Interview for Rough&Polished
Background by Rough&Polished: Valery Vladimirovich Rudakov was born in 1942, a mining engineer by training, graduated from the Moscow Mining Institute. Started his career in Yakutalmaz (at present ALROSA), headed the Main Directorate for Precious Metals and Diamonds under the Counsel of Ministers of the USSR, Almazzoloto corporation, joint stock company ALROSA.
In 1982-1988 – Deputy Minister of the USSR Nonferrous industry.
In 1999-2002 - Deputy Minister of Finance of the Russian Federation and head of the State Repository for Precious Metals. From 2002 until now – chairman of the Board of Directors of CJSC Polyus, chairman of the Committee for precious metals and precious stones of the Chamber of Commerce and Industry of the Russian Federation.
- As diamond reserves are declining and no large deposits have been discovered lately, there are some concerns that the diamond market will soon experience a critical raw material shortage.
- As far as Russia and Russia’s mining company ALROSA is concerned if an underground mining commences at its mines in Mirniy, Udachniy and Aikhala, then the diamond mining should not decline sharply. But it is another thing if ore material is depleted in the Udachniy mine and an underground mining does not commence there, then unfortunately the decline in mining naturally will take place, but it will be occasional. New deposits in Yakutia have been discovered recently. ALROSA is very lucky that they have been discovered.
- Previously you did not agree to the economic expediency of integrating rough diamond mining and diamond production into one complex. Have you changed your mind about this issue?
- I still adhere to this position: in the market conditions diamond miners and diamond cutters are on opposite sides of the business: miners seek to sell rough diamonds more expensive and diamond cutters seek to buy them cheaper. They have different interests. In the lapidary area there should be a free competition in terms of the quality of cutting, ability to bargain and obtain credits. The diamond mining is advancing slower; the number of diamond cutters is greater, many of them go bankrupt, for the diamond mining to flourish the problems of cutting should not be shifted to diamond miners. It will not lead to any good result. The world experience conforms that. Another thing is that ALROSA should, for example, support the development of the Yakutia diamond complex due to the unemployment problem there, but the competition should be fair without any preferences and relief.
- What is your opinion about, for example, ALROSA expansion to Armenia: it is establishing a joint venture there. What will be the reaction of traditional diamond cutting centers in Belgium and Israel as well as new ones in China and African countries?
- I believe that ALROSA can sell diamonds to all lapidary companies, but first of all to Russian ones and undoubtedly on equal trade terms for everybody. The more it has customers, the more profitable for it. It should be interested in an increase of its buyers and in competition between diamond cutters. In the conditions of a free competition the quality of diamond cutting is improving.
- Large diamond cutters are now complaining about the raw material shortage. Many dealers are said to adhere to a policy of accumulating stocks. Do you thank that they are on the long side of the market?
- I can not say exactly. I have not been dealing with these issues for several years. Once De Beers used to have such stocks, two-three year diamond reserves for sale. If now they have the same quantity, everything in the market will remain normal. As for the buyers’ stocks, they are negligible.
- The State Repository for Precious Metals has always had large reserves of diamonds.
-I do not know how many diamonds they have now and whether they are able to overcome difficulties in the market. The market will stand everything; nothing dramatic is going on there. Firstly, the diamond mining is growing in other countries, for example in Angola. It is developing seriously now. Now when the Kimberley process legalized the gold mining in all African countries, an official mining is also due to commence there. In addition Canada is developing its diamond mining. Even if we presume that the volume of diamond mining will decline by 15-20% per annum nothing tragic and dramatic is going to happen to the market: this is a market, there are always any changes, episodic rises and falls, it is normal. The diamond market will not disappear insofar as the need in diamonds is growing among people and the experience of last 30 years shows that the more purchasing power the higher standard of living, the higher trade volume of diamond jewelries. If before the main diamond consumers were the USA and Japan, now the number of such countries has increased: China, India, Russia and Europe. Suppose the diamond mining declines a little for a short period of time, let’s say for two-three years, prices for diamonds and cut diamonds will slightly grow. If ALROSA mining declines slightly for some time, maybe there will be some problems regarding the cost of production, economy, but nothing dramatic. It is only necessary to vigorously complete the construction of underground mines because Mir, Udachniy and Aikhal are capable of giving a lot of diamonds. Then a full volume of mining will be restored in ALROSA and everything will come to normal.
And yet, are there any dealers who keep stocks for a “rainy day”?
