Rough&Polished brief: Valery V. Rudakov was born in 1942, his diploma specialty is Mining Engineer and he is a graduate of the Moscow Mining Institute. V. Rudakov’s first job was with the Yakutalmaz Group of Enterprises (turned ALROSA), later he headed the Main Administration for Precious Metals and Diamonds at the Council of Ministers of the USSR, then the Almazzoloto Corporation and the ALROSA Joint-Stock Company.
1982-1988 – Deputy Minister of Non-Ferrous Metallurgy of the USSR.
1999 – 2002 – Deputy Minister of Finance of the Russian Federation and CEO of the State Depository for Precious Metals. From 2002 up to now – Chairman of the Board of Directors of ZAO Polyus, Chairman of the Committee for Precious Metals and Gems of the Chamber of Commerce and Industry of the Russian Federation.
ALROSA President S. Vybornov speaking at the International Conference of diamond market participants in Antwerp expressed some polemic ideas and his skepticism towards plans to develop a diamond-cutting industry in Africa caused animated discussion on the sidelines of the conference. To what extent was he right from your point of view?
Having read Mr. Vybornov’s speech I should say that I agree with its major points. I would like to lay a special emphasis on his analysis of economic efficiency of lapidary enterprises with the ALROSA subsidiaries taken as an illustration. I always said that diamond cutters should not enjoy any preferences from mining companies and their government and that lapidary business risks should be their risks, not shifted to other shoulders. Many lapidary companies in the world are shipwrecked every year and this is a natural result of tough competition. It is impermissible to let mining companies suffer from this since the mining process and beneficiation require enormous investments and the capital turnover in this business is slow. This is why I quite agree with Mr. Vybornov when he says there should be no government-owned lapidary companies in Africa. If they will be government-owned, the risks will be born by the state budget and diamond-cutting companies will feel cozy in a hothouse environment, they will be out of competition lacking any economic motivation. In Africa, there are no lapidary schools and traditions, but this may be managed by attracting experts from Israel, Belgium and Russia. However, the plans to finance diamond-cutting mills from the state budget or from the budget of mining companies are vicious in their core.
In the USSR, all the industry was owned by the state and it could boast of major achievements, the “Russian-style diamond cutting” for example. May it be that this analogy inspires the adherents of African diamond cutting with state participation?
In the USSR times, this looked as follows. The government bought all the diamonds produced by Yakutalmaz and Uralalmaz. One hundred percent of these diamonds went to the State Depository for Precious Metals. Not only gem quality diamonds but also borts were sent to the State Depository for Precious Metals at quite tentative prices, which had nothing in common with world prices for diamonds. The government paid just some nickels to cover the production cost of rough diamonds and then the State Depository for Precious Metals sold them abroad, to De Beers, as it was well known, through Almazxyuvelirexport by virtue of a government decision. Diamonds were sold to our domestic lapidary factories at prices set by the State Committee for Prices. These prices were tentative; they did not match with the world prices in jewel diamond industries since they were many times lower. All the produced polished diamonds were passed over to Almazxyuvelirexport, which sold them all over the world, while in the USSR jewel diamonds were consumed in miserable quantities. The lapidary quality in the USSR was very high because there was an appropriate State Standard and all the deviations from it were punished. This State Standard contained very clear requirements, techniques and recommendations developed by our experts, which permitted to make almost ideal polished diamonds. This is why buyers purchasing Soviet diamonds were ready to pay a 10% bonus above their retail prices. However, our diamond cutting plants were not at all worrying about their actual economic efficiency since our domestic prices were tentative, artificial, the problems related to competition and real profit just did not exist. This was a socialist pattern of economy, there are no such patterns anywhere in the world now, and to follow such a pattern and its achievements today is impossible, this runs counter to common sense.
Maybe Mr. Vybornov’s speech was prompted by nostalgia for the classic strategy practiced by De Beers, which ensured market stability during many years: “The countries, which are mining diamonds, should sell them, not cut”?
Times change and any strategy, even a very shrewd one, should not be raised to worship. Any country may cut and polish diamonds it is mining. However, such a country should not make preferences for its lapidary enterprises. It should not give them an opportunity to stay out of competition. All lapidary enterprises in any country, be it Russia, South Africa, Angola or Botswana, should be private, commercial and should not have any advantages in getting rough diamonds for cutting and polishing. Because this will deprive them of their motivation - to survive and not to be shipwrecked one has to work hard, to cut skillfully and to sell well. If a lapidary company is owned by a mining enterprise their consolidated profit will never grow. There is just no sense in it. And here my position is in absolute sympathy with Mr. Vybornov’s position and with the old stance of De Beers in that diamond mining and diamond cutting should be fully separated economically. Diamond cutters may buy diamonds from diamond mining countries all over the world but on parity, i.e. to compete with each other. For instance, in their time ALROSA and the State Depository for Precious Metals set up a very good system for selling diamonds of +10.8 carats – only through an auction. This was the fairest way for mining companies, leaving a chance to earn for those diamond cutting companies which were able to and letting those which were not go bankrupt. It is impossible to make mining companies or one’s government to save such companies from bankruptcy.
Can the predicted recession in diamond mining lead to a sky high jump in prices and consequently to market stagnation?
The problem of decreased diamond mining is of current concern today and Mr. Vybornov is right in pointing it out. De Beers refused to maintain large stocks and they cannot be viewed as a source for replenishing rough diamond shortage any longer. However, I do not believe that diamond mining reduction will involve dramatic consequences for the market. Let us hope for the best in view of launching underground mines in Udachny, Mirny and Aihala, development of projects in the Arkhangelsk Region, prospecting likely deposits in Yakutia and in the Khanty-Mansiysk District. To my mind, we have a good basis to preserve our leadership in the world diamond mining industry.
Anna Tishinski, Rough&Polished
