Alrosa Sold $384 Million of Rough Diamonds to Gokhran This Year

Russian precious gemstones repository Gokhran bought this year 12 billion rubles ($384 million) worth of rough diamonds from Alrosa, according to Interfax. This is the full amount of money earmarked by Gokhran for purchasing rough diamonds from Alrosa in 2009.

According to the report, the 12 billion rubles include the 3.69 billion rubles ($119 million) per year provided for in Gokhran's annual budget for buying rough and polished diamonds in 2008-2010. Alrosa reportedly sold diamonds worth that amount to Gokhran early in the year.

Gokhran earmarked 14.46 billion rubles ($467.23 million) to purchase rough and cut diamonds from producers in 2009.

With the government’s approval, Gokhran on June 1 allocated an additional 8.4 billion rubles for further purchases from Alrosa. Of this, 7.1 billion rubles were assigned for buying diamonds and another 1.3 billion rubles for VAT. Alrosa used up the extra budget almost immediately, selling to Gokhran diamonds worth 8.4 billion rubles before the end of June.

In November, Alrosa committed to stop selling diamonds to the market. Since then, it made very few sales, hurt not only by the economic weakness, but also by its own high prices. The company also said that it will not slow down production.

With less than $500 million in sales to the market and Gokhran, and continued cash intensive production, Alrosa is believed to be holding on to a very large and expensive stockpile of goods. This has raised concerns in the market that the Russians might lower prices in order to generate quick sales and flood the market with goods, a move that might cause prices to fall. While lower prices are not to the benefit of any producer, including Alrosa, it will help it generate a positive cash flow, something dearly important for a mining company.

A number of companies are eyeing the rest of Gokhran’s diamond procurement budget. A source told Interfax that Nizhne-Lenskoye asked the Gokhran to buy some $20 million worth of goods this year. Severalmaz and Uralalmaz, a member of Lev Leviev's Ruis Diamond group, have also filed a request to sell goods to the repository. Gokhran has not purchased diamonds from any of these companies. The source said Gokhran had a “small amount of funds left” and might buy diamonds from companies other than Alrosa this year.

One company that is understood to benefit from the budget is the country’s largest diamond polisher Kristall. It is expected to sell to Gokhran some 1.96 billion rubles ($62.7 million) worth of polished diamonds this year.