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Industrial diamonds and their role in diamond mining in Russia

29 october 2012

The Second World War was followed by the "cold war" that led the world to the arms race. Under such circumstances, this country had to restructure its defense industry in a radical way, for which purpose it desperately needed industrial diamonds, thus giving a start for the diamond industry in the USSR in the mid-1950s. At that time, industrial diamonds were widely used in the processing of superhard materials in the defense industry. A sharp rise in global demand for rough diamonds in those years led to a situation where diamonds turned to be a strategic material, and a nation’s economic potential was largely dependent on the latter. If in the pre-war years the world’s annual consumption was 7 million carats of industrial diamonds, it reached 50 million carats in 1970 shooting up to 250 million carats (along with synthetic diamonds) by the end of the 1980s. In the same period, diamonds in the Soviet Union acquired the role of a foreign exchange asset, accounting for a significant part of gold and foreign currency reserves.

The synthesis of artificial diamonds discovered in the 1950s was a breakthrough in solving the problem of scarcity of rough diamonds used for industrial ends. Large-scale production of much cheaper synthetic diamonds organized in the U.S. and other countries during the last decades of the twentieth century revamped the value of natural diamonds used in industry, moving them from the category of strategic raw materials to luxury items.

At present time, over 50% of mined stones is used for jewelry making, but since the value of gem-quality diamonds is much higher (more than 98% of marketing value) compared with those industrial diamonds, they are mined exclusively due to the high price of diamond jewelry and also because they are extracted along with gem-quality diamonds. In Russia, a great part of recovered natural diamonds is not of gem quality, and this kind of rough is used for industrial purposes. It is used to manufacture abrasives, drills for sinking deep wells in hard rocks, cutting bits to process metal parts, etc. Currently, the world production of synthetic diamonds used in industry has reached 5 billion carats, and their cost ranges from $0.4 to $2 per carat, which is several orders of magnitude higher than the amount and value of mined industrial diamonds. China is the leading producer of synthetic industrial diamonds. According to the U.S. Geological Survey, China produced more than 4 billion carats of synthetic diamonds in 2011. Thus, the total value of synthetic diamonds produced in China for industrial purposes is comparable to the value of natural diamonds produced in Russia (Table 1).

Table 1

ALROSA Group’s sales of industrial and gem-quality diamonds in 2010-2012

The table is compiled by the author based on the annual reports and IR releases of ALROSA.

The table shows that industrial diamonds now represent a significant portion of mined diamonds (about one third), but their price is only about 2% of the revenue received from the sale of diamonds. Obviously, without gem-quality diamonds production of industrial diamonds is non-remunerative and they are mined only because they are extracted simultaneously in the ore dressing process.

In recent years, there was registered a rapid scientific and technological progress in the production of synthetic diamonds, which makes it possible to manufacture high-quality gem diamonds of 1 carat and above in size having lower cost than natural stones, which will allow such gems to compete with mined diamonds and may bring about a crisis in the world diamond mining.

The global economic crisis is introducing its own corrective amendments into development strategies pursued by companies, industries, businesses, individual markets and even nations. In the next few years, Russia's economy will have to catch up with the opportunities once offered by better prices for exported rough and finally embark on the path of innovative development. It is likely that in the near future the strategy of innovative development followed by the Russian diamond industry will require deep reconstruction.

Domestic diamond mining companies and in the first place ALROSA need to pay close attention to research in the field of technologies for producing artificial gem-quality diamonds to introduce such technologies into production, as well as to find new ways of application for diamonds.

It should be noted that the world's leading diamond company, De Beers has long been involved in research associated with production and use of synthetic diamonds. Its specialized unit, Element Six, the largest manufacturer of synthetic diamonds, established a venture capital fund worth $100 million in 2008 to fund research of alternative applications of artificial diamonds.

The development of science and technology in the future will inevitably lead to a situation where production of natural diamonds will be ineffective and the industry should have ready answers to such a situation by that time.

Yuri Danilov, Ph. D., Director of the Department of Regional Subsoil Management Economics, Institute for Regional Economics of the North at Ammosov North-Eastern Federal University