VOL. 26, #2, Summer 2008

Book Critique: Gems and Mines of Mogok, Notable Quotes, Auction Reports, Gemstone Lawsuits, The Paraiba Predicament, In The News

  Jun 24, 2008   admin


Book Critique: Gems and Mines of Mogok
by Ted Themelis
352 pages, 2008

Reviewed by Robert Genis

"Truly fine quality Mogok gems are very few, less than 1% of the total production. Most Mogok gems are low to medium quality and available in the local and international market. Nevertheless, Mogok is truly a cornucopia of gems and minerals for avid collectors and connoisseurs alike."

Ted Themelis probably knows more about the mines of Mogok than anyone on the planet. It is obvious the kind of mind he has when you read his books. To write a book like this you need to be ultra passionate or a little obsessive compulsive. Maybe both. Whatever the reason, we readers benefit with almost overwhelming information impossible to obtain anywhere else.

This section discusses the geology behind why the best stones in the world come from Burma. Themelis offers killer Tectonic charts, graphs and illustrations. He offers a wide variety of photos of crystals, rocks, minerals, geological maps and models.

Genesis of Ruby, Spinel, Sapphire and Peridot
This is an extensive chapter of the "big four" gems produced in Mogok. Included are informative drawings and photos of these stones. How these stones are formed from crystals is also depicted. Some interesting spectrograms of ruby and sapphire are presented. However, the best part is the extensive micro-photographs of the inclusions of these stones. Dr. Gubelin is smiling somewhere.

Phenomenal Gems
The book has beautiful photos of the gems of Mogok that star or have a cats-eye effect. You may be surprised at the number.

Themelis takes no prisoners in this section. He discusses the fact that country of origin is an important matter in pricing gemstones. In the old days, certain well known jewelers would issue a document if a colored gemstone was truly outstanding. It had to be of high quality, beautiful, not treated and must possess certain characteristics consistent with the location. Typically, the only stones that met these criteria were certain qualities of ruby and sapphire from Burma, emeralds from Colombia, or Kashmir sapphires. Of course, in the late 1070's, the American Gemological Laboratories (AGL) and other labs started independently identifying country of origin and gemstone quality. Many investors/collectors entered the market and wanted a true third party opinion. The discovery of Mong Hsu Burma ruby in 1991 threw a monkey wrench into the county of origin issue. Suddenly, the market was filled with a large amount of heated and fracture-filled red rubies from Mong Hsu. Should these be priced at the same level as untreated Burma Mogok stones? Of course not. However, you can understand why dealers would want to sell their Mong Hsu rubies at Mogok prices. Suddenly, many new labs sprouted up and called the stones Burma without delineation for the two areas in Burma. Is this deceptive to the buyer? Absolutely. These new laboratory reports began issuing reports without regard for beauty, quality, treatment, or value. Even gem dealer trade groups started their own labs to issue these documents. In essence, these reports imposed an "origin surcharge" on the price of these gemstones, even if they didn't deserve one. If you receive a report stating Burma, simply call the lab and ask if they delineate between the Mogok and Mong Hsu areas. If they don't, you cannot trust the paper. According to Themelis, a proper report must state:

1) Quality
2) Location

If the lab just states location, it is not enough information to make an informed decision.

Gem Mining
No one knows when gem mining began in Mogok. Historians speculate it was around 1044 A.D. Burmese princes controlled the gems until 1866. The British owned the mines until World War II, when the Japanese took over Burma. In 1947, the Burmese government took control of the mines when they became independent. Mogok's Golden Era was from 1947-1962, under licenses issued by the Burmese administration. From 1962-1969, gem mining was conducted by the Mineral Development Corporation (MDC) and trading by the government corporation "No. 19." In 1969, the government nationalized the gem industry and all trading was legally halted. Mogok remained under tight government control until the early 1990's. Recently, hundreds of joint ventures were licensed between the Burmese government and private companies, ex-insurgent armies and ethnic minorities. Today, mining is controlled by these groups:

* Myanma Gem Enterprise Ltd. (MGE)
They lease mining sites to actual buyers on government and non government (farming) land. They have formed over 850 companies with this method.

