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By John Helmer in Moscow

Alrosa’s new management, headed by Fyodor Andreyev (right picture), has announced this month that, despite one of the worst years on record for global diamond demand, the Russian company expects to sell roughly the same dollar value of diamonds this year as last, and to earn a bottom-line profit as well.

The announcements of the projected financial results have been posted by dead-drop on wire services or internet sites. Andreyev has yet to answer direct questions from the industry media since he took over the company in July. His spokesman, Andrei Polyakov, does not respond to calls.

According to a posting on a Sakha government website last week, the Sakha administration, which holds a 32% stake in the wholly state-owned diamond miner, expects an after-tax profit of Rb1.7 billion ($59 million) to be reported at year’s end. Andreyev was cited earlier on a financial website as saying Alrosa plans to sell $2.75 billion worth of diamonds this year. The announcement did not distinguish between rough and polished.

Andreyev reportedly said that the aggregate was roughly equal to the 2008 sales level, and that the state purchase total has amounted to date to Rb35.4 billion ($1.2 billion). The figure corresponds to an undertaking Prime Minister Vladimir Putin gave, when he visited the Sakha republic in late August. At the time, Putin said the state stockpile agency Gokhran would receive between Rb30 billion and Rb35 billion from the federal budget for purchases of diamonds from Alrosa this year.

Alrosa’s annual report for 2008 reported that its diamond sales in 2008 amounted to $2.3 billion, while the value of production was reported as $1.8 billion.

The new numbers differ significantly from those authorized for release by Andreyev in August. On August 22, according to a company statement following a session of of the Alrosa management board, the target for the year was fixed at total production value of $2.1 billion. After-tax profit, according to that release, was projected at Rb454.4 million (($16 million). In the two-month interval between press releases, Alrosa’s profit projection appears to have jumped almost fourfold. The projection for sales revenues for the year also appears to have jumped 31% ahead of the production value.

A press release by Alrosa, issued on October 9, claimed that for the nine months to September 30, “the consolidated core product sales (i.e. rough and polished diamond sales) of ALROSA Group, including its sales to Gokhran of Russia, amounted to $1.34 billion. In September 2009 ALROSA sold $651.5 million worth of rough diamonds. The largest buyer of the goods was the Russian Federation State Depositary of Precious Metals and Gems [Gokhran]”.

A fresh press release from the company, dated October 22, makes another change in the numbers. According to the “revival in demand in the rough market,” the company claims that in the month of October it sold rough for $351 million, of which $255 million were commercial sales, and the balance of $96 million sales to Gokhran. The statement also claims that in the nine month period, “the ALROSA Group sold rough and polished for a total of $1.730 billion, with nearly $1 billion out of that in the third quarter of 2009.”

There is an unexplained difference of $390 million between the company’s two 9-month release figures. The sales figure for October appears to have fallen by $300 million from the sales figure announced for the month of September.

The company does not release carat data for production or sales, nor does it report average realized prices for rough sales. For the time being, Russian Customs do not issue export data for Alrosa shipments for the 9-month period. According to Ararat Evoyan, head of the Russian Association of Diamond Manufacturers, the price paid by Gokhran to Alrosa for rough is a state secret, but he believes that the Gokhran buying price has been higher than the depressed world market price. Evoyan also says he believes Alrosa has sold more stones commercially for export than on the domestic market to local cutters.

A source close to Lev Leviev’s Ruis Diamonds — the largest diamond cutter in Russia after the state-owned Smolensk Kristall — told PolishedPrices.com that “there are some major transactions ahead” that will boost this year’s rough purchasing total, as well as the value of Ruis’s polished output and sales. The source said also the total value of rough bought by Ruis this year was less than last year, and the value of purchases from Alrosa was “considerably less” than in 2008. According to the source, the Leviev enterprise did not buy any Alrosa stones until September.

A source at Gokhran said that state funds have also been spent this year on buying polished from Smolensk Kristall to a value, to date, of Rb2 billion ($69 million). He said that a joint panel of Gokhran and Alrosa valuers reviews the pricing for all transactions. “In most cases,” he told PolishedPrices.com, “Alrosa’s pricing is correct.” In 2010, he said the state budget projects purchasing by Gokhran of diamonds for the same amount as was spent this year.

The implication of the latest target figure from Andreyev is dramatic. This is that commercial sales of diamonds by Alrosa will exceed the state purchases for Gokhran, and are expected to reach $1.6 billion. Who is buying, and at what price, are questions which Alrosa’s new management does not intend to answer for the time being.

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