De Beers attempts to increase its Russian investment

De Beers is planning to increase its presence in Russia, brushing aside mounting concerns over the rule of law and state interference in business, it reportedly said.

“We want to get into upstream [production] in Russia,” Gary Ralfe, group managing director, reportedly said Dec. 12.

De Beers, which is 45% owned by London-listed Anglo American, is seeking to diversify diamond production beyond its traditional sources of supply, mainly in southern Africa. Russia, alongside Canada, offers opportunities for new investment, London’s Financial Times reports.

De Beers has an exploration joint venture in Archangel Diamond Corporation in Russia, but it is likely to watch closely the future of Alrosa, the state-owned diamond producer, which sells a large portion of its production to De Beers, the British publication reports.

Alrosa controls nearly all of Russia’s diamond production. The company is jointly owned by the central government in Moscow and the Republic of Sakha, and produces about 20% of the world’s rough diamonds. Unlike other Russian mining companies, Alrosa has little surplus capital and needs to modernize its mines.

De Beers is waiting for an all-clear from the European Commission so it can finalize a proposed diamond-buying agreement with Alrosa, the publication reports.

Negotiations with the EU were making good progress and “in their final lap,” Ralfe reportedly said.

De Beers has been buying around $800 million worth of diamonds a year for the past three years from Alrosa on a “willing buyer, willing seller” basis. It is an arrangement that Ralfe reportedly says has worked “extremely well.”

Ralfe reportedly said De Beers had not encountered difficulties with the Russian authorities and had been encouraged by the government’s declared intention to make the industry more transparent. Legislation to declassify diamond data, until now a closely held state secret, was passed months ago but Russia’s president Vladimir Putin has yet to sign it into law.

But De Beers executives reportedly said Russia’s opaque taxation regime represented a risk factor in doing business in the country.