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Around ALROSA Co. Ltd.
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Dec. 28, 2006
VTB, Societe Generale win tender for Alrosa project finance
MOSCOW, December 28 (RIA Novosti) -Vneshtorgbank (VTB) and Societe Generale have won a tender to finance the construction of an oil refinery in East Siberia for Russia's largest diamond producer, Alrosa, the company said Thursday.
In compliance with the company's diversification strategy, the management board of Alrosa, which accounts for 25% of global diamond output, made a decision on the tender results December 28.
"The volume of required capital investment is estimated at 6 billion rubles (about $227 million)," Alrosa said in a statement.
The project aims to build an oil refinery with a capacity of 250,000 metric tons of oil (1.8 million barrels) annually at the Irelyakh oil field in the Republic of Sakha (Yakutia) in East Siberia. The oil field, which is located near the main production sites of Alrosa, is owned by its subsidiary Irelyakhneft.
"The project's implementation will enable Alrosa to considerably cut production costs for the purchase, transportation and trans-shipment of oil products, ensure security against price risks, use stable prognostic indices in its long-term plans and raise the company's economic efficiency," the statement said.
The project lending is designed for eight years, with a grace period for the construction period. Loans will be repaid from the sale of oil products, the statement said.
To fulfill its construction program, Irelyakhneft may draw a $50 million interim loan from the consortium of the bid winners already at the start of next year, the statement said.
Resource: RIA Novosti
Dec. 26, 2006
Alrosa Aiming for $600 Million Net Profit in 2007
Russian mining giant Alrosa, along with its subsidiary Alrosa-Nyurba, is planning to post a net profit of 15.8 billion rubles ($600 million) in 2007. In the first half of 2006 the diamond miner posted a net profit of 4.8 billion rubles (approximately $177 million) making the 2007 goal an ambitious one.
The fiscal target was set by Alrosa's supervisory board at its meeting on Monday, the company said in a release. To achieve that target, it plans to sell $2.898 billion worth of rough diamonds.
In October, the Russian state-owned miner said net profit for the first nine months of the year increased to 8.041 billion rubles ($300.8 million), a 24 percent hike over the previous year, on revenues of 55.288 billion rubles ($2.069 billion).
Resource: IndexOnline
Dec. 20, 2006
New Diamond Bill Distributes Royalties to Regions
Russia's President Vladimir Putin signed a bill that provides diamond royalty taxes to regional governments effective January 1, 2007. Under present regulations the regions only receive 60 percent of royalty tax and the Kremlin receives 40 percent.
The law will boost revenue for ALROSA's home base Yakutia, and the Perm and Arkhangelsk regions.
With changes underway, including the Kremlin's takeover of majority share on ALROSA, the new bill is supposed to compensate regions for revenues lost during transfer of ALROSA entities to Moscow. In some cases ALROSA leases facilities from regions, but when Moscow takes control of ALROSA facilities will switch to federal control.
Resource: Diamonds.net
Oct. 3, 2006
Russian Diamond Co. Looking Abroad
NAKYNSKOYE FIELD, Russia -- Just below the Arctic circle, amid sprawling tundra forests that are the only sign of life for hundreds of miles, geologists from Russia's state diamond monopoly Alrosa drill deep into grayish mud in search of precious gems.
But the world's No. 2 producer of raw diamonds after South Africa's De Beers Group is no longer content with mining gems alone _ it plans to expand into coal and gold mining, as well as exploring oil and gas fields at home and abroad.
The Kremlin, which is increasingly consolidating its control over the country's key industries, is rumored to be eyeing Alrosa as a nucleus for a state-controlled mining holding company.
Once a closed and secretive entity, some of whose mines and towns were hidden off the map in Soviet times, Alrosa today is seeking to change its legal structure to enable it to list its shares on Russian and international markets.
"Yes, we do have ambitions, I can confirm that," Alrosa's president Alexander Nichiporuk said in response to a journalist's question about future plans, on a recent tour of the company's diamond fields and plants in the Siberian province of Yakutia.
Such a makeover won't be easy.
Before opening up the company, which it views as strategically important, the federal government wants to increase its share to majority control from the current 37 percent.
The Kremlin plans to raise its stake by redistributing the company's capital assets between the federal and the local government, which was handed most of Alrosa's physical property when the company was born out of its Soviet-era predecessor in the early 1990s. The Yakut government currently owns 32 percent, its provinces have 8 percent and the remaining 23 percent are held by other entities, including a government-owned bank and investors.
Moscow is promising Yakutia to fully reimburse the transfer by plowing more tax revenue into the provincial budget, as well as increase funding for social and environmental projects. The Yakut government, however, has fiercely opposed the move, fearing it would lose its say in the company and its share in profits.
In Yakutia, an India-sized, scarcely populated region of forested tundra and permafrost, diamonds are a source of living and pride, accounting for 99 percent of Russia's and up to 25 percent of the world's gems. Diamonds from Russia are popular because many buyers are wary of "conflict diamonds" from African countries.
A court is adjudicating the case. Nichiporuk, who has served in the country's Finance Ministry and is said to be a trusted confidant of President Vladimir Putin, predicted it would be settled after New Year.
Analysts say a public listing would be a logical move for Alrosa, which would make the company attractive to investors and raise capital for the much-needed, costly exploration work.
"After restructuring its capital and shareholders the company is very likely to conduct a public offering of their shares," said Denis Mushtayev, a metals analyst with Metropol financial investment company.
