President of Russia Vladimir Putin: Good afternoon.
Mr Ivanov, during the pandemic, the jewellery sector and its foundation – the diamond mining sector – have come up against difficulties. I am speaking about global production now. Many of your rivals have practically frozen production and fired their staff, and many of them are on the verge of bankruptcy. ALROSA is our largest diamond miner, and since recently the largest in the world. For Yakutia, it is in fact a major budget revenue generating enterprise. How is the company faring, and what would you say about its outlook?
ALROSA CEO Sergei Ivanov: Mr President,
I would like to begin my report with the epidemiological situation, namely in the Mirny District of Yakutia. In March 2020, we took several comprehensive decisions on preventing the spread of the coronavirus infection together with the government of the Republic of Sakha (Yakutia). We managed to gain several months, which we used to prepare our medical infrastructure – both regional and corporate – to receive the first COVID patients.
During the pandemic, the company has invested over 800 million rubles in the measures related to supporting the medicine and health of our employees. Unlike other diamond mining companies, we have not stopped production at our underground mines and open pits.
You are absolutely correct, Mr President, that ALROSA is still the world’s largest diamond producer. Over the past several months, we even managed to somewhat increase our share despite the crisis trends you mentioned. The company keeps developing, and we are engaged in projects related to operating performance, production automation and Big Data – the digital mine project, plus some other projects that have been launched.
Mr President, with regard to infrastructure projects, I would like to thank you for the decision made several years ago to build a new airport in the town of Mirny. We have arrived at an arrangement where the construction of the airfield infrastructure would be financed from the federal budget, and the construction of the airport complex, the fuelling complex, and the grids would be financed by the company. This is a good example of a public-private partnership, where we are going roughly half with the federal budget on the new infrastructure.
We are also in the process of bringing gas to our northern towns, first of all, to the town of Udachny. This will make it possible for us to switch from expensive electricity over to our own natural gas and improve the reliability of our northern regions’ energy supply and energy security.
Of course, the epidemic has significantly adjusted our strategy. We had to respond to an unprecedented decline in sales in the second quarter. ALROSA had to take upon itself the stabilisation of the international diamond market. We supported the cutting factories that found themselves in a rather difficult situation.
We can see the demand coming back. Of course, these levels are lower than before the pandemic, but the company is in good financial shape and is capable of getting itself ready for the expanded market.
Mr President, in conjunction with the Finance Ministry, we are discussing possible purchase of diamonds for the Russian State Depository for Precious Metals and Gems. You supported such a transaction during the previous crisis in 2008. It helped the company stabilise the social situation and support the budget of the Republic of Sakha (Yakutia), because we are a systemically important company and our operations are critical for the budget. At the same time, in 2008, diamonds were purchased at rather low prices due to the crisis, and later, when the market recovered, the state sold them at a good price. Now, exactly the same instrument is being discussed. We are confident we will finally agree on everything soon.
As I reported to you in October 2019 during the Russia-Africa summit in Sochi, we are making good progress with our projects in Angola. You had two meetings with the President of Angola last year. We are developing our joint venture, the Catoca mining company, and discussing a number of promising projects.
Last year, you also had a meeting with the President of Zimbabwe. There has been certain progress on the issues that you discussed at that meeting. We have obtained the first licences and now our geologists have started an in-depth prospecting survey at those fields.
Naturally, our geological exploration centre is actively operating in Yakutia, which is our main area of interest when it comes to new deposits. We invest over 7 billion rubles in geological exploration every year and, as our geologists assure us, we have narrowed down the locations of the most attractive areas where new deposits and perhaps even new diamond-bearing provinces may be discovered.
Vladimir Putin: You said that you supported diamond-cutting companies. How do you build relationships with them? Apparently, you are talking not only about our domestic diamond cutters. Or mainly about ours?
Sergei Ivanov: Yes, Mr President. If we speak about Russian diamond-cutting companies, in late 2019 the Kristall diamond-cutting plant joined the ALROSA Group. The plant was in a very difficult financial situation and we had to work on its financial recovery. Unfortunately, the company had to be left idle for a certain period because we simply could not sell diamonds that were not in demand during the pandemic. We launched production recently and believe that we will be able to speed up the work and prepare for the holiday season and jewellery sales.
ALROSA also supported foreign diamond-cutting factories – namely, we did not force them to purchase raw materials under long-term contracts as we knew that these companies would be deprived of liquidity due to problems with diamond sales. We gave them a break for four to five months and this strategy proved right. Now we see that there is liquidity, they have the funds to buy diamonds from ALROSA and over the past few months, the price has not changed as much as it could have changed had we continued to sell diamonds during the pandemic.
Vladimir Putin: You said the market is recovering. You are seeing this, right? Nonetheless, you are drafting with the Government and Finance Ministry potential support measures similar to those taken before. Is this support necessary?
Sergei Ivanov: We hope that in the fourth quarter we will increase sales to the level we had in the past year. Nonetheless, the sales plunge we had in the second quarter was unprecedented. Most experts compare these figures to the sales dive in the 1920s – by 90–95 percent.
Considering that ALROSA continues fulfilling a number of social commitments – we have not cut any of our social programmes – we discussed with the Finance Ministry that at this stage it may be worth buying raw materials for the State Fund of the Russian Federation. This would also be useful for the intervention that the state is carrying out – to remove a certain amount of diamonds from the market that may experience for some time an imbalance between production and consumption.
Mr President, since 2008 when you made this decision, our company has paid over 800 billion rubles in taxes and dividends to the budget of both the Russian Federation and the Republic of Yakutia.
Vladimir Putin: And what about employment in your company?
Sergei Ivanov: Mr President, today over 33,000 people work in our group. Our turnover is about seven percent. The average salary is about 130,000 rubles, which is well above the national average and higher than the average for Yakutia. The company invests about nine billion rubles in social benefits a year; only half of that amount is what we must do by law, and over four billion represent additional benefits that make up our social package.
Vladimir Putin: Okay.