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DIAMONDS
INDUSTRY TRENDS | Safeguarding the dream
Timely approaches to a timeless gemstone
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DOMINIK PABIS / GETTY IMAGES
t remains one of the greatest lines in marketing. A late-night line scribbled by the copywriter Frances Gerety, plagued by a morning
deadline and a bout of writer’s block. She
wasn’t quite sure about the line, but her client, De Beers, was. Gerety’s phrase, ‘‘A diamond is forever,’’ has appeared in all the
company’s advertisements for engagement rings
since 1948. Its alluring simplicity and timelessness stand in counterpoint to a complex industry
facing rapid change.
A new report on the industry suggests the time
is right for a fresh wave of innovation to reinforce
the enduring appeal of this extraordinary material.
The just-released Diamond Insight Report 2014 is
the first in an annual series from De Beers analyzing major trends in the industry. Innovation and differentiation, it states, are essential to safeguarding the ‘‘diamond dream’’ in an industry that
‘‘derives practically all its value from consumers’
demand for diamond jewelry.’’
Consumer demand for diamonds is healthy. The
report estimates global diamond-jewelry sales in
2013 at $79 billion, representing 3 percent
growth over 2012. China leads the way, showing a
compound annual growth rate of 21 percent over
the past decade; the global average is 3 percent.
The United States, historic powerhouse of the diamond-jewelry market, had a good 2013, with sales
of polished diamonds rising by 7 percent (China
saw double that). Looking ahead, Goldman Sachs
expects the demand for diamonds to rise by
11 percent between 2013 and 2017. China should
forge ahead, with RBC reporting that the 2014
Chinese New Year saw retail revenue up by
32 percent at leading retailers.
Despite these robust figures, some 2,000 jewelry retail doors have closed in the United States
over the past five years. The growth of fine-jewelry
sales over the past decade lags behind that of other luxury products such as electronics, fine wines
and beauty and personal care. Des Kilalea, a diamond analyst at RBC Capital Markets, is mindful of
the risks. ‘‘Who,’’ he asks, ‘‘will be the buyers of
diamond jewelry in 10 or 15 years’ time? If there
isn’t concerted marketing, diamonds could lose
their share of the luxury wallet.’’
Such concerns occupy the thoughts of Esther
Oberbeck, head of group strategy at De Beers. ‘‘For
me,’’ she says, ‘‘the challenge is how to communicate to consumers, how to get above the noise that
exists for so many other things people want.’’
The Diamond Insight Report calls for investment in branding, marketing and raised retail
standards to ‘‘ensure that consumers, particularly
among new generations and new markets, do not
drift away from the diamond-jewelry category.’’
There are signs the retail sector is becoming, in
Oberbeck’s words, ‘‘a little more contemporary.’’
Some 13 percent of women’s diamondjewelry sales in the United States in 2013, for example, were made online, up from 5 percent in
2006. Meanwhile, 40 percent of U.S. consumers
and a quarter of Chinese women use the Internet
for research before purchasing diamond jewelry.
Brands are increasingly popular; a third of U.S. consumers claim their diamond engagement ring is
branded, while in 2002 just 7 percent did.
The retail environment may be evolving fast,
but the report is clear that ‘‘positive demand
growth will almost certainly outstrip growth in production volume.’’ Production grew modestly in
2013, but remains below precrisis levels.
The industry’s response has been twofold: first,
to make the extraction process more efficient, obtaining as much value as possible from existing
mines; and second, to spark new efforts in exploration. Investment in the first of these options is
underway. Jwaneng, a cavernous, conical pit in the
Naledi river valley of the Kalahari desert, is the
world’s richest diamond mine by value and is benefiting from huge investment. In Cut 8, a new,
$3 billion project there, 700 metric tons of waste
earth is being removed to obtain 100 million carats of diamond. The mine’s owner, Debswana, a
50/50 joint venture between De Beers and the
government of Botswana, estimates this extraction will yield approximately £15 billion ($24.87
billion) over the life of the mine.
Confidence in such projects is well founded.
‘‘The diamond sector,’’ says Kilalea, ‘‘has been
better than any other mining sector in delivering
projects and costs close to where they were promised. They’ve been innovative in trying to protect
diamonds in the plant, in the X-ray technology used
to identify rocks that contain large diamonds and
in milling techniques.’’
The rewards are clear, but so is the size of the
investment required. Fixed costs, from electricity
prices to labor, make mining ever more expensive.
Between 1990 and 2013, capital costs for all diamond projects equaled $12 per carat. For projects
currently in development, that figure rises to $25.
Getting the most value from existing mines is
crucial, as exploration has become increasingly
challenging. Since 2000, the Diamond Insight Report calculates, nearly $7 billion has been spent on
exploration, but only the Bunder area in India has
proved significant. Budgets for exploration are
well below precrisis levels, low-hanging fruit has
been picked and exploration is heading for more
elusive, hence expensive, fields.
