Ro­manc­ing the stones

THE $11 BIL­LION COLOURED GEM IN­DUS­TRY IS DOM­I­NATED BY SMALL MIN­ERS AND AD­VEN­TUR­ERS, BUT THAT COULD BE ABOUT TO CHANGE.

The Australian - The Deal - - Contents - BY SHIBANI MAH­TANI AND PA­TRICK BARTA

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.

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