When a tiny Canadian company bought a majority stake in an unloved Botswana diamond mine in 2009, almost no one noticed.
Seven years later, the Karowe mine is the world’s biggest producer of large diamonds, and the company, Lucara Diamond Corp., is the dominant player in the market for supersize gems.
Lucara, a company run by five people out of a small Vancouver office, tried to auction the second-largest diamond ever mined on Wednesday night in London. But the gem didn’t find a buyer willing to pay the minimum price.
The diamond, known as the Lesedi la Rona, was expected to fetch at least $70 million, according to Sotheby’s auction house, which was responsible for the sale. The bidding started at $50 million and ended at $61 million after strained pauses.
The 1,109-carat stone the size of a tennis ball is second in size only to the 3,106-carat Cullinan diamond, which was discovered over a century ago and was cut into several polished stones housed in the British Crown Jewels. It is the biggest of 112 gems larger than 100 carats that Lucara’s Karowe mine in Botswana has coughed up over the past three years.
Last year alone, Lucara recovered 47 stones larger than 100 carats at its only producing mine. By contrast, the world’s largest diamond producer by output, Russia’s Alrosa Co., recovered 46 stones larger than 100 carats over the past three years at multiple mines.
William Lamb, Lucara’s chief executive, estimates that his company accounts for less than 0.5% of the world’s global annual diamond production but 60% of the world’s 100-carat-plus diamond production. Analysts said it is difficult to accurately verify that claim given how little public information is available about the diamond market, but they agree Karowe is a once-in-a-lifetime mine.
Mr. Lamb said his company controls so many of the world’s biggest diamonds that it has begun holding back stock partly because of concerns it could inundate traditional diamond buyers in Antwerp, Israel and New York.
“If Lucara produces too many large stones, the standard set of buyers who we sell to is eventually going to be flooded with these stones,” Mr. Lamb said. “So we need to develop an alternative route,” he said, like an auction.
By trying to auction the Lesedi diamond in public, Mr. Lamb said he was hoping to attract a new breed of wealthy clients from Russia, the Middle East and China who would pay top dollar for the prestige of owning a rare diamond that could serve as an alternative to gold investment.
If a buyer does decide in the future to acquire the Lesedi, it could set the record for the most expensive rough diamond ever sold following Lucara’s sale of an 813-carat rough diamond, the world’s sixth largest, for $63 million in May. The three-billion-year-old Lesedi could also yield the biggest polished diamond in the world—bigger even than the famous Great Star of Africa, or Cullinan I, on display in the Tower of London.
Mr. Lamb, a former De Beers executive, left in 2008 to join Lucara with a mission to find an attractive diamond deposit that was in advanced stages of exploration. In October 2009, he received a text message from a friend’s wife asking if he had $42 million to spare.
De Beers, the world’s largest diamond producer by value, was selling its majority stake in the Karowe deposit, then named AK6, in the aftermath of the financial crisis of 2008. Mr. Lamb and his partner, African Diamonds PLC, bought a 70% stake in December 2009 and a year later, Lucara owned the whole mine for a total of $79 million.
Since then, Lucara has earned $762 million in revenue from Karowe. De Beers said it sold the mine to focus on assets with better returns.
“The chance of finding another Karowe is very slim,” said John Meyer, a veteran mining analyst at brokerage firm SP Angel. The mine “was known for many years but the geostatisticians had missed how good it really was.”
The string of king-size diamond discoveries began in April 2013, with the discovery of the first 100-plus carat stone. Last November alone the company extracted the giant 813-carat stone—the one it sold last month for $63 million—and a 374-carat gem, alongside the Lesedi.
“I was just stunned,” said Mr. Lamb when he received a call in the middle of the night with the news.
Not all of Karowe’s diamonds are oversize behemoths. Many of them are smaller and sold to be polished to make jewelry. The mine installed new technology last July that improved its ability to catch and sort rocks containing up to 1,000 carat diamonds. When the mine first opened in 2012, it was only able to catch rocks containing up to 200 carat diamonds. The company is now investing $15 million to $18 million to increase the capacity to 5,000 carats by September 2017.
“It doesn’t necessarily mean that the resource is going to yield 5,000 carats,” said Mr. Lamb. “But if it does yield something big, we want to make sure we recover it.”
By: Alex MacDonald (The Wall Street Journal).
Photo: News Yac.
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