Polished synthetic diamonds. (GEMESIS)

It’s a wonderful time to be a diamond miner. Take Botswana’s Jwaneng mine, owned by Debswana, a 50-50 joint venture between De Beers and the Botwsana government. In an article published on March 7th this year, The Dallas Morning News quoted Dale Ekmark, the mine’s general manager as joking, “Our profit margin here is like the Mafia”. What Ekmark was alluding to was the typically 80- to 90 per cent profit margin the mine enjoys on its $2 billion revenue.

The good times, unlike the product, however, are not forever. At current production levels, Jwaneng is expected to run out of diamonds by 2032. The article referred to one of the mine’s operating problems – sourcing the 10-foot-tall tyres for its giant dump trucks. The Goodyear company shut down one particular plant that made these monster tyres and consequently, Ekmark had to source used ones from elsewhere. The scarcity of the tyres is reflected in their price – $100,000 a piece. Given the mine’s profit margin, however, the cost of tyres doesn’t really matter.

Demand will Outstrip Supply
If dump-truck tyre prices have shot up because they are in short supply, the situation is nothing compared to what is happening to the price of rough diamonds. In a briefing dated February 22nd this year, BHP Billiton’s Diamonds & Specialty Products division stated plainly that the reason why it liked the diamond industry was that ‘current forecasts indicate a scenario where supply is unable to keep pace with demand growth’. This statement was made along with the assertion that ‘Ekati (BHP’s mine in the Canadian arctic) is a great asset, with further development potential’ and that BHP had a ‘portfolio of good exploration options’.
It outlined the market situation, noting on the demand side that though “demand for rough diamonds has been more volatile over the last 12 months” it held that “diamond jewellery demand growth is expected to be strong going forward,” and “the US remains the dominant market with strong growth being experienced in China, India and the Middle East.” On the supply side, however, it noted that “no significant new mines have been discovered” and that “any new production will be relatively small-scale” with the added factor that “production will decrease at some mines.” It stated that “the supply and demand fundamentals remain very positive.”
BHP Billiton too makes the maximum out of its rough diamonds. It stated in its briefing that its “unique multi-channel approach ensures price maximisation, the flexibility to respond on a timely basis to varied market conditions, a reliable distribution to market and the ability to sell dynamic mine production.” Instead of distributing fixed allotments to a specific list of customers the way De Beers and Rio Tinto do, BHP uses multiple methods ranging from tenders to window sales. Tenders make raw material-starved customers compete for the product and allow BHP to get top dollar for its product. Any other direct sales then have prices benchmarked for them by what was offered for the tenders.

Gemesis synthetic production factory.

Jwaneng, which produces some of the most valuable diamonds in the world, produced 15.7 million carats in 2006. “De Beers pays Debswana about $125 a carat for the rough, uncut stones produced at Jwaneng,” The Dallas Morning News report claimed. It added that a high quality 1 carat stone can fetch around $5,000, indicating an increase of 3,900 per cent from mine to market. But just to put things in perspective, in India, a diamond cutting and polishing centre which earn a living processing rough diamonds, the story is very different. Profit margins are wafer thin – in some categories even non-existent. The question uppermost in everyone’s minds is, “How do we get enough rough at a decent enough price in order to make a margin?” (See article on diamond manufacturing.)

Into this scenario has entered the synthetic or lab-grown diamond, with technology that has demonstrated the commercial viability of its production. Suddenly, the diamond industry is in an uproar. What will happen once synthetics enter the market on a mass scale – something that could happen relatively soon? The mining companies are worried that synthetics could wreck what is now an incredibly lucrative industry. The cutting and polishing industry, which makes its money on only the labour and skill it applies to the raw material, is licking its chops at the prospect of a steady and reasonably-priced supply of rough. But is it just a question of a new supply of rough that threatens a now cosy set-up for the miners and brings salvation to the processing industry that is hard-pressed just to keep its head above water? What about consumer confidence? What will happen if synthetic diamonds are palmed off as naturals? Will the consumer buy any diamonds at all if this is discovered to be widespread?
To try and understand the situation better, India’s Gem & Jewellery Export Promotion Council (GJEPC) organised a symposium on synthetic diamonds in Mumbai on February 23rd. In his introductory overview, Martin Rapaport, the symposium’s moderator stated that, “The value of a diamond is dependent on the values of the diamond trade.” He went on to say that the now proven commercial viability of synthetic or laboratory-grown diamonds, the various treatments that use some of the same technology, alluvial stones mined as a result of torture and cruelty in parts of the world engulfed by armed conflict and the global issue of money laundering, make it impossible today to assume that a diamond is legitimate.
What the diamond industry needed, he said, was to establish a clear audit with custody of the diamond all the way through the processing chain, to counter the threat posed by synthetics.

