Russian Gem-Quality Diamond Prices Fall 16% Year-Over-Year

Image: ALROSA's Udachnaya mine, Republic of Sakha, Russia. Source: ALROSA 


January 29, 2015
By Paul Zimnisky


On January 29th, ALROSA (RTS: ALRS), the worlds largest diamond producer by volume, reported Q4 2014 production of 10.6M carats, the company’s most productive quarter since offering shares to the public in October 2013. The Q4 production number represents an increase of 8% over the previous quarter.  

Increased production for the quarter was primarily driven by completion of planned maintenance at the company’s International, Aikhal, and Mir mines, which are ALROSA’s 4th, 7th, and 10th largest mines by volume, respectively. Grade also played a factor as the company realized a company-wide average carat-per-tonne (cpt) grade of 1.45 compared to 0.75 cpt in Q3.

In the quarter, ALROSA sold a total of 10.79M carats, 6.85M or 63.5% of which were gem-quality diamonds. The company’s gem-quality diamonds sold for an average price of $161 per carat, with the balance composed of industrial quality stones, selling for an average price of $11 per carat. This equates to a 16.1% decrease in gem-quality diamond price realized for the company year-over-year ($161/ct in Q4 2014 versus $191/ct in Q4 2013). The company’s sales-to-production ratio for the quarter was 1.08, meaning that the company sold more carats than it produced during the period by selling existing inventory in addition to the equivalent of 100% of production.

ALROSA has 10 primary diamond mines, 10 alluvial mines, and 2 mines in development in Russia. The company also holds a 32.8% stake in the Catoca mine in Angola, which is not included in the company's regular production and sales results.

The company's Jubilee mine produced 2.29M carats in Q4, for a total of 9.12 million carats in 2014, or an increase of 2% YOY (year-over-year). The production increase for the year was attributed to mining higher grade ore from the pit's central lobe. Aikhal, an underground mine, produced 1.91M carats in the quarter, totaling 3.29M million carats in 2014, marking an increase of 7% YOY. The production increase at Aikhal was attributed to an increase in ore processed during the year. The high-grade mine averaged 5.59 cpt versus 5.47 cpt in 2013. The Komsomolskaya mine only produced 8,000 carats in the quarter, rounding out 150,000 carats in 2014.

The International underground mine produced 1.53M carats during the quarter, bringing total 2014 production 3.86M, which is down 12% YOY. Production at International in 2014 was affected by processing plant and mine maintenance conduced in August through September. Mir produced 774,000 carats in Q4, totaling 1.46M carats in 2014, a decrease of 32% YOY. According to the company, the production decrease at Mir was a result of “adverse mining-and-geological conditions in early 2014.” Grade at Mir decreased to 3.04 cpt from 3.37 cpt in 2013. 

The Udachnaya mine produced 1.05M carats in Q4, brining the mine’s 2014 total production to 3.39M carats, which was down 32% YOY. Udachnaya is in the process of being converted from an open-pit to underground mine, which impacted production in 2014. The Zarnitsa mine only produced 6,300 carats during the quarter, but 176,000 total carats in 2014. The Nyurbinskaya mine produced 2.14M carats in Q4, producing of 6.54M carats in 2014, a 1% production decrease compared to 2013. Arkhangelskaya produced 222,000 carats in the quarter, producing 1.37M carats in 2014, a 220% increase over 2013. The annual production jump at Arkhangelskaya was attributed to the launch of a second module at the mine's processing plant.

The company’s newest mine, Karpinskogo-1, commenced commercial production on October 6th, 2014, and produced 266,000 carats through year-end. 

The Almazy Anabara and Nizhne-Lenskoye divisions did not operate during the quarter due to seasonality of the alluvial projects, however the projects produced a total of 3.06M and 1.81M carats in 2014, respectively.

The two alluvial projects mentioned above are comprised of 10 placer mines, and along with the Arkhangelskaya and Karpinskogo-1 pipes, are located in Northwest Russia’s Arkhangelsk Region. All of company’s other mining operations are located in Northeast Russia’s, Republic of Sakha.

For calendar 2014 (which is also the company’s fiscal year), ALROSA's company-wide production totaled 36.2 million carats, compared to 36.9 million carats in 2013, or an annual decrease of 2%. ALROSA’s production guidance was 36.0M carats for 2014, and is 38.0M carats for 2015.

In 2014, ALROSA sold 39.57M carats, including 27.74M gem-quality stones, representing 70.1% of production volume. The company realized an average price of $171 per carat for gem-quality diamonds and $12 per carat for industrial quality stones in 2014.  $171 per carat in 2014 compares to $176 in 2013, representing a 2.8% decrease. The sales-to-production ratio for the year was 1.09, as the company net sold existing inventory.

Earlier this week Gem Diamonds (LSE: GEMD) released sales figures located in Lesotho, showing an 17.8% decrease in diamond price realized in Q4 versus Q3 2014. The closure of Antwerp Diamond Bank in October 2014 has led to industry-wide liquidity concern for rough diamond buyers. The resulting sentiment, also driven by a slower-growing Chinese economy, deflationary pressures in Japan and the EU, and various geopolitical tensions, has led to downward pressure on rough diamond prices which is expected to carryover into 2015. 

ALROSA is 44% owned by the Russian Federation, 25% by the Sakha Republic, 8% by Sakha Republic district authorities, 19% by public equity shareholders, and 4% by ALROSA employees.

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This article was published in the London Mining Journal (paywall).



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