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TABLE OF CONTENTS

• Collecting Fancy Colored Sapphires
• Collectors Corner
• Auction Highlights
• Gem Thieves
• What are Naturals on Gemstones?
• In the News: Tanzanite and Bin Laden

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COLLECTING FANCY COLORED SAPPHIRES
By Robert Genis

Although most people tend to think of sapphire as being blue, it actually comes in a kaleidoscope of colors. Besides blue, their hues can be orange-pink (padparadscha), pink, orange, yellow, golden, purple, green, white and color change. Of course, corundum that is red is ruby, when it is discovered any other color it is sapphire. The major sources for fancy colored sapphires are Burma, Madagascar, Sri Lanka, Thailand, Australia, East Africa, and even the United States.

Gemology
With a hardness of 9, sapphires are extremely tough and durable and suitable for use in any kind of jewelry. It is the hardest gemstone type known except diamond. All corundum is a common natural mineral, aluminum oxide. What is rare are the small trace elements of titanium, iron, chromium and vanadium which create the various colors in fancy sapphires.

 

Padparadscha

The rarest and most valuable collector fancy sapphire is the padparadscha, which is Sinhalese for "lotus flower". A true padparadscha must display a combination of both orange and pink colors. These colors should blend so that it is difficult to see where the pink stops and the orange begins. Dealers disagree on the exact ideal color of a padparadscha. Tone and origin are crucial factors in determining what truly constitutes this gem. We believe the term should be limited to the light to medium tones of Sri Lankan (Ceylon) sapphires with a color that is similar to salmon. In our opinion, the Umba Valley, Tanzania gems and the new Madagascar material do not have the same attractive color in the classic sense. Some unscrupulous dealers have been selling African fancy sapphires as padparadscha. However, these stones have too much orange-brown to be properly labeled "pads". Sri Lankan padparadscha sapphires sell at a premium, nearing the price of a Kashmir sapphire. An unheated gem padparadscha will range between $4000-$10,000 per carat. Large gems can exceed these prices. Padparadschas are hot collector items and are bought up as quickly as they are found.

 

Pink

The second most valuable fancy sapphire is "electric" or "bubble gum" pink. The best of these gems have a pure vibrant and vivid pink color. What makes these stones exceptional is an electric intensity and a tone that pushes them way above a pastel color. Dealers, gem organizations, labs and collectors argue about where to draw the line between ruby and pink sapphire. One problem with grading these stones is the color pink is basically a light or desaturated red. On the AGL grading system, there is a transition point for pink sapphire/ruby. If the stone is redder than this point, it is called a ruby. If the stone is less red, it is a pink sapphire. And, although these gems are technically pink sapphires in America, some cultures, such as the Japanese and Europeans, refer to this color as "Burma ruby". This makes it very difficult for US collectors. The main sources of these gems are Burma, Sri Lanka, and Madagascar. The supply of Sri Lankan and Burma goods remains scarce. Most of the heated pinks on the market today are from Madagascar and sell from $200-$1000 per carat. Unheated gem Burma pinks sell from $1500-$3000 per carat. Large multi-carat sized Burma pinks can exceed $4000 per carat. Many collectors consider "hot" pink sapphire as an inexpensive alternative to the red Classic Mogok Burma ruby.

 

Yellow, Golden and Orange

Yellow, golden and orange sapphires are interesting gems for collectors on a moderate budget. These gems are still relatively unknown by "the public". Many believe that once they receive more exposure, they will be a favorite among privates.

One caveat with yellow, golden and orange sapphire though, is the gems can be subjected to numerous treatments. It has been estimated over 90-95% of the world's sapphires in the market today are heat-treated. The theory of heating yellow sapphire is to add value by improving color and often clarity. Pale yellow stones have been heated consistently for over twenty years by Thai cookers and others. In the early 1980's, the yellow sapphire market crashed when large supplies of treated product entered the market at the Tucson Gem Show. During the past twenty years, the supply/demand balance has reached a better equilibrium.

Proper heat treatment of pale yellow sapphire may produce intense yellow, yellow/golden, golden and deep orangy yellow colors. Interestingly, in the last few months, a certain type of brownish-red (garnet-looking) Tanzanian corundum from Songea, Umba and elsewhere has been heat-treated in Thailand, often resulting in beautiful orange, yellow/orange and other colors. Most natural pale yellow sapphires are heated between 1600 to 1900 degrees centigrade to produce more attractive shades, but heating yellow sapphires does not always work and often the material may turn colorless or pastel. According to Ted Themelis, author of The Heat Treatment of Rubies & Sapphires, "The results after the treatment vary widely depending upon the ratio/type of the gems' color-bearing impurities, the heat-treatment method applied, and the various parameters used in the heating process." Heat treatment on most yellow sapphires is permanent and requires no special attention by consumers/jewelers after the sale.

