A bit of-known startup is buying monumental diamonds—and shaking up a $100 billion business

“That is the primary time I’ve seen a diamond this large, and I’ve labored 17 years within the business,” stated the engineer, Narshi Kalsariya, learning a 3-D picture of its intricate sides on his monitor. Dug out of the bottom greater than 7,000 miles away, within the southern African nation of Botswana, the rock weighs greater than 1,000 carats, or about seven ounces.

The dimensions alone is notable: Solely about 10 gem-quality diamonds that large have ever been discovered since people started digging for them greater than 2,000 years in the past.

However simply as notable is the corporate that at present controls this uncommon discover. It’s not De Beers, the London-based business powerhouse that mines and trades practically one-third of the world’s diamonds (most of them from Botswana). As an alternative it’s a tiny startup referred to as HB Antwerp, which was launched simply 4 years in the past by three Belgian-Israeli co-founders, Rafael Papismedov, Shai de Toledo, and Oded Mansori.

Papismedov and de Toledo, who met whereas dropping their children off at their Belgian faculty, launched the corporate with what appeared like a preposterous objective: To upend the 130-year-old enterprise mannequin for diamond buying and selling. The business has lengthy been an insular one whose abilities and opaque buying and selling networks are handed down by means of generations from fathers to sons, like household secrets and techniques.

The 2 pals wished to shift management and income away from hubs like London, Antwerp, and Tel Aviv, to the international locations the place the diamonds are literally discovered. They argue that Botswana, with simply 2.6 million folks and huge diamond reserves (and tourist-attracting elephants) has not gotten its fair proportion since Western corporations started extracting its valuable gems practically 60 years in the past. 

By many measures, Botswana has benefited massively. It was one of many world’s poorest international locations when diamonds have been found within the late Sixties, however the World Financial institution now classifies Botswana as an upper-middle-income nation. But it nonetheless suffers from excessive unemployment and deep inequality, because of its overwhelming dependence on its international commerce in diamonds–a pure useful resource that can sometime run dry. 

Whereas HB’s mannequin does little to reduce that reliance on a single business, Botswanan politicians have eyed it as a method to enhance job creation and create homegrown manufacturing–and hold extra of the income from the business in-country. Botswana’s market share in diamonds has surged this yr, because the U.S. and Europe started blocking diamonds from Russia, the world’s largest producer; that progress is giving the mannequin a vital take a look at run. 

These circumstances put HB Antwerp on the coronary heart of a roiling debate over whether or not Western corporations are fleecing resource-rich African international locations—together with these with important minerals like cobalt, that are important for semiconductors—and whether or not these corporations deepen the divide between wealthy and poor areas. These points have come into sharper focus for the reason that COVID pandemic wreaked havoc on provide chains, and as youthful shoppers more and more search merchandise that replicate their social values.

To many critics, diamonds epitomize this controversy. And HB Antwerp’s founders depend themselves among the many detractors. 

“Every part is improper with this business,” says Papismedov, sitting in its headquarters atop Antwerp’s previous diamond change constructing. For many years, he says, mining corporations have hauled out as many tough diamonds as attainable, as quick as attainable, in an effort to recoup capital bills, after which auctioned them in bulk to diamond sellers, who’ve them polished and lower into jewels. 

The African international locations aren’t the one ones who are suffering from this relentless extraction: The diamond market is hurting too. “They’re manufacturing issues that no person requested them to fabricate,” Papismedov says. “It’s a marketplace for gamblers.” After a post-pandemic spending growth, demand for diamonds has fallen steadily since 2022, as China’s economic system has slowed and inflation has risen. De Beers’ revenues sank 21% within the first half of this yr, in contrast with the identical interval final yr, and that downturn got here after a steep drop in 2023. 

Diamond sellers at the moment are pinning their hopes on Individuals splurging this Christmas season. “We’re all hoping the American season can be constructive,” Isi Morsel, president of the Antwerp World Diamond Council, the main commerce group, and CEO of Dali Diamond, tells Fortune. “Costs are the bottom they’ve been since earlier than the pandemic. Practically half the engagement rings offered in U.S. jewellery shops now are made not with pure diamonds—rocks which can be billions of years previous, shaped a whole bunch of miles beneath the Earth—however lab-grown, artificial diamonds, which value about one-tenth the value of the actual factor. 

To assault these issues, Papismedov and de Toledo wished to flip the business’s buying and selling mannequin on its head. Relatively than paying the Botswana authorities for parcels of tough diamonds, it supplied a lower of the ultimate market worth of polished gems, giving the nation a far larger portion of the overall revenues.“It’s tremendous easy,” Papismedov says, outlining HB’s pitch to Botswana’s authorities: “We take 20% off the highest. The upper I can promote it, the upper my margin. The opposite 80% is yours.” Then HB Antwerp tapped Microsoft engineers to construct a blockchain infrastructure that might make their plan work, by monitoring the provenance of the completed gems—and the income they generated—with pinpoint accuracy.

