Sunday, July 7, 2024

Alrosa Expands into Gold with $276 Million Acquisition

In a strategic move to diversify its portfolio, Alrosa, the world’s largest diamond producer, has acquired the Degdekan gold ore field in Russia’s Magadan region for $276 million. The acquisition was confirmed by both Alrosa and Polyus on Monday.

Alrosa’s subsidiary, Almazy Anabara, spearheaded the purchase, which marks the company’s significant entry into the gold mining sector. According to Alrosa CEO Pavel Marinychev, the development of the gold deposit is expected to enhance the company’s financial stability and create synergies with its existing operations.

“The development of the gold deposit will provide an additional synergistic effect for Alrosa’s business and will help increase its financial stability in the long term,” Marinychev said.

Investment and Production Plans

Alrosa plans to invest 24 billion roubles ($276 million) in the development of the Degdekan deposit. By 2030, the company anticipates achieving full production capacity, yielding approximately 3.3 tons of gold annually. Currently, Alrosa’s gold production is limited to around 180 kg annually, primarily as a sideline to its diamond operations.

Polyus, Russia’s largest gold producer, sold the Degdekan deposit to streamline its exploration portfolio, redirecting its focus to developing the Sukhoi Log gold deposit in Siberia, one of the world’s largest undeveloped gold reserves.

Financial Impact

Financial analysts estimate the acquisition cost to be between $50-100 million, a substantial portion of Alrosa’s free cash flow. The Degdekan deposit is expected to significantly boost Alrosa’s EBITDA once production commences, taking advantage of current gold prices.

Despite this expansion, Alrosa maintains that diamond mining remains its core focus. The move into gold mining is seen as complementary, leveraging the company’s expertise in mining.

Strategic Location

The Degdekan deposit’s proximity to existing transport and energy infrastructure makes it an attractive investment, ensuring efficient development and operational logistics.

Geopolitical Context

Alrosa’s venture into gold comes amid escalating economic pressures from Western sanctions, particularly targeting its diamond exports. The Group of Seven (G7) nations recently imposed restrictions on Russian diamonds, adding a geopolitical layer to Alrosa’s diversification strategy.

In 2023, Alrosa reported a net profit of 85.18 billion roubles ($925 million), a 15.2% decline from the previous year, attributed to global economic challenges and geopolitical tensions.

Future Prospects

With Alrosa set to integrate the Degdekan gold deposit into its operations until 2046, this acquisition marks a pivotal moment for the company. It underscores Alrosa’s adaptability in navigating international sanctions while strengthening its position in the global mining sector.

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