Golden Spoon Investment Portfolio - Chapter 465

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This chapter was translated by Lunox Novels. To support us and help keep this series going, visit our website: LunoxScans.com
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465. An equity exchange, you said?

“As you instructed, I converted the corporate bonds of Gazprom and Yukos Oil Company into stocks, securing 35% and 30% stakes respectively.”

I sat on the Penthouse sofa with one leg crossed, listening to Landon Shore’s report from his arrival in Moscow a few days prior.

“With the exception of Alrosa alone, all the remaining companies have agreed to convert their corporate bonds into stocks.”

As he spoke, Landon unfolded a file containing documents that organized the equity ratios he had received from each company.
Since I had already reviewed this information once before concluding negotiations, I simply scanned it with my eyes and nodded.

“They’re saying they can’t reduce their stakes because it’s a state-owned enterprise?”
“That’s correct. Both the Russian government, which holds a stake, and the Sakha Republic, where the diamond mines are located, are opposed to the stock conversion. It seems difficult to acquire their stakes.”

Pavlovich, seated on the opposite sofa, interjected with an additional comment.

“Unlike other companies struggling with the oil price collapse and economic crisis, Alrosa, which mines and exports raw diamonds, has relatively comfortable finances. That’s likely why.”

Recalling how Alrosa only went public in 2013, and even then sold merely 14% of its total shares, I clicked my tongue.

“It’s unfortunate, but there’s nothing we can do. When do the Alrosa corporate bonds mature?”
“In three years.”
“Then let’s hold onto them for now and dispose of them once the price recovers.”
“Actually, Alrosa has made a proposal.”

At Landon Shore’s words, I tilted my head in confusion.

“A proposal?”
“Yes. They’re offering to redeem the corporate bonds early with raw diamonds.”

Furrowing my brow, I asked with a puzzled expression.

“The maturity isn’t imminent—there are still three years left. And they want to redeem the corporate bonds early with raw diamonds instead of cash? What on earth is their reason?”

Then, instead of Landon Shore, Pavlovich, who was well-versed in local conditions, answered in his stead.

“It’s because we have an excessive stockpile of rough diamonds.”
“…?”
“Last year, we expanded the Udachnaya Open Pit Mine—the largest operation of its generation—and doubled our production capacity. However, contrary to expectations, the global economic downturn has drastically reduced demand, and we’re facing considerable difficulties.”

After hearing this explanation, Seok-won tilted his head in confusion.

“Even so, diamonds don’t rot or deteriorate if left sitting. We could simply store them and release them onto the market once prices recover.”
“That’s a valid point. However, De Beers’ interference has made that approach difficult.”
“…!”

De Beers was a diamond processing company that controlled the global market by distributing 90% of worldwide production.

It was also the company that had created a custom—under the slogan “A Diamond is Forever”—of gifting diamond rings to women during marriage proposals, causing men across the world to bear the financial burden.
Moreover, it had been exposed for secretly laundering so-called “blood diamonds” mined from conflict zones in Africa and illegally traded to finance weapons purchases, earning international condemnation.

‘They profited enormously from blood diamonds, but the international sanctions that followed ultimately shattered the monopoly they had maintained for so long.’

They had pursued their greed without hesitation, even resorting to illegal practices, only to collapse under their own weight. The phrase “you reap what you sow” fit perfectly.
In any case, since De Beers essentially controlled diamond distribution, it was natural that Alrosa, which engaged in extensive mining operations, maintained a relationship with them.

“Is there some problem between De Beers and Alrosa?”

As I expressed interest and asked, Pavlovich explained the situation in detail.

“As demand decreased and retail prices fell, De Beers lowered the unit price at which they purchase rough diamonds.”
“That’s only natural when sales aren’t going well.”
“That may be true, but the extent of the price reduction they’re demanding is difficult to accept.”
“How much are they asking you to lower the price?”
“They’re demanding a 50% reduction from the existing purchase price.”

Upon hearing this, Seok-won let out a bitter laugh.

“Wow. They’re slashing it in half?”
“Yes.”

Landon Shore also shook his head in disbelief.

“From my perspective, De Beers is engaging in excessive abuse of their market power.”
“It does seem that way.”

Pavlovich continued speaking as he observed the reactions of the two men.

“When Alrosa resisted and refused to hand over the raw diamonds at that price, De Beers immediately halted their purchases.”

Leaning back in my chair, I let out a small snort, as if I grasped the situation well enough.

“The retail price decline is just an excuse. De Beers, which monopolizes distribution, is using this opportunity to bring Alrosa—the largest producer—to heel.”
“That’s my assessment as well.”

Pavlovich nodded in agreement.

“With shipments blocked for over four months now, their inventory of raw diamonds keeps piling up. Even when they try to sell to other distributors, De Beers blocks them, leaving them in a bind.”
“The more inventory accumulates, the weaker their position becomes against De Beers. So they’re planning to hand it over to us and pay off their corporate bonds early.”
“Precisely.”

I folded my arms and narrowed my eyes.

“They’ve thought this through quite cleverly. If they liquidate those piled-up raw diamonds, it could reverse the situation and make De Beers—who’s been acting so confident—anxious instead.”
“De Beers offered to reduce their original wholesale price by 25%, and on top of that, they’re willing to hand over several rare stones of 10 carats or more, including the Yellow Sun they mined last year.”
“What’s the Yellow Sun?”
“It’s a 107-carat raw diamond with a vivid yellow hue discovered at the Udachnaya Open Pit Mine.”