A Great Opportunity & A Threat
Having said that, Rapaport added that while they were a threat, synthetics were at the very same time, a great opportunity for the diamond industry. In an assessment that echoed BHP Billiton’s view, he noted that the consuming market for diamond jewellery was growing exponentially with hundreds of millions of new consumers being added from the fast-expanding economies of India and China. Natural diamond production, however, was flat and cannot now, and will not in the future, be able to meet demand. Synthetics are positioned ideally to fill the gap.

Byrant Linares (centre) addressing a question at the symposium on synthetics in Mumbai.

The top echelon of the Indian diamond industry turned out in numbers to participate in the symposium and particularly to hear Bryant Linares and Clark McEwen, both chief operating officers respectively of Apollo Diamond Inc. and Gemesis, the current frontrunners in the synthetic diamond production business. Along with them was an expert panel that included Rajendrakumar Shah of the eponymous company, a diamond and coloured gemstone dealer on the board of the Gemmological Institute of India, Ashok Minawala of Danabhai Jewellers who is vice-chairman of the All-India Gems & Jewellery Trade Federation (GJF), and diamond dealers Jatin Mehta of Su-Raj Diamonds and Russell Mehta of Rosy Blue India.
Linares said his company’s intention was to expand the currently $69 billion diamond retail market. Apollo, he said, wanted to grow with the market. The carbon vapour deposition (CVD) technology employed by Apollo produces diamond in practically every colour – colourless, pink, orange, brown and blue. In essence, it uses a relatively medium temperature and low pressure to ‘rain’ carbon atoms onto a diamond seed crystal from a cloud of vaporised graphite. The layered deposition results in flat, ‘cakes’ of diamond with relatively large surface areas for a given caratage. These can be allowed to grow in moulds to produce pre-formed rough for specific purposes.

The company had started commercial production last year and was now producing 1- to 3-carat stones with depths of between 2.5mm and 3.5mm. They were moving into 3- to 5-carat stones with depths of between 3.5mm and 5mm with ultra high consistency. In four to eight years’ time, Linares said, they were anticipating high volume production with offerings including preformed melee sizes.
By Linares’ arithmetic, 33 million carats of polished diamonds were produced annually from mined natural rough. If one added 7 per cent increase in polished coming from synthetic rough to the total production every year, it amounted to an addition of some 2.31 million carats. In a few years’ time, this steady increase held the potential to grow the retail diamond market to something like $146 billion, Linares said. However Apollo is still very much a company developing a cutting-edge technology and is yet to prove its commercial credentials.
McEwen of Gemesis told participants that his company had actually started making money on the business and was now expanding rapidly. The current production facility was up to its absolute maximum in capacity and a second facility was slated to go on stream in end March, he announced. Using the high pressure, high temperature (HPHT) technique, Gemesis produces rough ranging in size from 0.7- to 3.5 carats, yielding polished in the 0.18- to 2 carat range. The rough ranges in clarity from clean to spotted and yields polished from VVS1 to I1.
Unlike Apollo’s CVD system, the HPHT technique uses pressure of the order of 850,000 pounds per square inch and temperatures of the order of 1,500oC to mimic the conditions nature produces deep within the earth. Individual carbon atoms from liquefied graphite seep through the molten flux which is created as a result of these conditions and attach themselves to a diamond seed crystal, thus growing a gem-sized diamond. It must be noted here that in both technologies, the seed crystal could be a small piece of synthetic diamond itself.

