JOHANNESBURG (Business Day) -- Global gold producer Anglo American's [LSE:AAL] share price strengthened yesterday after a senior European Union (EU) court overturned last year's European Commission ban on Anglo subsidiary De Beers selling diamonds for Russian miner Alrosa.
Anglo American, which owns 45% of De Beers, had gained 1.3%, or 600 cents, to R459 (US$65.66) on the JSE by midday.
The court of first instance, the EU’s second-highest court, said it considered "the complete prohibition of all commercial relations between the two parties with effect from 2009 is manifestly disproportionate."
The ruling followed an appeal by Alrosa after the commission effectively banned De Beers from buying diamonds from Alrosa from 2009 onwards because of antitrust concerns. The commission said its ruling would create more competition in the supply of rough diamonds.
But Alrosa argued in the Court of First Instance it would be forced to look on while its competitors could sell to De Beers.
Alrosa mines about a quarter of the world’s rough diamonds, and De Beers mines almost half.
Last year, De Beers' Diamond Trading Company sold $6.15 billion in diamonds, down from $6.5 billion in 2005, reflecting reduced purchases from Alrosa. De Beers planned originally to buy $800 million in diamonds a year from Alrosa, about half of Alrosa's production, but after the EU ruling it agreed to phase these out gradually to $600 million this year, $400 million next year and zero in 2009.
A De Beers spokesman said the group needed to "analyse the statement from the court of first instance in detail to assess the impact, if any, on our business. It’s too early to comment any further at this stage."
Reuters reported the commission said it would study the ruling carefully.
The EU's top court, to which the commission could appeal, is the European court of justice, also in Luxembourg.
A diamond analyst, who asked not to be named, said the fact that the court of first instance was the EU's second-highest court meant it was too early to claim victory. If the court's ruling were upheld, it would be “mildly positive” for De Beers as it would give it access to some high quality Russian gems.
But the bottom line was De Beers did not make much profit from selling Russian stones, he said. It used to make a 10% margin but that had been squeezed lower. A bigger, and lesser-known issue, was the fact that De Beers' profit from selling Botswana’s production was squeezed lower to about 7% from 10%, he said.
The loss of three percentage points on a sales value of about $2.5 billion was far more significant.
