2002 ANNUAL REPORT OF ALROSA TABLE OF CONTENTS:
Members of Supervisory Council Members of the Board Members of Auditing Committee Structure of ALROSA Group President’s Statement Activities of Supervisory Council Report by the Board on the Company’s Activities in the Main Fields of Operations Mining Operations Marketing Policy. Sales of Rough Diamonds. Polished Diamond Manufacture and Sales Geological Exploration Capital Construction Supplies and Logistics Research and Development Diversification of the Company’s Activities. Subsidiaries and Affiliated Companies Personnel Management External Relations Environmental Safety Accounting and Financial Results Accounting Policy Audit Statement Consolidated Financial Statement of ALROSA Co. Ltd. Basic Performance Indicators of ALROSA Co. Ltd. Information for Shareholders Historic Highlights of ALROSA Addresses of ALROSA Offices
2 Supervisory Council
Co-Chairmen of Supervisory Council:
Alexey Leonidovich KUDRIN Deputy Chairman of RF Government, Minister of Finance of the Russian Federation, Chairman of ALROSA Supervisory Council Vyacheslav Anataloyevich SHTYROV President of Republic of Sakha (Yakutia), First Deputy Chairman of ALROSA Supervisory Council Andrei Dmitrievich KIRILLIN Chairman of ALROSA Supervisory Council
Members of Supervisory Council:
Gennady Fedorovich ALEXEYEV Minister of Property Relations of Republic of Sakha (Yakutia) Alexandr Vasilyevich ANOSHKIN Assistant of Head of RF President’s Administration Ernst Borisovich BEREZKIN Minister of Finance of Republic of Sakha (Yakutia) Yegor Afanasyevich BORISOV First Deputy Chairman of Government of Republic of Sakha (Yakutia) Vladimir Tikhonovich KALITIN ALROSA President Ivan Sergeyevich MATEROV First Deputy Minister of Economic Development and Trade of the Russian Federation Yuri Mitrofanovich MEDVEDEV First Deputy Minister for Property Relations of the Russian Federation Alexandr Pavlovich MOROZKIN First Vice President, Executive Director of ALROSA Alexandr Anatolyevich OGLY Minister of Industry of Republic of Sakha (Yakutia) Varvara Andreyevna PETROVA Head of Administration of Nyurba Ulus, Republic of Sakha (Yakutia) Alexandr Vasilyevich TIKHONOV Head of Department of Property of Fuel and Energy Complex, Ministry of Property Relations of Russia Leonid Fedorovich TOLPEZHNIKOV Head of Department of Precious Metals and Gem Stones, RF Ministry of Finance
3 Board of Directors:
Vladimir Tikhonovich KALITIN ALROSA President, Chairman of the Board Alexandr Safronovich MATVEYEV First Vice President, Chief Managing Director Alexandr Pavlovich MOROZKIN First Vice President, Executive Managing Director German Serapionovich KUZNETSOV First Vice President Gennady Anatolyevich MELNIK Chief Engineer Fedor Borisovich ANDREYEV First Vice President Vassily Mikhailovich VLASOV Vice President Ivan Kirillovich DEMYANOV Vice President Yuri Alexandrovich DUDENKOV Vice President Semyon Ilyich ZELBERG Vice President Olga Alexeyevna LYASHENKO Chief Accountant Dmitry Konstantinovich NOVIKOV Vice President Victor Yegorovich SOFRONOV Vice President Sergey Aramovich OULIN Vice President Gustav Afanasievich YAKOVLEV Vice President Petr Andreyevich GALAYEV Vice President Sergey Georgiyevich ALYABYEV Director of Nyurba GOK Petr Mikhailovich GLAGOLEV Director of AlmazDorTrans Department Yuri Andreyevich DOINIKOV Director of Aikhal GOK Valery Nikolayevich LEONENKO Director of Mirny GOK Alexandr Vladimirovich KOZUPEYEV Director of Anabar GOK Yuri Anatolyevich PETROV Director of Udachny GOK Yuri Ivanovich POPOV Head of Capital Construction Department Gamlet Vaginakovich AKOPYAN Head of Legal Department
4 Auditing Committee:
Galina Innokentyevna DANCHIKOVA Deputy Chairwomen of the Government of Republic of Sakha (Yakutia), First Deputy of Permanent Representative of Republic of Sakha (Yakutia) at RF President’s Office
Lyudmila Afanasyevna NIKOLAYEVA Deputy Head – Head of Department for Strategic Planning, Analysis and Forecasts, Administration of President of Republic of Sakha (Yakutia)
Anna Ivanovna YEZHOVA Chief Accountant of United Selling Organisation of ALROSA
Valery Vladimirovich YELISEYEV Deputy Head of Department of Precious Metals and Gem Stones, RF Ministry of Finance
Kirill Borisovich NIKOLAYEV Consultant of Department for Property of Fuel and Energy Complex, RF Ministry of Property Relations
5 Structure of ALROSA Group
ОБЩЕЕ СОБРАНИЕ АКЦИОНЕРОВ
НАБЛЮДАТЕЛЬНЫЙ СОВЕТ
ПРАВЛЕНИЕ
УПРАВЛЕНИЕ КОМПАНИИ
Удачнинский Мирнинский Айхальский Нюрбинский Анабарский ЦЕНТР Единая сбытовая Предприятие ГОК ГОК ГОК ГОК ГОК сортировки организация "Бриллианты алмазов АЛРОСА" г. Удачный г.Мирный п. Айхал п. Накын п. Эбелях г.Мирный г. Москва г. Москва
Управление Управление Управление Мирнинское Предприятие Удачнинское Управление СТ "Алмаз- Институт капитального материально- "Алмаздор- авиа- АЛРОСА- РССУ "Алмазэнерго- автоматика" "Якутнипроалмаз" строительства технического транс" предприятие Трансснаб ремонт" снабжения г. Удачный г. Удачный г. Мирный г. Мирный г. Мирный г. Мирный г. Ленск г. Мирный г. Москва
Культурно- ТРК Оздоровит. Амакин- Ботуобин- ГРЭ ЯНИГП Центр спортив- "Алмазный Совхоз Управление комплекс ПЭТСи ЖХ, ская ГРЭ ская ГРЭ "АЛРОСА - ЦНИГРИ подготовки ный край" "Новый" охраны "Прометей" Поморье" кадров комплекс п. Айхал г. Мирный г.Архангельск г. Мирный г. Мирный г. Мирный г. Мирный г. Мирный г. Мирный п. Небуг г. Мирный
Представи- Представи- Представи- Представи- Представи- Представи- Представи- тельство в Представи- Представи- тельство в тельство в тельство в тельство в тельство в тельство в г. Санкт- тельство в тельство в Бельгии Анголе Израиле г. Москва г. Якутске г. Краснодаре Петербурге г.Архангельске г. Орле (г.Антверпен) (г. Луанда) (г. Рамат-Ган)
ДОЧЕРНИЕ И ЗАВИСИМЫЕ ОБЩЕСТВА
Промышленные и Кредитно- Снабжение и Торговля, гостиничные Некоммерческие геологоразведочные Строительство - 3 финансовые - 4 транспорт - 4 и санаторно-курортные организации - 1 общества - 18 услуги - 12
6 President’s statement
Dear Shareholders,
The year 2002 has completed the first 10-year cycle in the history of ALROSA. This was an extremely important phase of transformation of the Company from an industrial and research entity to a multi- profile vertically integrated enterprise, diversification of its activities, strengthening of the interrelations between the Company’s management, the local authorities, the leaders of the Republic of Sakha (Yakutia) and the Government of the Russian Federation. The ALROSA management continued to consistently pursue its policy. Our practical steps were aimed at implementing the five-year programme for 2001-2005 approved by the Supervisory Council and the main goals set for the period until 2015. Currently, the future prospects of the Company are associated with the change-over to more labour-intensive and more expensive underground diamond mining, which sets new requirements with respect to higher labour productivity, lower production costs, improvement of the commercial mechanisms at all levels down to the level of individual divisions and crews. The decisions taken by the Company’s management are coordinated with our main shareholders – the Government of the Russian Federation and the Government of the Republic of Sakha (Yakutia). They are aimed at comprehensive development of the ALROSA Company – one of the leaders in the world’s diamond industry and the main pillar of the economy of the Republic of Sakha (Yakutia). The most important events of 2002 were: Decree of President of the Russian Federation No.1373 of November “On Approval of the Procedure for Import and Export of Rough and Polished Diamonds in the Russian Federation”; Adoption of the new version of the ALROSA Statute; Election of the Chairman, First Deputy Chairman and Deputy Chairman of the Supervisory Council of ALROSA – Mr. A.L. Kudrin, Minister of Finance of the Russian Federation, Mr. V.A. Shtyrov, President of the Republic of Sakha (Yakutia), and Mr. A.D. Kirillin, respectively. Approval by the Supervisory Council of supplements to the five-year plan (2001-2005) for development of ALROSA Group; Commencement of active construction of the Mir underground mine; Commissioning of the second phase and reaching of the design capacity of the International underground mine; Signing of economic terms and conditions for the lease agreement between ALROSA and the Government of the Republic of Sakha (Yakutia) for 2002-2003 with a fixed amount of payments relating to investment objectives; Preparation and signing on January 5th, 2003 of a Collective Agreement between ALROSA and the Profalmaz trade union for the period of 2003-2004. The consistent implementation of the adopted strategy of technical, economic and social development of the Company facilitated that despite some unfavourable changes in the world’s diamond market and growing competition between the main diamond mining companies, ALROSA was able to attain its main goals and maintain its positions in the world market. An important indication of the growing authority of the Company are the results of the elections of the deputies of the State Assembly of the Republic of Sakha (Yakutia) (Il Tumen) held last December and the local administrations: a significant number of elected deputies are representatives of ALROSA.
