London (Commodity Online): Russia, the world's largest source of rough diamonds, may be able to further increase its production on prospective kimberlite deposits facilitating a shift to underground mining, according to Frost & Sullivan in an outlook on Russian Diamond Market.
Large-scale mining activities have caused depletion of natural resources and environmental deterioration. During the long term, environmental protection will assume greater importance and safety regulations are expected to become more stringent in Russia, in line with global trends.
In 2010, Russia accounted for 23.5% of the total diamond production in terms of volume, and 25% in terms of value. Russia earned $4.79 bn in 2010 and revenues are expected to rise to $5.74 bn in 2015.
Alrosa, the state-owned company, was the largest diamond manufacturer in the world the same year, followed by De Beers, Rio Tinto and BHP Billiton. The Russian diamond market is also facing a revival due to growing incomes and expenditure for luxury goods, especially in emerging countries.
However, the Russian diamond market is export driven and is heavily dependent on global demand. In 2010, the exports of Russian rough diamonds increased by 28%.
“The Russian diamond market is at a mature stage and it is unlikely that the CAGR will exceed 3.7% from 2011 to 2015,” says Frost & Sullivan Research Analyst Monika Nowotnik. “However, in comparison with the global market, Russia still has the potential to exceed production capacity.”
Although the outlook for the market looks bright with the upswing in consumer demand and climbing diamonds prices, there are some challenges throwing a cloud of uncertainty over its future prospects.
In addition, for the past 20 years, no large diamond deposits have been found in the world. All new deposits are low grade compared with existing ones. Companies are bound to face difficulties in mining for low-grade deposits in new, challenging locations, given the increasing complexity of extraction.
These circumstances indicate escalating costs of inputs, such as oil, steel and explosives. Mining companies will also be expected to meet strict safety requirements concerning the working conditions and protection of employees.
“In Russia, additional costs are generated by energy consumption and expenditure on heating and insulation, due to the harsh climatic conditions,” says Nowotnik. “However, the profitability of the diamond market depends on the balance between rising extraction costs and growing diamonds prices.”
Faced with this scenario, Russian diamond manufacturers are striving to improve their techniques to enrich low-grade ore by using modern equipment. Moreover, they have to modify the enrichment process of the ores to limit the high transportation costs of low-grade ore by processing at the site or using larger monster trucks.
Underground mining requires more resistant equipment that can function in harsh environments as well as meet strict safety requirements. Going forward, modernisation of the devices and mining equipment will become extremely vital, and pave the way to market progression by helping optimize efficiency and productivity.
