By John Helmer in Moscow

An attempt by lenders to Alrosa to increase charges for a $350 million one-year syndicated loan has triggered recriminations between the banks in the syndicate, and a categorical denial by Alrosa that it has agreed to pay more.

Morgan Stanley heads the syndicate, which also includes Bayerische Landesbank (BayernLB) and WestLB. BayernLB has recently reported heavy writedowns from exposure to high-risk derivatives in the US market. WestLB says it has been less directly affected, in part because it sold its risky securities portfolios to a special purpose vehicle, thereby ring-fencing the profit of the main bank.

BayernLB is one of the weakest of the German banks exposed to the current financial crisis; it reported this week that it will have “negative earnings before taxes of around EUR 1 billion for the third quarter”. The losses will grow in the fourth quarter, the bank has admitted.


By John Helmer in Moscow

The share price of Archangel Diamond Corporation (ADC) collapsed yesterday as a company statement acknowledged that its fund-raising of $174.4 million to restart the Grib pipe mining project, in northwest Russia, will be returned to shareholders.

ADC issued its statement after had reported that delays in issuing project approvals by the Russian government had violated last Friday’s October 17 deadline for implementation of the funding commitment.

The text, issued from ADC’s Toronto office, said: “With respect to the US$172.4 million private placement of Subscription Receipts described in the Corporation’s news release dated June 24, 2008, Archangel announces that the Escrow Release Conditions as defined in the Subscription Receipt Agreement dated June 24, 2008 between the Corporation and Computershare Trust Company of Canada (“Computershare”) were not satisfied by 4.00 pm Toronto time on October 17, 2008. The Corporation was unsuccessful in obtaining an extension, consequently each Subscription Receiptholder’s escrowed funds, plus any accrued interest earned thereon, will be repaid pro rata to each such holder by Computershare in accordance with the terms and conditions of the Subscription Receipt Agreement.”


By John Helmer in Moscow

Mining entrepreneur Mike Nunn says First African Diamonds, a company he owns, was illegally expropriated, and that he is taking the DRC government to arbitration in Geneva.

President Joseph Kabila’s review and reorganization of controversial diamond-mining licences and concessions in the Democratic Republic of Congo (DRC) apparently took a new direction this past week, with approval of a Russian proposal to develop the Sengamines project. Until April of this year, this has been under the control of South African mining entrepreneur Mike Nunn and First African Diamonds Ltd. (FAD), a company he owns.

Nunn has told Mineweb that FAD was illegally expropriated, and he is taking the DRC government to arbitration in Geneva.

Alrosa says that it has agreed to start diamond prospecting in the DRC, at Kabila’s request. But Alrosa sources say that details of the undertaking, and of a meeting Alrosa chief executive Sergei Vybornov had last week with Kabila, should be kept secret. It is Vybornov’s second meeting with Kabila this year; the first occurred, with comparably little disclosure, in March.


By John Helmer in Moscow

On most indicators the first full financial report issued since Sergei Vybornov took command of Alrosa in February 2007 indicates modest retreat.

Sales totalled Rb90.7 billion; converted to US dollars at the December 31, 2007, rate, this is equivalent to $3.7 billion. The result marks a 4% decline in Alrosa revenues, compared to 2006.

Cost of sales diminished slightly to Rb51.4 billion ($2.1 billion), and royalty payments were cut in half to Rb4.8 billion ($196 million).
Net profit was Rb16.2 billion ($659 million), a drop of 6% compared with 2006.

Operating profit, before increased financing costs and income tax were taken, amounted to Rb24.4 billion ($995 million). This trailed the result for 2006 by just Rb109 million ($4.4 million).


By John Helmer in Moscow

Announcement from ADC suggests there is more value in the Grib pipe than De Beers report calculates.

Archangel Diamond Corporation (ADC), the Toronto-listed junior diamond miner, headed by De Beers lawyer Jonathan Dickman, has trapped itself in an awkward contradiction over the value of its Russian asset, the Grib pipe in Arkhangelsk region. The contradiction also appears to have been relevant to share trading in mid-May, when nearly a million ADC shares exchanged hands, causing a sharp drop in the price.

On April 29, the day after Toronto Stock Exchange trading in ADC shares recommenced after a six months suspension, ADC was reported as telling Street Wire “the company would begin technical work that would lead to what amounts to a feasibility study by 2010. A production decision would follow the expected favourable result, with engagement of contractors and the start of construction beginning early next decade” (emphasis added).

If ADC was expecting a favourable result on April 29, it did not appear to be thinking so on April 8, when the NI 43-101 Technical Report, prepared by De Beers analysts Johan Ferreira and WEolf Skublak, signed off on their Net Present Valuation of the project, along with estimates of the diamond value in the Grib pipe, if mined to the 1,000-metre level.


By John Helmer in Moscow

De Beers report heightens geotechnical and political challenges in Archangel diamond mining project.

To adapt the old saw, a great many fresh girls are going to be obliged to make diamonds their best friends before Grib, Russia’s newest, and possibly largest, diamond pipe, can make enough profit to justify digging.

Located in Arkhangelsk region, one thousand kilometres northwest of Moscow, Grib was discovered in 1996; it is the largest kimberlite pipe newly found in Russia. Developed initially by Archangel Diamond Corporation (ADC), a De Beers-controlled company, it was the target of a 10-year hostile takeover by Vagit Alekperov and Alisher Usmanov, who between them control substantial Russian oil, iron-ore and steel assets. De Beers sued for recovery in Sweden and damages in the US.

With LUKoil, Alekperov’s oil company, which wholly owns the local licence-holder for Grib, Arkhagelskgeoldobycha (AGD), De Beers and ADC signed an out of court settlement a month ago. This provides for a staged development plan for the new mine, starting with a down-payment of $100 million from De Beers and ADC, once the new project framework has been approved.


By John Helmer in Moscow

New Russian diamond mine is bigger and better.

Blind Man’s Buff is a game which, in King Henry the Eighth’s time, was played by men at court to grope for ladies.These days it entertains children to hide from the blindfolded one, who plays “it”, and must catchwhoever he can, until no-one is left in the game.

It isn’t customary for respectable stock exchanges to play games with blindfolded shareholders. Nor is it lawful for the management and proprietors of listed companies to treat their minorities as “it”.

As details emerge of the deal that was signed early this week for the world’s largest new diamond mine — the Verkhotina project in northwestern Russia — the terms of the transaction warn of two possible disputes over the equity in the asset. One is whether the Kremlin will agree to the shareholding split, allowing De Beers a 49.99% stake in the project, through its affiliate Archangel Diamond Corporation (ADC); and LUKoil, a 50.01% stake, through its wholly owned subsidiary, Arkhangelskgeoldobycha (AGD).


By John Helmer in Moscow

LUKoil ends raid against Archangel Diamond’s Russian project, opening up new mine possibility.

Grib is Russian for mushroom, and this isn’t the season for harvesting them. Grib is also the name of a diamond pipe, first discovered in northwestern Russia in 1996 — and the target of a Russian raid ever since.Until yesterday, that is.

According to an overnight announcement from De Beers in London, Nicky Oppenheimer has signed an agreement with Vagit Alekperov, chief executive and controlling shareholder of LUKoil, to end a decade of dispute and litigation over the fate of the Grib pipe, at the Verkhotina prospect, in Arkhangelsk region, in Russia’s northwest.

The signing was blessed at a brief meeting which Oppenheimer and Alekperov had with President Vladimir Putin on Tuesday in Moscow. LUKoil confirmed the meeting with Putin, but the Kremlin is saying nothing. How little or how much Putin meant, by way of endorsement of the proposed new diamond mine remains to be seen.

Oppenheimer told Alekperov at yesterday’s ceremonies that De Beers has bought assets in Russia in the past, but has no experience of developing and operating a mine in Russia. He and Alekperov appear to agree that, for the time being, neither has decided how the Grib pipe will be mined, and with whom.


By John Helmer in Moscow

Underground mine costs are pushing Alrosa towards diamond prospects in southwestern Africa

Back in the good old friendly days,one thing was always understood by the senior executives and mine engineers of De Beers and Alrosa, the world’s diamond mining leaders. Alrosa faced serious risks and incalculable costs in trying to mine underground, as its open-pit operations at Mirny and Udachny reached exhaustion.

From the De Beers point of view at the time, that meant that Alrosa’s annual production of rough diamonds was facing inevitable decline — and with that, its global market challenge to De Beers itself.

Alrosa’s annual report for 2006 showed what was happening. Udachny, supplying 35% of Alrosa’s total carat output, had suffered a 13% decline over the prior two years (measured in dollar value, because carat data are not released). Offsetting the decline at the Udachny open-pit operation, the new Nyurba mine grew 29% in value, while Mirny,where underground mining had started, gained 28%. Gain overall, however, was less than 8%, and rising dollar prices for diamonds in the period masked the trouble carat volumes were facing.

Sincedecline remained an unpleasant prospect, Alrosa’s planners and prospectors argued, it stood to reason that it might be cheaper for the company to try to find new diamond pipes in Russia — starting, naturally, in Alrosa’s backyard, Yakutia (Sakha), and in Arkhangelsk, on the western side of Russia.


