ALROSA, the world’s biggest diamond company by production last year, plans to raise as much as $3 billion in an initial public offering in 2012, according to Chief Executive Officer Fyodor Andreev, www.bloomberg.com reports.
“My personal target is to prepare the company so we’ll be ready to do an IPO in the middle of next year,” Andreev said in an interview with Bloomberg Television. ALROSA is studying the U.K., Canada, Hong Kong and Russia as locations, he said.
ALROSA, Russia’s state-owned diamond monopoly, will sell a stake of about 20 percent to 25 percent and use the money to fund expansion and help repay its $3.2 billion of debt, Andreev said. “Big banks like Goldman Sachs, JPMorgan, Morgan Stanley and VTB Bank” will be invited to tender as advisers, he said.
A sale would make ALROSA by far the biggest listed diamond company. De Beers, the largest producer by sales, exited the Johannesburg exchange in 2001, while gems make up less than 5 percent of Rio Tinto Group and BHP Billiton Ltd.’s output. That may allow ALROSA to tap pent-up investment demand after rough diamonds rose as much as 90 percent from a trough during 2009.
Investors are unable to directly trade diamonds, which are only sold through a closed network of dealers or by retailers.
ALROSA, based in Siberia’s Yakutia region, produced 34 million carats (220,000 ounces) of diamonds last year, compared with De Beers’s 33 million carats. It aims to boost output to 40 million carats by 2018, investing about $7.5 billion in new mines, and to dig underground at its open pits, Andreev said.
Output Slides
The company should be valued at similar multiples to gold producers, he said, adding that analysts had priced the business at between $6 billion and $12 billion.
Underpinning diamond prices is a steady drop in output of the rough diamonds that are fashioned into cut gems, and signs that demand will outstrip supply. Rough diamond prices may jump more than 25 percent this year on “almost insatiable” demand from China, India and the U.S., Gem Diamonds Ltd. (GEMD), based in London and operating in southern Africa and Australia, said this week.
“Most people in the industry continue to be surprised by the voracious appetite from the Chinese consumer for diamonds,” Chief Executive Officer Clifford Elphick said in an interview.
De Beers said last month it may reach full capacity by the end of 2012 to meet “extraordinary” demand from China and India. Demand from the two countries last year expanded by 25 percent and 31 percent, respectively, the company said, forecasting that China, Hong Kong, Taiwan, India and the Persian Gulf would make up almost 40 percent of global demand by 2015.
Global Prices
China recently surpassed Japan as the world’s second- biggest buyer of diamonds, behind the U.S., which consumed 38 percent of production in 2010, according to De Beers.
Global prices of rough, or unpolished, diamonds gained 26 percent last year, above pre-recession highs, according to data compiled by WWW International Diamond Consultants Ltd.
World output slid 8.5 percent to 161.1 million carats in 2008 from 2005, according to RBC Capital Markets, before falling 30 percent in 2009 as consumption tumbled following the global financial crisis. Even before the collapse, output in Botswana, the biggest source, fell for three straight years through 2008, and in Australia it slid by more than half, RBC said.
ALROSA is also talking with Russian and Chinese businesses, and the “world’s biggest companies,” on selling as much as 51 percent of its untapped Timir iron ore field in Yakutia to help fund at least $4 billion of investment, Andreev said. “We need to make decisions about this before the IPO,” he said.
BHP Billiton Ltd. (BHP) is the world’s largest mining company, while ArcelorMittal (MT) is the biggest steelmaker.
