Abu Dhabi, UAEThursday 19 September 2019

Battle of the diamond giants likely as new player enters online fray

Lucara Diamond, which this month found the second-biggest stone ever, is launching a digital platform to take on De Beers and Alrosa

A 1,758 carat diamond from Lucara Diamond's Karowe mine in Botswana. Reuters
A 1,758 carat diamond from Lucara Diamond's Karowe mine in Botswana. Reuters

The opaque diamond trade may be ripe for disruption.

Lucara Diamond, which recently found the second-largest diamond in history in Botswana, is taking on industry giants such as De Beers and Alrosa with an online platform to replace physical auctions.

The service allows Lucara to match buyers’ requirements, not only saving jewellers the trouble of traveling to Botswana but also ending the practice of buying stones by the bucket, according to Bloomberg. Typically they can only use some, and then have to sell the rest on the secondary market.

“For the first time ever, manufacturers buy only what they want, they don’t have to carry all this extra inventory,” Eira Thomas, Lucara’s chief executive, said in Stockholm. “The large integrated jewellery companies don’t want to be in the business of secondary trading. They’re just trying to source diamonds for their own products.”

Eira Thomas, president and chief executive officer of Lucara Diamond Corp., sits for a photograph in Vancouver, British Columbia, Canada, on Thursday, April 19, 2018. The materials industry, which includes miners, trails all other sectors in the Bloomberg World Index on rates of female participation, both in the broader workforce and management. Only one in 20 global miners are headed by women, according to data compiled by Bloomberg from companies that supply a gender breakdown. Photographer: Ben Nelms/Bloomberg
Eira Thomas, president and CEO of Lucara Diamond. Bloomberg

In a series of trials, Lucara, based in Vancouver, claims that prices were 8 per cent over the company’s traditional market price. It is now trying to bring other independent producers on board, with the aim of moving at least a portion of the $18 billion annual diamond trade on to its website, known as Clara.

Whether Lucara will be able to attract major producers to use its system remains to be seen. De Beers, the world’s biggest diamond producer, is known for its tight control over the diamond market and has relied on its own system of selling gems for decades.

“If we can get to $1.5bn transacted through the platform, the cash flow we generate from Clara will be as important as the cash flow we generate from the mine," Ms Thomas said. “We’re taking baby steps right now, but each quarter we’ll report, we expect the volume to increase.”

Clara incorporates blockchain technology, which is regarded as a promising avenue for an industry that has been plagued by ethical problems, including the trade in so-called “blood diamonds” used to finance armed conflicts. Lucara is far from the only miner to have seen the benefits of the digital ledger in guaranteeing the provenance of its product.

De Beers has launched Tracr, a platform aiming to increase the traceability of diamonds using blockchain. That pilot programme was joined by Russia’s Alrosa, another giant in the business, last October.

Lucara’s Clara uses similar technology, but its main purpose is to match buyers and sellers. While it is difficult to judge Clara in an early stage, Ola Sodermark, an equity analyst at Kepler Cheuvreux, sees potential in the initiative. The key is to get more producers to join the platform, he said.

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“Lucara’s own volumes aren’t sufficient to make this fly,” he said. “The question is whether they’re too early with this technology, or if the market is ready for it.”

Lucara was founded by Ms Thomas in 2007, together with Catherine McLeod Seltzer and chairman Lukas Lundin, whose family oversees a commodities empire that includes stakes in oil, gold and solar power across the globe. The Lundin family holds an 18 per cent stake in the company through the investment company Nemesia Sarl.

Earlier this month, Lucara unearthed a giant 1,758-carat diamond in Botswana. But unlike its rivals, it will not fetch a record-breaking price.

The company said it found the stone – about the size of a tennis ball – at its Karowe project in Botswana, a mine renowned for its huge gems including the previous holder of the No 2 position. Still, the company said the diamond is a near gem of variable quality, meaning it won’t yield incredibly valuable polished diamonds on a par with earlier finds.

Lucara’s Karowe mine is becoming famous for giant stones. In 2015, Lucara found the 1,109-carat Lesedi La Rona, which at the time was the second-largest and eventually sold for $53 million. The mine has also yielded an 813-carat stone that fetched a record $63m. Those two gems were both much more valuable Type-IIa stones.

The Queen of Kalahari was also discovered at the mine, a 342-carat flawless stone. It was cut into into 23 diamonds, five of which are more than 20 carat, by Chopard.

The biggest diamond ever discovered is the 3,106-carat Cullinan, found near Pretoria in South Africa in 1905. It was cut into several polished gems, the two largest of which – the Great Star of Africa and the Lesser Star of Africa – are set in the Crown Jewels of Britain.

Also this month, Petra Diamonds said it had recovered a 209.9-carat Type II diamond at its flagship Cullinan mine, the third recovery of such a large gem since March, Reuters reported.

The miner bought Cullinan in 2008, aiming to breathe new life into the South African mine.

The mine is also the world's main source of rare blue diamonds. In March, Petra found a 425-carat diamond at the mine, and called it "The Legacy".

Petra Diamonds said the recently discovered 209.9-carat stone was expected to be sold during the fourth quarter of its financial year.

The company aims to reduce its high debt levels and be cash flow-positive in the second half of the year, chief executive Richard Duffy said.

Updated: April 28, 2019 02:51 PM

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