Story
XX century
In 1954, the first large diamond deposit was discovered in the Soviet Union - the Zarnitsa kimberlite pipe. In 1955, the Mir and Udachnaya kimberlite pipes were discovered. In total, fifteen diamond deposits were discovered in 1955.
In 1957, a decision was made to begin mining operations at the ore deposits of Yakutia. To manage the construction of facilities and subsequent activities, it was created with headquarters in the city of Mirny. The first diamonds were mined that same year. Two years later, the Soviet Union sold its first batch of diamonds on the world market.
During the Soviet period, the diamond mining industry developed mainly on the basis of the Mir quarry and adjacent deposits. In those years, the main mines, processing plants and associated energy facilities were put into operation. In 1960, Chomolungma and Chimyan were discovered, and in 1969, the International kimberlite pipe was discovered.
In 1963, the first sales and purchase agreements were signed between the USSR and the De Beers Group. The cooperation continued until 2009 and was terminated in accordance with the decision of the European Commission as contrary to European Union competition law. Now ALROSA independently distributes its rough diamond production on the world market.
Until 1980, rapid development of primary deposits continued in the village of Aikhal at the Yubileiny pipe and at the Udachny quarry. Today, the Udachny quarry is one of the largest in the world in terms of diamond production.
On February 19, 1992, Decree of the President of Russia No. 158C “On the creation of the joint stock company “Almazy Russia - Sakha” was signed. In accordance with the signed decree, the closed joint stock company ALROSA was created on the basis of NPO Yakutalmaz, a former state diamond mining enterprise of the USSR.
XXI Century
In July 2007, the Verkhne-Munskoye diamond deposit was discovered in Yakutia with an estimated value of about 3.5 billion US dollars.
In August 2009, during the global financial crisis, Prime Minister Vladimir Putin announced that the Russian government, through Gokhran, would buy $1 billion worth of rough diamonds from ALROSA. This supported the Russian diamond mining industry while avoiding saturation of the global diamond market and a further decline in diamond prices.
In 2011, CJSC ALROSA was reorganized into an open joint-stock company with free circulation of shares on financial markets.
On October 28, 2013, the company held an IPO. The Russian government and the Republic of Sakha (Yakutia) sold a combined 14% stake (in equal shares), while ALROSA offered about 2% in treasury shares. The largest buyers of shares were American investors, who bought 60% of the shares, European investors received 24%, and Russian investors purchased 14% of the company's shares. Investment funds Oppenheimer Funds Inc. and Lazard Ltd. took part in the IPO and acquired more than 2% of the shares. ALROSA raised $1.3 billion from the sale of shares.
In 2021, ALROSA entered the top three ratings of environmental responsibility of Russian mining and metallurgical companies. The rating was developed by the World Wildlife Fund, the United Nations Development Program, the Global Environment Facility and the Ministry of Natural Resources and Ecology of the Russian Federation.
In June 2021, as part of the Russian-Indian summit with the participation of Russian President Vladimir Putin and Indian Prime Minister Narendra Modi, a Memorandum of Cooperation was signed between PJSC ALROSA and the Gems and Jewelry Export Promotion Council (GJEPC).
In June 2021, ALROSA entered the top 5 companies with sustainable development.
According to the results of a study conducted by PwC in 2021, ALROSA is the absolute leader in terms of investment in social programs, allocating an average of 2.8% of its revenue to social expenses.
In January 2021, ALROSA was included in the list of Top 10 companies with the highest transparency indicator as part of the “transparency in corporate reporting” study prepared by Transparency International - Russia.
Person of the Russian Federation
A Russian group of diamond mining companies, occupying a leading position in the world in terms of diamond production (as of 2012). The corporation is engaged in exploration, mining, processing and sale of rough diamonds. The main activities are concentrated in Yakutia, as well as in the Arkhangelsk region and Africa. ALROSA produces 95% of all diamonds in Russia, the company’s share in global diamond production is 25%. The company has proven reserves sufficient to maintain the current level of production for at least 18-20 years. ALROSA's forecast reserves account for about one third of the world's diamond reserves. Full name: Joint-Stock Company (public joint-stock company), short name: AK ALROSA (PJSC). Headquarters - in Mirny (Yakutia) and in Moscow
"Owners"
As of July 2021, the company's shares are owned by:
Russian Federation - 33.03%; Republic of Sakha (Yakutia) - 25% + 1 share; eight municipalities of the Republic of Sakha (Yakutia) - 8.0003%; other legal entities and individuals - 34%
"Affiliated companies"
"Timir", "Alrosa-Nyurba", "Sakhatrans"
"Governing body"
Ivanov Sergey Sergeevich President
"Supervisory Board"
Siluanov Anton Germanovich Chairman of the Supervisory Board
Borisov Egor Afanasyevich First Deputy Chairman of the Supervisory Board
Galushka Alexander Sergeevich Deputy Chairman of the Supervisory Board
Alekseev Petr Vyacheslavovich Member of the Supervisory Board
Barsukov Sergey Vladimirovich Member of the Supervisory Board
Gordon Maria Vladimirovna Member of the Supervisory Board, independent director
Evgenia Vasilievna Grigorieva Member of the Supervisory Board
Grinko Oleg Viktorovich Member of the Supervisory Board, independent director
Danchikova Galina Innokentievna Member of the Supervisory Board
Zharkov Andrey Vyacheslavovich Member of the Supervisory Board
Valentina Ivanovna Lemesheva Member of the Supervisory Board of AK ALROSA (PJSC), independent…
Lukin Vasily Timofeevich Member of the Supervisory Board of AK ALROSA (PJSC)
Ulyanov Pavel Vasilievich Member of the Supervisory Board, independent director
Fedorov Oleg Romanovich Member of the Supervisory Board, independent director
Chekunkov Alexey Olegovich Member of the Supervisory Board
Official website: https://www.alrosa.ru/
"News"
ALROSA announced the timing of the appearance of options for restoring the Mir mine
Options for possible solutions to restore production at the Mir diamond mine in Yakutia will appear by March 2021. Sergei Ivanov, CEO of the diamond mining company ALROSA, told reporters about this at the “Russia Calling” investment forum, an RBC correspondent reported.
