Rapaport Magazine

The North Diamond

Diamonds in northwest Russia are a new brilliant spot for the industry.

By Anastasia Serdyukova

Arkhangelskaya mine. Photos by Anastasia Serdyukova.

The red boggy earth in northwest Russia contains approximately 200 billion carats of diamonds. ALROSA, the country’s largest miner, is planning to increase production at the Lomonosov site by four times with a brand-new mining processing plant, which opened in late November 2013. The plant’s output is expected to eventually contribute up to 10 percent of ALROSA’s overall production. The company recently announced plans to increase annual production from the current 34.4 million carats to 41.3 million carats in 2021.
   The new factory has been built in thick Russian woods approximately 60 miles from Arkhangelsk, a city approximately 750 miles north of Moscow that is situated near the shores of the White Sea. It is designed to process 3 million tons of ore a year. Along with an older, adjacent factory, whose capacity is 1 million tons per year, the new facility extracts diamonds from the ore removed from two nearby open pit mines, Arkhangelskaya and Karpinskogo-1.
   The mines belong to ALROSA’s subsidiary Severalmaz. The company, whose name literally means North Diamond, has the license to develop four kimberlite pipes at the Lomonosov diamond deposit in addition to the two currently operating mines. Arkhangelskaya contains an estimated 47.9 million carats of identified deposits and Karpinskogo-1 contains 31 million, according to Russian state calculations. With only the older plant operational, Severalmaz produced 559,000 carats in 2012 and 423,000 carats in the first nine months of 2013. With the launch of the new processing factory, the company is planning to produce 1.66 million carats in 2014 and more than 2 million carats in 2015.

Mining Challenges
   “At the moment, the company looks confidently into the future,” said Sergey Gerasimov, the director of Severalmaz. “But it was a long and bumpy road.” A seasoned veteran of the industry who has worked in various segments of diamond mining in Russia and Africa, Gerasimov talks about the company as if it is his adolescent child ready to start a grown-up life. This child, however, was not without problems and even seemed hopeless at times.
   The Lomonosov deposit was discovered in the 1980s, but it was only in 2005 that the first processing plant was constructed and operations began. Mining at the deposit is challenging because it is located in a boggy area with soft earth, bordering a nature preserve. It is too far from Arkhangelsk to access its electricity. Over the years, the company was plagued with financial problems and disputes with local authorities over ecological practices. Some of its more ambitious projects were scrapped during the global economic crisis of 2008-2009. ALROSA was even rumored to be trying to sell the deposit to Rio Tinto in 2010. But recently, the miner decided to invest in Severalmaz, giving it a fresh start.
   “There is understanding that mining needs to be developed here,” said Gerasimov. Severalmaz’s deposits became more attractive after global rough prices rose and after ALROSA was forced to go underground with most of its Yakutian mines, increasing its expenses there. Developing the Lomonosov deposit is now part of the company’s overall strategy to expand its output. “There are several variations for developing Severalmaz, depending on diamond prices and the situation at the market, but in any case, we have good deposits that are expected to last for 60 years, based on current mining volumes,” said Gerasimov.


Soil, Weather Challenges
   Over 3,000 tons of ore are taken daily from the Arkhangelskaya and Karpinskogo-1 mines by large trucks with wheels that are almost six feet in diameter. Arkhangelskaya is approximately seven-tenths of a mile in diameter and 360 feet deep. Although it looks like other mines in Yakutia, the spiral road that travels to the mine’s floor is more difficult to build because of the softness of the soil.
   “It is easier to build in Yakutia because Father Frost comes and makes good roads,” said Gerasimov, referring to the effectiveness of freezing temperatures in hardening the road base in Yakutia. In Lomonosov, it is red-brown mud rather than frozen surfaces that covers most of the open pit mine and surrounding ground.
   The unusually warm weather for November brought more trouble for the planned 24/7 production cycle at the mine. Soft soil meant more expensive rubble and other road construction materials were required to construct roads. On the other hand, excavators are able to remove the ore from the mine without exploding the rock the way it is done at other mines. Gerasimov says the money saved on blasting operations is spent pumping out water that threatens to wash away the walls of the mine, which is located on a boggy moorland. The company already has drilled 26 wells and will drill 10 more in 2014 to lower the water level on a daily basis. The groundwater, pumped out of the soil at the speed of 46,000 cubic feet an hour, goes through a cleaning system and is poured into a special canal dug around the mining area.
   In addition to challenges related specifically to mining, the company had to build its own power plant and water-cleaning facilities because of the mines’ remote location. The fuel for machines and the power plant is delivered in special trucks to the site. “The bulk of the expenses is related to energy cost,” Gerasimov said.

