Sunday, June 11, 2023

How big diamond sharks floored the sale of Lesedi La Rona

An insider has revealed how powerful vested interests conspired to frustrate the sale of Lesedi La Rona a 1 109-carat top-colour white diamond discovered at the Karwe mine in the Central Kgalagadi Game Reserve (CKGR).

Lucara, the company that owns the Botswana mine, found itself embroiled in a cloak and dagger fight with top end diamond dealers who control the market when it bucked the tradition of selling the diamond only to professional buyers and instead took the gem – about the size of a tennis ball – on a roadshow through Dubai, Hong Kong and Singapore before trying to sell it at an auction in London in June.

Bidding never reached the company’s reserve, or minimum, price and it remains unsold.

Veteran Journalist and author with eight books under his belt, Mathew Hart, who was a fly on the wall throughout the whole scheming and manoeuvring has presented a peep show into the dog eats dog politics of the diamond trade and how it played itself out in the failed sale of Lesedi La Rona, the biggest diamond ever discovered in over a century.

Hart had signed a non-disclosure agreement with Lucara Diamond Corp boss, William Lamb giving him exclusive access over a period of six months not only to Lesedi La Rona but to the deliberations of the ownersÔÇötheir doubts, their anxieties, their hopesÔÇöand to the story of discovery that had set the attempted sale in motion.

In an instructive metaphor, the British journalist likened the bombed sale of Lesedi La Rona to “the assassination of William Lamb.” Describing the scene after the failed sale, Hart writes: “Ashen-faced, Lamb got to his feet. A pack of diamond dealers closed around him. I thought of Julius Caesar at the Senate on the Ides of March. Those surrounding Lamb represented the old diamond order, whose grip Lamb had just tried to loosen. By selling the great diamond at auction, Lamb had attempted to replace the story some of these men tell the world with another story, and the daggers bristling from his back had been planted there by those who did not like the switch.”

Lamb’s little experiment had failed. In the prevailing model, miners like Lucara who find large rough sell it to people who cut and polish it – the high-end trade. The high-end trade converts the rough into a polished gem, slaps on as much margin as it will bear, and sells it to the end-use billionaire.

Lucara, however, wanted to get more money for its diamond. By selling straight to an end buyer, Lucara could have all the proceeds for itself. Lamb then tried to cut out the middlemen and use a more direct line to the money he thought might be available. This put him on a collision course with the world’s top diamantaires, “because, let’s face it, the pockets Lamb meant to pick were theirs”, states Hart.

The contest became one of competing narratives. In the narrative preferred by diamantaires, diamonds possess a mystique conferred by those who transform rough into polished jewels. In this view, the value of the rough is a function of the polished outcome it delivers, and only the diamantaire can say what that should be.

Lamb was trying out a different narrative. In his telling, an uncut diamond, especially one so magnificent, had an allure of its own. It was unique, like a great painting, and should be thought of as one would think of a Picasso. What’s more, he intended to sell it the way a Picasso would be sold – at auction.

Behind the scene, the fight between Lucara and the diamond big shots was dirtier. Despite a glowing 30-page analysis by Donald Palmieri, the principal of Gem Certification & Assurance Lab, a well-known firm in the heart of New York’s Diamond District, the diamond dealers went on a whispered campaign to trash talk Lesedi La Rona.

For decades Palmieri has provided opinions, often in court, to those struggling to untangle the coils of some diamond scam. He has written detailed reports on many valuable diamonds. In March of this year Palmieri and two of his associates flew to Gaborone with their equipment to examine the Lesedi. The report he wrote was more than technical. It breathed with wonder. He called the trip to see the diamond a “life-altering experience” and said that although he had seen “many thousands of important and magnificent gems and jewels” in his career, the Lesedi La Rona topped them all

Part of Palmieri’s job was to anticipate what a cutter might produce from the diamond. The conjectured polished outcome would help to calculate the diamond’s value, even if the buyer kept it as a rough. Palmieri wrote that the Lesedi La Rona could “yield the largest D colour faceted and polished diamond known in the world of over 530 carats.” To those reading his words, “over 530 carats” could have only one meaning: a top-colour white bigger than the Great Star of Africa, the greatest prize in diamonds.

Among the big boys who engineered the fall of Lesedi La Rona is believed to be Laurence Graff. And this is what Hart had to say about Graff: “Graff is not just a member of the high-end trade: he is its avatar. His establishment in New Bond Street stands beside the other jewelers like a wolfhound among beagles. I’m sure he would say so himself … He was in France when I called him on the morning of the sale, June 29.

“It’s not nice,” he said. “We don’t like it, what they’re doing. It’s just not how it’s done. We don’t want to have to expose ourselves in public (at an auction]). To contend in the open arena, we find it undesirable.”

Hart says after the telephone conversation, he knew that the Lesedi La Rona auction would fail. “Let me be plain about why I found these remarks so chilling, and why, as I heard them, I feared for Lamb. The high-end diamond game is played on a very small field by only a few players. Not many diamantaires have the financial muscle or the nerve to cut big diamonds. If they did not want to “contend in the open arena,” where would they contend? Well, they would contend in the shadows. Even before I had set out to see the diamond – when not a soul outside Lucara had yet seen it – I had heard dealers put it down. It was no secret that the diamond trade was trash-talking the Lesedi. I had heard the talk myself -the street was awash in poisonous gossip.

I had always thought that the diamond itself would silence such talk, issuing into the world armed in its own magnificence. But in speaking with Graff, I now understood the enormity of the peril faced by Lamb and his jewel. For it did not matter what most people thought. It only mattered what these people thought, what Graff thought, and the few other diamantaires able to buy such a diamond. Even a collector not planning to cut it – some oligarch or sheikh – would want to know first how such men judged it: what they saw inside the stone. Lamb did not have these people at his mercy; at the auction, they had him at theirs.

“When we polish these big stones, we never know what we are going to get,” Graff said. “The larger the rough, the greater the chance that there’s a defect. It can ruin your hopes by as much as 40 percent. You think you are getting flawless and then find that it’s VVS1”ÔÇöreferring to a technical grade just shy of perfection. “There goes 40 percent. We are not even a hundred percent sure of the colour.” I don’t know who else Graff shared his thoughts with, or if he shared them at all, but I thought of them that night when the hammer came down and the room sat silent for a moment, stunned.

“I think they had a big buyer,” a veteran diamond-watcher told me. “I heard about people who were really ready to pay. But it’s an auction. They have to take their lead from someone, and non-trade buyers would follow the trade. But the trade was totally opposed.”

Lamb told Bloomberg this week that Lucara wanted to see if there was “an alternative source of money” instead of the typical diamond buyer who values rough stones only for the kind of polished gem – or gems – it could produce.

“Was there an investor class that would acquire the stone in its rough form as a collector’s item?” Lamb said in the interview. “That’s the biggest problem for a rough diamond – most people only value it for its intrinsic value, what you can polish out of it, what you can sell the polished one for. We were hoping that there would be an investor who would want to own it for its historical significance.” It turns out the industry was not too keen on the innovation.


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