HB deal a signal of govt’s goals in diamonds
Mbongeni Mguni | Thursday April 6, 2023 11:00
More accurately, those monitoring the deal with HB Antwerp are weighing its scalability.
The three-year-old Belgian firm has built high expectations around what it can deliver.
HB Antwerp’s first foray into Botswana was via a six-month deal with Lucara in 2020, later extended to 24 months and expiring in December 2022. The two partners have since signed a 10-year deal to 2032, under which all +10.8 carat diamonds from the Karowe mine, which have historically accounted for approximately 60% to 70% of Lucara’s annual revenues, are sold to HB Antwerp at prices based on the estimated polished outcome of each diamond.
According to HB Antwerp, “the projected polished price is determined using state-of-the-art scanning and planning technology and is then adjusted through top-up payments based on actual polished sales, less a fee, and the cost of manufacturing”.
In essence, HB Antwerp, under its 24-month deal, was purchasing diamonds from Karowe based on their value as polished stones, rather than the industry standard practice of paying for the rough product. According to HB Antwerp that resulted in 40% higher diamond royalties to the Botswana government in those two years.
This week, President Mokgweetsi Masisi announced that government, presumably through the Minerals Development Company Botswana, is taking up 24% equity in HB Antwerp and allocating the company a portion of rough from state diamond trader, the Okavango Diamond Company (ODC).
“Today is the dawn of a new era for the diamond industry in Botswana, as we begin this journey with HB Antwerp,” Masisi said at the grand launch of HB’s local facility in Gaborone on Monday.
“We are forging a brighter future for the next generation of Batswana, taking unprecedented ownership over our natural resources to fully realise their potential for our nation’s sustainable development.”
The value of government’s equity injection is not yet known, nor is the percentage ODC will be selling to HB Antwerp, but the message from government is clear: “work the same magic you worked with Lucara,” a challenge better summed up as 'scalability'.
Masisi, in a meeting held with HB Antwerp on the sidelines of the United Nation’s General Assembly in September last year, touched on the issue.
“We believe there is enormous scalable potential for the profit-sharing model that Botswana and HB Antwerp are pioneering,” he said.
HB Antwerp co-founder, Rafael Papismedov recalled similar concerns from Masisi when the President first met the firm’s leaders.
“Our proposition to Botswana was ‘stop thinking rough diamonds and start thinking polished diamonds’ and start getting profits from the sales of those polished diamonds,” the co-founder says in a marketing video uploaded on YouTube.
“When we pitched this vision, His Excellency the President walked into the room with a big smile and he said ‘guys, I have a very limited short time and I have a transformation agenda.
“’If you have something in that direction, I’m all yours, otherwise thank you very much.’
“And that was the second we knew we had a partner to proceed in this country.”
For HB, the challenge of scalability lies in replicating its performance with Lucara, with the ODC. Lucara sold 327,028 carats produced from its Karowe mine last year, with the HB arrangement accounting for $128 million or 60% of total revenues for the year. By comparison, ODC, which is entitled to purchase up to 25% of Debswana’s production, last year sold about six million carats and recorded revenues of $1.1 billion.
Measured by output alone and not by structure, the ODC represents one of the world’s biggest diamond producers, outside the De Beers group's and Alrosa’s mines in Russia. The percentage of supply HB Antwerp will secure from ODC will be known in a fortnight, but ahead of that, Papismedov is bubbling with confidence that the firm can take on the scalability challenge.
“HB was built from the ground for scalability,” he told Mmegi on the sidelines of Monday’s launch.
“It’s a limitless capacity of carats that we will be able to process at our facility and I don’t say this stupidly, but it is limitless.
“This is because the technology belongs to us and if we decide we need 100 robots, we will have them.
“If we decide we need 300 robots, we will have 300 robots next year.
“The capacity is limitless but it will take time to train the humans, but our philosophy is to train as much as possible and inject fresh blood into the company.”
HB Antwerp’s new facility in Gaborone, registered under its subsidiary, HB Botswana, operates as the nerve centre of the solution the Belgian company has partnered with government in. Papismedov says the new centre houses the entire ecosystem “from mine to consumer,” the elusive end-to-end value chain that government is eager to gain more ground in.
“The facility will be doing everything from in-taking rough diamonds, scanning them, analysing them, planning them, cutting them, polishing them, to branding, marketing and sales; everything will be done from here,” Papismedov said.
Government’s equity injection will also power HB Antwerp’s plans to grow its facility in Gaborone “by more than ten times,” through the development of a 20,000-square metre plot at the Innovation Hub where the activities launched on Monday will be expanded. This too is an effort to address the challenge of scalability.
“What we want to build over there is at least a 15,000 square metre facility which will probably be one of the largest facilities.
“But this facility is not only about the size, but the equipment, the technology and the methodology that will be brought inside,” the co-founder says.
At the launch, HB Antwerp officials emphasised how the firm’s goals and outlook resonate with government policies such as 'transformation', 'mindset change', and 'digitisation'. Officials also appeared intimately aware of government’s frustrations with the state of play in the diamond industry.
“Our mission is, without going into the specifics of the percentages, to elevate what the government gets today from the sale of rough diamonds to a completely different level when they get money from the polished diamonds,” Papismedov told Mmegi.
“That’s step one and step two is to take government all along with us to the final consumer in the luxury goods.”
All eyes will be on the forthcoming equity deal signing, which is expected to provide more clarity on roles and goals in the new partnership.