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Is Botswana’s Deal With HB Antwerp a Threat to De Beers?


Last week, the government of Botswana announced it was taking a 24% equity stake in HB Antwerp and said that state-owned diamond trader Okavango will supply the company with diamonds for five years. (JCK will have a larger look at the issues in Botswana, including its contract negotiations with De Beers, later this week.)

Today, Rafael Papismedov, one of HB Antwerp’s four co-founders, spoke to JCK about whether he considers his company competition for De Beers, how his 3-year-old business has attracted so much attention, and why he believes the traditional ways of the diamond trade are “nonsense.”

A lot of publications speculated that last week’s opening of the HB factory could upset the apple cart in Botswana, particularly De Beers’ five-decade-old contract with the country, which is being renegotiated. Do you see that?

We want to transform the current ecosystem, to allow Botswana to enter into the real game of finished products. How journalists perceive it and how they try to imagine it is irrelevant for us. De Beers is a mining company. We are not a mining company. De Beers is a rough trading company. We are not a rough trading company. I really don’t see ourselves as a competition to De Beers, or De Beers competition to us.

We are playing in a different space of the value chain, and our job is to allow nations in Africa to enter the next level of the value chain, [and move away] from the notion that they are only good to dig and wash diamonds. The youth of Botswana are ready, they are educated. The government gave them an amazing ecosystem in the last few decades. We believe the future of the mineral transformation is in Botswana.

Can you provide details on how much Botswana is paying for the 24% stake in HB, and how much your company is valued at?

A few corrections. They don’t yet have 24% of the company. The president announced that the terms of the agreement have been concluded between the government of Botswana and HB for the acquisition of 24% of HB’s equity and for a deal to sell different types of diamonds from Okavango.

The type of the diamonds and the terms of the acquisition will be announced once the deal is signed. Right now we are not in a position to disclose that.

Under your deal with Okavango, will you receive its biggest diamonds, as you do per your agreement with Lucara [owner of the Karowe mine in Botswana]?

It is for different types of diamonds and different sizes of diamonds. We are looking to enter into new categories, as we have a very high demand from different brands to supply [certain] categories from Botswana.

Your deal with Lucara gives the miner a percentage based on the final product. Has that worked as well, as far as value, as the traditional sight model?

You can look at it in three different ways. Does it deliver more value in terms of money to Lucara? The answer is absolutely yes. That’s why we moved from a six-month pilot to a two-year contract and, now, to a 10-year contract.  So both parties decided that the current model delivered better revenues to Lucara and higher royalties to the government—from 20% to 40%. It’s delivered significant higher value than previous years, not counting the COVID year.

Number two, it gave Lucara and the government a much broader view into the value chain in terms of data. For the first time they could see how many “babies” came out from each rough diamond, what was the results of those babies, what was the yield, what was the yield loss, and the different colors and clarities. [They had] better data in terms of what price has been achieved and who was the final buyer of those diamonds.

Number three, together we have demonstrated, with the support of Microsoft and academic institutions, what a real blockchain ledger should look like, where there is transparency between all entities and no interest to hide information from each other. If I buy from you or you’re selling to me, there is not really an interest for me to show you who bought those diamonds and what price I achieved, because next month I have to come back to you and renegotiate the deal and I don’t want to pay more. [This] new way of doing business is open and transparent.

Will your deal with Okavango be similar to the deal with Lucara? Okavango has traditionally sold by tender.

It is going to be an exact replica of what we are doing with Lucara. It will have the same costs, the same fees, the same methodology, the same transparency.

What we want to achieve, together with Lucara and Okavango, is to elevate the Botswana provenance. Because today, origin matters. Five years ago, a diamond was a commodity, and that commodity was only being judged based on the 4Cs, on its beauty. Nobody cared about its DNA, nobody cared about its positive impact. Now we’re going to deliver to the market a clear provenance for diamonds.

When we started this company in 2020, the Russia conflict wasn’t there. In today’s world, people understand that provenance does matter.

