De Beers offer may end EU probe

De Beers and Alrosa, the world’s biggest diamond producers, have offered to scale down drastically a proposed sales agreement to end a long-running antitrust investigation by the European Commission, the Financial Times reports.

The two groups have proposed cutting the sale of Alrosa’s diamonds to De Beers over the next six years to $275 million worth of diamonds a year. The cap will drop to $700 million next year, and scale down to $275 million beginning in 2010.

Brussels yesterday signaled that the agreement was expected to be approved early next year, the London-based publication reports.

De Beers, which is 45% owned by London-listed Anglo American, had originally requested approval for an agreement to buy $800 million worth of rough diamonds a year from Alrosa, the Russian state diamond monopoly. The South African diamond group controls more than half the world’s diamond supply and has for decades absorbed much of Russia’s diamond output.

De Beers has bought about $800 million worth of diamonds a year for the past three years from the Russian group on a “willing buyer, willing seller” basis. This arrangement, according to Gary Ralfe, the group managing director, has reportedly worked “extremely well.”

The commission argued that the original proposal, under which Alrosa would have sold half of its annual production to De Beers, would strengthen the South African group’s already dominant position in the world market for rough diamonds, the publication reports.

De Beers is now considering investing in diamond production in Russia, and Ralfe told the Financial Times this month: “We want to get into upstream [production] in Russia.”

A commission official reportedly said the revised proposal would let Alrosa build a distribution network.

For De Beers, agreement would be a decisive step towards resolving antitrust disputes on both sides of the Atlantic.