THE GEMSTONE FORECASTER VOL. 14, NO.2 - PART TWO

TABLE OF CONTENTS PART TWO

INTERNATIONAL UPDATES

Diamonds

Current Market
Presently, there are severe shortages of round diamonds between 1.00 through 3 carats. Strong market demand for 90 pointers. F-G Colors, VS-SI2 clarity are extremely hard to locate. There have been small price increases in these goods. Investors are starting to buy large D-IFs. Rough prices are high and shortages are putting increasing pressure on polished buyers to pay more. Severe shortages of Russian rough crystals have pushed up prices for princess, radiant, emerald, and pear shapes. Expect prices to increase.

Argyle Diamond Decides to Leave DeBeers Cartel, by Neil Behrman (Wall Street Journal-June 10, 1996)
London-Argyle Diamond Mines Joint Venture, the Australian diamond producer, is withdrawing from DeBeers Centenary AGÕs cartel.

"We believe that we will get a better deal if we sell our diamonds independently," says Andrew Murray, manager of corporate services in Argyle. "The mine produces 40 million carats of diamonds a year, or 37% of global output," he said. A carat equals a fifth of a gram.

"We are disappointed that Argyle is not renewing its contract," a DeBeers spokesman said. "Yet the pull out must be put in perspective," he said. "The value of Argyle's production, at $360 million only accounts for 6% of the global $6 billion diamond market," the spokesman said.

Diamond dealers in London and Antwerp, Belgium fear that there will be a period of "market turbulence" as Argyle and DeBeers jockey for market share. "Prices of the cheaper diamonds that Argyle mainly produces could slide," said Marcel Grunhaut, managing director of Double MG BVBA in Antwerp. Overhanging the market is an Argyle stockpile equivalent to one year's production, dealers said.

Despite the low value of Argyle's sales, dealers regard this withdrawal as a blow to the DeBeers cartel, which controls around 75% of the global diamond market. Recently, the cartel renewed a contract to sell diamonds on behalf of Russia, the producer that mines the most valuable gems. But the pact is less favorable to the cartel than the previous one, dealers said, and details are taking a long time to be finalized.

"Moreover, RTZ CRA Group, the joint United Kingdom and Australian mining company, holds stakes in Argyle and Amber Resources Ltd., a promising Canadian diamond producer," said Marcel Pruwer, an Antwerp diamond dealer and consultant. "It is likely that an independent Argyle marketing operation will sell Canadian diamonds when expected large-scale production comes on stream within a few years," he said.

Australia
Inside Job at Argyle
Between 1988 and 1993, $50 million worth of diamonds may have been stolen from Australia's Argyle diamond mine. Argyle's security chief, his wife, and a race horse owner are charged with the crime. Apparently, the diamonds were never entered into the computers, so there was no official record of the stones. What tipped off Argyle was when several rough pink diamonds showed up in 1989 in Geneva and Antwerp. Since Argyle is the producer of the pinks, they knew the stones were Australian, and they started an investigation. The main stone that led to the arrests was an 11 carat light pink. For years the Australian police investigated the theft with no results. Finally, the security chief and his wife admitted they were stealing diamonds.

DeBeers Sales Increase
DeBeers reported an 11% increase in sales for 1995. Earnings were $624 million, up from $560 million. Sales were up 7% to over 4.5 billion.

DeBeers and Russia
DeBeers and Russia have reached an agreement which will close most of the loopholes that allowed $1.8 billion worth of rough diamonds to leak into the world diamond market the last three years. Almazi-Rossii-Sakha or ARS is now the only Russian agency entitled to export Russian diamonds. Most of the outside sales came from Komdragmet and Techalmaz. These agencies are no longer allowed to market Russian diamonds. The Director of Komdragmet was fired by Boris Yeltsin. He was under investigation for the disappearance of $88 million worth of diamonds in San Francisco.

These changes were the result of the senior members of the Russian government who wanted to take control of the Russian diamond industry. The agreement is expected to hold even if there are major changes in the Russian Government after Russia's June presidential election.

Russia did win the right to sell up to 12.5% of their rough outside of DeBeers, up from 5% on the 1990 agreement. In return, DeBeers received the right to Russia's run-of-mine production instead of receiving what was left over. The new agreement sets a Russian sales quota at $1.2 billion. From the first $600 million, DeBeers has a right to the complete run-of-mine material. The Russians can take 5% and sell it on the open market. The second $600 million is divided into two groups: the remainder of the run-of-mine material and rough of the Russian stockpile. ARS will be able to sell 20% of this half on the open market.

Diamond industry leaders hailed this agreement as an important step in restoring confidence and stability in the diamond market.