Government-hired experts have valued the company at $6.1 billion, while independent observers estimate it to be worth $8 billion to 10 billion once it is reorganized, Alrosa says. Mushtayev valued the company at $12 billion to $15 billion.
But an IPO would require a major image change for the secretive company, bringing higher transparency and corporate governance requirements, observers note.
Alrosa is also busy contesting a recent antitrust ruling by the European Commission, which ordered the company to scale down and eventually stop all trade with De Beers, its biggest client for decades, by 2009. EU regulators argue the trade between De Beers, which controls about 60 percent of the world's rough diamond supplies and Alrosa, which produces up to 25 percent, restricts fair competition.
The move is a major setback for the company, which currently sells 24 percent of its diamonds to De Beers, and Alrosa has challenged the decision with the European Court of Justice, which is expected to rule within six months.
Simultaneously, the company has also begun expanding its own marketing network by setting up trading companies abroad. The company recently signed a cooperation agreement with De Beers for joint research and exploration work in Russia and other countries.
Over the past several years, Alrosa has been showing robust growth, last year selling diamonds worth $3.4 billion, compared to $2.7 billion in 2004 and $1.8 billion in 2003. The company also boasts an average salary of some $1,080 a month _ nearly three times the country's average monthly pay of $410. Alrosa also heavily invests in the social sector, maintaining hospitals and kindergartens and building sport stadiums and churches in its Yakut mining towns.
The company has moved outside Yakutia too _ mining for diamonds in Russia's northern Arkhangelsk region and owning stock in two major diamond fields in Angola. It also plans to develop diamond deposits in Guinea, the Democratic Republic of Congo and possibly Canada.
And it plans to explore oil fields in Yakutia and outside Russia _ in Angola _ in partnership with state oil company Zarubezhneft.
"One cannot rule out that the state will use Alrosa to cement its influence in the metals mining sector _ the state already has such sectors in the oil and gas fields," said Mikhail Galkin, an analyst with MDM bank.
Rumors swirled earlier this year that Alrosa could be used by the state to take over Norilsk Nickel, the world's No. 1 palladium and zinc miner. Nichiporuk said the idea is not being discussed at the moment.
Observers note Alrosa's progress, but say it still has a long way to go before becoming an open and effectively-run Western company.
They also take a dim view of the company's plans to enter a swathe of noncore sectors at once: gold, coal, oil and gas. Timothy McCutcheon, a partner at DBM Capital corporate finance boutique and a specialist in mining called the plan "a value destroying activity."
"If you are a huge company building cars that's OK, but if 80 percent of what you make are diamonds and 20 percent is everything else, that raises the question _ why bother?" he said.
Author: MARIA DANILOVA, The Associated Press.
Resource: The Washington Post
Sept. 24, 2006
Kremlin eyes gem giant Alrosa Mirny, Russia - As the world's second-largest diamond producer, Russia's Alrosa has already made its mark on world markets. But for the Kremlin, this is just the beginning.
The Russian state is aiming to transform this secretive group into Russia's latest national champion, a mining giant that will branch out into metals and hydrocarbons and push Russia's economic expansion deep into Africa.
Alrosa is "a company of strategic importance", Finance Minister Alexei Kudrin said in February, placing Alrosa alongside state gas monopoly Gazprom and state arms exporter Rosoboronexport, two pillars of Russia's increasingly Kremlin-directed economy.
And though Alrosa, which produces 25% of the world's raw diamonds, is currently "one of the most closed groups" it will become more "open and public", said Kudrin, who is also chairperson of the group's board of directors.
In the meantime, the Russian state plans to reorganise the company and consolidate it with other mining assets.
Fierce competition
The Russian state "should receive 50% of the company ... by the end of the year", Alrosa's general director Alexander Nichiporuk said this week in eastern Siberia's Yakutia region, home to most of the group's diamond mines.
The Russian state currently owns 37% of the company's shares, and state bank Vneshtorgbank recently purchased another 10% that should wind up in Kremlin hands.
But Moscow faces fierce opposition from local authorities in Yakutia, Russia's largest region, who do not want to cede their 40% stake in the company.
Yakutia got its share of Alrosa via a secret decree in President Boris Yeltsin's time, and fears that losing it would mean the end of its economic autonomy from Moscow.
But the Kremlin has set its sights on Alrosa as part of its plan to re-establish control over key sectors of the economy that were yielded in the 1990s either to oligarchs or to regional administrations, as in Alrosa's case.
Mining champion
Alrosa is likely to serve as "an outpost for consolidating the state's assets in Yakutia", an immensely resource-rich region, and in time become "a mining champion", Troika Dialog analyst Alexander Kudrin said.
The diamond producer has recently acquired half of the Russian oil and gas company Sakhaneftegaz and plans to extract oil in Angola, as well buy up coal and gold deposits.
The company is also doing extraction work at the Catoca diamond mine in Angola and wants to develop similar projects in the Democratic Republic of Congo and Guinea, Nichiporuk said.
If Alrosa's ambitious plans become a reality, "it is very likely that in time it may decide to enter the stock exchange" to attract the necessary capital, Kudrin said.
During the Soviet era, Russian diamonds were sold exclusively on the domestic market and to the South African giant De Beers, which with Alrosa has an exclusive contract.
Rival for De beers
Alrosa still sells 24% of its production to De Beers, but has already begun developing its own distribution network.
It has been asked to do so by European authorities which have cast a cold eye on the Russian-South African alliance and demanded that the two diamond giants part ways by 2009.