More details on RBC: https://www.rbc.ru/rbcfreenews/5bfea0289a7947ca3c206614
ALROSA reported on the sale of the most expensive diamond in Russia
On the second attempt, ALROSA sold the Dynasty diamond, the most expensive stone in the company’s history. Last year it was withdrawn from auction due to the fact that no buyer could offer a decent price for it.
More details on RBC: https://www.rbc.ru/rbcfreenews/5b64e85e9a7947c59f238457
ALROSA allowed cutters to pay 75% of the diamond price in installments
The ALROSA Supervisory Board decided to support Russian cutters of large stones who cannot compete with foreigners. Now they will be able to be the first to select stones based on quality, and also buy up to 75% of raw materials in installments
More details on RBC: https://www.rbc.ru/business/26/01/2018/5a69dd419a7947648fc98641?from=main
Rosneft complained to the FAS about the terms of the auction for ALROSA assets
Rosneft filed a complaint with the Federal Antimonopoly Service (FAS) about the terms of the auction of the ALROSA group of companies for the sale of gas assets. This was stated by Rosneft official representative Mikhail Leontyev, TASS reports.
More details on RBC: https://www.rbc.ru/rbcfreenews/5a4642c59a79471e031db88a?from=newsfeed
Rosneft was outraged by the terms of the auction of ALROSA gas assets
Rosneft was outraged by the rush to hold an auction for the sale of Alrosa's gas assets, comparing it to 1990s-style privatization. ALROSA says it has been preparing for it all year and consulted with applicants
More details on RBC: https://www.rbc.ru/business/27/12/2017/5a43796e9a79473a5281ec08?from=newsfeed
The media learned about the possible exclusion of networks of top managers from the Yarovaya Law
The Russian Union of Industrialists and Entrepreneurs asked the government to remove the telephone networks of top managers from the scope of the Yarovaya Law. They exist among officials of such enterprises as ALROSA, Russian Railways and LUKOIL
More details on RBC: https://www.rbc.ru/technology_and_media/04/12/2017/5a24abc49a7947c431ef9b62?from=main
Those responsible for the accident at the Mir mine were fired from AK ALROSA
President of AK ALROSA Sergei Ivanov signed an order on disciplinary sanctions against company managers who violated safety requirements that contributed to the accident at the Mir mine. This is stated in a company message received by RBC.
More details on RBC: https://www.rbc.ru/rbcfreenews/5a0e87289a7947749bdf7a81?from=newsfeed
ALROSA estimated the damage from the accident at the Mir mine at 10–12 billion rubles.
ALROSA President Sergei Ivanov estimated the damage from the accident at the Mir diamond mine at 10–12 billion rubles. The company began to employ miners from this mine in other divisions and outside its borders
More details on RBC: https://www.rbc.ru/rbcfreenews/59d7649b9a7947a3b4ce9e3e?from=main
ALROSA donated the Ivan Turgenev diamond to Gokhran
transferred the Ivan Turgenev diamond of 102.75 carats to the State Fund of Precious Metals and Stones to the State Fund of Precious Metals and Stones, the company told Interfax.
More details on RBC: https://www.rbc.ru/rbcfreenews/59ccbde99a79473b281ab068?from=newsfeed
Former vice president of Sberbank will sell diamonds to ALROSA
Former vice-president of Sberbank Evgeny Agureev was appointed director of the United Sales Organization ALROSA (a branch of the diamond mining company). Agureev will oversee the development of diamond sales, according to a message received by RBC.
More details on RBC: https://www.rbc.ru/rbcfreenews/599d3d509a794751fb437934?from=newsfeed
ALROSA reported unsuccessful blasting operations at the Mir mine
A series of blasting operations carried out by the diamond mining company ALROSA at the Mir mine, where the search for eight miners is underway, was unsuccessful. This is stated in a message published on the company's website.
More details on RBC: https://www.rbc.ru/rbcfreenews/599a5b399a79474bfca2efe4?from=newsfeed
ALROSA reported on the search and rescue operation at the Mir mine
ALROSA reported on the hydrological situation at the flooded Mir mine, where the rescue operation and search for miners trapped by water are ongoing, the company said in a statement.
More details on RBC: https://www.rbc.ru/rbcfreenews/59954e4a9a794730a942b655?from=newsfeed
Rescuers stopped searching for four miners at the Mir mine
The rescue operation at minus 310 m at the Mir mine was stopped due to flooding. According to ALROSA, four of the eight trapped miners remained there.
