Igor Sobolev, First Vice-President and Executive Director of ALROSA, told the Prime News Agency about the company’s production activities, construction of underground mines and prospects for new deposits.
Question: What is your view of ALROSA’s performance in 2011?
Answer: Last year, we achieved all the planned targets both in terms of construction works and carats mined. Mainly thanks to this, the company’s financial results for the year stood at a record high RUB29.5 billion net profit, never gained before in its history.
On the whole, production output in the ALROSA Group totaled 34.6 billion carats, which is the highest in the world. I want to emphasize that ALROSA is a world leader in diamond production (by carats) for the third successive year outstripping De Beers. Although, it is clear to the industry experts that it is not quite correct to compare ALROSA and De Beers in terms of their output. The ALROSA products comprise small-size grades that are not mined by any other company. The cut-off size in ALROSA is 0.5 mm, while De Beers, for example, mines rough from 1.5 mm in size and more. In our mining output in terms of carats small-size stones, the so called bort, account for about 35 percent.
Industrial rough diamonds are cheap and in 2011 they were valued at $7.7 per carat, which makes about 1 percent in the revenue after sales. For comparison, the average value of our gem-quality diamonds is about $210 per carat.
Q: If industrial diamonds are so cheap, how expedient is it to mine them?
A: We cannot help mining them since, as a rule, this is required by the license. But we do not mine them at all the diamond fields, but only where it is economically efficient.
Actually, mining costs associated with these small-size diamonds are small. Both small-size and large-size diamonds are recovered from the same ore, which undergoes crushing and subsequent beneficiation at the factory, no matter what the diamond sizes are. Actually, to extract small grades you will need only one additional processing stage at the factory - for instance, foam separation. Where we do not recover small grade diamonds, factories have no foam separation.
This being said, we have learned to sell this kind of rough rather efficiently. Nowadays, it is in steady demand and not only for industrial purposes. It is also purchased by Indian companies, which sort it out, select grains of regular shapes – cubic ones or plates. Then they cut them and use in jewelry manufacturing.
You probably encountered such a jewelry design when several large polished diamonds are surrounded by a lot of small-size stones. These are made of our industrial diamonds. Commeral, our subsidiary, which is engaged in selling “bort”, is nowadays looking for a technique to sieve these small-size diamonds to sort out regular shapes and sell them separately. This will raise their price markedly. Right now, they are sold in bulk and at “bort” prices.
Q: What were the main production tasks facing the company in 2011?
A: In recent years, we are practically at the same level of production in compliance with the license requirements and the capacities of our deposits. The main task facing the company nowadays is to build and start up the underground mines. This is a necessity as the reserves of the currently operating mines are depleting.
At present, mining is in full swing at the Internatsionalny diamond filed and at the second stage of the Aikhal mine; we have also started operations at the Mir mine and the Udachny mine is to be launched soon. We did much under this programme in 2011. First of all, all the construction works were completed at Mir, and now we shall gradually bring it to the designed level of production of 1 million tonnes of ore per year.
Q: What is the production level at Mir now?
A: The Mir mine could operate at a higher output rate, but, frankly, the mine did not complete its targets, though this can be explained by objective reasons. There started unexpected water seepage into the mine. In 2011, this resulted in an output of 340 000 tonnes of ore instead of 500 000 tonnes. But in any case, we consider the Mir Mine start up successful as it began to produce substantial volumes of ore.
Q? Where was this water from, what was the reason?
A: The area where the Mir Pipe is located is crossed by the Metegero-Ichersky Water-Bearing Horizon. This aquifer was uncovered at the stage of open-pit mining. Now, water comes down into the open pit at the rate of 1200 cubic meters per hour. That is why as per the underground mining project for this depost, all the water from the Mir quarry should be continuously pumped out and pumped into the fractures found by geologists in the earth crust. At present, we have built an underground mine under the open pit, so consequently, this water is above the mine. As per the project, water inflow is expected to be 40 cubic meters per hour, of which 16 cubic meters is the water coming from drilling and other operations. Underground water-removing is designed to have excessive capacity of 240 cubic meters per hour.
But last year, two pumps which were draining water from the open pit failed - one was new, the other was after repair. The remaining pumps were insufficient to cope with the water volume and the pit was flooded. The water level rose by 20 meters resulting in 2 more atmospheres of pressure on the bed. Certainly, under this additional pressure water flew into the mine through micro bed joints.
We decided to replace pumps and ordered new ones, but they were delayed at the customs, so, it took about 5 months to solve this problem – untill October. But when the pumps were brought and water was pumped out from the pit down to the level required, the inflow of water into the pit did not decrease. While the pit was flooded, the water washed out salt inclusions in the rocks and the micro bed joints became large. Nowadays, the speed of water inflow into the pit is about 170 cubic meters per hour, that is, 4 times more compared to that specified in the project.
Q: Could there be a solution to this problem?
A: Yes, now we are working on it, trying to reinforce the crown pillar, pumping clay and cement mortar into it that will make it waterproof.