A great deal of yellow, golden and orange sapphire is irradiated. This treatment is used on pale yellow sapphire to turn it golden yellow. Some light blue sapphire also turns orange after irradiation. This process is not stable and the color produced by this method can fade in light or heat. This is not acceptable. Irradiation is detected by conducting a fade test. The test is accomplished by masking off 50% of the stone and placing it in the sun for a few days. The tape is then removed and the gem inspected to see if both sides have retained the same color. If the color of the exposed half of the gemstone has faded, it has been irradiated. It is impossible to detect whether a gem's irradiation is man-made or natural. Natural irradiation occurs when a gem is exposed to the earth's radiation while still in the ground, similar to what causes the green coloring of diamonds. Sapphire can also come "chemical-coated" and with "surface color diffusion".

Fancy yellow sapphires occur in a myriad of shades. These stones can look canary-yellow-diamond bright, vibrant golden and electric orangy yellow. Interestingly, collectors search for the paler, unheated yellows over the more intensely hued treated gemstones. These stones are an exception to the general rule that the better the color, the more valuable the stone. Collectors will choose a natural untreated yellow sapphire over an irradiated or heated vividly colored gem. However, unheated yellows should not be too pastel, they must be obviously yellow or lemon yellow. If you have to use your imagination, pass on the stone. Occasionally an untreated yellow sapphire also can also possess an intense, extremely deep yellow color. The best yellow sapphires possess a light to medium tone, without any brownish overtones. Finally, the cleaner the stone, the more valuable the gem. However, be careful, because in some cases flawless yellow sapphires are treated synthetics.

Top quality unheated Burma yellow sapphire is available for $700-$1000 per carat in two to four carat ranges. Ten carat sized stones can exceed $1400 per carat. Cut these prices in half for Sri Lankan, Australian, or Thai stones.

Yellow sapphire provides an inexpensive alternative to consumers who cannot afford a fancy yellow diamond. The stone comes in colors from fancy light to fancy deep yellow. They can be purchased for hundreds of dollars per carat vs. thousands or tens of thousands of dollars per carat for yellow diamonds. Today, yellows are hot in the astrological gemstone market and rare, untreated yellows are sought in the collector market.

 

Purple

Sapphires are also discovered purple. Some exceptional purples are found in Africa and Burma. They are often described as intense electric purple or plum color. Watch out for purples with gray or brown. Exceptional one carat purples range from $350-$500 per carat. Two to five carats can reach $500-$750 per carat. Large purples can exceed $1200 per carat.

 

Color Change

A new supply of unheated, fancy color change (purple to blue) Burma sapphire has recently entered the market. In the best cases, these goods are beautiful with a deep color saturation and an obvious color change. Most of the world's fabulous color change sapphires come from the Umba River region of Tanzania, the famous Mogok stone tract in Burma, and the Ratnapura area of Sri Lanka. The color change Burma sapphires we have seen recently fluoresce strong red in LW (Long Wave) ultraviolet light. This is due to a minor degree of chromium in the material.

Sapphire is one of a few gemstones that can exhibit a color change. A color change gem is a stone that changes from one color to another color depending upon the light source. Color change sapphires go from blue in daylight to purple or violet in incandescent light. The color change occurs in sapphire because of the atomic structure of the stone. The ultraviolet rays in sunlight or fluorescent light excite the atoms in a color change, but artificial (incandescent) light does not. As a general rule when evaluating color change gemstones, the more dramatic the color change, the more desirable the material. You do not want to use your imagination to see the color change. Ideally, you are looking for a 100% color change with two pleasing colors. In sapphires, one side should look like a gem blue sapphire and the other side a top quality amethyst. You do not want a stone that "bleeds", which means you can see the two colors at the same time under a single light source. Additionally, the more vivid the color of a color change, the more valuable the gemstone is. Generally, sapphires with a pastel color (lighter tone) exhibit a less dramatic color change. Color changes can also be too dark (black out) and the color change is masked by the black. Ideally, you want a dramatic color change with a medium tone and intense color.