McEwen went on to state that the rough produced was generally in the shape of a truncated octahedron, making it easy to polish. The HPHT technology too allowed for the production of diamonds of almost any colour though currently Gemesis was concentrating on the yellows and oranges for which it has created a nice niche in the market. In the future, however, Gemesis was looking at producing blues, greens, pinks and colourless diamonds and the product range would be expanded to include 5-carat-plus rough that would yield polished in excess of 3 carats.
What is not generally realised, McEwen told the symposium, is that some 400 million carats of synthetic rough is produced annually. Most of this, however goes for industrial use, primarily in the field of abrasives. Less than 100,000 carats is currently produced for the gem industry. Answering a question, McEwen dispelled the notion that producing synthetic diamonds consumes tremendous amounts of power. Each of Gemesis’ machines, he said, consumes just 1,500 watts of power and it typically takes about three days to grow a 3-carat stone. Putting it in perspective, he said, “We consume more power for air-conditioning than we do in producing stones.”

Disclosure is the Issue
The actual threat to the gem and jewellery industry, however, lies not in the production of synthetics but in any unscrupulous sales to an unsuspecting consumer without full disclosure. As a member of the audience stated, there are several countries, particularly in central Asia, where the issues of disclosure and audit trails will not even be considered, let alone enforced. Rapaport put it in his usual fashion, “What do we do with this stuff that might come onto the market surreptitiously from Ripoff-ostan?”
The two producers’ response was to say that they would provide differentiation in the way of developing their specific brands and delivering an assurance to the consumer with the brand name. But another audience member’s comment highlighted the gaps in that argument. He pointed out the alarming fact that he personally knew someone who was importing significant quantities of moissanite into India. To the best of his knowledge, he said, there aren’t any retail outlets in India that state they sell moissanite jewellery. Neither Rapaport nor any of the panellists had any response.
There is nothing new in simulants being palmed off as diamonds. But moissanite is the brand name under which the diamond simulant silicon carbide is produced and sold by Charles & Colvard. The anecdote clearly highlights the fact that a differentiated brand alone is not a defence against fraud – and a potentially catastrophic loss in consumer confidence. Synthetic diamonds are actually diamonds – and that much easier to palm off.

Synthetic detection equipment at the GII.

Room for Both in the Market
But if the situation is tackled correctly, synthetics present a huge opportunity. Even BHP Billiton acknowledges that in its briefing. In a slide titled ‘The Threat of Synthetics’ BHP said it believed that there is room in the marketplace for both natural and synthetic diamonds.
Though the briefing noted that the diamond industry defended the value of natural diamonds through a ‘Three-D Strategy’, it didn’t outline how the strategy could be enforced. The BHP statement simply contained the three points that everyone knows are essential:
Disclosure: A synthetic must only and always be disclosed as ‘synthetic’, ‘man-made’ and/or ‘laboratory-created’ and the description must be equally as conspicuous and immediately preceding the word ‘diamond’.
Detection: Synthetics are easily and routinely detected in all gemmological certification laboratories.
Differentiation: Diamonds are different from other luxury items, including synthetics, and we continue to differentiate the value proposition that diamonds offer. The Canada-Mark program under which we sell polished diamonds is an example of a value proposition defined by origin.

IDI labs.

No one is really sure they have a foolproof system to make all of this stick. But the diamond processing industry is, nonetheless, interested – all the way to the top. At the symposium, Rosy Blue’s Russell Mehta made it clear that his company would deal in synthetics “if they would make him money”. McEwen’s presentation included detailing some of the promotional work being undertaken by Gemesis and the revelation that his clients include De Beers sightholders. Interest in synthetics isn’t restricted to India alone.

Clearly, the diamond processing industry sees the potential of synthetics. And from the reactions at the symposium, it was clear that most people would rather have synthetics given a clear and legitimate route to the market as this would reduce the likelihood for fraud. There wasn’t as much opposition to the term ‘cultured diamond’ which both Gemesis and Apollo favour for their product as there is in many other industry forums. Many agreed with the companies’ reasoning the term ‘synthetic’ was in general misunderstood as meaning simulant and that either ‘cultured’ or ‘laboratory grown’ gave a more accurate picture. While there was worry about what damage synthetics might do to the existing industry, the overall sentiment was more one of curiosity about the product.
Sevantilal Shah of Venus Jewels, known for their fine make and quality, spoke to Solitaire International regarding the future of diamond manufacturing and also shared his perspective on the subject of synthetics. “Synthetics definitely have a bright future,” he said. But his optimism is not based on what synthetics offer the industry as much as what they offer the consumer. According to him, the promise of synthetics lies in that they offer people with low-to-medium purchasing power a really great option. Shah doesn’t think raw material shortages will automatically make small manufacturers switch to synthetics. He doesn’t think large operators would be enticed into processing synthetics even if they offer better margins. “These two are entirely different and totally independent segments,” he said.

