Rapaport Magazine

New Plans for ALROSA

Russia Market Report

By Anastasia Serdyukova
RAPAPORT... One Russian company exhibiting at JCK Las Vegas bet on a design that revealed the country of origin at first glance. Jewellery Factory “ELIT” brought a collection of earrings and brooches designed in the form of the traditional Russian headdress known as “kokoshnik.” Kokoshnik is a type of tiara shaped as a high shield. “We wanted to bring something unusual, something to surprise,” said Victoria Ivanova, ELIT’s deputy general manager.

Russian exhibitors at JCK, which also included Almaz-Holding, Rifesta and Trust Capital, said they expect the singularity of their designs to pave their way into the American market. Most of them offer items in the middle price range, targeting small boutiques for whom the “made in Russia” label will become a perk.

“Participation in the show helped us correct our strategy of going to the American market and showed us the expectations of the American market in terms of price and design,” said Maksim Strezhnev, Rifesta’s director general.
Most of the exhibitors noted that they will have to tailor their collections to American tastes. Trust Capital’s Lubov Chistyakova said red gold, traditional in Russian jewelry, excites no interest in the American market, while brooches, a rather random accessory in Russia, are in great demand with American customers.

In general, the Russian companies were satisfied with the show, saying they are working with new contacts acquired in Las Vegas.

ALROSA’s Strategy

While Russian jewelers aspire to step into the American market, ALROSA, Russia’s diamond company, wants foreigners to come to Moscow. The company reportedly plans to spend as much as $50 million in opening a network of approximately 50 retail shops in Moscow and throughout the country during the next five years. The stores will operate under a single brand and carry merchandise targeted not only to female customers, but also to men and children.

“ALROSA itself is already a brand and its name will only give weight to our new business,” Sergei Vybornov, ALROSA president, told Vedomosti, the Russian daily.

As part of its new sales strategy, ALROSA will create a trading platform to sell most of its production, Vybornov said in a recent interview. Russia doesn’t have export quotas on selling diamonds any more, so any foreign company can buy inside the country if it wishes — and that includes De Beers. Located in Moscow, the platform will not be subject to the European Commission (EC) ruling that compels ALROSA to stop supplying De Beers by 2009. Vedomosti reported that up to 80 percent of the company’s production will be sold at the platform, most through long-term contracts, with the rest being shipped abroad. There was no indication when the platform will become operational.

“It’s good that ALROSA will sell its production at home so foreigners can come here,” says Ararat Evoyan, vice president of Russia’s Association of Diamond Producers.

ALROSA’s Diversification
ALROSA also hit the headlines this month with rumors of its possible purchase of Polyus Gold, Russia’s leading gold miner. The company currently belongs to Mikhail Prokhorov and Vladimir Potanin, who are in the process of dividing their assets.

Analysts say that even though the purchase would make ALROSA a stronger diversified company, the deal seems unlikely. “ALROSA is not on top of the buyers list for Polyus Zoloto,” says Vyachaeslav Zhabin, precious metals analyst from BrokerCreditService.

Analysts say lack of cash would be an obstacle in the case of Polyus, whose market capitalization is over $7 billion. ALROSA’s official capitalization is only $6 billion.

Similar acquisition rumors have linked ALROSA with Norilsk Nickel, another Prokhorov-Potanin asset. Norilsk Nickel’s capitalization is almost $40 billion.

Russian Diamond Export to India Goes Up

Russian Trade Minister German Gref and Indian Commerce Minister Kamal Nath met June 10 to discuss economic cooperation between the countries, with diamond trade between the countries being one of the issues discussed. India has been buying up to $12 million worth of rough diamonds a month since Russia’s export rules eased earlier this year. India imports around $8 billion worth of diamonds annually, Reuters reported. Experts say that the increase in Russian diamond exports to India is due to the fact that Russian stones are now sold directly and not through De Beers.

The Marketplace

ALROSA’s 22nd auction results:
• $45.2 million worth of diamonds were sold.
• Total weight of the 1,246 stones for sale was more than 21,000 carats.
• The largest diamond in the sale was 135.46 carats.

Article from the Rapaport Magazine - July 2007. To subscribe click here.

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