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Investment diamond industry growing

7th June 2013

By: Anine Kilian

Contributing Editor Online

  

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Investment diamonds are the most stable commodity in South Africa, states bespoke jewellery store Platandia director Rob Burton, adding that investment diamonds withstood the 2008 economic downturn and are a good currency hedge.
Burton notes that the price of investment diamonds, which are each 3 ct or more, has increased over the years, compared with gold, for example, which is an unstable commodity.

“Diamond retailers should look at investing in larger diamonds, as the smaller- stones market is saturated and overly competitive. Larger stones ensure higher yields and returns and are more difficult to come by, which makes them rare,” he says.

Burton notes that investment diamonds attract a different client base, compared with noninvestment diamonds.

“The output of smaller, rough diamonds is tenfold that of larger pieces. Diamonds that are 3 ct and larger are not in the same kind of supply as half-carat diamonds,” he states, adding that a jeweller cannot lose money on investment diamonds.

“D to F brilliant clarity coloured dia- monds always keep their value or their value increases over time. Smaller diamonds do fluctuate slightly in price, but the increase is not as big as that of larger stones,” Burton says.

He notes that the majority of investment diamond buyers originate from countries such as India and China, as they can get a better price on investment diamonds, owing to the exchange rate being in their favour and the fact that value-added tax (Vat) is reimbursed.

“There is currently no limit to the price of diamonds between 10 ct and 40 ct. A 3 ct diamond has increased 145% in price since 2008 and 5 ct diamonds increased by 174% in price between 1999 and 2011. The margins are there and so are the investment opportunities for the consumer,” he says.

Burton states that the diamond trading industry in South Africa is currently a regulated market, as diamond magnate De Beers has a monopoly on the industry and there are standards within the industry on a global scale, based on the Rapaport price list.

The Rapaport price list takes into account the shape, size, colour, clarity and cut of a diamond and pricing is based on a combination of these factors. Another key factor that influences the value of fine diamonds is the certificate that comes with every stone. Platandia only recommends Gemological Institute of America-certified diamonds as these are the most recognised globally.

Burton notes that Botswana has become a major player in the industry, as it is more stable when it comes to currency and, compared with South Africa, more production takes place.

Challenging Environment

The South African diamond industry faces several challenges, including frequent strikes and ever-increasing electricity and wage hikes, which are above inflation.

“The diamond-cutting industry has moved out of South Africa almost completely and is now dominated by countries such as Israel, India and China,” Burton notes.

He adds that training is undertaken at the Harry Oppenheimer Diamond Training School, in Johannesburg, where basic courses on the cutting and grading of stones are presented.

“With most of the diamond industry moving out of South Africa, however, not much is being done in terms of development in the country,” he says.

Growth Areas

Burton notes that, as a diamond and tanzanite specialist retailer in the Cape Grace Hotel, South Africa, the biggest potential for growth lies with international clients.

“India and China are big role-players in the investment diamond industry. Local investment in investment diamonds is good, particularly in Johannesburg, while the Cape Town market relies on tourism,” he says.

Meanwhile, Platandia launched an exclusive Platandia boutique in 2012 in the Cape Grace Hotel, offering investment- quality diamonds and tanzanite to discerning clients and guests. The company launched a 200 m2 concept store, called the Tanzanite Experience, three months ago. It is an interactive space that profiles the history and cutting of tanzanite, and also boasts a walk-through, mock-up mine shaft that contains artefacts from Tanzanite One, the tanzanite mine.

“There is only one source of tanzanite in the world – Tanzania. We have four concept stores in Tanzania already, which have proved to be popular, and that is why we decided to open the fifth store in Cape Town,” Burton says.

He adds that Tanzanite One, a fully owned subsidiary of Richland Resources, owns 70% of the tanzanite source and is trying to formalise the market, working closely with the Tanzanian government to reduce the amount of illegal mining of tanzanite. It is currently introducing the official buyers guide for tanzanite, together with an official grading system and laboratory certificate, which will be accompanied by an official certificate of origin, endorsed by the Ministry of Energy and Minerals. This will be launched in the South African market in the third quarter of this year.

“The Tanzanian government has put a ban on exporting more than one gram of rough tanzanite, increasing the local beneficiation of the precious stone and, sub- sequently, ensuring that the community benefits from the natural resource,” he says, adding that the Tanzanian government has realised that if it does not look after its finite source of tanzanite, it will be depleted within 15 to 20 years.

Edited by Creamer Media Reporter

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