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Pavel Shelkov: "Our project is an attempt to fit Russia into the global trend and create a new private company in the diamond industry"

28 october 2019

pavel_shelkov_xx.pngAt the end of September, Moscow hosted the Second Annual Conference, "Gold and Diamond Mining Companies of Russia and Europe." The audience showed great interest to the presentation made by diamond geologist Pavel Shelkov of Almazy Zapolyarya describing the Russian Diamond Holding project on the exploration of new diamond deposits to be followed by diamond mining.

Pavel Shelkov told Rough & Polished how this project came to life and what it is to be in the future.

You presented several projects for the exploration and development of diamond-bearing areas in Russia with wide geographical coverage - from Karelia to Primorye. How profitable is it to invest in diamond-bearing areas in Russia - now, when diamond prices are falling and the diamond market is not in the best condition?

The market for investments in mining, including diamond projects, is cyclical and as a rule, driven by the "herd" instinct, everyone starts investing in prospecting and exploration when prices are highest, in the period when they are overvalued in the market due to business trends. Taking into account 4-7 years from the start of exploration and appraisal to the start of project development, the start of diamond sales at the projects currently being explored will occur at a time when diamond prices, which are low today, will again be at their peak values. So, from my point of view, it is reasonable to start investing in diamond projects precisely at a time of low prices, when diamond assets are underestimated and it is easier to form a package of the most interesting diamond deposits, that is, today and in the near future.

Who do you think may be potential investors, for example?

You have raised the most painful question for any initiator of mining projects in Russia today. Unfortunately, there is almost no long-term money in Russia, and now the country is cut off from world capital markets by sanctions. In 2001-2007, the world's largest mining companies were present in Russia, including De Beers, BHP Billiton, and Rio Tinto, ready to invest in my diamond and gold projects even at the initial stages of prospecting, for example, on the Kola Peninsula and in Yakutia.

But at that time, investment in the exploration for diamonds was blocked, and it was impossible to obtain licenses for diamonds, so the licensing I initiated for the Odnomozerskaya and Ust-Ponoiskaya areas on the Kola Peninsula, where BHP Billiton was ready to invest, was closed resulting in the removal of all applicants, including my company, and the licenses were received by the subsidiaries of ALROSA, which conducted a geological survey very superficially and did not even confirm the found geophysical anomalies by drilling.

Domestic investors in projects are geared to payback periods of 1.5-2 years, which is impossible in mining projects and especially related to the exploration and mining for diamonds. Today, large state-owned banks, such as Gazprombank and others, which have high liquidity, despite the reduction in loan portfolios due to the economic crisis, as well as large mining holdings and individual private investors who own large amounts of money resources, can act as investors. So far, we do not intend to search for partners until we accumulate a package of 15-20 diamond licenses, but there is an interest in investing in gold and diamond projects in the market.

What do you think about the diamond potential of Russia and which regions do you consider promising?

I believe that Russia still has a very significant diamond potential, although perhaps some countries, for example, Angola, are already approaching to it in reserves and resources, and according to some estimates, are superior to the Russian Federation, having besides easier conditions for exploration and a favorable climate. Our problem is that the diamond deposits located within areas with favorable conditions for exploration in Yakutia and the Arkhangelsk Province are already discovered and almost worked out, but undiscovered deposits are usually located in difficult environment and are often blocked by traprock or 100-meter thick packs of sediments: their discovery requires high costs, talent of geologists and prospectors, as well as luck.

Nevertheless, the super-rich pipes in the Nakynskoye diamond field located by ALROSA in 1994 - although largely by accident - during structural drilling on a site that was not previously considered highly promising, indicates how fantastically rich diamond deposits are still waiting for their discoverers.

The second way of increasing the country's diamond potential is the reassessment of previously found diamond-poor kimberlite bodies for the presence of richer diamond blocks within their boundaries. There are also high prospects for the revaluation of kimberlite pipes in Yakutia and, to a lesser extent, in the Arkhangelsk Province in terms of detecting kimberlites comparable with Letseng (Lesotho) and Karowe (Botswana), where it may be possible to recover super large gem-quality diamonds weighing tens or hundreds of carats and containing very low amount of nitrogen (type N2) on the backdrop of a low overall diamond content.

Such diamond pipes can be cost-effective for mining even with a very low diamond content, below 0.1 ct/t. It is the areas that potentially contain large gem-quality diamonds that we highlight as promising in Yakutia, and we will explore them.

