Messy End to a Promising Diamond Deal

It was going to "turn the diamond world upside down".

That's how HB Antwerp described the innovation behind its agreement with Canadian miner Lucara.

It would pay a best-guess polished price for Lucara's larger stones - a marked departure from standard practice - then settle any differences with a subsequent top-up.

It would use the blockchain and other cutting edge technology to introduce transparency and transform the market.

Lucara saw the potential of HB's innovation to achieve higher prices for its stones, especially during the early Covid lockdowns of 2020.

And so it negotiated a deal in July of that year for HB to sell all its +10.8-ct specials - around 65 per cent of its total production.

The initial agreement was extended in April 2021 and then again last November, this time for a 10-year term.

But today that deal lies in tatters. Lucara issued a terse statement on Wednesday night saying it had "exercised its right to terminate the agreement following a material breach of financial commitments by HB".

The termination didn't come as a huge surprise to seasoned observers. Something was clearly amiss at HB, where Oded Mansori, managing partner and one of the company's three co-founders was "removed" earlier this month.

Former partners Rafael Papismedov and Shai De-Toledo said there had been "a sharp difference in strategic vision and approaches to business" and Mansori said he was taking legal action as a result.

Lucara has also had to deal with some turbulence, with the company announcing the departure of Eira Thomas, the co-founder and CEO who negotiated the HB deal.

It cited the HB deal as a major achievement of her five-year tenure, noting that the deal was "generating regular revenues on superior pricing terms".

We are not privy to the boardroom discussions, either at HB in Antwerp, or Lucara in Vancouver, but we can guess there have been some lively exchanges.

What we know for sure is that the deal is dead. And that the effusive words from both sides in praise of the agreement now have a hollow ring to them.

Oded Mansori, who was managing partner at HB when the initial deal was extended in April 2021: "More than a supply agreement, this deal structurally embeds a more transparent and sustainable way of working in the diamond value chain.

"For the first time, different partners of the supply chain are fully aligned, sharing complete data and information and this throughout the process from mine to consumer.

"We are truly proud of this innovative and straightforward collaboration that has proven itself through the volatile and uncertain reality of 2020."

Eira Thomas, who was Lucara's CEO at the time said: "The decision to sell our +10.8 carat rough diamonds under a committed supply agreement with HB beginning in July of 2020 has helped support prices for this critical segment of our production amidst pricing uncertainty caused by the ongoing global pandemic.

"With this agreement we are creating better alignment between all participants and establishing a healthier, more efficient global diamond supply chain."

We don't know exactly how and why the deal went as sour as it did, as quickly as it did, but we do know that these are far from "normal" times for the diamond industry.

The HB approach may well prove to be the way forward, in time. But maybe that time is not now.

HB Antwerp did not respond to our inquiries.

Have a fabulous weekend