Interview of ALROSA President Sergey A. Vybornov to Interfax Information Agency on 22 April 2009

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«The main thing now is not just to mine diamonds but to have their guaranteed sales»

The financial crisis has affected not only stock exchanges, but the «eternal values» as well, hitting both rough and polished diamonds. To prevent a landslide in prices for rough, the world’s major diamond miners were forced to curtail their sales on the market and Russia’s ALROSA was no exception in this sense. Now the company is reaching after an efficient sales system which would protect the market from touts. Sergey Vybornov, President of ALROSA, told Interfax about the company’s sales strategy, its production schedules and non-core projects.

In February and March, we were very busy improving our customer base. We have chosen a group of 15 companies in Antwerp which have their own free funds, no problems with banks and a short credit leverage of about 10–20%. We offered these companies to build a long-term partnership — from 6 months to 3 years, taking our bearings on prices leveled at an average between the August 2008 peaks and current values.

The representatives of these companies are right now in Moscow examining the goods and we shall sign these contracts. Putting it in other words, these people are investing into the future paying in excess. They understand they are overpaying, but they also understand that in three years prices are most likely to go upwards. The representatives of ALROSA’s shareholders have approved such an approach.

To deliver such a result it is essential to realize that marketing is no less important a component of the diamond business than diamond mining. You may extract a heap of diamonds and fail to sell any of them. Formerly, no one even thought about it. Until recently, De Beers was our major foreign buyer and one half of rough stock was sold at a discount on the domestic market — and it was readily bought for immediate re-sale. Now the necessity of a new sales system is evident for everyone. For instance, for me it was somewhat unexpected that our trade union leader at the Udachny Mine voiced absolutely professional criticism in relation to the company’s sales organization.

The marketing group is currently headed by Mike Brooker. He is a former employee of De Beers. So far he is working under a contract since he has not yet passed all the migration procedures. He is a rough diamond expert and worked with De Beers’ marketing subsidiary, which was also a broker. For a long time Mike headed the rough team which used to buy rough diamonds from us, in other words he knows the Russian assortment perfectly. So far he has a compact group of five or six persons under his command and it is going to grow. Our marketing division is currently promoting polished diamonds as investment goods — this is our joint project together with Leader Asset Management.

If we take America, the situation there is specific. According to the last surveys by Prince and Associates, a U.S. agency researching wealthy consumers, 82% of U.S. males owning fortunes worth over $25 million are mulling to cut spending on their mistresses. It is clear that they will still buy food, necessities and dwellings. But they evidently plan to diminish their budgets for gifts.

As for other markets, they are already recovering. Dubai is a very good market — it is a new world-scale center of diamond jewelry trade. Besides, no one cancelled human emotions so far. There are anyway certain events within the year which make people give diamond gifts. It is likely that the market will shift to Asia and Europe and I think it will virtually balance off the drop in U.S. demand completely.

Yet the other ambitious project — construction of two hydro power stations (one in the boarder area shared by Namibia and Angola and the other on the Orange River on the boarder between Namibia and South Africa) — has been cancelled from ALROSA’s plans. There have arisen too many legal problems in organizing construction in the boarder areas. Besides, we planned 100-percent bank financing and now there is none.

What can you say about the iron ore project in Yakutia?

It is of interest to investors from China. No one will sell a controlling stake to the Chinese; we could sell them a non-controlling stake, but this is also considered to be a strategic asset. This is the world’s biggest group of iron ore assets. The investor wishes to pay a market price for a non-controlling stake and evidently this will be executed on paper in the nearest time as well.

This page was last updated on 24 April 2009 at 16.30