ALROSA Update: Invests Heavily in Mining in 2016, Appoints Vladivostok Director

Mining and Exploration
03/07/2017 23:45

In 2016, ALROSA's investments in underground mines and other core production facilities amounted to RUB 16.5 billion ($2.8 billion) or 60 percent of the company's total capital investments, the diamond miner said in a press release. Over RUB 7 billion ($1.2 billion) was allocated to technical upgrade and replacement of worn-out equipment. The company said it invested a substantial amount – almost RUB 5.5 billion ($930 million) – into the construction of Udachny underground mine. Persistent efforts were also taken to support existing facilities at Mir, Internatsionalny, and Aikhal underground mines.

They also started developing a new primary diamond deposit – Zarya. They say it is one of ALROSA’s largest investment projects and its development guarantees loading of existing capacities of Aikhal Mining and Processing Division for at least two decades ahead. Mir underground mine reached its design capacity of 1 million tons of ore per year; its proved reserves will be sufficient until 2057. Last Friday following an annual general meeting of shareholders, CEO Sergei Ivanov said, “We have a large potential in our infrastructure projects, including those in Angola. Documents to set up a joint venture to develop the Luaxe kimberlite pipe, one of the biggest mines discovered in the past 60 years, have already been signed." He added that his company plans to boost a stake in Angola-based Catoca venture to 41% and will continue to develop investment projects in Russia’s northern republic of Yakutia, including a producing facility at the Verkhne-Munskoye deposit.

New Vladivostok branch director Alexey Ivanov

Alexey Ivanov will be in charge of the branch business development, search for new clients and the Company’s expansion at the platform of the Eurasian Diamond Center (EDC). He has extensive experience in the diamond business. In previous years, he was the head of Arcos Diamonds Israel Ltd and ALROSA representative office in Israel. Previously, he worked in ALROSA Security Department in Mirny and was a member of the Company’s managerial staff based in its Moscow office in a position of Aide to the President of Almazy Rossii – Sakha.

Production and Sales could rise this year

As announced in late May, as a result of strong and continuing demand for rough diamonds thus far in 2017, ALROSA might raise its production and sales forecast for the rest of the year. This was the main takeaway from a transcript of a conference call on May 26. Igor Kulichik, Alrosa’s chief financial officer, said, "As for our annual production guidance, yes, our budget for 2017 is based on 39 mln carats in both production and sales. Now we are adjusting our annual budget and most likely we will increase both the production and sales targets for the year." CEO Sergey Ivanov noted, "Due to the strong diamond market we have increased rough diamond prices up 3% year to date. The Indian demand recovery helped us destock materially. Year to date, our inventories went down from 19.4 mln carats to 13.7 mln carats virtually touching our process floor level." Kulichik adds that prices per carat could be set to rise further: "The sales mix in Q2 is going to be significantly better than in Q1, because we have sold off virtually all the smaller stones in the reporting period. So the Q2 price per carat is going to be significantly better too."

The company leaders were very confident about sustainable levels of demand. As Kulichik describes the situation: "We do see a sustainable demand in Q1 and Q2 continued and it is not going down, both from our Indian partners and other market players. The thing is that the Indians were so fast to recover that it was even a surprise to themselves. This was because the monetary reform did not hit them as hard as they probably expected, so after that they bought everything they could buy. The others are also feeling quite well and hence this brisk demand all across the diamond mix of our Company. We are talking to our marketing people on a routine basis and they are saying that demand is not going down. Besides, recently we have discussed the guidance in June and they are saying that the consumer appetite is not going down either. And this is quite surprising because typically this is the beginning of a low season in the year cycle."