Alrosa Profit Soars as Focus Turns to Sanctions

Rough sorting at Alrosa’s Mirny mine. 

Alrosa has highlighted concerns about the impact of the US’s punitive measures after reporting its strongest annual earnings in five years.

Revenue jumped 51% to RUB 326.97 billion ($2.99 billion) in 2021 as the diamond market recovered from the previous year’s downturn, the Russian miner reported Wednesday. This drove net profit to RUB 91.32 billion ($834 million), almost triple 2020’s figure of RUB 32.25 billion ($297.3 million).

However, the fallout from Russia’s invasion of Ukraine has become the most pressing issue for the company, with the US imposing sanctions on Alrosa and its CEO, Sergey Ivanov. This blocks American firms from extending credit to the miner. An alliance of Western governments has also excluded several Russian banks from the Swift international payment system.

“These sanctions are preventing the group from obtaining financing from persons and entities connected to US and from effecting payments through sanctioned banks,” Alrosa said in its results statement.

Management said it was continuing to run the business as usual and “service its obligations,” but noted that the impact of the actions was unpredictable.

In the fourth quarter of last year, revenue fell 28% year on year to RUB 70.73 billion ($642.7 million), reflecting an unfavorable comparison with the sharp market rebound a year earlier as well as scarcities of goods for the company to sell. Profit slid 43% to RUB 12.14 billion ($111.1 million).

With rough in short supply globally, Alrosa made a slight increase to its 2022 production plan, forecasting output of 34.3 million carats, compared with earlier guidance of 33 million to 34 million carats.

Source: Diamonds.net

US Places Sanctions on Russian Miner Alrosa

Rough diamonds Alrosa

The US has imposed sanctions on Alrosa and its CEO, Sergey S. Ivanov, in response to Russia’s invasion of Ukraine.

The diamond miner is one of 11 entities the Department of the Treasury has identified as being owned by or connected to the Russian government, according to a Thursday statement. The measures restrict American companies’ ability to engage in debt and equity transactions with Alrosa after Russia launched military action in Ukraine last week.

“Effectively, this action bans US businesses and persons from entering into debt transactions longer than 14 days with Alrosa but does not impose the harsher sanctions of an asset freeze and outright prohibition of all business,” the Jewelers Vigilance Committee (JVC), a source of legal guidance for the industry, said in an alert to members. “For the jewelry industry, any open memo agreements previously entered into with terms longer than 14 days should immediately be amended to shorten the terms, and/or closed.”

US companies should also evaluate any current transactions with Alrosa or its stateside affiliate, Alrosa USA, to ensure they do not violate the sanctions, the JVC added. The executive order does not apply to goods acquired from Alrosa or Alrosa USA before February 24, the organization pointed out.

Alrosa, a third of which is owned by the Russian state, is responsible for 90% of Russia’s diamond-mining capacity, the Treasury noted. The sanctions include Ivanov because the US counts him among the “leaders, officials, senior executive officers, or members of the board of directors” of the Russian government, and because he is the son of sanctioned official Sergei B. Ivanov, a close ally of Russian President Vladimir Putin, the statement continued.

“Treasury is taking serious and unprecedented action to deliver swift and severe consequences to the Kremlin and significantly impair their ability to use the Russian economy and financial system to further their malign activity,” said US Treasury Secretary Janet Yellen. “Our actions, taken in coordination with partners and allies, will degrade Russia’s ability to project power and threaten the peace and stability of Europe.”

Alrosa said its interactions with international partners would continue and that it was working to avoid any impact.

“Alrosa is carefully studying new working conditions in connection with the imposed sanctions,” a spokesperson for the miner told Rapaport News Sunday. “We intend to offer all our stakeholders the best possible service. We do our best to fulfil our obligations so that their businesses would continue to operate as usual.”

Source: Diamonds.net

Alrosa Rough Prices Hit Three-Year High

Nyurbinsky open-pit mine in Yakutia, Russia

Alrosa’s rough-diamond prices have reached their highest level since late 2018, as scarcities have prevented the Russian miner from meeting strong demand.

The company’s rough-price index, which tracks like-for-like valuations, jumped 22% year on year in the third quarter and rose 10% versus the previous three months, it reported Friday.

While the diamond market’s recovery from the Covid-19 crisis eased during the period, sales were still well above 2020 figures. Total diamond revenue climbed 59% year on year to $938.1 million for the quarter, with rough sales gaining 63% to $903.8 million. The average selling price dropped 10% to $99 per carat.

“Jewelry demand is strong in all the key markets,” the company explained. “At the same time, rough-diamond stocks at miners are at minimal levels, as supply structurally dropped.”

The rough market began to recover in the third quarter of 2020 as consumer sentiment returned following the initial coronavirus-induced lockdowns. This led to a strong holiday season for retailers and a buoyant restocking period in the first quarter of 2021, leaving miners with minimal inventory from the second quarter onward.

This lower availability of goods contributed to a decline in sales in the third quarter relative to the second quarter, the miner pointed out.

The price index has advanced 25% since the beginning of the year, hitting a level the company last saw in the fourth quarter of 2018. Its stockpiles increased slightly to 8.6 million carats in the third quarter — up from an almost unprecedented low of 8.4 million carats in the second quarter — but were still down 72% year on year.

This also reflected a 5% year-on-year drop in production to 8.8 million carats. Although sales volume exceeded this, rising 83% to 9.2 million carats, inventories still grew because Alrosa was able to sell some 696,500 carats that it bought from Russian state gem depository Gokhran.

Meanwhile, sales from the miner’s polished-diamond division slipped 4% to $34.3 million.

In the first nine months of 2021, total diamond sales more than doubled to $3.27 billion versus $1.58 billion in the same period of 2020, reflecting the global market rebound. Rough revenues came to $3.13 billion, compared with $1.51 billion a year earlier.

Source: Diamonds.net

Alrosa finds first large coloured diamond at new Yakutia mine

17.44 carat diamond found at the Verkhne-Munskoye deposit

Russia’s Alrosa, the world’s top diamond miner by output, has found a 17.4-carat bright yellow gem-quality precious rock at its new Verkhne-Munskoye deposit in Yakutia, which started operations in 2018.

The diamond, recovered in mid-February from the Zapolyarnaya kimberlite pipe, is the first large coloured stone found at the site, the company said.

Alrosa, which did not disclose the estimated value of the diamond, said it would be assessed and evaluated by its experts in coming days.

Diamond miners and traders have been hit hard in the past year by weak market conditions. These factors have taken a major toll on producers of small stones due to an oversupply in that segment.

De Beers reported Thursday its worst set of earnings since Anglo American (LON:AAL) acquired it in 2012.

The world’s No. 1 diamond miner by market cap said demand for rough diamonds from polishers and cutters was weak last year due to the impact of US-China trade tension and the closure of US retail outlets. Many companies in the so-called midstream are struggling to obtain financing, it said.

Alrosa believes the situation is about to change as it’s already seeing the first signs of stabilization in the sector.

Increasing demand for synthetic diamonds has also weighed on prices. Man-made diamonds require less investment than mining natural stones and can offer more attractive margins.

Industry consultant Bain & Co., however, believes that while glut that’s depressing the diamond market will probably be cleared early this year, it will take at least another 12 months for the market to fully recover.

“The industry’s first and strongest opportunity to rebalance and regain growth will be 2021,” said Bain in a report released in December, adding that supply could fall 8% that year.

Source: mining.com