But the increased water inflow brought about one more problem. The R&D Institute that made the water drainage project during the mine operation does not advise to carry out blasts with such an inflow of water. Meanwhile in 2011, we scheduled to carry out experimental and industrial tests and mine some part of ore at Mir by a regular heading machine method, and some part – by the drill and fire method. But now it is not recommended to shake the mine with seismic waves resulting from drill-and-fire operations. So, meanwhile, we won’t be able to use the drill-and-fire technique at Mir, that is why we need to buy heading machines, deliver them, hire workers – and all this takes time.
Q: And, probably, it will impact your production output?
A: We scheduled to reach the designed production level of 1 billion tonnes of ore per year at Mir in 2013, but now we realize that we won’t able to do it – most probably, it will be done in 2014, if we solve all the problems with water.
Q: It is clear about the Mir mine, and what is the progress in the construction of other underground mines?
A: At the Aikhal diamond field we commissioned the second start up complex with a capacity of 250 000 tonnes of ore per year in 2010. By the way, it contributed to the results of 2011, since Aikhal increased its output by about 30 percent. We have already completed the construction of facilities there which will enable us to mine 500 000 tonnes of ore per year. Right now, we shall start developing the deposit there, and the miners are expected to bring the mine to this capacity. I believe we shall do that in 2012.
Q: And Udachny?
A: We are wrapping up open-pit mining at Udachny. The design pit depth has already been reached, and the quarry is exhausted, but it was decided to work out near-edge pillars as well – they still contain some ore. Now we are in the process of expanding old and making new exiting tracks and we are also purchasing equipment, which will operate at high inclination angles. But the level of production from the near-edge pillars will be very low, at about 1 million tons per year, so we are expected to produce 4 million tons in 2014. It should be said that Udachny used to turn out 12 million tons of ore per year at the peak of its operation. These 4 million tons will not make the weather, but nevertheless, it is also ore, it is also profitable. The prime cost of open-pit mining is significantly lower compared with underground mining, so any open-pit operation would be economically advantageous.
Q: So, open-pit mining at Udachny will be terminated in 2014, but when will you start underground operations?
A: We are to start “going underground” in parallel, in 2014. And we plan to increase our performance up to 2.3 million tonnes of ore per year in 2016 and up to 4 million tons of ore in 2017.
Question: At what stage is the construction of the mine?
A: We passed an important stage at Udachny in 2011 making a cut-through between the open pit mine and pit shafts, so now the mine has no problems with ventilation, and we established a stable power supply and stable unwatering. In this regard, whereas before we were able to maintain operational a maximum of 4 fore-heads at a time, now we are limited in our operations only by the amount of equipment. The scale of mining operations will increase significantly and we are entering a phase of intensive underground construction.
This year we shall have an important intermediate stage launching a pit shaft to hoist down people and cargo. We shall make a cage to move down people and equipment to the pit. Again, we shall not spend time on descent via the quarry along its hairpin turns, which takes 40 minutes. This is also an important step that facilitates and accelerates future operations.
In this regard, already this year we shall create a site at the Udachny Mine, which will operate within the ore body. We have two reasons for this. First, we are putting together a work team right now, that is, people will have time to gain experience. And secondly, we are starting development and face-entry drivages in parallel with the construction, i.e. we are developing mine workings in the ore body. Typically, the first thing to do is to build a mine and commission it and then start works to prepare an ore body for mining operations. We shall perform these processes simultaneously, so that we can save time and quickly bring Udachny to its full capacity.
Q: Will you mine the usual way, using heading machines?
A: No, Udachny is for us a unique mine in terms of operating techniques. We use heading machines in all our fields and apply cement-sand mixture for goaf stowing. At Udachny, we shall collapse mine rock by way of the drill and fire system. That is, we shall drill a system of wells, then blast mine rock and let it out to a special horizon, after which it will be transported to the pit shaft, from which it will be moved to the factory. Then another system of wells will be drilled at a lower level. Thus, the bottom of the pit will continue to go lower and lower following the continuously deepening mining works. We shall start at the level of -780 meters, then will go down to -880, after which we shall reach the one-kilometer depth.
There is yet another unique technological solution which is the organization of drainage system. All the water – groundwater and water from the pit - will be collected and pumped to the surface by a system of six pumps at a depth of 980 meters. The maximum peak water influx, which is possible, is 10,000 cubic meters per hour. For example, if there is rain, then all the water from the quarry will flow down like through a funnel, and the quarry has a very large area. The project stipulates that all we shall be able to intercept all this water and bring it out to the surface, aborting any possibility to cause harm to the mining operation.
Q: Why have you chosen exactly this way of mining?
A: Udachny’s ore is rather lean, its diamond grade is only 0.9 carats per tonne. Production cost there is rather high taking into consideration goaf stowing, which accounts for about 40% of the cost. If a mining field has lean ore and is to be mined with goaf stowing, this kind of mining will be loss-making. The rock collapsing system is much cheaper and is considered the most effective way for this deposit.
