Roughing it (with apologies to Mark Twain)

As reviewed in the first article in this series, “Making the Grade: Diamonds Take Forever” (T.N.M., June 17/02), once a favourable bedrock (lode) or surficial (placer) site has been located, the process of calculating the actual diamond content of the deposit may begin. It is a process that is repeated many times across the unfolding length, breadth and depth of the discovery until a statistically reliable estimate of diamond concentration (grade) and size range (carats) is obtained.

Initially, attention is focused on the concentration (grade) of the deposit, and the average size of the contained diamonds. The typical result is that there are not enough diamonds, or that they are not big enough. However, almost as soon as these data start to come in, attention begins to shift to assessing the actual value of the diamonds themselves, which, prior to cutting, are referred to as “rough.”

Given that the value of rough diamonds may vary by more than 1,000%, it is easy to see why it is so important to obtain a sufficient number of samples. As stated in my first article, finding diamonds is a good start, but it isn’t good enough unless there are enough of them that are good enough. Initially, a simple lumping of diamonds collected in a sample into “gem,” “near gem” and “industrial” categories may suffice, to get a very rough, initial estimate of the deposit’s potential. But it’s not enough. Accurate assessment of the value of a deposit’s rough diamond content is a make-or-break issue, one that if successfully concluded can lead to a cash cow (a big, fat one) but if incorrectly completed will result in financial doom. The same applies to the post-mining, buying and selling of rough — something that may occur many times over prior to the actual cutting and polishing of an individual or parcel of stones.

In sharp contrast to the valuation of cut stones — a subject that fills the pages of thousands of books, brochures, web sites, and jewelery store advertising — information about rough stones is exceptionally difficult to find. Whereas internationally quoted prices for virtually every size, colour, clarity and cut of polished diamond may be obtained weekly (notably in the famous Rapaport Price Sheets), when it comes to rough diamonds, you’re pretty much on your own. Intentionally so: for it is upon this secretive and closely guarded knowledge that fortunes in the diamond business are won (and lost).

The same valuation process that makes or breaks a rough diamond buyer, makes or breaks a diamond mine. The valuation is based on the same criteria as those which are applied to cut stones — the famous “Four Cs”: clarity, colour, carats, and cut. However, in the case of rough, “cut,” meaning the quality of the cut and polish, is replaced with “shape.”

Carats (the weight of a rough stone) and shape (the dimensions and shape of a rough stone) represent the two physical-property criteria. It is readily apparent, even to a novice, that one equidimensional stone is of more value than two flat stones of the same total weight (a nice round and deep “brilliant” cut diamond is more valuable than a flat “marquise” cut diamond of equal carat weight). It will likely be more “brilliant” (bright and sparkly) and have more “fire” (colour flashes), both of which are highly valued features of diamonds.

Additionally, the more equidimensional the shape of the rough stone, the less needs to be ground away in the process of cutting and polishing. The size-to-value price curve for rough diamonds is not linear; it is almost exponential. In other words, the value of a 10-carat stone is not the same as the total value of 10 one-carat stones; everything else being equal, the large stone is likely to have 10 times that value or more.

There are several shape categories. These are distinguished by the number, and to a certain extent the design, of finished stones that may be cut from a piece of rough. They are also distinguished by the percentage of diamond that will be lost in the process (or conversely, the percentage of rough that is preserved).

The best and most valuable shape is referred to as a “sawable one,” an undamaged (that is, not chipped), equidimensional diamond crystal: an octahedron or dodecahedron that will yield two brilliant-cut diamonds — one slightly larger than the other — with a loss of 50% or less of the rough’s original weight. Next is a “sawable two,” a slightly irregular crystal that will also yield two polished stones, as above, but with a loss of more than 50%.

“Makeable one” follows, this being an irregular, slightly flattened or broken crystal with a natural “table” (the upper, central flat surface of a faceted gemstone), that will yield one polished stone with a weight loss of up to 60%. A “makeable two” is a broken crystal fragment of less regular shape that will yield one polished stone but with a weight loss of up to 65%. Finally, a “flat” includes shallow or flat broken crystal pieces and flat triangular-shaped twinned diamond crystals known as “macles,” from which one polished stone can be obtained but with a loss of 65-72% of the original weight of the stone in the process.

Clarity and colour represent the two optical-property criteria, neither of which are easy to evaluate in a rough stone which lacks the flat and smooth polished surface necessary to see into the stone clearly.

Diamonds come in a variety of colours — from yellow to red, blue to green, and brown to black. The more strongly coloured stones are referred to as “fancies,” and the black as “boart,” with the balance comprising a range of shades from colourless to tinted. The human eye can distinguish millions of colours, and in the case of diamonds, some colours are more valued than others. In general, the more colourless the better, but certain shades, such as champagne, along with yellow, blue, green and pink, can be quite highly prized as well.

Non-fancy shades are split into 23 levels, according to the International Colour Grading Scale, by the letters D through Z, organized into eight sub-groups and four groups. For example, a “D” stone is in the “colourless” category, “exceptional white +” sub-category; an “I” stone is in the “slightly coloured” category, “slightly tinted white” sub-category. Each has its own value, which may change with the changing preferences of consumers. Accurately judging colour is a highly specialized, precise skill. There is no room for error.

Similarly, clarity has a great impact on the visual appeal and optical quality of a cut and polished diamond, and thus on its value. Like colour, clarity can be difficult to assess given the irregular and coated or frosted surface of a rough stone. Additionally, there are both external and internal features to reckon with (cracks and fractures, chips, stains, inclusions, etc.). An appraiser must be able to recognize these features, as well as determine whether or not they could be eliminated during the cutting process.

Clarity is graded on a scale consisting of 10 levels grouped into seven categories. The best is “Loupe Clean,” that being a stone which, on examination with a 10X loupe under normal light conditions, is seen to be perfectly clean. The categories “VVS1-VVS2” and “VS1-VS2” comprise stones with very very small, and very small inclusions, respectively — that is, those that are barely visible to slightly visible under examination with a 10X loupe . . . and so on through to the last category, “I3,” standing for “imperfect,” comprising stones with obvious and easily seen inclusions with the unaided eye, which reduce brilliance and may even threaten the stone’s physical integrity. Once again, being able to recognize these features is a highly specialized skill, one that is unforgiving of mistakes.

What all this means is that a sufficiently high diamond grade in a deposit is a nice start, but unless the diamonds are of sufficiently high value as well, then the diamond-bearing rock ain’t ever going to see a mill! For example, in early 2000, a 2.00-carat sawable one, D (colourless), VVS1 stone would have been worth about US$3,200 ($1,600
per carat), whereas an M (tinted colour), I3 Flat of the same weight would have been worth only US$20 ($10 per carat).

Mining costs remain the same, no matter what. Need I say more?

Only after a sufficient number of samples have been collected from all over the deposit can a reliable estimate of the deposit’s value be approximated. This requires the collection and appraisal of a minimum of 2,000 carats worth of diamonds. Once this hurdle has been passed, then the actual development of the deposit may be considered, with all of the obstacles that this entails: power; water; environmental and local concerns; security; climate; access and transportation; labour; taxes; royalties; and many more.

The next article in this series will deal with royalties and related issues.

Finally, for those who haven’t already done so, go and buy a copy of Roughing It by Mark Twain. It’s the best (and funniest) treatise on the mining industry ever written.

— Hy Grader, the author, is the pen name of a Toronto-based geologist, gemologist and vice-president of a Canadian junior mining company.