My eyes widened slightly in surprise.

“I’m no expert, but anything over 100 carats is about the size of a newborn’s fist, right?”
“Roughly that size.”
“At that size, the price must be substantial.”
“Not only is the size impressive, but vivid yellow is an exceptionally rare color. It should easily exceed 20 million dollars.”

I let out a short whistle.

“Wow. Diamonds certainly command impressive prices.”

Imagining how dazzling it would actually look, I found myself genuinely anticipating it.

“What do you think, Landon Shore?”

Landon Shore shrugged and replied.

“Considering that we purchased Alrosa corporate bonds at a steep discount, it seems like a decent deal. But the problem is that even if we obtain the raw diamonds, we don’t really have a way to utilize them.”
“True. If we try to pass them on to another distributor, De Beers certainly won’t just stand by and allow it.”
“That’s bound to happen. We could end up with a white elephant on our hands if we’re not careful.”

While nodding at Landon Shore’s concerns, I felt a pang of regret at the thought of letting this opportunity slip away.
As I stroked my freshly shaved chin, contemplating the matter, a sudden idea flashed through my mind.

‘Wait, I own Gucci, which is a luxury brand.’

While it wasn’t a jewelry brand, it seemed reasonable to release limited-edition accessories like necklaces and bracelets featuring diamonds.

‘And if the response is good, we could even launch it as an official product line.’

Of course, I would need to discuss this with Jacob Thompson, our lead designer, and Alexander Bindman, our CEO, but it seemed like a solid idea.
Besides, raw diamonds were essentially liquid assets that could be disposed of at any time, and since these were Alrosa corporate bonds acquired at a 90% discount, even if we took a slight loss, it wouldn’t matter.

‘Frankly, just selling a single Golconda diamond would allow us to break even.’

Having made my decision, I lifted my head once more.

“Tell Alrosa we’re accepting their proposal.”
“Understood.”

Landon Shore had been worried that accepting the raw diamonds might turn into a liability.
But knowing that I had generated profits in abundance from other ventures, he refrained from raising further objections.

“What about the development rights for the Sakhalin oil field?”

As I naturally shifted the conversation, Landon Shore responded.

“We’ve reached an agreement with the Russian government to acquire a 50% stake in Sakhalin Block 3 for 70 million dollars.”

I took a sip of coffee and set the cup down before speaking.

“How much were the estimated reserves again?”
“According to Russian government data, it’s estimated that 5.376 billion barrels of crude oil and 1.073 trillion cubic meters of natural gas are reserves in the field.”
“Even if only half the estimated reserves come out, we’d be looking at a mega-scale oil field.”
“Precisely. It would be the largest mammoth-class oil and gas field among the Sakhalin region’s blocks.”
“At that scale, any company with an interest in resource development would be tempted.”

Landon Shore nodded and picked up the thread of conversation.

“It seems that larger reserves reduce production costs and increase profitability, while also allowing for longer periods of crude oil and natural gas extraction.”
“That sounds excellent.”

Seok-won’s face broke into a satisfied smile.

“Contact Porter in Japan and have him approach Mitsui and Mitsubishi to explore an equity swap.”
“An equity swap, sir?”

Landon Shore’s eyes widened at the unexpected instruction, and Seok-won grinned, his mouth curling upward.

“Yes. We’d be exchanging the 45% stake in Sakhalin 2 that both companies hold for the stake in Block 3 that we just acquired.”
“But Block 3 has significantly larger estimated reserves, and our stake is 50%, which is higher than theirs. Why would we want to make such a trade?”
“You’re right. I’m wondering the same thing myself.”

Pavlovich, seated across from him, wore an equally puzzled expression.

“While both are offshore blocks, Block 2 has the advantage of being closer to the coast, making development more straightforward. For us, with no experience in resource development, Block 2 would actually be preferable to Block 3.”

Even as I spoke, I silently muttered words I could never say to these two men.

‘Most importantly, Block 2 will discover oil and natural gas fields and achieve successful commercial production, while Block 3, despite high expectations, will waste enormous sums and fail in exploration.’

Estimated reserves were merely projections of what was believed to be buried there—not a guarantee of actual discovery.

“Even if we were to develop Block 3, wouldn’t we only be investing capital while ExxonMobil handles the actual exploration and drilling?”
“In my judgment, Block 2 looks more promising than Block 3, so let’s proceed that way.”

Even knowing it would seem strange, I pushed forward firmly.
How could I possibly explain that Block 3 was hollow while Block 2 was the real prize?
If they asked how I knew, I’d have no answer.
Landon Shore found my insistence on what appeared to be a losing trade bewildering.
Yet because I consistently presented plans he couldn’t anticipate, he had no choice but to comply.

“…Understood. I’ll relay your instructions exactly as you’ve stated them.”
“Make sure you convince them one way or another and seal the equity swap.”

As I emphasized the point again, the question in Landon Shore’s eyes deepened further.

“…Yes, I understand.”

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This chapter was translated by Lunox Novels. To support us and help keep this series going, visit our website: LunoxScans.com
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