By John Helmer in Moscow
The spokesman for Alrosa, the state-owned Russian diamond miner, Andrei Polyakov, has made a statement this week to reporters that Alrosa is considering spinning off three of its diamond mining units, and selling a minority shareholding in each at an initial public offering (IPO). According to a news agency, Polyakov said: “It’s easier to sell shares of separate mining units as ZAO Alrosa itself has some legal constraints. It currently has a legal form of closed joint stock company, which is not suitable for share sale.” The Moscow business daily Vedomosti has reported Polyakov as saying Alrosa “can place at stock exchanges the shares of the subsidiaries Alrosa-Nyurba, Alrosa- Africa, and Severalmaz.” No choice of stock exchange or volume of shares to be sold has been made, the newspaper reported.
Polyakov, who is the press secretary for Alrosa CEO Fyodor Andreyev, told PolishedPrices.com “Such issues will be discussed no sooner than at the end of February”.
A press release by Alrosa, issued on January 18, says that “ALROSA is contemplating the possibility of raising private investments on capital markets, also through placement of exchange-traded securities of ALROSA mining subsidiaries: OJSC ALROSA–Nyurba, OJSC Severalmaz and OJSC ALROSA-Africa, and by using OTC [over-the-counter] instruments.”
Company papers show that Alrosa owns 88% of Alrosa-Nyurba, while the Sakha administration owns 12%. The parent company stake in Severalmaz is 95%. Alrosa-Africa does not appear in Alrosa’s financial statements, and may be planned as a new holding company for Alrosa’s producing and developing mines in Angola, where it owns a 33% stake in the producing Catoca mine, and a 44% stake in Escom-Alrosa, which in turn owns 45% of the Luo mine project; this is still being developed (20% of the mine). Other Alrosa assets in Namibia and elsewhere in Africa — mostly in the prospecting stage — may also be included in Alrosa-Africa.
The Nyurba mine is the most active and profitable of the three. According to Alrosa’s 2008 report, it produced $538.5 million worth of diamonds; this aggregate represents 23% of Alrosa’s Russian mine total in terms of value, 20% in terms of mined volume. Alrosa does not currently issue carat figures for its mines, but this will have to change, when or if Nyurba is released for a separate international share listing. Data on diamond reserves, another a confidential item Alrosa keeps to itself, will also have to be released.
The Catoca mine generated sales revenues of Rb14.5 billion in 2008, according to the last Alrosa audited financial report. Revenues at the Luo project for that year were just Rb695 million.
The trial balloon for the spinoff and IPO of the three units — Nyurba, in fareastern Sakha; Angola, in southwest Africa; and in Arkhangelsk, northwestern Russia — is one of several options facing Andreyev and the federal and regional government officials on the Alrosa supervisory board, for reducing the company’s sizeable debts. These have been reported at Rb112 billion ($3.73 billion) as of December 31; this represents a reduction of 32% from Rb163.7 billion reported by Alrosa in its financial statements for 2008. Debt reduction is one of the priorities for Andreyev since he replaced Sergei Vybornov as chief executive in July of 2009. In Vybornov’s last year, Alrosa’s borrowings had almost doubled from Rb93.4 billion at the end of 2007.
This week’s press release from Andreyev’s office noted that at the end of last month, the shareholder board authorized a second debt-cutting option — the issue of a rouble-denominated bond for up to Rb44 billion ($1.46 billion).
Earlier attempts by Andreyev’s predecessors to recruit a strategic partner to develop the Severalmaz mine have included De Beers, BHP Billiton, Lev Leviev, Beny Steinmetz, and a notable Indian diamond-cutting group in Antwerp. All have declined the opportunity.
Finding new investors for a mine in this region may also prove difficult, in light of the litigation over allegedly stolen mining rights at the Grib pipe, and the failed Everfor junior flotation on London’s Alternative Investment Market.
The fight over Grib, which is less than 50 kilometres from Severalmaz’s mine, is continuing between Archangel Diamond Corporation and LUKoil, which controls the Russian licenceholder, in the federal US bankruptcy court in Denver, Colorado.
Everfor floated on AIM in 2006, but by April 2008, admitted that its exploration and sampling on the Kola peninsula, northwest of the Severalmaz property, had come to nothing. Oleg Mitvol, the mine licence regulator at the time at the Ministry of Natural Resources, charged that Everfor “had no development licenses. Only exploration. They’ve exploited them to mislead investors and get profits from the listing.”
Rio Tinto is another major international diamond miner with an appreciation of the risk to foreign investors in the northwestern diamond prospects, known collectively to geologists as the Karelian Craton. In September 2005 a company source says that Rio Tinto competed strongly for two prospecting licences, only to be told that its application had been “lost”.