Colombia has enjoyed a reputation as the premier emerald producing region of the world for the past 500 years and stones from this South American national have attracted some of the highest prices ever recorded for coloured gems. In recent years there has been a slowing of production, prompting the Colombian government and mine owners alike to seek international investment for this most important of commodity exports. The price of emeralds has continually risen for over a decade, and the value of some Colombian stones has grown by more than 150% in that time. At one time Colombia was responsible for more than 80% of global emerald production, a figure now thought to have dropped to around 60% due to years of underinvestment, corrupt practices and 'turf' wars between rival gangs and militia. Colombia's mining district, centred upon the Boyacá Department, is divided into a patchwork of mining licenses which are usually granted over a given geographical area for a period of some 30 years duration. When licenses covering productive mines become available, they are often snapped up very quickly.
(The prices of some Colombian emeralds have risen by more than 150% in the past decade)
The drive for foreign investment into Colombia's mining sector has lead to an opening up of this market place over the past 4 years. Starting with the gold mining sector this has spread into emerald production and several large multinational mining conglomerates have recently commenced operations in the region, in an attempt to consolidate the disparate mining projects and achieve the economies of scale necessary to fully capitalize on the opportunities that exist. Some of the key drivers include tax breaks, government incentives and a low-cost ready supply of skilled local labour, in addition to the high margins and rising prices of the precious gems themselves! In 2013 the death of a man named Victor Carranza, dubbed the "Emerald Tsar," formed the catalyst for the opening up of investment opportunities into Colombian emerald production. Caranza had amassed a fortune estimated at over a billion dollars in a near 6 decade reign as the supremo of Boyacá emerald supply but with his passing key new players, including Muzo International (sole operator of the original Muzo mine) and Gemfields (who purchased the Coscuez mine in October 2015), were able to move in to fill the vacuum he left behind (see our earlier article: Gemfields - Bellwether of the coloured gem market).
(Victor Carranza, the "Emerald Tsar," dominated the industry for decades in Colombia)
Opportunities for the vertical integration of the Colombian emerald supply chain abound and the likes of Gemfields and Muzo International have clearly identified these potential efficiencies in their business models and plans. This is driving competition for the remaining licences in the Muzo-Coscuez belt, including the principle mines of Muzo, Penas Blancas, Coscuez and La Pita, as they seek to capitalize on the economies of scale. One effect this has had is to reduce illegal mining; 25 years ago there were some 30,000 Guaqueros scavenging the remnants of surface mining soil. There are now almost none due to the fact the majority of production is now more sophisticated and capable of penetrating deep underground. In this era of consolidation one mine, Las Pavas, stands out as the only major production centre that is still totally in independent hands. It is the superior transparency of the emeralds produced in this region that attracts so much international attention and enables them to attain their high prices. Emerald mining differs greatly from the search for gold and other precious commodities in that geological surveys can only guide mining operators as to the location of gem bearing veins, the process of striking large reserves of the precious stones then becomes largely a matter of trial and error!
(Guaqueros work in harsh conditions to scavenge rough stones)
Akin to the board game 'Monopoly,' the number of mining licenses to be found in the patchwork quilt of the Boyacá mining region are finite. Decades of violence in the late twentieth century, along with the 'reign' of the emerald 'Tsar,' have now come to a close turning the page on a new chapter in Colombian emerald mining, opening new challenges and opportunities. This, in spite of some recent setbacks, has also come at a time of a ceasefire with the Farc guerrillas and it is the context of this new found stability and optimism that is enticing the mining 'giants' back into this region. As one licence area becomes exhausted so the search begins by its operators for a more productive new territory. The traditional way of doing business in this region involved selling rough stones to a rough dealer, who in turn polished the stones and sold them on to a polished dealer, then in turn they were passed to a wholesaler and finally on to the jewellery manufacturers and end users.
(Aerial view of some mining licence areas near Muzo, Colombia)
The limitations of this model are plain to see, as are the advantages for large vertically integrated players such as Gemfields and Muzo International, when they are able to buy up a chain of expired licences and start to corner the market. These new entrants can agglomerate the profit margins at every stage in the supply chain for their own shareholders' benefit, maximising their return on investment. In an age where consumers are becoming increasingly attracted to ethical products that can boast a genuine "fair trade" status both the Colombian government and large mine operators have been forced to act. For the government's part all of the mines in the county must now be certified by health and safety inspectors and their practices are regulated to legally enforceable standards. On the part of the mine operators significant progress has been made including the introduction of regular wages, instead of paying workers by volume of stones produced, and an improvement in educational opportunities and safe working practices for the labour force. While there is much still to be done, the trajectory towards progress has been set and with rising demand for fine emeralds, in the Far East and North America in particular, the future for these beautiful and enigmatic Colombian stones appears to be bright.
(The "Fair Trade" logo has become a rallying cry for ethical consumerism)