By John Helmer in Moscow

A mysterious and protracted investigation by the Toronto Stock Exchange and Ontario market regulators of De Beers-owned Archangel Diamond Corporation (ADC) is being kept secret on the apparent legal advice of Robert Shirriff. A Canadian Queen’s Counsel since 1972, and partner in the law firm of Fasken Martineau DuMoulin, Shirriff is a director of the Ontario Securities Commission. Shirriff is also a director of Archangel Diamond Corporation (ADC), and of several other De Beers companies in Canada — De Beers Canada Holdings, De Beers Canada, and Diapros Canada.

Trading in ADC shares — ticker AAD — was suspended by the Toronto exchange on November 9. Three months have now passed, but the stock remains in suspension — without explanation from ADC or De Beers; and without a report of the investigation initiated by Canadian regulators.

The Toronto-listed ADC hit its trading low of 35 cents last year on October 31. As the Bloomberg chart shows, on or about November 1, someone started buying, and the share price rocketed upward by 43%:


By John Helmer in Moscow

De Beers, NM Rothschild hold secret talks which could result in the release of Russian diamond asset

How long must the clock tick before disclosure delayed turns into news concealed, and insider trading?

Speculators on the share value of Toronto-listed Archangel Diamond Corporation (ADC) — ticker AAD — thought they knew enough to start buying shares of the company after it reached a year-low of 35 cents (Canadian) on October 31. As the Bloomberg chart shows, on or about November 1, someone started buying, and the share price rocketed upward by 43%: Bloomberg ticker.

Trading in ADC has been so rare, and the share so illiquid, that the Bloomberg charts show the speculative jump has occurred on just four transactions, totaling just 29,200 shares. The biggest of the trades, dwarfing all others for the past six months, was 19,000. Unlike the earlier big trades on record, this one was a purchase, not a sale. The amount of money involved was paltry, but the motive serious.


By John Helmer in Moscow

Russian diamond cutters face shutdown of operations or domestic supplies if VAT tax waiver is abolished on January 1.

Alrosa, Russia’s dominant supplier of rough, has sent a notice to domestic diamond cutters, warning that from January 1, it will add 18% value-added tax (VAT) to its rough diamond pricing. The diamond cutters have told Mineweb that, while they understand the move as a cost-cutting expedient for Alrosa, the impact will be ruinous for the low-margin manufacturers. They have asked Alrosa to reconsider, and delay the move for another twelve months, in order to allow time for the government to be persuaded to send a zero-tax amendment to tax legislation for enactment by parliament.

There is suspicion that Alrosa’s move is aimed at reducing the presence in Russia of foreign cutting enterprises, and boosting Alrosa’s cutting plants at their expense. At present, Alrosa reports that its own polished sales amount to about $160 million per annum. This trails well behind sector leader, Smolensk Kristall, which is state owned, and reports sales of $358 million in 2006; and Ruis Diamonds, which is controlled by Lev Leviev, and sells over $220 million in polished. According to one of Moscow’s leading cutters, “I wouldn’t say that Alrosa is making this move intentionally to destroy the remainder of the Russian cutting industry, but this [VAT] decision would be a catastrophe.”


By John Helmer in Moscow

Israelis claim Russian identity to announce Angolan diamond mine venture.

That Russian mining companies have deep pockets and Kremlin clout is a handle that has been tried on South African gold bugs and the Canadian venture investor market with modest and shortlived effect. But it is unheard-of for a group of Israelis engaged in the telephone and internet business to portray themselves in Angola as Russian diamond-miners, especially when the leading Israeli diamantaire in Angola appears not to have heard of them either.

Notwithstanding, Tomer Peirce was welcomed when he stepped off his aircraft at Luanda airport recently; according to the Angolan News Agency, Peirce had gone to Angola for the Russian Diamonds Company. It was reported that he and his company are negotiating terms of participation in a new Angolan diamond venture called the Mualengue project.


By John Helmer in Moscow

At the Antwerp diamond conference Alrosa and De Beers switch positions on value of diamond beneficiation.

Diamond-miners are wolves; diamond-cutters are sheep.

At least that’s the way it has usually appeared to the governments of countries fortunate enough to supervise lucrative mineable diamond deposits. Expressed in terms of the diamond supply pipeline, the mark-up in value of diamond mine sales, compared to the costs of production at the minehead, can be a wolfish 500%. By contrast, the mark-up in value of the polished, which cutters realize in relation to the cost of the rough they buy, can be a sheepish 25%.


By John Helmer in Moscow

Russian diamond manufacturers have reacted critically towards Alrosa chief executive, Sergei Vybornov, attacking key proposals he made at last week’s Antwerp Diamond Conference.

Vybornov ousted Alexander Nichiporuk from the top spot at Alrosa in February. But after a string of misstatements drew fire from domestic policymakers, he has limited his appearances, and declined requests for public interviews.

Last week, at the Antwerp Diamond Conference, Vybornov took aim at African governments for establishing domestic diamond cutting centres and local beneficiation to add profitability to diamond mining.


By John Helmer in Moscow

De Beers’s arsenal resists Usmanov attack on the Grib pipe and the Arsenal pitch.

A public relations blitz under way this month in London and the UK media has produced charges and counter-charges involving Alisher Usmanov, an iron-ore and steel magnate. He is accused of conspiring with other Russians to defraud a De Beers-affiliated company of its 40% stake in, and several hundred millions of dollars in future profits from, the only major diamond deposit newly discovered in northwestern Russia.

Usmanov has had run-ins with the London press before. The first time, in 2003 and 2004, was when he started buying shares of the then Anglo-Dutch steelmaker Corus, and was rebuffed by the Corus board, which went on to sell itself to Tata of India. Usmanov found his champion at the time at the Financial Times. He also pocketed a substantial profit from the rise in the Corus share price.


By John Helmer in Moscow

A public relations blitz under way in London and the UK media has produced charges and counter-charges involving Alisher Usmanov, an iron-ore and steel magnate, who was named in US court papers as one of the principal defendants in the affair of the Grib pipe, a major diamond deposit in northwestern Russia.

The allegations against Usmanov, and his campaign to rebut them, follow his acquisition of a bloc of shares in the Arsenal Football Club, and his attempt to buy more shares, and possible control of the club from other shareholders.


By John Helmer in Moscow

A pledge to privatize Alrosa in an initial public offering (IPO) within 18 months, reported to have come from Alrosa chief executive Sergei Vybornov this week in Japan, has run into scepticism and cautions from diamond sector officials in Moscow.

According to a Russian news agency report, Vybornov told a Japanese investment conference in Osaka: “In the nearest future, I mean within a year or a year and a half, we are planning an IPO.”

Asked to confirm that Vybornov was correctly reported, his office in Moscow said it was under instructions not to comment.


By John Helmer in Moscow

Alrosa is retrieving its diamond market positions after initial misstatements by new CEO

Alrosa, the Russian diamond miner with the largest share of the global rough diamonds market after De Beers, is reconsidering its international market strategy, and correcting several misstatements by its newly appointed chief executive, Sergei Vybornov.

Veteran international representative for Alrosa, Sergei Uhlin, announced in Amsterdam last week that the company has no intention of withdrawing its European Court of Justice case against a ruling by the European Commission to cancel Alrosa’s diamond trade with De Beers at the end of next year. Uhlin added that, not only is Alrosa confident of winning its appeal; but that if it wins, and the EC trade order is revoked, Alrosa will not necessarily decide to renew its trade with De Beers. “We are challenging our rights in principle, regardless of what we’re going to do,” Uhlin is quoted as saying. A spokesman for the company told Mineweb that Uhlin’s remarks have been correctly reported, and reflect company strategy.


By John Helmer in Moscow

One of the greatest of the English humourists, writing under the pen-name of Saki, once opened a tale of a disastrous horse-ride with the observation that one of the characters “was looking about as pale as a beetroot that has suddenly heard bad news”.

To aficionadoes of Saki, the wit is hilarious; but to the literal-minded, doubts arise – beetroots are purple, not pale; vegetables can’t hear bad news.

On the immediate occasion of last week’s ceremonial visit to Moscow of De Beers’ chief executive, Gareth Penny, not a word has been issued on the occasion by De Beers. Releases from the federal Ministry of Natural Resources, the Sakha regional administration, and Alrosa all confirm Penny’s passage. He met Mining Minister Yury Trutnev (not for the first time); Sakha President Vyacheslav Shtirov (not for the first time); and Alrosa’s new chief executive, Sergei Vybornov (debut). He also talked to with the Russian diamond sector’s supervisor, Finance Minister Alexei Kudrin, according to his ministry.

Why De Beers has been silent isn’t known, although there might be some apprehensive reddening on Charterhouse Street, if Penny could hear what the Russian diamond sector has been thinking in his wake. Like Saki’s beetroot, however, Penny can’t hear the bad news. (more…)


In the most famous words ever addressed to a gemstone ring, the Princess Elizabeth greeted news of the death of her rival, Queen Mary, with the words: “This is the Lord’s doing. It is marvellous in our eyes.” Alrosa officials said almost as much last week — without the hyperbole, but increasingly conscious of the rivalry with De Beers.

Alrosa is now well on the way to becoming the dominant state-controlled multi-mineral mining company in Russia, according to its board chairman, federal Finance Minister Alexei Kudrin. He and chief executive Alexander Nichiporuk presented reports to a meeting of the company’s workforce last week. Their speeches have been released on the company website.
According to Nichiporuk, sales by Alrosa of domestically mined diamonds, including polished goods, hit a record last year of $2.86 billion, up 15% on 2004. Adding the results of sales of Alrosa’s share of the Catoca mine in Angola, total revenues reached over $3.1 billion. Aggregate profit was RM5.1 billion, or about $540 million, Nichiporuk noted.

