Background factors in ALROSA’s Long-term development and growth plan for
- A limited raw-materials base and limitations on diamond mining abroad;
- A forecast for moderate growth of global demand for jewellery featuring diamonds;
- A market characterised by demand outstripping supply, leading to increasing upward pressure on rough-diamond prices, particularly towards the end of the period in question;
- Significant revenues expected from subsidiaries and affiliates;
- The financing of the OJSC GMK Timir iron ore project is expected to go forward with the participation of a strategic investor, whose expected share in the charter capital of this entity should be 51%;
- Starting in 2013, the spinning off of Mirny Aviation and pre-school children’s facilities will occur via creation of subsidiary entities to which the corresponding assets will be transferred.
- Ensuring results-driven, step-by-step growth by concentrating on the core business (diamond mining), modernising the technological base of the core production apparatus, implementing innovative technologies, and developing poor-grade deposits;
- Maintaining leadership in the global diamond-mining and diamond-sales markets, as well as a nimble pace of replacing the mineral resources base as it is depleted;
- Going forward with specific steps designed to improve diversification and raise capitalisation, market value and efficiency;
- Raising the level of social responsibility, maintaining and perfecting the social-partnership policy.
Key tasks that, when completed, will lead to the accomplishment of core goals:
- Improving the efficiency of prospecting and surveying work and replenishing the mineral resource base as it is depleted;
- Ensuring that forecast diamond-production volumes become actual volumes;
- Raising the prices and sales efficiency of the Company’s diamonds, and positioning ALROSA in the global market as a major independent player;
- Implementing investment projects that launch new capacity;
- Raising the efficiency of core production and other activities in the Company’s divisions, as well as at its subsidiaries and affiliates;
- Fostering the strengths of its human capital, maintaining a positive social atmosphere, and improving environmental safety.
The greatest risks of ALROSA’s core business:
- Marketing risks — actual diamond price growth lagging the forecast rates;
- Specific (geological) risks — losses in terms of volume and quality of product mined;
- Technological risks — complications in geological and mining conditions, non-performance at design capacity by underground mines; lagging behind schedule in opening deposits;
- Insurmountable circumstances or force majeure — the development of new global financial crises;
- Technogenic risks — flooding, pit-wall collapses, large-scale accidents at core production facilities, fatalities and other emergencies.
ALROSA Group’s growth strategy is based on concentrating on the core business, diamond mining, and the gradual optimisation of the Company’s portfolio of non-core assets within the time frame allotted. ALROSA plans for stable increases in diamond production, both materially and in terms of value. At the same time, the large-scale switchover to the underground mining method at our deposits will inevitably bring with it a clear increase in the cost of core production; although we expect this cost increase to be compensated by rising prices for rough diamonds.
Despite the risks outlined, ALROSA Group’s financial outlook is positive, which allows us to conclude that the Group is growing at a stable and efficient pace, while maintaining its position of leadership in the global diamond-mining market and, at the same time, raising its degree of social responsibility and maintaining and perfecting its social-partnership policy.