Top Diamond Miner's 36-Year-Old Chief to Prove Himself With Cuts

(Bloomberg) -- Sergey Ivanov acknowledges that some people may be skeptical over how he landed his latest job.

The 36-year-old son of one of Russian President Vladimir Putin’s close allies was catapulted into the post of chief executive officer at Alrosa PJSC, the world’s largest diamond miner, in a surprise appointment in March.

"People in the West probably pricked up their ears," he said in an interview.

Ivanov, previously senior vice president for wealth management at Russia’s largest bank, admits he’s still learning about mining after trips to operations in Yakutia in the Far East of the country and Angola, where Alrosa plans to expand. Yet, as one of the youngest-ever heads of a global mining company, he professes a deep interest in the industry and plans to win over investors by focusing on reducing costs at the state-controlled diamond producer.

"I have reduced my salary and overall compensation by 20 percent, otherwise you can’t demand cost reductions across the company," Ivanov said in his Moscow office. "I hope this is a quite clear signal that all the costs in the company will be closely monitored." He’s also rejected some of the corporate perks that typically come with the job.

The CEO said he’s reviewing Alrosa’s operational and capital spending and is willing to cut everything apart from miners’ salaries. At the same time, he aims to increase production and improve safety.

Vodka Glasses

Russian state-backed companies have faced criticism for excessive spending. Rosneft PJSC, the national oil giant, ran into controversy when media including the RBC news service and Vedomosti newspaper reported that public documents showed the company had tendered for items including vodka glasses at more than 11,000 rubles ($195) each. The tender was later withdrawn.

Alrosa’s spending, on the other hand, is considered under control, with its so-called all-in sustaining costs flat since the second quarter of 2014 even amid swings in the ruble that can add to business volatility, said Oleg Petropavlovskiy, an analyst at BCS Global Markets. Any further improvements would be welcome, he added.

Ivanov -- whose father, also a Sergey, was Putin’s former administration chief and is now sanctioned by the U.S. -- said the result of his efforts will become clear in the years ahead. He points to a track record at Sberbank PJSC that he says saw a doubling of profit from companies in its wealth management operations, and before that at insurer Sogaz, where as CEO he oversaw a tripling in business.

Fluent English

The graduate of the Moscow State Institute of International Relations, who’s fluent in English, has also held posts at Gazprombank PJSC and state-controlled Gazprom PJSC.

One area of concern for investors is the suggestion from some government figures that Alrosa, which has a free float of 34 percent after an $816 million share sale in 2016, may lose its unique focus on mining by diversifying into polishing rough diamonds. Its shares sank on May 30 after Deputy Prime Minister Yuri Trutnev told Interfax that the company could lower dividends and use some profit to support the diamond cutting industry.

"The risk that the new CEO will lead the company toward expanding into diamond polishing was one of the main concerns over Ivanov’s appointment, " said BCS’s Petropavlovskiy.

Alrosa succeeded in attracting high-profile investors including Oppenheimer Funds Inc. and Lazard Ltd.’s asset-management unit to its $1.3 billion initial public offering in 2013 in part because of a lack of other pure diamond miners for them to buy shares in. De Beers, the world’s largest diamond producer by value, was delisted more than a decade ago. Alrosa’s clear focus and limited polishing operations were seen as an advantage, Petropavlovskiy said.

No Drama

Ivanov said he understands both sides of the argument and doesn’t plan a dramatic shift in strategy. "We are not going into other commodity groups or to completely switch from sales of rough diamonds to own cutting," he said.

"Cutting shouldn’t be seen as a separate business," Ivanov said. "It is important for us, because if Russian cutting disappears, some other countries will be able to take full control of the market that they already dominate, which poses extra risks for miners."

Rivals such as Anglo American Plc, which owns diamond miner De Beers, are less hostage to swings in prices of the gems because they are more diversified, he said, adding that Alrosa’s plans to reduce costs may also help to resolve this issue.

The company isn’t interested in acquiring Kristall Production Corp., a Russian gem polisher that has touted a possible tie-up for years, according to Ivanov.

While Alrosa plans to increase its share of Angola’s Catoca project by the end of the year, mergers and acquisitions outside the African country are unlikely, the CEO said. A stake in Dominion Diamond Corp., which has been seeking bidders, isn’t interesting for Alrosa, he added.

On the other hand, Ivanov said he’s prepared to study again whether an overseas listing would be beneficial for investors and the business. In April, Deputy Finance Minister Alexey Moiseev said there was no need for companies to seek London listings when Russia’s own market was developing.

To contact the reporters on this story: Yuliya Fedorinova in Moscow at yfedorinova@bloomberg.net, Irina Reznik in Moscow at ireznik@bloomberg.net.

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Tony Barrett, Torrey Clark

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