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ALROSA Co. Ltd. Russia's largest diamond company accounts for about 100% of all rough diamonds produced in Russia and for about 20% of the world's rough diamond output Discuss ALROSA in the forum

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Dec 6, 2007
Considering IPO

The head of the world's second-largest diamond miner, Alrosa, has revealed details of a possible international IPO, as well as the latest in takeover talks for Russia's biggest gold producer Polyus.

The Sakha Republic, the richest region for natural resources in Russia, has come to the capital to promote its wares and sign new deals. Sakha has 99% of Russia's diamonds and more than 25% of the world’s.

Now the Yakutia-based diamond monopoly, Alrosa, plans to finance expansion in Kyrgyzstan, Armenia and Namibia by offering its stocks on a foreign exchange. Its boss, Sergey Vibornov, revealed the next steps.

"In March we'll complete the move from a closed to an open-stock company. Our shareholders believe that a subsequent IPO is absolutely reasonable and possible. By Russian law we first have to list in Moscow, and only then can we issue abroad. This will either be in Toronto or London, which are equally good for our share offering. Our planned capital investment is U.S. $5 billion dollars over the next five years, and no investment bank in the world at this moment could tell you our likely market capitalisation,” Vibornov said.

The head of Alrosa also spoke about the possible takeover of Polyus Gold.

“We're currently in the middle of takeover negotiations. It's for them to name an acceptable price, not us. But I'm confident we can reach a deal,” Vibornov said.

A key stumbling block over Polyus is the gold price. The 27-year high $US 800-per-ounce price tag is thought to be making the seller raise its asking price.

Some analysts agree that the gold price has now peaked. According to the world’s biggest gold miner, Barrick, gold production could fall faster than the expected 10% within five years.

But Polyus thinks the gold price will keep rising. With a goal to be a top-five gold miner by 2015, Polyus must expand abroad.

The key problem is that Russia’s running out of easy-access mines. This means either digging deeper, or into ever more inhospitable areas. Either strategy would require more time and money. So expansion might be the answer for Polyus.

Resource: RussiaToday

June 6, 2007
Vybornov toots horn for Polyus Gold takeover

Russian diamond miner Alrosa appears to have started rumour of sale offer from Polyus Gold.

One of the fables attributed to ancient Aesop concerned a camel who lost control of his bowels after entering a fast-flowing river. As the current floated the dung in front of his face, the camel cried out: "What is this there? That which was behind me, I now see pass in front of me".

 The moral of the tale is uncertain, because there is a dispute over whether the ancient Greeks could have brought camels back to Athens from Egypt. Aesop is thought to have believed a wise man should know his front from his back, his past from his future.

Sergei Vybornov, the new chief executive of Alrosa, must have run across a camel or two in the Sahara tracts of Mali, when he served as a diplomat in that country. But why would Vybornov start a rumour that he has been approached to buy control of Polyus Gold, Russia's leading gold miner, owned by Mikhail Prokhorov and Vladimir Potanin?

 The rumour of a takeover by the state owned company appeared in the Russian stock market last Friday, June 1. "Alrosa has received an offer from Polyus' shareholders to buy a stake in the gold producer. Talks are at a preliminary stage," Interfax, a Moscow wire service, claims it had been told by an unidentified source. This triggered a brief flurry in Polyus's share price, which, depending on the stock trading data available, jumped in value by 4% to 7% on the day to $41.05. But after a weekend of river-crossing, the market credibility of the rumour petered out, as did the demand for the shares.

Polyus has now fallen to $39.97, and despite the flurry, remains almost 9% down on the month, 17% down since co-owner Prokhorov was arrested on sex charges and imprisoned for a business week in Lyon city jail, France. The current market capitalization of Polyus is $7.8 billion, down by $1.6 billion from $9.4 billion, the high before Prokhorov came down from the Alps.

 Released to return to Moscow, after the French investigating magistrates decided against indictments, Prokhorov, an unmarried man, believed he had been set up by a plot, in which his shareholding partner in Polyus and Norilsk Nickel, Vladimir Potanin, may have had an interest.  In December, the two had been arguing over the division and cash-out of their assets; they could not agree on price.

Potanin may also have favoured selling out to the state, if the Kremlin could stump up the money. Prokhorov is thought to have preferred the sale, for more money, to a foreign buyer. Potanin, the more cautious of the two, is understood to believe that the Kremlin will never tolerate a foreign sale of shareholding control of either mining company. Prokhorov suspects his jail spell was a warning of the type Mikhail Khodorkovsky, the former owner of the Yukos oil company now in a Siberian jail, tried to ignore.

Prokhorov's trip to the French Alps followed the December arguments in early January. Later the same month, Potanin went to Paris to be invested by a French government official with a medal and title as Officer of the Legion of Arts and Letters. The combination has reinforced suspicions in Moscow that Potanin used French connections -- he and Prokhorov have sold their bank to Societe Generale -- to arrange a humiliation for Prokhorov.

The subsequent effect has not lowered Prokhorov's price demand. However, he has been obliged to give up personal direction of Norilsk Nickel as chief executive, while Potanin placemen, Denis Morozov and Pavel Skitovich, have been installed at Norilsk Nickel and Polyus.

Vybornov claims he received a letter from Polyus offering to sell control of the company. It is unusual for Potanin and Prokhorov to deal on paper in this fashion; but if true, the letter implies an agreement between Potanin and Prokhorov on both sale target and price. Sources who are in contact with both say they have yet to agree. The sources also claim that another rumour -- that a sale of the partners' stakes in Norilsk Nickel is being considered to Oleg Deripaska's Rusal -- is pure invention, emphatically denied by Prokhorov.

Polyus spokesman Denis Davidov told Mineweb : "We are not commenting on this type of information -it is rumours. Why don't you ask Alrosa to comment?" Speaking for Potanin and his Interros holding company,  Nina Dementsova said: "We will not comment on anything in relation to third parties. Let the one who told you about such a letter comment. We think these are all rumours. Someone is just swinging the market." Both spokesman are hinting that they believe Alrosa was the source of the rumour.

 Alrosa's spokesman Andrei Polyakov told Mineweb : "I am not commenting on these rumors." If Alrosa is a serious buyer, it makes little sense to go public before the deal price is agreed. On the other hand, if the Russian market were to suspect that Prokhorov and Potanin are under pressure to sell to the state, a leak of the letter might help push Polyus's value downwards.

That there may be pressure on Potanin from the Kremlin is  suggested in a public remark by President Vladimir Putin. He told a group of European journalists on June 1 that the shareholders in the Kovykta gas field licence had failed to meet their investment and production obligations. That asset, controlled by TNK-BP, a Russian partnership with British Petroleum, has been cited for licence violations, and is in negotiation for a Gazprom takeover. Naming Victor Vekselberg and Potanin, Putin said they "took the obligations to develop this field and, unfortunately, didn't meet the license terms." 

Vekselberg and two partners, Mikhail Fridman and Len Blavnik, are the principal shareholders, with BP; Potanin is a minor shareholder. Putin's choice of names cannot have been accidental.

Alrosa is one of several state mining and mineral platforms, which might be used by Putin to supplant the oligarchs, who acquired resource assets like Norilsk Nickel for a song, during the Yeltsin administration. But Alrosa has only recently come under federal shareholding control -- while the Sakha region retained de facto control -- and Alrosa's interests in goldmining have been sold up, almost.

Two years ago, when Vybornov headed affiliated Investment Group Alrosa (IGA), he made a deal with Prokhorov and Polyus chief executive Yevgeny Ivanov, so that the two of them could oust Kevin Foo's vehicle, Celtic Resources, from its Nezhdaninskoye mine in the fareastern Sakha region. In a multi-part transaction IGA also sold Polyus the Kuranakh and Kyuchus assets in the same area; Kuranakh is the only current producer. Altogether, according to Polyus announcements and brokerage reports, more than 21 million oz of indicated and inferred gold were added to Polyus's balance-sheet. The announced price was $285 million; the real price was hundreds of millions of dollars more.   

The difference included an additional 30% stake in Nezhdaninskoye giving Polyus 80%, and undisputed control, of the mine. This stake was held through offshore companies, claimed by Celtic, but transferred in mysterious circumstances through an earlier loan pledge agreement and default with Moscow-based Zenit bank. Contesting affidavits and claim statements presented in litigation in the Cayman Islands add to the fog, rather than cut through it.

What appears to have happened is that the 30% stake in Nezhdaninskoye was sold at a higher valuation than the 50% stake, although the title uncertainties should have led seller and buyer to accept a lower one. Tax liability to the Russian exchequer also remains uncertain, but sizeable, if the transaction chain were opened up. Also uncertain are the terms on which Polyus's shareholders were obliged to pay Interros a premium of several scores of millions for passing through the property title --  from the right hand to the left hand, from Potanin to Prokhorov 

This buyout remains incomplete, however, and Vybornov and Prokhorov have yet to reconcile their accounts. It is thus possible that Polyus suspects the rumour was Vybornov's way of settling a score with Prokhorov, or threatening to do so.

Celtic has been paid off, and is gone from Sakha. However, complications remain between Prokhorov, Ivanov, and Vybornov over the amount of cash that was moved between the Interros holding and IG Alrosa, and then between Interros and Polyus.  So long as the executives who were party to the deal on the sale and purchase sides remain on amicable terms, there can be no retrospective concern with the accounting, and public shareholders can remain confident that the reserves they thought the share value reflected are still there.

In this over-heated atmosphere, Prokhorov has gone public with an implicit criticism of Potanin for instructing Denis Morozov, Norilsk Nickel's chief executive, to offer whatever price it would take to capture LionOre from Xstrata's bidding.