Technology, according to Shah, has steadily been throwing up options and alternatives for the jewellery consumer. These options, including simulants like moissanite and now synthetic diamonds, are in a way a threat to the diamond industry in that they could undermine it. But, he adds, it is too early to say whether they will offer a large-scale processing option for the small or even large diamond manufacturer.
“The Indian government’s recently announced reduction in import duty on synthetic rough stones is understandably going to give a boost to the whole sector,” says Shah, adding, “a large influx of synthetic rough means there will be a spurt in production.” But he goes on to say, “However, the market for synthetic stones or jewellery set with it is different, with a different class of buyers.”
As for the threat posed by synthetics, Shah says, “The diamond industry will have to be extra watchful in the years to come.” He notes that every industry has its black sheep and the diamond industry should deal with and discipline them rigorously. He wants those dealing in natural diamonds only to seek and formulate norms on an international basis in order to ensure malpractices don’t occur.
Later, in an interview with Solitaire International, McEwen echoed this assessment of the symposium when he said that it had been the “the most non-hostile industry meeting” he had attended anywhere in the world. So encouraged was he by the Indian response that he rescheduled his departure to stay on several days more.
In his take on the industry, McEwen said, “Diamonds are a fashion accessory and not a commodity with an intrinsic value as many people think. There is a difference in price for the very same T-shirt depending on whether it is bought from Versace or Gap.”

Building the Category First
While stating that the situation for pearls and diamonds was very different and that Mikimoto had, among other things, almost a century to build its brand to a point where it could actually charge a premium for its product, McEwen said, “Gemesis places itself as a premium producer. But we’re not focussing on just building our brand right now. We want to build the entire category first. We believe in letting our clients do their own advertising, co-branding the product with us. Gemesis will be the ‘mother brand’. This, we believe, will grow the category faster. Despite any competition amongst themselves, even for our clients, it results in more visibility for their products on the whole.”
Explaining just how fast Gemesis is expanding its production capacity, he said, “We are adding four machines a week to our production capacity. In five years’ time, production will be several hundred times what it is today. We have tripled production in the last four months alone. Basically, we’ve turned a research company into a viable commercial operation.”

At the symposium, Martin Rapaport estimated that by 2012, some five million carats of rough synthetics would be on the world market. Going by McEwen’s projections, however, that figure seems a gross under-estimation.
McEwen, who has come to Gemesis after having been the point man in developing the CanadaMark brand for BHP Billiton, says he has brought the process model to Gemesis. This, he says, will address industry concerns about fraud and sales without full disclosure, while further building the Gemesis brand. “We are working on a tracking system from production to market for the stones we produce,” he says.
While the gem industry is huge and holds great potential, Gemesis – as does Apollo – is also targeting the hitherto untapped industrial market. Gemesis is already catering to one niche segment, according to McEwen. “We sell slices of our products which are then shaped and made into scalpels and specialty cutting instruments.” But the real future lies in electronics and he acknowledges that. “The future market for electronics is huge and we’ll definitely cater to it.”

De Beers Synthetics?
But coming back to the gemstone and jewellery industry, McEwen makes what is at first hearing, a startling statement. “I’ve gone on record as having said that at some time in the future, De Beers will be a big player if not the biggest player in the lab-grown diamond market just as they are with naturals. I guess they don’t want to be seen as the initiators of the move and are waiting for someone else to blaze the trail.” On second thought, given that De Beers is known to have amongst the world’s most advanced research programs on the production of synthetics, coupled with the outlook for the production of natural diamonds, that statement doesn’t seem so surprising.
Perhaps that is what the future of the industry is about – not the raw material or the product so much as the brand. De Beers already has a strong brand in natural diamonds, which might account for its reluctance to jump into the synthetic business with both feet. But there’s nothing to say it can’t build another, equally strong brand in synthetics. Symposium moderator Rapaport summed it up succinctly when he said it was important to remember that the industry was not in the diamond business at all.
“We are,” he said, “in the gifting business.”