In what was evidently a challenge to the global position of De Beers — soon to lose purchase of Alrosa’s rough exports, as well as access to new mining projects in Russia — Nichiporuk noted that “the share of ALROSA in the world market has grown from 18 % up to 25 %.”

For comparison, De Beers’s financial results for last year included $6.54 billion in revenues for rough diamond sales, more than double Alrosa’s total; after-tax earnings for De Beers were $824 million. At $2.4 billion, De Beers’s debt appears to be rising, and to be greater than Alrosa’s, which is about $1.6 billion, and shrinking.

Nichiporuk conceded that there had been substantial increases in the cost of mine production last year. “The most serious influence on the end results of our common work,” he said, was the growth of costs at the ore-processing combines. What Nichiporuk described as “general production charges” grew more than twofold. This year, he added, the company hopes to cut costs by 5% overall.

Alrosa does not release carat volume data for its mines, or in the aggregate. Nichiporuk claimed that mine production overall grew by 4.2% to $2.3 billion in 2005. He broke this total down into a value of output for each of Alrosa’s mines: Udachny, $861 million (38%); Nyurba, $529 million (23%); Mirny, $481 million (21% of total);Aikhal, $348 million (15%); and Anabar, $41 million (2%).

Both Nichiporuk and Kudrin emphasized Alrosa’s growing reach, from diamonds into oil, gas, possibly coal, and gold; out of the Sakha region of eastern Russia into northwestern Arkhangelsk region, and in Angola.”Alrosa is a company of strategic importance,” Kudrin said, “not only because the major decisions concerning it are accepted by the President of Russia. Long-term plans of the state for the accelerated natural resource development of Siberia and the Far East provide direct involvement of the Company.” Alrosa’s reach for new diamond and other mineable resources in both Sakha and Arkhangelsk leaves next to no room in Russia for De Beers. In southern Africa, Alrosa is already decidedly better positioned in Angola than De Beers to garner a growing stream of rough.

Kudrin and Nichiporuk also announced that they expect the transfer of capital from Sakha to the federal government will be completed by year’s end, giving Moscow 50% plus one share; the Sakha administration 40%. Corporate restructuring of De Beers by Anglo American is anticipated, but has yet to begin.


MOSCOW ( – If Israeli diamantaire Lev Leviev and trade mediator Arkady Gaydamak buy football clubs, as they have recently done, the Roman Empire rule of thumb would be that the businesses of the two men are running into difficulty.

English tabloid readers have been told that Roman Abramovich — the Russian oligarch who accumulated roughly $20 billion milking his oil, aluminium, and gold assets, and then selling them – invented the idea of establishing personal character, institutional respectability, and political asylum by buying the Chelsea Football Club, and pushing it to the top of its league with expensive acquisitions. But Abramovich, who has made up for lack of ideas of his own with very swift fingers, was not the first.

In modern football history, it was a Greek named George Koskotas, house painter by trade, who deserves the credit for the idea that, if your asset acquisitions are in doubt, buy a football team, and let the team’s winning streak deflect suspicion of its owner; and deter investigations of how he came by the cash that, according to the fans, is the key to the club’s success. Koskotas bought his Athens football club after taking over, and looting the Bank of Crete. He was subsequently to discover that football success and media popularity weren’t protection enough from prosecution by the then Socialist government of Greece, led by Andreas Papandreou. An attempt to flee Greece for asylum in the United States, and a deal with US officials to accuse Papandreou of corruption, was foiled when the FBI arrested Koskotas on landing. Ultimately, he was transferred from a US prison to a Greek prison to serve a lengthy sentence for fraud.

But the Koskotas ploy had a much longer, Roman precedent. Almost two thousand years earlier, it was well-known that the more corrupt the consuls, or aspiring caesars, were in business, and the more ruthless in politics, the more extravagant were the Coliseum games they organized for the Roman public. Just the business of supplying exotic animals for parading and killing made fortunes that tied purveyors and shippers all over the empire to the imperial candidates in Rome. The multi-million dollar purchases of footballers from Africa or South America, and their agents, duplicate this antique trade, the rationale for which is something more potent than public entertainment, and also riskier. The problem the Roman consuls quickly ran into was that the rapid cost inflation of their games triggered a cycle of worsening corruption, taxation and criminality which became very unentertaining, indeed.

Football club investment, with its insurance and player purchase schemes that link media rights and related revenues to winning games, is a pyramid scheme, in which the day will inevitably come when winning turns into losing, and debts become unpayable. Getting out of the game before that happens is usually unpopular, but it’s a knack Abramovich may have to learn.

Until he does, the English prime minister Tony Blair isn’t the man Prime Minister Papandreou was; and it remains to be seen if the official investigation now under way into football finance will shake the high-level protection Abramovich’s cash flow receives in the UK. Whether Arkady Gaydamak, father of Alexander Gaydamak, the new purchaser of Portsmouth Football Club, receives similar protection remains to be seen.

Before the Portsmouth deal, Gaydamak senior had acquired Beitar Jerusalem, a football club, and Hapoel Jerusalem, a basketball club. Leviev has bought Hapoel Tel Aviv, a football club. Their gamble is limited to Israel, where the only one of the two reported to be under investigation is Gaydamak. He has said he is innocent of money laundering, and also of other allegations, reported in European jurisdictions, related to his past dealings in Angola and France.

Both Leviev and Gaydamak have enjoyed better relations with the Russian government in the past than they do today – Leviev to assure rough diamond supplies to his cutting factories, and Gaydamak to earn commissions on Soviet debt, arms, and oil trading. Leviev has steadily lost ground in the past three years, as men he was close to exited from the government; and as federal officials began a crackdown on the leakage of rough diamonds from Airosa to favoured buyers.

A scheme, with which Leviev is thought to have been associated, to help accumulate stocks of Russian rough in Israel, and encourage Israeli influence to improve US policy towards Russia, reappears from time to time, at least in the imaginations of Israeli politicians and diamantaires. The latest version, suggested by Israelis close to Ehud Olmert, a prime minister in waiting, is that if the Kremlin would agree to a big increase in Alrosa’s deliveries to Israel, Olmert will neutralize President Vladimir Putin’s opponents from the Yukos oil empire, who have found refuge, and public platform, in Israel – Leonid Nevziin, Mikhail Brudno, and others. The Kremlin has heard this all before (when the target list included ex-oligarch Vladimir Gusinsky), and has no reason to believe it.

Leviev, on the other hand, senses the opportunity of capturing more Russian rough, as De Beers’s share dwindles to nothing; and ultimately, perhaps, of positioning himself to capture equity in Airosa, if, after the federal restructuring now under way, the Kremlin decides to privatize a sizeable stake. So far, however, he’s failed to develop the diamond-mining business he promised to start in the Urals two years ago; he has not drawn more Airosa rough into the domestic cutting industry, let alone his own Ruis plant; and he has no obvious friends left in the Airosa export establishment. These shortcomings are not as ignominious and comprehensive as those which Leviev’s Israeli rival, Beny Steinmetz, has suffered in Russia.

What exactly the Kremlin can achieve with Airosa in the last two years of President Putin’s term depends on how successful Putin himself was in frightening Sakha boss Vyacheslav Shtirov into subservience, when they met on January 6. For the time being, this is very much an internal affair, and neither Leviev nor any of the other major Israeli diamantaires is likely to be able to capitalize in the short term. In the longer term, the government is likely to make sure that Alrosa’s marketing strategy allows noone to corner the bulk of the trade, in order to rig a sub-market price or build buffer stocks abroad, and no-one to replace De Beers.

Gaydamak’s return to Russia has so far failed to produce notable success, either in the Angolan or Congolese diamond schemes he has proposed to Airosa, and to the government ministers who sit on its board. He has thoroughly failed to reestablish himself in the debt trading markets, in which he had undoubted success almost a decade ago. It is a sign of how weak he feels himself to be that Gaydamak thought to ingratiate himself with the Kremlin, and promote himself, by recently buying the Moskovsky Novosti (Moscow News) media group, which has been a bastion of anti-Putin sentiment, funded by the Yukos group. Now, under Gaydamak, it is nothing at all.

Buying media was the Russian oligarchs’ initial target to enhance their reputations and promote their agendas. Football clubs were not. The reason was that in the Soviet Union, sports clubs, especially football and ice hockey, had always been part of the social outlays of the great state and city-forming enterprises. When these were privatized, the oligarchs who acquired them saw the clubs as a negative balance-sheet item – at least until Abramovich gave them a different idea. Now men like aluminium oligarch Oleg Deripaska are keen supporters of the football teams around his plants, and also in the southern region that may be his political base in future – the Kuban.

Buying newspapers is not a gamble like football clubs because the former always lose money. It is a mark of Leviev’s shrewdness that he has not lost money in Russia on either. He is acutely sensitive, however, of what is published about him, and will telephone proprietors personally to remind them of their obligations, when he is offended. Gaydamak has been threatening in a similar fashion. They are about to learn that such tactics do npt avail them much, if their objective is to inspire the teams they put their money on to win public trust.


