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Alrosa Puts Lower-Value Mines on Hold

Feb 12, 2020 4:00 AM   By Joshua Freedman
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RAPAPORT... Alrosa has paused production at certain lower-value deposits as the diamond industry continues to face an inventory imbalance and external challenges, its CEO said.

The Russian miner placed on care and maintenance select alluvial mines that contain diamonds priced at $50 to $60 per carat, Sergey Ivanov told members of the trade at the International Diamond Week in Israel on Monday.

“In case the market recovers, it will take us three to five months to reopen these deposits, but we don’t think it will be a wise idea to do it this year, maybe not even 2021,” Ivanov explained. “These diamonds…will wait for their time, lying in the permafrost.”

The miner plans to reduce output 11% to 34.3 million carats this year, it said in November, helping deplete the significant stockpiles that built up in 2019. Alrosa started the year with more than 22 million carats of rough in its inventory, of which around two-thirds were gem-quality diamonds, the CEO added.

The lower production will help stabilize the market, Ivanov said, giving assurance that Alrosa “understands its responsibility” and will not push excess goods to the trade during the current difficulties. Manufacturers continue to report thin profit margins from converting rough to polished, while there remains an oversupply of certain polished categories.

The outbreak of the coronavirus in China and the surrounding region has added to the concerns, with luxury sales in China almost nonexistent in the past two to three weeks, Ivanov said.

“The impact [of the coronavirus is] already quite heavy,” the executive said, cautioning that more information was necessary before he could make a clearer prediction of the longer-term effect. “We understand that our clients are very cautious about what is happening, and they are also evaluating their strategies for the Asian market for the second quarter.”

January sales

Alrosa’s rough sales rose 40% year on year to $390.2 million as cutters restocked following the holiday season, the company reported separately on Monday. However, that was before the public-health crisis that resulted in uncertainty about future polished demand and a February slowdown in the rough market, Ivanov noted.

Alrosa maintained its lower minimum purchasing requirement for clients in January, a policy that has been in place since August. That’s unlikely to change at the February sale, which began on Wednesday, or in March, Ivanov said.

The company’s polished sales jumped to $14.8 million in January from $3.4 million a year earlier, reflecting its recent acquisition of Russian manufacturer Kristall. Total diamond sales rose 44% to $405 million for the month.

The International Diamond Week in Israel started Monday at the nation’s bourse in Ramat Gan, and runs until Wednesday.

Image: Sergey Ivanov, CEO of Alrosa, speaking at International Diamond Week in Israel. (Rapaport News)
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Tags: Alrosa, Israel, Joshua Freedman, mining, rough
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