Gemfields have become the market leaders in coloured gemstone production and their outlook for the market can only be described as markedly 'bullish!' Ian Harebottle, Gemfields CEO, believes that the market share of coloured gemstones within the luxury goods industry will rise sharply over the next decade, potentially rivalling diamonds. However, he did urge a note of caution with the caveat that "this is dependent upon jewellery manufacturers and retailers being able to count on regular supplies, stable pricing, consistent grading and increased marketing support. He has set his company's goals on doing just that!" (GIA, 2015). When viewed in the context of other market commentators, such as Bonham's, a growing groundswell of opinion seems to suggest a bright future for coloured gems.
(One of the most instantly recognisable global coloured gemstone brands)
However, achieving this march to dominance over the diamond market is going to be no mean feat. Sales of diamonds currently outstrip those of coloured gems by a factor of more than ten to one. In the USA, for example, a 2014 Jewellers' of America Cost of Doing Business Survey concluded that the coloured gem share of the market in the US stood at a mere 8% of retail jewellery sales by value. In some parts of the world, such as China, that figure is significantly higher but overall the difference in scale is vast. Gemfields have made it their mission to be the agents of change, lifting coloured gems to their pre De Beers market position. Gemfields is now the world's biggest producer of emeralds and it is exploring the Boyacá region of Colombia to compete in the high end emerald market. It is also coming rapidly to dominance within other coloured stone markets, notably with its stake in the Motepuez ruby mine in Mozambique, amongst others.
Rather surprisingly, especially when viewed through the prism of the De Beers dominance in the diamond market, Gemfields is the largest of only three publicly traded coloured gemstone mining operations in the world. The coloured gem industry is still dominated by very small firms with limited capital and resources and Gemfields is almost unique in having deep enough pockets for large scale and far reaching marketing and advertising campaigns. Most famously, Gemfields recruited Hollywood superstar Mila Kunis in 2014 as its emerald brand ambassador, in a move that absorbed more than a third of their total advertising and marketing budget in one foul swoop! The following year, in another $5 million deal, they brought Mila back in a ruby production campaign.
(Mila Kunis - The $5mn face of Gemfields emeralds in 2013)
Unlike many gem mining companies, Gemfields sell the stones they produce transparently through auctions, instead of via a network of private dealers. This is in stark contrast to the world famous Argyle mine in Western Australia, responsible for 90% of the world's pink diamond production, which only sells to its closed network of ateliers and dealers. This model goes some way to explaining how Gemfields are able to distribute the volumes of stones they produce each year globally. Key to the success of this approach is the consistency of the pricing and grading of the gems from the moment they come out of the ground and onwards throughout the global distribution network.
(Aerial photo of Rio Tinto's Argyle Mine, Kimberley, Western Australia)
This has long been one of the most troublesome challenges to the industry, due in part to the uncertainty surrounding the longevity of production from each new deposit that is discovered. It's hard to get investment into a highly expensive extraction project when you can't be certain of the final yield. Consequently many new deposits are inefficiently harvested by numerous small concerns and even individuals, who cannot fully exploit their potential deep reserves and tend to lose interest once the easy pickings come to an abrupt end! Many of these minor operators in remote mining regions of the world evade government taxation, leading to a lack of infrastructure development and educational opportunities for the local communities.
(Miners in Colombia's Boyacá region - most of the operations here are conducted by hand)
As with all things in life, however, size isn't everything! One of the clear disadvantages for Gemfields of having more than 1,100 employees in 3 countries of operation is that they cannot withhold stones when the market it rising. If they were to do so they would rapidly find themselves unable to meet their short term liabilities and wage bill. Despite this they are able to retain a full year's emerald and ruby supply so as to allow for continuity of supply levels. Gemfields aim is to maximise their profits by driving up demand, rather than restricting supply. This explains the crucial role played by their $15 million annual advertising budget. This tactic inevitably creates shortages at intervals which has the effect of pushing up prices on a consistent basis.
(Coloured gemstones are often mined in remote regions such as the Andes, pictured above)
In 2013 Gemfields embarked upon a remarkable piece of vertical integration when they purchased the venerable Fabergé fine jewellery marque, which had itself been reborn some six years prior. This ties into Gemfields drive to increase demand through its direct participation in the luxury retail jewellery market. Unsurprisingly since the acquisition, Fabergé have incorporated both emeralds and rubies produced by Gemfields into their jewellery pieces and displayed them in their 12 outlets around the world. In addition, the company has placed great emphasis upon the promotion of responsible mining practices within the industry, a fact that will not escape the ethical radars of the sophisticated twenty first century collector or buyer.
In the words of Doug Hucker, Executive Director of the American Gem Trade Association, "they want to establish consistent pricing. Perhaps they can for their product: Zambian emeralds. But Colombian emeralds are different goods, so it's not likely that Gemfields' prices will completely translate." Some of the smaller coloured gem producers fear the effects of a Rapaport style pricing structure, most notably they feel it may cut their profit margins to the point of excluding them from the market. Other commentators doubt that even a market participant the size of Gemfields has resources and market share to manage what De Beers achieved in its domination of the diamond sector.
Gemfields themselves are dismissive of the counter arguments against their views and the CEO is adamant that "some short-term profits may be lost, but the industry will more than make up for that through increased sales because people will know the value of what they have purchased instead of dealing with (status quo of) huge variations and uncertainty." He feels that "increasing transparency and increasing consistency of prices and supplies will result in more demand for coloured gems across the board. I have no doubt about that and that it will be good for everyone when it happens.” It is abundantly clear that, whatever the future may hold, Gemfields are likely to remain the bellwether of the coloured gem market.