De Beers' Rough New Deal

February 23, 2006

De Beers' Rough New Deal

The European Union made clear again Feb. 22 that it wants the diamond giant, De Beers, to be less aggressive in its outside rough diamond buying practices so there can be more competition in the worldwide rough diamond market.

EU officials stated it intends to fine De Beers to the tune of 10% of its annual turnover should it abandon a deal to phase out independent purchases from the Russian diamond producer Alrosa. Specifically, the EU mandated that buying agreements between De Beers and Alrosa be phased out completely by 2009. The EU first raised major concerns when Alrosa agreed in 2002 it would supply De Beers with $800 million worth of diamonds per year, under a five-year contract.

Following EU action, the agreement now has set limits. In 2006, De Beers will purchase a reported $600 million in rough from the Russian group. Those purchases will be limited to $500 million in 2007, and $400 million in 2008. Purchases of rough from Alrosa by De Beers end in 2009.

Though De Beers remains the controlling force in production and supply of the world's diamonds, its share of that control has dropped from a reported 70% to 50% in less than a decade. Alrosa remains the world's second-largest rough diamond producer.

by Robert Weldon, G.G.

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