January 29, 2020 / 12:26 PM / a month ago

Russia's Yakutia governor says Alrosa's flooded mine will be re-opened

MOSCOW (Reuters) - The world’s biggest diamond producing company, Russia’s Alrosa, will restart production at Mir, a mine in the Yakutia region of the far east, shut since a deadly 2017 flood, the region’s governor Aysen Nikolaev said in an interview.

FILE PHOTO: Head of Russia's Republic of Sakha (Yakutia) Aysen Nikolayev attends a session of the International Arctic Forum in Saint Petersburg, Russia April 9, 2019. REUTERS/Anton Vaganov/File Photo

Yakutia, the world’s biggest province by area, comprising half of Russia’s vast far east, derives much of its revenue from a 33% stake in Alrosa, and Nikolaev sits on the firm’s board.

Prior to the flooding which killed eight miners, the Mir mine accounted for around 9% of Alrosa’s annual diamond output. Alrosa has said around $1.3 billion would be needed to restore the mine if it decides to reopen it.

“Restoration of the Mir mine will definitely take place,” Nikolaev said. The remarks differ from previous statements by the company’s management, which has said a decision has not yet been taken and depends on an assessment that reopening the mine would be worthwhile economically.

The state-run company last year sold less than it produced in order to prop up a weak market as miners battled falling demand and competition from diamonds made in laboratories.

“We understand at the moment that in 2020 Alrosa’s tax and non-tax revenues will fall, and we have factored this into our budget already,” Nikolaev said.

Last week the governor proposed that precious metals and gems repository Gokhran, managed by the Russian finance ministry, buy $0.5-$1 billion of Alrosa’s rough diamonds this year.

That would add around 14-15 billion roubles ($223.7 million - $239.7 million) to Yakutia regional budget, Nikolaev said.

Alrosa has said it would turn to Gokhran only if the market situation were to deteriorate significantly.

In 2019 Alrosa’s revenues fell 26% compared to the previous year, with the company selling 33.4 million carats of diamonds out of a total output of 38.5 million carats.

Nikolaev said he expects the market to recover this year, though not to 2018 levels. He forecast Alrosa’s sales growing by 15%-17%, slightly exceeding the company’s own estimations.

Alrosa’s chief executive, Sergei Ivanov, has said the Mir mine will not be reopened unless it makes economic sense, noting that Alrosa takes on projects only when the internal rate of return exceeds 20%.

In January, Alrosa began drilling at Mir to reassess its diamond content. This analysis is expected to take two years.

Nikolaev said reopening the mine is a given and the purpose of the analysis is solely to determine the best method for doing so. The assessment is expected to be done by 2024, with restoration work then taking 6-8 years, he said.

Reporting by Anastasia Lyrchikova, Gleb Stolyarov and Polina Ivanova; Writing by Polina Ivanova; Editing by Polina Devitt and Peter Graff

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