VOL. 16, #4, Winter, 1998
The New Nigerian Red Tourmaline, Christie's and Sotheby's on Country of Origin, Auction Report, International Market Updates: Burma, Tanzania, Kenya, Thailand, Collectors Corner, Gem Tidbits, In the News
By Robert Genis
There is a brand new deposit of red tourmaline from Ogbomosho, Nigeria. This stone will probably be the hot new material at the Tucson Gem Show in `99. Expect to see large quantities of this gem in all price ranges and qualities at the show. Approximately 1/3 of the deposit went to Germany, 1/3 to Bangkok and 1/3 to the United States. What is unusual about this material is that it is clean and not irradiated. Let's briefly analyze this new stone and see if it merits collecting.
Tourmaline's name comes from the Sinhalese word "turmali", which probably means "mixed precious stones". Bright, rainbow collections of gemstone varieties were called "turmali" parcels. Sri Lankan (Ceylon) tourmaline was introduced to the European society in the late 1600s or early 1700s by Dutch traders.
Similar to rubies which were later discovered to be spinels, numerous red gemstones in the Russian Crown jewels from the 17th century, once thought to be rubies, are actually tourmalines.
The Empress Tzu Hsi, the last Empress of China, loved pink tourmaline and bought large quantities from the Himalaya Mine located near San Diego, California in the early 1900s.
Tourmaline is 7-71/2 in hardness and does not tend to chip or break. Its luster is glassy and it has a high degree of transparency. Tourmaline is a group that applies to several minerals with similar chemical compositions and atomic structures. Tourmalines belong to the hexagonal crystal systems. All tourmaline crystals begin as colorless and the colors are created by trace elements. Iron with magnesium produces a blue, greenish blue or black tourmaline. Magnesium with achroite creates a yellow tourmaline. Chromium creates the chrome tourmaline. Sodium, lithium, and potassium produce green, red, and pink tourmaline. Manganese makes colorless, yellow brown and black brown and when iron is present, blues and greens. The electric colors of paraiba are due to the presence of copper and a high gold content.
Tourmalines are often cut in long, rectangular emerald or square shapes. This is due to the long and narrow crystal shapes in which they are discovered. Tourmaline is dichroic or pleochroic (a crystal that shows two or more different colors). The darkest color is always seen looking down the axis of the crystal. When tourmaline is cut into ovals or cushions, it tends to show multicolors. Typical tourmaline inclusions appear to be small needles, so cutters try to fashion the material where the needles occur perpendicular to the stone, giving the stone the visual appearance of being cleaner than it is. Most red, pink, and bicolor tourmaline crystals are horribly included.
Most tourmaline is found in Minas Gerais and Bahia, Brazil. It has been mined since the early 1700s when miners went looking for emerald. Tourmaline is also mined in Afghanistan, Kenya, Madagascar, Mozambique, Namibia, Pakistan, Sri Lanka, Tanzania, plus California and Maine in the United States.
Tourmalines occur under many conditions but most are mined in pegmatites and are found with quartz and other gem minerals. Pegmatites are the result of volcanic activity. The new Nigerian find is a placer deposit. These deposits are washed down streams and become part of the stream bed. Due to the high density of the material, it finds its way to the bottom of the stream bed.
Tourmaline occurs in more colors and varieties of colors than any other gemstone and can even occur in bicolor or tricolor. Tourmalines are sometimes even found in black, lilac, colorless, yellow, and orange colors. Tourmalines can also be cut in cabachon form if they contain tube-like inclusions and the material creates a "cat's-eye". Usually these "cat's-eyes" are green or pink. Another tourmaline shows a color shift from yellow green in daylight to red orange in artificial light. A distinctive tourmaline is a watermelon, which is often cut in slices with red on the inside and green on the outside or "skin". Sometimes tourmalines are cut with three different colors.
