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Message from the Supervisory Board Chairman

Dear Shareholders,

Ilya Yuzhanov

Chairman of the Supervisory ,
Board of OJSC ALROSA

Илья Южанов

In 2012, notwithstanding the complex situation in the global diamond market, ALROSA managed to achieve all of the financial and production goals it had set for itself. 2012 results are a testament not just to the professionalism of ALROSA’s management and employees, but a validation of the strategic course chosen by the Company.

ALROSA’s strategic goals are to become a world leader in diamond mining by concentrating on its core business, and by fully realising a program to replenish its resource base and modernise its production capacity. In 2012, ALROSA Group confidently hit these targets, producing 34.4 million carats of diamonds.

This success is due in no small part to the precise planning of the Company’s business activities. In 2012, ALROSA instituted a Long-term growth plan for 2012-2021, outlining the Company’s primary objectives and the algorithms for reaching them. In line with the growth plan, by 2020 ALROSA should be able to increase production to 38-40 million carats per year.

Key to the growth of its production capacity is ALROSA Group’s construction of underground mines. In 2012, construction of the third stage at the Aikhal underground mine was finished and officially launched at its design capacity of 500,000 tonnes of ore per year. The Mir underground mine is ramping up capacity, and the construction of the Udachny underground mine continues apace. The full-scale launch of underground mining operations will allow ALROSA to compensate for the open-pit mines that are gradually being shut down, while reaching the production goals it has set for itself.

Ensuring a raw-materials base is crucial to the success of any mining enterprise. Many global companies have recently run up against the problem of a gradually diminishing number of active deposits. ALROSA may confidently say that its situation vis-a-vis resources is quite stable. As per the results of a JORC-compliant reserves audit completed in 2012, ALROSA’s rough-diamond resource base stands at 968 million carats. This means that, at current production levels, ALROSA is ensured a resource base for the next 30 years.

Despite the challenging situation in the global diamond market, in 2012 ALROSA reached a sales volume of USD 4.61 billion, bettering the past years results. Over 2011-2012, ALROSA showed record revenues — a clear indication of the effectiveness of the Company’s sales strategy, aimed at signing long-term contracts with its client base, which is made up of the largest consumers of rough diamonds on the market.

High sales figures, combined with effective cost controls, resulted in a record 2012 net profit of RUB 39.657 billion.

The Company’s dividend policy guarantees a stable income for its shareholders. ALROSA has increased 2012 dividends by almost 10% over the previous year. Some 32.5% of the Company’s net profit will go towards dividend payouts, as calculated on the basis of reported financial figures, adjusted for revaluation of financial assets.

I am confident that the Company’s financial and production results will create palpable investor interest in ALROSA’s shares. The imminent partial sale by primary shareholders, the Russian Federation and Sakha Republic (Yakutia), of their holdings in the Company on the Moscow Exchange will yield a fair market valuation of ALROSA, while becoming an event of note for the investment community. The funds expected to be raised as a result of this privatisation have been earmarked for infrastructure-building projects in Sakha Republic (Yakutia).

I would hereby like to thank the Company’s management and its many-thousands-strong cadre of employees for their professionalism and dedication, which have allowed ALROSA to achieve truly remarkable results. We at the Company look forward to interesting and challenging work in the immediate future. With a clearly formulated strategy, state-of-the-art business practices, formidable levels of productivity and profitability, and attention paid to balancing the interests of shareholders, sector employees and consumers of rough diamonds, we have all the ingredients necessary for realising ALROSA’s full potential.