ALROSA made two announcements back to back yesterday: the first outlined the Company’s strategic priorities uptil 2024, which it had presented at its Capital Markets Day hosted in London on March 18, 2019; the second reported the status of the Mir Mine, where operations currently stand suspended.

At its Capital Markets Day, the Company’s management shared market insights and provided an update on ALROSA’s strategic development. These are outlined below.

• To Enhance sustainable development and safety at workplace. Focus on responsible mining  

ALROSA said that safety in the workplace continues to be its key priority. “Though its current LTIFR is well below the industry average level, the Company will continue to strive for further decrease of this indicator and target to achieve zero fatality rates,” ALROSA stressed.

The Company also said that the environmental programme it has put into place aims to further decrease the amount of CO2 emissions. “Renewables are expected to account for a significant part of the Company’s energy consumption by 2024,” the Company said.

Further, ALROSA averred that it will continue to support local communities through charitable and infrastructure development initiatives, which, it says, account for almost 90% of ALROSA’s social expenditure.

• Focus on operational efficiency programme

Since it launched its operational efficiency programme in 2017, much progress has been achieved, ALROSA said. “There are now over 200 efficiency initiatives under way across all Company’s divisions intended to further strengthen ALROSA’s position as the world-class efficiency leader,” the Company noted. “Labour productivity has already surged by 17% in 2018 vs 2014, and is expected to grow further by 12% over the next 5 years. Per unit operating costs declined by 5% y-o-y in real terms in 2018 and should further go down by 2% per annum over the 5-year horizon. General and administrative (G&A) expenses also decreased by 10% and 2% in real terms in 2017 and 2018, respectively. “

This programme has been implemented across key areas -- from digitalisation and business process optimisation to revision of organisational structure and promotion of operational efficiency culture among employees. “The Company sees further room for efficiency gains that would help reinforce its status of the most profitable player in the industry with margins 2x higher than global industry average,” ALROSA stated.

• Maintain best-in-class resource base

ALROSA pointed out that it has an excellent resource base, which is about twice the resources “of the nearest peer”.

“The Company’s superior exploration capabilities backed by modern technologies (e.g. georadar footage, radio wave geointroscopy and high-resolution seismic survey in 3D/2D) allow it to replenish resources at a low finding cost and provide a sustainable production outlook of ~38 m ct/year for up to 2030,” ALROSA said elaborating on its capabilities.

• Marketing efforts

ALROSA said it has undertaken a number of generic marketing initiatives as part of a marketing programme implemented under the auspices of the Diamond Manufacturers Association (DPA). This goal of this programme is to generate long-term demand for natural diamond jewellery, while also drawing a distinction between the natural and synthetic diamond markets. The Company has also undertaken programmes “to market certain product categories (including fluorescent rough and polished diamonds on B2B and B2C markets) and promote polished diamonds (including unique, large and coloured gemstones), as well as digital marketing initiatives (tracing systems, digitalisation, online sales, etc.),” ALROSA stated.

• Prudent capital allocation strategy focused on maximization of shareholders’ returns

The Company emphasised that focus on its “core business” has become a priority of its capital allocation policy, “with continued divestments of non-core business units, and commitment to organic growth and brownfield expansion”.

ALROSA said it has approved a five-year RUR 40 billion investment programme with a minimum 20% IRR hurdle level for new projects.

“ALROSA’s consistent and conservative financial policy has resulted in the assignment of investment grade credit rating by Moody’s and S&P in 2018,” the Company emphasised. “The Company intends to maintain a conservative debt profile going forward with the target Net debt/EBITDA ratio between 0.5x and 1.0Ñ….”

Sergey Ivanov, ALROSA CEO, Chairman of the Board, commented: “We are well on track to build a world-class commercially driven business with an ultimate goal to maximise returns for shareholders. In 2018, we shifted to a more transparent dividend policy by linking dividend payments to FCF (vs. net profit as it was before). The Company intends to distribute between 70% and 100% of FCF to its shareholders.”

He added: “In December 2017, the Supervisory Board approved a three-year long-term incentive (LTI) programme for employees linked to a set of financial, operational and total shareholder return (TSR) targets to align management and shareholder interests.”

*

Meanwhile, ALROSA reported on the status of its Mir underground mine, where work had been suspended earlier.

The Company said that after assessing various options it has “worked out a decision-making concept regarding restoration or full closure of the mine at the Mir pipe”.

“The concept requires deep level exploration down to -1,300 metres to confirm the mine’s reserves. These activities are scheduled to be completed by early 2022,” ALROSA said. “Budgeted at around RUB 2 billion, this work is included in the Group’s RUB 28.7 billion capex programme for 2019.”

The Company said that once the exploration is conducted, it will analyse the results and then pilot holes will be drilled “to start preparation of deposit opening design documents (within 1 to 2 years)”. This work is scheduled to be completed before 2024, the Company said.

The Company also plans to simultaneously carry out “conceptual design activities” to ensure water disposal at the mine and choose the best mining technology as well as ventilation and gas safety options.

“If it is decided that the restoration of the Mir underground mine is feasible, the construction is estimated to take 6 to 8 years,” ALROSA divulged.

All this means that the Mir mine cannot be restored before 2024, at the earliest, and that too, and only if the studies yield positive results; that is, if it is confirmed “that construction and mining can be done with the highest level of occupational safety”.

“ALROSA’s decision about further development of this mine will be based solely on safety considerations and economic viability,” it underlined.