Alrosa Output Slightly Lower In 2014, Prices To Rise 1-4% Annually, Says Official

(IDEX Online News) – Production this year at the Alrosa group will be slightly down on the 2013 figure while rough prices are expected to rise by 1-4 percent annually through till 2017, said a senior official.

Output in 2014 will be 36.03 million carats compared with 36.9 million carats in 2013 and down from the original planned output for 2014 of 36.2 million carats, said Igor Sobolev, First Vice President – Executive Director, in comments to IDEX Online.

Sobolev said the main reason for the decline was the decrease in production at the company's Mir mine due to an inflow of water from the open pit operation. "We decided that this problem should be dealt with as a priority so management decided to cut output in the first half of this year.

"Alrosa could have made up the shortfall by raising production at the other mines, but taking into account the large number of diamonds in our inventory and the state of global sales, it was decided not to do so."

Sobolev explained that the company's global marketing and production strategy was formulated together with global business consultants Bain & Co.

"We expect diamond demand will outpace supply from 2017, and in the interim period rough prices will probably be increased by 1-4 percent annually."

To meet rising demand, the company will be developing low-grade deposits that were formerly seen as economically unworthwhile in the coming years, while also developing underground mines in Yakutia in Russia's Far East where most of its operations are located, he said. "This will require substantial investment which the company is willing to undertake."

He said that future operations at the Severalmaz and Udachny mines would considerably raise production levels and enable the firm to reach its annual production target of 40 million carats by 2018. "This is not just a plan; it is based on solid foundations," he commented.

A new processing plant was commissioned this year at the Severalmaz mine, in North West Russia. The mine will produce 1.65 million carats this year compared with 650,000 carats in 2013, and by 2018 it will be producing five million carats annually. "Alrosa sees the mine as one of its main producing assets for the future," Sobolev said.

Meanwhile, at Udachny, the first stage of the underground mine will be commissioned late next month. The underground mine will produce four million tonnes of ore annually by 2019 from which the miner expects to extract more than 4 million carats of diamonds.

Speaking of the challenges facing the company, Sobolev explained: "Overall, our current planning is to ensure mining costs per carat produced are kept to a minimum. We need to ensure that costs are kept under control both in the short and long term. We have an innovative approach to production so we believe this can be achieved. This also means keeping our assets as fully operational as possible. Production levels will be decided according to our inventory size."

Sobolev said another challenge is to dispose of the miner's non-core assets. "This is difficult because it involves the jobs of people who live in towns and cities which are based entirely on the local diamond mine. There are not many other jobs there for them, so it is painful for the local people. We have to do this reforms with great sensivity”,

he added.