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Russia


Alrosa’s output up, revenue down

As rough sales drop, the miner predicts improvements in its polished results.

By Svetlana Shelest
Alrosa reported a 6% year-on-year increase in production in the first nine months of 2017, having mined 29.5 million carats. The company’s estimated rough sales for the same period, on the other hand, decreased 6% compared to the same period last year, totaling about $3.3 billion. The miner achieved an increase in output by stepping up mining at alluvial deposits and the Udachny and Karpinskogo mines, said Igor Sobolev, Alrosa’s first vice president. He also confirmed that the company’s annual plan to produce 39.3 million carats by the end of 2017 stood unchanged, signifying a projected 5% year-on-year increase.
   The company’s annual revenue, however, might drop by as much as 39% in 2017, according to the estimate the Russian Accounts Chamber published in late October. The chamber expects Alrosa to raise a total of $1.5 billion, based on data the miner provided. Russia’s Ministry of Finance has predicted a 31% year-on-year decrease for the miner, with a net revenue estimate of $1.7 billion for the year.

On track in Vladivostok
   Meanwhile, Alrosa vice president Yuri Okoemov summed up the results for the first year of the company’s Vladivostok-based sales project. The company launched the Eurasian Diamond Center in September 2016 and has since run four auctions of extra-large rough, to date selling 4,708 carats for $47 million, which Okoemov called “a good result.” In October alone, Alrosa sold 66 rough stones weighing a total of 1,084 carats for $9 million. The most expensive stone weighed 40.47 carats and sold for more than $1 million.

Long-term contracts optimized

   With the miner’s new three-year contract period for rough buyers set to begin on January 1, the company announced adjustments to its policy. The contract term will remain unchanged, as it has proven efficient, according to Okoemov. Since 2009, long-term contracts have been the miner’s main sales channel, accounting for about 70% of total sales, and Alrosa plans to keep it that way. However, in the upcoming period, the company is going to allow a yearly revision of the volumes and mix of rough that clients can purchase under the contract terms to allow more flexibility in responding to possible changes in the market. At present, the company’s long-term-client list includes 56 companies, 47 of which are international and nine domestic.

Upping its polished game

   The miner’s new sales concept also stipulates increased in-house production of polished. The company’s polishing branch, Diamonds Alrosa, is Russia’s second-largest polisher after Kristall Smolensk, and focuses on producing extra-large and fancy-colored gems that are sold through auctions. Diamonds Alrosa director Pavel Vinikhin said the company expected to increase its polished sales to $125 million in 2017 from $122.3 million in 2016.

Angola investments
   Mid-November saw Alrosa president Sergei Ivanov meet with José Manuel Ganga Júnior, the new CEO of Angolan diamond company Endiama. The Russian miner confirmed its intention to increase its share in the Catoca mine from 32.8% to 41% by the end of 2017 by closing a $70 million deal. Alrosa will also purchase 8% of stock in Angola’s Luaxe project, which focuses on developing the Luele pipe that came to light in 2013. Earlier this year, Ivanov noted that “the Luele pipe is the largest of all those discovered worldwide over the past 60 years since the discovery of deposits in Yakutia. The total assessed commercial value of the deposit exceeds $35 billion.” The initial investment in Luaxe is estimated at $100 million.

Article from the Rapaport Magazine - December 2017. To subscribe click here.

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