Diamond Market: Featuring Primer on Sanctions With Paul Zimnisky

0:08 Awesome. Well, good morning or good afternoon, depending on where in the world you're logging in from today, or good evening, even some people on the panel. Thanks so much for joining us for today's event on the Diamond Market, featuring Nathan Williams, CEO of MindSpider, Diamond and Gemstone industry consultant, Robert Wakewalker, and George Reed of Star Diamond. Before that portion of today's event begins, we're going to be starting off with a primer on diamond sanctions in Russia, Diamond expert Paul Zaniski. Paul, great to be here with you. Thanks for having me. Awesome. So a couple of just really brief questions to lead off. But I'd love to start,

0:38 as the primer says, to tell us about how Russian sanctions have impacted the market for diamonds globally. Yeah, so I guess just to set the stage and provide you with the backdrop. So shortly after the invasion, probably within just a few weeks, the US implemented 3 rounds of sanctions on Russian diamonds and the primary Russian diamond miner, Alrosa. So that was in early 2022. And that was kind of the first big catalyst as it relates to this. The big caveat to understand is there's a lot of nuance around this. These sanctions are quite complicated. And as it pertained to those early US sanctions,

1:25 it only basically related to diamonds that are directly imported into the US from Russia. And that technically excluded diamonds that are produced in Russia but cut and polished outside of Russia. And those goods could still be imported into the US. And the technical term they use is transformed. So if those Russian diamonds were transformed from rough diamonds to polished diamonds, and that transformation took place outside of Russia, technically they could still be imported into the US. That said, around that same time, I would say most of the major jewelers in the Western world, this includes Signet Jewelers, which is the largest diamond seller in the world.

2:19 They're primarily in the US, but also in Western Europe. And then if you look at LVMH, the large luxury conglomerate that owns Tiffany. And if you look at Richemont, that's the luxe conglomerate that owns Cartier and Van Cleef. All of these companies basically self-sanctioned, if you will, and said, we are not going to import any Russian diamonds, and we aren't going to supply any Russian diamonds whatsoever, even outside of the sanction specification. So those were kind of the first, I would say, primary impact of this issue. And it's important to understand that at the time, the diamond industry went from a state of being undersupplied. We had record demand for natural diamond jewelry globally in 2021 and 2022.

3:16 That was mostly off of the back of $7 trillion in US stimulus. People were locked in, they couldn't go out and travel, they couldn't do these more experiential luxury things. And people had disposal income and they use that to buy hard luxury items and diamonds did particularly well. So we had this, you know, very unusual, you know, 2020, which everybody was locked down to, you know, all the stimulus in 21 and 22.

3:49 So we had all this, you know, significant volatility and demand for diamonds. And, you know, I would say by early 2022, the supply chain was, was literally running out of, out of diamonds. They, they, they sold so much in this, say the previous 18 months. And then, you know, when the industry began to restock, you know, in the back half of 22 and early 23, a lot of these catalysts that led to that record demand were reversing, The stimulus was running out, economies were reopening, people could spend

4:20 discretionary income on travel and going out to dinner and entertainment events. So we had basically a switching of these fundamental drivers, right as the industry was aggressively restocking. So we've had an oversupplied diamond market, I would say, especially towards the mid and end of 23, that's carried over into 2024. So the point being is, I think the impact of the sanctions and the reduced supply because of the sanctions to the Western market. It wasn't felt by the industry as much as you think it might. And that's because the industry was subsequently going through this super volatile period of demand and restocking the last couple of years. And then just to maybe fast forward to 2024.

5:08 So, basically following up on those US sanctions, the larger G7, the EU, so we're talking, basically the developed West, they worked together to coordinate and basically ratchet up those US sanctions. And we're seeing that rolled out in 2024. March was kind of the first catalyst for that. Any diamond that's 1 carat and larger is covered under the larger G70 sanctions. And importantly, this includes diamonds that are transformed or cut and polished outside of Russia. So I would say it's much more stringent sanctions. The plan right now is, you know, in September, that cut-off's going to be reduced to a half a carat.

5:55 So this is a, it's kind of a slower moving process. This has been going on for a couple years. The trade, you know, was expecting this. So you know, we aren't really seeing any acute supply disruptions because I think the trade was preparing for this. It was well understood that this was gonna be happening And the industry is still kind of dealing with that oversupplied situation. And I think that's going to kind of be worked through most of 2024. So there's all these moving parts. And despite the sanctions, There really hasn't been acute supply disruptions. I think at least we're speaking more generally because of all of these moving parts.

