Botswana’s state-owned diamond marketing company will increase its borrowing to fund additional rough purchases.
Finance Minister Peggy Serame said last Thursday (29 August) that the government had arranged a $300m credit facility, with the Standard Chartered Bank for the Okavango Diamond Company (ODC).
It hopes to capitalize on a long-awaited recovery the global diamond market.
At the moment ODC’s limited cash reserves mean it can only buy $70m of its allocation of diamonds produced by Debswana, the 50/50 joint venture between De Beers and the Botswana government.
ODC holds 10 auctions a year to sell its 25% allocation from Debswana. That share is set to double to 50 per cent over the next decade, as part of a deal agreed last year between Botswana and De Beers.
Last October ODC halted its rough sales amid weak demand.
Since early 2022, the price of polished natural diamonds has fallen approximately 40% and the industry is being buffeted by negative economic headwinds, an excess of mine supply and too much stock in the cutting centres. However, there is one statistic that cannot be ignored: around 50% of Diamond Engagement Rings purchased in the United States now contain a Lab Grown Diamond (LGD). Is this just another cyclical downturn or are we in the middle of a major structural change?
Diamonds were once the preserve of royalty and the uber-wealthy, but the diamond market has evolved over the past 80 years into more of a mass market product with democratisation of the diamond consumer. Since the late 1970s most polished diamonds below 5 carats were priced against the 4 ‘C’s’ (carat, clarity, colour and cut), which led to standardised pricing in the form of polished diamond pricing lists. Up until the turn of the century these lists were primarily available in the wholesale market, but the arrival of internet pricing soon gave the consumer access to that same standardised pricing. In a world where everyone knows the price of everything, branding is the only differentiator. Without a differentiator, commoditised products end up selling for the lowest price.
It was why one of the questions that De Beers tried to answer when it changed its business model 25 years ago was: “How do you take a necessity (the diamond) priced like a commodity and market it as a luxury priced like a brand?”
Unfortunately, that question remains unanswered. The industry did create hundreds of so-called ‘brands’; origin, cut, settings, etc; the problem was that very few of them were real “brands”. If something does not sell at a premium, it’s not a brand, and most natural diamonds sell at a discount, yet the more that the industry was unable to achieve a premium, the more it becomes fixated with talking about the “product” when the luxury world has spent the last 25 years talking about “values”.
The challenge for most jewellers is not making a sale, it is making a reasonable margin. Ask a jeweller what they are selling and if they reply “VS1, G-H colour, loose polished, 1-caraters” then the most relevant word in their business will be “discounting”, because what they are selling is a commoditised version of “crystallised carbon.” There is no differentiator.
The LGD industry realised that to succeed it simply needed to persuade consumers that natural diamonds and LGDs were the same – “optically, physically and chemically”, but to also position them as “slightly cheaper”. They could then ride on the back of 80 years of De Beers diamond advertising differentiate themselves by claiming that LGDs were “conflict free”.
A larger “ethical” LGD for the same money as a natural diamond or pay less for the same size, created a money printing machine for everyone involved. And it’s no surprise that LGDs real success has been in the United States, because historically America has always been a “discount market”, and “larger for less” plays to that tune.
If all you want in a diamond is the sparkle, then they are in essence the same. Except there is a very real difference between the two, which is why some LGD executives insist on calling natural diamonds “earth mined” diamonds, because “natural” is exactly what differentiates them. The story of their age, rarity, origin; their social and economic contribution but above all, their “social purpose”. It was the failure of the natural diamond industry to tell that story which opened the door to LGDs.
When LGD production exploded, wholesale prices collapsed to around a 95% to 98% discount to their natural diamond equivalent. Prices vary according to quality, but anecdotal evidence suggests that today in the wholesale market, it is possible to buy a single polished LGD for $150 a carat, buy in volume and its possible to pay as low as $80 a carat.
