Meet ALROSA, the Russian diamond giant that mined 26% of the worlds supply in 2012; De Beers mined 22%. Together, the two account for almost half of the world’s diamond production. The diamond industry, which today can be considered “fragmented” relative to historical standards, was at one point unequivocally driven by De Beers, which single-handedly controlled 85% of the worlds supply in the 1980s. However, starting in the 1950s, diamond discoveries in Russia, Australia, and then Canada eventually halved De Beers market share as new participants chose not to adhere to the monopolistic De Beers model.
In 1954 the first primary diamondiferous kimberlite was discovered in what is now the Sakha Republic of Russia, an autonomous republic in Northeastern Siberia, a couple hundred kilometers south of the Arctic Circle. The following year, two more diamond bearing kimberlites were discovered in the same region, and the first Soviet diamonds were commercially recovered only 2 years later. By the 1960s, Russia had four major diamond mines in production, producing a considerable amount of global supply. Soviet diamonds were characterized as lower quality diamonds than those being mined by De Beers in Africa, although the quantity of diamonds being recovered was much higher.
The high quantity of Soviet diamond production posed a threat to the De Beers cartel, and in 1963 De Beers convinced the USSR to sell through the De Beers distribution company. This arrangement quickly became extremely costly to De Beers as the Soviet mines produced even greater quantity and even lower quality diamonds than initially anticipated. This prompted De Beers to market the lower quality diamonds to a new middle class American market, in an effort to absorb the overwhelming new supply. After nearly 40 years, the Russian’s business relationship with De Beers began deteriorating during the collapse of the USSR in the 1990s, and by the 2000s, European antitrust pressures left the two completely separated, which eventually lead to the restructuring of the De Beers monopolistic model.
[a] The Russian Federation became the USSR's successor state after dissolution of the Soviet Union in 1991
[b] Sakha (Yakutia) is an autonomous republic in Northeast Russia
[c] Nafta Moskva is a private investment company owned by Russian billionaire Suleiman Kerimov
Source: ALROSA, Paul Zimnisky analysis
In 1992 under Boris Yeltsin, the first president of the Russian Federation (the USSR's successor state), the Russian diamond complex was officially established as joint-stock company ALROSA, with an ownership structure including the Russian Federation, the Sakha Republic, and Sakha Republic Regional Administrations. In 2011 ALROSA became an open joint-stock company and a 9% float (only 4% free-float, see figure 1.1) became available for public trading on Moscow’s RTS exchange (now the Moscow Exchange) under the stock symbol ALRS.