The Russian group is striving to develop an internationally-recognised brand that will rival the omnipresent De Beers, and has already opened offices in Hong Kong, Antwerp, Geneva, New York, London and Israel.
Alrosa sold 30-33 million carats of diamonds last year, totalling $3.4bn for a net profit of $550m, its president said.
The Russian giant is aiming for a similar profit margin this year despite a downturn in the market as the world's raw diamond stock grows.
Resource: Fin24
Sept. 22, 2006
Alrosa, Diamond Chamber auction $23 mln in diamonds
MOSCOW. Sept 22 (Interfax) - Alrosa (RTS: ALRS), Russia's Yakutia- based diamond monopoly, sold approximately $23 million in uncut diamonds at the 17th international diamond auction for special-sized diamonds hosted by the Russian Diamond Chamber in Moscow, the Chamber said in a statement.
The chamber said 126 of the 131 parcels offered were sold. The 131 parcels contained 893 diamonds weighing just over 16,000 carats in total, including 29 diamonds weighing more than 50 carats each. The biggest diamond offered weighed 283.94 carats.
Representatives of 56 Russian and foreign companies from India, Israel, Belgium, China, Japan and the United States bid at the auction.
The next auction starts on September 25 and its results will be known on October 20.
The first such auction was held in 1998.
Resource: Interfax.ru
Sept. 20, 2006
Russia's diamond monopoly to be restructured within months
UDACHNY, Russia The head of Russia's state-owned diamond monopoly said Wednesday that the world's No. 2 producer of uncut gems will reorganize and become an open joint stock company within months, after it settles a property dispute with regional authorities.
"The most important goal today is the opening up of the company," Alrosa chairman Alexander Nichiporuk told reporters visiting the company's mines in the Siberian province of Yakutia. "We expect this to happen after solving the question of property and its listing as part of the company's capital."
Nichiporuk also said the company did not plan an initial public offering in the near future — something that has long been rumored — though he did not rule out the possibility.
"Today this question is not on the agenda," Nichiporuk said. "Which form of attracting investment the shareholders choose — taking credit, issuing bonds or other forms — lies in the future."
The federal government, the largest single owner of Alrosa, is seeking majority control of the company, the world's second biggest diamond miner. Yakutia's republican government owns 32 percent, 8 percent is owned by the republic's districts and 23 percent by other entities.
The federal government has now lodged an appeal with the Supreme Arbitration Court to redistribute the company's assets between it and the Yakutia government.
Alrosa is second in rough diamond production only to Anglo-South African concern De Beers.
Nichiporuk also told reporters the company plans to develop diamond deposits in Guinea, the Democratic Republic of Congo and Canada.
And in a move to diversify its operations away from the diamond business, he said Alrosa would be exploring oil fields in Yakutia as well as abroad — in Angola — in combination with state oil company Zarubezhneft.
Resource: The Associated Press
Sept. 20, 2006
Nichiporuk Discusses New Projects, Expects Rough Sales +30% for 2006
ALROSA sold some $1.7 billion in rough for the January through August period in 2006, the company reported September 20. Sales are about 7 percent behind if the company is to achieve its goal of $2.734 billion for the calendar year. The company hopes to increase rough sales 30 percent from 2005.
Company president Alexander Nichiporuk estimated that international rough diamond stocks sit somewhere between $500 million and $700 million at the moment.
For the first half of 2006 (January through June,) prices of mid-sized diamonds fell, but the prices on rough large and small diamonds increased, Nichiporuk said, and overall rough trading was down compared with 2005. ALROSA reduced some prices on rough by 6 percent on September 1, 2006, but Nichiporuk did not elaborate on the details.
Nichiporuk told reporters during a press conference that ALROSA expects to increase capital expenditures 47 percent to RUB19 billion ($712 million) in 2007.
ALROSA plans to spend RUB13 billion ($487 million) on mine construction with the additional funds going towards infrastructure upgrade expenses.
Some RUB2.2 billion in 2006 and another RUB2 billion in 2007 will be spent on the construction of the Udachny mine in Yakutia (this project was begun in 2004 and expects to complete in 2011.) Total investments on the construction amount to $780 million. The capacity of the Udachny mine will amount to 4 million tonnes of diamond ore annually.
ALROSA is holding negotiations to develop local diamond deposits in Guinea and in the Democratic Republic of the Congo.
Nichiporuk also discussed plans to develop oil fields in Angola. ALROSA --in a joint partnership with Russia's oil company Zarubezhneft-- is considering several oil deposits for investment and exploration. The oil deposits would be developed under a concession agreement, he added.
ALROSA recently opened a representative office in New York and expects its Israel business office to open within days, Nichiporuk said. ALROSA has offices in Hong Kong, Dubai, Geneva, and Antwerp.
Russia's government plans to hold majority stake in ALROSA (50 percent plus 1 share) by the end of 2006.
Author: Jeff Miller
Resource: Diamonds.net
Sept. 19, 2006
Alrosa to Diversify
In an attempt to protect itself from fluctuations in the diamond industry, Russian diamond miner Alrosa has said that it plans to diversify into gold, oil, gas, and coal mining. The news comes on the heels of President Alexander Nichiporuk's declaration that the miner is expecting another good year, with Russian mined rough diamond sales of about $2.8 billion.
“Although market conditions have worsened, we expect our net profit to be no worse than last year's," Nichiporuk told reporters. Last year Alrosa made a net profit of 15 billion rubles ($559.7 million). The statement was somewhat surprising, as prices of rough diamonds have soared in the past year.
