Around ALROSA Co. Ltd.
since April 08, 2005

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May 28, 2006
Russian Diamond Monopoly in Shareholder Dispute

The Sakha Republic (Yakutia) is continuing to resist efforts to restructure the ownership of Alrosa, Russia's largest diamond-mining company. Galina Makarova, head of the republic's property ministry, has sent a letter to the Russian Finance Minister Alexey Kudrin, the head of the Federal Property Management Agency (Rosimushchestvo) Valery Nazarov and head of the Center for Professional Assessment Corp. Alexander Kushel criticizing the latest assessment of Alrosa and the moves in the course of the federalization of the diamond monopoly. Kommersant has obtained a copy of that letter.

Yakutian authorities consider that the company was overvalued because of the use of international accounting standards instead of Russian standards. Yakutia stands to gain from a reduction in the price of the company because it will be able to retain its share in it at 40% without contributing any new assets. The Russian government intends to increase it share in Alrosa to 50% plus one share. The government has in practice been in control of 47.7% of the company since the middle of the month, when Vneshtorgbank acquired almost 10.7% of the company's shares from minority shareholders. Those shares are expected to be transferred to state ownership.

The government also plans to increase its share in Alrosa by contributing some of the assets of the Yakutalmaz scientific production association, from which Alrosa was spun off in the 1990s, to the authorized capital of Alrosa. Rosimushchestvo tried to dispute Yakutia's rights to Yakutalmaz in the Supreme Arbitration Court, but that court refused to hear the case, saying that it was out of its jurisdiction.

The Center for Professional Assessment assessed Alrosa on an order from Rosimushchestvo last year and valued it at $6.4 billion, that is, $32,300 per share. Yakutia called that estimate inflated. The Yakutian President Vladimir Shtyrov said publicly that the estimate was overstated by at least $1.5 billion. At the end of March, the Center corrected its finding to a value of $6.1 billion, or $30,300 per share.

The Yakutian government is still not satisfied with the estimate. Makarova's claim that the company should be evaluated using Russian (Soviet) accounting standards is odd, however, since Alrosa is a trans-national company (her argument against using international accounting standards was that it is not). Her argument is essentially against the lack of financial transparency at the company, which has over 50 subsidiaries.

The use of Russian accounting standards would justify the exclusion of Alrosa-Nyurba, one of the company's largest subsidiaries and the source of almost half of its profit, from the assessment. In addition, the Yakutian authorities want the “practically forced rental of the property complex of Yakutalmaz from the republic” taken into consideration in the assessment and disagrees with estimates of the company's future income.

The press service of the Finance Ministry noted that representatives of the Sakha Republic were present on the competition commission that accepted the Center for Professional Assessment's assessment proposal and voted in favour of it.

Resource: RusMinInfo.Com

May 18, 2006
Alrosa auctions more than $35 mln in diamonds

Alrosa sold more than $35 million in rough diamonds at the 14th international diamond auction for special-sized diamonds hosted by the Russian Diamond Chamber in Moscow, the chamber said.

The chamber said 143 of the 150 parcels offered were sold. The 150 parcels contained 1,203 diamonds weighing more than 20,000 carats. The biggest diamond offered weighed 172.44 carats.

Representatives of 38 Russian and foreign companies from India, Israel, Belgium, Belarus, China, Japan and the United States bid at the auction.

The next auction will start on May 22 and its results will be known on June 30.

Resource: Interfax

May 10, 2006
Alrosa, De Beers sign diamond supplies memo for next 3 years

Alrosa and international diamond giant De Beers have signed a memorandum on diamond supplies in 2006-2008 in Vienna, Russia's top diamond mining company said Thursday.

The memorandum follows a February resolution by the European Commission that officially approved De Beers' decision to phase out purchases of raw diamond purchases from Alrosa by 2009.

An EC representative told journalists earlier that De Beers would buy 500 million euros ($640 million) worth of raw diamonds from Alrosa in 2006, 420 million euros ($538 million) worth in 2007 and 340 million euros ($435 million) worth in 2008.

The European Commission said the decision would contribute to ensuring fair competition on the world diamond market.

Resource: RIA Novosti

April 27, 2006
Property Agency starts to recover Yakutamlaz assets

The Russian federal property Agency
(Rosimuschestvo) filed a suit with the Supreme Arbitration Court to reinstate federal ownership of the Yakutalmaz Production Association, from which Alrosa (RTS: ALRS), Russia's Yakutia-based diamond monopoly, was created, a source familiar with the situation told Interfax.

"A lawsuit was filed to say to reinstate the Russian Federation's rights to all the assets of Yakutamlaz, which had earlier been transferred to Alrosa," the source said.

The government plans to contribute these assets to Alrosa's charter capital in its bid to increase the federal stake in the company to controlling.

Officials had previously discussed settling the dispute with Yakutia over Yakutalmaz assets out of court, by splitting the assets into two categories - the property of Russia and the property of Yakutia -in order to be swapped for new shares in Alrosa.