Never one to speak of commodity price risk, or to shy away from paying super-premiums for gold assets to add to the Polyus portfolio, Prokhorov has said he did not favour the additional cost of Norilsk Nickel's ultimately successful takeover offer for the Canadian nickel mining asset. Reports in Moscow indicate that Potanin has crafted the LionOre takeover to consume all of Norilsk Nickel's free cash, and add debt of about $3.5 billion from bank loans. Without the cashpile, and subject to international borrowing covenants threatening a full loan call-in, Potanin has restructured the LionOre takeover to defend his stake in Norilsk Nickel from a state takeover. 

Alrosa also lacks the cash to make a bid for the half of Norilsk Nickel -- market cap $38 billion -- which Potanin and Prokhorov own; or for Polyus. In the new circumstances, Potanin and Prokhorov are equally driven to push up the two share prices, while agents and beneficiaries of a Kremlin takeover must push them downwards. In which direction is Vybornov pushing?

If these men fall out with each other, then the state authorities who are usually mobilized for asset takeovers will be encouraged to make their move. As Khodorkovsky learned, and Vekselberg and Potanin have just been warned, that can be a bowel-shaking experience. Thus, the meaning of the Alrosa-Polyus takeover rumour is not necessarily that it's true, but that both sides are in the camel's position, in the river.

Written by John Helmer
Resource: MineWeb.net

June 1, 2007
Big diamond company intends to cooperate with Krasnoyarsk enterprises

Krasnoyarsk enterprises are ready to offer their goods to ALROSA diamond company. Krasnoyarsk Deputy Governor Vitaly Bobrov held a meeting of heads of the regional enterprises and the diamond company Thursday. Heads of Krasnoyarsk Metallurgical Plant, Divnogorsk Plant of Low-Voltage Equipment, Siberian Heavy Engineering Plant, Tire Plant and others participated in the meeting.

ALROSA Vice President Valery Kurguzov said his company was interested in cooperation with Krasnoyarsk enterprises. "First of all, it is conditioned by a good logistic scheme. The diamond company is located in Yakutia, which borders on the Krasnoyarsk Territory," Kurguzov noted. According to him, ALROSA buys oil products, building materials, uniform, machinery, agricultural goods and some other commodities in the region for a sum of about $0.5 million.

In the end of the meeting Bobrov offered all the enterprises interested in cooperation to form their proposals for the diamond company by June 10. Bobrov said he hoped to receive an answer from ALROSA by July 1.

Resource: NewsLab.ru

May 28, 2007
De Beers takes ceremonial bow in Moscow

De Beers silent, Alrosa dismissive of Penny visit to Moscow, while Anglo rumoured to be planning buy-out, break-up strategy for its sister company.

One of the greatest of the English humourists, writing under the pen-name of Saki, once opened a tale of a disastrous horse-ride with the observation that one of the characters "was looking about as pale as a beetroot that has suddenly heard bad news".

To aficionados of Saki, the wit is hilarious; but to the literal-minded,  doubts arise - beetroots are purple, not pale; vegetables can't hear bad news.

On the immediate occasion of last week's ceremonial visit to Moscow of De Beers' chief executive, Gareth Penny, not a word has been issued on the occasion by De Beers. Releases from the federal Ministry of Natural Resources, the Sakha regional administration, and Alrosa all confirm Penny's passage. He met Mining Minister Yury Trutnev (not for the first time); Sakha President Vyacheslav Shtirov (not for the first time);  and Alrosa's new chief executive,  Sergei Vybornov (debut).  He also talked to with the Russian diamond sector's supervisor, Finance Minister Alexei Kudrin, according to his ministry.

Why De Beers has been silent isn't known, although there might be some apprehensive reddening on Charterhouse Street, if Penny could hear what the Russian diamond sector has been thinking in his wake. Like Saki's beetroot, however, Penny can't hear the bad news.

This bad news comes in three instalments.

The first is buried in the release from Trutnev's ministry, in which the minister is reported as telling Penny that "we do not close access to Russian resources for foreign investors. But we want that, for unique and large deposits, foreign companies work in close contact with Russian mineral resource users." To which, Penny is reported by the ministry as replying that De Beers "intended to follow in full the requirements of the Russian legislation."

What this exchange means is that the Russian government has no intention of modifying the legislative ban on foreign diamond miners taking more than a 49% stake - less than equity and operational control - of domestic diamond discoveries, or mines. This ceiling already led Penny's predecessor Gary Ralfe to bail out of the Severalmaz company, which holds the licences to mine the Lomonosov diamond field in Arkhangelsk region, and sell the property several years ago to Alrosa,  for a pittance. Ralfe was also unable to secure Russian government assistance to retrieve the 40% stake an affiliated company, Archangel Diamond Corporation (ADC), held in a diamond find it had discovered and explored nearby, at the Verkhotina prospect; also in Arkhangelsk region. That asset is currently controlled by Russian oil magnate, Vagit Alekperov;  De Beers continues to chase him through the courts and tribunals of Stockholm and Colorado.

If De Beers accepts that it is excluded from prospective new Russian diamond mines, and even from the one project in which it has a legal claim, what exactly is there for Penny to discuss in Moscow? It cannot be mining, for the Russians are offering next to nothing, at least not at home. It cannot be the trade in rough diamonds, for De Beers has agreed with the European Commission (EC) to terminate its Russian export trade at the end of 2008, and is opposed to Alrosa's appeal in the European Court against the ruling.

That leaves cold as a cucumber the cooperation to which De Beers and Alrosa committed to paper last September in South Africa, when Penny accompanied Nicky Oppenheimer at a series of meetings with President Vladimir Putin and his delegation. The document, termed "historical" in the press release, culminated in more than a year of technical and senior executive-level talks, in which De Beers and Alrosa agreed on nothing concrete, except not to show the hostility which flashed from Alrosa when De Beers pulled off its EC deal behind Alrosa's back.

According to the statement that followed the signing of the MoU, "an  historic agreement was signed between Alrosa and De Beers in Cape Town today, to examine opportunities for carrying out joint diamond prospecting and exploration activities in Russia and, in due course, other regions of the world, including Africa." Then chief executive of Alrosa, Alexander Nichiporuk, clarified the geographic limits of cooperation, noting:  "So far we're planning to work in Northwest Russia. We hold quite a lot of licenses and opportunities there, so we will be looking at the most viable areas of cooperation with De Beers." Also, according to De Beers spokesman, Lynette Hori, "the focus of the exploration efforts will be on North West Russia." But she also made clear that "ADC is still in dispute over the Verkhotina project . We do not currently plan for the Verkhotina project to be a possible point of co-operation."

What that leaves is a stake in Severalmaz, for De Beers to come back to, and which Vybornov has already tried selling to Israeli diamantaire, Beny Steinmetz, among others - without signal success. The financial liabilities of the project have been assumed by Alrosa, and currently exceed $120 million. Beetroot-coloured questions arise about how the money has been spent.

A big, brave, and imaginative deal might be one in which Alrosa relieves itself of some of the accumulated financial embarrassments of Severalmaz; and in return for a $220 million cash injection from De Beers, the two companies might together take over Alekperov's blocking stake in the Verkhotina project. This would then allow the two sites, and several pipes, to be combined for mining and processing. Alekperov has been heard to say he will never sell to De Beers, but that need not be the end of the matter.

The second instalment of bad news, which Penny may not have heard during his mid-May meetings, is that there is considerable reluctance on the part of Vybornov to join De Beers in such a venture; or indeed, in any venture. Sources in a position to know told Mineweb that between Vybornov and Penny nothing useful, nothing concrete took place. That makes twice for Penny in the six months since the Cape Town agreement on cooperation was signed.

That leaves the third instalment of bad news, and this one appears to be even more beetroot coloured than the others.

A major Russian mining source has come into the possession of a report on the Anglo American Corporation's prospects, recently gathered from sources in London and Johannesburg. This report suggests that the Oppenheimer family has a limited future in the management of De Beers; that Anglo American's new management is likely to dispose of both chairman Nicky Oppenheimer and executive Jonathan Oppenheimer when their management contract runs out shortly; and that what may then follow is the break-up of De Beers, with the mining assets to be absorbed by Anglo; and the marketing and downstream investments to be left with the Oppenheimers. If that is happening, Russian diamond miners calculate, there is little point in undertaking mining ventures with Penny, the Oppenheimer appointee, until later, when everything will be clearer, and someone else may be in charge.

"Anglo's strategy of restoring focus and exercising greater control", according to the report text, "means that its preference is for wholly-owned subsidiaries.  Anglo's 55% interest in De Beers, therefore, is the odd one out if their rights are significantly affected." The provenance and credibility of the leaked report appear indubitable, but confidential, if embarrassing, details can be omitted here. Suffice it to quote one of the report's conclusions supporting the theory that the new chief executive of Anglo, Cynthia Carroll, is likely to pursue a buy-out, break-up strategy towards De Beers. "Disunity within the Oppenheimer clan is the most likely catalyst for change," the report suggests.

Author: John Helmer

Resource: MineWeb.net

May 14, 2007
ALROSA President: Kimberley Process Faces Challenges

Speaking at the World Diamond Council’s (WDC) fifth annual meeting, Sergey Vibornov, President of Russian mining giant Alrosa, spoke of the challenges facing the Kimberley Process Certification Scheme (KPCS). While reiterating Russia’s and Alrosa’s full support for the KPCS and the urgency of enhancing consumer confidence in the diamond industry, he reminded participants that “The fact that Shytrov, the President of Yakutia, was elected Chairman of the Kimberley Process in 2005 demonstrates the high regard for the Russian diamond industry’s contribution to the Kimberley Process’s work.”

