2 ALROSA ANNUAL REPORT 2015 ALROSA* is a Russian Group of diamond mining companies that occupies a leading position in the industry and has the largest rough diamond reserves in the world. The Group accounts for one third of the reserves and more than a quarter of the production of the global rough diamonds market. The key areas of activity, comprising the focus of the major strategic efforts of the Group, are deposits exploration, mining, processing and sales of rough diamonds. The core activities of ALROSA Group are concentrated in two regions of the Russian Federation, namely the Republic of Sakha (Yakutia) and the Arkhangelsk Region, as well as on the African continent, in Angola, Botswana and Zimbabwe. The majority of ALROSA Group revenue comes from selling rough diamonds. Rough diamonds are sold under long-term agreements to Russian and foreign diamond cutting companies. The rough diamond segment accounts for about 90% of the total Group revenue. *For the purpose of this Annual Report, ALROSA Group means PJSC ALROSA and its subsidiaries. 2 CONTENT CORPORATE GOVERNANCE ROLE AND PRINCIPLES 87 CORPORATE GOVERNANCE STRUCTURE 6 ADDRESS BY THE CHAIRMAN OF THE 128 SUPERVISORY BOARD CONTROL SYSTEM 8 132 ADDRESS BY THE PRESIDENT DISCLOSURE OF INFORMATION PROTECTION OF INSIDER INFORMATION 12 2015 KEY EVENTS 133 FOR SHAREHOLDERS AND INVESTORS 1 3 STRATEGIC OVERVIEW CORPORATE SOCIAL RESPONSIBILITY 18 ABOUT THE COMPANY 142 SUSTAINABLE DEVELOPMENT AND 21 RELATIONS WITH INTERESTED PARTIES COMPANY POSITION IN THE INDUSTRY 145 22 HR AND HR POLICY KEY PERFORMANCE INDICATORS 149 30 HSE COMPANY MISSION AND STRATEGY 153 36 CHARITY AND SOCIAL PROGRAMS ACTIVITY OVERVIEW 156 ENVIRONMENTAL PROTECTION 157 ENERGY EFFICIENT TECHNOLOGIES AND ENERGY CONSERVATION 4 6 FINANCIAL RESULTS APPENDIXES 163 182 AUDIT REPORT INFORMATION ON SUBSIDIARIES AND AFFILIATES 165 BALANCE SHEET 184 LIST OF LOCAL REGULATORY 167 DOCUMENTS FINANCIAL PERFORMANCE REPORT 185 168 REPORT ON RESULTS OF AUDIT OF THE STATEMENT OF CHANGES IN EQUITY LONG-TERM DEVELOPMENT PROGRAM OF ALROSA GROUP UNTIL 2023 169 CASH FLOWS STATEMENT 187 INFORMATION ON THE REGISTRAR AND TRANSFER AGENTS 189 ACCOUNTING STATEMENTS OF PJSC ALROSA IN ACCORDANCE WITH RAS 196 INFORMATION ON LICENSES 206 SUMMARY DATA ON THE RESULTS OF SALES OF ROUGH AND POLISHED 5 DIAMONDS ADDITIONAL INFORMATION 210 INFORMATION ON ALIENATION OF 172 NON-CORE ASSETS OF PJSC ALROSA 5 YEARS’ DYNAMICS OF KPIs 242 173 INFORMATION ON THE RESULTS OF THE ABOUT THE COMPANY EXECUTION OF INSTRUCTIONS 178 248 DISCLAIMER INFORMATION ON MAJOR TRANSACTIONS, INTERESTED PARTY 179 TRANSACTIONS ABRIDGED DICTIONARY OF ABBREVIATIONS 268 INFORMATION ON COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE 296 REPORT OF THE AUDITING COMMITTEE ADDRESS BY THE CHAIRMAN OF THE SUPERVISORY BOARD rough diamond production but also an active participation in the development of the entire industry. Rough diamond market conditions in 2015 were difficult, but ALROSA managed to adapt to the new conditions and promptly react to the changes. The Company asserted its position as a responsible industry leader and took a number of measures aimed at restoring the market balance Dear Shareholders, and ensuring its future stability. In 2015, ALROSA once again The Company actively participates cemented its status as the largest in the work of industry-specific successful diamond mining organizations. In 2015, ALROSA company, accounting for 30% of became one of the initiators the global market and reaffirmed for establishing the Diamond its position as the global leader in Producers Association, an orga- rough diamond production. nization founded with the aim of ALROSA’s development strategy renewing marketing initiatives is focussed on rough diamond for the promotion of polished exploration and production. Over diamonds. the past few years, the Company In 2016, for the first time in history, has been annually investing over an ALROSA representative will RUB 30 bn in development. During chair the World Diamond Council, a this time, large-scale production key industry-specific organization. facilities such as the second ALROSA showed growth of the processing plant and Karpinskogo-1 basic financial indicators and pipe of Lomonosov MPD, Mir and concluded the year with a net Udachny underground mines, and profit of RUB 32 bn in accordance the Botuobinskaya pipe in Yakutia with IFRS. Modest debt burden and have been constructed and put stable cash flow confirm the sound into operation. The Investment financial condition of the Company, Program implemented by the its ability to perform its obligations Company and the new technologies in full and in a timely manner and introduced today provide a return pay dividends to shareholders. in the form of production growth, The