The Supervisory Board of ALROSA recommended assigning 249.9 million rubles for dividends following the results of 2009 though earlier it was proposed to skip such payments. It is noteworthy that the three-year financial model devised to ramp up the company’s performance implies an essential increase in profits.
The financial fitness of Russia’s diamond-mining state monopoly ALROSA which for the most part of the last year was a money-loser comes back to stable. The company finished the past year with a net profit though initially hoped for a breakeven. On Monday, the company’s Supervisory Board recommended the shareholders to vote for paying dividends though 2 months ago ALROSA’s Board of Directors suggested refusing to do so. However, the three-year program of the company’s development which was also discussed by the Supervisory Board, offers an essential increase in profits.
Out of the blue
The Supervisory Board of ALROSA recommended the shareholders voting to pay dividends following the results of 2009 at the rate of 916.3 rubles per share. The company’s press release says that dividends are scheduled for a total amount of 249.9 million rubles.
The offered amount of dividends makes about 10% of the company’s net profit. For example, in the pre-crisis 2007 ALROSA allocated 2.24 billion rubles for dividends - about 16% of its net profit based on the Russian Accounting Standards (RAS). However, initially the company did not intend to pay any 2009 dividends whatsoever: in March, ALROSA’s Board of Directors moved to refuse payments “due to ALROSA’s difficult economic situation caused by the crisis in the global diamond market.”
As the company explained to Interfax, the Board of Directors had suggested skipping dividends as ALROSA’s net profit was more of a “paper” character resulting from the revaluation of its assets - first of all the stock of ALROSA-Nyurba, its subsidiary. “Taking into account that the state rendered financial support to the company by way of purchasing $1 billion worth of diamonds for Gokhran it is out of the question to speak of any net cash profit in 2009 gained on the market,” ALROSA says.
“At the same time, since last July ALROSA sold essential amounts of rough diamonds which made it possible to pursue its investment program and reduce the company’s debts. Demand for rough, transition to long-term contracts, diversification of sales and reduced debts and costs permitted the company to demonstrate a positive dynamics to its shareholders and this is why the Supervisory Board recommended paying dividends,” the company’s spokesman noted.
ALROSA’s net profit in 2009 reached 2,348.4 million rubles. Initially the company expected a smaller figure – thus, Yakutia’s Ministry of Economic Development (one of ALROSA’s shareholders) predicted its profit at 1.7 billion rubles. And even last autumn Fyodor Andreyev, President of ALROSA, said the company’s primary goal for 2009 was to “reach a breakeven point.” In the first six months in 2009 ALROSA posted a dead loss of 14 billion rubles and a net debt of about $5 billion.
The loss was first of all due to that ALROSA had to leave the market in the first half of the year because of dropped demand and prices for rough and sell diamonds to Russia’s Gokhran only. The company turned out under a hefty debt burden since it had been widely attracting credits for underground mines construction prior to the crisis. Besides, in the absence of market sales ALROSA was forced to finance its current operations by credits.
ALROSA’s major shareholders are the Russian Federation represented by the Federal Agency for State Property Management holding a stake of 50.9256%; Yakutia’s Ministry for Property Relations which owns 32% of shares; and 8 Yakut uluses (settlements) which jointly possess another 8%. They are to discuss the dividends issue at the annual meeting on June 26.
Besides the dividends, the Supervisory Board suggests allocating 70.5 million rubles out of the company’s net profit for long-term financial investments, 113.7 million rubles to the reserve fund and 1.91 billion rubles, the greater part of the profit, for exploration and construction of underground mines.
More diamonds, more profits
Underground construction and development of the operating mines will allow the company to increase its diamond output. According to ALROSA’s three-year financial model, which was discussed by the Supervisory Board, the company’s output in 2010-2012 will reach 102.321 million carats. It was reported that in 2010 ALROSA expects to mine 33.54 million carats, up 2.3% against 2009.
“Such a planned level of output is backed up by the operational capacities of ALROSA’s subsidiaries and, besides, the company’s Mir and Aikhal Mines will reach their design production capacity along with launching the Udachny Mine which will be one of the world's largest diamond underground mines able to turn out up to 4 million tons of ore per year,” the company stressed.
Aikhal’s design capacity is 500,000 tons of ore in a year, that of the Mir Mine is 1 million tons of ore and it is planned that they will reach their design capacity in 2012. It is also expected that in 2012 Udachny will produce its first 25,000 tons of ore.
Totally, ALROSA intends to allocate 24.728 billion rubles for underground construction in the next three years.
In the three-year period diamond sales are expected to reach $9,548 billion. ALROSA’s net profit forecast is 22.05 billion rubles. Exploration is supposed to be funded up to 6.236 billion rubles, while social facilities construction will consume 1.977 billion rubles. The company intends to set aside 1 billion rubles to its reserve fund.
“The formulated and accepted financial model shows the company’s financial prospects to the investment community,” the ALROSA spokesman said.
In the opinion of Sergey Goryainov, Rough&Polished’s expert, a comprehensible financial model is necessary for ALROSA also from the point of view of “going public” which may already take place by the end of the current year. “A clear program of development will allow ALROSA to capitalize its debt by placing its block of shares on stock exchange floors. Without such moves, no less than without reducing ALROSA’s operating costs, it will not be easy to compete in prime cost with the diamond-mining countries of Africa,” he remarked.
The Supervisory Board also instructed the Board of Directors to cut expenses for servicing credits and loans. According to the presented financial model, the company’s total obligations are to be $3.013 billion by 2012.
As was reported, ALROSA intends to lower its debt from $3.79 billion (as of the beginning of the year) to $3.45 billion within 2010. The company plans to release ruble bonds for the amount of 26 billion rubles and also considers the possibility of issuing eurobonds for $1 billion.
Earlier Fyodor Andreyev made statements about the possibility of an IPO on ALROSA’s part after it will be transformed from a closed company into a public company. As he said, the idea was already aired to the company’s shareholders. “We believe that making the company public or actually putting up to 25% of ALROSA’s stock to the market is the most effective decision for further development of the company, that is for pursuing investment programs, preserve jobs and reduce debts,” he said.
Interfax
