ALROSA, the leader of the global diamond mining industry, intends to employ the Kristall Factory based in Barnaul to establish a manufacturing hub cutting diamonds mined by the company. This was announced by Andrey Zharkov, President of ALROSA at a meeting with Alexander Karlin, Governor of the Altai Territory.
“The company launched a program to reform our cutting and polishing unit. The Group’s manufacturing unit is represented by three companies located in Barnaul, Moscow and Orel. It was decided to turn the Barnaul Kristall Factory into a center of our cutting and polishing business. In fact, it will be its parent company,” Andrey Zharkov said.
He noted that the manufacturing factory in Orel was currently undergoing the stage of bankruptcy. So far, there was no final decision to preserve it or not. “In any case, the Orel- and Moscow-based factories should later be turned into branches of Barnaul’s Kristall,” President of ALROSA said.
According to Andrey Zharkov, the Barnaul factory will undergo technical modernization in 2016. ALROSA will contribute about RUB 35-40 million worth of equipment into the charter capital of Kristall. In addition, the company mulls to organize a trip of experts to India to explore fundamentally new diamond cutting technologies, which will be tested at the Barnaul factory.
Alexander Sharapov, CEO of Barnaul’s Kristall said that his factory had exceeded its production target in 2015 by 3.4% and by as much its sales target.
According to the administration of the Altai Territory, Kristall’s total production last year reached RUB 92.1 million (up 7.6% vs 2014 in comparable prices), having processed 55,300 carats of diamonds. In 2015, Kristall’s losses were RUB 5.9 million. The factory projected its output for 2016 at the level of RUB 96.9 million.
Fears of diamond industry
According to the president of ALROSA, the need for reforms in the miner’s cutting and polishing unit arose from several factors. In his view, the Russian diamond cutting industry mainly found itself in a difficult situation, which was now affecting Barnaul’s Kristall and other subsidiaries.
“In general, the Russian diamond cutting industry was only losing its development pace for the last 20 years. During the past 5-6 years, we saw polished production in the Russian Federation shrinking at about 7% a year. There are objective and subjective factors affecting the situation. Unfortunately, there has been no consistent government policy in the field of diamond cutting industry,” Andrey Zharkov said.
According to the president of ALROSA, September of 2016 will be one of the difficult moments for the diamond manufacturing industry. “Under the obligations incurred by Russia in the framework of the agreements signed when joining the WTO, one of the major measures of state support to the diamond manufacturing industry to date – which is the 6.5% export duty on rough diamonds – is to be cancelled.
This may deliver a severe blow to the diamond cutting industry,” the head of ALROSA said, while noting that the Group “should still maintain stable operation.”
According to Andrey Zharkov, the Russian company has other competitive advantages, including operations on a tolling basis (without paying for received materials), meaning that ALROSA’s enterprises have no need to purchase rough.
“Due to this, they have no debt commitments born by many other companies, which have to buy rough. We are optimistic about this company’s potential development, and I think that later on we shall further elaborate a plan for medium-term and short-term measures to be taken, so that it was possible to ensure stable operation, as well as indexation of the tariff and wages,” summed up the company's president.
ALROSA is engaged in the exploration, extraction, production and sale of diamonds. The company mines diamonds in the Republic of Sakha (Yakutia) and the Arkhangelsk Region. In 2015, ALROSA produced 38.3 million carats of diamonds, its sales totaled 30 million carats. Last year, ALROSA earned no less than $ 3.4 billion in diamond sales revenues.
The largest shareholders of ALROSA include the Russian Federation - 44%, the Republic of Sakha (Yakutia) - 25% and Yakutia’s uluses (municipalities) - 8%. The company’s free float is 23%.