Alrosa could suspend production of at least profitable assets, optimize personnel amid the prolonged market crisis

MOSCOW. November 21 (Interfax) – Alrosa, which controls nearly a third of global diamond mining, is considering suspending production at some of its least profitable locations in 2025 and optimizing costs, including with staff, Alrosa’s CEO said, Alexei Marinychev, during an interview for Yakutia. Almazny Krai TV channel.

The market crisis

“The industry is currently facing a crisis. The crisis is quite deep. We have seen a drop in prices for the second consecutive year. We are in a period where we are forced to take optimization measures, watch our expenses and we are cutting costs,” said Marinychev.

The crisis was caused by overstocking in India (“diamond pipeline” overstocking), when by the end of 2023 the inventory was estimated to be worth the equivalent of Alrosa’s annual production, Marinychev said. This has been compounded by the slowdown in the Chinese economy and geopolitical reasons.

“We are in a difficult situation, which happens sometimes. What we have to do is wait, wait for the prices to start rising. And they will,” Marynichev said.

Demand in the key jewelry market of the United States is gradually recovering, and demand for diamond jewelry is growing in India, which could take second place, overtaking China. Marinychev said this brought hope for a price recovery next year. “If sales start to rise at Christmas, it means that with the right sales policy, we can hope that prices will start to rise in 2025,” he said.

In a situation where trade could revive, it is important “not to dump on the market some of the products that we and other diamond producers have accumulated in one fell swoop,” Marinychev said. “We really want to do this, for obvious reasons, but it is important to behave carefully in the market and stabilize it once and for all and forecast both our sales policy and prices normally during several years,” he said. .

The company raised funds from the market to weather the difficult times in terms of sales. “We have a financial safety net,” Marinychev said.

Cost reduction…

“However, that doesn’t mean we don’t have to keep a close eye on our spending,” he said. Alrosa is currently optimizing wages and plans to reduce it by 10%. “This would primarily affect managers, specialists and employees. This includes part-time employees and unpaid leaves. Of course, this is also a partial release of our employees to the market,” he said.

The optimization will also affect top management, and the number of deputy general managers and advisers will be reduced. The payroll of all managers, including the general director, will be optimized, Marinychev said.

…and production

The diamond miner is also reviewing mine processing plans and, accordingly, mine production, Marinychev said.

“We looked at the run-of-mine. This will inevitably affect the volume of diamond mining, which we can afford to reduce in 2025, so as not to disrupt our deposit development strategy. Some less profitable areas may be subject to suspension during the crisis period,” he said. Alrosa expects to increase its production capacity quickly as the market recovers and “work as usual”. “Of course, none of the mining and processing plants will stop,” Marinychev said.

Alrosa mined 34.6 million carats of diamonds last year. Marinychev said in May that the company has no plans to cut production in 2024.

Alrosa planned to cut output by 6 percent from its previous target in 2020 amid falling demand for diamonds during the coronavirus pandemic, and to mine 32 million carats instead of 34.2 million carats. The company suspended operations at its Severalmaz site in the Arkhangelsk region for several months, as well as at the Aikhal mine and the Zarya quarry. The ores of these deposits have a low diamond content and the assets are less profitable than the company’s other businesses. A radical option to adjust production to 26 million carats annually was also considered, but after trading resumed in late 2020, Alrosa gradually brought all assets back into production.

… and the intensity of development projects

“We also reduced activity in a number of investment projects, but did not stop any of them,” Marynichev said.

“All development projects that allow us to expand the horizons of our diamond mining planning are ongoing and will continue, but more slowly during the crisis,” said Marinychev.

He said the development projects, in addition to the restoration of the Mir mine (Mir Deep Mine project) included “making an investment decision on the Jubilee mine”, which the company has yet to officially announce.

The Jubilee mine could, in the absence of Mir, which flooded in August 2017, become Alrosa’s fourth operational underground mine if production from the first mine, International, does not cease by the start-up date. The Jubilee diamond pipe is one of Alrosa’s main deposits, which at its peak in 2013-2018 produced a quarter of the company’s diamonds, however production at the deposit has declined by 2021 and its contribution has fallen to 16%. Capital investment in the construction of the Jubilee mine was estimated at 72 billion rubles in 2019.

Also, Alrosa will not completely abandon diversification projects, including gold mining, or energy projects, including exploration of oil and gas deposits in Yakutia. Marinychev said Degdekan, which Alrosa acquired this year from Polyus, was the “harbinger” of its foray into gold mining.

Gokhran, again

Marinychev also mentioned the possibility of calling on the State Depository for Precious Metals and Precious Stones (Gokhran), which bought $1 billion worth of diamonds from Alrosa in 2008-2009, meaning production would could continue when sales fell during the crisis.

“Alrosa is a state-owned company and we always have the opportunity to turn to our shareholder for help during this period of low sales,” he said. “Knowing that there is an opportunity for government support for the sector, of course, brings us confidence in the future and an opportunity to plan our activities,” said Marinychev.

The finance ministry said in March it had signed an agreement with Alrosa to buy some diamonds mined in 2024 and completed a deal for the first shipment of rough diamonds. There have been no reports since then of Gokhran’s purchase of diamonds from Alrosa.

The federal budget for 2025-2027 allocates 154.5 billion rubles or 1.55 billion dollars for Gokhran to buy obtaining precious metals and precious stones. The Gokhran usually bought refined gold and sold small rough and polished diamonds.