ALROSA Q2 and 6M 2019 operating results

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Moscow, 18 July 2019 – ALROSA, a global leader in diamond production, reports its Q2 2019 diamond production of 9.7 m carats and sales of 8.3 m carats or $0.8 bn.

Q2 diamond production grew 24% q-o-q (up 14% y-o-y) to 9.7 m cts primarily due to seasonal return to production at alluvial deposits.

A 10% y-o-y increase in diamond production in 6M 2019 to 17.6 m cts was mainly driven by the launch of production at the V.Munskoye deposit in Q4 2018, increased output at the Udachny underground mine, and a growth in ore processing at the Botuobinskaya pipe as operational efficiency initiatives scale up.

Q2 ore and gravels processing seasonally grew by 65% q-o-q (up 4% y-o-y).

Ore and gravels processing in 6M 2019 increased 6% y-o-y to 16.8 mt supported by the ramp-up of production at the V.Munskoye deposit and increased productivity at Nyurba Division and Udachny’s processing plants.

Q2 average diamond grade seasonally decreased 25% q-o-q to 0.93 cpt. Another affecting factor was a lower average diamond grade at the Nyurba Division due to the processing of ore from lower-grade blocks in line with the mining plan. 6M average diamond grade increased 4% to 1.04 cpt.

Q2 diamond sales decreased 22% q-o-q (down 8% y-o-y) to 8.3 m cts, including 6.0 m cts of gem-quality diamonds (down 24% q-o-q, down 5% y-o-y), against the backdrop of declining demand due to excessive stocking of rough and polished diamonds by cutters and retailers, and continued difficulties faced by India's cutting business in securing affordable financing. Ongoing consolidation in the jewellery sector and growth in jewellery sales through on-line channels in the US result in a non-recurrent reduction in polished diamond stocks across the retail sector as businesses embrace more efficient stock management practices, which is in turn impacts rough diamonds purchases by mid-stream. These factors were behind lower 6M diamond sales (down by 16% y-o-y to 18.9 m cts).

Inventories as at June 2019 went up 12% q-o-q (up 36% y-o-y) to 15.9 m cts due to seasonal production growth at alluvial deposits and lower sales.

In Q2 2019, average realised prices for gem-quality diamonds rose 5% q-o-q (down 21% y-o-y) to $130/ct as small-size diamond sales returned to normal (early 2019 saw a rise in the share of small-size diamond sales on mid-stream were replenishing their stocks of this product category).

In Q2 2019, the diamond price index came lower by 1.6% q-o-q, down 4.6% year-to-date.

Q2 diamond sales in value terms decreased 19% q-o-q to $796 m (down 25% y‑o-y) with 6M sales amounting to $1,784 m (down 32% y-o-y).

Rough and polished diamond market overview

•In 6M 2019, the rough and polished diamond market saw weak activity in all segments. The key jewellery markets registered a decline in demand amid global macroeconomic uncertainty due to unravelling trade tensions between US and China and depreciation of Chinese yuan against US dollar, resulting in lower purchasing power of Chinese consumers and tourists.

•The consolidation in the jewellery sector and an expanding share of online jewellery sales in the US result in a non-recurrent reduction in polished diamond stocks across the retail sector as businesses embrace more efficient stock management practices, translating into lower diamonds volumes purchased by cutters and polishers.

•Cutters stocked up on end products, which also affected the demand for rough diamonds. To reduce excess stocks the Indian cutters have been decreasing output since May. The lower diamond demand was also caused by the ongoing financing difficulties experienced by the cutters due to the banks tightening the loan security and repayment terms.

•Currently demand from jewellery consumers remains stable, which bodes well for renewed activity and higher demand for rough diamonds closer to the end of Q3 2019 in the run-up to 2019-2020 Christmas sales season.

Data on Q2 2019 production, sales, prices, and inventories is preliminary and may be updated. Data on the diamond market is the Company’s estimate.

This page was last updated on 18 July 2019 at 11.21