ALROSA

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ALROSA OJSC
Type Public OJSC
Traded as MCXALRS
Industry Mining, processing and trading of rough diamonds, manufacturing of polished diamonds
Founded 1992
Headquarters Mirny, Russia; Moscow, Russia
Key people Andreev Fyodor (President)
Products Diamonds
Revenue Increase US$ 4.9 billion (2012)
Net income Increase US$ 1.1 billion (2012)
Employees 40 000
Website eng.alrosa.ru

ALROSA (Russian: АЛРОСА)– is the Russian group of diamond mining companies, which has the leading role in the world diamond mining by volume.[1][2] ALROSA is engaged in the exploration, mining, manufacture and sale of diamonds. Mining takes place in Western Yakutia, Russia, the Arkhangelsk region, Russia and South Africa. The Russian Federation is the largest diamond-producing nation in the world, estimated to produce over 33 million carats in 2013, with ALROSA accounting for approximately 97% of all Russian production.[3] According to Bain & Company, ALROSA accounts for 27% of the global diamond production.[4][5] ALROSA has the world’s largest rough diamond reserves, sufficient for at least another 18–20 years of production.

Full title – Open joint stock company ALROSA, short – OJSC ALROSA. The company's headquarters are in Mirny (Sakha Republic) and Moscow.

History[edit]

"Mir" open-pit mine, Mirny, Yakutia
"International" undeground mine, Mirny, Yakutia

The history of ALROSA dates back to 1954, when the first primary deposit of diamonds in the Soviet Union - the kimberlite pipe Zarnitsa, - was found. In 1955 the Mir kiberlite pipe and the Udachnaya pipe were discovered. A total of 15 primary diamond sources were found in 1955.

In 1957, a decision was made to begin mining and production operations on alluvial and ore deposits in Yakutia. To manage the facilities construction and subsequent operations, the Yakutalmaz group of companies was established with headquarters in Mirny. The first commercial-grade diamonds were recovered the same year, two years later, the Soviet Union sold the first shipment of diamonds on the world market.

For the most part during the Soviet period diamond mining industry developed on the basis of the Mir open-pit mine and adjacent alluvial deposits. In those years its main open-pit mines, processing plants and related energy generating facilities were placed into operation. In 1960 the Aikhal pipe was discovered, and in 1969 – the International kiberlite pipe.

In 1963, the first sales contracts between the USSR and De Beers group were signed. In 2009 this cooperation was brought to an end as contrary to European Union competition laws in compliance with a decision of the European Commission. Now ALROSA independently distributes its rough diamond production on the world market.

Trough 80th rapid development of primary deposits continued in Aikhal township on the basis of the Jubilee pipe and in Udachny town. Today the Udachny open-pit mine is one of the largest open-pit mines in the world.

ALROSA closed jointstock company was set up according to Presidential Decree №158C of the President of Russia "On the Establishment of the Almazy Rossii-Sakha Joint Stock Company" signed on 19 February 1992, based on NPO Yakutalmaz, a former USSR state-owned diamond mining company.

In 2011, ALROSA was reorganized as an open joint-stock company and free float of ALROSA’s shares on financial markets.

On July 2007 Verkhne-Munskoye diamond field in Yakutia was discovered with estimated value of about $3.5 billion.

In August 2009 during the recent financial crisis, Prime Minister Vladimir Putin announced the Russian government, via Gokhran, would buy $1 billion in uncut diamonds from Alrosa.[6] This was to support the Russian diamond mining industry while avoiding saturation in the global diamond market and thus further depression of diamond prices.[6] The diamond mining industry is critical to the Yakutia economy.[6]

28 October 2013 the Company carried out the IPO. The Russian government and the Republic of Sakha (Yakutia) sold a combined 14% stake (in equal shares), while ALROSA offered about 2% in treasury stock.[7] U.S. investors were the biggest buyers of the shares, purchasing up to 60% of the stake, 24% got European investors, Russian investors accounted for about 14%.[8][9] Investment funds Oppenheimer Funds Inc. and Lazard Ltd. took part in the IPO and bought over 2% of the stake.[10] ALROSA raised $1.3 billion in share sales.[10]

Structure[edit]

Shareholders[edit]

As of November 2013 Company’s shareholders were:[11]

  • the Russian Federation represented by the Federal Agency for Management of State Property with 43.9256% of shares;
  • the Republic of Sakha (Yakutia) represented by the Ministry of Property Relations of the Republic of Sakha (Yakutia) with 25.0002% of shares;
  • Administrations of 8 municipal districts (uluses) of the Republic of Sakha (Yakutia) with 8.0003% of shares;
  • other legal entities and individuals with 23.0739% of shares.

