In the most famous words ever addressed to a gemstone ring, the Princess Elizabeth greeted news of the death of her rival, Queen Mary, with the words: “This is the Lord’s doing. It is marvellous in our eyes.” Alrosa officials said almost as much last week — without the hyperbole, but increasingly conscious of the rivalry with De Beers.
Alrosa is now well on the way to becoming the dominant state-controlled multi-mineral mining company in Russia, according to its board chairman, federal Finance Minister Alexei Kudrin. He and chief executive Alexander Nichiporuk presented reports to a meeting of the company’s workforce last week. Their speeches have been released on the company website.
According to Nichiporuk, sales by Alrosa of domestically mined diamonds, including polished goods, hit a record last year of $2.86 billion, up 15% on 2004. Adding the results of sales of Alrosa’s share of the Catoca mine in Angola, total revenues reached over $3.1 billion. Aggregate profit was RM5.1 billion, or about $540 million, Nichiporuk noted.
In what was evidently a challenge to the global position of De Beers — soon to lose purchase of Alrosa’s rough exports, as well as access to new mining projects in Russia — Nichiporuk noted that “the share of ALROSA in the world market has grown from 18 % up to 25 %.”
For comparison, De Beers’s financial results for last year included $6.54 billion in revenues for rough diamond sales, more than double Alrosa’s total; after-tax earnings for De Beers were $824 million. At $2.4 billion, De Beers’s debt appears to be rising, and to be greater than Alrosa’s, which is about $1.6 billion, and shrinking.
Nichiporuk conceded that there had been substantial increases in the cost of mine production last year. “The most serious influence on the end results of our common work,” he said, was the growth of costs at the ore-processing combines. What Nichiporuk described as “general production charges” grew more than twofold. This year, he added, the company hopes to cut costs by 5% overall.
Alrosa does not release carat volume data for its mines, or in the aggregate. Nichiporuk claimed that mine production overall grew by 4.2% to $2.3 billion in 2005. He broke this total down into a value of output for each of Alrosa’s mines: Udachny, $861 million (38%); Nyurba, $529 million (23%); Mirny, $481 million (21% of total);Aikhal, $348 million (15%); and Anabar, $41 million (2%).
Both Nichiporuk and Kudrin emphasized Alrosa’s growing reach, from diamonds into oil, gas, possibly coal, and gold; out of the Sakha region of eastern Russia into northwestern Arkhangelsk region, and in Angola.”Alrosa is a company of strategic importance,” Kudrin said, “not only because the major decisions concerning it are accepted by the President of Russia. Long-term plans of the state for the accelerated natural resource development of Siberia and the Far East provide direct involvement of the Company.” Alrosa’s reach for new diamond and other mineable resources in both Sakha and Arkhangelsk leaves next to no room in Russia for De Beers. In southern Africa, Alrosa is already decidedly better positioned in Angola than De Beers to garner a growing stream of rough.
Kudrin and Nichiporuk also announced that they expect the transfer of capital from Sakha to the federal government will be completed by year’s end, giving Moscow 50% plus one share; the Sakha administration 40%. Corporate restructuring of De Beers by Anglo American is anticipated, but has yet to begin.