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Sergei Ivanov Jr.: The apple does not fall far

June 14, 2018, 8:00 UTC+3

ALROSA group’s president in a TASS special project Top Officials

4 pages in this article
© Mikhail Tereschenko/TASS

About the best friends, gifts, The Dynasty, bonuses and investment

- Diamonds are a girl’s best friend, the saying goes. And what kind of people do you prefer to be on friendly terms with?

- Very different types. Some of them are young ladies. As for diamonds, they are my business.

Seriously speaking, I have several groups of friends. I still keep in touch with my pals I studied together at the MGIMO university. For instance, Sergey Belyakov, who leads the Dixy Group, one of the largest retailers. Several people work for international and Russian legal firms. Some are in real estate. When we get together, though, we seldom talk shop. We prefer to share recollections and discuss abstract matters and also sports and leisure…

With some I made friends at Gazprombank and Sogaz. At first, those were purely business-like relations, but with time we became good close friends. I was responsible for the corporate business and had a very wide range of people I had to meet with. Sometimes I held ten to fifteen business meetings a day. It was then that I made many new acquaintances.

Now I can afford the luxury of socializing with far fewer counterparts. I can choose between those I have to meet with on business and others, who are just pleasant people and whose company I like

Now I can afford the luxury of socializing with far fewer counterparts. I can choose between those I have to meet with on business and others, who are just pleasant people and whose company I like.

Among my friends there are people of different backgrounds, material status and education. But that does not matter. It is far more important to feel good and to enjoy each other’s society. I believe I am extremely fortunate in this sense. Some say good friends are never too many, but I cannot complain about the ones I have. Our relations have stood the test of time.

- Since the moment you became in charge of a company that produces more than a quarter of the world’s diamonds you must’ve had real problems with thinking of a birthday gift for a friend? A good book or a bunch of flowers is not enough, eh?

- Believe me, nobody expects me to bring a diamond necklace or a five-carat diamond ring. It is true that some of my acquaintances started asking me for advice lately what is the best and most reliable place to buy precious stones. I tell them to go to our company Diamonds of Alrosa, the diamond-cuttingdivision. Some prefer to purchase diamonds abroad, but I always warn they should take a look at the certificates first thing, because in some cases (quite frequent ones lately), artificial diamonds are offered as natural ones. You’ve got to be a real expert to see the difference.

- Have you mastered the science?

- It’s easier said than done. I first delved into the subject in February 2017, when I was still senior vice-president at Sberbank. I warned German Gref in advance that I had accepted an invitation to lead Alrosa and would resign soon. Gref agreed. Step by step I was handing my business affairs over to successors and getting ready for my new job. I took the helm on March 12. It goes without saying that the diamond business has certain specific features and making off-the-cuff decisions there is quite risky.

Over the fifteen months I’ve been in charge I managed to grasp what it is all about well enough to be able to at least hold talks with partners using the same language. But I am still to learn a great deal about the gemology and morphology of diamonds. Not to mention geological exploration, technological and industrial nuances and the mining business as such. You’ve got to be an expert in many fields, so I work with specialists both in theory and in practice.

- Last February you showed to President Vladimir Putin pink and yellow diamonds and made expertly comments while describing their unique qualities.

- Quite true. There are several parameters and standards diamonds are judged by. They are called the 4Cs – carat, cut, color and clarity. Color diamonds are rated most highly. Those I brought to the Kremlin to show to President Putin are the most precious color diamonds of those ever mined in Russia. Mind you, ever! Their parameters are unique. And their size and mass are impressive, too.

The pink diamond is nearly 28 carats, and the yellow one, 34 carats.

They were produced at Ebeleeh, the Mayat rotation camp,an affiliate of our daughter company JSC Almazy Anabara. The yellow diamond was produced in July last year, and the pink one, in September.

- Which is more precious? The bigger one?

- No, the pink diamond is more valuable. According to our estimates the market price of the cut diamond should lie between fifteen million to twenty million US dollars.

- Who does the cutting?

- The board made a decision the diamond will be cut at our own facility, an affiliate of the Diamonds of Alrosa. One of the world’s most experienced diamond-cutting specialists with a more than half-a-century-long record in business will be our adviser.

The price of unique color diamonds depends on the eventual color a great deal: the more intense the color, the higher the final price.

- Does your company have a record of holding your own auctions?

- It does. Last year we presented five unique diamonds produced by Alrosa’s own cutters. It’s the Dynasty collection, consisting of 179-carat diamonds. It was discovered at the Nurbinskaya kimberlite pipe in 2015. Four diamonds – Sheremetiev, Orlov, Vorotsov and Yusupov – were sold at a price well above the starting one. The remaining one - the Dynasty - is the largest. It weighs more than 51 carats and has the highest cutting grade, Triple Excellent.