High Price Tag
   The project has yet to produce a profit. Based on the company’s own estimate, Severalmaz will reach profitability in 1.5 years to 2 years. So far, it represents considerable investment. The company invested $385 million in Arkhangelskaya and the first factory between 2004 and 2011 and $325 million in the second factory’s infrastructure and construction between 2011 and 2013.
   At completion, the Arkhangelskaya mine is going to be at least 1,100 feet deep. At the moment, the company is excavating only adjacent ore, which contains around .50 carats per ton. In 2016, the mining will reach kimberlite and is expected to yield 1 carat per ton of ore. “We will probably have the richest years in 2020 and beyond when Arkhangelskaya and Karpinskogo-1 reach their full capacity,” said Ilya Zezin, deputy chief geologist.
   Karpinskogo-1, located next to Arkhangelskaya, is currently 130 feet deep and the process of digging the mine is still underway. It is projected that the first ore containing diamonds will be recovered in 2014. The two pipes were chosen to be developed first because they contain the largest volume of discovered resources and have the smallest layer covering the diamond-rich ore. Other pipes at Lomonosov, which altogether contain approximately 100 billion carats, have not yet had excavation plans drawn up.
   The ore of the two operating pipes, with their total capacity of 4 million tons of ore a year, is enough to keep the two processing factories busy. The ore is first ground and then sent through several separation processes involving weighting agents and lasers to produce diamond concentrate, a mix of diamonds with satellite gems, in the final stage of separations. Finally, the stones are grouped by hand according to color and size.
   The new factory is designed similar to those in Yakutia. Boris Shilnikov, head of the processing plant, came from that region. He explained that a big problem the company is facing in Lomonosov is the shortage of qualified personnel. Severalmaz employs 1,540 people at the site, mostly from the Arkhangelsk region, where it is the second-largest taxpayer. “We run special programs at the factory that teach workers the specifics of dealing with processing equipment, but there is a lack of qualified people to work on the separation processes,” said Shilnikov. With the help of Severalmaz, a department of mining was launched at the local university in 2005 in order to train potential employees.

Ecological Issues
   One of the big challenges for Severalmaz is to secure the ecological safety of production. “The ecology is very fragile in the area,” said Gerasimov. Although the company doesn’t use chemicals and the water used at the factory is rotating in the closed cycle, the company has faced much criticism from local ecological organizations over the years, mainly due to the fact that it is located next to a nature preserve. The concern was that the water pumped out of the mine into a special canal may affect a nearby stream that is home to various fish. There hasn’t been a scientific study yet on whether the production has any impact on the fish population.
   “The water in the canal is clean enough that we even offer it for a fish breeding facility,” said Gerasimov. He said that the company spent around $370,000 in 2012 on securing ecological safety, which includes cleaning facilities, water tests, observing local birds and animals. “There are regular monthly checkups of ecological safety, and if there are any complaints, they are minor operational recommendations,” said Vladimir Samofalov, Severalmaz deputy director dealing with legal issues. The company paid several fines over the years to settle ecology-related claims.
   The ecological issue causing much discussion currently is the future of tailings that contain saponite, a mineral that is present in diamond-rich soil. The mineral is safe to humans, and even used as fertilizer. But the tailings cover a large territory and reworking these deposits to remove the saponite would require additional permits and a separate processing facility.

What’s In A Stone?
   The Arkhangelskaya mine contains 15 percent jewelry-quality gems, 67 percent of near-jewelry-quality gems and 18 percent industrial stones. Most of the diamonds are white, while around 1 percent are fancy colors, including yellow, green, violet and pink. Three pink diamonds made from Severalmaz rough were sold at Sotheby’s in 2013. Zezin said that the percentage share of fancy diamonds may change when production is in full swing.
   The biggest rough diamond mined so far at Lomonosov is 106.64 carats. “Our diamonds are not fully evaluated because we don’t have a collection yet,” Gerasimov said, referring to a set of diamonds showing the full range of grades by which diamonds are evaluated by the Russian State Treasury. “That’s why our diamonds are sold at lower prices than they should be,” said Gerasimov, adding that the company will have a full collection “by the time the mines reach 2.5 million carats.” 

Article from the Rapaport Magazine - December 2013. To subscribe click here.

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