CASE 13 Diamonds from Mine to Market

According to the American Museum of Natural History, a diamond is carbon in its most concentrated form. Because of their chemical makeup and crystalline structure, diamonds possess unique characteristics. They are the hardest known natural substance. These traits determine their status as the “king of gems,” a reference to their vast popularity as jewelry and decoration.

The diamond supply chain consists of six steps: exploration, mining, sorting, cutting and polishing, jewelry design and production, and retail display. According to the website for De Beers, the producer of approximately 40 percent of the world’s supply of rough or uncut diamonds, members of this extensive supply chain include geologists, engineers, environmentalists, miners, sorters, distributors, cutters, polishers, traders, manufacturers, exporters, and salespeople, who in turn employ vast technology and artistic and skill-related resources to discover, produce, and distribute jewelry-quality diamonds.

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The jewelry-quality designation refers to a particular rating according to four key elements of a diamond, better known as the 4Cs: cut, carat, color, and clarity. The De Beers Corporation introduced these criteria in 1939 to provide consumers with a reference for evaluating diamonds, as Exhibit 1 summarizes.

EXHIBIT 1  Description of the Four Cs for Diamond Quality

Before they reach showrooms to be evaluated on these criteria, diamonds have endured approximately 1–3 billion years of hot temperatures and intense pressures under the earth’s surface. Production estimates from the World Diamond Council indicate diamond mining operations are in more than 20 countries, including Russia, Botswana, the Democratic Republic of the Congo, Australia, South Africa, Canada, Angola, Namibia, Ghana, Brazil, and Sierra Leone.

The world diamond supply is dominated by African countries, which generate between 60 and 65 percent (by weight) of current diamond production. Other key sources for diamonds span the globe, for example, the remote northern regions of Western Australia, which produce roughly 30 million carats (20 percent of global production) each year from both open pit and underground operations. These diamonds are known for the range of colors, especially pink stones.

Diamonds prompt significant competition, as depicted in the movie Blood Diamond, which portrays the gruesome conflict and violence in Sierra Leone over diamonds. In many countries, profits from diamonds go to fund civil wars that take millions of lives. To prevent such abuses, the Kimberley Process, an international diamond certification scheme, was established to abolish trade in diamonds that fund conflict. Since its launch in 2003, the Kimberley Process has become law in 75 countries and received backing from the United Nations. It requires that governments of diamond-producing nations certify that shipments of rough diamonds are not funding violence.

Even with a certification process, though, some diamonds continue to be smuggled out of African countries. Violent groups find ways to exploit the Kimberley Process to traffic in illicit diamonds. “Conflict diamonds continue to be certified in countries that are members of the Kimberley Process, legitimized by the very scheme which was designed to eradicate them.” A contrasting report from the World Diamond Council claims that “because of the Kimberley Process, more than 99% of the world’s diamond supply is from sources free from conflict.”

When the international diamond industry agreed to implement a voluntary system of warranties, it promised consumers it could track diamond jewelry up to the point of sale. Invoices for the sale of conflict-free diamond jewelry must include a written guarantee of that status. To ensure the diamonds they purchase for their spouses, fiancées, or themselves are indeed sourced appropriately, consumers are expected to take some responsibility, such as asking a series of questions of the jeweler from which they are purchasing:

• What is the country of origin for the diamonds in your jewelry?
• Can I see a copy of your company’s policy on conflict-free diamonds?
• Can you show me a copy of the written warranty from your diamond supplier stating that your diamonds are conflict-free?

DISCUSSION QUESTIONS

1. How important is it for consumers to buy conflict-free diamonds? Why?
2. What should the jewelry industry do to inform diamond customers about buying conflict-free gems and about the Kimberley Process?
3. Select a retail jewelry store in your area to visit. Is its policy on conflict diamonds posted anywhere, such as in the store or on the company’s website? Ask store personnel the three questions posed at the end of the case. What did you learn from the web page and store visit?

Cut Cut refers to the angles and proportions a skilled craftsperson creates in transforming a rough diamond into a polished diamond. A wel-cut diamond will reflect light intemally from one mirror-like facet to another, dispersing it through the top of the stone. To cut a diamond perfectly, a craftsperson will often need to cut away more than 50 percent of the rough diamond. Cut also refers to the shape of a diamond: round, emerald, heart, marquise, or pear. Carat weight Carat is often confused with size, even though it is actually a measure of weight. The cut of a diamond can make it appear much larger or smaller than its actual weight. One carat is the equivalent of 200 milligrams. One carat can also be divided into 100 "points." A.75-carat diamond is the same as a 75-point- or a three-quarter-carat diamond. Color Most diamonds appear icy white, but many have tiny hints of color. Diamonds are graded on a color scale established by the Gemological Institute of America (GlIA), ranging from D (colorless) to Z. Colorless diamonds are extremely rare and therefore very valuable. Diamonds are also sometimes found in colors: pink, blue, green, yellow, brown, orange, and, very rarely, red. These diamonds, called "fancies," are incredibly rare and valuable. These colors extend beyond the GIA color grading system. Clarity Diamonds, like people, have natural blemishes in their makeup. Minerals or fractures form these tiry faults, or inclusions, while the dia- mond is forming in the earth. When light enters a diamond, it is reflected and refracted. If anything disrupts the flow of light in the diamond, such as an inclusion, a pro- portion of the light reflected will be lost. Most inclusions are not visible to the naked eye unless magnified. To view inclusions, trained gemologists use amagnifying loupe. This tool allows experts to see a diamond at 10 times its actual size. Even with a loupe, the birthmarks in the VVS (Very, Very Slightly Included) to VS (Very Slightly Included) range can be extremely difficult to find. It is only when a diamond is graded "I" that it is possible to see the birthmarks with the naked eye.