More details on RBC: https://www.rbc.ru/rbcfreenews/599273719a79472483f1bcb9?from=main
Rescuers have identified the possible location of miners at the ALROSA mine
According to the deputy head of the Ministry of Emergency Situations, the progress of rescuers is hampered by the abrupt rise of water and large-scale destruction in the flooded mine
More details on RBC: https://www.rbc.ru/society/14/08/2017/59918eb69a7947a224ec04cf?from=main
ALROSA allowed the miner's brother to personally check the progress of the rescue operation
The brother of miner Alexey Maryin, who was trapped in a mine at the Mir mine, was allowed to go underground and personally check the progress of the rescue and search operation, ALROSA reported. Previously, Maryin criticized the company’s management
More details on RBC: https://www.rbc.ru/society/11/08/2017/598d51b29a79478cc4aec118?from=main
ALROSA hired a helicopter for rescue work at the Mir mine
Diamond mining company ALROSA hired a helicopter for rescue at the flooded Mir underground mine in Yakutia. The company showed a video of its use.
More details on RBC: https://www.rbc.ru/rbcfreenews/598b4f089a79471ccce2f1f2?from=newsfeed
ALROSA will review production parameters after the accident at the Mir mine
ALROSA intends to revise production plans after the accident at the Mir mine. The mine shaft was flooded on August 4, 151 people were underground at the time of the accident, rescuers still cannot find eight miners
More details on RBC: https://www.rbc.ru/economics/07/08/2017/59877c249a794724595b4415?from=newsfeed
ALROSA decided to evacuate 150 people from the mine due to a water breakthrough
About 150 people remained in the mine of the Mir mine in the city of Mirny; evacuation is underway. Paramilitary mine rescue units of the Ministry of Emergency Situations are working at the site. No information about casualties
More details on RBC: https://www.rbc.ru/society/04/08/2017/59843bb59a79470c5501262d?from=main
ALROSA will sell its first collection of diamonds at an online auction
The Russian diamond miner will sell its first Dynasty diamond collection at an online auction in November. The main element of the collection was the “Dynasty” stone weighing 51.38 carats, which.
More details on RBC: https://www.rbc.ru/rbcfreenews/598099b09a79474b19cfeb3a?from=newsfeed
ALROSA confirmed the implementation of operational activities at the company’s office
A representative of the diamond mining company confirmed to RBC that an FSB task force is working in the organization’s Moscow office. According to him, an FSB task force is conducting an inspection of the premises.
More details on RBC: https://www.rbc.ru/rbcfreenews/5975d15d9a7947df88aa3e40?from=newsfeed
The Central Bank has revealed facts of manipulation of Gazprom bonds
The Central Bank revealed facts of manipulation of bonds of ALROSA, Alfa Bank, Bashneft and Gazprom at trading on the Moscow Exchange. This is stated on the regulator's website.
More details on RBC: https://www.rbc.ru/rbcfreenews/597091f09a794740b46276c5?from=newsfeed
Steven Seagal will check the investment attractiveness of ALROSA in Yakutia
Hollywood actor Steven Seagal arrived in the city of Mirny (Yakutia) to check the investment attractiveness of AK ALROSA. The YSIA agency reports this.
More details on RBC: https://www.rbc.ru/rbcfreenews/55c330a59a794711395bfef6
Evraz transferred 1.03 billion rubles to Alrosa for its share in Timir
Evraz plc transferred a tranche to Alrosa for a 51% stake in the iron ore mining and metallurgical complex Timir, Alrosa reported on Tuesday. On July 31, Evraz paid the company 1.028 billion rubles, including 990 million rubles. to repay the debt plus interest on the outstanding amount.
Read further: https://www.vedomosti.ru/companies/news/31725461/evraz-perechislil-alrose-103-mlrd-rub-za-dolyu-v-timire#ixzz39VdCNs6H
Alrosa increased its net profit in the first half of the year by almost 60%
Alrosa's net profit under RAS in the first half of 2014 increased by 59% compared to the first half of 2013, to 24.174 billion rubles, it follows from the materials that it increased by 20%, to 81.551 billion rubles.
link: https://www.vedomosti.ru/finance/news/29521471/alrosa-uvelichila-chistuyu-pribyl-vi-polugodii-pochti-na-60
The Russian government is not discussing the issue of replacing the CEO of ALROSA
RBC 06/25/2014, Moscow 17:56:26 The Government of the Russian Federation is not discussing the issue of changing the general director of the state. Deputy Prime Minister and Presidential Plenipotentiary Envoy to the Far Eastern Federal District Yuri Trutnev told reporters about this, ITAR-TASS reports.
“The issue of the directive for the general director is not being discussed now,” Trutnev said. “There is no such issue on the agenda of the nearest council; this issue is not being discussed yet.” He added that the Cabinet is now occupied with other things.
link: https://www.rbc.ru/rbcfreenews/20140625175626.shtml#xtor=AL-[internal_traffic]—[rbc.ru]-[lenta_body]-[freenews]
The head of the Federal Property Management Agency denied rumors about a possible appointment as president of ALROSA
RBC 06/25/2014, Moscow 15:41:42 The head of the Federal Property Management Agency Olga Dergunova denied rumors about a possible appointment to the post of president of ALROSA. She told reporters about this, ITAR-TASS reports.