HB Antwerp’s revenues final yr have been about $181 million and its projected revenues this yr are $200 million. That’s nonetheless minuscule in contrast with De Beers, which successfully invented the worldwide diamond market—together with the slogan “diamonds are perpetually,” dreamed up by a De Beers copywriter within the late Forties. What’s extra, by sourcing all its diamonds from a single, small Botswana mine that makes a speciality of detecting large stones, HB Antwerp now possesses among the largest diamonds ever discovered 

However HB’s influence far outweighs its steadiness sheet. The startup has already helped Botswana considerably enhance its income from diamonds. Already, it has pressured the business behemoth to change its personal enterprise phrases. Now, some followers of HB Antwerp consider its method might revolutionize different mining industries which have a far higher influence on the worldwide economic system. 

Taking over diamond big De Beers

Within the diamond-trading corridor downstairs from HB’s places of work, the mugshots of dangerous collectors and swindlers are displayed on a peg board. The perpetrators have all been convicted in particular diamond courts in Antwerp, and their presence on this board successfully ices them out of the business.

The mugshot board is a veritable image of the group’s insularity–and HB Antwerp’s founders say that they felt a equally chilly shoulder from the old-timers in Antwerp. They noticed the startup’s method as a hare-brained thought, cooked up by outsiders with little understanding of the enterprise. “After we started they laughed at us,” Papismedov says. “They met us within the elevator, and advised us we might be bankrupt in two days.”

Nobody is laughing now. The startup has ignited fierce dialogue amongst diamond producers and sellers, and even sophisticated De Beers’ decades-long three way partnership with Botswana, whose authorities now glimpses the potential for extra beneficiant profit-sharing. “It’s a small drop within the ocean,” de Toledo says. “However when you perceive what’s popping out from each stone, you begin to doubt all the pieces else.”

Final yr, as Botswana negotiated a brand new contract with De Beers, President Mokgweetsi Masisi insisted on a much bigger share of income, saying, “We should not be enslaved.” (Masisi confronted a troublesome battle for a second five-year time period in nationwide elections held on Wednesday; the voting tally was nonetheless underway on the time of publication. Opposition politicians say the federal government has did not alleviate poverty or Botswana’s 28% unemployment price—issues which have worsened with the worldwide diamond commerce’s stoop.)

De Beers, which sources about 73% of its diamonds from Botswana, finally agreed to double the federal government’s share of its output (and therefore revenues) of tough diamonds over the subsequent decade, to 50% from 25%. De Beers chief folks officer Malebogo Mpugwa advised Fortune the corporate was additionally investing in packages to diversify Botswana’s economic system; 80% of the nation’s overseas earnings come from its diamond exports.  “Although diamonds are perpetually, diamond mines usually are not,” she says.

Neither, maybe, is De Beers’ clout. Earlier this yr, the corporate was put up on the market by its proprietor, the London-based mining big Anglo American. However with no reported affords to date, some analysts specific doubts about its future. “Is De Beers’ empire on the rocks?” the specialist publication Africa Intelligence requested in late September—a query that will have appeared unthinkable till not too long ago. “HB Antwerp is an actual problem to De Beers’ dominance, undermining it on the most inopportune second,” the publication wrote. (De Beers strategic communications chief David Johnson dismissed the dire prediction, telling Fortune, “We see a number of alternative.”)

The query is, how broadly adaptable is HB Antwerp’s mannequin? A Microsoft spokesperson stated in an electronic mail that the startup is being seen as a blueprint for utilizing Microsoft’s Azure SQL blockchain tech in sectors like monetary companies and well being care. So too might it’s a mannequin for buying and selling in commodities like gold or platinum, by which international corporations, not the international locations of origin, make giant income from the ultimate merchandise.

It’s arduous to foretell when that future will arrive. However Papismedov and de Toledo have already proved some extent: A brand new thought, if brazen sufficient, can problem the entrenched practices of even large multinationals. “The step they took is absolutely small, however no person ever took it,” says Stuart Krusell, senior director of worldwide packages at MIT’s Sloan College of Enterprise, whose college students traveled to Botswana final yr to analysis HB Antwerp’s operations, on a visit partially funded by HB.

Krusell believes business gamers like De Beers grew complacent from many years of business domination—leaving them deeply susceptible to disruption, particularly the growth of lab-grown diamonds, whilst inflation and the Ukraine battle have shaken the market. He compares De Beers to “Basic Motors within the late ‘60s,” when the largest U.S. automaker missed the looming menace from newcomers like Toyota. “You’re a monopoly and you’ve got contracts you thought would by no means change,” he says. “So why do something totally different?”

A ‘household tree’ for each stone

De Toledo grew up watching his father, a diamond cleaver, toil in a closed enterprise with growing old merchants. He says that when HB Antwerp’s staff launched the corporate in January 2020, their mantra was: “This can be a new provide chain. Neglect all the pieces that was carried out till now. Let’s construct a brand new one.”

