RAPAPORT... ALROSA is gradually taking over the role of diamond market regulator since De Beers has stopped performing this function, said ALROSA President Sergey Vybornov.
De Beers is losing its position as the industry leader because African countries are retaining more of the diamonds mined within their borders and because De Beers purchases from ALROSA have been reduced under the terms of a European Union (EU) ruling, Vybornov told the audience at the Russian Forum 2008, organized by Troika Dialog, an investment bank.
“We don’t feel any effects of the crisis [in the U.S.],” said Vybornov, although he did say the company sees a problem in selling its product in dollars as the currency continues to weaken. He said the company is contemplating switching to Swiss francs as the diamond trading currency.
To secure its position, ALROSA is currently looking for major, long-term partners to buy from the company and is reportedly negotiating with several possible clients. The company, whose output hasn’t grown significantly in recent years, also is increasing its spending by more than 20 percent in 2008 and shifting to underground development at four of its mines.
Joint Venture SpeculationIn a rumor that could be called the buzz of the month, ALROSA reportedly is pursuing joint venture agreements with Indian companies to cut and polish Russian diamonds in India. Russian news agency Prime-Tass quoted a Russian official as saying ALROSA has made a strategic decision to start direct cooperation with Indian companies, information that was leaked during the Second Russian-Indian Forum for Trade and Investments in New Delhi in mid-February.
India, the largest diamond manufacturer in the world, has been expressing intense interest in Russian rough after Prime Minister Manmohan Singh called for greater cooperation between the Indian and Russian diamond industries during a state visit to Moscow last December.
Russian manufacturers didn’t welcome the news of ALROSA’s possibly polishing diamonds in India since the company currently sells 40 percent of its rough domestically and exports the rest. “Russian manufacturers can polish greater volumes and pay at market price,” said Nikolai Zhuravlev of Kristall Smolensk.
ALROSA didn’t issue any official comments on the reported alliance with Indian companies.
Deposits to be Auctioned
Licenses for the development and geological exploration of 11 diamond deposits with a total potential of more than 100 million carats will be auctioned in Russia in 2008, according to the auction plan published by the Russian Federal Subsoil Use Agency (Rosnedra).
For 2008, Rosnedra is issuing twice as many licenses as in 2007. In a surprising shift, most of the deposits being auctioned are not in Yakutia, traditionally the dominant diamond region of the country. In fact, there are only two Yakutian deposits on the list. Three fields, with deposits exceeding 50 million carats, are in the Arkhangelsk region in the northwest of Russia, where Russian diamond manufacturer Severalmaz is operating. Other fields are located in central Siberia and other regions throughout the country.
“Yakutia is a storehouse of Russia’s diamonds,” says Andrey Polyakov, a spokesperson for ALROSA, which accounts for 95 percent of the country’s diamond mining. Most of ALROSA ’s mines are located in Yakutia. Polyakov says the company’s priority is to develop underground mining.
ALROSA has rough diamond reserves worth almost $110 billion, which will enable the company to mine diamonds for the next 35 to 50 years,Vybornov told the Third International Rough Diamond Conference in Tel Aviv in February.
NO IPO for ALROSA
Russian Finance Minister Alexei Kudrin said ALROSA was not planning an initial public offering (IPO), according to Interfax news agency. Kudrin, also the head of ALROSA’s supervisory board, said the company was simply being restructured from a closed to an open joint stock company.
In December 2007, a number of news outlets reported Vybornov as saying that an IPO was planned within the next year and a half. Now, the government is in the process of raising its stake in the company to 50 percent plus one share. Analysts say that both going public and staying closed can benefit the company. An IPO can help raise considerable funds, but being government-owned has its benefits. “If the company is state-owned, it is usually easier to attract bank loans,” said Maksim Shein from BrokerCreditService.
Holiday Hopes are HighRussian Jewelers wait with anticipation for one of their biggest selling times of the year — the Women’s Day holiday March 8, a big gift-giving holiday. The weeks leading up to the holiday can account for as much as 30 percent of annual sales. Jewelers often prepare by creating special products. “We always come up with a holiday collection,” said Svetlana Rahmanina from Ekaterinburg-based Rifesta.
The Marketplace
• Russia’s gold output grew by 0.62 percent to 160 tons in 2007, according to the United States Geological Service.
• Demand for gold jewelry rose 11 percent in 2007, according to a report by World Gold Council (WGC). The report says that growth remained vibrant throughout the year.
• In the fourth quarter of 2007, jewelry demand in Russia grew faster than in any other country, with a 25 percent increase from 2006.
Article from the Rapaport Magazine - March 2008. To subscribe click here.