Lower carat supply will be felt in the fragmented midstream, where the sale of rough diamonds,
cutting and polishing take place. In a tight lending
environment, banks will back companies that can
add significant value and deliver innovation, such
as the laser technology that is improving precision
and yield. Consolidation in the midstream is inevitable. ‘‘Because of the amount of capacity that exists,’’ says Mike Elliott, global mining and metals
leader at Ernst & Young, ‘‘they’re working on razorthin margins of just 1 percent to 2 percent. Capacity has been building in developing countries as
governments have sought resource nationalism,
mandating ways of trying to capture more of the
value chain. All that has done is add to supply and
push down the margins.’’
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Whether it’s explorers carving through Siberian
permafrost, miners burrowing beneath the Kalahari desert or a Gujarat brillianteer giving a diamond its final gleam, the journey a diamond takes
belies the simple beauty of the final outcome. The
Diamond Insight Report, Oberbeck hopes, ‘‘will
give retailers the weapons to tell this story, to
reassure consumers that diamond is worth it
because it is something unique, precious and hard
to get.’’
In the 1980s, De Beers adopted a new tag:
‘‘Isn’t two months’ salary a small price to pay for
something that lasts forever?’’ Today’s diamond
environment, in today’s world, asks both producers and consumers more complex questions. Diamonds are a finite resource, but demand for them
is anything but. Those looking for diamonds,
mining them, shaping them and selling them are
developing innovative solutions to this glittering
conundrum.
J.B.
Global production volume (1882−2013)
Millions of carats (gem only, 1882-2008; all carats included, 2008-2013)
200
150
100
50
0
2013
1882
Note: Prior to 2008, Russian industrial carats were excluded from the total. From 2008, they are included.
SOURCE: DE BEERS
Diamond, the hardest naturally
occurring substance, is the
most popular gemstone and
a symbol of enduring love.
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DIAMONDS
OBJECTS OF DESIRE | Mingling beauty with history
A unique gift of nature, captivating imaginations through the centuries
DE BEERS
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hen it comes to rarefied diamonds,
jewelers have a propensity to
speak about mystique, eternity, romance and glamour. And not without reason.
The archives of top-flight jewelry maisons
like Cartier, Tiffany and Graff brim with stories testifying to the perennial appeal of
diamonds.
At a frenzied bidding session in 1969, a
69.42-carat diamond made auction history,
becoming the first diamond to sell for more
than a million dollars. The buyer was Cartier.
But two days later, the actor Richard Burton,
a man passionate about diamonds, was determined to give this stone to his wife, Elizabeth Taylor. Cartier agreed to sell it to Burton
on the condition the diamond be displayed in
the windows of Cartier’s Fifth Avenue
boutique. Over several days, the CartierBurton-Taylor diamond attracted thousands
who came to admire a diamond destined for
a star.
From the 317-carat Cullinan II diamond
discovered at the De Beers Premier Mine in
South Africa in 1905 and now resplendent in
the Queen of England’s Imperial State Crown
in the Tower of London to the Taj Mahal
heart-shaped diamond Richard Burton
bought from Cartier for Elizabeth Taylor’s
40th birthday — said to have been the property of Emperor Shah Jahan, who built the Taj
Mahal in memory of his wife — to the Tiffany
jewels worn by Carey Mulligan in the movie
‘‘The Great Gatsby,’’ depicting the luxurious
Cut into oval, cushion, round, square or pear shapes, diamonds offer fire and purity unmatched in other gemstones. Right: The Millennium Star, target of a daring attempted raid at London’s Millennium Dome in 2000.
world of 1920s New York penthouses and
Long Island estates, diamonds have long
been the ultimate symbols of power and
wealth.
The allure of high-quality, iconic diamonds
is a matter of beauty and rarity. ‘‘What most
people don’t know is that if you took all the
diamonds that have been polished
throughout history, they wouldn’t quite fill a
London double-decker bus,’’ says Eli
Izhakoff, honorary president of the World
Diamond Council.
Perhaps this is why, while the world’s
most confident diamond buyers may be
madly in love with the stones they acquire,
they also see them as a means of increased
wealth. In 2006, Laurence Graff bought the
78.1-carat Maharajah Diamond. It had not
been seen in 50 years because it had been
lying in a bank vault. ‘‘The translucency, the
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Eight of the most illustrious diamonds in the world
1. The Blue Moon: Acquired by Cora
International LLC in 2014, this 12-carat
vivid blue diamond could provide clues
about forces within the Earth when the
diamond was created, according to the
Smithsonian Institute’s top gem
curator, Jeffrey Post.
2. The Cartier-Burton-Taylor diamond:
Less than 48 hours after Cartier
acquired this 69.42-carat diamond at
a New York auction, the actor Richard
Burton bought it for his wife, Elizabeth
Taylor, who transformed the ring into
a pendant.
life in that stone, is beyond anything I have
ever seen,’’ Graff was quoted as saying at
the time. He might have prized the diamond,
but he also sold it the next day for a presumably dazzling, and naturally undisclosed,
profit.
Today, as the diamond industry braces
itself for supply to wane, diamonds could become objects of even greater desire. While
diamonds are forever, supplies are fading.
3. The Cullinan II diamond in Queen
Elizabeth’s Imperial State Crown: This
317-carat stone, cut from the original
rough 3,106-carat Cullinan diamond
discovered at a De Beers mine in
1905, adorns the crown the queen
wears at the opening of Parliament.