However, he also raised several issues regarding the KPCS as it heads into its fourth year. For instance, Vibornov questioned the real efficiency of the system and cautioned that “it is crystal clear that the efficiency of the government administration and, correspondingly, the corruption levels can differ in different participant countries. Can one ignore this fact and think that one and the same system operating in a country with a long democratic tradition and well-balanced bureaucratic establishments will be as effective in a country torn apart by nightmarish civil unrest over many decades?”

Vibornov stressed that transparency of the companies and governments that operate in the diamond market is the only way to maintain bureaucratic efficiency within the different participant countries. He then said, “The certification process should apply to everyone in the pipeline, except the mistress, of course.”

The Alrosa President took the opportunity to talk about Alrosa’s intentions of becoming a public company and how it is starting to implement a new distribution strategy. “Our sales to De Beers are being significantly cut for objective reasons. And we look forward to developing cooperation with De Beers in the area of mining, geological prospecting and improving mining and processing technologies.”

Vibornov also mentioned the cancellation of the export quotas for rough diamonds. He continued to discuss Alrosa’s plans to sell most of their goods through a single-channel marketing system in Russia, which will require the proper infrastructure. Alrosa also plans to switch to long-term contracts with clients to help secure global market stability.

“The world diamond market is changing, and the Kimberley Process is just another manifestation of the global change. The market regulation system, the structure of supply, demand and pricing are going through changes, and new players are coming on board,” Vibornov said. “Market participants are developing their own strategies of responding to new conditions dictated by the times, which will shape a new picture of the global market in the future.”

Resource: DiamondIntelligence.com

May 11, 2007
Sergey Vybornov Addresses the World Diamond Council Meeting

On May 9-10, 2007 ALROSA President Sergey Vybornov attended the Fifth annual meeting of the World Diamond Council in Jerusalem, Israel, where he was one of the speakers.
(Sergey Vybornov's speech at the WDC meeting is posted below).

The forum was attended by representatives of all the world's major companies specialized in diamond mining, manufacturing, diamond and jewellery wholesale and retail trade. High on the agenda there were topical issues of the world diamond business, including the efficiency of the Kimberly Process aimed at prevention of trade in ‘conflict' diamonds and  improving the efficiency of the international system of certification of rough diamond trade.


For Your Reference :
The World Diamond Council (WDC) was established in 2000 jointly by the World Federation of Diamond Bourses (WFDB) and the International Diamond Manufacturers Association (IDMA). The WDC unites over 50 leading industry players, one of its main objectives being creation and implementation of the system of control over diamond exports and imports and prevention of their illegal use, including for financing of armed conflicts.

The following speech was delivered by Sergey Vybornov, President, ALROSA, at the 5th annual meeting of the WDC in Jerusalem on May 9-10, 2007:

Dear Ladies and Gentlemen,

Diamond business is facing a high priority task today: Enhancing the consumers' confidence in the diamond industry products. The Kimberly Process activities convincingly demonstrated that such issues as trading in conflict diamonds and the possibility of using diamonds for criminal and terrorist purposes cannot and should not be ignored by industry professionals. Russia and ALROSA have supported the Kimberly Process since its establishment and have been heavily involved in the development and implementation of its decisions. We also have accurately performed our obligations with regard to this initiative. The fact that Shtyrov, the President of Yakutia, was elected Chairman of the Kimberly Process in 2005 demonstrates the high regard for the Russian diamond industry's contribution to the Kimberly Process's work.

The Kimberly Process is the first far-reaching step toward enhancing the diamond industry transparency.  And this important accomplishment deserves high praise. However, just like any other initiative in progress, The Kimberly Process is facing new challenges today. The four-year long practice of using the Kimberly Process Certification Scheme brought to light the following issues:
-    First, it is important that the real efficiency of the Kimberly Process is determined.

According to the information reported, the flow of “blood diamonds” is down from 4% to less than 1% of annual world diamond sales. Let's assume it is so. However, no one has ever revealed the calculation used to obtain these numbers. If these are expert estimates, then the sources of information used by the experts were not clearly indicated. Assume that diamonds produced in conflict areas and diamonds crossing the borders of countries with on-going armed conflicts can somehow be monitored. Then what about the diamonds handled by the cutting and polishing industry, which are often of particular interest to criminal organizations? Or does a diamond that becomes part of illegal turnover via a shell “cutting factory” represent a smaller danger to the industry than a diamond produced in a country struck by civil unrest?

It is quite unlikely that any terrorist group has ever used rough diamonds for their payment purposes.

- Second, in most countries the Kimberly Process Certification Scheme relies on duly authorized government bodies. However, it is crystal clear that the efficiency of the government administration and, correspondingly, the corruption levels can differ in different participant countries. Can one ignore this fact and think that one and the same system operating in a country with a long democratic tradition and well-balanced bureaucratic establishments will be as effective in a country torn apart by nightmarish civil unrest over many decades? And is the bureaucratic certification procedure the only possible way to go in order to enhance the industry's transparency?

- Finally, over the years of the Kimberly Process sanctions were imposed against а number of African countries.  This resulted in significant reduction of inflow of diamonds coming from these countries. Meanwhile, conflict-free countries were continuously increasing their output and sales, often in the same price categories. Whatever the reasons that the KP participants might come up with, objectively it can be viewed as killing competition using methods that have nothing to do with the market economy.
A number of analysts have already noted this. And you can't yet tell what might have a greater negative impact on the industry's image: child labor on the African alluvial fields, or use of such regulation.

Generally speaking, it should be admitted that the Kimberly Process is currently far from being perfect both in terms of methodology and implementation. In fact, we do not know how many diamonds end up in the grey economy and are used by criminal or terrorist organizations. The notorious 4% or 1% may be conventionally attributed to conflict zones, but in no way to the shadow dealing in diamonds in general. The levels of corruption in a number of KP member countries call the efficiency of the bureaucratic certification procedures into question.  And we have multiple examples of that insufficiency. Any increasing bureaucratic influence on the business will sooner or later result in an attempt to take advantage of this factor in unfair competition. Therefore, we should do our best to prevent such a turn. To a certain extent, today's reports about Kimberly Process progress create an illusion of market wholesomeness, which is a misleading illusion, real transparency is still far to reach.

We believe that transparency of the companies operating on the diamond market is a proven and efficient way to maintain consumer confidence and establish a real impeccable image for the industry. Today, family-run or private enterprises are major players on the diamond market. According to modern standards, they almost entirely lack transparency, and this fact gives rise to a great deal of uncertainty and suspicions that tarnish the industry's image. The Kimberly Process does not deal with this problem, but rather touches upon a narrow range of issues and applies a rather primitive tools.

Therefore, the Kimberly Process should be supplemented by activities focused on attaining the maximum level of transparency for diamond-mining companies, developing a set of minimum compliance requirements such as mining history track, sales volume, and possible market cap. The certification process should apply to everyone in the pipeline, except the mistress, of course. We are prepared to go ahead and make such a move.

In the near future, ALROSA intends to become a public company, the first company of that size on the diamond market.

The world diamond market is changing, and the Kimberly Process is just another manifestation of the global change. The market regulation system, the structure of supply, demand and pricing are going through changes, and new players are coming on board. Market participants are developing their own strategies of responding to new conditions dictated by the times, which will shape a new picture of the global market in the future.

ALROSA starts to implement a new distribution strategy, which we believe will help facilitate civilized market transformation. Our sales to De Beers are being significantly cut for objective reasons. And we look forward to developing cooperation with De Beers in the area of mining, geological prospecting, and improving mining and processing technologies.

Also, as you are probably aware, the Russian President's decree canceled export quotas for rough diamonds, which will certainly change the existing trade rules.

We plan to sell most of our goods using the single market in Russia, which calls for establishing all the required infrastructure, including ensuring an efficient customs clearing service, trade finance, etc.

In relationship with our clients, we are going to switch to long-term contracts, which, in my opinion, will help to secure global market stability.

So, to recap, let me reiterate:
Common efforts to enhance The Kimberly Process efficiency,
ALROSA going public, and a stable sales system designed for long-term relations with customers are the key steps that the Russian diamond industry is able to offer as its contribution to the establishment of the future global diamond market.

We also plan to participate in joint projects aimed at increasing the demand for diamonds that nature gave us and maintaining the reputation of the real diamond for present and future consumers.

Thank you for your attention.

Resource: Alrosa.ru

April 26, 2007
Alrosa clarifies shareholding plan, no IPO envisaged

Alrosa is taking expert advice on conversion of its shareholding structure, but there is no plan for an initial public offering (IPO) of shares on the international market in the foreseeable future.

Sergei Vybornov, the Chief Executive since February, was asked last week whether Alrosa intends to go public. He responded in the affirmative, but as his words were misreported, his spokesman Andrei Polyakov told PolishedPrices that all that is contemplated this year are two steps.

The first will be the re-registration from the Russian corporate form ZAO, closed corporation, to OAO, open public corporation. The second step, according to Polyakov, will "change the shareholding structure and the supervisory board to reflect the federal government's takeover of a 50%+1 shareholding."

The balance of the shares will be held by the Sakha regional government, with 32%, and 8% held by the Sakha districts (ulus).

The remainder is in the hands of management, but their stake was substantially reduced last year, and sold back to the state. Until these steps are completed, Polyakov said, it is premature to talk of an IPO.

Resource: World Diamond News

April 22, 2007
Vlasov appointed Chairman of Yakutian Diamond Council

Vasily Vlasov, an adviser to Russian diamond monopoly Alrosa Co. Ltd, has been appointed Chairman of the Yakutia Diamond Council. Yakutia First Deputy Prime Minister Gennady Alexeyev was named First Deputy Chairman and Alrosa Vice President Sergei Ulin was appointed Deputy Chairman.

