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By John Helmer, Moscow

Alrosa, Russia’s near-monopoly diamond miner, is for the third year running the world’s largest diamond miner.

The good news appears in a brief summary report issued by the company this week. Production by Alrosa in the six months to June 30, this year, comes to 19 million carats. That compares with 15.5 million carats attributed from De Beers; 5.2 million carats from Rio Tinto; and just 1.1 million carats from BHP Billiton. De Beers managed to stay even with its mine result for the same period in 2010, but Rio Tinto and BHP Billiton are reporting that their mine results are dwindling. On the face of it, Alrosa is not only producing 8% more diamonds by volume this year, compared to 2010; it is also widening its lead over its international rivals.

In selling its diamonds so far this year, Alrosa is reporting more good news.

The company explains that a year ago, it sold more stones at a lower diamond price, including inventory of diamonds which had been stockpiled in late 2008 and through 2009, during the global crash in diamond demand. So sale revenues in the first half of 2010 turned out to be Rb53.6 billion (equivalent to $1.76 billion, according to the Central Bank average exchange rate for the period). This year, sale revenues have come to Rb52.4 billion, a decline of 2% in rouble terms. Alrosa doesn’t publish its conversion rate for the latest six-month period, but it is bound to be about Rb29 to the US dollar. That makes the first-half sale revenues equivalent to $1.81 billion – up 3%.

Counting details like this doesn’t make a great deal of difference to understanding what Alrosa says it is doing. But the cost line in the latest report does. Here’s the table:

Alrosa claims that it is mining more diamonds but doing so at 25% less cost of operations and sales compared to last year. That’s a stirling performance by management and miners, so how does the company explain it?

Here is the last published account by Alrosa of its principal costs, prepared in a prospectus written by JP Morgan, UBS and VTB Capital for the issue of $1 billion in debt notes in October of 2010. The table suggests that because wages, salaries and staff costs comprise by far the biggest share of Alrosa’s cost line, the dramatic cost savings this year may be due to wage or pension cuts.

CEO Fyodor Andreyev (left image) was asked to explain. He refuses.

Andreyev was also asked to explain another of this week’s performance indicators. In line with rising diamond prices recorded worldwide, Alrosa reports that in the first half it averaged $113 per carat sold. According to this chart, that compares very favourably with $80 per carat in the same period of 2010.

But these result numbers don’t match those you get if you divide Alrosa’s reported sales revenues for the first half by the 19.1 million carats reported sold. This is what these calculations look like:

The trend remains the same, but the counting produces quite different results.

How does Alrosa explain the difference, Andreyev was asked. He refused to reply.

The only other official release from Alrosa this week is the announcement that on July 26 the shareholders representing the federal government, the Sakha region government, and the Sakha districts voted to elect a new chairman of the Supervisory Board to replace the Finance Minister, Alexei Kudrin; he has stepped down after being ordered to by a presidential decree of April 2. The new chairman is Ilya Yuzhanov (image centre). Yuzhanov, an economist from St. Petersburg, has been a St. Petersburg, then a federal government official for most of his career. He was a director of the state electricity utility, and a federal minister in charge of land policy, as well as anti-monopoly enforcement. He serves on the boards of Polymetal, the goldminer, and Uralkali, the potash miner, the former controlled by Alexander Nesis, the latter by Suleiman Kerimov; as well as on the board of Nomos Bank, another Nesis enterprise. Yuzhanov also works for Deutsche Bank as one of its managing directors for Russian business. In Alrosa’s October 2010 prospectus there is no sign that Deutsche Bank has loaned Alrosa any money.

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