Kinross Gold Corporation (USA)(NYSE:KGC) reported that its wholly-owned subsidiary unit, Kinross Brasil Mineraçao, has accepted to buy two hydroelectric power plants from a subsidiary unit of Gerdau SA (ADR)(NYSE:GGB) for $257 million. The two plants, which are based in Brazil, are anticipated to obtain a long-term power supply for Kinross’ Paracatu mine, leading in reduced production costs over the course of mine life.

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Kinross Gold anticipates to fund the reported deal with Gerdau subsidiary by pursuing debt financing of around $200 million, with the balance sum from existing liquidity, which totaled around $2.6 billion at year-close 2017. The company reported that the acquisition is anticipated to reduce production cost of sales by around $80 an ounce over the course of mine life. It is projected to generate an internal rate of return of nearly 15% – 30%, based on the final terms of an intended debt financing.

The agreement is projected to obtain around 70% of Paracatu’s expected power requirements for the life of mine at a fixed cost and lowers market exposure for a major input in a setting where the firm anticipates input costs to rise. The investments in core asset will further enhance and strengthen Paracatu that is a cornerstone asset in portfolio of Kinross gold. Also, as per the latest update Kinross Gold has agreed to buy Barra dos Coqueiros and Caçu hydro power plants set on the Claro River in the adjacent state of Goias, around 660 kms west of Paracatu.

The acquisition is anticipated to enable Kinross to significantly reduce operating costs at Paracatu by removing around 70% of imminent power purchases. Moreover, Brazilian legislation offers reduced power tariffs to firms that generate their power supply. Following lowered tariffs, the firm anticipates savings of around $15 per ounce, which is comprised as part of the total anticipated savings of around $80 an ounce of production cost of total sales over the course of mine life.