It is thought a favorable court ruling on the Yakutalmaz assets and the subsequent contribution of these assets to Alrosa's charter capital would increase the federal stake in the diamond mining company to 60%.

The federal government is seeking to increase its stake in Alrosa to 50% plus one share, from 37% at present. Yakutia would preserve its 40% interest in the company. The federal government will increase its stake with an additional share issue equivalent to at least 50%-70% of Alrosa's existing shares.

The Russian Property Agency currently owns 37% of Alrosa, the Yakutia Property Ministry holds 32% and eight districts in Yakutia own 8%. According to official information, the company's employees own 23% of Alrosa.

In 1993, the assets of Yakutalmaz were transferred to Yakutia, although at the time there was a ban on the transfer of mining assets to constituent members of the Russian Federation. Alrosa, which produces 23% of the world's rough diamonds, now pays about $350 million per year to use Yakutalmaz's assets.

Resource: Interfax

Apr 18, 2006
MAK Bank lowers Alrosa buy-back price 2%

MOSCOW. April 18 (Interfax) - MAK Bank has lowered the price at which it is buying shares from minority shareholders in Alrosa (RTS:
ALRS), Russia's Yakutia-based diamond monopoly, 2% to 332,000 rubles ($12,010) from 338,000 rubles, a source at the bank, which is part-owned by Alrosa, told Interfax.

The source said the price had been lowered because shareholders had offered to sell a large number of shares. In addition, the reduction is
connected to changes in the exchange rate, the source said.

The bank is aiming to buy back 10% of Alrosa's shares for $240
million by April 28. It will finance the buy back itself and with help
from a major state-owned bank, to which the shares will be handed over.

Alrosa's majority shareholders will then use the shares in order to
increase the federal government's stake in the company to controlling.
The bank said in February that it planned to buy the shares at
$12,000 in February, but, as the dollar has weakened, the ruble price of 338,000 rubles has now risen to $12,230.

Alrosa chief Alexander Nichiporuk said at the beginning of April
that MAK Bank would consolidate the planned 10% of the shares by the deadline of April 28.

The federal government is seeking to increase its stake in Alrosa
to 50% plus one share, from 37% at present. Yakutia would preserve its 40% interest in the company. The federal government will increase its stake with an additional share issue equivalent to at least 50%-70% of Alrosa's existing shares.

The Russian Property Agency currently owns 37% of Alrosa, the Yakutia Property Ministry holds 32% and eight districts in Yakutia own
8%. According to official information, the company's employees own 23% of Alrosa.

Resource: Interfax

Apr. 3, 2006
S&P ups rating of Russia's largest diamond producer to B+

International rating agency Standard & Poor's has raised its long-term corporate rating on Russian diamond mining company Alrosa from B to B+, the agency said Monday.

S&P also affirmed Alrosa's B short-term corporate credit rating with a positive outlook.

"The rating action reflects Alrosa's strengthening profitability and cash flows, and the resulting improvement in credit protection metrics in 2004 and 2005," S&P credit analyst Yelena Anankina said.

"The ratings on Alrosa could be raised by up to two notches if the full audited 2005 financials confirm positive operating and financial trends, and if the Russian government achieves direct majority control over the company," the analyst added.

Alrosa's current shareholders are the Russian State Property Management Committee (37%), the Yakutia State Property Management Ministry (32%), and company personnel (23%). Yakutia's eight districts hold the remaining 8%. The diamond producer is now in the process of repurchasing shares from minority shareholders to increase the Russian government's stake to a controlling block.

Resource: RIA Novosti

Mar. 27, 2006
VTB Gets Stake in ALROSA

Russia’s diamond giant, ALROSA, has a new holder. Vneshtorgbank (VTB) has bought out ALROSA’s stocks from MAK-Bank, a subsidiary bank of ALROSA, and is expected to acquire new stocks of the diamond monopolist to be released on behalf of Russian and Yakutia’s governments. “Indeed, VTB is today’s holder in ALROSA,” said Maxim Kasatkin, 1st deputy board chairman at MAK-Bank. VTB got the stocks from MAK-Bank under the agency agreement of February, Kasatkin specified, declining to disclose the share.

To begin with, MAK-Bank could have sold to VTB its 0.53 percent in ALROSA. Then, the VTB’s stake could have stepped up for the account of the stocks that MAK-Bank was first buying on the market by order of the parent company, ALROSA (roughly 85 percent in MAK-Bank), and then selling to VTB.

MAK-Bank has been buying ALROSA’s stocks since February 21. The target is to extend the federal stake in the diamond monopoly to 50 percent plus a stock. The stake of Yakutia is expected to go up to 40 percent. In addition to MAK-Bank’s market activities, ALROSA will release new stocks that will be bought out by governments of Russia and Yakutia. The emergence of the VTB as a holder means it will pay for ALROSA’s federalization and become one of its key operators.

