As those watching the diamond space are no doubt aware, colored diamonds are becoming increasingly popular, with the best specimens fetching incredibly high prices at auction as investors and celebrities alike snap them up. 

With all that attention directed at diamonds, it can be easy to forget that they’re by no means the only type of colored gemstone out there. However, not everyone is content to let diamonds steal the spotlight. Ian Harebottle, CEO of Gemfields (LSE:GEM), the world’s largest producer of colored gemstones, is one such person.

To find out more about the market for colored gemstones like rubies, emeralds and amethysts, Resource Investing News (RIN) got in touch with Harebottle. In the interview below, he explains why colored gemstones are making a comeback, also touching on what qualities to look for in such stones and where they are found. In closing, he gives his opinion on whether colored gemstones can be considered an investment.

RIN: One of the things that prompted me to get in touch with you was a recent Mining Weekly article that says Gemfields is “doing for emeralds what De Beers did for diamonds.” What exactly does that mean?

IH: Until about the 1940s, global colored gemstone sales were pretty much on par with diamond sales, but then a shift began to arise within the luxury goods value proposition, moving away from the primary drivers of rarity, beauty and quality towards the importance of marketing and branding.

De Beers focused not only on the mining and supplying of diamonds to the world, but also on marketing, branding and positioning, with campaigns such as “diamonds are forever,” “diamonds are a girl’s best friend” and so on. It’s one thing to supply rare gemstones, but it’s another to help consumers understand the importance, the rarity and the value that are inherent within these gems as opposed to all of the other luxury goods on offer.

RIN: And do you find those strategies are working? Are you seeing a big uptick in demand for gemstones?

IH: Absolutely. If you look at the history books, color has always played a very important role throughout mankind’s recorded history, whether from a spiritual point of view, an astrological point of view or just a pure social point of view. Color has always been very dominant and there’s always been a historic love for color.

Having said that, the success of De Beers’ marketing encouraged people to move away from color for awhile and go primarily for a white diamond instead. So colored stone sales have always been buoyant, but certainly way behind where they should have been based on their beauty, rarity and legacy, purely because people began to forget about them to some extent as they were no longer “top of mind.”

We find promoting color is not a hard sell. If you look at some of our adverts with Mila Kunis, it’s not as if we’re trying to push the sale. Really all we are doing is reminding people that in the whole basket of available luxury spends, there are many things you can spend on — handbags, shoes, watches, diamonds — and don’t forget about colored stones. What we’ve found is that by doing this we have had an incredible impact, to the extent that the prices we’ve been able to achieve for the rough gems we sell have increased more than 11 fold over the last four to five years.

RIN: I know colored diamonds are starting to get more popular as well. Is that connected to the success you’re seeing?

IH: They’re all gems. You’ve got diamonds, emeralds, rubies, sapphires and amethysts, but in my opinion they all fall into the category of colored gemstones. So you’re right, the increase in demand for colored diamonds is directly linked to the success we are seeing and the increase in demand for all colored gems.

Their increasing popularity is indicative of a number of factors. One is that the discerning consumer is increasingly looking for the opportunity to showcase their individuality. Young ladies of today are looking to differentiate themselves. Say you’re wearing diamonds, you can differentiate by way of the design, but there are only so many ways you can change the design. Once you start adding colors you have a full palette available to you — just take emeralds, there are almost 1,000 different tones and ranges of color that you can get. And that allows young people to really showcase their individuality, and the same is then true when you add diamonds of all colors, including white, to the mix as well.

Two, while in the past consumer markets were very much focused on the west and specifically America, where certain marketing machines have had a very effective impact, your consumer of today is spread across the world. It’s the east, it’s the west, it’s America, it’s Europe, it’s China, it’s Asia. And for a lot of those nationalities color plays, and has always played, a very important role. So all of those factors are now coming together, and that’s why demand and interest in color is picking up.

RIN: Taking a step back, why has no one done what Gemfields is doing in the past? Or, put another way, why have diamonds enjoyed such huge popularity over the past 50, 60 years while other gemstones have been left behind?

IH: That’s a question I’ve asked myself on numerous occasions, because it’s such a great opportunity. It’s one of those things where something has been around for a long time and we’ve all kind of just overlooked it until somebody picks it up and realizes, “hey, if I position it slightly differently and I work a little bit harder and I tell the story a little bit more, there’s an opportunity for it to be great.”

I think the requirement for capital is one barrier. In order to really succeed, you need access to fairly sizeable resources and sizeable assets in the ground, and that’s certainly where Gemfields is very fortunate. We have the world’s single-largest emerald mine in our portfolio, the world’s single-largest amethyst mine, we are well financed — and we’re looking to expand. But obviously we only acquired those assets after we had made the decision that there was an opportunity to be had in the mining and marketing of colored gemstones. So in terms of why no one did it before, maybe the time just wasn’t right before now, the world wasn’t ready.

RIN: Where are those mines located? And are those areas typically where those gemstones are found?

IH: Colored gemstones are found all over the world, but specifically you find them in countries bordering on the Indian Ocean and the Pacific Rim — so you find them in South America, on the east coast of Africa, Madagascar and Asia. That’s where probably 70 percent of the world’s colored gemstones are found.