Today, one to three carat size, top gem quality, unheated Burma color change sapphires range wholesale from $400-$800 per carat. Three to five carat sizes are $900-$1500 per carat and large color changes can reach $2000 per carat. Color change sapphires over 10 carats are extremely rare.

Color change sapphire is also known as alexandrite-like sapphire. However, many may prefer the dramatic color change of top sapphires over the meager supply of weak color change alexandrite presently on the market. In addition, while top alexandrites can reach over $10,000 per carat, top color change sapphires are available for less than 10% of the price.

 

Green

Green sapphire is a relatively abundant stone from Australia and Thailand. The problem is they usually exhibit black/gray secondary colors which dramatically reduce their value. Some new African production that is a more pure green has recently entered the market. Some greenish blue stones are sometimes found in Burma. Top gems can sell for $250 per carat and larger 5-10 caraters can reach $500 per carat.

 

White

Finally, some sapphire occurs white. For years this stone sold for $10 per carat. Then the Thai cookers realized that some white sapphire turns vibrant orange after heating. In addition, white sapphires are treated with a diffusion process to turn blue. This has increased demand for these gems and put upward pressure on their price. White sapphire now trades between $100-$300 per carat.

Treatments
You must assume that all sapphires, unless otherwise confirmed by an American Gemological Laboratory (AGL) Colored Stone Grading Report, are heat treated. To help identify an unheated Burma fancy sapphire, try to locate short rutile needles that intersect at 60 degree angles and inclusions that are intact (unexploded). Although the heating of sapphires is acceptable in the trade because the process is permanent, it must be disclosed to consumers. Without this treatment process, it would be impossible to meet the world demand for fancy sapphires. Some dealers claim their fancy sapphires are cooked with" low" heat. This is like being a little bit pregnant, a gemstone is either heated or not, although low heat is preferable to the "super-fried" treatments of today. Another relatively unknown treatment issue for sapphires is oiling. The oil can be removed by soaking the gemstones in acetone or similar chemicals. An accurate view of the material is possible after the process is completed. Once the oil is removed from the sapphires the material can then be safely cleaned in ultrasonics and steamers. Due to the potential treatment issues of heat, oiling, and irradiation, it is important to have an independent lab report when buying/selling an expensive fancy colored sapphire.

Portfolio Design
Some collectors specialize in purchasing fancy colored sapphires. One method is to acquire a few stones in all colors. These collectors often purchase suites (a set of all the colors of fancy colored sapphire). Although difficult to put together, these are hot collector items for a person on a budget. Many collectors also mount these multi-colored suites in bracelets or necklaces. Another theory is to trade in various colors depending on your finances. For example, you can start with white and green sapphires, increase your collection into purples, color changes, goldens and yellows, and eventually find a pink or padparadscha. Other collectors specialize in only one color. For example, they purchase every padparadscha, yellow or color change sapphire they can procure. Most collectors see fancy colored sapphires as a diversification to their existing portfolios. The prime value of their collections is in unheated Burma ruby, unheated Burma sapphire, and unheated Kashmir sapphire, plus colored diamonds. They add Sri Lankan padparadscha and electric pink unheated Burma sapphire because these goods fit right into their portfolios from a rarity and desirability standpoint.

Gem quality fancy colored sapphires are rare, especially unheated Burmas and Sri Lankan padparadschas. The only exceptions are the fancy white and green colors. Fancy colored sapphires offer uniqueness, beauty and durability at an affordable price that collectors can use in a well diversified collection.

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COLLECTORS CORNER

Victoria's Secret Bra
This year's Christmas fantasy gift, Victoria's Secret's Heavenly Star Bra, costs $12.5 million, or $2.5 million less than last year's $15 million ruby-and-diamond bra, panty and belt. A 90-carat emerald-cut diamond, valued at $10.6 million, is situated between the bra's bejeweled cups. In addition, the bra has approximately 1,200 Sri Lankan pink sapphires and 2,300 diamonds set in platinum. Matching panties are $750,000. The outfit was modeled in the catalog by Heidi Klum, the German-born model. Although Victoria's Secret has never sold a fantasy outfit, they receive tens of thousands of calls about the product. To purchase the items, you need a certified check and delivery is by armored truck.

