De Beers has a gem of an idea: Make and sell fake diamonds
Trick is that prices will be around 75% below those of other synthetic diamond producers
De Beers is tackling one of the biggest risks to its rough diamond business by setting up its own man-made diamond production and sales facility, undercutting its competition and drawing a clear distinction in the marketing of natural and laboratory-grown diamonds.
While the decision to move into laboratory-grown diamonds, which have the same look, hardness and chemical composition as natural diamonds, appears at first to be at odds with De Beers’ drive to protect its mined-diamond business, there is a canny strategy underlying the move.
De Beers established a new business called Lightbox Jewelry, with an initial focus on the US market, to deliver about 250,000 carats a year of cut and polished diamonds from 2020 at prices around 75% below those of other synthetic diamond producers, said De Beers CEO Bruce Cleaver.De Beers is investing $94-million over four years to build a plant delivering 500,000 carats or more of rough diamonds in Portland, Oregon, using the technology developed at its wholly owned subsidiary Element Six, which makes diamonds for industrial applications.
Prices will range from $200 per quarter carat up to $800 for one carat.
The output compares to the 33 million carats De Beers mined in Botswana, South Africa, Namibia and Canada in 2017, a figure that shows how relatively small the synthetic business was in the 85%-held Anglo American subsidiary, said Cleaver.
The De Beers strategy, endorsed by the presidents of the four countries in which it has mines, develops a very specific market for clearly flagged synthetic diamonds.Other synthetic diamond producers have advertised their goods as an ethical alternative to mined diamonds and pegged their prices as close as possible to the natural stones, ensuring a large margin.
Analysts have estimated synthetic diamonds could account for between 5% and 8% of the polished diamond market by weight, but less by value.
“While the numbers are not material, growing synthetic output and the marketing of them is seen by the mining industry as a risk to natural stones, particularly if they find their way into the pipeline undisclosed,” said Canaccord analysts Des Kilalea and Tim Huff.
“Lightbox plans to price off production costs rather than off natural diamonds, which is what most producers do. This could, we think, exert margin pressure on some man-made diamond factories which may not be as technically efficient as Element Six,” they said.
De Beers would remove consumer confusion about synthetic diamonds, Cleaver said.
“Our extensive research tells us this is how consumers regard lab-grown diamonds – as a fun, pretty product that shouldn’t cost that much – so we see an opportunity here that’s been missed by lab-grown diamond producers,” he said.
De Beers has developed machines that quickly discern synthetic diamonds from those formed hundreds of millions of years ago at great depth, pressure and heat within the earth.
Diamonds are made by De Beers using its chemical vapour deposition technology in a plasma reactor heated to 3,726°C and bombarded with carbon atoms. A one-carat diamond takes up to four weeks to grow.