Story Behind Alrosa's Surging Profits

Lucara profits for FY2025 are down 35%.  Petra Diamonds losses for the year are up by 67%. And Mountain Province net losses for the first nine months of the year are up by almost 600%. 

Against that dismal backdrop, Alrosa, the sanctioned Russian miner, has just posted an 88% surge in profits. What on earth is going on? 

Headline figures rarely tell the whole story, and Alrosa is a case in point. 

The truth is that Alrosa is not thriving, and there's one very good reason for that. Sanctions. 

Much of the $468m profit from last year comes from the forced sale of its stake in Angola's Catoca mine, which is a direct result of G7 sanctions. That's not real, sustained profit, it's an enforced windfall. 

It has made savings from shuttering its low margin diamond assets, but only because of weak demand. Which is the result of G7 sanctions.  

And Alrosa has also benefitted from a weak ruble which is, you've guessed it, a result of G7 sanctions. 

The bottom line is that one key metric, annual profit, looks good, but dig a little deeper and Alrosa is struggling. The Catoca sale is a one-off boost. The cost reductions from shuttering mines aren't likely to provide sustained financial benefits. And a weak ruble may allow for short-term gains, but ultimately it's a sign of weakness.  

Alrosa never wanted to sell off its 41% take in Catoca, but the Angolan government insisted on the deal. Alrosa had, it said, become a "toxic partner" because of the war in Ukraine and resulting sanctions, which were harming Angola's credibility in the international diamond market. 

The sale of its share in the mine to Taadeen, a subsidiary of Oman's sovereign wealth fund, drew an end to a 32-year partnership with Angola, but saw Alrosa pocket a much-needed $200m. 

In terms of its reduced operations, Alrosa suspended mining at the Verkhne-Munskoye deposit's Zapolyarny and Magnitny open pits last June 15, after its subsidiary Almazy Anabara halted work in April at the Khara-Mas and Ochuos alluvial deposits in the Anabar River valley. 

The company said at the time that suspending activity at all deposits producing under 1m carats would reduce direct costs by $107m during the year, but at the same time it closes off a potential revenue stream. 

The weak ruble helps Alrosa, which sells diamonds in dollars but pays most production costs in local currency. But the reason the ruble is weak isn't good - sanctions, reducing oil revenue and an economy blighted by the cost of four of war in Ukraine. 

Since the first phase of sanctions were imposed on Russia in January 2024, Alrosa has been redirecting its rough diamond volumes to India, China, UAE to a lesser extent, and other non-sanctioned markets. These sales have impacted rough prices globally over the last three years (down by 40% to 60%). 

On paper that has had little impact. The value of sales in FY2025 remained almost constant, down by 1.7% to $3bn, but that doesn't tell the full story. Alrosa has been offloading surplus stones to Gokhran - the state-run repository - possibly as much as 30% of production, though the actual figure for the year isn't disclosed. 

Alrosa is also diversifying, notably into gold, in response to the weak diamond market. It says it has invested $105m in the Degdekan Project, projected to yield 3.3 tonnes of gold annually by 2030, and is exploring the potential for gold extraction from tailings at its Mirny mine. 

In addition to the specific challenges of sanctions, Alrosa does, of course, share in the woes of the wider diamond market - weak global demand, falling rough prices, excess inventory and the growing popularity of lab grown alternatives. 

It has, however, remained defiant, insisting it has remained immune to sanctions imposed by G7 (and EU) nations. 

"The sanctions that our adversaries dreamed up were supposed to affect us in a big way but they are not achieving the necessary effect, at least for them," said Pyotr Karakchiyev, head of the international cooperation department, last April. 

And he put the blame squarely on the ongoing lack of effective traceability measures to prevent Russian stones entering the pipeline. 

"Tracing is one of the key conditions that the G7 wanted to bring in to stop Russian gemstones from entering Western markets," he said. "This is not working now. There is no technical solution." 

Have a fabulous weekend.