ARS
Vyacheslav Shtyrov, the President of Almazi-Rossii-Sakha, or ARS, wants to become another DeBeers. ARS is already the second largest diamond concern with annual production sales of $1 billion. One problem for ARS is it is very difficult to raise capital. The company cannot sell shares, issue securities or mortgage property. Also, the ownership of ARS is complex. The Russian government owns 32%, Sakha own 32%, employees own 23%, and eight Sakhan regions own 8%, and 5% is owned by the Social Security for Veterans. ARS owns no mines but leases them for 50 years. ARS is short of cash but hopes to set up a multi-national corporation to compete with DeBeers.

Colored Diamond Exhibit
In Omaha, Nebraska the following gems were shown:

  1. The Golden Jubilee-A 545 carat golden rose cut. The diamond was 755 carats when discovered at DeBeers Premier mine in 1986. It has been on display at the Jewelry Trade Center in Bangkok. After a limited world tour, Henry Ho will present the diamond to the King of Thailand to celebrate his 50th year of rule.
  2. The Lazare Kaplan Diamond-a 620 carat rough diamond.
  3. The Fancoldi Collection-32 Fancy rare colored diamonds.
  4. The Stanley Kahn Diamond-a 4.25 yellow diamond discovered in 1977 in Arkansas.
GIA Colored Diamond Grading Reports Up
With the advent last year of a new system for grading fancy colored diamonds, demand for grading reports for these stones has skyrocketed 75%. The GIA plans to expand the New York facility to accommodate this demand.

COLORED GEMSTONES

Sapphire
The most famous sapphire mines are either played out or unreliable. Sapphire mines in Kashmir have been depleted since the 1920s. Mining in Burma is difficult to access. Cambodia and Thailand no longer possess much material worth mining. The leading source today is Sri Lanka, but the supply is sporadic. Vietnam may be a promising source in the future, but so far the quality has been only commercial. Recent reports also indicate small intense blue sapphires are being mined in Laos.

Recent production from Tanzania lead many to believe Africa may be the next great source of sapphire. The finest blues look like the finest Sri Lanka material. Rwanda is also producing sapphire. The highest quality sapphire being produced is Madagascar. They tend to be between 1/2-1 carats, and they respond to heat treatment. They are being described as between Sri Lanka and Kashmir quality and can be priced over $1000 per carat. Due to the fact bribes must be paid in Africa and sapphire is found only with hard-rock mining, expect these prices to increase.

Australia may play a more vital role in sapphire production. Although Australia is known for low quality sapphire, heating technology is helping their production. The Redstone area in New South Wales is producing higher quality rough. For many years the Thais would buy the good Australian rough and resell it as Thai or Cambodian goods.

Bangkok Report
Recent reports indicate that prices are up for all qualities of blue sapphire. African sapphire is now mixed in parcels with Sri Lanka stones. Ten carat Thai blue sapphires, 4.5-5.0 color, clean were $2500+ per carat. Standard 2-3 carat sapphires were extremely high.

Calibrated spinel is a new product in Bangkok. All of these stones are below a carat. Fine clean Burma spinel over a carat are not available. There is some production of included carat size Spinel.

Mong Hsu ruby dominates the ruby market. Thai ruby is not being shown. Very little production of Mogok Burma ruby in Thailand. Tanzanite is still a hot stone.

Colombia
In April, a guerrilla ambush killed 31 government soldiers and wounded 15 others. The insurgents set off dynamite while a convoy of six trucks passed over a road near the trans-Andean pipeline. The attack occurred 560 miles southwest of Bogota. The 150 guerrillas also threw grenades at the convoy. In May, FARC killed 16 in Northern Colombia. The Colombian government issued a statement that the attacks were committed by the Revolutionary Armed Forces of Colombia (FARC). FARC has robbed banks and extorted money from wealthy landowners. They have made millions in kidnapping ransoms. FARC guards cocaine plantations and supplies drug cartels with cocaine paste. FARC was founded in the 1960s to fight for the poor. They are the largest of Colombia guerrilla groups with an estimated 12,000 fighters. The guerrillas have intensified their urban activities. They have tried to impose three-day strikes by threatening to bomb buses, banks, stores, and administration offices. There is now a fear among city residents in Bogota. In Colombia the guerrillas, the paramilitary, the drug traffickers, and the military are all competing for political control of the country. There is a power vacuum due to the fact President Samper is under siege due to the growing scandal over campaign contributions from drug dealers. Five members of Samper's cabinet have resigned.

FARC is using the scandal to escalate operations and is demanding Samper's resignation. Drug dealers are using the disruption to consolidate new networks and reignite narcoterrorism. The military and paramilitary are using the state of emergency to spread more violence. There is no end in sight for this conflict. Do not look for any increased emerald supply during this crisis. Those clients of National Gemstone with special orders may have to wait longer. In the 25 + years we have been monitoring this country, Colombia has never been in such a precarious political position.

