Vladimir Cherenkov
Leading Expert, Mineral Information-and-Analytical Center

Yubileinaya Pipe

R

ussia has a diamonds mineral resources base, which is considered one of the world richest — ahead of all other countries in explored reserves. There are several unique deposits — for example, in the Mir deposit the cost of diamonds is over $30 billion and more than $40 billion in the Udachnaya deposit. But these riches are difficult to be extracted. The diamondiferous pipes are not far from Arctic Circle, with some of them located even north of it in the area of solid frozen rocks of up to 400 m in thickness. As to mining conditions, the deposits are comparable to Canadian deposits in Northwest Territories.
Russia accounts for 25 to 30 % of world output of diamonds in weight and about 20 % in value. This sector is in fact monopolized: 99.8 % of diamonds are mined by ALROSA JSC controlled by Russia’s Federal Committee of State Property Management (37 % of shares) and State Property Management Fund of Republic of Yakutia (32 %). The top managers of ALROSA claim that the company is provided with its own raw materials base for 40 years ahead. Naturally, its development calls for big investments.
In the Siberian diamond province (Republic of Yakutia) there have been built the towns of Mirnyi (50,000 inhabitants) and Udachnyi, several large settlements, the high-power Vilyui Hydroelectric Plant, a gas main and highways. Diamonds are mined at four big mining and concentrating complexes, and a fifth is being constructed. Each complex has open pits and/or underground mines together with concentrating plants. Ninety seven percent of diamonds are extracted from kimberlite pipes.
Nearly half of Russian diamonds comes from the Udachnaya Pipe where high diamond content is combined with good quality. The operations are opencut, the pit depth is now more than 500 m, with a maximum designed depth of 600 m.
The Yubileinaya Pipe ranks second in output and first in area. The open pit is planned to be as deep as 500 m, thus maximizing the mining of kimberlite containing a high content of diamonds. The mining started in 1996, and opencut operations are designed to last 27 years. The concentrating plant has the world largest autogenous mills of Svedala make.
On completion of opencut operations an undeground mine has been built at the Internatsionalnaya Pipe (over 100 m in diameter), which has a very high content of diamonds with good quality. In 2002 the output tonnage reached the designed value, 500,000 tpy. Thus the deposit became Russian third in output. The mechanization level is rather good. In blast-free breaking, combined machines improving indestructibility of diamonds by 20 to 25 % are applied. Along with it, this pit is attributed to a super category in operating conditions (concentration of methane, hydrogen and hydrogen sulfide). Here a wide-range centralized computer system of monitoring and gas coverage, MineSCADA of Davis Derby Ltd. (UK), had to be installed.
An underground mine is under construction at the Aykhal Pipe where the opencut operations were completed at a depth of 320 m. In 1997 a research section was set up for mining reserves below the pit level by an underground method. The mine is to reach the designed capacity in 2007.

In 1949 first diamonds were found in Siberia, five years later the first Russian vein deposit (the Zarnitsa Pipe) was discovered. These events resulted from a spectacular forecast of Russian geologists. They persuaded the USSR rulers to have own deposits of diamonds that, along with uranium, became strategic raw materials after World War II.

