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. Last Updated: 07/27/2016

De Beers Inks Diamond Deal With Moscow

LONDON -- De Beers and Russia, the world's two biggest diamond producers, Friday reached a three-year deal under which the South African group will be the sole and exclusive buyer of all Russian rough diamond exports.

De Beers and Russia said they had signed a memorandum of understanding which will be expanded into a formal three-year contract. It will replace the agreement which expired on Dec. 31.

"The memorandum recognizes and takes full account of the requirements of the important Russian cutting industry. It also provides for De Beers' position as the sole and exclusive buyer of all rough diamond exports," De Beers and the Russian government said in a joint statement.

Under the previous, five-year deal Russia was obliged to sell 95 percent of its rough diamonds through De Beers' London-based Central Selling Organization, or CSO.

"De Beers and Russia have signed a great deal. I take my hat off, I am satisfied," said Leonid Gurevich, in charge of diamonds at Russia's State Precious Metals and Stones Committee.

"I was a great opponent of the old agreement with De Beers. But now I can say I am deeply satisfied," he added.

Gurevich said de Beers and Russia, which he said had been on the brink of halting the talks early Friday without signing a deal, both recognised the need for stability on the world diamond market and had sacrificed a lot to preserve it.

"We could have halted the talks in the morning. But De Beers has made several compromises since then, recognizing its responsibility," Gurevich said.

"Russia bought the right to develop its diamond cutting industry, paying for it with exclusive rights to buy Russian exports and scrapping the whole process of cutting Russian stones abroad," he said. "This is not little."

Now, every diamond that crosses the border is bought by De Beers -- we had to accept it," Gurevich said.

In the last couple of years the previous deal between the CSO and Russia proved to be fairly ineffective as large quantities of small Russian diamonds leaked on to the market outside the terms of the CSO contract.

It was a situation the CSO -- which handles about 75 percent of worldwide rough diamond sales -- was keen to remedy in any new deal.

Industry analysts had feared a period of great price instability if Russia and De Beers would fail to reach an agreement.

Gurevich gave no details on provisions for gem cutting within Russia, saying the figures were still confidential.

"One of the most important things about the agreement is that Russia and De Beers both recognize their responsibility for the future of the market. It makes us partners, it makes us compromise," he said.

Gurevich said Russia's giving in on exporting rough diamonds for cutting and polishing them abroad was an important step, boosting the image of De Beers' London-based Central Selling Organization as the main market watchdog.

"We could not risk the stability of the market as we could not risk Russia's profits from the diamond business."