Kenyan Tsavorite
There are only a few tsavorite dealers left in Nairobi. Most have left for Tanzania, which produces a great deal more material. Most tsavorite discovered today is rough between .02 and 5 grams (5 grams equal one carat). The largest tsavorite recently discovered was a 15 carat piece of rough, that would cut into a 4-6 carat gem. Gangs continue to invade the mines and some supervisors have been killed. Many miners are also being attacked between the mines and Nairobi

Tanzania
The Tanzanian government has recently reopened the mines after a seven-week shutdown. The main mines that were closes were the Tundura, where corundum deposits were discovered last year. The government will no longer license foreign mining companies. Only Tanzanian nationals will be allowed to own mining rights. The new rules were designed to prevent excess gem production. Further, the closing time allowed the government to formulate regulations regarding the illegal mining and smuggling. The problem is very little of the rough deposits of tanzanite, corundum, or diamond is cut in Tanzania. The government believes 98% of gemstones found in Tanzania are smuggled out of the country. The failure to collect taxes on Tanzania's mineral wealth results in a poor infrastructure. Government officials want to build a gemstone industry within Tanzania's borders. The problem the Tanzanian government faces is how to regulate the gemstone industry without shutting off investment.

SOUTH EAST ASIA BORDER REPORT

Burma/Thailand
Burma and Thailand have recently opened their borders for the first time since 1994. The Thai military were charging vehicles $200 to cross into Thailand from Burma. According to the new agreement, the borders will remain open for two years. After the two year trial, the borders will remain open unless either side petitions for the closing of the border. The soldiers and police on both sides can make more money if the borders are closed because of payoffs. Thai gem dealers feel they can buy Burma goods below the market when the border is closed because when smugglers enter Thailand clandestinely, they have a vested interest in selling quickly and recrossing before they are caught. Therefore, we should expect to see more Burma goods, but at a higher price. The Burmese government has struck a new business dealer with Kuhn Sa, the notorious drug smuggler. Kuhn Sa is wanted by the US Government for drug charges. Kuhn Sa surrendered to the Burmese Government in 1995. He was guaranteed by the Burmese Government that he would not be extradited to the US. In return, he disbanded his militia and handed over his strongholds to the Burmese Government. He now has set up legal enterprises in logging, gem production, and petroleum. Kuhn Sa is now a major force in the gem business. He has a gem cutting operation in Taunggyi, capital of the Shan State. Reports also indicate Kuhn Sa has resumed his involvement in smuggling drugs. He is allegedly building a heroin factory on the Mekong River, where it will be easy to smuggle gems and heroin to China.

Thailand/Cambodia
The rebel Khmer Rouge are fighting the Cambodian government forces. The Khmer Rouge currently control the Pailin area, 12 miles from Thailand. The Khmer Rouge finance their guerrilla activities from gem mining. The Thailand government is friendly to the Cambodian Government. The Khmer Rouge can no longer depend on the Thais to buy their ruby and sapphire. Numerous Thai gem dealers have been killed by the Khmer Rouge in Pailin. The Khmer Rouge now smuggles the goods to Thailand and sell the stones through anonymous surrogates. Although the Cambodian military continues to attack the Khmer Rouge, they are fierce guerrilla fighters. Do not expect any production from this area until the Khmer Rouge are defeated by the military.

Vietnam
Vietnam has recently announced the creation of the Vietnam National Gold and Gem Corporation to control the surveying, exploration, and extraction of gems in Vietnam. This state enterprise is to centralize the gem mining industry. New law guarantees that investors will retain the right to mine deposits they discover. Investors are required to process the gems domestically, help build the infrastructure, and restore the environment. Most mining until now has been done by State companies and profits have been non- existent. Although this sounds promising, Vietnam is in a state of national frenzy. Recently the government allowed the destruction of foreign videos, compact discs, magazines, and the destruction of foreign advertising signs. There are reports of foreign businesses being nationalized. Do not expect any gem production from this country.

COLLECTORS: RED BERYL

Rare, Precious, Unique to Utah
Utah Salt Lake Tribune April 15, 1996
By Liz Peterson
Submitted by subscriber F.B. of Colorado.

DELTA- On Main Street in this central Utah town is a store few on lookers would guess contains a collection of one of the rarest and most expensive gemstones in the world. Housed in a former bank, Tina's Jewelry and Minerals contains a hodgepodge of gold and silver jewelry, engagements rings, jewelry-repair services, rock art and the only retail selection of red beryl jewelry in the United States. Proprietor and jewelry artisan Tina Nielson stores tray upon tray of red beryl gems - ranging in color from clear rose to magenta to blood red - in a safe in the store. Nearly 20 years ago, Nielson's uncle, a self-taught gem cutter, realized the potential value of crystals extracted from the Violet Claims in nearby Beaver County. His hunch proved right when gemologists determined the claims contain the only gem-quality red beryl in the world.