Resource: Commersant.Com

Feb. 07, 2006
Yakutalmaz Won’t Suffice for Two

Russia needs over $5 billion to buy out the new stocks of ALROSA and extend the ownership to 50 percent plus a stock there, says a letter of Federal Property Management Agency (Rosimushchestvo). The worth of the federal assets is no more than $214 million, which is apparently not enough for this purpose. As to Yakutalmaz that Russia and Yakutia intend to share with each other, it costs 11.62 billion rubles now at the maximum.

At the recent meeting in the Kremlin, President Vladimir Putin committed his subordinates to extend the share of Russia in ALROSA up to the majority ownership, leaving 40 percent on aggregate to authorities of Yakutia and to its uluses (districts).

ALROSA is one of the world’s biggest diamond producers (23 percent of global production) with the annual turnover of $2.5 billion and liabilities of $1.15 billion. The holders are: Russia’s government (37 percent), Yakutia (32 percent), ALROSA employees - 23 percent, eight uluses of Yakutia (8 percent).

So far, ALROSA’s redistribution was thought to be carried out for the account of new stocks released by the company and bought out by Russia and Yakutia under the close subscription. Russia was expected to pile up its ownership in ALROSA by contributing the assets of Yakutalmaz and the stocks of some profile enterprises.

According to the letter of Russia’s Federal Property Management Agency, the federal assets that have been assessed to-date are worth a bit over $213.9 million. The assets, which evaluation has not been completed, may add from $100 million to $200 million to the amount. At this point, the federal wealth expires.

Meanwhile, the market price for each stock of ALROSA will be $32,300 once the diamond monopolist is owned by Russia, according to the estimate of Professional Evaluation Center. Therefore, Russia will have to pay roughly $5,039,058,400 to get 50 percent plus a stock in ALROSA.

The last resort is to contribute the assets of Yakutalmaz to the stock capital of ALROSA, the letter concludes. The difficulty is that today’s worth of that company will hardly meet the high-end expectations of Russia. According to a source with the government of Yakutia, the residual value of Yakutalmaz was just 11.62 billion rubles as of November 30, 2005.

The amount won’t suffice to pay up even the share of Russia in ALROSA, not to mention Yakutia, which will need $2.69 billion for this purpose (uluses are to contribute another $672 million). Federal Property Management Agency said in the letter Yakutia could contribute ALROSA-Nyurba (10 percent) and Elga-Ugol (39.365 percent) and its other assets in settlement for the share. More likely than not, ALROSA may count on getting even Yukutia’s 30 percent in Yakutugol, which privatization the federal authorities have recently challenged.

Resource: Commersant.Com

Feb. 06, 2006
ALROSA to Be Revaluated for Own Account

Following the decision made in the Kremlin, the board of ALROSA diamond monopolist was told past Friday to arrange the tender for repeated evaluation of the company. This move means the balance in stock capital of ALROSA may change in favor of the federal center already this fall.

The republic of Yakutia and the federal center have preliminary agreed on the method of offsetting the revenues to be lost by Yakutia if Yakutalmaz is transferred to ALROSA, Yakutia’s President Vyacheslav Shtyrov said Friday in the wake of the Kremlin meeting held by President Putin February 3. For Yakutia, the transfer of Yakutalmaz means the loss of the rent, which amounts to roughly 10 billion rubles on year and accounts for over 60 percent of the budget revenues of Yakutia.

At present, ALROSA operates on the leased assets in Yakutia, which obtained Yakutalmaz in 1993 under the delimitation of authority agreement currently challenged by Moscow. Once back in state ownership, Yakutalmaz will be contributed to the stock capital of ALROSA in settlement for the issue of new stocks that Russia and Yakutia intend to buy out on parity basis.

To offset the lost revenues, it is planed to further increase Yakutia’s share in the severance tax, said Russia’s Finance Minister Alexey Kudrin. Besides, Russia will fund some assets in Yakutia (the roads, for instance), Shtyrov specified, adding ALROSA will proceed to funnel into the fund for ulus economic advance and will probably compensate for the rent (around 1.9 billion rubles) on the permanent basis, though it is just a plan so far.

In Kremlin, Yakutia was guaranteed complete compensation of lost budget revenues up to 2018, said a source in Yakutia’s government. In view of profuse promises of the Kremlin, Yakutia’s support to ALROSA’s intention to extend Russia’s share in the company up to 50 percent plus a stock doesn’t look surprising.

One of the world diamond giants (around 23 percent of the world production), ALROSA has the annual turnover of $2.5 billion and the liabilities worth $1.15 billion. Russia’s government holds 37 percent, Yakutia owns 32 percent, ALROSA’s employees - 23 percent, eight uluses (districts) of Yakutia – 8 percent.