* Union of Myanmar Economic Holdings Ltd (UHMEL)
This is a joint venture between the Myanmar Ministry of Defense and private investors. The investors put up all the capital, and 60% goes to UHMEL and 40% to the investors.

* Fifty-Fifty Joint Venture
This is a joint venture between MGE and Ruby Dragon Jade and Gems Co Ltd.

It must be remembered gemstone mining is a highly speculative endeavor. Some say more money is made buying and selling the licenses than actually mining the gemstones themselves. Mining costs are high and the average quality of gemstones is low. Themelis speculate many of these companies might simply be fronts for laundering cash.

In this section, you will also be amazed at the photographs of the gem mining methods used in Burma, If you want go on a trip inside the mines of Mogok, you must see these photos.

Gem Mines of Mogok

According to Themelis, there are over 1250 mines operating in Mogok today. Of course, these mines range from small, simple shallow plots to large open pit mines. The author maps the main mining areas, discusses what is produced at the location and includes actual photographs. This part includes the most detailed maps of these areas ever produced.

Profiles of Mogok Gems
More than 60 varieties of gemstones have been found in Mogok. They fall into three categories:

* Jewelry gems - Gems such as ruby, sapphire, spinel and others.
* Rare and Collector Gemstones - Includes albite cat's-eye, green quartz, taafeite and many others.
* Ornamental gemstones - Such as hematite, pyrite and rock crystal quartz.

This section is chocked full of data and photographs about these 60 varieties. This section is a must have for gemologists and may be interesting for collectors.

What is a good research book without an Appendix? Themelis offers one up in spades. It includes a written documentation of the Pain collection with photographs from the British Museum of National History. A brief discussion of treatment of Mogok gems is included. He also discusses how to identify Mogok gemstones, including new high tech methods like Laser Induced Breakdown Spectroscopy (LIBS), Scanning Electron Microscope (SEM), and FTIR (Fourier-trandform Infra Red Spectroscopy). Gemologists will appreciate the Property Chart of Mogok gems. An interesting discussion is the Burmese gem trading jargon. Finally a chart of the Gem Mine of Mogok with geographic coordinates finishes off the book.

The book also comes with a companion CD. You can simply pop this in your computer and take a brief slide show trip to mines of Burma. It` is a brief replication of the book with Asian music in the background. It will definitely get you in the mood to go to Mogok. Regretfully, the chance of getting to Mogok is slim to none. This may be the next best thing. The photographs, satellite images, geological models, illustrations, geologic/topographic maps and drawings in this book are more than worth the price of the book. It is obvious this book is a labor of love and took the author seven years to complete. Although sometimes mired in technical detail, you can simply choose to read what you want. Geologists and gemologists will devour the publication. Collectors or owners of Mogok material will have a newfound respect for the material. If you have a gemological library, this should be your next purchase. You can purchase the book on-line at: http://www.themelis.com/P-Book-Mogok-2.htm

Notable Quotes
"The US is in recession, sales in mid-quality diamonds are falling and retailers are going bankrupt. It is a very confusing situation. There is this recessional middle market where people are spending less on diamonds and luxuries in general because of rising oil and mortgage costs. But there is at the same time a rapidly expanding high end of the market - driven by new wealth in China, India, Russia and the Gulf - which is beyond anybody's control."
Martin Rapaport
June 13, 2008

"As wealth continues to spread to more people globally, demand is increasing for very fine quality diamonds weighing 2 carats or more, and very fine colored gems in varying sizes, but the supply of these gems is actually diminishing as existing mines are depleted."
Antoinette Matlins
May 27, 2008

"America is having a love affair with all that's natural. It started with natural beauty aids. Natural colored diamonds begin with the word natural. The affluent want natural today."
Diane Warga-Arias
May 30,2008