Company continues to improve which contributes to consolidating the corporate governance system, the status of ALROSA as the largest adhering to the best practices. producer. In April 2015, ALROSA adopted The ALROSA development strategy a new revision of the Corporate includes not only leadership in Governance Code developed in 6 ALROSA ANNUAL REPORT 2015 accordance with recommendations I am confident that further from the Bank of Russia. The imlementation of the strategy Corporate Governance Code is will make it possible for ALROSA aimed at ensuring the possibility Group to continue consolidating of exercising rights and protecting its leading position on the rough interests of shareholders, trans- diamond market, ensuring stable parency of the management production growth, revenue processes, professional and ethical increase, improvement of the responsibility of managers at all investment attractiveness and levels and control of financial shareholder value growth. and economic activities. The I thank all ALROSA Group operational and financial perfor- employees for their professional mance that ALROSA demonstrates competence and constructive today confirms the efficiency of work. the development model selected by the Company. Chairman of the Supervisory Board of PJSC ALROSA Anton Germanovich SILUANOV ALROSA ANNUAL REPORT 2015 7 ADDRESS BY THE PRESIDENT increased its global market share to 30%. The past year was marked by the introduction and establishing of a new deposit. In the spring of 2015, ALROSA started mining rough diamonds from Botuobinskaya pipe of Nyurba MPD. It is the first new pipe in Yakutia to be put into operation in ten years. In 2015, Botuobinskaya yielded about 1 mn carats of rough diamonds for the Dear Shareholders, Company and in the future this In 2015, ALROSA continued to figure is set to increase to about 2 consolidate the leading position on mn carats per year. the global market. The Company The Company continues to share in the global rough diamond production grew to 30%. Despite construct underground mines. the difficult macroeconomic In 2015, in accordance with situation and market conditions, forecasting, Mir underground mine in 2015 the Company produced reached a production capacity of solid financial results, attaining 750 thousand tons of ore and is set record figures for a number of to reach a production capacity of indicators. ALROSA is successfully 1 mn tons in 2016. The Udachny implementing the approved long- underground mine, which was term development strategy and is put into operation in summer confident about the future. 2014, is expanding its capacity and preparing to launch a second Leadership in diamond production start-up facility. Together with the production from the Aikhal In 2015, ALROSA Group enterprises and Internatsionalny underground produced 38.3 mn carats of rough mines, in 2015, underground diamonds, which is a 6% growth mines produced 9.5 mn carats or compared to 2014. This growth was about 25% of ALROSA production achieved due to the development volume, and this figure will reach projects that have been funded by 35% once all the enterprises reach ALROSA in recent years, namely the their projected capacity. Karpinskogo-1 pipe at Lomonosov MPD and the Mir and Udachny The capital investments of underground mines in Yakutia. Due ALROSA Group in 2015 totalled to the production growth, ALROSA RUB 36.9 bn. The majority of this maintained a leading position in amount, about RUB 25.7 bn, was the industry in terms of the volume allocated to the construction of of rough diamonds extraction and production facilities, including RUB 8 ALROSA ANNUAL REPORT 2015 12.2 bn for underground mines. decided to decrease prices for ALROSA invested a further RUB rough diamonds by 15% and reduce 8.6 bn in the technical upgrading sales volumes. The measures taken and replacement of worn-out have already yielded results, and equipment. since the beginning of 2016 we can see signs of market revival. In the long term, stable operations are not possible without the The established sales system replacement of the mineral resource based on long-term contracts once base. In 2015, ALROSA continued again proved to be effective under to make significant investments these conditions guaranteeing the in geological exploration, which Company and customers a stable amounted to RUB 6.3 bn. Company supply volume and protection geologists work actively on against price volatility. In 2015, reserve replacement and discovery 66% of rough diamonds were sold of new promising deposits. The through these contract types. geological exploration works During 2015, the number of long- performed in 2015 contributed term ALROSA customers grew from to a 43.6 mn increase in ALROSA 47 to 54, including a number of reserves,