Tourmaline Market Today and Prices
In 1989, miners in Paraiba, Brazil discovered an electric blue and green tourmaline. This material is now played out. The colors can best be described as vivid green, electric blue or a neon teal. Prices today can exceed $10,000 per carat and when a tourmaline is at the Kashmir sapphire level, it may be time to sell rather than buy these goods.
One particularly beautiful variety is chrome tourmaline from Tanzania. It occurs in a very rich green color caused by chromium, the same element which causes the green in emerald. Like all green stones, chromes have blue or yellow modifiers. Large, exceptional chromes can fetch over $1000 per carat. This stone is often mistaken for tsavorite and remains a good value today, although very difficult to find.
Blue tourmalines are also very much in demand, but the supply of pure blues is rare. The ultimate blues look like London Blue topaz, but most are blue/black. Fine blues can reach $400 per carat. Blue colors are generally very clean.
Corundum collectors and dealers argue over where to delineate a red ruby vs. a pink sapphire. With tourmaline, the argument is "what is rubellite vs. what is pink tourmaline?"
Probably the best red tourmaline was originally found in Ouro Fino, Brazil in 1981. It was a killer red that looked like a ruby, and the goods were included similar to Colombian emeralds. Today, the mine is played out and the best stones are in collections. Most of the rubellite found today is irradiated and sells for about $250 per carat in 8-10 carat sizes. The reds today tend to possess purple-pink-orange secondary colors. Many of the pinks and reds are irradiated, but there is no price difference for treatment.
The best pinks are a hot, bubble gum pink, however, most are a soft pastel pink. Sometimes the pinks are purplish and look almost like a rhodolite garnet. Clean stones of 10 carats or more in these colors command a premium price. Fine 10 carat pinks can bring $150 per carat.
Most common (non-chrome) green tourmalines are dark and black out and may sell for $150 per carat. Green tourmaline is generally very clean and is widely available.
How to Compute Value
The color of a tourmaline is the most significant factor in valuing these goods. Second is clarity. Of course, the cleaner the stones, the more expensive. Green and blue tourmalines tend to be cleaner than reds and pinks. No rubellite is a pure red, but the more red the better and the more intense pink is better than pastel pink.
New Nigerian Material Treatments
The new Nigerian material is not normally irradiated. Some of the material is heated. Heat treatment does not improve the color of this material, but lightens the tone and removes the brown. The longer the heating process, the lighter the tone becomes.
Colors of the New Material
|Purple: Colors from light to dark.||Multicolors: Colors including red, pink, purple, green & blue in various combinations.||Red: Colors from red pink to red orange.|
|Cranberry: Colors from light to dark.||Orange/Pink: Colors from dark to medium.||Pink: Colors from light to medium.|
It is believed there is enough new Nigerian material to last about 18 months. This is due to the fact the placer deposit is mined out. Some dealers predict the new material may be the next tsavorite, tanzanite, or Ouro Fino rubellite. The common denominator of these stones is that when they first flooded the market, few dealers or collectors bought them. Of course, the collectors who purchased those goods at that level are sitting pretty today. What makes this find interesting from a collecting standpoint is the goods are not irradiated, are cleaner, and less expensive than most pink tourmaline. As a collector, it might make sense to buy a suite of the various colors in 10 carat sizes or specialize in one color. If you always wanted to start a gemstone collection and were short on funds, this might be an excellent opportunity. Have fun.
By Robert Genis
This interview is with Simon Teakle of Christie's, Head of North and South America Jewelry Department and John Block of Sotheby's, Vice Chairman, North and South America to obtain their unique perspectives on country of origin in the high end auction markets.
Robert Genis: Is country of origin an important factor in marketing colored gemstones at auction?
Block: Origin has been important for many years now and will probably continue to be vital.
Teakle: It is a key factor. That's not to say that a sapphire which is not Kashmir or a ruby that is not Burmese or an emerald that is not Colombian doesn't have merit. Some lesser known stones may have merit when exceptional. However, Burma, Kashmir, and Colombia possess a pedigree that people want when investing large sums of money.
