Uniqueness | Mines to Market

Mr. Jim Vimadalal, young and dynamic (Director – Indian Representative office) of the Russian Mining Giant ALROSA speaking about the company’s plan strategies in India Q: Speaking of industry progress in 2019, what are the key areas that will draw attention? Blockchain, transformation, diamond promotion, etc.? There is much talk and some initiatives like Tracer for Blockchain in the diamond industry. How can participation in Blockchain be promoted? Ans: Today, the overall mining industry is actively innovating. This applies to our colleagues who are engaged in diamond mining as well. We operate in a competitive environment, and the production costs are very important here. Moreover, high-quality synthetic stones are appearing now and have almost occupied the niche of industrial diamonds, and we need to consider this. We have innovations in security and safety systems. Such mining technologies are more conservative, but there are areas like selling or sorting diamonds. In this case, digital technologies are actively developing, including the digitalization in tracing. Tracing and the blockchain as part of building such a system are initiatives that all market participants are more or less discussing. In our opinion, this topic is very important for two reasons. Primarily, the creation of such a system would significantly increase the transparency of the diamond industry, protecting both market participants and final consumers from stones with a faulty history, including conflict ones. It is impossible to make any unauthorized changes to the blockchain's distributed database, which means that it will not be possible to name the dubious stone a “clean” one and hide its history. In addition, it guarantees the natural origin of the diamond. Unfortunately, the consumer has the risk of purchasing a synthetic stone under the guise of natural so far. The industry is working to eliminate this possibility by developing regulation and special detection devices. Blockchain can be another tool for obtaining complete and reliable information about the diamond the end consumer is buying. In addition, the consumers themselves request the information on the origin of stones. Modern jewelry buyers choose jewelry more responsibly and carefully than previous generations. They are interested not only in the price, appearance, and status of the product but also where and how this stone was mined and manufactured, whether it is from conflict areas, whether ethical standards were maintained during its mining, what were the working conditions of employees, are there social programs and whether the environment was polluted. Once there is such a request, companies should not only comply with all these standards but also provide this information to consumers. Q: ALROSA being part of Tracer speaks of industry integration once again. How will you take your part forward? Ans: ALROSA is also working in this direction. We mine about 30% of all diamonds in the world, and we want to do everything on our side to ensure the origin and authenticity of diamonds of Russian origin for our consumers. To do this, you need to digitize the stones, track them down to the date of extraction and the name of the employee who extracted it from the ore and rebuilds the process of transferring this data. Technically, this is feasible, although we understand that not all solutions will be implemented quickly. In parallel with building the internal system, we are working on a platform that will provide this information to the consumer. In general, we get a lot of proposals for the joint creation of blockchain systems, which once again confirms that the market is looking for ways to increase transparency. Q: How do you intend to increase and strengthen your global customer allocation in 2019? Ans: We are not intending to change our sales system, as well as geography. We have trade offices in the largest diamond trading centers. International auctions for large rough diamonds are held there. This is an integral part of our trading activity since large rough diamonds in accordance with Russian law should be sold only in this manner. Last year, we held 32 international auctions for special sizes (over 10.8 carats) of rough diamonds, receiving a total revenue of $463 million for the year and we are very satisfied with these results. In 2019, we plan 37 auctions worldwide. The main principle is based on a long-term contract and today we have 69 long-term clients, 59 of them buy our gem-quality rough diamonds. The geography of our clients was represented by Russia, Belgium, India, Israel, China, UK. Recently, the clients from the UAE and Switzerland appeared. We also have two new candidates from Belgium for the inclusion in our long-term clients' list; ALROSA ALLIANCE agreements with them will be signed in the near future. Q: Please share insights into your marketing initiatives for 2019 and how do you intend to promote awareness and demand for natural diamonds. Ans: As a diamond mining company, we need to continue the promotion of the “eternal” significance and precious emotions that natural diamonds symbolize. There are two directions of marketing initiatives today. The first one is generic marketing implemented by the DPA with the aim to strengthen consumer demand for diamonds and to recall that the diamond is an expression of emotions for any occasion, not only weddings. The second direction is our own marketing as ALROSA. As mentioned earlier there is a demand from consumers for stories behind the stone, a request for the origin of diamonds, for social responsibility. We have to show all these stories and inform the end consumer more about ALROSA and its products, to explain that we are the leaders in social programs aimed at improving people’s lives and protecting the environment. We need to take into account that synthetic diamonds already occupy a certain niche in the market. At the same time, it is well known that lab-grown stones will not affect the natural diamond market if they exist separately. While there are risks, but they relate to relatively cheap and small goods. Significant pressure on prices for small-sized natural rough diamonds is also possible. But it will not cause any catastrophe for ALROSA provided we work on costs and operational efficiency. Apart from synthetics, diamonds today have to compete with a variety of luxury goods, such as expensive gadgets and holiday travel. This is why major diamond producers have to continue to put more resources into marketing of our unique and rare product. This is the secret of real diamonds – they carry emotion and history. And we are trying to maintain and promote this uniqueness. In this regard, transparency is very important for the diamond market, and there are a few reasons for this. First, and I mentioned this above, the industry should combat negative stereotypes, which are still popular among people and media:for example, many people are still discussing conflict diamonds, but they aren’t aware that this issue is resolved by the Kimberley Process, and today a consumer has zero chances to buy conflict diamonds in a jewellery store. Another stereotype is that diamond mining is about poverty, slavery, human rights violation, etc. But diamond mining today is a technological industry with no manual labor as such. The main industry players are making many efforts to support society, protect the environment. Our aim is to inform consumers about the same through our marketing initiatives. ALROSA will further invest in the marketing of natural diamonds through DPA and separately, explaining to customers that our diamonds are mined and manufactured in transparent conditions. We will keep the leading positions in different ratings in terms of social and environmental responsibility. The honest diamond story will help us to maintain the demand for natural diamonds. Q: Do you plan to launch any new programs to enhance association with your Indian clients? Ans: India accounts for 16% in the sales structure of ALROSA(if we are calculating direct sales to India), including cooperation within long-term agreements and one-time contracts, as well as the participation of Indian firms in our international auctions and tenders worldwide. Despite the fact that ALROSA has a representative office in Mumbai (opened in April 2018), it does not conduct trading activities in India, mainly due to the local tax system. Since 2018, we have a new three-year contract period. Following the results of the first year, we revised the list of long-term clients. Six companies, including three from India, were included in the long-term clients' list. Thus, today we have 17 long-term clients from India. Moreover, we have over 140 companies that buy ALROSA Diamond sat auctions and through spot contracts. In 2017, Russia and India signed a memorandum of cooperation in the diamond industry, which outlines the main directions of relations between two countries, including the work of Special Notified Zone in Mumbai, creation of preferential tax treatment and expansion of ALROSA activities within the zone. The countries also cooperate on the measures aimed at the legislative separation of the markets for natural and synthetic diamonds. To boost all the activities that we carry out in India, we plan to intensify interaction within exhibitions and other public events. We also count on the support of the Indian industry organizations. Our Indian office aims to facilitate this process and speed up the interaction with concerned parties. Q: What are the sales projections for 2019 and what would be your focus for the same? Ans: ALROSA is planning to keep its rough-diamond sales in line with production in 2019 to avoid flooding the market with excess supply. In addition, ALROSA is planning to raise production to 38 million carats in 2019, from the 36.6 million it expects to have mined this year. In general, we do not expect any sharp fluctuations in the market this year and hope that rough diamond consumption will gradually increase. We also look forward to an active role of DPA in promoting the idea of natural diamond exclusiveness and plan to continue working together with our clients on maintaining the demand for our products.

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