7 Main Results of ALROSA Plan Fulfilment in 2002
Despite the more complicated mining and geological conditions for mine operation at the main diamond mines, the Company managed to attain the goals set for 2002. In 2002 the Company produced US $1,384 million worth of diamonds or US $1,466 million worth of diamonds, including the mining production of OAO “ALROSA-Nyurba”. The total diamond sales amounted to US $1,557 million, including US $106 million worth of polished diamonds. The Company carried out geological exploration work for an amount of RUR 1,127 million (US $35.9 million). Geological prospecting and exploration was conducted in the Republic of Sakha (Yakutia), Arkhangelsk, Irkutsk and Voronezh regions. Investigations were commenced to assess the prospects for diamonds in the Maritime Province, Northern Urals, Leningrad Oblast, Pskov, Novgorod and Murmansk regions. The Company pursues its strategic goal to develop the required industrial infrastructure and construct basic facilities for exploitation of mineral resources. The overall plan of investments into capital construction was fulfilled in 2002 to 125% and the total investments amounted to RUR 15,564.9 million (US $496.5 million). The value of the newly commissioned main fixed assets was RUR 8,840 million (US $282 million), including technical modernisation of the Company’s operations for RUR 2,825 million (US $90.1 million). The main objectives set by the Company’s economic and financial policy have been attained. Financing of top-priority items of the budget was provided in due time. Revenues from sales of products and services amounted to RUR 53,869 million (US $1718.3 million) and the net profit reached RUR 6,474 million (US $206.5 million). It has been proposed to the Shareholders’ Meeting to increase the funds allocated for dividend payment by 16.6% as compared with the previous year and the dividend per share will be RUR 3,500. The issue of improvement of the welfare of the Company’s employees was addressed on the basis of gradual increase in the labour productivity and development of commercial relations within the Company’s divisions. The average wage increased in 2002 by 20.7% in comparison with the 2001 level. The labour productivity rose by 9% at the ore processing plants, by 7% in the transportation departments of the mines, by 5.9% in open-pit mines and by 6% in underground mines. Commercial activities of the Company’s divisions resulted in additional profits of over RUR 757.1 million, which made it possible to provide funds for additional benefits for the employees, for social development and technical modernization. The Company has not only been developing dynamically within its traditional region, but also makes efforts to participate in development of mineral resources abroad and develop its own trading network in the main diamond trading centres. In 2002 the Company was awarded an order for development of engineering design documentation for the second phase of the Catoca mine development. Basic documents were signed for establishing the Hydrosicapa Company and ALROSA obtained the rights for participation in the Luo project in Angola. The integrated social policy of ALROSA covers issues relating to housing, utilities and municipal services, as well as sports, cultural, medical and recreational services. The Company’s efforts in this field permit it to maintain stable social conditions for its employees. The Company owns 62 medical stations, 4 preventoriums within Yakutia, two resorts at the Black Sea coast – “Blue Wave” and “Prometheus” – and other facilities for healthcare and provision of adequate working and recreation conditions. During 2002 about 24,000 square metres of housing were purchased for an amount of RUR 92 million. The allocations for financing the Company’s pension programme amounted to RUR 499 million. Environmental protection has been an indispensable part of the Company’s philosophy from the very beginning. Today the Company makes all efforts possible to protect the natural environment, train its personnel and educate the young generation on the basis of the principle of high priority of
8 environmental issues. The outlays for construction of environmental protection facilities amounted in 2002 to RUR 528 million, which was by RUR 273 million more than in 2001. To summarise, it may be stated that in general 2002 was a successful year for the Company. ALROSA was awarded an Honour Diploma of the Winner of the Third All-Russian Contest “1,000 Best Enterprises” for its performance and efficiency; a prize for its perfect accounting service; as well as an Honour Diploma of the First International Forum “Adults for Children: Happy Children – Pride of the Country” for its activities aimed at implementing the governmental programme for improvement of social conditions for children and care of homeless children. The Company was also a laureate of the national competition “Enterprises with High Social Efficiency”. In the current year we plan to improve the diamond mining and sale performance. This is a rather difficult objective, but our previous experience permits us to be optimistic about our future. The Company’s Board and the Supervisory Council have approved on December 28, 2002, and January 17, 2003 respectively the production plan for the ALROSA Group for the year 2003, which sets the following targets: S Diamond mining production: US $1,410 million worth of diamonds, or US $1,560 million including OAO “ALROSA-Nyurba” S Sales of main products: US $1,619.5 million, or US $1,744.5 million including OAO “ALROSA-Nyurba” of which polished diamonds: US $129.5 million S Sales revenues: RUR 57,090.8 million S Net profit: RUR 5,909.4 million S Capital investments: RUR 15.1 billion S Financing of geological exploration: RUR 1,257.5 million S Borrowed capital as of 01.01.2004: RUR 38,754.6 million S Rouble exchange rate: RUR 32.8 per 1 US Dollar
ALROSA Goals for 2003
Completion of the work relating to the approval by the European Commission of the agreement with De Beers. Increase in the geological diamond reserves, among other things by discovery of new deposits and intensification of geological prospecting. Scheduled increase in the sale prices for main products. Extension of mining operations to ensure the planned diamond production. Completion of the construction and commissioning of the No.16 Plant of Nyurba GOK and bringing it to the design capacity. Beginning of the erection of the No.203 dredge for exploitation of the Gornoye alluvial deposit. Construction of the system for water removal from the Mir open pit. Beginning of the extension of the No.8 Plant for processing ore from the Komsomolskaya pipe. Development of a process flow diagram for treating clayey ores from the Jubilee pipe. Improvement of availability of mining machinery and equipment, as well as transportation vehicles.
9 Construction of main asset facilities within the scope foreseen in the five-year plan (2001-2005) for the ALROSA Group development, including construction of the underground mines of Mir and Aikhal. Reduction of the production costs and attaining of the set production targets in all divisions and subsidiaries of the ALROSA Group. Decrease in the inventories of materials and technical resources, as well as a reduction in the accounts receivable. Modification of the structure of the borrowed capital by increasing the proportion of long-term loans, decreasing the remaining short-term credits and loans, at the same time maintaining the overall amount of the borrowed capital at the level of about US $1.1 billion. Preservation of the financial stability of the Company and the current liquidity level.
Dear Shareholders, The Company has never had any easy periods in its history. The current year, similarly to the preceding year, is not an exception. The objectives set by the Company for this year require new tireless efforts. The main pillar of our Company is the team of the Company’s dedicated employees having many years of experience of assiduous work. Nevertheless, it needs your unanimous support. Only with mutual trust and understanding and with our concerted efforts to reach our political and production objectives we will be able to further strengthen the image of ALROSA. In 2002 and in the early 2003 there were some changes in the management of the Company. A number of distinguished managers have left the Board: S.I. Zelberg, V.N. Leonenko, A.O. Novoselov, Yu.K. Okoyemov, S.V. Lytkin and V.E. Nekhayev. We are pleased to express our sincere gratitude to them for their personal contributions to the development of the diamond mining industry and strengthening of the Company. I am also pleased to have the opportunity to thank the leaders of the Russian Federation and Republic of Sakha (Yakutia), members of the Supervisory Council and all our business partners who have rendered their support and helped us become one of the most efficient and permanently developing companies of Russia. I would like also to express my gratitude to the team of the Company’s employees through whose efforts the Company had overcome all the difficulties encountered during the last year and ensured the Company’s positive performance. I wish you new successful achievements in the year of 2003.
V.T. Kalitin, President of ALROSA Mirny, Republic of Sakha (Yakutia)
10 Activities of the Supervisory Council
The Supervisory Council of ALROSA carries out overall guidance of the Company and consists of 15 members, including six representatives of the Russian Federation, six representatives of the Republic of Sakha (Yakutia), two representatives of the Company’s employees, and one representative of the local districts – co-founders of the Company. In 2002 the Supervisory Council held 18 meetings, including 5 actual meetings and 13 meeting with remote voting procedure. Forty-two issues were discussed, including the following main subjects: Appointment of ALROSA President; Basic performance targets and budget of ALROSA Ltd Co. for 2002; Preparation of amendments of the ALROSA Statute aimed at bringing it into compliance with Federal Law “On Amendments to the Federal Law On Joint-stock Companies” (No.120-FZ of 07.08.2001); Holding of the Shareholders’ Annual General Meeting; Nomination of members of the Supervisory Council of ALROSA Co. Ltd. for election at the Shareholders’ Annual General Meeting in 2002; Nomination of members of the Auditing Committee of ALROSA Co. Ltd. for election at the Shareholders’ Annual General Meeting in 2002; Results of the activities taken by ALROSA to eliminate consequences of the disastrous floods in Republic of Sakha (Yakutia) in 2001 Preliminary review of the annual report, annual accounting records, including the profit and loss statement, as well as distribution of profit, including the amount, timeframe and forms of dividend payment for 2001; Draft Statute of ALROSA Co. Ltd. in new version; Draft internal documents regulating activities of the bodies of ALROSA Co. Ltd.; Approval of ALROSA’ auditor; Procedure for sales of rough diamonds to Russian diamond polishing companies; Approval of the members of the Board of ALROSA Co. Ltd.; Election of the Chairman and Deputy Chairmen of the Supervisory Council; Adjustment of the five-year plan of ALROSA Co. Ltd. for 2001-2005; Report on the issue of corporate bonds of ALROSA Co. Ltd. in 2001; Concept of sales of rough diamonds in external and domestic marketplaces under conditions of liberalization of the diamond market; Implementation of major environmental protection measures in 1996-2001 within the zone of the Company’s operations; Issue of unsecured Eurobonds of ALROSA Co. Ltd.
The Supervisory Council took concrete decisions on all issues considered and prepared appropriate assignments for the Company’s Board, which were in general fulfilled during the reported year.
11 REPORT BY THE BOARD ON THE COMPANY’S ACTIVITIES IN THE MAIN FIELDS OF OPERATIONS
Mining Operations
DIAMOND MINING PRODUCTION Millions of US Dollars Description 2000 2001 2002 % of % of % of Actual Actual Plan Actual plan 2001 2000 Udachny GOK 772.4 708.0 761.9 781.6 102.6 110.4 101.2% Aikhal GOK 334.4 354.8 299.0 310.0 103.7 87.4 92.7% Mirny GOK 500.2 577.9 263.3 273.7 104.0 47.4 54.7% Anabar GOK 16.1 24.6 17.2 18.4 106.9 74.9 114.4% TOTAL FOR ALROSA 1,623.1 1,665.4 1,341.4 1,383.7 103.2 83.1 85.2% ALROSA-Nyurba 79.5 82.5 103.8 TOTAL, incl. ALROSA-Nyurba 1,623.1 1,665.4 1,420.9 1,466.2 103.2 88.0 90.3%
Diamond Mining Production in 2002, millions of US Dollars OAO "ALROSA- Anabar GOK NYURBA" 1.3% 5.6%
Mirny GOK 18.7%
Udachny GOK 53.3%
Aikhal GOK 21.1%
The ALROSA mines fulfilled in 2002 their mining production plan to 102.5%. The overall amount of material handled by the mines was 46.3 million m3. The Aikhal and Nyurba mining operations increased the volumes of material handled. Diamonds were produced at five hard-rock mines (Udachny, Zarnitsa, Jubilee, Aikhal and International) and at three alluvial operations (Irelyakh River, Vodorazdelnye Galechniki and Yraas- Yuryakh Creek). The diamond production plan was fulfilled to 103.8% in terms of carats or to 103.2% in terms of diamond value. The volume of ore processed at the Company’s plants increased by 5% as compared with 2001. The diamond recoveries were improved. The average grade of produced ore corresponded to the planned targets. The highlights of 2002 were: S reaching of the design capacity of the International underground mine; and S increase in the production of diamondiferous ore and sands at the Nakynskoye deposit and in the volume of material handled at the No.15 Plant.