RG: Which laboratories do you utilize for country of origin documents?
Block: We use the AGL in New York because people in the trade and the public trust it. In Europe, Gubelin is a big name with privates and the trade prefers SSEF. We find these labs knowledgeable and trustworthy and their reports are appreciated by our clients.
Teakle: Any lab that we use needs to meet a certain criteria of scholarship, knowledge, a standard of excellence, and be internationally recognized. Our clients feel comfortable and confident with these labs. The main labs we utilize are AGL, Gubelin, and SSEF.
RG: Why are some colored gemstones marketed with lab reports and others not?
Block: It's a price issue. You can't ask clients who are selling something for a couple of thousand dollars to spend a thousand dollars on these reports. Certainly whenever fine colored gemstones come in with documentation we use it. If something seems valuable, we will submit the gems to the labs.
Teakle: Price is the guideline. We had to make some benchmarks. It's really for colored stones of at least $15,000 to $20,000. Also, if we were to document every single colored stone in our sale, it would be a logistical impossibility, we would have to double our staff to process and send out the goods to the labs.
RG: Do you have in-house gemologists? Do they discern country of origin prior to auction? Do they suggest you submit the stones to the labs?
Block: Yes, most of the people who work in our jewelry division are gemologists. We attempt to call country of origin because some colored gemstones are much easier to detect than others. We discuss the various stones and submit the worthwhile candidates to the laboratories.
Teakle: We have in-house gemologists. When property comes in for sale our staff will offer an opinion on country of origin and if it has been heated or filled. They will also look at the property for valuation. Based on our opinions, we will submit the gemstones to the labs for final indication.
RG: Do you notice it is simpler to market colored gemstones with lab reports than undocumented colored gemstones?
Block: The auction houses are involved in the top end of the market where it is an issue. An important gemstone has to have a report.
Teakle: Lab reports are absolutely important. As far as colored stones are concerned, people want to know what they're buying. With major colored stones you need the paper. The only caveat is if you have a piece of colored stone jewelry such as a Cartier or Van Cleef & Arpels, then you market the design of the piece.
RG: Do you have any data on selling price premiums for Burma ruby vs. Thai ruby, Kashmir/Burma vs. Ceylon sapphires or Colombian emeralds vs. African emeralds?
Block: Most of the rubies we market are from Burma. It's very hard for auction houses to market a solitaire Thai ruby. Occasionally, there are pieces of jewelry that include Thai rubies, but they'll sell as a piece of jewelry rather than as an individual stone. It's not a matter of a premium, it's a matter of "does anybody want it or not"? A gem quality Burma ruby can sell, anything else might not.
Sapphire is different. Kashmir will probably be the most expensive, but a great Burma can be just as expensive. Ceylon will be cheaper, but if it's a beautiful sapphire there will be interest, especially if it's a natural, unheated stone.
It's almost impossible for us to sell an emerald that's not Colombian unless it's little tiny stones in a bracelet.
Teakle: We have a lot of data on what stones may be worth. A super gem, 10 carat Burma could be worth between $150,000 to $200,000 per carat and top gem Thai between $40,000 to $50,000 per carat, or a factor of 4. A super Kashmir sapphire could reach $40,000-$50,000 per carat vs. $20,000-$25,000 per carat for a super Burma sapphire and $7,000 or $8,000 per carat for Ceylon sapphire. Colombian emeralds could fetch $70,000-$80,000 per carat and African and Brazilian emeralds might bring $8,000-$10,000 per carat, or a factor of 9 to 10.
RG: Could you verbally describe the differences between Kashmir, Burma, and Ceylon sapphires? Burma and Thai ruby? Colombian and African emerald?
Block: Kashmir has a very specific identity in terms of color, a cornflower blue, and once you see enough of them you can recognize the color. A Burma is normally a very rich, deep blue color and Ceylon are usually lighter but can be very beautiful. Ceylon sapphires can look identical to Burma or Kashmir. The occasional overlapping of sapphire makes a certificate vital.
