De Beers beats record

Gem sales to hit pounds 3bn, but marketing deal with Russia breaks down

Diamond giant De Beers will announce record gem sales of nearly $5bn (pounds 3bn) for 1996 on Wednesday.

But hopes of a long-awaited marketing deal with Russia have been dashed by continued political bickering following the re-election of President Boris Yeltsin.

The negotiations, led by De Beers' deputy chairman Nicky Oppenheimer, have stalled while Moscow and the Siberian diamond region of Sakha argue over control of one of the country's biggest foreign exchange earners.

Rough diamond sales would have topped $5bn for the first time in De Beers' 125-year history but for the decision of Argyle, the world's biggest mine, in Australia, to quit its cartel in June.

The move, along with the Russian quagmire and a potential flood of new Canadian gems from 1998, constitutes the latest threat to the South African group's grip on the market.

But the death knell for De Beers' London-based Central Selling Organisation (CSO) has long rung hollow. It still controls two-thirds of the world's uncut diamond sales and, through clever politics and commercial clout, has no intention of relaxing its grip.

"It has been an incredible year. We've broken up with the Australians. In Russia, the jury is still out," a spokesman said.

"The US, the big engine of growth, continues to astound everybody. Asia is an incredibly important market place. We hope we will be in a dominant position well into the future."

Sales this year are expected to climb to $4.9bn from last year's record $4.5bn.

Leaks of Russian gems, which reached $1bn last year, have again started to the tune of $50m per month recently.

Much of that has come from gems destined for Russia's own cutting industry, and De Beers is broadly satisfied that its memorandum of understanding in February is holding until a final deal is signed.

A three-year agreement that will give Russia over a quarter of global sales through the CSO is now expected sometime in 1997. De Beers' Siberian partner Almazy Rossi-Sakha is under investigation by Russian tax police and top officials in Moscow are frequently changing.

Last week, Vladimir Piskunov, the new head of the industry ministry's precious metals and stones section admitted to struggles with the Treasury for control. "It's a battle of opposing sides," he said. "Russia's diamond industry has always been in the hands of several people."