De Beers and Alrosa strike new deal

De Beers said on Monday it had signed a $4 billion trade deal with Russia’s Alrosa, extending cooperation between the world’s two biggest diamond miners for another five years, Reuters reported.

Analysts said the new deal was slightly less favorable to De Beers than the existing three-year marketing contract, but much better than the world’s number one diamond producer might have expected to win as the Russians flex their muscles, Reuters reported.

Under its terms, De Beers will market half of the annual rough diamond output from Alrosa (Almazy Rosii-Sakha), of which $500 million per year will be stones straight out of the ground or “run-of-mine” and $300 million will be an assortment picked for export, Reuters reported. Alrosa will supply the remaining 50% to Russia’s own growing cutting industry, which it has been keen to boost.

De Beers controls about 65% of the world’s $8 billion market in uncut diamonds. Its current three-year marketing agreement with Alrosa, which expires on December 31, obliges the Russian firm to sell at least $550 million worth of uncut stones to De Beers, but not more than 26% of De Beers’ sales.

The new agreement was signed in Russia by top De Beers officials and Alrosa head Vyacheslav Shtyrov at a ceremony attended by Russian Deputy Prime Minister Alexei Kudrin, Reuters reported.

“This is good for De Beers. The current market conditions have helped them get a good contract. I think September 11 added to the (already) weak market and helped their position in negotiations,” analyst David Hall at Merrill Lynch in Johannesburg told Reuters.

“The Russian government, particularly, would look at it and say at least this way we get a hard payment every month.”

The deal will also need approval from the European Union, which analysts said was not guaranteed.

European competition officials will study the agreement as part of their probe of the way De Beers distributes diamonds and of its deals with other producers around the world.

South African-based De Beers has co-operated with the Russian diamond industry for more than 40 years, despite official hostility between the two countries when apartheid governments held power in Pretoria.

Crucial to any successful deal is co-operation from Russia’s vast diamond-rich Siberian republic of Sakha or Yakutia, where presidential elections are scheduled for December 23.

But Alrosa’s Shtyrov is the favorite for the presidency there after incumbent Mikhail Nikolayev scrapped his controversial bid for a third term last week and gave Shtyrov his backing.

De Beers was bought out earlier this year in a $19 billion deal by a consortium led by mining giant Anglo American Plc and South Africa’s Oppenheimer family, which each own 45 percent of the diamond firm.