6:41 I appreciate that. I'm curious, I know there's some crystal ball gazing involved here, but just from your personal perspective, how long do you believe this current sanction regime will last? Man, that's a big macro hard questions. I mean, I have I have no idea. I guess if I was to guess, I think it's going to probably last, you know, maybe a little bit longer than than some are expecting. Than some are expecting. And maybe you can put up that chart I sent you, Romeo. This is basically

7:11 how I think these sanctions are gonna impact the market through at least the end of 25. And if you look at that, you know, the dark line, that's global, that's my global diamond production figures and value terms. And the dotted blue line is the net supply available to the G7 and EU market net of the sanctions. And again, you'll see some variation there, and that's because we had the original US sanctions rolled out in 22. And then you'll see in this year, you'll see a significant amount of that global supply comes off because those sanctions are now applying to the larger G7 and EU. And then you'll see a further

8:00 impact as that second phase of sanctions is rolled out this year to include even the time is up to 0.5 carat. So again, you know, it's kind of been a process that's been playing out. But, you know, a significant amount of supply, you know, is going to be coming off, you know, as far as what's available to the Western consumer economy. And we're talking about diamonds. Demand is very concentrated in the US. The US is basically half of global diamond jewelry demand. And then if you add, you know, the rest of the G7, we're getting upwards of, you know, almost 3 quarters of global diamond consumption comes from those nations. And then if you look at Russia as a supplier, Russia is the largest diamond supplier by volume. You know, almost a third of diamond supply by volume

8:54 comes out of Russia. You know, it's a little bit less when we look from a value standpoint. But you're talking about a significant amount of supply coming offline from the largest volume producer and it's directly going to impact the largest consumer market. So, I mean, this is definitely a material. Again, I think that the big takeaway for anybody listening is this has been in the process for a while. There's a lot of complex discussions happening on how to make this work and enforce it in a way that it achieves the goal without disrupting too much of the supply chain. But at the end of the day, it's going to fundamentally transform the global diamond supply situation.

9:41 And I think the last thing I would note is that part of the sanctions and this detail is still being worked out, but part of the sanctions is that there's going to need to be some sort of, you know, digital ledger or some kind of blockchain enabled technology to trace the diamonds and to prove that diamonds coming into the West are not of Russian origin.

10:05 So basically, the authorities are saying just a declaration isn't enough. We need some technical proof. But I think the result of this is going to be a much more transparent diamond supply chain. And I think the implication of this kind of goes beyond the sanctions. And it could be

10:22 essentially a tool that the market and the industry could use to brand diamonds and market natural diamonds in a way that they haven't before with an origin. And again, I think Canadian producers could certainly benefit from this. The majority of diamond consumption takes place in North America, and I think just the geographic proximity and people in America have family in Canada and vice versa. There's a lot of special connections the Americans and the Canadians share. And I do think there's a good opportunity for the industry to market natural diamonds by their origin and kind of tell the story that diamonds do do good. There's a lot of social benefit. We've certainly seen it in countries like Botswana and Africa.

11:11 But I think you can say the same in Canada. If you look at Northern Canada and Yellowknife area and the impact that it's had on indigenous populations, I think it's quite significant. So I think there's a good opportunity for

11:26 the diamond trade to tell that story and use this as a tool to market natural diamonds as well, especially as natural diamonds are competing more and more with manmade diamonds. I think it's certainly a tool that could be used to separate

11:41 natural diamonds and kind of increase the appeal. I appreciate that. I know there's elements of that that we'll get to later in this discussion as well. There's one last question I've got for you as part of the primer before we jump into the rest of the conversation. Reuters reported, I think it was the 17th of May, that there's been some industry backlash on the sanctions in the United States. So my question to you, and again, there's some crystal ball gazing involved, so understood, but do you think the US will follow through on traceability requirements given the backlash from the industry domestically? Yeah, so I think the end result, there's definitely gonna be traceability. There's gonna be significant improvement in supply chain transparency. I think what you're referring to is kind of the details on how to enforce this, how to audit this. And right now there's industry debate whether or not Antwerp should be the sole hub for the initial audit or whether hubs should be also opened in, say, Canada or Botswana to make the logistics easier. So there's a lot of industry debate on the details. I think it's understandable.

12:43 But the diamond industry has a pretty impressive track record of coming together. It's a very, very diverse industry, you know, across, you know, countries and cultures and religions, you know, nations of different levels of, you know, economic development. It's a, it's a, it's a, it's a fantastically diverse industry from that standpoint. And the industry has done a really good job of coming together

13:08 despite all of that. It just sometimes takes more time than everybody would like. But I think the end result is that the key is to get everybody on the same page, make sure nobody feels disadvantaged.

13:22 And I think the trade is kind of aligned with the intentions of these sanctions, but wanna make sure that it's implemented and audited in a way that doesn't do too much disruption to the supply chain, but also, you know, effectively, you know, polices these new regulations. Awesome. Well, thank you so much for this primer. Really appreciate all the context and information. If anybody has any questions for Paul, please shoot them through to the email this invite was on. I'll make sure that he gets them. Paul, thank you so much. Thanks for having me, bye. Cheers. Nathan, George, and Robert, interested to have you guys pop on. We can continue the conversation.

