Page 198 - RusRPTMay21

Despite lower volumes, net debt declined $390mn to $2.1bn, matching expectations thanks to recent high prices for gold.
“Overall, as sales volumes were up 5% y/y and the gold price was up 12% y/y, we expect strong 1Q21 earnings, despite higher costs after weaker production. Indeed, we forecast EBITDA to rise 24% y/y to $719mn, with an additional minor contribution coming from the fact that antimony prices are up almost 60% year-on-year,” VTBC said.
Alrosa's March rough sales increased 132% y/y, due to the low base of 2020, to $345mn, although that was still 26% below the historical average. This gap was almost the same as with De Beers’ third cycle sales (see our Morning Miner, of 7 April).Alrosa’s management noted that March sales were in line with the company's expectations, given the focus on a price over volume strategy. We think that the relatively weak sales could be explained by the seasonal cool-down on the diamonds market as well as by lockdowns in India (see our Morning Miner, of 6 April, and Diamonds Watch - April 2021, of 5 April. We also think that midstream lockdowns might put pressure on rough sales in the coming months. 1Q21 sales reached $1.13bn, 13% below our expectations. However, we think that realised prices might have exceeded our expectations, given that Alrosa’s price index was up 15% YTD in 1Q21 vs. our expectations of 10%. Alrosa also noted that polished diamond stocks in the global pipeline were at a comfortable level, while rough diamond stocks were approaching low levels. That is in line with our view and also supports our positive expectations on solid rough purchases by the midstream in 2H21 (see our Alrosa - Antwerp Diamond Virtual Trip, of 15 March).
Alrosa production in 1Q21 came in at 7.5mn cts, 5% short of our estimate. Sales were 15.5mn cts, which is slightly above our forecast of 13-15mn cts. Thus, the diamond inventory release in 1Q21 was 8mn cts (2mn cts above our estimate), bringing Alrosa's diamond inventory to 12.8mn cts as of end-1Q21 (the company considers 12-14mn cts a normal operational inventory level).
The reported LFL price index was up 9% YTD and 7% Q-o-Q. We calculate that Alrosa's price index is still 5% short of the pre-Covid level of 1Q20, 7% below the 2015-19 average and 16% below the recent peak level of 3Q18 seen right before the start of the 2019-20 market downturn.
The average realized price in 1Q21 rose 8% Q-o-Q to $72.5/ct, which was in line with the growth in the LFL index. However, it was still 33% below the 2015-19 average, meaning that the sales mix was very weak, with a high share of smaller, low-quality and industrial diamonds (the share of the latter was 37%, above the historical average 30% level). Given that Alrosa has drawn down all excess inventories, we think that in the coming quarters its sales mix should generally match
198 RUSSIA Country Report May 2021 www.intellinews.com