12 UDACHNY GOK
The mining plan was fulfilled to 103%. The overall volume of mining operations decreased in 2002 according to the plan as compared with 2001 by 9.47% (1,136,500 m3). The diamond production plan was fulfilled to 102.6%. The value of the produced diamonds increased by US $73.6 million as compared with 2001. The overall amount of material transported by mine trucks was 36.2 million tonnes. The amount of explosives produced at the Company’s own plant was 5,840.4 tonnes or 67.7% of the total amount of the explosives used for blasting operations. The availability and performance of the shovels was maintained at the level of the previous year.
AIKHAL GOK
The volume of overburden stripping operations decreased slightly as compared with the previous year. The Jubilee mine increased the ore production by 62%. In general, the diamond production plan of the Aikhal GOK was fulfilled to 103.7%. The Komsomolskaya mine is gradually increasing the volume of overburden stripping and ore production. The annual plan was fulfilled to 102.2% with respect to the total amount of material handled (25.5 million m3). The mine trucks performance reached 293.3 million tonne-km. The scheduled repairs of the equipment at the No.8 and No.14 Plants were carried out to the full extent. The Company’s own facilities produced 14,753.2 tonnes of explosives. The level of mechanisation of blasting operations reached 71.4%. The performance of the drill and shovel fleets was improved as compared with the 2001 level.
MIRNY GOK
The diamond production plan was fulfilled to 104%. The plan relating to the total material handled was fulfilled to 96.6% and the overburden-stripping plan was fulfilled to 102.8%. The International underground mine reached its design capacity and the ore output increased by 2.2 times as compared with 2001. The construction of the underground mine of Mirny was continued. The scheduled repairs of the No.201 and No.202 dredges were carried out in due time and they successfully operated during the production season.
NYURBA GOK
This division operated successfully in 2002 and fulfilled its plan to 110% with respect to the total volume of material handled and 103.8% with respect to the diamond production, which reached US $82.5 million worth of diamonds. Due to the extension of the operating season of the No.15 Plant it was possible to commence the mining operations at the Nyurba alluvial deposit and increase the ore output of the Nyurba open-pit by 44,000 tonnes as compared with the planned target. The scheduled work relating to the construction of the tailings pond dam, industrial sites and transportation routes was carried out in conformity with the planned scopes.
ANABAR GOK
Anabar GOK fulfilled its plan with respect to the mining operations at the Yraas-Yuryakh alluvial deposit. The overburden stripping operations were carried out in amounts required for preparation of alluvial material for extraction. The diamond production reached US $18.4 million worth of diamonds or 106.9% of the planned target. In order to reduce the volume of material to be transported by trucks, the KSA-100 unit was put into operations and handled 100,000 m3 of alluvial sands or 101.7% of the planned target.
OAO “ALMAZY ANABARA”
13 This ALROSA subsidiary carries out alluvial diamond production at the Mayat River in the Anabar Ulus of Yakutia. In 2002 it produced US $19.4 million worth of diamonds as compared with the planned target of US $13.7 million or by 1.5 times more than in 2001. For a third year in a row Almazy Anabara significantly improved its performance and increased the output of marketable products.
Marketing Policy. Sales of Rough Diamonds. Polished Diamond Manufacture and Sales
The main factors determining the development of the diamond markets in 2002 were a substantial increase in the scope of export-import transactions in the main diamond polishing centres, the fact that the demand for rough diamonds exceeded their supply and the low level of activities of the retail trading sector. The development of the situation on the rough and polished diamond markets was characterized in 2002 by contradictory tendencies, i.e. rather high demand for rough diamonds and relatively low demand for polished diamonds.
Fulfilment of Rough Diamond Sales Plan in 2002 Millions of US Dollars 2000 2001 2002 % of Actual Actual Plan Actual plan Sales of rough diamonds, 1,542.6 1,737.9 1,440.0 1,451.4* 100.8 of which: - in domestic markets 793.5 749.6 691.2 735.6 106.4 - in export markets 749.1 988.3 748.8 715.8 95.6 * In addition, sales of purchased diamonds: US $26.3 million
ALROSA manufactured polished diamonds at its own facilities and on the basis of agreements with the Barnaul Kristall factory, Orel-Almaz Company and SBA Int. in St. Petersburg. The geography of polished diamond sales was as follows: the USA (55%), Israel (36%), Hong Kong (6%), Belgium (2%) and the domestic markets (1%).
Polished diamond manufacture and sales Millions of US Dollars Description 2000 2001 2002 % of Actual Actual Plan Actual plan Polished diamond manufacture 97.6 130.1 114.7 104.1 90.8 Sales of polished diamonds 89.0 130.8 116.3 105.7 90.9
In 2002 the supplies of rough diamonds to the domestic markets reached 50.7% of the total sales. In general, the domestic demand for rough diamonds increased and the Russian diamond polishing companies purchased more rough than in the previous year both in terms of value and carats. In 2002 the number of companies buying rough diamonds from ALROSA increased and reached 105. Out of these companies, 10 firms purchased more than 50% of the total amount of rough diamonds sold by ALROSA and 33 companies accounted for approximately 80% of the total rough sales in the domestic markets.
14 The rough diamonds sold in the domestic markets of Russia can be divided with respect to their use and methods of sales into the following categories: 1. Gem diamonds of +10.8 carats (except for diamonds sold in Comdragmet of Republic of Sakha (Yakutia) and used at the Company’s own diamond polishing facilities) are sold only in the Russian domestic markets on competitive bidding basis. 2. Gem diamonds of less than 10.8 carats sold to Russian diamond polishing factories in the form of standard boxes. 3. Industrial diamonds sold to the Russia tool manufacturing companies, such as the Terekalmaz factory, etc.
In 2002 some changes took place in the structure of rough diamonds purchased by the Company’s clients as compared with the previous year. The sales of fine diamonds rose significantly; the sales of special sizes (+10.8 carats) increased and the proportion of medium-size and large diamonds (+11.3 gr., 4.6 gr. and +1.8 carats) dropped. These changes in the volumes and structure of rough gem diamonds corresponded to the general worldwide trends of the demand variations for these categories of rough diamonds. The average price for rough gem diamonds in the domestic markets in 2002 amounted to 127.04 US $ per carat. The average price at which rough diamonds were sold to the Russian diamond polishing factories and to the Company’s own polishing facilities was 114.98 US $ and 529.81 US $ per carat, respectively. In 2002 the requirement of rough diamonds for the Russian diamond polishing companies increased by 50.7% in terms of caratage as compared with the previous year and by 9.4% in terms of value.
Prices Analysis. Main Trends in World Markets and Price Policy
The January 2002 price list was adopted as a list of accounting prices for ALROSA from January 31, 2002 and was used as a base price list for rough diamond export sales until June 2002. An improvement of the market situation in the early 2002 due to certain favourable trends in economies of a number of countries enhanced the demand for rough diamonds. These trends made it possible to establish a new level of prices to adapt them to the existing market conditions and adopt a new June 2002 price list. This resulted in an average increase in the prices for rough diamonds from the ALROSA production range by 2.34% as compared with the January 2002 price list. Furthermore, in June 2002 the approach to the formation of prices for diamonds purchased by De Beers from ALROSA was modified and a new system of so-called “flexible prices” introduced to permit an adjustment of prices in the basic June 2002 price list for Indian goods, which are most susceptible to the price variations in the world market. In connection with the growing demand of Russian diamond polishing companies for rough diamonds, ALROSA raised starting from April 2002 the prices for rough diamonds in the internal marketplaces by 2.5% as compared with the price level of January 2002. Due to further stabilisation of the market situation, the domestic prices were adjusted again from July 01, 2002 by +4.8% as compared with the price level of January 2002. On September 16, 2002, the RF Ministry of Finance approved an updated price list for rough diamonds (June 2002 Price List, No.02-15-01-02-June). Starting form October 01, 2002 the Company uses this price list as a basis for its own price list for rough diamonds.
15 Geological Exploration
During the year of 2002 geological prospecting and exploration was carried out by the Company’s geological divisions and by ALROSA subsidiaries in accordance with the approved plans and time schedules. The bulk of exploration work was for diamonds. It included geological exploration, research and experimental methodological studies and was carried out within the territory of the Republic of Sakha (Yakutia), in the Arkhangelsk, Irkutsk and Voronezh regions. Furthermore, research and investigations were intitiated with the objective to assess the prospects for diamonds in the Maritime Province (Russian Far East), Northern Urals (Khanty-Mansiysky Autonomous District), Leningrad Oblast, as well as in the Pskov and Novgorod regions.
Basic Results of Geological Exploration: In the Sredne-Markhinsky diamondiferous region, the Company continued exploration of the flanks and deeper horizons of the hard-ore diamond deposit – Botuobinskaya kimberlite pipe. There are good prospects for increasing the ore and diamond reserves by 20% to 30% at the south-western flank of the deposit. Based on the findings of the exploration work carried out on the Nyurba pipe it has been proven that the associated Verkhne-Dyakhtyarskay alluvial deposit has good prospects. The results of field surveys in the Ulakhan-Yeleng area have confirmed the favourable prospects for discovery of diamondiferous kimberlite bodies in the Buordakhsky deep-seated fault. A new orebody (Yuzhnaya vein) has been exposed as a result of the verification of the magnetic anomaly within the Zapadny area. In the Daldyno-Alakitsky district prospecting for diamondiferous hard-rock ore deposits was carried out in the central part of the Alakit-Markhinskoye field and at its south-western flank, along with a search for geological formations for disposal (injection) of highly mineralised mine water from the Aikhal underground mine. In the Daldynskoye field, the Company carried out assessment of its final prospects for diamond occurrences and hydrological monitoring in the vicinity of the Udachny pipe. In the Muno-Tyungsky diamondiferous district, exploration was carried out on the Zapolyarnaya pipe in the Verkhne-Munskoye field. As a result, it is expected that the ore reserves of this deposit would be increased by approximately 15%. In the Prilensky diamondiferous district, field surveys had been completed within the Molodo-Daldyn-Toluopskoye interfluve and at the north-eastern wall of the Kyutyungdinsky graben (Molodo-Oleneksky area) and prospecting for diamonds continued in the Prilensky and Aerogeofizichesky areas. Field work was completed for preparation of areas for GSR-50 in the river basins of Muna, Motorchun and Syungyude, as well as for AMS-25 in the river basins of Motorchun and Syungyude. Prospecting for diamonds was continued in the river basins of Molodo, Muogdan, Kyutyungde and Syungyude within the Salabynsky protrusion and in the Muogdan area.