Many retailers have also dropped their LGD prices, but by no means as far, and even pricing LGD at a 20-40% discount to their natural diamond equivalent can still leave a very significant margin. Pandora will sell you a 1-carat LGD ring for $1,950. Helzberg Jewellers (a Warren Buffet company) will sell you a similar LGD for $1,999. It’s very likely that some in the LGD industry are making a gross margin of 200%, some much more for a product that Signet Jewellers sensibly cautiones it customers “Their relative abundance may not ensure the value will hold over time”.
Whatever happens to future LGD retail prices, the category has got itself into the American consumer psyche and that won’t easily change, although there are also two sides to this story. I heard of a jeweller who was recently asked by a HNWI to make a replica of her 8-carat natural diamond ring so she could wear it travelling. The original ring cost $500,000 but he sourced an equivalent LGD for $5,000, and apparently she was absolutely thrilled with it. The question is, will she buy natural again? On the other hand, if in the future a consumer could buy (for example) a 2-carat LGD engagement ring for below $200, how pleased would their fiancé be to receive it – Walmart recently had a 2-carat LGD ring for sale for only $257. How romantic!
The US bridal market (size over quality) is dominated by larger, lower quality diamonds. Since similar sized LGDs are cheaper (or you get a much better quality LGD), either that market disappears, or demand only reappears aner prices have fallen sharply (already happened). It is also likely that LGDs will replace small, lower quality natural diamonds in fashion jewellery – as they may replace the smaller stones in high-end pieces of natural diamond jewellery. Diamond mining companies whose profitability rely on these categories of diamonds probably need to find a new value proposition, or their days may be numbered.
For those in the natural diamond industry who can adapt, there is huge potential. For those that don’t, as the saying goes, “Kodak never saw it coming either”.
Except Kodak did see it coming; they just didn’t know what to do about it. Kodak was killed off by digital photography which ironically, they invented, patented, but didn’t know how to exploit it, so they franchised the technology and made a fortune until their patents expired, and then went bust. Have LGDs done the same to natural diamonds? “No”, the opposite; their success is forcing a complacent industry to change. Have they changed the paradigm? “Completely”.
Gem Diamonds has now recovered twice as many +100 cts diamond this year than during the whole of 2023.
The UK-based company today announced a 129.71 carat Type II white diamond from its Letseng mine, in Lesotho.
It’s the 10th +100 cts diamond of 2024. Historically the mine averages eight per year, but last year it recovered only five.
The spike in high-value recoveries has helped push up revenue at Gem. Earlier this month it reported a 9 per cent increase in its first half earnings to $77.9m.
Letseng 70 per cent owned by Gem and 30 per cent by the Lesotho government is the highest dollar per carat kimberlite diamond mine in the world.
Pic courtesy Gem Diamonds, shows the 129.71 ct stone.
The US has added the prominent jewelry brand Miuz and the diamond cutter Kristall to its list of sanctioned companies in Russia.
Kristall, Russia’s largest diamond cutter, is now on the Specially Designated Nationals (SDN) List administered by the US Treasury Department.
Alrosa, its parent company has been on the list since April 2022, shortly after Russia invaded Ukraine. Kristall, based in Smolensk, has been part of the Alrosa group since 2019.
Miuz Diamonds, which has production facilities in Moscow and Perm and a chain of 300 retail outlets, has also been added to the list.
Miuz is part of the Ruiz Group of diamond and jewelry enterprises, linked to Israeli billionaire Lev Leviev.
It is not clear why the companies were not sanctioned sooner.
Kristall and Miuz are among almost 400 individuals and entities in Russia and beyond its borders that were added to the SDN list last Friday (23 August).
“Russia has turned its economy into a tool in service of the Kremlin’s military industrial complex,” said Deputy Secretary of the Treasury Wally Adeyemo, announcing the additions.
“Treasury’s actions today continue to implement the commitments made by President Biden and his G7 counterparts to disrupt Russia’s military-industrial base supply chains and payment channels.”
