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ALROSA will hold its leadership

22 june 2012

ALROSA is not going to yield the rank of the largest diamond manufacturer, the Vedomosty Daily writes. Over a decade, the company is going to increase its diamond production by 18 per cent increasing revenue 2.5 times to reach $12 billion due to rising prices and quality improvement.

Yesterday, the Supervisory Board of ALROSA adopted the company’s development plan for the period of up to 2021 as a basis (the Vedomosti has got a copy of the presentation), the document will be considered again after its finalization as it is necessary to once again evaluate the prospects of the diamond market development, said a company representative. According to the document, in 10 years, the company aims to increase its revenue 2.8 times to $11.9 as compared with 2011. Meanwhile, the diamond mining will grow by17.9 percent up to only 38-40.8 million carats. The higher-than-atticipated revenue growth as compared with the mining output is attributed to the favourable forecast for market growth (demand will rise by 38 percent by 2021), as well as a better product range after the underground mines reach their designed capacity, says a source close to the company.

ALROSA intends to achieve these results by investing RUB234.6 billion over a decade in geological exploration and field infrastructure development. The presentation shows that the bulk of expenditures, RUB156.6 billion, is the investments in construction. Part of it, RUB113 billion, is intended for the construction of underground mines at ALROSA’s major sites in Yakutia, as well as maintenance and reconstruction of the existing facilities.

ALROSA’s  abilities to develop its key mines by way of open-pit mining are running low. Its main asset is the Mir Pipe discovered in 1955. The company switched over to underground mining as early as 2009. The Aikhal Mine was put in operation in 2010 after open-pit mining, the Internatsionalny Mine – in 2011. The Udachny Mine will be the last to switch over to underground production in 2014, said Igor Sobolev, First Vice-President and Executive Director of ALROSA in his interview to the Prime News Agency. Increased  costs are inevitable during the conversion to underground production, he emphasized.   

Sergei Filchenkov, an analyst at IFC Metropol, says that the ALROSA needs to take control over expenses to avoid a serious growth in prime cost. The company took care of this problem: it will share the risks associated with its non-core projects – gas production and iron ore mining – with its partners, according to the presentation.

The ALROSA prognosis looks too optimistic, says Filchenkov. According to his evaluation, the company’s revenue in 2021 will make $6.4 billion and output will reach 39.5 million carats.

More than diamonds

ALROSA’s shares in Geotransgas and Urengoi gas company will be bought by Zarubezhneft, and 51 percent in the Timir iron ore project will be purchased by Evraz - right now the company expects approval from the governmental commission. Starting from 2013, ALROSA will convert ALROSA Mirny Air Enterprise and preschool institutions into its subsidiary companies. The company is about to get rid of them, says a source close to it.

ALROSA

Shareholders: Federal Property Management Agency (51%), Ministry for Property Management of Yakutia (32%), Yakutia uluses (8%).

Capitalization – RUB190.8 billion.

Revenue (IFRS, 2011) - RUB137.7 billion.

Net profit - RUB26.7 billion.