Is Botswana’s Deal With HB Antwerp a Menace to De Beers? – JCK

Final week, the federal government of Botswana introduced it was taking a 24% fairness stake in HB Antwerp and mentioned that state-owned diamond dealer Okavango will provide the corporate with diamonds for 5 years. (JCK can have a bigger have a look at the problems in Botswana, together with its contract negotiations with De Beers, later this week.)

At this time, Rafael Papismedov, one among HB Antwerp’s 4 co-founders, spoke to JCK about whether or not he considers his firm competitors for De Beers, how his 3-year-old enterprise has attracted a lot consideration, and why he believes the standard methods of the diamond commerce are “nonsense.”

Quite a lot of publications speculated that final week’s opening of the HB manufacturing unit may upset the apple cart in Botswana, significantly De Beers’ five-decade-old contract with the nation, which is being renegotiated. Do you see that?

We wish to remodel the present ecosystem, to permit Botswana to enter into the actual recreation of completed merchandise. How journalists understand it and the way they attempt to think about it’s irrelevant for us. De Beers is a mining firm. We aren’t a mining firm. De Beers is a tough buying and selling firm. We aren’t a tough buying and selling firm. I actually don’t see ourselves as a contest to De Beers, or De Beers competitors to us.

We’re taking part in in a unique area of the worth chain, and our job is to permit nations in Africa to enter the subsequent stage of the worth chain, [and move away] from the notion that they’re solely good to dig and wash diamonds. The youth of Botswana are prepared, they’re educated. The federal government gave them an incredible ecosystem in the previous couple of many years. We consider the way forward for the mineral transformation is in Botswana.

Are you able to present particulars on how a lot Botswana is paying for the 24% stake in HB, and the way a lot your organization is valued at?

A couple of corrections. They don’t but have 24% of the corporate. The president introduced that the phrases of the settlement have been concluded between the federal government of Botswana and HB for the acquisition of 24% of HB’s fairness and for a deal to promote several types of diamonds from Okavango.

The kind of the diamonds and the phrases of the acquisition might be introduced as soon as the deal is signed. Proper now we’re not able to reveal that.

Underneath your cope with Okavango, will you obtain its largest diamonds, as you do per your settlement with Lucara [owner of the Karowe mine in Botswana]?

It’s for several types of diamonds and completely different sizes of diamonds. We want to enter into new classes, as we now have a really excessive demand from completely different manufacturers to produce [certain] classes from Botswana.

Your cope with Lucara provides the miner a share primarily based on the ultimate product. Has that labored as properly, so far as worth, as the standard sight mannequin?

You may have a look at it in three other ways. Does it ship extra worth when it comes to cash to Lucara? The reply is completely sure. That’s why we moved from a six-month pilot to a two-year contract and, now, to a 10-year contract.  So each events determined that the present mannequin delivered higher revenues to Lucara and better royalties to the federal government—from 20% to 40%. It’s delivered important greater worth than earlier years, not counting the COVID 12 months.

Quantity two, it gave Lucara and the federal government a wider view into the worth chain when it comes to knowledge. For the primary time they might see what number of “infants” got here out from every tough diamond, what was the outcomes of these infants, what was the yield, what was the yield loss, and the completely different colours and clarities. [They had] higher knowledge when it comes to what worth has been achieved and who was the ultimate purchaser of these diamonds.

Quantity three, collectively we now have demonstrated, with the assist of Microsoft and tutorial establishments, what an actual blockchain ledger ought to appear like, the place there may be transparency between all entities and no curiosity to cover info from one another. If I purchase from you otherwise you’re promoting to me, there may be not likely an curiosity for me to indicate you who purchased these diamonds and what worth I achieved, as a result of subsequent month I’ve to come back again to you and renegotiate the deal and I don’t wish to pay extra. [This] new manner of doing enterprise is open and clear.

Will your cope with Okavango be much like the cope with Lucara? Okavango has historically bought by tender.

It’s going to be an actual duplicate of what we’re doing with Lucara. It can have the identical prices, the identical charges, the identical methodology, the identical transparency.

What we wish to obtain, along with Lucara and Okavango, is to raise the Botswana provenance. As a result of at this time, origin issues. 5 years in the past, a diamond was a commodity, and that commodity was solely being judged primarily based on the 4Cs, on its magnificence. No person cared about its DNA, no person cared about its constructive affect. Now we’re going to ship to the market a transparent provenance for diamonds.

After we began this firm in 2020, the Russia battle wasn’t there. In at this time’s world, individuals perceive that provenance does matter.