The third way to increase the country's diamond potential is to search for primary diamond deposits in new areas where no diamonds were found: the Ural marginal zone of the East European Platform (in the Perm Territory of the Khanty-Mansi Autonomous Okrug), Karelia, Murmansk Province, as well as the marginal part of the North China Platform - Primorsky and Khabarovsk Territories . Within their limits, we can expect the discovery of small and medium primary diamond deposits, and we intend to search for diamonds in these regions.


If you rank the territory of the Russian Federation in terms of diamond prospects, then which of its parts will have higher priority and which lower?

Of course, the Siberian platform and above all Yakutia are in the first place, although the Irkutsk region with already well-known placers is promising for discovering primary diamond deposits. Large deposits can also be discovered in the Daldynsky and Alakit-Markhinsky kimberlite regions, as well as medium primary deposits can also be found in the Middle Olenyoksky diamondiferous area within the Ukukit, Omonos, Chomurdy and Muno-Tyungsky diamondiferous areas of the Muna and Tyung rivers and their interfluve, as well as in the basin of the Malaya and Bolshaya Kuonamka rivers. In addition to these sites, the biggest diamond mystery and the possibility of discovering large and unique diamond deposits are associated with searching for primary deposits of the Ebelyakh or "northern" type of diamonds due to the erosion of which huge amounts of diamonds accumulated in the Triassic marine sediments spread all over the north of Yakutia, whose amount is estimated by some researchers to reach billions of carats in the form of diamond placers.

The sources of such placers are undoubtedly super-rich primary diamond deposits unique by their reserves, which, according to some diamond explorers, are located in the lower Lena River.

The East European platform and first of all the Arkhangelsk Province are definitely on the second place in terms of diamond potential. I believe that if we come to well-thought-out prospecting in the next 10 years, we will be able to discover a second diamond deposit similar to the Grib diamond field and two to three diamond pipes having medium and low diamond grades.

The Kola Peninsula takes the third place in the province in terms of diamond prospects, as there are already discovered dozens of pipes having kimberlite-lamproite composition and two pipes - Ermakovskaya 7 and Ermakovskaya 20 - rated as poorly diamondiferous. The kimberlite controlling zone is stretched along the Kandalaksha Bay from the village of Varzugi to the city of Kandalaksha, where kimberlite dikes were found right in the city. Here one can count on the discovery of small diamond deposits, while the diamond pipes already discovered require revaluation for large diamonds since 30% of the diamonds extracted from them contain small amounts of nitrogen and are of type 2.

In the fourth place, I would single out the structures of the Urals (the Perm Region, Komi Republic, Khanty-Mansi Autonomous Okrug), where diamondiferous and non-diamondiferous kimberlites have already been discovered and placers of gem-quality diamonds have long been known. Taking into account the large sizes of the found kimberlite deposits, here it may be possible – in the event of a comprehensive exploration effort – to find not only small but also medium and possibly large diamond deposits comparable with the diamond-bearing pipes of the Zolotitsky field in the Arkhangelsk Province.

I would put in the fifth place the Leningrad Region and the Voronezh-Lipetsk Region (the Paveletskaya Area), where kimberlites are not yet found, but fine placer haloes of uneroded high-chromium pyropes are known to exist and where dozens of diamonds (up to 4 carats) have been found.

According to V. Ushkov, the discoverer of Kimosero, weakly eroded and diamond-rich kimberlites of the Zolotitsky type can be found on the border with Karelia. The Leningrad Province is known for its Luga halo of pyropes, picroilmenites, and diamonds, including olivine and phlogopite grains, the source of which can be high-diamond-grade kimberlites similar to the Grib pipe. It should be said that this province is noted for its difficult exploration environment and a high probability of low magnetized kimberlite pipes.

I would put the Primorsky and Khabarovsk Territories, where I searched for primary diamond sources in 1998-2007, in the last place within this ranking. The signs of diamond-bearing magmatism in this area were detected during this exploration, but the discovered rocks differ both from the diamondiferous kimberlites of the People's Republic of China and from the Australian lamproites in chemical composition, although they contain chromites, pyropes, and small diamonds, as well as certain rock varieties contain leucite.

How easy is it to obtain exploration and development licenses for diamondiferous areas?

In 1998, when I received the first diamond license in the Primorsky Territory, it took three months to issue it. Now it takes 6-8 months if you get a license using a simplified procedure under Order 583 and up to 1.5-2 years (ad infinitum) if the exploration area is included in the list of the Ministry of Natural Resources. Licenses obtained under Order 583 cannot exceed 100 sq. km and there should be no more than three licenses for one company per year.

