Alrosa · RUS:ALRS
Alrosa — Investor Presentation (October 2018)
39 slides from Alrosa's investor presentation, Oct 3, 2018
Slide 1: ALROSA
ALROSA Photo: Botuobinsky mine, Yakutia 03 October 2018
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: Diamond industry – key demand drivers
Diamond industry – key demand drivers Global luxury market breakdown in 2017 • Luxury market valued at c. €1,200 bn is steadily growing € bn +5% • Jewelry demand comprises 7% of global luxury market, and 31% of 1,160 the personal luxury (annual growth 5%) • Most dynamic growth is concentrated in Asi
Slide 4: Global diamond jewellery market grows by 4%
Global diamond jewellery market grows by 4% World diamond jewellery sales grew by 4% annually • Since 2010 diamond jewellery demand increased on average by 4% Diamond jewelry market, $ bn • … reaching a 10-year high level in 2017 increasing by +5% yoy driven by N. America, Asia-Pacific region and In
Slide 5: Marketing spending of the industry
Marketing spending of the industry DPA marketing campaigns by region • Diamond Producers Association (DPA) was formed by 7 major diamond % represents share of a region in global jewelry consumption producers in 2015 to support the development of the diamond sector through protection and promotion of
Slide 6: Global rough diamond sales and prices
Global rough diamond sales and prices Rough diamond sales demonstrates moderate recovery • Rough diamond sales follow trend of demand for diamond jewellery $ bn • In 6M 2018, global diamond sales in value terms were up 5% on the back ALROSA Others of underlying demand recovery and hence better price
Slide 7: Global rough diamond production and midstream situation
Global rough diamond production and midstream situation Decrease in global diamond output, 6M 2018* • In 6M 2018, major diamond producers’ output decreased by 3% y-o-y, m carats while in Q2 2018 Other 70 • In Q2 2018, midstream rough and polished diamond inventories Alrosa 68 increased marginally in
Slide 8: Long term supply outlook: incremental growth is limited
Long term supply outlook: incremental growth is limited ~70% of global rough diamond output controlled by BIG-3 • Supply is well consolidated with BIG-3 controlling 2/3 of global supply m cts • Supply is quickly reacting to the demand deterioration ALROSA 26% 22% De Beers • Lack of new “quick-to-dev
Slide 9: About ALROSA
About ALROSA Financial results summary • ~30% of rough diamond production globally $ bn Revenue EBITDA Free cash flow EBITDA margin • Largest reserves sufficient to support production for ~30 years 56% 52% 47% • Competitive position on the global cost curve 40% 4.6 4.6 3.7 • Sustainably high profita
Slide 10: ALROSA: assets geography
ALROSA: assets geography Geography of production assets Share of division in 2017 diamond production In expansion mode 33% Aikhal Division 13.0 Aikhal UG mine m ct Jubilee pipe Komsomolskaya pipe 7% 93% 19% Nyurba Division 7.7 Nyurbinskaya pipe Botuobinskaya pipe m ct Arkhangelsk Russian Federation
Slide 11: Highest quality assets
Highest quality assets ALROSA operates largest reserves with long life of mine • ALROSA develops world’s largest reserves with the industry best m cts cost/quality balance 377 • One of the lowest cost production at 44 $/ct while company’s average inferred resources realized price of gem-quality roug
Slide 12: Low cost production platform with moderate growth
Low cost production platform with moderate growth Range of average mined diamond grade (2017) • Company operates high quality assets with underground operations ct/t delivering strong diamonds yields 7 6.89 5.83 • Output to stabilize at ~38 m ct, which is slightly above 2013-2016 6 International UG
Slide 13: Improved quality of sales with 70% of long term client base
Improved quality of sales with 70% of long term client base Allocation of rough diamond by quality Sorting of rough diamonds • Diverse product mix (total 204 boxes)with different segment exposure and price dynamic, e.g.: 26 sizes 16 shapes o small stones – for mass market bridal rings Gem quality o