“This decision is always in the hands of the government, but as of the last 3 minutes I am not going anywhere unless I don’t know something,” Dergunova said.
link: https://www.rbc.ru/rbcfreenews/20140625154142.shtml
Alrosa decreased quarterly profit by 3% while revenue grew by 43%
In the first quarter of 2014, Alrosa’s net profit under IFRS decreased by 3% year on year and amounted to 6.1 billion rubles.
link: https://www.vedomosti.ru/companies/news/28087671/alrosa-snizila-kvartalnuyu-pribyl-na-3-pri-roste-vyruchki-na
Vice President of Alrosa Pushkin reduced his stake in the company by another 1.5 times
Vice President of AK Alrosa Sergei Pushkin reduced his stake in the company by one and a half times: from 0.0353 to 0.0231%, according to Alrosa’s message. The share has changed since June 6.
link: https://www.vedomosti.ru/companies/news/27493541/vice-prezident-alrosy-pushkin-sokratil-dolyu-v-kompanii
ALROSA President reduced his stake in the company by 40% - to 0.0679%
06/05/2014, Moscow 18:40:54 President of AK ALROSA Fyodor Andreev reduced his stake in the company’s capital by 40% - to 0.0679%.
link: https://www.rbc.ru/rbcfreenews/20140605184054.shtml
ALROSA and the Diamond Dealers Club of New York signed a memorandum of understanding
06/02/2014, Moscow 11:42:10 ALROSA and the Diamond Dealers Club of New York (DDC) entered into a memorandum of understanding to promote the development of the diamond market in Russia and the United States. As stated in the message of AK ALROSA, at the official ceremony as part of the JCK Las Vegas jewelry exhibition on May 30, 2014. The document was signed by DDC President Roven Kaufman and General Director of the Diamonds ALROSA branch Alexander Malinin.
link: https://www.rbc.ru/rbcfreenews/20140602114210.shtml
The Mobius Fund sold shares in Sberbank and tripled its stake in Alrosa
An investment fund managed by financier Mark Mobius Templeton Institutional Funds in the first quarter of 2014 sold preferred shares of Sberbank and reduced its stake in Alrosa by 3 times, as stated in its quarterly report.
link: https://www.vedomosti.ru/companies/news/27114291/fond-mobiusa-prodal-akcii-sberbanka-i-vtroe-sokratil-dolyu-v
Structure of the ALROSA group
Shareholders
ALROSA is the largest public diamond mining company in the industry. The company's market capitalization in 2021 amounted to RUB 553 billion. ($9.6 billion). 33% of shares belong to the Russian Federation, 34% of shares are traded on the stock market.
Production
Mine "International"
The main production facilities of the company are concentrated in Western Yakutia and the Arkhangelsk region. In total, ALROSA develops 27 fields. The company has a diversified production base consisting of 11 primary and 16 alluvial deposits. Primary deposits are developed both by open pit mining and underground mining.
On the territory of the Republic of Sakha (Yakutia), Alrosa has four mining and processing plants - Mirny, Aikhalsky, Udachny and Nyurbinsky. The remaining deposits are developed through subsidiaries, OJSC Almazy Anabara and OJSC Severalmaz.
As of January 1, 2021, the reserves owned by the ALROSA Group in accordance with Rosrezerv standards amounted to 1,171,951.7 thousand carats in categories C1 + C2 (including explored deposits according to Rosrezerv standards - 1,182 million carats), which is 95% of the total Russian reserves of raw materials.
ALROSA is actively engaged in the exploration of new deposits. Its assets include a number of new fields in Western Yakutia. ALROSA also begins geological exploration work in Angola and Botswana. Mining in the province of Lunda-Sul (Angola) based on the Catoca kimberlite pipe is carried out through the company Sociedade Mineira de Catoca (Catoca Ltd.), the largest diamond producer in Central Africa (32.8% owned).
Mining and processing plant "Mirny"
The Mirny mining and processing plant was founded in 1957 and is the oldest division of ALROSA. Its share in the production of the ALROSA group in 2021 was 18%. The Mirny Mining and Processing Plant is developing the following deposits: “Mir” (temporarily mothballed), “Watershed Pebbles”, “Irelyakh Placers” and “Gornoe” deposits, “Tailing Dump No. 5” (technogenic deposit).
Mining and processing plant "Aikhal"
The Aikhal mining and processing plant was established in 1986 and produces diamonds at the following deposits: the Yubileiny and Komsomolsky open-pit mines, the Aikhal underground mine. Its share in the Group’s production in 2021 exceeded 30%.
Mining and processing plant "Udachny"
Pipe "Udachnaya"
Mining and processing plant "Udachny" is a division of ALROSA, located in Western Yakutia. The division develops the Udachnaya and Zarnitsa kimberlite pipes, the Delluvialnaya and Piropovy Stream deposits. Its share in the Group’s production in 2016 was 11%. The volume of diamond production at the Udachny mining and processing plant in 2021 amounted to 3.8 million carats.
Mining and processing plant "Nyurbinsky"
The Nyurbinsky mining and processing plant is one of the youngest ALROSA enterprises. He works at the Nakyn ore deposit. The following deposits are being developed here: the Nyurbinsky and Botuobinsky sections, as well as two alluvial placers of the same name. Its share in the Group's production in 2021 was 19%. Diamond production at the Nyurba Mining and Processing Plant in 2021 amounted to 7.7 million carats.