On the subject of Alrosa's diversification plans, Nichiporuk said, “The diamond market has many risks threatening those involved just in this one kind of activity. Our task is to minimize these risks and to achieve maximum profits.”
Alrosa plans to develop oil and gas fields in Yakutia and build an oil refinery in the CIS republic.
Nichiporuk also said that the company is considering a number of gold projects in Africa.
Resource: IDEX Online Staff Reporter
Sept. 06, 2006
Alrosa, De Beers may explore diamonds in Russia and Africa
CAPE TOWN. Alrosa, Russia's Yakutia-based diamond monopoly, and De Beers signed a Memorandum of Understanding in Cape Town on Wednesday to look into the possibilities for joint diamond prospecting and exploration in Russia and other regions, including Africa, De Beers said in a statement.
"An historic agreement was signed between Alrosa and De Beers in Cape Town today, to examine opportunities for carrying out joint diamond prospecting and exploration activities in Russia and, in due course, other regions of the world, including Africa," the statement said.
"This agreement extends further a unique 50-year relationship between the two companies which has contributed significantly to the development of economic relations between Russia and South Africa, and to the growth of the diamond sectors of the two countries," the statement said.
"Both Alrosa and De Beers are fully aware of the recent decision by the European Commission regarding their trading agreement, and will operate in strict compliance with all competition legislation requirements," it said.
Resource: Interfax
Aug. 31, 2006
Last stretch for Alrosa takeover
MOSCOW -- After two years of internecine fighting between the federal government in Moscow and the Sakha republic government in Yakutsk, the restructuring of diamond miner Alrosa's capital and shareholding is almost complete. Disputes remain over the exact value of the compensation demanded by the region for losing its de facto , as well as de jure control of the company, and over what types of compensation should be paid. However, a federal move in recent days to include a big tax revenue shift in the 2007 budget enactment is a sure sign that Alrosa will shortly become fully federally controlled.
To complete the Russian government's takeover of the majority shareholding in Alrosa, the Finance Ministry has prepared a tax compensation proposal for enactment by the State Duma (Russia's lower house of parliament). This would give Sakha (also known as Yakutia) -- the region where Alrosa's current diamond mines are located -- an additional budget revenue of Rb2.6 billion ($97 million) from the mineral extraction tax.
Under present tax law, the revenues of this tax are divided between the federal government and the region in the proportions 40% and 60%, respectively. Starting next January, the federal government will forego its share, and this will go to the regional budget instead. The change is included as an amendment to the current Budget Code and in the draft 2007 budget, which the Duma will shortly begin reviewing.
An Alrosa source says this is "only the first part of the compensation package currently being discussed between federal officials and Sakha. An increase in [the region's share] of taxes on profit, fuel, and other assets; other forms of federal help; and the transfer of a number of social and infrastructural assets, such as railways, are also being discussed."
Federal and regional officials have been arguing over the valuation of Alrosa, and of the shareholdings that are being acquired or transferred to build up the federal stake from 37% a year ago, to 48% recently, and the final target of 50% plus one share.
Alrosa was originally chartered by a secret presidential decree in 1993, signed by President Boris Yeltsin. Members of Parliament complained at the time that the action was illegal. Yeltsin, however, was in a battle for his political survival against the parliament, and bought the support of the Sakha region's president, Mikhail Nikolaev, with the transfers of state property and promises of future revenue streams that were contained in the decree, and in the original capitalization of the company.
The restructuring of Alrosa as a federal enterprise began in 2001, after President Vladimir Putin forced Nikolaev out of local office, and replaced him with Alrosa chief executive, Vyacheslav Shtirov. Shtirov had been Nikolaev's protege, and at one time regional prime minister. Shtirov is approaching the end of his first term as regional head; he has told associates he does not want to run for a second.
Vladimir Kalitin, the company's chief engineer, was the compromise between the federals and the regionals to replace Shtirov as CEO. Kalitin was removed in August 2004, when the federal candidate, banker Alexander Nichiporuk, was appointed. At that time, the shareholding of the closed stock company was divided between the federal government (37%), the Sakha region (32%), management (23%), and the sub-regions of Sakha (8%). More than two years, and several direct interventions by President Vladimir Putin, have been required to reorganize this shareholding structure to achieve federal control at the 50% plus one share.
Last October, a Russian audit company called the Centre for Professional Valuation reported that Alrosa was then worth $6.4 billion, or $32,300 per share. The auditor had been engaged for the task by the Federal Property Management Agency and Alrosa. At the time, the reported valuation was roughly 50% higher than unofficial company estimates of between $4 billion and $5 billion. According to banking sources, who have evaluated Alrosa's assets and liabilities, the new estimate was not far off the mark, taking into account world prices for Alrosa's diamonds, as well as the company's growing output.
Last year Alrosa generated more than $3.1 billion in revenues from rough diamonds mined in Russia and in Angola; this represented an annual growth rate of 15%. After-tax profit grew to about $538 million, while dividends remitted to the shareholding governments jumped 9% to about $70 million. Alrosa's share of the global diamond mining market has now grown to 25%, making it the largest diamond-miner in the world after De Beers.
Sakha officials disputed the company valuation, claiming the estimate was $1.5 billion too high. At the end of March, this year, the Centre corrected its valuation to $6.1 billion, or $30,300 per share. The federally controlled Vneshtorgbank bought 10.7% of the issued shares at this price, primarily from individuals, retirees and current managers. This phase of the federal takeover gave the government in Moscow almost 48% in the company. Sakha was left with 40%, and management the remainder of about 13%.
