Mining: Russians spoiling for diamond war.

Author:Gordon, Chris

Although De Beers announced record diamond sales in 1995, prospects for this year remain under a cloud until a firm deal can be reached with Russian producers. Talks have already been hit by the Russian elections and mutual suspicion between two of the world's biggest diamond companies.

De Beers announced record rough diamond sales of $4,5315m in 1995. The new trading year has started with negotiations with Russia still in the balance and considerable uncertainty about the outcome. If the Russians carry out their threat "to declare war on De Beers", 1995 could have been their best year for some time to come. Russia currently produces 26% of the world's rough diamonds, and their threats to set up their own 'CSO' would further reduce De Beers share of the diamond market which has already declined from its previous 80%.

The Russian contract, which was due for signing by the end of 1995, was extended for a month during talks in late December, to allow time for negotiations to continue. Mr Nicky Oppenheimer is to lead a delegation to Moscow in January to continue the talks. These have become additionally complicated by the Russia election results which have added another element to the mix.

De Beers had been dealing principally with the mining company Almazy Rossi Sahka (ARS), and a negotiating team representing the various bodies with interests in Russia's diamonds. A new Russian diamond law was expected to increase ARS's negotiating power. The draft law was rejected in the Russian Parliament immediately before De Beer's planned visit, forcing De Beers to delay their trip by a week. De Beers may now have to negotiate directly with Mr Yvgeney Bichykov the politically astute Chairman of Roskomdragmet - the Committee for Gemstones and Precious Metals - probably the most powerful figure in the diamond sector.

Neither side have tabled a public agenda for the talks, but the main sticking point in the negotiations is Russia's 'window,' on the market - the diamonds they can sell in addition to their contract with De Beers. Russia wants to sell at least 20% of their diamonds on the open market; they have a 5% 'window' under the old contract which they got round by selling partly manufactured diamonds in Antwerp. The Russian Parliament decided this was not in breach of their contract with the CSO and in 1995 these sales were valued at $800m.

There is still a 15% quota in operation on sales to the CSO - down from 25% in...

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