How the Public Missed the Sale of Lesedi la Rona at Auction

The Lesedi la Rona is no doubt a rare diamond of exceptional quality and size. It is unusual and remarkable. Mined in Botswana by Lucara, this exceptionally large diamond is a beautiful and extremely rare find. After examining it, I believe it can yield a very high-quality fancy shape cut polished diamond weighing over 350 carats, alongside several additional secondary diamonds of significant size and quality.

Many were surprised that the diamond didn’t find a buyer at auction. There are several reasons why, and I want to discuss a few them. First, there has been no recent precedent of a sale of such an exceptional polished diamond either directly to a private buyer or at auction. 

This is important because when considering an exceptional diamond for purchase, one looks for price history. For example, after I sold the Blue Moon at a record price , several other blue diamonds were put up for auction as well and sold at very good prices. The buyers were willing to pay based on the recent price set by the Blue Moon.

The same applies for works of art. The price of a Picasso is influenced by how much was paid for it in the past, and prices achieved by comparable paintings. Without a comparable diamond, it is difficult for a private buyer to assess the diamond’s value.

The Cullinan, the largest diamond ever found, cannot serve as a benchmark given the great span of time that has passed since it was discovered more than a hundred years ago. Some tried to compare the 1,109-carat Lesedi la Rona with the 813-carat Constellation Diamond. However, these two rough diamonds have different features and will differ in their polished outcomes. So apart from both being exceptionally large, they have little in common in terms of characteristics.

The high bid for Lesedi la Rona reflects the expected yield of the polished outcome in terms of size, color and quality. There are two reasons for the gap between the highest bids and the reserve price: 1) the risk factor involved in manufacturing such a diamond, which creates uncertainty about profit margins, and 2) a severe lack of public education regarding the value of these rare diamonds.

It is not only the fancy-colored polished diamonds which have begun to gain recognition from collectors and investors that fall into this category. All 50+ carat white polished diamonds are just as rare.

So the two ways to assess a diamond such as the Lesedi la Rona are its historical and rarity value as the second-biggest gem quality diamond ever found, and the financial value of the polished outcome of the diamond. Since it holds these combined values, it requires a serious financial investment. At the same time, the risk factors naturally associated with polishing such a diamond are high. This risk factor should not be neglected considering the size of the financial outlay.

In light of the above, bidders and other potential buyers probably made the following commercial risk assessment: [polished value] subtract [profit margin + risk factor]. I think that had the diamond been of the same quality, but smaller and lower cost, the discount on the risk factor and profit margin would have been much smaller.

An auction at Sotheby’s was the right platform and forum

A rough diamond of this size and quality is a historical revelation. The value of rarity should be of interest to collectors or savvy investors looking for one-of-a-kind assets or additional channels of investment. The problem is that the diamond industry failed in its task of advocacy and educating the public to recognize the value of rarity.

Photo: Courtesy Southey's

The diamond industry, which should be responsible for educating the public and preparing it to appreciate the rarity and value of such diamonds, has not yet made the transition from approaching diamonds as a component of jewelry to a perception of diamonds as an asset with the unique value of rarity.

If the diamond industry had recognized the problem and educated the public, I am confident that collectors and investors would have had an interest and purchased the diamonds enthusiastically. This is why Sotheby's is the right platform and forum. It has the ability to cater to these needs, to raise awareness, and to reach out to different audiences.  Sotheby’s can reach beyond diamond dealers, who attend auctions regularly, to savvy collectors and investors around the world seeking objects of dual value: the value of the rough diamond, and the potential value of the eventual polished outcome. In addition, Sotheby’s road shows and public relations activities, which promote and educate the public on rarity, provide real added value.

Moreover, the advantage of selling through Sotheby's is that it is an "open sale": the bidding is published on the spot and the bidder has the ability to compare bids, and to make calculated and rational decisions.  This type of sale is very different from the closed bids customary in the diamond industry, where potential buyers have no knowledge about other bids, and must act with less information at hand.

Some argue that selling through Sotheby's involves fees that increase the cost of purchase, but this is a mistake. Open bids are worth the premium. I would advocate for the diamond industry to shift from the traditional closed bids to an open bidding system.

Furthermore, open sales increase public awareness of these rare diamonds and thereby establish a market for them.

RoM diamonds in decline vs large rough diamond stability

The current decline in prices of run of mine (RoM) diamonds has no connection with the resilient prices of rare rough or polished diamonds. The decline of general rough prices is the result of internal issues within the structure of the diamond industry, a lack of generic diamond promotion work and a continuing global economic crisis. One could argue that if rare diamonds are promoted in the right way, the public may begin to perceive them as a financial safe haven, like gold.

At the moment, the industry is not promoting diamonds as an asset for investment and wealth preservation. Diamonds are almost only promoted and considered as a jewelry component. Rare white diamonds, such as the Lesedi or any rare white polished diamond larger than 50 carats, are not getting the attention they should. The public is completely unaware of the whole story of these diamonds.

The comparison between the prices of large rare diamonds like the Lesedi with general “run of mine” rough prices is wrong to begin with, because it is not a like-for-like comparison. These are two completely different products, which serve completely different markets and different purposes.

White polished diamonds above 50 carats are rarer than artworks, which are sold in similar amounts. Rarity creates demand, demand creates a market, and a market creates resale value. With promotion and education, as exists for other rare and unique products, we will create awareness among potential buyers. A 100-carat diamond is not a jewelry component. It is an extremely rare object, in some cases much rarer even than art masterpieces, and it should be recognized and treated as an asset that maintains its value.

If the diamond industry takes up the challenge and engages in promoting these aspects of rare diamonds, we will not reach a situation in which hundreds of carats of rare white diamonds will start to accumulate. On the contrary, a demand will have been created for diamonds as collectors' items, and/or as a potential asset for investment or capital preservation.

Perhaps the rise of a small and brave company like Lucara, which certainly may find additional rare diamonds, is a game changer and turning point for the diamond industry. Through campaigns that educate the public about the rarity value of diamonds, awareness will start to grow. As a result, there will be higher demand, and thus no risk of oversupply of rare white diamonds. Moreover, we might even reach a stage where the diamond industry cannot service the demand because of a shortage of supply, as these diamonds are extremely rare.

The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified adviser.