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Alrosa Mulls Buying Manufacturer Kristall

Cutting firm is Russia’s largest polished producer.
May 6, 2018 6:21 AM   By Rapaport News
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Alrosa is considering acquiring Kristall Smolensk Diamonds, Russia’s largest manufacturer of polished goods.

The miner’s supervisory board deemed the potential deal “expedient” after examining it on April 28, it told Rapaport News Sunday.

“Alrosa…sees that such an acquisition, under certain conditions, can give synergy,” a spokesperson for the rough producer said. “In particular, [its] cutting-and-polishing business will help Alrosa to better understand trends in the diamond market.”

The deal would also enable Alrosa to increase its polished production, especially of larger stones, the company added. Those categories are more viable for manufacturing in Russia, given the relatively high operational costs that make cutting smaller stones infeasible.

State-owned Kristall is expected to switch to private ownership by 2019, according to a Reuters report Friday. The miner would only make a final decision on whether to buy Kristall once the cutting firm’s shareholders have determined how the privatization should occur, and how much the company should sell for, Alrosa noted. The miner — which is also partly owned by the government — must then assess whether this price is worth paying, it said.

Kristall, which is based in the Russian city of Smolensk, sources some of its rough diamonds from Alrosa, as a member of the miner’s Alrosa Alliance, and is a De Beers accredited buyer. It cuts about 300,000 carats every year, and generates annual revenue of about $200 million, Reuters said. That makes it more than twice the size of Alrosa’s polished division, which recorded sales of $96.9 million in 2017.

“The possible acquisition does not mean a fundamental change in the company’s strategy,” Alrosa commented. “The bulk of Alrosa’s revenue is received, and will continue to be received, from rough diamonds.”

A deal would lend support to Russia’s struggling cutting industry, while also creating a potential competitor to De Beers in the downstream sector, according to Reuters. The nation’s diamond-manufacturing trade is suffering from increased foreign competition after the country abolished a 6.5% export duty on rough diamonds in 2016, the news service continued.

Alrosa’s supervisory board has instructed Sergey Ivanov, the miner’s president, to submit a strategy for developing its cutting business — including decisions related to Kristall — by December, Russian press agency Tass reported.

Kristall did not immediately respond to a request for comment outside of working hours Sunday.

Image: Kristall polishing factory
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Tags: Alrosa, Alrosa Alliance, cutting, De Beers, downstream, Kristall, Kristall Smolensk, Kristall Smolensk Diamonds, Manufacturing, polished, Polished Diamonds, Rapaport News, Smolensk
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