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Russia
By Anastasia Serdyukova
Russia’s largest private oil company Lukoil has launched a processing factory at the Grib diamond mine in northwest Russia as it starts full-scale operations at the site. The company is planning to sell the first 160,000 carats in September.
Grib kimberlite pipe, with estimated deposits of 100 million carats, was discovered in 1996 at the Verkhotina diamond field. For more than a decade, it was at the center of litigation between De Beers, its subsidiary Archangel Diamond Corporation (ADC) and Lukoil’s Arkhangelskoe Geologodobychnoe Predpriyatie (AGP), a Lukoil subsidiary that holds the license for developing Verkhotina.
The dispute was finally settled in 2008 and plans were for the companies to develop the deposit together. But by the end of that year, De Beers dropped out when the deal did not receive government approval by the time established in the contract. With its 100 percent ownership, Lukoil has invested $1 billion since then in the construction of the processing plant and the development of the mine.
Since January 2014, the company has recovered 340,000 carats from the mine, the director of AGP Maksim Mescheryakov told Russian news agencies. He said that the company is planning to reach production volume of 200 carats a month by the end of 2014 and 300 carats a month in 2015. The company said it is considering various options for how to sell the diamonds to the market. Vagit Alekperov, the head of Lukoil, said the company is working with the state treasury Gokhran to have it establish the value of the diamonds.
By 2018, the plant is expected to reach its full annual production capacity of 4.5 million tons of ore. The return on investment will be achieved in seven to eight years and the income yield is 16 percent. The company is planning to excavate 58.4 million carats over the next 16 years at the open pit mine, which is expected to exceed 1,500 feet in depth. Underground mining is being considered at the site for further operations.
There have been frequent speculations over the years that Lukoil would sell the deposit to ALROSA, the country’s largest diamond company, especially since the miner is developing its Lomonosov deposit a few miles away and launched its processing plant there in November 2013. “Diamond mining is not our core business, but this asset has its price. We are ready to consider ALROSA’s proposal for the purchase of this asset, because this is their core business,” said Alekperov. Yet sources close to ALROSA said there have been no actual negotiations on such a deal.
The Russian Ministry of Finance is working on amendments to the federal legislation on precious stones that would regulate the sale of synthetic diamonds. At the moment, the term “synthetic” or any of its usual synonyms is not even mentioned in laws covering precious stones. This means if a company is selling jewelry with synthetic diamonds and doesn’t disclose they are synthetic, it is not breaking any law.
Although there is no firm statistical evidence, industry participants say there have been a number of cases where synthetic or treated stones were sold as natural. “This situation is creating the risk of consumer rights violations and damages the reputation of the whole industry,” said an ALROSA representative. The mining giant has sent its proposed legislative amendments addressing the synthetics issue to the Ministry of Finance.
“We need to have natural and synthetic stones legally separated,” said Aleksandr Akhpolov, the head of the finance ministry department overseeing the industry. “The situation is the same as it was with pearls decades ago. And if we don’t deal with it now, the trust in the jewelry industry will fall.” Akhpolov said the amendments may be introduced to the parliament by the end of 2014.
ALROSA is planning to increase the production of unique x-ray equipment for the industry. The company’s branch, OJSC NPP Bourevestnik, which has been engaged in the production of such equipment for decades, is to oversee the construction of a new manufacturing facility in St. Petersburg.
Currently, Bourevestnik produces x-ray luminescent equipment for diamond recovery for ALROSA and other leading diamond producers. The company holds approximately 25 percent of the global market for x-ray separators. Over the past five years, its sales have increased threefold to approximately $20.3 million in 2013. The new center is scheduled to open in 2016.
Jewelry sales have slowed considerably in June and at the end of May, falling behind the volumes of 2013. Jewelers explained that most consumers simply have less money. The New Russian Style jewelry show, held at the end of May, revealed that customers in the low and middle segments of the market are not willing to pay even 2013 prices. Retailers reported they are being asked about discounts more often. In the high-end segment, the situation is different. Jewelers said they didn’t see any decrease in sales from their regular customers.
Article from the Rapaport Magazine - July 2014. To subscribe click here.
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