Rubies have a lot to do with the beauty of the stone. There are Thai rubies that look very much like Burma stones and these rubies sometimes bring more than a poor quality Burma.
Colombian emeralds are usually more yellowish green and African emeralds have a darkish color. However, a beautiful African emerald is going to look a hundred times nicer than a piece of junk Colombian emerald. Picasso did some great things and not so great things. The analogy is the same. The most beautiful emeralds I've seen happen to be Colombian and our public is looking for Colombian emeralds.
Teakle: Kashmir and Burma sapphires are more difficult because these stones can have more color similarities than differences. Ceylon can be beautiful, too.
Burmese rubies have a saturation and a richness of color that a Thai ruby very often may not have. I don't want to sound negative about Thai stones because they can be absolutely fantastic, but there is a difference in color that can give a harder, steelier, and more limpid appearance.
In emeralds it is more of an issue between old vs. new material. The old material has a very rich color and crystal appearance.
RG: Do auction buyers discern the difference in value between Mong Hsu Burma rubies and Mogok Burma rubies?
Block: Some clients are very knowledgeable today. People who spend a lot of money on gemstones already have dealt with retailers and the trade. By the time they get to an auction house they know something about color and have an appreciation for it. Of course, some people are brand new at the game and collecting in these categories, but we teach them as much as we can and tell them to go to museums and retailers and learn as much as they can. The public doesn't know much about Mong Hsu and Mogok. They think a Burma is a Burma, but they know that some Burmas are heated. Privates don't know that Mong Hsu starts out with a blue core that has to be burned out, or that it comes from a certain area of Burma, unless they read about gemstones. Mostly trade professionals know the difference between Mong Hsu and Mogok.
Teakle: The difference between Mong Hsu and Mogok rubies is not an issue at auction. It is rather, "Has there been any heat treatment or not."
RG: Why do you think country of origin is important? Is it almost brand awareness, the longer the mine has been around the more well known and therefore the most popular, or is it true rarity? Also, do you think the older source gemstones are physically more appealing than the new sources?
Block: Country of origin has always been an important part of the gem business. For example, the public has a certain amount of gem awareness and understands true rarity. They know an untreated, gem Burma ruby is a very rare stone above 5 carats. The older gemstone sources are more physically appealing than new ones, but every once in a while a new colored stone comes out which is quite beautiful. Of course, you have to make sure what treatments, if any, they have undergone.
Teakle: I believe all those factors are true. Brand awareness is definitely a factor when dealing with rich, velvet-like, blue Kashmir sapphires and red pigeon blood rubies.
RG: Do more private buyers or dealers want origin reports?
Block: I think it's pretty equivalent, the gem dealers probably even a little more. You won't be able to sell an important stone in Geneva that doesn't have a report.
Teakle: Both want them. The private buyers are becoming much more sophisticated and they want to feel confident that they know exactly what they are buying.
RG: Do you have an interesting or funny story regarding country of origin?
Block: In the auction business, people bring in estate jewelry with no idea of its worth. All of a sudden it turns out to be an incredibly rare Kashmir and they leave much happier. On the other hand, there are many stories of people going to Burma or Thailand and thinking they're going to get a great deal and end up buying synthetics or overpaying. I remember trade professionals going to Vietnam about 5 years ago to buy Vietnamese rubies and half of them bought synthetics, so what chance does the private have?
Teakle: Yes, I have known people who bought colored stones at auction and did extremely well, maybe by identifying something that didn't have a cert in the old days, or maybe improving it by recutting and polishing. Colored stones are one of the last remaining areas where there can be tremendous illusion at auction, and the enticement of getting something for a price. For the person who knows his subject and who will take the gamble, there's real money to be made. It happens less so now than 20 years ago due to the cataloging and the research of the auctions and amount of documentation, but it can still happen.