The Yakutian Geological Research Division of the Central Geological Research Institute (CNIGRI) carried out research work within the scope of the objectives set by the Company in three major fields: prognostication of the prospects of the areas covered by the ALROSA geological exploration activities; improvement of the methodology and technology of prognostication; and prospecting for diamond deposits. Experimental methodological research was conducted with the purpose to develop and introduce new geophysical exploration equipment and methodologies, as well as new techniques for kimberlite
16 minerals investigations. Integrated studies of diamonds and mineral compositions of diamond ore deposits were continued. The Company’s geological divisions based in the Arkhangelsk region carried out geological and geophysical surveys with an objective to investigate areas adjacent to the Lomonosov diamond deposit: drilling and integrated geophysical studies were accomplished to verify the anomalies in the promising areas. In 2002, the geological exploration was financed from the Company’s own funds, the federal budget and the budget of the Republic of Sakha (Yakutia). The results of the exploration are presented in the respective tables in terms of expenditures and physical volumes with a breakdown by main types of work. The geological exploration plans were successfully fulfilled with respect to the physical volumes of all major types of work.
Sources of Financing of Geological Exploration in 2002
ALROSA Ltd. 88.20%
Budget of Republic of Sakha (Yakutia) 0.71%
ALROSA-NYRBA Federal budget own funds» 0.04% 11.05%
Capital Construction
The main objective was construction of facilities for development and exploitation of the mineral reserves. The total amount spent for construction of mining facilities was RUR 8,897.5 million, including RUR 1,296.9 million for the International underground mine, RUR 1,613.3 million for the Mirny underground mine, RUR 604.8 million for the Aikhal underground mine, RUR 84.9 million for the Udachny underground mine, RUR 5,059.7 million for the Nakynskoye deposit development, RUR 205.6 million for the Komsomolskaya pipe, and RUR 27.1 million for the Sopur deposit.
Fulfilment of Capital Construction Plant in 2002 Millions of Roubles, inc.VAT Description 2001, 2002 %% %% of Actual Plan Actual of plan 2001 level Total capital expenditures, 13,646.0 11,806.2 14,776.7 125.1 108.2 including: Equipment, except for equipment included in 3,912.7 1,800.5 3.013.0 167.3 77 design cost estimates Capital investments into main assets 7,868.5 9,357.1 11,355.2 121.3 144.3 Capital investments into facilities of external 1,864.8 648.6 408.5 63 21.9 customers at the expense of all sources of financing Capital investments into facilities of external 858.4 215.5 0 0 0 customers, including subsidiaries Capital investments into facilities constructed 185.5 108.1 70.8 65.5 38
17 for Government of Republic of Sakha (Yakutia) and financed from its budget Participation of ALROSA in other projects 44.5 30.0 38.7 129.0 87 Capital investments from the federal budget 177.8 278.3 278.2 100 156.5 Long-term financing in the form of loans 471.1 0 0 0 0 (Vilyui GES-III hydroelectric power project) Capital investments for construction of 127.5 16.7 20.8 124.6 16 facilities for external customers on an assignment by Government of Republic of Sakha (Yakutia) and financed by ALROSA
Structure of Capital Investments for Construction Projects in 2002
Подземный рудник Пообъектная структура капитальных вложений "Интернациональный " 10,00%
Подземный рудник "Мир" Объекты промышленного и 12,44% непромышленного назначения 18,96% Подземный рудник "Айхал" 4,66%
2457,7 Подземный рудник "Удачный" млн. руб. Стройки сырьевой базы 0,65% 69%
8897,5 млн. руб. Накынское месторождение 1610,3 млн. 39,02% руб.
Месторождение "Горное" 0,04% Объекты для сторонних заказчиков Месторождение на 12,42% трубке"Комсомольская" 1,59%
Месторождение "Солур" 0,21%
The plan for capital construction of the facilities of OAO “ALROSA-Gas” was fulfilled to 109.3% (RUR 235.5 million as compared with the planned RUR 215.5 million). In 2002 pressure testing of the pipelines was carried out and the damaged pipeline at the Vilyui River crossing was restored. The plan for construction of the oil project facilities of ZAO “Irelyakh Neft” was fulfilled to 117.6%, including 109.3% for the oil refinery. In 2002 a fire department building for three fire engines was constructed and commissioned and the site was prepared for an oil processing installation. The plan for construction of the oil field facilities was fulfilled to 125.7%: four new wells were drilled and one well restored; three exploration wells were drilled for exploration and development of the salt deposit, 7km of pipelines, 3km of power transmission line and 2km of motor road constructed. The technical modernization plan was significantly over-fulfilled due to the commissioning of the equipment purchased in 2001. The expenditures for new equipment (apart from the equipment purchased under the current projects) was reduced by 23%. The plan for construction of major facilities was fulfilled to 121.3% (RUR 11,355.2 million) – an increase by 44% as compared with the previous year (RUR 7,868.5% in 2001), including 118.8% for the construction of facilities related to development of ore reserves. The plan for installation work at the major production facilities was fulfilled to 130.8% (RUR 6,864.6 million as compared with the planned RUR 5,248.5 million), including the work accomplished by general contractors of the Capital Construction Department (123.2% or RUR 5,039.9 million).
18 The volume of design development and survey work carried out in 2002 amounted to RUR 659.6 million as compared with the planned amount of RUR 631.8 million, including RUR 333.0 million by the NIPROALMAZ Institute (the planned target was RUR 321.2 million).
Implemented Design Development and Survey Work for Mine Construction Projects Millions of Roubles Description 2002 %% Plan Actual of plan Facilities of Nyurba GOK 362.7 366.3 101 Underground mine Udachny 7.3 15.8 by 2 times Underground mine International 19.9 21.7 109 Underground mine Mirny 37.2 42.9 115
The capital construction plan for 2002 provided also for capital investments into equipment for construction projects for an amount of RUR 3,310.4 million. The actual expenditures amounted to RUR 3,222.5 million. In 2002, the expenditures for new fixed assets commissioned at the ALROSA production facilities, including equipment purchased beyond the project budgets, amounted to RUR 8,840.7 million. The value of the facilities in the process of construction has increased by RUR 3,272.1 million (as of 01.01.2003) as compared with the beginning of 2002 and amounted to RUR 13,398.6 million.
Supplies and Logistics
The total financing for the logistics purposes amounted in 2002 to RUR 12,515.9 million. The transportation and storage expenditures were RUR 1,058.2 million. The value of materials and supplies delivered from suppliers was RUR 13,265.4 million, including those delivered to the Logistics Department for RUR 11,997.8 million and on decentralised basis for RUR 1,267.6 million. The volume of cargoes handled reached 992,000 tonnes, an increase by 67,000 tonnes as compared with the previous year. In 2002 the Company concluded contracts and agreements for an amount of RUR 9,242.19 million, including 123 contracts for imported goods for an amount of RUR 2,611.52 million. The breakdown by the forms of payment is as follows: 12% with full prepayment, 72% with partial prepayment, 3.3% on the basis of letters of credit and 12.7% of payments on delivery.
Technical Modernisation of Operations. Research and Development
The Company’s expenditures for research and development amounted in 2002 to RUR 2,824.1 million. The main objectives set by the Company with respect to technical modernisation of its operations have been attained: replacement of a substantial part of old and obsolete mining and ore processing machinery and equipment. New equipment was purchased for the maintenance and repair facilities, as well as for the geological exploration divisions of the Company. A significant portion of the fleet of the transportation department was replaced. The following machinery was purchased for the mines: Unitrig mine trucks (10 units), BelAZ mine trucks (23 units), EJC and MT-2000 trucks for underground mines (2 units), an ST-700 LHD unit, a 90-tonne LTM Liebherr truck crane, D355A bulldozers (7 units), CAT-776D tractor, and a tire handling unit on the CAT 980 chassis. Two new TU-154M airplanes were commissioned in 2002.
19 Scientific research was aimed at solution of the current and future problems associated with the Company’s main operations. Research conducted according to the thematic plan of the YakutniproAlmaz Institute covered 41 subjects and an amount of RUR 211.7 million was allocated for research purposes, including the work carried out by contractors for an amount of RUR 85.8 million. The expenditures for scientific and technical services were RUR 16.3 million. In 2002 the following essential R&D work was carried out: S Substantiation of the ultimate depth of the open-pit mine for exploitation of the Zarnitsa pipe was conducted with the aid of NPV Scheduler and an efficient scheme was proposed for exposure of the non-operating pit wall; S Recommendations were developed relating to further development of mining operations of the open-pit mines of Jubilee, Komsomolsky, Udachny and Yraas-Yuryakh Creek; S The bench parameters and the final wall design within the overburden layer were improved and the stripping operation conditions optimised for the Nyurba and Botuobinskaya open-pits; S Sampling was carried out in alluvial deposits and recommendations prepared for their development and subsequent treatment of alluvial material at the No.13 Plant; S Materials were prepared for forecasts of the diamond industry development until 2015. The measures foreseen in the “Quality 2001-2005” Programme were aimed at improving diamond recoveries with least damage caused to stones, decreasing production costs, increasing the labour productivity and introducing optimal managerial techniques. During the reported year 63 scientific and technical developments were introduced on commercial scale. The actual economic effect of the measures taken within the Programme “Quality 2001-2005” during the first half of 2002 was RUR 2,600 million. Results of Introduction of Scientific and Technical Developments in 2002 2000 2001 2002 % % % Description actual actual Plan Actual of plan of 2001 of 2000 Economic effect, 465.8 1,615.5 2,600.0 2,600.0 100.0 160.9 558.2 millions of roubles R&D expenditures, 122.7 148.7 234.9 229.1 97.5 154.1 186.7 millions of roubles R&D unit efficiency, 3.8 10.9 11.1 11.5 103.6 roubles per 1 rouble of expenditures Number of 31 47 63 63 100 134.0 203.2 commercially introduced developments
20 Diversification of the Company’s Activities. Subsidiaries and Affiliated Companies
In 2002 the ALROSA Group included 31 subsidiaries and 11 affiliated companies. Their output in terms of value amounted in 2002 to RUR 18.04 billion, which exceeds the 2001 level by 25%. The net profit ensured by those companies was RUR 2.3 billion. The Company obtained dividends in 2002 from their operations in an amount RUR 383.3 million, primarily from the Mining Company of Catoca (Republic of Angola) and OAO “Almazy Anabara”. One of the main objectives of ALROSA’s diversification is to ensure a vertically integrated system: diamond mining – sorting – polishing – manufacture of diamond jewellery – sales. The Company’s subsidiary “Brillianty ALROSA” coordinates the operations of all ALROSA Group divisions and their partners involved in diamond manufacture and polished diamond sales. The following divisions of ALROSA specialise in polished diamond manufacture: OAO “Orel-Almaz”, OAO “Tuimaada Diamond” and OAO “Orel-ALROSA”. Regrettably, they failed to justify our hopes for improvement of their performance and the growth rates slowed down significantly, which cannot be attributed to the changes in the market conditions alone.
