21 Aug 2009 13:07

Putin pledges up to 35 bln rubles state support for diamond industry

MIRNY, YAKUTIA. Aug 21 (Interfax) - Russian Prime Minister Vladimir Putin pledged up to 35 billion rubles in state support for the Russian diamond industry and said Alrosa, the country's state-owned diamond monopoly, would get help restructuring its debt to Russian and western banks as it struggles to fund its investments at a time when diamond sales have plummeted.

"I'm giving instructions to draft a mechanism for providing state guarantees to restructure Alrosa's debt to Russian and foreign creditors," Putin said at a meeting in Mirny, the heart of the Yakutia diamond province, where Alrosa is based.

In general, the diamond industry will get 30 billion-35 billion rubles in support this year, Putin said.

The state has decided to increase rough diamond procurement significantly in order to support the sector. Spending on gemstone procurement for the State Fund will rise almost four-fold, from 3.7 billion rubles to 14.5 billion rubles. And I think that will be sufficient. The sector has generated a lot of revenue both for the federal and regional budgets, but today, in view of the global situation, it needs support. I think overall support for the sector ought to be approximately 30 billion-35 billion rubles. This won't be easy in times of financial and economic crisis, but we'll do it," Putin said.

Putin attended the launch ceremony for a deep mine at the famous Mir diamond pipe on Friday.

Alrosa has been borrowing heavily to fund the construction of this and two other deep mines at its older pipes, where near-surface reserves are almost depleted. Each one will cost approximately $1 billion. Alrosa's net debt was 115.5 billion rubles at the end of last year, and had mounted by another 34% to 155.2 billion in the six months ended June 30.

Alrosa started to repay the bank loans with its own funds in July, when it started selling diamonds on the market again: it has paid a first tranche of 2.8 billion rubles under a debt restructuring agreement reached with Alfa-Bank .

Alrosa did not sell diamonds on the market between December last year and July this year. Alrosa has been discussing procurements with the State Precious Metals and Gemstones Repository (Gokhran), and a source familiar with these negotiations told Interfax on August 14 that agreement had been reached for the repository to buy a total of $1.5 billion worth of rough from Alrosa this year and as much again in 2010. This includes the 12 billion rubles in rough that the repository, a Gokhran source told Interfax previously, has already bought from Alrosa this year.

Putin said after watching the new Mir mine bring its first ore to the surface that diamond industry had been caught up in difficult times due to the global situation. "But there's no doubt that the global situation will recover, the market will bounce back. Your industry will be in demand," he told mine workers.

Mir was discovered in 1955. The Mir open pit was started in 1957 and has produced more than $17 billion worth of diamonds since then. It was Russia's first commercial diamond mine. Its reserves have been explored to a depth of 900 meters on average, and up to 1,250 meters in places. Its initial life will be 34 years, after which the mine will be deepened, extending its life by another 16 years.

The Mir deep mine was commissioned a year ahead of schedule. It has the capacity to produce an initial 150,000 tonnes of ore per year, rising eventually to 1 million tonnes. It cost Alrosa 2.2 billion rubles to build and this should be recouped in 3.5 years.

The other two deep mines that Alrosa is building are at the Aikhal and Udachny pipes. Aikhal should put 200,000 tonnes of capacity on stream in 2009, rising to 500,000 tpa in 2012. Udachny is billed as one of the world's biggest deep mines, capable of achieving 4 million tpa of ore by 2014. It should produce an initial 500,000 tpa from 2011. Work on the Udachny deep mine began in 2004.

Alrosa commissioned its first deep mine, at the Internatsionalny diamond pipe, in 1999.