This article was originally published in the October Rapaport Diamond Report. You can subscribe for $250 in the United States, $265 in New York, or $350 internationally at:
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This year's fall auctions were slow. It was either the international financial crisis or the quality of goods offered were sub-par compared to years past. Christie's sold $13.3 million (50% of lots) vs. $31.5 million during their last major auction. Sotheby's sold $26 million (65% of lots) vs. $17.1 million during their April auctions.
New York's fall auction season started at Sotheby's on October 19, with the sale from the estate of socialite Betsey Cushing Whitney. Betsey Whitney's first husband was the son of Franklin Delano Roosevelt and her second was John Whitney, the publisher of the New York Herald Tribune and ambassador to England. The sale totaled $11.83 million, barely exceeding the presale estimate of $9 to $11 million. The jewelry was shown by runway models from Bergdorf Goodman. Bidding was steady with 98 percent of the lots sold. The star of the collection was the 11.04 fancy vivid blue and 11.59 white diamond ear clips by Cartier. London jeweler Laurence Graff bought the piece for $5,172,500. Graff renamed the diamonds "The Whitney Blue and White" and is planning on repolishing the blue diamond to make it flawless.
The main stone sold by Christie's was an 18.45 carat D-flawless for $68,000 per carat or $1,267,500, to a private collector.
Geneva auctions were also lackluster with 63% of lots sold by Christie's, Sotheby's and Phillips. The 112.53 carat, intense yellow, VS1 clarity "Mouna Diamond" sold for $28,773 per carat to a Middle East collector. The cushion-shaped stone was set by Bulgari. Christie's sold a rectangular, .76 purplish-red for $303,300 per carat and a 2.49, Old Miner, yellowish green, I1 clarity for $91,770 per carat. Sotheby's sold a 5.36 radiant, intense purplish pink for $189,350 per carat, a 7.23 pear, intense blue fetched $204,000 per carat, and a 4.89 octagonal, fancy intense purple-pink sold for $390,000 per carat.
One of the premier lots was from Mouna Al-Ayoub, wife of Saudi businessman Nasser Al-Rachid. She placed 160 gems at Christie's. The estimated value of the collection was $6 million and it sold for $8.1 million.
A ruby and diamond necklace given by Czar Alexander II to his only daughter, Marie Alexandrovna, upon her 1874 marriage to Alfred, Duke of Edinburgh, son of Queen Victoria, failed to sell at Christie's. The historic piece by the Russian imperial jeweler Bolin fell short of the auction house's presale estimate of $2 million.
London jeweler Laurence Graff bought a rectangular-cut, D-VVS2 diamond weighing 29.12 carats. His winning bid was nearly $2 million. He said he would recut the diamond in hopes of making it flawless.
A collection of the late French actress Jacqueline Delubac netted almost $3 million, with many pieces going for double their estimates. A 6.68, deep blue and a 5.71, E color diamond sold for $1.62 million.
Christie's sold an 11.87 cushion, Kashmir sapphire for $26,275 per carat and a 20.92 Burma sapphire for $14,130 per carat.
Production is down again at Mogok, even after the summer rains. International buyers wait for goods to buy for a voracious market smitten by these gems if unheated and natural.
Tanzanite is still in short supply and the gem industry is still attempting to clean up the mines from last April's floods. Production has not returned to former levels. Prices are up about 20%.
There is very little fine tsavorite and chrome tourmaline production. Most of the new production is too dark, or too yellow, or light green.
The Thai Gem and Jewelry Traders Association has recently adopted a new system of classification for disclosing ruby treatments. It is:
A ruby can also be classified as an unheated natural ruby. This system is in response to the fact many American, Japanese, and European dealers are upset with the non-disclosure of ruby treatments in the past. This system is not mandatory and many believe most Thai dealers will ignore this new classification system.
Argyle Pink Diamond Auction
Thirteen buyers, including three from the United States, bid on 61 pink diamonds and 2 grays. A 2.66 was the largest pink diamond found at Argyle last year. It graded fancy vivid, purplish-pink at the GIA. Results of the auction were secret this year which leads the Gemstone Forecaster to surmise the average price per carat dropped from recent years.