Other members of the Council include Aisen Nikolayev, the regional administration’s Chief of Staff, Alexei Golubenko, Yakutia’s Industry Minister, Alexei Struchkov, the Economic Development Minister.

The changes to the Council were made due to personnel changes in the Yakutia government, and Yakutian President Vyacheslav Shtyrov has amended the statute governing the Far Eastern republic’s Diamond Council which discusses various issues concerning the development of the diamond cutting and jewelry industry in Yakutia, the sale of rough diamonds on the foreign and domestic markets, and works out measures to protect the diamond cutting industry and boost its competitiveness.

Resource: Tacy Ltd

April 21, 2007
Alrosa intends to go public

ALROSA has held informal discussions about a potential initial public offering (IPO,) company spokesman Andrey Polyakov confirmed April 19, 2007.

"ALROSA intends to become a public company. We have had discussions because we want to know the experts' opinions about a future listing, but we are not in official negotiations," he said.

Investment banking sources told Dow Jones Newswires about the discussions Tuesday. They said the talks were at an early and tentative stage and that they could lead to an IPO in the second half of 2007.

Polyakov said that the road to IPO would take longer, however. He said this is because ALROSA operates currently as a close-type joint stock company and must undergo a long judicial procedure to become an open joint stock company before it can proceed with a listing.

Consideration of an IPO has only become possible for ALROSA since a peace deal in December 2006 that saw effective control of the company pass to the federal government from the region of Sakha, also known as Yakutia, in Russia's far east.

That development was followed in February by the appointment of a new chief executive, Sergei Vybornov, who has since been quoted as saying he wants a radical change in the company's strategy.

Resource: DiamondWorld.net

April 15, 2007
ALROSA appeals against EC

The European Court of First Instance will hear an appeal by Alrosa, Russia's Yakutia-based diamond monopoly, against a ruling by the European Commission regarding trade with De Beers on April 19.

Alrosa filed a lawsuit with the Court of First Instance in June 2006 seeking the annulment of the February 2006 decision that commits De Beers to phasing out between 2006 and 2008 and to cease as from 1 January 2009 all direct and indirect purchases of rough diamonds from Alrosa.

Alrosa invokes a violation of its right to be heard in the procedure leading to the decision, submitting that the Commission was required to explain which third party observations and what aspects of the Commission's analysis justified the rejection of the commitments originally proposed jointly by De Beers and Alrosa and the adoption of the final commitments proposed by De Beers.

Secondly, Alrosa invokes a violation of Article 9 of Regulation 1/2003 in that the commitments made binding by the contested decision were offered only by De Beers, rather than by both De Beers and Alrosa.

Alrosa, noting that the contested decision has not been adopted for a specified period, submits that the contested decision's absolute and potentially indefinite prohibition on De Beers' purchasing rough diamonds directly or indirectly from the applicant violates Article 82 EC and Article 9 of Regulation 1/2003, as well as the fundamental principles of freedom of contract and proportionality.

Resource: Tacy Ltd

April 12, 2007
Shtyrov expresses his support for Vybornov

Vyacheslav Shtyrov, President of the Russian republic Yakutia, said he is prepared to support Sergei Vybornov, who was recently appointed as the head of Russia's diamond mining monopoly Alrosa.

"I think that the changes that have taken place in the management of the company are positive. The government of Yakutia is prepared to work constructively with him, prepared to support him in all his endeavors and hopes they will be professional and experienced," says Shtyrov.

Resource: Tacy Ltd

April 9, 2007
ALROSA inks safety deal with regulator

ALROSA and the federal technical regulation watchdog Rostekhnadzor have signed a cooperation agreement in the area of facilitating supervision over the observance of industrial safety rules in underground mines in Yakutia in the Russian Far East. Also, under the agreement, ALROSA and Rostekhnadzor are planning to create joint supervision bodies.

Sergei Vybornov, the president of the diamond producer, said about the signing of the agreement that it marked the beginning of an active phase in the construction of underground mines in Yakutia.

Resource: RBC

April 2, 2007
ALROSA auction sells nearly $18 million worth of rough diamonds

ALROSA sold $17,097,464 worth of rough diamonds at the 21st international diamond auction for special-sized diamonds hosted by the Russian Diamond Chamber.

Some 83 of 85 parcels containing 529 diamonds weighing more than 9,000 carats in total, including seven diamonds weighing more than 50 carats each, were sold. The largest diamond offered weighed 115.59 carats.

Representatives of 54 Russian and foreign companies from India, Israel, Belgium, China, the United States and Lebanon bid at the auction.

Resource: Tacy Ltd

March 2, 2007
Alrosa considers IPO

Alrosa is considering a public share offering. Sergei Vybornov, president of the Russian government-owned miner said that the company would look into a possible listing if sales continued to improve.

"I would not start talking about an IPO while sales are at around US$3 billion. As soon as Alrosa opens up then things will become clear. A share float? Why not? " Mr Vybornov told Russia`s Interfax.

"If we do this, it`ll be a pilot project from the point of view of the world diamond business. It`s a good project because if you talk about the diamond business as a whole, then openness and transparency are long overdue".

Alrosa, which accounts for approximately 20% of the world`s rough diamond supply and 100% of Russia`s rough diamond production, saw sales rise 5% in 2006 to more than US$3 billion - US$2.9 billion from uncut diamonds and the rest from polished stones.

Mr Vybornov believes that company should be on a par with market leader De Beers as a player on the world diamond market by 2015. De Beers, 45% owned by Anglo American, is responsible for around 40% of world diamond production by value.

Mr Vybornov also said that the company planned to start up a diamond exchange in Moscow or at its Yakutia production base in the arctic, expand its network of agents overseas and sign longer-term sales contracts with clients.

Resource: Mining Journal Online.

March 1, 2007
Yuri Doinikov Appointed First Vice-President – Executive Director of Alrosa

President Sergei Vybornov has appointed Yuri A. Doinikov, former Director of the Alrosa Mirny Division, as First Vice-President – Executive Director of Alrosa Co. Ltd., effective from 1 st March, 2007. Petr M. Glagolev, former Alrosa First Vice-President – Executive Director, was reassigned to the Moscow office as Alrosa Vice-President, effective from 1st March, 2007.

Doinikov was born in 1955 in Dymok, Nyurba District, Republic of Sakha (Yakutia). Doinikov has served as a Chief Engineer, and Head of Capital Mining Operations of the Aikhal Mine Construction Division, Head of Jubilee Open Mine, Aikhal Mining Division, and Deputy Director, Operations, Aikhal Mining Division. In 2000-2002 he was Director of the Aikhal Mining Division. Between 2002 and 2006 he was Director of the Mirny Division. He is also a Member of the National Assembly (Il Tumen) of the Republic of Sakha (Yakutia).

Resource: DiamondIntelligence.com

March 1, 2007
New Alrosa chief says IPO possible if sales increase

Sergei Vybornov, the new president of Alrosa, said an IPO by the Russian diamond monopoly was possible, but only provided the company increases sales.

"I would not start talking about an IPO while sales are at around $3 billion. As soon as Alrosa opens up then things will become clear. A share float? Why not? But we'd need to be cautious because there are no diamond companies there yet, no history track, let's say," Vybornov told Interfax.

"If we do this, it'll be a pilot project from the point of view of the world diamond business. It's a good project because if you talk about the diamond business as a whole, then openness and transparency are long overdue," Vybornov said.

Vybornov said the "federalization" of Alrosa – by which the federal government will increase its interest in Alrosa to controlling – should be done by the end of 2007. But he said the term "federalization" was inappropriate.

"Russia is a federal country. The president has issued instructions on acquiring control of the company. From my point of view, this issue is settled. The court has approved a set of amicable agreements that resolved the property issues. The process is going according to plan, but with certain legal deadlines and procedures. I reckon it will all take around nine months purely for technical reasons," Vybornov said.

"And there's no political divide between the Yakuts and Federals, if you'll forgive the expression, any more. Strictly speaking, we're all Federals. At least from the point of view of the company's management, this subject is now closed," Vybornov said.

Vybornov said none of the other major players on the diamond market could be considered to be public companies because diamonds form a small portion of sales by Anglo American, BHP Billiton and Rio Tinto.

Long-term strategy. Regarding Alrosa's long-term strategy to 2015, Vybornov said this involved increasing output and Alrosa's share of the world diamond market, as well as increasing the company's geological resources. As far as geological exploration is concerned, Vybornov said Alrosa would be focusing on two or three sites. Vybornov said that the company should be on a par with De Beers as a player on the world diamond market by 2015.

"I'm not saying that the companies will split the market fifty-fifty, but the gap will narrow from what it is today," he said.

Vybornov was an investment officer at Arctic mining and smelting giant Norilsk Nickel before taking over at IG Alrosa. His appointment as Alrosa's president in February this year virtually coincided with the asset split announced by Norilsk Nickel's co-owners Vladimir Potanin and Mikhail Prokhorov. This prompted speculation that Alrosa and Norilsk Nickel might merge.

Asked whether there is any truth in these rumors, Vybornov said, "The market rumors only have anything to do with names – my own and some of my colleagues who used to work at Norilsk Nickel. A company worth, say, $10 billion is hardly likely to take over a company worth $40 billion. Nobody is discussing a merger, and it doesn't matter where such and such a person used to work," Vybornov said.

Rumors of a possible merger between Norilsk Nickel and Alrosa started to circulate at the beginning of 2006. Krasnoyarsk territory Governor Alexander Khloponin, a former top executive at Norilsk Nickel, said at the time that the shareholders of the two companies had discussed possible options under which a 25% stake in the merged company would remain with the state and the current shareholders of the companies would own the remaining 75%.

Vybornov has started a reshuffle at Alrosa.