14:04 Hey guys. So I wanted to dive right into our follow-up chat, if that's okay with you guys. So I'll let you do quick, quick pitches towards the end, But let's get right into the conversation. So given Paul's comments about America's likely willingness to comply with these new standards of where he thinks that pushback is coming from, I'm curious from the Canadian perspective, what do you guys think? And Robert, I'll start with you if you don't mind. What do you think is going to be Canada's perspective and whether the industry will have the same impact on that perspective as in the States? Yeah, thank you, Romy. I think, you know, there's, well, in short, the G7 as an organization typically moves in lockstep. 1 decision for 1 is typically mirrored by all the other. And the United States has really taken the lead on this sanctions effort, as we've seen over the last year or so.

14:55 I think, in addition to the remarks that Paul made, I think it's very important to note that Canada is currently in the process of developing a node center to issue G7 certificates for Canadian diamond mining producers. And it is planned this will be operational

15:15 by the 1st of September 2024. So it's really sort of stealing a march, so to speak. I think Paul made a very good point. I think it's a really great idea for

15:29 the verification and certification process to move closer to the origin, to move closer to the source of diamonds. And the European Union guidance, which was issued on the 1st of March, included this statement in conjunction with its Canadian partners that Canada is developing this certification scheme within the country. So I think that's a super beneficial element. I think Paul alluded to some of the marketing through origin and traceability, which has never really been carried out by the industry until now and I think the efforts the federal government is currently putting in place to develop this certification I think will be extremely welcome but I think it will reward also those diamond producers existing or in the future in Canada.

16:20 I also appreciate that, Robert. George, I'll throw it to you, same question. Feel free to agree or disagree with Robert to your preference, but what do you see as Canada's likely reaction and how it'll respond to industry pushback? I think Canada would be very compliant. I don't foresee any problem. I think we have, as Robert has already emphasized, we are in a very advantageous position because Canada is the only producer within the G7 of diamonds, and Canada is a significant world producer. I don't think we need labour that point, both in terms of proportion of carats and of significant value.

17:01 There is some 46 billion dollars of diamonds that have come out of Canada up to the end of 2023, so it's not a shabby producer at all. And so I think Canada will be very compliant. Canada was in the forefront in the adoption of the Kimberley process in the early part of the millennium. And certainly, that process worked effectively.

17:29 When we have moved diamonds to Antwerp for valuation purposes. We have interacted with our federal government. They have been extremely efficient in assisting us with that process. So I assume that it will be a very workable system that will be put in place. I appreciate that. Nathan, it might be good actually if you introduce MindSpider generally and then jumped into your perspective on how Canada is likely to react to the sanction regime. Well, certainly. So For everyone who doesn't know, my name is Nathan. I'm the founder and CEO of MindSpider. So we're a traceability company. We issue digital product passports for raw materials. We are very active, predominantly in the metals industry. The diamond industry is relatively new for us, but we've got passports for diamonds, for raw materials, and the idea is that these are digital records or digital documents that can show information about

18:28 the product itself that can be linked together to show origin and supply chain history. So it's a provenance proving mechanism. And so with that understanding,

18:43 I see the diamond industry as sort of part of sort of a global movement towards more transparency. I'm seeing more transparency coming, not less. It's coming both from a desire to be more ESG compliant, but also from an increased nationalism. So there's sort of 2 contradictory forces that both move us towards desire for more transparency. And I can't see Canada moving away from that, especially when you've got forces like the US and the UK that are already strong trading partners with Canada that are adopting these types of sanctions that are moving in a more transparent direction.

19:33 And especially when Canada has something to gain from their industry becoming more prominent, usually with transparency, you find that the first movers, they have a harder time justifying the ROI in the first year, but then as soon as it becomes sort of industry norm, they're head and shoulders above the rest. And so you've got a reason to continue. And so, especially in this area where the Canadian government is going to have to weigh the cost of implementing sanctions and the risk to the Canadian industry versus the risk of not going forward. It almost seems like a no-brainer. I appreciate that. I'm going to jump into a bit more of a specific question. I'll start in the same order. So I'll start with you again, Robert.

20:21 Curious, I mean, we've already talked about what impact that is gonna have on Canadian diamond producers. I'm curious your perspective on how it'll impact kind of downstream Canadian diamond project developers, explorers, et cetera.

20:34 Yeah, it's an interesting point. I think we need to sort of slightly take stock at the moment, and again this was a theme that was introduced by Paul, and I think it's very important to clarify at the moment that a sanctions regime is one that changes.

