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2/27/18

Your friendly reliable Cassandra on the Lucara (LUC.to) news

There are so many red flags to this idea it's difficult to know where to start.

1) Wouldn't you love to know just why Lamb decided to resign rather than go along with this whole "disrupt diamonds" gig?

2) You remember how he got its hind quarters handed back on a plate on the Lesedi La Rona? How LUC put it up for auction in its raw state for U$70m reserve, how the establishment warned the market to stay away, how bidding only got to U$61m, then how it was quietly sold a year later for U$53m? 

3) And now LUC is taking on the establishment again, only in a much more dangerous way for De Beers and all its friends.

4) What's more, Marin Katusa manages to get a seven thousand word report out on the LUC plan, with nuance and the whole "disrupt mining" strategy, within about three minutes of the  NR coming out yesterday. Katusa of all people! The single worst and most blatant pump and dumper in the sector (and my stars there's competition) gets the quiet inside backstory from the Thomas/Lundin/McLeod Seltzer triumvirate and manages to put it all into a long 'splainer words of two syllables max for his willing crop of retail, proofed to within an inch of its life and all shiny-clean ready to roll. I mean, gimme a break here, the quiet tip-off to the chattering classes is one thing, blatant inside information from a supposedly whiter-than-white board of directors to the worst offending BS artist in Vancouver is quite another.

5) The thing is, the "disrupt mining" plan is being laid out as if LUC is the diamond world's answer to Uber. It's not. Big differences. As in biiiiiiiig differences. Taxi driving is a business model that has a deep supply pool and had a product with obvious cost weakness. The majority of adult human beings can supply the skill (drive a car) but only a few people were allowed to charge money to drive a taxi (badge holders, who paid a prohibitive price for the privilege). So lets talk about diamonds for a second:
  • The rough diamond is a small part of the price you pay for the finished product. I'm not a diamond expert and will never pretend to be, but even I know the difference between a rough diamond and what you see set in an engagement ring. I know the price a company like LUC gets for its diamonds on average and the price of a cut stone. I know what the "Four Cs" are and only three of them depend on the quality of the stone, while at least one is all about how human hands treat it and arguably two others are highly influenced by the skill of diamond cutting.
  • Which brings us to the second key point, the finished product depends on highly skilled labour. This is not driving a car, it's not letting out your owned property for a night. Very few human beings can do the job we're talking about here, the equipment is expensive, the sector prohibitive to enter. 
  • Which also means that a small overall supplier to those human beings, i.e. Lucara, can either try to steal the lunch of the big player in the sector (De Beers) and be crushed like a pesky insect, or it can STFU and make its reasonable profit on the things that come out of its mines. When the call goes out from De Beers to stay away from all LUC diamonds, not just a single 1,109 carat example, LUC will suddenly find its wares on a secondary market at secondary prices.
  • And we haven't even mentioned the certification process yet! A closed shop like no other and controlled by serious, establishment money, they will of course let a big, headline-making diamond of size get the labels it deserves but what happens to the normal run-of mine material from a company that wants to wrest the market away from the people who pay their dinners?

What LUC announced yesterday is its own suicide note as a diamond miner. The upper echelons of De Beers will be worried about what was announced, but do you seriously think they're just going to let LUC take their market away thanks to a new-fangled blockchain idea? They've never faced competition to their quasi-monopoly before? They haven't squashed any newcomers like nuisance gadflies before? They've remained at the very top of one of the most profitable businesses in the world using totally above-board and proper business strategies? That Marin Katusa is in cahoots with this scheme is all the more sophisticated sector player needs to know about LUC going forward, but it only takes a few minutes' thought to see the glaring holes and obvious mortal weaknesses in what LUC is trying to achieve. It's less "disrupt diamonds", more "disrupt retirement plans of LUC shareholders" and the daydreaming fools now running this company need to be stopped for their own good.