Their objective was to eradicate virtually all of the business’s middlemen, who usually stretch from Africa to Israel, India, and Europe, and to exchange them with a stripped-down course of, from mine to jewellery retailer. That features coaching native diamond polishers and cutters in Botswana, fairly than exporting bulk uncooked stones to India. HB opened a diamond manufacturing unit in Botswana final yr, with 45 locals skilled in Antwerp working in well-paying expert jobs. The thought is to finally shift many extra operations to the nation. “Our solely purchasers are the folks the place the diamonds are coming from,” de Toledo says.

The availability chain can also be vastly simplified since HB Antwerp to date buys all its diamonds from one mine, Karowe, owned by the Vancouver, Canada-based firm Lucara—one other startup. Underneath the phrases of their deal, HB has first, unique rights to all diamonds larger than 10.8 carats.

The outcomes have shocked the diamond world. No fewer than seven of the ten largest diamonds ever discovered have been found in little Karowe—a pinprick on the map—and all however two of these have been acquired by HB Antwerp. The massive finds have emerged because of a German high-scanning know-how referred to as XRT, which Lucara rolled out in Karowe. It detects diamonds deep underground, to allow them to be hauled to the floor intact—a stark distinction from different mines, the place mounds of earth are gouged out, then sifted in the hunt for diamonds. And in distinction to the risky marketplace for small diamonds, big diamonds are so uncommon that every can fetch tens of tens of millions of {dollars}.

In August, Lucara’s Karowe operation discovered the second-biggest diamond ever unearthed, practically breaking a report which has stood since 1905 (items of that older rock, referred to as the Cullinan Diamond, ended up within the British Crown Jewels); in September, Lucara turned up one other big stone. “These discoveries have despatched shock waves by means of our business,” says Grant Mobley, a gemologist and editor on the Pure Diamond Council, a commerce group. “It’s unbelievable. No one anticipated it.”

However to ensure that HB Antwerp to pay Botswana 80% of the polished-gem worth, diamonds have to be utterly traceable, proper up by means of their buy by the patron—one thing that’s now attainable, because of the blockchain. (De Beers has the same proprietary system, referred to as TRACR, which the corporate rolled out at scale in 2022, two years after HB’s launch. Firm spokesman Johnson says it now tracks about two-thirds of its diamonds.)

The know-how is essential to each a part of HB Antwerp’s work. Up of their places of work someday in September, 4 engineers and knowledge scientists sat at a desk monitoring on a wall-sized monitor each diamond being labored on by the corporate, in actual time, in each Botswana and Belgium, detailing what every worker was doing. The ledger collects greater than 3,000 knowledge factors, and is refreshed each quarter-hour, creating what de Toledo calls “an inside audit that consistently appears to be like for loopholes.”

No diamond may be touched with out being related to an “HB capsule,” a small field that sits on each desk within the constructing. The field tracks every stone’s switch from one individual to a different, and connects that transition to the community. As every stone is lower into ever-smaller diamonds, a circulate chart shows the origins and connections—a “household tree, with mother and father and siblings,” as de Toledo calls it.

Starting subsequent yr, HB plans to create “start certificates” for shoppers, permitting them to purchase a bit of diamond jewellery with a doc exhibiting exactly the place and when the gem or gems have been discovered, and what number of siblings they’ve. Consultants consider that type of storytelling is particularly essential because the demand for diamonds slows. “Customers care increasingly about the place a stone comes from,” Mobley says, including that the tracing course of additional separates pure diamonds from the lab-made variations, which increasingly resemble the actual factor. “One is made in Earth billions of years in the past, the opposite is made in a manufacturing unit in two weeks in India or China,” he says. “When you may inform a narrative a few diamond’s origin, an individual will fall in love with that stone.”

Vivienne Walt for Fortune

HB’s founders hope that’s true. Already, they are saying, their blockchain affords traders uncommon, dependable details about the potential marketplace for the diamonds, making it simpler for the startup to boost capital. “At any given second, they know what the worth is of the stones, and that’s related to that debt,” de Toledo says.

That might decide whether or not HB is ready to replicate its enterprise elsewhere—for instance, in close by Democratic Republic of Congo, dwelling to massive reserves of copper, tantalum and different minerals, and the place three-quarters of the world’s cobalt is mined. That nation’s president, Felix Tshisekedi, visited HB’s operation in Botswana final yr to check its mannequin.

De Toledo sees that curiosity as an indication that the corporate would possibly play a much bigger function forward. “The purpose of HB is to not be within the diamond business,” he says. “It’s to point out the mining world how a provide chain ought to look.” 

CLARIFICATION: An earlier model of this story misidentified the function of Oded Mansori. He’s a co-founder of HB Antwerp, in addition to managing companion.