Alrosa has been consistently predictable in recent years. It has outlined goals for the period 2010-2020 that it is resolutely pursuing. We review progress to 2013 and also look towards the future.
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www.diamondshades.com/diamondreport publication 1
Companies Diamond Industry Series
Equity Communications
Alrosa 2013 Review
(excluding Catoca)
July 25, 2013
Table of Contents
Production Page 2
Revenue Page 6
Diamond Reserves Page 9
Shareholder Value Page 10
Disposal of Assets Page 11
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Companies Diamond Industry Series
Overview
Alrosa is the world's largest natural
diamonds producer by volume. Alrosa
accounts for 98 percent of all rough
diamonds produced in the Russian
Federation. The company’s share of
current global diamond output is 25
percent.
Alrosa has been consistently predictable
in recent years. It has outlined goals for
the period 2010-2020 that it is
resolutely pursuing. It seeks to:
1. Grow production to at least 40
million carats
2. More than double sales revenue
3. Boost its diamond reserves
4. Diversify its shareholding and
grow value by 30-50 percent
5. Sell its non-core assets and
reduce debt obligations
We review progress to 2013 and also
look towards the future.
Figure 1: Alrosa Alrosa
Main Office
Russia
Mining Operations
Russia
Angola 32.8%
Exploration Pipeline
Russia
Angola
Zimbabwe
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Companies Diamond Industry Series
1. Production
Figure 2: Alrosa diamond production
Source: Company Reports, Equity Communications
Figure 3: Alrosa diamond production 2
Source: Company Reports, Equity Communications
Alrosa has maintained a steady level of production in recent years. This is helped by the fact that the
company has the ability to sell diamonds to the state in periods of weak market conditions. Contribution
from individual assets varies from year to year, influenced by maintenance work and the transition to
underground mines for key assets. For example, in 2012, transition of open-pit operations to
underground mining at Udachniy pipe resulted in further production decline which was offset by the
processing of higher grade ores at the Jubilee pipe.
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Companies Diamond Industry Series
To increase production to 40 million carats per year from its current assets, Alrosa will need to make
substantial capital investments of up to US$4.5 billion by 2020.
Figure 4: Alrosa Capital Expenditure
Source: Company Reports, Equity Communications
Mine developments
Aikhal underground - Completed. 500 000 tonnes of ore per year. 2.5 million carats at capacity
Udachniy underground - Early stage. 1.5 million tonnes of ore targeted for 2014
Mir underground - Medium Stage. 1 million tonnes of ore targeted for 2012
Severalmaz open pit - Medium Stage. Additional 2.5 million tonnes processing capacity by 2015
We have previously stated that Alrosa’s production plans for its mines are tarnished by the fact that the
company has historically always faced engineering and geological challenges in the development of its
mines. It is highly probable that Alrosa will continue to face setbacks as it takes its important assets
underground. For instance, water drainage design for the Mir underground project has been proven too
optimistic. A new design is in the works.
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Companies Diamond Industry Series
In 2013, Alrosa completed the acquisition of alluvial diamond mining company Nizhne-Lenskoe for
US$216.9 million. The company has estimated diamond reserves of 26.4 million carats with existing and
expected mineral resources sufficient to maintain diamond mining for no less than 14 years, according to
Alrosa. Nizhne-Lenskoe immediately adds at least 1.5 million carats to Alrosa's annual production,
enough to offset any potential production problems at assets undergoing transition and maintenance
work.
In the longer term, this acquisition will add at least 1.7 million carats to Alrosa group’s annual
production volume of gem quality diamonds.
By our estimates, at least 40 percent of Alrosa's output will be from underground mines by 2020. We
carry forward our view from last year that current market conditions allow Alrosa to generate sufficient
cashflow to cover capital expenditure requirements while servicing its debt. However, any worsening of
the diamond market could limit the company's ability to invest, thereby delaying project execution and
This document is produced and circulated for general informational and educational purposes only. It is provided by Equity Communications.
Equity Communications research utilizes data and information from public, private and internal sources. While we endeavour to keep the
information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy,
reliability, or suitability of this publication. The information and analysis contained in this publication has been compiled or arrived at from
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For more information, please visit http://www.diamondshades.com/research-reports
This publication is part of the Diamond Industry Series, a series of diamond industry reports produced by Equity Communications ahead of the 2013 Diamond Report. Equity Communication’s Diamond Report provides detailed analysis of trends in the diamond industry value chain in 2012-2013, from the production end to the retail end. It is in its third edition.
About Authors
Tinashe Takafuma is Head of Research at Equity Communications. You may contact him by email at: [email protected]. Gerald Manyengavana is a Research Analyst at Equity Communications. You may contact him by email at: [email protected];
For Further Contact
If you would like to discuss this report, please contact either of the above. To find the latest Equity Communications content and register to receive notifications on new diamond industry reports and luxury goods sector reports, please visit www.diamondshades.com
Please Note
The views expressed herein are solely those of Equity Communications as of the date of this report and are subject to change without
notice. Data Tables, Survey Results and Financials provided in this report are not intended, nor implied, to be a substitute for the
professional advice you would receive from a qualified accountant, attorney or financial advisor. Always seek the advice of an
accountant, attorney or financial advisor with any questions you may have regarding the decisions you undertake as a result of reviewing
the information contained herein. Nothing in this report should be construed as either investment advice or legal opinion.
About Authors
Alrosa 2013 Review is based on research by the Diamond Industry Research Team at Equity Communications:
Tinashe Takafuma, Gerald Manyengavana, Romeo Takafuma and Fred Divine.
Supervision was provided by Tinashe Takafuma, Head of Research at Equity Communications. You may contact him by email at: [email protected]
For Further Contact
If you would like to discuss this report, please contact either of the above. To find the latest Equity Communications content and register to receive notifications on new diamond industry reports and luxury goods sector reports, please visit www.diamondshades.com