Auction Reports

Christine Onassis Auction

Christie's auctioned a collection of jewelry belonging to Christina Onassis for over $13 million. She was the daughter of Greek shipping tycoon Aristotle Onassis, who struggled to find happiness despite her family's wealth. Christina Onassis, after whom Aristotle's famous luxury yacht was named, saw her father, brother and mother die in a period of just 24 months. She took over the family empire after her father died. She died at 37 of fluid in the lungs in Argentina. Christina's life was replete with drug abuse, weight problems and four failed marriages. She had a daughter, Athina, who was three years old when her mother passed away. Friends of Athina said the 23-year-old heiress, worth over $2 billion, wanted to get rid of much of the family's jewelry as she had no need for it. The highlight of the auction was a pear shaped, 38 carat, D color, potentially flawless diamond, which Onassis wore on a diamond pendant necklace, sold for $7 million to a private buyer on the phone. A Carl Faberge semiprecious stone Buddha with a moving head, tongue and arms fetched $2.5 million. It was bought by Moscow collector Alexander Ivanov, who was in the room bidding and spent $17.7 million on a Faberge egg last year.

Sotheby's Geneva

In May, at the at Magnificent Jewels and Noble Jewels in Geneva, a 3.73 pear-shaped blue diamond has sold for $4.93 million. This set another new record for the highest price per carat received for any colored diamond. As is often the case, the buyer of the blue stone was British jeweler Lawrence Graff. The blue diamond is graded "fancy vivid," the most intense color and is mounted in platinum. Its pre-sale estimate was $2.6-$3.3 million. The price per carat was nearly $1.33 million, which exceeded the $1.32 million paid per carat for a 6.04 carat blue diamond it sold last October in Hong Kong. Also, at the auction, an oval 5.06 fancy vivid purplish pink diamond, ring sold for $2.5 million. Finally, a 6.2 fancy light pink diamond ring, claw-set with a fancy light pink cut-cornered rectangular-cut diamond sold for $1.6 million. A total of 66 percent of lots were sold above their high estimate and the total sales were over $57 million.

Christie's Geneva

Another record was being broken at Christie's in May. A 13.39 blue diamond became the most expensive color diamond ever sold at auction. It achieved a world record price of $8.9 million. The "fancy Intense" blue diamond is probably the largest blue diamond graded "fancy intense" ever to be put on the block. It had been estimated to sell at $6 to $8 million. Its buyer, a private collector, chose to remain anonymous.

Other important pieces included an ornate necklace, set with large emeralds, diamonds and natural pearls, sold for $5.59 million while a matching brooch netted $4.38 million. Both went to U.S. dealers. An emerald colored diamond and pearl pendent sold for $4.4 million. A colored diamond necklace fetched $3.1 million. Finally, a 21.4 flawless heart-shaped vivid yellow diamond was bid to $3.14 million. The auction took in nearly $48.3 million, with 11 lots fetching more than a million dollars.

Christie's Hong Kong
In late May, Christie's had a record sale over $60 million at its Hong Kong sale of Magnificent Jewels. Buyers in Hong Kong are buying the finest quality diamonds gemstones, and jadeite. The top lot of the day in Hong Kong was a 101.27 carat F-VVS1 diamond, which sold to a private collector for $6.2 million or about $61,000 per carat. The final stone is the size of a ping pong ball and was cut from a 460 carat rough. The shield-shaped gem boasts 92 brilliant facets. The stone was sold to a private buyer and naming rights were granted to the new owner. It is the largest colorless diamond to appear on the auction market in the last 18 years. Also, a 10.36 square-shaped fancy green diamond fetched $3.4 million or $336,417 per carat. The auction sold 75 percent by lot and nine of the top 10 lots at the auction sold for more than $2 million.

Gemstone Lawsuits
Jewelry TV Faces Lawsuits
On May 23, Marliese Weed filed a lawsuit against the Jewelry Television in U.S. District Court in San Diego, Calif., accusing it of false advertising. Weed claims that the company sold gemstones described as rare and expensive red or green andesine labradorites. She said the items were actually colorless or yellow common feldspar that had been chemically treated. She had purchased over $4,0000 in stones.

A second false advertising lawsuit has been filed by Theresa and Gary Hurd of Kodak, Tenn. They filed suit June 5 in Knox County Circuit Court. They claimed the shopping network "fraudulently advertised and misrepresented" the gemstone andesine-labradorite as being "highly coveted" and "extremely rare." The suit claims the Hurds actually received a "low-cost yellow or colorless" stone that had been given a "face lift" though treating. The lawsuits seeks in excess of $5 million and class-action status. Jewelry Television acknowledged that it has discovered one of its sources for the gemstone that treated the stone. The company reportedly said it shared that information with its customers and feels it acted responsibly. The Jewelry Network started selling the stones in 2003 as all natural and untreated material.