The Office of Foreign Assets Control (OFAC) has issued new licenses under the Russian Harmful Foreign Activities Sanctions Regulations, allowing for the sale of diamond jewellery and loose gem-quality diamonds imported before recent sanctions were implemented. This significant policy shift permits goods that were previously prohibited to re-enter the market.
Under the new guidelines, diamond jewellery purchased before March 1, 2024, as well as loose diamonds of 1 carat or larger bought before that date, and those of at least 0.50 carats purchased before September 1, 2024, can now be sold. The relaxation for loose diamonds will remain in effect until September 1, 2025.
However, starting September 1, 2024, the next phase of G7 diamond sanctions will impose restrictions on all goods of 0.50 carats or above from Russia, regardless of where they are cut and polished. This phase of sanctions is set to take effect next Sunday, despite substantial opposition from various industry stakeholders.
In response, the Jewelers Vigilance Committee has reported that the United States is considering supporting a delay in the implementation of these sanctions. This potential delay, which aligns with the European Union’s proposed extension to March 1, 2025, aims to provide additional time to resolve the intricacies of the sanctions and their impact on the diamond trade.
Assessing the value of a diamond is a job that’s been done by eye for centuries.
But artificial intelligence (AI) is now so sophisticated that it can do the same task faster, cheaper and more accurately.
There can be a huge difference in value even between two diamonds of the same size. That’s why a whole industry has developed, dedicated to grading them.
But advances in machine learning have now made computers more reliable than humans, according to Sarine, a diamond-tech company based in Israel.
Today the vast majority of diamond manufacturers – the businesses that cut and polish rough gems – send their loose stones to grading labs.
They wait a couple of weeks for the diamonds to be returned with certificates listing their key attributes. And they typically pay at least $100 per diamond for the service (depending on size).
Sarine aims to dramatically cuts cost and delays by locating its automated eGrading technology inside factories in a lease arrangement.
Staff operate the machine, which can grade and certify a diamond in a matter of minutes.
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It’s as convenient as using an ATM, says Roni Ben-Ari, deputy CEO & VP products at Sarine.
He says the machines consistently deliver higher quality results than the best grading labs, without the expense of employing gemologists (gemstone experts) or paying for premises, infrastructure and other overheads.
Can’t cheat the system
You may be thinking the diamond factory gets to “mark its own homework” if the grading machine is inhouse, and that it could cheat the system to get a better grade.
But Ben-Ari is adamant that the system’s security is so tight it’s simply not possible for anyone to interfere.
Every diamond is unique – like a fingerprint, a snowflake or DNA – and every diamond is identified by full 360-degree images.
The raw data that Sarine’s machines gather is securely uploaded to the cloud, and only then converted into a grading report.
Grading diamonds objectively with Sarine’s eGrading system.
It’s worth considering what’s at stake here.
An absolute top-quality natural one-carat diamond (a popular size for engagement rings) could set you back $14,000. But you could get a poor-quality diamond of the same size for under $2,000. That’s why grading a diamond is so important.
The 4Cs
Four main criteria determine the value of a diamond. They’re known as the 4Cs – carat (weight), cut (how well the rough stone has been shaped), color (the best diamonds are colorless) and clarity (absence of flaws or blemishes).
Diamonds are valued on the basis of carat, cut, color and clarity.
Color and clarity are the hardest criteria to determine. Labs give diamonds a letter for color (from D to Z) and a label indicating one of 11 levels of clarity (from IF, internally flawless, to I3 for diamonds with the worst flaws or “inclusions”).
Weighing a diamond is straightforward, but the other three Cs can be subjective.
“I can guesstimate that if you sent the same 100 diamonds to the lab over and over again, around 70 percent would get the same grade,” says Ben-Ari.
That leaves 30% where a different lab, or a different day, or a different staff member could give the diamond a different grade – and a different value.
Sarine’s system uses AI to grade clarity.
A lot of biases
“The human eye is a muscle; it gets tired,” says Ben-Ari. “It’s affected by your physical conditions, whether you’re tired or angry, or it’s the beginning of the shift or the second half of the shift.
