Romancing the stones
THE $11 BILLION COLOURED GEM INDUSTRY IS DOMINATED BY SMALL MINERS AND ADVENTURERS, BUT THAT COULD BE ABOUT TO CHANGE.
The $ 11 billion coloured gem industry is still dominated by small miners and adventurers, but that could be about to change.
To hear Richard Hughes tell it, the trip was straight out of Indiana Jones
and the Temple of Doom. One of the world’s leading gem hunters, he was hell-bent on reaching the fabled jade mines of upper Myanmar – a jungle redoubt so remote and closely guarded that few living Westerners have ever laid eyes on it.
Before he could even get close, he had to spend months ahead of his visit convincing Myanmar’s secretive military, which controlled access to the country’s mines, to let him in. Then he had to navigate some of the most punishing, malaria-ridden terrain east of the Congo, capped by a gruelling climb along a dirt road his handlers said would take seven hours to ascend. It quickly turned into a river of sludge under brutal monsoons, trapping vehicles in mud to their doors until teams of elephants showed up to haul them out. Days passed as Hughes and his companions fought their way through the muck. In ramshackle villages along the way, residents smoked opium and told wild stories about the mining world beyond the ridges above.
But none of it prepared Hughes for what he found when he finally reached his destination three days later – a Wild West boomtown unlike anything he had seen. The stores were stocked with imported cognac and French perfume, while locals frittered away money on roulette wheels, drugs and prostitutes. Fortune hunters tried just about anything to find jade, including diving into rivers with tubes hooked up to bicycle pumps onshore so that they could breathe underwater.
When people located dirty brown rocks that they thought might contain jade, they thwacked them with hammers to see what kind of sound they made: If they rang like a bell, that was a good sign. In the main mines, meanwhile, armies of men marched along tracks hauling baskets filled with earth – more dirt, and perhaps more jade, from the depths below. To Hughes, it was as if he had stepped back into the age of the pharaohs. “I thought: Wow, this is like building the pyramids,” he says.
Hughes’s first journey to the Hpakant jade mines took place more than a decade and a half ago. But to a surprisingly large degree, these famed mines have remained untamed, according to more recent visitors. The same, it turns out, could well be said of the entire $US10 billion “coloured” jewels industry, the storied but murky business centred around 50 or so coloured gemstones, such as jade, rubies, emeralds and sapphires, which have entranced the world’s wealthy since the days of Mughal emperors and Catherine the Great.
Unlike the diamond business, which is largely controlled by big companies such as De Beers and painstakingly tracked by investors and Wall Street bankers, the coloured gems world is still dominated by small miners and adventurers who wander some of the globe’s most dangerous and underdeveloped places in search of treasure. The best stones tend to come from countries such as Madagascar, Myanmar, Tajikistan and Colombia, where smuggling often is rampant, record-keeping poor and mine owners sometimes reluctant to let outsiders visit for fear they might cut their own deals with the locals.
In some cases, experts such as Hughes buy up the stones from miners or middlemen and resell them to rich clients. Other gems find their way to the public via wholesalers who pick them up at auctions or markets in India, Thailand and other processing centres. One auction held in Myanmar in 2011 netted $US2.8 billion in sales. Either way, gem buyers – from newlyweds to collectors to fashionistas, who gobble up stones in New York, London or just about anywhere else – rarely have any idea where their gems came from and might not be able to find out for sure if they wanted to. When it comes to tracking basic data on which countries produce the most stones, the industry is “very vague”, says Jean Claude Michelou, vice-president at the International Coloured Gemstone Association.
Indeed, if you want to discover the chief executive or major shareholders behind the best ruby or sapphire mines, good luck. In Myanmar, long considered the world’s most important source of rubies and jade, many mines are controlled by the military or close associates, including some people who are targeted by US sanctions established years ago to punish the country’s harsh military regime. (Many of those rules have been loosened over the past two years, in response to political reforms, but some restrictions on new Myanmar stones remain.) Stones can also come from fortune seekers whose identities are largely unknown outside of their home bases. One of the gem tycoons Hughes met in Hpakant was a former taxi driver who started out with a $US23 boulder he bought from a passenger and resold for $US5000 to a jade trader. (When Hughes met the man in 1996, he posed for a photograph standing atop a pile of jade rocks that filled an entire room in his home.)
Still, while it’s hard to track the industry’s growth, experts say the prices have increased significantly in recent years, largely because supply is erratic. Robert Genis, an Arizonabased gem hunter and dealer who got his start in the 1970s, says high-grade Myanmar
rubies have quadrupled in retail value to more than $US40,000 a carat since the mid-1990s. Colombian emeralds have roughly doubled since a low in the early 2000s. Hughes, who has trekked across 30 or more countries for stones and now lives in Bangkok, says jade prices have shot up tenfold over the past five years, due largely to surging demand inChina, though prices have eased recently.