David Sherman Sues AGTA and GIA
In April, 2008, David Sherman took legal action against the American Gem Trade Association (AGTA), a corporation whose purpose includes the protection of the members of the trade association and the Gemological Institute of America (GIA), the well known diamond and colored gemstone laboratory.

In approximately 2005, it became known in the gemstone industry that Madagascar stones were being passed off by the defendants and others as Brazilian Paraiba stones. True Paraiba tourmalines originate from the Sao Jose de Batalha area of Brazil in the Paraiba province. Like Burma ruby, the stone carried the value purely on the reference of its place of origin. Sherman alleges the AGTA and the other defendants entered into a conspiracy: they agreed to redefine as a Paraiba stone any cuprous elbaite that contained copper and manganese regardless of place of origin. The Brazilian stones have 2 to 3 percent copper concentration; the African stones have only trace amounts of copper, in rare cases, copper content of approximately 1 percent. "They stood to gain a lot from what they decided to do," says Sherman. "They had a vested economic interest in preventing lawsuits for fraud, maintaining the value of the African stones, or in protecting the members of the gem association. AGTA had a clear economic interest in passing off of the African stones as Paraiba stones."

The AGTA controls certifications and collects fees for providing them. According to Sherman, the AGTA used its power in the jewelry business to widely disseminate the false information regarding the redefinition of Paraiba stones. "What the AGTA did was wrong," says Sherman. "We intend to go all the way," says Sherman. "Ultimately, it's the public that has been injured here. It's in the interest of the gem industry in the long run to prevent this destructive sort of fraud." Recently, AGTA filed its response to the lawsuit and demanded the suit be dismissed. Sherman's attorneys refuse to drop the suit.

The Paraiba Predicament
By David Federman, Editor-in-Chief, Colored Stone
March/April 2008

EDITOR: Here is an excellent article on this controversial issue by David Federman. We are deeply concerned when dealers try to misrepresent their material. We believe consumers need to know the truth about the material to make an honest evaluation. Although this happens in the gem dealer to gem dealer wholesale trades every day, it has been the laboratories that often settled the arguments about country of origin and treatments. It is now even worse, when supposedly independent laboratories, assist these dealers in their quest for bigger dollars by giving them the tools to deceive. We are actually surprised it took so long so someone to sue the labs. Of course, NGC has always marketed the African tourmaline as being from Mozambique or Nigerian, not Brazil.

Maybe gem and jewelry giant Stuller Inc. should have delayed publication of its April issue of the Stuller Standard. There on page 11, the company openly offers "Mozambique Blue Paraiba Tourmaline" at prices ranging from $575 to $2,025 per carat. Maybe lapidary Paul Wild should have had second thoughts about running an ad in the March/April 2008 issue of JQ with the headline: "Paraiba ... New Found Mozambique."

Everywhere you look theses days -- at shows, in magazines, on TV -- you find the public is being offered marvelous aqua and teal blue tourmaline from Mozambique as "Paraiba tourmaline." There's just one technical problem.

It's not genuine Paraiba tourmaline. Paraiba is a Brazilian state in whose Batalha mining area where the finest blue, green, and blue-green tourmalines ever seen were discovered in 1987. The find was a culmination of a five-year quest by miner Heitor Barbosa. By 1990, the best of these ferociously intense neon-shimmering stones fetched $2,000 per carat. A year later, documented selling prices had crossed the $10,000 per carat mark, and the place-name Paraiba had become as much a pinnacle for superlative tourmaline as "Kashmir" for quintessential blue sapphire and "Mogok, Burma" for peerless ruby.

"It is not every day that a gem locality becomes so celebrated for superb quality that stones proven to have been mined there command a premium based on origin," says fine gems dealer Ralph Esmerian, who in 2006 bought the famous Fred Leighton store in New York City. "'Paraiba' is one of the few modern mining areas to have attained the stature of provenance."