Controlled
The company was founded in January 1998 as Almazy Anabara LLC with the aim of mining diamonds in the Anabarsky ulus (northwest of Yakutia). In August 2004, it was reorganized into OJSC Almazy Anabara. Almazy Anabara is one of the leading companies in the Republic of Sakha (Yakutia). Since 2007 it has been a subsidiary of ALROSA.
In 2021, Almazy Anabara and Nizhne-Lenskoye (a subsidiary acquired in 2013) produced 5.2 million carats of rough diamonds. The share of mined diamonds in the Group's production together with Nizhne-Lenskoye was 13%.
Sociedade Mineira de Catoca (Catoca LLC)
Sociedade Mineira de Catoca (Catoca Ltd.) is one of the most highly productive industrial companies in the Republic of Angola. It is the first mining company in Angola to begin large-scale development of the Catoca kimberlite pipe (Luanda Sul province), the world's fourth largest diamond deposit. Open Joint Stock Company ALROSA owns 32.8% of the shares of Catoca Ltd.
Public Joint Stock Company "Severalmaz"
Public joint stock company Severalmaz was created in March 1992 with the aim of developing Europe's largest rough diamond deposit - the Lomonosov deposit. PJSC Severalmaz, in which ALROSA owns 99.6% of shares, is one of the company’s key development projects. The Group's share in production in 2017 was 7%.
Public Joint Stock Company "ALROSA-Nyurba"
The company was founded in 1997. It holds licenses to develop the Nyurbinskoye and Botuobinskoye fields. ALROSA owns 97.48% of the shares of PJSC ALROSA-Nyurba, which operates in the Nyurbinsky district of the Republic of Sakha (Yakutia). ALROSA-Nyurba's share in the Group's production in 2021 was 20%.
How does the diamond market work and what place does ALROSA occupy in it?
The famous marketing slogan of one of the largest diamond miners is no longer so relevant. No, people continue to associate diamonds with symbols of eternal love or wealth, but the world’s reserves of precious stones are gradually being depleted. If the trend continues, in a few years there may not be enough natural diamonds for everyone. Let's look at what the industry is like and what place the Russian diamond mining company ALROSA occupies in it.
Industry structure
Diamond production is divided into 3 main stages: upstream (mining), midstream (processing and manufacturing of jewelry), downstream (retail).
Upstream
Upstream or rough diamond mining is geographically concentrated in the countries of South Africa, Russia, Australia and Canada.
The cost of entering the diamond mining market is quite high, and therefore there are not many players in the industry. About 70% of all gemstones mined today are produced by the five largest companies.
De Beers (part of the Anglo American group) is a diamond mining company that previously occupied about 80% of the market. This company stood at the origins of the diamond industry, and it was with the light hand of De Beers marketers that the tradition of giving diamond rings arose. The company's monopoly position in the industry at the beginning of the 20th century was supplanted by miners from the USSR, Australia and Canada by the end of the century. Today, De Beers controls less than 1/3 of the market, ranking second in the world in terms of production volumes with 35.3 million carats of diamonds as of 2021. De Beers develops deposits in Botswana, South Africa, Canada and Namibia.
Rio Tinto is a publicly traded diversified mining company involved in the exploration, production and processing of natural resources. Rio Tinto's diamond business includes the Argyle (100% owned, Australia) and Diavik (60% owned, Canada) mines. In 2021, Rio Tinto produced 18.4 million carats of diamonds.
Petra Diamonds is a public diamond mining company that develops diamond deposits in South Africa and Tanzania. In 2017, Petra Diamonds produced 3.8 million carats of diamonds.
Dominion Diamond is a diamond mining company operating as part of The Washington Companies group of private companies. Dominion Diamond owns a 40% interest in the Diavik diamond mine (Canada) and an 89% interest in the Ekati diamond mine (Canada). The company's diamond production in 2021 at the Diavik deposit amounted to 3.0 million carats.
Russian diamond reserves are developed by ALROSA , which at the end of 2021 produced 36.7 million carats - the first result in the world. ALROSA's operational activities are concentrated in two regions of the Russian Federation: the Republic of Sakha (Yakutia) and the Arkhangelsk region. The largest deposits (pipes) of the company: Mir, Yubileinaya, Udachnaya. In addition, ALROSA participates in the capital of the diamond company Catoca Ltd in Angola (32.8% share) and plans to develop mining in Zimbabwe.
ALROSA's diamond reserves are the largest in the world and amount to 1,030 million carats, according to JORC data for 2021. Mining costs are at minimal levels: $44 per carat, with an average selling price of $160 per carat. This ensures EBITDA margins on par with the industry's top performers.
Diamond mining is the highest-margin stage; it is at this stage that a significant part of the cost of precious stones is formed. EBITDA margin for ALROSA is 57% for the third quarter of 2021, De Beers announces a 58% margin in the upstream segment at the end of 2021, Petra Diamonds - 39% for the first half of 2018.
At the end of 2021, ALROSA reduced production volumes by 7% to 36.7 million carats from 39.6 million carats in 2021, in particular, due to the accident at the Mir mine. The company plans to produce 38 million carats in 2021 by increasing production at the Udachnaya mine to 5.7 million carats and launching the Verkhne-Munskoye deposit (1.8 million carats).
Starting in 2021, ALROSA changed its dividend policy, switching to semi-annual payments and establishing free cash flow (FCF) as the dividend base instead of net profit.
