May 22, 2020 - The Strategic Planning Committee of ALROSA’s Supervisory Board consisting of Supervisory Board members nominated by the Company’s key shareholders and also of independent directors reviewed options to cut spending and optimise production as proposed by the management and recommended that the management be guided by proposals envisaging lower output.
This recommendation was made by the Committee in response to the crisis unfolding in the global rough and polished diamonds market. According to preliminary estimates, the measures on cutting down the production will lead ALROSA’s 2020 diamond output to decrease to 28–31 m carats vs the initial guidance of ca. 34 m carats.
The coronavirus pandemic and steps taken to fend it off have had their toll on the demand for diamond jewellery, which saw strong growth earlier in the year. In this context, major diamond producers allowed cutters not to purchase the volumes contracted before in an attempt to pull all players across the value chain out of the crisis while also maintaining the stability of prices in the diamond market. This step requires that the Company show proof of operating and financial resilience, with cost cutting and proactive production management viewed as the key tools for achieving this objective amid the slump in sales.
Production cuts are expected to come at the expense of operations that have weaker margins due to lower diamond quality and price. Temporary shutdown of such production sites will help avoid the build-up of stocks of diamonds least sought after in the market.
Following the suspension of operations at Zarya and Aikhal, the Company’s management took a decision to halt commercial production at the Verkhne-Munskoye deposit. By early June, all operations at the deposit are set to be closed. Mining is expected to resume on October 1, 2020.
In 2019 combined production at the Aikhal underground mine and the Zarya open-pit mine totalled approximately 2.6 m carats. Production at the Verkhne-Munskoye deposit in 2019 amounted to 1.5 m carats with an average diamond grade of 0.6 cpt.