(Adds Alrosa’s comment in paragraphs 5-6)
MOSCOW, Jan 21 (Reuters) – The government of Russia’s Yakutia region, a major shareholder in diamond producer Alrosa , has proposed that precious metals and gems repository Gokhran buy $0.5-$1 billion of the firm’s rough diamonds this year, Interfax news agency reported.
The proposal was made to President Vladimir Putin and Russia’s finance ministry, which is responsible for Gokhran within the government, Interfax quoted Aysen Nikolaev, the head of Yakutia region, as saying on Tuesday.
Diamond miners are battling falling demand, as well as competition from diamonds manufactured in laboratories.
Alrosa is the world’s largest producer of rough diamonds in carat terms. Together with Anglo American’s De Beers unit, it produces about half of the world’s rough diamonds.
The company said in a statement to Reuters that such a sale would only be undertaken if the market situation deteriorates significantly. The company remains profitable and fully able to meet its social obligations, it said.
“Based on the results of the Christmas retail season, we see signs of a revival of demand in the main market and a decrease in midstream stocks,” Alrosa added.
Nikolaev, also first deputy chairman of Alrosa’s board of directors, said in an interview with Interfax that “there are different options – from $500 million to $1 billion”. “Any option suits us,” he added.
“Perhaps, it makes sense (for Alrosa) not to sell them for several years before demand recovers, but to sell them to Gokhran, as was done in the late 2000s,” Nikolaev said.
Gokhran bought diamonds worth $1 billion from Alrosa, which is 33% held by Yakutia and its regions, during years of weak demand caused by the global financial crisis in 2008-2009.
If approved by the finance ministry and the government, the proposal would require a sharp increase in Gokhran’s current 2020 budget for purchases, as it is limited to 10.5 billion roubles ($170 million).
The Yakutia region, Alrosa’s management and the finance ministry have agreed to review the idea in detail after Alrosa’s first-half sales, Nikolaev said.
($1 = 61.7800 roubles) (Reporting by Polina Devitt; editing by Polina Ivanova, David Evans and Jan Harvey)