De Beers and Russia Sign Deal

By Rob Bates, Senior Editor and Gary Roskin, G.G., FGA, Senior Editor -- JCK Online, 3/1/2002 2:00:00 AM

De Beers has inked a new deal with Russia that gives it half of that country's diamond production for the next five years.

"It's good news for the market, especially in these uncertain times," says De Beers spokeswoman Kate Evan-Jones. "It brings a level of reassurance that the two largest diamond producers have signed an agreement and will work together for five years ahead."

The deal, however, is dramatically different from the ones De Beers had with Russia until the mid-1990s, which gave it access to nearly all Russian diamonds. Under the new agreement, approximately half of the country's output will go to local diamond manufacturers, in an attempt to boost the country's cutting industry.

The announcement of the deal also noted that it must be cleared with the European Commission—something De Beers' deals never had to do in the past.

Evan-Jones says this is not because of De Beers' problems with the EC over the last few months, but rather because "competition law has changed in the last few years. We will work closely with [the EC], as we have [in regard to] Supplier of Choice and the LVMH retail deal," she says.

Evan-Jones says the new deal is "fairly similar" to the old one in terms of volume. The new contract calls for De Beers to buy $800 million in diamonds every year for five years, for a total of $4 billion. (Of that number, $500 million is run-of-mine, and $300 million is a specially designed formula.) The old deal used a different formula, but arrived at roughly the same numbers.

One change in this new contract is that it is solely with Alrosa, the Russian diamond production company, and not with the Russian government, as in the past. This means the contract does not cover the government stockpile of stones, which it sells by tender. However, reports suggest this stockpile has been considerably depleted.