Altogether, according to the Sakha regional administration, the transfer of assets to build up the federal control stake in Alrosa has been estimated to cost the Sakha region Rb11 billion ($412 million) in annual revenues. The federal finance ministry calculates this figure at Rb9 billion ($337 million). The latter has also taken court action against the region to demonstrate that some of the assets included in this calculation were unlawfully incorporated into the region's revenue base, and should be returned without compensation.
The first new vote by the shareholders on June 24 added a federal official -- Alexander Akhpolov from the Finance Ministry in Moscow -- to the 15-man Supervisory Board. His addition made 7 seats in all for the federal government. The Sakha government holds 6 seats on this new board, and the Alrosa management, headed by CEO Nichiporuk, holds 2. But the June shareholder vote did not reflect the final 50% plus one share. Before that target can be reached, the federal government must put in place the revenue compensation package agreed for Sakha.
Alrosa is also restructuring its sales revenues and trading system, establishing its independence of the old De Beers marketing system, and eliminating pockets of favouritism towards Israeli diamantaires. In the past, De Beers was the monopoly buyer of Russian diamond exports. By the end of last year, it had dropped to second place.
The trade agreement signed by De Beers and Alrosa for the five-year period 2002-2007 provided for aggregate rough sales of $4 billion, with an average annual sale of $800 million. Internal debate among senior Alrosa executives followed. Before the signing in December 2001, the value of the volume of deliveries to the Diamond Trading Company (DTC) of De Beers had been $868 million. The annual volume of deliveries to De Beers was then cut to $677 million in 2002; $635 million in 2003; $651 million in 2004; and $669 million in 2005.
A ruling issued by the European Commission (EC) on February 22 then ordered an end to this trade altogether by 2009. Alrosa reacted, making public its unhappiness with the terms of the anti-trust move. The sentiment in Moscow at the time was that De Beers had broken an earlier understanding with Alrosa in favour of a common stand to preserve the trade at $275 million per annum.
A few weeks later, in April, the public leak of a European Commission letter suggested that De Beers had opted for zero in exchange for an agreement by the European Commission to drop a parallel anti-trust investigation of De Beers's Supplier of Choice (SOC) programme. "In light of these commitments [zero trade with Alrosa]," the EC document had said, "foreclosure of the secondary market through the SOC is in our opinion not likely, since diamonds from Alrosa's production would no longer be traded through De Beers but sold independently on the market." Alrosa refused to comment on the leaked document. De Beers denied there was any linkage between the Alrosa ruling and the SOC review.
Since then, Alrosa instructed lawyers to prepare a formal appeal of the February ruling. The appeal brief, captioned Alrosa v. the European Commission, was filed at the European Court of First Instance, in Luxembourg, on June 29, according to the court spokesman, Tim Fretwell. He said there would be no release of the text of the filing. However, within eight weeks, Fretwell promised that the EC would publish an official Notice summarizing the argument in the appeal, and identifying the lawyers. Alrosa says it will not comment on the action. Fretwell said Alrosa is seeking the annulment of the earlier ruling.
The EC court must order a hearing on the appeal, and this could take up to 12 months. A judgement of the court would follow some time later. Under EC rules, the filing of the appeal does not automatically suspend the provisions of the February 22 ruling. Alrosa would therefore have to make a separate court claim, Fretwell claimed, if it wants to suspend the trade levels previously agreed with the EC for 2007 and 2008.
Sources close to both companies say that Alrosa's legal challenge is unilateral; De Beers is not participating, and for the time being not commenting on it. However, the Alrosa management may be hoping to persuade De Beers to revert to its mid-2005 position, and support the preservation of a residual trade between the two companies for the future.
In July, following the start of the lawsuit, Alrosa and De Beers held talks in South Africa to consider opportunities for cooperation between the two miners in sub-Saharan Africa. Lynette Hori, a De Beers spokesperson, commented that "we have said publicly on a number of occasions that we are interested in building our green fields exploration presence in Russia. In line with Russian legislation, De Beers would require a Russian partner to develop a mine in Russia. There are a number of potential partners available to De Beers in Russia, of whom Alrosa is one."
An informed source said Alrosa is not offering De Beers fresh mining projects in Russia. Instead, it is proposing that the two companies should cooperate in third countries. Much depends, the source said, on what mineable assets De Beers is willing to offer Alrosa in South Africa, Botswana, or Namibia. In Angola, the source conceded, Alrosa -- with one mine operational, and two in planning -- is already much the stronger of the two companies. De Beers can offer little advantage in the Democratic Republic of Congo either, the source added.
Written by John Helmer
Resource: Mineweb.net
Aug. 28, 2006
Regions to get all diamond mining tax from 2007
MOSCOW. Aug 28 (Interfax) - The whole mineral extraction tax for mining diamonds will be paid into the budgets of Russia's regions and republics from 2007.
The government has introduced this amendment to the Budget Code to the State Duma together with the draft 2007 federal budget.
The federal budget currently gets 40% and the regional budgets 60% of the tax.
Russian Finance Ministry officials have said redistributing tax revenue, including mineral extraction tax, could be one way of offsetting the 10 billion rubles or more in revenue losses that would be inflicted on the republic of Yakutia, where most of Russia's diamonds are mined, by the federal government's bid to reinstate ownership of the assets of the Yakutalmaz Production Association, from which Alrosa (RTS: ALRS), Russia's Yakutia-based diamond monopoly, was created.