20:53 It's changes, it has to evolve, it has to meet, especially within the context of our global diamond industry, plenty of different stakeholders and ensure that it supports livelihoods across a variety of continents and different global economies with different outlooks and so on. So I think you know what we're seeing is certainly a sanctions regime that will need to be malleable. It will need to be reflecting, importantly, diamond producing countries. And I think the move or the sort of sounds we are hearing without anything being publicly announced on this,

21:39 that diamond producing countries are really pushing for a center of verification to happen at the source, I think is a really important step in particular for Canada, but also the other diamond producing countries to ensure that they can therefore have an absolutely marketable story of their own origin diamonds by removing the necessity or not having the necessity, I should say, of a third party trading center verifying diamonds. You're actually reducing the risk by mitigating that. The story that's downstream, I'm sorry, I should say from upstream all the way through to downstream becomes much clearer. And I think one of the issues that the diamond industry has faced, say for 30, 40, 50 plus years, when it has been asked around the origin of diamonds is there is not a single piece of technology that can, with 100% sort of confirmation and without human elements of verification, state that a diamond comes from this part of the world or a diamond comes from that part of the world.

22:49 That technology may come down the line in the future, but we're always subject to a human being giving that declaration. And I think having

23:01 a centre of certification set up in Canada before those diamonds are exported really enhances and bolsters the ability of not only the mining companies, but going all the way through the wholesale part of our trade into the downstream stores. And I can sort of envisage marketing strategies that really pick up on this, that certain jewelry stores may only want to sell diamonds from Canadian-produced diamonds. I mean, they might not want to, they might want to segregate their products because that's the type of footfall and the demand of their retail base. There are all sorts of different benefits or strategies that organizations could employ from this.

23:50 But we, as I say, we're closing in on the 1st of September and we're hoping some more guidance and updates will be forthcoming.

23:59 But it is certainly a major change and one that is rooted in sort of enhancing that verification point at the source of diamonds which is extremely beneficial and we're hoping to see many strands of the diamond industry reap the rewards of that. That'd certainly be nice. Nathan, sorry I know I said we'd go in order but Nathan this might actually be a good time to talk about, just given Robert's recent comments, how MindSpider's traceability technology actually works just for people in the audience to give us a sense of how MindSpider operates?

24:34 Certainly. So you have to imagine that we're creating a digital record of where our material came from. There are different schools of thought and different approaches for how you can do this. And we've tried a few different ones to see how they work. You can imagine the most obvious and most intuitive example would be the digital twin model. So you take a diamond off the ground and you make a digital diamond. And then whenever it goes from place to place, then it gets a stamp like a passport. And so that at the end of its journey, then you can read the history and see the history from those stamps. Now, this is 1 model.

25:20 The model actually that we use today is a little bit different. So instead of creating a digital twin that is a mirror of the physical product, like the nodes on a graph, instead we're making it so that it mirrors the edges of the graph.

25:34 So what we do is our digital passports record transactions from 1 entity to another. So we can say company 1 got a diamond out of the ground and sold it to company 2, or a thousand carat package or something to that effect. Then company 2 polished them and sent half to company 3 and the other half to company 4. And so by linking those edges together, what happens is you're able to handle the transformations a little bit differently. Now,

26:04 when looking specifically at why we do it this way, first of all, it's a very light touch approach. We didn't want to do something that was too invasive because what's better than perfect data and perfect traceability is more traceability. Because the more data that you have, the harder it is to sneak under the radar.

26:31 And to Robert's point, looking at how no one is going to have the perfect technology to be able to say for absolute certainty 1 diamond is from somewhere. But the more data that you have and the more companies that are supplying data on where diamonds come from, the more confidence that we can have when we receive a diamond or a package of diamonds that has data

26:57 that was supplied by multiple people and you've got a triangulation of data, so you've got difference in colour and clarity and you've got different data points that have been collected, not at 1 central hub, but at different points along the supply chain, you get a better confidence. And when you're looking at protecting your own company from accusations of selling in a diamond that's subject to sanctions, then of course you want perfect data. But if you're looking at how to improve the industry as a whole, and how the industry should and regulators should cope with trying to accomplish their goals,

27:43 a wider net is preferable. Oh, great. I think that primary is probably helpful for folks in the audience who might not be aware of even, you know, this arena of how traceability works. I know I'm jumping around a bit, but there's a question in the chat that I want to just kind of push in right now because I think it's really on topic. This is from Rock, and he asks, and George, I'll start with you here, but I do want to get everybody's perspective on this one. He asks, long term, how will the lack of provenance impact existing sold diamonds? He asks, if he can't prove the provenance, will that resale value deteriorate over time? George, I'll start with you on your best guess for that. That's quite a difficult question to answer, but I would guess that no, it wouldn't affect it, but because presently there is not really a fail-safe method of putting a diamond in a machine and saying, oh, this diamond comes from Angola.

28:40 You may be able to, if you've got a package of diamonds that included more than 1,000 carats, you may be able to hazard a good guess. But other than that, it's a diamond, it's a diamond. And I think that it will not have an effect.