DeBeers plans on issuing 20,000 limited edition millennium diamonds for the year 2000. The stones will be D-flawless diamonds inscribed with the DeBeers name, a security number, and the word "Millennium". These stones will probably become a collectors item and should sell for a premium to other diamonds. The majority of the stones are expected to be sold to the diamond trade before collectors can purchase the stones.
A small mine of Chameleon diamonds has recently been discovered in Southeast Asia. So far, most of the goods are about 20 points. The diamonds have a color shift from fancy yellow to olive green. The scientific reason for this change is unclear. To effect the change you need either light or temperature. In other words, the color shift is not like alexandrite, color change sapphire, spinel, or garnets where the effect is immediate. You must leave the stone in light for hours or heat the diamond on a hot plate for it to shift to the olive green color. These stones tend to grade at the GIA as fancy greenish-gray-yellow or yellowish-greenish-gray. Carat size chameleons have sold for about $20,000 per carat at auction.
Collecting Art: The Find of a Lifetime
Carl Rice, a 51-year old unemployed ambulance service manager in Tucson, Arizona went to an estate sale and bought two floral paintings for $60. His wife yelled at him because he had already bought 500 near-worthless paintings. Six months later, Christie's sold the two paintings for $1.072 million. It turned out they were by Martin Johnson Heade, a renowned 19th century artist. The Rices netted $600,000 after paying taxes and commissions. Then the estate that sold the paintings sued the Rices for $1 million, claiming the sale was a mistake and should be rescinded. The estate also sued the appraiser. The appraiser claimed she warned the estate she was not a fine-arts appraiser. The appraiser settled out of court with the estate for $2500. In November, a judge threw out the case against the Rices.
The Nicholas and Alexandria Virtual Tour
Missed the exhibit of Nicholas and Alexandria in Wilmington, Delaware this year? How about a virtual tour? Do not forget to check out "The Treasury" in Gallery 7 and see the gold and diamond Imperial Faberge Easter Egg. Don't miss the jeweled mitre and jeweled gospel cover in "The Church" in Gallery 9.
Go to: http://www.nicholasandalexandra.com/
Australian Pink Diamond Theft Inquiry
As mentioned in previous Gemstone Forecasters, $2 million worth of pink diamonds were stolen from Argyle of Australia almost a decade ago. The diamonds were stolen from the world's biggest diamond mine near Kununurra. Criminal conspiracy charges against a detective and one of the convicted thieves were recently dropped because a key witness refused to testify two weeks before the trial was due to begin. Now there is growing pressure for a royal commission to look into the case. The State Opposition, Police Union and numerous detectives are demanding the Court Government establish an independent inquiry to clear the stench of corruption surrounding the Argyle diamond theft once and for all. According to the the Police Union president, up to 20 officers have been tarnished by the affair. The police wanted their version of events made public. There have been five previous inquiries into the case and the conclusions contradict each other.
Victoria's Secret Ultimate Fantasy Gift
Victoria's Secret is marketing a $5 million Dream Bra this Christmas. It has 77 carats of marquise rubies and 330 carats of pear and marquise shaped diamonds set in platinum. Last year, Victoria's Secret produced the strapless satin $3 Million Bra, trimmed in diamonds and a 42-carat diamond.
Colored Diamond Jewelry
According to National Jeweler Magazine, the latest trend in American jewelry design is jewelry with colored diamonds. These pieces are being produced for clients who are looking for something different. Australia's Argyle Diamond mines are responsible for the promotion of their intense pinks and browns. This has increased awareness of the goods.
Cracker Jack Promotion
Cracker Jack will give away 16 packages of limited edition collector jewelry designed by Neiman Marcus. Cracker Jack will replace the customary toy surprises with special certificates for the jewelry. The holiday certificates will be randomly distributed inside the new 4-ounce bags and 7-ounce boxes of Cracker Jack sold at retail stores nationwide. Eight 18-karat gold rings with a ruby, emerald or sapphire stone, valued at $950 retail, are styled after the original Cracker Jack's adjustable "play" ring made with colored plastic jewels. Eight pairs of gilded silver and enamel cuff links in the shape and graphics of the traditional Cracker Jack box will be given away and are valued at $400.