Are you going to place cash behind a advertising and marketing marketing campaign for Botswana diamonds?

Completely. We’re already busy with the branding and advertising and marketing marketing campaign. All our efforts in 2023 and 2024 will go towards [telling] the story of the constructive affect these diamonds are creating for Botswana and the way essential it’s to purchase diamonds from ethically sourced areas.

Will all these diamonds be minimize and polished in Botswana?

The overwhelming majority of our provide goes to be minimize, designed, analyzed, and deliberate in Botswana, by the individuals of Botswana, and might be bought, branded, and marketed from Botswana. We are going to proceed over the subsequent couple of years to deliver the extra advanced and distinctive diamonds to Antwerp, as a result of it does take numerous time to shine these diamonds that price hundreds of thousands.

About 90% of the amount of our manufacturing might be achieved in Botswana. We have now signed an settlement to take over 20,000 sq. meters within the Botswana innovation hub to construct a 15,000-square-meter facility, which might be prepared in lower than two years.

There’s been criticism in regards to the authorities investing in an organization that’s lower than 3 years outdated. What do you say to that?

I’ll let the federal government reply that. I believe we proved that disruption is the one method to get up this market and transfer it ahead. This market has operated in thriller. It was not delivering any worth to the shoppers. It was promising traceability and every kind of nonsense phrases however may by no means ship.

We purchased the one R&D middle on the planet that was devoted solely to diamonds. We invested cash into it. We have now robotics. We have now our personal software program for evaluation and planning of diamonds. We’re supplying bruting machines to the market. We’re main the best way in probably the most superior polished know-how and superior knowledge assortment. We [consulted with] the most effective universities on the planet to do evaluation and growth.

I don’t understand how outdated we’re, or how younger we’re. We managed to do in lower than three years issues that folks haven’t achieved in many years. When a authorities desires to disrupt the market, they wish to connect themselves to anyone that brings a contemporary wind of change, not anyone that’s doing the identical factor for the final 40 years. If what they have been doing for the final 40 years was so good, there can be no room for us to come back in.

Have sure elements of your cope with Ovankango been a difficulty in De Beers’ negotiations with Botswana?

I don’t know, however I’ll let you know what we did. We got here to Botswana for the primary time on the finish of 2019. We had a dream, however the very first thing we did was to hearken to the authorities. We listened to what their expectations have been for the longer term, what’s their agenda for the subsequent 10 years, what sort of transformation they wished to deliver to their economic system.

We acquired again to them with the best instruments, and proved to them that we all know what we’re doing and will ship outcomes. They’ve had a profitable partnership with De Beers for the final 50 years. That partnership has positively delivered nice worth to De Beers and to the federal government of Botswana and to the individuals of Botswana. Individuals are not bitter in Botswana. Botswana shouldn’t be a failed state. It’s a profitable, blissful nation, however this nation has expectations to maneuver ahead. And in an effort to transfer ahead, typically you have to play with different gamers who’re taking part in a unique recreation.

There has at all times been debate about whether or not it’s economical to chop and polish diamonds in Botswana. Why do you assume it will likely be worthwhile?

We don’t play the sport of low-cost. This business has been pushed for a century now by shopping for low-cost, manufacturing low-cost, promoting low-cost. I discover it full nonsense. Whoever performs this recreation is a idiot. This business is a luxurious business, and the posh business ought to be pushed by high quality, by differentiation, by premiums, by incentives.

If it prices us 5, 10, or no matter p.c extra to [manufacture] these items in Botswana, we don’t care. Our recreation is a very completely different recreation. On the finish it’s about developing with a product that’s fully completely different than every other product available on the market.

You’re investing some huge cash for a brand new firm. How do you handle money movement?

We’ve been worthwhile from day one. We bought near $300 million final 12 months. We are going to promote way more this 12 months. It’s true that we’re getting giant diamonds from Lucara, however don’t overlook from the big diamonds, you additionally get numerous small diamonds.

The corporate is stable. From day one, we now have established ourselves as a unique firm from the household companies. We have now strategic communication advisers. We have now monetary advisers in New York—they’ve been figuring out our monetary fashions. We’re going to the market to boost debt, which might be cheaper than the deal we now have presently. As soon as we end this spherical, there might be no fast want for added fundraising.

Do you see yourselves getting concerned with different diamond-producing nations?

For the subsequent 18 months, we now have a giant mission, to begin delivering on our guarantees in Botswana. We’ll concentrate on that. That is our primary objective—to take this nation to the subsequent step.

Prime: Rafael Papismedov at HB’s Botswana manufacturing unit opening (photograph courtesy of the Botswana authorities)

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