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By John Helmer in Moscow

The state diamond stockpile agency, Gokhran, will not be purchasing as many Alrosa rough diamonds this year as had been expected and budgeted for, according to a brief statement by the Gokhran head, Vladimir Rybkin. But before Gokhran sells any of its new stocks, Rybkin said the state agency will have to re-value the Alrosa rough.

He told the Moscow-based industry journal, Rough&Polished, that the Rb30 billion ($1 billion) sum budgeted for 2010 is unlikely to be spent, but some state purchasing and stockpiling of rough will continue. According to Rybkin, Alrosa will not be able to do without Gokhran entirely. “I think that this year the company will not yet be able to do [without state stockpiling], though probably it will not need the whole amount of help envisaged for it – about 30 billion roubles.”

Asked if Gokhran plans to sell out of its stocks this year, Rybkin said no. “Gokhran is not an independent participant of the diamond market, and our task is to fill in the national budget to the extent established by the decisions of the Russian Federation Government. As for diamonds bought in 2008-2009, we shall not sell them during this or the following year. It is a great amount since we never bought in such quantities, and we have to do a long work to sort and evaluate them. They will probably reach the market in 2012 or 2013.”

The statement implies that the pricing of Alrosa’s sales to Gokhran during the crisis period was done without the sorting and valuing that will allow a current market assessment. Asked about the value of the current diamond stockpile, Rybkin said “the stocks held by Gokhran are a state secret and this information cannot be published, but it is possible to say that in the past three years they increased approximately by 30 billion roubles. Indeed, because we bought the diamonds at prices which existed on the market in the painful period, since then their value has increased. If we consider the result based on the total of two years (2008-2009) the growth is just a bit less than 5%. But the essence of those transactions was not to obtain profit but to support ALROSA.”

Ararat Evoyan, head of the Russian Diamond Manufacturers Association, told PolishedPrices.com: “The amount of diamonds in Gokhran is a state secret. I think that even Gokhran’s own employees don’t know the real figure. If someone tells you he knows that, don’t trust that person.” Evoyan explained how he believes last year’s Alrosa diamond sales to Gokhran were arranged: “Certainly before selling the diamonds, Alrosa sorts and checks them. Before putting the diamonds on the inventory list of the state fund, Gokhran has to carry out acceptance of the diamonds they bought; this is a compulsory procedure. So they check the diamonds once again. Alrosa and Gokhran have together developed procedures of how they sort and value the stones; it’s their own business. If Alrosa has little time, Gokhran does all the necessary checks themselves.”

But Evoyan believes that for resale to the market, “a big amount of diamonds hasn’t been sorted or valued.” He estimates that, before last year’s additions to stockpile, what remained in Gokhran was “very large and very small size diamonds”.

Evoyan predicts that Alrosa may be able to avoid sales to Gokhran this year. “Currently it is a lot more convenient to sell diamonds on the market rather than to Gokhran. The market doesn’t examine the diamonds too carefully, and there are companies ready to buy at higher prices. Also, Alrosa has contracts, and they are more likely to stick to the contracts rather than selling to the state. So I believe Alrosa can do without Gokhran at all this year”.

In his forward assessment of the market for diamonds, Rybkin said: “I hope that starting already from the second half of this year its upward movement will become irreversible and by the beginning of 2012 diamond prices will be established at the 2007 level.”

A Russian source familiar with the valuing operations of Alrosa and Gokhran explains that “the process of sorting and evaluating the stones is normal practice for Gokhran, just like for DeBeers. They bought very large amounts from Alrosa; those amounts were formed into lots, which contained a very wide variety of stones of different size and quality, and the price was called for these lots, not for single stones. Now Gokhran will sort the stones again, and form new lots aimed at particular buyers. This is a very common practice. Diamonds are not evaluated like gold — the price can vary depending on the selection of stones in a particular lot.”

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