When supplies of bona fide Batalha Paraiba tourmaline began to taper off sharply in the early 1990s, the market made due with closely reminiscent stones from two mines -- the Mulungu and the Alto dos Quintos -- in the joining state of Rio Grande del Norde. Although not technically from Paraiba, the stones shared a common geographical and geological land mass. Hence some dealers felt entitled to offer them as genuine "Paraiba" goods. But purists balked, arguing that these newcomers were cousins at best, impostors at worst.

Imagine how these geographical and gemological absolutists greeted the influx of similar-color but far less saturated tourmalines from Nigeria in 2001 sold as "Paraiba." They condemned sellers for what they felt was a clear-cut fraud involving misuse of a specific origin-name. "If you took chromium-colored ruby from Nepal or Sri Lanka and sold it as 'Burmese,' you would be called a con man," says one New York dealer, "So tell me why it was permissible to sell copper-bearing tourmaline from Africa as Paraiba?" When a second wave of African "Paraiba," this time from Mozambique, began to deluge the market in 2005, dealers opposed to this semantic waiver lost all patience with it.

To mollify them and buffer themselves from the growing possibility of lawsuits, some dealers started calling Mozambique stones "African Paraiba." Others thought that by spelling Paraiba with a small "p" this somehow limited liability. Still others took refuge in suffixes such as "-like" or "-type," believing that the phrases "Paraiba-type" or "Paraiba-like" clearly separated African from Brazilian material.

Wrong on all counts, says California attorney John Hannon II. He is the lawyer hired by gem dealer Dave Sherman of Paraiba.com, to sue the American Gem Trade Association, GIA, plus numerous individuals, for the deceptive, misleading use of the term "Paraiba" in conjunction with African tourmaline. Under California law, he has the right to sue for damages to his client from loss of sales, as well as punitive damages. In a copy of the suit leaked to Colored Stone, he is asking for a total of $120 million. By colored stone trade standards, those are significant dollars.

Nevertheless, does the suit have merit? To answer this question, one has to look at the broader issue of origin-selling in the gem trade.

Allowing a specific place-name to serve as a broad generic varietal name has long been considered a breach of ethics and custom. After all, selling stones on the basis of hallowed origins such as Kashmir and Mogok, Burma, are pivotal value factors when pricing sapphires and rubies that can make as much as a 40 percent difference in their value.

It may seem crazy to pay a 40 percent premium for a gem on the basis of its birthplace but this is a long-established tradition -- comparable, Esmerian says, to the premiums paid for a Rembrandt painting as opposed to a student or contemporary of the master. "Just as certain artists represent a yardstick of exemplary work, certain mining localities represent a yardstick of exemplary gemstones," he explains. Paraiba is the latest locality to be added to this somewhat short list of prestigious origins.

Until recently, the gem trade was strict in its insistence on a one-to-one relationship between origin and place. Then this tradition of parity came under heavy attack.

Back in the 1980s, there was precursor controversy involving use of the term "padparadscha," a name given to a delicate saffron-colored pinkish-orange sapphire from Sri Lanka. Although "padparadscha" referred to color rather than place, it was always assumed that this corundum had one origin only: Sri Lanka. So use of the term "padparadscha" implied a single source.
But after brownish-pinkish-orange sapphires were discovered in the Umba Valley region of Tanzania, some dealers who specialized in East African gems started selling these stones as "African padparadscha." To prevent trade acceptance of this new expanded definition for padparadscha, eminent gemologist Robert Crowningshield published a major article in Gems & Gemology on the etymology of this term and convincingly concluded that it applied only to a narrow range of sapphires with certain hues, tones and saturations found in Sri Lanka. He explicitly ruled out Tanzanian stones with their darker tones and strong tinges of brown from inclusion in the padparadscha category. Case closed.

Publication of this article was widely interpreted and praised as both a market intervention and a pre-emptive move by GIA to defend the integrity of key historic gemological terms. Until the flood of beryllium-treated pinkish-orange "padparadscha" sapphires from Madagascar a few years ago, this term was safely restricted to pastel pinkish-orange sapphires from Sri Lanka. It is on such precedents of gemological vigilance that the tradition of origin-selling has depended and thrived.

