,
future events or otherwise, or to explain any material difference
between subsequent actual events and such forward-looking
statements, except to the extent required by applicable law.
Other information
Where we say "we", "us", "our", the "Company",
or "Kinross" in this news release, we mean Kinross Gold Corporation
and/or one or more or all of its subsidiaries, as may be
applicable.
Source Code: Kinross Gold Corporation
1 Assumes foreign exchange rate of 3.25 Brazilian reais to the
U.S. dollar.
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