"There'll probably be more reshuffling to come," he said.
"Some of the new appointments are long overdue, but have not been made for various reasons. But they are not radical in nature and if they have any impact on the company it will only be a positive one," Vybornov said.

Vybornov said that Yury Dudenkov, who was responsible for sales at Alrosa, had retired just days before the new president was appointed.
"I'll be responsible for sales for the time being. We have a single selling organization and there haven't been any staff changes there," he said.

Sales strategy adjustments. Vybornov plans to adjust the Russian diamond monopoly's sales strategy.

"I think it might be best to set a trading floor up in Moscow and to sell most of our diamonds there," Vybornov said.

"It might also be worth doing this in Yakutia – after all that's where the diamonds are mined," Vybornov said.

Alrosa's former management had pushed a foreign sales network and long-term contracts with clients. Vybornov said Alrosa wouldn't be abandoning these aspects of its sales policy, however long-term contracts needed some fine-tuning.

"Contracts of sorts already exist, but for now at any rate they differ greatly from what our colleagues from De Beers, BHP Billiton and Rio Tinto have because these contracts aren't tailor-made for clients. They are so far the same for everybody but, if major clients are looking to buy goods long-term they ought to be paying a certain premium," he said.

"We've only just started to switch to long-term contracts and we don't have the same system as our colleagues in place, but we're getting there," Vybornov said.

Vybornov said he thought Alrosa should only use traders abroad to sell diamonds in order to get a feel for the market.

"The export quotas have been scrapped and the market is fully liberalized, so Russian and non-Russian buyers are in more or less the same boat. But it might be more logical if everybody who wanted to buy rough diamonds for the company came here," Vybornov said.

Regarding the situation on the world diamond market, Vybornov said that it was not very "comfortable" right now, but it ought to stabilize by the summer. The diamond market was in oversupply in 2006.

"It's not that this is a problem for Alrosa, but, as trade with De Beers is being scaled down, we'll need to build our own sales strategy and network very quickly. The years of generally fruitful partnership with De Beers have limited Alrosa's own experience of these matters. This showed when the export quotas were scrapped," he said.

Alrosa could withdraw EC appeal. Alrosa is considering withdrawing an appeal against a European Commission decision on a trade agreement with De Beers, Vybornov said.

Alrosa has filed an appeal with the European High Court challenging a decision that commits De Beers to stop buying uncut diamonds from the Russian company with effect from 2009, accusing the EC of violating freedom of contract.

In the summer of 2005, De Beers and Alrosa submitted a proposal to the EC that would have enabled Alrosa first to scale deliveries to De Beers down gradually and then to sell De Beers up to $275 million in uncut diamonds per year.

At the start of 2006, the EC asked De Beers to stop buying rough diamonds from Alrosa from 2009 after a phasing out period from 2006 to 2008. During this period, De Beers' purchases of rough diamonds from Alrosa will decrease from $600 million in 2006 to $500 million in 2007 and $400 million in 2008, according to the EC's decision.

"I don't think our legal action really solves anything. Procedures are at issue and this won't change the EC's stance. Our lawyers reckon some procedures were violated when the decision was reached, but this isn't the issue," Vybornov said.

"They could acknowledge that procedures were violated and return everything to square one, start considering the affair all over again. But a lengthy court case isn't what we want. The ban doesn't concern us, it concerns De Beers," Vybornov said.

Even if the sales contract with De Beers is reinstated, Alrosa will still need to be selling diamonds on its own now that Russia has scrapped export quotas for rough diamonds, Vybornov said.

The first contract with De Beers to sell Soviet diamonds was signed in 1959 and regular sales began in 1960.

IG Alrosa to handle non-diamond projects. The Alrosa Investment Group (IG Alrosa) plans to consolidate diamond monopoly Alrosa's "non-diamond" projects, Vybornov said.

Those projects include business diversification, fuel and energy projects and gold mining.

"I think the investment group will deal with those projects, including oil and gas. This is investment business and it was for this purpose that the investment group was set up," Vybornov said.

Vybornov said that Igor Prokhorenko, IG Alrosa's former chief financial officer, would be the investment group's new general director. Vybornov himself was in charge of IG Alrosa before being appointed president of Alrosa itself. The mining company owns a controlling stake in IG Alrosa.

Vybornov said IG Alrosa had recently acquired a license to the Azatek gold deposit in Armenia and was negotiating the acquisition of the rights to the Zod (Sot) gold deposit in that country.

IG Alrosa is also holding talks regarding the Jerooy gold deposit in Kyrgyzstan. Vybornov said that other countries where Alrosa was considering gold projects included Congo and Tanzania.

In addition, Alrosa is interested in acquiring blocks of shares in coal producers Yakutugol and Elgaugol, which Yakutia's government plans to offer at auctions.

Asked whether IG Alrosa was interested in the license to the Grib diamond pipe in Russia's Arkhangelsk region, Vybornov said, "The pipe is 70 km from Severalmaz's [Lomonosov] field, so we are thinking about it to some extent."

"But Lukoil and De Beers are still in litigation over the [Grib] pipe and it's not our turn yet to think about it more seriously," Vybornov said.

IG Alrosa controls Severalmaz.

The JerooyAltyn joint venture between Kyrgyzstan's state-owned Kyrgyzaltyn and Australia's Global Gold is currently preparing to mine the Jerooy deposit. Global Gold owns 60% of the joint venture.

Lukoil's subsidiary ArkhangelskGeolDobycha (AGD) and Canada's Archangel Diamond Corporation (ADC, owned by De Beers) have been locked in a dispute since 1993, when they signed an agreement to conduct a joint appraisal of the Verkhotinskaya property, which hosts the Grib pipe with a view to mining any commercial deposits on the basis of a license issued to AGD.

The Grib kimberlite pipe, which is thought to contain $5 billion worth of diamonds, was discovered at the beginning of 1996 at the Verkhotinskaya property.

Cooperation with Gazprom possible. Alrosa is discussing possible cooperation with Gazprom, the country's gas monopoly, Vybornov said.

"We're having certain discussions with Gazprom. We might even be in a position to sign a partnership agreement before long, but it would not be entirely accurate to describe this as a joint venture. We're close to signing a document which maps out our cooperation with respect to hydrocarbons in Yakutia," Vybornov said.

Vybornov said that legal disputes concerning gas producer Yakutgazprom will be resolved. Alrosa currently owns a controlling interest in Sakhaneftegaz and 100% of Alrosa-Gas and Irelyakhneft. It is in litigation regarding an additional share issue by Yakutgazprom.

Resource: InterFax.com

Feb. 25, 2007
50 Years of Mining at Yakutalmaz

Alrosa employees and veterans convened last week to mark the 50th anniversary of mining activity by Yakutalmaz, Alrosa's legal predecessor. The President of Yakutia, Vyacheslav Shtyrov, officially introduced Alrosa's new president, Sergei Vybornov.

Summarizing the fifty years of activity, Yakutalmaz and subsequently Alrosa has operated 17 mining-and-processing integrated complexes. Over 30 primary and alluvial deposits have been developed. Some 180 industrial and social facilities have been erected, including a hydro-electric power plant, in addition to 220 thousand square meters of housing.

Over the last decade, Alrosa's aggregate diamond output amounted to RUR 420 billion, the equivalent of approximately 16 billion dollars.

Alrosa's current priorities are expansion of its mineral resources by increasing exploration, transition to underground mining, and initiating additional projects in northwestern Russia and abroad. The company is also developing independent marketing strategies and is seeking new approaches to selling rough to its customers.

Alrosa President Sergei Vybornov noted in his speech: "Strong support on the part of the government, professionalism of its personnel, its technological and creative potentials will secure a leading role for Alrosa in the international diamond market."

Resource: israelidiamond.co.il

Feb. 16, 2007
Alrosa interested in purchasing hydro plants

The Alrosa diamonds producer in Yakutia, Siberia, is interested in purchasing two hydroelectric power plants on the Vilyui river from the Yakutskenergo power utility, which is controlled by Unified Energy Systems (UES).

According to the Interfax news agency Alrosa is reported to have approached UES with a view to acquiring the plants, but a large number of issues are unresolved, such as the future development of the electricity sector in Yakutia and cross subsidisation of prices.

The Vilyui 1 and 2 hydro plants on the Vilyui river have a combined generating capacity of 680MW and generated 2.8BkWh of electricity in 2005.

Resource: Water Power Magazine

Feb. 11, 2007
Vybornov plans to make Alrosa global mine master

By John Helmer

When Vyacheslav Shtirov used to host De Beers veterans on fishing trips to the Yakutian outback, the De Beers veterans recall, he was an expert at landing fish, and a teller of amusing anecdotes. Big fish, funny tales, they say. In the old days, the De Beers men thought that, on account of Shtirov, and his patron Mikhail Nikolaev, ex-president of the Sakha region, the big Russian fish would stay in the De Beers bag.

Sergei Vybornov is only the second chief executive in Alrosa's fifteen-year history to come from a non-diamond, non-Yakutian background. Forty-nine years old this week, he is also the youngest of the chief executives by far.

These are factors that have helped him to rise, and replace his predecessor, banker Alexander Nichiporuk. His first problem -- one Nichiporuk failed to solve in the two years he served as chief executive -- is how to gain control over the company's mining, marketing, and investment operations. To do that, Vybornov must establish his independence of Shtirov; but without his active support, Vybornov could not have defeated Nichiporuk.

If he does that within six months, Vybornov will then be able to control costs at Alrosa's core mines in Yakutia, especially the new underground operations; staunch the cash haemorrage in the diamond sales chain; extend Alrosa's diamond-mining operations geographically; and expand Alrosa's asset base to the non-diamond mineral sectors, with the possibility of taking control of Norilsk Nickel, Russia's largest mining enterprise and the world's largest producer of nickel and palladium.

