Alrosa · RUS:ALRS
Alrosa — Investor Presentation (July 2017)
39 slides from Alrosa's investor presentation, Jul 31, 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: Contents
Contents 1 Market and Sales Overview 4 Market Overview 4 2 Operations Overview 16 3 Financial ALROSA Overview Performance Overview 27 21 3
Slide 4: Market and Sales Overview
Market and Sales Overview 4
Slide 5: 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, RUB bn EBITDA, RUB bn Free Cash Flow • ALROSA is a public diamond mining company with a EBITDA margin, % 34% free-float on the Moscow Exchange 317 300 • ALROSA’s producti
Slide 6: 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 7: 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 T
Slide 8: Global rough diamond production has remained relatively flat
Despite production increases announced by mining companies in recent years global rough diamond production has remained relatively flat Global diamond production forecast (based on diamond producers’ plans and life-of-mines periods) mln ct, y-o-y CAGR ~ 2% ~ 0% 134 135 2016 2017F 2018F 2019F 2020F 2
Slide 9: Diamond exploration becomes increasingly challenging
Diamond exploration becomes increasingly challenging • Approximately 15% of kimberlites discovered are diamond-bearing, with 1% of these typically becoming producing mines • Currently, the search of new kimberlite pipes is complicated due to overburden, all surface kimberlite pipes have already been
Slide 10: Rough diamonds market expected to be balanced in the mid-term
Rough diamonds market is expected to be balanced in the mid-term, demand is expected to exceed supply after major diamond producers sell off inventories accumulated prior to 2015 Excess inventories in midstream were released in 2015‒2016 $ bn (0.4) +0.7 (0.5) 24 +2.5 (3.1) Polished diamonds produced
Slide 11: ALROSA's sales in 2016 and 1H 2017 reflect normalized market demand
ALROSA’s sales in 2016 and 1H 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% +4% 4,901 4,793 4,375 4,274 4,450 3,437 +27% 3,334 2,550 2,442 1,325 1,309 1,225 1,133 9
Slide 12: Gem-quality diamond sales account for 71% of volume and 98% of 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% 12
Slide 13: Rough diamonds are sorted 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 14: 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 15: Rigorous client management policy increased diversification
ALROSA has a rigorous client management policy which has increased diversification and number of clients across all sales channels Approval of clients subject to: Number of clients by sales channel • appropriate legal capacity 2010 2016 Change • sustainable financial position Long-term contracts 15
Slide 16: Operations Overview
Operations Overview 16
Slide 17: 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 18: Diamond pipes vary by average diamond price and grade
ALROSA’s diamond pipes vary by average diamond price and grade with underground mines being at the top-end of revenue per ton range Range of average mined diamond value Range of average mined diamond grade 7.96 $/ct 189 ct/t 5.36 ALROSA total 4.27 3.34 111 126 129 ALROSA 112 total 86 0.98 42 1.01 0.
Slide 19: 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 • Underground mining cost of production per ton of ore is 5 times higher than open-pit mining cost of production • Due to the fact that underground mining average grade is higher vs. open-pi
Slide 20: ALROSA plans to increase diamond output to over 40 mln ct
ALROSA plans to continue increasing diamond output to over 40 mln ct in the medium term 2016 2017F 2021F Grade, ct/t 0.98 0.98 1.00 Ore and gravels processed, mln t 38.1 39.9 40.6 Production, mln ct 37.4 39.2 40.4 including Udachny 2.2 3.8 5.7 Severalmaz 2.2 2.4 4.3 Verkhne-Munskoe - - 1.8 Forecaste
Slide 21: H1 2017 production results are in line with long-term strategy
ALROSA’s H1 2017 production results are in line with the Company’s long-term strategy 21 Diamond production H1 2017 H1 2016 19.3 mln cts +14% 16.9 mln cts 16.2 mln t 16.9 mln t 1.19 cpt 1.00 cpt Diamonds produced (mln cts) 11.0 10.4 8.2 8.7 9.5 8.9 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Ore
Slide 22: Long-term operational excellence program targets OPEX savings
ALROSA runs long-term operational excellence program which is expected to result in OPEX savings of up to RUB 9 bn annually Key operational excellence targets Mining Processing Transport Administrative costs Organizational structure Maintenance Production development Energy use Automation In 2017 -
Slide 23: Block caving mining method at Udachny underground mine
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 24: Health and safety practices and accident prevention
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 25: Diamond mining is 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 26: 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 32 20 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 27: Financial Overview
Financial Overview 27
Slide 28: 2016 financial performance substantially exceeded 2015 and 2014
2016 financial performance substantially exceed results of 2015 and 2014 Q1 2017 2016 2015 2014 Diamond production 8.9 37.4 38.3 36.2 mln ct mln ct mln ct mln ct Diamond sales 14.1 40.0 30.0 39.6 mln ct mln ct mln ct mln ct Revenue 84.8 317.1 224.5 207.1 RUB bn RUB bn RUB bn RUB bn Cost of sales (47
Slide 29: Financial results are impacted by foreign exchange fluctuations
ALROSA’s financial results are impacted by foreign exchange fluctuations Sensitivity analysis RUB mln -1 RUB/$ 2016 +1 RUB/$ 312,693 317,090 321,487 received in $ Revenue >90% 20% as diamond prices are set in $ (1.39%) +1.39% 70% (129,417) (129,751) (130,085) are driven by $ Cost of sales <20% as ME
Slide 30: Revenue benefit from cancellation of 6.5% export duty
ALROSA benefits from increased diamond sales revenue due to cancellation of 6.5% export duty on rough diamonds since September 1st, 2016 • In accordance with WTO rules, the Russian Federation cancelled 6.5% export duty on rough diamonds on September 1st, 2016 • Price level for overseas clients has r
Slide 31: ALROSA is in the middle of the 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 Cost of sales Breakdown of 2016 pro
Slide 32: Repaid $600 mln of VTB bank loans, reducing debt to $1.7 bln
In February 2017 ALROSA repaid $600 mln of bank loans to VTB Bank with cash from operations reducing debt to $1.7 bln Loans and borrowings Loans and borrowings breakdown $ mln Total debt/ 6.1x 2.9x 1.5x 2.0x 2.0x 2.1х 1.9x 0.8x EBITDA 42% Bank loans 58% Eurobonds 3,871 4,127 3,496 3,481 3,130 2,866
Slide 33: 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) 78,115 (38,165) 1.47 1.47 53,533 42,059 30,917
Slide 34: Appendix
Appendix 34
Slide 35: Management team overview
Management team overview Executive Team Operational Team Mirny division Mikhail Lopatinsky Sergey Ivanov Director, Mirny mining and processing division Chief Executive Officer • Joined the Company in 1992 • Joined the Company in 2017 • Over 23 years of industry experience CEO • Senior Vice President
Slide 36: 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 37: 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 38: 2016 operational results
2016 operational results Ore and Revenue Revenue Cash costs Cash costs Diamond sands 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 pi
Slide 39: Thank you!
Thank you! Ozerkovskaya emb., 24/1 Corporate Finance Moscow 115184 Tel.: +7 495 745 5872 Investor Relations Russia [email protected]