Resource: Commersant.Com

Oct. 31, 2005
ALROSA Value Estimated

The Center for Professional Estimating has provided an estimate on ALROSA of $6 billion to the Russian Federal Property Fund, with a market price for one share of $30,000. On the stock market, that price is being called inflated since, even at the peak of demand, shares in the company never sold for more than 65,000 rubles a piece. There are 200,000 shares in the company with a nominal value of 13,502.50 rubles each. The economics Ministry has confirmed those numbers, although it warned that the estimators' findings are still preliminary. ALROSA produces about 23 percent of the world's raw diamonds. It has $2.5-billion annual turnover, $1.15 billion in debts and made a net profit of $456 million in 2004. The Russian federal government owns 37 percent of the company, Yakutia owns 32 percent, the company's workers own 23 percent, and eight Yakutian ulus (districts) own 8 percent of it.

The federal government initiated the estimate. It is assumed that the states plans to increase its holding in the company to a controlling package by making a supplemental stock emission and buying it all through closed subscription. “The company's estimate is clearly exaggerated. It is several times higher then the real figure,” a Russian Funds spokesman stated. That company bought 2 percent of ALROSA on the market a year ago. ALROSA stock was in high demand after its subsidiary IG ALROSA began buying its stock up in the summer of last year. That rush ended after 7000 ALROSA stocks (less than 4 percent) more than half of which belonged to Renaissance Broker, were frozen in the spring of this year. It is possible that the revelation of the preliminary estimate of the company is also intended to discourage minority holders from selling their stock. An IG ALROSA spokesman commented that “The undefined legal status of ALROSA makes it impossible to make a real estimate of it.”

Resource: Commersant.Com

Oct. 12, 2005
ALROSA’s Federalization Shelved Till December 1

Russia’s government officials are to find an elegant method of piling up the federal ownership in ALROSA and making a Russian company out of this diamond giant of Yakutia. The result of the mental process is expected by December 1, at least Prime Minister Mikhail Fradkov told bureaucrats to come up with some definite proposals by that date.

ALROSA that accounts for around 23 percent of world diamond production and has more than $2-billion annual turnover has always been a lucrative company. Russia became the biggest holder in late 2002, having widened the stake to 37 percent. Yakutia owns 32 percent, ALROSA’s employees – 23 percent, eight uluses (regions) of Yakutia - 8 percent.

Nearly four years have passed since the federal officials first attacked the task to legitimately transfer ALROSA from Yakut into Russian company. In 2001, Russian President Vladimir Putin committed his main supervision department to probe into ALROSA. Clear signs of “federal interest violation” were revealed then. For instance, in time of the shares’ redistribution, Russia’s stake slid by 3 percent, while the ownership of Yakut holders grew by 5 percent. Vladimir Putin ordered, as a result, to take steps “to restore federal stake in the stock capital of ALROSA.”

The process gained momentum early this year once a definite program for ALROSA’s federalization was elaborated. It was decided to reach the majority holding by buying new stocks of ALROSA released for this purpose. The next step is to find the funds needed for the purchase. And that is where the difficulty lies now. Rosimushchestvo has suggested transferring from Yakutia’s to Russia’s ownership the property previously owned by Yakutalmaz (ALROSA was actually established on the basis of that company in early 1990’s) and contributing it into the stock capital of ALROSA in settlement for the new stocks in the next move. Yakutia, however, doesn’t appear too willing to part with Yakutalmaz assets, the more so that their loss would mean the loss of the rent collected from ALROSA and which amount covers 60 percent of the budget receipts for the republic. So Russia’s officials have to find means how to set off the losses of Yakutia’s budget. The possible way out is to stipulate extra 5 billion rubles in the 2006 federal budget for Yakutia.

The alternative scenario provides for piling up the federal ownership by contributing stocks of related state-run companies into the stock capital of ALROSA, including 100 percent in Kristall (Smolensk), 52.3 percent in Almazny Mir and100 percent in Prioksky Works of Nonferrous Metal. Yakutia announced in return it may contribute 75 percent less a stock in Yakutugol, 34.6 percent in Elgaugol and 10 percent in ALROSA-Nyurba to maintain the parity.

And last but not least, this summer, Russia and Yakutia have appraised the assets of ALROSA and the assets of the companies that could be transferred to its stock capital. A source with Yakut government said off-the-record the worth of Yakut assets turned out materially higher than the worth of the federal ones. So the officials have a really hard nut to crack now, as the appraisal conclusion presupposes reduction instead of extension of the federal stake in ALROSA.

Resource: Commersant.Com

Sep. 20, 2005
ALROSA Gives Polyus the Gold

Yesterday, Polyus, a wholly-owned subsidiary of Norilsk Nickel, officially confirmed that it had bought Yakutian goldfield assets from IG ALROSA. The deal, worth about $285 million, is the biggest in the history of the Russian gold market and has made Polyus the co-owner of the Nezhdaninskoe, Kyuchyus deposits and those in the Kuranakhskoe goldfields. Kommersant has information that some of the money will be paid to IG ALROSA only after it settles a number of disagreements with its former partners.

