Russian diamond giant Alrosa has announced the purchase of a sizable gold deposit in Russia’s Far East from Polyus, the country’s top gold miner, in a major step that suggests strategic diversification. The deal was disclosed on Monday by both businesses, which are now subject to Western sanctions. This is a significant step forward for Alrosa’s corporate operations.
Gold mining has long been a side business for Alrosa, which is known as the largest diamond manufacturer in the world. With this acquisition, the company is making a bigger step into the gold market, which it thinks would improve its long-term financial stability and work well with its current business plan.
Pavel Marinychev, the CEO of Alrosa, stated, “The development of the gold deposit will not only complement our current operations but also boost our financial stability looking forward. This strategic acquisition is aligned with our long-term objectives to fortify our market position.”
The company has committed to investing 24 billion roubles (approximately $276 million) to develop the Degdekan deposit, with plans to commence full-scale gold production by 2030, targeting an annual output of 3.3 tons. This development is poised to make a significant contribution to Alrosa’s overall business, with the firm’s gold unit currently producing about 180 kilograms annually.
Polyus has opted to sell the Degdekan deposit as part of a broader strategy to streamline its exploration portfolio ahead of the development of the Sukhoi Log gold deposit in Siberia, one of the largest untapped gold deposits globally.
The financial terms of the transaction were not publicly disclosed, but Akhmed Aliev, a financial analyst at BKS, a Moscow-based investment firm, estimates the purchase price to be between $50 million and $100 million. This range represents up to a quarter of Alrosa’s free cash flow. Aliev also projected that the operationalization of the mine could potentially boost Alrosa’s EBITDA by about 10%, contingent on current gold market prices.
Alrosa’s commitment to the Degdekan site extends until 2046, illustrating the long-term nature of this investment. The company emphasized that while this acquisition marks a deeper commitment to the gold sector, it does not signify a shift away from its core diamond business. “Our primary focus remains on diamonds, yet we continuously explore opportunities that leverage our mining expertise,” a company spokesperson explained. The Degdekan deposit’s appeal was partly due to its advantageous location near existing transport and energy infrastructure, which is expected to facilitate the development and operational phases of the mining project.
This strategic acquisition comes at a time when Alrosa and other Russian companies face increased international pressure due to sanctions. In response to Russia’s involvement in Ukraine, the Group of Seven nations agreed to restrict the trade of non-industrial Russian diamonds starting January, with further restrictions on diamonds sold through third countries from March. Additionally, the European Union added Alrosa to its sanctions list in January.
Despite these challenges, Alrosa reported a net profit of 85.18 billion roubles ($925 million) for 2023, although this was a decrease of 15.2% from the previous year. The company’s foray into gold represents a strategic shift designed to mitigate the impacts of sanctions and diversify its revenue streams amid fluctuating global market conditions.
