Why It's So Hard to Put a Price on the World's Biggest Diamondsby
Stones so rare only small group of super-rich can afford them
To gauge value, miner Gem Diamonds cuts some of its own rocks
When miners unearth the world’s biggest and rarest of diamonds -- like the golf-ball-sized, 357-carat rock found this year in the southern African kingdom of Lesotho -- figuring out what they are worth can prove almost as difficult.
Gem Diamonds Ltd., which specializes in digging up stones that only a few billionaires are likely to buy, has been taking some unusual steps to confront that dilemma. The London-based mine owner is replicating on a small scale what middlemen normally do. It cuts, polishes and re-sells some diamonds to get a better sense of what the market is for the world’s biggest ones. In September, the company had its biggest sale ever when its prized discovery from Lesotho fetched $19.3 million.
“There’s no such thing as an accurate valuation on these stones,” Brandon de Bruin, head of sales at Gem Diamonds, said during an interview in Antwerp, the center of the world diamond trade.
Of the hundreds of millions of diamonds unearthed over the past decade, only about a dozen bigger than 250 carats were found, based on a Bloomberg review of company disclosures. They are so rare that miners aren’t always sure they’re making the best deal. Because large stones favored by the super-rich have held their value during a slump in prices for smaller, more-common ones, producers have an even bigger incentive to get the best price on their big discoveries. Lucara Diamond Corp., which last month found the second-largest ever, hasn’t yet put a price tag on a 1,111-carat gem the size of a tennis ball, which analysts say could fetch $60 million.
Mining companies traditionally sell their discoveries directly to firms who cut the stones into smaller pieces that are polished and sold to wholesalers and jewelers. While the abundance of common varieties in the $80 billion global market provides enough benchmarks to price small gems, giant ones presents a challenge because mining companies don’t usually employ their own cutters and don’t know what it will cost to convert them into polished diamonds.
Gem Diamonds, which in the past decade has uncovered four of the 20 largest white gem-quality diamonds ever found, is seeking to change that dynamic. The company has been experimenting with cutting and polishing a small amount of its own output to better analyze the process of converting the gray, jagged rocks into flawless, jeweler-ready products. The experience helped determine the value of the 357-carat stone found at its Letseng mine in southernmost Africa earlier this year.
In the past three years, Gem Diamonds sent dozens of its stones to a lab across the street from its Antwerp sales office, so that the company’s own workers can cut and polish the individual facets to produce an item that should sell for about 25 percent more than the original rough type, according to de Bruin.
While some of the rocks cut in-house were because the company wasn’t happy with the offer prices from wholesalers, Gem Diamonds doesn’t want to expand the operation to handle all its mine output, de Bruin said. It just wants a small unit to better understand the market for bigger, rarer stones because it is producing more of them.
Mine owners prefer marketing rough types because they’re easier to sell quickly. Cutters can sometimes be stuck with diamonds for a couple of years before finding a buyer willing to pay the right price. Gem Diamonds said it sold 13 rough gems from its Letseng mine in the third quarter for more than $1 million each.
“Prior to Gem going into production, the world didn’t hear about these large stones,” said William Lamb, the chief executive officer of Vancouver-based Lucara, which unearthed the biggest diamond in more than a century. “Gem has paved the way for us in creating the market for these large stones.”
About 125 million carats were mined globally last year, according to data from the Kimberley Process, which records and certifies rough diamond shipments. The stones aren’t sold on any exchange and the market is much less liquid than most commodities.
A better idea of valuations would help set a benchmark others can adopt as the discovery of the largest stones accelerates. More than half of the biggest diamonds in the past decade have been found in the two years since Lucara opened its Karowe Mine in Botswana in 2012, which yielded the 1,111-carat diamond found last month. It was the largest since the 3,106-carat Cullinan gem was found in South Africa in 1905. That one was cut into pieces, which are set in the Crown Jewels of Britain.
The largest stones have been more immune to wider drop in demand brought on by China’s economic slowdown and a credit crunch in the industry. Rough prices have fallen about 18 percent this year to the lowest since 2010, according to data from from U.K.-based WWW International Diamond Consultants.
Another company that routinely finds exceptional stones is Petra Diamonds Ltd., whose mines include Cullinan. The top producers -- De Beers, Alrosa PJSC and Rio Tinto Group -- rarely uncover anything larger than 100 carats and never on the scale of those by Gem Diamonds and Lucara. The big ones that De Beers has found have rarely been publicized because the company has traditionally offered them at a discount to its best customers.
Gem Diamonds, founded by CEO Clifford Elphick in 2005, also is developing the Ghaghoo mine in Botswana.
“When we started, we had very little understanding of the value of our production,” de Bruin said. “But by doing what we are, you get a real feel for the market.”