RAPAPORT... The president of Russia’s biggest diamond miner ALROSA said that the company may become the world’s number one gem-mining company and buy up deposits around the world. Yakutia-based ALROSA currently accounts for 25 percent of the world output.
ALROSA President Sergey Vybornov told a local Yakutian TV station that the miner is, in fact, the biggest producer at the moment because De Beers cut its output due to the crisis in the industry. “I think we can truly occupy the world’s leading position during the current crisis, not only based on temporary statistics,” Vybornov said in the interview. “Our company has the world’s best diamond resources in Yakutia.”
Unlike De Beers and other miners, ALROSA has not cut back on production. Gokhran, Russia’s state treasury for gold and gemstones, has been buying the company’s rough since late 2008 as part of the government bailout package allocated to approximately 300 domestic companies.
“There is an opportunity to buy good diamond deposits abroad from both big and small companies that are either going bankrupt or on the edge of bankruptcy,” Vybornov said. The company’s representative said many lucrative deposits are located in Africa. ALROSA is involved in operating two diamond deposits in Angola.
ALROSA Denies CutsALROSA is conducting an investigation into media reports that the company may be closing some of its facilities or decreasing its output. This comes after a number of online publications reported the possible cuts, citing sources in the company.
ALROSA’s press release said that “such publications are aimed at destabilizing the company in the midst of the most serious crisis of the diamond industry.” The company reported earlier that it may be cutting some of its noncore operations, but that its production and underground mining construction would proceed as planned.
The company also has denied reports that it may be discussing preferential deals with Lazare Kaplan International as the contract between the two expired in March. The company said its new sales strategy would be based on long-term contracts with select clients but the current crisis seems to have gotten in the way of implementation. Vybornov admitted in the televised interview that, at the moment, there are not many clients capable of committing to a long-term contract who are not going through their own financial difficulties.
The sales of Russia’s largest diamond manufacturer Kristall Smolensk fell 26 percent to $300 million in 2008. Before the financial crisis, the company had been predicting sales of twice that amount.
“We are surviving now,” Maksim Shkadov, the company’s director general, told Itar-Tass, the Russian news agency. “We have enough rough to work though the first quarter of this year, but we don’t have any for the second quarter.” Shkadov told the news agency that future supplies have been discussed with the Russian Ministry of Finance, which supervises the industry. “The major issue is the price, as it’s difficult for ALROSA to define its price policy,” he said.
Holiday Sales OffJewelers said sales were down between 20 and 30 percent from mid-February to mid-March — when three big gift-giving holidays occur in Russia — compared to the same period in 2008. “There have been fewer buyers and they have been looking for cheaper items,” said Aleksandr Boguslavsky, chairman of the Grace group of companies. “The decline in sales has been minute for items with 3-carat-and-above gems, but jewelry with diamonds of around 1.5 carats saw much smaller demand than in 2008,” said Aleksandr Grozoboev, sales director of Smolensk Diamonds. He said customers are giving preference to bigger gems with poorer characteristics, and thus a smaller price tag.
Investing in DiamondsALROSA has teamed up with the asset management company Leader to form a market of polished diamonds for investment. The partners will work to create infrastructure for trading in investment diamonds on the Russian and global markets through a so-called investment club.
And they are not alone in their focus on diamonds as investment. The Russian investment company Alfa Capital is working to set up a diamond investment fund. “People are looking for a safe harbor, after being disappointed in other investment tools,” said Vadim Loginov, director of strategic marketing for the company. The Russian government has allowed mutual funds to invest in precious metals since November 2008, and experts say similar regulations on diamonds are expected to follow.
Meanwhile, those interested in investing in gems are heading to jewelry shops. “There is a growing tendency of people to invest in gems,” said Irina Zhurba, the manager of Leviev boutique in Moscow. “Customers are showing strong interest in unframed gems.”
The diamond auction scheduled for March 31 will be the first one since September 2008, when the auctions were put on hold due to the crisis. It will be held by Gokhran, although previous ones were conducted by ALROSA. Since December 2008, the miner has been selling its rough exclusively to Gokhran. The auction lots contain diamonds larger than 10 carats.
The Marketplace• Diamond production in Russia totaled 36.9 million carats in 2008, which is 3.5 percent less than in 2007.
• The production was valued at $2.5 billion, an average of $67.95 per carat.
• Russia exported 24.47 million carats worth $1.6 billion in 2008, according to Kimberley Process (KP) certificate data, a 15.25 percent decrease from 2007.
• Russia imported 254,485 carats of rough diamonds worth $60.862 million in 2008.
Article from the Rapaport Magazine - April 2009. To subscribe click here.