Alrosa May Win Deal to Supply Faberge

LONDON — Private equity fund Pallinghurst Resources is seeking a deal for its Faberge luxury goods brand to market gems from state diamond producer Alrosa, a top Pallinghurst official said Friday.

Pallinghurst partner Sean Gilbertson said the firm saw a big opportunity since Alrosa must stop selling diamonds through top-ranking De Beers because of a European Union anti-monopoly deal.

"We think there's a unique opportunity to take Russian diamonds from Alrosa and help them with this marketing problem by creating a range of Faberge Russian diamonds and at a stroke creating one of the most powerful diamond brands in the world."

It was premature to comment on any talks with Alrosa or how the project was progressing, he added.

De Beers, which sold $600 million of Alrosa diamonds in 2006, has been phasing out Alrosa sales and is due to completely stop marketing by 2009. De Beers is 45 percent owned by mining group Anglo American.

The move is part of Pallinghurst's plans to burnish the Faberge brand it bought from consumer goods group Unilever, which had used it mainly for cosmetics.

Faberge will return to its Russian roots and put out its first collection of art objects and jewelry next year, Gilbertson said.

Another leg of Faberge's new business model will be to market branded colored gemstones, like emeralds and rubies, a sector that has been largely ignored by major mining firms and luxury-goods groups.

Faberge hopes to bring the same marketing and production prowess to colored gemstones that De Beers gave to diamonds, Gilbertson said.

"It's an overlooked sector … but if you look in the glossy magazines … or walk up and down [London's] Bond Street, you will have seen a marked increase over the last three to four years in the use of colored gemstones."

Pallinghurst is in the process of finalizing a reverse takeover of London-listed Gemfields Resources, which will be the vehicle for its gemstones strategy.

The group's Kagem emerald mine in Zambia has already tripled output since new management was put in place late last year, and Gemfields aims to have a leading 15 to 20 percent market share in the emerald market by the end of 2008.

All Faberge gems will have a tiny laser inscription with the brand and mine to appeal to consumers worried that some so-called black market "blood diamonds" have fueled violence and civil wars.

Pallinghurst, along with four partners, has around $1 billion to invest in mining projects and plans to raise up to $500 million more to build up assets in two other areas — platinum, and products used for steel production, such as iron ore, manganese, chrome and coking coal.

Pallinghurst itself raised $170 million through a Bermuda listing and plans to raise at least that much with a second listing in South Africa, Gilbertson said.

"There will be a further inward listing on the Johannesburg stock exchange in the third quarter to raise additional funds for the some of the projects we're expanding into."

Pallinghurst's four partners, each of which have injected $200 million, are South Korea's Posco, the world's fourth-largest steelmaker by output, South African investment bank Investec, privately held American Metals & Coal International and U.S. private equity fund NGP Midstream & Resources.

One additional partner might join the consortium, he added.

Pallinghurst has recently taken a 19.9 percent stake in Australian iron ore exploration firm Jupiter Mines, just under the threshold at which a full takeover bid for the firm is required. "There will be further developments there in the coming weeks," Gilbertson said.