Russian diamond sector makes headway

Diamond giant DeBeers Consolidated Mines has submitted a proposal for a feasibility study for what could become the world’s largest diamond mine.

The Lomonosov project, in the Arkangel’sk region of northwestern Russia, is said to hold US$12 billion worth of diamonds, half of which are gem-quality. By comparison, Canada’s Diavik project contains about US$4 billion worth of diluted minable reserves. The proposed feasibility study for Lomonosov is based on an open-pit operation.

DeBeers’ partner in the project, publicly traded Severalmaz, must approve the feasibility study. Two-thirds of Severalmaz is owned by DeBeers, Moscow-based Soglasiye and state-owned producer Almazy Rossi-Sakha (Alrosa).

Preliminary estimates place the cost of the project in the neighbourhood of $700 million, and the companies are currently evaluating financing options. Also of concern to the partners are mining conditions at the project, described by traditionally tight-lipped DeBeers only as “difficult.”

DeBeers intends to complete the feasibility in 2001, with startup envisaged for 2005.

Meanwhile, the Duma has taken steps to increase Russia’s position as an exporter of cut stones. In an attempt to eliminate the circuitous way diamond cutters operate, it has abolished value-added taxes on domestic production sold in Russia.

Currently, diamond cutters are forced to buy Russian-produced diamonds on foreign markets, owing to a shortage of raw stones at home. By eliminating certain value-added taxes, the government is encouraging producers such as Alrosa to sell rough diamonds on the domestic market rather than abroad.

Last year, Russian rough diamond output was worth $800 million, a US$100-million increase over 1998. The country exported 98% of that production. However, such a high export rate leaves cutters in a lurch, as high domestic rough diamond prices force them to buy Russian stones on foreign markets. The country’s diamond cutters imported US$650 million worth of uncut diamonds in 1999, all of which were then exported following processing.

According to Yuri Rebrik, president of the Russian Diamond Producers’ Association, “if Russian companies start working with domestic raw materials, then Russia will have a real chance of doubling its cutting volumes in two years.”

Sergei Ulin, vice-president of Alrosa, says such a development would allow cash-strapped cutters to “finally get down to business.”

In a related decision, the Duma will allow the country’s official diamond exchange, the year-old Russian Diamond Chamber, to conduct business with secondary rough diamond markets. Last year, 60 Russian companies traded rough and cut diamonds worth $8 million through the chamber.

The decision is designed to increase volumes traded on the exchange.