Resource: Interfax
Aug. 18, 2006
Moody's raises Russia's Alrosa senior notes to Ba2, outlook stable
MOSCOW, August 18 (RIA Novosti) - International rating agency Moody's said Friday it had upgraded its ratings on the senior notes of Russia's largest diamond producer Alrosa to Ba2 from Ba3, with a stable outlook.
The agency said, "The ratings on the existing notes issued by Alrosa Finance S.A have been upgraded from Ba3 to Ba2 to reflect a sustained reduction of the share of secured debt in the Company's financing structure."
Alrosa provides about 23% of the world's diamonds. The company's annual turnover is estimated at $2 billion. Its major shareholders are the Russian government (37%), the Yakutian government (32%), the personnel (23%), and eight Yakutian districts (8%).
Moody's said: "The stable outlook reflects Moody's unchanged assumptions about the diamond market and the expectation that Alrosa will successfully complete and start-up new underground mines to replace depleting open pit extraction, and will continue to improve production efficiencies to offset additional cost associated with the underground mining. The stable outlook also reflects Moody's expectation that Alrosa will continue to strengthen its direct sales at the international diamond market and will start to redirect its export sales from DeBeers."
Resource: RIA Novosti
Aug. 16, 2006
Alrosa, Diamond Chamber auction $28 mln in diamonds
MOSCOW, August 16 (RIA Novosti) - Alrosa, Russia's largest diamond producer, said Wednesday its net profit, calculated to Russian Accounting Standards, had declined 25.7% year-on-year in the first half of 2006, to 4.8 billion rubles (about $177 million).
Alrosa, which accounts for almost 100% of diamonds mined in Russia, and for about 20% of world diamond output, attributed lower profits to reduced demand.
Alrosa, whose sales totaled $3.1 billion in 2005, including diamonds mined in Africa, said its earnings had decreased 2.7% in the reporting period, to 36.41 billion rubles (about $1.3 billion), and that pre-tax profit had fallen 11.2%, to 7.6 billion rubles (about $281 million).
Resource: RIA Novosti
Aug. 07, 2006
Alrosa, Diamond Chamber auction $28 mln in diamonds
MOSCOW - Alrosa , Russia 's Yakutia-based diamond monopoly, sold approximately $28 million in uncut diamonds at the 16th international diamond auction for special-sized diamonds hosted by the Russian Diamond Chamber in Moscow , the Chamber said in a statement.
The chamber said 144 of the 152 parcels offered were sold. The 142 parcels contained 1,286 diamonds weighing around 21,600 carats in total, including 17 diamonds weighing more than 50 carats each. The biggest diamond offered weighed 100.63 carats.
Representatives of 44 Russian and foreign companies from India, Israel, Belgium, China, Japan and the United States bid at the auction.
Resource: Interfax
July 31, 2006
Yakutia seeks right to veto major decisions in Alrosa
MOSCOW . July 31 - The republic of Yakutia wants to secure the right to control Alrosa's decision-making on major issues after the federal authorities increase their interest in Russia's uncut diamond monopoly to a controlling stake, Alrosa's President Vyacheslav Shtyrov said.
"Amendments must be introduced to the company's charter that would allow the republic to control the situation. For instance, key decisions on financial issues, appointments and other matters must be approved by two-thirds of the supervisory board's members, not by a majority of votes, to allow the republic to have the right to veto," he said.
It is one of the three conditions put forth by Yakutia's administration in exchange for its consent to sign an amicable agreement with the Federal Property Agency (Rosimushchestvo) regarding the assets of Yakutalmaz. The Republic's government also seeks compensation payments to the local budget after Alrosa stops paying 10 billion rubles a year in rent. In addition, it wants the republic's total share of the company to remain at 40%.
A decision has already been taken in principle to transfer control over some of Yakutalmaz's assets to the federal authorities, Shtyrov said. The remaining property will belong to Yakutia's authorities and will be added to Alrosa's charter capital.
Yakutia's government and Rosimushchestvo have already reached a settlement in a court dispute over the status of Yakutalmaz's property. They agreed to transfer control over the company's main assets to the federal government, which would allow the federal authorities to increase their interest in Alrosa to a 50% stake plus one share.
Resource: Interfax
July 31, 2006
Alrosa raises net profit 19.4% to $97.5mln in Q2
MOSCOW, July 31 - Alrosa said Monday its net profit was 2.6 billion rubles ($97.5 million) in April-June, a 19.4% rise from the first quarter of the year.
Russia's biggest diamond producer said the growth had been due to an increase in sales proceeds and revenues from participation in other organizations.
Alrosa is one of the world's biggest diamond mining companies, accounting for 25% of overall production in monetary terms. The company's major shareholders are the Federal Agency for the Management of Federal Property (37%), the Republic of Sakha (Yakutia), where it is based, (32%) and staff (23%).
Resource: RIA Novosti
July 04, 2006
Alrosa auctions more than $29 mln in diamonds
On July 4, Alrosa sold more than $29 million in rough diamonds at the 15th international diamond auction for special-sized diamonds hosted by the Russian Diamond Chamber in Moscow, the chamber said.
The chamber said 136 of the 142 parcels offered were sold. The 142 parcels contained 1,171 diamonds weighing around 20,000 carats, including 11 diamonds weighing more than 50 carats. The biggest diamond offered weighed 94.2 carats.
Representatives of 45 Russian and foreign companies from India, Israel, Belgium, China, Japan, Switzerland and the United States bid at the auction.
A 16th auction started on July 3 and its results will be known on August 4.
The first auction was held in 1998.