Mrs. 007 Loses $1 million In Gem Robbery
A burglar stole $1 million of jewels from Sean Connery's wife recently at the River Club, an exclusive hotel in New York. The thief got an emerald ring worth $200,000 and matching earrings, two diamond brooches, two diamond rings, a Cartier gold watch, a diamond chain and cross, and gold and diamond earrings.
Mrs. Connery left the bag containing her jewels on her bed, then left for dinner. When she came back at 11 p.m., it was gone. Investigators found no sign of forced entry and were looking into the possibility of an inside job. Micheline, who is in her 60s, has been married to Sean for 23 years.
Los Angeles Times, November 29, 1998
By Larry Gorden
"Yellowknife, Northwest Territories - What would possess anyone to dig a mile-wide crater in treeless tundra that even caribou herds flee in minus-40-degree winters? Why did businesses invest $700 million to build an adjacent factory, airstrip and dormitory 125 miles south of the Arctic Circle? And why are urban slickers from as far away as South Africa making pilgrimages to this part of far northern Canada?
The answer is in the pit. Sprinkled inside its ancient volcanic ore are shiny pebbles that, cut and polished, will grace fingers, necks and wrists of jewelry lovers worldwide. As a result, owners of the first major diamond mine in North America expect to become very, very rich. The mine, called Ekati after one of the many nearby glacial lakes, formally opened last month with a ceremony in the camp's gymnasium. Canadian politicians spoke about strict environmental protection and forecast economic boosts for the region and its native peoples. Glass cases displayed bowls filled with diamonds, most notably a thumbnail-sized 12-carat rock that might please Elizabeth Taylor.
But what was left mainly unsaid was the topic that most intrigues experts in the secretive world of diamond trading. That was whether Canadian diamonds will be marketed through the cartel with which the South Africa-based De Beers Consolidated Mines Ltd. has controlled world prices and supplies for 64 years. Will Ekati join the rebellion of an Australian mine that quit the De Beers' blandly named Central Selling Organization in 1996? Or, more likely, will the Canadian mine seek to protect prices by selling some stones through De Beers but not enough to violate U.S. antitrust laws? Adding urgency to the questions, the Asian financial crisis is hurting demand for top-line diamonds - for example, sales fell 19 percent last year in Japan, and gloomier figures are forecast this year - just as the Canadian gems are starting to compete with stones from Africa and Russia. Those issues are widely discussed in Yellowknife (population 17,500), the Northwest Territories' capital city, which is southwest of Ekati by 200 miles of nearly empty tundra. In this city on the shore of Great Slave Lake, residents say Ekati and future diamond mines planned in the region will restore jobs lost to gold mining troubles and government cutbacks.
Diamond merchants unsettled by African civil wars and Russian corruption enjoy Canadian civility and Yellowknife's quirky mixture of log cabins and 10-story office buildings. "People have commented that it beats the Congo," Peter Neugebauer, Yellowknife's director for economic development, dryly noted.
Further afield, Canadian diamonds are also on the minds of merchants in the cutting shops of Europe, Israel, India and the United States. "The industry is watching very, very closely. It is very important for the future of the diamond industry as a whole," Guido Giovannini-Torelli, editor of the New York-based monthly publication Diamond Insight, said of the marketing of the Canadian gems.
Ekati's daily diamond production will not fill up a gallon milk jug, officials say. Yet that's enough to generate between 3.5 million and 4.5 million carats a year, about 6 percent of the world's current annual production by value. With the wholesale price of high-quality rough diamonds averaging more than $100 a carat, and operating costs about $35 a carat, backers predict they can pay off the $700 million initial investment in just four or five years. Then, for the 15 or so additional years the mine is predicted to last, sparkling profits may total hundreds of millions of dollars a year.
