On April 12, 2010 a regular meeting of the management team was held by ALROSA President Fyodor Andreev.
The management team was briefed on the results of the ALROSA senior management’s trip to Angola. During the visit the ALROSA top-level delegation discussed with their Angolan counterparts issues related to coordination of organization of rough diamond sales with Catoca Ltd. and provision of information and analytical support for this diamond mining venture’s marketing activities. Also discussions on regulation of tariffs on the electricity produced by HPP Chicapa-1, and the prospects of the implementation of the HPP Chicapa-2 construction project and ALROSA’s participation in this project were held.
According to preliminary data, in 2009 Catoca Ltd. Mining Co. posted net profit of over USD 70 million, having exceeded its rough diamond production and sales targets. The decision on dividend payments will be taken by the shareholders at the next annual general meeting at the end of April.
At the same time, the analysis of the preliminary the HPP Chicapa-1 performance results indicates that in 2009 Hidrochicapa S.A.R.L. incurred a net loss of USD 2.935 million. The financial results raise doubts about the company’s capability of repaying its USD 132 million loan. Currently, taking into account the actual losses of HPP Chicapa-1 in 2009 and its projected losses in 2010, ALROSA regards its participation in the HPP Chicapa-2 construction project as problematic unless the parties agree upon acceptable tariffs on the produced electricity. ALROSA’s senior management is in the process of negotiations with their Angolan counterparts on measures to make this energy project profitable.
The United Selling Organization of ALROSA has confirmed strong demand for rough diamonds. The auction of specials (+10.8 ct) held in April 2010 recorded prices that were comparable with those of the spring 2008. In April 2010 the Company expects its proceeds from rough and polished diamond sales to amount to USD 300 million. Currently, in line with its policy aimed at geographic diversification of sales, ALROSA is preparing proposals with regard to signing long-term contracts with diamond manufacturers from China and Israel.
ALROSA has completed refinancing its short-term loans from Bank of Moscow. In the second half of April the Company is planning a RUB 3 billion bond offering.
For your reference: Catoca Ltd. (Sociedade Mineira de Catoca, Lda) was established in Angola in 1992 as a joint venture between Yakutalmaz (Russia), National Diamond Mining Company «ENDIAMA» (Angola) and Odebrecht Mining Services Inc. (Brazil) for the purpose of mining and marketing the diamond production from the Catoca kimberlite pipe. ALROSA has 32.8% interest in Catoca Ltd.
Catoca is one of the world’s largest diamond pipes. Its surface area is 657 thousands sq. m. Based on the results of comprehensive geological studies, its reserves are estimated at 271 million tons of diamond-bearing ore which in the next 40 years can yield approximately 189 million carats of rough diamonds worth about USD 11 billion.
The Chicapa hydropower plant (Lunda Sul, Angola) was placed into operation on November 12, 2007. The HPP was officially inaugurated in the presence of President of the Republic of Angola Jose Eduardo Dos Santos. Besides the HPP, the power lines connecting the HPP and the Catoca mine, and the HPP and the provincial capital Saurimo, with a total length of 36 km, were built. The HPP ensured sustainable energy supply of the Catoca mine and enabled it to materially reduce costs related to diesel fuel deliveries from Luanda. The HPP also supplies electricity to neighboring towns and villages.