28:56 Certainly, your mother's engagement ring will always be precious to whoever receives it. And I'm confident in that. And I don't think we need to concern ourselves and put burdens on the past of where the diamonds came from. I think I've said sufficient. I don't need to put my foot in it any further. It makes sense. Robert, curious, curious in your perspective, how you think that'll affect long-term value of existing diamonds?

29:25 Yeah, sure. And this issue of existing stock or existing diamonds, whether they're sitting in the wholesale trade or on people's jewelry, you know, we're getting a lot of questions about this. You know, what can we do? We bought these diamonds in 2015 or 2019, before there was any semblance of economic sanctions on Russian-produced diamonds. What can we do? I think this really is a key question, which I know is being put to a number of the key decision makers within the G7 and the European Union to understand

30:02 exactly how. And I think for retail in particular, if they're buying a stock of polished diamonds from a wholesaler across the other side of the world, they need to know for their own customs declarations now where those diamonds have come from. So this issue of pre-existing goods, or as it's sometimes called in the market, grandfathering or grandfathered goods, in short, we're waiting on guidance. But all the soundings And the initial wording that we saw in particular from the European Union states that goods from before goods, and I mean, rough or polished diamonds, whether they were done outside of Russia or not, prior to the 1st of January 2024 would not be subject to these sanctions and therefore would be freely tradable across relevant customs borders including the G7 EU. However those rules are not absolutely, well they certainly haven't been clarified yet And we certainly haven't seen guidance in writing from the G7 and European Union as to how they wish to treat that.

31:13 But our understanding is that there won't be any restrictions or control. So to that end, would we therefore see an issue on the value of existing diamonds? The answer should, and I agree with George, most likely be no. But as I said, I think unfortunately we still have to wait a few months for clarifications to be made on that front. Appreciate that extra context. Nathan, any thoughts on that before I jump into the next audience question? Just to be different, I'm going to say yes. So The, I don't know how much it would be, but the, I think that what we have to think about is that right now we have a sanction, but We don't have an established mechanism for traceability that is used across the industry. We have promised that there should be 1 or a declaration that there should be 1. You've got guys like me that are coming out and saying, here, we've got one.

32:13 And that makes it a little bit easier. But you don't have it rolled out on a wide scale yet. It can be, give me a call, you know, let's do it. But I think that once you see that it becomes the norm to have traced diamonds, I don't think that it's going to completely stem the trade of previous diamonds or things like that, but you might get people asking, like, oh wait, is this a Canadian diamond? Is this not a Canadian diamond? Is this something that has provenance? I think that the success or failure of creating a price differential is going to depend on just how widely it is adopted and just how desirable it is. Basically, if you've got a way of differentiating 2 different products, then if one is more desirable than the other, then you're going to get 2 different prices.

33:07 Doesn't mean that the resale value is going to tank, but it does mean that everything depends on what the consumer will pay for. And actually, speaking of 2 different prices, there's another audience question that I wanted to tackle as a group. Wes asks just broadly for a discussion on the status and future of artificial diamonds. But to narrow it in a bit more, I guess what I'm curious about is with increased traceability and sanctions and efforts being put on determining the provenance, how do we think this will impact rough versus artificial diamonds? And how do we see those streams changing given how the industry is looking at it. George, I can start with you, and then I'll probably jump to Robert. My comment straight off the bat is that there is already a huge price differential that exists between man-made diamonds being a whole lot cheaper.

34:03 I looked at my daily Lightbox newsletter today, and I couldn't believe the prices. But certainly, the diamond that you, a natural diamond that you buy, is not made in a factory. It's probably at least 2 billion years old. That comes from a diamond mine. And it has a very deep history. And I think that's the cachet that is attached to natural diamonds, and that's what makes it valuable. And I think there will be, as there were, as developed some time in the past already, a market for synthetic pearls, if we want to culture pearls, and natural pearls, Tahitian pearls, the same differential I would like to think already exists in the diamond market. There is a suggestion that once you purchase a man-made diamond, it has very little resale value.

35:06 That might be anecdotal, but it might be real. Perhaps Robert can comment on that a bit more. Certainly, there is already a differential between the markets. And I don't think you can buy a man-made diamond from an ethical point of view because we mustn't put aside the fact that diamonds require a lot of energy to manufacture. And that might not necessarily be green energy. I think I better leave it at that. That makes sense. I think, yeah, yes, people sometimes forget all the coal you need to get electricity. But all right, I'll throw it to Robert for just your views on if you think these cultural market forces are going to impact that divergence between artificial and real diamonds? It's a very interesting question and I think there is no question within the last 3 years there has been an incremental rise and some would say exponential but a huge market rise in artificial diamonds being sold at a jewelry level. Typically this was the preserve of going back to the 1950s of predominantly industrial purposes. But clearly, a lot of consumers have been attracted to ultimately what is visually identical product when you look at it on the finger and compare it with a natural diamond at a much, much increased price point. And that's why we've seen a near threefold increase

36:39 in lab-grown jewelry sales just in the last couple of years. But it's important to understand, I think, if we're thinking to Wes's question around the status and future of artificial diamonds and where the lab-grown trajectory is going, I think it's important to find where did its boost and where did this market really take off from? It really took off from what was ultimately a totally unprecedented period of What suddenly became very high interest rates and high inflation that gripped? You know all economies around the world and as a result people had to shift incredibly rapidly to alternative consumer behaviors or consumption behaviors around discretionary products.