Main Performance Indicators of Subsidiaries and Affiliated Companies of ALROSA Group in 2002 Description 2000 2001 2001 %% of 2001 Output, millions of Roubles 12,511.3 14,457.9 18,045.5 124 Net profit, millions of Roubles 1,418.8 1,392.3 2,328.5 167 Diamond mining production, 23.7 178.6 281.2 157 millions of US Dollars Polished diamond manufacture, 65.71 76.64 24.13 31 millions of US Dollars Dividends paid to ALROSA, 147.86 251.55 383.31 152 millions of Roubles
The most significant projects relating to the Company’s diversification in 2002 were as follows: S The diamond mining production by OAO “ALROSA-Nyurba” increased in comparison with the previous year and reached US $82.5 million and the net profit amounted to RUR 1.098 billion. S The construction of the diamond mine at the Lomonosov deposit in the Arkhangelsk Oblast was continued and ALROSA participated in this project through OAO “SeverAlmaz”. S Over RUR 235.5 million was invested into the construction of the Mirny-Aikhal-Udachny gas pipeline through OAO “ALROSA Gas”. S RUR 438.9 million was invested into the development of the Irelyakh oil field and construction of the oil refinery through ZAO “Irelyakh Neft”. S RUR 2,123.0 million was invested into the construction of the Vilyui hydroelectric power station through the customer – OAO “Vilyui GES-III”. S The shipping company “ALROSA-Lena” operated in 2002 very efficiently and transported during the shipping season 263,000 tonnes of cargoes, of which 250,000 tonnes were for the needs of ALROSA, including 19,500 tonnes of supplies delivered directly to the Nakynskoye diamond deposit via the non-navigable Markha River, which substantially reduced the construction cost of the Nyurba GOK.
21 In 2002 a new department was established for cooperation with the Company’s subsidiaries and affiliated companies. The objective of this department is to analyse the performance and efficiency of investments into the subsidiaries and affiliated companies and supervise their activities. The planned measures aimed at merger of individual societies and sales of inefficient assets should reduce the losses and stabilize the operations of the ALROSA Group resulting in additional profits and dividends for the Company.
Personnel Management
In order to ensure successful implementation of ALROSA’s production and socio-economic plans it is essential to provide appropriate personnel management in the Company’s divisions and adequate training of the personnel. At present all divisions of the Company have complete managerial staff and operating personnel. In 2002, approximately 10,000 employees were provided adequate training, including 8,565 employees (or about 90%) at the Company’s own training facilities. Over 300 specialists of the Company undergo training on the basis of academic programmes. In 2002 the Company recruited 178 graduates from universities and over 100 workers and technicians who were trained in local occupational schools and in the Mirny Regional Technical College. The corporate training and skill upgrading system includes a Personnel Training Centre, training courses in individual divisions, occupational schools Nos. 28 and 30, as well as the Mirny Regional Technical College. In addition, the Company has agreements with five leading Russian universities for training graduates from the Mirny district high schools in mining, geology and other technical professions required for ALROSA. Over 600 students at different universities and colleges obtain grants from the Company. Special attention is paid to recruiting and training of employees from different districts of the diamond province. Pursuant to Resolution No.552 of November 23, 1998 “On Recruitment of Labour Resources for ALROSA Operations” over 100 local residents of the Republic of Sakha (Yakutia) worked on commuting basis at the Company’s mines; 169 new employees were recruited and 238 employees of indigenous ethnic origin were trained in the Company, 46 local residents are trained in the Mirny Technical College and local occupational schools and 64 students obtain grants from the Company. The average number of employees in 2002 was 40,247 persons (a decrease by 749 persons as compared with 2001). The wage fund increased in comparison with the previous year by 18.5%. The average monthly wage amounted in 2002 to RUR 17,290 – an increase by 20.7% compared with 2001. The plan for labour productivity improvement with respect to commercial products was fulfilled in 2002 by all mines. In general, the labour productivity of the Company as a whole was improved by 4.3%. The labour productivity at the ore processing plants was improved by 9% as compared with the previous year. The highest labour productivity growth rates were achieved at the No.12 and No.14 ore processing plants.
22 Labour Productivity at ALROSA mines , (US $ '000 per 1 employee) 250 196,08 191,04 200 177,43 2002 г. план 170,6 2002 г. отчёт 150
83,14 100 80,99 62,31 67,46 60,09 64,6 50
0 Анабарский ГОК Айхальский ГОК Мирнинский ГОК Нюрбинский ГОК Удачнинский ГОК
Social Development. Regional Policy
The social policy of ALROSA covers issues relating to housing, utilities, sports, cultural and medical services, as well as improvement of working conditions and recreation of the Company’s employees and their families. The Company is the major employer in the region, which imposes additional responsibilities, and as a consequence, requires additional financial expenditures. In 2002 the Company spent RUR 2,147.5 million for maintenance of the social infrastructure. The Company completed in 2002 construction of a 30-apartment building in the city of Orel in Central Russia for resettlement of retired employees. In addition, it constructed 38 apartments in Cheboksary, 27 apartments in Novaya Usman (Voronezh region) and 18 apartments in Vorotynsk (Kaluga region). A comprehensive system of corporate medical insurance was introduced for the Company’s employees in 2002. Medical insurance agreements were concluded with the insurance companies “SK ALROSA” and “Sakhamedstrakh”. The first phase of the new medical preventorium has been commissioned in the town of Kempendyai, Suntar District. This facility has been provided with advanced medical equipment and is used for preventive medical treatment of the Company’s employees to prevent diseases typical of Arctic regions. The Company allocated in 2002 an amount of RUR 186.5 million for recreation of its employees and their children. The total number of people covered by this programme was 8,154 persons; 4,137 children spent their summer vacations in recreational camps, including 1,677 children in other regions of the country. Special attention was paid to sports and cultural issues. The Company commenced construction of a ski resort in Aikhal. Two additional buildings and a medical station were completed in the children camp “Orlyonok” (Mirny). Three buildings and a canteen were constructed in the recreational camp “Almaz” (Lensk). The Company has its own cultural and sports facilities, where over 6,000 employees and their children spent their leisure time. Over 800 cultural events were organised in 2002 by 60 clubs at the Company’s cultural facilities.
23 The Almaz soccer team won in 2002 the silver medal at the world’s championship for club teams. The Company’s children dance ensemble participated in and was awarded at the international festival in Las-Vegas (USA). S. Merkulov is the world and Europe champion of 2002 in weight lifting. In order to improve the Company’s regional development policy, relations between the Company’s divisions and the local districts, financial aid to municipalities, each of the Company’s division is responsible for a specific local ulus (district) who are shareholders of ALROSA: Anabar, Olenyok, Verkhnevilyuisky, Vilyuisky, Suntar, Nyurba and Lensk districts. The main objective of the Company’s regional policy is development of constructive relations with the local administrations in the field of healthcare, environmental protection, conservation of historic and cultural sites, virgin nature areas and traditional style of life of the indigenous residents. In 2002 the Company allocated RUR 73 million for this purpose.
External Relations
The Company pursued its policy and strategy in the leading diamond business centres through its representation offices in the Republic of Angola, Belgium, the United Kingdom and Israel. Of special importance from the viewpoint of concrete results with respect to expansion of the Company’s mineral reserves were the activities conducted by the ALROSA representation office in Angola. Key documents were signed for the purpose of founding the Hydrosicapa Company and participation in the Luo project opening favourable opportunities for establishing a multi-profile enterprise “ALROSA-Angola”. The ALROSA representation office in Belgium continued its activities aimed at further strengthening and developing relations with international and public organisations in the field of diamond business, and first of all with the Diamond High Council (DHC). Signing of an agreement with the DHC (October 2002, Antwerp) was a significant milestone for the successful positioning of ALROSA in the world market. The main objective of the official representatives of ALROSA in the United Kingdom was to maintain interrelations with De Beers. In Israel, the Company’s representation office focused its efforts on the study of prospects for establishment of a commercial entity of ALROSA within the framework of sales of two experimental lots of Brillianty ALROSA. The gained experience suggested a conclusion that it would be profitable for ALROSA to sell its polished diamonds in the Israeli market. Over the recent time the Company has activated its contacts to another major diamond producer – BHP-Billiton mining for diamonds in Canada. As a result of meetings of the managers of both companies in Moscow and Antwerp a number of promising fields have been identified for development of bilateral cooperation in relation to exploration and mining for diamonds. In order to promote the Company’s interests and intensify bilateral cooperation with its foreign partners, representatives of ALROSA participated in an active manner in the work of the Russian- Canadian and Russian-South-African Commissions for trade and economic cooperation. Among the issues on their agendas were the prospects for cooperation between South Africa and Russia in the field of diamond exploration and mining. Within the framework of implementation of the Company’s strategy in relation to vertical diversification of its operation it is of especially significant importance to develop and strengthen cooperation with the leading diamond polishing centres. Under the current conditions, it is essential to develop a strategy of relations of the Company with the countries of South-East Asia, and first of all India and China. A decisions has been taken to elaborate a strategy for cooperation of the Company with Chinese polished diamond manufacturers and consumers. The main objective is to penetrate into the Chinese market of polished diamonds.
24 ALROSA has paid special attention to the issue of “conflict diamonds”. In particular, the Company took part in the ministerial meetings of the member countries of the Kimberly Process held in Canada and Switzerland. In order to strengthen its international reputation, ALROSA participated in two major international events of the year of 2002: International Diamond Conference (October, Antwerp) and the international exhibition “300th Anniversary of St. Petersburg: Russia Open to the World” (November, London).
Environmental Safety
In order to ensure environmental safety of its operations the Company implements programmes “Environmental Sanitation of the Diamond Province” and “Supply of Adequate Drinking Water for the Population of Yakutia”. Assessment of environmental impacts of the underground nuclear explosions at the Kristall and Craton-3 facilities was carried out. In 2002 some of the operating facilities of ALROSA were subjected to operating safety review and a Declaration of Safety of hydroengineering facilities was granted for a period of 5 years. Environmental pollution charges paid by the Company for air emissions and wastewater discharge amounted in 2002 to RUR 35.44 million as compared with the planned target of RUR 20.0 million. The current expenses for environmental protection were RUR 1,029.7 million. The outlays for capital construction of environmental protection facilities in 2002 amounted to RUR 528.5 million. The Company continued construction of the facility for injection of mineralised water into geological formations at the underground mine of International, an installation for sanitary wastewater treatment at the Mir underground mine and modernization of the tailings pond of the No.8 Plant. At the Nakynskoye diamond deposit, the construction of a dam and tailings pond facilities was continued and construction of a biological wastewater treatment plant and recycled water pipeline at the No.16 Plant commenced. During 2002 the Company’s mines carried out reclamation of 231.88 hectares of disturbed land, which exceeded the 2001 level by 61.8 hectares.
