(«Эксперт») - As far back as the beginning of the 20th century, Russian scientists paid attention to the significant similarity in the geological structure of the South African and Siberian platforms pointing to high probability of primary diamond deposits in Siberia. However, actual exploration for diamonds in Yakutia began in 1947, when Stalin ordered to send there pioneer expeditions. The first Yakut diamond was found and officially registered in the Vilyuy River basin in 1949. By 1953, the diamond placers discovered in the sediments near the Vilyuy and Olenyok Rivers started to be developed, but diamond-mining techniques were weak, based on washing and processing sand and gravel from the bottom or banks of the rivers, and did not give any information about the presence of kimberlite pipes in the area. The first diamond pipe was found in 1954, and by the end of 1955 there were discovered fifteen diamond pipes. A year later, in 1956, the Mir Mine started to be commercially developed.
The industry development was mainly based on mining operations at Mir and adjacent alluvial deposits. Major mines and factories were built and power plants commissioned during this period. Currently, Mir is the largest open-pit mine in the world, but totally, Yakutia has more than 200 kimberlite diamond deposits.
In 1963, the Soviet Union signed its first contracts for the sale of some part of diamonds to De Beers, an international diamond-mining corporation. In 1992, there was established Alrosa, an integrated joint-stock company (later renamed to CJSC AK Alrosa), on the basis of the operations within Yakutalmaz, a Soviet-time industrial association. In 2008, the agreement between Alrosa and De Beers was discontinued due to the decision taken by the antimonopoly service in the EU, and since 2009 the Russian company sells its goods in the world market independently.
In 2011, Alrosa was transformed into an open joint-stock company and its securities were admitted to free circulation in the stock market. In November of 2013, the company sold 16% of its stock on the Moscow International Stock Exchange, which permitted to determine its capitalization turned to be more than $ 10 billion at the time of bidding.
Andrey Polyakov, Vice President of Alrosa, told us about the prospects for the development of the company being the basis for the diamond complex of Yakutia.
- Prior to talking about the prospects of the company, I must say a few words about the prospects of the diamond market as a whole. According to expert estimates, the world market is to face shortage of rough diamonds in 2017-2018, caused by objective reasons. Global diamond output will decline as the existing deposits are gradually depleting, and there have been no really big discoveries (comparable, for example, with the Udachny Mine in Yakutia, or Argyle in Australia) for twenty years. At the same time, global demand for diamonds will increase due to the growing consumption of diamond jewelry, especially in developing countries, such as India and China. Emerging economies are witnessing a wonton expansion of their middle class, the major buyer of jewelry. Stable consumption and even growth are demonstrated by major markets - in the United States, Europe and Japan. So, on the whole, the diamond market has a fairly positive outlook.
In this environment, the rate of production and availability of mineral resources count much for any world-level diamond mining company. The development strategy of Alrosa, approved by its shareholders, takes these factors into account and suggests focusing on exploration and production of rough diamonds. Today, Alrosa is the world leader in terms of production of rough diamonds, and we intend to maintain our leading position. The company’s production development program is aimed at boosting output to more than 41 million carats starting in 2019 onwards, from 36.9 million carats in 2013.
- Due to what are you planning to increase production?
- Production will be increased both due to the development of existing projects and due to the commissioning of new minefields. A significant role in maintaining production levels is played by the program for constructing underground mines in Western Yakutia, being implemented by the company in the course of many years. In June 2014, Alrosa launched the last of the four underground mines, Udachny, which, after reaching its nameplate production capacity of four million tons of ore per year, will not only be the largest mine in Alrosa, but also one of the largest in the world. This mine alone will give the company more than five million carats per year. Besides, the Internatsionalny and Aikhal mines have already reached their design capacity (500,000 tonnes of ore per year). The Mir Mine went operational with a capacity of one million tonnes of ore per year. The transition to underground mining will allow the company to maintain high levels of production in Western Yakutia for many years, as open-pit mining on these diamond pipes has been completed, while at Udachny it is nearing its completion.
