Company DigestCompaniesLast updated: 27 March 2024

ALROSA and the Finance Ministry Sign a 2024 Diamond Buyout Agreement as the Gokhran Purchases the First Lot

ALROSA (ПАО «АЛРОСА») and the Russian Finance Ministry have signed an agreement on the buyout of part of the diamond rough produced in 2024, and in March the Gokhran (Гохран) state fund purchased the first lot of diamonds from the company, covering the entire cut of output, with similar deals to follow regularly through the year, sources familiar with the situation said. The Gokhran is acting within its 2024 budget limit of 51.5 billion rubles for purchases of precious metals and stones, whereas previously the fund bought $100-200 million of rough a year. The deal is described as one of the instruments of support for the company during the sanctions; the precedent is 2009, when the Gokhran bought roughly $1 billion of ALROSA diamonds as an anti-crisis measure.

Diamonds under inspection on a sorting tray

An agreement on buying out part of the 2024 output

MOSCOW, March 27, 2024 — ALROSA (ПАО «АЛРОСА») and the Russian Finance Ministry have concluded an agreement on the buyout of part of the diamond rough produced in 2024, two sources familiar with the situation said. In March the Gokhran (Гохран) purchased the first lot of diamonds from ALROSA, covering the entire cut of output; similar deals are to take place regularly this year. The value of the transaction is not specified: the Gokhran is acting within its 2024 budget limit of 51.5 billion rubles for purchases of precious metals and stones. Corporate announcements, results materials and media information of the company are published on its website at https://www.alrosa.ru/.

The first lot: the entire cut of output and regular deals

The March transaction is the first under the agreement and, according to sources familiar with the situation, sets the format of work for the whole year. The key parameters known so far are as follows:

the Gokhran purchased the first lot of ALROSA diamonds, covering the entire cut of output;
similar deals are to take place regularly through 2024;
the value of the transaction is not specified: the Gokhran acts within its 2024 budget limit of 51.5 billion rubles for purchases of precious metals and stones;
previously the Gokhran bought $100-200 million of rough a year, while the current deals are of a larger scale.

The 2009 precedent and the logic of support during the sanctions

The current agreement is comparable to the anti-crisis measure of 2009: when diamond sales stopped, the Gokhran bought roughly $1 billion of ALROSA diamonds. A source familiar with the situation explained the role of the current deals as follows: "Right now this is one of the instruments of support during the sanctions. It will allow ALROSA to partially compensate for the lost revenues caused by the current chaos in the industry, brought about by the ban on Russian stones."

What is known about the limit and the history of buyout discussions

the Gokhran's 2024 purchase limit of 51.5 billion rubles may be increased by legislation;
in the first half of 2020 a buyout of ALROSA output worth $500 million to $1.7 billion was considered: the deal was agreed but ultimately not needed;
Sergei Ivanov (Сергей Иванов) noted at the time that the sale price to the Gokhran would have been below the market.

Sanctions backdrop: Antwerp, the G7 and the September 1 requirements

The agreement was concluded against the backdrop of sanctions pressure on the diamond market. Market participants are proving the non-Russian origin of rough, and sorting for the G7 countries is conducted at the single control node in Antwerp, which has created problems with payments and logistics. More than 100 Antwerp dealers sent an appeal over the difficulties, and from September 1 additional requirements for tracing the origin of stones take effect. The sequence of events stands as follows:

market participants prove the non-Russian origin of rough;
sorting for the G7 runs through the single control node in Antwerp, with problems in payments and logistics;
more than 100 Antwerp dealers send an appeal;
from September 1, additional requirements for tracing the origin of stones apply.

The Finance Ministry's January 2024 position: support "not under consideration for now"

In January 2024, Deputy Finance Minister Alexei Moiseyev (Алексей Моисеев) said that state support for ALROSA was "not under consideration for now". "So far there are no signs that it will be needed. The company has a colossal margin of safety, it has negative net debt, and with a large margin at that," he said. The March agreement on buying out part of the rough became a practical form of response to the situation in the industry described by sources familiar with the situation.