New Blue Tourmaline
The Edoukou Mine in Nigeria is producing a new variety of gem-quality blue tourmaline. The color is a result of the presence of the trace elements copper and/or manganese. Previously, these trace elements were limited to Brazilian Paraiba tourmalines. It was only necessary to show copper in the spectroscopic analysis to confirm that a tourmaline was from Paraiba. Now, it could also be from Nigeria. Many speculate the two sources share the same trace elements because Nigeria and Brazil probably once belonged to a single land mass.

The color of the Nigerian tourmaline rough varies from blue-violet to amethyst color. Heat treatment produces a blue that is comparable to gem quality aquamarine. Continued heat treatment often results in a mint-green color. The few goods available cost in the thousands of dollars per carat range. They are not neon blue and seem overpriced.

USPS Shipping Warning
A recent study by The Gemological Institute of America (GIA) has found the irradiation process the US Postal Service (USPS) is using to kill anthrax and other biological agents produces dramatic changes in the color of some gemstones. Pearls, sapphire, quartz, kunzite and topaz can be dramatically altered by the USPS's irradiation method. For example, white pearls turn gray, pale blue sapphires change to deep orange and pink kunzite turns green. Diamonds did not show a change in the study. In early December, hundreds of large envelopes and magazines were destroyed when treated mail overheated and caught fire in Bridgeport, NJ. Currently, the USPS has no plans to irradiate registered/insured packages. FedEx and UPS do not plan to irradiate any of their packages.

Australian Pink Diamonds
This year's Argyle Australian pink diamond yield totaled 41 stones weighing 41.92 carats, with gems ranging from .48 to 4.15. Sealed bids were opened in Geneva, Switzerland. Colors ranged from fancy pink through fancy deep pink. There were no red diamonds. The largest stone was a 4.15, radiant, fancy intense purplish pink. The next largest was a 2.19, oval, fancy intense purplish pink. Arygle's entire diamond production has been 25 million carats, with the mine expected to last only a few more years.

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AUCTION HIGHLIGHTS

Christie's Winter Gem Sales
The Mogul Emerald, a 217 carat carved tablet from the Mogul Dynasty, sold for $2.2 million. The famous rectangular Colombian emerald is carved with a Shiite prayer. A .41, round, purplish-red diamond sold for $229,268 per carat. A 1.12, fancy intense purplish-red diamond only sold for $185,000 per carat. A 5.02, marquise, deep blue, IF sold for $176,494 per carat. A 5.10, heart shaped, fancy intense pink, IF sold for $616,558 or $120,000 per carat. A heart shaped, 5.26, fancy intense pink, IF clarity fetched $167,000 per carat. A .93, pear, intense green-blue sold for $101,075 per carat. The 33.74 "Amsterdam Black Diamond" sold for $10,000 per carat. A 15.01 Burma ruby fetched $42,905 per carat, a 10.03 Burma ruby sold for $127,000 per carat and a 4.27 Burma ruby went for $16,464 per carat. Also, a 21.29, octagon, Kashmir sapphire sold for $945,348 or $44,000 per carat to a Middle Eastern private. An 8 carat pink did not sell.

Sotheby's Winter Gem Sales
Sotheby's sold a 58.97, emerald cut, unheated Burma sapphire for $1,536,308 or $26,052 per carat to a European private. A 4.03 Colombian emerald sold for $17,308 per carat. A fancy intense pinkish orange, 7.38, pear shaped, VVS2 clarity sold for $68,000 per carat. A 3.03, heart shaped, IF clarity, vivid blue sold for about $215,000 per carat. A 5.04, fancy vivid purplish pink and a 5.15, fancy intense pinkish orange did not sell.

Phillips, de Pury & Luxembourg
A 1.92 carat, fancy red diamond ring sold for $1,652,500 or $860,677 per carat at auction on December 3, 2001 to an anonymous private. It was the first red diamond over one carat with VS2 clarity ever auctioned. Phillips in Geneva sold a unique 10.48 carat, briolette (pear-shaped cut in long triangular facets), flawless, fancy vivid blue diamond for $2,686,135 or $250,000 per carat. A red, unheated Mogok, 8.59 carat, Burmese ruby in a 1932 Tiffany & Co. mounting sold for $772,500 or almost $90,000 per carat. A pear, 17.50, black diamond sold for about $2500 per carat. A 10.35, fancy vivid blue did not sell as the bidding stopped at $3.9 million and the reserve was $5 million.