Resource: Interfax
June 30, 2006
Alrosa Expands at Home and Abroad
Alrosa’s chief executive, Alexander Nichiporuk, will shortly be in South Africa, as Russia’s dominant dimaond miner and world’s number-2 producer prepares to stretch far and wide into De Beers’s backyard.
Number-2 is trying harder — with good reason. In September President Vladimir Putin is scheduled to visit South Africa, Angola, and possibly other African countries as well. Apart from military aviation and arms, Russian diamond-mining is one of the largest interests Moscow currently has in Africa.
Nichiporuk was brimming with confidence when he presented the Alrosa strategy at the World Diamond Congress (WDC) in Israel this week. This stemmed in part from the long-awaited results of the annual general shareholder meeting last weekend, when it became clear the federal government in Moscow has now achieved its takeover target of 50% plus one share, subordinating the Sakha regional administration, which has run the company since 1993.
Alrosa has resolved its differences with Sakha region shareholders, and will complete the federal government takeover in July, declared Board chairman Alexei Kudrin, the federal finance minister.
According to Kudrin, the government-controlled Vneshtorgbank already has acquired 10.6% of shares in a buy-back from individual holders and management. Together with the 37% stake already held by the federal government, and an additional shareholding adjustment Kudrin said has been accepted by the Sakha regional administration, the takeover will be formalized, when the federal and regional governments sign a settlement of a pending lawsuit before the Supreme Arbitration Court, scheduled for July 27.
“Thus, the parties have already agreed to conclude the settlement of the lawsuit,” Kudrin declared in a statement released by the company. “Disagreements between the Russian Federation and the Republic of Sakha (Yakutia) on these questions does not exist.” According to Kudrin, the Sakha regional government will retain its original 32% stake in Alrosa, while the Sakha district administrations will continue holding 8%, making 40% in all. Additionally, Kudrin confirmed that the federal budget will pay compensation to the region for loss of revenues stemming from the return of assets to federal control, in Alrosa’s charter capital. Kudrin said it will be necessary to convene an extraordiunary shareholders’ meeting to confirm the changes in shareholding, and transform the shareholding structure from closed to open form, under Russian law. “This question also does not cause disagreements among the basic shareholders,” Kudrin added.
The first new vote by the shareholders on June 24 added a federal official — Alexander Akhpolov from the Finance Ministry in Moscow — to the 15-man Supervisory Board. His addition makes 7 seats in all for the federal government. The Sakha government holds 6 seats on the new board, and the Alrosa management, headed by CEO Alexander Nichiporuk, holds 2.
The outcome demonstrates that Nichiporuk has survived whatever ill had been threatened in his direction. Once the new federal takeover will have been stabilized, fresh expansive moves can be expected; possibly even an acceleration in moves toward what the federals are calling the diversification of the Alrosa’s resource base; that is shorthand an attempt to implement last year’s clever idea — a state buyback of Norilsk Nickel.
In a presentation to the shareholders, Nichiporuk said that last year, Alrosa generated more than $3.1 billion in revenues from rough diamonds mined in Russia and in Angola; this represents an annual growth rate of 15%. After-tax profit grew to about $538 million, while dividends remitted to the shareholding governments jumped 9% to about $70 million. Alrosa’s share of the global diamond mining market has now grown to 25%, Nichiporuk added.
In his speech to the WDB, Nichiporuk said Alrosa is intending to boost diamond output beyond the 33-million carat threshold which the group has already reached.
“In practice,” Nichiporuk said, “Alrosa mines 30 to 33 million carats of diamonds every year, which equals one kimberlite pipe going out of operation, with no simultaneous entries to compensate for the exhaustion. According to our estimates, other producers are in the same situation in the long run.” To lift the production ceiling, and replenish mineable reserves, he said the company is commencing “mass-scale exploration activities in Yakutia and in the North-West of Russia, as well as in Africa. We are developing joint exploration projects with other companies both in Russia and abroad.”
At home, Alrosa is attempting to squeeze more stones from existing mines, by tunneling underground. “At present we are building four underground mines to keep up production. All in all, we plan to construct simultaneously 5 underground production facilities. We look for new technological solutions to put low-grade kimberlite pipes into production that were considered to be infeasible in the past.”
On the marketing front, Nichiporuk noted that, in response to the zeroing-out of trade with De Beers, recently ordered by the European Commission in Brussels, Alrosa is developing an independent sales strategy – “we have already opened our subsidiaries in Antwerp, Hong Kong, Dubai and Geneva. We have started this work in Israel and the USA.” Nichiporuk said that as soon as Russia joins the World Trade Organization (WTO), he expects the federal government to end diamond export quotas, as well as customs duties.
According to the Russian Customs Committee, for the year 2005, a total of 23 million carats were exported from Russia worlwide, for a value of $1.66 billion; the average carat value was $72.08. The Antwerp market in, Belgium led the export destinations with 10.3 million carats, 45% of the Russian export market, with an average carat value of $61.30. Trailing Antwerp in volume, but of with 24% higher carat value, were Russian exports to the UK (De Beers’ Diamond Trading Company). A total of 8.8 million carats was shipped, for $669 million; average carat value, $75.90. Israel ranked third as an export destination for Russian rough. In 2005, according to the customs data, it received 2.4 million carats for $233 million; average carat value was the highest of all export destinations, $97.08.
After Israel, Dubai received 973,053 carats for $67 million ($69/ct); Armenia received 186,426 carats for $11.2 million (($59.80/ct); India 180,451 carats at $11.5 million ($63.76/ct). China and Hong Kong, combined, received 109,315 carats for for $10.6 million ($96.92/ct).