Slide 14: Q2 2018 Results
Q2 2018 Results
Slide 15: Q2 Sales
Q2 Sales Q2 2018 Sales Diamond sales m cts • Down 32% q-o-q on high base effect of Q1’18 as ~6 m cts were sold from stock Industrial quality diamonds 24.3 • Down 11% y-o-y on lower output as production at Mir mine was discontinued 22.4 Gem-quality diamonds 5.2 6M 2018 Sales 6.0 14.1 • Sales in carat
Slide 16: Q2 Output
Q2 Output Ore and sands processing m tonnes • The volume of processed ore and sands was seasonally up 77% q-o-q Grade, carat/tonne (up 1% y-o-y) due to alluvial deposits output growth (up 4.4 m tonnes), 1.46 1.03 0.65 1.39 1.30 0.84 1.19 1.01 while mined ore output remained flat • Average grade was
Slide 17: Q2 and 6M Financials
Q2 and 6M Financials Q2 margins expanded Q2 2018: $ bn • Revenue came in at RUB 72 bn (down 25% q-o-q) as sales in carats 52% 47% 46% 47% decreased (down 32% q-o-q on a high base of Q1 2018). 43% 42% 38% 40% • Meanwhile, revenue was up 2% y-o-y driven by stronger pricing and a better sales mix. 1.26
Slide 18: Costs dynamics and structure in 6M 2018
Costs dynamics and structure in 6M 2018 Per unit costs RUB '000 / cu m • Per unit costs decreased by 4% to RUB 1,200 per cu m supported by ALROSA’s operational excellence programme 1.34 1.23 1.25 1.17 1.18 1.20 • In 6M 2018, the Company’s costs* went down by 4%, to RUB 79 bn Key drivers: o down RUB
Slide 19: Profitability analysis
Profitability analysis EBITDA bridge Q2 2018: RUB bn • EBITDA declined to RUB 41.3 bn (down 13% q-o-q) Key drivers: Q2 2018 q-o-q 6M 2018 y-o-y o (-) carat sales down 32% due to a high base effect of Q1 2018 when some EBITDA (2017) 47.7 72.8 6 m carats were sold from stock; o (+) improved sales mix
Slide 20: Annual capex is expected to stabilize at RUB 26-28 bn
Annual capex is expected to stabilize at RUB 26-28 bn Capex • In Q2 2018, capex was up 48% q-o-q. Key drivers: RUB bn o larger expansion capex (up RUB 3.6 bn) at the Verkhne-Munskoye deposit 12.0 (up RUB 2.1 bn), the Udachny underground mine (up RUB 0.7 bn) and the 11.4 Zarya pipe (up RUB 0.7 bn) du
Slide 21: Free cash flow drivers
Free cash flow drivers • In Q2 2018, FCF fell by 49% q-o-q Key drivers: Cash flow bridge o (-) lower EBITDA as sales and revenue were down; RUB bn Q2 2018 6M 2018 o (-) seasonal growth in capex (up 48%); EBITDA 41.3 89.1 o (-) seasonal increase in the working capital of RUB 6.1 bn (stockpiling to en
Slide 22: Debt position
Debt position Debt profile changes • Total debt amounted to USD 1 bn, down USD 604 m year-to-date due to $m o early repayment of short-term loans of USD 600 m through the proceeds Total debt Net debt Net debt / EBITDA from gas assets sale 1.8 1.8 • Cash hiked to USD 922 m against USD 127 m as at the
Slide 23: New Dividend Policy
New Dividend Policy Dividend payout ratios • Until August 2018, ALROSA’s dividend policy limited the minimum 70% dividends at 35% of IFRS net income, however, over the recent three years 59% 70% the Company has maintained a 50% net income pay-out ratio 50% 52% 60% 50% • In August 2018, ALROSA’s Boar
Slide 24: Outlook
Outlook Market outlook • H2 2018 may see a traditional seasonal weakening of demand • Diamond inventories are below the 5-year average Operating performance • In 2018, full-year sales are estimated at 39–40 m carats • In H2 2018, output is expected to grow, in particular, due to ramp-up at the Udach
Slide 25: Appendix
Appendix
Slide 26: Net debt change
Net debt change Net debt bridge • In Q2, net debt was down 68% q-o-q Drivers: RUB bn o stronger free cash flow; Net debt as at 31 December 2017 86 o efficient liquidity management. Free cash flow in Q1 2018 -41 • 6M: Net debt was down 93% due to FCF. Sale of gas assets -30 • To set up its stock opti
Slide 27: FX rate
FX rate • ALROSA is an exporter with 94% of revenue denominated in Financial metrics breakdown by currency % of metric's total USD. RUB USD • Major portion (87%) of costs and capex is denominated in 6% 3% 29% RUB. 87% 87% • Some 97% of the Company’s debt portfolio is denominated in 94% 97% 71% USD.