The cumulative reserves of the goldfields managed by IG ALROSA have been estimated at 700 tons of gold. They are located in the Nezhdaninskoe deposit, Kyuchyus and ten deposits in the Kuranakhskoe goldfield. The license to develop Nezhdaninskoe belongs to OAO South Verkhoyanskaya Mining Co., which is owned by the Yakutsk Mining Co. (50 percent), the Irish Celtic Resources PLC (20 percent) and Golden Invest Corp. and Davenport Ventures, Ltd (30 percent). Yakutsk Mining Co. is a wholly owned subsidiary of IG ALROSA, and 51 percent of that company is owned by the ALROSA diamond company. Yakutsk Mining has a prospecting license for KYUCHYUS. The owner of the licenses for the ten deposits in the Kuranakhskoe field is OOO Aldanzoloto GRK, 99.2 percent of which belongs IG ALROSA.

Kommersant reported that Polyus would obtain the gold ore assets in Yakutsk from IG ALROSA from $285 million on August 18. That deal was officially announced yesterday. According to a Polyus press release, the company acquired a 99.2-percent share in Aldanzoloto GRK, 50 percent in South Verkhoyanskaya Mining and 100 percent of Yakutsk Mining. The value of the deal, according to Polyus, “will not exceed $285 million, of which $115 million has already been paid.”

In reality, the deal is for the purchase of two, not three, companies. Polyus became 50-percent owner of South Verkhoyanskaya Mining by buying 100 percent of Yakutsk Mining. Thus the latter's inclusion on the list of acquisitions is somewhat gratuitous. Celtic Resources, IG ALROSA's former partner at Nezhdaninskoe, is unhappy with the deal, which that reservation was aimed at. Celtic Resources holds that IG ALROSA sold not 50 percent of South Verkhoyanskaya Mining but 80 percent. Celtic chairman of the board Peter Hannen wrote a letter to Finance Minister Alexey Kudrin on that topic. Hannen has information that, besides Yakutsk Mining, IG ALROSA is selling two offshore firms in the Cayman Islands that won 30 percent of South Verkhoyanskaya Mining between them that Celtic Resources considers its property. A week after that letter was sent, the Supreme Court of the British Virgin Islands forbade the alienation of that 30-percent package in South Verkhoyanskaya Mining, as Kommersant reported on September 16.

Celtic Resources was, until recently, the main contender for the assets of IG ALROSA. (It was in negotiations on a stock exchange for about two years.) Moreover, the Irish had taken on the Canadian Barrick Gold Corp. a strategic investor for the acquisition of those assets. Barrick acquired 10 percent of the stock in Celtic resources six months ago and even went so far as to acquire an option from Celtic Resources for 51 percent in Nezhdaninskoe. That option is valid through December 31, 2006, and the Canadians were also negotiating with IG ALROSA until recently without being aware that they had a competitor.

This situation is complicated by the fact that the Kuranakhskoe deposits are a disputed asset. The Moscow Russian Funds investment group, owner of 34 percent of the stock in Aldanzoloto has been trying for two years to dispute in court the relicensing of the ten deposits belonging to that company to Aldanzoloto GRK. At the beginning of September, the company filed two suits in the arbitration court of the Sakha Republic (Yakutia) on the illegal withdrawal of assets from OAO Aldanzoloto.

All that aside, the deal with Polyus has gone through. Kommersant has information that the purchaser stipulated that IG ALROSA would be paid $50 million after the settlement of disputes with its former partners. IG ALROSA general director Sergey Vybornov denies the existence of such a clause in the contract with Polyus. He claims that he personally does not know who the beneficiary of the offshore companies that own 30 percent of the stock in South Verkhoyanskaya Mining is. Vybornov told Kommersant yesterday that “Polyus made us a more favorable offer than other contenders for those assets. Our choice of counteragent is explained by considerations of effectiveness and nothing else. However, that does not in any way mean that we will not collaborate with Celtic and other market participants in the future.”

“We have acquired assets with unique potential and made a decisive step toward accomplishing a key goal in our strategy – building a world-class gold-producing company in Russia,” Polyus president Evgeny Ivanov said. Russian Funds and Celtic Resources reacted calmly to the announcement of the deal. “We are confident of Polyus' constructive approach to solving the situation and hope that negotiations will take on a new impulse,” Kommersant was told at Russian Funds.

The Celtic Resources press service commented that “We welcome the entrance of a powerful partner with a 50-percent package, with financial resources and industrial expertise. We are ready to continue developing the business jointly. We are confident that our collaboration will be beneficent and lead to the development of the industry.” Later that day, Celtic Resources issued a press release indicating that the company will enter into negotiations with Polyus before the end of the month on the joint development of Nezhdaninskoe. The Moscow office of Barrick Gold Corp. refused to comment.

Resource: Commersant.Com

Sep. 08, 2005
ALROSA Allowed to Add Oil and Gas

Russia’s Finance Minister Alexey Kudrin backed up in public yesterday, September 7, 2005, the plans of the diamond giant ALROSA to extend business by adding coal, oil and gas projects. Yakutia’s authorities hailed the idea, having offered to make ALROSA a transnational mining company.

