ALROSA Cuts Production Target for 2016

Moscow: ALROSA lowered its guidance for production of rough diamonds in 2016 as the Moscow-based miner plans to reduce accumulated inventory from last year.

In a meeting on April 1, the company cut its target for production to between 37 million and 39 million carats, from 39 million carats, ALROSA said in a statement. The revision will be achieved by implementing an employee leave-schedule, implying a reduction in output won’t impact jobs or productivity, management explained.

“Despite the fact the first quarter was rather positive and demand for rough diamonds exceeded the planned target, we are rather conservative with regard to the whole year,” said Andrey Zharkov, ALROSA’s president. “We consider one of the key priorities is not to accumulate stock.”

In 2015, output jumped 6 percent to 38.26 million carats, while sales volume slumped 24 percent to 30 million carats. In a recent earnings conference call, ALROSA said it held more than 22 million carats, or $2.5 billion worth of inventory at the end of 2015.

Zharkov told analysts on March 23 inventory levels have come down somewhat after demand for rough diamonds picked up this year. He said on the day the company would consider adjusting its production plan for the rest of 2016 after assessing its sales in the first quarter.

The company sold $780 million worth of rough in the first two months of the year and its spokesperson said demand remained steady at stable prices in March. Analysts at VTB Capital Research said they expected ALROSA sales to surge 20 percent to 25 percent in the first quarter.

ALROSA shares rallied 26 percent in the first three months. VTB expect the uptrend may continue given the “upgraded diamond market outlook for 2016” and ALROSA’s strong medium term investment case.

Zharkov said the company’s revised production plan was in line with market conditions as mining operations obviously hinge on the global demand for rough diamonds.