25 ACCOUNTING AND FINANCIAL RESULTS
Accounting Policy
The accounting policy of the Company has been defined in conformity with the Rules of Accounting valid in the Russian Federation. In 2002 the Company continued to follow the guidelines of the PBU 4/99 document “Accounting in an Organisation” approved by the RF Ministry of Finance (No.43n of 06.07.1999). The Company’s balance sheet, profit and loss statement and the relevant appendices thereto were prepared using the accounting forms of the previous year. The accounting reports provide the data for two years, i.e., the reported year and the preceding year. The numerical values for the previous year are given for comparison with the respective figures for the reported year and have been converted accordingly to compatible values. In 2002 the Company applied the PBU 6/01 document “Accounting of Fixed Assets” with due consideration of the enacted amendments. The Company determined undistributed profit for 2002 taking into account the provisions of the accounting regulations PBU 9/99 and PBU 10/99, i.e., expenses of the reported year foreseen in the planned cost estimates were deducted from the income for the reported year. The sum of undistributed profit is subject to distribution, implying payment of dividends, deductions to reserve funds and accumulation of money for purchase of new property. The corresponding data for the previous period were adjusted in a proper manner.
Fixed Assets
The initial value of the fixed assets purchased by the Company is determined as the actual expenses and includes the cost of deposit development, construction and purchase. Depreciation of fixed assets is calculated by the linear method. The depreciation charge rates for fixed assets are specified in a regulatory document approved by the RF Government Resolution No.1 of 01.01.2002 based on the useful life time. Depreciation rates for facilities relating to overburden stripping and mining of valuable minerals are calculated on the basis of per-tonne rates. Expenses for maintenance and repair of fixed assets are reported for the period during which they were incurred. No re-evaluation of the fixed assets has been carried out for the reported year.
Intangible Assets
Intangible assets are reported on the balance sheet based on the actual expenses for their purchase, manufacture or treatment to bring them into condition suitable for the planned use minus the depreciation deductions. The depreciation of the intangible assets is calculated by the linear method during the period of their use. For intangible assets, for which it is impossible to determine the period of their useful application, the depreciation rates are set for a period of 20 years (but not longer than the life time of an organisation).
26 Inventories
Industrial inventories used for diamond production, construction and other types of activities are reported in the accounting books based on the actual cost of their purchase. The value of inventories includes all expenses associated with their actual (purchase) price, including delivery to the Company’s warehouses. The accounting policy of the Company specifies that when any inventories are transferred to the Company’s divisions within the Company, then the inventories are evaluated on the basis of their price on the date of purchase.
Sales Revenues
Revenues from sales of products (work performed or services rendered) are reported in the Company’s accounting documents with due consideration of the following conditions: 1) Any organisation is entitled to obtain revenues on the basis of a concrete contract or if they are confirmed in any other appropriate way. 2) There is confidence in the economic benefits for a given organisation. 3) The ownership for a product is transferred to a buyer or the work (service) performed is accepted by a customer. 4) The amount of earnings and the expenses incurred (or to be incurred) can be determined in a definite way. Revenues from construction and installation work are reported as soon as the respective elements or phases of construction have been completed. In a profit and loss statement the sales revenue includes sales revenues from sales of products (goods, work or services) resulting from production, non-production or any other types of commercial activities.
Financial Outlays
Financial outlays are reported on the basis of actual expenses. Securities are reported as the difference between the sum of actual expenses and their nominal value uniformly during the period of their circulation as soon as income arises and they are reported in connection with financial results. Investments into shares of other organisations quoted at the stock exchange with quotations published on a regular bases are evaluated at the end of the reported year at their market value, if it is lower than the actual expenses for their acquisition. Facilities acquired as financial investments (except for loans) not completely paid for are reported in the assets of the balance sheet as a full amount of actual expenses for their acquisition in accordance with the relevant agreement, when the investor obtains the ownership for a given facility or in the liabilities of the balance sheet as an amount payable equal to the sum due for payment.
27 Reserves
Anticipated expenses relating to forthcoming vacations of employees, expenses for major repairs and renovation of facilities of the fixed assets are not included in the reserves. The accounting policy of the Company implies creation of a reserve for operating expenses associated with seasonal work, as well as a reserve for the farming facilities in case of a year with low harvest yields. There is a reserve created for bad debts of customers.
Transactions in Foreign Currency
Transactions in foreign currency are reported in Russian roubles (RUR) on the basis of the exchange rates of the RF Central Bank as of the date of transaction and the date of accounting. Monetary items (cash, short-term securities, accounting instruments and target-oriented financing funds) expressed in terms of foreign currency are reported on the basis of the exchange rates of the RF Central Bank as of the end of the reported year. Non-monetary items are reported at their initial value in terms of foreign currency as of the date of a respective transaction. Differences arising from exchange rate differences in case of payments or reported as currency rate difference in comparison to the date when an item was originally accounted during the given period, are reported as income or loss under the item of “other income or expenses” for the period when they actually arose.
Expenses Relating to Borrowings
Any expenses relating to borrowings are reported as expenses on the date when they were incurred, except for cases when they are relating to financing of major projects associated with construction-in- progress. In such cases the expenses are capitalised prior to the commissioning of a give facility. After a facility has been accounted in the books the total amount of capitalization of the expenses is included in the value of the given facility and written off through depreciation.
28 FBK Member of International RKF Association
AUDIT STATEMENT BY THE AUDITING COMPANY OOO “FBK” on accounting records of ALROSA Co. Ltd. for 2002
AUDITOR: Company with Limited Liability “FBK” Legal address: 44/1, Building 2AB, Ul. Myasnitskaya, Moscow 101000 State Registration: Registered by the Moscow Registration Chamber on November 15th, 1993, Registration Certificate: Series YuZ 3 No.484.583 RP. Recorded in the Unified State Register of Legal Entities on July 24th, 2002 under No.1027700058286. Licence: Licence for auditing No.000001 of 10.04.2002 issued by the Ministry of Finance of the Russian Federation for a period of five years. FBK is a member of the Non-Commercial Partnership “National Federation of Consultants and Auditors.
THE COMPANY AUDITED: ALROSA Co. Ltd. Location: 6, Ul. Lenina, Mirny, 678170, Republic of Sakha (Yakutia) State Registration: Registered by the Mirny District (Ulus) Administration, Republic of Sakha (Yakutia), on 13.08.1992. Certificate No.1 (Resolution No.554 of 13.08.1992). Recorded in the Unified State Register of Legal Entities on July 18th, 2002 under No.2021400967102. Audit Details: ALROSA Co. Ltd was audited for the period from January 01 to December 31, 2002, inclusive. The accounting documentation of ALROSA Co. Ltd. includes: S Accounting Balance Sheet; S Profit and Loss Statement; S Appendices to the Accounting Balance Sheet and Profit & Loss Statement; S Explanatory Note.
29 STATEMENT BY THE AUDITING COMPANY OOO “FBK” to Shareholders of ALROSA Co. Ltd. on accounting records of ALROSA Co. Ltd. for 2002
The responsibility for the preparation of the accounting records is with the executive body of ALROSA Co. Ltd. Our duty was to express our opinion with respect to the accuracy of all substantial aspects of the given records and the compliance of the accounting procedures applied with the applicable legislation of the Russian Federation on the basis of the audit conducted.
We have performed the audit in conformity with: 1. Federal Law “On Auditing” (No.119-FZ of 07.08.2001); 2. Federal rules (standards) relating to auditing procedures approved by the Government of the Russian Federation; 3. Rules (standards) for auditing approved by the Commission for Auditing Activities at the RF President’s Office with respect to provisions, which do not contravene the respective Federal rules (standards); 4. International rules (standards) relating to auditing with respect to provisions, which do not contravene the respective Federal rules (standards); 5. “Audit Guidelines of the RFK International Association” with respect to provisions, which do not contravene the respective Federal rules (standards); 6. Internal audit standards, procedures and instructions.
The audit was planned and carried out in a manner providing sufficient confidence as to the absence of any significant inaccuracies and misstatements in the accounting reports. The audit included verification on a random basis of the numerical data and comments contained in the accounting records and included investigation by testing of the proves confirming the values and the degree of disclosure in the accounting records of the relevant information relating to the financial and commercial activities of the audited Company, as well as assessment of the applied accounting principles and methods, rules for preparation of accounting data, determination of main estimated values obtained by the management of the audited Company, as well as an overall assessment of the accounting concepts. We believe that the audit performed provides sufficient grounds to express an opinion as to the accuracy of the given accounting records and the compliance of the applied accounting procedures with the relevant legislation of the Russian Federation.
In our opinion, the accounting records of ALROSA Co. Ltd. reflect in an accurate manner in all substantial aspects the financial situation of the Company as of December 31st, 2002, as well as the results of its financial and economic activities during the period from January 01st through December 31st, 2002 and comply with the provisions of the Federal Law “On Accounting” (No.129-FZ of 21.11.1996), “Regulations on Bookkeeping and Accounting in Organisations” (PBU 4/99 approved by the RF Ministry of Finance on 06.07.1999) and the applied accounting policy.
