At the annual meeting of ALROSA held on June 26 one thought was voiced loud and clear – that mineral conditions in the diamond mines had been aggravated by the global economic crisis. For ALROSA the year 2009 was especially difficult. The current situation is so far not bad, but uncertainty with the future demand for diamonds rasps the company’s nerves. “In this context there emerged quite reasonable questions: What will happen to diamond production and sales? What is in store for one of the most socially focused companies in Russia whose prospects are vital for many dependent cities and settlements? The questions were dramatic and unpredictable due to the depth of the crisis period,” the Yakutia 24 News Agency wrote at the time (http://www.yakutia24.ru/news/index.php?cat=3&id=35499).
The very thought of a new economic downturn in the West and related scenarios of slumping demand for diamonds is triggering concern in ALROSA’s management fuelled by appropriate reports coming from time to time in this vein. Thus, for instance, Simon Johnson, the former chief economist of the International Monetary Fund, in his recent speech at the scientific meeting held in the Beijing University said that abnormal development of the financial sector in the United States was not only at the bottom of the current international financial crisis, but also could cause a new crisis. In 2010, the U.S. total national debt reached 11 trillion dollars which makes 54% of GDP or 674% of fiscal incomes of the U.S. national budget. The U.S. Treasury Department is compelled to refinance more than half of its debt every year. These facts permit to predict a falling diamond demand in physical terms in the United States, the major consumer of polished diamonds.
Fortunately, in South Yakutia there was discovered a group of uranium deposits in the Elkon area approximately 50 km from the regional centre of Tommot. The Elkon area reserves are estimated at 344,000 tons of uranium or 6% of the world's reserves under development. On the basis of the Southern Zone deposits (including Elkon, the Elkon Plateau, Kurung, Druzhnoye and Neprokhodimoye) and also in the uranium fields Severnoye and Interesnaya Zone it is planned to create one of the world's largest uranium mining centers with a production flow of up to 5,000 tons of uranium a year by 2024.
Currently virgin works are underway. The following events are slated for 2010:
- A preliminary feasibility study will be worked out in team with SRK Consulting, an engineering company, to attract investors to the project;
- Prospecting works will be performed in accordance with the terms of license agreements;
- Front end engineering design will be completed, including R&D on processing techniques for ores of the Elkon uranium ore area;
- Design documentation for the Elkon Mining-and-Metallurgical Integrated Works will start to be worked out by OAO VNIPIpromtekhnologii based on a contract price of 2,093 million rubles.
According to Irina Troshkina, Professor of the D. Mendeleev University of Chemical Technology of Russia, “the economics of the South Yakutia uranium is difficult.” The current uranium price level under long-term contracts runs approximately at 130$/kg with an upward trend to 200$/kg. According to http://www.wise-uranium.org/upru.html#ALDAN, the Elkon uranium belongs to the 80-130 $/kg cost category. In other words, it is not much of a catch. To build the first stage of the mine will require some 100 billion rubles of investments. The pay-off period is approximately 25 years (which is not an exorbitant term for a facility within the atomic energy infrastructure). Its operating life will last not less than 100 years. The uranium cost may be lowered by way of recovery of accompanying metals, like gold, silver and molybdenum. And, certainly, expenses for constructing roads, electric power lines and hydroelectric power stations may be decreased within OAO Korporatsiya Razvitiya Yuzhnoi Yakutii.
Basically, Rosatom via ARMZ is in a position to finance the project. To be on the safe side the company is discussing how to attract foreign companies as minority partners, for example Japan’s Mitsui and Marubeni, Canada’s Canoco and Uranium Corporation of India. Besides, the Elkon uranium attracted such well-known businessmen as Victor Vekselberg (Renova), Oleg Deripaska (Bazovyi Element), Alisher Usmanov (Metalloinvest) and Vladimir Potanin (Interros).
Public hearings in Yakutia to discuss the plans for construction of the Elkon Mining and Metallurgical Integrated Works are scheduled for November. The organizers of these hearings are OAO VNIPIpromtekhnologii (the designer of the Elkon Mining and Metallurgical Integrated Works) and the administration of the Aldan District and Elkon GMK-Project. Obviously, many things will clear up and an essential part of them will become public.
There is no doubt that the project of developing Elkon will be approved and will pass all ecological and technical expert appraisals in 2011-2012. But there is a question: Who will build and then maintain the mining-and-metallurgical integrated works? After all the experience gained during the construction of the East-Siberia-Pacific-Ocean crude oil pipeline proved that resources of qualified work force in Yakutia are insignificant. There were even instances when ALROSA employees – such as drivers of heavy trucks – were lured away by high salaries (over 100,000 rubles a month).
But let’s have it straight: Elkon is an “emergency airfield” for diamond miners, a source of their alternative employment in case global diamond demand will face significant problems. At the same time, in view of limited manpower in the area it appears obvious that while the world diamond market is in a good condition, meanwhile it would be wise to conduct low-cost geological and project operations in Elkon (so far as Russia is not short of uranium). It should be stressed once again that there are no free manpower reserves within mining and construction occupations both in Yakutia and Siberia and migration of “office plankton” from the European part of the country in this direction looks improbable. Gastarbeiters from Central Asia can hardly sustain severe climate of Aldan.
Nevertheless in case of the worst diamond scenario (http://www.rough-polished.com/ru/analytics/36498.html?phrase_id=80497) uranium may become a sheet anchor for ALROSA’s miners. Even at the first stage Elkon can employ 12,000 to 14,000 diamond miners from ALROSA. At the initial phase it is reasonable to apply the rotational team method. In Tommot it will be necessary to build a settlement for such workers.
In any case, the Elkon gold and uranium area remains the world's largest deposit and in the mid-term it may become this country’s pride and a symbol of its power.
Vladimir Teslenko for Rough&Polished