37:30 I'm not just talking about diamond jewellery here or luxury purchases, but also, you know, all sorts of discretionary purchases, including clothing, clothing brands. So people were looking at alternatives. And as a result, you know, when you have a sort of mass market of people who are looking at will tend to buying jewelry for themselves, and I would say coupled with some excellent lab grown, especially here in Europe, lab grown jewelry wholesalers marketing the product extremely well and very visually on televisions and all over their stores, it's really benefited from what is ultimately a macroeconomic issue. The consumer, whether we like it or not, has much, and this is across all the leading economies of the world, has much reduced spending power as it once did, especially to Paul's point earlier in 2020 to 2022 when the sort of unleashing of pent-up saving power resulted in a sort of almost 30% month on month increase in diamond prices, which was completely unprecedented and unheard of.

38:40 You know, the falling off the cliff of this sort of dual threat of high inflation, high interest rates brought about the lab-grown boom. Now where it goes in the future really remains to be seen. And a lot of that revolves around how much marketing and how much work the natural diamond industry is prepared to not only do but also invest. And we're seeing some strong signals from some leading mining companies and leading in particular US jewelry stores who are seeking to sort of pull themselves out of this period by sort of marketing much more strongly natural diamonds.

39:26 And I think a lot will be known after the JCK show this week in Las Vegas. But we're hoping that a corner, although gradually, can be turned and the recovery can therefore be gradual in the same way I think economists globally are seeing a very slow and gradual return to normality, we all hope and expect to see of the global economies. Thanks Robert. Nathan any comments on artificial diamonds before we just jump into a couple more audience questions? I mean it's really hard to say what direction consumer spending is going to go. We get a crystal ball and we sort of look to the future. But I think that it would be safe to say that, you know, millennial Gen Z and next generation is going to have different spending habits and different spending preferences than days of yore.

40:21 And so I would anticipate a different attitude toward lab-grown diamonds, whether or not they see them as equal. There may even be a preference toward lab-grown diamonds, depending on if they're perceived to be more eco-friendly or if they're not. I think that as the traceability guy on the panel, that for me, as long as you can trace them and you know what you're buying, that's the important thing. If you want, it's important to know what the provenance is. The provenance is a lab. Well, you know, you're buying a lab grown diamond. If you know the provenance is it's 2 billion years old and came out of the earth, then you wanna be able to know that because that's where the history and the soul of the thing come in.

41:08 No, appreciate it. I'll just read one comment from the audience, from Alison. She just notes, I think it's an interesting point, but forget about the S in ESG when they're talking about lab-grown diamonds. The jobs created, secondary and tertiary businesses created, supported community benefit agreements, investment projects, etc. Something to keep in mind. I think it does drop out of the conversation sometimes. People just hyper-focus on certain elements of ESG, so I do appreciate that comment. Nathan, I'll start with you on the next one. This is also from the audience and feel free to answer to the best of your conjecture. But Tom wants us to comment on whether he believes De Beers will modify their present blending of Ruff to fit in with the blockchain model. So Nathan, just curious of your perspective or where you think De Beers is likely to go in that direction. To be honest, I'm not 100% sure what De Beers is currently doing.

41:58 Yeah, fair enough. I think we better pitch it to Robert, I think. Sure, yeah. Robert, I hope I'm not pushing you into it. No, no, no, no, you're not at all. Look, it's a, yeah, I mean, it's basically to summarize For those who may not know, it's De Beers sell their diamonds, they're sort of pulled together from the 4 countries where they currently have mining operations, which are Botswana, Namibia, South Africa, and Canada. And those diamonds are sold to their site holder, not all of them, nearly all of them are sold to their site holder clients in Botswana and those sales occur 10 times a year. I don't have any views as to how De Beers may or may not seek to change that model.

42:51 However, I should add that in the European Union guidance that was issued on the 1st of March of this year, I think this links with the Providence point and it's a very good one. The European Union's guidance did state that they would create a sort of Botswana certification or Botswana sort insofar as when diamond traders bringing their boxes back from Gaborone into the European Union, they would be exempt and that wouldn't impinge on the Botswana sale process. But the mechanism and the details of that process I understand will be made available and clearer as we close, get closer to the 1st of September deadline.