Apart from the Yubileinaya and Aykhal Pipes, in the area of the Aykhalsky Mine & Concentrator there is the Sytykanskaya Pipe, whose opencut mining was recently completed, as well as two reserve deposits prepared for mining likely to be commenced in the near future.
In 1997 the mining of the Zarnitsa Pipe detected as far back as in 1954 began. The ore of this deposit is processed at the same concentrator as the ore of the Udachnaya deposit thus compensating the depletion of the latter. On the first sampling, Zarnitsa was attributed to unprofitable projects due to its low content of diamonds. However, an up to 300 m-deep exploration revealed that the pipe kimberlite contained much more large gem stones of good quality than it was predicted before. A large area (32 hectares), a simple morphology and an absence of overburden rocks along with a slight in-depth neck-down and a deep seat of underground water are considered to be the advantages of the pipe. Here the pit can be as deep as 400 m, and the mining operations will continue till 2020.
Up to the end of 1980s the Mir Pipe was the main diamond deposit in Russia. In the last decade the mine was regularly reconstructed. The major complication was very powerful water inputs from brines underlying the frozen earth. Up to a depth of 450 m the operations were shielded by unwatering boreholes and drainage. The brines were pumped into special absorption wells but 30 percent of water re-entered the pit. The tamping wall as a solid concrete cylinder enveloping the pipe had to be constructed. Thus shielded, the pipe was mined up to 520 m and conserved after that. At present the stored ore is applied to keep the operation of the complex. However the pipe still has reserves explored as deep as below 1000 m. By the words of Vladimir Kalitin, President of ALROSA, the cost of diamonds mined in the Mir pit for 45 years of its operation amounted to $17 billion, and the balance cost is over $10 billion. Now experts are elaborating an optimal scheme of pipe development and underground mine flowsheet. The construction is unlikely to be completed before 2010.
Apart from production units, ALROSA has to keep the whole industrial and social infrastructure in the diamond mining area. The corporate personnel is about 40,000, with a large proportion in auxiliary departments. Nevertheless, ALROSA remains an efficient producer. As estimated by Coopers and Lybrand (an auditor), ALROSA profitability is about 30 %.
During the set-up, ALROSA was granted with the right to not only mine but also grade and sell diamonds, including world markets. In so doing, the company concentrated all spheres of the Russian diamond business in its own hands. Under the State Program for Development of Diamond Complex for 2000 to 2005, for the years elapsed ALROSA was to increase an output by 30 % in this period, reaching $2 billion per year in value terms. But already in 2001 the output fell by 22 % as compared with 2000, and another 10 % in 2002. The corporate managers announced that in 2003 the output would not be raised.
Evidently the modernization has not permitted a radical turn in the situation to be made so far. It was required to expand underground mining operations and develop reserve deposits with simultaneous active search of new fields to carry out mining by the cheapest opencut method. ALROSA is trying to enhance its capabilities. It recently completed the construction of the Internatsionalny underground mine, which already produces a substantial part of the total output, and the Aykhal underground mine. Meantime the company carries out preparation for the construction of a similar mine at the Udachnaya Pipe The company predicts that in five years over 45 % of its diamonds will be underground mined.

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The findings of the studies carried out by the Moscow Office of De Beers show that if the Russian economic situation improves the demand for diamonds can dramatically increase: nine out of ten Russian women believe themselves to be worthy of wearing diamond jewelry and 55 % of Russian men agree to encourage their dreams.

One of the main trends is the development of a new diamondiferous area discovered 300 km north of Mirnyi in 1994 where three kimberlite bodies have been detected so far. Two of them are being prepared for mining. They are relatively small pipes but with a high content of diamonds whose quality is comparable with that of Mir diamonds. ALROSA set up a subsidiary (Nyurba) especially for the development of this deposit. The experimental mining at the Botuobinskaya Pipe where ore was extracted from the prospecting mine and then processed at a pilot concentrator using a 200,000 tpy Svedala plant resulted in the output of diamonds costing $10 million. The construction of an open pit and a concentrator started at the Nyurbinskaya Pipe nearby. As this pipe is depleted the Botuobinskaya Pipe will be involved in operation.
Lately ALROSA invested a lot in prospecting not only in Yakutia but also all over Russia – in the Irkutsk Region, Krasnoyarsk Territory and other areas. The company decided to take part in the development of the Lomonosov deposit in the north of the European part of Russia, which was discovered long ago but not used as yet. Six kimberlite pipes located in a 9.5-km chain with a distance between separate bodies from 150 m to 2.1 km were detected there. All pipes are rather large, with their total resources estimated at 160 million ton of kimberlite with an average content of diamonds of 0.74 carat per ton. The total value is $12 billion.
In 1994 Severalmaz JSC got a 25-year license for supplementary exploration and mining of diamonds. After several re-distributions of the equity (De Beers was one of the shareholders), ALROSA turned out to be the biggest shareholder with 71.87 % of shares. In March, 2003 ALROSA concluded an agreement with Fleming Family & Partners (a UK investment company) on joint financing of the project. Fleming undertakes to attract the required funds while ALROSA undertakes to sell the British about 45 % of the shares, at the same time retaining a controlling stock of 51 %. But here it is necessary to buy out the shares belonging to the administration of the Archangelsk Region.
Geographic diversification implies the participation in foreign projects as well. In this field ALROSA is attracted by Angola where it is involved in the development of one of the world largest diamondiferous pipes – Catoca. A joint Russian-Angolan venture is especially set up. ALROSA is the technical manager of the project. Now this company and Angolan Endiama have 32.8 % each, with 16.4 and 18 % belonging to Odebrecht Mining Services (Brazil) and Daumonty Financing Company (Israel), respectively. In April, 2003 ALROSA became a co-founder of two new companies in Angola – Camatchia-Camagico and Hydrochicapa. The first company will develop the kimberlite pipes located at the Luo site. This project will unite the Russia’s partners in the Catoca project – Endiama, Daumonty and Oderbrecht. ALROSA will supply the equipment and train the local personnel. With this aim, a joint venture (with Espiritu Santu) – Escom-ALROSA with a 45-% share in Camatchia-Camagico – was formed.
Hydrochicapa where ALROSA has a controlling stock of 55 % will build a hydroelectric plant for power supply to the Catoca open pit under reconstruction which will substantially reduce production costs. It is planned to invest $85 million in both projects in 2003.
Now diamonds mined by ALROSA are sold by the company itself in compliance with quotas established by the Government of Russia. With this aim, a special corporate department was set up – United Sales Organization for operation in home and foreign markets.
It must be noted that prior to this, over 40 years (since 1959) Russian diamonds were sold under trade agreements with De Beers, which purchased 95 % of products while Russia might sell only 5 %, the so-named control cuts.
The economic reforms of 1990s that promoted the set-up of a lot of private cutting enterprises brought about a home wholesale market of rough diamonds with a fairly high demand. Apart from it, the state became dissatisfied with the profit got from the sales of diamonds of current output, and a great quantity of diamonds from the state store entered the market bypassing De Beers. Russia realized that the role of a raw material appendage that it had played before prevented a corresponding profit to be extracted from its national riches. The country that mines one forth of world diamonds produces only about 7 % of cut diamonds with the cost of Russian jewelry amounting only to 0.16 % of world products.