- Frankly speaking, I know all largest diamond producers; I can not imagine that all of them have large reserves of diamonds. On the contrary, very often they feel uncomfortable due to the shortage of rough diamonds, for example the Smolensk factory is always short of diamonds, but it is the largest factory in the World. In Moscow all diamond factories are short of diamonds, the same situation in Belarus and Armenia, Armenians can produce a lot of cut diamonds, but there are not enough raw materials. It is a routine, normal process. There is no need to predict any dramatic events which will shake the diamond and jewelry market. Nothing is going to happen to it due to mineral and economic reasons. It may happen only by political reasons; if wars will be launched somewhere.
- What is going to happen to Russian cut diamond producers in the period of an expected mining recession?
- They always feel the shortage of diamonds last years. So they will buy diamonds from abroad, if there is not enough here. Then it is probably better for ALROSA to sell diamonds only to Russian lapidary companies, as it to the best of my knowledge sells abroad nearly 50%, but the mining will never drop by 50%. So all diamonds will be sold here in Russia. Only “Indian” goods will be sold to India and, for example, jewelry stones will be sold here.
- Are there any diamond reserves in the State Repository for Precious Metals for a “rainy day”? In the period of recession in mid-90s the State Repository for Precious Metals according to some data used to sell for nearly one billion US dollars - approximately the same amount as Russia mined that time.
- The State Repository for Precious Metalshad diamonds because it was buying them from ALROSA, Yakutalmaz. However, it has been buying a little for nearly 10 years. Now, after many years it started to buy again, as far as I remember last year and before last year, but not much, the exact figure may be given by Rybkin or Kutepov. In any case the State Repository for Precious Metals can never completely replace ALROSA.
- Probably you know whether De Beers has any reserves.
- You’d better ask their representatives.
- The former chairman of the Board of Directors of De Beers Julian Ogilvy Thomson once said that “in the diamond business more than in any other business confidence is needed in each stage”. But the word “confidence” apart from trust implies “secrecy, confidentiality”, so in one word there is both trust and secrecy.
- I don not think the citation of Julian is quite correct. Problems of De Beers are connected mostly with the fact that its activity is recognized to be violating the interests and laws of many countries and it has developed a certain code of conduct and office administration. However, the activity of De Beers as a company is absolutely irreproachable and transparent. It publishes absolutely accurate annual financial statements, implements applicable laws and regulations of countries in which it operates, has financial transparence, credibility etc.
- Could you as a diamond expert comment on the protracted conflict between De Beers and Lukoil over the Grib kimberlite pipe?
- This Arkhangelsk conflict has been continuing for 20 years now and the Grib kimberlite pipe which is richer than Lomonosovskaya’s does not work due to this litigation. I am not going to comment on this complicated situation, but I think that it is certainly better for the pipe to be developed.which is richer than Lomonosovskaya’s does not work due to this litigation. I am not going to comment on this complicated situation, but I think that it is certainly better for the pipe to be developed.
- Lukoil does not have a school of diamond mining, nor such specialists. Would it be reasonable to hand over this pipe to ALROSA and hand over to Lukoil, for example Yakutsk oil and gas fields?
- It would have been possible during the Soviet Union times. I think nobody but ALROSA can better explore this deposit. De Beers is also a well respected company, but if the law is not on its side…Today the complicity of the situation and it is common for many countries is that the state approaches to the development of mineral deposits are changing, countries are enhancing their influence on the trade and diamond cutting in Botswana, Angola, South Africa.
- What do you think about the decision of South Africa, Botswana and other African countries to change the whole procedure of rough diamond trade which are mined in these countries?
- Frankly speaking, it is the only thing that can result in substantial changes in the diamond business – their plans to establish rather serious lapidary companies. This certainly will change the situation in the world, but it will concern first of all Europe and America. I do not know whether it has been decided. I even heard that De Beers is no longer going to sell diamonds in London and will shift sales to South Africa, though it may be gossips.
- How will the accession of Russia to the WTO affect the diamond market?
- For diamond mining as well as for jewelry community it means nothing bad.
- If famous jewelry brands come here what should our jewelers who are attempting to create Russian jewelry brands do?
- Jewelry brands use cut diamonds, but diamond brands are not like jewelry’s. I think that even if customs regulations with respect to diamond export become easier, there will be nothing to worry about. Firstly, the best diamonds are made in the Smolensk factory and everybody knows that.
- Is it PR?
- No, absolutely not. Secondly we still have rather serious diamond enterprises making very good diamonds like Ruiz Diamonds and many other small factories. Therefore, as for the competition of our diamonds with foreign ones, there is nothing to be afraid of. If the diamond mining declines worldwide, all foreign lapidary and certainly jewelry companies that together produce much more jewelries than Russia will also be short of diamonds. So it is wrong to say that there will be an influx of diamonds here.
We in the Chamber of Commerce and Industry examined any possible consequences of Russia’s accession to the WTO for the jewelry and gold industry and nothing negative is expected.
Special to the Rough&Polished