43:42 But yeah, I don't see any or we haven't heard anything around that process or sales methodology being changed to meet a particular blockchain or other technological requirement. Great, thanks. George, any comments of yours? I got another question on De Beers up next, but any comments on that particular piece before I get into the next audience question? No, I think Robert's provided the information that we need on that. Robert? I can tell you though that now that I've heard Robert say that a sales methodology doesn't necessarily need to change to incorporate a traceability technology, right? You can track it even if you've got the same, like that's the whole idea here is that if you have to change process too much, it'll encounter more resistance in adoption.

44:35 Oh, I appreciate that extra context for sure. Side ups, an adjacent question. This is from Wes in the comments. Looking to see the panel's reaction to, or queries about the impact of the Anglo takeover on the diamond supply if it occurs. So obviously there's potential takeover right now. So to the best of your ability or interest, Robert, I'm happy to start with you again to comment on what the impact that might have and what its likelihood is. Look, it remains to be seen. I mean, first and foremost, M&A or listing or whatever, divestment or exit, they seek or realize from De Beers, I wouldn't expect to see any change in the mining model of De Beers. It wouldn't suddenly stop, it wouldn't suddenly change. And there's no suggestion otherwise.

45:32 As to the ongoing, will it, won't it happen? It just remains to be seen. I think we're all watching this space extremely closely, but our near term and medium term forecasts on rough diamond production are not in any way impacted by a potential hive down or sale of the business is the short answer. Appreciate that. George, Nathan, feel free to chime in with any additional comments on that potential sale. I just feel that if De Beers is acquired by perhaps a luxury goods company, the marketing of its product could go back to the sort of heydays where we had those shadow adverts, which we probably remember, and I think were extremely beneficial for the natural diamond industry.

46:29 And certainly those, at that time, De Beers spent a huge amount of money. I think there was more money spent on advertising than on exploration and the exploration budget was quite big and certainly it greatly benefited the industry but at the at the millennium the European Union had rules that De Beers couldn't have such a vast market share and they had to get down below 40%, which they did. They sold off the excess of diamonds over the millennium and a very successful move. And so it's an interesting company. It's played a pivotal role since when it is 1888, I think. And so in the industry, And so it, you know, let's see where it ends up.

47:18 I'm very interested to see. There have been some people that have made comments that they're interested out of South Africa, even the Richmond, maybe, who knows. Let's see where it ends up. I think it'll be very interesting to see. That's fair. I come from a consumer advertising background, and Dubir's marketing, legendary stuff. It's up there with Coca-Cola, et cetera, for greatest campaigns in world history. So it's kind of neat. Nathan, I'd love to throw a question to you specifically. And as the traceability guy on the panel, as you said, what do you think is the future? So beyond Russian sanctions, but the future of the industry generally when it comes to provenance and people's interest in where the diamonds originated from. So even beyond its requirements, part of a sanction regime, where do you think the culture in the market is going to move?

48:10 I think that we're totally moving towards a transparent future. I mean, people want to know, they don't want to know exactly where things come from at every step You're not gonna go and scan absolutely every product you ever you ever purchase but you want to be able to and And and that's sort of what what demand is now. I think that with diamonds you've got a much simpler supply chain than something like a smartphone. You have a diamond can be, Packages can be mixed and you can polish it. You can create sub-diamonds off of a diamond, but a diamond is more or less the same once it's polished and put in a set of jewelry. But it becomes jewelry. And so that also has parts that people want to see the provenance of. You've got gold, you've got silver, you've got other metals that might be coming from different places that get mixed in, and so someone's purchasing a diamond as part of a piece of jewelry and they're going to want to see that it's coming from responsible sources.

49:16 Challenge is, people want to see that but they don't. In some sense we all know that we want to be assured that it's responsible, we want to be able to check. The challenge is that supply chains are actually so complex that you don't really want to dig through thousands and thousands of companies that have played a role into creating the end product that you're scanning. It becomes overwhelming even for businesses. And So I think we're going to see a separation of B2B transparency and B2C transparency. And I think that with B2C transparency, it's going to be a little more simplified. It's going to show who has authenticated the simplified supply chain history and that it's going to be understandable for a consumer.

50:08 I think that for B2B it's going to be much more detailed. It's going to have different permissioning for who's allowed to see what information, because there is still a sensitivity about protecting consumers, especially at the trader level. Traders have the most to be fearful for in the new transparent world, because a lot of them still see their business, rightly or wrongly, as arbitrage. I don't think that it's going to stay there. Traders add a lot of value in terms of adding trust, getting logistics from place to place, insurance, handling, etc. But I think that the model for traders does need to shift for transparency to thrive.

51:01 And I think that the pressure points are all there in not just diamonds, but across every industry. It's part of a bigger movement here to untangle these organic supply chains that have sort of grown up over thousands of years to become more streamlined, first of all, more transparent, less opaque. And I think that just generally, Most, if not all, publicly traded companies within the next 10 or 20 years are going to have to have some level of supply chain reporting, supply chain transparency, if nothing else around their carbon emissions. But most probably they're going to want it around every other aspect of their supply chain.

