Q2 2018 Operating results

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Moscow, 23 July 2018 – ALROSA, a global leader in diamond production, reports its Q2 2018 production performance and preliminary trading update.

Key highlights in Q2 2018:

• Diamond production grew 15% q-o-q (down 18% y-o-y) to 8.5 m carats, due to seasonal return to production at alluvial deposits supported by the recently ramped-up assets, the Udachny underground mine and Severalmaz.
• A y-o-y decrease in diamond production was due to the closureof the Mir underground mine (UM), a lower diamond grade at deep horizons of the International UM as well as the share increase of processing of a lower grade ore at the Jubilee pipe and the Aikhal UM of the Aikhal Division.
• The volume of processed ore and gravels grew by 77% q-o-q (up 1% y-o-y) up to 10.1 m t, due to seasonal return to production at alluvial deposits (up 4.4 m t), while ore output remained flat.
• The average diamond grade per tonne of orewas lower by 35% q-o-q (-18% y-o-y) to 0.84 cpt, mainly due toseasonal return to production at lower-grade alluvial deposits operated by Almazy Anabara and a lower diamond grade at alluvial deposits developed by the Mirny Division.
• Q2 Group rough diamond sales (ex.polished diamond sales) were9.0 m carats (down 32% q-o-q), including 6.3 m carats of gem-quality rough diamonds (-38% q-o-q) and 2.7 m carats of industrial diamonds (-16% q-o-q).
• Inventories as at the end of Q2 2018 declined by 11% q-o-q (-23% y-o-y) to 11 m carats on stableunderlying demand for the entire product mix.
• Growth of average realized prices for gem-quality diamonds: following sales in April through June, average realized prices* (including product mix change effect) grew 6% q-o-q (up 18% y-o-y) to $164 per carat on the back of higher demand and cutters’ lower inventories.
• In money terms, sales (ex. polished diamond sales) decreased by 33% q-o-q to $1.057 bn. In Q2 2018, polished diamond sales increased to $26.2 m: up 11% q-o-q and up 15% y-o-y.
• 2018 forecast: production outlookremains unchanged at 36.6 mcarats, a decrease of 8% y-o-y.

*Average realized price (sales revenue devided by the sales volumes incaratterms) is also impacted by changes in product mix througout the reported period.

Market overview

• According to the Company’s estimates, in the frist three months of 2018, the diamond jewellery market grew by 7% as all key markets enjoyed rising sales on the back of a stronger consumer sentiment and a better macro environment.

• The largest market of N.America (USA and Canada) saw diamond jewellery sales rise by 5% y-o-y. Sales in Asia Pacific grew 11% y-o-y, largely driven by higher sales in the Mainland China and stronger demand in Hong Kong and S.Korea supported by a growth in tourists’ flow. In dollar terms, sales in Europe added 14%, mainly on the back of a stronger euro.

• In Q2 2018, the rough diamond market demonstrated increased demand across the entire product mix, driven by both a reduction in rough diamond supply from diamond miners, “normalized” stock levels at the consumers’ (mid-stream) and ongoing diamond jewellery demand growth in key markets, in particular, in the USA, Europe and China. As a result of the above factors, no traditional seasonal slack was observed in Q2 2018.

Hereinafter data on 2018 Q2 and H1 production, sales, prices, inventories is preliminary and can be updated. Data on a diamond market is the Company’s estimate.

ANALYTICAL REPORT

ADDENDUM

This page was last updated on 23 July 2018 at 10.05