Rapaport Magazine


By Svetlana Shelest
ALROSA Production Up

In the first three months of 2015, ALROSA mined 8.4 million carats of rough, an increase of 6 percent against 7.9 million carats produced in the first quarter of 2014. The increase was driven by expanded production at the company’s Botuobinskaya mine, Severalmaz division and Mir mine.
   The Botuobinskaya open-pit mine, launched into operation in March, produced its first 313,000 carats. At the same time, production was stepped up at the Arkhangelskaya and Karpinskogo-1 pipes of the miner’s Severalmaz division, the designated driving force of the company’s strategic long-term development plan to increase annual production volume to 41 million carats by 2023. As part of this plan, Severalmaz mined 450,000 carats in the first quarter of 2015, which is an impressive 93 percent jump from the same period a year earlier.

Flooding Solved
   The first-quarter performance this year was also boosted by rough from the Mir underground mine following the company’s successful resolution of the pipe’s flooding problem, which had affected operations since 2011. As Igor Sobolev, ALROSA’s first vice president in charge of production, explained, due to certain geological conditions that were difficult to forecast, the flooding exceeded the design capacity of the mine’s pumping system five times by the end of 2013.
   In response, the company spent most of 2014 upgrading the Mir pumping system. “Now that the problem is fixed, we plan for Mir to process 750,000 tons of ore in 2015, and to reach its design capacity of 1 million tons in 2016,” said Sobolev.
   While quarterly year-on-year production was up in 2015, total production in the first quarter 2015 showed a 21 percent decrease from fourth quarter 2014. According to the miner, this was due to the planned maintenance work launched at one of the Aikhal Division’s processing plants.
   ALROSA estimates that preliminary first-quarter 2015 sales have reached 9 million carats of rough, including 7 million carats of gem-quality diamonds, which were sold at the average price of $161 per carat, and 2 million carats of industrial-grade diamonds fetching an average price of $8 per carat. The miner is projecting first-quarter revenue from rough diamond sales to exceed $1.1 billion. While the company has experienced a 3 percent drop in sales prices in the first quarter due to a weakening market, it is hopeful that the situation will improve in the summer.

Kristall Raises Red Flag
   Kristall Smolensk, Russia’s number-one polisher, announced its production and sales results at a recent board of directors meeting, which took place in Moscow. In 2014, the company produced a total of 121,000 carats of polished, generating revenue of just under $238 million, exceeding its projections by 17.5 percent. However, in his interview with Rapaport Magazine, Maxim Shkadov, Kristall’s director general, pointed out that this gain does not reflect the overall state of the current rough and polished market. “Our performance indeed improved when calculated in rubles, which is our main reporting currency, but that is accounted for by the surge of the ruble-to-dollar rate that occurred in December 2014. In dollars, however, the picture looks different and shows that our sales actually significantly dropped in 2014 compared to 2013 by some 7 percent to 8 percent.”
   The main problem, explained Shkadov, is the disparity between the high rough and low polished diamond prices, which is severely undercutting the polishing industry, a low-margin business by nature. “The gap between the rough and polished prices has already reached the unsustainable 15 percent to 20 percent,” continued the head of Kristall, “whereas for the polished business to actually be efficient, this gap should close up by at least 10 percent, and for some categories of rough, such as the IF, D to E color diamonds, even by 15 percent.”

Optimism for the Future
   In the meantime, the hope is that bigger changes will result from the cooperation of the mining and banking sectors of the global diamond industry. Gokhran, Russia’s State Precious Metals and Gems Repository operating under the Ministry of Finance, approved a purchase of $60 million worth of diamonds from Kristall Smolensk to support the country’s polished market and as a long-term investment in Russia’s diamond reserve stock.
   Shkadov also expressed hope for a fruitful cooperation with ALROSA under the presidency of the recently elected Andrey Zharkov. Zharkov has served as chairman of Kristall’s board of directors since 2010 and has solid inside knowledge of the polishing industry.

Article from the Rapaport Magazine - June 2015. To subscribe click here.

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