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LIFESTYLE · DIAMONDS

A De Beers rival is trying to revolutionize how giant

diamonds worth millions of dollars are sold—and it’s
working
BY ANTONY SGUAZZIN AND BLOOMBERG
February 28, 2023 at 7:45 PM GMT+2
An employee inspects rough diamonds at a Lucara Diamond sales center in Botswana.
WALDO SWIEGERS/BLOOMBERG VIA GETTY IMAGES

To the southeast of the teeming herds of wildlife in the Okavango Delta

in Botswana, an offshoot of the Lundin mining dynasty is extending its
search for the world’s biggest diamonds.

Lucara Diamond Corp. is sinking an 800-meter (2,624-foot) shaft to

ensure the kimberlite orebodies at its Karowe mine keep producing the
1,000-carat-plus gems that set it apart. However, the $550 million
investment is potentially less significant than the second prong of the
miner’s strategy.

That involves changing the way diamonds are sold, indirectly posing a
challenge to industry giant De Beers. The unit of Anglo American Plc,
which accounts for most output in top producer Botswana, is locked in a
battle with the government over how the spoils of the diamond trade are
shared. While Lucara’s operations are dwarfed by De Beers, Botswana is
using its sales model as a bargaining chip in negotiations with the No. 1
diamond company.

Lucara sells about a quarter of its stones using a method pioneered by De

Beers: cutters view packages of diamonds before bidding on them. But
most of its profit, from stones over 10.8 carats in size and known in the
industry as specials, comes from an agreement with HB Antwerp, which
buys them. For those, the company receives polished rather than rough
prices and the government earns more revenue.

“The model is disruptive,” said Rafael Papsimedov, a co-founder of HB

Antwerp. “It’s delivering value, transparency and data. It empowers the
miner and the nation to move to the next level.”

That model is complicating the relationship between De Beers and

Botswana, as negotiations over an extension of their more than 50-year
partnership drag on. Botswanan President Mokgweetsi Masisi in
September praised Lucara’s arrangement with HB Antwerp, saying it had
“enormous scalable potential.” Earlier this month, he threatened to walk
away from a deal with De Beers.

Still, that’s easier said than done. Lucara’s production from Karowe, its
only mine, was about 336,000 carats last year, with company revenue of
$213 million. By comparison Debswana, the joint venture between
Botswana and De Beers, produces about 22 million carats and its 2022
revenue was just under $4.6 billion. The government is said to get 80%
of revenue from the joint venture.

Moreover, Debswana’s operations require huge capital investment, which

can only be funded by the largest mining companies. Jwaneng, the
world’s biggest diamond mine, is undergoing a $1.2 billion expansion
and a similar one is planned at Orapa. To extend operations for decades,
an underground shaft will need to be dug at Jwaneng at a cost of at least
$5 billion.

Biggest Gems
While Lucara can’t compete on scale, its biggest diamonds are hard to
match. In 2019, it unearthed the 1,758-carat Sewelo — the world’s No. 2
stone after South Africa’s Cullinan diamond — which was turned into a
collection of Louis Vuitton jewelry. Two years later, it found a 1,175 carat
gem and in 2015 the 1,109 carat Lesedi la Rona diamond, a discovery that
triggered a 34% jump in Lucara’s shares.
Ironically, Lucara bought a 70% stake in the deposit, then known as AK6,
from De Beers for $49 million in 2009. The holder of the rest, African
Diamonds Ltd., was later acquired by Lucara.

Now the company is using so-called XRT technology to scan mined ore
for the presence of large diamonds so they don’t get damaged in the
extraction process.

“We are the only diamond mine in the world to have recovered three
diamonds in excess of 1,000 carats in size,” Eira Thomas, Lucara’s chief
executive officer, said in a presentation at the mine earlier this month.
“We believe that our mine accounts for about 25% of the world’s largest
diamonds.”

Lucara also sells about 11% of its gems through a digital marketplace,
Clara Diamond Solutions.

–With assistance from Matthew Hill.

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