And for people willing to hold on to their stones for a long time – or generations – the returns can be huge. Consider the 62- carat Rockefeller sapphire that was once owned by John D. Rockefeller Jr, who bought it from an Indian maharajah in 1934 and then had it redesigned as a brooch for his wife. The family sold the stone in 1971 to a famous gem dealer for $US170,000. Nine years later, it sold for $US1.5 million, and then for more than $US3 million in 2001.
Another famous sapphire, bought by 19thcentury industrialist James J. Hill in the 1880s for his wife for $US2200, sold for slightly more than $US3million at an auction in 2007. And then there is the so- called Elizabeth Taylor Ruby, an eight-carat stone fromMyanmar that was given to the Hollywood star by Richard Burton in 1968 as a Christmas gift. In 2011, it was auctioned off for $US4.2 million.
Diamonds may be a girl’s best friend, but coloured gems still have a mystical allure that even the king of jewellery can’t claim. Part of the romance is tied to the stones’ luminous beauty and scarcity. For many wealthy people, especially in Asia, there is nothing quite like having a bag of shiny stones they can carry around or stash away – ready to sell in case of anemergency. That became even truer inthe wake of the global financial crisis, which left many affluent people hungry for alternative ways of storing wealth.
It doesn’t hurt that coloured stones come with such atmospheric histories. The Mughal dynasty, whose emperors included Shah Jahan, the builder of the Taj Mahal, had its famous Peacock Throne inlaid with rubies and other precious stones. Chinese leaders were known to favour jade as far back as 3000 BC, while the Russians placed a roughly 400-carat red spinel, believed to date from the 1400s, in their imperial crown. More recently, Britain’s PrinceWilliamgaveKateMiddleton a sapphire engagement ring that had once belonged to his mother, Princess Diana.
Findingbignewstones toquench theworld’s demand isn’t easy, though. That is where gem hunters come in. Genis says he got started in college, when he pulled outmaps to see where the world’s most coveted natural resources, including tin, gold and copper, were located. But it was a tiny green symbol on Colombia, depicting emerald deposits, that captivated himthemost. He sold his stereo and a secondhand car to scrape together $US1000 for the journey. “I knew I did not want to come back broke,” Genis says.
After a bus ride to California’s border with Mexico, some trains and some hitchhiking, Genis landed inBogota’s emerald district and spent all his remaining cash on gems. Once back in theUS, he doubled hismoney selling the stones. “Suddenly I had $US1000 more, and I thought: Hey, this is much better than going to school,” he recalls. After repeat visits, he was making enough to fly to Colombia instead of taking the bus, with stops for fun in the Caribbean on the way home.
These days, Genis trusts other people to find many of the stones he sells, including a New York-based associate from Myanmar whohasconnections at itsMogok rubydeposits. While not as wild as Hpakant, Mogok’s mines are closely guarded by Myanmar’s military – and revered worldwide. People who have seen themdescribeaplace trapped in time, a remote mountainvalleywith glittering goldpagodas. Practically everyone dabbles in the gem trade, even the local bakeries, which show visitors gems as well as baked goods.
The enduring appeal is obvious when one considers what people can land. Genis’s latest find: a 39-carat sapphire, sourced through his Myanmar associate and awaiting auction at Sotheby’s. Genis says the stone could fetch up to $US1 million, with bidding wars common at the prestigious auction houses where they are sold. “For many of these collectors, the habit is almost like heroin – when you start, you can’t stop,” he says.
Eager buyers are evenliningup inYangon, Myanmar’s biggest city and a place that is rapidly opening up to tourists, as the country’s government eases restrictions on foreigners. At the Bogyoke Aung SanMarket downtown, in a crumbling colonialbuilding, middle-aged tourists shuffle through cobbled streets while shopkeepers spit betel nut on the floor, their teeth and lips red stained red. The gems on
offer are hardly like Genis’s 39- carat stone, but they offer visitors a chance to buy a token of the industry’s glamour and romance.
“Before I came here, everyonewould go on and on about how beautiful Burmese rubies were,” says Pamela Bowen, a 54-year-old from Florida in Yangon for the first time, using the country’s colonial name of Burma. With so much talk about Myanmar stones, she says, she figured they were a “must buy”, and has paid about $US550 for ruby earrings and rings for herself and her sister back home.
