Mineweb reports that Lev Leviev has “devised a plan to consolidate his Russian diamond interests, creating a vertically integrated mining, manufacturing, and retailing group which will be sold to investors in a public shareholding offering. No location has been nominated for the IPO - Moscow, London, or Israel, where Leviev himself and his LID Ltd. group are based.”
Leviev’s Moscow representative, Valery Morozov told “Mineweb” that the Russian assets to be combined include a small alluvial mining concern, Uralalmaz ("Ural Diamond"); Ruis Diamonds, Leviev's Moscow manufacturing plant; Kama Kristall, a smaller cutting plant in Perm; and the Moscow Jewelery Factory, which operates at the same premises as Ruis, and retails from there also. He said, “We wish to become more transparent and clear for investors. In the future we can take the company on to a stock exchange, issue debt paper, or involve bank credits.”
“Mineweb” quotes Morozov as saying that a $300 million asset valuation for the consolidated group "we think too pessimistic".
“Mineweb” says, “Morozov estimates that Uralalmaz produced about 60,000 carats from central Russian regional operations last year, and generated sales revenues of about $30 million. Ruis is currently producing about $300 million worth of polished goods per annum, he said. Kama Kristall, founded in November 1997, was designed to have cutting capacity for 150,000 carats per annum, but actual output has been less than half of that. Local diamonds have been fished out of the streams of the Perm region for several hundred years, but the volume is too small to allow Kama Kristall to operate at capacity. Excess capacity is also a problem at Ruis.
“Leviev first registered Ruis in Moscow in December 1990, when he had three other shareholders - all state entities - producing, stocking, or trading rough. In 1992 Leviev bought out the state shareholdings, replacing them with a Dublin company he controlled called Harvel; Ruis was reregistered in 1993 as a closed joint stock company. Harvel was later replaced by a Rotterdam entity called Meier Vithood Capelle Bv.
“In 1995, De Beers cancelled its sightholder relationship with Leviev, and cut him off from London supplies of rough, alleging that he was submarining Russian rough from Alrosa, or the state stockpiles of Gokhran, on terms De Beers regarded as a violation of its trade agreement with the Russians.
“Ruis claimed to be producing around $50 million worth of polished goods in 1997 and 1998; in 1999 the value climbed to $53 million. Most of the cut stones were exported for resale through Leviev's marketing network in Israel, or elsewhere; the remainder were fabricated into diamond jewellery at Leviev's Moscow works. Leviev then hit the proverbial jackpot - that is to say, a big increase in the rough Alrosa and Gokhran were willing to supply Ruis. In just four years to the end of 2002, its annual value of production jumped to $142 million.
“Since then, Leviev's secretive supply and discount pricing relationships with Alrosa and mine subsidiaries like Diamonds of Annabar; with the federal stockpile agency Gokhran; and with the Sakha regional administration's stockpile have come under pressure.
“Uncertainty and volatility of supply and rough pricing remain key problems for Leviev in Russia, and his Ural mining company has been too small to solve it. Foreign-owned diamond mining companies are prohibited under Russian legislation from controlling a majority stake in domestic mines.
“It is clearly in Leviev's interest to assure his raw material supplies by taking equity stakes in new Sakha mines, or in one of the two diamond projects in the northwestern region of Arkhangelsk - Lomonosov controlled by Alrosa, or Verkhotina controlled by LUKoil. Leviev has made moves in each of these directions, and courted some well-known Russian asset raiders to find a modus operandi to replace the old network of fixers he has lost. So far, however, the moves have not succeeded. If Leviev waits for privatization of Alrosa, he may be waiting a long time. Investors in the proposed new Leviev company will want to understand whether Alrosa's new, federally directed, management, now headed by Sergei Vybornov, will be as accommodating to Leviev as Sakha officials have been in the past; or as Gokhran was, when headed by Leviev ally, Valery Rudakov.
“Underlying the supply difficulty, the political problem for Leviev in Russia is the lack of support he enjoys in the Kremlin, where he had friends and influence until President Vladimir Putin got rid of Alexander Voloshin, the holdover chief of staff after President Boris Yeltsin left office. Suspicion of Leviev's political connections in Israel and the US compound the problem with high Russian officials, who are now watching Alrosa and the Finance Ministry with unusual attention.”
Published by Globes [online], Israel business news - www.globes.co.il - on February 25, 2007
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