“There are a lot of biases. It’s very difficult to educate people from different cultures in different locations around the world to grade the same diamond in the same way.
“So the labs invented a very sophisticated process where two people grade the diamond. When they agree, that’s the diamond grade and when they don’t, they bring in a third person.”
But it’s a labor-intensive business. Sarine, already an established world leader in guiding diamond cutters to get the highest value from a rough gem, realized it could develop a better way of doing things.
Sarine’s loupe doesn’t get tired like a human eye would.
AI can grade diamonds
The company, founded in 1988 and based in Hod Hasharon, central Israel, embarked on the mammoth task of teaching AI how to grade diamonds.
That involved showing the AI model more than 30,000 diamonds that had already been graded by GIA (Gemological Institute of America) the world’s biggest lab. The more diamonds they showed it, the better the results.
Sarine introduced eGrading machines, using AI to grade diamonds.
Because Sarine deals in technology and not in physical diamonds, all those diamonds to train the computer model had to be borrowed.
That’s why Sarine’s first eGrading machines, installed in mid-2022, were located in factories in India, where over 90% of all diamonds are cut and polished.
“We started in southern India, where we have a facility with 400 employees to provide customer support,” says Ben-Ari.” The next step will be a rollout to Botswana and Namibia, both counties which mine and manufacture diamonds.”
Lab-grown diamonds
We’ve been talking so far about “natural” diamonds, but what about lab-grown diamonds?
Natural diamonds formed miles below the Earth’s surface under high pressure and high temperature in a process that took over more than a billion years.
Lab-grown diamonds are created within weeks, are optically and physically identical to natural diamonds, and now sell for a fraction of the price.
They have driven the need for cheaper grading because in many cases the cost of an ordinary certificate outweighs the cost of manufacturing the diamond.
There are, however, some complex technical differences between natural and lab-grown diamonds, which means Sarine technology can grade them in the lab but not yet remotely with eGrading at factories. Sarine is working on an AI fix for that.
Lucara Diamond Corp. (“Lucara” or the “Company”) is thrilled to announce the recovery of an exceptional 2,492 carat diamond from its Karowe Diamond Mine in Botswana. This remarkable find, one of the largest rough diamonds ever unearthed, was detected and recovered by the Company’s Mega Diamond Recovery (“MDR”) X-ray Transmission (“XRT”) technology, installed in 2017 to identify and preserve large, high-value diamonds. The stone was recovered from the processing of EM/PK(S) kimberlite, the dominant ore type that Lucara will continue to target during the first years of the Company’s underground mining operations.
This discovery underscores Karowe’s reputation as a world-class asset and reaffirms Lucara’s position as a leading producer of large, exceptional diamonds. This latest recovery joins an impressive roster of other significant finds from the mine, including the 1,758 carat Sewelô and the 1,109 carat Lesedi La Rona.
William Lamb, President and CEO of Lucara, commented on this historic discovery: “We are ecstatic about the recovery of this extraordinary 2,492 carat diamond. This find not only showcases the remarkable potential of our Karowe Mine, but also upholds our strategic investment in cutting-edge XRT technology. The ability to recover such a massive, high-quality stone intact demonstrates the effectiveness of our approach to diamond recovery and our commitment to maximizing value for our shareholders and stakeholders.”
Mr. Lamb added, “This discovery reinforces Karowe’s position as a truly world-class diamond mine and highlights the continued success of our operational and underground development strategy.”
Botswana’s diamond industry delivers wide-ranging socio-economic benefits to the country that extend well beyond the mining sector. Its influence supports national development by funding critical areas such as education and healthcare.
This discovery symbolizes Botswana’s continued ascent as a global leader in diamond production. It represents not only the unparalleled wealth found in Botswana’s soil, but also the remarkable progress the nation has made in developing its diamond industry for the benefit of its citizens.
This news release has been reviewed and approved by Dr. Lauren Freeman, PhD. Pr. Sci. Nat., Vice-President, Mineral Resources of the Company and a “Qualified Person” for the purposes of National Instrument 43-101.
