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By John Helmer in Moscow

Russia’s state stockpile agency Gokhran has this week released details of next year’s state funding for rough diamond purchases from Alrosa, revealing for the first time the average price per carat that will be paid.

According to a direct Gokran source and to an Interfax briefing by another Gokhran official, Gokhran says the 2010 budget allocates the rouble equivalent of $1 billion for purchase of about 14 million carats. This is an unprecedented public disclosure of the dollar and carat totals, allowing the first-ever calculation that Gokhran is paying, or plans to pay Alrosa, an average of just over $71 per carat.

Reports of this year’s budget spending through Gokhran on Alrosa rough have suggested an outlay of Rb35.4 billion (currently equivalent to $1.17 billion). A clarification from Gokhran this week indicates that Rb32.5 billion ($1.1 billion) was spent on Alrosa rough diamonds, and another Rb2 billion ($66.2 million) on buying polished stones from the state-owned Kristall company at Smolensk. Maxim Shkadov, chief executive of Kristall, has told PolishedPrices that this year’s Gokhran purchases amounted to “about 50% of our production.”

Almost unchanged, the new year’s allocation suggests pessimism on the part of the federal Finance Ministry and its minister, Alexei Kudrin, who chairs the Alrosa Supervisory Board, that commercial sales by Alrosa will recover much beyond this year’s level. The Gokhran official was quoted as saying: “Procurement of diamonds by Gokhran helped keep the decline in production at Alrosa to 8% [carat volume], compared to the previously planned decline of 15%.”

Although legally they are not covered by the state secrets statute, Alrosa refuses to release carat data for production or sales. Nor does it report average realized prices for rough sales. Alrosa’s international rival De Beers also withholds dollar per carat figures for annually reported sales.

Instead, Alrosa gives target production and sales figures expressed in US dollars, and it summarizes sale and revenue results the same way. This conceals the extent to which production of carats at the minehead may have been been cut. Gokhran has now revealed the extent of Alrosa’s mine cutback. 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 has told PolishedPrices.com that he believes the Gokhran buying price has been higher than the depressed world market price.

Commenting on the disclosure of the $71/ct price, Evoyan says this is “a rough average price. Different stones go at different prices, so it is difficult to speak about those very stones that Alrosa is going to sell to Gokhran, but a $60 to $80 spread is quite reasonable. Moreover, this is only the plan at this stage. The definite sum of money allocated for state purchases and the price per carat will be indicated in a classified governmental ruling, which, by law, is to be issued one month after the budget is approved. Sometimes, in actual practice, the secret ruling is issued later. There have been situations when it was issued in June!” Until then, Evoyan said, it is impossible to be precise about the selling price of Alrosa’s stones to Gokhran.

Valery Morozov, chief executive of Ruis Diamonds, Lev Leviev’s Moscow diamond manufacturing plant, said the average price disclosed looks “neither high nor low. Probably Alrosa is going to sell a broad assortment of rough to Gokhran, where prices can vary from $20 per carat to $2,000 per carat, but the average price of the whole lot is going to be around $ 70.”

The budget outlay for Gokhran to buy polished from Kristall next year will be the equivalent of $150 million for an estimated 150,000 carats, making the average price $1,000 per carat.
Next year the budget plan calls for Gokhran to sell both gold and diamonds to finance the procurement plan.

Three auctions of Gokhran specials are tentatively scheduled for 2010, compared to the one held this year in March, and one in July of 2008. This year’s Gokhran auction netted just $4.6 million; last year’s auction, $13.2 million. Two auctions in 2007 realized sales of $30 million and $60 million.

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