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By John Helmer, Moscow

A Moscow newspaper claims today to have seen a document confirming that Russia’s diamond-mining monopoly Alrosa is trying to sell a 50% stake in the Lomonosov diamond field to Rio Tinto, the Anglo-Australian mining company based in London. Alrosa is the largest producer of diamonds in the world at present; Rio tinto ranks third, following De Beers. Rio Tinto currently produces from mines in Australia, Canada, and Zimbabwe, with a mine in planning in India.

Vedomosti reports that a deal memorandum and term sheet, prepared by Alrosa management for the Alrosa board, allocates Rio Tinto a 50% less one share in Severalmaz (“Northern Diamond”), which holds the licences for development of the Lomonosov diamond field, in the Arkhangelsk region of northwestern Russia. The sale price is reported to be $250 million, with the additional obligation to invest $135 million to bring output of the mine to 2 million carats per annum by the year 2015. The document reportedly allows Rio Tinto to sell the rough produced at the new mine in proportion to its equity position. The terms of th deal would require Rio Tinto to control the cashflow of the mine through its appointment of a chief financial officer.

Following a controversial privatization to a front company called Soglasiye, Severalmaz was the creation of DeBeers and its Russian partners in the 1990s. But when De Beers judged the rate of return on the mine investment was too low, it sold its stake to Alrosa in May of 2000. The price indicated a valuation of the entire asset of about $100 million. Soglasiye sold out to Alrosa two years later for an undisclosed price. The management of Alrosa then arranged a financing of $150 million in two-year credit linked notes in March of 2004, issued by ING Bank. The purpose was to finance the new mine at Lomonosov, but the expenditure of these funds remains controversial.

In parallel, Alrosa attempted to find a buyer for Severalmaz, offering deals to Beny Steinmetz, Lev Leviev, Indian diamantaires, and major miners like BHP and Rio Tinto. The latter’s spokesman was unavailable today to answer questions, but it is believed that Alrosa leaked the document to accelerate Rio Tinto’s decision on whether to go ahead with the project. A formal commitment by Rio Tinto has not been decided. Alrosa told Polished Prices.com it will not comment on the newspaper report.

It is now almost three years since De Beers attempted to pursue a joint venture with LUKoil to mine the nearby Grib pipe at the Verkhotina tenement. That deal was approved by the Control Commission on Foreign Investment, chaired by Prime Minister Vladimir Putin, in October 2008. However, riders attached to the authorization, which reportedly required local cutting and polishing of the rough to be mined, led to De Beers’s withdrawal from the transaction. Litigation by De Beers and its affiliated company, Archangel Diamond Corporation, against Russian raiders, charging contract violations and fraud, also deterred the foreign investors from risking an investment in Severalmaz. Technical sub-surface mining problems and licensing issues have also served as a deterrent for development of the Lomonosov field.

The new Alrosa chief executive, Fyodor Andreyev, attempted to promote an IPO of Severalmaz, according to a company announcement in January of this year, but there were no takers at the time. In 2005, Rio Tinto made efforts to pursue diamond exploration licences in the nearby Karelian republic, but at the time it was blocked by bid-rigging by Russian rivals.

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