A subsidiary of the Australian mining giant Broken Hill Proprietary Co., or BHP, owns 51 percent of Ekati, and Dia Met Minerals Ltd., of British Columbia, holds 29 percent. The remaining 20 percent is split between Dia Met Chairman Charle Fipke and fellow Canadian geologist Stewart Blusson. Those two men pursued anti-establishment theories of glacier paths and discovered the underground carrot-shaped ore formations, called kimberlite pipes, that hold diamonds like raisins in a pudding.
Since BHP also has extensive mineral holdings in the United States, it could be subject to antitrust prosecution if it sold significant portions of its diamonds to De Beers. BHP does not want to lose the lush American market, but it also would benefit from De Beers' disciplined ability to stockpile gems during hard times and its brilliant marketing ("A diamond is forever"). Through its own mines and its marketing contracts with others, De Beers handles about 70 percent of the world's raw diamond trade - or about $4.64 billion worth last year, according to the company's annual report. The Central Selling Organization clearly survived the loss of its Australian contract, although the resulting competition caused a drop in prices of low-quality gems. And De Beers managed last year to win back much of the Russian diamond production that had previously been pulled out of the cartel.
Still, analysts suggest that Ekati diamonds could pose something of a threat, since its diamonds are of higher quality, with better clarity, than those from the rebel Argyle mine in Australia. BHP reported last month that it had set up its own sales office in Antwerp, Belgium, but added that "discussions are continuing for the sale of a portion of production to large diamond companies," thought to be a code term for De Beers. A De Beers official reached by telephone in London confirmed that talks are ongoing and said he hoped that BHP would market at least part of its Ekati gems through the organization. "Ekati's share of world production is not very big, but little things can mount up. We are always concerned when a new producer does not sell through us," said Roger van Eeghen, a Central Selling Organization marketing executive."
Forbes Magazine, December 14, 1998
Maybe an Investor's Best Friend
By Benjamin Fulford
"Guess which industry has taken it in the neck because of the Asian economic slowdown? Diamonds. Luxury-loving Asians have until recently accounted for 40% of the world's demand for the coveted stones. But not now. The Central Selling Organization, a diamond distribution monopoly controlled by South Africa's De Beers, has reduced its sales of rough diamonds by 41% in the first half of 1998 and still has $4.6 billion worth of unsold diamonds in its vaults, up from $4.4 billion at the end of 1997. If that weren't bad enough, the new mines in Canada are about to pour more of the stones out on a depressed world market. Paradoxically, this may have made shares in diamond mines a screaming bargain. For if there is today an oversupply of the stones, there may well be a dearth in the near future. De Beers spokesman Roger van Eeghen says some of South Africa's and Australia's mines are winding down, Russia's require new investment, and production from Angola and the Congo has been disrupted by war. The Canadians will have no problem selling their "quite nice" diamonds, van Eeghen adds. Aber Resources on the Toronto Stock Exchange is a pure play in diamonds-which De Beers, with its outside interests, is not. At $5.30 a share, buying Aber shares is equivalent to buying rough diamonds for $21 a carat, according to Merrill Lynch mining analyst Michael Curran. The average value of the mine's proven reserves is more than double that-$56 a carat."
(Of course, buy any stocks at your own risk. Ed.)
The information provided in this newsletter has been derived from research and sources believed to be reliable. However, no guarantee is expressed or implied as to their validity. Opinions included herein are subject to change without notice. The gem market is speculative and unregulated. Certification does not eliminate all risks associated with the grading of gems. Recommendations are meant for those who are financially suited for the risks involved. Past performance is not a guarantee of future performance. Neither NGC nor The Gemstone Forecaster guarantee a profit or that losses may not be incurred as a result of following its recommendations. They may also hold positions in areas they recommend. Subscribers should not view this publication as investment advice, nor is it intended as an offer or solicitation with respect to the purchase or sale of any security.