ALROSA Upbeat Despite Sales Decline

RAPAPORT… ALROSA sales fell 6 percent to an estimated $1.25 billion during the first quarter even as its rough diamond prices firmed, the company reported at an investor conference on Wednesday.

The miner’s rough diamond price index rose 2 percent with reports of strong demand at the beginning of the year. The index was flat through 2016.

“ALROSA slightly increased its average diamond price across the mix, so we think the pricing outlook for 2017 now looks stronger,” analysts at VTB Capital wrote after the presentation. “As the market seems to be in good shape, this leaves a more positive price outlook for 2017.”

ALROSA held its third sale last week, after it garnered $365.4 million and $401.9 million respectively in the first two months of the year.

The company sells rough through three channels, conducting 69 percent of its sales through long-term contracts, another 15 percent via spot sales, and the remaining 16 percent by tender in 2016. It currently has 69 clients with long-term contracts.

Although sales slowed during the quarter, the company maintained a positive outlook for the rest of 2017, with full-year production projected to rise 5 percent to 39.2 million carats as the miner ramps up to 40.4 million carats by 2021.

The company expects the rough diamond market to be balanced in the mid-term after the major producers have sold off inventory they accumulated before 2015. ALROSA sold 40 million carats, having recovered 37.4 million carats last year.

Management said it would continue to streamline its operations to focus on diamond mining, easing concerns about the direction the company might take under new chief executive officer (CEO) Sergey Ivanov.

“The company remains committed to divesting non-core assets, with the new CEO putting a special focus on oil and gas assets,” VTB Capital analysts said. “While the divestment of oil and gas assets might get additional impetus under the new management, we reiterate our positive view on ALROSA.”

Shares in ALROSA rose 3 percent in midday trading Thursday on the Moscow Stock Exchange. 

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