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GEM THIEVES

World Trade Center
A New York City man was indicted and charged with impersonating a fireman and stealing watches from the Cartier and Tourneau jewelry stores. The stores were formerly located at the World Trade Center. Johnny Dunham, 26, faces charges of burglary, fraud, petty larceny, possession of stolen property and criminal impersonation. He allegedly stole between six and 20 watches and $2,500 cash. The wholesale value of the missing goods was $1.3 million. Dunham is being held on $25,000 bail. If convicted, he faces a seven-year prison sentence.

Jerry Hall
An antiques dealer who stole jewelry, a candlestick, and a computer from the home of actress and model Jerry Hall has been jailed for three years. Jerry Hall is the former wife of Rolling Stone Mick Jagger. David Bryce, 32, was convicted last month of stealing the merchandise, worth US$10,000, from Hall's home in London. Bryce's fingerprints were found on a candlestick in a bag hidden in bushes near her house. The burglary took place while Hall was appearing as Mrs. Robinson in the play '"The Graduate'". During the robbery, her two-year-old son and nanny were asleep in the house. Bryce denied the burglary and told police he had found the bag while walking his dog.

Victim, 92, Stalls Suspects for Cops
According to the Chicago Sun Times, a smooth-talking man ended up stealing $37,000 in jewelry from a 92-year-old Chicago woman this summer. They had met at a swanky Beverly Hills resort, they "hit it off", and he got her phone number. On July 15, he checked into the Chicago Marriott Downtown under the name Robert Schmidt. He called the woman, saying he was a jewelry expert and wanted to evaluate her collection. During the bogus appraisal, he made several trips to the restroom and asked for drinks. After he left the apartment, the woman noticed six pieces missing, including a 2.5 carat diamond ring, a gold ring, a watch, a pearl necklace, a nine-diamond "snake ring" and a pair of cuff links. She reported the theft to police, but they were unable to track down the burglar. Recently, the audacious thief and an accomplice called to see her again at her condo on Lake Shore Drive. The woman tipped off police and kept the men sipping tea until officers showed up to arrest them. Havas Kalman, 45, and Kolompar Josef, 34, were getting ready to leave her apartment with another $50,000 in jewelry. They were charged with residential burglary in Cook County Criminal Court. The two were carrying receipts indicating they traveled to 13 cities in recent weeks. Now detectives are trying to learn whether they have other victims across the country.

Millennium Dome Robbery
Wayne Taylor, one of the six suspects on trial for plotting to steal $500 million worth of diamonds from a display at London's Millennium Dome last November, has been freed. The judge told jurors to find him not guilty, saying that there was no evidence that he had been involved in the conspiracy. Five other men were arrested in connection with the attempted heist. All of the accused deny the charge of conspiracy to rob.

Four of the five left on trial have admitted to the lesser charge of conspiring to steal. Among the jewels the men attempted to steal were the flawless, 203-carat, pear-shaped "Millennium Star" diamond and several other blue diamonds. The perpetrators attempted to remove the heavily guarded exhibits with sledge hammers and nail guns. Scotland Yard's elite Flying Squad officers knew about the heist in advance and were lying in wait. The diamonds had been replaced with a set of crystal replicas the day before.

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WHAT ARE NATURALS ON GEMSTONES?

Many gemstones, including Burma rubies, sapphires, and spinels, and even some diamonds, have naturals. To the uninitiated, they appear to be surface nicks, pits, or indentations. Most often naturals appear on the pavilion (back) of a gemstone, but sometimes can be seen on the girdle or the crown (face) of the gem. Many people think the gemstone has been polished improperly or the stone has been dropped or chipped.

Just exactly what is a natural? Technically speaking, a natural is the portion of the original crystal surface that remains on the polished stone. When corundum was formed over time, the host crystal was intruded with foreign materials. Eventually, these softer materials are washed away. The result is that there are small holes or indentations in the crystal structure when the rough is found. It is the cutters' job to save weight and minimize the naturals. With Burmese goods, it is the only way to get any large material at all. If the stones were cut to eliminate all the naturals, the stones would be substantially smaller.

Many dealers and collectors like Burmese gemstone naturals because they are used as an identifier for natural Burma Mogok material. Recently, we have seen some Madagascar ruby where the cutter attempted to create naturals to mimic Burma goods to fool the buyer. One collector of Burma goods sees naturals as a positive, and considers them to be "free space". In other words, he is not paying for what would be extra weight on the stone were the naturals actually filled with corundum. We have often seen diamonds graded as Internally-Flawless (IF) at diamond labs with naturals plotted in the area of the girdle. Even when trading in $100,000 plus unheated Burma rubies and sapphires, expect to see naturals. They are a fact of life in the material.