It's a tall order. But in the time Anglo American will take to decide whether to retain, or more likely release, the Oppenheimer family from their management contract controlling De Beers, Vybornov could establish himself as the most powerful diamond-miner in the world. The Oppenheimer sunset, the Putin succession, and the Leviev eclipse -- these are the three astronomical auguries for Vybornov's ascendancy.

Nichiporuk had been the federal government's man to run Alrosa for some time, before he took the chief executive's title officially in December 2004. He replaced German Kuznetsov, who had earned the distinction of being twice discredited -- first as head of the state stockpile agency Gokhran, and then in 2003 as Alrosa's first vice president.

Nichiporuk next succeeded Vladimir Kalitin, Alrosa's chief engineer and the man best suited to keeping the mines running. Kalitin was a compromise candidate for CEO, after Shtirov was moved by the Kremlin from the company to run the Sakha Republic administration at the end of Nikolaev's second term. Kalitin hadn't been strong enough to challenge Nikolaev's and Shtirov's control of the company, and Kuznetsov had only his own interests in mind. Nichiporuk, along with a KGB man, Yury Ionov, were put in place to implement the Kremlin's order for restructuring shareholding, charter capital, management, and cashflow, so that Alrosa followed the federal government's lead.

In public remarks Nichiporuk issued after announcing his sudden resignation on February 2, he claimed credit for discharging the principal tasks that had been assigned to him. He had, he said, resolved the shareholding disputes, establishing the federal 50% plus one shareholding. He had expanded the diamond search programme, and initiated the major conversions at Aikhal, Mirny, and Jubilee to underground mining. New profit records were reached, enabling the company to fund investment from retained earnings. A wholly new marketing system, for the first time independent of De Beers (and of Lev Leviev and Maurice Tempelsman also), was started.

While De Beers faced stagnation or loss of mine production, Alrosa under Nichiporuk has expanded its global share of the market to 25%. "By our calculations," Nichiporuk announced, "we will start to grow again around 2009. This all demands time. After acceptance of this programme the company will be provided by raw material at least for ten years, and for this time it is necessary to search for new deposits purposefully. Though here again, already there are measurable results, whether it be Yakutia, northwestern Russia [Arkhangelsk], or Africa."

Nichiporuk's recital was a retort to a year-long campaign of criticism led by Shtirov in the Yakutian media, along with back-stabbing behind the arras in the Kremlin. According to Shtirov, Nichiporuk had mismanaged Alrosa, deprived the region of necessary revenues, upset the consensus required to operate the company, and focused ineffectively in other regions, including Arkhangelsk and Angola.

In point of fact, Nichiporuk had never been able to take management control away from Shtirov, though he tried. And Shtirov was able to delay the federal shareholding takeover of the company, defying President Vladimir Putin in the process.

The key to Nichiporuk's defeat, and Shtirov's success, turned out to be timing, and the weakness of the federal Finance Minister, Alexei Kudrin -- a technocratic weakling, who is frightened of his own shadow, and of the shadows cast upon his wall by both Putin and Shtirov. Nichiporuk knew Kudrin was incapable of standing up to Shtirov's tactics. He thought he could count on the tougher men in command of Russia's security agencies.

Between June and November of 2006, however, Shtirov was able to save himself by persuading the Kremlin's political campaign staff that they needed a safe pair of hands in the Fareast during the year-long campaign for parliamentary and presidential elections. Parliament goes to the polls in December 2007; the new presidency will be elected the following March. Not that there are many voters in Sakha to sway the result. More important to the Kremlin is the idea that there should be no social protests, no embarrassing headlines that might trigger a domino effect in eastern Siberia, where Moscow is never confidently in charge.

Nichiporuk had been counting on Shtirov's dismissal from the presidency of Sakha at the end of his first term in January. Shtirov might have preferred to return to Alrosa, but he settled for a second term in the presidential mansion in Yakutsk. Once that was confirmed by Putin in November, Nichiporuk knew he was fighting for his life.

Vybornov's emergence as the federal choice to replace him, and who was also acceptable to Shtirov, depended on Otar Marganya. Unknown outside Russian diamond circles, inside he is more powerful than Kudrin and Nichiporuk. A Georgian Jew from the Mingrelian region, Marganya is the grey cardinal of Alrosa. In conversations at a Moscow hotel coffee-shop, he would meet Shtirov to discuss the latter's complaints. He would slip in and out of Nichiporuk's office to do the same. Designated as an official advisor at the Finance Ministry, he has easy access to Kudrin's desk and telephone.

Marganya's influence in the Alrosa succession depended on his being viewed as supportive of everyone, committed to none. Marganya also watched to see who would turn out to be the stronger -- Nichiporuk or Vybornov. Marganya's lack of commitment should have been a warning to Nichiporuk. But the latter was counting on backing from the security agencies. He was under-estimating Vybornov's reach in the same direction -- and Marganya knew it. If Nichiporuk thought that Vybornov's challenge was coming from Yakutia, by the time he realized how strong the challenge had become in Moscow, it was too late.

Learning the lessons of Nichiporuk's term, Vybornov realizes he doesn't have much time. The biggest lesson is that Nichiporuk didn't mismanage Alrosa, as was alleged by Shtirov -- he was never able to manage the company at all. Vybornov will
now increase his span and depth of control by appointing a new team for investment strategy, financial control, sales, and marketing. Matganya will have his say on exactly who should be chosen; who should be black-balled; whom it would be dangerous to dispose of. Kalitin will remain Vybornov's advisor to hold the fort, to keep the company's operations running smoothly. When the team is in place, Kudrin, who is busy trying to hold on to his own job and protect his retirement, will be told.

Vybornov has already proved that he can drive powerful Israeli diamantaires, notably Lev Leviev, out of the special niche they have occupied in Alrosa and the Sakha region since 1992. Alrosa has also broken free of other Israelis -- Arkady Gaydamak, Dan Gertler -- in mining and selling Angolan rough. Maurice Tempelsman's special supply deal with Alrosa has been curtailed, and the influence Lazare Kaplan had once hoped to wield over Alrosa's financing has been eliminated.

As Alrosa's dealmaker, Vybornov's tactics may have upset Rothschilds, ING, and other international banks in the past. Funding has never been as easy for diamond-miners as for the other mineral miners: the future pricing of diamonds has always seemed more volatile and risky than base commodities. Vybornov has two options to address that risk.

The first is to build a long-term demand relationship with the Indians, and possibly the Chinese, replacing the payment guarantee De Beers used to offer -- at a more profitable margin than De Beers ever conceded. The negotiations to do this are already under way with an Indian consortium. Vybornov will go to the bargaining table with the assurance that, in addition to Alrosa's underground mines and new Yakutian pits, he will replenish supply with two new pits in Arkhangelsk; a second and third mine in Angola; and fresh prospects in the Congo.

To guard Alrosa's future supply of diamonds, the Kremlin has already agreed in its draft of the new legislation on strategic mineral deposits to exclude foreign companies and investors from controlling new diamond deposits. This exclusion appears to be even tougher than the 49% cap on foreign equity in domestic projects, which Alrosa lobbied into the existing law several years ago. This exclusion should put a stop to the irrepressible ambition of Beny Steinmetz, at least in the Russian mining sector. It should also mark the end of De Beers's lingering hope to hang on to the Grib pipe, discovered but then lost by Archangel Diamond Corporation of Canada. Three years of lobbying by BHP Billiton's chief executive, Chip Goodyear, for special access to Russian diamonds should also go out the door, along with Goodyear himself.

Vybornov's second strategic option is to mobilize the administrative resources required in Moscow to convert Alrosa into a national and international mining conglomerate. Vybornov realizes that Shtirov is more liability than asset in this task; Marganya and Kudrin aren't powerful enough for the great leap forward.

So far, reports in the media about a federal buyout of oligarch control of Norilsk Nickel are premature speculations. But the direction is obvious, and natural from the strategic perspective.

Through the Rosoboronexport group of companies, the major armament metals -- steel, titanium, and ferro alloys -- will become state-controlled, commercially managed. Oligarch-owned sources of vanadium (Roman Abramovich) and molybdenum (Oleg Deripaska) will be acquired for integration in this state conglomerate, run by Sergei Chemezov.

Through Rosatom, the government will integrate management of the entire uranium supply chain, from ore to yellow-cake to nuclear fuels and isotopes. Sergei Kirienko will be in charge.

Nickel, copper, cobalt and the rare platinoids -- rhodium, iridium, ruthenium, osmium -- are unlikely to be left to the protestations of loyalty of Vladimir Potanin. He knows when to sell, and also how to price the transaction. Starting on Monday, Vybornov will find a stream of visitors at his anteroom door, bearing the cards of the largest names in investment finance, offering to help him finance the takeover. The cash for this operation is not Vybornov's biggest problem. Consolidating Alrosa remains the first and biggest hurdle. As it was for Nichiporuk.

The big fish that De Beers and Shtirov enjoyed landing in their net has been lost to De Beers. It could get away again, unless Vybornov proves himself quickly.

Resource: Mineweb.net

Feb. 8, 2007
Russia to keep world diamond market share in next 10 yrs - Finance Minister

MOSCOW. Feb 8 (Interfax) - Russia will maintain its share of the world market for quality diamonds, which is just over 25%, in the next ten years, Finance Minister Alexei Kudrin said at Thursday's Cabinet meeting.

"This is what we agreed at yesterday's meeting of the Alrosa (RTS: ALRS) supervisory board," Kudrin said.

Kudrin, who chair's Alrosa's supervisory board, said the company's future for the next ten years was mapped out at the meeting.

Alrosa, Russia's Yakutia-based diamond monopoly, mines a quarter of the world's diamonds.