As the demand for coloured gems keeps growing, though, the question remains: Can the industry get a handle on itself? One part of the answer may be half a world away from Myanmar, in London, in the city’s prestigious Mayfair area. There, a group of mining-sector veterans have been making their own plans to get more coloured stones.
They hope that their company, Gemfields, can become an industry powerhouse, something like the De Beers of coloured gems. Backed by Brian Gilbertson, a former chief of BHP Billiton, Gemfields wants to secure rights to enough of the world’s production of major gems and to modernise mining processes so it can ensure a more predictable supply, while investing inmarketing tomake the stones better known.
Ian Harebottle, the company’s South African chief executive, says coloured stones were once as popular as diamonds – until the 1940s, when De Beers started cranking up its marketing budget, with slogans such as “a diamond is forever”. Today, coloured gems are a fraction of the $US70 billion international diamond trade, and the small-time miners who dominate the business don’t have the money or the scale to do much about it, Harebottle says. “Coloured stones were going backwards.”
Gemfields already produces 20 per cent of the world’s emeralds, from a large mine it co-owns in Zambia. The company says it has as much as 40 per cent of the global amethyst supply, andit is starting toproduce rubies from a major deposit in Mozambique. Gemfields is keen to expand elsewhere – including in Myanmar, if the government there continues its reforms and the human-rights situation improves, Harebottle says.
Gemfields also recently acquired Faberge, the storied jewellery brand that dates from the days of the Russian czars. The idea is to use Faberge, which has boutiques worldwide, to market gemstones in the ultra-luxury space, as part of the first “mine to market” supply chains for coloured gems. Hollywood actress Mila Kunis has been signed up to lead a fresh marketing campaign, featuring images of the star with a Romanov-style necklace inspired by an 1880s design, with 79 emeralds sourced from Gemfields’ Zambian mines.
The company’s efforts come amid other attempts by investors to bring more modern practices to the industry, including making pricing information more widely available and improving grading and tracking practices so that consumers have a better idea of what the stones are worth, aswell as their origin. The International ColouredGemstone Association, for instance, is pushing for a system to trace the provenance of coloured gems. The association’sMichelou says countries including Colombia, Tanzania and Sri Lanka have expressed interest.
Other companies, too, are touting mine-tomarket supply chains and updating production. They include TanzaniteOne Mining and its parent, the London-listed Richland Resources, which have helped transform the tanzanite market by investing in former artisanal mines near Mount Kilimanjaro, which are the only known deposits of the rare blue stone.
Meanwhile, even the mines in Hpakant in Myanmar have become more mechanised in recent years, with earth-moving equipment replacing many human workers, although the site overall remains unruly. All of this could one day make coloured stones more valuable if it helps to make supplies more reliable and increases demand.
“The coloured-stone industry will probably go in that direction, [towards] more rational, more formal mining,” says Russell Shor, an analyst working at the Gemological Institute of America, one of the leading authorities on gems. “It will be a slow process, but I think that’s the future.”
Yet plenty of people, including many gem hunters, remain sceptical. The biggest gem deposits, they contend, are often too small to justify major investments, and sometimesmay be better exploited with primitive hand tools. Themines are scattered so widely and in such unruly places that it could be too complicated – not to mention, expensive – to bring them into the modern era. “How many trillions do you have?” asks Genis. “With the exception of diamonds, most gem sources are ancient, and the best gems are long gone.” Attempting to integrate the mines, he concludes, would be practically impossible.
Hughes, the gemhunter based inBangkok, agrees. People have always been interested in bringing order to the coloured-gems trade, he says. However, Mother Nature protects her treasures well, hiding them in hard-to-reach
ONLY PEOPLE, NOT MACHINES, CAN SEPARATE VALUABLE SPECIMENS FROMWORTHLESS ONES – AND THAT INCLUDES THE ARTISANAL MINERS
WHO NOW HAVE MUCH OF THE ACTION.
places, and the people that look after those places have very little incentive to surrender control to London, Wall Street or anywhere else for that matter.
“Gemstones are different from other kinds of mining,” Hughes says, because of the high concentration of value in very small areas and relatively few stones. In addition, only people, not machines, are able to separate valuable specimens from worthless ones – and that includes the artisanal miners who now have much of the action. If the large companies try to imposemore order, he says, “there’s always going to be people who can get around it”.
Myanmar is one of the biggest sources of coloured gems.
Above left: The so-called Elizabeth Taylor Ruby was a Christmas gift from Richard Burton. Above: Kate Middleton’s sapphire engagement ring from Prince William once belonged to Princess Diana.
Bangkok-based gem hunter Richard Hughes visits a Myanmar ruby mine.