51:52 And that demand is going to put a lot of pressure on suppliers that if you want access to the global market, you're going to have to provide it and then the things are just going to have to change. Right now you've got a risk of going first and adopting this sort of transparency. And you've got a risk of being left behind. The risk of adoption is higher. Once you see the tipping point where the risk of being left behind is higher. Everyone will just adopt transparency. It will become the norm. And then we will see a radical shift in how things are bought and sold. That's just how it'll be. All right. I appreciate that perspective. I realize now we've gone into some 200 and 300 course level questions, but Robert and George, I'd love if we just take 1 step back and do a 100 level question for the non-experts in the audience, which I include myself for sure. I'm curious, with the sanctions regime, Where are most diamonds currently being sourced and I'll throw that to Robert then George is a corollary afterwards Do you think there's a premium on Canadian diamonds given that provenance forever?

52:55 I'll throw to you first Sure, I guess there's a slight distinction between sourced diamond production and mind and production I think if we're the sourced question I think is is a slightly gray area because we are currently unclear as to how much Russian diamonds are able to evolve are currently being circulated around the globe. We have some estimates. We should also bear in mind that 30 percent of the world's economies can freely consume Russian mine diamonds as they wish. They are not subject to G7 or European Union sanctions. So this framework and provenance structure, the mechanisms that we're talking about, they're not applied globally. And I just wanted to make that clear. I think, yeah, for those who want to know that the biggest producer of diamonds annually, certainly last year and the years previous was Russia.

53:52 It produces a shade under 30% of the world's diamonds by carat weight. And that's sort of followed in second place by Botswana. So Botswana, I guess, is I guess the tier 1, it's the largest rough diamond producer in the world and it is not subject to any trade restrictions or export controls from anywhere. So, then our forecast at the moment have Canada in third and Angola shortly after that with an increasing production over the next 10 years. So, those are the sort of primary diamond producing countries. You know, As to where diamonds are sourced, that data becomes very difficult to precise on.

54:39 We're very fortunate in the diamond industry that there's plenty of different geographies and cultures that are enriched by the natural diamond industry and plenty of communities and economies that have continued to and will benefit for many decades to come. So I think when we reflect on these sanctions framework, I think, you know, our, you know, our sort of inputs into this very complex politically and economic question is hoping that there is no undue impact on those areas. I saw a remark about this on the social element of ESG. You know, We really hope that all the key diamond mining communities across Canada and also across the continent of Africa continue to benefit and continue to remain able to withstand these sanctions and aren't caught up in an undue slowdown or complication of their own supply chain.

55:44 Thanks, Robert. George, like I said, the corollary to this, how valuable do you see the premium being put on Canadian diamonds, given not only sanctions, but where other diamonds are sourced and mined for the future? I'm optimistic about that future. So obviously, and I've said it already, Canada as the only G7 producer is a valuable position to be in and obviously will be to our benefit in Canada. And I'm optimistic. I don't think we need to labor the point, but it's simple. I think what we do also have an advantage in Canada is all diamonds in Canada, I can say that with confidence on mind, under an economic and jurisdiction regime, a government, a provincial regime in the provinces and a federal regime in the territories.

56:47 And so governments, they acquire a royalty, and so there's a record of everything that is produced. And so it's done under the rule of law, where there are diamonds. And this is a complicated issue because there are some very poor people, indigenous people perhaps we should say, that benefit from artisanal diamonds that are mined in a very small manner, but they find their way to the market and they can bring incredible value to communities. And somehow you need to ensure that those diamonds that in the past may have been mined outside the rule of law, There were no royalties and taxes necessarily paid on them. But if all of that can be accommodated, that would be very beneficial to the autismal minors.

57:43 And obviously, autismal minors have some good and bad reputations. Sometimes they overran projects. We've seen that in the past, but certainly there can be benefits to those communities. And I certainly know I've spent time in Brazil. I have experience of meeting a very humble gentleman in a person's sitting room and pulling out of his pocket a 54 carat stone which was just absolutely magnificent, you know, $200,000 stone, just wonderful. And it did end up on the streets of Antwerp. And the person who bought it ultimately contacted me because he saw a picture of me holding the stone. He could recognize the stone. So it was interesting. But there is the rule of law in Canada, and diamonds are sold within the rule of law and under a specific jurisdiction that has a royalty benefit for the provinces and the federal government.

58:47 I appreciate that. I'm conscious we're right at the end of the hour. I know we didn't get to every question in the audience and Nathan, George, Robert, thank you so much for speaking on today's panel and for bearing with me as I jumped around and asked you a million things that I didn't prepare you for. So certainly I appreciate that. Everybody in the audience, thanks so much for joining in and asking questions. If we didn't get your question, I'll make sure at least someone on the panel is able to get back to you with perspective. But everyone, thank you so much for joining us and have a great end to your day.