Big boost for world’s top diamond miner

Alrosa’s Jubilee pipe in northeast Russia

Alrosa (MCX:ALRS), the world’s top diamond producer by output, received a shot in the arm on Wednesday after ratings agency Moody’s upgraded the miner’s credit rating by two notches.

Moody’s upgrade brings the debt rating of Alrosa which is 77%-owned by Russia and the Republic of Sakha (Yakutia), to just below investment grade.

Moody’s said its decision reflects the fact that Alrosa’s financial metrics “have remained strong versus global peers” and will remain robust, “owing to the company’s status as a major producer and exporter of diamonds and weak rouble, the company’s 29% share in the global diamond output, its low-cost reserve base, technical mining expertise, solid liquidity and conservative financial policy.”

At the same time, Alrosa’s rating factors in “the volatile demand and prices for diamonds and the company’s exposure to the Russian macroeconomic environment, despite the high exports, given that its operating facilities are located in Russia.”

Alrosa is being prepped for privatization and worth $8.4 billion in Moscow after rising by a third in value this year

Moody’s says the reason the outlook the rating remains negative is based on state-ownership of the company and the potential downgrade of Russia’s sovereign rating. At the same time the ratings agency also takes into account the “moderate probability of government support in the event of financial distress.”

Alrosa earlier in April presented a rosy outlook for the diamond market with continued albeit modest growth in demand of 2%–4% through 2025 at the time of the release of its 2015 results.

The company said output climbed to 38.3 million carats, a 6% increase when compared to the previous year, thanks mainly to improvements at its Mir and Udachny underground mines, as well as the commissioning of Karpinskaya-1 and Botuobinskaya pipes and other high-potential deposits.

Alrosa, which together with Botswana-based De Beers produces more than half of the world’s diamonds, also saw its reserves grow last year to 43.6 million carats. Despite poor global diamond market conditions, the company sold 3.8% more rough diamonds and increased sales 8% to $3.4 billion.

Alrosa, which along with fellow Russian resources firms Rosneft and Bashneft are among the most likely candidates for privatization this year, is worth $8.4 billion in Moscow (RUB 546 billion) after rising by a third in value this year.

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