INTEKBUSINESS LLC, a member of the being established Diamond Holding, initiated amendments to Order 583, which were later introduced by the Ministry of Natural Resources and Ecology of the Russian Federation to increase exploration areas for diamonds to the size of a kimberlite area; currently, this process is undergoing the approval procedure and we hope it will be adopted at the end of 2019 or in early 2020, which will change the situation with licensing for the better. According to the requirements of Order 583 providing a simplified licensing procedure (!), the standard package of application documents filed for diamond exploration contains 250-260 A4 sheets and weighs 1.5 kg.

In the period from 2008 to 2017, after the inclusion of any diamond-bearing sites in the List of Strategic Raw Materials, no one could obtain a license to explore for diamonds except ALROSA, which was actually a monopolist, but did not make any new discoveries during this period.


Creating a "private ALROSA" - is this your project? How realizable is it?

Since 2017, it has become possible for private companies to obtain geological licenses for diamond exploration in Yakutia and other regions of Russia. This new strategy reflects a market view of the existing situation that fits into world practice. None of the largest companies comparable with ALROSA - as for example, De Beers, Rio Tinto, BHP, and others - have thousands of geologists on their staff; instead, they buy discovered mineral deposits in the market from small and flexible private geological companies, which discover 80-90% of new deposits.

The Amakinskaya and Botuobinskaya exploration teams of ALROSA having hundreds of geologists on their staff, many of whom were extremely talented specialists, demonstrated low efficiency of prospecting works. Due to excessive regulation typical of a huge company, the geologists could not realize their potential. In 2017, the new ALROSA management made a very reasonable decision to gradually reduce the staff of geologists and to enable private geological companies to search for diamond deposits and then buy discovered deposits from them at a market price for mining. The new ALROSA president, Sergey Ivanov continued this policy and today our holding operates within the framework of the proclaimed new strategy, setting ambitious tasks to explore for new diamond deposits in Yakutia and other regions and attracting talented geologists who previously worked at ALROSA.

Despite the difficulty in attracting investments to projects due to the sanctions, I am sure that we will succeed, and we will be able to use dozens of excellent geologists who have gained experience in exploring the Yakutian and Arkhangelsk diamondiferous provinces. In Yakutia, there are many small diamond placers and low-grade kimberlite pipes that require revaluation and are not of interest to such a large company as ALROSA but are quite suitable for exploration and mining by private companies.

The "Small ALROSA" phrase arose in 2007 during the negotiations held at the diamond exchange in Antwerp, where we presented the Primorsky diamond project. One of the leading diamantaires compared our company with small ALROSA, which I had to deny. But the word combination itself was remembered, and today there is a real opportunity to create this Small ALROSA. I have already said that in the last 10-13 years, more than ten private diamond mining companies have emerged across the world profitably developing kimberlite pipes abandoned by De Beers (Letseng in Lesotho, Karowe in Botswana, Mwadui in Tanzania, etc.) or those in South Africa which were abandoned in the 19th century, like Premier, Jagersfontein, Kimberly and others. These small companies showed high efficiency annually increasing production by 20-30%, and they are becoming increasingly important players in the diamond market. The project to create a "private ALROSA" is an attempt to fit Russia into the global trend and create a new private company in the diamond industry combining flexibility, private initiative and reliance on significant diamond resources in placers and kimberlite bodies. Their exploration and development can provide rapid growth for the business and its capitalization.

At what stage is the Diamond Holding project and what will it be in the future?

At the first stage of developing the Diamond Holding, it is planned to focus on exploration, registering the discovered diamond reserves and developing diamond placers along with the concurrent assessment and exploration of nearby diamondiferous kimberlite pipes. This should allow us to repeat the success of Almazy Anabara, the diamond mining company, which earlier was private and which was able to increase diamond production in Yakutia from zero to 3.5 million carats per year 11 years before it was purchased by ALROSA, since the exploration and development of diamond placers requires significantly fewer costs compared with primary deposits.

Simultaneously, it is planned to develop nearby primary deposits after their revaluation, as well as to search for high-grade diamond pipes in new areas. So far, we are solving the problem of creating a mineral base of the Diamond Holding through obtaining licenses for promising diamond-bearing areas in Yakutia, Karelia, the Arkhangelsk Province and other promising regions of Russia.

What specific tasks do you set for yourself in the coming years?

We are going to do the following:

- Create 2 or 3 companies in the Russian Federation in the next few years focused on the diamond resource potential;

- Organize exploration work at the obtained licensed sites and start to mine gem-quality diamonds from placers within 3-4 years;

- Rapidly increase diamond production from placers;

- Further explore and then develop primary diamond deposits in licensed areas;

- Prospect for new pipes with high diamond grades in promising areas in Yakutia, the Arkhangelsk Province and other regions and explore them.

We would be pleased to have partners ready to join our Diamond Holding.

Galina Semyonova for Rough&Polished