Alrosa gives the following explanation, confirming the shift of Russian rough exports away from De Beers:
“The fundamental direction of export of rough is Antwerp. The difference in the price of the exported goods to Britain, Antwerp and Israel is connected first of all to the fact that to Antwerp goods for the various companies specializing in a wide assortment of rough is delivered, and the biggest share is taken by the Indian firms. To Israel, only a small share of Indian-type goods is delivered. Besides, Israeli firms actively participate in the purchase of rough diamonds at international auctions where the average price for orders exceeds the general export price of deliveries of rough diamonds from the Russian Federation.”
Alrosa also said that the legal channel allowing Russian diamond cutters to export 15% of the rough they receive in a year, when the stones are too small to cut profitably, is little used. The volume of rough exports from this source, Alrosa said, is “insignificant”. Ararat Evoyan, executive director of the Russian Association of Diamond Manufacturers, played down the significance of the carat value figure. “It doesn?t show anything. These [destination countries] are the staging posts through which enterprises gets access to US, Japan and other markets. There are several such points ? Belgium, Israel. I could also suppose that Dubai receives [Russian] stones through Israel.”
Nichiporuk told the convention of diamantaires that he is committed to raising consumer confidence in Russian diamonds. “Russia has fully welcomed and implemented the international experience acquired within the Kimberly Process in regulating the diamond market. We proceed from the assumption that transparency of the diamond business in Russia is a pre-requisite of its full-right integration into the world diamond market and its better investment appeal.”
Alrosa, he added, has also commenced a plan to protect buyers of natural diamonds from synthetics, treated stones, and counterfeits. We are “establishing a monitoring center for synthetic and treated diamond technologies and identification methods, in cooperation with a number of Russian academic institutions specializing in crystallography. We plan to involve production enterprises into the work. And we are interested in cooperating with any committed market players in this field.”
In his remarks, Nichiporuk conceded that current conditions in the diamond market are difficult. Demand for rough is down, he said, with a surplus of supply over demand he estimated at between $500 million to $700 million. “It is not by chance that some of our clients have applied to us to let them buy their contractual lots offered but not in full.” He disparaged the old sight system of obliging clients to buy all or nothing. “In a situation when polished sales fall behind rough purchases, lots get discounted thus causing general market uncertainty. Probably what we need is regulation of market supply with a flexible price policy to smooth out the situation and bring the industry back to its normal balance. None of the players is interested in instability or swing fluctuations in this very specific market. We are already taking appropriate measures.”
To the audience in Israel, Nichiporuk’s tone was reminiscent of De Beers a decade or two ago. This time, however, it is the Russians who are moving into southern Africa, where De Beers has been unable to keep its footing. Alrosa is also making its mining moves without ceding an inch of prospecting territory to De Beers in Russia.
Author: John Helmer
Resource: The Russia Journal
May 28, 2006
Russian Diamond Monopoly in Shareholder Dispute
The Sakha Republic (Yakutia) is continuing to resist efforts to restructure the ownership of Alrosa, Russia's largest diamond-mining company. Galina Makarova, head of the republic's property ministry, has sent a letter to the Russian Finance Minister Alexey Kudrin, the head of the Federal Property Management Agency (Rosimushchestvo) Valery Nazarov and head of the Center for Professional Assessment Corp. Alexander Kushel criticizing the latest assessment of Alrosa and the moves in the course of the federalization of the diamond monopoly. Kommersant has obtained a copy of that letter.
Yakutian authorities consider that the company was overvalued because of the use of international accounting standards instead of Russian standards. Yakutia stands to gain from a reduction in the price of the company because it will be able to retain its share in it at 40% without contributing any new assets. The Russian government intends to increase it share in Alrosa to 50% plus one share. The government has in practice been in control of 47.7% of the company since the middle of the month, when Vneshtorgbank acquired almost 10.7% of the company's shares from minority shareholders. Those shares are expected to be transferred to state ownership.
The government also plans to increase its share in Alrosa by contributing some of the assets of the Yakutalmaz scientific production association, from which Alrosa was spun off in the 1990s, to the authorized capital of Alrosa. Rosimushchestvo tried to dispute Yakutia's rights to Yakutalmaz in the Supreme Arbitration Court, but that court refused to hear the case, saying that it was out of its jurisdiction.
The Center for Professional Assessment assessed Alrosa on an order from Rosimushchestvo last year and valued it at $6.4 billion, that is, $32,300 per share. Yakutia called that estimate inflated. The Yakutian President Vladimir Shtyrov said publicly that the estimate was overstated by at least $1.5 billion. At the end of March, the Center corrected its finding to a value of $6.1 billion, or $30,300 per share.
The Yakutian government is still not satisfied with the estimate. Makarova's claim that the company should be evaluated using Russian (Soviet) accounting standards is odd, however, since Alrosa is a trans-national company (her argument against using international accounting standards was that it is not). Her argument is essentially against the lack of financial transparency at the company, which has over 50 subsidiaries.
The use of Russian accounting standards would justify the exclusion of Alrosa-Nyurba, one of the company's largest subsidiaries and the source of almost half of its profit, from the assessment. In addition, the Yakutian authorities want the “practically forced rental of the property complex of Yakutalmaz from the republic” taken into consideration in the assessment and disagrees with estimates of the company's future income.
The press service of the Finance Ministry noted that representatives of the Sakha Republic were present on the competition commission that accepted the Center for Professional Assessment's assessment proposal and voted in favour of it.
Resource: RusMinInfo.Com
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