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IN THE NEWS

The following is a controversial Wall Street Journal article about Bin Laden and tanzanite.

For more on the issue from ABC News, you can read the December 14, 2001 transcript here:
http://abcnews.go.com/sections/wnt/WorldNewsTonight/tanzanite011214.html

To read Cap Beesley's response to that segment, go here:
http://www.jckgroup.com/index.asp?layout=story&articleid=&doc_id=61480&webzine=jck&publication=jck&vertical=JCK&industryid=704&industry=Gemstones+and+Pearls

The Wall Street Journal, November 16, 2001
Underground Trade
Much-Smuggled Gem Called Tanzanite Helps Bin Laden Supporters
by Robert Block and Daniel Pearl

"MERERANI, Tanzania - In the shadow of Mount Kilimanjaro, miners with flash-lights tied to their heads crawl hundreds of feet beneath the East African plain, searching for a purple-brown crystal that will turn into a blue gem called tanzanite.

Many of the rare stones chipped off by the spacemen, as the miners are called, find their way to display cases at Zale's, QVC, or Tiffany. But it's a long way from these dusty plains to U. S. jewelry stores, and the stones pass through many hands on their journey. Some of those hands, it is increasingly clear, belong to active supporters of Osama Bin Laden.

A trade group called the Tanzanian Mineral Dealers Association denies that Mr. bin Laden's al Qaeda has any role in the tanzanite trade. But in the bars and cafes that dot the streets of Tanzania's mining community, the radical connections are no secret. According to miners and local residents, Muslim extremists loyal to Mr. bin Laden buy stones from miners and middlemen, smuggling them out of Tanzania to free-trade havens such as Dubai and Hong Kong.

"Yes, people here are trading for Osama. Just look around and you will find serious Muslims who believe in him and work for him," says Musa Abdallah, a Kenyan who has worked as a tanzanite miner for six years.

Embassy Bombings
Many details of the trade remain murky, such as whether its main role is to earn money for the militants or simply to help them move funds secretly about the world. Still, William Wechsler, a former National Security Council member in charge of counterterrorism under President Clinton, says there is little doubt that Mr. bin Laden's links to gemstones, including tanzanite, have been used at times to help fund his terror activities. Al Qaeda's dealings in tanzanite in the 1990s were detailed at length during the recent federal trial that convicted four bin Laden men in connection with the U. S. embassy bombings in Tanzania and Kenya.

Alex Magyane, a Tanzanian government official actively investigating the tanzanite trade, says he has recently traced bin Laden-linked smuggling of rough stones through Kenya to bazaars in the Middle East. "Beyond any doubt, I am 100% sure that these Muslim gem traders are connected to Osama bin Laden," the official says.

Tanzanite is so rare it is mined in only one place on earth, a five-square-mile patch of graphite rock here in northeastern Tanzania. Legend has it the Masai tribesmen discovered the gem when a bolt of lightning set fire to the plains, and some crystals on the ground turned blue. In 1967, an Indian geologist identified the stone as a rare form of the mineral zoisite and determined that it turned a velvety blue when heated to 400 degrees Fahrenheit. Tiffany & Co. named it "tanzanite" and promoted it as "the most important gemological discovery in 2,000 years." Tanzanite became a U. S. marketing phenomenon, second in popularity only to sapphire among colored stones.

Heart of the Ocean
Its popularity soared when movie fans learned that the sapphire heart-shaped pendant Kate Winslet hurled into the sea in the movie "Titanic" was actually tanzanite. By then, the U. S. was selling $380 million of tanzanite jewelry a year.

Yet Tanzania's official exports of uncut tanzanite crystal totaled a mere $16 million last year. Rampant smuggling spirits as much as 90% of the production out of the country, Tanzanian government statistics show. Local traders often buy plastic bags full of rough stones, paying cash and exchanging none of the paperwork that would trigger a 3% export duty. And in faraway places where the rough tanzanite is cooked, cut and polished, such as the Indian city of Jaipur, dealers say they don't question suppliers closely about sources.

