Since their discovery in India in the ninth century BC, diamonds have been one of the most sought-after luxury goods in the world and in that respect, not much has changed. But deposits discovered in Canada in the 1990s, the gradual reduction of De Beers’ control of the industry and the increasing demand for both gems and industrial diamonds in Asia has made the modern market diverse and robust. From the famous 478-carat Light of Letseng diamond, which sold for US$18.4 million in 2008, to industrial diamond dust, the diamond industry today is as multifaceted as the polished rocks themselves.
The polished and the rough
Diamonds originate in the Earth’s mantle, an environment where pressures vary between 650,000 and 870,000 psi, and temperatures range between 900 and 1,300°C. They are brought to the surface by volcanic action and are found in kimberlite pipes – vertical ore bodies of cooled magma – and alluvial deposits that have been eroded away from the pipes over millions of years. Diamonds entering the market now are usually between one and three billion years old.
Once extracted, the rough diamonds enter a complex grading scheme to determine their value. While the Light of Letseng sold at over $38,000 per carat, industrial stones sell for anywhere from $7 to $200 per carat, and crushing boart for $0.30 a carat. Natural diamonds that are not suitable for jewelry are not in great demand. Improved synthetic diamonds, which are increasingly cheaper to produce, satisfy nearly all of the demand for industrial-use diamonds.
The diamond pipeline
Diamonds differ substantially from other commodities in the way they are sold. “Diamonds aren’t traded in an exchange market the way metals are,” says Matt Manson, CEO, president and director of the Stornoway Diamond Corporation. “There’s less speculation, there’s little stockpiling, and there’s no futures or derivatives market.” All that makes for stable prices that do not typically jolt up and down very much over time.
Traditionally, there is also a very tight connection between diamond mines and the jewelry sold as the end product. Whereas copper pots cannot be bought directly from Teck Resources, De Beers operates retail jewelry stores in upscale neighbourhoods like Beverly Hills and 5th Avenue in New York.
At the beginning of their journey, rough diamonds are sorted either on site or at separate sorting houses – De Beers diamonds are divided into 12,000 different categories, each with its own corresponding value. Sorted rough diamonds then enter the market – known as the pipeline – in parcels containing a variety of stones, not all of them gem-worthy. These are put out to tender or sold at “sights” to selected customers.
The customers, known as “diamantaires,” often have family ties to the cutting and polishing business, and are one of the most unique aspects of the industry. Whether bidding on tenders or buying sights, the diamantaires often have longstanding relationships with the mining companies they buy from.
“These are the people who will take a rough diamond and, based on their experience, will try to maximize the value when they cut it,” says Patrick Evans, president, CEO and director of Mountain Province Diamonds (MPD). “That’s really more of an art. The rule of thumb is if you’ve got a two-carat diamond, after you’ve cut and polished it, you’re down to a one-carat diamond.” And that one carat can cost the end consumer over $10,000, depending on quality.