ALROSA is one of the world diamond leaders with around 23 percent share in global diamond production. The annual turnover stands at $2 billion. Russian government holds 37 percent, Yakutia’s authorities own 32 percent, ALROSA's personnel – 23 percent, Yakutia’s regions – 8 percent.

ALROSA’s plans concerning coal, oil and gas projects were first declared a month and a half ago. At that time, the company’s president Alexander Nichiporuk made it clear ALROSA and Gazprom are in talks about implementing joint projects in Yakutia. The stagnant period followed.

For ALROSA, its oil/gas undertaking gained momentum September 7, 2005, when Russian Finance Minister and Chairman of the company's Supervisory Board Alexey Kudrin called diversification of ALROSA’s business its strategic goal and said it could expand in the field of ore and power industries. “Russia’s government and Sakha [Yakutia] authorities think the same concerning these issues,” the minister pointed out.

Yakut President Vyacheslav Shtyrov was even more eloquent. He said ALROSA’s diversification could be accomplished in three directions – first of all, it is the lapidary work, second, it is geographical diversification, including ALROSA’s expansion both within the country and globally – in Angola and Congo. And last but not least, ALROSA may shift funds to adjacent industries, i.e. invest in gold mining and coal businesses, Shtyrov pointed out.

Actually, the recent statements of the officials signal that ALROSA is en route to becoming a transnational mining company. By the way, exactly Shtyrov is said to have masterminded this idea, in time of holding the office of ALROSA’s president.

Resource: Commersant.Com

July 14, 2005
ALROSA Changes Over to Gas and Coal
// Diamond extraction gets unprofitable

ALROSA president Alexander Nichiporuk made a number of ringing declarations in his speech at Yakutia’s parliament. He said ALROSA is going to stop running two underground diamond mines and will focus on coal, gas and oil projects. The Russian diamond monopolist is already negotiating the matter with YUKOS and Gazprom, ALROSA president says.

Alexander Nichiporuk, president of ALROSA, said at Yakutia republic’s parliament session that ALROSA suspended the operation of two underground mines. “The running of Aykhal underground mine has become unprofitable given the current rental payment. We had to close this project. A similar decision is in store for another underground mine, Udachnaya,” he said.

ALROSA’s giving up its diamond projects is a real bomb, as less that a year and a half ago the board of ALROSA approved a plan of the construction of underground mines at Udachnaya diamond pipe, which was to become one of the largest in the world. ALROSA was determined to bankroll the construction of a mine on Udachnaya pipe, put Internatsionaly mine into productive capacity and also build underground mines on Mir and Aykhal old kimberlitic pipe. Moreover, president of Yakutia Vaycheslav Shtyrov promised to partially defray the cost of the construction of Udachnaya. Now it turns out that ALROSA decided to suspend works at Aykhal as early as in May, and Udachnaya is in for the closing as well. This is the price Yakutia has to pay for its unwillingness to bring down the rental rate for the use of diamond deposits.

Yet ALROSA has alternatives in the republic. These are coal, gas and oil industries, Alexander Nichiporuk believes. We should remind our readers that two subsidiaries of ALROSA, Irelyakhneft and ALROSA-Gaz, already do well in the market. “We successfully finished our negotiations with Gazprom on a joint project in Yakutia two days ago. Therefore we are going to actively influence processes which are underway in Sakhaneftegaz and Yakutgazprom, for one,” he said.

OAO Yakutneftegaz was set up in 1994 after the republic’s gas extracting enterprise had been shared. It affiliated into Sakhaneftegaz oil and gas company in 1997 which now holds its 92.58 percent stake. Since 2002, 51 percent in Sakhaneftegaz has been owned by YUKOS, 36.67 – by Yakutia’s government. Yakutgazprom develops four gaseous condensate deposits. This is a key company for ALROSA, since all the gas Yakutgazprom extracts goes for the Russian diamond monopolist’s consumption.

The press service of ALROSA clarified the statements of its president in the evening. A press release circulated yesterday says Yakutia’s authorities “offered ALROSA management to consider a possibility of purchasing oil and gas assets of Sakhaneftegaz, first of all Yakutgazprom” early this year.” ALROSA launched consultations with shareholders of Sakhaneftegaz, which turned out to be “fruitful”. But the situation changed drastically all of the sudden. “The management of this company entered upon a debatable issue of Yakutgazprom’s stocks, which led to Sakhaneftegaz shareholders losing control over the company,” ALROSA’s press release runs.

