May 4, 2018 / 3:17 PM / a year ago

Russia's Alrosa may buy diamond polisher to support local industry

FILE PHOTO: The logo of Russia's diamond producer Alrosa is seen at its headquarters in Moscow, Russia January 26, 2018. REUTERS/Diana Asonova/File Photo

MOSCOW (Reuters) - Russian diamond miner Alrosa (ALRS.MM) may buy diamond polisher Kristall to support the country’s gem-cutting industry and help create a stronger competitor to global group De Beers.

Russia’s gem-cutting industry is struggling to survive amid increased competition from foreign polishers, after Moscow scrapped a 6.5 percent export duty on rough diamonds in 2016.

Alrosa, which has a monopoly on diamond production in Russia, said on Friday it was “expedient” for it to buy Kristall when the state-owned company is privatized, which is expected by 2019.

Russia’s government and regions also hold 66 percent of Alrosa, which sold 39.6 million carats of mostly of rough diamonds last year.

“De Beers has a strong jewelry brand... (Kristall’s) Smolensk Diamonds is well known on the market, so the deal could be as good as any other step in that direction (of creating a strong global brand),” Nikolai Sosnovsky, an analyst at Prosperity Capital Management, said.

Kristall cuts around 300,000 carats annually and generates revenue of around $200 million.

Alrosa already has a cutting business which made $96.9 million of revenue in 2017. It gave no further information about the potential deal for Kristall.

“For Alrosa it is rather a social obligation to support Kristall and to integrate it into the bigger company”, said Oleg Petropavlovsky, a senior analyst at BCS Global Markets.

Alrosa’s CEO Sergei Ivanov told the Kommersant business daily earlier this year the company should support Kristall as “it has 1,600 jobs and produces a high quality product”.

Reporting by Diana Asonova and Denis Pinchuk; Writing by Denis Pinchuk; Editing by Mark Potter

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