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Investment projects, retooling, and repairs

The priority of the Company’s capital investment policy is to increase diamond production at underground mines in order to compensate for declining open-pit production. More than half of all the money spent on the capital investment programme was channelled into underground mine projects. In 2012 the Company invested RUB 17,390.9 million in construction projects as part of its capital investment programme, and another 3,550.3 million in retooling.

17 370,9

RUB mln
Construction investment

3 550,3

RUB mln
Retooling investment

Construction projects

The table below contains information on the construction projects undertaken in 2012 as part of the capital investment programme:

No Project 2010 report 2011 report 2012 % of 2011 % of 2010
Construction, total (million roubles hereinafter) 9,130.9 11,999.0 17,370.9 144.8 190.2
1. Core operations (diamond mining) 6,984.0 8,943.9 13,631.8 152.4 195.2
1.1 New production facilities 6,300.6 7,028.0 10,455.2 148.8 165.9
Incl. underground mines 6,284.7 6,940.8 9,754.0 140.5 155.2
Mir mine 1,720.1 1,424.7 1,072.6 75.3 62.4
Aikhal mine 1,766.8 2,004.1 1,904.7 95.0 107.8
Udachny mine 2,797.8 3,512.0 6,776.7 193.0 2.4
1.2 Maintenance and refurbishment of existing facilities 683.4 1,915.9 3,176.6 165.8 4.6
Internatzional'ny mine 588.8 1,099.4 1,373.5 124.9 2.3
2. Other industrial construction projects 1,147.7 1,447.2 2 696.1 186.3 2.4
3. Non-industrial construction 999.2 1,607.8 1,042.9 64.9 104.4

Mir mine

1 072,6

RUB mln
Capex in 2012

The Company has completed the construction of Stage 2 facilities at the Mir mine. It also continued preparations for a clean-up operation under an adjusted schedule in connection with the partial flooding of the Mir open pit. Capital investment expenditure stood at RUB 1,072.6 million, which is 19.4% above target. The main reason why the investment target was overshot for this particular project is because the Company reallocated some of the heading machinery bought for the Solur field after the schedule of the latter project was pushed back.

Aikhal mine

In accordance with a Milestone Schedule for the launch of mining operations at the 100 meter level at the Aikhal mine, the Company was pressing ahead with the construction and launch of a vertical cage shaft.

1 904,7

RUB mln
Capex in 2012

Stage 3 of the project has been completed on schedule, and the mine has now reached its design capacity of 500000 tonnes of ore per year. Capital investment expenditure reached RUB 1,904.7 million, which is in line with the target. Nevertheless, the target for capital mining footage was missed because the Company had to conduct additional work that was not part of the original plan. Most of this work consisted of dismantling arch roof supports and installing new supports after engineers encountered difficult geological conditions, with significant occurrences of fissured and unstable rock.

Udachny mine

The Company continued to develop the —380m, —480m and —580m mining horizons in accordance with the Milestone Schedule for the construction of the Udachny mine to 2018 (Stages 1, 2, and 3) and the approved Construction Schedule for the auxiliary ventilation shaft.

6 776,7

RUB mln
Capex in 2012

Capital expenditure on the project reached RUB 6,776.7 million, which is 3.4% below target. Some of the reasons for missing the target were as follows:

  • The mining footage target for slope No 3 from the —380m level to the —480m level was missed because mining operations had to be conducted amid partial flooding, in difficult mining and geological conditions, and with several periods of emergency downtime.
  • Rostekhnadzor, the Russian industrial safety agency, ordered a temporary halt to operations at the mine by a subcontractor, DSP Udachninsky, due to an incident at the —365m level.
  • The local Militarised Mine Rescue Unit ordered a temporary halt to mining at the —580m / —650m slope after ventilation figures fell below the designated minimum levels.
  • Some cost savings were made both above and below ground because the number of staff working at the Udachny mine was below the projected levels.
2 696,1

RUB mln
Other construction projects capex

Other construction projects

Сapital investment expenditure on other industrial construction projects reached RUB 2,696.1 million, or 6.2% below target. In accordance with earlier plans, the Company has completed construction and launched the drainage water burial wells at the Nyurba pit; the No 3 tank battery of the ALROSA-Nyurba petroleum depot; and a new building which houses the Geomechanics department of the Yakutniproalmaz Institute. Some of the reasons why the target for investment in other industrial construction projects was missed are as follows:

  • Construction and assembly works under the Zhigansk Prospecting Expedition project fell behind schedule due to significant fluctuations of the water level in the Lena River throughout the entire navigation period, which made it difficult to unload barges and deliver the necessary construction materials.
  • The Company had to postpone the launch of several facilities (a power transmission line, an aqueduct, a motorway, and a weighbridge) to 2013 in order to address the problems highlighted by the building supervision agency.
  • The Company did not spend the money allocated for the purchase of a land plot in Orel Region, which was to be bought for housing construction.
  • The completion of the project to switch an industrial heating plant in Lensk to natural gas fuel had to be postponed until 2013.