March 27th, 2003
Managing Partner S.M. Shapiguzov of FBK Company (on the basis of the Statute, Resolution No.4 of the Meeting of 24.12.1999, and Power of Attorney No.1/y of 31.12.2002)
Audit Manager A.P. Surayev 30 (Qualification Certificate for General Audit No.008111 valid until 27.07.2004
31 Consolidated Financial Statement of ALROSA Co. Ltd.
Accounting Balance Sheet (Form No.1)
Millions of Roubles Code At beginning At year Comments ASSETS of Line of year end I. FIXED ASSETS Intangible assets 110 5 4 Tangible assets 120 27 730 33 292 Diagram 1.1 Construction in progress 130 10 835 15 623 Long-term financial investments 140 7 125 12 806 Other fixed assets Subtotal for Section I: 190 45 695 61 725 II. CURRENT ASSETS Inventories 210 12 169 13 625 Value-added tax on purchased values 220 1 940 3 119 Long-term accounts receivable 230 39 93 Short-term accounts receivable 240 7 486 6 424 Short-term financial investments 250 2 700 5 474 Cash 260 1 255 2 173 Other current assets 270 Subtotal for Section II: 290 25 589 30 908 BALANCE 300 71 284 92 633 Table 1
LIABILITIES Code At beginning At year Comments of Line of year end IV. EQUITY AND RESERVES Authorized capital 410 2 701 2 701 Added capital 420 13 969 13 913 Reserve capital 430 540 540 Social funds 440 Retained profit (uncovered loss) 460,470 17 631 23 548 Subtotal for Section IV: 490 34 841 40 702 Table 2 V. LONG-TERM LIABILITIES Long-term borrowed funds 510 4 755 15 800 Other long-term liabilities 520 11 087 10 289 Subtotal for Section V: 590 15 842 26 089 VI. SHORT-TERM LIABILITIES Short-term borrowed funds 610 10 780 17 111 Accounts payable 620,630 9 743 8 672 Prepaid expenses 640 78 59 Reserves for outstanding payments and expenses 650 Conditional liabilities Other short-term liabilities 660 Subtotal for Section VI: 690 20 601 25 842 BALANCE 700 71 284 92 633
32 Profit and Loss Statement (Form No.2)
Millions of Roubles Description of Items 2002 2001 Comments 1. Revenues and costs relating to regular types of activities Net revenue from sales of products and services (less VAT, 53 869 55 836 Table 4 excise duties and similar compulsory charges) Production cost of products and services (20 373) (17 688) Gross revenue 33 496 38 148 Commercial expenses (1 879) (2 237) Table 6 Managerial expenses (15 329) (16 344) Table 7 Sales revenues (losses): 16 288 19 567
2. Operational Income and Expenses Interests receivable 86 150 Interests payable (3 060) (2 070) Income from participation in other companies 383 252 Other operational earnings 42 237 43 541 Other operational expenses (43 481) (44 741)
3. Revenues and Expenses Not Related to Sales Earnings not related to sales 2 160 953 Expenses not related to sales (5 019) (3 840) Pre-tax profit (loss): 9 594 13 812
Income tax and other similar charges (3 041) (3 364)
Profit (loss) from regular activities: 6 553 10 448
Extraordinary revenues 1 Extraordinary expenses (79) (1 383)
Net profit [retained profit (uncovered loss) of report period: 6 474 9 066
33 Table 1 Structure of Assets
Ser. As of 01.01.2002 As of 01.01.2003 Difference Nos. Description of Items %% of %% of %% of ‘000 Roubles ‘000 Roubles ‘000 Roubles total total total 1. Fixed assets 45 695.20 64.10 61 724.78 66.63 16 029.58 35.08 1.1. Main assets 27 730.07 38.90 33 291.64 35.94 5 561.56 20.06 1.2. Long-term financial outlays 7 124.42 9.99 12 806.71 13.83 5 682.29 79.76 1.3. Construction in progress 10 835.37 15.20 15 622.86 16.87 4 787.49 44.18 1.4. Intangible assets 5.34 0.01 3.57 0.00 -1.77 -33.07 2. Current assets 25 589.12 35.90 30 908.46 33.37 5 319.34 20.79 2.1. Inventories, VAT 14 108.53 18.41 16 744.23 18.08 2 635.70 18.68 2.2. Accounts receivable 7 525.19 10.56 6 516.85 7.04 -1 008.33 -13.40 2.3. Short-term financial outlays 2 700.37 3.79 5 474.19 5.91 2 773.82 102.72 2.4. Cash 1 255.04 1.76 2 173.19 2.35 918.15 73.16 2.5. Other current assets 0.00 - 0.00 - 0.00 - TOTAL BALANCE 71 284.32 100.00 92 633.23 100.00 21 348.91 29.95
34 Diagram 1.1.
Structure of Fixed Assets as of 01.01.2003 (Balance Sheet Value), millions of Roubles
12 898 14 000
12 000 10 045 8 839 10 000 7 638 6 824 8 000 5 914 5 215 6 000
4 000 1 874
2 000 265 16 447 1
0 Здания Машины и Производственный оборудование и хозяйственный инвентарь
собственные арендованные
35 Table 2 STRUCTURE OF EQUITY
As of 01.01.2002 As of 01.01.2003 Difference № Description %% of ‘000 %% of ‘000 Roubles %% of total ‘000 Roubles total Roubles total 1 Authorized capital 2 700.50 7.75 2 700.50 6.63 0.00 0.00 2 Additional capital 13 969.33 40.09 13 912.80 34.18 -56.53 -0.40 3 Reserve capital 540.10 1.55 540.10 1.33 0.00 0.00 4 Undistributed profit 17 631.24 50.60 23 548.76 57.86 5 917.52 33.56 TOTAL: 34 841.17 100.00 40 702.16 100.00 5 860.99 16.82
Table 3 STRUCTURE AND AMOUNTS OF TAXES AND CHARGES Millions of Roubles 2000 2001 2002 2002 %% Description Actual Actual Plan Actual of plan Taxes and charges, included in production cost 16 576.9 16 855.9 14 197.3 14 327.4 100.9 Taxes referring to financial result 563.9 738.6 886.7 884.0 99.7 Taxes from profit 4 006.2 3 358.7 3 521.3 2 997.5 85.1 Indirect taxes 1 421.0 3 100.3 1 403.6 1 390.5 99.1 TOTAL: 22 568.0 24 053.5 20 008.9 19 599.4 97.9 Proportion of taxes and charges in sales, production cost and profit Proportion of taxes in production cost, % 56.97 46.48 37.31 38.12 102 Ratio to taxes referring to financial result to sales 3.10 3.77 5.94 5.43 91 income, % Proportion of taxes paid from profit in the pre-tax 30.57 27.02 38.38 31.50 82 profit, % Proportion of all taxes (except for indirect taxes) in 44.73 37.53 35.11 33.80 96 sales revenue, %
Table 4 SALES REVENUES FROM SALES OF PRODUCTS, WORK AND SERVICES Millions of Roubles
2000 2001 2002 %% Description Actual Actual Plan Actual of plan Total revenues from sales of products, 47 279.5 55835.7 52987.5 53869.4 101.7 work and services, of which from: sales of rough diamonds 40 956.3 46 956.7 45 009.3 45 581.4 101.3 sales of polished diamonds 2 493.2 3 820.4 3 675.1 3 320.7 90.4 transportation services 773.6 1 305.2 1 225.2 1 374.1 112.2 geological exploration 350.7 358.0 112.6 114.1 101.3 construction and installation work 338.4 913.1 456.7 423.4 92.7 non-production types of activities 337.8 469.7 571.5 491.1 85.9 other types of activities 2 029.45 2 012.6 1 937.1 2 564.6 132.4
36 Table 5
EXPENSES FOR PRODUCTION OF PRODUCTS (WORK OR SERVICES) Millions of Roubles
2000 2001 2002 %% Description Actual Actual Plan Actual of plan Materials and utilities, including: 8 773.1 10 280.5 12 515.9 12 057.8 96.3 energy and fuel 2 687.8 4 235.2 5 870.9 5 687.6 96.9 auxiliary materials 4 624.4 4 134.9 5 015.5 4 999.1 99.7 industrial services 1 460.9 1 910.4 1 629.5 1 371.1 84.1 Depreciation 1 945.5 3 125.9 3 300.0 2 898.2 87.8 Wages and salaries 4 456.5 6 777.9 7 829.2 8 012.3 102.3 Social deductions 1 741.8 2 018.5 2 459.4 2 138.6 87.0 Other expenses 15 208.5 17 653.9 15 222.8 17 049.2 112.0 Commercial expenses 1 124.7 2 166.8 2 187.5 1 878.80 85.9 Total: 33 250.1 42 023.5 43 514.8 44 034.9 101.2
Table 6 COMMERCIAL EXPENSES Millions of Roubles
2000 2001 2002 %% Description Actual Actual Plan Actual of plan Depreciation 0.15 0.8 3.4 5.6 163.9 Wages and salaries 35.5 48.6 56.3 58.2 103.3 Social deductions 11.9 15.3 18.9 13.6 71.7 Travelling expenses 3.8 0.6 3.15 4.2 131.3 Special communications services 8.5 14.3 18.8 15.8 84.0 Insurance 93.7 106.01 137.8 57.6 41.8 Customs duties 718 1785.7 1634.6 1430.5 87.5 Marketing and advertising 210.2 205.2 221.7 216.2 97.5 Other services 42.8 60.7 92.8 77.2 83.2 Total: 1 124.5 2 237.2 2 187.5 1 878.8 86.0
Table 7 MANAGERIAL EXPENSES Millions of Roubles
2000 2001 2002 %% Description Actual Actual Plan Actual of plan Material costs 134.1 204.7 278.9 209.6 75.2 Salaries 284.1 503.7 779.4 768.3 98.6 Social deductions 113.9 118.9 164.4 159.6 97.1 Travelling expenses 26.9 37.0 64.4 48.8 75.8 Communications services 92.8 115.1 235.2 190.8 81.1 Advertising 69 25.8 49.8 19.4 39.0 Personnel training 38.7 31.2 54.6 46.4 85.0 Research & Development 15.4 Security services 38.0 53.3 63.5 86.3 135.9 37 Auditors’ services 31.2 46.1 47.2 55.8 118.2 Consulting services 26.7 24.7 22.8 29.4 128.9 Deductions to the Pension Fund 204.0 394.0 193.1 “Diamond Autumn" Other expenses 200.7 297.7 814.9 689.8 146.4 Total taxes, 14 707.5 14 885.8 12 328.3 12 615.5 84.6 including: tax for use of motor roads 1134.7 537.5 529.9 552.2 104.2 tax on vehicle owners 6.6 8.4 14.4 12.9 89.6 land tax 44.5 95.3 110.4 93.6 84.7 charges for air emissions and 3.1 27.4 20.1 35.9 178.6 wastewater disposal rent 8 805.6 8 996.3 8 187.4 8 124.8 99.2 charges for expansion of mineral 1 503.2 1 733.3 0.0 578.4 reserve basis royalties for exploitation of mineral 3 188.3 3 399.5 3 413.3 3 181.9 93.2 resources OPI charges 18.33 84.6 50.4 30.3 60.1 water charges 3.2 3.6 2.4 5.6 233.3 Total: 15 763.6 16 344.0 15 107.4 15 329.1 101.5
38 Consolidated performance results of ALROSA Group
%% Description Unit 2000 2001 2002 of 2001 Millions of 1 786.8 1 844.0 1 664.9 90.3 Diamond mining production US Dollars Millions of Manufacture of polished diamonds US Dollars 154.8 207.3 129.8 62.6 Millions of Revenues from sales of products 59 790.8 71 017.9 71 914.5 101.3 (work and services) Roubles Millions of 10 573.9 10 458.5 8 802.5 84.2 Net profit Roubles Millions of 8947.9 14 994.7 14 776.7 98.5 Capital investments Roubles Millions of 547.85 851.6 1 046.3 122.8 Dividends Roubles
Basic Performance Indicators of ALROSA Co. Ltd.
