By John Helmer, Moscow
Alrosa, the world’s number-1 diamond producer, has released a new planning document outlining production, earnings and diamond reserve targets after the start of three new underground mines, suggesting higher earnings than were calculated last year, and much longer mine life.
The new document, setting out the company’s plan to the year 2018, was released on the company website after it was presented at a meeting of the company’s management executive on Monday. Within the next eight years, Alrosa says it will have completed building underground mines at the Mir, Aikhal and Udachnaya open-pits, and mining will have commenced at all three. The overall diamond output gain which the company is projecting will be 15%. Current carat production for this year will be 34.4 million carats, according to earlier announcements; the target for 2018 is 39.6 million carats.
Other plan targets announced by Alrosa include sale revenues for rough diamonds over the 8-year period of $35,132 billion; that makes an average projected annual sales figure of $4.39 billion. This year’s sales target for rough, Alrosa has already said, will be $3.4 billion. Alrosa’s best year, according to its own releases, was 2007, when sales of rough and polished amounted to $3.7 billion.
The company declines to clarify the details of the latest release. But the published figures imply that annual sales of rough are expected to jump by 29% over this year’s level. With production gaining at only half this rate of increase, the difference appears to be accounted for by Alrosa’s projection of the rate of increase for rough diamond prices on the international diamond market.
The new company target for investment in the underground mines and exploration comes to Rb148.2 ($5.1 billion). Instead of an earnings projection, Alrosa’s new plan gives a net profit figure by 2018 of about $517 million. This compares with the audited figure for the peak year of 2007 of $633 million.
Asked to comment on the projected decline in company earnings which the Metropol brokerage reported four months ago, after analysing Alrosa-supplied financial data, Alrosa did not respond.
Sergei Goryainov, a leading Russian analyst and editor of Rough&Polished in Moscow, says that “the forecast by Metropol and the forecast by Alrosa are different documents, so you can’t say there is a change in the forecast. I believe Metropol based their estimates on a fairly large sum of money the company plans to invest in mine construction in 2011- 2012.
Part of the 2018 plan document which has not been released on the Alrosa website, but was reported by a Moscow newspaper, is a projected increase in the company’s diamond reserves. According to the press leak, the company plan claims that current reserves of 40 billion carats will jump to 1.48 billion carats. At the projected rate of production, these diamonds should be mineable for more than 37 years.
Although not prohibited by Russian law, Alrosa refuses to disclose publicly its reserve estimations. In its Eurobond prospectus, issued last October by JP Morgan, a Finance Ministry document was published in lieu of the reserves disclosure. This says: “approved reserves of rough diamonds (categories A+B+C1), as of January 1, 2010, are sufficient to permit extraction over the next 24 years, i.e., until December 31, 2034, of an average annual volume of diamonds at least as great as that extracted during 2009.” The implication is that Alrosa’s mineable reserves as of last year were 24 times 34 million, or 816 million carats.
The new disclosure implies that Alrosa is readying a claim that its reserves have jumped significantly. According to Alrosa’s bond prospectus, however, “the units of presentation and methodology for preparing ALROSA’s internal reserves information differ substantially from international presentation standards, ALROSA believes that such information would be of limited utility to investors, and accordingly, that information has not been presented in this Prospectus.”