A n n u a L r e p o r t o f a L r o s a


Activities of the Supervisory Council


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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.


12

REPORT BY THE BOARD ON THE COMPANY’S ACTIVITIES

IN THE MAIN FIELDS OF OPERATIONS

Mining Operations

DIAMOND MINING PRODUCTION

Millions of US Dollars

2002

Description

 

2000

Actual


2001

Actual


Plan

Actual


% of

plan


% of

2001


% of

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-

NYURBA"

5.6%

Anabar GOK

1.3%

Mirny GOK

18.7%

Aikhal GOK

21.1%

Udachny GOK

53.3%

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 m

3

. 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:

·  reaching of the design capacity of the International underground mine; and 

·  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.


13

U

DACHNY 

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 m

3

). 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.

A

IKHAL 

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 m

3

). 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.



M

IRNY 

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.

N

YURBA 

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.



A

NABAR 

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 m

3

 of alluvial sands or 101.7% of the



planned target.

OAO “A

LMAZY 

A

NABARA



14

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

2002

2000

Actual


2001

Actual


Plan

Actual


% of

plan


Sales of rough diamonds,

of which:

1,542.6

1,737.9

1,440.0

1,451.4*

100.8

- 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

2002

Description



2000

Actual


2001

Actual


Plan

Actual


% of

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.


15

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.


16

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


17

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

Budget of Republic of 

Sakha (Yakutia)

0.71%

ALROSA-NYRBA 

own funds»

11.05%

ALROSA Ltd.

88.20%

Federal budget

0.04%

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

2002


Description

2001,


Actual

Plan


Actual

%%

of plan



%% of

2001 level

Total capital expenditures,

including:

13,646.0

11,806.2


14,776.7

125.1


108.2

Equipment, except for equipment included in

design cost estimates

3,912.7


1,800.5

3.013.0


167.3

77

Capital investments into main assets



7,868.5

9,357.1


11,355.2

121.3


144.3

Capital investments into facilities of external

customers at the expense of all sources of

financing

1,864.8

648.6


408.5

63

21.9



Capital investments into facilities of external

customers, including subsidiaries

858.4

215.5


0

0

0



Capital investments into facilities constructed

185.5


108.1

70.8


65.5

38


18

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

(Vilyui GES-III hydroelectric power project)

471.1


0

0

0



0

Capital investments for construction of

facilities for external customers on an

assignment by Government of Republic of

Sakha (Yakutia) and financed by ALROSA

127.5


16.7

20.8


124.6

16




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