The authorised capital of OJSC ALROSA totals 3,682,482,815 rubles. The authorised capital is divided into 7,364,965,630 ordinary registered shares with a share par value of 50 (fifty) kopecks.

President[edit]

Fyodor Andreev, Ph.D. in economics.

Fyodor Andreev was born on August 16, 1966 in Voronezh, Russia. Mr. Andreev is a graduate of Saint Petersburg State University with a Diploma in Political economy (1989). After graduation, he worked in the economic field.

Previously held positions include:

  • 2002–2003 – First vice president, Economics and Finance, ALROSA;
  • 2003–2005 – Vice president, Russian Railways;
  • 2005–2009 – Senior vice president, Economics and Finance, Russian Railways;
  • Since July 15, 2009 – President (CEO), ALROSA.

Operations[edit]

Miners, "International" underground mine,Mirny, Yakutia
Nyurba Mining and Processing Division, Nakyn ore field, Yakutia

The main production facilities are currently concentrated mainly in Western Yakutia and the Arkhangelsk region. In total ALROSA is developing 22 fields. The Company has a diversified production base consisting of 9 primary and 13 alluvial deposits. Primary deposits are developed both open-pit and underground mining.

On the territory of the Republic of Sakha (Yakutia) ALROSA has four mining and processing divisions - Mirny, Aikhal, Udachny, Nyurba. The rest of deposits are developing through subsidiaries: OJSC «ALROSA-Nyurba», JSC «Diamonds Anabara» and JSC «Severalmaz».

Reserves and resources of ALROSA according to JORC Code amounted to 973 million carats with an average grade of 1.38 carats per ton of ore (of which proved - 664.8 million carats, probable - 308.2 million carats), accounting for 97% of total Russian stocks of raw materials.[10][12]

ALROSA is actively engaged in the exploration of new fields. Its assets have a number of new deposits in Western Yakutia. ALROSA is also launching prospecting and exploration works in Angola and Botswana. ALROSA operates in the Republic of Angola. Mining in the Luanda Sul Province on the basis of the Catoca kimberlite pipe takes place through Sociedade Mineira de Catoca (Catoca Ltd.), the largest diamond producer in Central Africa, 32,8% shares owned by ALROSA.[13]

Sales and Marketing[edit]

Rough diamonds at Diamond Sorting Centre (DSC), Mirny, Yakutia

Marketing system is based on long-term contracts signed with the world's largest consumers of diamonds with in-house cutting and polishing facilities, good financial standing and solid track-record. Long-term contracts provide a regular supply of diamonds in a pre-agreed range and volume on a monthly basis. At the moment, ALROSA deliver raw materials and diamonds on the basis of long-term agreements to 42 companies, both Russian and foreign. ALROSA also sells rough diamonds trough auctions and competitive bidding, as well as one-off no-bid contracts. ALROSA has trade offices in the major diamond trading centers – USA, Belgium, Switzerland, UAE, China, UK, and Israel.

ALROSA’s trading policy is regulated by the Regulations on Procedures and Conditions of Selling Natural Diamonds drafted jointly with Federal Antimonopoly Service of Russia (FAS). Its main principle is to ensure equal access to rough diamonds for all customers, application of common criteria and procedures in the bidding process.[14]

In 2012, ALROSA signed a long-term agreement for the supply of rough diamonds with Belgium’s Laurelton Diamondsa Inc., a subsidiary of Tiffany & Co.[15] According to the terms of the three-year trade agreement Tiffany & Co. can annually purchase of rough diamonds worth at least 60 million U.S. dollars.[7][16]

In May 2013, ALROSA and the auction house Sotheby's signed a memorandum of cooperation. The memorandum suggests selling large diamonds and diamond jewelry pieces manufactured by subsidiary «Brillianty ALROSA». Gems earmarked for sale will be certified by the Gemological Institute of America (GIA).[17]