Slide 28: ALROSA’s production forecast
ALROSA’s production forecast Price Cash costs Type of mining Grade, ct/t Diamond production forecast, ‘000 ct per carat, $ per carat, $ 2017 2017 2018F 2019F 2020F Aikhal Division Jubilee pipe open-pit 1.33 141 26 10,160 8,207 5,885 5,410 Aikhal underground mine underground 5.83 47 28 2,480 2,723 2,
Slide 29: Key investment projects
Key investment projects Udachny underground mine Production start 2014 Expected design capacity 2019 Expected life of mine 2040 Investment start date 2002 Total capex, RUB bn 65.4 Total capex invested in 2002–2017, RUB bn 52.8 (81%) Target ore output, m tonnes pa 4.0 Diamond production, m carats pa
Slide 30: Supply of diamonds is constrained by lack and complexity of new discoveries
Supply of diamonds is constrained by lack and complexity of new diamond discoveries and significant time required to ramp-up production Discovery and development of new kimberlite pipes are much more challenging now Host rocks Sandstones Kimberlite pipes Aikhal Botuobinskaya International Nyurbinska
Slide 31: Rough diamond production is dominated by few mining companies
Rough diamond production is dominated by few mining companies with the highest margins across diamond pipeline, where ALROSA benefits from leading market share of 26% Diamond pipeline structure Rough diamond production Sales of rough diamonds Cutting & polishing Diamond jewelry Retail sales of diamo
Slide 32: Economic efficiency of underground mining fostered by block caving
Economic efficiency of underground mining is fostered by block caving mining method Traditional cut-and-fill mining Block caving method International Aikhal underground Mir underground mine Udachny underground mine underground mine mine Production level Backfilled production level Next production le
Slide 33: ALROSA’s low environmental impact acknowledged by ESG ratings
ALROSA’s low environmental impact, as well as efficient information disclosure are acknowledged by ESG ratings 3rd place (out of 33) in the “First rating of environmental performance of mining companies in Russia” (held by the WWF and the Ministry of Natural Resources and Environment of Russian Fede
Slide 34: Management team is fully committed to deliver on development plans
Management team is fully committed to deliver on ALROSA’s development plans Executive Team Operational Team Mirny division Alexey Kovalenko Sergey Ivanov Director, Mirny mining and processing division Chief Executive Officer • Joined the Company in 1996 • Joined the Company in 2017 CEO • Over 20 yea
Slide 35: Supervisory Board overview (1/2)
Supervisory Board overview (1/2) 1 2 3 4 Anton Siluanov Yegor Borisov Nikolay Alexandrov Evgeny Chekin First Deputy Chairman of the Government State Counsellor of the Republic of Sakha First Deputy Head of Suntarsky Ulus Chairman of the Government of the of the Russian Federation (Yakutia) Municipal
Slide 36: Supervisory Board overview (2/2)
Supervisory Board overview (2/2) 9 10 11 12 Evgenia Grigorieva Sergey Ivanov Dmitry Konov Valentina Lemesheva Minister of Property and Land Relations of Chief Executive Officer of ALROSA Member of the Board of Directors, Independent director of the Supervisory the Republic of Sakha (Yakutia) Chairma
Slide 37: Resources inclusive of reserves according to JORC Code (1/2)
Resources inclusive of reserves according to JORC Code as of July 1, 2016 (1/2) Tonnage Resource grade Contained diamonds Deposit Resource category ('000 t) (cpt) ('000 cts) Udachny division Measured 13,646 1.16 15,812 Udachnaya Pipe Indicated 83,524 1.53 127,801 Inferred 53,991 1.28 68,978 Zarnitsa
Slide 38: Resources inclusive of reserves according to JORC Code (2/2)
Resources inclusive of reserves according to JORC Code as of July 1, 2016 (2/2) Tonnage Resource grade Contained diamonds Deposit Resource category ('000 t) (cpt) ('000 cts) Nyurba division Measured 1,432 4.12 5,905 Nyurbinskaya Pipe Indicated 7,095 4.32 30,623 Inferred 1,217 5.56 6,767 Measured 3,1
Slide 39: Thank you!
Thank you! 24 Ozerkovskaya emb. Tel. +7 495 745 58 72 Moscow 115184 [email protected] Russia