MOSCOW ( — It was a year ago when the President of the Sakha republic in fareastem Siberia, Vyacheslav Shtirov, was summoned to :the Kremlin for a meeting with President Vladimir Putin. That was not a jolly exchange of seasonal cheer; and because certain New Year promises that were made then have not been kept, Putin is considering flying east to drop down Shtirov’s chimney for Christmas.

Actually, according to the Russian tradition, Dyed Moroz (“Father Frost”, aka Saint Nicholas, Santa Claus) uses the front-door when he makes his annual visit to children, as he is always accompanied by Snegourochka (“Snow Girl”). It can happen that she is late. Then Dyed Moroz is obliged to ask the children to call out aloud to summon her. Those who can shout the loudest are motivated by the idea of catching the old duffer’s attention, and if they are lucky, first pick at his bag of Christmas rewards. Once Snegourochka arrives, Dyed Moroz reviews who has been on his best behaviour for the past year. Asked who has been naughty, the children naturally scream their noes, and again, those who cry loudest hope to be rewarded first and best.

Putin is less impressed by no-screaming. Recently, Shtirov launched a local political initiative, gathering signatures of Sakha residents who say they want Shtirov to be appointed by Putin to a new term in office. Shtirov’s first term expires in 2006. He had been elected as the Kremlin’s candidate to replace the republic’s godfather, Mikhail Nikolaev, after the latter crossed Putin by trying to arrange local support to run for a third term, which wasn’t altogether legal at the time, and worse – it wasn’t what the Kremlin wanted.

For more than a decade, Nikolaev had arranged with former President Boris Yeltsin that, in return for supporting him against parliament, throwing the region behind him on presidential election day, and sharing such diamond revenues as Yeltsin needed or wanted, Nikolaev could run the republic, and manage its assets exactly as he saw fit. Since Sakha’s principal assets are its diamond-mines, and the cashflow of Alrosa – the largest producer of diamonds in the world after De Beers – Nikolaev naturally saw to it that his trusties controlled the company. Shtirov was one of them – first a republic administrator, then prime minister in Yakutsk, and finally chief executive of Alrosa.

Putin did not suffer from Yeltsin’s political insecurities. Believing he was safer if he put an end to these regional satrapies, and retrieved control of the cash that gave the satraps their power, he ordered Nikolaev to give up the presidency, and seated him, with a conditional immunity from prosecution, in the Federation Council, the upper chamber of the federal parliament. Shtirov was told he was to vacate his seat at Alrosa, and become Nikolaev’s successor as president of the republic. But there was a condition. Shtirov was to understand that he was the federal government’s custodian of the diamond assets, and that he was to return them to federal government control.

Shtirov is a bigger, burlier man than Nikolaev. But what he lacks in the agility of his former patron, he makes up for in stubbornness. As the years of his term have rolled towards its conclusion, Shtirov has done as little as possible to divest the republic’s asset, and return them to Moscow’s charge. He is also much tougher than the man Putin put officially in charge of the return of assets – Finance Minister Alexei Kudrin.

When Shtirov used to take the De Beers management out on fishing expeditions, he would always surprise with his fisherman’s good humour.Kudrin is about as charming as the fish. A protege of Anatoly Chubais from St.Petersburg, he rose through federal government ranks with the skills of a chartered accountant, and, by comparison with Chubais, Mikhail Kasyanov, and other predecessors at the federal treasury, slower fingers. Putin thought he could trust Kudrin to take charge of Sakha, Alrosa, and the diamond cash. But in the contest between Kudrin’s fingers and Shtirov’s feet, it is the latter which have been winning.

Kudrin has pressed Shtirov to sign one protocol of obligations after another, returning assets Nikolaev had squirreled away from Moscow’s control, in order to add them to the capital of Alrosa, and the federal revenue base. Shtirov has procrastinated with his signature, and then dug in his heels against implementation. The federal shareholding in Alrosa should already have reached 51%, according to the plans drafted by Kudrin’s subordinates in the federal Finance Ministry. But even as chairman of the Alrosa board, clearly out¬ranking Shtirov, Kudrin hasn’t been able to extract compliance from Shtirov, or the transfer of the assets.

In fact, Kudrin’s desk is now so stacked with orders from his superiors that he cannot discharge, he too is in danger of receiving a visit from an unwelcome visitor down his chimney. The failure of both Shtirov and Kudrin to bring the $2 billion annual revenue of Alrosa under the Kremlin control Putin wants would already have been the end of them, if $2 billion in diamond revenues could match the size of the sums Russia’s principal mineable resources currently fetch. Shtirov has thought that the sum was small enough to be overlooked, while he played his waiting-game.

A year ago, on December 28, 2004, Putin gave Shtirov his marching orders. After a proposed meeting of the two men in the Kremlin was recently called off, sources close to Putin indicate that he’s prepared to spend Orthodox Christmas in Sakha. According to Shtirov’s office in Yakutsk, and Nikolaev’s office in Moscow, there is no information about this possibility, and no confirmation that it will happen.

The Kremlin pressure continues to build up on Alrosa, and for Alexander Nichiporuk, the first chief executive of the company appointed by Moscow, not by Yakutsk, this is a severe testing time. For if Shtirov can defy the Kremlin, and Kudrin proves too weak to implement his orders, how can Nichiporuk pilot the company into next year’s enormous challenges?

Last week, at the traditional end-of-year press conference at Alrosa headquarters in Moscow, Nichiporuk did the best he could to emphasize the positive. Alrosa and its affiliated companies have lifted the value of their production this year by 17% to reach Rb72 billion ($2.5 billion). Cost of production rose slightly less fast at 15% to Rb53 billion ($1.8 billion), and profit after tax was Rb14.9 billion ($520 million). Total investment for 2005 was Rb14 billion ($486 million). This is to be cut to Rb12.3 billion for 2006.

Among the positives in addition to the balance-sheet, Nichiporuk cited the completion of the company’s social investment plan; expansion of diamond exploration in both western Sakha and northwestern Russia; and the launching of new ore-processing plants at Alrosa’s mining operations in Angola.

If he was discreet about the internal troubles brewing at home, Nichiporuk was forthright about the unprecedented external pressure Alrosa is facing on its export marketing system. He confirmed that the European Commission (EC) in Brussels has proposed a total ban on diamond trading between Alrosa and De Beers, to start in 2009. He added, however, that this is still to be negotiated, and is far from decided. “The idea is to cancel trading between the two named companies to create competition and avoid monopolization,” Nichiporuk acknowledged, after spokesmen for the EC have tried denying what the EC has formally communicated to both Alrosa and De Beers. “The background is that, even if one company [Alrosa] is not under EU jurisdiction and another [De Beers’s Diamond Trading Company] only by half, since the trading is happening on EU territory, the [EU] can apply the rules.” Referring to the changeover this year of commissioners and staffs at the EC headquarters in Brussels, Nichiporuk added: “We had a good understanding with the previous commissioner on that issue, and no discussions with the new one.”

At this point, the unprecedented attempt by the EC to order the two companies, the two largest producers of diamonds in the world, to cease trading with one another at the end of 2008, has produced no comment from De Beers, and no stated willingness by either side to threaten a legal challenge to the ban in court. In 2005, according to Nichiporuk, Alrosa has supplied $680 million worth of rough to the DTC, representing 45% of total export value. He said that the value of exports allowed by Alrosa’s multi-year export quota is 20% higher than actual value shipped this year.

In 2004, Alrosa warned that an EC decision forcing “an overly rapid or extensive reduction or termination of our sales to De Beers could have an adverse impact on our sales.” Negotiators for Alrosa and De Beers are now discussing in Brussels, not only the cut-off and the deadline, but also the value for trade allowable in the years that remain before the cutoff takes effect. The trade agreement between Alrosa and De Beers, which the EC is reviewing, was signed at the end of 2001 and anticipated five years of sales at an average of $800 million per annum. Internal pressure among Alrosa’s senior management, and from the federal government, to break out of these terms has curtailed this level of annual shipments by roughly 15% since the signing. If the EC goes ahead with the trade ban, the current value of shipments to De Beers may decline to $600 million in 2006, and then around $500 million per annum in 2007 and 2008. By then, roughly 25% of Alrosa’s rough production, or less, would go to De Beers. What has been an effort-free trading partnership for the Nikolaev-Shtirov regime is now a major management challenge for the federal managers. The deadlines imposed by the EC are naturally increasing the impatience Nichiporuk and the Kremlin feel towards Shtirov’s attempts to prevent the reorganization of shareholding control.

According to Nichiporuk, forward planning by the company anticipates the total elimination of annual diamond export quotas, issued by the federal government and signed by the Kremlin, which have caused repeated delays in shipment of rough from the new Nyurba mine in Yakutia. In addition, Nichiporuk said, the company plans to allocate up to 65% of its rough output each year to a stable list of sightholders, and the remainder to auctions and tender sales. Independent selling outlets will be multiplied, adding Israel and Dubai to the one already in operation in Antwerp. With international demand for rough expected to remain high, and supply short for the foreseeable future, Alrosa should be able to create an effective, independent marketing system in the time that is left. Putin, however, is unwilling to cede the benefits of the new scheme to the old gang in Yakutsk.

Nichiporuk must therefore demonstrate fresh loyalty, and imagination, onshore and abroad.


MOSCOW ( –Two things are known for certain about the conversation President Vladimir Putin had with Sakha region president Vyacheslav Shtirov in the Kremlin, at the end of December.