Capital investment on projects unrelated to core operations was practically on target at RUB 1,042.9 million.

Retooling

ALROSA spent RUB 3 550,3 million on retooling and replacement of old equipment in 2012, up by 34% on 2011 and more than double the 2010 figure.

The following objectives were achieved as part of the 2012 retooling programme:

  • The Company has achieved a significant renewal of its fleet of open-pit and underground mining machinery. It has purchased additional equipment for a project to reduce water influx at the Mir mine and to comply with the ventilation requirements for underground mines.
  • The Company has replaced some of the old machinery at its concentration plants. In particular, it has achieved annual targets for the replacement of old X-ray fluorescence separators with the latest models.
  • As part of its prospecting and exploration programme to 2018, the Company has implemented a set of geological prospecting and exploration retooling measures, achieving a threefold increase in the relevant indicators compared to 2011.
  • The project of retooling the No 3 ore—dressing factory at Mirny MPD has reached its annual targets. The Company has also completed the project to switch the central heating station in the town of Lensk to natural gas fuel.
  • The Company has implemented several other retooling projects aimed at maintaining its production capacity, improving energy efficiency and industrial safety, and achieving better technical and economic indicators at its operations.
130,2

RUB mln
Retooling investment

ALROSA spent RUB 130.2 million on retooling projects as part of the corporate programme of innovative development and technological modernisation for 2011-2018, including 121 million spent on upgrading its mineral processing plants; 106.3 million on geological exploration and prospecting; and 11.8 million on diamond sorting facilities.

The table below outlines the structure of that investment.

No Item 2010 2011 2012 % of 2011 % of 2010
Retooling investment, total (million roubles hereinafter) 1,606.4 2,640.9 3,550.3 134.4 221.0
1. Replacement of equipment after end of service life 819.1 1,352.0 2,364.5 174.9 288.7
2. Retooling 787.3 1,288.9 1,185.8 163.7 150.6
including:
Projects led by the Capital Investment Department: 427.4 867.3 270.1 31.1 63.2
including:
Retooling
of the No 3 ore-dressing factory at the Mirny MPD
316.8 827.5 202.9 24.5 64.0
Central heating
plant in Lensk
110.6 39.8 67.2 168.9 60.8

Launch of new core assets

The launch of new core assets in 2012 fell just below target in rouble terms. The reasons included late delivery of some equipment which required complex assembly and installation; the Company’s ability to procure some equipment at prices below the original estimates; and the postponement of the launch date for several new facilities.

For more details, please see the table below.

No Indicator 2010 2011 2012 % of 2011 % of 2010
Launch of new core assets, total: 8,429.5 11,787.2 23,434.5 198.8 180
including:
1. Equipment under modernisation and retooling programmes 1,460.3 2,847.9 3,310.4 116.2 160
2. Construction 6,691.6 8,491.4 19,792.2 130 200
2.1. Construction projects 6,486.3 8,311.3 19,188.2 130 200
2.2. Hardware additional to construction budgets 205.4 180.1 604.0 240 190
3. Other capital assets construction expenditure 277.5 448.0 331.9 74.1 119.6

Repairs programme

The 2012 repairs programme included projects to repair mining machinery in order to achieve mining operations targets; dealing with the consequences of several accidents; and implementing the prescriptions of supervisory bodies and industrial safety inspectors. Aggregate spending on the repairs programme stood at RUB 7,164.8 million.

The figure below shows the breakdown of expenditures on repairs.

Breakdown of spending on repairs, million of roubles

46,3

%
Repairs expenditures

The Company’s spending on repairs grew by 46.3% in 2012 compared to the previous year. That was mainly because many of its core assets are reaching the end of their service life, and there was a period of significant underspending on repairs in 2009-2010 owing to financial difficulties.

ALROSA undertook the following measures in 2012 in order to reduce the downtime and prolong the service life of its machinery and equipment:

  • The Company introduced new types of resilient liner materials and pipelines at its ore-dressing factories, tailing pulp lines, open-pit drains, and mineralised water burial sites at the Mir and Udachny pipes.
  • The Company tested new Russian-made and imported resin and polyurethane liners at the No 3, 8, 12 and 14 ore-dressing factories.
  • The Company installed new equipment for spectral analysis of lubricants used in various types of vehicles operated by Udachny MPD.