- How much did you ask for it?

- A sum pretty close to an eight-digit one. In US dollars, of course. I am certain that we will be able to attract a buyer and sell the diamond in 2018. Such diamonds are very rare on the market. They are considered as an investment asset and many jewelers and collectors are eager to have them.

There’s an excessive supply of cash on the world market and rich people are ready to invest them in diamonds – color and white ones, but with unique characteristics. The demand for exclusive items soars, so does the price.

Right marketing tactics is of the essence. For instance, before the auction the Dynasty collection travelled around the globe to be examined by the leading private experts, specialists purchasing valuables and just wealthy clients. All those who wished to take a closer look at the offered items to see if they were really worth the price could do so and literally hold them in their hands.

Anyone who takes a look at the results of the latest Sotheby’s and Christie’s auctions will instantly notice that both are expanding the jewelry segment, diamond sales in particular.

- Did you pay any special interest in gemstones in your life before?

- Only when I wished to present my wife with something beautiful. But I certainly had no idea of the specifics concerning assortment and certification.

- And how many carats could you afford?

- No more than two in a set, say, consisting of earrings and a ring. My Angelina finds this quite enough. Her attitude to jewelry is rather calm. She never tries to outdo others in terms of quality or size.

Even imitation jewelry can make her day.

- Has anything changed since the moment you joined Alrosa?

- My wife is in the habit of telling all her friends that her husband now has a good knowledge of gems and plans to invest part of the family savings in jewelry she will be able to wear.

She’s joking, of course.

- Are you entitled to corporate discounts in buying diamonds?

- Nobody in the company, including the CEO, has any advantages of this sort. Everything is done on equitable terms.

- Are gems a good investment?

- Let me explain once again: unique stones will always rate highly. The dynamics of prices of cut diamonds under three carats indicate that prices have been steady on the decline for the past five years, which, in fact caused the prices of raw diamonds to sink. The slump has totaled fifteen percent since 2015.

- Can you tell us why?

- The balance of supply and demand against soaring global problems is the root cause. The diamond-cutting factories lacked a large stock, which made itself felt, too. The raw diamonds had been purchased at the old prices. Companies found it very hard to stay in the green after settlements with the creditor banks.

The market, which we sometimes call the diamond pipeline, is an intricate mechanism. There are the mining companies, the midstream, and those who purchase diamonds, cutters, the jewelry and the retailers around the world. Quite often they take goods on consignment, with payments delayed. The factory gets the money when the product is sold. In a word, this is an intricate machinery and it essential to ensure it remains in balance at all stages. The industry is very sensitive to any change – be it macroeconomic fluctuations, foreign currency exchange rates, rise or fall of interest rates, tax innovations and, lastly, geopolitical risks.

One of the factors that has had a great impact on the market over the past few years was India’s monetary reform, which caused the cutting industry and demand for certain  items to slump for three months. There’d been no chance for the industry to foresee that. The effects of that had to be settled in the first quarter of 2017…

- Did it hit us, too?

- On the rebound. If cutting factories in India are idle, this cannot but affect our demand and the prices of our raw diamonds. After all, we work under long-term contracts.

- What share of world diamond mining does Alrosa account for?

- Twenty eight percent. Even despite the accident at the Mir mine we achieved a record-high result last year. We produced 39.6 million carats of diamonds, sold 41.2 million carats and posted a revenue of $4.2 billion. Last time Yakutia delivered 40 million carats of diamonds in 1990, but in those years strip mining prevailed and building up outputs in that situation was far easier. Now we have three underground mines. The costs are certainly higher.

In the 2018, production will apparently go down to 36.6 million carats. Mostly because Mir had to be closed down. We hope to be back to the level of 37-38 million carats in a year.

- What’s your estimate of the overall reserves?

- One billion one hundred million carats. One should remember, though, that we also have what we call low grade ore deposits. The content of diamonds in the ore is low and infrastructure is poor or non-existent at all. The economic effectiveness of developing them in the current situation is doubtful. Yet, the reserves are recoverable. In five to ten years from now, when profitability will grow with the advent of new technologies, they will begin to be developed.

At some of our deposits the price of diamonds ranges $140 to $160 per carat, and at others, it lies between $50 and $70. Everything depends on the purity and quality. Just recently we tested ore from the Verkhne-Munskoye diamond mine. The forecast is generally favorable. The reserves are estimated at 38 million carats.

There will be problems with logistics, though. Verkhnaya Muna is approximately 170 kilometers away from the enrichment plant N. 12 in Udachny. Ore will have to be ferried there by truck. Each vehicle is capable of carrying up to 100 tonnes of ore at a time. There will be a temporary community for shift workers. We have no plans for building permanent housing there. At the moment we are in the process of hiring personnel. Commercial production will begin in September.

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