December 1, 2013 ALROSA and Antwerp World Diamond Centre (AWDC) signed a three-year cooperation contract. The parties have agreed to exchange trade information, market intelligence, technology and business opportunities. As of first half 2013, ALROSA supplied 65% of all rough diamonds for Belgium market.[15]

ALROSA is operating in compliance with national law and the Kimberley Process Certification, which guarantees non-conflict origin of diamonds. In its trading policy the Company adhere to the basic principles of self-regulation:

  • to trade only with companies that include warranty declarations on their invoices;
  • to not buy diamonds from suspect sources or unknown suppliers, or which originate in countries that have not implemented the Kimberley Process Certification Scheme;
  • to not buy diamonds from any sources that, after a legally binding due process system, have been found to have violated government regulations restricting the trade in conflict diamonds;
  • to not buy diamonds in or from any region that is subject to an advisory by a governmental authority indicating that conflict diamonds are emanating from or available for sale in such region, unless diamonds have been exported from such region in compliance with the Kimberley Process Certification Scheme;
  • to not knowingly buy or sell or assist others to buy or sell conflict diamonds;
  • to ensure that all company employees that buy or sell diamonds within the diamond trade are well informed regarding trade resolutions and government regulations restricting the trade in conflict diamonds.

Financial results[edit]

ALROSA group produced 34.4 million carats of rough diamonds in 2012 with a value of 4 610.7 million U.S. dollars.[18] Net profit in 2012 amounted to 33,634 billion rubles (1,107 billion U.S. dollars).[13] FY12 revenues stood at 4.6 billion U.S. dollars: rough diamonds – 4,450.1 million U.S. dollars, polished diamonds – 160.6 million U.S. dollars.[15][19][20]

Links to the Icelandic financial crisis[edit]

Document trail showed that ALROSA's Luxembourg-registered subsidiary Alrosa Finance was partially owned by Shapburg Limited and Quenon Investments Limited. Both companies are related to other Icelandic companies. The finding was reported in 2005 in Denmark.[21]

See also[edit]

References[edit]

  1. ^ [1], Rough and Polished, March 10, 2013.
  2. ^ [2], leegalweek.com, October 11, 2013.
  3. ^ "Ranking Of The World's Diamond Mines By Estimated 2013 Production", Kitco, August 20, 2013.
  4. ^ "Alrosa Still Needs Buffing", The Wall Sreet Journal, October 28, 2013.
  5. ^ "The Global Diamond Report 2013", Bain&Company, August 27, 2013.
  6. ^ a b c Golubkova, Katya (21 August 2010). "Putin vows $1 bln support for diamond miner Alrosa". Forbes. Retrieved 1 October 2010. 
  7. ^ a b "Alrosa IPO Nets $1.3Bln", The Moscow Times, October 29, 2013.
  8. ^ "Russian firms raise billions", Russian Business Insight, November 23, 2013.
  9. ^ "Russia fetches $1.3bn in Alrosa’s shares sale", Mining.com, November 23, 2013.
  10. ^ a b c "Alrosa Share Offering Attracts Oppenheimer, Lazard Funds", Bloomberg, October 28, 2013.
  11. ^ "AWDC and Alrosa reinforce ties in new Cooperation", Antwerp World Diamond Centre, December 1, 2013.
  12. ^ "Russia’s ALROSA confirms diamond reserves, resources under JORC", November 21, 2011.
  13. ^ a b "ALROSA Subsidiaries", December 12, 2009.
  14. ^ "FAS Russia agreed with “ALROSA” OJSC the Regulations on Procedures and Conditions of Selling Natural Diamonds", July 25, 2012.
  15. ^ a b c "ALROSA Signs Supply Deal with Tiffany", Rapaport, November 28, 2012.
  16. ^ "ALROSA has signed contract with Tiffany & Co", November 30, 2012.
  17. ^ "Diamonds by ALROSA", Sotheby's, September 24, 2013.
  18. ^ "Alrosa diamond production hits 34.4 million carats in 2012", April 24, 2012.
  19. ^ "Alrosa to Raise Production to 36 million Carats in 2013 and 2014", December 18, 2013.
  20. ^ "ALROSA: INDUSTRY LEADER BY 2018", June 20, 2013.