4. The Tiffany diamond: Bought by
Charles Lewis Tiffany in 1878 for
$18,000, this 128.54-carat fancy
yellow diamond was worn by Audrey
Hepburn in a Jean Schlumberger
necklace for a 1961 publicity shot for
the movie ‘‘Breakfast at Tiffany’s.’’
5. The Windsor Yellows: A pair of canaryyellow pear-shaped diamond clips,
bought by Graff in 1987 and given by
Edward VIII to the American divorcee
Wallis Simpson — a remnant of a
romance that led a British king to
abdicate the throne.
6. The Hope Diamond: Discovered in
17th-century India, this 45.52-carat
blue diamond has a long list of
illustrious owners, including Louis XIV,
Marie Antoinette, Harry Winston and
Washington’s Smithsonian National
Museum of Natural History.
7. The Pink Dream: After this 59.6-carat
oval vivid pink diamond, mined by
De Beers in 1999, fetched a recordbreaking $83.2 million at Sotheby’s in
2013, the buyer revealed he couldn’t
pay. Sotheby’s bought it back for $60
million.
8. The Koh-i-Noor: Rulers fought over
this 105-carat diamond for centuries
before Britain seized it when it took
control of the Punjab in 1849. It is
now set in a Maltese cross in a crown
formerly belonging to the Queen
Mother.
C.A.
According to the Diamond Insight Report
2014 just published by De Beers, quoting
Goldman Sachs research, diamond demand
is expected to expand at 11 percent between 2013 and 2017, while global natural
supply is expected to increase at 5.2 percent
during the same period.
Rio Tinto Group is currently holding a
tender for top pink diamonds from its Australian Argyle mine, with viewings taking
place in Sydney, New York and Hong Kong,
and some stones are expected to fetch well
in excess of $1 million per carat.
Earlier this year, Cora International LLC
paid $25.6 million for the Blue Moon, a 29.6carat vivid blue rough diamond discovered by
Petra Diamonds, now cut to 12 carats and
admired for its clarity, cut and kaleidoscopic
hues. ‘‘The Blue Moon is a piece of history on
this planet,’’ says Arye (Ehud) Laniado, principal of the diamond-pricing consultancy
Mercury Diamond, advisers to Cora International LLC. ‘‘Every day, we develop and create state-of-the-art medicines, machines
and technology beyond our imagination, but
there is a place beyond all this. The Blue
Moon speaks of the power and beauty of
nature and the history of the earth
itself.’’
C.A.
DIAMONDS FOR DEVELOPMENT | The fruits of beneficiation
Diamonds’ share of GDP in key
producing countries, 2013
Percent
80
76
Diamond
production as
percent of GDP
70
Diamond exports
as percent of
total exports
60
50
40
30
26
19
20
10
8
0
Botswana
Namibia
SOURCE: THE WORLD BANK, KIMBERLEY PROCESS STATISTICS,
DE BEERS ANALYSIS
mining in producer countries — saw one of
HIV /AIDS since 2001 (around 23 percent of
its most significant moments when De Beers
adults in Botswana carry the virus).
moved its entire ‘‘sights’’ activity (where cusOn returning to the United States, Simtomers can inspect and buy diamonds) from
mons and Chavis established the Diamond
London to Gaborone, Botswana. The move
Empowerment Fund, a nonprofit organizahas had a transformative effect. Botswana is
tion backed by members of the jewelry and
no longer merely a diamond-producing coundiamond industries, and its annual Diatry, but has made advances in midstream acmonds Do Good supporter program.
tivities. According to the Gemological Institute
The DEF, says Chavis, has contributed
of America, there has been a rise
over $2.3 million to causes such
in the number of people working
as the Botswana Top Achievers
in diamond polishing there, from
Program, which supports aca500 in 2006 to more than 3,000
demically excellent students as
today; polished diamond exports
they move toward key strategic
are forecast to top $1 billion by
roles; the African Leadership
2015, up from $100 million in
Academy, which identifies, devel2008; and the Diamond Technolops and connects the continent’s
ogy Park is fully rented and a govnext generation of leaders; and
ernment-commissioned expanthe CIDA City Campus College in
sion is due to be completed by
Johannesburg, which offers full
the end of the year.
scholarships for its business-deKevin Goodrem, De
‘‘We’ve seen significant
gree program. ‘‘The DEF’s finanBeers vice president
change here,’’ says Kevin Goodcial contribution to these proof beneficiation.
rem, vice president of beneficigrams,’’ says Chavis, ‘‘is indicative
ation at De Beers. ‘‘Chauffeur
of the broader global support the
cars, restaurants, hotels and airlines have all
industry gives to transformation and qualitygrown since the move. The sightholders find
of-life projects in Africa, India, China, Russia,
the environment exceptional, with most comCanada, Australia and the United States.’’
menting that the facilities are better than in
As Chavis indicates, Botswana’s gains
London. We’ve taken on 84 staff who were
have been matched elsewhere in the world,
not employed before and who are of excepnowhere more so than in India, where the
tional caliber. The quality of the people in
country’s Gem & Jewelry Export Promotion
Botswana is remarkable.’’