One is that Shtirov invited Putin to come to the region for fishing. The other is that Putin replied that now is not the time.

Maybe this was nothing but small talk; maybe Putin was thinking meteorologically of the region where the average daily temperature these days is minus-40 Celsius. . But whether there was a symbolic warning for Shtirov in Putin’s remark, no-one knows for sure. But time is certainly beginning to tell, and the clock is not ticking in Shtirov’s favour.

Alrosa, the world’s largest diamond-miner after De Beers, is now undergoing a revolutionary transformation at every level of its operations. This is being directed by the Kremlin, which has ordered federal ministries in Moscow to introduce new methods of supervision and control of the company. Shtirov has been told to stop delaying or obstructing this process with his fish tales. If he does not, he has been warned that Putin may oust him from power altogether.

Yury lonov, a KGB officer, was put in charge many months ago of the company’s legal affairs and cashflow security. Then a federal government appointee, Alexander Nichiporuk, was introduced to management, first as deputy CEO; in November, he was officially promoted to be the chief executive.

Through these two officials, as well as with external auditors and inspectors, the federal authorities have also begun a crackdown on Alrosa’s trading practices and marketing channels. Among the targets, they have aimed at the system of exports through the Sakha regional Committee for Precious Metals and Gemstones; Alrosa’s mining affiliates; and near-bankrupt diamond cutting establishments in Sakha and elsewhere, which Alrosa has kept supplied with diamonds. Preferential allocations of rough diamonds to favoured diamond-buyers, discounts, unrepaid credits, unusual service fees, and offshore banking schemes have all been exposed to federal inspection. If not for the first time, these schemes have been identified as multi-million dollar lossmakers, or worse.

In parallel, the federal authorities have been contemplating their own options to reorganize the unusual shareholding structure at Alrosa. This was created by a secret decree of President Boris Yeltsin in 1993, when he was desperate to secure the favour of regional governors, like Sakha president and Alrosa godfather, Mikhail Nikolaev. This decree, and others Yeltsin issued to award state property in the Sakha region to his satraps, have never been submitted to parliament for enactment, and in their existing form they may be unlawful. Abrogating the Alrosa charter, however, may undermine most of the state property transfers in the Sakha republic, including goldmines, coalmines, and oil prospects.

In its orginal form, Alrosa is a closed shareholding company, whose shares cannot be bought and sold, except between existing shareholders. These were the federal government, with an initial 32-percent bloc; the Sakha government with a similarly sized stake; the districts of the Sakha republic with 8 percent; a military veterans fund with 5 percent; and the balance held by individual company managers and workers.

Although the closed shareholding rule appears to be clear, there has been more than one loophole in the corporate charter, and these have encouraged both speculators and takeover schemers, hoping to capitalize on what they see as Alrosa’s eventual privatization by the state. The first of these schemes to be nipped in the bud was an attempt by a private entrepreneur to buy the 5-percent stake in Alrosa assigned to a military veterans organization. Instead, this shareholding was returned to the federal government, moving its stake up to 37-percent. With that, Shtirov’s place as chairman of Alrosa’s board of directors — technically called the Supervisory Board, since the company lacks a conventional open shareholding structure – was replaced by a federal government official, Finance Minister Alexei Kudrin.

Kudrin, however, has been easy for Shtirov to lull into a false sense of security; and to redirect away from the challenges to federal authority which Kudrin had been instructed by the Kremlin to counteract. While Kudrin looked askance, a trade began in Alrosa shares that has substantially cut the stake belonging to workers and managers.

To evade the closed shareholding rule, companies have been created with shares that have been gifted, rather than sold. Once established as shareholders, these companies can then legally buy other Alrosa shares. Through devices like this, for example, Renaissance Capital, a Moscow investment bank, has acquired an estimated 3-percent stake in Alrosa, paying between Rb4,000 to Rb5,000 per share (US$143-$179). Whether the institution was buying for its own account, or on behalf of other investors, is not known.

The Alrosa management is reluctant to discuss what has been happening to its shareholding. One very good reason is that the federal government has decided to accelerate its takeover of the majority stake in the company, and while it has yet to decide how to manage this, one option is to dilute the minorities. Instead of holding a stake estimated to be worth $150 million –assuming Alrosa’s capitalization is calculated at $5 billion — the 3 percent held by Renaissance Capital could thus be worth little more than was paid for it. The remaining workers and managers may find themselves comparably dispossessed, or with a much smaller premium than they had been anticipating. For them, it would thus be preferable that, if anyone is to lose money in the reorganization, it should be Shtirov’s administration and the Sakha regional government.

It was on account of the stakes involved in this process that documents were leaked a few days ago in the Russian press. These indicate some of the options which the federal authorities are currently considering for the reorganization of Alrosa’s shares. Most importantly, they indicate whom the leakers prefer to suffer the value loss, rather than themselves, when the Alrosa shares are surrendered to Moscow. For example, there was r\o reference in the press leak to dilution of the management and workers, or to the free floating shareholders.

Instead, documents were cited that indicate the possibility of converting Sakha regional property to federal government property, and adding to Alrosa’s capital the value of the royalty and rental payments this property can generate. Depending on what estimate is used for Alrosa’s capitalization – they range from $2 billion to $6 billion – this option could generate up to another billion dollars in capital value for the federal government’s share in the company.

A fight over this billion between Sakha and Moscow, between Shtirov and Putin, can be delayed. But there can be no doubt about the outcome. Putin’s recent message to Shtirov was that he has delayed for long enough.

It is also in the interests of the international diamond-mining community that Alrosa’s rustlers are rounded up, and the assets corralled as quickly as possible under federal authority. Once that is done, it will be much simpler for the Kremlin to decide how and when to privatize Alrosa’s shares. That is the payoff that investors like Renaissance Capital, or that miners like De Beers and BHP Billiton have been waiting for.


According to the Russian Christmas Day tradition, Dyed Moroz (“Father Frost”, aka St. Nicholas, Santa Claus) makes his annual visit to children to question them, before he distributes the presents. He is assisted by Snegourochka (“Snow Girl”).

It can happen that she is late. Then Dyed Moroz is obliged to ask the children to call out aloud to summon her. Those who can shout the loudest are motivated by the idea of catching the old man’s attention, and if they are lucky, first pick at his rewards. Once Snegourochka arrives, Dyed Moroz reviews who has been on his best behaviour for the past year. Asked who has been naughty, the children naturally scream their noes, and again, those who cry loudest hope to be rewarded first and best.

In Russia, it’s always been tough to deserve a reward. That’s possibly why Vyacheslav Shtirov, President of the Sakha republic and godfather of Alrosa, Russia’s dominant diamond miner — the second largest producer of diamonds in the world — is not looking forward to his interview with President Vladimir Putin. Shtirov has been summoned to the Kremlin meeting on January 28.

The last time Shtirov was summoned, Shtirov took Putin a large bouquet of red roses. The discussion was a sanguine one. Shtirov was told that he was to vacate the presidency of Alrosa, and become the president of the regional republic, replacing the two-term incumbent, Mikhail Nikolaev who was threatening to defy the electoral law, as well as the Kremlin, and offer himself for a third term. Nikolaev had been the boss of the republic since the Soviet Union had been demolished, and he had run it as a personal fiefdom by arrangement with President Boris Yeltsin in Moscow. The quid pro quo for Nikolaev was that he rigged the local vote for Yeltsin whenever that was required, and provided diamonds on demand too.

Putin offered Nikolaev immunity from prosecution with a senatorial seat on the Federation Council. Shtirov was told the fiefdom would be his on condition he shared the running with the federal authorities, led by the Finance Ministry, which is the federal agency responsible for the diamond industry; it sits on the board of directors of Alrosa, supervising the state’s 37-percent shareholding; and it runs the Gokhran, the agency in charge of the state’s stockpiles of diamonds and precious metals. However, the federal authorities have been unable to capture control of the system of exports which together, Nikolaev and Shtirov had elaborated through the regional Committee for Precious Metals and Gemstones; Alrosa mining affiliates; and near-bankrupt diamond cutting establishments in Sakha and elsewhere, which Alrosa kept on a short leash.

Knowing the Finance Minister, Alexei Kudrin, to be an obliging man, Shtirov was confident that he could control both the republic, and its principal cashcow Alrosa, much as he had done during his term as the company’s chief executive. And indeed, Kudrin has proved to be almost as obliging to his Sakha diamond constituents as he learned to be, when he was the factotum of Anatoly Chubais, Yeltsin’s Finance Minister, chief of staff, and dispenser of favours.

Putin and his Kremlin aides have proved to be tougher. They, rather than Kudrin, have been giving the orders to the mineral extraction business, starting with oil and gas, moving on to nickel, platinum, aluminium, and gold. Slowly but surely, they have been taking charge of Alrosa for the federal government. Colonel Yury Ionov was put in charge of the company’s legal affairs and cashflow security. Alexander Nichiporuk was placed as deputy CEO, and last month, he was officially promoted to be the chief executive.

