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ALROSA plans to produce 40 mln carats by 2020

February 27, 2014, 0:39 UTC+3 NOVO OGAREVO
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NOVO OGAREVO, February 26, /ITAR-TASS/. Russia’s diamond producer ALROSA plans to bring its production to 40 million carats by 2020, the company’s CEO Fyodor Andreyev said at a meeting with President Vladimir Putin on Wednesday, February 26.

He said the year 2014 would be “a key year for carrying out our development strategy.”

The company already has a production facility running in test regime. It is designed to mine 4 million tonnes of ore and 4 million carats at the Lomonosov deposit in Arkhangelsk Region. “Not far from this facility and the kimberlite pipe, LUKOIL is currently in the process of launching a comparable facility and pipe into operation at the Vladimir Grib diamond deposit. This way, we will develop a new diamond producing industry in Arkhangelsk Region,” Andreyev said.

He noted that the company planned to put the world’s biggest underground mine into operation at Udachny in July 2014, which “will make it possible for us to not only maintain our production level but, most importantly, to provide people with jobs.”

The mine is designed to produce 4 million tonnes of ore, which corresponds to slightly more than 5 million carats. “These two big projects are essentially the cornerstones of the company’s growth over the coming years. Our target is to bring production to 40 million carats by 2020,” Andreyev said.

He said the company had already drafted and approved a development strategy. “Russia has always been known as a major diamond producer, but the company’s management and I share the view that our goal, apart from retaining our leadership in production, must be for ALROSA to become a leader in terms of marketing and influence on the market itself. I am sure that we can achieve this objective,” the CEO said.

According to conservative estimates, the company’s value will grow by 30 percent over the next five years. “In 2016, we will complete all of our main production investment projects, and this will give us the chance to increase dividends, including for the biggest shareholders - the Russian Federation and Yakutia. I therefore think that our plans are entirely realistic and that we will reach our goals,” Andreyev said.

ALROSA’s production in 2013 rose by 7 percent, from 34 million carats to 37 million. The company remains the absolute leader in terms output in carats. De Beers, for comparison, produced 31 million carats in 2013.

The company’s earnings grew by 11 percent, and wages were up by 14 percent in 2013, increasing from 79,000 roubles (2,225 U.S. dollars) to 90,000 roubles (2,535 U.S. dollars). “Overall, wages have risen 2.2-fold over the 2009-2013 period, enabling us to stabilise our workforce situation considerably. The workforce turnover issue has now been largely resolved,” Andreyev said.

Labour productivity growth slowed down a little in 2013 and came to 9 percent. “ In our defence I can say that it was the sharp drop in diamond prices at the end of the year - by 5 percent - that prevented us from keeping the balance steady. Overall though, since 2009, we have been keeping up the pace, with labour productivity growing 2.4-fold and wages 2.2-fold,” he said.

He stressed that the company had shown steady growth since 2009 and its earnings, EBITDA and profit indicators had all been on the rise. Profits tripled between 2009 and 2013, increasing from 10 billion (282 million U.S. dollars) to 30 billion roubles (846 million U.S. dollars). Dividend payments increased 10-fold and came to around 10 billion roubles (282 million U.S. dollars) for last year.

The shareholders, the Federal State Property Management Agency and the Yakutia regional government will retain joint control over the company until 2020.

In late October of last year, 16 percent of its shares on the Moscow Exchange - 7 percent were offered by the State Property Management Agency and as much by Yakutia, and the rest were the company’s treasury shares. As a result, the federal government’s stake in the company decreased to about 44 percent and that of the Yakut government to 25 percent plus one share.

“Everyone thought that if we carried out the IPO in Russia it would be doomed to fail, and said that the company should list on the London or US exchanges. But we went ahead nonetheless and floated 16 percent of shares, which raised a total of 36 billion roubles [about 1 billion U.S. dollars] for the federal and Yakutia’s regional budgets,” Andreyev said.

“The IPO resulted in 70 investors buying shares in the company, including some of the biggest American and British funds. The fact that the IPO was carried out on the Russian stock exchange only did not draw any criticism from these funds. Following the IPO, the company’s worth, if we calculate it for the business as a whole, comes to 8 billion U.S. dollars,” he said.

“After this, acting on your instructions, an agreement was signed between the shareholders, the Federal State Property Management Agency and the Yakutia regional government, under the terms of which we will maintain joint control of the company until 2020,” Andreyev told Putin.

He believes that this was “a very important decision for us and for Yakutia” because “we believe that privatisation is a positive event, but it should be a gradual process, because at the moment we are still in a situation where the company is spending around 8 billion roubles [225 million U.S. dollars] every year on running social facilities ranging from preschools to airports, housing and utilities infrastructure. We are taking steps to carry out reform in all of these areas, but we cannot do this quickly. It is a gradual process.”

Andreyev said “this whole reform process will take at least 10 years. Our paramount concern is to ensure that we maintain the quality of services for the local residents, because the company operates in three single-industry towns in Yakutia, and we are fully aware of our responsibilities towards the people there.”

Putin asked if there wree any problems between the local communities, the regional authorities and the federal government and if everyone was working in harmony.

Andreyev informed the president that “harmony also comes out of debate.”

He stressed that “the crisis taught us a lot, above all, not to spend carelessly on all kinds of investment projects.”

The CEO believes that “the agreement between the shareholders and the company’s significance as a taxpayer for the region are the economic foundation for our good relations.

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