Now this increasingly important institution of gem value and provenance is under severe, multi-pronged attack and the gemological vigilance exercised by GIA in 1983 to defend "padparadscha" seems to be rapidly disappearing. Let's take a look at the Paraiba scandal from a standpoint of weakened gemological vigilance.

Ironically, a decade before the Paraiba nomenclature scandal, the industry became embroiled in name-game crisis involving unqualified use of the term "Burma." In the early 1990s, miners at Mong Hsu in Burma made what is probably the biggest discovery of ruby in history. Unlike material from Burma's long-celebrated Mogok region, however, Mong Hsu stones were usually so poor in quality they required chemical reclamation using heat and glass to make them salvageable. Suddenly, it became important for labs and dealers to distinguish legendary Mogok-origin stones from their lackluster Mong Hsu counterparts. But few did. Instead, most labs charged with determining origin for these stones simply designated them as "Burma" in origin and ignored deflationary trade contempt for Mong Hsu stones. Even today, few labs make the critical distinction between Mogok and Mong Hsu.

Once the trade accepted the expansion of Burma origin to cover rubies from the clearly inferior Mong Hsu deposit, the stage was set for even wilder distortions of language. Worse, the stage was set for official collusion in these word-ploys.

Look, it is one thing for a bunch of renegade dealers to unilaterally adopt a place-specific term like "Paraiba" and expand its meaning to include tourmalines from Nigeria and Mozambique. It is another thing entirely for the trade groups to which they belong and the gemological educational and research establishment on which they depend for prevention of such nomenclature excess to endorse such practices.

Let's face it, endorsement of the use of "Paraiba" as a varietal name by both AGTA and GIA is the chief provocation for the $120 million law suit being threatened against them. If you talk to either Sherman or his lawyer, you will quickly understand that they believe these organizations felt it better to condone rather than condemn widespread misuse of the term "Paraiba." "It's like they decided to give a retroactive pardon and justification for what was clearly a wrongful, misleading act," Sherman accuses.

So it would seem. In 2006, a consortium of American, European and Asian gem labs known as the Laboratory Manual Harmonization Committee (LMHC) classified all Paraiba-reminiscent tourmalines containing the colorizing trace elements of copper and manganese as "cuprian elbaite." This was a legitimate action based on scientific analysis.

But when the LMHC authorized member labs (among them, GIA, AGTA GTC, SSEF, and Gubelin) to make blanket use of the term "Paraiba tourmaline" for all copper-bearing blue, green and blue-green elbaite -- regardless of origin -- it overstepped its bounds. Suddenly, it was kosher to sell Brazilian, Nigerian, and Mozambique stones as "Paraiba." This generous rule also left open the door to further expand use of the term for any and all future discoveries of cuprian elbaite.

In a mailing to members dated May 18, 2006, the AGTA GTC wrote as follows:
"Beginning May 15th, the AGTCA GTC will adopt a new policy involving identification reports for Paraiba tourmaline. Previously, our reports identified this type of material as 'cuprian elbaite tourmaline' and if requested, an origin report could be issued.

After extended discussions with clients, members of our industry and other laboratories we are instituting a new policy whereby all cuprian elbaite will be identified on our reports as 'paraiba tourmaline.' This policy is consistent with widespread industry practice and has also been adopted into the guidelines of LMHC."

In short, AGTA was giving official approval to a practice many of its own members protested and condemned. One of them, Simon Watt of Mayer & Watt, Maysville, Kentucky, immediately advised his customers to stop buying Paraiba goods. "Imagine an opal dealer having to tell his clients to stop buying Lightning Ridge material," he says. "This was a momentous recommendation. But I had no choice."

And here we reach the heart of the matter. "The suit revolves around one uncontestable fact: a major trade group has accommodated the deceptive practice of marketing African stones as Paraiba," says Brian Cook, of Nature's Geometry, who was in Brazil when the first fabled Paraiba tourmalines were dug from the earth. "There are enough laws, regulations and trade practice rules -- not to mention trade group codes of ethics -- to have prevented this abuse."

For Cook and Watt, the issue is to see that justice is done but, at the same time, protect the good will of the buying public. That's one high-placed tightrope with no safety net. "We have to preserve consumer confidence," Cook continues. "But right now we have consumer confusion. The word Paraiba should never have been attached to African cuprian tourmalines. Mozambique tourmalines are marvelous in their own right. But to this day, no other location in the world has matched Batalha's top-quality saturation."

