ALROSA’s future plan (Rapaport)

ALROSA’s future plan: an interview with ALROSA First Vice President Igor Sobolev

Russia’s largest diamond miner, ALROSA, is planning to increase production to 41 million carats by 2023. To do so, it will have to overcome a number of challenges, from construction of underground mines to dealing with unexpected technical problems to the potential depletion of its resources. Yet, ALROSA’s First Vice President Igor Sobolev, a former mining engineer in charge of the company’s production, is confident that the miner has all the resources it needs to achieve this goal. In an exclusive interview with Rapaport Magazine, he outlined the company’s agenda for the future.

Rapaport Magazine: How much did ALROSA produce in 2013?
Igor Sobolev: The company mined 36.9 million carats, which is 2 million carats more than in 2012 (see ALROSA Diamond Production chart below). The purchase of Nizhne-Lenskoe deposit, which produced 2 million carats in 2013, provided the major increase. Aikhal Mining and Processing Division (MPD) also contributed significantly to our growth, with its production of 12.08 million carats, 3 million more than it had produced in 2012. Some of Aikhal’s increase is due to the fact that we finally reached a diamond-rich level of ore at Jubilee pipe, which is part of Aikhal MPD. Together Aikhal’s two pipes represent 33 percent of our overall production volume.
Aikhal’s underground mine reached its project capacity of 3 million carats, which is 22 percent more than in 2012. Its operations were stable and its production volume for the year ended up even larger than planned due to special people and time management measures implemented at the mine. Basically, we have increased the time miners spend at their assigned work sites to seven hours. Previously, their seven-hour shifts included not only the work itself, but also the time spent traveling to the mine. This schedule change helped to increase production volume without additional investment.

RM: What about those areas where production did not increase?
IS: Even though the company met its plans for overall diamond output, some MPDs were not keeping up. The Komsomolskaya pipe, for example — also part of MPD — is currently undergoing repair work so it was closed. We had to reduce the planned output for Mirny’s Mir mine, which we had projected at 2.8 million carats at the beginning of the year. The mine’s open pit was flooded in 2011 and it ended up producing 2.15 million carats in 2013.
We were able to control the flooding but not the volume of water leaking into the underground mine so that complicated mining operations. In 2013, we spent lots of effort on developing and implementing measures that allowed us to capture water. All this affected the levels of production. International pipe, which is also part of Mirny MPD, produced 4.38 million carats, in line with projections.
Udachny MPD also produced 16 percent less volume — a total of 4.9 million carats — due to the shift to underground mining. Nyurba MPD produced 7.4 million carats, in line with the plan. We also started stripping Butuobinskaya pit, located less than two miles southwest of Nyurba. Diamonds from this mine will replace Nyurba pit output in 2015, when the latter will undergo repair work.
Open joint-stock company (OJSC) Almazy Anabara increased its production by 5 percent to 2.5 million carats in 2013. The company is mining the same diamond field as OJSC Nizhne-Lenskoe, which ALROSA purchased in 2013. It should be noted that Nizhne-Lenskoe’s rough is two times better in quality than that from Anabara. Uniting the two companies in one operation enabled us to cut costs and increase productivity.
Lomonosov MPD produced 650,000 carats. In November 2013, we launched a second processing facility with the capacity of three million tons of ore a year. It is going through a test run and will reach its projected output in the second half of this year.

RM: Could you expand on the new work schedule you introduced at the Aikhal underground mine?
We have started implementing this approach at all underground facilities. Working hours for all mines are now set at seven hours a day, and this does not include the time in changing rooms or time spent getting down to the actual work site. At the same time, we increased the payroll.
We implemented these changes across all underground development sites and achieved an increase in production volume by 15 percent per worker. That has been done at the cost of the increased payroll only; there was no need for new employees or other capital investment. The additional benefit is that the breaks between the shifts have been reduced and there is no interruption in the operation of the machinery.

RM: What output do you expect for 2014?
IS: Overall, we will produce slightly less rough in 2014, a total of 36.03 million carats. This is a planned decrease due to a number of reasons. First of all, we have to cut the production at Mir pipe to 1.785 million carats in order to implement all the engineering solutions for stopping the water. We are focused on installing systems to regulate the inflow of water and capture the water at the top of the mine. We could have left production at full capacity while we did this work, but we decided to cut back on production for safety reasons.
We will also close the operations at one of the shafts at International pipe for two months to change rails there. This is a planned procedure that will allow us to work for the next 15 years to 20 years at that site without disruption.

RM: What measures will compensate for the reduced production at Mir and International?
IS: All these shortages will be covered by the added production at Aikhal MPD, which would be our leading facility, producing 12.5 million carats. Moreover, we tested the block caving method at the Aikhal mine, which is more cost-effective than the cut-and-fill method that we currently are using everywhere, and we are ready to implement it at Aikhal. In the cut-and-fill method, the ore is mined in horizontal or slightly inclined slices, which are then filled with waste rock, sand or tailings. Block caving uses explosives.