Council calculated the industry was worth
It was Mandela again who, in 2006, enmore than $39 billion in 2012-13. A 2013
couraged the hip-hop and fashion magnate
task-group report for the Indian government
Russell Simmons and the African-American
estimated that just under a million people
civil rights leader Ben Chavis to tell the story
are employed in the industry. The report
on their return from Africa of the positive imlooked at the beneficiation program in Africa
pact diamonds were having on socioand elsewhere, recommending strong
economic development. They witnessed
policies to support Indian sorters and buyprojects such as the Debswana HIV strategy
ers. As in Botswana, the trajectory is clearly
in Botswana. Debswana, a joint venture belaid out. India, the report recommends, must
tween the Botswana government and
position itself and the industry in terms of adDe Beers, has provided antiretroviral drugs
vanced skills and a highly trained work
to employees and their families living with
force.
DE BEERS
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t was Nelson Mandela, characteristically,
who ushered in the future. ‘‘I would like to
appeal,’’ he told the 1993 Sub-Saharan
Oil and Minerals Conference, ‘‘for investment
in the mining, mineral beneficiation and oil industries, not only of South Africa, but of the
whole subcontinent.’’ While since then the
diamond industry has faced challenges in
Africa, it is demonstrating its capacity to do
good.
Twenty years after Mandela’s call, beneficiation — the creation of activities beyond
DE BEERS
Reaping midstream benefits at the source of the stone
Sorters at Diamond Trading Company Botswana, the largest diamond-sorting facility in the world.
These developments boost an industry
that has contended with negative coverage
in the past. Reverberations remain from the
‘‘conflict diamond’’ controversy, which
peaked in the 1990s when Unita rebels used
diamond revenues in their war with the Angolan government. It prompted Robert Fowler, Canadian ambassador to the U.N., to
warn the industry in 2000 that it faced the
sort of boycott that had decimated the fur
trade two decades earlier.
The Fowler Report was followed three
years later by the Kimberley Process, established to prevent conflict diamonds from entering the mainstream rough-diamond
market. ‘‘The Kimberley Process can take
credit for being the first multistakeholder initiative that brought together government,
civil society and private-sector actors,’’ says
Alan Martin of Partnership Africa Canada, a
Nobel Prize-nominated nongovernmental organization that attempts to control the flow
of conflict minerals.
Nonetheless, warns Martin, vigilance remains crucial. ‘‘The landscape has
changed,’’ he says, ‘‘and you have issues
nobody talked about 10 years ago — revenue transparency, environmental degradation, labor standards. These are critical to a
well-managed, responsibly mined and traded
commodity. The civil-society coalition has
good relationships through the Kimberley
Process with many actors in the industry because we know we win when we’re on the
same page.’’
J.B.
DE BEERS
A Botswana success story: Rich natural resources plus sound governance equal huge gains in gross domestic product
The Jwaneng diamond mine contributes between 60 percent and 70 percent of Botswana’s GDP.
Botswana was one of the most
impoverished countries in the world
when it was granted independence by
the British in 1966. Gross domestic
product per capita was $70. It was
predominantly agricultural, but 10 years
of exploration were about to give this
fledgling nation an enormous boost. In
1967, surveys confirmed diamonds at
Orapa, and a mine opened just four years
later. Three other major mines were
subsequently established, helping to
turn Botswana into one of contemporary
Africa’s success stories. In 2013, the
World Bank reported Botswana’s per
capita GDP as $15,675.
It would be easy to attribute
Botswana’s economic growth purely to
its diamond resources. Stable, shrewd
governance, however, has been just as
important. Botswana was granted
independence rather than having had
to fight for it. Consequently, it avoided
the civil wars that afflicted so many
decolonized African states. The result
has been four decades of uninterrupted
democracy, sound fiscal discipline and
enlightened social policies. Although
23 percent of the population carries
the HIV virus, the C.I.A. praises
Botswana for having ‘‘one of Africa’s
most progressive and comprehensive
programs for dealing with the
disease.’’
The government quickly recognized
that diamonds would be pivotal in the
country’s development and entered
into agreement with De Beers, the sole
company mining there, to share
proceeds. Initially, the government held
15 percent. In 1978, the formation of
Debswana saw the shares established
at 50/50. That year also saw an
agreement to mine at Jwaneng, which
opened in 1982. It is the world’s richest
diamond mine by value and contributes
between 60 percent and 70 percent of
Botswana’s GDP.
The move of De Beers ‘‘sights,’’ or
inspecting and buying activities, to
Gaborone in 2013 and the
establishment of cutting, polishing and
trading enterprises will see $6 billion
flowing through the country’s banking
system. It is money that is allowing
Botswana to diversify away from being
purely a diamond producer.
J.B.
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DIAMONDS
CONSUMERS | Shifting demand
An evolving global market reshapes jewelry retail sales
O
28 percent
of U.S. retail diamond-jewelry
value in 2013 was diamond
engagement rings
Chinese market growth over time
US$ millions (nominal)
10,000
Diamond jewelry value
8,000
6,000
Polished value
2003-2013 CAGR
Diamond jewelry: 21%
Polished value: 23%
4,000
2,000
0
2003
2007
2013
SOURCE: DE BEERS
In China, diamond rings are increasingly popular as part of women’s wedding purchases.
travel abroad is expected to reach 135 million trips by 2016.