It is a matter of lobby accords between Sakhaneftegaz president Afanasy Maximov and Yakut businessman Alexander Ammosov, who controls Yakuttsement and city market of Yakutsk, according to the information of Kommersant. A source close to Mr. Ammosov maintains that the agreements boil down to his companies buying out an additional issue of Yakutgazprom’s shares to resell it later to ALROSA. The latter would not agree to the scheme, though. “The management of ALROSA deems it unacceptable to participate in this dubious transaction which will inevitably entail costs for lawsuits of lawful shareholders of Sakhaneftegaz”. The intrigue is enhanced by the power at Sakhaneftegaz, which has set in since June 30. Mr. Maximov declines to recognize former director general of Yakutgazprom Ruslan Shipkov as its successor at the position of the company’s president. YUKOS, in its turn, has never recognized Afanasy Maximov legitimate president of Sakhaneftegaz.

Gazprom commented possible collaboration with ALROSA in the following way. “Gazprom has received a letter from ALROSA some time ago with proposals to cooperate on a number of projects. Gazprom is currently considering the offers.”

By Elena Kiseleva.
Resource: Commersant.Com

July 11, 2005
Audit Chamber Unearths Tax Arrears at ALROSA
// Inventory and control

On Friday, the Audit Chamber published the results of the latest audit of ALROSA for payment of taxes, duties, and other federal budget payments. It appears from the chamber's press release that in 2004-2005, the federal budget was short 1.6 billion rubles in tax payments from the diamond monopolist's operations. Both ALROCA and the Ministry of Finance, which is responsible for the company, rejected these accusations out of hand.

ALROSA is one of the world's largest diamond mining companies, accounting for 23 percent of world production. ALROSA's principal shareholders are the Federal Property Management Agency (Rosimushchestvo, 37 percent), the Ministry for State Property Management of Yakutia (32 percent), and employees (23 percent). Another 8 percent of the company's shares belong to eight districts of Yakutia.

On Friday, the Audit Chamber board chaired by Sergey Stepashin reexamined ALROSA. Recall that only a week ago, the chamber approved the diamond monopolist's audit report dealing with diamond sales on foreign markets for the last several years [see Kommersant of July 4]. This time, the matter concerned the accuracy of calculation, completeness, and promptitude of tax, duty, and other mandatory payments to the federal budget in 2004-2005. Auditor Vladimir Panskov, who audited ALROSA in May and June of this year, presented a report on the subject.

As is evident from the Audit Chamber's press release, the recent audit shows that the federal budget was short a total of 1.6 billion rubles in tax payments from ALROSA. In 2004 alone, severance tax receipts decreased by nearly 1 billion rubles. In the board's opinion, this was the result of a price lag between list prices and real ones.

“The list prices for rough diamonds in the auditing period, approved by the Ministry of Finance, were substantially lower than market prices. In 2004, the diamonds were valued at about $1.45 billion according to list prices, whereas their sale value at the actual price exceeded $1.85 billion,” the chamber's press release states. The budget was short another 600 million rubles due to the unsettled problem of division of powers between Russia and Yakutia. In the opinion of the Audit Chamber, “the republic is continuing to take a portion of the company's profit in the form of rental payments and removing them from federal taxation.”

It turns out that the recent audit report for ALROSA is actually less of a shot at ALROSA than at the government of Yakutia and the Ministry of Finance. At least that was how the ministry interpreted the Audit Chamber's press release. “The prices set by the Ministry of Finance for ALROSA's diamonds are valid only for State Diamond Depositary (Gokhran) purchases, i.e., for the state treasury. Therefore, any overstatement of them results in budgetary losses. The Ministry of Finance is not interested in high prices for this type of purchase precisely in order to save budgetary funds. As for the Audit Chamber's press release about alleged budgetary losses for this type of operation, the chamber is once again wide of the mark, as it was over the alleged losses to the Stabilization Fund from inflation. The ministry is always prepared to give professional advice to the Audit Chamber before the publication of its reports in the media,” a ministry spokesman told Kommersant.

ALROSA also disagrees with the accusations of nonpayment of taxes. “The Ministry of Finance's price list, which is the basis for accounting prices, and thus for the severance tax, has simply not had time to change fairly. However, this does not mean that ALROSA has underpaid its taxes to the state, since, as a result of high prices, the company's profit has increased, and thus the taxes from it have increased. These payments have significantly exceeded potential severance tax payments,” ALROSA's press service told Kommersant on Friday.

By Elena Kiseleva.
Resource: Commersant.Com

Apr. 25, 2005
Russia Starts ALROSA's Federalization

In a move to beef up government’s stake in ALROSA to the majority one, Russia’s Economic Development and Trade Ministry has commissioned Rosimushchestvo to appraise, in no time, the state-run stakes in some companies for further transfer to ALROSA. Rosimushchestvo counts on completing the appraisal by late this summer.

ALROSA is one of the diamond giants, accounting for around 23 percent diamond production in the world. The annual turnover is estimated at between $1.6 billion and $2 billion. Russia’s government widened its stake from 32 percent to 37 percent at the end of 2002, Yakut government owns 32 percent, the company’s employees – 23 percent, eight uluses (districts) of Yakutia - 8 percent.

