ALROSA's Profit Rises 19% in H1 as Rough Prices Climb

Mining and Exploration
24/08/2018 16:26

Russian diamond mining giant ALROSA said its first half net profit rose by 19 percent year on year to $865 million (RUB 58.3 billion) as higher average prices for gem-quality stones helped offset a drop in the volume of sales. Revenue increased by 8% to $2.5 billion (RUB 168 bn) on the back of higher average prices and a better sales mix, despite the 8% drop in sales by volume, with sales of gem-quality diamonds shrinking by 14%. ALROSA's EBITDA grew by 22% to $1.3 billion (RUB 89.1 bn), supported by higher top line and lower production costs. The miner's second-quarter net profit rose about 1 percent year on year as Q2 2018 diamond sales declined by 32% q-o-q due to a high base effect of Q1 2018 when some 6 m carats were sold from stock. The average selling price for gem-quality diamonds in Q2 gained 6% q-o-q to $163.6 per carat, while the price index increased by 4.4% (on a like-for-like basis) year-to-date as demand recovered in H1 2018.

The company said its net income in April-June (Q2) grew to $376 million (RUB 25.4 billion from 25.2 billion a year earlier), while core profit, or EBITDA, rose 10 percent to $612 million (RUB 41.3 billion). Revenue in Q2 increased 2 percent year on year to $1 billion (RUB 72.2 billion) thanks to an increase in average selling prices. Sales volumes dropped 11 percent on the back of an 18 percent decrease in production. The company said its 2018 sales forecast was 39-40 million carats, in line with its previous guidance. ALROSA said previously it expected 2018 production of 36.6 million carats with sales of about 40 million carats, which are higher than production levels due to sales from the stockpile in early 2018. They also that global diamond sales in value terms were increased by 5% in the first half of 2018 due to strong demand and prices.

Looking at the diamond market as a whole, in H1 of 2018, the output by the major diamond producers delclined by 3% y-o-y, while in Q2 2018, it rose by 5% q-o-q, mostly driven by ALROSA and De Beers. Diamond production was up 15% q-o-q (down 18% y-o-y) to 8.5 m carats due to a seasonal return to production at alluvial deposits supported by the phased ramp-up at the Udachny underground mine and Severalmaz mines. The decrease in diamond production as compared to Q2 2017 was due to the shutdown of the Mir underground mine, a lower grade at deeper levels of the International mine as well as a larger share of lower-grade ore from the Jubilee pipe and the Aikhal underground mine. 

ALROSA’s CEO Sergey Ivanov said the compan's strong financial results reaffirmed its industry leadership in profitability and market share. "In the first six months of 2018, higher diamond prices and stringent cost control along with softer rouble drove our EBITDA margin up to 53%. Free cash flow expanded by 23% to RUB 62 bn." In early 2018, the miner disposed non-core gas assets, using the proceeds to lower the miner's debt. "As at the end of June 2018, our net debt-to-EBITDA ratio was one of the lowest in the industry at 0.04x. In July 2018, S&P, a global credit rating agency upgraded ALROSA’s credit rating to an investment-grade level." He also emphasized the company's strong dividend policy, allowing them to pay dividends of up to 100% of free cash flow twice a year depending on the company’s leverage.