One thing for sure, Sherman's suit has served noticed on the industry for adopting self-serving nomenclature rules that clearly disregard long-standing deceptive advertising laws such as the Lanham Act. Now it will have to scrutinize other practices that could bring more law suits.

Better yet, AGTA and others should make a true contract with the public. As AGTA member Bob Van Wagoner of Maui Gems puts it: "It has always been our kuleana [a Hawaiian word for duty to the land and people] as gem dealers and gemologists to protect our clients from charlatans. When we enable, rather than disable, the cheaters, we become just like them. The trade must do everything in its power to restore consumer confidence."

In The News
Corruption, looting cloud Kashmir's gems future
South Asia
May 16, 2008
By Haroon Mirani

EDITOR: Kashmir sapphires have been a hot topic in the press recently. It was probably started by the high prices reached by some Kashmirs at auction. We have yet to see any new production of Kashmirs that rival the old stones that have been with jewelry owners and collectors for decades. However, with new mining technology, we will keep an open mind about any new production, if it occurs.

In 1882, the then ruler of Kashmir Maharaja Ranbir Singh heard that extremely beautiful gems found in his territory were being traded in the Indian city of Calcutta (now Kolkata). Enraged, he went there - then instigated a most remarkable feat of reverse trading. The maharaja's men traced and seized the gems, then gradually undid all the transactions that had taken place during the transfer of the stones to Calcutta from Kashmir.

The gems originated in a landslip that had exposed unusual blue stones noticed by members of a passing caravan, who in ignorance of their value traded them for salt in the Indian state of Himachal Pradesh. The stones then changed hands a few times until someone recognized them as sapphires of particular beauty and breathtaking color. Soon, their price multiplied and by the time they reached a Calcutta jeweler they were worth the equivalent of US$400,000.

So the maharaja, starting in Calcutta, went through the various towns and cities where the gems had been traded reversing the numerous deals. The jeweler got back his $400,000 and the first trader got his bag of salt.

The gems were found to come from an extremely rugged area called Padder, where an industry quickly developed to extract more in the two months of the year when the deposits were accessible.

The next five years yielded sapphires whose quality earned them fame in the jewelry world to the extent that more than 100 years later the gems have achieved a legendary status. A limited number still appear to fetch huge prices at auction.

In April 2007, Christie's sold a 22.66 carat Kashmir sapphire set in a pendant for over $3 million. Kashmir blue sapphires fetch upwards of $15,000 per carat.

The more recent history of Padder and its sapphire deposits is less glittering. War has blighted the region, allowing unregulated miners to grab over the past two decades what spoils they could. As a fragile peace has returned, the state-owned company that is now supposed to run the mine, Jammu Kashmir Minerals Ltd (JKML), could get only 13.2 million rupees ($33,000) from an auction of 12 kg of the corundum (raw sapphire) accumulated from its own sporadic mining over those years.

Sapphires are a mere sideline for JKML, whose staff of around 2,000 are more involved in extracting coal, gypsum, marble and other minerals that occur in the state. Gem experts and politicians were fiercely critical of JKML's auction. Sajjad Ahmed Kichloo, an opposition legislator from the region accused the miner of undervaluing the auction process.

"The bids were manipulated so as to benefit some traders, who are involved in underhand dealings with higher officials," he said. Kichloo also questioned the amount of sapphire that was available for sale. "The amount of sapphire auctioned is less than what was actually extracted," he said. He demanded an inquiry by Central Bureau of Investigation, India's premier investigation agency, in the entire process.

Disrespect for ownership seems a constant when it comes to sapphires, with people in the industry claiming that corruption and looting - from the state treasury as well as from mines - are prime factors behind the decay for what should be highly promising industry.

In 1989, when an anti-India insurgency broke out in Indian administered Kashmir, the mines became a no-go area for the state authorities, with the region deemed to be rebel-controlled. That left the mines open for about a decade to anyone who could extract the sapphires.