Now that Putin has the new legal authority to appoint the regional governors, the interview with Shtirov is bound to focus on Putin’s intention for the future of Sakha; and for the way in which roughly $2 billion of Russia’s annual diamond production is traded and exported. There is local speculation that the Kremlin may replace Shtirov with a man whose loyalty to Moscow is judged to be greater than to the so-called Yakut clan. There is speculation in the international diamond market that the marketing of Russian diamonds will be reorganized to eliminate the price-rigging monopoly that Russian diamond-cutters have long charged against Alrosa in the domestic market, as well as the diversion of cash that has been alleged for its exports abroad. There is speculation in the mining community that Putin’s advisor on mineral resource reform, Professor Vladimir Litvinenko of St. Petersburg, intends to push through new legislation limiting single companies to mining rights of no more than 65-percent of the mineral reerves in a single region. At the moment, Alrosa holds a 100-percent monopoly in Sakha, the principal diamond province of the east, and 75-percent in Arkhangelsk, the new diamond province in the northwest.

Talk is cheap, but noone can afford to underestimate what Putin will tell Shtirov. Least of all, Lev Leviev, the Israeli diamantaire whose political access through Putin’s first chief of staff, Alexander Voioshin, and through Rabbi Berl Lazar, has given him a privileged position in the diamond supply chain. Leviev has accused Alrosa of shorting Ruis, his diamond cutting works in Moscow, of the supplies of rough his factory has the capacity to cut and polish. On the other hand, Leviev is accused of submarining rough through the Alrosa subsidiary Diamonds of Anabar on preferential terms arranged by Matvei Yevseyev, the subsidiary’s chairman. Leviev’s critics hope to persuade Putin that Leviev’s tactics are in embarrassing contradiction to the transparency which Russia’s diamond policymakers want to adopt, as they take over the chairmanship of the Kimberley Process on January 1; this is the international network of diamond producers committed to cleaning up the export trade.

If and when Alrosa is reorganized as an open shareholding company and the state proceeds with privatization, Leviev is a contender to buy a control stake. And because Alrosa is the largest unprivatized diamond mining company in the world, every major international diamond enterprise is a contender too, including De Beers – the world’s largest diamond miner – BHP Billiton, several Indian diamantaires, and Beny Steinmetz, Leviev’s Israeli rival.

Much needs to be done before that contest can get under way in earnest. The first step has been the removal of the state secrecy provisions covering Alrosa’s physical diamond production, sales, exports, and diamond reserves. After postponing the declassification for most of this year, the Kremlin allowed the Finance Ministry to release the first instalment of data last week. In 2003, the official release indicates, Russia produced 33.02 million carats of rough diamonds, which were sold for $1.7 billion, for an average of $51 per carat. In the first half of 2004, the corresponding data were 17.8 million carats produced, worth $948 million, for an average of $53 per carat. For the time being, key data on mine reserves have not been released.

The export data for 2003 issued by the Finance Ministry show that physical volume was 37.8 million carats, at a total recorded value of $883.4 million. In the first nine months of this year, exports totaled 23.6 million carats for $826.4 million in value. The average carat value of these exports was $23 in 2003, and $35 for this year.

Some Russian diamond industry leaders say they have been surprised at how high the production caratage has turned out to be, and correspondingly, how low the average carat value has fallen below expectation, Until now, Alrosa’s average carat value has been estimated in the international diamond market to be at least 30 percent higher.

Even more of a surprise is the discrepancy between the carat value of the diamonds at the minehead, and their value in export sales. The declassified data now indicate that exported diamonds fetched 53 percent less per carat on average in 2003, while this year the exports have been running 34 percent below the production value. This discrepancy is going to be hotly argued, both by those in the federal government who are urging Putin to clean up Alrosa’s export schemes; and also by the domestic diamond cutters who have long accused Alrosa of charging higher domestic prices than De Beers has been paying for the Russian goods. Alrosa has acknowledged that it charges a premium over export prices to domestic diamond manufacturers. But in selling to its own diamond-cutting subsidiary, Brillianty Alrosa, and the Sakha-based diamond-cutting group Tuimaada, the company has apparently offered discounts and preferential credit arrangements.

When Shtirov sits down with Putin in a few days’ time, he could deliver a speech about how arbitrariness in Russian government policy has been hurting the international investment climate, and threatens to damage Alrosa’s return to the Eurobond market for refinancing of its sizeable debts. But Putin isn’t Father Frost. The louder Shtirov shouts, the less convinced Putin is likely to be that he deserves a fresh New Year reward, and the more certain Putin’s advisors are that Shtirov must be brought under strict control.


When President Vladimir Putin this week handed a visibly nervous Vyacheslav Shtirov a bouquet of flowers in a red wrapper, a revolution in Russian diamond policy began.

The flowers were a farewell from the Kremlin for the man who has headed Almazy Rossii-Sakha (Alrosa), Russia’s dominant diamond miner and the principal source of wealth for the Republic of Sakha,

The reason the wrapper was red, and Shtirov so nervous, was that Shtirov has been told that he WILL be permitted to run for president of Sakha, in the election due on Dec, 23, on condition the incumbent Mikhail Nikolayev agrees to step down, abandon his bid for a third term, and swiftly retire. When Putin chose to say it with flowers, what he meant was: No more plundering the diamond business. (more…)


By John Helmer, Moscow

Philip Short, a journalist from the BBC, has published a new book which claims to be a biography of Vladimir Putin. It isn’t.

What it is instead is a biography of one hundred and twenty-three westerners — what they claim to know about Russia’s leader  and what for commercial motive, reason of state, or vanity they have told Short in interviews he conducted for his book. They include spies he names without their cover – John Scarlett, Richard Dearlove, Richard Bridge,  Kate Horner, Martin Nicholson, and Pablo Miller from the Secret Intelligence Service (MI6); Hans-Georg Wieck and August Hanning of the Bundesnachrichtendienst (BND); Jean-Francois Clair, Raymond Nart,  and Yves Bonnet  of the Direction de la Surveillance du Territoire (DST); Seppo Tiitinen of the Finnish Security Intelligence Service (SUPO); Mark Kelton, Michael Morell, Peter Clement, Michael Sulick, Michael Morgan, Paul Kolbe, and William Green of the Central Intelligence Agency (CIA); Juri Pihl, head of the Estonian Internal Security Service, and Eerik-Niiles Kross, chief of Estonian intelligence; and several dozen other ambassadors, consuls, advisers, headquarters staff, journalists, and think-tankers.

Not one of the spies was operational in Moscow for the past twenty-one years of Putin’s terms in office.

There is a flash of originality in this book. Not a single source on which Catherine Belton’s book  on Putin relies has been interviewed by Short; in his references to Belton’s claims Short reports they “appear to be untrue”. He reaches the same conclusion about two other books about Putin, Karen Dawisha’s   and Masha Gessen’s.    “Neither book pretends to be a balanced account”, Short says.  Dawisha’s book “is marred by numerous errors of fact”. “All three”, Short warns, “set out the case for the prosecution, and like all prosecutors, the authors select their evidence accordingly.” 



By John Helmer, Moscow

There is a right way and a wrong way to understand how the war against the West is being fought on the Russian home front.

The wrong way is to read the Anglo-American media, their stay-behind correspondents in Moscow, and their aggregators in Washington, DC.  

The right way is to take a Russian beer. I mean, take the Russian beer business as an illustration of how the fightback is being fought – and how effectively.



By John Helmer, Moscow

The Poles have always had a serious problem with their neighbours.  

They have the Germans on their western flank, the Russians on their eastern flank, and inside their borders there used to be the Jews, but now there are the Ukrainians. In September 1939 there were about 3.3 million Polish Jews.    Since February 24 of this year, the Ukrainians in Poland have come to the same number.   

The war which the Polish government and military have been fighting against Russia is proving to be almost worthless politically to Law and Justice (PiS), the ruling party in Warsaw; and also to the Civic Platform (PO) and its allies, the principal opposition coalition (KO).  The PiS was 15 percentage points ahead of the KO in the voter polls a year ago, 35% to 20%; the margin between them now is 11 points, 38% to 27%.  The gains for each are close to the margin for statistical error.

Economically, the war is costing much more in public outlays for the refugees than the value of US and NATO arms flows and related war income. By the time Warsaw pays for its new US weapons, it will owe more than when the war started; and there is still no relief from the European Union funding freeze and penalties.   

What’s to be done, the Poles ask themselves – and who’s to blame when they realise the answer is something between not much and nothing.



By John Helmer, Moscow

When it comes to bulldogs fighting under a rug Winston Churchill thought they were Russians. Little did he know about Canadians in Ottawa.

The chief dogs in this fight are Trevor Cadieu and Chrystia Freeland (lead image, right).  Cadieu is a lieutenant general who specialises in planning armoured operations against the Russian army in Europe; Freeland is the deputy prime minister, scion of Galicia in western Ukraine,  and candidate prime minister to replace Justin Trudeau, if she can.

As the Canadian politician most directly connected to the Ukraine by family and property, and the most active advocate of war against Russia, Freeland has promoted Canadian military strategy and plans to wage that war on Ukrainian territory and across the Ukrainian borders for many years.   

In Ottawa also, Cadieu has been director of war plans since mid-2019.  No public record is known of his visits to the Ukraine in the following two years. His appointment as chief of Canada’s defence staff was announced in August 2021, then withdrawn in September following the start of an official investigation of sexual assault charges dating from his military cadet days. When the  investigation ended in an official indictment, Cadieu resigned. By April he was in the Ukraine again, working directly on coordinating the new supplies of tanks, armoured vehicles, howitzers,  and other artillery from NATO member states to the Ukraine.

