Why Sotheby’s Auction Failed, Part 1

On June 29th we posted a blog titled “Diamonds Are Forever” that recounted the story of the Lesedi la Rona 1,109-carat diamond – in the rough – that was on display for several days in Sotheby’s New York.

Lesedi la Rona: The rough 1,109 carats diamond. This is exactly how it was displayed in New York. It moved slowly around so it could be viewed from all angles

Photo: Courtesy of Sotheby’s

Sotheby’s headquarters on York Avenue in Manhattan 

Photo: Courtesy of Sotheby’s

I described how I dashed up to Sotheby’s on Saturday, May 7th to see this magnificent specimen and was blown away. Now, weeks later, when rereading this blog there’s one sentence that really pops out. “David Bennett, chairman of Sotheby’s jewelry division, notes that ‘no rough diamond this size has ever been auctioned before.’” 

Oh, oh, remember this statement – it will come back to haunt the saga of the Lesedi la Rona diamond.

On August 31st we posted another blog “Friday the 13th” that updated the news about the Lesedi la Rona diamond. I had watched the auction (6/29) in London on my computer in New York and was stunned when the bidding stopped at $62 million – the reserve was $70 million. Of course, this resulted in NO SALE. In an effort to explain this astounding result I mentioned the fallout from the Brexit vote and the dropping of the British pound as unforeseen negative factors that influenced the sale.

I was dead wrong. Not even close to be being right. Why? In the September, 2016 issue of Vanity Fair I came across an astounding article by a writer named Matthew Hart who wrote a brilliant and exclusive account of the whole debacle titled, “A Diamond Too Big for the Ritz?”   

This lengthy, five-page report details the inner workings of the rarified world of super-large diamonds. In two 500+ word blogs I hope to distill the essence of this remarkable event for Adea readers.

HOW IT ALL BEGAN

William Lamb, CEO of the Lucara Diamond Corporation, the Vancouver-based company that owns the Lesedi la Rona, had sold an 813-carat stone for $63.1 million – the highest price ever paid for a rough diamond. This was why Lamb was looking for a bold, new way to sell rough diamonds.

He was trying to loosen the grip of the old order of diamond dealers.

HOW TO SELL ROUGHS

The Lucara Diamond Corp. had announced that this gem was a D, the best white color and a type IIa, the purest form of diamond. In the prevailing model, miners who find large rough stones sell to people who cut and polish. This high-end trade converts the rough into a polished gem, adds on as much “margin” as it can and sells to the end-use billionaire. Lamb wanted to sell straight to an end buyer and eliminate that margin.

Here’s an example of diamond pricing: Two South Africans found a 24-carat pink diamond, flew it to Johannesburg in a Learjet and sold it for $4.8 million. By the time it passed through a few more hands and got polished in New York, the price had climbed to $20 million. Diamond pricing is an arcane, rapacious art.

THE ROUGHS ARE SORTED

This is one of the diamond game’s dark arts. A mining company wants to sell all the diamonds it digs up, yet each client will have his own diamond needs, often very specialized. The right assortment in a “rough box” will persuade the client to accept what he does not want in order to get what he does.

But Lucara has super-large diamonds – it mines more of them than any other company so it sells them by sealed tender, each diamond in its own separate rate lot. Dealers hate this system because it’s a system stacked in favor of the seller. 

See next week’s blog for the conclusion of the story behind finding the biggest rough diamond in 100 years.

Shaun Nelson-Henrick

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