When Chinese women were recently
asked to choose from a list of items or experiences they most coveted, fine jewelry came
out on top, with designer handbags coming
in a distant second. While one in 100
Chinese brides received a diamond engagement ring in 1994, that figure is now one in
two. In the next six years, China’s middle
class is predicted to grow from 200 million to
over 500 million. The Chinese jewelry giant
Chow Tai Fook, a chain with well over twice
the revenue of Tiffany & Co., has established
diamond polishing factories, enabling it to
buy rough diamonds direct from miners.
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In the United States, sales of diamond
jewelry face fierce competition from other
luxury goods and experiences. When American women were recently asked about the
gifts they’d most like to receive, fine jewelry
was not a top-five priority. Holidays, electronics, home furnishings, spa days, designer
handbags and clothes came first. Diamond
jewelry, however, trumped all other kinds of
jewelry in the popularity stakes for all age
categories.
Diamond engagement rings and bridal
jewelry are a key area for American growth
because in 2013, even though diamond engagement rings accounted for just over one
in 10 pieces of diamond jewelry sold, they
represented close to 28 percent of retail
also vary across cultures. ‘‘While we create
market value. Customers are spending more
jewels that transcend geographical boundarthan three times more on engagement rings
ies, we take into account that Middle Eastern
than they are on other pieces of women’s
clients are captivated by suites of necklaces,
jewelry. Although fewer Americans
bracelets and earrings,’’ says
are marrying and those who do
Francois Graff, chief executive ofare waiting longer before first
ficer of Graff Diamonds. ‘‘In Asia,
marriages, the average spend per
colored diamonds are popular,
occasion is rising, according to the
and European clients favor classic
research consultancy Mintel.
styles, including diamond-line
Among couples spending
bracelets, necklaces and hair
$8,000 or more on an engageadornments.’’
ment ring, De Beers found 75 perThe London-based, Russiancent of couples have a defined
born custom-jewelry designer
budget in mind, but half end up
Yana Zaikin, founder of Emily H.
stretching it. In good news for asLondon, recently located a fancy
Forevermark’s CEO
piring brides, over half of women
vivid pink diamond of over five carStephen Lussier.
have a say in selecting their enats for a client’s engagement ring
gagement ring, with 35 percent choosing the
and has received additional requests for
ring they plan to wear daily for the rest of
blue and vivid orange diamonds. ‘‘I’ve notheir life and 25 percent dropping carefully
ticed a surge in interest from newly wealthy
crafted hints.
individuals in Nigeria, Indonesia and
Meanwhile, the growing presence of
Azerbaijan who are chasing rare colored diaChinese and Russian buyers and collectors
monds,’’ she says. ‘‘Five years ago, my Rusis noticeable at auctions for the world’s most
sian and Ukrainian clients preferred investexceptional diamonds, according to Arye
ing in gold rather than wearable diamond
(Ehud) Laniado, principal of the diamond prijewels. But they’re also showing significant
cing consultancy Mercury Diamond, advisers
interest in top-quality large stones, from two
to Cora International LLC, which bid successto five carats, often seeking flawless stones,
fully against seven other companies to acsometimes basing their decision on the GIA
quire the 29.6-carat Blue Moon diamond at a
[Gemology Institute of America] certificate
Petra Diamonds tender this year.
and an emailed video alone.’’
Evidently, preferred luxury-jewelry styles
C.A.
DE BEERS
BLUE JEAN IMAGES / GETTY IMAGES
ver the last 10 years, demand for diamonds has shifted dramatically. According to research commissioned
by De Beers and released in September, the
diamond industry has its eyes on the United
States and China, the world’s largest and
fastest-growing diamond-jewelry markets.
While the United States accounts for 40
percent of the world’s diamond-jewelry sales,
China, Hong Kong and Macau together account for 15 percent. Over the past year, U.S.
sales of diamond jewelry grew 7 percent,
while Chinese sales grew 14 percent.
A propensity toward brand-conscious
buying of diamond jewelry is affecting both
these markets. ‘‘In America, diamond-jewelry
brands have been gaining space, and
Forevermark is part of this growing retailer
and consumer interest,’’ says Forevermark’s
chief executive officer, Stephen Lussier.
‘‘While Chinese consumers prefer to buy
from trusted domestic retailers like Chow Tai
Fook and Chow Sang Sang, since 2008
Chinese sales of diamond jewelry from
Cartier and Tiffany to the more affluent
Chinese have grown by eight to nine times.’’
Despite China’s recent economic slowdown, diamond polishers, jewelry designers
and retail jewelers the world over are likely to
be betting on Chinese tourists for future
profits. Chinese shoppers are already responsible for 27 percent of global luxury purchases, with 60 percent of their luxury shopping taking place while traveling. The Chinese
are predicted to spend a whopping $154 billion on jewelry and other luxury items in 2014
during an estimated 93 million trips, more
than five times the number of trips taken by
the Chinese in 2002, according to McKinsey
Consumer and Shopping Insights. Chinese
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DIAMONDS
TO THE ENDS OF THE EARTH | New exploration
Extending the search in tropics and tundra
Although both Canada and Siberia offer potential diamond sources, these sites are often remote,
inhospitable and covered in glacial ice.