Red beryl is a million times rarer than its cousin green beryl - commonly known as emerald. At the Violet Claims, crystals are found in matrix formations dispersed throughout a volcanic rock called rhyolite. Golden Spike Gem and Mineral Society board member Erol Benson called red beryl one of the most remarkable materials to come out of Utah. Even though varieties have been found elsewhere, the Utah Wah Mountain Range mine is the only to produce crystal suitable for faceting - or cutting - and use in jewelry. According to Benson, a retired lawyer in minerals and mining, although Utah is rich in minerals, not many of those minerals are gemstones - the only others are sunstones and topaz, the state gem.

Since Tina's opening in 1985, rock and gem connoisseurs from around the world have visited to find out more about the rare stone. Nielson estimates at least 90 percent of the red beryl business is from outside the United States, including the top client, a jewelry salesmen from Japan. Like other precious gems, the cost of a faceted red beryl depends on its cut, clarity, color, and number of carats. Nielson and family members use emerald costs to price red beryl, charging $400-$20,000 per carat. Nielson recalls the family's first sale, an on-site purchase by a New York man who paid with a $225,000 check for an uncut crystal. When a Delta banker called chase Manhattan Bank in New York to verify sufficient funds, the banker was told, "His checks are always good."

Last spring at a Geneva, Switzerland auction, a 1.79 red beryl cut by Nielson fetched an advertised price of $15,000. Until recently, Nielson, who learned from her uncle to facet on red beryl, cut all of the stones in the store. Due to growing market demand, the stones are now sent to Sri Lanka, Colombia, and other countries experienced in cutting emeralds.

Nielson's family is one of 275 owners of active, small non-coal mines registered with the state of Utah's Division of Oil, Gas, and Mining. Twenty-one of the mines, like the Violet Claims, are registered by Millard County companies. "The entire western United States is mineral-rich, and Utah is no exception," said Bruce Tripp, a senior geologist for the Utah Geological Survey. "Utah is especially rich", he noted, "in mineral diversity."

According to Wayne Hedberg, a permit supervisor for Gas and Mining in the state, up to 450 small mine permits are on file at the state office, but many of those are inactive. "There are a number of families just like Nielsons that own small mines. Some make it big, but most have not," he said. "The desire to 'make it big' adds drama when Utah's 'mom and pop' operations are left to children who feud over how land should be divided or sold," said Tripp.

While Nielson's family has not yet encountered these exact difficulties, the gem business has not been without adversity. "One problem was trying to sell red beryl - the family had to literally create a market by attending trade shows and publicizing through trade magazines and other media," said Nielson. She calls her father the "PR guy." "Other gems have thousands of years of advertising. They are even mentioned in the Bible. We have to compete in the same market with all those stones," she said. And even though the stone's rarity adds to its value, it makes meeting a large market demand impossible - there is not enough product. Ten years ago, for example, the family had to to turn down New York - based Tiffany and Co. due to lack of supply. Nielson can recount several times when bigger, more "sophisticated" companies attempted to intimidate or take advantage of her family. "People come in and think because we are from a small town, we're stupid," she said. She attributes her family's survival in the business to integrity and stubbornness. "It is a lot harder to make a living in a small town. We do not have as much to take for granted. If you succeed in business, people know it is because of hard work," she said. She puts in 8 to twelve hours a day at her store to keep up with the demand of local jewelry customers as well as the red beryl market.

Her family is considering selling the mine. Utah mining giant Kennecott is drilling core samples in the area with the option to purchase. Ken Hecker, director of planning and business operations at Kennecott, said the decision whether or not to buy the Violet claims will likely be made by next spring. Hecker said Kennecott has been exploring gemstone mines only the past five years and is also exploring a diamond mine in Canada.

PRIVACY SECTION

The Intelligence Authorization Act of 1996 now allows the FBI to obtain key information about a person without a judge's permission. The FBI can obtain the information if they suspect someone of being a spy or a terrorist. They can retrieve credit information which includes a person's employment history, the names of spouses, and a list of lenders. The new law requires the credit bureaus to keep the information secret from the suspects.



The information provided in this newsletter has been derived from research and sources believed to be reliable. However, no guarantee is expressed or implied as to their validity. Opinions included herein are subject to change without notice. Potential investors or collectors should understand past performance is not a guarantee of future performance. This is not intended as an offer or solicitation with respect to the purchase or sale of any security, nor is it intended to be investment advice.

The following is for snail mail only:
Write:
NGC
P. O. Box 42468
Tucson, AZ 85733
Call: 1-800-458-6453 or (520)-577-6222

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