Resource: InterFax

Feb. 8, 2007
Sergei Vybornov Appointed President of Alrosa

Following the acceptance of Alexander Nichiporuk's resignation on Wednesday, the Alrosa advisory board has appointed Sergei Vybornov, general director of Alrosa Investment Group, president. He will begin his role on Friday.

Nichiporuk announced his resignation last Friday, citing, “The need to fulfill tasks set before him by the company's shareholders.”

During the board meeting, Alexei Kudrin, Alrosa's chairman and Russia 's Minister of Finance, thanked Nichiporuk for his tenure. Nichiporuk was also awarded with the ‘Civil Velour' from the Sakha republic.

The Russian federal government currently holds a 37 percent stake of Alrosa and seeks to increase that to just over 50 percent. Other shareholders are the government of Sakha (Yakutia) with a 32 percent stake in the company, and local Yakutian provinces, which hold 8 percent. Company worker unions and organizations hold the remaining 23 percent.

Resource: IDEX

Feb. 2, 2007
Alrosa's president resigns

MOSCOW. The president of Russia's largest diamond producer Alrosa, Alexander Nichiporuk, is resigning from his post, the company said in a press release Friday.

Alrosa said Nichiporuk's decision "arises from the need to fulfill tasks set before him by the company's shareholders."

"These include, primarily, the group's efficient work to carry out the Russian president's instructions concerning the protection of state property in the diamond sector, including the purchase of a large stake from minority shareholders."

Russia's federal government, the largest single owner of Alrosa, is set to increase its current 37% stake in the world's No.2 rough diamond producer to a controlling interest. The government of Sakha (Yakutia), the Russian Far Eastern republic where most of the company's operations are based, owns 32%. Eight percent belongs to Yakutia's provinces, and the remaining 23% is held by the company's staff.

The Kremlin is trying to raise its equity by redistributing the company's capital assets between itself and the Yakut government. It has promised Yakutia a larger share of federal tax revenue and more generous allocations for social and environmental programs. But the republic's government is reluctant to cede control over the company, which accounts for 23% of global raw diamond output.

Last September, Nichiporuk said Alrosa will be reorganized into an open joint stock company once the dispute with the republic's authorities is solved, and that its operations will be diversified from the diamond business into coal and gold mining and exploration of oil and natural gas.

Resource: RIA Novosti

Jan. 18, 2007
Alrosa Acquires 90% of the Angolan Rosan Mining and Investments

Russian diamond miner Alrosa has acquired 90 percent of the shares in the Angolan diamond firm Rosan Mining and Investments, Alrosa said in a release. The remaining 10 percent is held by Sky-Investimentos & Participacoes.

Alrosa, which owns a 33 percent stake in Angola's Catoca diamond mine, buys rough diamonds in the country through Rosan.

Rosan is a mining and exploration company that is also involved in the valuation and sale of rough diamonds.

Dec. 29, 2006
Putin signs decree to cancel precious metal export quota

MOSCOW, Dec 29 (Prime-Tass) -- Russian President Vladimir Putin has signed a decree on canceling export quotas for precious metals and stones, a source at the Russian government told Prime-Tass Friday.

Previously the Russian government set export quotas for producers of precious metals, stones and uncut diamonds on an annual basis. The producers are allowed to make exports via the government's trading agent Almazjuvelirexport.

In some cases the government has granted export quotas for several years. Norilsk Nickel received a 10-year quota for palladium exports in 1999. In 2001 it also received a 5-year quota for exports of platinum and rhodium.Alrosa received a 5-year quota for exports of uncut diamonds in 2003.

Commenting on the signing of the decree Sergei Gorny, deputy general director of Almazjuvelirexport, said that the decree has legalized the existing state of things. Both Norilsk Nickel and Alrosa have long-term export quotas, while other producers export platinum salts rather than metals.

Resource: Prime-Tass.com

Dec. 28, 2006
Russia: In Search of a Future without De Beers

With 2007 approaching, many of us may be wondering what the next year will bring. Some answers are obvious: De Beers will drop Supplier of Choice and replace it with something else; the reduced intake (and obligations to support beneficiation in African countries) will lead to a dramatically reduced DTC client list; and the liquidity and synthetic issues will continue to occupy the debate. These issues are all self-evident. What is less obvious – and probably by far the most important issue the industry will be facing – is what will happen in Russia.

After regaining personal control over oil and gas, President Vladimir Putin is now in the final stages of reasserting the Kremlin's control over the diamond business through the reorganization of the shareholdings in Alrosa. Putin made clear his desire to secure (for the federal government) a majority shareholding of 50 percent plus one share in Alrosa. In fact, he will probably secure close to 60 percent, with the balance in the hands of the government of the diamond mining republic of Sakha (Yakutia).

Currently, t he (Federal) Russian Property Agency owns 37 percent of Alrosa, the Yakutia Property Ministry holds 32 percent, eight districts in Yakutia own eight percent, and company employees hold 23 percent. Since mid-2006, the Vnestorbank (VTB) consolidated some 10.5 percent of the shares it had bought back from minority shareholders. These shares will eventually end up in the federal government's hands at the end of the process. The negotiations on the value of Alrosa seem to have come to a close; a total of some $8.7 billion appears to be a consensus value. Having an agreed value is a prerequisite to the redistribution of shares and/or the issuance of additional shares.

The present management of Alrosa, headed by Alexander Nichiporuk, is undoubtedly capable. However, if we have learned anything from history, it is that when government politicians have the final say, the rules of the games will change. For instance, Putin's predecessors depended heavily on the diamond revenues for political purposes. There is no reason to think that Putin will be any different, but it also partly depends on whether he will change the constitution to run for an additional presidential term or not. But it goes beyond that.

Dissolving a Partnership

For the first time in the history of Russia's diamond industry, the country will not be part of the De Beers marketing cartel. When rough supplies exceed demand, Alrosa will have to compete head-on with De Beers. No restraints. What will this do to the diamond industry?

Let's look at the figures: Russia is the world's second largest rough diamond producer. The country produced some 38 million carats worth US$2.26 billion in 2005, which corresponds to some 25 percent of world production.

The producer has been part of the De Beers marketing cartel ever since 1959, when the former Soviet Union commenced sales from its first mine in the early days of the Cold War. The co-operation went far beyond just marketing and price-setting collusion. There were also financial arrangements, technology exchanges, political links as well as aspects involving Anglo-American, which was, at the time, also the largest gold producer in the world. Oddly, during the Soviet days the cooperation between De Beers and the Russians was much better than during Russia's “free market” economy that has evolved since the early 1990's.

Unquestionably, De Beers has viewed the Russians in the last decades as an unreliable and unpredictable cartel member. About ten years ago, De Beers' Gary Ralfe publicly charged “ that diamond sales from Russia are dictated more by Russia's need for foreign exchange than by the real needs of the market; that Russia will be prepared to sacrifice on the altar of short terms gains of foreign exchange the long term well-being of the diamond industry, including its own diamond industry .”

Mutual mistrust prevailed, and many key governmental players in Moscow barely hid their loathing for their contractual partners. In 2006, De Beers has made what appears to be an irrevocable undertaking to the EC never to purchase – directly or indirectly – Russian diamonds again after 2009. Judging from the past, it is reasonable to expect that the Russians will craft a fully independent course and will compete with – and possibly even undermine – De Beers' interests. Aided by the new Archangel discoveries, Russia may also aspire to become the world's largest producer. Russia has already commenced open-market buying operations (in Angola) in order to optimize sales volumes, which reached $3.1 billion in 2005 (and this includes African goods, as well as some $143.7 million polished).

Given the current political developments with the Russian Federation, the government's leaders will use the country's diamond resource foremost to advance domestic policy agendas. Just remember: while a member of the cartel, the Russian Government didn't hesitate to flood the markets with both rough and polished diamonds at dumping prices, whenever it served its purpose. If cartel membership didn't prevent such flooding, isn't it legitimate to wonder how Russia will act without the ‘restraints' of cartel membership?

In the post-Soviet era, the Russian diamond industry has faced a continuous internal, trilateral struggle for “control” between the Federation Government, the Russian Parliament, and the regional government of the Republic of Sakha. (Of course, there are also additional deeply entrenched, private (domestic and foreign) and institutional interests at stake.)

Former Sakha (Yakutia) President Mikhail Nikolayev once stressed that “during the years of command administrative system none of the Soviet territories (such as Sakha) could claim its right even to the slightest part of its natural resources. As a result, in the Soviet northeast there existed a vast region that gave the country a lion's share of hard currency, but, at the same time, deprived of even minimal portions of this wealth that could be spend on its development. There are reasons to say that at the time even the high leaders of the [Sakha] republic had no idea of quantities and the price of diamonds extracted here.”

In a way Sakha isn't all that much different from some African countries where “payback time” has arrived. But one must look beyond the power struggle between central government and its republic; basically, in the diamond business, President Putin is already victorious. Yakutia President Vyacheslaw Shtyrov, who previously served as president of Alrosa, was engaged in a bitter struggle to retain some measure of autonomy over the republic's vast diamond resources – but he has now seemed to have reached a compromise. President Vladimir Putin agreed to support him for re-election in a second term as President of Sakha. In return, he is understood to allow the central government a free hand in the reorganization of Alrosa. However, with the elections behind him, nothing will stop Shtyrov to resume fighting for the best interests of his republic.

Resource-Based Economies

The reasons for concern about the future are related to the overall Russian dynamics. The Russian Federation is blessed by abundant natural resource endowments and the country can be characterized as a resource-based economy. In the last few decades, many economists have come to see natural resources as an obstacle to successful development. For instance, in some countries natural resources have fueled civil wars and conflicts instead of positively contributing to the economies. Hence the well-known term “resource curse.”