Mererani, which is a 30-minute drive from the mines along a treacherous dirt road, is reminiscent of a Gold Rush town, with shacks, bars, brothels and hordes of young men hoping for a strike. Besides a few big mechanized mining operations, hundreds of individuals hold tiny, 50-yard-square claims that they mine as best they can. Working with the "spacemen" who descend the tunnels are "snakes," the term for boys who sift piles of grit on the surface and sometimes wriggle into the crevices too small for adults. Restaurants play on the dreams of prosperity, taking names like New York and The Big Apple. But alongside the dreams and the decadence, a religious radicalism is brewing.

Tanzania's Muslims, who make up about 40% of the populace, have long practiced a "soft" Islam, tolerant of drinking, revealing dress and their many Christian neighbors. But Muslim radicalism began to rise in the early 1990s, fueled by poverty and financial support from Islamic charities abroad. It included the al Qaeda cell that bombed the U. S. embassy in Tanzania three years ago.

In Mererani, a new mosque called Taqwa has brought an openly radical Muslim presence to the tanzanite district. Taqwa's imam, Sheik Omari, has issued edicts that Muslims miners should sell their stones only to fellow Muslims. The diktats breed resentment. "The fundamentalists have established a mafia to dominate the trade," says Mr. Abdallah, the Kenyan spaceman. "Even if non-Muslims offer better prices for our stones, we are harassed by the fundamentalists not to sell to anyone but them. Many Muslim miners obey because they are scared of them."

The Taqwa mosque is still under construction on a dusty side street. Inside a temporary prayer hall of wood and corrugated metal, miners are taught the importance of avenging the "arrogance" of America and defending Afghanistan from "U. S. oppression." Support for Mr. bin Laden is a duty, miners are told. The faithful of Taqwa often address one another as Jahidini, a Swahili word that means Muslim militant. Some routinely greet one another as "Osama."

After prayers, the mosque's courtyard becomes an open-air gem-dealing space, where Sheik Omari and other mosque leaders trade tanzanite with small-time miners. In between haggling, the elders preach the virtues of suicide attacks as a way to defend their faith.

"Ticket to Paradise"
"Remember, Islam teaches us that your body is a weapon," Sheik Omari tells a group of young men in Swahili. "But if you die, you should take as many of your enemy with you as you can. This will be your ticket to paradise."

Asked if he works with or belongs to al Qaeda, Sheik Omari gives a vague answer, as do others at the mosque. " 'Al Qaeda' means 'base.' I don't know any base. But Islam says we must support our brothers and sisters and those who defend Islam from its enemies," Sheik Omari says.

The mosque traders, who aren't licensed as dealers but act as informal middlemen, make clear the gem business must serve their militant brand of Islam. "We as Muslims must unite in dealing in gemstones to help one another and to generate funds to defend Islam from those who want to destroy it," says Aman Mustafa, a Kenyan gem broker and teacher at the mosque, who says he has studied Islamic law in Sudan.

U. S. investigators of al Qaeda's business say that it is designed to create self-sustaining networks and cells. Here in Mererani, some proceeds from the tanzanite trade are plowed back into expanding Taqwa's influence. "This mosque is being built with tanzanite," Sheik Omari says. "Our Islam is stronger with our efforts to create a Muslim force in this gemstone."

Kenyan Connection
Mr. Magyane, whose government title is regional mine officer, says some of the stones bought by the Muslim militants are smuggled through "rat routes" to the Kenyan city of Mambos. That city is a stronghold of al Qaeda sympathizers and was a base for the 1998 embassy bombings.Throughout the embassy-bomber trial this year in New York, several bin Laden associates or former ones, both state witnesses and defendants, referred to dealings in tanzanite in the Midas. Testimony described how the stones moved through Kenya to Hong Kong via one of two al Qaeda companies, Tanzanite King or Black Giant, set up by defendant Wadis en Huge, a gem dealer and former personal secretary to Mr. bin Laden. Mr. en Huge is serving a life sentence for his role as the bombers' financial facilitator.

Bin Laden supporters trading tanzanite today face no interference from Tanzanian authorities. "We have no proof they are involved in terrorist activities," says the mining area's regional governor, Daniel Owe Njoolay.

Adadi Rajabu, head of Tanzania's counterterrorism police, adds that "before 1998, we never knew there were people smuggling gemstones on behalf of a terrorist group. But it is not an area we have looked at carefully. Most of our attention since 1998 has been focused on operatives who were likely to be engaged in activities like bombings, not business."

Road to Dubai
Sheik Omari and Mr. Mustafa say they sell their stones to a prominent local dealer, Abdulhakim Mulla, who Mr. Mustafa says sends some of the gems on to Dubai. The dealer denies the Dubai connection. In any event, on a recent day Sheik Omari could be overheard telling miners to bring perfect stones to the mosque, because "our market in Dubai only wants perfect stones."