RM: What exactly are the advantages of the block caving that you tested at Aikhal?
IS: At the moment, with the cut-and-fill method, we are limited by the size of the cutter loader, which operates in an area of approximately 20 feet by 20 feet. With block caving, we can cover a larger area. We drill the shafts and place explosives. All that is left is to collect the ore. The first tests were successful, but in order to evaluate its cost effectiveness, we need to test this method at the same spot where we do cut-and-fill mining to see if the explosion method causes more damage to the rough. This is the first time block caving is being used for a kimberlite deposit in Yakutia.

RM: What are your plans for the Udachny mine in 2014?
IS: The much-anticipated event is the start of underground operations at the Udachny mine, where we will mine 1.8 million tons of ore during 2014 on our way to reach project capacity of 4 million tons in 2016. Udachny MPD has a processing factory for 12 million tons a year that had been used for our open-pit operations there. Our project institute is calculating the economic value of different variants for its use and we must make the decision in 2014. We also must decide if it is profitable to start mining at the nearby Zarnitsa pipe and take its 5 million annual tons of ore to the Udachny processing plant.

RM: ALROSA is projecting 41 million carats of volume by 2023. How do you plan to achieve this target?
IS: We expect Severalmaz, the Lomonosov MPD, to be our main growth area. It is currently producing 650,000 carats of diamonds annually and is expected to increase its production capacity to 5.1 million carats in 2021. The Butuobinskaya pipe will become operational in 2015 and we can also increase operations at the Zarnitsa pipe. There are sufficient deposits available to us; it is merely a question of whether the economics will be favorable for putting these pipes into production.

RM: Are there any deposits that are unprofitable at the moment but could become profitable if rough prices go up?
IS: We have the Dalnaya pipe that has been explored but its capacity as yet remains below the cost-efficiency rate with current technology. The Verkhne Munskoye field has three pipes with good capacities for production. We need to analyze the diamond probes and decide on the cost efficiency of developing them.

RM: Which field is the top one on your list?
IS: I’d say it is the International pipe. It is a true diamond in our crown. It’s not a big operation — it produces only 500,000 tons of ore per year — but the grade of ore is 8.2 carats per ton, which enables us to produce $1,100 to $1,200 worth of diamonds per ton in book prices, which are lower that the market prices. As a comparison, Mir yields $320 to $340 per ton. But all pipes are unique and can’t be compared easily.

RM: How often do you get large diamonds?
IS: It’s not out of the ordinary. We discover several diamonds weighing more that 100 carats a month. But they are not all of very good quality. In 2013, we found a stone weighing 400 carats, but its quality was not very good.

RM: What is the share of industrial rough in your production?
IS: Industrial rough makes up around 10 million carats out of every 36 million carats we mine. If we speak in dollars, then industrial rough is an even smaller share, representing $100 million of the overall sales volume of $5 billion. We mine industrial diamonds because they are produced along with the gem-quality rough and so they don’t cost us anything. This production was established in the Soviet days, when industrial diamonds were a strategic deposit used for military purposes.

RM: Why do you have problems with water at the Mir mine?
IS: The plans for the underground mine at Mir were developed back in the early 1990s. The bottom of the open-pit mine was covered with plastic and a thick layer of clay loam. Of course, this protective layer had some microcracks, but the event that caused the current leakage occurred in 2011.
The pump that was taking the water out of the open pit broke down and it took a couple of months for the new one to arrive from Germany and be installed. Meanwhile, a pool of water about 65 feet deep accumulated at the bottom of the pit, which increased the pressure on the clay loam bottom. Water was leaking into the mine extensively by the time the pump was installed.
Looking back, we can see that the original design of this two-decades-old project was flawed and its creators were too optimistic in assuming this layer would be reliable. But this is nothing out of the ordinary in mining. Mining is like art; there are no certain decisions here. The conditions are changing, so we are reacting to them.

RM: Are there technical projects that you are particularly proud of?
IS: We consider our open pit mines ideal, if I might say so. If you look at the pictures, you can see that their edges are very fine and their flanks are almost vertical, which allows us to take out less overburden, the waste material that lies above the layers that are of economic interest. But it is all due to the geological structure of the earth; the layers of ore are located horizontally and thus they are more stable.

RM: What do you do to provide ecological security in the region?
IS: We have only one problem and that is our tailings have high saline levels. We pay much attention to the construction of dams to retain the tailings water because it contains so much salt. As for underground water, we have a number of underground openings that can hold significant volumes of water. All these solutions were worked out in advance and they are effective, so our task is to keep them in perfect condition.

This page was last updated on 11 March 2014 at 09.53