At close of the past week, Rosimushchestvo was served with a letter sealed by Russia's Deputy Economic Development Minister Andrey Sharonov, which commissioned the above body to evaluate, as soon as possible, the state-run stakes in certain companies that will be contributed to the stock capital of ALROSA to widen the government’s stake there. A source with the ministry told Kommersant the companies involved are Smolensk PO Kristall (100 percent), Almazny Mir (52.3 percent), Kristall Special Engineering Bureau (100 percent), Prioksky non-ferrous metal works (100 percent), Vilyuiskaya GES-3 (0.32 percent).

In the Economic Development and Trade Ministry, they say the letter was submitted in line with the order of Russia’s Prime Minister Mikhail Fradkov to speed up ALROSA’s federalization. The government’s departments were told to take all actions required to get back ALROSA’s stocks into federal ownership and make the property sharing agreement with Yakutia correspondent to the RF laws.

As a result, Russia’s stake in ALROSA is expected to widen to the majority one. This objective will be attained through the new issue of stocks to be bought out by the federal authorities at close offer. The settlement could be effected by contributing to ALROSA’s stock capital the state-run stakes in a number of companies involved in the similar business. Thus, Rosimushchestvo was told to determine the market value of the above stakes. The tender to select an appraising company will be held in the near term, Rosimushchestvo’s spokesmen told Kommersant. “I think we will be able to complete evaluation of the state-run stakes already in August,” the source said.

Resource: Commersant.Com

Apr. 08, 2005
Mikhail Fradkov Is Dealing Personally
with the Federalization of ALROSA
// Redistribution of property

It became known to Kommersant that Premier Mikhial Fradkov was personally engaged in the redistribution of property of Russia's biggest diamond-mining company ALROSA. He demanded that the Ministry of Economic Development, Ministry of Finance, Ministry of Justice and the Federal Security Service prepare by May 1 a resolution and recommendation concerning the possibility of returning the shares of ALROSA to federal ownership. President Putin has been awaiting a corresponding decision on the matter for the fourth year running.

ALROSA is one of the world's biggest diamond-mining companies, accounting for about 23% of the total global output. Its annual turnover is estimated at around $2 billion. At the end of 2002 Russia became the biggest shareholder of ALROSA, having increased its packet to 37%. Another 32% belong to Yakutia, 21.71% to its work team, 8% to eight Yakut districts, and the remaining 1.29% to the company's managers.

In 2001 President Putin ordered the Control Department of the presidential administration to check the work of ALROSA. In the course of inspection it was revealed that the company violated federal interests. In particular, when the shares were redistributed in ALROSA, Russia's share proved to be lower by 3%, and Yakut shareholders increased theirs by 5%. President Putin then issued an order demanding to protect state property and interests in the diamond complex of the Republic of Saha (Yakutia) and return the federal share in the authorized capital of ALROSA (see “Kommersant” of March 22, 2003).

Since then officials at various departments have been racking their brains in order to turn ALROSA from a Yakut into a Russian company. In the beginning of this year the ball started rolling and a concrete plan was evolved according to which Russia's share in the capital of the diamond company would increase to the controlling level due to the additional emission of its shares which would be redeemed by the federal authorities (see “Kommersant” of February 14).

However, it's not yet clear where to get money for effecting this transaction. It is suggested to transfer to federal ownership the property complex which used to belong to “Yakutalmaz” previously, on the basis of whose capacities ALROSA was set up. Then these assets will be included in the authorized capital of ALROSA as payment for Russia's share. For its part, the Yakut side insists on preserving the share of its participation in ALROSA capital. The head of the government of Yakutia, Yegor Borisov, said that “we should do everything possible to retain our level of participation in the company.” (“Kommersant” has the full text of his statement on the subject made on March 21.). It follows from his words that the Yakut republican authorities should oppose the plans of the federal centre to take ALROSA into its full possession. In this case, Yakutia will lose the right to collect rent from ALROSA which comprises up to three-quarters of its budget revenue. In any case, the property complex ALROSA can be owned in equal shares by both the Republic of Saha (Yakutia) and the federal government, but not by the federal authorities alone. This is the view of Yegor Borisov, the head of the Yakut government.

To retain the balance Yakutia is ready to agree to a compromise: to increase the capitalization of ALROSA by including in its capital the shares of a number of republican enterprises. For instance, 75% minus one share of “Yakutugol” shares; 34.6% of “Elgaugol” shares, and 10% of the shares of “ALROSA-Nyurba”. In this case Russia could add 100% of the shares of “Kristall” (Smolensk), 52.3% of the shares of “Almazny mir” and 100% of the shares of “Prioksky zavod tsvetnykh metallov”. The latter variant is now discussed at the government level.

According to available information, the government will have a special meeting within the next fortnight at which a report will be heard on the implementation of Mikhail Fradkov's instruction. Officials of the Ministry of EconomicDevelopment have not yet announced the exact date of the meeting. As for officials of ALROSA, the Ministry of Finance and the Federal Security Service, they declined to comment.

By Elena Kiselyova

Resource: Commersant.Com

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