Are you going to put money behind a marketing campaign for Botswana diamonds?

Absolutely. We are already busy with the branding and marketing campaign. All our efforts in 2023 and 2024 will go toward [telling] the story of the positive impact those diamonds are creating for Botswana and how important it is to buy diamonds from ethically sourced locations.

Will all these diamonds be cut and polished in Botswana?

The vast majority of our supply is going to be cut, designed, analyzed, and planned in Botswana, by the people of Botswana, and will be sold, branded, and marketed from Botswana. We will continue over the next couple of years to bring the more complex and exceptional diamonds to Antwerp, because it does take a lot of time to polish those diamonds that cost millions.

About 90% of the volume of our production will be done in Botswana. We have signed an agreement to take over 20,000 square meters in the Botswana innovation hub to build a 15,000-square-meter facility, which will be ready in less than two years.

There’s been criticism about the government investing in a company that is less than 3 years old. What do you say to that?

I will let the government answer that. I think we proved that disruption is the only way to wake up this market and move it forward. This market has operated in mystery. It was not delivering any value to the consumers. It was promising traceability and all kinds of nonsense words but could never deliver.

We bought the only R&D center in the world that was dedicated solely to diamonds. We invested money into it. We have robotics. We have our own software for analysis and planning of diamonds. We are supplying bruting machines to the market. We are leading the way in the most advanced polished technology and advanced data collection. We [consulted with] the best universities in the world to do analysis and development.

I don’t know how old we are, or how young we are. We managed to do in less than three years things that people have not done in decades. When a government wants to disrupt the market, they want to attach themselves to somebody that brings a fresh wind of change, not somebody that is doing the same thing for the last 40 years. If what they were doing for the last 40 years was so good, there would be no room for us to come in.

Have certain aspects of your deal with Ovankango been an issue in De Beers’ negotiations with Botswana?

I don’t know, but I’ll tell you what we did. We came to Botswana for the first time at the end of 2019. We had a dream, but the first thing we did was to listen to the authorities. We listened to what their expectations were for the future, what is their agenda for the next 10 years, what kind of transformation they wanted to bring to their economy.

We got back to them with the right tools, and proved to them that we know what we are doing and could deliver results. They have had a successful partnership with De Beers for the last 50 years. That partnership has definitely delivered great value to De Beers and to the government of Botswana and to the people of Botswana. People are not bitter in Botswana. Botswana is not a failed state. It is a successful, happy nation, but this nation has expectations to move forward. And in order to move forward, sometimes you need to play with other players who are playing a different game.

There has always been debate about whether it’s economical to cut and polish diamonds in Botswana. Why do you think it will be profitable?

We don’t play the game of cheap. This industry has been driven for a century now by buying cheap, manufacturing cheap, selling cheap. I find it complete nonsense. Whoever plays this game is a fool. This industry is a luxury industry, and the luxury industry should be driven by quality, by differentiation, by premiums, by incentives.

If it costs us 5, 10, or whatever percent more to [manufacture] those goods in Botswana, we don’t care. Our game is a completely different game. At the end it’s about coming up with a product that is completely different than any other product on the market.

You’re investing a lot of money for a new company. How do you manage cash flow?

We’ve been profitable from day one. We sold close to $300 million last year. We will sell much more this year. It is true that we are getting large diamonds from Lucara, but don’t forget from the large diamonds, you also get a lot of small diamonds.

The company is solid. From day one, we have established ourselves as a different company from the family businesses. We have strategic communication advisers. We have financial advisers in New York—they have been working out our financial models. We are going to the market to raise debt, which will be cheaper than the deal we have currently. Once we finish this round, there will be no immediate need for additional fundraising.

Do you see yourselves getting involved with other diamond-producing nations?

For the next 18 months, we have a big mission, to start delivering on our promises in Botswana. We’ll focus on that. This is our main goal—to take this nation to the next step.

Top: Rafael Papismedov at HB’s Botswana factory opening (photo courtesy of the Botswana government)

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By: Rob Bates

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