The minimum limit for dividends is 50% of net profit under IFRS, but an additional portion of FCF is paid depending on the ratio of net debt to EBITDA. The company's new policy is more attractive to investors due to an increase in dividend yield, frequency and stability of payments. The company's FCF has been consistently increasing in recent years and over the last 4 quarters (through Q3 2021) almost reached RUB 100 billion, and the net debt to EBITDA ratio as of September 30, 2021 is at 0.2x. In this case, investors have reason to expect 70% of FCF as dividends.
For the first half of 2021, 5.93 rubles were paid. per share, which corresponded to a 5.9% dividend yield. For comparison: for the whole of 2017, 5.24 rubles were paid. per share. Based on the results of the second half of 2018, you can expect approximately 5.4 rubles. per share, which corresponds to a yield of around 5.4% at current quotes.
Midstream
Midstream includes diamond cutting and jewelry making. At this level, there is a clear leader - India, which accounts for more than 90% of global imports of rough diamonds and 75% of exports of processed stones. The country retains its leading position due to cheap labor and the relative ease of attracting financing.
Midstream is characterized by low margins - on average 1-3% and significant competition. There are about 5 thousand companies operating in the segment, according to Bain & Company.
In recent years, this segment has undergone significant changes. Decrease in the profitability of cutters to record lows (0% and below) in 2014-2015. provoked the exit of the least efficient participants from the market, and a process of consolidation began in the industry, which is still ongoing.
An important feature of midstream is seasonality - cutters traditionally increase their reserves of raw materials at the beginning of each year. At the same time, the seasonal demand for diamonds is stronger, the higher the sales of diamond jewelry during the Christmas holidays and Chinese New Year.
Downstream
Downstream - sales and retail. The key sales market for rough and polished diamond products is the USA. As of 2021, the US market share is 48%.
The relationship between US GDP and demand for diamond jewelry is quite clearly visible.
The Chinese market is promising for the diamond industry with a share of 16% and good prospects for growth in the well-being of the country's citizens. Between 2009 and 2015, diamond jewelry sales in the country grew at an average rate of 12%. In 2016, the dynamics turned out to be negative -4.8%, but already in 2021, demand began to increase again (+0.9%). It is expected that in the future the penetration of diamonds into the Chinese market will continue at an accelerated pace.
India also plays a significant role in the consumption of diamond products, however, in 2021, the rise in interest rates from 6% to 6.5% and the acceleration of inflation in the country provoked a reduction in consumer demand. There are no signs of a change in the situation against the backdrop of tightening monetary policies by world central banks in the near future.
Industry prices
Diamond prices vary significantly depending on the quality of the stone. There are two large categories:
1) industrial diamonds are minerals of lower quality, used for industrial purposes;
2) jewelry diamonds are high-quality raw materials used to create jewelry.
Although industrial diamonds occupy a significant share of mined stones (about 30%), their cost is several times lower than high-quality analogues.
Diamond mining companies generate most of their profits from jewelry stones. In particular, ALROSA's share of industrial diamonds accounts for 2% to 4% of its revenue.
Jewelry diamonds are a marginal commodity, but non-standard, and there is no single pricing method. The value of a stone depends on factors such as carat, color, and purity. The “pedigree” of the stone plays an important role—diamonds mined through “bloody” means are not in great demand. The centers of diamond trading can be considered auctions in Antwerp, Mumbai, Bombay, Dubai and London.
One of the tools you can use to track diamond prices is the Diamond Index from the International Diamond Exchange. The index is calculated based on prices from the world's largest diamond auctions.
Diamond trends
A notable trend in the diamond industry is the entry of synthetic (artificially grown) stones into the jewelry market. Such diamonds are grown in laboratories, and their characteristics are not inferior to their natural counterparts.
The use of synthetic diamonds in industrial production reaches 97%, but now they are beginning to enter the jewelry market. Prices for artificial stones are 20-40% more attractive compared to those mined in the ground, but the growth of demand for them is hampered by the position of the largest players in the market. Mining companies lobby for the uniqueness of natural minerals, maintaining higher prices for natural diamonds. According to estimates by ALROSA Supervisory Board member Alexey Moiseev, the volume of the market for synthetic stones after cutting in 2021 is 20%, and this share is constantly increasing.
The existing premium for the “naturalness” and purity of the history of the stone has become a driver for the active introduction of new technologies into the industry. In particular, from 2017-2018. Thanks to projects based on blockchain technology, buyers can track the entire production chain and verify the natural origin of the purchased stone. Artificial intelligence and real-time control systems have found their application in reducing the ever-increasing costs of diamond mining.
Another important trend is generational change. De Beers notes in its study that the consumer profile is changing. The older generation (40+ years old) is being replaced by millennials (21-39 years old) and generation “Z” (0-20 years old). For young people, new technologies and social responsibility of companies play a big role in consumption. They are critical in their judgments, and the need for love and family is as high as that of older people.
The change of generations is reflected in consumer preferences: the growing influence of the brand on the cost of stones is becoming one of the features of the diamond market. By 2021, the share of branded diamonds could reach 30%, predicts the international consulting company McKinsey.
Forecasts and prospects
Consulting company Bain & Company believes that global demand for rough diamonds will grow at an average annual rate of approximately 1% to 2% until 2030, with supply dynamics ranging from -1% to +1% per year.