The company has good prospects developing such projects as Severalmaz in the Arkhangelsk Region. Last spring, Alrosa commissioned the second phase of the concentrating plant, increasing its capacity from one to four million tonnes of ore per year. This will boost production at Severalmaz to five million carats per year. In parallel, the company plans to put other minefields into operation. Stripping works are being completed at Botuobinskaya, which is part of the Nyurba Mining Division. Mining operations there may begin in 2015 yielding up to one and a half a million carats of diamonds a year. The company plans to develop the Verkhne-Munskoye Diamond Field, which is 180 kilometers from the Udachny Mining Division, and has confirmed reserves of 65.5 million tonnes of ore. Currently, the company is preparing a feasibility study for this project. Several new diamond pipes in Western Yakutia are earmarked for development.
Alrosa occupies a leading position in the world by the level of its resources. The company has enough mineral reserves to maintain the current level of production for at least another thirty years. However, Alrosa is investing in the exploration and development of new diamond fields to maintain and expand its reserves. Being the main area of Alrosa’s presence, Yakutia is of high priority to the company. The sufficiency of reserves will permit Alrosa to maintain high and steady levels of production for a long time. This means dividends and taxes to the budget of Yakutia, jobs, decent living and working conditions for the company’s employees and for the republic's population as a whole.
- How do you manage your work with partner companies?
- The distribution system of Alrosa is based on long-term contracts, under which we sell more than 60 percent of the rough produced by the company. These contracts concluded for two or three years guarantee that Alrosa has sustainable sales as a diamond producer and that its customers have sustainable rough supplies. They also serve as protection against possible volatility in the global diamond market. This is the main advantage of such contracts, as price swings are equally negative both for diamond producers and for diamond manufacturers.
Our long-standing and trusted clients having their own diamond cutting and jewelry manufacturing companies form the Alrosa Alliance. We pursue the most responsible approach to their choice. Any company qualifying to join this club must meet a number of criteria; in particular, it should have the necessary licenses and show stable performance in terms of turnover and liquidity.
Last spring, Alrosa developed and adopted the Guidelines on Responsible Business Practices for Alrosa Alliance. Our partners must fully share the objectives and principles of the Kimberley Process and ensure conflict-free origin of diamonds sold by them, they must operate in accordance with the principles of just and fair competition, counter bribery and corruption, comply with financial transparency and disclosure. In addition, the participants of Alrosa Alliance should strictly observe human and labor rights and protect the environment. Participation in Alrosa Alliance is a proof of high level of professionalism and credibility to the diamond market and a testament of fair name for member companies. Failure to live up to at least one of these principles may result in terminated cooperation with a client.
- Should diamond manufacturers expect any qualitative or quantitative change in the supply of rough diamonds from Alrosa?
- We foresee higher production and therefore a quantitative growth in the supply of rough diamonds to market players. However, it is worth keeping in mind that even diamonds mined from the same field are extremely heterogeneous. Ore may contain stones of different size, color, shape and quality. This is the specificity of the diamond business: each diamond is unique and to have two identical stones is impossible a priori. This explains the variability of rough sets in the boxes, which Alrosa sells to customers. Besides, their assortment is influenced by market conditions: demand may change depending on the season, economic situation and trends in jewelry consumption.
Alrosa’s sales policy is now completely based on the Regulation on Procedure and Conditions for Rough Diamond Sales developed in team with the Federal Antimonopoly Service of Russia. The document guarantees equal access to rough and uniform procedures for sorting and making up sets of diamonds to be put in boxes for all customers, regardless of their geographical location and the amount of purchased rough. This practice makes Alrosa’s sales as transparent as possible for market players.
- Does the company plan to develop its own diamond manufacturing?
- Today, the company’s diamond manufacturing is represented by Brillianty Alrosa and two subsidiaries in Orel and Barnaul, whose main function is to monitor the market. Our units receive the same boxes as the clients of the company, they produce polished diamonds from the rough they get and then sell these polished diamonds independently. This allows us to get information about the state of the global diamond market.
We are considering the possibility to increase production of polished diamonds in cooperation with the world's largest jewelry houses. In addition, we have reached an agreement for the sale of stones made by Brillianty Alrosa at Christie's and Sotheby's, and over the past year we already sold a few stones through these auction houses. It should be said that we auction especially large and high-quality diamonds. These are one-of-a-kind goods and such sales are small in terms of money, but such cooperation will contribute to the promotion of the Alrosa brand and Yakut diamonds in the world market.