Global diamond exploration budgets 2001−2013, by company type
huge drill bits into the heart of Angola is a logistical puzzle and hugely costly. The legislative
process in some of these countries is embryonic, he adds. Luanda is also, somewhat
counterintuitively, calculated to be the most expensive city in the world. Labor is expensive.
The costs aren’t limited to Angola. Cleaver points to Russia where, for example, over
the past decade the price of electricity has
risen 12 percent, fuel has gone up 17 percent and labor has gone up 19 percent. The
numbers in southern Africa are similar.
These costs also need to be multiplied by the
amount of time it takes to move from discovery to exploration. From 1950 to today, the
average time it took to take a mine from exploration to production was 15 years. For
projects currently in development, that time
scale has increased to 20 years.
‘‘It’s a very risky venture,’’ says Derek
Hamill of Zimtu Capital Corp., which manages private and seed-level investment in
resource-exploration companies. ‘‘Because
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ETHICAL LUXURY | Integrity and transparency
Fine jewelers build ethical concerns into business
I
from Chopard’s Green Carpet Collection when
she accepted her award for best actress.
‘‘Our clients have become more concerned
with where their jewelry comes from and how it
is created, not just its quality and beauty,’’ says
Chopard’s co-president and creative director,
Caroline Scheufele. ‘‘They value our ability to
combine luxury with global responsibility.’’
Chopard’s long-term commitment to sustainable luxury includes using diamonds
sourced from the IGC Group, a member of
the Responsible Jewelry Council.
‘‘In addition to adhering to the Kimberley
Process, many of our diamonds are laser-engraved with a unique Gemological Institute of
America tracking number,’’ says Francois Graff,
chief executive officer of Graff Diamonds. ‘‘Invisible to the naked eye, it allows the diamond’s origins to be traced while protecting the
perfection and beauty of the stone.’’
Fashion industry players are also increasingly following their ethical instincts. Designers including Vivienne Westwood, Sass &
Bide and Karen Walker are contracting out
beading and sewing via the Ethical Fashion
Initiative, a joint effort by the United Nations
Forevermark: The creation of a brand and a promise
In 2008, in the aftermath of heated
debate about the questionable journey of
certain diamonds, De Beers recognized
the time was ripe for a diamond brand
that spoke more intimately to its
consumers and secured their trust. It
created Forevermark, the diamond brand
from the De Beers group of companies,
reflecting the company’s proprietary
technology and increased transparency.
Forevermark was a turning point in
the criteria De Beers laid out for both
the aesthetics and the ethics of
diamonds. The core of Forevermark’s
offering is a unique inscription on each
diamond that represents a promise of
something greater: a commitment to
rarity, beauty, the communities from
which it was mined, responsible
sourcing, environmental considerations
and the leveraging of closely guarded,
patented De Beers testing and
inscription technologies.
Today, China is one of Forevermark’s
most important markets. ‘‘While brands
come under increased scrutiny from
consumers who have a greater
understanding of artisanship and fine
craftsmanship and a heightened
awareness of business, social and
environmental responsibility, trust is the
top driver for Chinese consumers when
considering diamond-jewelry brands,’’
says Forevermark’s chief executive
officer, Stephen Lussier. ‘‘Ethical
sourcing appeals to the Chinese because
it indicates the company is more likely to
be honest with them and provide a
genuinely high-quality product.’’
Only a small number of mines in the
world have been approved as
Forevermark sources. Forevermark mines
assume full responsibility for employee
health and safety, provide employee
benefits and career opportunities, offer
and the World Trade Organization that supports some 5,000 artisans in Kenya and
more in locations including Haiti and Ghana.
This fall, the leading Japanese fashion retailer Cross Company is launching an ecofriendly fashion chain with ambitious goals to
generate $9.8 billion annually. During this
year’s Berlin Fashion Week, an Ethical Fashion Show featured 116 brands, up from 36
exhibitors in 2012.
Many jewelers are starting to address
broader issues around raw materials headon. Arctic Circle Diamonds creates 100 percent Canadian jewelry, incorporating diamonds from mines that protect ecosystems,
control water use and limit emissions, and
which are cut, polished and set by Canadian
artisans into designs of gold supplied by the
Canadian Royal Mint.
More than 100 jewelry designers and retailers, including Cartier, Boucheron, Tiffany,
Piaget and Blue Nile, are signatories of the
Golden Rules against dangerous gold mining
practices set out by the environmental campaigners Earthworks, based in Washington,
D.C.
C.A.
DE BEERS
n May this year, Kering, owners of the jewelry-making brands Gucci, Boucheron,
Bottega Veneta, Pomellato and Qeelin,
announced that by 2016, all diamonds and
gold in Kering products would be sourced
from verified operations that do not have a
harmful impact on local communities, wildlife
or the ecosystems that support them.
According to its Sustainability Targets progress report, Gucci’s purchase of 30 kilos (66
pounds) of Fairmined gold — ethical gold extracted by artisanal and small-scale miners
certified under the Alliance for Responsible
Mining’s standard — from the Sotrami mine
in southern Peru is the biggest purchase of
Fairmined gold to date in the luxury sector.
