Russian Diamond Giant Alrosa Expands into Gold with $276 Million Acquisition

In a strategic move to diversify its portfolio amidst Western sanctions, Russian diamond producer Alrosa has finalized the acquisition of a significant gold deposit in Russia’s Far East
Russian Diamond Giant Alrosa Expands into Gold with $276 Million Acquisition

The purchase, confirmed by both Alrosa and Polyus on Monday, signals a bold step into the gold mining sector for the world's largest diamond producer.

Alrosa's subsidiary, Almazy Anabara, acquired the Degdekan gold ore field located in the Magadan region, according to reports from Russia's Interfax news agency. The acquisition, valued at $276 million, underscores Alrosa's commitment to bolstering its financial stability and operational synergies.

"The development of the gold deposit will provide an additional synergistic effect for Alrosa’s business and will help increase its financial stability in the long term," remarked Alrosa CEO Pavel Marinychev in a statement.

Initially, Alrosa plans to invest 24 billion roubles ($276 million) to develop the Degdekan deposit, with estimated annual gold production reaching 3.3 tons at full capacity from 2030 onwards. Currently, Alrosa’s gold production is modest, yielding approximately 180 kg annually as a sideline to its primary diamond operations.

Polyus, Russia’s largest gold producer and also under Western sanctions, decided to sell the Degdekan deposit to optimize its exploration portfolio, focusing instead on the development of the Sukhoi Log gold deposit in Siberia, one of the world's largest undeveloped gold deposits.

Financial analysts estimate the acquisition price between $50-100 million, potentially representing a substantial portion of Alrosa’s free cashflow. The move is expected to contribute significantly to Alrosa's EBITDA once production ramps up, leveraging current gold prices.

Despite its newfound interest in gold, Alrosa emphasized that its core strategy remains centered on diamond mining. The company clarified that while expanding into gold aligns with its business strengths in mining, diamonds remain its primary focus.

The Degdekan deposit's attractiveness stems from its favorable location near existing transport and energy infrastructure, which facilitates efficient development and operational logistics.

Alrosa’s expansion into gold mining comes amid increasing economic pressure from Western sanctions, particularly on its diamond exports. The Group of Seven (G7) nations recently implemented restrictions targeting Russian diamonds, underscoring the geopolitical backdrop against which Alrosa’s strategic diversification unfolds.

In 2023, Alrosa reported a net profit of 85.18 billion roubles ($925 million), reflecting a 15.2% decline from the previous year, amidst challenging global economic conditions and geopolitical tensions.

With Alrosa now poised to integrate the Degdekan gold deposit into its operations until 2046, the move marks a pivotal moment in the company's evolution, navigating complex international sanctions while fortifying its position in the global mining sector.

Diamond World