Gokhran Will Purchase Additional Amount of Rough Diamonds from ALROSA

The Russian Government has approved the request on purchase of rough diamonds from ALROSA to the state repository in December of the current year, Interfax were reported at the Ministry of Finance being the supervisor of Gokhran. The source noted that the corresponding ruling had been signed, however he did not mention the amount of potential transaction, Finmarket.ru reports.
A source from the diamond sector previously said that the amount of rough procurement effected by Gokhran from ALROSA might reach $140 million. This figure is close to reality, in opinion of a representative of specialized authorities.
The offer on ALROSA’s rough supplies was submitted to the state repository in October. The decision was deferred for a long time as the administration requested additional reasons to be provided in order to justify acquisition of rough stock from ALROSA.
This year ALROSA has already effected rough supplies to Gokhran worth a total of RUB 3.48 billion, the transaction was closed in the second quarter.
Subject to budgetary assignment for 2012, Gokhran was to procure rough diamonds worth up to RUB 4 billion – these were the limits of the first transaction approved by Supervisory Board of ALROSA in May, 2012. The total allocations of Gokhran for acquisition of state reserves of precious metals and gemstones in 2012 were set at RUB 9.95 billion (compared to RUB 10.45 billion in 2011).
An official from Finance Ministry explained that the new deal with ALROSA will not require alteration of the budget act, as the total limit of procurement of precious metals and gemstones in 2012 will not exceed RUB 9.95 billion. Within the above limit Gokhran will need to rearrange shares of purchases of gemstones and precious metals, the source told Interfax, adding that Gokhran had significantly reduced gold purchases due to impossibility of advance payments on those transactions – therefore the gold producers preferred selling their products to banks. Gokhran did not either effect large platinum purchases in 2012. Therefore there is an opportunity to expand rough diamond purchases subject to limitation of gold and platinum purchases.
In 2010 and 2011 ALROSA did not conduct sales of rough stock to Gokhran which had previously acquired ALROSA’s diamonds worth $1 billion in 2009 within the scope of governmental support. Although last year ALROSA considered the possibility of rough sales to Gokhran worth up to $300 million, consequently it gave up on this idea amid growing rough prices at the market (the average price of diamonds sold by ALROSA increased by 60% to $196.9 per carat in 2011).
In 2011 the state repository used to acquire rough diamonds from mining companies not affiliated with ALROSA, including OJSC Nizhne-Lenskoye controlled by Yakutia and OJSC Uralalmaz affiliated with Ruiz group of Lev Leviev.
In 2012 ALROSA targeted rough and polished diamond sales at $4.59 billion which represents 3% growth compared to the previous year. This forecast was approved by the company’s Supervisory Board on the meeting dated 26 October, 2012.
The company posted sales of $3.2 billion for the first nine months of 2012. Meanwhile ALROSA’s sales dropped by 32% year-on-year in the third quarter which was associated with decline of both prices and sales volume. ALROSA had projected revival of the diamond market in 4Q, therefore the company has to pursue diamond sales worth about $1.4 billion till the end of 2012.