Where diamonds are concerned, Kering has
teamed up with external experts to enable the
company to go beyond the Kimberley Process
Certification Scheme (established in 2003 to
prevent ‘‘conflict diamonds’’ from entering the
mainstream market) to prevent harm to communities and natural ecosystems.
Transformative to the industry was the
establishment of the the World Diamond
Council, set up in 2000 to represent the entire industry from mining to retail, and the
foundation of the Kimberley Process — a
unique collaboration between the World Diamond Council, the United Nations, 81 countries and the nongovernmental organizations
Global Witness and Partnership Africa
Canada. The Kimberley Process remains the
diamond and jewelry industry’s benchmark
for the ethical sourcing of diamonds.
Kering is far from the only luxury company
now paying attention to its ethically driven
consumers and aiming to go beyond the
Kimberley Process requirements.
The family-owned jewelry giant Chopard is
working with the Alliance for Responsible Mining to ensure its miners attain Fairmined certification. At the Golden Globe Awards this
year, Cate Blanchett wore diamond earrings
of that, exploration is going to be more attractive to guys with a risk-taking appetite.’’
Hamill says that the challenge of unearthing new mines is leading to the emergence of
small, specialist exploration companies.
‘‘What you’ve seen is real cuts to exploration
budgets from the majors,’’ he says. ‘‘Why
spend the money when they already have
deposits they need to develop? I actually
think the discovery phase is now more attractive to juniors.’’
Whatever the size of the company, much
of diamond’s glamour and allure comes from
the difficulty of extracting it, and the accompanying sense of excitement and adventure.
‘‘The exploration folk,’’ says Cleaver, ‘‘are the
most wonderful people. They are quite prepared and happy to go to remote places and
spend months, sometimes years, of their
lives there. They are very, very passionate. If
these mines were sitting in London or Paris,
diamonds wouldn’t be rare and wouldn’t sell
for what they do.’’
J.B.
The Jwana Game Reserve, adjoining the Jwaneng diamond mine in Botswana.
DE BEERS
EMIL WESSEL
tions for on-the-ground surveys.
old, thick continental crust,’’ says
The Superconducting Quantum
Andy Beard of the department of
Interference Device (SQUID), deearth and planetary science, Birkveloped in collaboration with
beck College, London University.
Anglo American, is able to sit on a
These areas are well identified and
plane, fly at low level and not be
lead to a search for the first sign of
affected by engine vibration,
indicator materials, such as dark
which would once have interfered
garnet, in sediment deposits.
with the collection of data.
‘‘They’ll walk up streambeds with a
It’s an example of the type of
GPS and grab small samples, a
technological development that is
kilo of gravel,’’ says Dr. Beard.
being used in the attempt to un‘‘That’ll be flown back and a drainBruce Cleaver,
earth new mines. Exploration De Beers strategy head. age map built to show where these
remains, nonetheless, very much a
indicators are found. That map is
human activity, not simply a technical process.
cross-matched with the results of geophysicWhile much of the work is done at desks and
al surveys to see where the drainage interon computers thousands of miles away from a
cepts a potential target.’’
potential site, exploration work requires people
‘‘There are lots of boots on the ground,’’
breaking sweat on the ground.
says Dr. Beard. ‘‘It’s dangerous work as well.
‘‘Diamonds are always found at places of
But the diamond is deeply engrained in our
psyche.’’
This is simply early-stage exploration.
Identifying kimberlite, igneous rock that is
sometimes diamondiferous, is one thing;
identifying kimberlite with gemstone-quality
US$ millions (nominal)
diamond is quite another. In the past 140
years, almost 7,000 kimberlite pipes have
10,000
been sampled, 1,000 found to be diamondiOther
ferous and only 60 identified as sufficiently
Juniors
8,000
rich in diamond to be economically viable.
Southern Africa and parts of Russia have
Majors
been traditional locations for diamond
6,000
mines, but Cleaver says it is unlikely more
major mines will be found in these places. He
4,000
predicts the next massive mine, if it’s found
at all, will be in central Africa, Angola or the
Democratic Republic of Congo. De Beers ex2,000
plores in Angola, a difficult environment geographically. Even in Canada, the mining
cratons being explored are far north, within
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
or just outside the Arctic Circle — inhospitable, remote and expensive. The same goes
2
2
2
4
5
7
10
13
7
11
16
21
for Siberia, which offers potential but is
ALL MINING EXPL. EXPENDITURE US$ billions
covered in glacial ice.
It’s not just geography that poses chalSOURCE: SNI. METALS & MINING’S CORPORATE EXPLORATION STRATEGIES 2013;
INCLUDES GRASSROOTS, LATE STAGE AND MINE SITE EXPLORATION EXPENDITURES
lenges, says Cleaver, though transporting
CHARLIE FAWELL
T
here’s no mystery about to where to
look for diamonds. But finding diamonds of gemstone quality requires
lots of good luck, hard cash and hard work.
‘‘We are constantly exploring,’’ says
Bruce Cleaver, executive head of strategy
and corporate affairs at De Beers. ‘‘We explore, and we explore even through financial
crises. We spend roughly $50 million a year
on exploration, in difficult jurisdictions, because finding new mines is becoming more
difficult and the places to find them are becoming more complicated to work in.’’
