Rapaport Magazine


By Anastasia Serdyukova
ALROSA Expands to Africa, Sotheby’s, Yakutia

Russia’s largest diamond miner ALROSA saw its sales rising 6.4 percent year on year to $1.2 billion for the first quarter that ended on March 31. The volume of sales in carats rose 8 percent to 10.3 million carats, according to a report by the International Financial Reporting Standards (IFRS).
   The company said the results were affected by a change in the assortment. The average price per carat was $157.50, which is 14 percent less than in the first quarter of 2012. The miner exported $936 million worth of rough, which is 11 percent higher year on year, and sold $178.2 million domestically, which is 22 percent lower than in the first quarter of 2012.
   The company’s output fell 7 percent year on year and 17 percent compared to the fourth quarter of 2012 to 7.5 million carats. Although the production at ALROSA’s biggest mines, Nyurba and Jubilee, increased by 13 percent and 67 percent, respectively, the output fell at most other locations. ALROSA said the decrease was according to plan.

Going Deep for Diamonds
   ALROSA is planning to spend $10 million to $20 million annually on diamond prospecting in Angola and use its expertise gained in the cold terrain of Yakutia. As first reported in Rapaport Magazine, May 2013, page 90, the company has signed an agreement with Angolan ENDIAMA for prospecting and development of covered diamond fields. The announcement noted that there is “a high probability of discovering new large primary diamond deposits in the country.” At the moment, all discovered fields in the country are the open ones that have their ore body on the surface.
   ALROSA has completed the purchase of Nizhne-Lenskoe diamond mining company that has placer deposits in northwest Yakutia, in close proximity to Almazy Anabara, ALROSA’s production subsidiary. The company bought 51 percent of Nizhne-Lenskoe in January 2013, and purchased the remaining shares from the Yakutian government in June 2013, paying in total $220.5 million for the whole company. The company has developed several placer diamond fields, with its stones priced between $100 and $180 per carat. In 2012, the company mined 1.5 million carats, producing revenue of $143 million. Its fields have sufficient reserves to sustain development for the next 14 years.
   The Russian miner has already sold $27 million worth of rough from Nizhne-Lenskoe in its tender at the end of May, at an average price of $140 per carat.

ALROSA at Sotheby’s
   ALROSA is planning to sell its polished stones at a Sotheby’s auction in the fall, according to the miner’s representative. The company’s manufacturing division, Brillianty ALROSA, signed an agreement with the auction house in May, and plans to sell premium stones over 10 carats.
   At the moment, ALROSA is not planning to sell many stones through auctions as it is interested more in the marketing benefits of the move, rather than the monetary return from the auction sale. “The U.S. is one of the major polished diamond markets in the world and consumers are increasingly concerned about the origin of diamonds,” the company’s representative said. “ALROSA’s name is not widely known in the American market and we hope that sales through Sotheby’s will help to promote the brand.”
   The company sold two stones anonymously at the auction in the beginning of 2013. The company said the price it received for a cushion of 20.11 carats and a pear of 10.04 carats “was higher than they would get by selling it themselves.” For the fall sale, ALROSA is preparing a sale of a pink diamond weighing more than 10 carats.

Polished Sales Stagnate
   Polished sales have been slow for more than two months, both due to seasonal reasons and the fall in demand for diamonds in general. This comes against a backdrop of diamond price increases in March. “The issue with the mining companies is that when the polished sales are good, they increase prices, but when things go south, they are slow to decrease the prices,” said Valery Morozov, director general of Ruis Diamonds.
   “A sight or contract now looks more like a punishment,” said Maksim Shkadov, director general of Kristall Smolensk and the president of the International Diamond Manufacturers Association (IDMA), in a letter addressing the urgent challenges of the industry. He said that the increase in prices in the beginning of 2013 made manufacturers “lose faith. Waiting for the autumn, hoping for a jump start in the market has no real basis and I’m afraid we will again experience the same pessimism we did in 2012,” he said. (For an exclusive interview with Shkadov, see “50 Years of Excellence” in the Cover Stories section.)
   Noting that the current situation is similar to that in 2012, Morozov said the 2012 situation was even worse. He said that although the companies didn’t drop prices, they did have to make more concessions to their clients when the sales were stagnating.

Article from the Rapaport Magazine - July 2013. To subscribe click here.

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