Speaking through an Ottawa defence reporter named David Pugliese, Cadieu declared his innocence of the criminal charges and promised to return from the Ukraine to answer them. He then disappeared as the Russian forces intensified their targeting of Ukrainian and NATO general staff as they prepared operations to save Odessa in the southeast, and Lvov in the west.   

On Friday Pugliese reported Cadieu had surrendered to Canadian police and been released to appear in a local court in August. In the meantime Pugliese has reported an active online debate between supporters and critics of the sexual misconduct charges; these include a comment in support of Cadieu from retired Brigadier-General James Cox claiming the charges against him amount to “sedition to undermine national leadership;”  by that he meant mutiny by the politicians against the generals.

As deputy prime minister with supervision over most government ministers and war plans for the Ukraine, Freeland has claimed to have known nothing of the sexual misconduct which was identified a year ago against General Jonathan Vance, chief of the defence staff between 2015 and 2021. At the time Freeland declared: “No woman serving Canada should be sexually harassed while doing that, and I’m happy right now today to apologize to any woman who was sexually harassed while serving her country;”   by that she meant to condemn no one by name of anything.

Freeland is missing from the list of high officials contacted by former judge Louise Arbour  for her investigation of sexual violence in the Canadian military which began in May 2021 and concluded with the release of her 420-page report last month.    Arbour is known in Europe as the NATO prosecutor of Yugoslav and Serbian President Slobodan Milosevic.

Arbour concluded her report on the Canadian Armed Forces (CAF): “Members of Indigenous and black communities, and other visible minorities and equity-seeking groups, have been largely absent, clearly not welcome. For years, women were simply shut out. When finally allowed to serve, women were made to feel they did not belong. They were denied opportunities to compete fairly and to thrive. They were harassed, humiliated, abused and assaulted, and, appallingly, many continue to be targeted today… One of the dangers of the model under which the CAF continues to operate is the high likelihood that some of its members are more at risk of harm, on a day to day basis, from their comrades than from the enemy.” By enemy, Arbour  meant what Cadieu and Freeland mean.  

There has been no disclosure, no indictment, no apology for the Canadian military role in the Ukraine, training and arming Ukrainians committed to reviving Nazi doctrine from World War II.  Nor for the war crimes now alleged by eastern Ukrainians  to have been committed by western Ukrainians during the civil war which began in 2014. According to Arbour, “the very success of CAF operations, which I am not in a position to assess, reinforces its view that it is unique, and that CAF can do everything without the assistance of outsiders, as it always has.” By not to assess, Arbour meant not to doubt nor criticize.  

A Canadian with NATO warfighting experience comments: “The contradiction here is that the officer corps, heavily committed to the anti-Russia track that cuts across Canadian party lines, is heavily politicized and infected by the neo-Confederate faction in the US. They don’t appreciate what they see as [Prime Minister Justin] Trudeau’s ‘communism’. They believe the charges against Cadieu are an expression of it.”

“The truth, that no one, including Pugliese and other reporters will admit, is that the Canadian military, not to mention large swathes of law enforcement, is not reliable in terms of defending the Canadian state if the ruling faction pursues policies contrary to the officers’ wishes.”

There is no mutiny, at least not against the war against Russia, responds a veteran Canadian politician. “I have seen no indication that senior officers in the Canadian military oppose Canada’s hyper-aggressive approach to the Ukraine war. My impression from day one has been that Canada’s military is as belligerent toward Russia as any in NATO.”



By John Helmer, Moscow

The action the Lithuanian government implemented over the weekend to stop Russian trains carrying sanctioned cargos into Kaliningrad is regarded in Moscow as a long anticipated move, prompted among Lithuanian officials by the British government. The initial Lithuanian embargo action has been followed by a second one this week extending the blockade to trucks and road transport.   Neither action has been publicly announced by the Lithuanian government.

The first news came from Anton Alikhanov, the governor of the Russian oblast of Kaliningrad, following a  notice sent to him by Lithuanian officials. That notice has not been published.

Lithuanian president Gitanas Nauseda (lead image) has said nothing.  

Lithuanian Prime Minister  Ingrida Simonyte announced through the British Broadcasting Corporation that the blockade was not a blockade because only some cargoes were halted, and because “Lithuania is complying with the sanctions imposed by the European Union on Russia for its aggression and war against Ukraine ” . She also told the British state radio “it was important not to overreact”.  

She tweeted: “Any talk of a blockade of Kaliningrad is a lie. Lithuania is complying with the sanctions imposed by the EU on Russia for its aggression and war against Ukraine.  The sanctions were agreed by all the EU member states on March 15…. Passenger transit is also taking place, under a special agreement by the EU, RU, & LT. Steel and ferrous metal products account for only around 1% of the total rail freight to Kaliningrad via LT.”  

In the three days which have followed the Lithuanian action, the US and British Governments, the European Union (EU),  and the North Atlantic Treaty Organization (NATO) have not supported the Lithuanian blockade.

The Russian Security Council met on Wednesday morning, but issued no statement on Lithuania.  The Secretary of the Council, Nikolai Patrushev, who was in Kaliningrad on Tuesday, had announced there that the “consequences will have a serious negative impact on the population of Lithuania.”

Yesterday, at the same time as President Vladimir Putin was chairing the Security Council meeting, the Russian Foreign Ministry announced it is delaying “concrete measures” in reaction:  “The measures will not be diplomatic, but practical, they are now being worked out in an interdepartmental format, We are not talking about this not because we are hiding something, but because the process of their coordination and elaboration is underway. I would like to emphasize once again (the third time for today’s briefing): we have told the European Union and Lithuania about the need to change the steps they have taken. Perhaps something from that side will be changed, and, accordingly, our reaction will be different.”

Here is a compilation of the official documents.



By John Helmer, Moscow

In the rest of the world it is known as the cultural cringe. In Russia the wish to be loved by Americans is known as liberal reform.

In the very first paragraph of a new book called “Collapse: the Fall of the Soviet Union”, the author, Vladislav Zubok – the name in Russian means a small tooth — reveals that on the morning of August 19, 1991, when the first coup was attempted against Mikhail Gorbachev, then President of the Soviet Union, Zubok was flying to the US by arrangement with Strobe Talbott,   Moscow correspondent for Time and soon to be the Clinton Administration’s principal Russia expert. At the time Zubok describes himself as a “Moscow-based academic intellectual”. By this, he means he was no simple worker with a Moscow university degree. In Soviet class terms, he insists the reader recognise him to be an “intellectual”. That then was upper class, and Zubok wants the reader to know the difference between the Russian upper and lower classes —  immediately, on the nineteenth line of his very first page.

Zubok also wants the reader to know he had been hired with money from “the prestigious Amherst College in Massachusetts”. What exactly was prestigious about Amherst, or Massachusetts for that matter — and to whom? And why does Zubok think that in a history of Russian politics between 1983 and 1991, such a remote place, with such an adjectival tag, was worth the mention?

The answer, like the other revelations of the first paragraph, reveals what this book turns out to be. It’s an exercise in American-style reconstruction of what a small group of Russians for hire were keen to give their masters, about the circumstances of the years leading up to Boris Yeltsin’s replacement of Mikhail Gorbachev, and Russia of the Soviet Union. But this isn’t Russian history. It’s the history of Russians with cultural cringe – the desire to be loved by Americans, and to tell them what they wanted, paid for, insisted on hearing then, and demand  now.  

The payoff, reported on the dust jacket of the book, comes from Talbott, Zubok’s original employer. He is quoted as saying: “This is a deeply researched indictment of Mikhail Gorbachev’s timidity and mercurial policies which backfired.” “Instead,” Talbott adds, “Russia at the turn of the 21st century was ripe for the rise of Putin.” Zubok was ripe for what Talbott meant. “In 2008,” according to Zubok’s history, Putin “used military force against Georgia, and in 2014 he annexed Crimea and waged an undeclared war on Ukraine in Donbass.”  The blame for that, Zubok means, was Gorbachev’s mistakes. Without them, “had the Kremlin ruler made different choices… the Soviet Union could have gradually made its way into the world economy by a process of trial and error, with a nomenklatura-style state capitalism, and certainly with its institutions of power preserved.”

As for the Russian cultural cringe, Zubok is sure it was one of Gorbachev’s biggest mistakes.  During his well-known trips abroad in the 1980s, Gorbachev took with him, Zubok records, “a “huge entourage…of journalists, social scientists, writers, theatre directors, filmmakers and other cultural figures. Most of them shared [Gorbachev’s] fascination, admiration, and envy for things Western.”

Zubok has written a book to prove he doesn’t suffer this cringe. The work proves the opposite. This is the problem with cringers. They are too bent out of shape to recognize the shape they are in.



By John Helmer, Moscow

On March 15 the British Government announced it is imposing a ban on exports to Russia of “high-end luxury goods”.

According to the official press release, “the measures will cause maximum harm to Putin’s war machine while minimising the impact on UK businesses as G7 leaders unite to unleash a fresh wave of economic sanctions on Moscow. The export ban will come into force shortly and will make sure oligarchs and other members of the elite, who have grown rich under President Putin’s reign and support his illegal invasion, are deprived of access to luxury goods.”

Exactly what counts as “luxury goods” was loosely defined in the government’s statement as “luxury vehicles, high-end fashion and works of art” and “antiques”.

