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2012 AGA Las Vegas Conference - Through the Looking Glass - The Future of Diamonds

Conference Review by Antoinette Matlins

Antoinette Matlins

The AGA Vegas conference—Through the Looking Glass - The Future of Diamonds—provided attendees with important information regarding developments shaping the diamond industry.

It is not possible to replace the benefit of attending such a remarkable educational event with an article. However this summary presents some of the key points and highlights from the conference for those AGA members that could not attend.

We'll start by taking a look at the mining and extraction because of their direct impact on the supply side of the diamond business, and thus, availability and pricing.

One thing seemed clear from the presentation by mining industry consultant Howard Coopersmith and that is that quite simply the major mining companies are pulling out of diamond mining. The reason: extraction costs at existing sources are too costly to justify as access necessitates more and more expensive extraction techniques (such as tunneling underground). Since diamond mining profits represent a very small percentage of overall corporate profits for the major mining companies (diamonds represent less than about 5% of the total profit of most large global mining operations), diamonds have lost their sparkle to such companies, so they are now focusing on other minerals/metals that are more profitable.

Smaller mining companies may enter the picture, but the prognosis is not good for smaller mining companies to be able to afford to successfully and profitably extract whatever diamond reserves remain in known sources.

The question was raised about new sources, but the picture here looks even bleaker. Exploration to identify unknown sources requires extensive financial investment; without the financial backing of the major mining companies, the future of diamond exploration seems destined to decline as well. Thus, the picture for finding new sources for diamonds is looking very unlikely.

With declining mining, and declining exploration for new sources, where does that leave us, especially at a time when supply is increasing so dramatically in China and Southeast Asia? According to Coopersmith, experts are predicting that diamond supply will run out; best-case scenario predictions expect this to occur within 50-60 years, while others predict we might see this occur within the next 20-30 years!

Regardless of whether or not you believe that there really is a limited supply of diamonds remaining in the world, we cannot ignore the reality of declining supply, combined with increasing demand from emerging economies. So it seems certain that in the foreseeable future diamond prices will continue to increase significantly. The impact is already being felt; many in the trade are experiencing difficulty in finding fine quality diamonds in certain sizes, in a variety of quality combinations. This will worsen as the supply of fine quality diamonds continues to decrease and shortages increase.

The supply/demand situation is also having an impact in the treatment arena. As the supply of fine quality diamonds continues to decrease, more lower-quality material is coming into the market, leading to an increasing use of treatments to improve the appearance and desirability of lower quality stones. There are rising concerns about the trade's ability to distinguish treated from untreated diamonds as techniques become more sophisticated; given past experience, it seems likely that there will be an increasing number entering the market without disclosure.

The application of ever-more sophisticated coatings – both to whiten and to create fancy-colors– is of concern, especially for stones in melee sizes. AGA members pointed out that surface coatings on larger diamonds are usually easy to detect with a carbide scriber, and for rare fancy colors, even in smaller sizes, they are usually accompanied by GIA reports. This isn't the case, however, in melee sizes and there was general agreement that for both colorless and fancy colors, diamonds under 10 points pose serious challenges.

Sonny Pope (CEO of Suncrest Diamonds) explained that there will be more colored-altered diamonds coming into the market as more advanced radiation and HPHT techniques are applied. Pope pointed out that multi-step approaches such as combining radiation and HPHT techniques are also being used, often with characteristics that are making it more difficult for positive identification. In the case of colorless stones (that is, D-Z diamonds) relatively simple pre-screening techniques and inexpensive tools (such as the SSEF Diamond Type spotter) make it fairly easy to pre-screen for diamonds that are a type that might have been altered by the HPHT process, but only as a pre-screening step; it is inconclusive if the stone tested is a type that can be improved by HPHT. Since about 90 percent of the colorless stones seen in most jewelry stores are not type II, this can be reassuring most of the time that the diamond is not a type II and therefore, not HPHT-treated. However, any diamond that is a type II will need to be sent to a laboratory to determine whether or not it is naturally colorless or the result of HPHT treatment. Even worse, some of the features observed with some of the HPHT techniques combined with radiation have similar characteristics to some of the HPHT lab-grown diamonds. Here again, when in doubt, a major laboratory will be needed for conclusive ID.

On the subject of lab-grown diamonds, there was an overwhelming outrage over the recent headlines re: the many lab-grown diamonds sold as "natural" and then discovered to be lab-grown. On the other hand, the Belgian laboratory did accurately identify them. The question is: can YOU!

