Alrosa · RUS:ALRS
Alrosa — Investor Presentation (November 2017)
29 slides from Alrosa's investor presentation, Nov 20, 2017
Slide 1: Investor presentation
A ALROSA Investor presentation
Slide 2: Disclaimer
Disclaimer The information contained herein has been prepared for the use in this Presentation (the “Presentation”) and has not been independently verified. Such information is confidential and is being provided to you solely for your information and may not be reproduced, retransmitted, further dis
Slide 3: ALROSA is a global leader in rough diamond production with a strong financial profile
ALROSA is a global leader in rough diamond production with a strong financial profile ALROSA’s financial results summary Revenue, $ mln EBITDA, $ mln Free Cash Flow, $ mln EBITDA margin, % • ALROSA is a public diamond mining company with a 5,391 34% free-float on the Moscow Exchange 5 000 4,688 • AL
Slide 4: Rough diamond production is dominated by a few mining companies with the highest margins
Rough diamond production is dominated by a few mining companies with the highest margins across diamond pipeline Sales of rough Rough diamond Cutting & polishing Diamond jewelry Retail sales of diamonds from production of diamonds manufacturing diamond jewelry major producers Margins 18‒22% 1‒3% < 1
Slide 5: Global diamond jewelry sales expanded by 4% annually over the past decade
Global diamond jewelry sales expanded by 4% annually over the past decade and are expected to show mid-single digit growth in the coming years Global diamond jewelry sales grew 4% annually over the past decade The Americas and Asia-Pacific comprise 70% of diamond jewelry $ bn market +4% per year 80
Slide 6: Global diamond production is expected to grow by 2% in the mid-term
Global diamond production is expected to grow by 2% in the mid-term. However, historically global diamond production didn’t exceed the level of 134 mln ct despite production increases announced by mining companies Global diamond production forecast (based on diamond producers’ plans and life-of-mine
Slide 7: Rough diamond market is expected to be balanced in the mid-term
Rough diamond market is expected to be balanced in the mid-term, demand is supposed to exceed supply in the long run due to low probability of new kimberlites discoveries and depletion of existing diamond mines It takes around 6 years from discovery to start of Discovery and development of new kimbe
Slide 8: ALROSA's sales in 2017 reflect normalized market demand
ALROSA’s sales in 2017 reflect normalized market demand ALROSA’s rough diamond sales $ mln ALROSA’s rough diamond price index under long-term agreements and spot sales +21% +46% (20%) 0% +7% (15%) 0% +2% 4,901 4,793 4,450 4,375 4,274 3,437 3,526 3,334 3,289 1,325 1,309 1,225 1,132 976 848 849 2010 2
Slide 9: Gem-quality diamond sales account for 71% of total sales volume and 98% of sales value
Gem-quality diamond sales account for 71% of total sales volume and 98% of sales value 2016 diamond sales breakdown by sales volume by sales value Gem-quality (more than 0.03 ct or 71% more than 1.5 mm) 98% Industrial (less than 0.03 ct or less 29% than 1.5 mm) 2% 9
Slide 10: Rough diamonds are sorted by size, shape, clarity and color into 204 boxes
Rough diamonds are sorted by size, shape, clarity and color into 204 boxes Rough diamonds are sorted by size, shape, clarity and color into 8,013 classification positions… 26 sizes 16 shapes 5 clarity categories 34 colors …which are combined to form 204 rough diamond boxes ready for sale 5-10CT Ston
Slide 11: ALROSA has a diverse distribution platform by channel and geography
ALROSA has a diverse distribution platform by channel and geography Rough diamond sales by channel Geography of sales 69% Long-term contracts 49% Belgium 17% India 15% Spot sales 11% Israel 16% Tenders 10% Russia 6% UAE 4% China 3% Other • ALROSA has a three-channel distribution strategy focused on
Slide 12: ALROSA's diamond production is well-diversified between divisions and types of mining
ALROSA’s diamond production is well-diversified between divisions and types of mining Geography of production assets 33% Aikhal Division Aikhal pipe 12.2 Jubilee pipe mln ct Komsomolskaya pipe 18% Nyurba Division Nyurbinskaya pipe 6.8 6% 94% Botuobinskaya pipe mln ct Alluvial deposits (2) Arkhangels
Slide 13: Cost of underground production per carat is close to open-pit mining
Cost of underground production per carat is close to open-pit mining due to higher grade at underground mines Range of average mined diamond grade • Underground mining cost of production per 7.96 ton of ore is higher than open-pit mining cost ct/t 5.36 of production ALROSA total • Due to the fact th
Slide 14: Despite the Mir mine accident, ALROSA confirms its 2017 production target and lowers CAPEX guidance
Despite the accident at the Mir underground mine in August 2017, ALROSA confirms its previously announced diamond production target for 2017 and decreases 2017 CAPEX guidance to RUB 31.6 bn from RUB 36.5 bn ALROSA confirms its production target of 39.3 mln carats in 2017 2016 2017F Grade, ct/t 0.98