All of which explains why mining companies are investing so much money in the
technology that might unearth the next big
mine. A key tool in early-stage exploration is
flying specialist machinery over potential targets in an attempt to identify geographic anomalies in the ground and narrow down loca-
A Forevermark inscription is a guarantee of a
diamond’s responsible sourcing.
HIV education and medication and
implement initiatives to empower women.
They also have long-term plans to restore
the land they occupy. The Jwaneng mine
in Botswana has set aside areas of land in
its vicinity dedicated to conservation and
nature reserves, while the diamond
manufacturer Venus Jewel in Surat, India,
supports educational charities that help
disadvantaged young women.
‘‘I see it as a privilege to sell our
customers a diamond that has the
promise of being not only rare and
beautiful but, most importantly,
responsibly sourced,’’ says Jack
DeAngelis, president of the authorized
Forevermark jeweler Morton and
Rudolph Jewelers in New Jersey. ‘‘Our
customers feel great purchasing a
diamond that helps people in so many
ways.’’
C.A.
THE WORLD’S HARDEST MATERIAL | Industrial applications
Synthetic diamonds for energy, medicine and semiconductors
70 percent
of oil-drilling equipment
now uses
synthetic diamond
cut faster and provide a better finish than
carbide-tungsten tools. They are used in a
number of industries, such as aerospace,
automobiles and mining. The first sector in
which synthetics made the breakthrough
from being just a material to a commercial
solution, the oil and gas industry, is now half
a century old. More than 70 percent of oildrilling equipment now uses synthetic
diamond.
‘‘Once you reach 70 percent penetration,’’ says Huehn, ‘‘the challenge changes
— it’s about competition, performance, consistency, differentiation. We’re not making a
material anymore, we’re designing custom
solutions based on a sophisticated material.
Rather than just giving our customers something and saying ‘make the best of it,’ we
design a synthetic-diamond-based solution
that enables them to come up with the most
differentiated solution possible.’’
The challenge is for synthetic manufacturers to start producing the material in evergreater quantities. ‘‘For the past 20 years,’’
says Paul May, professor of chemistry at
Bristol University and head of the CVD
Diamond Group there, ‘‘we’ve been
compete with silicon and move insaying that once we can get a large
to the area of semiconductors.
number of diamond manufacturThe potential applications at
ers making diamond of high qualthat point could be ‘‘world breakity, then finally industries like the
ing,’’ says May. He points to the
aerospace industry will take notice
potential of synthetic diamond
and start treating diamond as a
use in solar energy, taking advancheap industrial material rather
tage of the fact that diamond
than as an expensive luxury.’’
emits electrons at much lower
It would be ironic if natural diatemperatures than metals. This
mond’s high-cost allure and rarity
allows diamonds to convert the
held back the synthetic diamond
sun’s heat into electricity at comWalter Huehn, CEO
industry. ‘‘Polycrystalline diaparatively low temperatures,
of Element Six.
mond,’’ says Professor May, ‘‘can
even on a cloudy day, making synbe made for a few dollars per carat. Element
thetic diamond a direct competitor to photoSix, for example, will sell you a polycrystalline
voltaic cells, which rely on light.
diamond that is one centimeter square by
This sort of application is a long way from
half a millimeter thick, which is solid diathe traditional use of diamond as an abrasmond, for £40 [$66].’’ For the synthetics
ive. ‘‘Everyone is stunned to hear about all
business, getting that message across to a
the things that have nothing to do with abraswide range of industries is imperative.
ive properties,’’ says Huehn, pointing to diaThe next major progression, May sugmond’s potential in water purification, disingests, will come when single-crystal (as opfection and the transportation of drugs
posed to polycrystal) diamonds of six inches
through the body in targeted ways.
in diameter are manufactured. At that point,
The world of synthetic diamonds is clearly
he says, synthetic diamond will be able to
a dynamic one, but requires monitoring. The
DE BEERS
W
alter Huehn speaks with the unbridled enthusiasm of an undergraduate. But he is, in fact, the
highly experienced chief executive officer of
Element Six, a synthetic diamond supermaterials company and part of the De Beers
group of companies.
Element Six (so named because carbon,
of which diamond is comprised, is sixth on
the periodic table of the elements) develops
synthetic diamonds for a range of uses, including the production of abrasives, drawing
upon diamond’s quality as the world’s hardest material.
Diamond-coated cutting tools last longer,
recently released De Beers Diamond Insight
Report highlights the risk of undisclosed synthetics entering the market and weakening
consumer confidence in diamond jewelry. In
fact, Element Six is involved in developing
sensors that help the industry identify synthetics. As the report notes: ‘‘The industry
has been successful in safeguarding consumer confidence. Continual investment in
developing and deploying technology will be
required to sustain that success in future.’’
For Huehn, De Beers’ involvement in synthetic diamond is hardly counterintuitive.
‘‘Let’s make sure we really understand synthetic applications for industrial purposes,’’
he says. ‘‘The excitement of gemstones and
the excitement of synthetics is very different.
At the end of the day, it’s all diamond.’’
J.B.
The dynamic world of diamonds was
produced by the T Brand Studio international
department and did not involve the International
New York Times reporting or editorial
departments. Text by CLAIRE ADLER and JOE
BOYLE.