To Westerners in the gem business, mention of Dubai raises alarms. For one thing, the emirate is known as a center of money laundering and the underground cash-transfer system know as hawala, much-favored by Mr. bin Laden. Dubai also has no gem-cutting industry. It lies far outside normal channels for the trade in rough gemstones, most of which go to Jaipur, to Bangkok or to a few other traditional centers of cutting and polishing.

"Dubai is the kind of place that should throw up a flag that something is definitely askew," says Cap R. Beesley, president of American Gemological Laboratories in New York, which tests colored stones. "When you see any rechanneling through nontraditional destinations like Dubai, it means someone is finding some financial incentive not to play by the book."

U. S. law-enforcement officials have identified Dubai as a haven for al Qaeda business interests. The FBI and the Treasury Department are currently trying to help the United Arab Emirates, of which Dubai is a part, to crack down on the abuse of Dubai's free-trade zones by terrorists and criminals. While this effort mainly focuses on gold smuggling, the U. S. also has reports that al Qaeda uses tanzanite as a way to move funds around the world, says a U. S. government investigator familiar with Dubai.Out of more than 12,000 pounds of official tanzanite exports from Tanzania last year, a mere 13 pounds were sold to Dubai dealers. But Mr. Magyane estimates that a hundred times that amount actually made its way to Dubai, through smuggling.

Cash Business
In Dubai, on a strip of small jewel shops along a creek, Africans often go door to door trying to sell plastic bags full of unrefined gold and sometimes uncut gemstones for cash. D. B. Siroya, and Indian dealer based in Dubai for two decades, says he has sometime acquired rough tanzanite in Dubai on behalf of Indian friends, buying from sellers he knows.

The cash element is part of what makes the gem trade attractive to al Qaeda, according to Mr. Wechsler, the former U. S. counterterrorism official. He says the gem business is also attractive because it is tiered, with many layers of brokers, traders, cutters polishers and wholesalers between miner and consumer.

A U. S. government-funded report last year for Tanzania's mining industry noted that the country's gem industry was "subject to abuse by money launderers, arms and drug dealers." Afgem Ltd., a South African mining company, has been trying to change that. It advocates branding tanzanite stones with tiny laser-etched logos and bar codes, plus other regulations to discourage smuggling. But its plan last year ignited clashes with small miners, who, Tanzanian intelligence claims, were funded by foreigners with a stake in the current loose system.

The many tiers in the business make it possible for unsavory players to get in and out without leaving much of a trace. In the U. S. jewelry industry, which consumes nearly 80% of tanzanite gems, many participants say they have heard industry reports of tanzanite links to al Qaeda only recently, and tend to discount them.

QVC Inc. says it has met with its seven tanzanite vendors to make sure they comply with its ethics code, which says QVC won't knowingly deal in gemstones "that originate from a group or a country which engages in illegal, inhumane or terrorist activities." Darlene Daggett, executive vice president of merchandising, says that if tanzanite "definitively can be linked to terrorist activities, we will not continue to sell it."

Zale Corp. says it has heard "bits and pieces" about such a link, but not enough to know if it needs to change procedures. "It comes down to knowing who we do business with and knowing where they get their stones," says spokeswoman Sue Davidson. "But all we really know is what they're telling us. Without some kind of gemstone authorization, certification and tracking system in place, we cannot guarantee that no stone has been smuggled."

Zale CEO Robert DiNicola adds: "If it came to light that there is a problem with tanzanite, we wouldn't deal with it."

Jewelers of America, a retail jewelers' trade group, says it has been focusing on the "far more significant consequences to human life" of "blood" diamonds, those whose sale helps to fuel African conflicts. "I'm not suggesting we are not willing to look at other connections," but "we need more information," says the group's chief executive, Matthew Runci."

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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. The gem market is speculative and unregulated. Certification does not eliminate all risks associated with the grading of gems. Recommendations are meant for those who are financially suited for the risks involved. Past performance is not a guarantee of future performance. Neither NGC nor The Gemstone Forecaster guarantee a profit or that losses may not be incurred as a result of following its recommendations. They may also hold positions in areas they recommend. Subscribers should not view this publication as investment advice, nor is it intended as an offer or solicitation with respect to the purchase or sale of any security.

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