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Alrosa Gets Improved Rating from S&P

Jul 9, 2017 9:26 AM   By Rapaport News
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Standard & Poor’s (S&P) raised its credit rating for Alrosa, predicting the Russian miner would withstand potential threats such as pressure on rough-diamond prices and volatility inherent to the industry.

The agency’s long-term corporate credit rating for Alrosa is now “BB+,” compared with its previous assessment of “BB,” S&P said Thursday.

The move reflects S&P’s view that Alrosa will maintain low debt levels and positive “free operating cash flow” — meaning there is a good chance it will be able to fund expansion without needing loans. As such, the agency also adjusted Alrosa’s financial-risk profile upward to “modest” from “intermediate.”

Alrosa’s relatively high profitability, along with its “solid global market share and sound reserve base,” justify a business-risk rating of “fair,” S&P added. But the organization’s view of Russia as a high-risk country worked against the miner, as did the relatively high concentration of its customer base — meaning it gets a lot of revenue from a small number of clients.

“We think that Alrosa’s business-risk profile assessment is similar to those of its peers from the Russian mining and steel-making sector, including NLMK, Severstal, Polyus Gold and Evraz Group, and stronger than those of international diamond miners such as Petra Diamonds,” the organization said.

However, as a single-commodity producer, Alrosa operates in a market that is more susceptible to external shocks and changes in consumer confidence than the rest of the mining sector, S&P explained.

S&P worked under the assumption that Alrosa’s diamond production would increase 3% to 5% this year, followed by stable output from 2018. It also assumed diamond prices for 2017 would decline slightly from last year, before going flat.
Tags: Alrosa, credit ratings, mining, Rapaport News, Russia, S&P, standard & poor's
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