ALROSA's Profit Down from Q2, Strong Prices Drive Growth over 2017, Opens New Mine

Mining and Exploration
08/11/2018 10:17

Russian diamond mining giant ALROSA experienced a slight downtick in revenue and profit during the third quarter as compared with Q2, as significantly weaker sales volumes were offset by higher average prices and an improved sales mix. The miner has, however seen strong growth for the first nine months of the year, and last week commenced commercial diamond production at its newest mine, the Verkhne-Munskoye Diamond Field in Yakutia.

Compared to the prior quarter, revenue decreased by 3% to $1.1 billion (RUB 70.1 bn), on the back of weaker sales in carats (down 26% q-o-q) amid rising average prices, but revenue earned during the period still represented a 19% increase compared to Q3 2017, driven by a higher price index and a better sales mix. EBITDA in Q3 declined by 3% q-o-q to $604 million (RUB 40 bn), due to the 26% drop in sales in carats, which was partially offset by higher average selling prices supported by cost control measures. EBITDA has seen 47% y-o-y growth as a reult of lower costs and better prices. Net profit in Q3 decreased 5% to $366 million (RUB 24.2 bn), but increased by 87% y-o-y driven by the improved market environment.

For the year thus far (January - September), ALROSA's revenue has increased by 11% to $3.6 billion (RUB 238 bn), on the back of higher price index, higher average prices achieved and a better sales mix, despite a 9% drop in the volume of carats sold. Net profit for the year has grown by 33% to $1.25 billion (RUB 82.5 bn) as a result of stronger EBITDA, which grew by 29% to $1.9 billion (RUB 129 bn), supported by higher top line and slightly lower production costs. ALROSA's guidance for 2018 sales has been revised downward from 39-40 million carats to 37–38 million carats, due to weaker demand for small-size rough diamonds in the second half of 2018.

ALROSA’s CEO Sergey Ivanov commented on the results: “Our strong financial performance was driven by the recovery in demand for end products and higher prices, coupled with our efforts to improve margins through a more aggressive sales policy and implementation of the operational excellence programme. The Company increased its EBITDA margin by 7 p.p. to 54%, reaffirming its industry leadership both in market share and profitability. Stronger operating cash flow and a more balanced capex profile helped boost our free cash flow by 38% to RUB 86 bn and, ultimately, improve the Company's financial stability, with net debt to EBITDA ratio down to 0.2 vs 0.7 in the previous year."

Commencement of commercial production at Verkhne-Munskoye Diamond Field, recovery of first large gem-quality rough diamond (51.49-ct)

ALROSA has started commercial diamond production at Verkhne-Munskoye Diamond Field in Yakutia. The new diamond field will operate for at least 20 years, and is expected to produce about 1.8 million carats of diamonds a year. The Verkhne-Munskoye Diamond Field is the largest investment project of ALROSA Group. At the stage of preparations for mining operations, the investment amount has reached about $242 million (16 billion rubles), and the total estimated investment amount for the whole period of the field development is thought to be about $907 million (60 billion rubles). Preparations for mining operations at Verkhne-Munskoye Diamond Field started in 2015 and lasted for 3 years.

Verkhne-Munskoye Diamond Field is about 170 kilometers far from the existing infrastructure facilities (processing plant) of Udachny Mining and Processing Division (MPD). Construction of a new processing plant on site would make the project unprofitable. So, one of the key stages of the preparations for mining operations was construction of a service lane that connected Verkhne-Munskoye field with Udachny MPD facilities.Vladimir Putin, the President of the Russian Federation, and Anton Siluanov, the First Deputy Prime Minister and the Minister of Finance of the Russian Federation, took part in the official ceremony dedicated to start of mining operations. The first industrial explosion at the facility was set off by Aysen Nikolaev, the Head of the Sakha Republic (Yakutia), and Sergey Ivanov, Chief Executive Officer of ALROSA Group.

Ealier this week, ALROSA announced the recovery of the first large gem-quality rough diamond from Verkhne-Munskoe deposit. “It is the first rough diamond over 50 carats from Verkhnyaya Muna. We have just started mining here, so it is a very promising event evidencing of the good potential of the deposit, says Alexander Makhrachev, Director of Udachny Mining and Processing Division. Despite small inclusions and cracks, this stone is undoubtedly a gem-quality rough diamond that will bring to life one or several high-grade polished diamonds.” The approximate age of the extracted crystal is over 350 million years.