According to the RBC daily, in the coming years, ALROSA is going to focus on Russia-based projects for mining raw materials. Most of its investments ALROSA will forward to modernize and expand production and exploration, enabling the company to increase its output and build up its raw mineral base. Due to this, the diamond miner intends to sell over $35 billion worth of diamonds by 2018.
On Monday, the Board of Directors of ALROSA is to consider its development strategy until 2018, a source close to the company told the RBC daily. The company plans to focus on modernizing its basic operations, enhance exploration to timely reproduce its reserves of mineral resources being depleted and improve the company's capitalization.
In 2009-2018, ALROSA will use 215.3 billion rubles as investments, most of which will go for construction (147.15 billion), says the presentation of the diamond mining company prepared for the meeting of the Board (a copy is available at the RBC daily). At the same time, the company plans to spend 25.6 billion rubles for exploration, of which 93% will be allocated to discover new diamond deposits.
These investments are expected to boost the company’s mineral reserves to an extent where they will exceed production. By the end of 2018, ALROSA expects to beef up its diamond reserves from 1.4456 billion carats (as of the start of 2010) to 1.4861 billion carats. In 2010-2018, the ALROSA Group’s diamond output will reach 327.9 million carats, and the production peak is to occur in 2018, when the company expects to produce 39.6 million carats. By 2018, the Russian company’s diamond sales are forecasted to yield $35.13 billion, of which polished diamonds will account for only a small part, while the rest will be rough worth $33.45 billion.
"Polished business has always been run by ALROSA only to probe prices in this market. It has never been a major source of profit,” Sergey Goryainov, the analyst of Rough&Polished reminds. At the same time he stressed that the polished market is less attractive to the company because of high risks and low margins.
By 2018, ALROSA expects to drive its diamond sales to a level of $4.68 billion a year. The company believes that 70% of this amount will be generated by export sales, whereas domestically it will earn only 30%.
Experts view the diamond miner’s plans as very optimistic, but the company has chances to achieve such results. In 2010, ALROSA’s diamond output went up 5% to 34.336 million carats, leaving De Beers in the second place by this indicator. "The positions of ALROSA and De Beers are drifting closer. If the plans of the Russian company will be realized, then over time ALROSA and De Beers will share leadership in the market," Sergey Goryainov said. The expert notes that for ALROSA it would be logical to focus on the development of Russian projects, where the company has wider opportunities. In particular, the diamond miner is going to build and put into operation three underground mines, Mir, Aikhal and Udachny, by 2018.
Indeed, in its program the diamond mining company did not provide for investments in its Angolan project. "Apparently, ALROSA will simply continue to receive dividends from Angola," Sergey Goryainov believes.
All the above steps should lead to a gradual increase in the company’s sale proceeds. Over the entire period, this will be more than 1 trillion rubles, including 127 billion rubles to be earned in 2018. For the entire period the company will net about 323.6 billion rubles in profits and in 2018 its margin will hit 39.88 billion rubles.
