ALROSA CEO Pavel Marinychev: Mr President, thank you very much for finding time for this meeting. I would like to report on our company’s performance.
President of Russia Vladimir Putin: Your reserves are estimated at one billion carats, correct?
Pavel Marinychev: Yes.
Vladimir Putin: This amounts to roughly 50 percent of the world’s diamond reserves.
Pavel Marinychev: Correct, somewhere around that level.
Vladimir Putin: As for diamond production, you account for about 30 percent of the global output.
Pavel Marinychev: The 30 percent figure applies to the volume in carats.
Vladimir Putin: You may now proceed with your report.
Pavel Marinychev: Mr President, as you know, the global diamond industry is currently experiencing the deepest sectoral crisis in its entire history. In addition to that, ALROSA and several other companies are conducting their operations while facing sanctions. Despite these conditions, we have been able to retain our global leadership as the number one diamond producer in the world, while ranking second in terms of revenue. Our group employs about 33,000 people, and we produce about 30 million carats annually.
Speaking of our production capacity, as you have just said, we hold almost half of the world’s reserves, which includes five mining and processing plants, as well as over 20 operating deposits. Apart from diamond deposits, there are also gold mines, which I will discuss a little later. We have started developing and using them too.
In addition, ALROSA is a vertically integrated company. It operates Europe’s largest diamond-cutting cluster at the Kristall plant in Smolensk. In fact, this facility is going through what can be called its second or third revival. What I mean is that in keeping with your instructions we worked with the Government of the Russian Federation and the governments of the Smolensk Region and the Republic of Sakha (Yakutia) to create a diamond-cutting cluster, which includes this plant. We have used the available space to enable private, small diamond cutters, including foreign operators, to work there, acquire new competencies and develop their businesses.
ALROSA also operates jewellery production facilities. We have a range of our own jewellery brands, which are available in Russia through a small but growing chain of jewellery stores. Therefore, ALROSA today covers all aspects from exploration to jewellery sales.
Furthermore, ALROSA operates its own logistics complex, which comprises ALROSA Airline, a river port, a shipping company, and proprietary energy assets such as a hydropower plant and a range of gas assets. Clearly, social facilities are also considered an important part of our company’s infrastructure. It is our established practice to operate cultural and sports facilities at our expense in the cities where we are present. This allows residents of the Mirny municipality and our regions of presence, as well as our employees, to use this infrastructure at discounted rates or essentially free of charge.
Despite the negative market conditions, we remain a major taxpayer and employer, particularly in the Republic of Sakha (Yakutia), where we are an absolute leader in social responsibility.
How did we achieve this? In fact, we have conducted a rather rigorous optimisation of operational costs. In percentage terms, we have cut 25 percent of all costs. Usually, one either cuts investment or wages. We have cut all gross costs – 65 billion rubles, which is a substantial amount for us.
Our operational philosophy in these current unstable conditions is that, even with such lean operations, we keep our development projects afloat. Some of them are active, under construction or nearing completion. Those set for construction are being provided with all necessary paperwork and moving into the prospecting phase. Once macroeconomic and market conditions allow, we will not have to wait and will be able to launch construction immediately.
What are these projects? First and foremost, these are our diamond mining projects. The reality is that easily accessible diamond deposits have already been exhausted, and future production will require a transition from open-pit to underground mining. We are preparing all the necessary documentation and conducting the required geological surveys so that, as I have said, we are ready to move forward as soon as macroeconomic conditions permit.
Our flagship initiative is, without question, the Mir – Gluboky project, which will enable us to maintain our undisputed global leadership in the long term. This project is expected to sustain production through 2070.
We are also pursuing a number of diversification projects. We have decided to expand our expertise into other hard-rock mineral resources. In particular, we acquired the Degdekan gold deposit in the Magadan Region, where verification drilling has now been completed. We are currently designing a new mining enterprise for gold production.
We have also found several small placer gold deposits located close to our existing diamond mining infrastructure. Mining operations have already begun at one of them: the Khatystakh deposit in the Republic of Sakha (Yakutia).
As I previously reported, Mr President, we have developed a support programme for participants in the diamond-cutting cluster in the Smolensk Region and the Republic of Sakha (Yakutia). Under this programme, companies joining the cluster will have access to rough diamonds, along with preferential pricing, provided that all of the rough stones allocated to them are cut and polished within the cluster, thereby creating additional value domestically.
Gem-cutting today is a process that involves not only polishing machines but also rather complex computer software. We will be able to render the entire set of these services to truly help the participants in this cluster.
This also involves sufficiently large investment projects. Jointly with Inter RAO, we are implementing a project to build the Novolenskaya hydropower plant, where we participate as a natural gas supplier. For this to happen, we need to upgrade our deposits, the gas treatment facility, and the essential infrastructure.
We will finish the construction later this year and will get the papers for a new airport project in Mirny within the first six months of next year. This project is being implemented with unconditional state support: the state is building a new take-off and landing strip, and we are building a new airport.
We have converted a number of our fields to gas, thereby changing the fuel balance. Liquid fuel deliveries to a number of fields have been discontinued as of this year. This is an environmentally friendly and economically effective step. In September of this year, we will launch hydropower unit No. 4 at our hydropower plant.
Vladimir Putin: Do you mean the Svetlinskaya hydropower plant?
Pavel Marinychev: Yes, the Svetlinskaya hydropower plant. It is also a major project as far as we are concerned. We will increase the plant’s capacity by 104 MW in one go. If you have an opportunity, we would be honoured if you personally launch this hydropower unit at the Eastern Economic Forum, if your schedule permits, of course.
Vladimir Putin: Thank you.
Pavel Marinychev: Of course, we are a socially responsible corporation, as we have always been. We maintain our status as the best employer in Yakutia and the Russian Federation. We consistently top all industry ratings and fulfil our commitments in relations with the Republic of Sakha (Yakutia).
I should specifically report the following: last year, we confirmed our carbon neutrality at the international level by conducting research in cooperation with Moscow State University. The research showed that, under certain conditions, kimberlite can absorb carbon dioxide. Therefore, we currently absorb more than we emit. I will reiterate: this fact has been internationally confirmed.
Our absolute priority is import substitution. We have procured entirely new software, allocating new budgets for this.
Vladimir Putin: One hundred percent?
Pavel Marinychev: One hundred percent. The equipment powered by our local technology accounts for 98 percent. This is our absolute priority, and we will continue to work on it.
I also want to talk about generic marketing. As you know, we are, to a certain extent, affected by the synthetic stone market – synthetic diamonds. I would like to thank the Russian Government for issuing new trade rules in Russia that distinguish between synthetic and natural stones. From now on, synthetic stones cannot be weighed in carats or called diamonds.
Mr President, this is my brief report on the company’s performance.
Vladimir Putin: Good. Let’s take a look at the papers you have brought.
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