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December 1998

Suppose you’re De Beers. You control 70% of the world’s production of diamonds. Your combined assets total more than $13.75 billion. Suppose further that another 8-15% of the world’s diamonds could be yours for $550 million. Would you take them?

De Beers did just that in November by extending a trade deal with the largest producer of diamonds in Russia. Alrosa, owned in part by the Russian government, and controlling 99.7% of all diamonds produced in Russia, guaranteed sales of at least $550 million to De Beers annually through 2001. That’s one third of the production of the biggest regional producer outside De Beers traditional fields. They may purchase more; the deal allows up to 26% of De Beers annual total to come from Alrosa.

De Beers already had a history of involvement in the development of Russian diamond fields. In 1990, the company gave Russian $1 billion in development funds. In return, their contract stipulated exclusive access to all gem-quality diamonds sold by Russia through 1995. Since then, Russian production has risen. This year’s total value is expected to be $1.4 billion, of which 35% is sold outside of Russia. This trade agreement extension guarantees De Beers access to 39% of production.

Total Russian sales to De Beers in 1998 will total somewhere around $900 million, well above the guaranteed minimum. With the ruble recently devalued, the Russian government bankrupt, and the same government owning 32% of Alrosa, it seems safe to speculate that that total will not fall to the minimum guaranteed. In effect, De Beers has increased its share of the world diamond supply to 80%. “It’s important that the biggest producers cooperate closely and inspire confidence in the diamond market,” said Nicky Oppenheimer, chairman of De Beers Centenary.

De Beers has also called on the Russian government to loosen restrictions on foreign access to stone mines. Currently, the law limits foreign ownership in joint production ventures to 50%. De Beers now owns 27% of a new diamond field in Archangel, and the same proportion of a company licensed to develop the Lomonosov field. As long as Russia needs the money De Beers will get the diamonds.

The Russian news agency Interfax reported recently that Russian Prime Minister Yevgeny Primakov has approached officials of De Beers and Alrosa to discuss a loan backed by diamonds.

 

(Wholesale Diamond & Certificated Diamond in www.diamondregistry.com)

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