But the regulation issued to enforce the policy is much more comprehensive.  Section 11 of this regulation identifies “pearls, precious and semi-precious stones, articles of pearls, jewellery, gold or silversmith articles”. Section 21 covers “Works of art, collectors’ pieces and antiques”; that’s  the kybosh for oligarch luxury —  the Russia warfighters in London say they believe — to “cause maximum harm to Putin’s war machine”.

The official regulation defines this to cover goods higher in price than £250 (before VAT). They have been listed to include horses, caviar, wrist watches, xylophones, vacuum cleaners, ski boots, saddles, perfumes, and pottery. Russian women buying lingerie, Russian men buying pyjamas, Russian children buying rollerskates, and Russian housekeepers buying toasters have all been hit with “maximum harm”. Russian spies have been banned from buying British-made false beards and wigs.

Compression stockings for varicose veins will be stripped off Russian legs at the airport, and confiscated under the new rule.  Bathing suits, however, if worn instead of underwear, are exempted from the ban.



By John Helmer, Moscow

On June 13, for the first time since the Russian military operation began in the Ukraine, a detailed Russian intelligence assessment has been published in Moscow of Polish strategy for the future of Ukraine. This follows several weeks of brief statements by Russian security and intelligence officials claiming the government in Warsaw is aiming at an anschluss or  union  with the “eastern borderlands” known in Poland as Kresy Wschodnie, and in the Ukraine as Halychyna; that’s to say, Galicia.  

These Russian claims have been dismissed as propaganda by the Poles.  Polish strategy, according to Warsaw sources, is to preserve the Zelensky regime in Kiev and the unified Ukrainian military command — and not to acknowledge the possibility of their defeat by the Russian army east of the Dnieper River.

In this week’s discussion between Vlad Shlepchenko, a military analyst for Tsargrad in Moscow, and Vladimir Kozin, a leading academic attached to the Russian intelligence think tank, the Russian Institute for Strategic Studies, they consider the scope of the strategic problem which they think the Poles, and behind them the US and NATO, will continue to pose, after the objectives of Phase-1 and Phase-2 of the Russian military operation in the Ukraine have been completed.  



By John Helmer, Moscow

The Cossacks are known for many things, but not for being Roman Catholics like the Galicians of western Ukraine around Lvov, or like the Poles around Cracow.

Originally, the Cossacks swore off eating horsemeat, veal, hare, and pork. Pork is the principal meat of Lvivska (lead image, right) and Krakowska (left), the traditional sausages of Lvov and Cracow. They differ from one another in the spicing – Lvov with onion, marjoram, coriander and bay leaves; Cracow with nutmeg and sugar. In ingredients, the original Cossack sausages were closer to the Jewish ones.

In the war which is now extending from Europe to the world, taste in sausage shouldn’t be confused with race hatred. On May 22, when Andrzej Duda, the President of Poland, declaimed in front of President Vladimir Zelensky at the Verkhovna Rada in Kiev, that “you are – as your national anthem has it – of Cossack stock! You are magnificent!” Duda was making a racial observation with a profound mistake – and not only about sausages.  

The Cossacks of the Ukraine came from the lands between the Dnieper and the Don Rivers – that’s between 700 and 1,400 kilometres from Galicia and a journey of nine to twenty hours by motor, days by horse.  The Cossacks were Slavs and they were Orthodox Christians. By their ethnic origin, language, culture, and religion, they had little in common with the people who lived to the west of the Dnieper; that’s between Kiev, Lvov and the Polish border today. The Cossacks didn’t start eating pork sausage until after they gave up the nomadic life, got off their horses, and settled to farming.

When Duda told the Kiev deputies “I trust the goodness, the friendships made between millions of Poles and Ukrainians will mean we will be good neighbours forever now. This is a great historic opportunity and the great historic break–through”, he was getting closer to the truth of the history. But that is the history of  several hundred years of wars and race hatred between the Galicians and the Poles, and between the Galicians and Poles together against the Russian Slavs. It’s also a story Duda, his political party, and the Polish opposition backed by Mark Brzezinski, the US Ambassador in Warsaw,  recognize as a cause of war inside Poland, as well as outside.

The “historic break-through” which Duda declared in Kiev is only 81 years old, from the time of Duda’s grandfather.*  That was in 1941, when the German Wehrmacht incorporated Galicia into the General Government of southern Poland (Generalne Gubernatorstwo in Polish). Four years later, as the Germans retreated westwards to Berlin, it became the covert strategy of the US Army and then the policy of successive US governments for the extension eastwards of the North Atlantic Treaty (NATO) alliance; since 1945 that policy has also included regime change in Moscow, and the breakup, first of the Soviet Union, and then of the Russian Federation. That was also the announced strategy of Ambassador Brzezinski’s father, Zbigniew Brzezinski, the National Security Advisor of the Carter Administration between 1977 and 1981.   

Duda’s speech of May 22 was a Polish call to the Galicians to put aside the race hatred between themselves, and revive the race hatred which the two Catholic peoples, plus the Germans, have shown towards the Russians – also the Jews from whom the Zelensky family comes.

“How can I speak now,” Duda began his address, “when I am almost overcome with emotion”. Duda’s emotion was also calculated for the Polish audience who will vote in the next national election in just twelve months’ time.

Duda’s call to race war against the Russians was also an attempt to secure Poland against its more recent enemy Germany, and neutralize the US government’s attempt to topple the government in Warsaw. For Duda to manage this combination and hold on to power requires the appearance of a much closer Polish alliance with the Kiev regime than the Ukrainian military commanders and the Galician nationalists are contemplating at the moment, as they are forced into retreat westwards, like the Wehrmacht.  Their taste in sausage isn’t Duda’s, or Brzezinski’s, President Zelensky’s or the Cossacks for that matter.



By John Helmer, Moscow

There ought to be a law, or at least a sanction –  tenure cancelled, travel visa blocked – for American experts on Russia who claim to know from their reading of other American experts on Russia why Russia does things, and what will happen next.

Thane Gustafson, a Georgetown University professor publishing at the Harvard University Press, claimed very recently “it’s not too hard to reconstruct at this point what was likely going through Putin’s mind as he gave the order to attack…Putin was not nuts, not deranged, not isolated, etcetera. It was all a reasonable bet—by his strange lights—except that every one of the premises turned out to be wrong.”  Gustafson is certain he knows this; how he doesn’t say.  

But then Gustafson concedes: “All the cards are up in the air, and who knows how they will come down…I don’t know how this ends.”

There’s modest uncertainty for you — except that Gustafson is kidding. He wants you to know, he also says, that Russia is now a fascist state, and there’s really only one thing left he doesn’t know: because it’s such an effective fascist state, “the fact is that because of the regime’s control of information, we have very little idea of how Russians actually feel about the war, and how they will react to Putin’s apparent defeat.”

Gustafson didn’t notice he was squatting on the horns of a dilemma. If Russian regime control of information is so total(itarian), Gustafson’s information must come from the other side – American, Canadian, British, NATO headquarters in Brussels. The technical terms which professors usually apply to information emanating from one side of a two-sided war are misinformation, disinformation, propaganda, active measures, fake news, lies.  Between these things and the information Gustafson says he’s sure of, he has trolled himself.

So, to repeat the question, what if Russians actually support the war and blame the US for starting it?  What if they are as certain of this as Gustafson is certain Putin started it?

And what if the war ends in the US and NATO alliance retreat to Lvov; after which the Polish government will notify NATO HQ it is reviving its treaty claim to the Galician territory of the Ukraine; the chancellery in Berlin will then inform Brussels it requires the return of the ancient Danzig Corridor and Breslau, Polish territories  currently called Gdansk, Wroclaw,  and the  Ziemie Odzyskane;  and the Hungarian government will follow suit with the announcement of the recovery of historical Kárpátalja (Transcarpathia), the Zarkarpatska oblast of the Ukraine?

These were the spoils of the World War II settlement between the US and the Soviet Union in 1945-46. The territorial reversion claims aren’t new. What is new is that the US and the NATO alliance, plus the Galician regime still ruling between Kiev and Lvov, also in Ottawa, have aimed to change the terms of the post-war settlement by continuing the war eastward on to the territory of Russia itself, all the way to regime change in Moscow.

That is what Russia says it is fighting now to defend itself against. As Russian officials have been hinting in recent days, the foreign and defence ministries and the intelligence services are currently discussing in the Kremlin Security Council whether Russia’s long-term security on its western front may be best served by terms of a Ukrainian settlement in which the German, Polish, and Hungarian territorial claims are recognised.   

So, if these are indeed the cards that are up in the air, as the professor in Washington, DC, acknowledges, he isn’t the only one who doesn’t know how they will come down.

In the meantime he  and the Harvard printers want their new book to be a weapon in this war, targeted directly at President Vladimir Putin in the Kremlin. But what if the weapon misfires and they lose this war? Will Gustafson admit his ignorance or his mistake or his deception? Should he resign his professorship? Should Harvard pulp the new book? Or is the state in which Gustafson lives and lectures such an effective fascist state, losing the war against Russia to Germany, Poland and Hungary, minus the Ukraine, plus Russia, won’t matter to US officials any more than losing Afghanistan, Iraq, Libya, and Syria?


Copyright © 2007-2017 Dances With Bears

Copyright © 2007-2017 Dances With Bears

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