% Description Unit 2000 2001 2002 of 2001 Diamond mining production Millions of 1 623.1 1 665.4 1383.7 83.1 US Dollars 3 Total amount of material moved '000 m 39 681 45 211 46336 102.5 Sales of rough diamonds Millions of US Dollars 1542.6 1737.9 1583.4 91.1
Sales of polished diamonds Millions of 89.0 130.7 105.7 80.8 US Dollars Sales revenues from sales of products, Millions of 47 279.5 55835.7 53869.4 96.5 work and services Roubles Millions of Pre-tax profit 13 104.3 12 430.1 9514.5 76.5 Roubles Millions of Net profit 9 155.1 9 066.2 6474 71.4 Roubles Millions of Net assets 25 524.2 33 006.8 40760.6 123.5 Roubles Millions of Taxes 21 962.4 22 979.1 17142.3 74.6 Roubles Millions of Geological exploration 627.3 943.6 1002.7 106.3 Roubles
Capital investments Millions of 8 093.1 13 646.0 14776.7 108.3 Roubles Average number of employees Persons 39175 40 996 40247 98.2 Average monthly wages Roubles 10626 14 329 17293 120.7 Dividends Millions of 400.0 600.0 700*) 116.7
39 Roubles *) Note: The sum of dividend proposed for approval at the Shareholders’ Annual Meeting.
40 INFORMATION FOR SHAREHOLDERS
ALROSA Co. Ltd. is a close-type joint-stock company, the successor of the enterprises, organisations and divisions included in its structure from the former NPO “YakutAlmaz”, Committee for Precious Metals and Precious Gemstones (Ministry of Finance of the Russian Federation) and the Foreign Trade Association “Almazjuvelirexport” and involved in sorting, preliminary processing and supply of rough diamonds. The Company Almazy Rossii-Sakha was established in conformity with the Decree of 19.02.1992 by the President of the Russian Federation “On Establishment of Almazy Rossii Joint-stock Company”. The meeting of the Company's founders was held on July 25th, 1992, in the city of Yakutsk. Almazy Rossii-Sakha was registered on August 13th, 1992 in the city of Mirny (Resolution No. 554 by the Administration of the Mirny District). The Company began its industrial and commercial operation on January 1st, 1993. Pursuant to a decision taken by the Shareholders’ General Meeting on June 27th, 1998 (Protocol No. 12) the full and abbreviated name of the Company has been changed. These changes were registered by the Administration of the Mirny Ulus on August 26th, 1998 (Certificate No. 510). According to the above changes the full official name of the Company is as follows:
FULL NAME OF THE COMPANY: S In the Russian language: Aktsionernaya Kompania “ALROSA” (Joint-stock Company of Close Type); S In the Yakutian language: “ALROSA” Aktsionernai Kompania (Sabyylaakh aktsionernai uopsastyba); S In the English language: ALROSA Company Limited. ABBREVIATED NAME OF THE COMPANY: S In the Russian language: AK “ALROSA” (ZAO) S In the Yakutian language: “ALROSA” AK (SAUO) S In the English language: ALROSA Co. Ltd. The Register of the Company’s shareholders has been kept by the Mirny subsidiary of ZAO “Reyestr A-plus” (License of the Federal Commission for Securities No. 10-000-1-00256 of September 17th, 2002). The Register of the Shareholders is kept in conformity with the Federal Laws “On Securities Market” and “On Joint-Stock Companies”, as well as the Regulation on Keeping Registers of Owners of Registered Securities approved by the Federal Commission for Securities (Resolution No.27 of 02.10.1997 with amendments enacted by the Federal Commission for Securities by Resolutions No.45 of 31.12.1997, No.1 of 12.01.1998 and No.8 of 20.04.1998). Official auditor of the Company: OOO “Financial and Accounting Consultants” (FBK), member of the International Association of Auditing Companies, Pannell Kerr Foster, was approved by the Shareholders’ Annual General Meeting on June 29th, 2002. The audit of the consolidated financial statement of ALROSA Co. Ltd. is carried out in accordance with the International Financial Accounting Standards by PricewaterhouseCoopers, the world’s largest organisation providing auditing and consulting services. The authorized capital of ALROSA in accordance with the issue of securities registered on 18.09.1997 by the Irkutsk Regional Division of the Federal Commission for Securities of Russia, is RUR 2,700,500,000 (two billion and seven hundred million and five hundred thousand roubles) with due account of the rouble denomination. The state register number of this share issue is 1-02-40046-N. The
41 authorized capital is divided into 200,000 common shares with a nominal value of RUR 13,502.50 each.
Shareholders of ALROSA are: On behalf of the Russian Federation: Ministry for Property Relations of the Russian Federation: 37% (74,000 shares having a total nominal value of RUR 999,185,000). (Note: Pursuant to an award issued on 10.12.2002 by the Arbitration Court of the City of Moscow on Case No. А40-25248/02-54-236, the package of shares owned by the Social Security Foundation for Servicemen (“Garantia” Fund) was converted to federal ownership and a corresponding record was made in the Register of Shareholders by the Ministry for Property Relations of the Russian Federation). On behalf of the Republic of Sakha (Yakutia): the Ministry for Management of the State-Owned Property of the Republic of Sakha (Yakutia): 32% (64,000 shares having a total nominal value of RUR 864,160,000). Employees of enterprises and organisations of the diamond industry, as well as other individuals: 23% (45,999 shares having a total nominal value of RUR 621,101,497.50). Administrations of the districts (Ulus) of the Republic of Sakha (Yakutia) on whose territories the Company operates – 8% (16,001 shares having a total nominal value of RUR 216,053,502.50), including: Anabar Ulus 1% (2000 shares) Verkhnevilyuiski Ulus 1% (2000 shares) Vilyuiski Ulus 1% (2001 shares) Lensk Ulus 1% (2000 shares) Mirny Ulus 1% (2000 shares) Nyurba Ulus 1% (2000 shares) Olenekski Ulus 1% (2000 shares) Suntar Ulus 1% (2000 shares)
In conformity with the Federal Law “On Amendments to the Federal Law On Joint-stock Companies” (No.120-FZ of 07.08.2001) and pursuant to the resolution taken by the Shareholders Annual General Meeting on June 29th, 2002, new versions of the Company’s Statute and basic internal documents have been approved. Beginning of the financial year: January 1st, 2002. End of the financial year: December 31st, 2002. Dividends are paid by ALROSA Co. Ltd. once a year. The date of dividend payment will be determined by the Shareholders’ Annual Meeting.
42 Historic Highlights of ALROSA:
1954 Discovery of the Zarnitsa pipe, the first primary diamond deposit 13.06.1955 Discovery of the Mir pipe 16.06.1955 Discovery of the Udachny pipe 14.01.1957 Establishment of YakutAlmaz Trust 1957 First commercial-grade diamonds recovered at the No. 1 Plant 1958 Commissioning of No.2 and 4 Plants 1959 VTO SoyuzPromExport sold the first lot of Russian diamonds on the world market 1960 Discovery of the Aikhal pipe 1961 Commissioning of the Aikhal mine. Construction of the No. 8 Plant 1963-1965 VTO SoyuzPromExport concluded first contracts with De Beers for rough diamonds sales 1966 Commissioning of the No. 3 Plant in Mirny 1967 Commissioning of the Udachny alluvial mine. Construction of the No. 11 Plant commenced First phase of the Vilyui hydroelectric power station put on-stream 1969 YakutAlmaz Trust restructured as Production and Scientific Association (NPO) “YakutAlmaz” 1972 VTO SoyuzPromExport began elaboration of the first medium-term (3 years) agreement with De Beers for rough diamonds sales 1972-1995 Sales of rough diamonds on the basis of trade agreements with De Beers 1975 Discovery of the Jubilee pipe 1976 Commissioning of the first phase of the mining and ore-processing complex at Udachny 1979 Udachny GOK established 1986 Aikhal GOK established. Development of the Jubilee pipe and construction of the No.14 Plant commenced 1991 Mirny GOK established 1991 An agreement concluded between the USSR and De Beers on a loan of US $1 billion with collateral of diamonds from the Gokhran of the USSR Agreement concluded with De Beers for a term of 5 years 19.02.1992 Almazy Rossii-Sakha Joint-stock Company established 1994 Discovery of the Botuobinskaya pipe 1995 Expiry of the five-year agreement with De Beers 1996 Discovery of the Nyurba pipe 1996-1997 Commissioning of the first and second phase of the Jubilee mining and ore- processing complex 21.10.1997 Signing of a Trade Agreement between ALROSA and De Beers in Moscow 26.03.1998 The President of the Russian Federation signed the Federal Law “On Precious Metals and Precious Gemstones” November 1998 Trade Agreement between ALROSA and De Beers prolonged for three years 05-07.1998 ALROSA participates in actions to eliminate the consequences of disastrous floods on the Lena river 1999 Anabar GOK established on the basis of the alluvial Anabar mine March 2000 Nyurba GOK established with the purpose to carry out mine development and other work for diamond production from the Nakynskoye ore field 2000 A subsidiary – “Brillianty ALROSA” – established for manufacture of polished diamonds
43 May-October ALROSA in cooperation with executive bodies of Governments of the Russian 2001 Federation and Republic of Sakha (Yakutia) took actions to eliminate consequences of the disastrous flood in the city of Lensk, constructed and restored housing and industrial facilities damaged by the flood June 2001 Termination of the open-pit mining operation at the Mir kimberlite pipe 17.12.2001 Trade agreement concluded between ALROSA and De Beers for the period of 2002-2006 2002 Celebration of the 45th anniversary of YakutAlmaz Trust and 10th anniversary of the ALROSA foundation July 2002 International underground mine reached its design capacity
44 ADDRESSES OF ALROSA OFFICES:
S 6, Ul. Lenina, Mirny 678170 Republic of Sakha (Yakutia) Teletype: 134818 “Almaz” Telex: 135113 “Almaz” SU Fax: (411-36) 304 51 E-mail: aho@centr.alrosa-mir.ru
S 10-12, Pervy Kazachy Pereulok, Moscow 109017, Russian Federation Teletype: 113258 “Vilyui” Telex: 414199 “Almaz” RU Fax: (095) 230 66 31 E-mail: [email protected]
S 8, Ul. Ammosova, Yakutsk 677018 Republic of Sakha (Yakutia) Phone: (411-2) 42-18-15 Telex: 414199 “Almaz” RU Fax: (411-2) 24-33-28 E-mail: [email protected]
45