Common sense tells us that the only way to increase the value of
diamonds is to make them scarce, that is to reduce production.
I know, treading dangerously close to a little alliteration.
From the FT's beyondbrics blog:
Russia’s Alrosa: an investor’s best friend?
Alrosa might be considered the king of diamonds. It is the world’s largest rough diamond producer by volume, with almost 1bn carats of resources.
It’s certainly the king of privatisations, as far as 2013 is concerned. A stake of 16 per cent stake in the company was sold for $1.3bn in an IPO on Monday, making it Russia’s first state privatistion of the year.
The Russian government and the regional government of Yakutia each contributed 7 per cent to the IPO, with a further 2 per cent from the company itself.
Russia also plans to sell off significant stakes in various companies, including Russian Railways and the airline Aeroflot by 2016 as part of its long-term privatisation strategy. Plans to sell part of oil giant Rosneft have been shelved. So the flotation of Alrosa will attract attention – and not just because of the traditionally closed nature of the diamond industry.
Investors will be relieved by the low price. The pricing of Rb35 ($1.10) per share is at the lower end of the company’s initially suggested price range of Rb35-38 per share. The company is also cheap in comparison to its peers. According to a note from Gazprombank:
We estimate [2014 entreprise value/Ebitda] during the placement at 4.9x versus the average of 6.2x for diamond producers, 6.0x for global diversified miners and 11.5x for luxury goods manufacturers.The sale has consequently been oversubscribed by $400m. US investors including asset management group Lazard is thought to buy up to three fifths of the offered stake, Reuters reported....MORE
