Russia’s Diamonds: 40 Years of Mettle

After more than 40 years of total secrecy, Russia put its diamond operations on public view in June. The occasion was an international diamond summit in Moscow (see August JCK, page 14), followed by a visit to Sakha, the Siberian province where the country’s mines are located.

Russia produces one-fourth of all diamonds mined in the world, an estimated $1.4 billion worth yearly. But its ascension to diamond superpower hasn’t been easy. Mining operations in Russia have had to overcome some of the most hostile weather on earth and countless logistical problems in remote locations.

In fact, a cyclical setback in the constant battle with nature has reduced output from 22 million carats yearly a decade ago to 12 million today. “But Russia is and will remain a diamond superpower,” said Evgeny Bytchkov, who chairs the State Committee on Precious Gems, which oversees all of Russia’s diamonds.

Delegates to the June gathering got a close-up look at Russia’s diamond industry, beginning with a tour of the Mir Mine, where it all started 40 years ago. To get an idea of how remote the mine is, turn a globe to the Asian side; find Seoul, South Korea, and draw a straight line 2,000 miles north to the Arctic Circle. As you fly into the site, all you see from horizon to horizon are a forest of miniature fir trees and, beyond the tree line, tundra and glacial lakes. Then comes the mine, an incredibly large, perfectly round scoop taken out of the forest surrounded by the rows of utilitarian apartment blocks that make up the town of Mirnyy. It’s one of the largest man-made pits in the world, more than 1.6 miles across and almost half as deep.

During its heyday, the mine yielded nearly 6 million carats yearly. Today, production is at a standstill because water has seeped into the bottom and made mining impossible, said Lev Stefonov, director of operations for Almazi-Rossii-Sakha, the semipublic company that operates Russia’s diamond mines. Two solutions have been proposed:

  • Drain the water into a holding basin. “But the water is too highly mineralized [with pollutants],” says Stefonov. “The environment of this far northern area is very sensitive, so we must be very careful.”

  • Drill a shaft beside the mine and extract the diamond-bearing kimberlite from the bottom – a process used in most deep diamond mines. But the water that seeped into the mine also plays havoc with any attempt to drill a shaft, he said.

“We are still working on a solution,” he says. “Until then, we are only mining ore we have brought to the surface.”

The journey continues: Tour members also had a chance to visit Udachnaya Mine, 25 miles north of the Arctic Circle. This mine is nearly as wide and deep as Mir and now accounts for about 80% of Russia’s yearly production.

Mining continues here all year-round even though temperatures drop as low as -76x Fahrenheit in the winter. “At those temperatures, we have special problems: metal becomes very brittle and can break easily, gas lines freeze and exhaust from vehicles and smoke from bonfires at the bottom of the pits won’t rise into the atmosphere, creating a noxious atmosphere for the workers,” said Stefonov.

“This problem gets worse as the mines get deeper,” he said. “We’ve tried to devise ways of preventing this, but we’ve been unsuccessful so far. All we can do now is require workers to spend as little time as possible in the pit or stop work when conditions become too bad.”

Summer brings more problems. The top layer of permafrost thaws, turning the ground into a morass of wet-cement-like goo that inhibits the flow of supplies.

Such delays cause losses of many work hours yearly.

Future hope: The hopes for Russia’s future diamond production are tied to the Yubileinaya Mine now under construction.

The site was not part of the tour because there’s little work going on there now. In fact, the scheduled 1996 opening will likely be delayed two years or longer because of the government’s severe cash crunch and Russia’s chronic logistical problems in getting materials and equipment to the site.

Museum recognizes success: Also on the agenda was a visit to a tiny diamond museum in the town of Mirnyy. “Everyone told us it was impossible to build a diamond mine under these conditions, but we succeeded,” said the curator. To prove the point, the museum displays an enlarged copy of a 1956 New York Times report with Russian translation saying the newly discovered diamond deposit couldn’t be developed this century, if ever. “We had the mine running the very next year, 1957,” said the curator.