Svedala mill at Aykhal Mine & Concentrator

No wonder that since 1995 serious differences arose each time a new trade agreement with Be Beers used to be concluded. ALROSA insisted on the right to more freely dispose of diamonds mined at its enterprises. Under the terms and conditions of the last trade agreement, De Beers undertakes to buy the diamonds mined by ALROSA in a full variety of current output for $500 million per year plus another $300 million of unsold resources of home market. Diamonds weighing more than 10 carat and with special properties are beyond the scope of this agreement. The scope of supplies must be within the limits of the Russian quota of 26 % of the total scope of supplies of Diamond Trading Company incorporated into De Beers Group. The total sales of diamonds to De Beers must be $4 billion in five years.
This agreement has not yet been approved by the European Commission which is of the opinion that this agreement will be derogatory to competition in the world market of diamonds. Now ALROSA and De Beers freely sell them, at the same time continuing their negotiations with the EC.
The Russian company is preparing to work with medium wholesale buyers and in March, 2003 it already made a supply without De Beers. But on the whole, ALROSA is not trying to establish stable export ties alternate to De Beers as it is well aware that the cooperation with the latter signifies a guaranteed sales for $500 million per year, an access to Western credits, a reduction of operating costs. Only small and low-quality diamonds are intended to be sold in the open market. However, this scope is predicted to be rather impressive – $300 million.
In 2002 ALROSA exported diamonds for $723 million. The home market absorbed approximately $700 to 750 million. At present the company has about 120 clients, 20 of them with foreign capital. The most stable-operating enterprises buying rough diamonds for over $13 million per year on a constant basis are Russia’s Kristall, Mosalmaz, Alpro, etc. They purchase about 45 % of rough diamonds in the home market in 2002.
ALROSA expects the next stage of liberalization – cancellation of diamond export quoting. The current approach artificially divides the market into internal and external, and the company loses potential profit.
To raise its financial stability, ALROSA pursues a policy of vertical integration and production diversification. The priority direction is acknowledged to be an intensive processing of rough diamonds, in particular, making and sales of cut diamonds and diamond jewelry as well as diamond tools. ALROSA initiated a network of cutting enterprises in Yakutia, Oryelalmaz Cutting Enterprise. Together with Lazar Kaplan Inter, ALROSA set up a Moscow joint venture on cutting specials – stones weighing over 10.6 carat. The company intends to buy the controlling stock of the most successful cutting plant (Kristall, the town of Smolensk).
By 2005, ALROSA plans to double own cutting facilities and sell cut diamonds for $200 million per year. In Moscow a corporate branch is established for cutting of diamonds, production and sales of diamond jewelry and making of diamond tools. ALROSA plans to open a network of jewelry shops, with two already working in Moscow and St.Petersburg. All this will help the company to define an actual value of own rough diamonds, control a fair price level within the framework of the trade agreement with De Beers and in independent sales.
At present ALROSA is in fact an industrial group participating in more than 50 enterprises, including foreign ones, with its share over 50 % in 32 of them.
In April, 2003 ALROSA floated Euro bonds for $500 million at an extremely low annual rate – 8.1 %. The corporate financial accounts now comply to world standards.