When a team of JKML and other state officials visited the mines in 1998 after a gap of 10 years they reported: "It seems everyone except the government of Jammu and Kashmir has been benefiting from mining and selling the priceless sapphires. The loss is phenomenal. It can never be quantified.''

Smugglers had broken all the mines' gates, locks and seals and damaged the four operational tunnels with crude blasting techniques. Police have yet to recover any of the illegally mined gems. Suspicion was also raised over some JKML employees, who according to some quarters, "conveniently helped to start one of the most profitable smuggling rings in Kashmir".

If that is the case, they would be carrying on a strong tradition. In 1947, when the monarchy in Kashmir was ended, the rulers were reported to possess enormous amounts of sapphires but few of these have been seen since.

Sofi Mohiudin, a political commentator said the last king, Maharaja Hari Singh, left Indian-administered Kashmir with sapphires, diamonds, gold and other valuables. "He took away what he could when he fled Kashmir. The rest was put in the [state] government treasury, or Toshakhana," he said.

The Toshakhana was looted by successive rulers, Mohiudin said, and no concrete record or catalogue of the articles was strictly maintained. "In 1963 the Kashmir government donated 717 kg of gold to India for its defense fund during Indo-China war, and it is during this time that first large-scale embezzlement took place."

Then in the late '70s more valuables were looted by authorities, and besides this "there was a regular pilferage," Mohiudin said.

Various sapphire collections have come to light at different times only to recede into the darkness of history. Kathryn Bonanno Patrizzi, a jewelry consultant, wrote in a journal that her husband, Osvaldo Patrizzi, founder of Geneva-based Antiquorum auction house and a renowned gemologist, once came close to inspecting a chest of Kashmir sapphires.

"He had already arrived in India and was only moments away from the chest that was supposedly filled with 18,000 carats of Kashmir sapphires!! However, it seems that the Indian government had also been made aware of the treasure, and all was confiscated just prior to his arrival," Ms Patrizzi wrote in the June 2002 issue of Antiquorum Magazine.

The government has remained silent over such claims, further fueling speculation.

The corruption in the area (Kashmir was India's second-most corrupt state according to a 2005 Transparency and absence of accountability have taken their toll of the sapphire industry and prevented what could be a valuable development.

"Sizable"' sapphire deposits still exist in the 2 sq. km area around the original mine, say experts, a view supported by a satellite survey by National Remote Sensing Agency (NRSA) of the Padder mines. Geo-scientist Haji Abdul Majid Butt says that on the basis of the satellite imagery there are 480kg of gem varieties on one ridge that could be recovered. There are six such ridges, putting the potential of the mines at billions of dollars.

That would suggest a profitable future for JKML, but its present circumstances argue otherwise. The company survives on government aid and is unable to pay its employees for months at present seven, according to JKML general manager Abid Sohail - at a time. The recent corundum auction was carried out to raise cash for wages.

The Jammu and Kashmir government six years ago moved towards initiating a global tender to attract international companies to exploit the region's sapphires, with offers sought four times including last year. Only six companies have taken part in the tendering process due, said some in the industry, to the government's lackadaisical attitude and unprofessional manner. Three have been asked to make presentations about their financial and technical capability and past experience.

The authorities continuously say that they are getting a poor response from bidders, but given the global demand for Kashmir sapphires, industry experts believe other factors are at play.

Butt, who recently attended an international conference on Kashmir sapphires in London, recalls: "Such is the demand for these gems that during my stay I got hundreds of calls from people seeking Kashmir sapphires and willing to pay any amount. Actually it is the incompetence by our government which fails to get the project through."

Of the three companies under consideration, Gujarat Minerals Development Corporation (GMDC), and controlled by the Gujarat government, is tipped as the hot favorite. India's second-largest producer of lignite, it has the economic resources to develop the sapphire mines, with net sales in its most recent reported quarter almost doubling to 2.57 billion rupees from 1.33 billion a year earlier and net profit rising to 932.5 million rupees from 526.571 million rupees.

It is in the running four years after the government tried to sell the rights to the mine to London-based jeweler Dianoor for $2 billion. That deal fell by the wayside after the Daily Rehmat local newspaper exposed flaws in the tendering process and possible kickbacks received to ministers.

While the authorities delay a final decision, illegal mining continues.