Message from the President of OJSC ALROSA
President of OJSC ALROSA
In 2012, ALROSA Group maintained its position as the world’s leading diamond-mining company. The company’s ore-mining and -processing plants and subsidiary entities mined 34.4 million carats of diamonds — equivalent to 27% of all the natural rough diamonds mined in the world. Considering the clear and growing scarcity in the global diamond supply and the concomitant healthy growth in demand, we consider our results a hugely important achievement, both in production and financial terms.
Over 2012, the market experienced significant price volatility, while, starting in the second half of the year, there was a marked downward trend in rough-diamond prices. Still, the Company managed to hit its targets for sales of its primary product, selling over USD 4.61 billion worth of rough and polished diamonds, with over USD 4,450 billion of rough diamonds and USD 160.5 million of polished stones — a record for Russian diamond mining. The average price of 1 carat of gem-quality diamond was roughly 194 US dollars.
We see these results as stemming from ALROSA’s commercial policy, based on establishing relationships with the major diamond buyers worldwide, with long-term contracts and mutual commitments that allow for agile management of changing market conditions. The past year has shown that ALROSA is able to neutralise unfavourable supply-and-demand volatility, and is furthermore able to reach its target revenue level thanks to a new system of selling rough and polished diamonds.
In 2012, the Federal Anti-Monopoly Service of Russia reviewed the extant principles of ALROSA’s commercial policy, approving the Regulations on Procedure and Terms of Sale of Rough Diamonds by OJSC ALROSA.
In 2012, the Company posted net earnings of .RUB 39.657 billion, which exceeds the 2011 figure by 34.3% and is an all-time record for ALROSA..
The Company’s debt stands at USD 3.9 billion. As of year-end 2012, long-term obligations comprise 90% of total debt.
On the whole, ALROSA’s financial indicators for the past year, such as profit and net margin, beat those of its competitors, which, we believe, is an indication of just how effective the Company’s chosen growth strategy has been. The strategy proposes a concentration on the core business, namely: diamond mining, as well as non-participation in diversificatory projects, the sale of non-core assets, a significant lowering of production costs, and the optimisation of non-production overhead.
In 2012 ALROSA fulfilled its stated goals of creating a programme for improving and expanding the Company’s production facilities. The targets for mining, geological surveying, prospecting and exploration projects, as well as retooling and capital maintenance, have been met, with the Company undertaking the task of substantially modernising a number of production facilities. The Company’s crucial investment projects — the construction of the Udachny and Aikhal underground mines — are progressing according to schedule. In April 2013, Aikhal started operating at the design capacity of 500,000 tonnes of mined ore per year. The total volume of capital investment in the past year grew 1.5 times on 2011, to over RUB 22 billion.
Employing the resources of research labs, and referencing international best practices, in 2012 the Company’s specialists introduced a number of corrective measures to in-progress underground-mine construction projects. First and foremost, this concerns the Mir mine, and will allow it to reach planned production levels while implementing more stringent work-safety standards.
The need for all Company employees, divisions and services to give maximum attention to work safety and to concentrate on it specifically in the new parts of the Company’s underground facilities, became one of the most important lessons of 2012.
The Company developed and implemented a programme calling for substantially increasing the degree of technical control over underground activities, the modernisation of existing notification systems, a review of existing regulations, and the introduction of managers’ personal responsibility for compliance with safety protocols. Of note in this regard is the Aikhal Mining and Processing Division, which saw a considerable volume of underground mining activity in 2012 — yet not one accident. The management and entire employee body of the plant deserve much praise for this achievement.
In 2012, ALROSA’s subsidiary CJSC Geotransgaz began gas production and transmission into the OJSC Gazprom’s gas pipeline system in Western Siberia.
As it began functioning independently, CJSC Geotransgaz ceased to be a project, turning into a fully-fledged gas-production facility, which, in turn, has significantly increased its market attractiveness.
In 2012 ALROSA began reforming its aviation division by creating and launching ALROSA Airlines, a subsidiary; the airport in the city of Mirny saw the landing of its first Boeing 737. ALROSA management views the modernisation of the entire Western Yakutian aviation complex as a crucial infrastructural and social priority. The Company looks forward to moving this initiative forward in partnership with the government.
The Company also developed and began realising the concept of OJSC ALROSA’s social policy
The Company’s key production goals for 2013 are: to bring the Aikhal underground mine to design capacity, to complete construction of a plant with a capacity of 4 million tonnes of ore at the Lomonosov deposit of OJSC Severalmaz, and to construct the Udachny underground mine.
The Company plans to substantially improve the effectiveness of the corporate governance structure in order to bring it in line with best practices worldwide.
We need to continue our work of further stabilising the sales organisation, to formulate and approve an action plan for developing ALROSA’s activities in Africa, and to bring the Company’s marketing policy in line with the clear demands of the global diamond market, specifically by becoming involved more closely in the activities of international industry organisations.
In my view, ALROSA’s 2012 record results in diamond sales, revenue, and net profit have made it a bona fide industry leader as well as a successful modern-day corporation. In the coming year, I see the transformation of this leadership into significant appreciation of ALROSA’s market value as a key task for management.
On behalf of Management, I would hereby like to extend my thanks to the Company’s shareholders, the leaders of the Russian Federation and Sakha Republic (Yakutia), members of the Supervisory Board, and each and every one of our business partners for their trust and support.