Dr. Robert Linares, Thomas Chatham and James Shigley all agreed that synthetic diamond production techniques are improving and production is increasing. They are now available in virtually all colors. In some cases, their reaction to UV is a strong indicator that a diamond might be lab-grown (testing first under LW and then under SW and noting the reactions under BOTH wavelengths) but this is no longer definitive. A new and simple tool selling for around $200 has been announced, but it has not yet been tested by major labs, and some speculate that it is simply a pre-screening device similar to various tools to pre screen for type II diamonds, but this would not be a reliable test for today's lab-grown diamonds.

While the conference did not actually have a "presentation" on a new piece of equipment by "Diasign," a prototype was available and participants had an opportunity to see how it worked and to use it on diamonds available at the conference, which included HPHT and CVD single-crystal lab-grown diamonds. The Diasign equipment uses a multiple laser approach, and seems promising -- it will retail for about $2000 or less -- and the data from the preliminary testing did, in fact, show differences between natural and synthetic diamonds, as well as between natural diamonds treated by HPHT and those that were not. But a much larger data base is needed before we can conclude that this new instrument is reliable in distinguishing lab-grown from natural diamond. Bottom line with synthetics: they are currently detectable using advanced instrumentation not currently available to most gemologists or retailers. But on the horizon there appears to be some promise with regard to instrumentation that will the broader gemological community to separate natural and synthetic, and also, some of the HPHT treated diamonds. But for the immediate future, while pre screening may be useful, major laboratory documentation will be needed for positive identification.

For jewelry containing melee, or when buying unmounted melee, random sampling at a major lab is clearly warranted. GIA's Jim Shigley reassured the group that at this time, the major labs are confident that they are able to distinguish what is currently in the market. Of course, he agreed that labs are always one step BEHIND the innovators of something new -- new techniques to grow lab-grown diamonds or new techniques to enhance stone created in nature... but he was quick to point out that they DO catch up!

On the subject of lab-grown diamonds in the marketplace in general, there seems to be greater acceptance within the trade and the growers do not believe they will have a negative impact on the natural diamond market, but rather, provide another niche for consumers and jewelers alike. It was also pointed out that as natural diamonds become more and more scarce -and more and more expensive - that they may be the only viable alternative for most people who want "diamonds".... they are, after all, "real" in the sense that they are physically and chemically diamond!

And last but not least, Martin Rapaport candidly pointed out that buyers and sellers alike must take full responsibility for KNOWING what they are buying and selling. He stressed that retailers must deal with reputable sources, ask the right questions, verify what they are getting (regardless of who the vendor is), and stand behind the product. He shocked everyone when he asked "what's the most important information on a GIA or any other diamond grading report?" and no one had the right answer! The correct answer: the DATE of the report! Rapaport also pointed out the importance of verifying information on any report.

But perhaps the most startling point he made, in light of all the predictions about diamond demand and supply, is that the day may come (sooner than we think) when we will have to assume the diamonds we are selling ARE ALL TREATED ... UNLESS we have a lab report confirming that it isn't! This sure sounds like the colored gemstone industry today....
Yet in reality, if supply continues to decrease, and treatments continue to increase, we will no longer be able to assume that the diamonds we sell are untreated (as is the case now); and it may quickly become economically unfeasible to obtain sufficient documentation – especially for smaller stones—that all the diamonds we sell are natural. Even for those who are knowledgeable, and who have expensive instrumentation (and the skill/data base to interpret the results), the cost of instrumentation necessary to cover everything entering the market may simply be cost-prohibitive.

Bottom line: It's up to each one of us to keep up to date and informed about what is in the diamond marketplace, to do everything possible to know what we're buying and selling, and to be wholly transparent and honest in dealing with our customers. We may even have to use the term, "I don't know"....and help the customer understand why only a major lab can determine what they want to know. \

After all was said and done, the AGA Vegas conference was a real eye-opener, possibly causing us to have more questions than answers. Is affordable instrumentation is on the horizon? Is it possible that "mined diamonds" will become a thing of the past, in the foreseeable future? Should we be paying closer attention to the "estate market" (as several attendees suggested following the conference)?

Most of us have taken "diamonds" for granted. We've assumed they will be the "bread and butter" of the jewelry industry forever. We've assumed that diamonds are "easy" to identify and evaluate. For those who took part in the AGA Vegas conference, "The Future of Diamonds," some were clearly "rocked" to the core!

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