Slide 15: ALROSA runs operational excellence program expected to save around RUB 11 bn
ALROSA runs operational excellence program which is expected to result in OPEX savings of around RUB 11 bn in 2017-2019 Key operational excellence targets Mining Processing Transport Administrative costs Organizational structure Maintenance Production development Energy use Automation In 2017 - 2019
Slide 16: Economic efficiency of Udachny underground mine will be fostered by block caving
Economic efficiency of Udachny underground mine will be fostered by block caving mining method Traditional cut-and-fill mining Block caving method Mir underground International Aikhal underground Udachny underground mine mine underground mine mine Production level Backfilled production level Next pr
Slide 17: ALROSA continuously improves health and safety practices
ALROSA continuously improves health and safety practices and focuses on the prevention of accidents ALROSA constantly implements safety related systems and procedures: • geotechnical monitoring and forecasting of dangerous zones in underground excavations; • gas control system in underground mines t
Slide 18: Diamond mining technology is significantly cleaner than metals and coal mining
Diamond mining technology is significantly cleaner than the mining and production of metals and coal. ALROSA’s environmental impact is mostly limited to water intakes during the ore beneficiation and land disturbance during geological exploration ALROSA’s efforts to reduce its influence on the ecolo
Slide 19: ALROSA keeps streamlining its operations to focus on diamond mining
ALROSA keeps streamlining its operations to focus on diamond mining Number of subsidiaries 70 39 34 31 25 01.01.2009 01.01.2015 01.01.2016 current state 01.01.2020 Prior to 2017, ALROSA sold 38 non-core assets with Major non-core assets ALROSA total proceeds of RUB 9.2 bn, including: intends to sell
Slide 20: 9M 2017 and 2016 performance is substantially better than in 2014-2015
9M 2017 and 2016 performance is substantially better than in 2014-2015 due to stronger diamond market and ALROSA’s cost control initiatives 9M 2017 2016 2015 2014 Diamond production 29.5 37.4 38.3 36.2 mln ct mln ct mln ct mln ct Diamond sales 31.8 40.0 30.0 39.6 mln ct mln ct mln ct mln ct Revenue
Slide 21: ALROSA is in the middle of the diamond mining companies' cost curve
ALROSA is in the middle of the diamond mining companies’ cost curve Cash cost of production per ton of ore processed (ALROSA vs. peers) Canadian diamond $/t mining companies 87 72 56 African diamond mining companies 34 35 29 15 17 ALROSA 14 Source: Companies’ data 9M 2017 production expenses 9M 2017
Slide 22: Loans and borrowings decreased by USD 388 mln during 9M 2017
Loans and borrowings decreased by USD 388 mln during 9M 2017 Loans and borrowings Loans and borrowings breakdown $ mln As of 30 September 2017, $ mln Total debt/ 6.1x 2.9x 1.5x 2.0x 2.0x 2.1х 1.9x 0.8x 0.9х EBITDA 49% Bank loans 51% Borrowings (including Eurobonds) 4,025 4,217 3,881 3,329 3,496 2,95
Slide 23: ALROSA has a track record of strong cash flows and dividend payouts
ALROSA has a track record of strong cash flows and dividend payouts Operating cash flow, capital expenditures, free cash flow, net income attributable to shareholders and dividends RUB mln Dividends per share, RUB EPS, RUB 2013 2014 4.26 (2.44) (36,056) (38,165) 78,115 53,533 1.47 1.47 30,917 42,059
Slide 24: Appendix
Appendix 24
Slide 25: Management team overview
Management team overview Executive Team Operational Team Udachny division Sergey Ivanov Alexander Makhrachev Chief Executive Officer Director, Udachny mining and processing division • Joined the Company in 2017 • Joined the Company in 1979 CEO • Senior Vice President at Sberbank of Russia (2016‒2017
Slide 26: Supervisory Board overview (1/2)
Supervisory Board overview (1/2) 1 2 3 4 Anton Siluanov Yegor Borisov Alexander Galushka Sergey Barsukov Finance Minister of the Head of the Republic of Minister for the Development Director, Financial Policy Russian Federation Sakha (Yakutia) of the Russian Far East Department, Ministry of Finance
Slide 27: Supervisory Board overview (2/2)
Supervisory Board overview (2/2) 9 10 11 12 Kirill Dmitriev Sergey Ivanov Dmitry Konov Valentina Lemesheva CEO of Russian Direct President (CEO) of ALROSA Member of the Board of Independent director of the Investment Fund Directors, Chairman of the Supervisory Board, Management Board AK ALROSA PJSC
Slide 28: 2016 operational results
2016 operational results Ore and Value Value Cash costs Cash costs Diamond gravels Grade per ton per per ton per Type of mining production processing (ct/t) of ore, carat, of ore, carat, (‘000 ct) (‘000 t) (RUB) (RUB) (RUB) (RUB) Aikhal Division 9,950 12,228 1.23 9,593 7,808 2,464 2,006 Jubilee pipe
Slide 29: Thank you!
Thank you! Ozerkovskaya emb., 24/1 Corporate Finance Moscow 115184 Tel.: +7 495 745 5872 Investor Relations Russia ir@alrosa.ru