Alrosa could suspend production at least profitable assets, optimize personnel amid protracted market crisis

MOSCOW. Nov 21 (Interfax) - Alrosa , which controls nearly one third of global diamond mining, is considering suspending production at a number of the least profitable sites in 2025 and optimizing costs, including on personnel, Alrosa CEO Alexei Marinychev said during an interview on Yakutia's Almazny Krai TV channel.

Market crisis

"The industry is currently experiencing a crisis. The crisis is rather deep. We have seen a decline in prices for the second straight year. We are in a period when we are forced to engage in optimization measures, watch our expenses, and reduce our costs," Marinychev said.

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

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

Demand in the key United States jewelry market is recovering gradually, and diamond jewelry demand is growing in India, which might take second place, overtaking China. Marinychev said this brought hope of price recovery next year. "If sales start to grow 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 might revive, it is important "not to throw a portion of the products that we and other diamond producers have accumulated onto the market in one fell swoop," Marinychev said. "We really want to do this, for obvious reasons, but it is important to conduct ourselves on the market carefully and stabilize it once and for all and forecast both our sales policy and pricing normally, in the course of several years," he said.

The company has raised funds on the market in order to weather the difficult times in terms of sales. "We have a financial safety net," Marinychev said.

Cutting costs...

"However, this does not mean that we do not need to watch our expenses closely," he said. Alrosa is currently optimizing the payroll and planning to reduce it by 10%. "This would primarily affect managers, specialists, and employees. This includes part-time employees and unpaid leave. 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 directors 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 plans for run-of-mine processing and, accordingly, mine output, Marinychev said.

"We have looked at run-of-mine. This will inevitably affect the volume of diamond mining, which we could afford to reduce in 2025, so as not to disrupt the strategy for developing our deposits. Some less profitable areas could be subject to suspension during the crisis period," he said. Alrosa expects to increase its production capacity quickly as the market recovers and "to work traditionally." "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 did not plan to reduce production in 2024.

Alrosa planned to reduce production 6% compared to the previously target in 2020, amid falling demand for diamonds during the coronavirus pandemic, and 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 Zarya pit. The ores of these deposits are low in diamond content, and the assets are less profitable than the company's other enterprises. A radical option of adjusting production to 26 million carats annually was also considered, but after trade revived at the end of 2020, Alrosa gradually put all assets back into production.

... and intensity of development projects

"We have also scaled down activity in a number of investment projects, but we have not stopped any of them," Marynichev said.

"All projects for development and allowing us to expand the horizons of our planning in diamond mining are ongoing and will continue, but more slowly during the crisis," Marinychev said.

He said the development projects, in addition to the restoration of the Mir mine (the Mir Deep Mine project) included "making an investment decision on the Jubilee mine," which the company has not yet officially announced.

The Jubilee mine could, in the absence of Mir, which flooded in August 2017, become Alrosa's fourth operating underground mine if production at the very first mine, International, does not cease by the time it is commissioned. 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 had fallen by 2021 and its contribution had decreased to 16%. Capital investments in the Jubilee mine's construction were estimated at 72 billion rubles in 2019.

Also, Alrosa will not completely abandon diversification projects, including gold mining, or energy projects, including exploration at oil and gas fields 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 turning to the State Precious Metals and Gemstones Repository (Gokhran), which bought $1 billion worth of diamonds from Alrosa in 2008-2009, meaning production 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. "The knowledge that there is an opportunity for government support for the sector does of course bring us confidence in the future and an opportunity to plan our activities," Marinychev said.

The Finance Ministry said in March that it had signed an agreement with Alrosa to buy some diamonds mined in 2024 and had completed a transaction for the first consignment of rough diamonds. There have been no reports since then regarding Alrosa purchasing diamonds from Gokhran.

The federal budget for 2025-2027 allocates 154.5 billion rubles or $1.55 billion for the Gokhran to buy obtaining precious metals and gemstones. The Gokhran has, as a rule, been purchasing refined gold and selling small-sized rough and polished diamonds.