The key markets for diamond products are expected to be the USA, China and India. In the USA, a steady increase in real income of the population by 1.5-2.5% per year will stimulate demand for jewelry products. The development of the Chinese economy and the emergence of a broad middle class will become the driver of a sustainable long-term trend for the growth of diamond consumption in this country. India is now one of the major consumers of diamond jewelry. It is predicted that market growth will continue until 2030 due to the development of the middle class and increasing demand for wedding jewelry.
ALROSA expects a drop in global supply in the diamond market by 2021. This is due to the gradual depletion of easily accessible reserves through the depletion of mines. This is stated in her presentation.
The international consulting company McKinsey shares a similar opinion. Diamond production will remain at approximately the same levels until 2025, after which a gradual decline will begin against the backdrop of mine output and rising capital and operating costs, according to the company’s research.
Baseline forecasts suggest that diamond inventories will gradually decline with demand growing moderately. An increasing shortage can support prices for precious stones, which is positive for the margins of diamond mining companies. ALROSA, which has one of the largest diamond reserves in the world, could be the main beneficiary of such a scenario.
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Sales and Marketing
ALROSA's trade policy is regulated by the Regulations on the procedure and conditions for the sale of natural diamonds, developed jointly with the Federal Antimonopoly Service of Russia (FAS).
In 2012, ALROSA signed a long-term agreement for the supply of rough diamonds with the Belgian company Laurelton Diamondsa Inc. (a subsidiary of Tiffany & Co). Under the terms of the three-year trade agreement, Tiffany & Co. can purchase at least US$60 million worth of rough diamonds annually.
In 2013, ALROSA signed a memorandum of cooperation with the Sotheby'S auction house. The document makes it possible to sell large and unique diamonds produced by the branch, as well as jewelry with these diamonds at Sotheby's auction. The stones will be certified by the Gemological Institute of America (GIA).
ALROSA actively supports Russian government agencies in their efforts to achieve the goals and requirements of the Kimberley Process. The Company takes a principled position not to supply rough diamonds to companies and individuals if they:
- People from countries that are not official members of the Kimberley Process;
- Do not comply with the requirements of the international Kimberley Process Diamond Certification System (KPCS);
- They violate the procedure established in world practice for the separate sale of natural, synthetic and processed natural diamonds and their final products;
- Violate the requirements of tax, customs and other legislation;
- Are in the process of restructuring, liquidation or insolvency;
- Provided false information about yourself.
Financial indicators
In 2021, ALROSA produced 39.6 million carats of diamonds, which is 6% more than a year earlier.
ALROSA Group's diamond sales in 2021 exceeded 41 million carats, which is 3% more than the previous year.
In 2021, the company's revenue amounted to 275.4 billion rubles, EBITDA - 126.9 billion rubles, net profit - 78.6 billion rubles.
ALROSA's market capitalization in 2021 amounted to 553 billion rubles or $9.59 billion at the end of the reporting period.
2017 Pink Diamond
On September 21, 2021, the most expensive gemstone to date was mined - a pink diamond weighing 28.65 carats. The largest pink diamond previously mined by the company weighed 3.86 carats.
A gem-quality gemstone measuring 22.47 x 15.69 x 10.9 millimeters, with a rich pink tone and virtually no defects. The pink diamond was mined by a subsidiary operating the Severalmaz kimberlite pipes and deposits in the northwestern part of Yakutia.
Features of the credit profile
- The largest diamond mining company in the world. ALROSA ranks first in the world in terms of diamond production with a share of 30%. The company accounts for about 95% of all diamonds mined in Russia. Projected reserves amount to about one third of the world's diamond reserves. About 95% of the production structure is made up of gem-quality and semi-jewelry-quality diamonds. In the structure of revenue from diamond sales, exports account for 85%.
- Profitability . ALROSA has the lowest cost of diamonds in the world. EBITDA margin exceeds 40%.
- Significant government support . In 2009, during a period of noticeable decline in demand and falling prices for diamonds, the only buyer of ALROSA was Gokhran, and at the end of 2009, sales to Gokhran amounted to 40% of revenue. In addition, state banks provided support in refinancing debts, and VTB provided liquidity by purchasing non-core gas assets from the company for $620 million with the condition of a buyback, which ALROSA carried out in 2012.
- The debt load is not a concern. EBITDA margin reaches 46.4%, approaching the peak value of 2011. Debt load according to the Net debt/EBITDA indicator has decreased to 1.5x. The company's liquidity is not a concern.
ALROSA's credit quality is slightly inferior to NLMK, Severstal and Polyus Gold. A significant factor supporting ALROSA’s credit profile is the strategic nature of the company, which allows it to count on government support in the event of a deterioration in market conditions.
What's happening at the diamond mining giant ALROSA
According to media reports, another personnel reshuffle is coming at ALROSA. It is quite possible that three vice-presidents of the company will leave their posts immediately. The latest reports about the holding generally give rise to the idea that it is now shaking very badly. First, the corporation changed its general director, then searches took place in the Moscow office. There are several versions of what is happening, one of them, for example, is connected with the former head of the Ministry of Finance Alexei Kudrin, the other with the clan of Sergei Ivanov.
Scandalous placers
One gets the feeling that they are now doing to ALROSA what, according to legend, Belarusian President Alexander Lukashenko did with his parliament in the 90s. Namely: “I’ll fuck you and I’ll keep fucking you.” First, the diamond giant changed its leadership. Sergey Ivanov came to the post of head of the company
, the son of the former head of the Kremlin administration Sergei Ivanov. Soon, the Moscow office was searched by the Federal Security Service. After this high-profile event, dramatic news from the life of the corporation stopped coming. But the calm lasted only a couple of weeks. And now, it becomes known that there are new personnel changes in the company: allegedly, three vice presidents are being replaced at once.