At Mir, and This method is impossible to use at the Mir and Internatsionalny Mines because of the aquifer. The situation at Udachny in this regard is simpler, there is no head water there. Besides, the drill and fire method has its negative side. Blowing up the rock mass, you cannot control if you have taken 100% of ore or not. Accordingly, this mining method results in a much lower rate of mined ore: using the classic way we take out 98% of ore, while the drill and fire system yields around 85%. For low-grade ore, these losses are not critical, but in case of high-grade ore they will be visible.
Q: So, in 2014 you will already have finished production in the open pit at Udachny. Open-pit mining at Mir and Aikhal has already been stopped. How about the Internatsionalny Mine?
A: The Internatsionalny Mine has reached its design depth a long time ago. In 2009, it was decided to resume production there to finalize the reserves by way of open-pit mining within three years. The previous (2011) year was the last year - the Internatsionalny quarry ceased its operation.
Q: And what will happen after 2014, will you have open-pit mining somewhere?
A: Open-pit mining will remain at the Yubileiny Mine. The Komsomolsky and Nyurbinsky quarries will be put into operation after the reconstruction. Starting from 2013, we shall begin capital mining operations at the Botuobinsky quarry to put it into operation within two years. We shall also engage the Nyurbinskaya alluvial field; we are drawing up a project for the Zarnitsa diamond pipe held by Udachninsky GOK; we are conducting exploration works and in 2016 we shall start construction works on the Verkhne-Munsky field.
In addition, we are getting ready with projects for the Zarya and Dalnyaya diamond pipes. In other words, from the reserves point we are well off for many years ahead, and we shall use open-pit mining to produce quite a hefty share of rough.
Q: Maiskaya, Dalnyaya and Verkhne-Munskoye – these are all new deposits, the licenses for which you received just a few months ago. Could you tell us what you are planning to build there?
A: So far it’s too early to speak about specific output data for these diamond fields. We started exploration works on all of these fields in 2012. After their completion, we shall develop a prospecting feasibility study – this is an intermediate stage during which we calculate the amount of diamonds in the ground and how much they cost. This will be followed by an investment feasibility study.
In November 2011, the company received a state certificate for the discovery of a new diamond field, Zarya, confirming its path-breaking status. Today we can say that Zarya is a simple diamond deposit in terms of its development. We'll build there only an open pit, and of course some infrastructure – a water collecting ditch, power line, etc. To process ore we shall use the existing processing factory, No. 8.
Q: And what can you say about the Verkhne-Munskoye diamond field?
A: Verkhne-Munskoye is altogether a separate field, located 180 km from Udachny. It will have its own factory, tailing dump and residential village. At present, we have taken there a large-volume sample, which is important for the prospecting and investment feasibility studies, after which we shall get ready with a project for this mine. So far, it is assumed that in 2015 we shall bring materiel to this filed to begin construction in 2016.
Q: To what extent the new deposits are able to make up for lower production due to depletion of the existing mines?
Answer: If all the new fields will go on-stream, we can even increase production. Our development strategy makes provisions for growth in production up to 40 million carats in 2020.
Q: Why do some media say about possible decrease in output?
A: I think they had in mind a short-term period and this is associated with the problems at Mir. I have already spoken about the situation with water inflows - of course, now we have to shift from mining to solving technical problems. Currently we are reviewing the plan for 2012 at the level of 622,000 tons of ore, and it is not excluded that it will be reduced even further. On the other hand, we shall partially eke out this fall by way of additional processing of ore from Internatsionalny and from the depot of Udachny.
Recently, ALROSA shares started to be traded on the stock exchange, so we are committed to inform investors about all associated risks to ensure transparency. For this purpose, we have reflected all the possible technological risks in a worst-case scenario. The latter, for instance, assumes that the Mir Mine will not be able to bring to grass 1 million tons of ore in 2013, but only 850,000 tons. Or, for example, the Undachny Mine is to produce 4 million tons of ore in 2017, but as this mining system is new for us, there is always a chance that something might go wrong. Therefore, in the worst-case scenario, we assume that Udanchny will turn out three million tonnes of ore per year. This will hardly happen, but we must take into account such a scenario as well.
Q: When it comes to cost-effectiveness, you mentioned that underground mining is more expensive that open-pit mining. Essentially, this means that the company’s operating costs will only turn higher, one way or another. What kind of opportunities are there to reduce them?
A: One way or another, increased costs during the transition to underground mining are inevitable. But Alrosa is not alone facing this problem - anyone is now dealing with this situation.
The introduction of drill and fire method in mining is one of the options to reduce costs: instead of driving a few workings using a heading machine we shall have to drive only one from which blasting holes are drilled. A heading machine costs 250 million rubles, and it has a limited production capacity and is wearing out.
Unfortunately, we could not test this method at Mir, but this year we want to conduct such tests at Aikhal. We shall assess the effect of the drill and fire method for the preservation of diamonds. If this proves to be efficient, we shall use it at Aikhal as well.
Besides, we have launched a clinker scheme at Mir. Now we are not bringing cement to the mine, which is quite expensive, but clinker – we burn it, grind it and get cement right at the mine. So far, we have not calculated the economic impact, which can only be evaluated when the mine will be brought to full capacity. But it still makes it possible to reduce costs.