Our emerald and amethyst mines are in Zambia, which is on the East coast of Africa, and our ruby mine is in Mozambique. We also have mining licenses in Madagascar, but those are just prospecting licenses at the moment. We’ve started looking into Brazil and Colombia as well.

RIN: Your website outlines “7 C’s” to keep in mind when looking at gemstones. Those familiar with diamonds are likely aware of four of them, but what are the other three?

IH: The four C’s are very easy, you have color, clarity, cut and carat weight. Those are the four that everyone knows. But we’ve certainly seen a move to added factors that are becoming increasingly important to consumers, and I’m personally very pleased with that.

So the C overriding the next three can be summed up as confidence, and it encompasses credibility, certification and character, or the individual personality of the gem and the person who buys it. Increasingly with discerning consumers it’s not just about the product and how beautiful it is, but other factors are also more important, such as how it comes to the market, was there an investment into the environment, was there an investment into communities, were taxes paid.

And then of course people want to make sure that their stone is certified and that it represents their individuality. That’s the wonderful thing with colored gems. I love diamonds, don’t get me wrong, but the premium diamond has always been the D flawless, and that means it’s got almost no color and no inclusions, so they’re all largely the same. But with colored stones, you celebrate those inclusions and imperfections, what we like to call jardin, or garden, because it means it’s like a fingerprint or a snowflake with no two gems ever being exactly the same. So while the initial four C’s are important, don’t undervalue the importance of your own personal style and taste — much like in the art world, where one person’s preference is for a Monet while another’s is for a Picasso

RIN: Let’s talk a little more about credibility. I know Gemfields is really focused on mine-to-market transparency, which includes providing gemstones that are conflict free. Are there regulations (like the Kimberley Process) mandating that the company to do so, or is that a Gemfields initiative?

IH: Each country where we operate has regulations in terms of environmental compliance and social commitment, but what we like to do is go beyond that. If you’re a mining company, certain things are demanded of you and expected of you, and I always say that you can do these things because you have to or you can do them because you want to. When you’re driven by the latter, I certainly believe it’s more powerful, and that’s the approach we at Gemfields like to take when it comes to environmental compliance, our social programs and many other areas of our business.

We certainly look to go beyond what is expected in the letter of the law, and we’re very proud of that. That’s why we’re able to work with companies such as the World Land Trust, which is David Attenborough’s foundation, and various others. They can see and appreciate our desire to go above and beyond.

RIN: Skipping back to gemstone qualities, one thing I noticed on your website is that emeralds and rubies sometimes undergo a range of treatments. Could you talk a little about those? Are they good or bad?

IH: That’s where certification comes in; what’s very important to me is the level of disclosure. I think all luxury products undergo some level of treatment — an obvious example is a Mercedes motor car. A Mercedes motor car starts off as bits of wood, leather, some plastic and a chunk of steel, and it’s worked on and treated until it becomes a Mercedes and something consumers love and appreciate. Then another example is a diamond. A diamond in the rough is quite beautiful in itself, but then it’s cut and polished and set, and that’s an element of treatment that finally allows you to put it on your finger.

With colored stones it’s very much the same. Someone cuts and polishes and sets each gem, but then there are also various other treatments that can be applied, and some of those are done purely to care for and protect the stone. If you buy a motor car you have the option of putting on a protective coating to stop the paint from getting damaged, and it’s the same thing with some gems. Then there are other treatments that are trying to improve the gem in some way, to add value, and in my opinion, as long as it’s reversible, as long as it’s disclosed and as long as what’s been done is explained to the consumer, then the discerning consumer will make an informed choice that’s appropriate to them.

The car industry has learned to celebrate these added features, and in the colored gemstone industry consumers are learning to do the same.

RIN: Interest in colored diamonds as an investment has really been picking up lately, with some stones selling for very high prices. Can other gemstones be considered an investment?

IH: One has to be careful here, because the honest answer is undoubtedly a “yes” and a “no.” What I’m saying is yes, it’s definitely an investment, but you’ve got to understand that for the average consumer it’s a long-term investment, and in order for it to be a shorter-term investment you ultimately need to know the business.

If you know what you’re doing and you are well experienced in gemstones, you can make a lot of money. But if you don’t know what you’re doing, if you are just an average consumer, and you buy a gemstone thinking you’re going to buy it today and sell it tomorrow and make a profit, there is a chance that you will end up losing money. That’s why I always say to people to think carefully about this one; if you know what you’re doing, there certainly is solid potential for investment opportunity in colored stones, but make sure you’re well advised, know what you’re doing and are prepared to be in it for the long run. What I would hate to do, especially given that we are just coming out of a tough economic period, is to encourage just anyone to rush off and buy these gems for the wrong reason. However, if it is for an investment in love, life and memories (all long term), then that is something completely different and again the answer is a resounding “yes.”

 

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 

Editorial Disclosure: Interviews conducted by the Investing News Network are edited for clarity. The Investing News Network does not guarantee the accuracy or thoroughness of the information reported. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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Colored Diamonds 101