The museum is housed in the town’s first permanent structure, built the same year the mine opened. “Before then, geologists and mine workers lived in large tents,” he said, showing photographs of ice-covered tents with the notation “-61xC” (-78xF).

The area grew quickly as geologists, technicians, mine engineers and miners were recruited (“voluntarily,” he stressed). By 1960, Russia was able to begin exporting large quantities of rough diamonds to the outside world; the country signed an agreement with De Beers to market all of the production.

The former Soviet government decided to establish a diamond polishing industry in 1967. But Sakha was ruled out because of its remote location. Instead, the polishing industry was launched in Moscow and within five years was creating world-class cut stones from about one-fifth of the country’s production.

Into the mainstream: Not until the breakup of the Soviet Union did Russia’s diamond industry try to move into the mainstream of the world trade.

Shortly after the breakup, government officials invited Eli Izhakoff, president of the World Federation of Diamond Bourses, to brief them on the nature of the world diamond market. “Before then,” said Izhakoff, “they sold their rough diamonds through [De Beers’] Central Selling Organisation and polished diamonds through a few outlets in Antwerp and elsewhere. Otherwise, they knew little about the diamond pipeline, the industry and the key people.”

That lack of knowledge of the diamond pipeline cost the entire diamond industry dearly in the mid-1970s and early 1980s when Russia sold large quantities of polished diamonds at reduced prices to raise money for its cash-starved government.

“I thought that if the Russians knew better how things work, they would be much less likely to disrupt things again,” said Izhakoff, who helped to arrange the gathering in June. “The more Russia becomes part of the diamond industry, the less it is likely to upset things.”

Russia is committed to a stable market, said Izhakoff, despite well-publicized differences with De Beers over a new marketing contract to replace one that expires later this year. “They now understand the consequences of letting things get out of hand,” he said.

(Russian officials credit Izhakoff with helping to bring Russia into the mainstream of the diamond industry. In fact, during the gathering in June, Sakha officials presented awards to Izhakoff, Nicky Oppenheimer and Gary Ralfe of De Beers and Maurice Tempelsman of Lazare Kaplan International for their roles in helping to develop Russia’s diamond industry.)

Rapid growth: Russia’s diamond industry is growing rapidly, but there have been painful readjustments, particularly in the mining regions. Mirnyy and Udachny have grown quickly from desolate outposts to towns with 30,000 and 18,000 residents, respectively. And Russia now has more than 50 diamond polishing factories, including seven in Sakha, thanks to a massive privatization effort.

But privatization and problems at several mines – including those mentioned, Aikhal and several smaller ones – have caused massive cutbacks in the work force. At the same time, concerns about the fragile northland environment have prevented development of another potential major find at Arkhangelsk.

Sakha is fighting to keep its industry profitable with an ambitious plan to boost employment and revenue. The centerpiece is a proposal to create a diamond polishing and trading industry in Yakutsk, the capital of Sakha and the largest city in Siberia with a population of 180,000.

The proposal is a high priority for Mikhail Nikolaev, president of the province. Revenue from a polishing and trading center could help to fund his government’s plans for more schools, roads and other facilities to attract more industries.

While many in the trade are skeptical of the proposal’s chances, Nikolaev is influential. Three years ago, he successfully sought from Russia control over 20% of all diamonds mined in the province. Since then, his government has built a large diamond center in Yakutsk with offices for polishing companies and international dealers, space for a diamond bourse and full international communications facilities. Nikolaev believes it will play a big role in attracting foreign buyers.

At this point, buyers remain few for several reasons:

  • Sakha is remote.

  • Seven polishing factories remain in the preliminary stages of production.

  • Most of the goods available are melee, which is readily available elsewhere.

However, Nikolaev believes the problems will be overcome. “We are insisting on a high degree of sov er eignty from the central government and want more control over our resources,” he said. “With our economy moving to privatization, we must do this to realize our people’s expectations and to build roads, schools and power plants.”