Sources said that this is the decision of the new manager. In general, it is quite understandable; the top manager who comes to the company renews the team. But coupled with other messages, all this looks like a global purge of a state corporation carried out by the Ivanov clan. And, in addition, there is a suspicion that there is an attack on the former head of the Ministry of Finance and the current head of the Center for Strategic Research, Alexei Kudrin
. Which of these versions is more like the truth remains to be seen.
Diamond Kings
ALROSA has always been at the center of various administrative confrontations and the main trophy of these behind-the-scenes battles. The state-owned company is now under the control of two curators. The first is the Ministry of Finance (Minister of Finance Anton Siluanov
heads the holding’s supervisory board), and the second is the presidential envoy to the Far East
Yuri Trutnev
. Both players are believed to influence the management of the company and the appointment of its leaders. But there is another “friend” of ALROSA - the Russian Direct Investment Fund (RDIF). Last year, he carried out the privatization of 10.9% of the corporation, and at the same time he himself bought a stake in a state-owned company, although he did not disclose the volume. Just for fun, let’s take a look at the list of RDIF leaders. The board of directors is headed by Sergei Ivanov, whose son has recently headed ALROSA itself. It's a tight circle, you can't say anything.
There is another interest in the hardware battles - the Republic of Yakutia, which owns a blocking stake in the diamond mining company. But this player now has one goal - to preserve his shares, saving them from privatization. Local authorities are not taken into account anyway, as the Yakut media recently sadly wrote about. They noticed that the corporation would transfer only half a percent of the profit from the master's shoulder to the regional budget. “Diamond pennies for a bunch of aborigines,” stated journalists from the republic, where the main assets of the diamond company are located. The same one that produces a quarter of the world’s diamonds in Yakutia.
On this topic
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Best friends forever
Financial markets will continue to expect central bank intervention
It would seem that Kudrin has something to do with it
However, let's return to the main rivals in the fight for ALROSA. Summary of previous episodes. Before Alexey Kudrin
publicly reprimanded and expelled from the government by
Dmitry Medvedev
, the official was the “chief in diamonds” in the country.
In the media you can find many “murky” stories related to Alexey Leonidovich and the diamond corporation. The loudest of them relates to the reorganization of the KIT Finance bank, in which Kudrin could be personally interested, and ALROSA bought this bank shortly before the collapse. No less striking events always unfolded around the change of leadership of the diamond giant. In 2009, he became Fedor Andreev
, a native of financial structures owned by Kudrin’s classmate
Otar Morgania
. Actually, the Minister of Finance at one time personally invited Andreev to work at ALROSA.
But at one point Yuri Trutnev
.
The Far Eastern plenipotentiary won this fight, pushing through his candidate for the post of head of the diamond company, Andrei Zharkov
. But he disagreed with the Ministry of Finance on the development of the corporation and eventually voluntarily resigned. It is not known for certain who was interested in the appearance of Sergei Ivanov at ALROSA. But let us remember that his father, a former minister of defense and head of the presidential administration, was traditionally considered a prominent representative of the “siloviki” camp. And to put it mildly, they do not favor their “liberal” opponents, to whom Alexei Kudrin belongs. Moreover, now there is a particularly compelling reason not to like the “reformers,” because the ex-minister, who over the years has not lost the trust of the first person of the state, is preparing a new economic program. It is difficult to say who is right and who is wrong in this partly ideological dispute. It seems that both sides are “good”. Some dream of something like the Soviet system. Others, during the years of high oil prices, have not really been able to do anything for the Russian economy.
Now let’s remember why the FSB agents recently came to ALROSA. They checked old transactions for the sale of non-core assets that the diamond corporation had been conducting since 2011. That is, at a time when the company was headed by Kudrin’s protege Fyodor Andreev. He seems to have become a real victim of the bureaucratic war. They say that on January 29, 2015, he came to the ALROSA office and stayed there until the evening. And the next day the manager was gone, he died from a “severe long-term illness.” In general, now you can’t ask anything from Andreev, but you can even ask him from his former curator Kudrin, if you wish.
Profit? We have no time for her!
However, current events can be explained in another way. New management has come to a large state corporation. It naturally wants to protect itself and have evidence in case of any failures. To blame everything on the sins of the previous leaders and their “gray cardinals.” And at the same time, clear the clearing before the next privatization. After all, the sale of 10.9% of ALROSA last year for 52 billion rubles is just the beginning. The company is one of the few remaining juicy assets that the government will still sell and sell. It is likely that all the disturbances were started with several goals at once, and the consequences are yet to come.
In fact, for the majority of the country's citizens, this squabble is not that important. The main thing is that the corporation does not reduce the rate of production, successfully sells its diamonds and increases profits, part of which goes to the budgets of the country and Yakutia. But this is not all smooth sailing yet. During the first quarter, when an intense hardware struggle unfolded, the state-owned company reduced its profit by 2 times. And here, on behalf of the multinational people, who are the source of power in the country and the beneficiary of state property, I really want to ask the enthusiastic managers: gentlemen, are we not bothering you? By the way, the former Minister of Foreign Affairs Sergei Lavrov also asked this question at a briefing, at the same time uttering his famous two words.
