Brazilian steel producer Gerdau S.A. GGB, on Feb 14, announced that it has signed an agreement to sell two of its Goias-based hydroelectric power plants to a business unit of Kinross Gold Corporation KGC. The transaction value has been estimated at R$835 million.
Kinross Gold Corporation is a Canada based mining company, operating in various countries including Brazil, Chile, the United States, Russia, Ghana and others. Its fully-owned subsidiary — Kinross Brasil Mineraçao — will be purchasing the twin hydroelectric power plants of Gerdau.
In the last two days, the company’s American Depository Receipts have gained roughly 6.4%, ending the trading session at $4.67.
Details on the Deal
As revealed, Gerdau’s to-be-divested hydroelectric power plants — Barra dos Coqueiros and Caçu — together can generate up to 155 MW of electricity. Of this, the installed capacity of Barra dos Coqueiros plant is 90 MW and that of Caçu plant is 65 MW. These plants are located on the River Claro.
Subject to receipt of regulatory approvals and fulfillment of customary closing conditions, the transaction is anticipated to be completed in the coming three to six months.
What Does Divestment Mean for Gerdau?
Over time, Gerdau has been restructuring its business portfolio inorganically, aiming at strengthening its core and profitable businesses. To this end, the company divested its business unit — Premier Thermal Solutions, L.L.C. — to Z Capital Partners, L.L.C. in the first half of 2017 and signed an agreement to sell its long steel industrial units in Chile in October 2017.
In January 2018, the company signed a definitive agreement to sell some of its U.S. rebar operations for approximately $600 million. In the same month, Gerdau agreed to divest its certain assets — two downstream facilities, including Carrollton Wire Products and Beaumont Wire Products, and Texas-based wire rod mill — to Optimus. The transaction has been valued at approximately $92.5 million.
Notably, Gerdau’s asset divestments in the past four years are worth R$6 billion.
In the last three months, market sentiments have been positive for the company, with the stock yielding 45.5% return. This clearly outpaces 25.8% gain of the industry it belongs to.
Zacks Rank & Stocks to Consider
Gerdau currently has approximately $7.8 billion market capitalization and carries a Zacks Rank #3 (Hold).
Gerdau S.A. Price and Consensus
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