Both the Russian Federation as a whole and the diamond republic of Sakha in particular are hugely dependent on natural resources. Economists and political scientists tell us that if suitable conditions can be established in an equally suitable economic and political framework, natural resource abundance may advance economic development. But too often that is not the case. In Russia's situation, the Republic of Sakha has received little benefit of its resource. Its situation is in some ways comparable to some of the “failed states” of natural resource countries in Africa.

Throughout the years, governmental stewardship of the diamond industry in Russia has been problematic, mostly because the diamond sector didn't operate in a vacuum. Corruption, cronyism, and institutional weaknesses that applied to general resource management have clearly not bypassed the Russian diamond industry. Economists have concluded based on significant evidence that resource-based development has generally been more successful when state ownership in the resource sectors has been absent or very limited. In the Russian diamond industry, there are liberalization measures that take place simultaneously with stricter government control. One hand gives; the other takes. And, after minority shareholders are being bought out, Russia's main diamond conglomerate is reverting to 100 percent governmental controls.

Changes in the structure of an economy – any economy – are, by nature, relatively slow. Russia's and Yakutia's resource-based economies are bound to remain so for quite some time – and that is particularly true for the still-growing and expanding Russian diamond sector. Indeed, based on currently known projects, Russia's diamond output will grow dramatically within the next decade.

The Sakha Republic's economic dependency on diamonds is comparable to that of Botswana. Within Sakha, the diamond industry's revenues represent well over 93 percent of all gross foreign earnings of exports. Well over 75 percent of the region's budget is generated by diamond revenues; direct and indirect employment in diamond-related services is substantial. Since the break up of the Soviet Union and the establishment of the Russian Federation in which Sakha is an independent republic, the distribution of the foreign earnings between the republic and the Russian central government remains a great source of contention and friction.

Pragmatism always Prevailed over Principles .

The modern diamond industry in Russia dates back to the mid-1950's, following the discovery of promising diamond deposits in the Siberian regions that comprised the former Soviet Union. The former Soviet state-owned diamond mining company, Yakutalmaz, was established in January 1957, and sold its first lot of diamonds on the world markets in 1959.

Historically, Alrosa (and its various predecessor companies) delivered those rough diamonds not required for the domestic market to De Beers pursuant to trade agreements. These agreements made De Beers the exclusive buyer of Soviet Russia's rough diamond exports for well over 40 years. In 1959, De Beers bought its first few thousand carats of Yakut diamonds. Details of the early agreement, worked out by Sir Philip Oppenheimer, are not clear. What is clear, however, is that worldwide condemnation of South Africa's apartheid practices in the aftermath of the Sharpville Massacre, and the growing anti-communist character of the South African government (leading to the breaking off of diplomatic relations) made it impossible for the Soviet Union to renew its contract with De Beers in 1963.

Thus, it was publicly announced that Moscow refused contract renewal, when, in fact, the parties tried to hide their continued relationship through the use of a separate company called City and West East Ltd. This company was (and still is) a conduit for the rough diamonds sold to them. (City and West East Ltd. is incorporated in the UK and has top De Beers executives acting as directors.) The first contract with City and East West was concluded in 1963. This arrangement was even more remarkable since the Soviet Government became strong supporters of the anti-Apartheid movement (and South Africa's ANC leaders were mostly educated in Moscow – including the current President Thabo Mbeki).

But ideology didn't prevent the Soviets from selling to “capitalist” De Beers. To the contrary: During the Apartheid years, De Beers had convinced the U.S. authorities that it was impossible to identify the origins of a polished diamond – thus effectively neutralizing the South African diamond industry from the economic sanctions on purchases from that country. This also helped the Soviet Union since, at the height of the anti-communist hype in America during the Cold War, loving newlyweds in the United States never imagined that their treasured diamonds had actually been produced behind the Iron Curtain. This covert relationship was kept secret until 1990.

The 1990's were stormy years for De Beers in Russia. While the Gorbachev period had still been rather good, things changed for the worse when Boris Yeltsin came to power. Writes an investigative journalist: “Then [1992] the Russians started to query the CSO's generosity. A parliamentary investigation found the Central Selling Organisation (as the DTC was called then) made a 200% profit on the Russian diamonds, nearly US$10 billion. Since De Beers valued its own South African production at a carat price three times higher than it paid the Russians, this was not surprising. Suddenly the [US$5 billion trade agreement] seemed less favorable. Boris Yeltsin's takeover was bad news for De Beers. He had lambasted Gorbachev for signing a contract with De Beers that was unfavorable to Russia. When Harry and Nicky Oppenheimer went to Moscow in February 1993 to open De Beers' first Moscow office, Yeltsin snubbed them by canceling their appointment to see him at the last minute.”

The Parliamentary Committee may have exaggerated; it may even have been wrong. But its significance is that it conveys a sense of the “climate,” the atmosphere in which the diamond business played out in those days. The Kremlin didn't really trust (what was then still called) Almazy Rossii-Sakha (ARS) company, despite having a major share in it. Therefore, Yevgeny Bychkov, a close associate of Boris Yeltsin, was appointed chairman of the Russian Precious Stones and Metals Committee (Komdragmet). This entity controlled the Russian stockpile and was entrusted with checking the buying prices of De Beers. In an interview with this author, Bychkov replied to a question about his relationship with the ARS. He said as follows: “How can you speak of relationship where one party is working just for De Beers and the other party is working for the State of Russia. De Beers likes ARS, but we don't like the way they do business.”

Bychkov was later implicated in some mega-scandals, and from a historical perspective, this may put his statement in a different light. It is crucial, however, to understand the continuous intrigues in Moscow between the various pillars of the diamond industry: t he governments of Yakutia and the federal government, Alrosa, Komdragment, and various other players. So with the benefit of hindsight, it must be stressed that in the in the transition process from a centrally planned to a free market economy, the Russian Government did not lose control of diamonds. However, its policies were, at many times, not conducive to market stability.

In Need of New Direction

The 1992-1995 period, after the 1991 dissolution of the Soviet Union, was one of near anarchy, characterized by a general lack of direction and coordination in the management of the Russian diamond industry. The closing of Glavalmazzoloto (a Soviet-established association for gold and diamond producers) in 1991 left the industry with no effective coordinating body. In 1992, ARS – later renamed Alrosa – was established as a closed joint-stock company by Russia and Yakutia in order to manage the production of rough diamonds in Russia. The marketing arrangements, however, were still set by governmental decree. Stability and consistencies in policies were restored in 1996 when industry-wide efforts to consolidate resources commenced in earnest.

Once established, Alrosa played a pivotal role in contributing to the development of a medium- to long-term policy of restructuring and modernising all sectors of the Russian diamond industry. Moreover, since then, Alrosa has been the main industry party engaged in continuous dialogue with both the Government of Russia and De Beers. The latter welcomed this situation since it had been far easier to deal with government during the era of a communist, centrally controlled market system than in the post-2001 days.

The last formal Trade Agreement (December 2001), which provided for Alrosa's annual sales to De Beers of up to US$800 million over a period of five years, was presented to the EC's Competition Authorities for approval. This approval was denied. A Statement of Objections was issued that basically required both parties to come up with revised proposals. This led Alrosa and De Beers (in mid-2003) to agree to a phasing out of sales until an annual residual minimum sales level of US$275 million would be reached in 2010. It was envisioned that, at this level, De Beers could continue to purchase from Alrosa from 2011 and beyond.

We'll never know whether the EC would have agreed to that. At some point, De Beers made a separate commitment to the EC agreeing to totally stop dealings with Alrosa; the EC decided to accept De Beers' commitments. The file was then closed without addressing the commitments proposed by Alrosa.

Reportedly, the Russians are incensed that this De Beers commitment was made without the consent of Alrosa. Though the Russians are intensively preparing for marketing without De Beers and are establishing a range of Alrosa sales offices around the world, the company has nevertheless appealed to the European Court to get an annulment of the EC decision to terminate the De Beers-Alrosa marketing arrangements. De Beers has not challenged the EC's decision and seems to be content to market only its own output.

Thus, Russia is currently in the final days of the countdown to its separation from De Beers. The year 2009 will mark the first year ever in the history of Russia's diamond industry that the country will no longer market a single stone through the diamond cartel. This termination will effectively end the price fixing and policy coordination between the world's two largest diamond producers.

The now virtually inevitable ending to the De Beers/Russia relationship represents an odd quirk of fate. During the 50 years of partnership, especially in the final decades, Russian parliamentarians, trade and government officials often stressed that “Russia has been taken for a ride,” and that “Russia's client (De Beers) was setting its own buying prices and these were often some 30 percent or more below market price.” To say that the relationship was often antagonistic and acrimonious is an understatement. But now, when the relationship nears its closing stages, Russia's Government is resorting to the courts to see whether a reverse of the inevitable is still possible. This is not likely to happen.

In recent years, the Kremlin has not clearly outlined its vision for the future. Alrosa's Supervisory Council, headed by the federal finance minister and Alrosa President Alexander Nichiporuk are setting their own agenda. Whenever he assumes control, President Putin will clearly have to define the commercial targets and strategies of the company. He wouldn't fight so ferociously if he was truly happy with the direction the business is taking today.

While working with De Beers, Alrosa often pursued its own interests in total disregard of its partner's needs. It is going to be interesting to see how Russia will act when it owes no allegiance to the company that bought its rough output for more than 50 years. It is also going to be interesting to see what will change in the Yakutia-based mining company when formal control goes to the federal government – which, in many ways, represents a major step backwards from a Yakutian perspective.

We probably don't have to wait long to get the answers. As with many things in life – let's hope for the best, and prepare for the worst.

Resource: DiamondIntelligence.com

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